Putnam
Master Income
Trust
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
10-31-04
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
During the past several months, Putnam has introduced a number of
reforms for the benefit of shareholders, including increasing the amount
of disclosure for our funds. We are now including additional information
about your fund's management team. Following the Outlook for Your Fund,
we list any changes in your fund's Portfolio Leader and Portfolio
Members during the prior year period, the current Portfolio Leader's and
Portfolio Members' other fund management responsibilities at Putnam, and
the dollar range of fund shares owned by these individuals.
We are also pleased to announce that three new Trustees have joined your
fund's Board of Trustees. Nominated by your fund's independent Trustees,
these individuals have had outstanding careers as leaders in the
investment management industry. Myra R. Drucker is a Vice Chair of the
Board of Trustees of Sarah Lawrence College and serves as Chair of the
New York Stock Exchange (NYSE) Pension Managers Advisory Committee and
as a Trustee of Commonfund, a not-for-profit asset management firm.
Richard B. Worley is Managing Partner of Permit Capital LLC, an
investment management firm. Both Ms. Drucker and Mr. Worley are
independent Trustees (i.e., Trustees who are not "interested persons" of
your fund or its investment advisor). Charles E. Haldeman, Jr., the
third new Trustee, is President and Chief Executive Officer of Putnam
Investments.
During the period covered by the following report, Putnam Master Income
Trust delivered respectable results. In the following pages, the fund
managers discuss fund performance, strategy, and their outlook for
fiscal 2005.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
December 15, 2004
Report from Fund Management
Fund highlights
* During its fiscal year ended October 31, 2004, Putnam Master Income
Trust had total returns of 11.20% at net asset value (NAV) and 7.93% at
market price.
* The fund's primary benchmark, the Lehman Government/Credit Bond Index,
returned 5.57%. The fund's secondary benchmarks, the Citigroup Non-U.S.
World Government Bond Index and the JP Morgan Global High Yield Index,
returned 12.23% and 12.92%, respectively.
* The average return for the fund's Lipper category, Flexible Income
Funds (closed-end), was 11.31%.
* See page 5 for details on two dividend adjustments made during the
fiscal year.
* See the Performance Summary beginning on page 8 for additional fund
performance, comparative performance, and Lipper data.
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TOTAL RETURN FOR
PERIODS ENDED 10/31/04
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Market
(inception 12/28/87) NAV price
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1 year 11.20% 7.93%
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5 years 48.24 53.41
Annual average 8.19 8.94
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10 years 107.75 102.19
Annual average 7.59 7.29
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Annual average
(life of fund) 8.80 7.57
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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. In vestment
return, net asset value, and market price will fluctuate and you may
have a gain or a loss when you sell your shares. Perform ance assumes
reinvestment of distributions and does not account for taxes.
Performance commentary
After an exemplary showing during the first half of the fund's fiscal
year, fixed-income returns fell sharply in the spring of 2004, but
recovered in the final three months of the period. High-yield corporate
bonds and emerging-market bonds had exceptional returns as the period
came to a close, while higher-quality bonds had above-average
performance. The fund's strategy of seeking returns from a variety of
fixed-income sources enabled it to outperform its primary benchmark,
based on results at NAV and market price. Results at NAV were in line
with the average for the fund's Lipper category. It is important to note
that a fund's performance at market price may differ from its results at
NAV. Although market price performance generally reflects investment
results, it may also be influenced by several other factors, including
changes in investor perceptions of the fund or its investment advisor,
market conditions, fluctuations in supply and demand for the fund's
shares, and changes in fund distributions.
FUND PROFILE
Putnam Master Income Trust seeks high current income, consistent with
preservation of capital, by investing in a portfolio that consists of
U.S. investment-grade, corporate high-yield, and international
fixed-income securities. The fund may be appropriate for investors
seeking high current income, asset class diversification, or both.
Market overview
During the first six months of the period, global bond prices generally
rose as yields, though somewhat volatile, generally moved downward.
Bonds rallied in a flight to quality in early 2004, which came as a
result of evidence that the U.S. recovery would not be as strong as
anticipated, and because of geopolitical concerns surrounding the
terrorist bombing in Spain. However, bond prices fell sharply in April
and May on reports of strong job creation, increasing economic strength,
and the Federal Reserve Board's suggestion that it would raise
short-term interest rates. Subsequently, the Fed raised the federal
funds rate, a key short-term interest-rate benchmark, by a quarter of a
point on three occasions -- in June, August, and September. These rate
hikes brought the federal funds rate to 1.75% at the end of the period.
(The Fed raised rates again on November 10 to 2.00%.)
In Europe, low inflation reduced the likelihood of a rate increase by
the European Central Bank, and European government bonds and agency
securities produced solid returns that were further enhanced by the
aforementioned flight to quality. However, although both U.S. Treasuries
and European government bonds performed well, investors continued to
seek out alternative bond sectors that could provide higher levels of
income.
High-yield corporate bonds continued to benefit from declining default
rates, offering an attractive yield advantage over government bonds, and
healthier balance sheets as companies retired or refinanced debt.
Emerging-market bond returns were extremely strong near the end of the
period, with the JP Morgan Global Diversified Emerging Markets Index
returning over 9% in the final three months alone.
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MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 10/31/04
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Bonds
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Lehman Government/Credit Bond Index
(U.S. Treasury and agency securities and corporate bonds) 5.57%
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Lehman Aggregate Bond Index (broad bond market) 5.53%
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Citigroup Non-U.S. World Government Bond Index
(international government bonds) 12.23%
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JP Morgan Global High Yield Index (global high-yield
corporate bonds) 12.92%
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Equities
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S&P 500 Index (broad stock market) 9.42%
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S&P/Citigroup World Ex-U.S. Primary Markets Growth Index
(international growth stocks) 17.38%
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Russell 2000 Index (stocks of small and midsize companies) 11.73%
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These indexes provide an overview of performance in different market
sectors for the 12 months ended 10/31/04.
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Strategy overview
One of the key elements of the fund's strategy throughout the past year has
been to reduce the level of risk in the portfolio. In early 2004, we reduced
the emerging-market weighting significantly and pared down the fund's
allocation to high-yield bonds. We also increased the average credit quality
of the fund's high-yield holdings by selling lower-quality bonds and buying
bonds with higher ratings. (The high-yield sector, which is generally lower in
quality than other sectors such as Treasuries, has several tiers of credit
quality.) In addition, after increasing the fund's allocation to corporate
investment-grade bonds early in the fiscal year, we reduced those holdings
almost entirely by January 2004 after they had made a solid contribution to
performance.
When bond prices declined sharply in April and May 2004, the fund's
lower sensitivity to interest-rate changes was beneficial for relative
returns. During the bond market's subsequent rally in July, August, and
September, however, the fund underperformed its peers to some extent.
However, stronger relative performance during the spring downturn more
than offset the weaker relative gains late in the period.
The fund benefited from its yield curve strategy in the United States.
As the Federal Reserve started to raise interest rates in June, the most
significant market reaction occurred in shorter-dated bonds. These
yields moved significantly higher as the Fed's policy of stable rates
ended. While longer-dated maturities also moved to higher yields, the
changes were more moderate. The fund was positioned in advance for the
yield curve flattening, and benefited significantly over the last six
months.
[GRAPHIC OMITTED: horizontal bar chart TOP SECTOR WEIGHTINGS COMPARED]
TOP SECTOR WEIGHTINGS COMPARED
as of 4/30/04 as of 10/31/04
High yield 45.8% 41.8%
U.S. investment grade 36.5% 39.3%
International 17.7% 18.9%
Footnote reads:
This chart shows how the fund's weightings have changed over the last
six months. Weightings are shown as a percentage of total investment
portfolio. Holdings will vary over time.
How fund holdings affected performance
While the mortgage-backed securities (MBS) sector was subject to
prepayment concerns associated with low mortgage rates, the management
team found two types of securities within this sector that performed
well -- home equity loans and manufactured housing bonds. Home equity
loans, unlike mortgages, are not highly susceptible to prepayments when
interest rates decline, so rate declines can help boost the performance
of securities backed by these loans. Similarly, holdings backed by
manufactured housing companies have benefited from a positive change in
perception about the industry since the beginning of the year as a
result of improving fundamentals and continued low mortgage rates.
Commercial mortgage-backed securities also made a strong contribution to
the fund's returns, performing well in the declining interest-rate
environment.
[GRAPHIC OMITTED: TOP HOLDINGS]
TOP HOLDINGS
(Percent of fund's net assets as of 10/31/04)
High-Yield Sector
1 PSF Group Holdings, Inc. (0.4%)
144A, Class A
2 Conseco Finance Securitizations Corp.
(0.4%)
Series 00-4, Class A6, 8.31%, 2032
3 Qwest Corp. (0.4%)
144A notes, 9.125%, 2012
International Sector
1 Germany (Federal Republic of) (1.2%)
Bonds, Ser. 97, 6%, 2007
2 France (Government of) (1.0%)
Bonds, 4s, 2013
3 Germany (Federal Republic of) (0.9%)
Bonds, Ser. 97, 6%, 2007
U.S. Investment-Grade Sector
1 Federal National Mortgage
Association (10.1%)
Pass-through certificates, 6.25%, TBA,
November 1, 2034
2 U.S. Government Treasury bonds (3.9%)
6.25%, May 15, 2030
3 Federal National Mortgage
Association (3.2%)
Pass-through certificates, 5%, TBA,
November 1, 2019
Footnote reads:
These holdings represent 21.5% of the fund's net assets as of 10/31/04.
The fund's holdings will change over time.
In the high-yield corporate bond portion of the fund, securities issued
by subsidiaries of Edison International were among the strongest
performers. Edison, which owns California's second-largest electric
utility, Southern California Edison, also owns Edison Mission Energy.
This subsidiary owns a portfolio of independent power plants located
around the world. After poor performance in 2002, the company sold
assets and shored up its balance sheet, which drove strong returns for a
number of Edison Mission securities. Another top performer was
diversified chemicals manufacturer Huntsman International, which
benefited from a rebound in chemical prices. The company carries a
significant debt load, but its cash flow has improved as commodity
prices have risen. Finally, Williams Companies experienced significant
capital appreciation as management strengthened the company's balance
sheet by focusing on its core pipeline business, selling nonproductive
assets, and paying down debt.
We sold the fund's high-yield holdings of Trico Marine, an energy
service company that underperformed, and trimmed the fund's position in
Dobson Communications, a wireless communications firm. Dobson has had
poor financial performance, in part because of its reliance on revenues
from AT&T Wireless, which has been struggling. Overall, however, the
fund's high-yield corporate holdings made a significant positive
contribution to its performance.
In emerging markets, the fund's holdings in Ecuador, Venezuela, and
Brazil performed well, with each country allocation producing returns in
excess of 20% for the 12-month period. In addition, the fund benefited
from double-digit returns in Bulgaria and Colombia.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary
in the future.
OF SPECIAL INTEREST
MERGER WITH PUTNAM PREMIER INCOME TRUST PROPOSED
The fund's Trustees have approved the merger of your fund into Putnam Premier
Income Trust. Putnam Premier Income Trust is a closed-end, multi-sector
fixed-income fund whose objectives, strategy, and investments are
substantially similar to those of your fund. The merger may result in lower
expenses for shareholders of each fund due to the larger asset base of the
combined fund. A prospectus/proxy statement containing more information about
the proposed merger is expected to be sent to shareholders of each fund in
December. Completion of the merger is subject to a number of conditions,
including approval by shareholders of each fund at a joint shareholder meeting
to be held on January 13, 2005.
This report is not an offer to sell, nor a solicitation of an offer to buy,
shares of any fund, nor is it a solicitation of a proxy. To receive a free
copy of the prospectus/proxy statement relating to the proposed merger (which
contains important information about fees, expenses, and risk considerations),
please call 1-800-255-1581. The prospectus/proxy statement is also available
without charge on the SEC's Web site (www.sec.gov). Read the prospectus/proxy
statement carefully before making any investment decisions.
DIVIDEND REDUCTION
Approximately 40% of the fund's portfolio is invested in high-yield
securities, and this market has seen significant yield declines over the past
several years. In addition, the fund's overall credit quality was upgraded
from BBB to A, as the fund held more short-term investments, which paid a
lower interest rate. Because the portfolio was strategically positioned for a
rising interest-rate environment, the yield in the fund went down accordingly
as the fund made an effort to provide income while preserving existing
capital. For these reasons, the fund lowered its monthly dividend twice during
the period, from $0.042 to $0.037 in January 2004, and from $0.037 to $0.032
in July 2004.
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.
The fund's returns during the past fiscal year remained significantly
higher than the historical averages for the sectors in which it invests.
Economic conditions, though varying considerably over the past year,
have remained generally favorable for fixed-income investing, with low
inflation and moderate growth. High-yield bonds continued to benefit
from declining default rates and improving balance sheets, while
emerging-market countries, many of which are exporters of energy and
other commodities, have benefited from high commodity prices, especially
the record-high levels in the price of oil. The Fed's well-communicated
policy of a measured tightening of the federal funds rate, a key
short-term interest-rate benchmark, has not disrupted bond prices.
While this positive environment could continue into 2005, we remain
cautious for several reasons. First, we believe the high cost of energy
may act like a tax on both businesses and consumers, reducing the
incentive and the ability for both to continue spending. Second,
geopolitical turmoil -- including the war in Iraq, the ongoing
Israeli-Palestinian conflict, and terrorist threats from Al Qaeda --
remains a wild card, which could disrupt oil supplies and cause prices
to rise even further. And third, since performance has been so strong
for bonds, yields are low, and credit yield spreads (the difference
between lower- and higher-quality bond yields) are tight. We believe it
is unlikely that bond prices will move significantly higher (and yields
lower) than their current levels. We therefore believe it is prudent to
remain vigilant about any possible disruptions to global economies and
fixed-income markets, keeping the fund positioned defensively, while
remaining well diversified in a broad range of fixed-income sectors and
securities.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. International
investing involves certain risks, such as currency fluctuations,
economic instability, and political developments. Additional risks may
be associated with emerging-market securities, including illiquidity and
volatility. 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. Lower-rated bonds may offer higher
yields in return for more risk.
Your fund's management
Your fund is managed by the members of the Putnam Core Fixed-Income
Team. D. William Kohli is the Portfolio Leader, and David Waldman is a
Portfolio Member of your fund. The Portfolio Leader and Portfolio Member
coordinate the team's management of the fund.
For a complete listing of the members of the Putnam Core Fixed-Income
Team, including those who are not Portfolio Leaders or Portfolio Members
of your fund, visit Putnam's Individual Investor Web site at
www.putnaminvestments.com.
Fund ownership
The table below shows fund ownership, in dollar ranges, by the fund's
Portfolio Leader and Portfolio Member. Information shown is for the
current and prior year ended November 30.
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FUND PORTFOLIO LEADER AND PORTFOLIO MEMBER
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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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D. William Kohli 2004 *
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Portfolio Leader 2003 *
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David Waldman 2004 *
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Portfolio Member 2003 *
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Other funds managed by the Portfolio Leader and Portfolio Member
D. William Kohli is also a Portfolio Leader of Putnam Diversified Income
Trust, Putnam Master Intermediate Income Trust, and Putnam Premier
Income Trust. He is also a Portfolio Member of Putnam Global Income
Trust.
David Waldman is also a Portfolio Member of Putnam Diversified Income
Trust, Putnam Master Intermediate Income Trust, and Putnam Premier
Income Trust.
D. William Kohli and David Waldman may also manage other accounts
advised by Putnam Management or an affiliate.
Changes in your fund's Portfolio Leader and Portfolio Member
Your fund's Portfolio Leader and Portfolio Member did not change during
the year ended October 31, 2004.
Performance summary
This section shows your fund's performance during its fiscal year, which
ended October 31, 2004. In accordance with regulatory requirements, we
also include performance for the most current calendar quarter-end.
Performance should always be considered in light of a fund's investment
strategy. Data represents past performance. Past performance does not
guarantee future results. More recent returns may be less or more than
those shown. Investment return, net asset value, and market price will
fluctuate and you may have a gain or a loss when you sell your shares.
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TOTAL RETURN FOR PERIODS ENDED 10/31/04
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NAV Market price
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1 year 11.20% 7.93%
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5 years 48.24 53.41
Annual average 8.19 8.94
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10 years 107.75 102.19
Annual average 7.59 7.29
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Annual average
Life of fund
(since 12/28/87) 8.80 7.57
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Performance assumes reinvestment of distributions
and does not account for taxes.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 10/31/04
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Citigroup Lipper Flexible
Lehman Non-U.S. JP Morgan Income Funds
Government/ World Global (closed-end)
Credit Bond Government High category
Index Bond Index Yield Index* average+
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1 year 5.57% 12.23% 12.92% 11.31%
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5 years 46.09 40.40 44.21 41.59
Annual average 7.88 7.02 7.60 7.04
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10 years 113.16 86.08 121.96 112.93
Annual average 7.86 6.41 8.30 7.72
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Annual average
Life of fund
(since 12/28/87) 8.22 7.18 -- 8.62
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Index and Lipper results should be compared to fund performance at net
asset value.
* The JP Morgan Global High Yield Index's inception date was 12/31/93.
+ Over the 1-, 5-, and 10-year periods ended 10/31/04, there were 10
funds (for each time period) in this Lipper category.
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PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 10/31/04
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Distributions (number) 12
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Income $0.571
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Capital gains --
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Total $0.571
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Share value: NAV Market price
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10/31/03 $7.18 $6.57
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10/31/04 7.33 6.51
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Current return (end of period)
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Current dividend rate 1 5.24% 5.90%
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1 Most recent distribution, excluding capital gains, annualized and
divided by NAV or market price at end of period.
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TOTAL RETURN FOR PERIODS ENDED 9/30/04 (MOST RECENT CALENDER QUARTER)
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NAV Market price
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1 year 10.77% 3.91%
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5 years 46.20 47.64
Annual average 7.89 8.10
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10 years 105.44 106.57
Annual average 7.47 7.52
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Annual average
Life of fund
(since 12/28/87) 8.75 7.49
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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 value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares.
Market price is the current trading price of one share of the fund.
Market prices are set by transactions between buyers and sellers on
exchanges such as the American Stock Exchange and the New York Stock
Exchange.
Comparative indexes
Citigroup Non-U.S. World Govern ment Bond Index is an unmanaged index of
government bonds from 10 countries.
JP Morgan Global High Yield Index is an unmanaged index used to mirror
the investable universe of the U.S. dollar global high-yield corporate
debt market of both developed and emerging markets.
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed-income securities.
Lehman Government/Credit Bond Index is an unmanaged index of U.S.
Treasury and agency securities and corporate bonds.
Russell 2000 Index is an unmanaged index of common stocks that generally
measure performance of small to midsize companies within the Russell
3000 Index.
S&P/Citigroup World Ex-U.S. Primary Markets Growth Index is an unmanaged
index of mostly large- and some small-capitalization stocks from
developed countries excluding the United States chosen for their growth
orientation.
S&P 500 Index is an unmanaged index of common stock performance.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain
certain personal information such as account holders' addresses,
telephone numbers, Social Security numbers, and the names of their
financial advisors. We use this information to assign an account number
and to help us maintain accurate records of transactions and account
balances.
It is our policy to protect the confidentiality of your information, whether
or not you currently own shares of our funds, and in particular, not to sell
information about you or your accounts to outside marketing firms. We have
safeguards in place designed to prevent unauthorized access to our computer
systems and procedures to protect personal information from unauthorized use.
Under certain circumstances, we share this information with outside vendors
who provide services to us, such as mailing and proxy solicitation. In those
cases, the service providers enter into confidentiality agreements with us,
and we provide only the information necessary to process transactions and
perform other services related to your account. We may also share this
information with our Putnam affiliates to service your account or provide you
with information about other Putnam products or services. It is also our
policy to share account information with your financial advisor, if you've
listed one on your Putnam account.
If you would like clarification about our confidentiality policies or
have any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or
Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
Proxy voting
Putnam is committed to managing our mutual funds in the best interests of our
shareholders. The Putnam funds' proxy voting guidelines and procedures, as
well as information regarding how your fund voted proxies relating to
portfolio securities during the 12-month period ended June 30, 2004, are
available on the Putnam Individual Investor Web site,
www.putnaminvestments.com/individual, and on the SEC's Web site, www.sec.gov.
If you have questions about finding forms on the SEC's Web site, you may call
the SEC at 1-800-SEC-0330. You may also obtain the Putnam funds' proxy voting
guidelines and procedures at no charge by calling Putnam's Shareholder
Services at 1-800-225-1581.
Fund portfolio holdings
For periods ending on or after July 9, 2004, the fund will file a complete
schedule of its portfolio holdings with the SEC for the first and third
quarters of each fiscal year on Form N-Q. Shareholders may obtain the fund's
Forms N-Q on the SEC's Web site at www.sec.gov. In addition, the fund's Forms
N-Q may be reviewed and copied at the SEC's public reference room in
Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about
the SEC's Web site or the operation of the public reference room.
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders Putnam Master Income Trust:
We have audited the accompanying statement of assets and liabilities of Putnam
Master Income Trust, including the fund's portfolio, as of October 31, 2004,
and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform our audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of October 31, 2004,
by correspondence with the custodian and brokers or by other appropriate
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Putnam Master Income Trust as of October 31, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the five years in the period then ended in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
Boston, Massachusetts
December 8, 2004
The fund's portfolio
October 31, 2004
Corporate bonds and notes (38.0%) (a)
Principal amount Value
Basic Materials (4.2%)
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$325,000 Acetex Corp. sr. notes 10 7/8s, 2009
(Canada) $355,875
280,000 AK Steel Corp. company guaranty
7 7/8s, 2009 284,200
345,000 AK Steel Corp. company guaranty
7 3/4s, 2012 349,313
17,000 Avecia Group PLC company guaranty
11s, 2009 (United Kingdom) 15,980
395,000 BCP Caylux Holdings Luxembourg SCA
144A sr. sub. notes 9 5/8s, 2014
(Luxembourg) 442,400
300,000 Boise Cascade, LLC 144A sr. sub.
notes 7 1/8s, 2014 313,142
156,000 Century Aluminum Co. 144A company
guaranty 7 1/2s, 2014 165,360
265,000 Codelco, Inc. 144A sr. notes 4 3/4s,
2014 (Chile) 260,889
390,000 Compass Minerals Group, Inc. company
guaranty 10s, 2011 437,775
155,000 Compass Minerals International, Inc.
sr. disc. notes stepped-coupon zero %
(12s, 6/1/08), 2013 (STP) 122,450
420,000 Compass Minerals International, Inc.
sr. notes stepped-coupon zero %
(12 3/4s, 12/15/07), 2012 (STP) 352,800
283,000 Crystal US Holdings, LLC/US Sub 3
Corp. 144A sr. disc. notes
stepped-coupon zero % (10s,
10/1/09), 2014 (STP) 178,998
415,000 Dow Chemical Co. (The) notes 5 3/4s,
2009 447,083
115,000 Equistar Chemicals LP notes 8 3/4s,
2009 126,500
910,000 Equistar Chemicals LP/Equistar
Funding Corp. company guaranty
10 1/8s, 2008 1,041,950
240,000 Georgia-Pacific Corp. bonds 7 3/4s,
2029 265,200
500,000 Georgia-Pacific Corp. debs. 7.7s,
2015 576,250
45,000 Georgia-Pacific Corp. sr. notes 8s,
2024 52,088
365,000 Gerdau Ameristeel Corp. sr. notes
10 3/8s, 2011 (Canada) 421,575
550,000 Hercules, Inc. company guaranty
11 1/8s, 2007 665,500
105,000 Huntsman Advanced Materials, LLC
144A sec. FRN 11.86s, 2008 112,350
125,000 Huntsman Advanced Materials, LLC
144A sec. notes 11s, 2010 144,375
426,000 Huntsman Co., LLC sr. disc. notes
zero %, 2008 272,640
278,000 Huntsman ICI Chemicals, Inc. company
guaranty 10 1/8s, 2009 292,248
845,000 Huntsman ICI Holdings sr. disc.
notes zero %, 2009 458,413
EUR 212,000 Huntsman International, LLC sr. sub.
notes Ser. EXCH, 10 1/8s, 2009 283,125
$215,000 Huntsman, LLC company guaranty
11 5/8s, 2010 253,431
160,000 Huntsman, LLC 144A company guaranty
11 1/2s, 2012 180,000
126,000 Innophos, Inc. 144A sr. sub. notes
8 7/8s, 2014 135,765
70,000 International Steel Group, Inc. sr.
