Item 1. Report to Stockholders:
-------------------------------
The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
Putnam
Premier Income
Trust
7 | 31 | 05
Annual Report
[SCALE LOGO OMITTED]
PUTNAM INVESTMENTS
[GRAPHIC OMITTED: WATERFALL]
INCOME FUNDS
invest in bonds with
the goal of providing
a steady stream of
income over time.
What makes Putnam different?
[GRAPHIC OMITTED: FOUNDER]
In 1830, Massachusetts Supreme Judicial Court Justice Samuel Putnam
established The Prudent Man Rule, a legal foundation for responsible money
management.
THE PRUDENT MAN RULE
All that can be required of a trustee to invest is that he shall conduct
himself faithfully and exercise a sound discretion. He is to observe how
men of prudence, discretion, and intelligence manage their own affairs,
not in regard to speculation, but in regard to the permanent disposition
of their funds, considering the probable income, as well as the probable
safety of the capital to be invested.
[GRAPHIC OMITTED: SIGNATURE, JUSTICE SAMUEL PUTNAM 1830]
A time-honored tradition in money management
Since 1937, our values have been rooted in a profound sense of
responsibility for the money entrusted to us.
A prudent approach to investing
We use a research-driven team approach to seek consistent, dependable,
superior investment results over time, although there is no guarantee a
fund will meet its objectives.
Funds for every investment goal
We offer a broad range of mutual funds and other financial products so
investors and their advisors can build diversified portfolios.
A commitment to doing what's right for investors
We have stringent investor protections and provide a wealth of information
about the Putnam funds.
Industry-leading service
We help investors, along with their financial advisors, make informed
investment decisions with confidence.
Putnam
Premier Income
Trust
7 | 31 | 05
Annual Report
Message from the Trustees 2
Report from the fund managers 5
Performance 11
Your fund's management 13
Terms and definitions 16
Trustee approval of management contract 17
Other information for shareholders 23
Financial statements 24
Federal tax information 81
Shareholder meeting results 82
Compliance certifications 84
About the Trustees 85
Officers 91
Cover photograph: North Middle Falls, Silver Creek State Park, Oregon [c]
Richard H. Johnson
Message from the Trustees
Dear Fellow Shareholder
We want you to know that Putnam Investments' management team, under the
leadership of Chief Executive Officer Ed Haldeman, continues to focus on
investment performance and remains committed to putting the interests of
shareholders first. In keeping with these goals, we have redesigned and
expanded our shareholder reports to make it easier for you to learn more
about your fund. Furthermore, on page 17 we provide information about the
2005 approval by the Trustees of your fund's management contract with
Putnam, including the amendment to the contract that was also approved by
fund shareholders at the annual shareholder meeting.
On page 82 of this report, you will find information about the outcome of
votes by shareholders at your fund's annual meeting, which was held on
July 14, 2005. At the meeting, fund shareholders voted, consistent with
the recommendation of your fund's Trustees, against a proposal to convert
your fund to an open-end investment company. Fewer than 11% of outstanding
shares were voted in favor of the proposal. Voting on this proposal was
triggered by the trading discount of your fund's shares at the close of
the fund's 2004 fiscal year. The Trustees' recommendation for the 2005
meeting was based on their view that your fund's closed-end status affords
it significant investment benefits and reflected their belief that the
current discount level did not justify the fundamental changes and
associated risks that would have resulted from a conversion. Your fund's
Trustees will continue to monitor the fund's discount trading pattern.
We would also like to take this opportunity to announce the retirement of
one of your fund's Trustees, Ronald J. Jackson, who has been an
independent Trustee of the Putnam funds since 1996. We thank him for his
service.
In the following pages, members of your fund's management team discuss the
fund's performance, strategies, and their outlook for the months ahead. As
always, we thank you for your support of the Putnam funds.
Respectfully yours,
/S/GEORGE PUTNAM, III
George Putnam, III
President of the Funds
/S/JOHN A. HILL
John A. Hill
Chairman of the Trustees
September 21, 2005
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM, III AND JOHN A. HILL]
Putnam Premier Income Trust is designed for investors seeking a high level
of current income. The fund maintains flexibility across three sectors --
U.S. government and agencies, high-yield corporate, and international -- to
seek maximum current income without undue risk to capital. The fund may be
appropriate for investors seeking a higher level of income who can accept
a moderately higher level of risk.
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Highlights
* During its fiscal year ended July 31, 2005, Putnam Premier Income
Trust had a total return at net asset value (NAV) of 10.00%. The fund's
return at market price was 8.35%.
* The fund's primary benchmark, the Lehman Government Bond Index,
returned 4.39%. The average return of the fund's Lipper category, Flexible
Income Funds (closed-end), was 11.43%.
* In February 2005, Putnam Master Income Trust was merged into your
fund. See page 9 for details.
* The fund's monthly dividend was reduced to $0.03 per share, effective
May 2005. See page 9 for details.
* Additional fund performance, comparative performance, and Lipper data
can be found in the performance section beginning on page 11.
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Performance
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.
Total return for periods ended 7/31/05
Since the fund's inception (2/29/88), average annual return is 8.44% at
NAV and 7.21% at market price.
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Average annual return Cumulative return
NAV Market price NAV Market price
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10 years 7.21% 7.23% 100.52% 101.04%
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5 years 8.48 8.35 50.23 49.32
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1 year 10.00 8.35 10.00 8.35
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Data is historical. Past performance does not guarantee future results.
More recent returns may be less or more than those shown. Investment
return, net asset value, and market price will fluctuate and you may have
a gain or a loss when you sell your shares. Performance assumes
reinvestment of distributions and does not account for taxes.
Report from the fund managers
The year in review
During the past 12 months, shorter-maturity bond yields have risen as the
U.S. Federal Reserve Board (the Fed) has continued its gradual series of
interest-rate increases. Yields on longer-term bonds fluctuated
significantly during the year, but ended the period with little change. As
a result, much of your fund's strength was apparent during the first half
of the period, when long-term bond yields declined. The second half was
considerably more volatile, as investors became concerned about stronger
economic growth leading to an increase in inflation. The fund's
diversified global portfolio -- and, in particular, its emphasis on
European bonds -- helped it to outperform its benchmark index, but our
reduction of the fund's exposure to high-yield and emerging-market bonds
detracted from returns, causing it to underperform its Lipper category.
The fund's currency strategy did not have a significant impact on returns
during the period.
Market overview
Global bond markets enjoyed a favorable set of circumstances during the
first half of the fiscal year, but there was significantly higher
volatility in the second half. From August 2004 through January 2005, most
bond sectors produced positive returns, with the riskier sectors --
including corporate high-yield bonds and emerging-market bonds --
continuing to outperform the higher-quality investment-grade corporate,
government, and agency sectors. While short-term interest rates generally
increased during the first half, long-term bond rates declined as foreign
countries and institutional investors bought long-term Treasuries.
Emerging markets benefited from high energy and commodities prices, solid
economic growth, and an overall reduction of perceived risk, while
high-yield bonds continued to perform well due to low default rates and
solid economic growth.
In the second half of the period, from February through July 2005, global
bond markets became more volatile as investors became more concerned about
strong global growth, record-high energy prices, and the potential for
higher inflation. At its meetings in January, February, and March, the Fed
changed its tone to reflect its own concerns about inflation. Investors
interpreted this as an indication that future rate increases could be more
frequent and higher, and bonds sold off sharply. Lower-quality,
higher-yielding bond sectors -- including emerging markets and high-yield
corporates -- experienced the greatest price declines (and yield
increases).
The market's decline proved overblown, however, and bond markets -- led by
the United States -- staged a significant rally from March through the end
of May, bringing the 10-year Treasury yield below 4.00%. As the period
came to a close, reports of stronger economic growth once again caused
prices to decline (and yields to rise).
Strategy overview
During this past year, we have continued to reduce the level of credit
risk in the portfolio. This detracted from the fund's relative performance
as high-yield bonds generally performed well over the period.
Nevertheless, we believe the strategy makes sense from a longer-term
perspective, as we feel that the economic fundamentals will probably not
support the outperformance of high-yield bonds over the next several
years. The fund was also slightly underweighted in emerging-market
bonds relative to many of its peers. This also detracted from relative
returns.
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Market sector performance
These indexes provide an overview of performance in different market
sectors for the 12 months ended 7/31/05.
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Bonds
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Lehman Government Bond Index (U.S. Treasury and agency
securities) 4.39%
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Citigroup Non-U.S. World Government Bond Index
(international government bonds) 7.75%
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JP Morgan Global High Yield Index (global high-yield corporate
bonds) 10.37%
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JP Morgan Global Diversified Emerging Markets Bond Index
(global emerging-market bonds) 15.57%
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Equities
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S&P 500 Index (broad stock market) 14.05%
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MSCI EAFE Index (international stocks) 21.06%
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Russell 2000 Index (small-company stocks) 24.78%
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Another key component of our strategy was to reduce the portfolio's
sensitivity to changes in interest rates by shortening its overall
duration. Duration, which is measured in years, is the primary indicator
of interest-rate sensitivity. The shorter a bond's duration, the less
sensitive its price will be to interest-rate changes. The fund's shorter
duration hurt its relative returns when the market rallied, as it did
during the first half of the period and again from March through May 2005.
This strategy was very helpful, however, during the market's sharp decline
from February through March 2005.
With short-term interest rates continuing to rise, we increased the
fund's position in bank loans (included in the "high-yield" sector in the
chart below). We also continued to favor international bonds from
developed countries, especially in Europe.
Your fund's holdings
The fund's fiscal year was generally marked by interest-rate fluctuations
within a relatively moderate range, although volatility increased from
February through May 2005. In this environment, the fund's holdings of
securitized bonds, or structured securities, performed well because they
generally were of shorter durations than corporate bonds. As interest
rates rose, we were able to reinvest the assets in higher-yielding
securities. The fund's securitized holdings included mortgage-backed
securities (MBSs), such as those issued by the Federal National Mortgage
Association (Fannie Mae) and the Govern ment National Mortgage Association
(Ginnie Mae). Other types of securitized bonds included asset-backed
securities (ABSs), backed by car loans, home equity loans, and credit card
payments, and commercial mortgage-backed securities (CMBSs), backed by
loans on large commercial real estate projects. During the period, the
fund's holdings of ABSs, CMBSs, and MBSs backed by adjustable-rate
mortgages all made solid contributions to performance.
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Comparison of top sector weightings
[GRAPHIC OMITTED: bar chart COMPARISON OF TOP SECTOR WEIGHTINGS]
This chart shows how the fund's top weightings have changed over the last
six months. Weightings are shown as a percentage of net assets. Holdings
will vary over time.
as of 1/31/05 as of 7/31/05
U.S. investment
grade 40.9% 42.9%
High yield 42.1% 34.6%
International* 17.0% 22.5%
* Includes emerging-market holdings.
Treasury bonds generally underperformed during the period. The fund was
underweighted in this sector compared to many of its peers, so this
positioning was generally helpful for relative returns. European
government bonds made a substantial contribution to returns during the
period, benefiting from slowing growth in Europe and expectations that
these low growth rates would continue through the end of 2005. When U.S.
bond markets sold off in February and March 2005, European government
bonds outperformed by a considerable margin. Because the fund was
overweighted in these securities, particularly those issued by the
governments of Germany, France, and Sweden, this positioning bolstered
its relative returns.
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Top holdings
This table shows the fund's top holdings, and the percentage of the fund's
net assets that each comprised, as of 7/31/05. The fund's holdings will
change over time.
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Holding (percent of fund's net assets) Coupon (%) and maturity date
------------------------------------------------------------------------------
International Sector
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Ireland (Republic of) Bonds (1.5%) 5%, 2013
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Germany (Federal Republic of) Bonds, Ser 97 (1.0%) 6%, 2007
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United Mexican States bonds, Ser. MTN (0.9%) 8.3%, 2031
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High Yield Sector
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Green Tree Financial Corp., Ser. 99-5, Class A5 (0.6%) 7.86%, 2030
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Conseco Finance Securitizations Corp., Ser. 01-3, Class A4
(0.4%) 6.91%, 2033
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Conseco Finance Securitizations Corp., Ser. 00-4, Class A6
(0.4%) 8.31%, 2032
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U.S. Investment Grade Sector
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U.S. Treasury Bonds (4.2%) 6.25%, 2030
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Fannie Mae Pass-Through Certificates (3.1%) 5.5%, 2035
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Fannie Mae Pass-Through Certificates (2.9%) 4.5%, 2020
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While the fund remains significantly underweighted -- relative to its peer
group -- in emerging-market securities, we added some emerging-market bonds
during the period, because they offered better valuations than similarly
rated high-yield corporate bonds. We emphasized bonds from Brazil, Mexico,
and Russia, while reducing exposure in Colombia. We also eliminated the
fund's position in Turkey.
In the high-yield corporate bond portion of the fund, we continued to
favor bonds issued by wireless telecommunications companies, including
Nextel Communications, because of strong subscriber growth, attractive
valuations, and industry consolidation. We also emphasized energy
companies, including Dresser Inc., a large manufacturer of energy
exploration equipment. In this sector, the fund's holdings of Star Gas
Partners detracted from performance. This company, a distributor of home
heating oil in New England, was hurt by operational issues and rising oil
prices. Nevertheless, we are still positive about its prospects and
maintained the position.
We increased the fund's holdings of senior-secured bank loans during the
period. These loans carry floating interest rates, which means they reset
to reflect changes in short-term interest rates, which can be beneficial
if rates rise. Each of these loans is generally fully backed by the
issuing company's assets, such as plants, equipment, and inventory.
Moreover, senior-secured loan lenders are entitled to be paid before any
non-secured debt holder in the event of a liquidation of the company's
assets due to bankruptcy.
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 Master Income Trust completed
During the period, shareholders of Putnam Master Income Trust and Putnam
Premier Income Trust approved a merger of Putnam Master Income Trust into
Putnam Premier Income Trust, and the merger was completed on February 28,
2005. In connection with the merger, Putnam Premier Income Trust made a
special dividend distribution in the amount of $0.065 per share. The
merger, which occurred on February 25, 2005, is expected to result in
lower expenses for shareholders of each fund due to the larger asset base
of the combined fund.
Fund's dividend reduced
As short-term interest rates have been increasing, the cost of supporting
preferred shares has risen. The portfolio has also decreased its
allocation to high-yield in favor of higher-rated securities to become
more defensive in a rising interest-rate environment. Consequently, the
fund's monthly dividend was reduced from $0.039 to $0.03 per share,
effective with the May 2005 payment.
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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
teams' plans for responding to them.
The past two years have seen strong returns in the emerging and high-yield
corporate bond markets, reflecting a general global economic recovery.
During the second half of the period, however, investors developed a more
cautious view of the bond market based on a maturing global economic
recovery and the realization that short-term interest rates would probably
continue to increase through the end of the year. Our forecast is for a
continuation of steady, moderate growth with a slight increase in
inflation. Such an environment would probably be consistent with more
short-term interest-rate increases by the Fed and would eventually push
long-term bond yields upward. If these events transpire, we believe the
fund's shorter duration and higher credit quality should help protect the
value of its investments.
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 bonds are subject to certain
risks, including interest-rate risk, credit risk, and inflation risk. As
interest rates rise, the prices of bonds fall. Long-term bonds are more
exposed to interest-rate risk than short-term bonds. Unlike bonds, bond
funds have ongoing fees and expenses. Lower-rated bonds may offer higher
yields in return for more risk. Mutual funds that invest in government
securities are not guaranteed. Mortgage-backed securities are subject to
prepayment risk.
Your fund's performance
This section shows your fund's performance during its fiscal year, which
ended July 31, 2005. In accordance with regulatory requirements, we also
include performance for the most current calendar quarter-end. Performance
should always be considered in light of a fund's investment strategy. Data
represents past performance. Past performance does not guarantee future
results. More recent returns may be less or more than those shown.
Investment return, net asset value, and market price will fluctuate and
you may have a gain or a loss when you sell your shares.
---------------------------------------------------------------------
Fund performance
Total return for periods ended 7/31/05
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NAV Market price
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Annual average
Life of fund (since 2/29/88) 8.44% 7.21%
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10 years 100.52 101.04
Annual average 7.21 7.23
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5 years 50.23 49.32
Annual average 8.48 8.35
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1 year 10.00 8.35
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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 7/31/05
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Citigroup Lipper Flexible
Lehman Non-U.S. JP Morgan Income Funds
Government World Global (closed-end)
Bond Government High Yield category
Index Bond Index Index* average+
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Annual average
Life of fund (since
2/29/88) 7.48% 7.11% -- 8.24%
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10 years 88.40 57.11 105.59% 102.42
Annual average 6.54 4.62 7.47 7.12
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5 years 37.59 49.17 48.36 43.21
Annual average 6.59 8.33 8.21 7.30
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1 year 4.39 7.75 10.37 11.43
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Index and Lipper results should be compared to fund performance at net asset
value. Lipper calculations for reinvested dividends may differ from actual
performance.
* The inception date of the JP Morgan Global High Yield Index was
12/31/93.
+ Over the 1-, 5-, and 10-year periods ended 7/31/05 there were 9 funds
in this Lipper category.
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Fund price and distribution information
For the 12-month period ended 7/31/05
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Putnam Premier Income Trust
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Distributions
(number) 12
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Income $0.506
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Capital gains --
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Total $0.506
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Share value: NAV Market price
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7/31/04 $7.03 $6.29
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7/31/05 7.16 6.31
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Current return (end of period)
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Current dividend
rate 1 5.03% 5.71%
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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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Fund performance for most recent calendar quarter
Total return for periods ended 6/30/05
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NAV Market price
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Annual average
Life of fund (since
2/29/88) 8.46% 7.36%
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10 years 102.28 104.62
Annual average 7.30 7.42
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5 years 49.71 54.92
Annual average 8.41 9.15
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1 year 10.78 15.29
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Your fund's management
Your fund is managed by the members of the Putnam Core Fixed-Income and
Core Fixed-Income High Yield teams. D. William Kohli is the Portfolio
Leader, and Rob Bloemker, Jeffrey Kaufman, Paul Scanlon, and David Waldman
are Portfolio Members of your fund. The Portfolio Leader and Portfolio
Members coordinate the teams' management of the fund.
For a complete listing of the members of the Putnam Core Fixed-Income and
Core Fixed-Income High-Yield teams, including those who are not Portfolio
Leaders or Portfolio Members of your fund, visit Putnam's Individual
Investor Web site at www.putnam.com.
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Fund ownership by the Portfolio Leader and Portfolio Members
The table below shows how much the fund's current Portfolio Leader and
Portfolio Members have invested in the fund (in dollar ranges).
Information shown is as of July 31, 2005, and July 31, 2004.
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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
----------------------------------------------------------------------------------------------------
D. William Kohli 2005 *
----------------------------------------------------------------------------------------------------
Portfolio Leader 2004 *
----------------------------------------------------------------------------------------------------
Rob Bloemker 2005 *
----------------------------------------------------------------------------------------------------
Portfolio Member N/A
----------------------------------------------------------------------------------------------------
Jeffrey Kaufman 2005 *
----------------------------------------------------------------------------------------------------
Portfolio Member N/A
----------------------------------------------------------------------------------------------------
Paul Scanlon 2005 *
----------------------------------------------------------------------------------------------------
Portfolio Member N/A
----------------------------------------------------------------------------------------------------
David Waldman 2005 *
----------------------------------------------------------------------------------------------------
Portfolio Member 2004 *
----------------------------------------------------------------------------------------------------
N/A indicates the individual was not a Portfolio Leader or Portfolio
Member as of 7/31/04.