notes 6 1/2s, 2014 74,900
765,000 ISP Chemco, Inc. company guaranty
Ser. B, 10 1/4s, 2011 851,063
20,000 Jefferson Smurfit Corp. company
guaranty 7 1/2s, 2013 21,800
105,000 Jefferson Smurfit Corp. company
guaranty company guaranty 8 1/4s,
2012 116,550
30,000 Kaiser Aluminum & Chemical Corp. sr.
notes Ser. B, 10 7/8s, 2006 (In
default) (NON) 28,050
40,000 Lyondell Chemical Co. bonds 11 1/8s,
2012 47,150
400,000 Lyondell Chemical Co. company
guaranty 9 1/2s, 2008 436,000
320,000 Lyondell Chemical Co. notes Ser. A,
9 5/8s, 2007 351,200
45,000 MDP Acquisitions PLC sr. notes
9 5/8s, 2012 (Ireland) 51,300
EUR 235,000 MDP Acquisitions PLC sr. notes
Ser. EUR, 10 1/8s, 2012 (Ireland) 337,902
$203,230 MDP Acquisitions PLC sub. notes
15 1/2s, 2013 (Ireland) (PIK) 236,763
740,000 Millennium America, Inc. company
guaranty 9 1/4s, 2008 825,100
EUR 40,000 Nalco Co. sr. notes 7 3/4s, 2011 54,590
EUR 40,000 Nalco Co. sr. sub. notes 9s, 2013 53,954
$565,000 Nalco Co. sr. sub. notes 8 7/8s,
2013 619,381
305,000 Norske Skog Canada, Ltd. sr. notes
7 3/8s, 2014 (Canada) 317,200
233,383 PCI Chemicals Canada sec. sr. notes
10s, 2008 (Canada) 240,384
73,902 Pioneer Companies, Inc. sec. FRN
5.475s, 2006 74,272
70,000 Resolution Performance Products, LLC
sr. notes 9 1/2s, 2010 72,975
EUR 235,000 SGL Carbon SA 144A sr. notes 8 1/2s,
2012 (Luxembourg) 318,026
$370,000 Steel Dynamics, Inc. company
guaranty 9 1/2s, 2009 408,850
81,826 Sterling Chemicals, Inc. sec. notes
10s, 2007 (PIK) 80,189
305,000 Stone Container Corp. sr. notes
9 3/4s, 2011 342,363
120,000 Stone Container Corp. sr. notes
8 3/8s, 2012 132,600
80,000 Stone Container Finance 144A company
guaranty 7 3/8s, 2014 (Canada) 85,400
475,000 Ucar Finance, Inc. company guaranty
10 1/4s, 2012 541,500
215,000 United Agri Products 144A sr. notes
8 1/4s, 2011 232,200
274,000 United States Steel Corp. sr. notes
9 3/4s, 2010 313,730
22,805 Wheeling-Pittsburgh Steel Corp. sr.
notes 6s, 2010 16,648
44,328 Wheeling-Pittsburgh Steel Corp. sr.
notes 5s, 2011 32,359
105,000 WHX Corp. sr. notes 10 1/2s, 2005 97,650
--------------
16,419,724
Capital Goods (3.0%)
-------------------------------------------------------------------------------
280,000 AEP Industries, Inc. sr. sub. notes
9 7/8s, 2007 285,250
520,612 Air2 US 144A sinking fund Ser. D,
12.266s, 2020 (In default) (NON) 5
645,000 Allied Waste North America, Inc.
company guaranty Ser. B, 8 1/2s,
2008 677,250
93,000 Allied Waste North America, Inc.
sec. notes 6 1/2s, 2010 89,513
169,000 Amsted Industries, Inc. 144A sr.
notes 10 1/4s, 2011 185,900
295,000 Argo-Tech Corp. 144A sr. notes
9 1/4s, 2011 321,550
335,000 BE Aerospace, Inc. sr. sub. notes
9 1/2s, 2008 345,609
245,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8s, 2008 247,450
70,000 Berry Plastics Corp. company
guaranty 10 3/4s, 2012 80,500
252,000 Blount, Inc. sr. sub. notes 8 7/8s,
2012 274,365
350,000 Browning-Ferris Industries, Inc.
debs. 7.4s, 2035 301,000
398,000 Browning-Ferris Industries, Inc. sr.
notes 6 3/8s, 2008 393,025
EUR 58,000 Crown Euro Holdings SA 144A notes
6 1/4s, 2011 (France) 75,024
EUR 45,000 Crown Holdings SA bonds 10 1/4s,
2011 (France) 65,248
$475,000 Crown Holdings SA notes 10 7/8s,
2013 (France) 564,063
152,000 Crown Holdings SA notes 9 1/2s, 2011
(France) 173,280
991,000 Decrane Aircraft Holdings Co.
company guaranty zero %, 2008 376,580
380,000 Earle M. Jorgensen Co. sec. notes
9 3/4s, 2012 420,850
333,000 FIMEP SA sr. notes 10 1/2s, 2013
(France) 389,610
EUR 195,000 Flender Holdings 144A sr. notes 11s,
2010 (Germany) 292,540
297,000 Flowserve Corp. company guaranty
12 1/4s, 2010 333,383
365,000 Hexcel Corp. sr. sub. notes 9 3/4s,
2009 383,250
505,000 Invensys, PLC notes 9 7/8s, 2011
(United Kingdom) 527,725
275,000 K&F Industries, Inc. sr. sub. notes
Ser. B, 9 5/8s, 2010 319,000
120,000 L-3 Communications Corp. company
guaranty 7 5/8s, 2012 132,600
220,000 L-3 Communications Corp. company
guaranty 6 1/8s, 2013 228,250
385,000 Legrand SA debs. 8 1/2s, 2025
(France) 441,788
40,000 Manitowoc Co., Inc. (The) company
guaranty 10 1/2s, 2012 46,150
EUR 95,000 Manitowoc Co., Inc. (The) company
guaranty 10 3/8s, 2011 134,726
$120,000 Manitowoc Co., Inc. (The) sr. notes
7 1/8s, 2013 128,700
115,000 Mueller Group, Inc. sec. FRN 6.444,
2011 118,450
140,000 Mueller Group, Inc. sr. sub. notes
10s, 2012 151,200
300,000 Owens-Brockway Glass company
guaranty 8 1/4s, 2013 330,000
280,000 Owens-Brockway Glass company
guaranty 7 3/4s, 2011 304,500
565,000 Owens-Brockway Glass sr. sec. notes
8 3/4s, 2012 637,038
275,000 Pliant Corp. sec. notes 11 1/8s,
2009 295,625
139,000 Ploypore, Inc. 144A sr. sub. notes
8 3/4s, 2012 145,255
630,000 Sequa Corp. sr. notes 9s, 2009 702,450
125,000 Siebe PLC 144A sr. unsub. 6 1/2s,
2010 (United Kingdom) 115,938
107,000 Solo Cup Co. sr. sub. notes 8 1/2s,
2014 105,128
57,000 Tekni-Plex, Inc. company guaranty
Ser. B, 12 3/4s, 2010 43,035
245,000 Tekni-Plex, Inc. 144A sr. sec. notes
8 3/4s, 2013 233,669
100,000 Terex Corp. company guaranty 9 1/4s,
2011 112,000
380,000 Terex Corp. company guaranty Ser. B,
10 3/8s, 2011 429,400
--------------
11,957,872
Communication Services (3.1%)
-------------------------------------------------------------------------------
173,000 Alamosa Delaware, Inc. company
guaranty 11s, 2010 200,680
145,000 Alamosa Delaware, Inc. company
guaranty stepped-coupon zero %
(12s, 7/31/05), 2009 (STP) 154,425
170,000 Alamosa Delaware, Inc. sr. notes
8 1/2s, 2012 180,200
105,000 American Cellular Corp. company
guaranty 9 1/2s, 2009 87,675
195,000 American Tower Corp. sr. notes
7 1/2s, 2012 203,775
405,000 American Towers, Inc. company
guaranty 7 1/4s, 2011 430,313
300,000 Asia Global Crossing, Ltd. sr. notes
13 3/8s, 2010 (Bermuda) (In default)
(NON) 24,000
475,000 Centennial Cellular Operating Co.
company guaranty 10 1/8s, 2013 515,375
80,000 Cincinnati Bell Telephone Co.
company guaranty 6.3s, 2028 70,000
23,000 Cincinnati Bell, Inc. company
guaranty 7 1/4s, 2013 23,058
440,000 Cincinnati Bell, Inc. sr. sub. notes
8 3/8s, 2014 420,200
215,000 Cincinnati Bell, Inc. sr. sub. notes
7 1/4s, 2023 197,800
566,000 Citizens Communications Co. notes
9 1/4s, 2011 650,900
191,573 Colo.com, Inc. 144A sr. notes
13 7/8s, 2010 (In default) (NON) 19
410,000 Crown Castle International Corp. sr.
notes 9 3/8s, 2011 465,350
140,000 Eircom Funding notes 8 1/4s, 2013
(Ireland) 155,750
210,000 Fairpoint Communications, Inc. sr.
sub. notes 12 1/2s, 2010 224,700
186,311 Firstworld Communication Corp. sr.
disc. notes zero %, 2008 (In
default) (NON) 19
117,944 Globix Corp. company guaranty 11s,
2008 (PIK) 107,329
455,000 Inmarsat Finance PLC company
guaranty 7 5/8s, 2012 (United
Kingdom) 459,550
160,000 iPCS, Inc. 144A sr. notes 11 1/2s,
2012 174,400
300,000 Level 3 Financing, Inc. 144A sr.
notes 10 3/4s, 2011 258,000
390,000 Madison River Capital Corp. sr.
notes 13 1/4s, 2010 415,350
557,000 MCI, Inc. sr. notes 7.735s, 2014 536,809
137,000 MCI, Inc. sr. notes 6.688s, 2009 135,116
3,000 MCI, Inc. sr. notes 5.908s, 2007 2,993
795,000 Nextel Communications, Inc. sr.
notes 7 3/8s, 2015 882,450
840,000 Nextel Communications, Inc. sr.
notes 5.95s, 2014 858,900
20,000 Nextel Partners, Inc. sr. notes
12 1/2s, 2009 23,050
675,000 Nextel Partners, Inc. sr. notes
8 1/8s, 2011 739,125
264,000 Qwest Communications International,
Inc. 144A sr. notes 7 1/2s, 2014 254,760
1,300,000 Qwest Corp. 144A notes 9 1/8s, 2012 1,465,750
195,000 Qwest Services Corp. 144A notes
14 1/2s, 2014 241,800
95,000 Rogers Cantel, Ltd. debs. 9 3/4s,
2016 (Canada) 109,250
145,000 Rogers Wireless, Inc. sec. notes
9 5/8s, 2011 (Canada) 165,300
170,000 Rural Cellular Corp. sr. sub. notes
9 3/4s, 2010 146,200
175,000 SBA Telecommunications Inc./SBA
Communication Corp. sr. disc. notes
stepped-coupon zero % (9 3/4s,
12/15/07), 2011 (STP) 147,438
365,000 TSI Telecommunication Services, Inc.
company guaranty Ser. B, 12 3/4s,
2009 408,800
195,000 UbiquiTel Operating Co. sr. notes
9 7/8s, 2011 211,088
128,000 UbiquiTel Operating Co. 144A sr.
notes 9 7/8s, 2011 138,560
290,000 Western Wireless Corp. sr. notes
9 1/4s, 2013 308,850
--------------
12,195,107
Consumer Cyclicals (8.6%)
-------------------------------------------------------------------------------
121,000 Advertising Direct 144A sr. notes
9 1/4s, 2012 (Canada) 126,294
155,000 Ameristar Casinos, Inc. company
guaranty 10 3/4s, 2009 176,700
350,000 Argosy Gaming Co. sr. sub. notes 7s,
2014 372,750
240,000 Asbury Automotive Group, Inc. sr.
sub. notes 8s, 2014 234,000
475,000 Autonation, Inc. company guaranty
9s, 2008 546,250
80,000 Beazer Homes USA, Inc. company
guaranty 8 3/8s, 2012 88,200
315,000 Boyd Gaming Corp. sr. sub. notes
8 3/4s, 2012 354,375
85,000 Boyd Gaming Corp. sr. sub. notes
7 3/4s, 2012 93,713
75,000 Boyd Gaming Corp. sr. sub. notes
6 3/4s, 2014 78,656
180,000 Building Materials Corp. company
guaranty 8s, 2008 184,050
190,000 Chumash Casino & Resort Enterprise
144A sr. notes 9s, 2010 212,800
650,000 Coinmach Corp. sr. notes 9s, 2010 672,750
420,000 Collins & Aikman Products company
guaranty 10 3/4s, 2011 420,000
55,000 D.R. Horton, Inc. company guaranty
8s, 2009 62,013
350,000 D.R. Horton, Inc. sr. notes 7 7/8s,
2011 399,000
80,000 D.R. Horton, Inc. sr. notes 6 7/8s,
2013 86,200
220,000 D.R. Horton, Inc. sr. notes 5 7/8s,
2013 220,550
90,000 Dana Corp. notes 10 1/8s, 2010 101,475
300,000 Dana Corp. notes 9s, 2011 356,250
50,000 Dana Corp. notes 7s, 2029 49,000
155,000 Dana Corp. notes 6 1/2s, 2009 163,138
305,000 Dayton Superior Corp. sec. notes
10 3/4s, 2008 324,825
85,000 Delco Remy International, Inc.
company guaranty 11s, 2009 89,250
285,000 Delco Remy International, Inc. sr.
sub. notes 9 3/8s, 2012 282,863
240,472 Derby Cycle Corp. (The) sr. notes
10s, 2008 (In default) (NON) 24
DEM 688,142 Derby Cycle Corp. (The) sr. notes
9 3/8s, 2008 (In default) (NON) 45
$600,000 Dex Media West, LLC/Dex Media
Finance Co. sr. notes Ser. B,
8 1/2s, 2010 684,000
275,000 Dex Media, Inc. disc. notes zero %,
2013 209,000
310,000 Dex Media, Inc. notes 8s, 2013 331,700
100,000 Dura Operating Corp. company
guaranty Ser. B, 8 5/8s, 2012 103,125
19,000 FelCor Lodging LP company guaranty
10s, 2008 (R) 19,950
121,000 FelCor Lodging LP company guaranty
9s, 2008 (R) 136,125
260,000 Finlay Fine Jewelry Corp. sr. notes
8 3/8s, 2012 284,050
375,000 Gaylord Entertainment Co. sr. notes
8s, 2013 404,063
770,000 Goodyear Tire & Rubber Co. (The)
notes 7.857s, 2011 729,575
110,000 Goodyear Tire & Rubber Co. (The)
notes 6 3/8s, 2008 106,700
153,000 HMH Properties, Inc. company
guaranty Ser. B, 7 7/8s, 2008 (R) 157,208
753,572 Hollinger Participation Trust 144A
sr. notes 12 1/8s, 2010 (Canada)
(PIK) 949,501
530,000 Hollywood Park, Inc. company
guaranty Ser. B, 9 1/4s, 2007 547,225
151,000 Host Marriott LP sr. notes Ser. E,
8 3/8s, 2006 (R) 159,305
410,000 Host Marriott LP 144A sr. notes 7s,
2012 R 442,800
180,000 Houghton Mifflin Co. sr. sub. notes
9 7/8s, 2013 195,300
454,000 Icon Health & Fitness company
guaranty 11 1/4s, 2012 376,820
345,000 IESI Corp. company guaranty 10 1/4s,
2012 372,600
150,000 Inn of the Mountain Gods sr. notes
12s, 2010 174,000
275,000 ITT Corp. debs. 7 3/8s, 2015 310,750
320,000 ITT Corp. notes 6 3/4s, 2005 329,600
515,000 JC Penney Co., Inc. debs. 7.95s,
2017 596,113
95,000 JC Penney Co., Inc. debs. 7.65s,
2016 107,825
235,000 JC Penney Co., Inc. debs. 7 1/8s,
2023 250,863
15,000 JC Penney Co., Inc. notes 8s, 2010 17,175
841,000 John Q. Hammons Hotels LP/John Q.
Hammons Hotels Finance Corp. III
1st mtge. Ser. B, 8 7/8s, 2012 967,150
283,000 Jostens Holding Corp. sr. disc.
notes stepped-coupon zero %
(10 1/4s, 12/1/08), 2013 (STP) 199,515
617,000 Jostens IH Corp. 144A company
guaranty 7 5/8s, 2012 638,595
75,000 K. Hovnanian Enterprises, Inc.
company guaranty 10 1/2s, 2007 86,625
310,000 K. Hovnanian Enterprises, Inc.
company guaranty 8 7/8s, 2012 345,650
205,000 K. Hovnanian Enterprises, Inc.
company guaranty 6 3/8s, 2014 207,563
160,000 K. Hovnanian Enterprises, Inc. sr.
notes 6 1/2s, 2014 164,000
190,000 K2, Inc. 144A sr. notes 7 3/8s, 2014 207,100
720,000 Laidlaw International, Inc. sr.
notes 10 3/4s, 2011 828,000
305,000 Lamar Media Corp. company guaranty
7 1/4s, 2013 330,925
541,000 Levi Strauss & Co. sr. notes
12 1/4s, 2012 558,583
235,000 Mandalay Resort Group sr. notes
6 3/8s, 2011 244,694
380,000 MeriStar Hospital Corp. company
guaranty 9 1/8s, 2011 (R) 404,700
205,000 MeriStar Hospital Corp. company
guaranty 9s, 2008 (R) 215,250
160,000 Meritage Corp. company guaranty
9 3/4s, 2011 178,400
85,000 Meritage Corp. sr. notes 7s, 2014 87,231
215,000 Meritor Automotive, Inc. notes 6.8s,
2009 219,300
240,000 Metaldyne Corp. 144A sr. notes 10s,
2013 229,200
425,000 MGM Mirage, Inc. company guaranty
8 1/2s, 2010 488,750
260,000 MGM Mirage, Inc. company guaranty
6s, 2009 269,100
96,000 Mirage Resorts, Inc. debs. 7 1/4s,
2017 99,840
231,000 Mohegan Tribal Gaming Authority sr.
sub. notes 6 3/8s, 2009 241,973
115,000 Owens Corning bonds 7 1/2s, 2018 (In
default) (NON) 56,350
460,000 Owens Corning notes 7 1/2s, 2005 (In
default) (NON) 225,400
245,000 Oxford Industries, Inc. sr. notes
8 7/8s, 2011 264,600
490,000 Park Place Entertainment Corp. sr.
notes 7 1/2s, 2009 554,925
265,000 Park Place Entertainment Corp. sr.
notes 7s, 2013 297,794
200,000 Park Place Entertainment Corp. sr.
sub. notes 8 7/8s, 2008 230,250
500,000 Penn National Gaming, Inc. sr. sub.
notes 8 7/8s, 2010 551,250
120,000 Phillips-Van Heusen Corp. sr. notes
7 1/4s, 2011 125,700
300,000 Pinnacle Entertainment, Inc. sr.
sub. notes 8 3/4s, 2013 318,750
135,000 Pinnacle Entertainment, Inc. sr.
sub. notes 8 1/4s, 2012 139,388
590,000 PRIMEDIA, Inc. company guaranty
8 7/8s, 2011 615,075
435,000 PRIMEDIA, Inc. 144A sr. notes 8s,
2013 436,088
195,000 Reader's Digest Association, Inc.
(The) sr. notes 6 1/2s, 2011 202,313
375,000 Resorts International Hotel and
Casino, Inc. company guaranty
11 1/2s, 2009 432,188
70,000 RH Donnelley Finance Corp. I company
guaranty 8 7/8s, 2010 79,450
500,000 RH Donnelley Finance Corp. I 144A
sr. notes 8 7/8s, 2010 567,500
250,000 RH Donnelley Finance Corp. I 144A
sr. sub. notes 10 7/8s, 2012 305,625
360,000 Russell Corp. company guaranty
9 1/4s, 2010 387,000
597,000 Saks, Inc. company guaranty 7s, 2013 605,955
640,000 Samsonite Corp. sr. sub. notes
8 7/8s, 2011 681,600
210,000 Schuler Homes, Inc. company guaranty
10 1/2s, 2011 241,500
585,000 Sealy Mattress Co. sr. sub. notes
8 1/4s, 2014 618,638
225,000 Standard Pacific Corp. sr. notes
7 3/4s, 2013 245,250
25,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 7/8s, 2012 29,313
210,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 3/8s, 2007 226,013
245,000 Station Casinos, Inc. sr. notes 6s,
2012 256,025
275,000 Station Casinos, Inc. sr. sub. notes
6 7/8s, 2016 292,188
180,000 Technical Olympic USA, Inc. company
guaranty 10 3/8s, 2012 202,500
120,000 Technical Olympic USA, Inc. company
guaranty 9s, 2010 130,800
EUR 80,000 Teksid Aluminum 144A company
guaranty 11 3/8s, 2011 (Luxembourg) 89,287
$410,000 Tenneco Automotive, Inc. sec. notes
Ser. B, 10 1/4s, 2013 477,650
281,000 THL Buildco, Inc. (Nortek, Inc.)
144A sr. sub. notes 8 1/2s, 2014 297,860
655,000 Trump Atlantic City Associates
company guaranty 11 1/4s, 2006 574,763
270,000 United Auto Group, Inc. company
guaranty 9 5/8s, 2012 300,375
470,000 Vertis, Inc. company guaranty
Ser. B, 10 7/8s, 2009 512,300
390,000 Vertis, Inc. 144A sub. notes
13 1/2s, 2009 405,600
435,000 WCI Communities, Inc. company
guaranty 9 1/8s, 2012 483,938
214,000 William Carter Holdings Co. (The)
company guaranty Ser. B, 10 7/8s,
2011 245,030
295,000 WRC Media Corp. sr. sub. notes
12 3/4s, 2009 277,669
36,000 Yell Finance BV sr. notes 10 3/4s,
2011 (Netherlands) 41,346
--------------
33,927,934
Consumer Staples (5.0%)
-------------------------------------------------------------------------------
50,000 Adelphia Communications Corp. notes
Ser. B, 9 7/8s, 2005 (In default)
(NON) 42,750
250,000 Adelphia Communications Corp. sr.
notes 10 7/8s, 2010 (In default)
(NON) 218,125
30,000 Adelphia Communications Corp. sr.
notes 9 3/8s, 2009 (In default)
(NON) 26,250
110,000 Adelphia Communications Corp. sr.
notes Ser. B, 9 7/8s, 2007 (In
default) (NON) 94,050
405,000 Adelphia Communications Corp. sr.
notes Ser. B, 7 3/4s, 2009 (In
default) (NON) 339,188
290,000 Affinity Group, Inc. sr. sub. notes
9s, 2012 310,300
350,000 AMC Entertainment, Inc. sr. sub.
notes 9 7/8s, 2012 374,500
295,000 AMC Entertainment, Inc. 144A sr.
sub. notes 8s, 2014 283,200
104,050 Archibald Candy Corp. company
guaranty 10s, 2007 (In default)
(NON) (PIK) 41,620
350,000 Armkel, LLC/Armkel Finance sr. sub.
notes 9 1/2s, 2009 381,063
140,000 ASG Consolidated LLC/ASG Finance,
Inc. 144A sr. disc. notes
stepped-coupon zero % (11 1/2s,
11/1/08), 2011 89,250
300,000 Brand Services, Inc. company
guaranty 12s, 2012 336,000
265,000 Capital Records, Inc. 144A company
guaranty 8 3/8s, 2009 295,475
225,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (12 1/8s,
1/15/07), 2012 (STP) 132,188
285,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (11 3/4s,
5/15/06), 2011 (STP) 183,825
300,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
11 1/8s, 2011 250,500
440,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 3/4s, 2009 371,800
225,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 1/4s, 2010 184,500
955,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 10s,
2011 764,000
50,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 8 5/8s,
2009 40,250
350,000 Cinemark USA, Inc. sr. sub. notes
9s, 2013 395,500
530,000 Cinemark, Inc. sr. disc. notes
stepped-coupon zero % (9 3/4s,
3/15/09), 2014 (STP) 374,975
210,000 Constellation Brands, Inc. sr. sub.
notes Ser. B, 8 1/8s, 2012 229,950
230,000 CSC Holdings, Inc. debs. 7 5/8s,
2018 244,663
202,000 CSC Holdings, Inc. sr. notes Ser. B,
7 5/8s, 2011 219,675
548,000 CSC Holdings, Inc. 144A sr. notes
6 3/4s, 2012 567,180
347,000 Dean Foods Co. sr. notes 6 5/8s,
2009 365,218
120,000 Del Monte Corp. company guaranty
Ser. B, 9 1/4s, 2011 132,600
305,000 Del Monte Corp. sr. sub. notes
8 5/8s, 2012 343,888
1,162,000 Diva Systems Corp. sr. disc. notes
Ser. B, 12 5/8s, 2008 (In default)
(NON) 5,084
430,000 Doane Pet Care Co. sr. sub. debs.