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Changes in your fund's Portfolio Leader and Portfolio Members
During the year ended July 31, 2005, Rob Bloemker, Jeffrey Kaufman, and
Paul Scanlon became Portfolio Members of your fund, and Portfolio Member
Stephen Peacher left your fund's management team.
Rob Bloemker joined Putnam in 1999. Currently, he is a Team Leader,
Mortgage and Government, and in the past five years his previous position
at Putnam was Mortgage Specialist. Jeffrey Kaufman joined Putnam in 1998.
Currently, he is Team Leader, Emerging Markets, and in the past five years
his previous position at Putnam was Director, Emerging Market Debt. Paul
Scanlon joined Putnam in 1999. Currently, he is Team Leader, U.S. High
Yield, and in the past five years, his previous positions at Putnam have
included Portfolio Manager and Analyst.
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Fund manager compensation
The total 2004 fund manager compensation that is attributable to your fund
is approximately $930,000. This amount includes a portion of 2004
compensation paid by Putnam Management to the fund managers listed in this
section for their portfolio management responsibilities, calculated based
on the fund assets they manage taken as a percentage of the total assets
they manage. The compensation amount also includes a portion of the 2004
compensation paid to the Chief Investment Officer of the team and the
Group Chief Investment Officer of the fund's broader investment category
for their oversight responsibilities, calculated based on the fund assets
they oversee taken as a percentage of the total assets they oversee. This
amount does not include compensation of other personnel involved in
research, trading, administration, systems, compliance, or fund
operations; nor does it include non-compensation costs. These percentages
are determined as of the fund's fiscal period-end. For personnel who
joined Putnam Management during or after 2004, the calculation reflects
annualized 2004 compensation or an estimate of 2005 compensation, as
applicable.
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Other Putnam funds managed by the Portfolio Leader and Portfolio Members
D. William Kohli is also a Portfolio Leader of Putnam Diversified Income
Trust and Putnam Master Intermediate Income Trust, and a Portfolio Member
of Putnam Global Income Trust.
Rob Bloemker is also a Portfolio Member of Putnam American Government
Income Fund, Putnam Diversified Income Trust, Putnam Income Fund, Putnam
Limited Duration Government Income Fund, Putnam Master Intermediate Income
Trust, and Putnam U.S. Government Income Trust.
Jeffrey Kaufman is also a Portfolio Member of Putnam Diversified Income
Trust and Putnam Master Intermediate Income Trust.
Paul Scanlon is also a Portfolio Leader of Putnam Floating Rate Income
Fund, Putnam High Yield Advantage Fund, Putnam High Yield Trust, and
Putnam Managed High Yield Trust, and a Portfolio Member of Putnam
Diversified Income Trust and Putnam Master Intermediate Income Trust.
David Waldman is also a Portfolio Member of Putnam Diversified Income
Trust and Putnam Master Intermediate Income Trust.
D. William Kohli, Rob Bloemker, Jeffrey Kaufman, Paul Scanlon, and David
Waldman may also manage other accounts and variable trust funds advised by
Putnam Management or an affiliate.
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Fund ownership by Putnam's Executive Board
The table below shows how much the members of Putnam's Executive Board
have invested in the fund (in dollar ranges). Information shown is as of
July 31, 2005, and July 31, 2004.
------------------------------------------------------------------------------------------------
$1 - $10,001 - $50,001- $100,001
Year $0 $10,000 $50,000 $100,000 and over
------------------------------------------------------------------------------------------------
Philippe Bibi 2005 *
------------------------------------------------------------------------------------------------
Chief Technology Officer 2004 *
------------------------------------------------------------------------------------------------
Joshua Brooks 2005 *
------------------------------------------------------------------------------------------------
Deputy Head of
Investments N/A
------------------------------------------------------------------------------------------------
William Connolly N/A
------------------------------------------------------------------------------------------------
Head of Retail
Management N/A
------------------------------------------------------------------------------------------------
Kevin Cronin 2005 *
------------------------------------------------------------------------------------------------
Head of Investments 2004 *
------------------------------------------------------------------------------------------------
Charles Haldeman, Jr. 2005 *
------------------------------------------------------------------------------------------------
President and CEO 2004 *
------------------------------------------------------------------------------------------------
Amrit Kanwal 2005 *
------------------------------------------------------------------------------------------------
Chief Financial Officer 2004 *
------------------------------------------------------------------------------------------------
Steven Krichmar 2005 *
------------------------------------------------------------------------------------------------
Chief of Operations 2004 *
------------------------------------------------------------------------------------------------
Francis McNamara, III 2005 *
------------------------------------------------------------------------------------------------
General Counsel 2004 *
------------------------------------------------------------------------------------------------
Richard Robie, III 2005 *
------------------------------------------------------------------------------------------------
Chief Administrative
Officer 2004 *
------------------------------------------------------------------------------------------------
Edward Shadek 2005 *
------------------------------------------------------------------------------------------------
Deputy Head of
Investments N/A
------------------------------------------------------------------------------------------------
Sandra Whiston N/A
------------------------------------------------------------------------------------------------
Head of Institutional
Management N/A
------------------------------------------------------------------------------------------------
N/A indicates the individual became a member of Putnam's Executive Board
after the reporting date.
Terms and definitions
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Important terms
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Net asset value (NAV) is the 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 Government Bond Index is an unmanaged index of
global investment-grade fixed-income securities, excluding the United
States.
JP Morgan Global Diversified Emerging Markets Bond Index is an unmanaged
index of global emerging-market fixed-income securities.
JP Morgan Global High Yield Index is an unmanaged index of global
high-yield fixed-income securities.
Lehman Government Bond Index is an unmanaged index of U.S. Treasury and
agency securities.
Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged
index of equity securities from developed countries in Western Europe, the
Far East, and Australasia.
Russell 2000 Index is an unmanaged index of the 2,000 smallest companies
in the Russell 3000 Index.
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 total return at net asset
value.
Trustee approval of management contract
------------------------------------------------------------------------------
General conclusions
The Board of Trustees of the Putnam funds oversees the management of each
fund and, as required by law, determines annually whether to approve the
continuance of your fund's management contract with Putnam Management and
its sub-management contract with Putnam Management's affiliate, Putnam
Investments Limited ("PIL"). In this regard, the Board of Trustees, with
the assistance of its Contract Committee consisting solely of Trustees who
are not "interested persons" (as such term is defined in the Investment
Company Act of 1940, as amended (the "1940 Act")) of the Putnam funds (the
"Independent Trustees"), requests and evaluates all information it deems
reasonably necessary under the circumstances. Over the course of several
months beginning in March and ending in June 2005, the Contract Committee
met five times to consider the information provided by Putnam Management
and other information developed with the assistance of the Board's
independent counsel and independent staff. The Contract Committee reviewed
and discussed key aspects of this information with all of the Independent
Trustees. Upon completion of this review, the Contract Committee
recommended and the Independent Trustees approved the continuance of your
fund's management contract and sub-management contract, effective July 1,
2005. Because PIL is an affiliate of Putnam Management and Putnam
Management remains fully responsible for all services provided by PIL, the
Trustees have not evaluated PIL as a separate entity and all subsequent
references to Putnam Management below should be deemed to include
reference to PIL as necessary or appropriate in the context.
This approval was based on the following conclusions:
* That the fee schedule currently in effect for your fund, subject to
certain changes noted below, represents reasonable compensation in light
of the nature and quality of the services being provided to the fund, the
fees paid by competitive funds and the costs incurred by Putnam Management
in providing such services, and
* That such fee schedule represents an appropriate sharing between fund
shareholders and Putnam Management of such economies of scale as may exist
in the management of the fund at current asset levels.
These conclusions were based on a comprehensive consideration of all
information provided to the Trustees and were not the result of any single
factor. Some of the factors that figured particularly in the Trustees'
deliberations and how the Trustees considered these factors are described
below, although individual Trustees may have evaluated the information
presented differently, giving different weights to various factors. It is
also important to recognize that the fee arrangements for your fund and
the other Putnam funds are the result of many years of review and
discussion between the Independent Trustees and Putnam Management, that
certain aspects of such arrangements may receive greater scrutiny in some
years than others, and that the Trustees' conclusions may be based, in
part, on their consideration of these same arrangements in prior years.
------------------------------------------------------------------------------
Model fee schedules and categories; total expenses
The Trustees' review of the management fees and total expenses of the
Putnam funds focused on three major themes:
* Consistency. The Trustees, working in cooperation with Putnam
Management, have developed and implemented a series of model fee schedules
for the Putnam funds designed to ensure that each fund's management fee is
consistent with the fees for similar funds in the Putnam family of funds
and compares favorably with fees paid by competitive funds sponsored by
other investment advisers. Under this approach, each Putnam fund is
assigned to one of several fee categories based on a combination of
factors, including competitive fees and perceived difficulty of
management, and a common fee schedule is implemented for all funds in a
given fee category. The Trustees reviewed the model fee schedule currently
in effect for the Putnam funds, including fee levels and breakpoints, and
the assignment of each fund to a particular fee category under this
structure. ("Breakpoints" refer to reductions in fee rates that apply to
additional assets once specified asset levels are reached.)
Since their inception, Putnam's closed-end funds have generally had
management fees that are higher than those of Putnam's open-end funds
pursuing comparable investment strategies. These differences ranged from
five to 20 basis points. The Trustees have reexamined this matter and
recommend that these differences be conformed to a uniform five basis
points. Under the new fee schedule, the fund pays a quarterly fee to
Putnam Management at the following rates:
0.75% of the first $500 million of the fund's average weekly assets
(as described below);
0.65% of the next $500 million;
0.60% of the next $500 million;
0.55% of the next $5 billion;
0.525% of the next $5 billion;
0.505% of the next $5 billion;
0.49% of the next $5 billion;
0.48% of the next $5 billion;
0.47% of the next $5 billion;
0.46% of the next $5 billion;
0.45% of the next $5 billion;
0.44% of the next $5 billion;
0.43% of the next $5 billion; and
0.42% thereafter
Based on net asset levels as of June 30, 2005, the new fee schedule for
your fund will not change the management fees, as a percentage of the
fund's average weekly assets, currently paid by common shareholders. The
Trustees approved the new fee schedules for the funds effective as of
January 1, 2006, in order to provide Putnam Management an opportunity to
accommodate the impact on revenues in its budget process for the coming
year.
* Competitiveness. The Trustees also reviewed comparative fee and expense
information for competitive funds, which indicated that, in a custom peer
group of competitive funds selected by Lipper Inc., your fund ranked in
the 33rd percentile in management fees and in the 67th percentile in total
expenses as of December 31, 2004 (the first percentile being the least
expensive funds and the 100th percentile being the most expensive funds).
The Trustees expressed their intention to monitor this information closely
to ensure that fees and expenses of the Putnam funds continue to meet
evolving competitive standards.
* Economies of scale. The Trustees concluded that the fee schedule
currently in effect for your fund represents an appropriate sharing of
economies of scale at current asset levels. Your fund currently has the
benefit of breakpoints in its management fee that provide shareholders
with significant economies of scale, which means that the effective
management fee rate of a fund (as a percentage of fund assets) declines as
a fund grows in size and crosses specified asset thresholds. The Trustees
examined the existing breakpoint structure of the Putnam funds' management
fees in light of competitive industry practices. The Trustees considered
various possible modifications to the Putnam funds' current breakpoint
structure, but ultimately concluded that the current breakpoint structure
continues to serve the interests of fund shareholders. Accordingly, the
Trustees continue to believe that the fee schedules currently in effect
for the funds represent an appropriate sharing of economies of scale at
current asset levels.
In connection with their review of the management fees and total expenses
of the Putnam funds, the Trustees also reviewed the costs of the services
to be provided and profits to be realized by Putnam Management and its
affiliates from the relationship with the funds. This information included
trends in revenues, expenses and profitability of Putnam Management and
its affiliates relating to the investment management and distribution
services provided to the funds. In this regard, the Trustees also reviewed
an analysis of Putnam Management's revenues, expenses and profitability
with respect to the funds' management contracts, allocated on a
fund-by-fund basis.
------------------------------------------------------------------------------
Investment performance
The quality of the investment process provided by Putnam Management
represented a major factor in the Trustees' evaluation of the quality of
services provided by Putnam Management under your fund's management
contract. The Trustees were assisted in their review of the funds'
investment process and performance by the work of the Investment Oversight
Committees of the Trustees, which meet on a regular monthly basis with the
funds' portfolio teams throughout the year. The Trustees concluded that
Putnam Management generally provides a high quality investment process --
as measured by the experience and skills of the individuals assigned to
the management of fund portfolios, the resources made available to
such personnel, and in general the ability of Putnam Management to attract
and retain high-quality personnel -- but also recognize that this does not
guarantee favorable investment results for every fund in every time
period. The Trustees considered the investment performance of each fund
over multiple time periods and considered information comparing the fund's
performance with various benchmarks and with the performance of
competitive funds. The Trustees noted the satisfactory investment
performance of many Putnam funds. They also noted the disappointing
investment performance of certain funds in recent years and continued to
discuss with senior management of Putnam Management the factors
contributing to such underperformance and actions being taken to improve
performance. The Trustees recognized that, in recent years, Putnam
Management has made significant changes in its investment personnel and
processes and in the fund product line to address areas of
underperformance. The Trustees indicated their intention to continue to
monitor performance trends to assess the effectiveness of these changes
and to evaluate whether additional remedial changes are warranted.
In the case of your fund, the Trustees considered that your fund's common
share performance at net asset value was in the following percentiles of
its Lipper Inc. peer group for the one-, three- and five-year periods
ended December 31, 2004 (the first percentile being the best performing
funds and the 100th percentile being the worst performing funds):
One-year period Three-year period Five-year period
------------------------------------------------------------------------------
37th 28th 28th
(Because of the passage of time, these performance results may differ from
the performance results for more recent periods shown elsewhere in this
report.)
As a general matter, the Trustees believe that cooperative efforts between
the Trustees and Putnam Management represent the most effective way to
address investment performance problems. The Trustees believe that
investors in the Putnam funds have, in effect, placed their trust in the
Putnam organization, under the oversight of the funds' Trustees, to make
appropriate decisions regarding the management of the funds. Based on the
responsiveness of Putnam Management in the recent past to Trustee concerns
about investment performance, the Trustees believe that it is preferable
to seek change within Putnam Management to address performance
shortcomings. In the Trustees' view, the alternative of terminating a
management contract and engaging a new investment adviser for an
underperforming fund would entail significant disruptions and would not
provide any greater assurance of improved investment performance.
------------------------------------------------------------------------------
Brokerage and soft-dollar allocations; other benefits
The Trustees considered various potential benefits that Putnam Management
may receive in connection with the services it provides under the
management contract with your fund. These include principally benefits
related to brokerage and soft-dollar allocations, whereby a portion of the
commissions paid by a fund for brokerage is earmarked to pay for research
services that may be utilized by a fund's investment adviser. The Trustees
believe that soft-dollar credits and other potential benefits associated
with the allocation of fund brokerage, which pertains mainly to funds
investing in equity securities, represent assets of the funds that should
be used for the benefit of fund shareholders. This area has been marked by
significant change in recent years. In July 2003, acting upon the Contract
Committee's recommendation, the Trustees directed that allocations of
brokerage to reward firms that sell fund shares be discontinued no later
than December 31, 2003. In addition, commencing in 2004, the allocation of
brokerage commissions by Putnam Management to acquire research services
from third-party service providers has been significantly reduced, and
continues at a modest level only to acquire research that is customarily
not available for cash. The Trustees will continue to monitor the
allocation of the funds' brokerage to ensure that the principle of "best
price and execution" remains paramount in the portfolio trading process.
The Trustees' annual review of your fund's management contract also
included the review of your fund's custodian agreement with Putnam
Fiduciary Trust Company which provides benefits to affiliates of Putnam
Management.
------------------------------------------------------------------------------
Comparison of retail and institutional fee schedules
The information examined by the Trustees as part of their annual contract
review has included for many years information regarding fees charged by
Putnam Management and its affiliates to institutional clients such as
defined benefit pension plans, college endowments, etc. This information
included comparison of such fees with fees charged to the funds, as well
as a detailed assessment of the differences in the services provided to
these two types of clients. The Trustees observed, in this regard, that
the differences in fee rates between institutional clients and the mutual
funds are by no means uniform when examined by individual asset sectors,
suggesting that differences in the pricing of investment management
services to these types of clients reflect to a substantial degree
historical competitive forces operating in separate market places. The
Trustees considered the fact that fee rates across all asset sectors are
higher on average for mutual funds than for institutional clients, as well
as the differences between the services that Putnam Management provides to
the Putnam funds and those that it provides to institutional clients of
the firm, but have not relied on such comparisons to any significant
extent in concluding that the management fees paid by your fund are
reasonable.
------------------------------------------------------------------------------
Approval of amended and restated management contract in July 2005
In July 2005, the Trustees, including the Independent Trustees of your
fund, approved an amendment to your fund's management contract to take
into account investment leverage in calculating management fees. The
Trustees, including a majority of the Independent Trustees, have concluded
that it would be in the best interest of your fund and its common
shareholders to compensate Putnam Management on the basis of its "average
weekly assets," rather than its net assets. "Average weekly assets" is
defined as the difference (as measured on a weekly basis) between the
fund's total assets (including assets attributable to leverage for
investment purposes) and its total liabilities (excluding liabilities
attributable to leverage for investment purposes). This formulation
effectively allows for Putnam Management to receive management fees on
leveraged assets. In the course of their evaluation, the Trustees
considered the benefit to your fund from the additional investment
management services that Putnam Management would perform in connection
with a leveraged investment strategy, as well as the amount of
compensation Putnam Management would receive under the proposed fee
structure.
The Trustees noted that the proposed amendment would align the fee
arrangements for your fund with those of other closed-end Putnam funds
that currently engage in leverage for investment purposes. Furthermore,
the Trustees were advised by Putnam Management that it is a customary and
widespread practice in the closed-end fund industry to structure leveraged
products in a manner that compensates advisors for their management of the
assets acquired through leverage.
In evaluating the incentives and potential conflicts of interest created
by an average weekly assets-based fee, the Trustees considered that the
asset coverage restrictions under the 1940 Act, as well as other legal
requirements, limit the extent to which a manager can expose a fund to
additional risk through leverage. Furthermore, the Trustees considered the
advantages of a management fee reduction mechanism that is included in the
amended contract, which reduces the management fee dollar for dollar
(subject to a specified maximum reduction) where the costs of carrying
investment leverage outweigh the benefits (in terms of net income and
short-term capital gains) to common shareholders from managing additional
investment assets. In the event that your fund actually engages in
leverage, the Trustees will have the opportunity, through regular reports
from Putnam Management prepared in connection with the fee reduction
mechanism described above, to continue monitoring the conflict of interest
between Putnam Management and your fund.
The Trustees approved the proposed changes to your fund's management
contract in principle at a meeting held on April 15, 2005, and further
confirmed their approval in principle by written consent of a majority of
the Trustees (including a majority of the Independent Trustees) dated May
18, 2005. Shareholders of your fund approved the amended and restated
management contract at the fund's annual meeting of shareholders on July
14, 2005. The Trustees confirmed their action by written consent at an
in-person meeting as required under the 1940 Act prior to the execution of
the amended management contract.
The Trustees also approved conforming changes to the sub-management
contract between Putnam Management and PIL with respect to your fund, to
provide for PIL's fee to be calculated on the basis of the fund's average
weekly assets. The fee paid under the sub-management contract is paid by
Putnam Management and not by your fund. Under the circumstances, the
changes to the sub-management contract did not require shareholder
approval.