9 3/4s, 2007 427,850
145,000 Dole Food Co. sr. notes 8 7/8s, 2011 160,588
105,000 Dole Food Co. sr. notes 8 5/8s, 2009 116,288
266,000 Domino's, Inc. sr. sub. notes
8 1/4s, 2011 291,270
400,000 Echostar DBS Corp. sr. notes 6 3/8s,
2011 414,500
383,000 Echostar DBS Corp. 144A company
guaranty 6 5/8s, 2014 388,745
174,000 Elizabeth Arden, Inc. company
guaranty 7 3/4s, 2014 185,528
718,000 Granite Broadcasting Corp. sec.
notes 9 3/4s, 2010 662,355
195,000 Jean Coutu Group, Inc. 144A sr.
notes 7 5/8s, 2012 (Canada) 206,213
385,000 Jean Coutu Group, Inc. 144A sr. sub.
notes 8 1/2s, 2014 (Canada) 392,700
480,000 Kabel Deutsheland GmbH 144A sr.
notes 10 5/8s, 2014 (Germany) 537,600
20,707 Knology, Inc. 144A sr. notes 12s,
2009 (PIK) 19,879
105,000 Land O'Lakes, Inc. sr. notes 8 3/4s,
2011 97,388
490,000 News America Holdings, Inc. company
guaranty 9 1/4s, 2013 634,111
195,000 North Atlantic Trading Co. sr. notes
9 1/4s, 2012 189,150
453,000 Pinnacle Foods Holding Corp. 144A
sr. sub. notes 8 1/4s, 2013 428,085
78,000 Pinnacle Foods Holding Corp. 144A
sr. sub. notes 8 1/4s, 2013 73,710
445,000 Playtex Products, Inc. company
guaranty 9 3/8s, 2011 468,363
415,000 Playtex Products, Inc. sec. notes
8s, 2011 453,388
405,000 Prestige Brands, Inc. 144A sr. sub.
notes 9 1/4s, 2012 409,050
10,000 Quebecor Media, Inc. sr. disc. notes
stepped-coupon zero % (13 3/4s,
7/15/06), 2011 (Canada) (STP) 9,700
305,000 Quebecor Media, Inc. sr. notes
11 1/8s, 2011 (Canada) 353,038
391,000 Rainbow National Services, LLC 144A
sr. notes 8 3/4s, 2012 418,370
405,000 Remington Arms Co., Inc. company
guaranty 10 1/2s, 2011 358,425
305,000 Rite Aid Corp. company guaranty
9 1/2s, 2011 337,788
20,000 Rite Aid Corp. debs. 6 7/8s, 2013 17,900
40,000 Rite Aid Corp. notes 7 1/8s, 2007 40,400
205,000 Rite Aid Corp. sec. notes 8 1/8s,
2010 218,838
270,000 Rite Aid Corp. sr. notes 9 1/4s,
2013 281,475
20,000 Rite Aid Corp. 144A notes 6s, 2005 20,200
470,000 Sbarro, Inc. company guaranty 11s,
2009 445,913
140,000 Scotts Co. (The) sr. sub. notes
6 5/8s, 2013 147,700
527,000 Six Flags, Inc. sr. notes 9 5/8s,
2014 503,285
397,000 Six Flags, Inc. sr. notes 8 7/8s,
2010 383,105
202,000 United Rentals (North America), Inc.
company guaranty 6 1/2s, 2012 199,980
155,000 Videotron Ltee company guaranty
6 7/8s, 2014 (Canada) 162,750
540,000 Vivendi Universal SA sr. notes
6 1/4s, 2008 (France) 587,250
390,000 Williams Scotsman, Inc. company
guaranty 9 7/8s, 2007 374,400
404,000 Young Broadcasting, Inc. company
guaranty 10s, 2011 424,200
200,000 Young Broadcasting, Inc. sr. sub.
notes 8 3/4s, 2014 194,000
--------------
19,673,045
Energy (4.0%)
-------------------------------------------------------------------------------
540,000 Arch Western Finance, LLC sr. notes
6 3/4s, 2013 573,750
185,000 Arch Western Finance, LLC 144A sr.
notes 6 3/4s, 2013 196,563
115,000 Belden & Blake Corp. 144A sec. notes
8 3/4s, 2012 124,200
263,000 Bluewater Finance, Ltd. company
guaranty 10 1/4s, 2012 (Cayman
Islands) 290,615
350,000 BRL Universal Equipment sec. notes
8 7/8s, 2008 369,250
300,000 CHC Helicopter Corp. sr. sub. notes
7 3/8s, 2014 (Canada) 319,500
180,000 Chesapeake Energy Corp. company
guaranty 9s, 2012 207,225
142,000 Chesapeake Energy Corp. company
guaranty 7 3/4s, 2015 157,620
626,000 Chesapeake Energy Corp. sr. notes
7 1/2s, 2013 697,990
157,000 Chesapeake Energy Corp. sr. notes
7s, 2014 170,345
275,000 Comstock Resources, Inc. sr. notes
6 7/8s, 2012 284,625
380,000 Dresser, Inc. company guaranty
9 3/8s, 2011 423,700
295,000 Encore Acquisition Co. company
guaranty 8 3/8s, 2012 327,450
140,000 Encore Acquisition Co. sr. sub.
notes 6 1/4s, 2014 143,500
390,000 Exco Resources, Inc. company
guaranty 7 1/4s, 2011 422,175
185,000 Forest Oil Corp. company guaranty
7 3/4s, 2014 203,038
695,000 Forest Oil Corp. sr. notes 8s, 2011 792,300
115,000 Forest Oil Corp. sr. notes 8s, 2008 127,363
215,000 Hanover Compressor Co. sr. notes 9s,
2014 239,725
195,000 Hanover Compressor Co. sr. notes
8 5/8s, 2010 214,500
290,000 Hanover Compressor Co. sub. notes
zero %, 2007 246,500
190,000 Hanover Equipment Trust sec. notes
Ser. B, 8 3/4s, 2011 209,950
224,000 Harvest Operations Corp. 144A sr.
notes 7 7/8s, 2011 (Canada) 232,120
265,000 Hornbeck Offshore Services, Inc. sr.
notes 10 5/8s, 2008 292,163
195,000 KCS Energy, Inc. sr. notes 7 1/8s,
2012 203,775
250,000 Key Energy Services, Inc. sr. notes
6 3/8s, 2013 256,875
416,000 Massey Energy Co. sr. notes 6 5/8s,
2010 433,680
380,000 Newfield Exploration Co. sr. notes
7 5/8s, 2011 434,625
193,000 Newfield Exploration Co. 144A sr.
sub. notes 6 5/8s, 2014 206,993
255,000 Offshore Logistics, Inc. company
guaranty 6 1/8s, 2013 263,925
311,190 Oslo Seismic Services, Inc. 1st
mtge. 8.28s, 2011 334,677
190,000 Pacific Energy Partners/Pacific
Energy Finance Corp. 144A sr. notes
7 1/8s, 2014 206,150
121,000 Parker Drilling Co. company guaranty
Ser. B, 10 1/8s, 2009 128,260
405,000 Peabody Energy Corp. sr. notes
5 7/8s, 2016 405,000
335,000 Pemex Project Funding Master Trust
company guaranty 8 5/8s, 2022 384,413
300,000 Petro Geo-Services notes 10s, 2010
(Norway) 342,000
630,000 Petroleos Mexicanos company guaranty
9 1/2s, 2027 (Mexico) 771,750
550,000 Petronas Capital, Ltd. company
guaranty 7 7/8s, 2022 (Malaysia) 673,090
125,000 Petronas Capital, Ltd. company
guaranty 7s, 2012 (Malaysia) 143,438
310,000 Plains Exploration & Production Co.
company guaranty Ser. B, 8 3/4s,
2012 350,300
230,000 Plains Exploration & Production Co.
sr. notes 7 1/8s, 2014 255,300
160,000 Plains Exploration & Production Co.
sr. sub. notes 8 3/4s, 2012 180,800
350,000 Pogo Producing Co. sr. sub. notes
Ser. B, 8 1/4s, 2011 385,875
453,000 Pride International, Inc. 144A sr.
notes 7 3/8s, 2014 509,625
320,000 Seabulk International, Inc. company
guaranty 9 1/2s, 2013 340,800
170,000 Seven Seas Petroleum, Inc. sr. notes
Ser. B, 12 1/2s, 2005 (In default) (NON) 2
401,000 Star Gas Partners LP/Star Gas
Finance Co. sr. notes 10 1/4s, 2013 385,963
202,260 Star Gas Propane 1st mtge. 8.04s,
2009 220,463
80,000 Universal Compression, Inc. sr.
notes 7 1/4s, 2010 85,600
170,000 Vintage Petroleum, Inc. sr. notes
8 1/4s, 2012 190,400
80,000 Vintage Petroleum, Inc. sr. sub.
notes 7 7/8s, 2011 86,400
--------------
15,446,346
Financial (1.2%)
-------------------------------------------------------------------------------
1,045,000 China Development Bank notes 4 3/4s,
2014 1,032,983
165,000 Crescent Real Estate Equities LP
notes 7 1/2s, 2007 (R) 170,363
420,000 Crescent Real Estate Equities LP sr.
notes 9 1/4s, 2009 (R) 454,650
538,000 E*Trade Finance Corp. 144A sr.
notes 8s, 2011 567,590
736,890 Finova Group, Inc. notes 7 1/2s,
2009 335,285
305,000 iStar Financial, Inc. sr. notes
8 3/4s, 2008 (R) 351,523
70,000 iStar Financial, Inc. sr. notes 7s,
2008 (R) 76,130
230,000 iStar Financial, Inc. sr. notes 6s,
2010 (R) 243,670
905,000 VTB Bank (VTB Capital) 144A notes
7 1/2s, 2011 (Luxembourg) 936,675
290,000 Western Financial Bank sub. debs.
9 5/8s, 2012 330,600
--------------
4,499,469
Health Care (3.0%)
-------------------------------------------------------------------------------
195,000 Alderwoods Group, Inc. 144A sr.
notes 7 3/4s, 2012 210,600
315,000 AmerisourceBergen Corp. company
guaranty 7 1/4s, 2012 341,775
310,000 AmerisourceBergen Corp. sr. notes
8 1/8s, 2008 340,225
535,000 Ardent Health Services, Inc. sr.
sub. notes 10s, 2013 547,038
185,000 Extendicare Health Services, Inc.
company guaranty 9 1/2s, 2010 208,125
285,000 Extendicare Health Services, Inc.
sr. sub. notes 6 7/8s, 2014 292,838
115,000 HCA, Inc. debs. 7.19s, 2015 120,899
640,000 HCA, Inc. notes 8.36s, 2024 688,275
150,000 HCA, Inc. notes 7.69s, 2025 151,532
445,000 HCA, Inc. notes 7s, 2007 471,384
297,000 HCA, Inc. notes 5 3/4s, 2014 287,995
540,000 Healthsouth Corp. notes 7 5/8s, 2012 523,800
255,000 Healthsouth Corp. sr. notes 8 1/2s,
2008 260,100
130,000 Healthsouth Corp. sr. notes 8 3/8s,
2011 129,350
110,000 Healthsouth Corp. sr. notes 7s, 2008 109,450
195,000 Insight Health Services Corp. 144A
company guaranty 9 7/8s, 2011 195,000
130,735 Magellan Health Services, Inc. sr.
notes Ser. A, 9 3/8s, 2008 141,521
305,000 MedQuest, Inc. company guaranty
Ser. B, 11 7/8s, 2012 353,038
455,000 MQ Associates, Inc. 144A sr. disc.
notes zero %, 2012 300,300
405,000 Omnicare, Inc. sr. sub. notes
6 1/8s, 2013 409,050
396,000 PacifiCare Health Systems, Inc.
company guaranty 10 3/4s, 2009 456,390
410,000 Province Healthcare Co. sr. sub.
notes 7 1/2s, 2013 463,300
70,000 Service Corp. International debs.
7 7/8s, 2013 76,300
40,000 Service Corp. International notes
7.2s, 2006 41,800
15,000 Service Corp. International notes
6 7/8s, 2007 15,863
60,000 Service Corp. International notes
6 1/2s, 2008 63,000
145,000 Service Corp. International notes
7.7s, 2009 159,138
415,000 Service Corp. International/US 144A
sr. notes 7s, 2016 427,450
390,000 Stewart Enterprises, Inc. notes
10 3/4s, 2008 428,025
220,000 Tenet Healthcare Corp. notes 7 3/8s,
2013 207,900
10,000 Tenet Healthcare Corp. sr. notes
6 1/2s, 2012 9,075
265,000 Tenet Healthcare Corp. sr. notes
6 3/8s, 2011 241,813
475,000 Tenet Healthcare Corp. 144A sr.
notes 9 7/8s, 2014 497,563
435,000 Triad Hospitals, Inc. sr. notes 7s,
2012 465,450
693,000 Triad Hospitals, Inc. sr. sub. notes
7s, 2013 710,325
285,000 Universal Hospital Services, Inc.
sr. notes 10 1/8s, 2011 290,700
135,000 US Oncology, Inc. 144A sr. notes 9s,
2012 145,800
100,000 US Oncology, Inc. 144A sr. sub.
notes 10 3/4s, 2014 109,000
227,000 Vanguard Health Holding Co. II, LLC
144A sr. sub. notes 9s, 2014 237,215
165,000 Ventas Realty LP/Capital Corp.
company guaranty 9s, 2012 191,813
94,000 Ventas Realty LP/Capital Corp. 144A
sr. notes 6 5/8s, 2014 95,880
185,000 VWR International, Inc. 144A sr.
notes 6 7/8s, 2012 195,638
--------------
11,611,733
Technology (1.4%)
-------------------------------------------------------------------------------
281,000 Advanced Micro Devices, Inc. 144A
sr. notes 7 3/4s, 2012 281,703
242,000 AMI Semiconductor, Inc. company
guaranty 10 3/4s, 2013 283,745
395,000 Celestica, Inc. sr.sub. notes
7 7/8s, 2011 (Canada) 422,650
390,000 Freescale Semiconductor, Inc. 144A
sr. notes 7 1/8s, 2014 413,400
130,000 Iron Mountain, Inc. company guaranty
8 5/8s, 2013 140,725
295,000 Iron Mountain, Inc. sr. sub. notes
8 1/4s, 2011 303,850
40,000 Lucent Technologies, Inc. debs.
6 1/2s, 2028 34,200
555,000 Lucent Technologies, Inc. debs.
6.45s, 2029 476,606
30,000 Lucent Technologies, Inc. notes
5 1/2s, 2008 30,750
205,000 Nortel Networks Corp. notes 6 1/8s,
2006 (Canada) 209,613
275,000 ON Semiconductor Corp. company
guaranty 13s, 2008 310,750
175,000 SCG Holding Corp. 144A notes zero %,
2011 238,000
235,000 Seagate Technology Hdd Holdings
company guaranty 8s, 2009 (Cayman
Islands) 253,800
435,000 UGS Corp. 144A sr. sub. notes 10s,
2012 487,200
420,000 Xerox Capital Trust I company
guaranty 8s, 2027 420,000
215,000 Xerox Corp. notes Ser. MTN, 7.2s,
2016 226,288
615,000 Xerox Corp. sr. notes 7 5/8s, 2013 676,500
110,000 Xerox Corp. sr. notes 6 7/8s, 2011 117,425
--------------
5,327,205
Transportation (0.5%)
-------------------------------------------------------------------------------
295,000 American Airlines, Inc. pass-through
certificates Ser. 01-1, 6.817s,
2011 265,500
530,000 Calair, LLC/Calair Capital Corp.
company guaranty 8 1/8s, 2008 431,950
500,000 Kansas City Southern Railway Co.
company guaranty 9 1/2s, 2008 556,250
100,000 Kansas City Southern Railway Co.
company guaranty 7 1/2s, 2009 104,000
310,000 Northwest Airlines, Inc. company
guaranty 7 5/8s, 2005 306,900
127,385 NWA Trust sr. notes Ser. A, 9 1/4s,
2012 128,818
100,000 Travel Centers of America, Inc.
company guaranty 12 3/4s, 2009 114,500
--------------
1,907,918
Utilities & Power (4.0%)
-------------------------------------------------------------------------------
30,000 AES Corp. (The) sr. notes 8 7/8s,
2011 34,650
17,000 AES Corp. (The) sr. notes 8 3/4s,
2008 18,828
420,000 AES Corp. (The) 144A sec. notes 9s,
2015 488,250
595,000 AES Corp. (The) 144A sec. notes
8 3/4s, 2013 684,994
290,000 Allegheny Energy Supply 144A bonds
8 1/4s, 2012 326,975
180,000 Allegheny Energy Supply 144A sec.
notes 10 1/4s, 2007 207,000
431,000 Calpine Corp. 144A sec. notes
8 1/2s, 2010 316,785
150,000 CenterPoint Energy Resources Corp.
debs. 6 1/2s, 2008 162,251
120,000 CenterPoint Energy Resources Corp.
sr. notes Ser. B, 7 7/8s, 2013 143,455
50,000 CMS Energy Corp. pass-through
certificates 7s, 2005 50,187
500,000 CMS Energy Corp. sr. notes 8.9s,
2008 557,500
120,000 CMS Energy Corp. sr. notes 8 1/2s,
2011 136,200
100,000 CMS Energy Corp. sr. notes 7 3/4s,
2010 109,500
340,000 DPL, Inc. sr. notes 6 7/8s, 2011 370,600
160,000 Dynegy Holdings, Inc. sr. notes
6 7/8s, 2011 154,800
780,000 Dynegy Holdings, Inc. 144A sec.
notes 10 1/8s, 2013 908,700
200,000 Dynegy-Roseton Danskamme company
guaranty Ser. A, 7.27s, 2010 202,000
310,000 Dynegy-Roseton Danskamme company
guaranty Ser. B, 7.67s, 2016 298,375
145,000 Edison Mission Energy sr. notes 10s,
2008 169,288
5,000 Edison Mission Energy sr. notes
9 7/8s, 2011 5,913
210,000 El Paso Corp. sr. notes 7 3/8s, 2012 212,100
505,000 El Paso Corp. sr. notes Ser. Medium
Term Note (MTN), 7 3/4s, 2032 464,600
105,000 El Paso Natural Gas Co. debs.
8 5/8s, 2022 117,600
535,000 El Paso Production Holding Co.
company guaranty 7 3/4s, 2013 557,738
345,000 Ferrellgas Partners LP/Ferrellgas
Partners Finance sr. notes 6 3/4s,
2014 357,075
115,000 Kansas Gas & Electric debs. 8.29s,
2016 118,715
680,000 Midwest Generation, LLC sec. sr.
notes 8 3/4s, 2034 770,100
450,000 Mission Energy Holding Co. sec.
notes 13 1/2s, 2008 570,375
215,000 Monongahela Power Co. 144A 1st.
mtge. 6.7s, 2014 233,497
360,000 Nevada Power Co. 2nd mtge. 9s, 2013 419,400
545,000 Northwest Pipeline Corp. company
guaranty 8 1/8s, 2010 611,081
35,000 Northwestern Corp. debs. 6.95s, 2028
(In default) (NON) 30,800
60,000 Northwestern Corp. notes 8 3/4s,
2012 (In default) (NON) 52,800
173,000 Norwest Corp./OLD 144A sec. notes
5 7/8s, 2014 177,325
1,080,000 NRG Energy, Inc. 144A sr. sec. notes
8s, 2013 1,189,350
310,000 Orion Power Holdings, Inc. sr. notes
12s, 2010 390,600
460,000 PG&E Corp. sec. notes 6 7/8s, 2008 499,100
85,000 PG&E Gas Transmission Northwest sr.
notes 7.1s, 2005 88,294
330,000 PSEG Energy Holdings, Inc. notes
7 3/4s, 2007 353,100
260,000 SEMCO Energy, Inc. sr. notes 7 3/4s,
2013 280,150
80,000 Sierra Pacific Power Co. general
ref. mtge. 6 1/4s, 2012 82,800
490,000 Sierra Pacific Resources sr. notes
8 5/8s, 2014 556,150
50,000 Southern California Edison Co. notes
6 3/8s, 2006 52,084
170,000 Teco Energy, Inc. notes 10 1/2s,
2007 199,325
100,000 Teco Energy, Inc. notes 7.2s, 2011 109,000
150,000 Teco Energy, Inc. notes 7s, 2012 162,000
40,000 Tennessee Gas Pipeline Co. debs. 7s,
2028 38,600
211,000 Tennessee Gas Pipeline Co. unsecd.
notes 7 1/2s, 2017 225,770
50,000 Transcontinental Gas Pipeline Corp.
debs. 7 1/4s, 2026 53,000
470,000 Utilicorp Canada Finance Corp.
company guaranty 7 3/4s, 2011
(Canada) 489,975
196,000 Utilicorp United, Inc. sr. notes
9.95s, 2011 220,500
215,000 Western Resources, Inc. sr. notes
9 3/4s, 2007 244,465
80,000 Williams Cos., Inc. (The) notes
8 3/4s, 2032 90,800
80,000 Williams Cos., Inc. (The) notes
8 1/8s, 2012 94,000
290,000 Williams Cos., Inc. (The) notes
7 5/8s, 2019 326,250
131,272 York Power Funding 144A notes 12s,
2007 (Cayman Islands) (In default)
(NON) 13
--------------
15,784,783
--------------
Total Corporate bonds and notes
(cost $140,980,827) $148,751,136
Foreign government bonds and notes (12.4%) (a)
Principal amount Value
-------------------------------------------------------------------------------
EUR 2,000,000 Austria (Republic of) 144A notes
Ser. EMTN, 3.8s, 2013 $2,536,423
USD 360,000 Brazil (Federal Republic of) bonds
10 1/2s, 2014 403,020
USD 1,010,000 Brazil (Federal Republic of) bonds
10 1/8s, 2027 1,073,125
USD 925,000 Brazil (Federal Republic of) bonds
8 7/8s, 2019 915,750
USD 496,000 Bulgaria (Republic of) 144A bonds
8 1/4s, 2015 620,000
CAD 1,005,000 Canada (Government of) bonds 5 1/2s,
2010 883,114
CAD 410,000 Canada (Government of) bonds
Ser. WL43, 5 3/4s, 2029 373,354
USD 235,000 Colombia (Republic of) bonds
10 3/8s, 2033 255,563
USD 475,000 Colombia (Republic of) bonds
Ser. NOV, 9 3/4s, 2009 536,750
USD 1,150,000 Colombia (Republic of) notes
10 3/4s, 2013 1,331,125
USD 175,000 Dominican (Republic of) notes 9.04s,
2013 141,750
USD 795,000 Ecuador (Republic of) bonds
stepped-coupon Ser. REGS, 8s, 2030 671,775
USD 220,000 El Salvador (Republic of) bonds
8 1/4s, 2032 221,430
USD 150,000 El Salvador (Republic of) 144A bonds
8 1/4s, 2032 150,975
USD 155,000 El Salvador (Republic of) 144A bonds
7 5/8s, 2034 157,170
EUR 760,000 France (Government of) bonds 5 3/4s,
2032 1,146,440
EUR 1,470,000 France (Government of) bonds 5 1/2s,
2010 2,082,838
EUR 3,200,000 France (Government of) bonds 4s,
2013 4,139,271
EUR 440,000 France (Government of) deb. 4s, 2009 580,343
EUR 3,310,000 Germany (Federal Republic of) bonds
Ser. 97, 6s, 2007 4,572,048
EUR 2,480,000 Germany (Federal Republic of) bonds
Ser. 97, 6s, 2007 3,384,577
EUR 730,000 Hellenic Greece (Republic of) bonds
3 1/2s, 2008 945,571
USD 100,000 Indonesia (Republic of) FRN 2.005s,
2006 97,000
USD 250,000 Indonesia (Republic of) FRN 2.005s,
2005 246,875
USD 760,000 Indonesia (Republic of) 144A sr.
notes 6 3/4s, 2014 743,660
NZD 2,970,000 New Zealand (Government of) bonds
Ser. 1106, 8s, 2006 2,105,321
NZD 3,152,000 New Zealand (Government of) bonds
Ser. 709, 7s, 2009 2,238,645
USD 200,000 Peru (Republic of) bonds 8 3/4s,
2033 199,400
USD 280,000 Philippines (Republic of) notes
10 5/8s, 2025 293,020
USD 545,000 Philippines (Republic of) sr. notes
8 7/8s, 2015 534,100
USD 3,341,250 Russia (Federation of) 144A unsub.
stepped-coupon 5s (7 1/2s,
3/31/07), 2030 (STP) 3,346,262
USD 520,000 Russia (Ministry of Finance) deb.
Ser. V, 3s, 2008 481,000
USD 1,030,000 South Africa (Republic of) notes
7 3/8s, 2012 1,176,775
USD 465,000 South Africa (Republic of) notes
6 1/2s, 2014 505,223
SEK 14,640,000 Sweden (Government of) bonds Ser.
3101, 4s, 2008 2,570,353
SEK 16,800,000 Sweden (Government of) debs. Ser.
1041, 6 3/4s, 2014 2,823,428
USD 154,004 Ukraine (Government of) sr. notes
Ser. REGS, 11s, 2007 167,403
USD 400,000 Ukraine (Government of) 144A bonds
7.65s, 2013 411,600
USD 575,000 Ukraine (Government of) 144A unsub.
notes 6 7/8s, 2011 580,060
USD 1,395,000 United Mexican States bonds
Ser. MTN, 8.3s, 2031 1,613,318
USD 215,000 Venezuela (Republic of) bonds
9 3/8s, 2034 219,623
USD 255,000 Venezuela (Republic of) notes
10 3/4s, 2013 294,525
USD 190,000 Venezuela (Republic of) notes
8 1/2s, 2014 193,563
USD 415,000 Venezuela (Republic of) unsub. bonds
5 3/8s, 2010 379,518
--------------
Total Foreign government bonds and
notes (cost $42,217,300) $48,343,084
Asset-backed securities (8.7%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$97,885 ABSC NIMS Trust 144A Ser. 03-HE5,
Class A, 7s, 2033 $98,374
Aegis Asset Backed Securities Trust
144A
55,377 Ser. 04-1N, Class Note, 5s, 2034 55,256
Aegis Asset Backed Securities Trust
144A
128,285 Ser. 04-2N, Class N1, 4 1/2s, 2034 127,543
102,601 Ser. 04-4N, Class Note, 5s, 2034 102,562
164,000 Ameriquest Finance NIM Trust 144A
Ser. 04-RN9, Class N2, 10s, 2034 151,905
1,751,818 Amortizing Residential Collateral
Trust Ser. 02-BC1, Class A,
Interest Only (IO), 6s, 2005 33,953
32,290 AQ Finance NIM Trust 144A Ser.
03-N9A, Class Note, 7.385s, 2033 32,451
Arcap REIT, Inc. 144A
208,000 Ser. 03-1A, Class E, 7.11s, 2038 223,340
116,000 Ser. 04-1A, Class E, 6.42s, 2039 118,773
Argent NIM Trust 144A
54,711 Ser. 03-N6, Class A, 6.4s, 2034
(Cayman Islands) 54,848
35,695 Ser. 04-WN2, Class A, 4.55s, 2034
(Cayman Islands) 35,561
Asset Backed Funding Corp. NIM Trust
144A
84,000 Ser. 04-0PT1, Class N2, 6.9s, 2033
(Cayman Islands) 84,000
116,000 Ser. 04-0PT5, Class N1, 4 1/2s, 2034
(Cayman Islands) 115,992
168,766 Ser. 04-FF1, Class N1, 5s, 2034
(Cayman Islands) 168,211
25,000 Ser. 04-FF1, Class N2, 5s, 2034
(Cayman Islands) 24,918
136,000 Ser. 04-HE1, Class N2, 8s, 2034
(Cayman Islands) 132,140
169,350 Aviation Capital Group Trust 144A
FRB Ser. 03-2A, Class G1, 2.61s,
2033 169,985
260,000 Bank One Issuance Trust FRB Ser.
03-C4, Class C4, 2.9s, 2011 264,836
10,501,963 Bayview Financial Acquisition Trust
Ser. 03-X, Class A, IO, 0.9s, 2006 183,341
Bear Stearns Asset Backed Securities
NIM Trust 144A
218,859 Ser. 04-HE6, Class A1, 5 1/4s, 2034
(Cayman Islands) 218,551
169,749 Ser. 04-HE7N, Class A1, 5 1/4s, 2034
(Cayman Islands) 169,749
155,000 Bear Stearns Asset Backed
Securities, Inc. Ser. 04-FR3, Class
M6, 5.21s, 2034 155,000
Bombardier Capital Mortgage Securitization Corp.
393,392 Ser. 99-B, Class A3, 7.18s, 2015 307,829
447,597 Ser. 99-B, Class A4, 7.3s, 2016 351,452
CARSSX Finance, Ltd. 144A
100,000 FRB Ser. 04-AA, Class B3, 5.22s,
2011 (Cayman Islands) 100,050
100,000 FRB Ser. 04-AA, Class B4, 7.37s,
2011 (Cayman Islands) 100,050
370,000 Chase Credit Card Master Trust FRB
Ser. 03-3, Class C, 2.95s, 2010 378,343
64,539 Chase Funding Net Interest Margin
144A Ser. 03-4A, Class Note,
6 3/4s, 2036 64,700
CHEC NIM Ltd., 144A
195,000 Ser. 04-2, Class N1, 4.45s, 2034
(Cayman Islands) 193,887
51,000 Ser. 04-2, Class N2, 8s, 2034
(Cayman Islands) 50,997
31,000 Ser. 04-2, Class N3, 8s, 2034
(Cayman Islands) 26,660
Conseco Finance Securitizations Corp.
187,542 Ser. 00-2, Class A4, 8.48s, 2030 191,203
1,673,000 Ser. 00-4, Class A6, 8.31s, 2032 1,467,537
513,572 Ser. 00-6, Class M2, 8.2s, 2032 69,332
145,000 Ser. 01-04, Class A4, 7.36s, 2033 150,641
479,000 Ser. 01-1, Class A5, 6.99s, 2032 459,619
9,000 Ser. 01-3, Class A3, 5.79s, 2033 9,224
1,001,000 Ser. 01-3, Class A4, 6.91s, 2033 1,005,805
200,000 Ser. 01-3, Class M2, 7.44s, 2033 38,000
471,584 Ser. 01-4, Class B1, 9.4s, 2033 63,664
Conseco Finance Securitizations Corp.
1,245,917 Ser. 02-1, Class A, 6.681s, 2033 1,306,392
159,000 FRB Ser. 01-4, Class M1, 3.59s, 2033 65,826
394,000 Consumer Credit Reference IDX
Securities FRB Ser. 02-1A, Class A,
3.919s, 2007 399,429
Countrywide Asset Backed
Certificates 144A
833,198 Ser. 04-6N, Class N1, 6 1/4s, 2035 832,364
127,424 Ser. 04-BC1N, Class Note, 5 1/2s,
2035 126,906
235,000 Crest, Ltd. 144A Ser. 03-2A, Class
E2, 8s, 2038 237,791
230,000 First Chicago Lennar Trust 144A Ser.
97-CHL1, Class E, 7.827s, 2039 238,194
First Franklin NIM Trust 144A
99,349 Ser. 03-FF3A, Class A, 6 3/4s, 2033 98,963
195,000 Ser. 04-FF10, Class N1, 4 1/2s, 2034
(Cayman Islands) 194,987
Fremont NIM Trust 144A
28,382 Ser. 03-B, Class Note, 5.65s, 2033 28,311
192,969 Ser. 04-A, Class Note, 4 3/4s, 2034 192,390
Granite Mortgages PLC
190,000 FRB Ser. 02-1, Class 1C, 3.379s,
2042 (United Kingdom) 192,983
EUR 780,000 FRB Ser. 03-2, Class 2C1, 5.2s, 2043
(United Kingdom) 1,021,249
GBP 585,000 FRB Ser. 03-2, Class 3C, 6.444s,
2043 (United Kingdom) 1,098,895
Green Tree Financial Corp.
$198,308 Ser. 94-4, Class B2, 8.6s, 2019 139,034
479,607 Ser. 94-6, Class B2, 9s, 2020 385,484
200,900 Ser. 95-4, Class B1, 7.3s, 2025 189,473
194,980 Ser. 95-8, Class B1, 7.3s, 2026 150,134
83,644 Ser. 95-F, Class B2, 7.1s, 2021 76,286
200,000 Ser. 96-8, Class M1, 7.85s, 2027 174,000
59,039 Ser. 99-3, Class A5, 6.16s, 2031 59,924
678,000 Ser. 99-5, Class A5, 7.86s, 2030 610,851
1,252,721 Greenpoint Manufactured Housing Ser.
00-3, Class IA, 8.45s, 2031 1,250,967
635,000 GS Auto Loan Trust 144A Ser. 04-1,
Class D, 5s, 2011 626,740
GSAMP Trust 144A
40,274 Ser. 03-HE1N, Class Note, 7 1/4s,
2033 40,153
113,658 Ser. 04-FM1N, Class Note, 5 1/4s,
2033 113,578
87,274 Ser. 04-HE1N, Class N1, 5s, 2034 87,117
916,846 Ser. 04-NIM1, Class N1, 5 1/2s, 2034 916,846
281,000 Ser. 04-NIM1, Class N2, zero %, 2034 207,884
106,108 Ser. 04-RENM, Class Note, 5 1/2s,
2032 106,002
174,790 Ser. 04-SE2N, Class Note, 5 1/2s,
2034 174,790
Holmes Financing PLC FRB
110,000 Ser. 4, Class 3C, 3.37s, 2040
(United Kingdom) 111,408
190,000 Ser. 5, Class 2C, 3.52s, 2040
(United Kingdom) 190,532
127,000 Ser. 8, Class 2C, 2.79s, 2040
(United Kingdom) 127,318
Home Equity Asset Trust 144A
88,827 Ser. 02-5N, Class A, 8s, 2033 89,272
22,839 Ser. 03-4N, Class A, 8s, 2033 23,010
103,826 Ser. 03-7N, Class A, 5 1/4s, 2034 103,826
66,134 Ser. 04-1N, Class A, 5s, 2034 65,969
LNR CDO, Ltd. 144A
685,000 FRB Ser. 02-1A, Class FFL, 4.683s,
2037 (Cayman Islands) 670,341
415,000 FRB Ser. 03-1A, Class EFL, 4.933s,
2036 (Cayman Islands) 438,282
Long Beach Asset Holdings Corp. NIM
Trust 144A
36,377 Ser. 03-2, Class N1, 7.627s, 2033 36,377
Long Beach Asset Holdings Corp. NIM
Trust 144A
24,429 Ser. 03-4, Class N1, 6.535s, 2033 24,429
131,892 Ser. 04-2, Class N1, 4.94s, 2034 131,892
170,483 Ser. 04-5, Class Note, 5s, 2034 170,858
987,692 Long Beach Mortgage Loan Trust Ser.
04-3, Class S1, IO, 4 1/2s, 2006 57,101
GBP 500,000 Lothian Mortgages PLC 144A Ser. 3A,
Class D, 5.458s, 2039 (United
Kingdom) 916,050
$568,528 Madison Avenue Manufactured Housing
Contract FRB Ser. 02-A, Class B1,
5.183s, 2032 335,432
77,000 Master Asset Backed Securities NIM
Trust 144A Ser. 04-CI5, Class N2,
10s, 2034 76,216
370,000 MBNA Credit Card Master Note Trust
FRN Ser. 03-C5, Class C5, 3.05s,
2010 378,157
53,130 Merrill Lynch Mortgage Investors,
Inc. Ser. 03-WM3N, Class N1, 8s,
2005 53,374
Merrill Lynch Mortgage Investors,
Inc. 144A
100,337 Ser. 04-FM1N, Class N1, 5s, 2035 99,434
78,425 Ser. 04-HE1N, Class N1, 5s, 2006 77,876
94,809 Mid-State Trust Ser. 11, Class B,
8.221s, 2038 92,814
155,000 Morgan Stanley ABS Capital I FRB
Ser. 04-HE8, Class B3, 5.159s, 2034 155,000
6,421 Morgan Stanley ABS Capital I 144A
Ser. 03-NC9N, Class Note, 7.6s,
2033 6,453
95,000 Morgan Stanley Auto Loan Trust 144A
Ser. 04-HB2, Class E, 5s, 2012 91,905
Morgan Stanley Dean Witter Capital I
168,511 FRN Ser. 01-NC3, Class B1, 4.383s,
2031 167,290
195,000 FRN Ser. 01-NC4, Class B1, 4.433s,
2032 192,714
54,888 New Century Mortgage Corp. NIM Trust
144A Ser. 03-B, Class Note, 6 1/2s,
2033 55,085
Oakwood Mortgage Investors, Inc.
494,000 Ser. 00-D, Class A4, 7.4s, 2030 321,693
783,588 Ser. 01-C, Class A2, 5.92s, 2017 513,877
380,474 Ser. 01-C, Class A4, 7.405s, 2030 272,876
658,313 Ser. 01-E, Class A2, 5.05s, 2019 543,674
309,677 Ser. 02-A, Class A2, 5.01s, 2020 266,508
1,064,954 Ser. 02-C, Class A1, 5.41s, 2032 959,204
416,178 Ser. 99-B, Class A4, 6.99s, 2026 380,120
405,879 Ser. 99-D, Class A1, 7.84s, 2029 388,508
262,000 Oceanstar 144A FRB Ser. 04, Class E,
8.606s, 2018 262,000
Option One Mortgage Securities Corp.
NIM Trust 144A
7,527 Ser. 03-2B, Class N1, 7.63s, 2033
(Cayman Islands) 7,527
30,386 Ser. 03-5, Class Note, 6.9s, 2033 30,538
38,000 Park Place Securities NIM Trust 144A
Ser. 04-WCW2, Class D, 7.387s, 2034 38,000
164,881 Pass-Through Amortizing Credit Card
Trust Ser. 02-1A, Class A4FL,
7.389s, 2012 165,257
55,000 People's Choice Net Interest Margin
Note 144A Ser. 04-2, Class B, 5s,
2034 49,830
Permanent Financing PLC FRB
150,000 Ser. 1, Class 3C, 3.063s, 2042
(United Kingdom) 151,440
190,000 Ser. 3, Class 3C, 3.013s, 2042
(United Kingdom) 192,584
1,390,574 Residential Asset Mortgage Products,
Inc. Ser. 03-RZ1, Class A, IO,
5 3/4s, 2005 42,915
149,776 Rural Housing Trust Ser. 87-1, Class
D, 6.33s, 2026 155,182
SAIL Net Interest Margin Notes 144A
173,910 Ser. 03-10A, Class A, 7 1/2s, 2033
(Cayman Islands) 173,901
74,302 Ser. 03-12A, Class A, 7.35s, 2033
(Cayman Islands) 74,280
74,945 Ser. 03-3, Class A, 7 3/4s, 2033
(Cayman Islands) 74,569
28,958 Ser. 03-4, Class A, 7 1/2s, 2033
(Cayman Islands) 28,926
138,956 Ser. 03-5, Class A, 7.35s, 2033
(Cayman Islands) 138,915
42,242 Ser. 03-6A, Class A, 7s, 2033
(Cayman Islands) 41,928
95,516 Ser. 03-7A, Class A, 7s, 2033
(Cayman Islands) 94,807
24,563 Ser. 03-8A, Class A, 7s, 2033
(Cayman Islands) 24,439
63,548 Ser. 03-9A, Class A, 7s, 2033
(Cayman Islands) 63,217
124,958 Ser. 03-BC2A, Class A, 7 3/4s, 2033 124,594
283,908 Ser. 04-2A, Class A, 5 1/2s, 2034
(Cayman Islands) 283,908
322,264 Ser. 04-4A, Class A, 5s, 2034
(Cayman Islands) 321,780
244,422 Ser. 04-7A, Class A, 4 3/4s, 2034
(Cayman Islands) 244,082
47,420 Ser. 04-7A, Class B, 6 3/4s, 2034
(Cayman Islands) 46,633
270,926 Ser. 04-8A, Class A, 5s, 2034 270,926
111,404 Ser. 04-8A, Class B, 6 3/4s, 2034 108,903
182,329 Ser. 04-AA, Class A, 4 1/2s, 2034 181,690
2,780 Sasco Arc Net Interest Margin Notes
144A Ser. 02-BC10, Class A, 7 3/4s,
2033 2,754
Sasco Net Interest Margin Trust 144A
78,543 Ser. 03-AM1, Class A, 7 3/4s, 2033 78,160
148,926 Ser. 03-BC1, Class B, zero %, 2033 126,587
59,469 Saxon Net Interest Margin Trust 144A
Ser. 03-A, Class A, 6.656s, 2033 59,469
68,272 Sharps SP I, LLC Net Interest Margin
Trust Ser. 03-NC1N, Class N, 7 1/4s,
2033 68,656
Sharps SP I, LLC Net Interest Margin
Trust 144A
62,714 Ser. 03-0P1N, Class NA, 4.45s, 2033 62,714
43,744 Ser. 03-HS1N, Class N, 7.48s, 2033 43,881
20,800 Ser. 03-TC1N, Class N, 7.45s, 2033 20,800
33,816 Ser. 04-FM1N, Class N, 6.16s, 2033 33,985
72,438 Ser. 04-HE2N, Class NA, 5.43s, 2034 72,351
28,162 Ser. 04-HS1N, Class Note, 5.92s,
2034 28,162
Structured Asset Investment Loan Trust
103,854 Ser. 03-BC1A, Class A, 7 3/4s, 2033 103,349
2,207,641 Ser. 03-BC2, Class A, IO, 6s, 2005 53,692
1,048,003 Ser. 03-BC8, Class A, IO, 6s, 2005 35,746
5,904,743 Ser. 04-1, Class A, IO, 6s, 2005 230,496
254,000 TIAA Real Estate CDO, Ltd. Ser.
03-1A, Class E, 8s, 2038 247,070
212,000 TIAA Real Estate CDO, Ltd. 144A Ser.
02-1A, Class IV, 6.84s, 2037 170,126
1,464,740 Washington Mutual Ser. 03-S1, Class
A11, IO, 5 1/2s, 2033 62,600
Wells Fargo Home Equity Trust 144A
616,528 Ser. 04-2, Class N1, 4.45s, 2034 616,491
116,000 Ser. 04-2, Class N2, 8s, 2034 110,200
Whole Auto Loan Trust 144A
373,982 Ser. 03-1, Class D, 6s, 2010 374,041
273,000 Ser. 04-1, Class D, 5.6s, 2034 272,996
--------------
Total Asset-backed securities
(cost $35,293,819) $33,946,197
Collateralized mortgage obligations (4.5%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$114,000 Banc of America Large Loan 144A FRN
Ser. 02-FL2A, Class L1, 4.84s, 2014 $114,192
190,000 Bear Stearns Commercial Mortgage
Securitization Corp. 144A Ser.
04-ESA, Class K, 4.368s, 2016 189,999
2,499,781 Commercial Mortgage Acceptance Corp.
Ser. 97-ML1, IO, 0.781s, 2017 57,026
Commercial Mortgage Pass-Through
Certificates 144A
154,000 FRB Ser. 01-FL4A, Class E, 3.17s,
2013 137,060
120,000 Ser. 01-FL4A, Class D, 2.72s, 2013 116,321
757,000 Criimi Mae Commercial Mortgage Trust
Ser. 98-C1, Class A2, 7s, 2033 817,087
1,143,000 Criimi Mae Commercial Mortgage Trust
144A Ser. 98-C1, Class B, 7s, 2033 1,216,663
CS First Boston Mortgage Securities
Corp. 144A
520,000 Ser. 98-C1, Class F, 6s, 2040 383,592
192,000 FRB Ser. 03-TF2A, Class L, 5.87s,
2014 190,804
192,000 Ser. 02-CP5, Class M, 5 1/4s, 2035 137,828
21,123,321 Deutsche Mortgage & Asset Receiving
Corp. Ser. 98-C1, Class X,
IO, 0.962s, 2023 533,003
DLJ Commercial Mortgage Corp.
152,919 Ser. 98-CF2, Class B4, 6.04s, 2031 155,862
489,824 Ser. 98-CF2, Class B5, 5.95s, 2031 322,535
144,000 DLJ Mortgage Acceptance Corp. 144A
Ser. 97-CF1, Class B1, 7.91s, 2030 161,215
Fannie Mae
70,732 Ser. 98-51, Class SG, IO, 25.08s,
2022 32,729
255,902 Ser. 02-36, Class SJ, 15.294s, 2029 278,550
426 Ser. 92-15, Class L, IO, 10.38s,
2022 3,998
242,302 Ser. 03-W3, Class 1A3, 7 1/2s, 2042 263,271
5,241 Ser. 03-W2, Class 1A3, 7 1/2s, 2042 5,683
573 Ser. 02-W1, Class 2A, 7 1/2s, 2042 617
2,276 Ser. 02-14, Class A2, 7 1/2s, 2042 2,482
295,055 Ser. 01-T10, Class A2, 7 1/2s, 2041 318,280
1,326 Ser. 02-T4, Class A3, 7 1/2s, 2041 1,434
3,534 Ser. 01-T8, Class A1, 7 1/2s, 2041 3,819
1,162,188 Ser. 01-T7, Class A1, 7 1/2s, 2041 1,254,344
175,733 Ser. 01-T3, Class A1, 7 1/2s, 2040 189,582
525,544 Ser. 01-T1, Class A1, 7 1/2s, 2040 575,433
217,960 Ser. 99-T2, Class A1, 7 1/2s, 2039 235,773
110,060 Ser. 00-T6, Class A1, 7 1/2s, 2030 121,357
515,211 Ser. 01-T4, Class A1, 7 1/2s, 2028 559,611
1,135 Ser. 02-W3, Class A5, 7 1/2s, 2028 1,232
712,893 Ser. 03-118, Class S, IO, 6.168s,
2033 103,369
771,476 Ser. 03-118, Class SF, IO, 6.168s,
2033 100,993
554,458 Ser. 02-36, Class QH, IO, 6.118s,
2029 23,876
555,536 Ser. 03-58, Class ID, IO, 6s, 2033 99,823
579,070 Ser. 03-26, Class IG, IO, 6s, 2033 89,173
435,672 Ser. 322, Class 2, IO, 6s, 2032 80,463
538,740 Ser. 318, Class 2, IO, 6s, 2032 101,940
2,507,509 Ser. 338, Class 2, IO, 5 1/2s, 2033 525,402
1,113,732 Ser. 329, Class 2, IO, 5 1/2s, 2033 227,619
1,159,800 Ser. 03-45, Class PI, IO, 5 1/2s,
2029 108,252
Fannie Mae
1,526,838 Ser. 03-37, Class IC, IO, 5 1/2s,
2027 147,436
243,000 Ser. 03-6, Class IB, IO, 5 1/2s,
2022 5,498
3,853,741 Ser. 03-34, Class ES, IO, 5.068s,
2033 289,814
1,605,200 Ser. 03-34, Class SG, IO, 5.068s,
2033 121,541
2,370,424 Ser. 03-23, Class AI, IO, 5s, 2017 238,002
1,043,600 Ser. 03-24, Class IC, IO, 5s, 2015 165,948
4,451,609 Ser. 03-W10, Class 1A, IO, 1.794s,
2043 111,290
5,259,239 Ser. 03-W10, Class 3A, IO, 1.756s,
2043 138,055
2,834,289 Ser. 03-W17, Class 12, IO, 1.158s,
2033 93,410
4,655,509 Ser. 00-T6, IO, 0.751s, 2030 83,654
8,098,575 Ser. 02-T18, IO, 0.521s, 2042 116,494
90,260 Ser. 99-51, Class N, Principal Only
(PO), zero %, 2029 78,174
42,491 Ser. 99-52, Class MO, PO, zero %,
2026 41,258
Federal Home Loan Mortgage Corp.
Structured Pass-Through Securities
7,112 Ser. T-58, Class 4A, 7 1/2s, 2043 7,693
2,721,504 Ser. T-57, Class 1AX, IO, 0.445s,
2043 29,664
7,259,777 FFCA Secured Lending Corp. Ser.
00-1, Class X, IO, 1.566s, 2020 458,957
Freddie Mac
286,449 Ser. 2763, Class SC, 21.12s, 2032 347,985
1,046,288 Ser. 2448, Class SM, IO, 6.13s, 2032 94,820
1,707,501 Ser. 216, IO, 6s, 2032 314,554
786,800 Ser. 2515, Class IG, IO, 5 1/2s,
2032 206,073
378,251 Ser. 2626, Class IK, IO, 5 1/2s,
2030 74,190
404,800 Ser. 2590, Class IH, IO, 5 1/2s,
2028 83,870
1,048,000 Ser. 2596, Class IQ, IO, 5 1/2s,
2026 72,141
279,044 Ser. 2833, Class IK, IO, 5 1/2s,
2023 39,499
189,209 Ser. 215, PO, zero %, 2031 175,226
182,719 Ser. 2235, PO, zero %, 2030 154,854
GE Capital Commercial Mortgage Corp.