Other information for shareholders
------------------------------------------------------------------------------
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain certain
personal information such as account holders' addresses, telephone
numbers, Social Security numbers, and the names of their financial
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,
2005, are available on the Putnam Individual Investor Web site,
www.putnam.com/individual, and on the SEC's Web site, www.sec.gov. If you
have questions about finding forms on the SEC's Web site, you may call the
SEC at 1-800-SEC-0330. You may also obtain the Putnam funds' proxy voting
guidelines and procedures at no charge by calling Putnam's Shareholder
Services at 1-800-225-1581.
------------------------------------------------------------------------------
Fund portfolio holdings
The fund will file a complete schedule of its portfolio holdings with the
SEC for the first and third quarters of each fiscal year on Form N-Q.
Shareholders may obtain the fund's Forms N-Q on the SEC's Web site at
www.sec.gov. In addition, the fund's Forms N-Q may be reviewed and copied
at the SEC's public reference room in Washington, D.C. You may call the
SEC at 1-800-SEC-0330 for information about the SEC's Web site or the
operation of the public reference room.
Financial statements
------------------------------------------------------------------------------
A guide to financial statements
These sections of the report, as well as the accompanying Notes, preceded
by the Report of Independent Registered Public Accounting Firm, constitute
the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss. This
is done by first adding up all the fund's earnings -- from dividends and
interest income -- and subtracting its operating expenses to determine net
investment income (or loss). Then, any net gain or loss the fund realized
on the sales of its holdings -- as well as any unrealized gains or losses
over the period -- is added to or subtracted from the net investment result
to determine the fund's net gain or loss for the fiscal year.
Statement of changes in net assets shows how the fund's net assets were
affected by the fund's net investment gain or loss, by distributions to
shareholders, and by changes in the number of the fund's shares. It lists
distributions and their sources (net investment income or realized capital
gains) over the current reporting period and the most recent fiscal
year-end. The distributions listed here may not match the sources listed
in the Statement of operations because the distributions are determined on
a tax basis and may be paid in a different period from the one in which
they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios,
and portfolio turnover in one summary table, reflecting the five most
recent reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-end funds, a separate
table is provided for each share class.
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
Putnam Premier Income Trust:
We have audited the accompanying statement of assets and liabilities of
Putnam Premier Income Trust, including the fund's portfolio, as of July
31, 2005, 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
July 31, 2005 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 Premier Income Trust as of July 31, 2005, 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
U.S. generally accepted accounting principles.
KPMG LLP
Boston, Massachusetts
September 8, 2005
The fund's portfolio 7/31/05
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CORPORATE BONDS AND NOTES (23.9%)*
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Principal amount Value
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Basic Materials (2.1%)
ALROSA Finance SA 144A company guaranty 8 7/8s, 2014 (Luxembourg) $1,775,000 $2,014,625
Chaparral Steel Co. 144A sr. unsecd. notes 10s, 2013 950,000 995,125
Cognis Holding GmbH & Co. 144A sr. notes 9 1/2s, 2014 (Germany) EUR 514,000 683,557
Compass Minerals International, Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (12s, 6/1/08), 2013 ++ 555,000 463,425
Compass Minerals International, Inc. sr. notes stepped-coupon
zero % (12 3/4s, 12/15/07), 2012 ++ 1,490,000 1,303,750
Crystal US Holdings, LLC sr. disc. notes stepped-coupon Ser. A,
zero % (10s, 10/1/09), 2014 659,000 481,070
Equistar Chemicals LP notes 8 3/4s, 2009 380,000 403,750
Equistar Chemicals LP/Equistar Funding Corp. company guaranty 10
1/8s, 2008 1,128,000 1,249,260
Georgia-Pacific Corp. bonds 7 3/4s, 2029 855,000 956,531
Georgia-Pacific Corp. debs. 7.7s, 2015 1,840,000 2,097,600
Georgia-Pacific Corp. sr. notes 8s, 2024 105,000 119,700
Gerdau Ameristeel Corp. sr. notes 10 3/8s, 2011 (Canada) 1,315,000 1,453,075
Hercules, Inc. company guaranty 11 1/8s, 2007 711,000 803,430
Huntsman Advanced Materials, LLC sec. FRN 11.83s, 2008 193,000 202,650
Huntsman Advanced Materials, LLC sec. notes 11s, 2010 455,000 517,563
Huntsman, LLC company guaranty 11 5/8s, 2010 500,000 587,500
Huntsman, LLC company guaranty 11 1/2s, 2012 380,000 442,700
Innophos, Inc. 144A sr. sub. notes 8 7/8s, 2014 451,000 463,403
International Steel Group, Inc. sr. notes 6 1/2s, 2014 250,000 248,750
ISP Chemco, Inc. company guaranty Ser. B, 10 1/4s, 2011 1,261,000 1,365,033
Jefferson Smurfit Corp. company guaranty 8 1/4s, 2012 415,000 418,113
Jefferson Smurfit Corp. company guaranty 7 1/2s, 2013 75,000 72,188
JSG Holding PLC 144A sr. notes 11 1/2s, 2015 (Ireland) ++++ EUR 898,511 949,380
MDP Acquisitions PLC sr. notes 9 5/8s, 2012 (Ireland) 170,000 171,700
MDP Acquisitions PLC sr. notes Ser. EUR, 10 1/8s, 2012 (Ireland) EUR 845,000 1,098,603
Nalco Co. sr. sub. notes 9s, 2013 EUR 140,000 185,673
Nalco Co. sr. sub. notes 8 7/8s, 2013 2,055,000 2,239,950
Novelis, Inc. 144A sr. notes 7 1/4s, 2015 (Canada) 1,575,000 1,610,438
PQ Corp. 144A company guaranty 7 1/2s, 2013 465,000 465,000
Rockwood Specialties Group, Inc. company guaranty 7 5/8s, 2014 EUR 700,000 865,453
Rockwood Specialties Group, Inc. 144A sub. notes 7 1/2s, 2014 250,000 252,500
Steel Dynamics, Inc. company guaranty 9 1/2s, 2009 1,335,000 1,428,450
Sterling Chemicals, Inc. sec. notes 10s, 2007 ++++ 289,802 286,904
Stone Container Corp. sr. notes 9 3/4s, 2011 25,000 26,438
Stone Container Corp. sr. notes 8 3/8s, 2012 465,000 473,138
Stone Container Finance company guaranty 7 3/8s, 2014 (Canada) 290,000 276,225
Texas Industries, Inc. 144A sr. notes 7 1/4s, 2013 318,000 335,490
United States Steel Corp. sr. notes 9 3/4s, 2010 980,000 1,078,000
WHX Corp. sr. notes 10 1/2s, 2005 (In default) + **** 365,000 359,525
29,445,665
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Capital Goods (1.6%)
Allied Waste North America, Inc. company guaranty Ser. B, 8 1/2s,
2008 1,422,000 1,496,655
BE Aerospace, Inc. sr. sub. notes Ser. B, 8 7/8s, 2011 36,000 38,430
Blount, Inc. sr. sub. notes 8 7/8s, 2012 1,076,000 1,172,840
Browning-Ferris Industries, Inc. debs. 7.4s, 2035 630,000 554,400
Browning-Ferris Industries, Inc. sr. notes 6 3/8s, 2008 780,000 774,150
Crown Euro Holdings SA company guaranty 6 1/4s, 2011 (France) EUR 209,000 266,903
Crown Euro Holdings SA sec. notes 9 1/2s, 2011(France) 539,000 592,900
Crown Euro Holdings SA sec. sr. notes 10 7/8s, 2013 (France) 1,715,000 2,010,838
Decrane Aircraft Holdings Co. company guaranty zero %, 2008 3,587,000 1,363,060
Invensys, PLC notes 9 7/8s, 2011 (United Kingdom) 60,000 59,100
L-3 Communications Corp. sr. sub. notes 5 7/8s, 2015 2,546,000 2,488,715
Legrand SA debs. 8 1/2s, 2025 (France) 1,573,000 1,895,465
Manitowoc Co., Inc. (The) company guaranty 10 1/2s, 2012 104,000 117,260
Manitowoc Co., Inc. (The) company guaranty 10 3/8s, 2011 EUR 335,000 448,560
Manitowoc Co., Inc. (The) sr. notes 7 1/8s, 2013 425,000 447,313
Milacron Escrow Corp. sec. notes 11 1/2s, 2011 506,000 513,590
Mueller Group, Inc. sr. sub. notes 10s, 2012 510,000 545,700
Owens-Brockway Glass company guaranty 7 3/4s, 2011 849,000 899,940
Owens-Brockway Glass sr. sec. notes 8 3/4s, 2012 1,910,000 2,084,288
Owens-Illinois, Inc. debs. 7.8s, 2018 287,000 298,480
Sequa Corp. sr. notes 9s, 2009 1,975,000 2,192,250
Siebe PLC 144A sr. unsub. 6 1/2s, 2010 (United Kingdom) 790,000 693,225
Terex Corp. company guaranty 9 1/4s, 2011 365,000 396,938
Terex Corp. company guaranty Ser. B, 10 3/8s, 2011 1,375,000 1,495,313
22,846,313
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Communication Services (1.6%)
Alamosa Delaware, Inc. company guaranty 11s, 2010 642,000 731,880
Alamosa Delaware, Inc. company guaranty stepped-coupon zero %
(12s, 7/31/05), 2009 ++ 516,000 575,985
American Cellular Corp. company guaranty 9 1/2s, 2009 375,000 391,875
Asia Global Crossing, Ltd. sr. notes 13 3/8s, 2010 (Bermuda) (In
default) + 1,029,418 33,456
Cincinnati Bell Telephone Co. company guaranty 6.3s, 2028 285,000 265,050
Cincinnati Bell, Inc. sr. sub. notes 7 1/4s, 2023 780,000 764,400
Cincinnati Bell, Inc. 144A sr. notes 7s, 2015 1,040,000 1,034,800
Citizens Communications Co. sr. notes 6 1/4s, 2013 3,321,000 3,229,673
Globix Corp. company guaranty 11s, 2008 ++++ 464,162 437,473
Inmarsat Finance PLC company guaranty 7 5/8s, 2012 (United
Kingdom) 1,001,000 1,059,809
Inmarsat Finance PLC company guaranty stepped-coupon zero % (10
3/8s, 10/15/08), 2012 (United Kingdom) ++ 1,466,000 1,172,800
iPCS, Inc. sr. notes 11 1/2s, 2012 580,000 658,300
IWO Escrow Co. 144A sec. FRN 7.349s, 2012 160,000 163,200
Nextel Communications, Inc. sr. notes 5.95s, 2014 4,041,000 4,177,384
Qwest Communications International, Inc. company guaranty 8s,
2014 844,000 814,460
Qwest Corp. notes 8 7/8s, 2012 2,916,000 3,193,020
Qwest Corp. 144A sr. notes 7 5/8s, 2015 797,000 822,903
Qwest Services Corp. sec. notes 14s, 2014 700,000 847,000
Rogers Cantel, Inc. debs. 9 3/4s, 2016 (Canada) 335,000 407,025
Rural Cellular Corp. sr. sub. notes 9 3/4s, 2010 290,000 288,913
SBA Communications Corp. sr. notes 8 1/2s, 2012 446,000 480,565
SBA Telecommunications, Inc./SBA Communications Corp. sr. disc.
notes stepped-coupon zero % (9 3/4s, 12/15/07), 2011 ++ 485,000 444,988
21,994,959
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Consumer Cyclicals (5.1%)
ArvinMeritor, Inc. notes 8 3/4s, 2012 1,205,000 1,295,375
Ashtead Holdings PLC 144A sr. notes 8 5/8s, 2015 (United Kingdom) 405,000 419,175
Autonation, Inc. company guaranty 9s, 2008 1,705,000 1,879,763
Beazer Homes USA, Inc. company guaranty 8 3/8s, 2012 290,000 311,388
Boyd Gaming Corp. sr. sub. notes 8 3/4s, 2012 1,135,000 1,234,313
Boyd Gaming Corp. sr. sub. notes 7 3/4s, 2012 315,000 337,050
Boyd Gaming Corp. sr. sub. notes 6 3/4s, 2014 265,000 273,944
CanWest Media, Inc. company guaranty 8s, 2012 (Canada) 1,452,075 1,541,015
Coinmach Corp. sr. notes 9s, 2010 1,192,000 1,230,740
D.R. Horton, Inc. sr. notes 7 7/8s, 2011 1,230,000 1,376,063
D.R. Horton, Inc. sr. notes 5 7/8s, 2013 820,000 814,126
Dana Corp. notes 10 1/8s, 2010 310,000 321,103
Dana Corp. notes 9s, 2011 1,085,000 1,182,650
Dana Corp. notes 7s, 2029 185,000 163,302
Dana Corp. notes 6 1/2s, 2009 560,000 555,453
Dex Media West, LLC/Dex Media Finance Co. sr. notes Ser. B, 8
1/2s, 2010 1,150,000 1,253,500
Dex Media, Inc. notes 8s, 2013 1,115,000 1,193,050
Dura Operating Corp. company guaranty Ser. B, 8 5/8s, 2012 1,273,000 1,209,350
FelCor Lodging LP company guaranty 9s, 2008 (R) 1,012,000 1,118,260
Gaylord Entertainment Co. sr. notes 8s, 2013 782,000 832,830
General Motors Acceptance Corp. FRN 4.559s, 2007 680,000 664,877
General Motors Acceptance Corp. FRN Ser. MTN, 4.13s, 2007 1,360,000 1,337,794
Goodyear Tire & Rubber Co. (The) notes 7.857s, 2011 1,930,000 1,949,300
Harrah's Operating Co., Inc. company guaranty 8s, 2011 5,000 5,664
HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 (R) 328,000 332,920
Host Marriott LP sr. notes Ser. M, 7s, 2012 (R) 1,460,000 1,512,925
JC Penney Co., Inc. debs. 7.95s, 2017 1,566,000 1,817,307
JC Penney Co., Inc. debs. 7 1/8s, 2023 850,000 938,534
JC Penney Co., Inc. notes 8s, 2010 55,000 60,550
John Q. Hammons Hotels LP/John Q. Hammons Hotels Finance Corp.
III 1st mtge. Ser. B, 8 7/8s, 2012 871,000 953,745
Jostens IH Corp. company guaranty 7 5/8s, 2012 1,393,000 1,410,413
KB Home company guaranty 5 7/8s, 2015 451,000 449,723
KB Home sr. notes 5 3/4s, 2014 649,000 645,386
Levi Strauss & Co. sr. notes 12 1/4s, 2012 704,000 790,240
Levi Strauss & Co. sr. notes 9 3/4s, 2015 1,275,000 1,338,750
MeriStar Hospitality Corp. company guaranty 9 1/8s, 2011 (R) 1,145,000 1,216,563
Meritage Homes Corp. company guaranty 6 1/4s, 2015 455,000 439,075
Meritage Homes Corp. sr. notes 7s, 2014 360,000 363,600
Meritor Automotive, Inc. notes 6.8s, 2009 775,000 775,000
MGM Mirage, Inc. company guaranty 8 1/2s, 2010 1,275,000 1,405,688
MGM Mirage, Inc. company guaranty 6s, 2009 1,539,000 1,542,848
Mirage Resorts, Inc. debs. 7 1/4s, 2017 346,000 356,380
Movie Gallery, Inc. 144A sr. unsecd. notes 11s, 2012 927,000 959,445
Owens Corning notes 7 1/2s, 2006 (In default) + 1,036,000 769,230
Oxford Industries, Inc. sr. notes 8 7/8s, 2011 880,000 943,800
Park Place Entertainment Corp. sr. notes 7 1/2s, 2009 1,740,000 1,898,775
Park Place Entertainment Corp. sr. notes 7s, 2013 945,000 1,033,184
Park Place Entertainment Corp. sr. sub. notes 8 7/8s, 2008 745,000 828,813
Pinnacle Entertainment, Inc. sr. sub. notes 8 1/4s, 2012 841,000 885,153
PRIMEDIA, Inc. sr. notes 8s, 2013 1,336,000 1,359,380
R.H. Donnelley Corp. sr. notes 6 7/8s, 2013 650,000 663,000
R.H. Donnelley Finance Corp. I 144A sr. sub. notes 10 7/8s, 2012 900,000 1,044,000
Reader's Digest Association, Inc. (The) sr. notes 6 1/2s, 2011 705,000 722,625
Resorts International Hotel and Casino, Inc. company guaranty 11
1/2s, 2009 875,000 987,656
Russell Corp. company guaranty 9 1/4s, 2010 1,100,000 1,166,000
Scientific Games Corp. 144A sr. sub. notes 6 1/4s, 2012 1,226,000 1,241,325
Sealy Mattress Co. sr. sub. notes 8 1/4s, 2014 1,425,000 1,517,625
Standard Pacific Corp. sr. notes 7 3/4s, 2013 815,000 859,825
Starwood Hotels & Resorts Worldwide, Inc. company guaranty 7
7/8s, 2012 1,085,000 1,215,200
Starwood Hotels & Resorts Worldwide, Inc. debs. 7 3/8s, 2015 1,000,000 1,110,000
Station Casinos, Inc. sr. notes 6s, 2012 910,000 919,100
Station Casinos, Inc. sr. sub. notes 6 7/8s, 2016 990,000 1,019,700
Teksid Aluminum 144A company guaranty 11 3/8s, 2011 (Luxembourg) EUR 210,000 211,942
Tenneco Automotive, Inc. company guaranty 8 5/8s, 2014 823,000 860,035
Tenneco Automotive, Inc. sec. notes Ser. B, 10 1/4s, 2013 846,000 964,440
THL Buildco, Inc. (Nortek Holdings, Inc.) sr. sub. notes 8 1/2s,
2014 1,207,000 1,175,316
Toys R Us, Inc. notes 7 5/8s, 2011 683,000 616,408
Trump Entertainment Resorts, Inc. sec. notes 8 1/2s, 2015 229,000 232,435
United Auto Group, Inc. company guaranty 9 5/8s, 2012 985,000 1,061,338
Vertis, Inc. company guaranty Ser. B, 10 7/8s, 2009 1,415,000 1,372,550
Vertis, Inc. 144A sub. notes 13 1/2s, 2009 1,405,000 1,081,850
WCI Communities, Inc. company guaranty 9 1/8s, 2012 1,570,000 1,660,275
WRC Media Corp. sr. sub. notes 12 3/4s, 2009 1,065,000 1,135,556
Wynn Las Vegas, LLC/Wynn Las Vegas Capital Corp. 1st mtge. 6
5/8s, 2014 1,087,000 1,058,466
71,424,179
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Consumer Staples (3.1%)
Affinity Group, Inc. sr. sub. notes 10 7/8s, 2012 970,000 945,750
Affinity Group, Inc. sr. sub. notes 9s, 2012 1,055,000 1,081,375
AMC Entertainment, Inc. sr. sub. notes 8s, 2014 884,000 813,280
Archibald Candy Corp. company guaranty 10s, 2007 (In default) (F)
+ ++++ 230,613 49,121
Brand Services, Inc. company guaranty 12s, 2012 1,090,000 1,166,300
Charter Communications Holdings, LLC/Capital Corp. sr. disc.
notes stepped-coupon zero % (12 1/8s, 1/15/07), 2012 ++ 585,000 370,013
Charter Communications Holdings, LLC/Capital Corp. sr. disc.
notes stepped-coupon zero % (11 3/4s, 5/15/06), 2011 ++ 1,020,000 734,400
Charter Communications Holdings, LLC/Capital Corp. sr. notes 11
1/8s, 2011 1,280,000 1,020,800
Charter Communications Holdings, LLC/Capital Corp. sr. notes 10
3/4s, 2009 1,635,000 1,340,700
Charter Communications Holdings, LLC/Capital Corp. sr. notes 10s,
2011 1,892,000 1,466,300
Church & Dwight Co., Inc. company guaranty 6s, 2012 865,000 867,163
Cinemark USA, Inc. sr. sub. notes 9s, 2013 50,000 52,625
Cinemark, Inc. sr. disc. notes stepped-coupon zero % (9 3/4s,
3/15/07), 2014 ++ 1,915,000 1,321,350
Constellation Brands, Inc. sr. sub. notes Ser. B, 8 1/8s, 2012 805,000 863,363
CSC Holdings, Inc. debs. 7 5/8s, 2018 481,000 470,178
CSC Holdings, Inc. sr. notes Ser. B, 7 5/8s, 2011 717,000 722,378
CSC Holdings, Inc. 144A sr. notes 6 3/4s, 2012 2,008,000 1,942,740
Dean Foods Co. sr. notes 6 5/8s, 2009 1,794,000 1,883,700
Del Monte Corp. sr. sub. notes 8 5/8s, 2012 1,085,000 1,193,500
Del Monte Corp. 144A sr. sub. notes 6 3/4s, 2015 640,000 657,600
DirecTV Holdings, LLC 144A sr. notes 6 3/8s, 2015 1,999,000 1,994,003
Diva Systems Corp. sr. disc. notes Ser. B, 12 5/8s, 2008 (In
default) + 4,748,000 23,740
Doane Pet Care Co. sr. sub. debs. 9 3/4s, 2007 1,580,000 1,556,300
Echostar DBS Corp. company guaranty 6 5/8s, 2014 4,144,000 4,112,920
Granite Broadcasting Corp. sec. notes 9 3/4s, 2010 1,052,000 973,100
Interpublic Group of Companies, Inc. notes 6 1/4s, 2014 565,000 512,884
Jean Coutu Group, Inc. sr. notes 7 5/8s, 2012 (Canada) 695,000 722,800
Jean Coutu Group, Inc. sr. sub. notes 8 1/2s, 2014 (Canada) 835,000 827,694
Kabel Deutscheland GmbH 144A company guaranty 10 5/8s, 2014
(Germany) 894,000 987,870
Pinnacle Foods Holding Corp. sr. sub. notes 8 1/4s, 2013 1,439,000 1,309,490
Playtex Products, Inc. company guaranty 9 3/8s, 2011 1,428,000 1,513,680
Playtex Products, Inc. sec. notes 8s, 2011 1,490,000 1,594,300
Prestige Brands, Inc. sr. sub. notes 9 1/4s, 2012 873,000 890,460
Rainbow National Services, LLC 144A sr. notes 8 3/4s, 2012 936,000 1,027,260
Remington Arms Co., Inc. company guaranty 10 1/2s, 2011 1,435,000 1,406,300
Sbarro, Inc. company guaranty 11s, 2009 1,410,000 1,427,625
Scotts Co. (The) sr. sub. notes 6 5/8s, 2013 495,000 509,850
Six Flags, Inc. sr. notes 9 5/8s, 2014 1,317,000 1,279,136
Young Broadcasting, Inc. company guaranty 10s, 2011 844,000 797,580
Young Broadcasting, Inc. sr. sub. notes 8 3/4s, 2014 710,000 621,250
43,050,878
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Energy (3.7%)
Arch Western Finance, LLC sr. notes 6 3/4s, 2013 2,598,000 2,669,445
Bluewater Finance, Ltd. company guaranty 10 1/4s, 2012 (Cayman
Islands) 940,000 1,015,200
CHC Helicopter Corp. sr. sub. notes 7 3/8s, 2014 (Canada) 907,000 917,204
CHC Helicopter Corp. 144A sr. sub. notes 7 3/8s, 2014 (Canada) 670,000 677,538
Chesapeake Energy Corp. sr. notes 7 1/2s, 2013 1,991,000 2,152,769
Comstock Resources, Inc. sr. notes 6 7/8s, 2012 995,000 1,009,925
Dresser, Inc. company guaranty 9 3/8s, 2011 1,348,000 1,415,400
Exco Resources, Inc. company guaranty 7 1/4s, 2011 1,410,000 1,441,725
Forest Oil Corp. company guaranty 7 3/4s, 2014 665,000 709,888
Forest Oil Corp. sr. notes 8s, 2011 1,465,000 1,611,500
Forest Oil Corp. sr. notes 8s, 2008 390,000 416,325
Gazprom OAO 144A notes 9 5/8s, 2013 (Germany) 620,000 753,300
Grant Prideco Escrow, Inc. 144A sr. unsecd. notes 6 1/8s, 2015 396,000 403,920
Harvest Operations Corp. sr. notes 7 7/8s, 2011 (Canada) 1,140,000 1,117,200
Hornbeck Offshore Services, Inc. sr. notes Ser. B, 6 1/8s, 2014 1,013,000 1,025,663
Key Energy Services, Inc. sr. notes 6 3/8s, 2013 896,000 898,240
Massey Energy Co. sr. notes 6 5/8s, 2010 1,497,000 1,545,653
Nak Naftogaz Ukrainy bonds 8 1/8s, 2009 (Ukraine) 2,200,000 2,290,200
Newfield Exploration Co. sr. notes 7 5/8s, 2011 1,360,000 1,489,200
Newfield Exploration Co. sr. sub. notes 6 5/8s, 2014 698,000 731,155
Offshore Logistics, Inc. company guaranty 6 1/8s, 2013 910,000 882,700
Oslo Seismic Services, Inc. 1st mtge. 8.28s, 2011 1,002,763 1,052,687
Pacific Energy Partners/Pacific Energy Finance Corp. sr. notes 7
1/8s, 2014 695,000 734,963
Peabody Energy Corp. sr. notes 5 7/8s, 2016 1,470,000 1,466,325
Pemex Finance, Ltd. bonds 9.69s, 2009 (Cayman Islands) 1,670,250 1,810,250
Pemex Project Funding Master Trust company guaranty 8 5/8s, 2022 1,215,000 1,477,805
Pemex Project Funding Master Trust company guaranty Ser. REGS, 9
1/2s, 2027 2,500,000 3,250,000
Pemex Project Funding Master Trust 144A notes 5 3/4s, 2015 3,855,000 3,779,828
Petroleum Geo-Services notes 10s, 2010 (Norway) 1,095,000 1,237,350
Petronas Capital, Ltd. company guaranty 7 7/8s, 2022 (Malaysia) 1,370,000 1,741,681
Plains Exploration & Production Co. sr. notes 7 1/8s, 2014 947,000 1,022,760
Plains Exploration & Production Co. sr. sub. notes 8 3/4s, 2012 1,230,000 1,343,775
Pogo Producing Co. sr. sub. notes Ser. B, 8 1/4s, 2011 1,270,000 1,343,025
Pride International, Inc. sr. notes 7 3/8s, 2014 1,619,000 1,776,853
Seabulk International, Inc. company guaranty 9 1/2s, 2013 1,150,000 1,298,063
Star Gas Partners LP/Star Gas Finance Co. sr. notes 10 1/4s, 2013 1,350,000 1,248,750
Vintage Petroleum, Inc. sr. notes 8 1/4s, 2012 1,070,000 1,158,275
Vintage Petroleum, Inc. sr. sub. notes 7 7/8s, 2011 285,000 299,250
51,215,790
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Financial (1.3%)
Bosphorus Financial Services, Ltd. 144A sec. FRN 5.068s, 2012
(Cayman Islands) 3,612,000 3,611,303
Crescent Real Estate Equities LP notes 7 1/2s, 2007 (R) 600,000 613,500
Digicel, Ltd. 144A sr. notes 9 1/4s, 2012 (Jamaica) 625,000 642,188
Finova Group, Inc. notes 7 1/2s, 2009 1,021,140 467,172
UBS Luxembourg SA for Sberbank sub. notes 6.23s, 2015
(Luxembourg) 4,340,000 4,372,550
VTB Capital SA 144A notes 7 1/2s, 2011 (Luxembourg) 3,005,000 3,230,375
VTB Capital SA bonds 6 1/4s, 2035 (Luxembourg) 4,105,000 4,094,738
Western Financial Bank sub. debs. 9 5/8s, 2012 1,050,000 1,157,625
18,189,451
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Health Care (2.1%)
AmerisourceBergen Corp. company guaranty 7 1/4s, 2012 765,000 841,500
AmerisourceBergen Corp. sr. notes 8 1/8s, 2008 1,090,000 1,179,925
Community Health Systems, Inc. sr. sub. notes 6 1/2s, 2012 355,000 359,881
Coventry Health Care, Inc. sr. notes 5 7/8s, 2012 630,000 645,750
DaVita, Inc. 144A sr. notes 6 5/8s, 2013 335,000 345,888
DaVita, Inc. 144A sr. sub. notes 7 1/4s, 2015 670,000 693,450
Extendicare Health Services, Inc. sr. sub. notes 6 7/8s, 2014 1,030,000 1,024,850
HCA, Inc. debs. 7.19s, 2015 1,035,000 1,101,069
HCA, Inc. notes 8.36s, 2024 990,000 1,098,774
HCA, Inc. notes 7.69s, 2025 900,000 953,589
HCA, Inc. notes 6 1/4s, 2013 1,075,000 1,088,860
Healthsouth Corp. notes 7 5/8s, 2012 2,070,000 2,028,600
MedQuest, Inc. company guaranty Ser. B, 11 7/8s, 2012 1,100,000 1,083,500
MQ Associates, Inc. sr. disc. notes stepped-coupon zero % (12
1/4s, 8/15/08), 2012 ++ 1,625,000 869,375
Omnicare, Inc. sr. sub. notes 6 1/8s, 2013 1,450,000 1,424,625
PacifiCare Health Systems, Inc. company guaranty 10 3/4s, 2009 1,418,000 1,559,800
Service Corp. International debs. 7 7/8s, 2013 112,000 120,400
Service Corp. International notes Ser. *, 7.7s, 2009 515,000 551,050
Service Corp. International 144A sr. notes 7s, 2017 333,000 341,741
Service Corp. International 144A sr. notes 6 3/4s, 2016 1,039,000 1,066,274
Stewart Enterprises, Inc. 144A sr. notes 6 1/4s, 2013 1,412,000 1,381,995
Tenet Healthcare Corp. notes 7 3/8s, 2013 750,000 735,000
Tenet Healthcare Corp. sr. notes 9 7/8s, 2014 2,154,000 2,304,780
Triad Hospitals, Inc. sr. notes 7s, 2012 1,585,000 1,656,325
Triad Hospitals, Inc. sr. sub. notes 7s, 2013 409,000 421,270
Universal Hospital Services, Inc. sr. notes 10 1/8s, 2011
(Canada) 1,025,000 1,055,750
US Oncology, Inc. company guaranty 9s, 2012 835,000 910,150
Vanguard Health Holding Co. II, LLC sr. sub. notes 9s, 2014 1,081,000 1,175,588
Ventas Realty LP/Capital Corp. company guaranty 9s, 2012 (R) 590,000 684,400
Ventas Realty LP/Capital Corp. sr. notes 6 5/8s, 2014 (R) 337,000 349,638
Ventas Realty LP/Capital Corp. 144A sr. notes 6 3/4s, 2010 (R) 392,000 407,680
29,461,477
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Technology (0.6%)
Advanced Micro Devices, Inc. sr. notes 7 3/4s, 2012 999,000 1,011,488
Freescale Semiconductor, Inc. sr. notes Ser. B, 7 1/8s, 2014 2,386,000 2,541,090
Iron Mountain, Inc. company guaranty 8 5/8s, 2013 435,000 457,838
Iron Mountain, Inc. sr. sub. notes 8 1/4s, 2011 770,000 785,400
New ASAT Finance, Ltd. company guaranty 9 1/4s, 2011 (Cayman
Islands) 25,000 21,000
SCG Holding Corp. 144A notes zero %, 2011 640,000 1,024,000
SunGard Data Systems, Inc. 144A sr. unsecd. notes 9 1/8s, 2013 660,000 685,575
Xerox Corp. notes Ser. MTN, 7.2s, 2016 343,000 375,585
Xerox Corp. sr. notes 7 5/8s, 2013 1,837,000 1,960,998
8,862,974
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Transportation (0.2%)
American Airlines, Inc. pass-through certificates Ser. 01-1,
6.817s, 2011 1,055,000 1,010,163
Calair, LLC/Calair Capital Corp. company guaranty 8 1/8s, 2008 1,490,000 1,124,950
2,135,113
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Utilities & Power (2.5%)
AES Corp. (The) sr. notes 8 7/8s, 2011 107,000 119,305
AES Corp. (The) sr. notes 8 3/4s, 2008 60,000 64,500
AES Corp. (The) 144A sec. notes 9s, 2015 1,113,000 1,243,778
AES Corp. (The) 144A sec. notes 8 3/4s, 2013 895,000 1,000,163
Allegheny Energy Supply 144A bonds 8 1/4s, 2012 876,000 985,500
Allegheny Energy Supply 144A sec. notes 10 1/4s, 2007 655,000 715,588
ANR Pipeline Co. debs. 9 5/8s, 2021 462,000 587,785
CMS Energy Corp. sr. notes 8.9s, 2008 1,690,000 1,842,100
CMS Energy Corp. sr. notes 7 3/4s, 2010 350,000 378,000
Colorado Interstate Gas Co. 144A sr. notes 5.95s, 2015 788,000 778,644
DPL, Inc. bonds 8 1/8s, 2031 741,000 929,955
DPL, Inc. sr. notes 6 7/8s, 2011 1,215,000 1,327,388
Dynegy Holdings, Inc. 144A sec. notes 10 1/8s, 2013 2,499,000 2,848,860
El Paso Natural Gas Co. debs. 8 5/8s, 2022 370,000 437,285
El Paso Production Holding Co. company guaranty 7 3/4s, 2013 1,939,000 2,057,764
Ferrellgas Partners LP/Ferrellgas Partners Finance sr. notes 6
3/4s, 2014 1,010,000 997,375
Midwest Generation, LLC sec. sr. notes 8 3/4s, 2034 1,321,000 1,479,520
Mission Energy Holding Co. sec. notes 13 1/2s, 2008 1,445,000 1,726,775
Monongahela Power Co. 1st mtge. 6.7s, 2014 775,000 871,875
Northwest Pipeline Corp. company guaranty 8 1/8s, 2010 933,000 1,012,305
Northwestern Corp. 144A sr. sec. notes 5 7/8s, 2014 624,000 642,720
NRG Energy, Inc. company guaranty 8s, 2013 2,196,000 2,349,720
Orion Power Holdings, Inc. sr. notes 12s, 2010 1,115,000 1,338,000
PSEG Energy Holdings, Inc. notes 7 3/4s, 2007 1,180,000 1,224,250
SEMCO Energy, Inc. sr. notes 7 3/4s, 2013 993,000 1,034,899
Teco Energy, Inc. notes 7.2s, 2011 350,000 379,750
Teco Energy, Inc. notes 7s, 2012 550,000 591,250
Teco Energy, Inc. 144A sr. notes 6 3/4s, 2015 63,000 67,253
Tennessee Gas Pipeline Co. debs. 7s, 2028 145,000 148,786
Tennessee Gas Pipeline Co. unsecd. notes 7 1/2s, 2017 291,000 320,413
Texas Genco LLC/Texas Genco Financing Corp. 144A sr. notes 6
7/8s, 2014 1,143,000 1,200,150
Transcontinental Gas Pipeline Corp. debs. 7 1/4s, 2026 185,000 207,200
Utilicorp Canada Finance Corp. company guaranty 7 3/4s, 2011
(Canada) 1,188,000 1,247,400
Utilicorp United, Inc. sr. notes 9.95s, 2011 706,000 778,365
Williams Cos., Inc. (The) notes 8 3/4s, 2032 280,000 346,500
Williams Cos., Inc. (The) notes 8 1/8s, 2012 290,000 333,500
Williams Cos., Inc. (The) notes 7 5/8s, 2019 1,045,000 1,191,300
York Power Funding 144A notes 12s, 2007 (Cayman Islands) (In
default) (F) + 419,508 34,987
34,840,908
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Total corporate bonds and notes (cost $326,314,737) 333,467,707
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FOREIGN GOVERNMENT BONDS AND NOTES (15.4%)*
---------------------------------------------------------------------------------------------------------------------------------
Principal amount Value
---------------------------------------------------------------------------------------------------------------------------------
Argentina (Republic of) notes 3.97s, 2033 $547,493 $529,152
Austria (Republic of) 144A notes Ser. EMTN, 3.8s, 2013 EUR 8,000,000 10,191,112
Brazil (Federal Republic of) bonds 10 1/2s, 2014 7,660,000 8,885,600
Brazil (Federal Republic of) bonds 8 7/8s, 2019 4,785,000 4,947,690
Brazil (Federal Republic of) bonds 8 1/4s, 2034 2,085,000 1,983,878
Brazil (Federal Republic of) notes 11s, 2012 5,195,000 6,130,100
Brazil (Federal Republic of) notes 8 3/4s, 2025 1,835,000 1,856,103
Bulgaria (Republic of) 144A bonds 8 1/4s, 2015 1,796,000 2,227,040
Canada (Government of) bonds 5 1/2s, 2010 CAD 3,730,000 3,316,739
Canada (Government of) bonds Ser. WL43, 5 3/4s, 2029 CAD 1,340,000 1,328,740
China Development Bank notes 4 3/4s, 2014 405,000 396,599
Colombia (Republic of) bonds 10 3/8s, 2033 795,000 940,088
Colombia (Republic of) notes 10s, 2012 3,800,000 4,360,500
Dominican (Republic of) notes 9.04s, 2018 1,092,234 1,149,576
Ecuador (Republic of) bonds stepped-coupon Ser. REGS, 8s (9s,
8/15/05), 2030 ++ 1,600,000 1,374,400
El Salvador (Republic of) notes 7.65s, 2035 1,670,000 1,667,913
France (Government of) bonds 5 3/4s, 2032 EUR 2,605,000 4,234,709
France (Government of) bonds 5 1/2s, 2010 EUR 6,300,000 8,676,631
France (Government of) bonds 4s, 2013 EUR 7,700,000 9,954,831
France (Government of) bonds 4s, 2009 EUR 1,520,000 1,950,341
Germany (Federal Republic of) bonds Ser. 97, 6s, 2007 EUR 10,560,000 13,716,466
Germany (Federal Republic of) bonds Ser. 97, 6s, 2007 EUR 8,820,000 11,274,264
Indonesia (Republic of) FRN 3.813s, 2006 360,000 356,400
Indonesia (Republic of) 144A notes 7 1/4s, 2015 4,425,000 4,452,656
Indonesia (Republic of) 144A sr. notes 6 3/4s, 2014 50,000 49,625
Ireland (Republic of) bonds 5s, 2013 EUR 14,800,000 20,374,209
Peru (Republic of) bonds 8 3/8s, 2016 3,645,000 4,137,075
Peru (Republic of) bonds 7.35s, 2025 960,000 960,000
Philippines (Republic of) bonds 9 1/2s, 2030 735,000 740,954
Philippines (Republic of) bonds 9 1/2s, 2024 6,635,000 7,082,863
Philippines (Republic of) bonds 8 3/8s, 2011 1,350,000 1,385,775
Philippines (Republic of) unsub. Ser. 7BR, 3.2s, 2005 JPY 158,000,000 1,409,707
Russia (Federation of) unsub. stepped-coupon 5s (7 1/2s,
3/31/07), 2030 ++ 1,995,000 2,212,455
Russia (Federation of) 144A unsub. stepped-coupon 5s (7 1/2s,
3/31/07), 2030 ++ 9,243,750 10,251,319
Russia (Ministry of Finance) debs. Ser. V, 3s, 2008 4,040,000 3,812,952
South Africa (Republic of) notes 7 3/8s, 2012 2,560,000 2,886,400
South Africa (Republic of) notes 6 1/2s, 2014 2,585,000 2,824,113
Spain (Kingdom of) bonds 5s, 2012 EUR 4,600,000 6,293,418
Sweden (Government of) bonds Ser. 3101, 4s, 2008 SEK 52,240,000 8,476,539
Sweden (Government of) debs. Ser. 1041, 6 3/4s, 2014 SEK 59,875,000 9,950,089
United Mexican States bonds Ser. MTN, 8.3s, 2031 9,765,000 12,059,775
United Mexican States notes 6 5/8s, 2015 6,855,000 7,489,088
Venezuela (Republic of) bonds 9 1/4s, 2027 4,340,000 4,524,450
Venezuela (Republic of) notes 10 3/4s, 2013 315,000 366,660
Venezuela (Republic of) notes 7.65s, 2025 1,055,000 945,808
Venezuela (Republic of) unsub. bonds 5 3/8s, 2010 1,435,000 1,345,313
---------------------------------------------------------------------------------------------------------------------------------
Total foreign government bonds and notes (cost $200,421,895) $215,480,115
---------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY MORTGAGE OBLIGATIONS (12.5%)*
---------------------------------------------------------------------------------------------------------------------------------
Principal amount Value
---------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation Pass-Through Certificates
7 1/2s, with due dates from March 1, 2026 to May 1, 2027 $31,462 $33,803
6 1/2s, with due dates from July 1, 2028 to March 1, 2035 28,965,247 29,974,967
Federal National Mortgage Association Pass-Through Certificates
8s, July 1, 2024 1,565 1,682
7 1/2s, with due dates from October 1, 2022 to August 1, 2030 140,895 150,569
6 1/2s, with due dates from April 1, 2024 to October 1, 2034 14,986,729 15,536,980
6 1/2s, April 1, 2016 82,748 85,386
5 1/2s, with due dates from January 1, 2033 to September 1,
2034 34,000,689 34,200,691
5 1/2s, TBA, August 1, 2035 43,320,000 43,533,217
5s, with due dates from June 1, 2019 to February 1, 2020 3,820,562 3,834,182
4 1/2s, with due dates from August 1, 2033 to June 1, 2034 6,626,151 6,367,604
4 1/2s, TBA, August 1, 2020 41,100,000 40,419,281
---------------------------------------------------------------------------------------------------------------------------------
Total U.S. government and agency mortgage obligations (cost $174,596,481) $174,138,362
---------------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS (12.7%)*
---------------------------------------------------------------------------------------------------------------------------------
Principal amount Value
---------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
7 1/2s, November 15, 2016 $27,040,000 $34,509,800
6 1/4s, May 15, 2030 46,303,000 58,197,083
6 1/4s, August 15, 2023 18,225,000 21,972,516
U.S. Treasury Notes
4 1/4s, August 15, 2013 29,883,000 29,934,363
4s, November 15, 2012 3,000 2,967
3 1/4s, August 15, 2008 20,856,000 20,375,334
U.S. Treasury Strip zero %, November 15, 2024 28,450,000 11,731,406
---------------------------------------------------------------------------------------------------------------------------------
Total U.S. treasury obligations (cost $165,796,944) $176,723,469
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ASSET-BACKED SECURITIES (9.4%)*
---------------------------------------------------------------------------------------------------------------------------------
Principal amount Value
---------------------------------------------------------------------------------------------------------------------------------
ABSC NIMS Trust 144A Ser. 03-HE5, Class A, 7s, 2033 $220,638 $220,914
Aegis Asset Backed Securities Trust 144A
Ser. 04-1N, Class Note, 5s, 2034 50,712 50,712
Ser. 04-2N, Class N1, 4 1/2s, 2034 180,408 180,041
Ser. 04-4N, Class Note, 5s, 2034 183,927 183,697
Americredit Automobile Receivables Trust 144A Ser. 05-1, Class
E, 5.82s, 2012 1,270,000 1,273,429
Ameriquest Finance NIM Trust 144A Ser. 04-RN9, Class N2, 10s,
2034 (Cayman Islands) 591,000 543,720
AQ Finance NIM Trust 144A Ser. 03-N9A, Class Note, 7.385s, 2033
(Cayman Islands) 17,199 17,199
Arcap REIT, Inc. 144A
Ser. 03-1A, Class E, 7.11s, 2038 743,000 775,738
Ser. 04-1A, Class E, 6.42s, 2039 420,000 427,219
Argent NIM Trust 144A Ser. 04-WN2, Class A, 4.55s, 2034 (Cayman
Islands) 15,496 15,655
Asset Backed Funding Corp. NIM Trust 144A
Ser. 04-0PT1, Class N2, 6.9s, 2033 (Cayman Islands) 304,000 303,999
Ser. 04-0PT5, Class N1, 4.45s, 2034 (Cayman Islands) 192,958 192,600
Ser. 04-FF1, Class N1, 5s, 2034 (Cayman Islands) 247,800 247,844
Ser. 04-FF1, Class N2, 5s, 2034 (Cayman Islands) 52,000 47,928
Ser. 04-HE1, Class N2, 8s, 2034 492,000 481,191
Aviation Capital Group Trust 144A FRN Ser. 03-2A, Class G1,
4.13s, 2033 570,070 570,916
Bank One Issuance Trust FRB Ser. 03-C4, Class C4, 4.418s, 2011 740,000 753,808
Bayview Financial Asset Trust Ser. 03-X, Class A, Interest only
(IO), 0.9s, 2006 25,001,879 418,914
Bear Stearns Asset Backed Securities NIM Trust 144A
Ser. 04-HE10, Class A1, 4 1/4s, 2034 (Cayman Islands) 219,282 218,152
Ser. 04-HE6, Class A1, 5 1/4s, 2034 (Cayman Islands) 300,293 300,293
Ser. 04-HE7N, Class A1, 5 1/4s, 2034 273,442 273,442
Bear Stearns Asset Backed Securities, Inc. Ser. 04-FR3, Class M6,
6.71s, 2034 507,000 518,724
Bombardier Capital Mortgage Securitization Corp.