144A
321,000 Ser. 00-1, Class G, 6.131s, 2033 286,536
199,000 Ser. 00-1, Class H, 6.131s, 2033 146,429
282,877 GMAC Commercial Mortgage Securities,
Inc. 144A Ser. 99-C3, Class G,
6.974s, 2036 226,639
Government National Mortgage
Association
220,559 Ser. 01-43, Class SJ, IO, 5.69s,
2029 3,756
87,714 Ser. 98-2, Class EA, PO, zero %,
2028 74,639
117,000 GS Mortgage Securities Corp. II 144A
FRB Ser. 03-FL6A, Class L, 5.12s,
2015 117,146
GBP 632,654 Hermione (European Loan Conduit No.
14) 144A FRB Class A, 5.326s, 2011
(Ireland) 1,166,040
$136,232 LB Commercial Conduit Mortgage Trust
144A Ser. 99-C1, Class G, 6.41s,
2031 108,340
Mach One Commercial Mortgage Trust
144A
226,000 Ser. 04-1A, Class J, 5.45s, 2040 189,953
114,000 Ser. 04-1A, Class K, 5.45s, 2040 93,320
52,000 Ser. 04-1A, Class L, 5.45s, 2040 38,090
3,680,946 Merrill Lynch Mortgage Investors,
Inc. Ser. 96-C2, Class JS,
IO, 2.13s, 2028 198,083
930,000 Morgan Stanley Capital I 144A Ser.
04-RR, Class F7, 6s, 2039 666,916
2,943,663 Mortgage Capital Funding, Inc. Ser.
97-MC2, Class X, IO, 1.29s, 2012 80,332
Starwood Asset Receivables Trust
144A
95,279 FRB Ser. 03-1A, Class F, 3.033s,
2022 95,403
122,502 FRB Ser. 03-1A, Class E, 2.983s,
2022 122,661
STRIPS 144A
87,000 Ser. 03-1A, Class M, 5s, 2018
(Cayman Islands) 73,176
104,000 Ser. 03-1A, Class N, 5s, 2018
(Cayman Islands) 78,874
100,000 Ser. 04-1A, Class M, 5s, 2018
(Cayman Islands) 84,650
90,000 Ser. 04-1A, Class N, 5s, 2018
(Cayman Islands) 68,940
100,000 Trizechahn Office Properties Trust
144A Ser. 01-TZHA, Class D3,
6.943s, 2013 107,065
--------------
Total Collateralized mortgage
obligations (cost $19,314,413) $17,559,380
Senior loans (1.9%) (a) (c)
Principal amount Value
Basic Materials (0.2%)
-------------------------------------------------------------------------------
$73,659 Graphics Packaging bank term loan
FRN 4.52s, 2010 $74,893
174,125 Hercules, Inc. bank term loan FRN
Ser. B, 3.952s, 2010 175,322
57,225 Nalco Co. bank term loan FRN Ser. B,
4.426s, 2010 58,199
116,876 SGL Carbon, LLC bank term loan FRN
4.949s, 2009 117,460
160,000 Wellman 1st. lien bank term loan FRN
5.694s, 2009 162,400
145,000 Wellman 2nd. lien bank term loan FRN
8.444s, 2010 147,115
--------------
735,389
Capital Goods (0.2%)
-------------------------------------------------------------------------------
81,189 Allied Waste Industries, Inc. bank
term loan FRN 4.554s, 2010 81,969
13,790 Allied Waste Industries, Inc. bank
term loan FRN Ser. C, 1.84s, 2010 13,919
94,044 Amsted Industries bank term loan FRN
5.755s, 2010 94,867
71,410 EaglePicher bank term loan FRN
Ser. B, 4.863s, 2009 71,588
72,659 Flowserve Corp. bank term loan FRN
Ser. C, 4.563s, 2009 73,658
79,086 Invensys, PLC bank term loan FRN
Ser. B-1, 5.477s, 2009 (United
Kingdom) 80,075
94,495 Mueller Group bank term loan FRN
4.570s, 2011 94,968
96,250 Roper bank term loan FRN 3.908s,
2008 96,250
99,500 Solo Cup Co. bank term loan FRN
4.310s, 2011 100,454
45,943 SPX Corp. bank term loan FRN Ser. B,
3.938s, 2009 46,402
24,813 Transdigm, Inc. bank term loan FRN
Ser. C, 4.09s, 2010 25,107
--------------
779,257
Communication Services (0.1%)
-------------------------------------------------------------------------------
49,833 Consolidated Communications bank
term loan FRN Ser. B, 4.608s, 2012 50,207
49,500 Dobson Communications Corp. bank
term loan FRN 5.383s, 2010 49,290
115,792 Nextel bank term loan FRN Ser. E,
4.188s, 2010 116,105
60,000 PanAmSat Corp. bank term loan FRN
Ser. B, 4.66s, 2011 60,314
105,625 Qwest Communications International,
Inc. bank term loan FRN Ser. A,
6 1/2s, 2007 109,643
49,875 SBA Senior Finance, Inc. bank term
loan FRN 5.540s, 2008 50,280
--------------
435,839
Consumer Cyclicals (0.6%)
-------------------------------------------------------------------------------
33,140 Advance Stores bank term loan FRN
Ser. C, 5.571s, 2007 33,168
63,293 Borgata Resorts bank term loan FRN
Ser. B, 4.126s, 2007 63,689
87,500 Coinmach Corp. bank term loan FRN
Ser. B, 4.630s, 2009 88,266
84,907 Dex Media West, LLC bank term loan
FRN Ser. B, 4.095s, 2010 86,075
80,000 Goodyear Tire & Rubber Co. (The)
bank term loan FRN 6.43s, 2006 80,925
75,000 Goodyear Tire & Rubber Co. (The)
bank term loan FRN 4.6s, 2007 75,727
93,058 Hayes Lemmerz International, Inc.
bank term loan FRN 5.559s, 2009 94,076
49,500 IESI Corp. bank term loan FRN
4.611s, 2010 50,119
81,481 Lamar Media bank term loan FRN
3.531s, 2010 82,118
50,000 Landsource bank term loan FRN
Ser. B, 4 1/2s, 2010 50,750
53,424 Penn National Gaming, Inc. bank term
loan FRN Ser. D, 4.478s, 2010 54,215
19,510 Pinnacle Entertainment, Inc. bank
term loan FRN 4.84s, 2009 19,754
63,587 PRIMEDIA, Inc. bank term loan FRN
Ser. B, 4 3/4s, 2009 61,330
1,000,000 Raycom Media, Inc. bank term loan
FRN 3 7/8s, 2012 1,003,750
123,154 RH Donnelley Finance Corp. bank term
loan FRN Ser. B, 3.86s, 2011 124,886
123,132 Scientific Gaming bank term loan FRN
Ser. C, 4.34s, 2008 124,569
70,000 Sealy Mattress Co. bank term loan
FRN Ser. C, 4.320s, 2012 70,904
69,650 TRW Automotive bank term loan FRN
Ser. D-1, 4 1/8s, 2011 70,651
110,000 WRC Media Corp. bank term loan FRN
6.761s, 2009 109,244
--------------
2,344,216
Consumer Staples (0.4%)
-------------------------------------------------------------------------------
18,720 Affinity Group Holdings bank term
loan FRN Ser. B1, 6.007s, 2009 18,900
46,802 Affinity Group Holdings bank term
loan FRN Ser. B2, 5.975s, 2009 47,250
105,118 AMF Bowling Worldwide bank term loan
FRN Ser. B, 4.968s, 2009 105,710
100,000 Century Cable Holdings bank term
loan FRN 6 3/4s, 2009 98,643
159,600 Charter Communications Holdings,
LLC/Capital Corp. bank term loan
FRN Ser. B, 4.92s, 2011 158,234
60,935 Constellation Brands, Inc. bank term
loan FRN 3 1/2s, 2008 61,109
79,498 Del Monte Foods Co. bank term loan
FRN Ser. B, 3.963s, 2010 80,814
82,592 DirecTV bank term loan FRN Ser. B-2,
3.884s, 2010 83,686
8,019 Dole Food Co. bank term loan FRN
Ser. D, 4.386s, 2009 8,122
80,000 Dole Holding Co. bank term loan FRN
7s, 2010 81,050
34,738 Insight Midwest LP/Insight Capital,
Inc. bank term loan FRN 4 3/4s,
2009 35,205
120,000 MGM bank term loan FRN Ser. B,
4.48s, 2011 120,330
270,000 Olympus Cable bank term loan FRN
Ser. B, 6 3/4s, 2010 265,528
72,155 Rayovac Corp. bank term loan FRN
Ser. Cc, 4.258s, 2009 73,177
42,443 Six Flags, Inc. bank term loan FRN
Ser. B, 4.34s, 2009 42,681
76,458 Sum Media bank term loan FRN Ser. B,
3.684s, 2009 76,912
199,000 Warner Music Group bank term loan
FRN Ser. B, 4.535s, 2011 201,594
--------------
1,558,945
Energy (0.1%)
-------------------------------------------------------------------------------
120,000 Dresser, Inc. bank term loan FRN
5.19s, 2010 121,800
33,005 Magellan Midstream Holdings bank
term loan FRN 4.65s, 2008 33,417
--------------
155,217
Financial (--%)
-------------------------------------------------------------------------------
108,694 Hilb, Rogal & Hamilton Co. bank term
loan FRN Ser. B, 3 7/8s, 2007 108,694
Health Care (0.2%)
-------------------------------------------------------------------------------
61,875 Beverly Enterprises, Inc. bank term
loan FRN 4.510s, 2008 62,700
80,000 Community Health Systems, Inc. bank
term loan FRN Ser. B, 3.54s, 2011 80,214
98,700 Concentra bank term loan FRN 4 3/4s,
2009 99,564
197,841 DaVita, Inc. bank term loan FRN
Ser. B, 3.976s, 2009 200,128
79,800 Fisher Scientific International,
Inc. bank term loan FRN Ser. B,
3.34s, 2011 80,374
49,500 Hanger Orthopedic Group, Inc. bank
term loan FRN 5.475s, 2009 49,005
57,438 Kinetic Concepts, Inc. bank term
loan FRN Ser. B, 3.98s, 2011 58,072
80,234 Medex, Inc. bank term loan FRN
Ser. B, 4.89s, 2009 81,104
--------------
711,161
Transportation (--%)
-------------------------------------------------------------------------------
70,034 Pacer International, Inc. bank term
loan FRN 4.132s, 2010 70,910
Utilities & Power (0.1%)
-------------------------------------------------------------------------------
119,251 Allegheny Energy, Inc. bank term
loan FRN Ser. C, 5.539s, 2011 119,698
84,878 Teton Power Funding bank term loan
FRN 5.16s, 2011 86,045
80,000 Unisource Energy bank term loan FRN
Ser. B, 5.652s, 2011 78,950
64,190 Williams Products bank term loan FRN
Ser. C, 4.37s, 2007 65,046
--------------
349,739
--------------
Total Senior loans (cost $7,148,030) $7,249,367
Common stocks (0.7%) (a)
Number of shares Value
-------------------------------------------------------------------------------
1,083 AboveNet, Inc. (NON) $26,534
1,153 Alderwoods Group, Inc. (NON) 11,680
350,000 AMRESCO Creditor Trust (acquired
6/17/99, cost $62,787) (NON) (RES) (R) 350
8 Arch Wireles 229
958 Archibald Candy Corp. (NON) 1
605 Birch Telecom, Inc. (NON) 6
244 Comdisco Holding Co., Inc. 5,429
1,883,299 Contifinancial Corp. Liquidating
Trust Units 28,249
8,378 Covad Communications Group, Inc.
(NON) 12,567
614 Genesis HealthCare Corp. (NON) 18,838
25,179 Globix Corp. (NON) 65,465
295,000 iPCS Escrow, Inc. (NON) 295
6,866 iPCS, Inc. (NON) 137,663
99 Knology, Inc. (NON) 296
58 Leucadia National Corp. 3,431
3,473 Lodgian, Inc. (NON) 35,772
60,000 Loewen Group International, Inc.
(NON) 6
431 Polymer Group, Inc. Class A (NON) 5,297
1,004 PSF Group Holdings, Inc. 144A Class
A (NON) 1,505,790
28,727 Regal Entertainment Group 571,955
129 Sterling Chemicals, Inc. (NON) 3,173
467 Sun Healthcare Group, Inc. (NON) 3,456
503,131 VFB LLC (acquired various dates from
10/27/00 to 12/08/03, cost $355,888)
(NON) (RES) 95,595
2,398 Washington Group International, Inc.
(NON) 83,618
--------------
Total Common stocks
(cost $7,387,675) $2,615,695
Brady bonds (0.4%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$900,000 Argentina (Government of) FRB
Ser. L-GL, 2.438s, 2023 $486,000
344,118 Brazil (Federal Republic of) FRB
Ser. 18 YR, 3 1/8s, 2012 315,521
233,824 Brazil (Federal Republic of) govt.
guaranty FRB Ser. RG, 3 1/8s, 2012 214,393
375,000 Peru (Republic of) coll. FLIRB Ser.
20YR, 4 1/2s, 2017 333,750
325,600 Peru (Republic of) FRB Ser. PDI, 5s,
2017 297,924
--------------
Total Brady bonds (cost $1,447,330) $1,647,588
Preferred stocks (0.4%) (a)
Number of shares Value
-------------------------------------------------------------------------------
3,228 Avecia Group PLC $4.00 pfd.
(acquired various dates from
12/03/03 to 2/10/04, cost $46,673)
(United Kingdom) (RES) (PIK) $71,016
5,858 Doane Pet Care Co. $7.125 pfd. 262,146
14 Dobson Communications Corp. 13.00%
pfd. (PIK) 5,320
210 First Republic Capital Corp. 144A
10.50% pfd. 216,300
6,895 iStar Financial, Inc. $1.95 cum.
pfd. (R) 178,581
50 Paxson Communications Corp. 14.25%
cum. pfd. (PIK) 380,000
473 Rural Cellular Corp. Ser. B, 11.375%
cum. pfd. (PIK) 392,590
--------------
Total Preferred stocks
(cost $1,568,634) $1,505,953
Convertible preferred stocks (0.2%) (a)
Number of shares Value
-------------------------------------------------------------------------------
4,915 Crown Castle International Corp.
$3.125 cum. cv. pfd. $233,463
2,910 Omnicare, Inc. $2.00 cv. pfd. 134,224
36 Paxson Communications Corp. 144A
9.75% cv. pfd. (PIK) 198,000
3,690 Williams Cos., Inc. (The) 144A $2.75
cv. pfd. 267,525
--------------
Total Convertible preferred stocks
(cost $753,774) $833,212
Warrants (0.1%) (a) (NON) Expiration
Number of warrants date Value
-------------------------------------------------------------------------------
460 AboveNet, Inc. 9/8/10 $2,645
391 AboveNet, Inc. 9/8/08 2,542
560 Dayton Superior Corp. 144A 6/15/09 --
641 Huntsman Co., LLC 144A 5/15/11 147,430
266 MDP Acquisitions PLC 144A 10/1/13 10,640
210 Mikohn Gaming Corp. 144A 8/15/08 252
220 ONO Finance PLC 144A (United
Kingdom) 2/15/11 2
230 Pliant Corp. 144A 6/1/10 2
570 Travel Centers of America, Inc. 144A 5/1/09 2,850
900 Ubiquitel, Inc. 144A 4/15/10 --
1,479 Washington Group International, Inc.
Ser. A 1/25/06 12,202
1,691 Washington Group International, Inc.
Ser. B 1/25/06 10,569
914 Washington Group International, Inc.
Ser. C 1/25/06 4,570
320 XM Satellite Radio Holdings, Inc.
144A 3/15/10 21,440
--------------
Total Warrants (cost $378,059) $215,144
Units (0.1%) (a)
Number of units Value
-------------------------------------------------------------------------------
470,000 Morrison Knudsen Corp. 2032 $28,788
376 XCL Equity Units 167,075
--------------
Total Units (cost $1,199,874) $195,863
Convertible bonds and notes (--%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$1,210,000 Cybernet Internet Services
International, Inc. 144A cv. sr.
disc. notes 13s, 2009 (Denmark) (In
default) (NON) $12
145,000 WCI Communities, Inc. cv. sr. sub.
notes 4s, 2023 160,950
--------------
Total Convertible bonds and notes
(cost $1,173,321) $160,962
U.S. government and agency mortgage obligations (15.4%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$18,125 Federal Home Loan Mortgage
Corporation 7 1/2s, May 1, 2027 $19,536
Federal National Mortgage
Association Pass-Through
Certificates
4,267 8s, July 1, 2024 4,649
77,060 7 1/2s, with due dates from January
1, 2030 to August 1, 2030 82,719
5,290,310 6 1/2s, with due dates from June 1,
2028 to September 1, 2034 5,578,048
37,400,000 6 1/2s, TBA, November 1, 2034 39,316,750
446,080 5s, June 1, 2019 455,959
12,400,000 5s, TBA, November 1, 2019 12,651,875
2,019,367 4 1/2s, with due dates from August
1, 2033 to June 1, 2034 1,964,782
--------------
Total U.S. government and agency
mortgage obligations
(cost $59,683,685) $60,074,318
U.S. Treasury obligations (13.5%) (a)
Principal amount Value
-------------------------------------------------------------------------------
U.S. Treasury Bonds
$5,440,000 7 1/2s, November 15, 2016 $7,044,800
12,789,000 6 1/4s, May 15, 2030 15,380,770
5,965,000 6 1/4s, August 15, 2023 7,047,088
U.S. Treasury Notes
7,289,000 4 1/4s, August 15, 2013 7,450,725
3,000 4s, November 15, 2012 3,034
6,946,000 3 1/4s, August 15, 2008 7,002,436
6,087,000 1 1/8s, June 30, 2005 6,047,054
7,990,000 U.S. Treasury Strip zero %, November
15, 2024 2,904,086
--------------
Total U.S. Treasury obligations
(cost $50,654,244) $52,879,993
Short-term investments (15.8%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$61,070,145 Putnam Prime Money Market Fund (e) $61,070,145
700,000 U.S. Treasury Bill zero %, November
1, 2004 (SEG) 699,911
--------------
Total Short-term investments
(cost $61,770,056) $61,770,056
-------------------------------------------------------------------------------
Total Investments
(cost $430,971,041) $437,747,948
-------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $391,002,232.
(NON) Non-income-producing security.
(STP) The interest rate and date shown parenthetically represent the new
interest rate to be paid and the date the fund will begin accruing
interest at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at October 31, 2004,
was $166,961 or 0.04% of net assets.
(PIK) Income may be received in cash or additional securities at the
discretion of the issuer.
(SEG) This security was pledged and segregated with the custodian to
cover margin requirements for futures contracts at October 31, 2004.
(R) Real Estate Investment Trust.
(c) Senior loans are exempt from registration under the Security Act of
1933, as amended, but contain certain restrictions on resale and cannot
be sold publicly. Theses loans pay interest at rates which adjust
periodically. The interest rate shown for senior loans are the current
interest rates at October 31, 2004. Senior loans are also subject to
mandatory and/or optional prepayment which cannot be predicted. As a
result, the remaining maturity may be substantially less than the stated
maturity shown.
(e) See Note 4 to the financial statements regarding investments in the
Putnam Prime Money Market Fund.
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).
FLIRB represents Front Loaded Interest Reduction Bond.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes
(FRN) are the current interest rates shown at October 31, 2004.