Ser. 00-A, Class A2, 7.575s, 2030 328,838 229,006
Ser. 00-A, Class A4, 8.29s, 2030 1,207,220 944,650
Ser. 99-B, Class A3, 7.18s, 2015 2,264,178 1,599,076
Ser. 99-B, Class A4, 7.3s, 2016 1,543,187 1,126,124
FRN Ser. 00-A, Class A1, 3.548s, 2030 346,876 180,375
CARSSX Finance, Ltd. 144A
FRB Ser. 04-AA, Class B3, 6.738s, 2011 (Cayman Islands) 234,248 236,261
FRB Ser. 04-AA, Class B4, 8.888s, 2011 (Cayman Islands) 847,868 859,857
Chase Credit Card Master Trust FRB Ser. 03-3, Class C, 4.468s,
2010 860,000 878,197
CHEC NIM Ltd., 144A
Ser. 04-2, Class N1, 4.45s, 2034 (Cayman Islands) 296,131 296,114
Ser. 04-2, Class N2, 8s, 2034 (Cayman Islands) 183,000 181,955
Ser. 04-2, Class N3, 8s, 2034 (Cayman Islands) 112,000 96,320
Conseco Finance Securitizations Corp.
Ser. 00-2, Class A4, 8.48s, 2030 425,203 424,083
Ser. 00-4, Class A4, 7.73s, 2031 2,824,986 2,726,394
Conseco Finance Securitizations Corp.
Ser. 00-4, Class A5, 7.97s, 2032 470,000 397,796
Ser. 00-4, Class A6, 8.31s, 2032 6,661,000 5,756,436
Ser. 00-6, Class A5, 7.27s, 2032 199,000 187,044
Ser. 00-6, Class M2, 8.2s, 2032 858,902 47,240
Ser. 01-1, Class A5, 6.99s, 2032 1,709,000 1,595,000
Ser. 01-3, Class A3, 5.79s, 2033 26,324 26,781
Ser. 01-3, Class A4, 6.91s, 2033 5,996,000 5,864,004
Ser. 01-3, Class M2, 7.44s, 2033 555,805 69,476
Ser. 01-4, Class A4, 7.36s, 2033 523,000 525,954
Ser. 01-4, Class B1, 9.4s, 2033 889,628 128,996
Ser. 02-1, Class A, 6.681s, 2033 3,655,002 3,763,902
FRN Ser. 01-4, Class M1, 5.09s, 2033 573,000 229,200
Consumer Credit Reference IDX Securities 144A FRN Ser. 02-1A,
Class A, 5.444s, 2007 1,494,000 1,512,306
Countrywide Asset Backed Certificates 144A
Ser. 04-6N, Class N1, 6 1/4s, 2035 1,496,037 1,501,180
Ser. 04-BC1N, Class Note, 5 1/2s, 2035 200,538 200,663
Countrywide Home Loans Ser. 05-2, Class 2X, IO, 1.247s, 2035 20,070,961 561,361
Crest, Ltd. 144A Ser. 03-2A, Class E2, 8s, 2038 (Cayman Islands) 838,000 830,123
First Chicago Lennar Trust 144A Ser. 97-CHL1, Class E, 7.67s,
2039 3,460,001 3,580,019
First Consumers Master Trust FRB Ser. 01-A, Class A, 3.698s, 2008 546,455 542,015
First Franklin Mortgage Loan NIM Trust 144A Ser. 04-FF10, Class
N1, 4.45s, 2034 (Cayman Islands) 330,287 329,833
Fremont NIM Trust 144A
Ser. 04-3, Class A, 4 1/2s, 2034 534,628 533,238
Ser. 04-3, Class B, 7 1/2s, 2034 106,870 96,728
Ser. 04-A, Class Note, 4 3/4s, 2034 109,002 108,675
Granite Mortgages PLC
FRB Ser. 02-1, Class 1C, 4.92s, 2042 (United Kingdom) 680,000 690,676
FRB Ser. 03-2, Class 2C1, 5.2s, 2043 (United Kingdom) EUR 2,785,000 3,701,003
FRB Ser. 03-2, Class 3C, 6.19s, 2043 (United Kingdom) GBP 2,090,000 3,813,896
Green Tree Financial Corp.
Ser. 94-4, Class B2, 8.6s, 2019 724,937 540,439
Ser. 94-6, Class B2, 9s, 2020 1,731,289 1,458,810
Ser. 95-4, Class B1, 7.3s, 2025 726,329 715,434
Ser. 95-8, Class B1, 7.3s, 2026 704,416 550,142
Ser. 95-F, Class B2, 7.1s, 2021 207,891 208,411
Ser. 96-8, Class M1, 7.85s, 2027 754,000 649,723
Ser. 99-3, Class A5, 6.16s, 2031 143,462 144,090
Ser. 99-5, Class A5, 7.86s, 2030 8,746,000 7,775,089
Greenpoint Manufactured Housing
Ser. 00-3, Class IA, 8.45s, 2031 4,028,711 3,885,366
Ser. 99-5, Class A4, 7.59s, 2028 140,524 145,616
GS Auto Loan Trust 144A Ser. 04-1, Class D, 5s, 2011 1,713,604 1,686,884
GSAMP Trust 144A
Ser. 04-FM1N, Class Note, 5 1/4s, 2033 75,384 75,384
Ser. 04-HE1N, Class N1, 5s, 2034 144,820 144,602
Ser. 04-NIM1, Class N1, 5 1/2s, 2034 1,364,855 1,364,309
Ser. 04-NIM1, Class N2, zero %, 2034 1,013,000 746,075
Ser. 04-NIM2, Class N, 4 7/8s, 2034 1,574,557 1,567,786
Ser. 04-SE2N, Class Note, 5 1/2s, 2034 168,410 168,242
Guggenheim Structured Real Estate Funding, Ltd. FRB Ser. 05-1A,
Class E, 5.26s, 2030 (Cayman Islands) 721,000 719,975
Holmes Financing PLC
FRB Ser. 4, Class 3C, 4.899s, 2040 (United Kingdom) 410,000 415,248
FRB Ser. 8, Class 2C, 4.319s, 2040 (United Kingdom) 458,000 460,147
Home Equity Asset Trust 144A
Ser. 02-5N, Class A, 8s, 2033 62,675 62,675
Ser. 03-7N, Class A, 5 1/4s, 2034 41,713 41,296
Ser. 04-1N, Class A, 5s, 2034 39,770 39,571
Ser. 04-5N, Class A, 5 1/4s, 2034 433,579 432,495
Ser. 05-6N, Class A, 5 1/4s, 2035 765,535 763,622
LNR CDO, Ltd. 144A
FRB Ser. 02-1A, Class FFL, 6.21s, 2037 (Cayman Islands) 2,440,000 2,440,000
FRB Ser. 03-1A, Class EFL, 6.46s, 2036 (Cayman Islands) 1,485,000 1,587,614
Long Beach Asset Holdings Corp. NIM Trust 144A
Ser. 04-2, Class N1, 4.94s, 2034 123,686 123,686
Ser. 04-5, Class Note, 5s, 2034 257,658 257,710
Long Beach Mortgage Loan Trust Ser. 04-3, Class S1, IO, 4 1/2s,
2006 2,679,235 109,179
Lothian Mortgages PLC 144A FRB Ser. 3A, Class D, 5.731s, 2039
(United Kingdom) GBP 1,700,000 2,992,680
Madison Avenue Manufactured Housing Contract FRB Ser. 02-A, Class
B1, 6.71s, 2032 2,025,781 992,633
Master Asset Backed Securities NIM Trust 144A
Ser. 04-CI5, Class N2, 9s, 2034 277,000 273,538
Ser. 04-HE1A, Class Note, 5.191s, 2034 222,528 223,196
MBNA Credit Card Master Note Trust FRB Ser. 03-C5, Class C5,
4.568s, 2010 860,000 882,017
Merrill Lynch Mortgage Investors, Inc. Ser. 03-WM3N, Class N1,
8s, 2034 15,606 15,606
Merrill Lynch Mortgage Investors, Inc. 144A
Ser. 04-FM1N, Class N1, 5s, 2035 (Cayman Islands) 139,060 139,125
Ser. 04-HE1N, Class N1, 5s, 2006 130,879 130,347
Mid-State Trust Ser. 11, Class B, 8.221s, 2038 308,615 314,204
Morgan Stanley ABS Capital I FRB Ser. 04-HE8, Class B3, 6.66s,
2034 458,000 466,483
Morgan Stanley Auto Loan Trust 144A Ser. 04-HB2, Class E, 5s,
2012 335,000 322,638
Morgan Stanley Dean Witter Capital I
FRB Ser. 01-NC3, Class B1, 5.91s, 2031 164,506 164,605
FRB Ser. 01-NC4, Class B1, 5.96s, 2032 181,858 182,101
Navistar Financial Corp. Owner Trust Ser. 05-A, Class C, 4.84s,
2014 560,000 557,778
New Century Mortgage Corp. NIM Trust 144A Ser. 03-B, Class Note,
6 1/2s, 2033 39,609 39,658
Novastar NIM Trust 144A Ser. 04-N1, Class Note, 4.458s, 2034 9,993 9,993
Oakwood Mortgage Investors, Inc.
Ser. 00-A, Class A2, 7.765s, 2017 420,752 355,517
Ser. 00-D, Class A4, 7.4s, 2030 1,945,000 1,219,363
Ser. 01-C, Class A2, 5.92s, 2017 2,579,222 1,507,909
Ser. 01-C, Class A4, 7.405s, 2030 1,303,594 853,395
Ser. 01-D, Class A2, 5.26s, 2019 385,372 280,915
Ser. 01-D, Class A4, 6.93s, 2031 1,651,592 1,271,480
Ser. 01-E, Class A2, 5.05s, 2019 2,729,177 2,116,367
Ser. 02-A, Class A2, 5.01s, 2020 963,080 783,772
Ser. 02-B, Class A4, 7.09s, 2032 867,000 786,510
Ser. 02-C, Class A1, 5.41s, 2032 3,496,161 3,062,284
Ser. 99-B, Class A4, 6.99s, 2026 2,670,272 2,357,904
Ser. 99-D, Class A1, 7.84s, 2029 2,510,944 2,337,478
Oakwood Mortgage Investors, Inc. 144A Ser. 01-B, Class A4, 7.21s,
2030 707,579 658,389
Ocean Star PLC 144A FRB Ser. 04-A, Class E, 9 3/4s, 2018
(Ireland) 945,000 945,000
Park Place Securities NIM Trust 144A Ser. 04-WCW2, Class D,
7.387s, 2034 (Cayman Islands) 138,000 138,524
People's Choice Net Interest Margin Note 144A Ser. 04-2, Class B,
5s, 2034 200,000 181,200
Permanent Financing PLC
FRB Ser. 1, Class 3C, 4.579s, 2042 (United Kingdom) 530,000 535,088
FRB Ser. 3, Class 3C, 4.529s, 2042 (United Kingdom) 680,000 692,670
FRB Ser. 6, Class 3C, 5.54s, 2042 (United Kingdom) GBP 1,731,000 3,058,832
Providian Gateway Master Trust Ser. 02, Class B, Principal only
(PO), zero %, 2006 1,848,000 1,805,890
Residential Asset Securities Corp. 144A Ser. 04-N10B, Class A1,
5s, 2034 575,596 573,348
Residential Mortgage Securities 144A FRB Ser. 20A, Class B1A,
5.766s, 2038 (United Kingdom) 250,000 436,623
Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 360,923 366,788
SAIL Net Interest Margin Notes 144A
Ser. 03-10A, Class A, 7 1/2s, 2033 (Cayman Islands) 248,880 249,975
Ser. 03-12A, Class A, 7.35s, 2033 (Cayman Islands) 83,193 83,658
Ser. 03-3, Class A, 7 3/4s, 2033 (Cayman Islands) 51,513 51,359
Ser. 03-4, Class A, 7 1/2s, 2033 (Cayman Islands) 15,547 15,487
Ser. 03-5, Class A, 7.35s, 2033 (Cayman Islands) 97,797 97,376
SAIL Net Interest Margin Notes 144A
Ser. 03-6A, Class A, 7s, 2033 (Cayman Islands) 19,142 19,205
Ser. 03-7A, Class A, 7s, 2033 (Cayman Islands) 87,232 86,473
Ser. 03-8A, Class A, 7s, 2033 (Cayman Islands) 24,441 23,627
Ser. 03-9A, Class A, 7s, 2033 (Cayman Islands) 73,751 73,796
Ser. 03-BC2A, Class A, 7 3/4s, 2033 (Cayman Islands) 167,273 162,556
Ser. 04-10A, Class A, 5s, 2034 (Cayman Islands) 914,919 915,194
Ser. 04-2A, Class A, 5 1/2s, 2034 (Cayman Islands) 382,166 382,242
Ser. 04-4A, Class A, 5s, 2034 (Cayman Islands) 435,491 435,579
Ser. 04-7A, Class A, 4 3/4s, 2034 (Cayman Islands) 205,677 205,533
Ser. 04-7A, Class B, 6 3/4s, 2034 (Cayman Islands) 83,064 81,353
Ser. 04-8A, Class A, 5s, 2034 (Cayman Islands) 689,801 689,939
Ser. 04-8A, Class B, 6 3/4s, 2034 (Cayman Islands) 335,230 328,626
Ser. 04-AA, Class A, 4 1/2s, 2034 (Cayman Islands) 306,027 305,324
Sasco Net Interest Margin Trust 144A
Ser. 03-BC1, Class B, zero %, 2033 (Cayman Islands) 530,506 238,728
Ser. 05-WF1A, Class A, 4 3/4s, 2035 516,382 517,570
Saxon Net Interest Margin Trust 144A Ser. 03-A, Class A, 6.656s,
2033 311 311
Sharps SP I, LLC Net Interest Margin Trust 144A
Ser. 03-0P1N, Class NA, 4.45s, 2033 45,040 45,040
Ser. 03-HS1N, Class N, 7.48s, 2033 3,432 3,432
Ser. 03-TC1N, Class N, 7.45s, 2033 5,461 5,461
Ser. 04-FM1N, Class N, 6.16s, 2033 7,506 7,536
Ser. 04-HE2N, Class NA, 5.43s, 2034 119,282 118,984
Ser. 04-HS1N, Class Note, 5.92s, 2034 34,443 34,443
South Coast Funding 144A FRB Ser. 3A, Class A2, 4.43s, 2038
(Cayman Islands) 200,000 201,000
Structured Asset Receivables Trust 144A FRB Ser. 05-1A, 4 3/4s,
2015 3,539,000 3,488,127
Structured Asset Investment Loan Trust Ser. 03-BC1A, Class A, 7
3/4s, 2033 (Cayman Islands) 85,458 86,141
TIAA Real Estate CD0, Ltd. Ser. 03-1A, Class E, 8s, 2038 (Cayman
Islands) 904,000 867,812
TIAA Real Estate CD0, Ltd. 144A Ser. 02-1A, Class IV, 6.84s, 2037
(Cayman Islands) 756,000 714,862
Wells Fargo Home Equity Trust 144A
Ser. 04-2, Class N1, 4.45s, 2034 (Cayman Islands) 914,364 914,310
Ser. 04-2, Class N2, 8s, 2034 (Cayman Islands) 419,000 406,430
Whole Auto Loan Trust 144A
Ser. 03-1, Class D, 6s, 2010 625,735 625,867
Ser. 04-1, Class D, 5.6s, 2011 1,045,433 1,040,532
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Total asset-backed securities (cost $134,066,978) $131,223,448
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SENIOR LOANS (8.4%)* (c)
---------------------------------------------------------------------------------------------------------------------------------
Principal amount Value
---------------------------------------------------------------------------------------------------------------------------------
Basic Materials (0.6%)
Celanese Corp. bank term loan FRN Ser. B, 5.74s, 2011 $565,415 $574,956
Graphic Packaging Corp. bank term loan FRN Ser. C, 6.0221s, 2010 273,765 277,187
Hercules, Inc. bank term loan FRN Ser. B, 5.3065s, 2010 800,243 809,046
IAP Worldwide Services, Inc. bank term loan FRN Ser. B, 6.3793s,
2011 500,000 508,750
Koch Cellulose, LLC bank term loan FRN Ser. B, 5.24s, 2011 334,150 337,770
Koch Cellulose, LLC bank term loan FRN Ser. C, 4.84s, 2011 65,004 65,708
Mosaic Co. (The) bank term loan FRN Ser. B, 5.2184s, 2012 997,500 1,009,034
Nalco Co. bank term loan FRN Ser. B, 5.6522s, 2010 478,898 486,531
Novelis, Inc. bank term loan FRN 4.96s, 2012 (Canada) 316,198 320,151
Novelis, Inc. bank term loan FRN Ser. B, 4.96s, 2012 (Canada) 549,186 556,051
Rockwood Specialties Group, Inc. bank term loan FRN Ser. D,
5.93s, 2012 2,736,250 2,780,145
SGL Carbon AG bank term loan FRN 5.99s, 2009 (Germany) 344,031 345,751
Smurfit-Stone Container Corp. bank term loan FRN 3.24s, 2010 43,842 44,500
Smurfit-Stone Container Corp. bank term loan FRN Ser. B, 5.4668s,
2011 348,826 353,986
Smurfit-Stone Container Corp. bank term loan FRN Ser. C, 5 3/8s,
2011 107,331 108,919
8,578,485
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Capital Goods (0.8%)
Allied Waste Industries, Inc. bank term loan FRN Ser. A, 5.8944s,
2012 540,541 543,581
Allied Waste Industries, Inc. bank term loan FRN Ser. B, 5.4647s,
2012 1,416,182 1,425,180
Amsted Industries, Inc. bank term loan FRN 6.1196s, 2010 361,288 365,202
Avio Holding SpA bank term loan FRN Ser. B, 6.29s, 2011 (Italy) 501,817 503,448
Avio Holding SpA bank term loan FRN Ser. C, 6.79s, 2012 (Italy) 501,817 505,832
Flowserve Corp. bank term loan FRN Ser. C, 6.2233s, 2009 138,896 139,359
Graham Corp. bank term loan FRN Ser. B, 6.0275s, 2011 800,000 811,666
Hexcel Corp. bank term loan FRN Ser. B, 5.2632s, 2012 2,343,333 2,369,696
Invensys, PLC bank term loan FRN Ser. B-1, 6.8813s, 2009 (United
Kingdom) 235,360 238,302
Mueller Group, Inc. bank term loan FRN 6.2069s, 2011 1,006,100 1,011,131
Solo Cup Co. bank term loan FRN 5.4033s, 2011 296,250 299,435
Terex Corp. bank term loan FRN 5.68s, 2009 300,000 303,188
Terex Corp. bank term loan FRN Ser. C, 6.18s, 2009 1,400,000 1,415,750
Transdigm, Inc. bank term loan FRN Ser. C, 5.8s, 2010 993,969 1,007,222
10,938,992
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Communication Services (0.9%)
Centennial Cellular Operating Co., LLC bank term loan FRN Ser. B,
5.6805s, 2011 1,897,475 1,925,597
Consolidated Communications Holdings bank term loan FRN Ser. C,
5.5511s, 2012 148,125 149,977
Consolidated Communications Holdings bank term loan FRN Ser. D,
5.064s, 2011 90,000 91,125
Fairpoint Communications, Inc. bank term loan FRN Ser. B,
5.5457s, 2012 1,000,000 1,012,000
Intelsat Bermuda, Ltd. bank term loan FRN Ser. B, 5 1/4s, 2011
(Bermuda) 800,000 806,400
Madison River Communications bank term loan FRN 6.016s, 2012 2,300,000 2,337,375
PanAmSat Corp. bank term loan FRN Ser. B1, 5.65s, 2010 1,781,069 1,807,192
Qwest Communications International, Inc. bank term loan FRN Ser.
A, 8.1s, 2007 349,500 360,750
SBA Communications Corp. bank term loan FRN Ser. C, 5.5486s, 2008 1,144,101 1,149,822
Syniverse Holdings, Inc. bank term loan FRN Ser. B, 5.0962s, 2012 1,396,491 1,403,474
Valor Telecommunications Enterprises LLC/Finance Corp. bank term
loan FRN Ser. B, 5.49s, 2012 1,933,333 1,953,013
12,996,725
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Consumer Cyclicals (1.8%)
Adams Outdoor Advertising, LP bank term loan FRN Ser. B, 5.6377s,
2012 1,097,250 1,111,880
Ashtead Group PLC bank term loan FRN Ser. B, 5.5625s, 2009
(United Kingdom) 550,000 557,104
Boise Cascade Corp. bank term loan FRN Ser. D, 5 1/4s, 2011 1,496,250 1,517,010
Borgata Resorts bank term loan FRN Ser. B, 5.185s, 2011 796,000 801,307
Boyd Gaming Corp. bank term loan FRN Ser. B, 4.935s, 2010 1,250,000 1,261,459
Coinmach Corp. bank term loan FRN Ser. B, 6.3961s, 2009 261,543 264,486
Cooper Tire & Rubber Co. bank term loan FRN Ser. B, 5 1/2s, 2012 762,833 761,880
Cooper Tire & Rubber Co. bank term loan FRN Ser. C, 5 1/2s, 2012 1,227,167 1,225,633
Custom Building Products bank term loan FRN Ser. B, 5.74s, 2011 1,246,875 1,253,109
Dex Media West, LLC/Dex Media Finance Co. bank term loan FRN Ser.
B, 5.1299s, 2010 305,645 309,604
Goodyear Tire & Rubber Co. (The) bank term loan FRN 6.32s, 2010 465,000 467,906
Hayes Lemmerz International, Inc. bank term loan FRN 6.7667s,
2009 271,782 273,821
Jostens IH Corp. bank term loan FRN Ser. C, 5.9378s, 2010 1,852,500 1,878,898
Journal Register Co. bank term loan FRN Ser. B, 5.1286s, 2012 900,000 905,625
Lamar Media Corp. bank term loan FRN Ser. D, 5.0625s, 2010 324,296 327,539
Landsource, Inc. bank term loan FRN Ser. B, 5.9375s, 2010 150,000 150,188
Masonite International Corp. bank term loan FRN 5.2153s, 2013
(Canada) 1,021,567 1,023,355
Masonite International Corp. bank term loan FRN Ser. B, 5.2153s,
2013 (Canada) 1,023,308 1,025,098
Movie Gallery, Inc. bank term loan FRN Ser. B, 6.49s, 2011 850,000 856,729
Nortek Holdings, Inc. bank term loan FRN Ser. B, 5.9168s, 2011 398,995 401,904
Penn National Gaming, Inc. bank term loan FRN Ser. B, 5.12s, 2012 350,000 355,195
PRIMEDIA, Inc. bank term loan FRN Ser. B, 6.3125s, 2009 218,014 218,014
R.H. Donnelley Finance Corp. bank term loan FRN Ser. A-3,
5.2066s, 2009 340,288 343,762
R.H. Donnelley Finance Corp. bank term loan FRN Ser. D, 5.2027s,
2011 1,126,642 1,140,942
Raycom Media, Inc. bank term loan FRN Ser. B, 5 1/2s, 2012 1,700,000 1,712,750
Resorts International Hotel and Casino, Inc. bank term loan FRN
Ser. B, 5.99s, 2012 1,030,881 1,042,478
Sealy Mattress Co. bank term loan FRN Ser. D, 5.1294s, 2012 188,704 190,002
Trump Hotel & Casino Resort, Inc. bank term loan FRN Ser. B,
6.1395s, 2012 300,000 303,563
Trump Hotel & Casino Resort, Inc. bank term loan FRN Ser. DD,
5.62s, 2012 (U) 300,000 303,563
TRW Automotive, Inc. bank term loan FRN Ser. B, 5 1/4s, 2010 1,056,410 1,066,314
Venetian Casino Resort, LLC bank term loan FRN Ser. B, 5.24s,
2011 1,849,858 1,871,660
Venetian Casino Resort, LLC bank term loan FRN Ser. DD, 4.314s,
2011 (U) 381,414 385,228
William Carter Holdings Co. (The) bank term loan FRN Ser. B,
5.4452s, 2012 250,000 253,438
25,561,444
---------------------------------------------------------------------------------------------------------------------------------
Consumer Staples (2.0%)
Affinity Group Holdings bank term loan FRN Ser. B1, 6.5201s, 2009 65,626 66,009
Affinity Group Holdings bank term loan FRN Ser. B2, 6.42s, 2009 164,066 165,023
AMF Bowling Worldwide bank term loan FRN Ser. B, 6.5755s, 2009 209,503 210,813
Century Cable Holdings bank term loan FRN 8 1/4s, 2009 1,220,000 1,206,275
Charter PLC bank term loan FRN Ser. B, 6.9297s, 2011 (United
Kingdom) 1,616,734 1,608,794
Constellation Brands, Inc. bank term loan FRN Ser. B, 5.2989s,
2011 3,323,333 3,372,721
DirecTV Holdings, LLC bank term loan FRN Ser. B, 4.9088s, 2013 1,366,667 1,379,601
Dole Food Co., Inc. bank term loan FRN Ser. B, 5.1764s, 2012 492,516 497,595
Domino's, Inc. bank term loan FRN 5 1/4s, 2010 550,872 558,102
Emmis Communications Corp. bank term loan FRN Ser. B, 5.13s, 2010 498,747 503,547
Freedom Communications, Inc. bank term loan FRN Ser. B, 4.83s,
2012 437,234 441,607
Insight Midwest LP/Insight Capital, Inc. bank term loan FRN 5
5/8s, 2009 137,900 139,503
Jack-in-the-Box, Inc. bank term loan FRN 5.1806s, 2008 348,232 351,932
Jean Coutu Group, Inc. bank term loan FRN Ser. B, 5 1/2s, 2011 1,050,000 1,065,914
Loews Cineplex Entertainment Corp. bank term loan FRN Ser. B,
5.64s, 2011 1,700,000 1,708,500
Mediacom Communications Corp. bank term loan FRN Ser. B, 5.7153s,
2012 995,000 1,008,128
MGM Studios, Inc. bank term loan FRN Ser. B, 5.74s, 2011 1,800,000 1,818,000
Olympus Cable Holdings, LLC bank term loan FRN Ser. B, 8 1/4s,
2010 735,000 726,337
Prestige Brands, Inc. bank term loan FRN Ser. B, 5.38s, 2011 1,713,751 1,728,032
Prestige Brands, Inc. bank term loan FRN Ser. B-1, 5.187s, 2011 416,880 420,354
Regal Cinemas, Inc. bank term loan FRN Ser. B, 5.24s, 2010 1,492,443 1,506,902
Six Flags, Inc. bank term loan FRN Ser. B, 6.1612s, 2009 816,436 826,641
Spanish Broadcast bank term loan FRN 5.49s, 2012 800,000 810,500
Spectrum Brandd, Inc. bank term loan FRN Ser. B, 5.485s, 2013 1,848,000 1,870,329
Sun Media Corp. bank term loan FRN Ser. B, 5.68s, 2009 (Canada) 303,207 306,744
Universal City Development bank term loan FRN Ser. B, 5.4598s,
2011 1,692,622 1,710,254
Warner Music Group bank term loan FRN Ser. B, 5.4494s, 2011 871,435 879,060
Young Broadcasting, Inc. bank term loan FRN Ser. B, 5.6413s, 2012 1,650,000 1,664,438
28,551,655
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Energy (0.2%)
Dresser, Inc. bank term loan FRN 6.91s, 2010 360,000 365,400
Kerr-McGee Corp. bank term loan FRN Ser. B, 5.79s, 2011 650,000 660,637
Key Energy Services, Inc. bank term loan FRN Ser. B, 6.266s, 2012 800,000 803,000
Universal Compression, Inc. bank term loan FRN Ser. B, 5.24s,
2012 399,000 403,738
Vulcan Energy Corp. bank term loan FRN Ser. B, 5.49s, 2010 843,483 851,390
3,084,165
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Financial (0.5%)
Fidelity National Information Solutions bank term loan FRN Ser.
B, 5.1s, 2013 1,460,250 1,462,467
General Growth Properties, Inc. bank term loan FRN Ser. A, 5.59s,
2007 (R) 952,836 961,333
General Growth Properties, Inc. bank term loan FRN Ser. B, 5.49s,
2008 (R) 1,791,472 1,814,314
Hilb, Rogal & Hamilton Co. bank term loan FRN Ser. B, 5 3/4s,
2011 432,603 435,036
Motor City bank term loan FRN Ser. B, 5.516s, 2012 1,600,000 1,608,000
6,281,150
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Health Care (0.6%)
Advanced Medical Optics, Inc. bank term loan FRN Ser. B, 5.214s,
2009 245,605 245,912
Alderwoods Group, Inc. bank term loan FRN 5.3479s, 2009 (Canada) 1,014,676 1,026,091
Beverly Enterprises, Inc. bank term loan FRN 6.1086s, 2008 245,625 246,546
Community Health Systems, Inc. bank term loan FRN Ser. B, 5.07s,
2011 637,195 645,027
Concentra bank term loan FRN 6.0095s, 2009 362,469 366,849
DaVita, Inc. bank term loan FRN Ser. B, 5.37s, 2012 1,150,000 1,167,410
Express Scripts, Inc. bank term loan FRN Ser. B, 4.7681s, 2010 944,219 948,940
Fisher Scientific International, Inc. bank term loan FRN Ser. B,
4.99s, 2011 237,600 239,308
Hanger Orthopedic Group, Inc. bank term loan FRN 6.99s, 2009 196,500 198,711
Kinetic Concepts, Inc. bank term loan FRN Ser. B, 5.24s, 2011 138,691 140,021
LifePoint, Inc. bank term loan FRN Ser. B, 5.0131s, 2012 1,336,500 1,347,240
PacifiCare Health System, Inc. bank term loan FRN Ser. B,
5.0656s, 2010 498,747 499,890
Veterinary Centers of America bank term loan FRN Ser. B, 3s, 2011 249,375 251,557
Warner Chilcott Corp. bank term loan FRN Ser. B, 6.0673s, 2012 544,546 549,894
Warner Chilcott Corp. bank term loan FRN Ser. B, 5.901s, 2012 (U) 22,082 22,187
Warner Chilcott Corp. bank term loan FRN Ser. C, 6.18s, 2012 219,425 221,580
Warner Chilcott Corp. bank term loan FRN Ser. D, 6.18s, 2012 101,368 102,364
Warner Chilcott Corp. bank term loan FRN Ser. DD, 5.314s, 2012
(U) 110,410 111,155
8,330,682
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Technology (0.5%)
AMI Semiconductor, Inc. bank term loan FRN 4.99s, 2012 847,875 850,701
Seagate Technology Hdd Holdings bank term loan FRN 5 1/2s, 2007
(Cayman Islands) 710,637 720,112
Seagate Technology Hdd Holdings bank term loan FRN Ser. B, 5
1/2s, 2007 (Cayman Islands) 284,235 288,025
SunGard Data Systems, Inc. bank term loan FRN Ser. B, 6.016s,
2013 3,250,000 3,290,625
UGS Corp. bank term loan FRN Ser. C, 5.49s, 2012 950,345 962,224
Xerox Corp. bank term loan FRN 5.24s, 2008 400,000 402,500
6,514,187
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Transportation (0.2%)
Kansas City Southern Railway Co. bank term loan FRN Ser. B,
5.1572s, 2008 585,180 592,982
Midwestern Air Systems bank term loan FRN Ser. B, 5.5838s, 2012 250,000 254,219
Rail America, Inc. bank term loan FRN Ser. B, 5.5625s, 2011 402,024 408,054
Rail America, Inc. bank term loan FRN Ser. B, 5.5625s, 2011 47,143 47,850
Travelcenters of America, Inc. bank term loan FRN Ser. B, 5.09s,
2011 1,050,000 1,061,156
2,364,261
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Utilities & Power (0.3%)
El Paso Corp. bank term loan FRN Ser. B, 6.24s, 2009 1,555,112 1,573,094
El Paso Corp. bank term loan FRN Ser. C, 3.24s, 2009 406,000 409,235
NRG Energy, Inc. bank term loan FRN 3.49s, 2011 437,500 441,953
NRG Energy, Inc. bank term loan FRN Ser. B, 5.2554s, 2011 559,688 565,385
Texas Genco Holdings, Inc. bank term loan FRN Ser. B, 5.4113s,
2011 704,154 714,087
Texas Genco Holdings, Inc. bank term loan FRN Ser. DD, 5.4102s,
2011 291,577 295,690
Williams Cos., Inc. (The) bank term loan FRN Ser. C, 5.64s, 2007 225,417 227,390
4,226,834
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Total senior loans (cost $117,164,892) $117,428,580
---------------------------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (5.4%)*
---------------------------------------------------------------------------------------------------------------------------------
Principal amount Value
---------------------------------------------------------------------------------------------------------------------------------
Banc of America Commercial Mortgage, Inc. 144A
Ser. 01-1, Class J, 6 1/8s, 2036 $318,946 $313,180
Ser. 01-1, Class K, 6 1/8s, 2036 718,000 541,121
Banc of America Large Loan 144A
FRB Ser. 02-FL2A, Class L1, 6.34s, 2014 412,000 412,126
FRN Ser. 02-FL2A, Class K1, 5.84s, 2014 100,000 100,234
FRB Ser. 05-BOCA, Class M, 5.488s, 2016 693,000 696,130
FRB Ser. 05-BOCA, Class L, 5.088s, 2016 300,000 300,957
FRB Ser. 05-BOCA, Class K, 4.738s, 2016 275,000 275,880
FRB Ser. 05-BOCA, Class J, 4.488s, 2016 200,000 200,372
FRB Ser. 05-BOCA, Class H, 4.338s, 2016 100,000 100,186
Bear Stearns Commercial Mortgage Securitization Corp. Ser.