Forward currency contracts to buy at October 31, 2004
(aggregate face value $35,511,489)
Aggregate Delivery Unrealized
Value face value date appreciation
-------------------------------------------------------------------------------------------------
Australian Dollar $5,176,626 $4,989,265 12/15/04 $187,361
British Pound 12,875,109 12,581,696 12/15/04 293,413
Canadian Dollar 29,623 27,605 12/15/04 2,018
Danish Krone 665,788 632,411 12/15/04 33,377
Japanese Yen 15,625,969 15,186,293 12/15/04 439,676
Norwegian Krone 206,437 190,286 12/15/04 16,151
Polish Zloty 259,486 238,897 12/15/04 20,589
Swiss Franc 747,762 702,582 12/15/04 45,180
Taiwan Dollar 977,008 962,454 12/15/04 14,554
-------------------------------------------------------------------------------------------------
$1,052,319
-------------------------------------------------------------------------------------------------
Forward currency contracts to sell at October 31, 2004
(aggregate face value $31,745,955)
Aggregate Delivery Unrealized
Value face value date depreciation
-------------------------------------------------------------------------------------------------
Australian Dollars $1,097,274 $1,081,706 12/15/04 $(15,568)
British Pound 877,972 859,892 12/15/04 (18,080)
Canadian Dollars 517,405 476,553 12/15/04 (40,852)
Euro 21,914,143 20,883,421 12/15/04 (1,030,722)
Japanese Yen 10,499 10,108 12/15/04 (391)
New Zealand Dollars 4,213,849 3,994,106 12/15/04 (219,743)
Swedish Krona 4,225,822 3,960,883 12/15/04 (264,939)
Swiss Franc 501,149 479,286 12/15/04 (21,863)
-------------------------------------------------------------------------------------------------
$(1,612,158)
-------------------------------------------------------------------------------------------------
Futures contracts outstanding at October 31, 2004
Unrealized
Aggregate Expiration appreciation/
Value face value date (depreciation)
-------------------------------------------------------------------------------------------------
CBT Interest Rate Swap
10yr (Long) $895,750 $870,144 Dec-04 $25,606
Euro-Bobl 5 yr (Long) 7,429,375 7,331,465 Dec-04 97,910
Euro-Bund 10 yr (Long) 8,329,219 8,127,823 Dec-04 201,396
Japanese Government
Bond 10 yr (Long) 4,035,227 3,981,910 Dec-04 53,317
Japanese Government
Bond 10 yr-TSE (Long) 18,217,010 18,064,108 Dec-04 152,902
U.S. Treasury Bond
(Short) 10,359,781 10,233,187 Dec-04 (126,594)
U.S. Treasury Note
10 yr (Long) 8,290,063 8,164,094 Dec-04 125,969
U.S. Treasury Note
5 yr (Short) 27,175,500 26,911,055 Dec-04 (264,445)
-------------------------------------------------------------------------------------------------
$266,061
-------------------------------------------------------------------------------------------------
TBA sale commitments outstanding at October 31, 2004
(proceeds receivable $2,719,438)
Principal Settlement
Agency amount date Value
-------------------------------------------------------------------------------------------------
FNMA, 6 1/2s, November 1, 2034 $2,600,000 11/15/04 $2,733,250
-------------------------------------------------------------------------------------------------
Interest rate swap contracts outstanding at October 31, 2004
Unrealized
Notional Termination appreciation/
amount date (depreciation)
-------------------------------------------------------------------------------------------------
Agreement with Bank of America,
N.A. dated March 25, 2004 to pay
semi-annually the notional amount
multiplied by 3.075% and receive
quarterly the notional amount
multiplied by the three month
USD-LIBOR. $9,000,000 3/30/09 $177,233
Agreement with Bank of America,
N.A. dated January 22, 2004 to pay
semi-annually the notional amount
multiplied by 1.97375% and
receive quarterly the notional
amount multiplied by the three
month USD-LIBOR. 4,500,000 1/26/06 14,099
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. 3,496,000 12/5/05 (20,693)
Agreement with Bank of America,
N.A. dated January 22, 2004 to
pay semi-annually the notional
amount multiplied by 4.35% and
receive quarterly the notional
amount multiplied by the three
month USD-LIBOR. 1,400,000 1/27/14 (12,499)
Agreement with Credit Suisse
First Boston International dated
July 7, 2004 to pay semi-annually
the notional amount multiplied by
4.945% and receive quarterly the
notional amount multiplied by the
three month USD-LIBOR. 3,157,800 7/9/14 (178,255)
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. 2,798,800 7/9/06 28,648
Agreement with Lehman Brothers
Special Financing, Inc. dated
December 9, 2003 to receive semi-
annually the notional amount
multiplied by 4.641% and pay
quarterly the notional amount
multiplied by the three month
USD-LIBOR-BBA. 5,068,000 12/15/13 186,011
Agreement with Lehman Brothers
Special Financing, Inc. dated
January 22, 2004 to pay
semi-annually the notional amount
multiplied by 1.955% and receive
quarterly the notional amount
multiplied by the three month
USD-LIBOR-BBA. 4,500,000 1/26/06 14,817
Agreement with Lehman Brothers
Special Financing, Inc. dated
January 22, 2004 to pay semi-
annually the notional amount
multiplied by 4.3375% and receive
quarterly the notional amount
multiplied by the three month
USD-LIBOR-BBA. 1,400,000 1/26/14 (11,612)
Agreement with Merrill Lynch
Capital Services, Inc. dated
September 27, 2002 to receive
semi-annually the notional amount
multiplied by the six month
JPY-LIBOR-BBA and pay
semi-annually the notional amount
multiplied by 0.399%. JPY 1,334,000,000 10/1/07 $(23,679)
Agreement with Merrill Lynch
Capital Services, Inc. dated
November 17, 2000 to pay
semi-annually the notional amount
multiplied by the three month
USD-LIBOR-BBA and receive the
notional amount multiplied by
6.68%. $3,500,000 11/21/05 240,653
Agreement with UBS, AG dated
April 23, 2004 to receive
annually the notional amount
multiplied by 3.49% and pay
quarterly the notional amount
multiplied by the three month
SEK-STIBOR-SIDE. SEK 212,000,000 4/27/06 162,180
-------------------------------------------------------------------------------------------------
$576,903
-------------------------------------------------------------------------------------------------
Credit default contracts outstanding at October 31, 2004
Unrealized
Notional appreciation/
amount (depreciation)
-------------------------------------------------------------------------------------------------
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 paymentof 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. $613,630 $9,245
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. 613,630 3,199
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. 306,815 5,473
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. 230,111 4,375
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 securities. 153,407 1,641
Agreement with Goldman Sachs effective September 2,
2004, terminating on the date on which the notional
amount is reduced to zero or the date on which the
assets securing the reference obligation are
liquidated, the fund receives a payment of the
outstanding notional amount times 2.5% and the fund
pays in the event of a credit default in one of the
underlying securities in the basket of BB CMBS
securities. 76,704 3,148
Agreement with Goldman Sachs effective September 2,
2004, terminating on the date on which the notional
amount is reduced to zero or the date on which the
assets securing the reference obligation are
liquidated, the fund receives a payment of the
outstanding notional amount times 2.6% and the fund
pays in the event of a credit default in one of the
underlying securities in the basket of BB CMBS
securities. 76,704 (2,037)
-------------------------------------------------------------------------------------------------
$25,044
-------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities
October 31, 2004
Assets
-------------------------------------------------------------------------------
Investment in securities, at value (Note 1):
-------------------------------------------------------------------------------
Unaffiliated issuers (identified cost $369,900,896) $376,677,803
-------------------------------------------------------------------------------
Affiliated issuers (identified cost $61,070,145) (Note 4) 61,070,145
-------------------------------------------------------------------------------
Cash 520,489
-------------------------------------------------------------------------------
Foreign currency (cost $2,182,696) (Note 1) 2,245,687
-------------------------------------------------------------------------------
Dividends, interest and other receivables 5,553,181
-------------------------------------------------------------------------------
Receivable for securities sold 4,250,877
-------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 1,058,512
-------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 328,209
-------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 823,641
-------------------------------------------------------------------------------
Receivable for open credit default contracts (Note 1) 27,081
-------------------------------------------------------------------------------
Total assets 452,555,625
Liabilities
-------------------------------------------------------------------------------
Distributions payable to shareholders 1,705,274
-------------------------------------------------------------------------------
Payable for securities purchased 53,828,658
-------------------------------------------------------------------------------
Payable for variation margin (Note 1) 182,362
-------------------------------------------------------------------------------
Payable for compensation of Manager (Notes 2 and 4) 724,888
-------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 115,829
-------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 39,325
-------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,644
-------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 1,618,351
-------------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 215,508
-------------------------------------------------------------------------------
Payable for open swap contracts (Note 1) 246,738
-------------------------------------------------------------------------------
Payable for open credit default contracts (Note 1) 2,037
-------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable
$2,719,438) (Note 1) 2,733,250
-------------------------------------------------------------------------------
Other accrued expenses 139,529
-------------------------------------------------------------------------------
Total liabilities 61,553,393
-------------------------------------------------------------------------------
Net assets $391,002,232
Represented by
-------------------------------------------------------------------------------
Paid-in capital (unlimited shares authorized) (Note 1) $467,619,358
-------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 883,580
-------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (84,641,537)
-------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 7,140,831
-------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $391,002,232
Computation of net asset value
-------------------------------------------------------------------------------
Net asset value per share ($391,002,232 divided by
53,329,917 shares) $7.33
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of operations
Year ended October 31, 2004
Investment income:
-------------------------------------------------------------------------------
Interest (including interest income of $310,560 from
investments in affiliated issuers) (Note 4) $25,206,523
-------------------------------------------------------------------------------
Dividends 527,895
-------------------------------------------------------------------------------
Total investment income 25,734,418
Expenses:
-------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,873,512
-------------------------------------------------------------------------------
Investor servicing fees (Note 2) 200,013
-------------------------------------------------------------------------------
Custodian fees (Note 2) 292,684
-------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 17,806
-------------------------------------------------------------------------------
Administrative services (Note 2) 10,119
-------------------------------------------------------------------------------
Other 274,726
-------------------------------------------------------------------------------
Fees waived and reimbursed by manager (Note 4) (30,728)
-------------------------------------------------------------------------------
Total expenses 3,638,132
-------------------------------------------------------------------------------
Expense reduction (Note 2) (12,932)
-------------------------------------------------------------------------------
Net expenses 3,625,200
-------------------------------------------------------------------------------
Net investment income 22,109,218
-------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 10,610,356
-------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 1,028,179
-------------------------------------------------------------------------------
Net realized gain on credit default contracts (Note 1) 28,475
-------------------------------------------------------------------------------
Net realized gain on swap contracts (Note 1) 568,340
-------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (1,828,113)
-------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (199,702)
-------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures
contracts, swap contracts, credit default contracts, and TBA
sales commitments during the year 6,316,985
-------------------------------------------------------------------------------
Net gain on investments 16,524,520
-------------------------------------------------------------------------------
Net increase in net assets resulting from operations $38,633,738
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of changes in net assets
Year ended October 31
Increase in net assets 2004 2003
-------------------------------------------------------------------------------
Operations:
-------------------------------------------------------------------------------
Net investment income $22,109,218 $26,930,803
-------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions 10,407,237 6,949,606
-------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign
currencies 6,117,283 37,071,168
-------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 38,633,738 70,951,577
-------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
-------------------------------------------------------------------------------
From net investment income (30,449,836) (27,721,585)
-------------------------------------------------------------------------------
Increase from issuance of common shares in
connection with reinvestment of dividends -- 360,652
-------------------------------------------------------------------------------
Total increase in net assets 8,183,902 43,590,644
Net assets
-------------------------------------------------------------------------------
Beginning of year 382,818,330 339,227,686
-------------------------------------------------------------------------------
End of year (including undistributed net
investment income of $883,580 and
$5,069,939, respectively) $391,002,232 $382,818,330
-------------------------------------------------------------------------------
Number of fund shares
-------------------------------------------------------------------------------
Shares outstanding at beginning of year 53,329,917 53,275,878
-------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions -- 54,039
-------------------------------------------------------------------------------
Shares outstanding at end of year 53,329,917 53,329,917
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
Per-share Year ended October 31
operating performance 2004 2003 2002 2001 2000
------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $7.18 $6.37 $6.80 $7.13 $7.72
------------------------------------------------------------------------------------------------------------------
Investment operations:
------------------------------------------------------------------------------------------------------------------
Net investment income (a) .41 .50 .55 .61 .66
------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .31 (e) .83 (.40) (.31) (.58)
------------------------------------------------------------------------------------------------------------------
Total from
investment operations .72 1.33 .15 .30 .08
------------------------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------------------------
From net
investment income (.57) (.52) (.58) (.58) (.56)
------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- (.05) (.11)
------------------------------------------------------------------------------------------------------------------
Total distributions (.57) (.52) (.58) (.63) (.67)
------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.33 $7.18 $6.37 $6.80 $7.13
------------------------------------------------------------------------------------------------------------------
Market value,
end of period $6.510 $6.570 $6.150 $6.530 $6.438
------------------------------------------------------------------------------------------------------------------
Total return at
market value (%)(b) 7.93 15.48 2.71 11.27 7.70
------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $391,002 $382,818 $339,228 $361,297 $378,800
------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .94 (e) .94 .98 .94 .94
------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.74 (e) 7.36 8.22 8.63 8.66
------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 83.37 118.17 (d) 205.33 (d) 131.14 (d) 147.33
------------------------------------------------------------------------------------------------------------------
(a) Per share net investment income has been determined on the basis of
the weighted number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
(e) Reflects waivers of certain fund expenses in connection with
investments in Putnam Prime Money Market Fund during the period. As a
result of such waivers, the expenses of the fund for the period ended
October 31, 2004, reflect a reduction of less than 0.01% of average net
assets (Note 4).
The accompanying notes are an integral part of these financial
statements.
Notes to financial statements
October 31, 2004
Note 1
Significant accounting policies
Putnam Master Income Trust (the "fund"), a Massachusetts business trust,
is registered under the Investment Company Act of 1940, as amended, as a
diversified, closed-end management investment company. The investment
objective of the fund is to seek high current income consistent with the
preservation of capital. The fund intends to diversify its investments
among the following three sectors of the fixed-income securities market:
a U.S. investment-grade sector, consisting of debt obligations of the
U.S. government and investment-grade U.S. corporate bonds, a high-yield
sector, consisting of high yielding, lower-rated U.S. corporate fixed
income securities and an international sector, consisting of obligations
of foreign governments, their agencies and instrumentalities and other
fixed-income securities denominated in foreign currencies. The fund
invests in higher yielding, lower rated bonds that have a higher rate of
default due to the nature of the investments.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in the financial
statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results could
differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are valued at the last reported sales price on their
principal exchange, or official closing price for certain markets. If no
sales are reported -- as in the case of some securities traded
over-the-counter -- a security is valued at its last reported bid price.
Market quotations are not considered to be readily available for certain
debt obligations; such investments are valued at fair value on the basis
of valuations furnished by an independent pricing service or dealers,
approved by the Trustees. Such services or dealers determine valuations
for normal institutional-size trading units of such securities using
methods based on market transactions for comparable securities and
various relationships, generally recognized by institutional traders,
between securities. Many securities markets and exchanges outside the
U.S. close prior to the close of the New York Stock Exchange and
therefore the closing prices for securities in such markets or on such
exchanges may not fully reflect events that occur after such close but
before the close of the New York Stock Exchange. Accordingly, on certain
days, the fund will fair value foreign securities taking into account
multiple factors, including movements in the U.S. securities markets.
The number of days on which fair value prices will be used will depend
on market activity and it is possible that fair value prices will be
used by the fund to a significant extent. Securities quoted in foreign
currencies are translated into U.S. dollars at the current exchange
rate. Short-term investments having remaining maturities of 60 days or
less are valued at amortized cost, which approximates fair value. Other
investments, including restricted securities, are valued at fair value
following procedures approved by the Trustees. Such valuations and
procedures are reviewed periodically by the Trustees.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending arrangements, into a
joint trading account along with the cash of other registered investment
companies and certain other accounts managed by Putnam Investment Management,
LLC ("Putnam Management"), the fund's manager, an indirect wholly-owned
subsidiary of Putnam, LLC. These balances may be invested in issuers of
high-grade short-term investments having maturities of up to 397 days for
collateral received under security lending arrangements and up to 90 days for
other cash investments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Collateral for certain tri-party repurchase agreements is held at the
counterparty's custodian in a segregated account for the benefit of the
fund and the counterparty. Putnam Management is responsible for
determining that the value of these underlying securities is at all
times at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are recorded on the trade date (date the order to buy or
sell is executed). Gains or losses on securities sold are determined on
the identified cost basis. Interest income is recorded on the accrual
basis. Dividend income, net of applicable withholding taxes, is
recognized on the ex-dividend date, except that certain dividends from
foreign securities are recognized as soon as the fund is informed of the
ex-dividend date. Non-cash dividends, if any, are recorded at the fair
market value of the securities received. All premiums/discounts are
amortized/ accreted on a yield-to-maturity basis. The fund earned
certain fees in connection with its senior loan purchasing activities.
These fees are treated as market discount and are recorded as income in
the statement of operations.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when earned or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies, currency gains and losses realized
between the trade and settlement dates on securities transactions and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized
appreciation and depreciation of assets and liabilities in foreign
currencies arise from changes in the value of open forward currency
contracts and assets and liabilities other than investments at the
period end, resulting from changes in the exchange rate. Investments in
foreign securities involve certain risks, including those related to
economic instability, unfavorable political developments, and currency
fluctuations, not present with domestic investments.
F) Forward currency contracts The fund may buy and sell forward currency
contracts, which are agreements between two parties to buy and sell currencies
at a set price on a future date. These contracts are used to protect against a
decline in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the value of
a currency in which securities a fund intends to buy are denominated, when a
fund holds cash reserves and short term investments). The U.S. dollar value of
forward currency contracts is determined using current forward currency
exchange rates supplied by a quotation service. The market value of the
contract will fluctuate with changes in currency exchange rates. The contract
is marked to market daily and the change in market value is recorded as an
unrealized gain or loss. 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.
The fund could be exposed to risk if the value of the currency changes
unfavorably, if the counterparties to the contracts are unable to meet the
terms of their contracts or if the fund is unable to enter into a closing
position. Risks may exceed amounts recognized on the statement of assets and
liabilities. Forward currency contracts outstanding at period end, if any, are
listed after the fund's portfolio.
G) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. Risks may exceed amounts recognized on the statement
of assets and liabilities. When the contract is closed, the fund records
a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities. If a written call
option is exercised, the premium originally received is recorded as an
addition to sales proceeds. If a written put option is exercised, the
premium originally received is recorded as an addition to the cost of
investments.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. The fund and the broker
agree to exchange an amount of cash equal to the daily fluctuation in
the value of the futures contract. Such receipts or payments are known
as "variation margin." Exchange traded options are valued at the last
sale price, or if no sales are reported, the last bid price for
purchased options and the last ask price for written options. Options
traded over-the-counter are valued using prices supplied by dealers.
Futures and written option contracts outstanding at period end, if any,
are listed after the fund's portfolio.
H) Interest rate swap contracts The fund may enter into interest rate
swap contracts, which are arrangements between two parties to exchange
cash flows based on a notional principal amount, to manage the fund's
exposure to interest rates. Interest rate swap contracts are marked to
market daily based upon quotations from 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.
I) Credit default contracts The fund may enter into credit default contracts
where one party, the protection buyer, makes an upfront or periodic payment to
a counter party, the protection seller, in exchange for the right to receive a
contingent payment. The maximum amount of the payment may equal the notional
amount, at par, of the underlying index or security as a result of a related
credit event. 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.
J) TBA purchase commitments The fund may enter into "TBA" (to be
announced) commitments to purchase securities for a fixed unit price at
a future date beyond customary settlement time. Although the unit price
has been established, the principal value has not been finalized.
However, the amount of the commitments will not significantly differ
from the principal amount. The fund holds, and maintains until
settlement date, cash or high-grade debt obligations in an amount
sufficient to meet the purchase price, or the fund may enter into
offsetting contracts for the forward sale of other securities it owns.
Income on the securities will not be earned until settlement date. TBA
purchase commitments may be considered securities themselves, and
involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to the
risk of decline in the value of the fund's other assets. Unsettled TBA
purchase commitments are valued at fair value of the underlying
securities, according to the procedures described under "Security
valuation" above. The contract is "marked-to-market" daily and the
change in market value is recorded by the fund as an unrealized gain or
loss.
Although the fund will generally enter into TBA purchase commitments
with the intention of acquiring securities for its portfolio or for
delivery pursuant to options contracts it has entered into, the fund may
dispose of a commitment prior to settlement if Putnam Management deems
it appropriate to do so.
K) TBA sale commitments The fund may enter into TBA sale commitments to
hedge its portfolio positions or to sell mortgage-backed securities it
owns under delayed delivery arrangements. Proceeds of TBA sale
commitments are not received until the contractual settlement date.
During the time, a TBA sale commitment is outstanding, equivalent
deliverable securities or an offsetting TBA purchase commitment
deliverable on or before the sale commitment date, are held as "cover"
for the transaction.
Unsettled TBA sale commitments are valued at fair value of the
underlying securities, generally according to the procedures described
under "Security valuation" above. The contract is "marked-to-market"
daily and the change in market value is recorded by the fund as an
unrealized gain or loss. If the TBA sale commitment is closed through
the acquisition of an offsetting purchase commitment, the fund realizes
a gain or loss. If the fund delivers securities under the commitment,
the fund realizes a gain or a loss from the sale of the securities based
upon the unit price established at the date the commitment was entered
into. TBA sale commitments outstanding at period end, if any, are listed
after the fund's portfolio.
L) 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
$84,635,859 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
------------------------------------
$22,645,062 October 31, 2007
11,528,221 October 31, 2008
15,951,444 October 31, 2009
34,511,132 October 31, 2010
M) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the ex-dividend date
and paid at least annually. The amount and character of income and gains to be
distributed are determined in accordance with income tax regulations, which
may differ from generally accepted accounting principles. These differences
include temporary and permanent differences of losses on wash sale
transactions, foreign currency gains and losses, nontaxable dividends,
dividends payable, defaulted bond interest, unrealized and realized gains and
losses on certain futures contracts, market discount, interest on
payment-in-kind securities and income on swap contracts. Reclassifications are
made to the fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. For the year ended October 31, 2004, the fund reclassified
$4,154,259 to increase undistributed net investment income and $354,671 to
increase paid-in-capital, with an increase to accumulated net realized losses
of $4,508,930.
Unrealized appreciation $23,303,602
Unrealized depreciation (16,771,837)
------------
Net unrealized appreciation 6,531,765
Undistributed ordinary income 2,398,611
Capital loss carryforward (84,635,859)
Cost for federal income tax purposes $431,216,183
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 0.75% of average weekly net assets.
Effective September 13, 2004, Putnam Investments Limited ("PIL"), an
affiliate of Putnam Management, is authorized by the Trustees to manage
a separate portion of the assets of the fund as determined by Putnam
Management from time to time. Putnam Management pays a quarterly
sub-management fee to PIL for its services at an annual rate of 0.40% of
the average net assets of the portion of the fund managed by PIL.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company ("PFTC"), a subsidiary of Putnam, LLC. Putnam
Investor Services, a division of PFTC, provides investor servicing agent
functions to the fund. During the year ended October 31, 2004, the fund
paid PFTC $492,697 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 year ended October 31, 2004, the
fund's expenses were reduced by $12,932 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $815, 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.
Note 3
Purchases and sales of securities
During the year ended, October 31, 2004, cost of purchases and proceeds
from sales of investment securities other than U.S. government
securities and short-term investments aggregated $254,465,959 and
$339,177,174, respectively. Purchases and sales of U.S. government
securities aggregated $32,692,197 and $7,175,309, respectively.
Note 4
Investment in Putnam
Prime Money Market Fund
The fund invests in the Putnam Prime Money Market Fund, an open-end
management investment company managed by Putnam Management. Management
fees paid by the fund are reduced by an amount equal to the management
fees paid by Putnam Prime Money Market Fund with respect to assets
invested by the fund in Putnam Prime Money Market Fund. For the year
ended October 31, 2004, management fees paid were reduced by $30,728
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 $310,560 for the period ended
October 31, 2004.
Note 5
Senior loan commitments
Senior loans are purchased or sold on a when-issued or delayed delivery
basis and may be settled a month or more after the trade date; interest
income is accrued based on the terms of the securities. Senior loans can
be acquired through an agent, by assignment from another holder of the
loan, or as a participation interest in another holder's portion of the
loan. When the fund invests in a loan or participation, the fund is
subject to the risk that an intermediate participant between the fund
and the borrower will fail to meet its obligations to the fund, in
addition to the risk that the borrower under the loan may default on its
obligations.
Note 6
Actions by Trustees
On October 15, 2004, the Trustees of the fund approved the transfer of
all of the assets of the fund to Putnam Premier Income Trust in exchange
for shares of Putnam Premier Income Trust and the assumption by the
Putnam Premier Income Trust of all of the liabilities of the fund. The
merger is subject to a number of conditions and there is no guarantee it
will occur.
Note 7
Regulatory matters and litigation
On April 8, 2004, Putnam Management entered into agreements with the
Securities and Exchange Commission ("SEC") and the Massachusetts Securities
Division representing a final settlement of all charges brought against Putnam
Management by those agencies on October 28, 2003 in connection with excessive
short-term trading by Putnam employees and, in the case of the charges brought
by the Massachusetts Securities Division, by participants in some
Putnam-administered 401(k) plans. The settlement with the SEC requires Putnam
Management to pay $5 million in disgorgement plus a civil monetary penalty of
$50 million, and the settlement with the Massachusetts Securities Division
requires Putnam Management to pay $5 million in restitution and an
administrative fine of $50 million. The settlements also leave intact the
process established under an earlier partial settlement with the SEC under
which Putnam Management agreed to pay the amount of restitution determined by
an independent consultant, which may exceed the disgorgement and restitution
amounts specified above, pursuant to a plan to be developed by the independent
consultant.
Putnam Management, and not the investors in any Putnam fund, will bear
all costs, including restitution, civil penalties and associated legal
fees stemming from both of these proceedings. The SEC's and
Massachusetts Securities Division's allegations and related matters also
serve as the general basis for numerous lawsuits, including purported
class action lawsuits filed against Putnam Management and certain
related parties, including certain Putnam funds. Putnam Management has
agreed to bear any costs incurred by Putnam funds in connection with
these lawsuits. Based on currently available information, Putnam
Management believes that the likelihood that the pending private
lawsuits and purported class action lawsuits will have a material
adverse financial impact on the fund is remote, and the pending actions
are not likely to materially affect its ability to provide investment
management services to its clients, including the Putnam funds.
Federal tax information
(Unaudited)
The fund has designated 1.11% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
For its tax year ended October 31, 2004, the fund hereby designates
1.11% or the maximum amount allowable, of its net taxable income as
qualified dividends taxed at individual net capital gain rates.
The Form 1099 you receive in January 2005 will show the tax status of
all distributions paid to your account in calendar 2004.
Results of October 14, 2004 shareholder meeting
(Unaudited)
An annual meeting of shareholders of the fund was held on October 14,
2004. At the meeting, each of the nominees for Trustees was elected, as
follows:
Common shares
Votes
Votes for withheld
----------------------------------------------------------------
Jameson Adkins Baxter 47,395,150 1,724,032
Charles B. Curtis 47,393,979 1,725,202
Myra R. Drucker 47,372,027 1,747,154
Charles E. Haldeman, Jr. 47,368,722 1,750,459
John A. Hill 47,387,789 1,731,392
Ronald J. Jackson 47,394,358 1,724,823
Paul L. Joskow 47,382,177 1,727,004
Elizabeth T. Kennan 47,348,797 1,770,385
John H. Mullin, III 47,392,085 1,727,096
Robert E. Patterson 47,391,829 1,727,353
George Putnam, III 47,367,964 1,751,218
A.J.C. Smith 47,344,359 1,774,822
W. Thomas Stephens 47,370,317 1,748,864
Richard B. Worley 47,384,156 1,735,025
About the Trustees
Jameson A. Baxter (9/6/43), Trustee since 1994
Ms. Baxter is the President of Baxter Associates, Inc., a private
investment firm that she founded in 1986.
Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Banta
Corporation (a printing and digital imaging firm), Ryerson Tull, Inc. (a
steel service corporation), Advocate Health Care and BoardSource,
formerly the National Center for Nonprofit Boards. She is Chairman
Emeritus of the Board of Trustees, Mount Holyoke College, having served
as Chairman for five years and as a board member for thirteen years.
Until 2002, Ms. Baxter was a Director of Intermatic Corporation (a
manufacturer of energy control products).
Ms. Baxter has held various positions in investment banking and
corporate finance, including Vice President and Principal of the Regency
Group, and Vice President of and Consultant to First Boston Corporation.
She is a graduate of Mount Holyoke College.
Charles B. Curtis (4/27/40), Trustee since 2001
Mr. Curtis is President and Chief Operating Officer of the Nuclear
Threat Initiative (a private foundation dealing with national security
issues) and serves as Senior Advisor to the United Nations Foundation.
Mr. Curtis is a member of the Council on Foreign Relations and the
Trustee Advisory Council of the Applied Physics Laboratory, Johns
Hopkins University. Until 2003, Mr. Curtis was a member of the Electric
Power Research Institute Advisory Council and the University of Chicago
Board of Governors for Argonne National Laboratory. Prior to 2002, Mr.
Curtis was a Member of the Board of Directors of the Gas Technology
Institute and the Board of Directors of the Environment and Natural
Resources Program Steering Committee, John F. Kennedy School of
Government, Harvard University. Until 2001, Mr. Curtis was a member of
the Department of Defense Policy Board and Director of EG&G Technical
Services, Inc. (a fossil energy research and development support
company).
From August 1997 to December 1999, Mr. Curtis was a Partner at Hogan &
Hartson L.L.P., a Washington, D.C. law firm. Prior to May 1997, Mr.
Curtis was Deputy Secretary of Energy. He served as Chairman of the
Federal Energy Regulatory Commission from 1977 to 1981 and has held
positions on the staff of the U.S. House of Representatives, the U.S.