00-WF2, Class F, 8.197s, 2032 481,000 561,963
Broadgate Financing PLC FRB Ser. D, 5.51s, 2023 (United Kingdom) GBP 915,750 1,607,734
Commercial Mortgage Acceptance Corp. Ser. 97-ML1, IO, 0.849s,
2017 7,098,213 136,419
Criimi Mae Commercial Mortgage Trust Ser. 98-C1, Class A2, 7s,
2033 2,615,000 2,706,525
Criimi Mae Commercial Mortgage Trust 144A Ser. 98-C1, Class B,
7s, 2033 3,957,000 4,131,473
CS First Boston Mortgage Securities Corp. 144A
FRB Ser. 03-TF2A, Class L, 7.388s, 2014 693,000 691,119
Ser. 98-C1, Class F, 6s, 2040 1,880,000 1,530,335
Ser. 02-CP5, Class M, 5 1/4s, 2035 691,000 519,570
FRB Ser. 05-TFLA, Class L, 5.24s, 2020 1,356,000 1,355,993
FRB Ser. 05-TFLA, Class K, 4.688s, 2020 362,000 361,999
Deutsche Mortgage & Asset Receiving Corp. Ser. 98-C1, Class X,
IO, 0.96s, 2031 66,398,286 1,478,400
DLJ Commercial Mortgage Corp.
Ser. 98-CF2, Class B4, 6.04s, 2031 552,708 542,308
Ser. 98-CF2, Class B5, 5.95s, 2031 1,771,365 1,255,455
DLJ Mortgage Acceptance Corp. 144A
Ser. 97-CF1, Class B2, 8.16s, 2030 539,000 323,400
Ser. 97-CF1, Class B1, 7.91s, 2030 519,000 547,782
European Loan Conduit FRB Ser. 6X, Class E, 6.379s, 2010 (United
Kingdom) GBP 731,868 1,300,363
European Loan Conduit 144A FRB Ser. 6A, Class F, 7.183s, 2010
(United Kingdom) GBP 264,126 470,314
European Prime Real Estate PLC 144A FRB Ser. 1-A, Class D,
4.513s, 2014 (United Kingdom) 751,000 1,322,060
Fannie Mae
IFB Ser. 98-51, Class SG, IO, 23.84s, 2022 186,544 93,330
IFB Ser. 02-36, Class SJ, 11.475s, 2029 507,419 521,891
Ser. 92-15, Class L, IO, 10.376s, 2022 1,006 10,704
Ser. 04-W8, Class 3A, 7 1/2s, 2044 1,123,906 1,196,135
Ser. 04-T2, Class 1A4, 7 1/2s, 2043 935,978 995,652
Ser. 03-W4, Class 4A, 7 1/2s, 2042 312,752 331,153
Ser. 03-W3, Class 1A3, 7 1/2s, 2042 632,807 671,659
Ser. 03-W2, Class 1A3, 7 1/2s, 2042 12,887 13,684
Ser. 02-W1, Class 2A, 7 1/2s, 2042 1,456 1,536
Ser. 02-14, Class A2, 7 1/2s, 2042 5,772 6,118
Ser. 01-T10, Class A2, 7 1/2s, 2041 807,772 854,537
Ser. 02-T4, Class A3, 7 1/2s, 2041 3,533 3,738
Ser. 01-T8, Class A1, 7 1/2s, 2041 9,159 9,676
Ser. 01-T7, Class A1, 7 1/2s, 2041 3,153,959 3,329,334
Ser. 01-T3, Class A1, 7 1/2s, 2040 480,222 507,174
Ser. 01-T1, Class A1, 7 1/2s, 2040 1,480,892 1,567,319
Ser. 99-T2, Class A1, 7 1/2s, 2039 612,473 649,703
Ser. 00-T6, Class A1, 7 1/2s, 2030 299,325 315,969
Ser. 02-W7, Class A5, 7 1/2s, 2029 523,431 555,302
Ser. 01-T4, Class A1, 7 1/2s, 2028 1,419,281 1,511,355
Ser. 02-W3, Class A5, 7 1/2s, 2028 2,877 3,050
Ser. 03-58, Class ID, IO, 6s, 2033 1,505,437 286,974
Ser. 03-26, Class IG, IO, 6s, 2033 1,293,941 238,509
Ser. 322, Class 2, IO, 6s, 2032 1,199,593 237,215
Ser. 318, Class 2, IO, 6s, 2032 1,501,602 296,467
Ser. 350, Class 2, IO, 5 1/2s, 2034 4,138,307 859,829
Ser. 338, Class 2, IO, 5 1/2s, 2033 9,647,994 2,017,613
Ser. 333, Class 2, IO, 5 1/2s, 2033 4,196,501 878,458
Fannie Mae
Ser. 329, Class 2, IO, 5 1/2s, 2033 8,612,246 1,788,692
Ser. 03-37, Class IC, IO, 5 1/2s, 2027 4,158,229 389,210
Ser. 03-6, Class IB, IO, 5 1/2s, 2022 248,279 1,507
IFB Ser. 02-36, Class QH, IO, 4.59s, 2029 1,099,410 33,466
Ser. 03-118, Class S, IO, 4.64s, 2033 2,066,324 205,987
Ser. 03-W10, Class 1A, IO, 1.495s, 2043 11,980,766 220,895
Ser. 03-W10, Class 3A, IO, 1.473s, 2043 14,340,344 286,807
Ser. 03-W17, Class 12, IO, 1.158s, 2033 7,952,356 225,449
Ser. 00-T6, IO, 0.757s, 2030 12,759,158 183,413
Ser. 02-T18, IO, 0.52s, 2042 22,281,555 264,436
Ser. 99-51, Class N, PO, zero %, 2029 226,729 189,390
Ser. 99-52, Class MO, PO, zero %, 2026 64,432 61,422
Federal Home Loan Mortgage Corp. Structured Pass-Through Securities
Ser. T-58, Class 4A, 7 1/2s, 2043 17,724 18,777
Ser. T-41, Class 3A, 7 1/2s, 2032 486,401 514,156
Ser. T-57, Class 1AX, IO, 0.447s, 2043 7,336,085 71,147
FFCA Secured Lending Corp. Ser. 00-1, Class X, IO, 1.498s, 2020 19,527,913 1,222,945
First Union Commercial Mortgage Trust 144A Ser. 99-C1, Class G,
5.35s, 2035 891,000 573,303
Freddie Mac
IFB Ser. 2763, Class SC, 15.047s, 2032 900,362 995,289
Ser. 216, IO, 6s, 2032 4,638,662 892,634
Ser. 226, IO, 5 1/2s, 2034 3,335,751 714,589
Ser. 2515, Class IG, IO, 5 1/2s, 2032 2,795,200 653,705
Ser. 2626, Class IK, IO, 5 1/2s, 2030 1,342,320 231,088
Ser. 2590, Class IH, IO, 5 1/2s, 2028 1,438,200 257,078
Ser. 2833, Class IK, IO, 5 1/2s, 2023 991,406 127,896
Ser. 215, PO, zero %, 2031 479,026 426,005
Ser. 2235, PO, zero %, 2030 502,597 424,142
GE Capital Commercial Mortgage Corp. 144A
Ser. 00-1, Class G, 6.131s, 2033 1,159,000 1,050,308
Ser. 00-1, Class H, 6.131s, 2033 721,000 460,075
GMAC Commercial Mortgage Securities, Inc. 144A Ser. 99-C3, Class
G, 6.974s, 2036 1,022,427 820,124
Government National Mortgage Association
Ser. 01-43, Class SJ, IO, 4.17s, 2029 85,236 188
Ser. 98-2, Class EA, PO, zero %, 2028 223,425 186,979
GS Mortgage Securities Corp. II 144A FRB Ser. 03-FL6A, Class L,
6.638s, 2015 417,000 419,346
LB Commercial Conduit Mortgage Trust 144A
Ser. 99-C1, Class G, 6.41s, 2031 492,082 470,120
Ser. 98-C4, Class J, 5.6s, 2035 1,930,000 1,399,401
Lehman Brothers Floating Rate Commercial Mortgage Trust 144A FRB
Ser. 03-LLFA, Class L, 7.13s, 2014 1,181,000 1,148,928
Mach One Commercial Mortgage Trust 144A
Ser. 04-1A, Class J, 5.45s, 2040 1,154,000 960,840
Ser. 04-1A, Class K, 5.45s, 2040 411,000 334,323
Ser. 04-1A, Class L, 5.45s, 2040 187,000 136,612
Merrill Lynch Mortgage Investors, Inc. Ser. 96-C2, Class JS, IO,
2.138s, 2028 11,555,855 466,748
Mezz Cap Commercial Mortgage Trust 144A Ser. 04-C1, Class X, IO,
7.851s, 2037 1,437,993 601,261
Morgan Stanley Capital I 144A Ser. 04-RR, Class F7, 6s, 2039 3,360,000 2,387,374
Mortgage Capital Funding, Inc.
FRB Ser. 98-MC2, Class E, 7.103s, 2030 459,501 486,454
Ser. 97-MC2, Class X, IO, 1.266s, 2012 8,486,886 166,278
Permanent Financing PLC FRB Ser. 8, Class 2C, 3.818s, 2042
(United Kingdom) 1,112,000 1,111,630
PNC Mortgage Acceptance Corp. 144A Ser. 00-C1, Class J, 6 5/8s,
2010 285,000 273,059
Quick Star PLC FRB Class 1-D, 5.56s, 2011 (United Kingdom) GBP 891,589 1,569,553
QFA Royalties LLC 144A Ser. 05-1, 7.3s, 2025 1,369,429 1,358,378
Starwood Asset Receivables Trust 144A
FRB Ser. 03-1A, Class F, 4.56s, 2022 340,282 340,486
FRB Ser. 03-1A, Class E, 4.51s, 2022 431,024 431,282
STRIPS 144A
Ser. 03-1A, Class M, 5s, 2018 (Cayman Islands) 316,000 263,453
Ser. 03-1A, Class N, 5s, 2018 (Cayman Islands) 376,000 286,888
Ser. 04-1A, Class M, 5s, 2018 (Cayman Islands) 345,000 287,630
Ser. 04-1A, Class N, 5s, 2018 (Cayman Islands) 325,000 247,635
Titan Europe PLC 144A
FRB Ser. 04-2A, Class D, 3.044s, 2014 (Ireland) EUR 779,000 946,096
FRB Ser. 04-2A, Class C, 2.634s, 2014 (Ireland) EUR 979,000 1,188,996
URSUS 144A
FRB Ser. 1-A, Class D, 4.416s, 2012 (Ireland) GBP 870,000 1,528,612
Ser. 1-A, Class X1, IO, 3s, 2012 (Ireland) GBP 28,884,000 372,414
Wachovia Bank Commercial Mortgage Trust 144A FRB Ser. 05-WL5A,
Class L, 6.688s, 2018 917,000 917,000
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Total collateralized mortgage obligations (cost $77,872,426) $75,339,381
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BRADY BONDS (0.5%)*
---------------------------------------------------------------------------------------------------------------------------------
Principal amount Value
---------------------------------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) FRB Ser. 18 YR, 4.313s, 2012 $3,726,519 $3,605,407
Brazil (Federal Republic of) FRB Ser. RG, 4.313s, 2012 770,010 744,985
Peru (Republic of) coll. FLIRB Ser. 20YR, 4 1/2s, 2017 1,346,400 1,285,812
Peru (Republic of) FRB Ser. 20 YR, 5s, 2017 1,139,000 1,100,616
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Total brady bonds (cost $5,870,497) $6,736,820
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PREFERRED STOCKS (0.3%)*
---------------------------------------------------------------------------------------------------------------------------------
Shares Value
---------------------------------------------------------------------------------------------------------------------------------
Doane Pet Care Co. $7.125 pfd. 14,527 $1,162,160
Dobson Communications Corp. 13.00% pfd. 52 70,200
First Republic Capital Corp. 144A 10.50% pfd. 750 787,500
Paxson Communications Corp. 14.25% cum. pfd. ++++ 124 818,400
Rural Cellular Corp. Ser. B, 11.375% cum. pfd. 828 877,680
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Total preferred stocks (cost $3,308,001) $3,715,940
---------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (0.2%)*
---------------------------------------------------------------------------------------------------------------------------------
Shares Value
---------------------------------------------------------------------------------------------------------------------------------
AboveNet, Inc. + 3,850 $96,250
AMRESCO Creditor Trust (acquired 06/17/99, cost $107,549) (F) (DD) + (R) 1,355,000 1,355
Birch Telecom, Inc. (F) + 2,128 2
Coinmach Service Corp. IDS (Income Deposit Securities) (S) 46,000 620,540
Comdisco Holding Co., Inc. 905 14,842
Contifinancial Corp. Liquidating Trust Units 5,273,336 6,592
Covad Communications Group, Inc. + (S) 29,619 39,986
Crown Castle International Corp. + 956 20,803
Genesis HealthCare Corp. + 2,143 96,371
iPCS Escrow, Inc. (F) + 1,045,000 1,045
Knology, Inc. + 381 1,029
Northwestern Corp. 11,242 355,247
Sterling Chemicals, Inc. + 497 17,395
Sun Healthcare Group, Inc. + 1,662 11,301
USA Mobility, Inc. + 27 755
VFB LLC (acquired various dates from 06/22/99 to 12/08/03, cost
$1,311,474) (DD) + 1,795,382 368,053
Washington Group International, Inc. + (S) 9,088 490,207
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Total common stocks (cost $12,021,770) $2,141,773
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CONVERTIBLE PREFERRED STOCKS (0.1%)*
---------------------------------------------------------------------------------------------------------------------------------
Shares Value
---------------------------------------------------------------------------------------------------------------------------------
Emmis Communications Corp. Ser. A, $3.125 cum. cv. pfd. 4,826 $212,947
Paxson Communications Corp. 144A 9.75% cv. pfd. ++++ 137 548,000
Williams Cos., Inc. (The) 144A $2.75 cv. pfd. 13,220 1,318,695
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Total convertible preferred stocks (cost $2,003,137) $2,079,642
---------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS AND NOTES (0.1%)*
---------------------------------------------------------------------------------------------------------------------------------
Principal amount Value
---------------------------------------------------------------------------------------------------------------------------------
Cybernet Internet Services International, Inc. 144A cv. sr. disc.
notes 13s, 2009 (Canada) (In default) + $4,290,000 $43
Lear Corp. cv. company guaranty zero %, 2022 1,180,000 542,800
Manor Care, Inc. 144A cv. sr. notes 2 1/8s, 2035 165,000 167,784
WCI Communities, Inc. cv. sr. sub. notes 4s, 2023 525,000 698,250
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Total convertible bonds and notes (cost $4,872,426) $1,408,877
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UNITS (0.1%)*
---------------------------------------------------------------------------------------------------------------------------------
Principal amount Value
---------------------------------------------------------------------------------------------------------------------------------
Morrison Knudsen Corp., 2032 $1,720,000 $161,250
XCL Equity Units zero % (F) 1,327 904,889
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Total units (cost $3,733,370) $1,066,139
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WARRANTS (--%)* +
---------------------------------------------------------------------------------------------------------------------------------
Expiration Strike
date price Warrants Value
---------------------------------------------------------------------------------------------------------------------------------
AboveNet, Inc. 9/8/08 20.00 1,392 $6,264
AboveNet, Inc. 9/8/10 24.00 1,638 819
Dayton Superior Corp. 144A 6/15/09 .01 1,980 1
MDP Acquisitions PLC 144A 10/1/13 .001 960 26,880
Mikohn Gaming Corp. 144A 8/15/08 7.70 760 19,730
TravelCenters of America, Inc. 144A 5/1/09 .001 1,260 1,575
Ubiquitel, Inc. 144A 4/15/10 22.74 3,210 1
Washington Group International, Inc. Ser. A 1/25/06 28.50 5,609 133,326
Washington Group International, Inc. Ser. B 1/25/06 31.74 6,411 125,974
Washington Group International, Inc. Ser. C 1/25/06 33.51 3,465 71,899
---------------------------------------------------------------------------------------------------------------------------------
Total warrants (cost $779,554) $386,469
---------------------------------------------------------------------------------------------------------------------------------
EQUITY VALUE CERTIFICATES (--%)* + (cost $107,609)
---------------------------------------------------------------------------------------------------------------------------------
Maturity date Certificates Value
---------------------------------------------------------------------------------------------------------------------------------
ONO Finance PLC 144A (United Kingdom) 2/15/11 780 $8
---------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (17.6%)*
---------------------------------------------------------------------------------------------------------------------------------
Principal amount/Shares Value
---------------------------------------------------------------------------------------------------------------------------------
Putnam Prime Money Market Fund (e) 192,621,149 $192,621,149
Interest in $450,000,000 tri-party repurchase agreement dated
July 29, 2005 with UBS Securities LLC. due August 1, 2005 with
respect to various U.S. Government obligations -- maturity value
of $40,648,175 for an effective yield of 3.30% (collateralized by
Fannie Mae and Freddie Mac with yields ranging from 4.00% to
13.00% and due dates ranging from September 1, 2005 to August 1,
2035, valued at 459,000,183) $40,637,000 40,637,000
Short-term investments held as collateral for loaned securities
with yields ranging from 2.30% to 3.46% and due dates ranging
from August 1, 2005 to August 17, 2005 (d) 1,050,138 1,049,814
Barton Capital Corp. zero %, August 11, 2005 9,869,000 9,859,926
U.S. Treasury Bills zero %, August 4, 2005 # 1,500,000 1,499,634
---------------------------------------------------------------------------------------------------------------------------------
Total short-term investments (cost $245,667,523) $245,667,523
---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
---------------------------------------------------------------------------------------------------------------------------------
Total investments (cost $1,474,598,240) $1,487,004,253
* Percentages indicated are based on net assets of $1,396,980,187.
**** Security is in default of principal and interest.
+ Non-income-producing security.
(S) Securities on loan, in part or in entirety, at July 31, 2005.
++ The interest or dividend rate and date shown parenthetically represent the new interest or dividend rate to be paid and
the date the fund will begin accruing interest or dividend income at this rate.
(DD) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at
July 31, 2005 was $369,408 or 0.03% of net assets.
++++ Income may be received in cash or additional securities at the discretion of the issuer.
# This security was pledged and segregated with the custodian to cover margin requirements for futures contracts at
July 31, 2005.
(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. These loans pay interest at rates which adjust periodically. The interest rate
shown for senior loans are the current interest rates at July 31, 2005. 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 (Notes 1 and 5).
(d) See Note 1 to the financial statements.
(e) See Note 4 to the financial statements regarding investments in Putnam Prime Money Market Fund.
(F) Security is valued at fair value following procedures approved by the Trustees.
(U) A portion of the position represents unfunded loan commitments, which could be extended at the option of the borrower,
pursuant to the loan agreements. The total market value of the unfunded loan commitments at July 31, 2005 was 0.06% of
net assets.
At July 31, 2005, liquid assets totaling $176,194,248 have been designated as collateral for open forward commitments,
swap contracts, and future contracts.
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 Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interest rates at July 31, 2005.
The rates shown on IFB's, which are securities paying interest rates that vary inversely to changes in the market
interest rates, are the current interest rates at July 31, 2005.