Treasury Department, and the SEC.
Myra R. Drucker (1/16/48)
Ms. Drucker is a Vice Chair of the Board of Trustees of Sarah Lawrence
College, a Trustee of Commonfund (a not-for-profit firm specializing in
asset management for educational endowments and foundations) and a
member of the Investment Committee of the Kresge Foundation (a
charitable trust). She is also Chair of the New York Stock Exchange
(NYSE) Pension Managers Advisory Committee and a member of the Executive
Committee of the Committee on Investment of Employee Benefit Assets.
Until August 31, 2004, Ms. Drucker was Managing Director and a member of
the Board of Directors of General Motors Asset Management and Chief
Investment Officer of General Motors Trust Bank. Ms. Drucker also served
as a member of the NYSE Corporate Accountability and Listing Standards
Committee and the NYSE/NASD IPO Advisory Committee.
Prior to joining General Motors Asset Management in 2001, Ms. Drucker
held various executive positions in the investment management industry.
Ms. Drucker served as Chief Investment Officer of Xerox Corporation (a
technology and service company in the document industry), where she was
responsible for the investment of the company 's pension assets. Ms.
Drucker was also Staff Vice President and Director of Trust Investments
for International Paper (a paper, paper distribution, packaging and
forest products company) and previously served as Manager of Trust
Investments for Xerox Corporation. Ms. Drucker received a B.A. degree in
Literature and Psychology from Sarah Lawrence College and pursued
graduate studies in economics, statistics and portfolio theory at Temple
University.
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Mr. Hill is Vice Chairman of First Reserve Corporation, a private equity
buyout firm that specializes in energy investments in the diversified
worldwide energy industry.
Mr. Hill is a Director of Devon Energy Corporation, TransMontaigne Oil
Company, Continuum Health Partners of New York and various private
companies controlled by First Reserve Corporation, as well as a Trustee
of TH Lee, Putnam Investment Trust (a closed-end investment company
advised by an affiliate of Putnam Management). He is also a Trustee of
Sarah Lawrence College.
Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held
executive positions in investment banking and investment management with
several firms and with the federal government, including Deputy
Associate Director of the Office of Management and Budget and Deputy
Director of the Federal Energy Administration. He is active in various
business associations, including the Economic Club of New York, and
lectures on energy issues in the United States and Europe. Mr. Hill
holds a B.A. degree in Economics from Southern Methodist University and
pursued graduate studies there as a Woodrow Wilson Fellow.
Ronald J. Jackson (12/17/43), Trustee since 1996
Mr. Jackson is a private investor.
Mr. Jackson is President of the Kathleen and Ronald J. Jackson
Foundation (a charitable trust). He is also a member of the Board of
Overseers of WGBH (a public television and radio station) as well as a
member of the Board of Overseers of the Peabody Essex Museum.
Mr. Jackson is the former Chairman, President and Chief Executive
Officer of Fisher-Price, Inc. (a major toy manufacturer), from which he
retired in 1993. He previously served as President and Chief Executive
Officer of Stride-Rite, Inc. (a manufacturer and distributor of
footwear) and of Kenner Parker Toys, Inc. (a major toy and game
manufacturer). Mr. Jackson was President of Talbots, Inc. (a distributor
of women's apparel) and has held financial and marketing positions with
General Mills, Inc. and Parker Brothers (a toy and game company). Mr.
Jackson is a graduate of Michigan State University Business School.
Paul L. Joskow (6/30/47), Trustee since 1997
Dr. Joskow is the Elizabeth and James Killian Professor of Economics and
Management, and Director of the Center for Energy and Environmental
Policy Research at the Massachusetts Institute of Technology.
Dr. Joskow serves as a Director of National Grid Transco (a UK-based
holding company with interests in electric and gas transmission and
distribution and telecommunications infrastructure) and TransCanada
Corporation (an energy company focused on natural gas transmission and
power services). He also serves on the board of the Whitehead Institute
for Biomedical Research (a non-profit research institution) and has been
President of the Yale University Council since 1993. Prior to February
2002, he was a Director of State Farm Indemnity Company (an automobile
insurance company), and, prior to March 2000, he was a Director of New
England Electric System (a public utility holding company).
Dr. Joskow has published five books and numerous articles on topics in
industrial organization, government regulation of industry, and
competition policy. He is active in industry restructuring,
environmental, energy, competition and privatization policies -- serving
as an advisor to governments and corporations worldwide. Dr. Joskow
holds a Ph.D. and M. Phil from Yale University and B.A. from Cornell
University.
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Dr. Kennan is a Partner of Cambus-Kenneth Farm (thoroughbred horse and
cattle breeding). She is President Emeritus of Mount Holyoke College.
Dr. Kennan served as Chairman and is now Lead Director of Northeast
Utilities and is a Director of Talbots, Inc. She has served as Director
on a number of other boards, including Bell Atlantic, Chastain Real
Estate, Shawmut Bank, Berkshire Life Insurance and Kentucky Home Life
Insurance. She is a Trustee of the National Trust for Historic
Preservation, of Centre College and of Midway College in Midway,
Kentucky. She is also a member of The Trustees of Reservations. Dr.
Kennan has served on the oversight committee of the Folger Shakespeare
Library, as President of Five Colleges Incorporated, as a Trustee of
Notre Dame University and is active in various educational and civic
associations.
As a member of the faculty of Catholic University for twelve years,
until 1978, Dr. Kennan directed the post-doctoral program in Patristic
and Medieval Studies, taught history and published numerous articles.
Dr. Kennan holds a Ph.D. from the University of Washington in Seattle,
an M.S. from St. Hilda's College at Oxford University and an A.B. from
Mount Holyoke College. She holds several honorary doctorates.
John H. Mullin, III (6/15/41), Trustee since 1997
Mr. Mullin is the Chairman and CEO of Ridgeway Farm (a limited liability
company engaged in timber and farming).
Mr. Mullin serves as a Director of The Liberty Corporation (a
broadcasting company), Progress Energy, Inc. (a utility company,
formerly known as Carolina Power & Light) and Sonoco Products, Inc. (a
packaging company). Mr. Mullin is Trustee Emeritus of The National
Humanities Center and Washington & Lee University, where he served as
Chairman of the Investment Committee. Prior to May 2001, he was a
Director of Graphic Packaging International Corp. Prior to February
2004, he was a Director of Alex Brown Realty, Inc.
Mr. Mullin is also a past Director of Adolph Coors Company; ACX
Technologies, Inc.; Crystal Brands, Inc.; Dillon, Read & Co., Inc.;
Fisher-Price, Inc.; and The Ryland Group, Inc. Mr. Mullin is a graduate
of Washington & Lee University and The Wharton Graduate School,
University of Pennsylvania.
Robert E. Patterson (3/15/45), Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, L.P. and Chairman
of Cabot Properties, Inc. (a private equity firm investing in commercial
real estate).
Mr. Patterson serves as Chairman of the Joslin Diabetes Center and as a
Director of Brandywine Trust Company. Prior to June 2003, he was a
Trustee of Sea Education Association. Prior to December 2001, he was
President and Trustee of Cabot Industrial Trust (a publicly traded real
estate investment trust). Prior to February 1998, he was Executive Vice
President and Director of Acquisitions of Cabot Partners Limited
Partnership (a registered investment adviser involved in institutional
real estate investments). Prior to 1990, he served as Executive Vice
President of Cabot, Cabot & Forbes Realty Advisors, Inc. (the
predecessor company of Cabot Partners) and as a Senior Vice President of
the Beal Companies (a real estate management, investment and development
firm).
Mr. Patterson practiced law and held various positions in state
government and was the founding Executive Director of the Massachusetts
Industrial Finance Agency. Mr. Patterson is a graduate of Harvard
College and Harvard Law School.
W. Thomas Stephens (9/2/42), Trustee since 1997
Mr. Stephens serves on a number of corporate boards.
Mr. Stephens is Chairman and Chief Executive Officer of Boise Cascade,
L.L.C. (a paper, forest products and timberland assets company). Mr.
Stephens serves as a Director of TransCanada Pipelines Limited. Until
2004, Mr. Stephens was a Director of Xcel Energy Incorporated (a public
utility company), Qwest Communications, and Norske Canada, Inc. (a paper
manufacturer). Until 2003, Mr. Stephens was a Director of Mail-Well,
Inc. (a diversified printing company). He served as Chairman of
Mail-Well until 2001 and as CEO of MacMillan-Bloedel, Ltd. (a forest
products company) until 1999.
Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of
Johns Manville Corporation. He holds B.S. and M.S. degrees from the
University of Arkansas.
Richard B. Worley (11/15/45)
Mr. Worley is Managing Partner of Permit Capital, LLC, an investment
management firm.
Mr. Worley serves on the Executive Committee of the University of
Pennsylvania Medical Center, is a Trustee of The Robert Wood Johnson
Foundation (a philanthropic organization devoted to health care issues)
and is a Director of The Colonial Williamsburg Foundation (a historical
preservation organization). Mr. Worley also serves on the investment
committees of Mount Holyoke College and World Wildlife Fund (a wildlife
conservation organization).
Prior to joining Permit Capital LLC in 2002, Mr. Worley served as Chief
Strategic Officer of Morgan Stanley Investment Management. He previously
served as President, Chief Executive Officer and Chief Investment
Officer of Morgan Stanley Dean Witter Investment Management and as a
Managing Director of Morgan Stanley, a financial services firm. Mr.
Worley also was the Chairman of Miller Anderson & Sherrerd, an
investment management firm.
Mr. Worley holds a B.S. degree from University of Tennessee and pursued
graduate studies in economics at the University of Texas.
Charles E. Haldeman, Jr.* (10/29/48)
Mr. Haldeman is President and Chief Executive Officer of Putnam, LLC
("Putnam Investments"). He is a member of Putnam Investments' Executive
Board of Directors and Advisory Council. Prior to November 2003, Mr.
Haldeman served as Co-Head of Putnam Investments' Investment Division.
Prior to joining Putnam Investments in 2002, Mr. Haldeman held executive
positions in the investment management industry. He previously served as
Chief Executive Officer of Delaware Investments and President & Chief
Operating Officer of United Asset Management. Mr. Haldeman was also a
partner and director of Cooke & Bieler, Inc. (an investment management
firm).
Mr. Haldeman currently serves as a Trustee of Dartmouth College and as
Emeritus Trustee of Abington Memorial Hospital. He is a graduate of
Dartmouth College, Harvard Law School and Harvard Business School. Mr.
Haldeman is also a Chartered Financial Analyst (CFA) charterholder.
George Putnam, III* (8/10/51), Trustee since 1984 and President
since 2000
Mr. Putnam is President of New Generation Research, Inc. (a publisher of
financial advisory and other research services), and of New Generation
Advisers, Inc. (a registered investment advisor to private funds). Mr.
Putnam founded the New Generation companies in 1986.
Mr. Putnam is a Director of The Boston Family Office, LLC (a registered
investment adviser). He is a Trustee of St. Mark's School, Shore Country
Day School, and until 2002 was a Trustee of the Sea Education
Association.
Mr. Putnam previously worked as an attorney with the law firm of Dechert
LLP (formerly known as Dechert Price & Rhoads) in Philadelphia. He is a
graduate of Harvard College, Harvard Business School and Harvard Law
School.
A.J.C. Smith* (4/13/34), Trustee since 1986
Mr. Smith is the Chairman of Putnam Investments and Consultant to Marsh
& McLennan Companies, Inc.
Mr. Smith is also a Director of Trident Corp. (a limited partnership
with over thirty institutional investors). He is also a Trustee of the
Carnegie Hall Society, the Educational Broadcasting Corporation, and the
National Museums of Scotland. He is Chairman of the Central Park
Conservancy and a Member of the Board of Overseers of the Joan and
Sanford I. Weill Graduate School of Medical Sciences of Cornell
University. Prior to November 2004, Mr. Smith was a Director of Marsh &
McLennan Companies, Inc. Prior to May 2000 and November 1999, Mr. Smith
was Chairman and CEO, respectively, of Marsh & McLennan Companies, Inc.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of October 31, 2004, there were 110 Putnam Funds. All Trustees other
than Ms. Drucker and Messrs. Worley and Haldeman serve as Trustees of
all Putnam funds. Ms. Drucker and Messrs. Worley and Haldeman currently
serve as Trustees of 82 Putnam funds.
Each Trustee serves for an indefinite term, until his or her
resignation, retirement at age 72, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund, Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc., the parent company of Putnam, LLC and its affiliated companies.
Messrs. Haldeman, Putnam, III, and Smith are deemed "interested persons"
by virtue of their positions as officers of the fund, Putnam Management,
Putnam Retail Management or Marsh & McLennan Companies, Inc. and as
shareholders of Marsh & McLennan Companies, Inc. Mr. Putnam, III is the
President of your fund and each of the other Putnam funds. Mr. Haldeman
is President and Chief Executive Officer of Putnam Investments. Mr.
Smith serves as a Consultant to Marsh & McLennan Companies, Inc. and as
Chairman of Putnam Investments.
Officers
In addition to George Putnam, III, the other officers of the
fund are shown below:
Charles E. Porter (7/26/38)
Executive Vice President, Associate Treasurer
and Principal Executive Officer
Since 1989
Managing Director, Putnam Investments
and Putnam Management
Jonathan S. Horwitz (6/4/55)
Senior Vice President and Treasurer
Since 2004
Managing Director, Putnam Investments
Steven D. Krichmar (6/27/58)
Vice President and Principal Financial Officer
Since 2002
Senior Managing Director, Putnam Investments.
Prior to July 2001, Partner,
PricewaterhouseCoopers LLP
Michael T. Healy (1/24/58)
Assistant Treasurer and Principal
Accounting Officer
Since 2000
Managing Director, Putnam Investments
Beth S. Mazor (4/6/58)
Vice President
Since 2002
Senior Vice President, Putnam Investments
Daniel T. Gallagher (2/27/62)
Vice President and Legal and Compliance
Liaison Officer
Since 2004
Vice President, Putnam Investments. Prior to
2004, Associate, Ropes & Gray LLP; prior to
2000, Law Clerk, Massachusetts Supreme
Judicial Court
Francis J. McNamara, III (8/19/55)
Vice President and Chief Legal Officer
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2004,
General Counsel, State Street Research &
Management Company
James P. Pappas (2/24/53)
Vice President
Since 2004
Managing Director, Putnam Investments and
Putnam Management. During 2002, Chief
Operating Officer, Atalanta/Sosnoff Management
Corporation; prior to 2001, President and Chief
Executive Officer, UAM Investment Services, Inc.
Richard S. Robie, III (3/30/60)
Vice President
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2003,
Senior Vice President, United Asset
Management Corporation
Charles A. Ruys de Perez (10/17/57)
Vice President and Chief Compliance Officer
Since 2004
Managing Director, Putnam Investments
Mark C. Trenchard (6/5/62)
Vice President and BSA Compliance Officer
Since 2002
Senior Vice President, Putnam Investments
Judith Cohen (6/7/45)
Clerk and Assistant Treasurer
Since 1993
Clerk and Assistant Treasurer, The Putnam Funds
The address of each Officer is One Post Office Square,
Boston, MA 02109.
Fund information
About Putnam Investments
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
Investment Sub-Manager
Putnam Investments Limited
57-59 St. James Street
London, England SW1A 1LD
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary
Trust Company
Legal Counsel
Ropes & Gray LLP
Independent Registered
Public Accounting Firm
KPMG LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Myra R. Drucker
Charles E. Haldeman, Jr.
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin, III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
Richard B. Worley
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President,
Associate Treasurer and
Principal Executive Officer
Jonathan S. Horwitz
Senior Vice President
and Treasurer
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Daniel T. Gallagher
Vice President and Legal
and Compliance Liaison Officer
Beth S. Mazor
Vice President
James P. Pappas
Vice President
Richard S. Robie, III
Vice President
Mark C. Trenchard
Vice President and BSA
Compliance Officer
Francis J. McNamara, III
Vice President and
Chief Legal Officer
Charles A. Ruys de Perez
Vice President and
Chief Compliance Officer
Judith Cohen
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or
visit our Web site (www.putnaminvestments.com) anytime for up-to-date
information about the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
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216545 12/04
Item 2. Code of Ethics:
-----------------------
All officers of the Fund, including its principal executive, financial and
accounting officers, are employees of Putnam Investment Management, LLC,
the Fund's investment manager. As such they are subject to a comprehensive
Code of Ethics adopted and administered by Putnam Investments which is
designed to protect the interests of the firm and its clients. The Fund
has adopted a Code of Ethics which incorporates the Code of Ethics of
Putnam Investments with respect to all of its officers and Trustees who are
employees of Putnam Investment Management, LLC. For this reason, the Fund
has not adopted a separate code of ethics governing its principal
executive, financial and accounting officers.
Item 3. Audit Committee Financial Expert:
-----------------------------------------
The Funds' Audit and Pricing Committee is comprised solely of Trustees
who are "independent" (as such term has been defined by the Securities
and Exchange Commission ("SEC") in regulations implementing Section 407
of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe
that each of the members of the Audit and Pricing Committee also possess
a combination of knowledge and experience with respect to financial
accounting matters, as well as other attributes, that qualify them for
service on the Committee. In addition, the Trustees have determined
that all members of the Funds' Audit and Pricing Committee meet the
financial literacy requirements of the New York Stock Exchange's rules
and that Mr. Patterson, Mr. Stephens and Mr. Worley qualify as "audit
committee financial experts" (as such term has been defined by the
Regulations) based on their review of their pertinent experience and
education. Certain other Trustees, although not on the Audit and Pricing
Committee, would also qualify as "audit committee financial experts."
The SEC has stated that the designation or identification of a person
as an audit committee financial expert pursuant to this Item 3 of Form
N-CSR does not impose on such person any duties, obligations or liability
that are greater than the duties, obligations and liability imposed on
such person as a member of the Audit and Pricing Committee and the Board
of Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services:
-----------------------------------------------
The following table presents fees billed in each of the last two
fiscal years for services rendered to the fund by the fund's
independent auditors:
Audit Audit-Related Tax All Other
Fiscal year ended Fees Fees Fees Fees
----------------- ---------- ------------- ------- ---------
October 31, 2004 $39,250 $-- $4,150 $68
October 31, 2003 $34,100 $-- $3,600 $--
For the fiscal years ended October 31, 2004 and October 31, 2003,
the fund's independent auditors billed aggregate non-audit fees in
the amounts of $4,218 and $3,600, respectively, to the fund,
Putnam Management and any entity controlling, controlled by or
under common control with Putnam Management that provides ongoing
services to the fund.
Audit Fees represents fees billed for the fund's last two fiscal
years.
Audit-Related Fees represents fees billed in the fund's last two
fiscal years for services traditionally performed by the fund's
auditor, including accounting consultation for proposed transactions
or concerning financial accounting and reporting standards and other
audit or attest services not required by statute or regulation.
Tax Fees represent fees billed in the fund's last two fiscal years
for tax compliance, tax planning and tax advice services. Tax
planning and tax advice services include assistance with tax audits,
employee benefit plans and requests for rulings or technical advice
from taxing authorities.
All Other Fees Fees represent fees billed for services relating
relating interfund trading.
Pre-Approval Policies of the Audit and Pricing Committee. The Audit
and Pricing Committee of the Putnam funds has determined that, as a
matter of policy, all work performed for the funds by the funds'
independent auditors will be pre-approved by the Committee and will
generally not be subject to pre-approval procedures.
Under certain circumstances, the Audit and Pricing Committee
believes that it may be appropriate for Putnam Investment
Management, LLC ("Putnam Management") and certain of its affiliates
to engage the services of the funds' independent auditors, but only
after prior approval by the Committee. Such requests are required
to be submitted in writing to the Committee and explain, among other
things, the nature of the proposed engagement, the estimated fees,
and why this work must be performed by that particular audit firm.
The Committee will review the proposed engagement at its next
meeting.
Since May 6, 2003, all work performed by the independent auditors
for the funds, Putnam Management and any entity controlling,
controlled by or under common control with Putnam Management that
provides ongoing services to the fund was pre-approved by the
Committee or a member of the Committee pursuant to the pre-approval
policies discussed above. Prior to that date, the Committee had a
general policy to pre-approve the independent auditor's engagements
for non-audit services with the funds, Putnam Management and any
entity controlling, controlled by or under common control with
Putnam Management that provides ongoing services to the fund.
The following table presents fees billed by the fund's principal
auditor for services required to be approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X.
Audit-Related Tax All Other Total Non-
Fiscal year ended Fees Fees Fees Audit Fees
----------------- ------------- ---- --------- ----------
October 31, 2004 $-- $-- $-- $--
October 31, 2003 $-- $-- $-- $--
Item 5. Audit Committee
------------------------
(a) The fund has a separately-designated audit committee
established in accordance with Section 3(a)(58)(A) of the Securities
Exchange Act of 1934, as amended. The Audit Committee of the fund's
Board of Trustees is composed of the following persons:
Myra R. Drucker
Paul L. Joskow (Chairperson)
Robert E. Patterson
W. Thomas Stephens
Richard B. Worley
(b) Not applicable
Item 6. Schedule of Investments: Not applicable
--------------------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End
-------------------------------------------------------------------------
Management Investment Companies:
--------------------------------
Proxy voting guidelines of the Putnam funds
-------------------------------------------
The proxy voting guidelines below summarize the funds' positions on
various issues of concern to investors, and give a general
indication of how fund portfolio securities will be voted on
proposals dealing with particular issues. The funds' proxy voting
service is instructed to vote all proxies relating to fund portfolio
securities in accordance with these guidelines, except as otherwise
instructed by the Proxy Coordinator, a member of the Office of the
Trustees who is appointed to assist in the coordination and voting
of the funds' proxies.
The proxy voting guidelines are just that - guidelines. The
guidelines are not exhaustive and do not include all potential
voting issues. Because proxy issues and the circumstances of
individual companies are so varied, there may be instances when the
funds may not vote in strict adherence to these guidelines. For
example, the proxy voting service is expected to bring to the Proxy
Coordinator's attention proxy questions that are company-specific
and of a non-routine nature and that, even if covered by the
guidelines, may be more appropriately handled on a case-by-case
basis.
Similarly, Putnam Management's investment professionals, as part of
their ongoing review and analysis of all fund portfolio holdings,
are responsible for monitoring significant corporate developments,
including proxy proposals submitted to shareholders, and notifying
the Proxy Coordinator of circumstances where the interests of fund
shareholders may warrant a vote contrary to these guidelines. In
such instances, the investment professionals will submit a written
recommendation to the Proxy Coordinator and the person or persons
designated by Putnam Management's Legal and Compliance Department to
assist in processing referral items pursuant to the funds' "Proxy
Voting Procedures." The Proxy Coordinator, in consultation with the
funds' Senior Vice President, Executive Vice President, and/or the
Chair of the Board Policy and Nominating Committee, as appropriate,
will determine how the funds' proxies will be voted. When
indicated, the Chair of the Board Policy and Nominating Committee
may consult with other members of the Committee or the full Board of
Trustees.
The following guidelines are grouped according to the types of
proposals generally presented to shareholders. Part I deals with
proposals that have been put forth by management and approved and
recommended by a company's board of directors. Part II deals with
proposals submitted by shareholders for inclusion in proxy
statements. Part III addresses unique considerations pertaining to
non-U.S. issuers.
The Putnam funds will disclose their proxy votes in accordance with
the timetable established by SEC rules (i.e., not later than August
31 of each year for the most recent 12-month period ended June 30).
I. BOARD-APPROVED PROPOSALS
----------------------------
The vast majority of matters presented to shareholders for a vote
involve proposals made by a company itself (sometimes referred to as
"management proposals"), which have been approved and recommended by
its board of directors. In view of the enhanced corporate
governance practices currently being implemented in public companies
and of the funds' intent to hold corporate boards accountable for
their actions in promoting shareholder interests, the funds' proxies
generally will be voted for the decisions reached by majority
independent boards of directors, except as otherwise indicated in
these guidelines. Accordingly, the funds' proxies will be voted for
board-approved proposals, except as follows:
Matters relating to the Board of Directors
------------------------------------------
Uncontested Election of Directors
The funds' proxies will be voted for the election of a company's
nominees for the board of directors, except as follows:
The funds will withhold votes for the entire board of directors if
* the board does not have a majority of independent directors,
* the board has not established independent nominating, audit, and
compensation committees,
* the board has more than 19 members or fewer than five members,
absent special circumstances,
* the board has not acted to implement a policy requested in a
shareholder proposal that received the support of a majority of the
shares of the company at its previous two annual meetings, or
* the board has adopted or renewed a shareholder rights plan
(commonly referred to as a "poison pill") without shareholder
approval during the current or prior calendar year.
The funds will withhold votes for any nominee for director who:
* is considered an independent director by the company and who has
received compensation from the company other than for service as a
director (e.g., investment banking, consulting, legal, or financial
advisory fees),
* attends less than 75% of board and committee meetings without
valid reasons for the absences (e.g., illness, personal emergency,
etc.),
* as a director of a public company (Company A), is employed as a
senior executive of another public company (Company B) if a director
of Company B serves as a senior executive of Company A (commonly
referred to as an "interlocking directorate"), or
* serves on more than five unaffiliated public company boards (for
the purpose of this guideline, boards of affiliated registered
investment companies will count as one board).
Commentary:
Board independence: Unless otherwise indicated, for the purposes of
determining whether a board has a majority of independent directors
and independent nominating, audit, and compensation committees, an
"independent director" is a director who (1) meets all requirements
to serve as an independent director of a company under the final
NYSE Corporate Governance Rules (e.g., no material business
relationships with the company and no present or recent employment
relationship with the company (including employment of an immediate
family member as an executive officer)), and (2) has not accepted
directly or indirectly any consulting, advisory, or other
compensatory fee from the company other than in his or her capacity
as a member of the board of directors or any board committee. The
funds' Trustees believe that the receipt of compensation for
services other than service as a director raises significant
independence issues.
Board size: The funds' Trustees believe that the size of the board
of directors can have a direct impact on the ability of the board to
govern effectively. Boards that have too many members can be
unwieldy and ultimately inhibit their ability to oversee management
performance. Boards that have too few members can stifle innovation
and lead to excessive influence by management.
Time commitment: Being a director of a company requires a
significant time commitment to adequately prepare for and attend the
company's board and committee meetings. Directors must be able to
commit the time and attention necessary to perform their fiduciary
duties in proper fashion, particularly in times of crisis. The
funds' Trustees are concerned about over-committed directors. In
some cases, directors may serve on too many boards to make a
meaningful contribution. This may be particularly true for senior
executives of public companies (or other directors with
substantially full-time employment) who serve on more than a few
outside boards. The funds may withhold votes from such directors on
a case-by-case basis where it appears that they may be unable to
discharge their duties properly because of excessive commitments.
Interlocking directorships: The funds' Trustees believe that
interlocking directorships are inconsistent with the degree of
independence required for outside directors of public companies.
Corporate governance practices: Board independence depends not only
on its members' individual relationships, but also on the board's
overall attitude toward management. Independent boards are
committed to good corporate governance practices and, by providing
objective independent judgment, enhancing shareholder value. The
funds may withhold votes on a case-by-case basis from some or all
directors who, through their lack of independence, have failed to
observe good corporate governance practices or, through specific
corporate action, have demonstrated a disregard for the interest of
shareholders.
Contested Elections of Directors
The funds will vote on a case-by-case basis in contested elections
of directors.
Classified Boards
The funds will vote against proposals to classify a board, absent
special circumstances indicating that shareholder interests would be
better served by this structure.
Commentary: Under a typical classified board structure, the
directors are divided into three classes, with each class serving a
three-year term. The classified board structure results in
directors serving staggered terms, with usually only a third of the
directors up for re-election at any given annual meeting. The
funds' Trustees generally believe that it is appropriate for
directors to stand for election each year, but recognize that, in
special circumstances, shareholder interests may be better served
under a classified board structure.
Other Board-Related Proposals
The funds will generally vote for board-approved proposals that have
been approved by a majority independent board, and on a case-by-case
basis on board-approved proposals where the board fails to meet the
guidelines' basic independence standards (i.e., majority of
independent directors and independent nominating, audit, and
compensation committees).
Executive Compensation
----------------------
The funds generally favor compensation programs that relate
executive compensation to a company's long-term performance. The
funds will vote on a case-by-case basis on board-approved proposals
relating to executive compensation, except as follows:
Except where the funds are otherwise withholding votes for the
entire board of directors, the funds will vote for stock option and
restricted stock plans that will result in an average annual
dilution of 1.67% or less (based on the disclosed term of the plan
and including all equity-based plans).
The funds will vote against stock option and restricted stock
plans that will result in an average annual dilution of greater than
1.67% (based on the disclosed term of the plan and including all
equity-based plans).
The funds will vote against any stock option or restricted stock
plan where the company's actual grants of stock options and
restricted stock under all equity-based compensation plans during
the prior three (3) fiscal years have resulted in an average annual
dilution of greater than 1.67%.
The funds will vote against stock option plans that permit the
replacing or repricing of underwater options (and against any
proposal to authorize such replacement or repricing of underwater
options).
The funds will vote against stock option plans that permit
issuance of options with an exercise price below the stock's current
market price.
Except where the funds are otherwise withholding votes for the
entire board of directors, the funds will vote for an employee stock
purchase plan that has the following features: (1) the shares
purchased under the plan are acquired for no less than 85% of their
market value; (2) the offering period under the plan is 27 months or
less; and (3) dilution is 10% or less.
Commentary: Companies should have compensation programs that are
reasonable and that align shareholder and management interests over
the longer term. Further, disclosure of compensation programs
should provide absolute transparency to shareholders regarding the
sources and amounts of, and the factors influencing, executive
compensation. Appropriately designed equity-based compensation
plans can be an effective way to align the interests of long-term
shareholders with the interests of management. The funds may vote
against executive compensation proposals on a case-by-case basis
where compensation is excessive by reasonable corporate standards,
or where a company fails to provide transparent disclosure of
executive compensation. In voting on a proposal relating to
executive compensation, the funds will consider whether the proposal
has been approved by an independent compensation committee of the
board.
Capitalization
--------------
Many proxy proposals involve changes in a company's capitalization,
including the authorization of additional stock, the issuance of
stock, the repurchase of outstanding stock, or the approval of a
stock split. The management of a company's capital structure
involves a number of important issues, including cash flow,
financing needs, and market conditions that are unique to the
circumstances of the company. As a result, the funds will vote on a
case-by-case basis on board-approved proposals involving changes to
a company's capitalization, except that where the funds are not
otherwise withholding votes from the entire board of directors:
The funds will vote for proposals relating to the authorization
and issuance of additional common stock (except where such proposals
relate to a specific transaction).
The funds will vote for proposals to effect stock splits
(excluding reverse stock splits).
The funds will vote for proposals authorizing share repurchase
programs.
Commentary: A company may decide to authorize additional shares of
common stock for reasons relating to executive compensation or for
routine business purposes. For the most part, these decisions are
best left to the board of directors and senior management. The
funds will vote on a case-by-case basis, however, on other proposals
to change a company's capitalization, including the authorization of
common stock with special voting rights, the authorization or
issuance of common stock in connection with a specific transaction
(e.g., an acquisition, merger or reorganization), or the
authorization or issuance of preferred stock. Actions such as these
involve a number of considerations that may affect a shareholder's
investment and that warrant a case-by-case determination.
Acquisitions, Mergers, Reincorporations, Reorganizations and Other
------------------------------------------------------------------
Transactions
------------
Shareholders may be confronted with a number of different types of
transactions, including acquisitions, mergers, reorganizations
involving business combinations, liquidations, and the sale of all
or substantially all of a company's assets, which may require their
consent. Voting on such proposals involves considerations unique to
each transaction. As a result, the funds will vote on a
case-by-case basis on board-approved proposals to effect these types
of transactions, except as follows:
The funds will vote for mergers and reorganizations involving
business combinations designed solely to reincorporate a company in
Delaware.
Commentary: A company may reincorporate into another state through
a merger or reorganization by setting up a "shell" company in a
different state and then merging the company into the new company.
While reincorporation into states with extensive and established
corporate laws - notably Delaware - provides companies and
shareholders with a more well-defined legal framework, shareholders
must carefully consider the reasons for a reincorporation into
another jurisdiction, including especially an offshore jurisdiction.
Anti-Takeover Measures
----------------------
Some proxy proposals involve efforts by management to make it more
difficult for an outside party to take control of the company
without the approval of the company's board of directors. These
include the adoption of a shareholder rights plan, requiring
supermajority voting on particular issues, the adoption of fair
price provisions, the issuance of blank check preferred stock, and
the creation of a separate class of stock with disparate voting
rights. Such proposals may adversely affect shareholder rights,
lead to management entrenchment, or create conflicts of interest.
As a result, the funds will vote against board-approved proposals to
adopt such anti-takeover measures, except as follows:
The funds will vote on a case-by-case basis on proposals to ratify
or approve shareholder rights plans; and
The funds will vote on a case-by-case basis on proposals to adopt
fair price provisions.
Commentary: The funds' Trustees recognize that poison pills and
fair price provisions may enhance shareholder value under certain
circumstances. As a result, the funds will consider proposals to
approve such matters on a case-by-case basis.
Other Business Matters
----------------------
Many proxies involve approval of routine business matters, such as
changing a company's name, ratifying the appointment of auditors,
and procedural matters relating to the shareholder meeting. For the
most part, these routine matters do not materially affect
shareholder interests and are best left to the board of directors
and senior management of the company. The funds will vote for
board-approved proposals approving such matters, except as follows:
The funds will vote on a case-by-case basis on proposals to amend
a company's charter or bylaws (except for charter amendments
necessary or to effect stock splits to change a company's name or to
authorize additional shares of common stock).
The funds will vote against authorization to transact other
unidentified, substantive business at the meeting.
The funds will vote on a case-by-case basis on other business
matters where the funds are otherwise withholding votes for the
entire board of directors.
Commentary: Charter and bylaw amendments and the transaction of
other unidentified, substantive business at a shareholder meeting
may directly affect shareholder rights and have a significant impact
on shareholder value. As a result, the funds do not view such items
as routine business matters. Putnam Management's investment
professionals and the funds' proxy voting service may also bring to
the Proxy Coordinator's attention company-specific items that they
believe to be non-routine and warranting special consideration.
Under these circumstances, the funds will vote on a case-by-case
basis.
II. SHAREHOLDER PROPOSALS
--------------------------
SEC regulations permit shareholders to submit proposals for
inclusion in a company's proxy statement. These proposals generally
seek to change some aspect of the company's corporate governance
structure or to change some aspect of its business operations. The
funds generally will vote in accordance with the recommendation of
the company's board of directors on all shareholder proposals,
except as follows:
The funds will vote for shareholder proposals to declassify a
board, absent special circumstances which would indicate that
shareholder interests are better served by a classified board
structure.
The funds will vote for shareholder proposals to require
shareholder approval of shareholder rights plans.
The funds will vote for shareholder proposals that are consistent
with the funds' proxy voting guidelines for board-approved
proposals.
The funds will vote on a case-by-case basis on other shareholder
proposals where the funds are otherwise withholding votes for the
entire board of directors.
Commentary: In light of the substantial reforms in corporate
governance that are currently underway, the funds' Trustees believe
that effective corporate reforms should be promoted by holding
boards of directors - and in particular their independent directors
- accountable for their actions, rather than imposing additional
legal restrictions on board governance through piecemeal proposals.
Generally speaking, shareholder proposals relating to business
operations are often motivated primarily by political or social
concerns, rather than the interests of shareholders as investors in
an economic enterprise. As stated above, the funds' Trustees
believe that boards of directors and management are responsible for
ensuring that their businesses are operating in accordance with high
legal and ethical standards and should be held accountable for
resulting corporate behavior. Accordingly, the funds will generally
support the recommendations of boards that meet the basic
independence and governance standards established in these
guidelines. Where boards fail to meet these standards, the funds
will generally evaluate shareholder proposals on a case-by-case
basis.
III. VOTING SHARES OF NON-U.S. ISSUERS
---------------------------------------
Many of the Putnam funds invest on a global basis, and, as a result,
they may be required to vote shares held in non-U.S. issuers - i.e.,
issuers that are incorporated under the laws of foreign
jurisdictions and that are not listed on a U.S. securities exchange
or the NASDAQ stock market. Because non-U.S. issuers are
incorporated under the laws of countries and jurisdictions outside
the U.S., protection for shareholders may vary significantly from
jurisdiction to jurisdiction. Laws governing non-U.S. issuers may,
in some cases, provide substantially less protection for
shareholders. As a result, the foregoing guidelines, which are
premised on the existence of a sound corporate governance and
disclosure framework, may not be appropriate under some
circumstances for non-U.S. issuers.
In many non-U.S. markets, shareholders who vote proxies of a
non-U.S. issuer are not able to trade in that company's stock on or
around the shareholder meeting date. This practice is known as
"share blocking." In countries where share blocking is practiced,
the funds will vote proxies only with direction from Putnam
Management's investment professionals.
In addition, some non-U.S. markets require that a company's shares
be re-registered out of the name of the local custodian or nominee
into the name of the shareholder for the meeting. This practice is
known as "share re-registration." As a result, shareholders,
including the funds, are not able to trade in that company's stock
until the shares are re-registered back in the name of the local
custodian or nominee. In countries where share re-registration is
practiced, the funds will generally not vote proxies.
The funds will vote proxies of non-U.S. issuers in accordance with
the foregoing guidelines where applicable, except as follows:
Uncontested Election of Directors
---------------------------------
Japan
For companies that have established a U.S.-style corporate
structure, the funds will withhold votes for the entire board of
directors if
* the board does not have a majority of outside directors,
* the board has not established nominating and compensation
committees composed of a majority of outside directors, or
* the board has not established an audit committee composed of a
majority of independent directors.
The funds will withhold votes for the appointment of members of a
company's board of statutory auditors if a majority of the members
of the board of statutory auditors is not independent.
Commentary:
Board structure: Recent amendments to the Japanese Commercial Code
give companies the option to adopt a U.S.-style corporate structure
(i.e., a board of directors and audit, nominating, and compensation
committees). The funds will vote for proposals to amend a company's
articles of incorporation to adopt the U.S.-style corporate
structure.
Definition of outside director and independent director: Corporate
governance principles in Japan focus on the distinction between
outside directors and independent directors. Under these
principles, an outside director is a director who is not and has
never been a director, executive, or employee of the company or its
parent company, subsidiaries or affiliates. An outside director is
"independent" if that person can make decisions completely
independent from the managers of the company, its parent,
subsidiaries, or affiliates and does not have a material
relationship with the company (i.e., major client, trading partner,
or other business relationship; familial relationship with current
director or executive; etc.). The guidelines have incorporated
these definitions in applying the board independence standards
above.
Korea
The funds will withhold votes for the entire board of directors if
* the board does not have a majority of outside directors,
* the board has not established a nominating committee composed of
at least a majority of outside directors, or
* the board has not established an audit committee composed of at
least three members and in which at least two-thirds of its members
are outside directors.
Commentary: For purposes of these guideline, an "outside director"
is a director that is independent from the management or controlling
shareholders of the company, and holds no interests that might
impair performing his or her duties impartially from the company,
management or controlling shareholder. In determining whether a
director is an outside director, the funds will also apply the
standards included in Article 415-2(2) of the Korean Commercial Code
(i.e., no employment relationship with the company for a period of
two years before serving on the committee, no director or employment
relationship with the company's largest shareholder, etc.) and may
consider other business relationships that would affect the
independence of an outside director.
United Kingdom
The funds will withhold votes for the entire board of directors if
* the board does not have at least a majority of independent
non-executive directors,
* the board has not established nomination committees composed of a
majority of independent non-executive directors, or
* the board has not established compensation and audit committees
composed of (1) at least three directors (in the case of smaller
companies, two directors) and (2) solely of independent
non-executive directors.
The funds will withhold votes for any nominee for director who is
considered an independent director by the company and who has
received compensation from the company other than for service as a
director (e.g., investment banking, consulting, legal, or financial
advisory fees).
Commentary:
Application of guidelines: Although the U.K.'s Combined Code on
Corporate Governance ("Combined Code") has adopted the "comply and
explain" approach to corporate governance, the funds' Trustees
believe that the guidelines discussed above with respect to board
independence standards are integral to the protection of investors
in U.K. companies. As a result, these guidelines will be applied in
a prescriptive manner.
Definition of independence: For the purposes of these guidelines, a
non-executive director shall be considered independent if the
director meets the independence standards in section A.3.1 of the
Combined Code (i.e., no material business or employment
relationships with the company, no remuneration from the company for
non-board services, no close family ties with senior employees or
directors of the company, etc.), except that the funds do not view
service on the board for more than nine years as affecting a
director's independence.
Smaller companies: A smaller company is one that is below the FTSE
350 throughout the year immediately prior to the reporting year.
Canada
In January 2004, Canadian securities regulators issued proposed
policies that would impose new corporate governance requirements on
Canadian public companies. The recommended practices contained in
these new corporate governance requirements mirror corporate
governance reforms that have been adopted by the NYSE and other U.S.
national securities exchanges and stock markets. As a result, the
funds will vote on matters relating to the board of directors of
Canadian issuers in accordance with the guidelines applicable to
U.S. issuers.
Commentary: Like the U.K.'s Combined Code, the proposed policies on
corporate governance issued by Canadian securities regulators embody
the "comply and explain" approach to corporate governance. Because
the funds' Trustees believe that the board independence standards
contained in the proxy voting guidelines are integral to the
protection of investors in Canadian companies, these standards will
be applied in a prescriptive manner.
Other Matters
-------------
The funds will vote for shareholder proposals calling for a
majority of a company's directors to be independent of management.
The funds will vote for shareholder proposals seeking to increase
the independence of board nominating, audit, and compensation
committees.
The funds will vote for shareholder proposals that implement
corporate governance standards similar to those established under
U.S. federal law and the listing requirements of U.S. stock
exchanges, and that do not otherwise violate the laws of the
jurisdiction under which the company is incorporated.
The funds will vote on a case-by-case basis on proposals relating
to (1) the issuance of common stock in excess of 20% of the
company's outstanding common stock where shareholders do not have
preemptive rights, or (2) the issuance of common stock in excess of
100% of the company's outstanding common stock where shareholders
have preemptive rights.
As adopted December 10, 2004
Proxy Voting Procedures of the Putnam Funds
-------------------------------------------
The Role of the Funds' Trustees
-------------------------------
The Trustees of the Putnam Funds exercise control of the voting of
proxies through their Board Policy and Nominating Committee, which is
composed entirely of independent Trustees. The Board Policy and
Nominating Committee oversees the proxy voting process and participates,
as needed, in the resolution of issues which need to be handled on a
case-by-case basis. The Committee annually reviews and recommends for
approval by the Trustees guidelines governing the Funds' proxy votes,
including how the Funds vote on specific proposals and which matters are
to be considered on a case-by-case basis. The Trustees are assisted in
this process by their independent administrative staff ("Fund
Administration"), independent legal counsel, and an independent proxy
voting service. The Trustees also receive assistance from Putnam
Investment Management, LLC ("Putnam Management"), the Funds' investment
adviser, on matters involving investment judgments. In all cases, the
ultimate decision on voting proxies rests with the Trustees, acting as
fiduciaries on behalf of the shareholders of the Funds.
The Role of the Proxy Voting Service
------------------------------------
The Funds have engaged an independent proxy voting service to assist in
the voting of proxies. The proxy voting service is responsible for
coordinating with the Funds' custodians to ensure that all proxy
materials received by the custodians relating to the Funds' portfolio
securities are processed in a timely fashion. To the extent applicable,
the proxy voting service votes all proxies in accordance with the proxy
voting guidelines established by the Trustees. The proxy voting service
will refer proxy questions to the Proxy Coordinator (described below)
for instructions under circumstances where: (1) the application of the
proxy voting guidelines is unclear, (2) a particular proxy question is
not covered by the guidelines, or (3) the guidelines call for specific
instructions on a case-by-case basis. The proxy voting service is also
requested to call to the Proxy Coordinator's attention specific proxy
questions which, while governed by a guideline, appear to involve
unusual or controversial issues. The Funds also utilize research
services relating to proxy questions provided by the proxy voting
service and by other firms.
The Role of the Proxy Coordinator
---------------------------------
Each year, a member of Fund Administration is appointed Proxy
Coordinator to assist in the coordination and voting of the Funds'
proxies. The Proxy Coordinator will deal directly with the proxy voting
service and, in the case of proxy questions referred by the proxy voting
service, will solicit voting recommendations and instructions from Fund
Administration, the Chair of the Board Policy and Nominating Committee,
and Putnam Management's investment professionals, as appropriate. The
Proxy Coordinator is responsible for ensuring that these questions and
referrals are responded to in a timely fashion and for transmitting
appropriate voting instructions to the proxy voting service.
Voting Procedures for Referral Items
------------------------------------
As discussed above, the proxy voting service will refer proxy questions
to the Proxy Coordinator under certain circumstances. When the
application of the proxy voting guidelines is unclear or a particular
proxy question is not covered by the guidelines (and does not involve
investment considerations), the Proxy Coordinator will assist in
interpreting the guidelines and, as appropriate, consult with the Senior
Vice President of Fund Administration, the Executive Vice President of
Fund Administration and the Chair of the Board Policy and Nominating
Committee on how the Funds' shares will be voted.
For proxy questions that require a case-by-case analysis pursuant to the
guidelines or that are not covered by the guidelines but involve
investment considerations, the Proxy Coordinator will refer such
questions, through a written request, to Putnam Management's investment
professionals for a voting recommendation. Such referrals will be made
in cooperation with the person or persons designated by Putnam
Management's Legal and Compliance Department to assist in processing
such referral items. In connection with each such referral item, the
Legal and Compliance Department will conduct a conflicts of interest
review, as described below under "Conflicts of Interest," and provide a
conflicts of interest report (the "Conflicts Report") to the Proxy
Coordinator describing the results of such review. After receiving a
referral item from the Proxy Coordinator, Putnam Management's investment
professionals will provide a written recommendation to the Proxy
Coordinator and the person or persons designated by the Legal and
Compliance Department to assist in processing referral items. Such
recommendation will set forth (1) how the proxies should be voted, (2)
the basis and rationale for such recommendation, and (3) any contacts
the investment professionals have had with respect to the referral item
with non-investment personnel of Putnam Management or with outside
parties (except for routine communications from proxy solicitors). The
Proxy Coordinator will then review the investment professionals'
recommendation and the Conflicts Report with the Senior Vice President
and/or Executive Vice President in determining how to vote the Funds'
proxies. The Proxy Coordinator will maintain a record of all proxy
questions that have been referred to Putnam Management's investment
professionals, the voting recommendation and the Conflicts Report.
In some situations, the Proxy Coordinator, the Senior Vice President
and/or the Executive Vice President may determine that a particular
proxy question raises policy issues requiring consultation with the
Chair of the Board Policy and Nominating Committee who, in turn, may
decide to bring the particular proxy question to the Committee or the
full board of Trustees for consideration.
Conflicts of Interest
---------------------
Occasions may arise where a person or organization involved in the proxy
voting process may have a conflict of interest. A conflict of interest
may exist, for example, if Putnam Management has a business relationship
with (or is actively soliciting business from) either the company
soliciting the proxy or a third party that has a material interest in
the outcome of a proxy vote or that is actively lobbying for a
particular outcome of a proxy vote. Any individual with knowledge of a
personal conflict of interest (e.g., familial relationship with company
management) relating to a particular referral item shall disclose that
conflict to the Proxy Coordinator and the Legal and Compliance
Department and otherwise remove himself or herself from the proxy voting
process. The Legal and Compliance Department will review each item
referred to Putnam Management's investment professionals to determine if
a conflict of interest exists and will provide the Proxy Coordinator
with a Conflicts Report for each referral item that (1) describes any
conflict of interest; (2) discusses the procedures used to address such
conflict of interest; and (3) discloses any contacts from parties
outside Putnam Management (other than routine communications from proxy
solicitors) with respect to the referral item not otherwise reported in
an investment professional's recommendation. The Conflicts Report will
also include written confirmation that any recommendation from an
investment professional provided under circumstances where a conflict of
interest exists was made solely on the investment merits and without
regard to any other consideration.
As adopted March 14, 2003
Item 8. Purchases of Equity Securities by Closed-End Management Investment
--------------------------------------------------------------------------
Companies and Affiliated Purchasers: Not applicable
------------------------------------
Item 9. Submission of Matters to a Vote of Security Holders:
------------------------------------------------------------
Not applicable
Item 10. Controls and Procedures:
--------------------------------
(a) The registrant's principal executive officer and principal
financial officer have concluded, based on their evaluation of the
effectiveness of the design and operation of the registrant's
disclosure controls and procedures as of a date within 90 days of
the filing date of this report on Form N-CSR, that the design and
operation of such procedures are generally effective to provide
reasonable assurance that information required to be disclosed by
the investment company in the reports that it files or submits under
the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the
Commission's rules and forms.
(b) Changes in internal control over financial reporting:
Not applicable
Item 11. Exhibits:
------------------
(a) The Code of Ethics of The Putnam Funds, which incorporates the
Code of Ethics of Putnam Investments, is filed herewith.
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act
of 2002 are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: December 29, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Executive Officer
Date: December 29, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: December 29, 2004