DIVERSIFICATION BY COUNTRY
Distribution of investments by country of issue at July 31, 2005:
(as a percentage of Portfolio Value)
Austria 0.7%
Brazil 1.9
Canada 1.4
Cayman Islands 1.7
France 2.0
Germany 1.9
Ireland 1.9
Luxembourg 0.9
Mexico 1.3
Peru 0.5
Philippines 0.7
Russia 1.1
Sweden 1.2
United Kingdom 2.0
United States 77.8
Venezuela 0.5
Other 2.5
-----
Total 100.0%
----------------------------------------------------------------------------------------
FORWARD CURRENCY CONTRACTS TO BUY at 7/31/05 (aggregate face value $243,683,175)
----------------------------------------------------------------------------------------
Unrealized
Aggregate Delivery appreciation/
Value face value date (depreciation)
----------------------------------------------------------------------------------------
Australian Dollar $66,538,251 $65,055,759 10/19/05 $1,482,492
British Pound 16,114,037 16,209,012 9/21/05 (94,975)
Danish Krone 2,274,288 2,307,451 9/21/05 (33,163)
Euro 90,693,805 90,301,985 9/21/05 391,820
Japanese Yen 37,616,219 39,466,385 8/17/05 (1,850,166)
Norwegian Krone 24,583,186 24,282,617 9/21/05 300,569
Polish Zloty 957,101 959,588 9/21/05 (2,487)
South Korean Won 12,586 12,917 8/17/05 (331)
South Korean Won 3,540,682 3,551,699 11/16/05 (11,017)
Swiss Franc 1,521,770 1,535,762 9/21/05 (13,992)
----------------------------------------------------------------------------------------
Total $168,750
----------------------------------------------------------------------------------------
FORWARD CURRENCY CONTRACTS TO SELL at 7/31/05 (aggregate face value $327,709,570)
----------------------------------------------------------------------------------------
Unrealized
Aggregate Delivery appreciation/
Value face value date (depreciation)
----------------------------------------------------------------------------------------
Australian Dollar $686,300 $670,665 10/19/05 $(15,635)
British Pound 10,134,985 10,076,382 9/21/05 (58,603)
Canadian Dollar 23,894,054 23,978,536 10/19/05 84,482
Euro 169,840,625 170,945,748 9/21/05 1,105,123
Japanese Yen 38,252,330 38,684,262 8/17/05 431,932
Singapore Dollar 55,524 54,706 8/17/05 (818)
Swedish Krona 43,185,812 44,455,768 9/21/05 1,269,956
Swiss Franc 38,911,853 38,843,503 9/21/05 (68,350)
----------------------------------------------------------------------------------------
Total $2,748,087
------------------------------------------------------------------------------------------------
FUTURES CONTRACTS OUTSTANDING at 7/31/05
------------------------------------------------------------------------------------------------
Unrealized
Number of Expiration appreciation/
contracts Value date (depreciation)
------------------------------------------------------------------------------------------------
Euro-Bobl 5 yr (Long) 157 $21,901,106 Sep-05 $(23,355)
Euro-Bund 10 yr (Short) 244 36,286,593 Sep-05 (104,850)
Interest Rate Swap 10 yr (Long) 29 3,187,281 Sep-05 (82,642)
Japanese Government Bond -
TSE 10 yr (Short) 17 21,224,215 Sep-05 129,839
Japanese Government Bond 10 yr
Mini (Long) 92 11,480,300 Sep-05 (71,660)
U.K. Gilt 10 yr (Long) 42 8,349,679 Sep-05 (8,266)
U.S. Treasury Bond 20 yr (Short) 37 4,266,563 Sep-05 40,647
U.S. Treasury Note 10 yr (Long) 155 17,202,578 Sep-05 (435,876)
U.S. Treasury Note 5 yr (Long) 416 44,596,500 Sep-05 (118,246)
U.S. Treasury Note 2 yr (Short) 207 42,742,266 Sep-05 206,901
------------------------------------------------------------------------------------------------
Total $(467,508)
--------------------------------------------------------------------------------------------------------------------------
INTEREST RATE SWAP CONTRACTS OUTSTANDING at 7/31/05
--------------------------------------------------------------------------------------------------------------------------
Unrealized
Notional Termination appreciation/
amount date (depreciation)
--------------------------------------------------------------------------------------------------------------------------
Agreement with Merrill Lynch Capital Services, Inc. dated June 9,
2005 to pay semi-annually the notional amount multiplied by the
six month JPY-LIBOR-BBA and receive semi-annually the notional
amount multiplied by 1.7275%. JPY 2,800,000,000 6/14/20 $ (288,630)
Agreement with Citibank N.A. dated July 12, 2005 to pay annually
the notional amount multiplied by 3.4% and receive semi-annually
the notional amount multiplied by the six month NOKDOM-NIBR. NOK 93,000,000 7/14/10 (42,003)
Agreement with Citibank N.A. dated July 12, 2005 to pay annually
the notional amount multiplied by 2.7515% and receive
semi-annually the notional amount multiplied by the six month
EURIBOR-T248. EUR 11,000,000 7/14/10 14,215
Agreement with Merrill Lynch Capital Services Inc. dated July 22,
2005 to pay annually the notional amount multiplied by 3.54% and
receive semi-annually the notional amount multiplied by the six
month NIBOR. NOK 54,900,000 7/26/10 18,823
Agreement with Merrill Lynch Capital Services Inc. dated July 22,
2005 to pay annually the notional amount multiplied by 2.801% and
receive semi-annually the notional amount multiplied by the six
month EURIBOR. EUR 6,900,000 7/26/10 4
Agreement with Citibank N.A. dated July 20, 2005 to pay annually
the notional amount multiplied by 3.52 and receive semi-annually
the notional amount multiplied by the six month NOKDOM-NIBR. NOK 36,700,000 7/22/10 10,702
Agreement with Citibank N.A. dated July 20, 2005 to pay annually
the notional amount multiplied by 2.825% and receive
semi-annually the notional amount multiplied by the six month
EURIBOR-T248. EUR 4,600,000 7/22/10 (11,348)
Agreement with UBS AG dated April 4, 2005 to pay quarterly the
notional amount multiplied by 2.61% and receive semi-annually the
notional amount multiplied by the six month EUR-EURIBOR-Telerate. EUR 151,000,000 4/6/07 (982,637)
Agreement with Credit Suisse First Boston International dated May
18, 2005 to pay semi-annually the notional amount multiplied by
4.6325% and receive quarterly the notional amount multiplied by
the three month GBP-LIBOR-BBA. GBP 46,000,000 5/18/07 (228,928)
Agreement with Merrill Lynch Capital Services, Inc. dated
February 16, 2005 to receive semi-annually the notional amount
multiplied by the six month EURIBOR and pay annually the notional
amount multiplied by 2.5645%. EUR 92,500,000 2/19/07 (604,490)
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 4,751,000,000 10/1/07 (228,812)
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. 32,700,000 3/30/09 1,315,559
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. 21,900,000 1/26/06 216,483
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. 12,408,000 12/5/05 76,704
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. 6,900,000 1/27/14 155,835
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. 11,257,600 7/9/14 (216,365)
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. 9,973,300 7/9/06 (117,471)
Agreement with JPMorgan Chase Bank, N.A. dated May 6, 2005 to pay
semi-annually the notional amount multiplied by 4.062% and receive
quarterly the notional amount multiplied by the three month USD-LIBOR. 56,000,000 5/10/07 180,608
Agreement with JPMorgan Chase Bank, N.A. dated May 6, 2005 to receive
semi-annually the notional amount multiplied by 4.687% and pay quarterly
the notional amount multiplied by the three month USD-LIBOR. 30,000,000 5/10/15 17,604
Agreement with JPMorgan Chase Bank, N.A. dated May 6, 2005 to pay
semi-annually the notional amount multiplied by 5.062% and receive
quarterly the notional amount multiplied by the three month USD-LIBOR. 13,000,000 5/10/35 (269,637)
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. 21,900,000 1/26/06 216,994
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. 18,032,000 12/15/13 (13,486)
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. 6,900,000 1/26/14 163,330
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%. 12,500,000 11/21/05 186,042
--------------------------------------------------------------------------------------------------------------------------
Total $(430,904)
--------------------------------------------------------------------------------------------------------------------------
CREDIT DEFAULT CONTRACTS OUTSTANDING at 7/31/05
--------------------------------------------------------------------------------------------------------------------------
Unrealized
Notional appreciation/
amount (depreciation)
--------------------------------------------------------------------------------------------------------------------------
Agreement with Lehman Brothers Special Financing, Inc. effective July 27,
2005, maturing on June 20, 2012, to receive/(pay) a premium based on the
difference between the original spread on issue and the market spread on
day of execution and to receive quarterly 19 basis points times the
notional amount. Upon a credit default event of any reference entity
within the DJ iTraxx Index, the fund makes a payment of the proportional
notional amount times the difference between the par value and the
then-market value of the reference entity within the DJ iTraxx Index. EUR 4,823,000 $1,917
Agreement with Lehman Brothers Special Financing, Inc. effective July 27,
2005, maturing on June 20, 2012, to receive/(pay) a premium based on the
difference between the original spread on issue and the market spread on
day of execution and to pay quarterly 45 basis points times the notional
amount. Upon a credit default event of any reference entity within the DJ
iTraxx Index, the fund receives a payment of the proportional notional
amount times the difference between the par value and the then-market
value of the reference entity within the DJ iTraxx Index. EUR 3,617,250 99
Agreement with Lehman Brothers Special Financing, Inc. effective July 29,
2005, maturing on June 20, 2012, to receive/(pay) a premium based on the
difference between the original spread on issue and the market spread on
day of execution and to receive quarterly 33.75 basis points times the
notional amount. Upon a credit default event of any reference entity
within the DJ IG CDX Series 4 Index, 10-15% tranche, the fund makes a
payment of the proportional notional amount times the difference between
the par value and the then-market value of the reference entity within the
DJ IG CDX Series 4 Index,10-15% tranche. 4,407,000 --
Agreement with Lehman Brothers Special Financing, Inc. effective July 29,
2005, maturing on June 20, 2012, to receive/(pay) a premium based on the
difference between the original spread on issue and the market spread on
day of execution and to receive quarterly 21.5 basis points times the
notional amount. Upon a credit default event of any reference entity
within the DJ IG CDX Series 4 Index, 15-30% tranche, the fund makes a
payment of the proportional notional amount times the difference between
the par value and the then-market value of the reference entity within the
DJ IG CDX Series 4 Index,15-30% tranche. 4,407,000 --
Agreement with Bank of America, N.A. effective April 13, 2005, maturing on
June 20, 2010, to receive/(pay) a premium based on the difference between
the original spread on issue and the market spread on day of execution and
receive quarterly 360 basis points times the notional amount. Upon a
credit default event of a reference entity within the DJ HY CDX 3 Index,
the fund makes a payment of the proportional notional amount times the
difference between the par value and the then-market value of the
reference entity within the DJ HY CDX 3 Index. 1,782,000 61,803
Agreement with Citigroup Financial Products, Inc. effective June 10, 2005,
maturing on June 20, 2010, to receive/(pay) a premium based on the
difference between the original spread on issue and the market spread on
day of execution and pay quarterly 677.5 basis points times the notional
amount. Upon a credit default event of a reference entity within the DJ IG
CDX 5 year Series 4 Index 3-7% tranche, the fund receives a payment of the
proportional notional amount times the difference between the par value
and the then-market value of the reference entity within the DJ IG CDX 5
year Series 4 Index 3-7% tranche. 4,761,000 495,604
Agreement with Citigroup Financial Products, Inc. effective April 15,
2005, maturing on June 20, 2010, to receive/(pay) a premium based on the
difference between the original spread on issue and the market spread on
day of execution and receive quarterly 180 basis points times the notional
amount. Upon a credit default event of a reference entity within the DJ HY
CDX 4 Index 25-35% tranche, the fund makes a payment of the proportional
notional amount times the difference between the par value and the
then-market value of the reference entity within the DJ HY CDX 4 Index
25-35% tranche. 4,600,000 251,850
Agreement with Citigroup Financial Products, Inc. effective June 10, 2005,
maturing on June 20, 2010, to receive/(pay) a premium based on the
difference between the original spread on issue and the market spread on
day of execution and pay quarterly 360 basis points times the notional
amount. Upon a credit default event of a reference entity within the DJ HY
CDX 5 year Series 4 Index, the fund receives a payment of the proportional
notional amount times the difference between the par value and the
then-market value of the reference entity within the DJ HY CDX 5 year
Series 4 Index. 4,713,390 (145,971)
Agreement with Citigroup Financial Products, Inc. effective June 14, 2005,
maturing on June 20, 2015, to receive/(pay) a premium based on the
difference between the original spread on issue and the market spread on
day of execution and receive quarterly 619 basis points times the notional
amount. Upon a credit default event of a reference entity within the DJ IG
CDX 5 year Series 4 Index 3-7% tranche, the fund makes a payment of the
proportional notional amount times the difference between the par value
and the then-market value of the reference entity within the DJ IG CDX 5
year Series 4 Index 3-7% tranche. 2,867,000 178,463
Agreement with Deutsche Bank AG effective April 15, 2005, maturing on June
20, 2010, to receive/(pay) a premium based on the difference between the
original spread on issue and the market spread on day of execution and
receive quarterly 183 basis points times the notional amount. Upon a
credit default event of a reference entity within the DJ HY CDX 4 Index
25-35% tranche, the fund makes a payment of the proportional notional
amount times the difference between the par value and the then-market
value of the reference entity within the DJ HY CDX 4 Index 25-35% tranche. 4,600,000 257,600
Agreement with Goldman Sachs Capital Markets, L.P. effective May 20, 2005,
maturing on June 20, 2010, to receive/(pay) a premium based on the
difference between the original spread on issue and the market spread on
day of execution and pay quarterly 90 basis points times the notional
amount. Upon a credit default event of a reference entity within the DJ IG
CDX 5 year Series 4 Index, the fund receives a payment of the proportional
notional amount times the difference between the par value and the
then-market value of the reference entity within the DJ IG CDX 5 year
Series 4 Index. 8,350,000 (193,089)
Agreement with Goldman Sachs Capital Markets, L.P. effective May 20, 2005,
maturing on June 20, 2010, to receive/(pay) a premium based on the
difference between the original spread on issue and the market spread on
day of execution and receive quarterly 500 basis points times the notional
amount. Upon a credit default event of a reference entity within the DJ IG
CDX 5 year Series 4 Index 0-3% tranche, the fund makes a payment of the
proportional notional amount times the difference between the par value
and the then-market value of the reference entity within the DJ IG CDX 5
year Series 4 Index 0-3% tranche. 1,670,000 257,898
Agreement with Goldman Sachs International effective September 2, 2004,
terminating on the date on which the notional amount is reduced to zero or
the date on which the assets securing the reference obligation are
liquidated, the fund receives a payment of the outstanding notional amount
times 2.35% and the fund pays in the event of a credit default in one of
the underlying securities in the basket of BB CMBS securities. 2,218,370 116,991
Agreement with Goldman Sachs International 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. 831,889 34,277
Agreement with Goldman Sachs International 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. 277,296 16,493
Agreement with Goldman Sachs Capital Markets, L.P. effective April 13,
2005, maturing on June 20, 2010, to receive/(pay) a premium based on the
difference between the original spread on issue and the market spread on
day of execution and pay quarterly 360 basis points times the notional
amount. Upon a credit default event of a reference entity within the DJ HY
CDX 3 Index, the fund receives a payment of the proportional notional
amount times the difference between the par value and the then-market
value of the reference entity within the DJ HY CDX 3 Index. 1,881,000 46,934
Agreement with Goldman Sachs Capital Markets, L.P. effective April 1,
2005, maturing on December 20, 2009, to receive/ (pay) a premium based on
the difference between the original spread on issue and the market spread
on day of execution and pay quarterly 138 basis points times the notional
amount. Upon a credit default event of a reference entity within the DJ HY
CDX 3 Index 25-35% tranche, the fund receives a payment of the
proportional notional amount times the difference between the par value
and the then-market value of the reference entity within the DJ HY CDX 3
Index 25-35% tranche. 1,810,000 71,860
Agreement with Goldman Sachs Capital Markets, L.P. effective June 22,
2005, maturing on June 20, 2015, to receive/(pay) a premium based on the
difference between the original spread on issue and the market spread on
day of execution and receives quarterly 656 basis points times the
notional amount. Upon a credit default event of a reference entity within
the DJ IG CDX 5 year Series 4 Index 3-7% tranche, the fund makes a payment
of the proportional notional amount times the difference between the par
value and the then-market value of the reference entity within the DJ IG
CDX 5 year Series 4 Index 3-7% tranche. 4,808,000 465,740
Agreement with Goldman Sachs International 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. 2,218,370 51,813
Agreement with Goldman Sachs International effective September 2, 2004,
terminating on the date on which the notional amount is reduced to zero or
the date on which the assets securing the reference obligation are
liquidated, the fund receives a payment of the outstanding notional amount
times 2.4625% and the fund pays in the event of a credit default in one of
the underlying securities in the basket of BB CMBS securities. 1,109,185 48,845
Agreement with Goldman Sachs International 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. 554,593 17,119
Agreement with Goldman Sachs International 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. 277,296 2,742
Agreement with JPMorgan Chase Bank, N.A. effective June 22, 2005, maturing
on June 20, 2010, to receive/(pay) a premium based on the difference
between the original spread on issue and the market spread on day of
execution and receive pay 360 basis points times the notional amount. Upon
a credit default event of a reference entity within the DJ HY CDX 5 year
Series 4 Index, the fund makes a payment of the proportional notional
amount times the difference between the par value and the then-market
value of the reference entity within the DJ HY CDX 5 year Series 4 Index. 4,759,920 (103,930)
Agreement with JPMorgan Chase Bank, N.A. effective June 23, 2005, maturing
on June 20, 2010, to receive/(pay) a premium based on the difference
between the original spread on issue and the market spread on day of
execution and pay quarterly 360 basis points times the notional amount.
Upon a credit default event of a reference entity within the DJ HY CDX 5
year Series 4 Index, the fund receives a payment of the proportional
notional amount times the difference between the par value and the
then-market value of the reference entity within the DJ HY CDX 5 year Series 4 Index. 4,752,000 (121,264)
Agreement with Lehman Brothers Special Financing, Inc. effective April 14,
2005, maturing on June 20, 2010, to receive/(pay) a premium based on the
difference between the original spread on issue and the market spread on
day of execution and pay quarterly 360 basis points times the notional
amount. Upon a credit default event of a reference entity within the DJ HY
CDX 3 Index, the fund receives a payment of the proportional notional
amount times the difference between the par value and the then-market
value of the reference entity within the DJ HY CDX 3 Index. 1,782,000 62,348
Agreement with Lehman Brothers Special Financing, Inc. effective April 18,
2005, maturing on June 20, 2010, to receive/(pay) a premium based on the
difference between the original spread on issue and the market spread on
day of execution and pay quarterly 194 basis points times the notional
amount. Upon a credit default event of a reference entity within the DJ HY
CDX 4 Index 25-35% tranche, the fund receives a payment of the
proportional notional amount times the difference between the par value
and the then-market value of the reference entity within the DJ HY
CDX 4 Index 25-35% tranche. 1,100,000 68,301
Agreement with Lehman Brothers Special Financing, Inc. effective March 24,
2005, maturing on December 20, 2009, to receive quarterly 116 basis points
times the notional amount. Upon a credit default event of any reference
entity within the DJ IG CDX Series 3 Index that the counterparties agree
advances within the 25-35 Loss Basket of the Index, the fund makes a
payment of the proportional notional amount times the difference between
the par value and the then- market value of the reference entity within
the DJ IG CDX Series 3 Index. 1,810,000 59,495
Agreement with Lehman Brothers Special Financing, Inc. effective June 17,
2005, maturing on June 20, 2010, to receive/(pay) a premium based on the
difference between the original spread on issue and the market spread on
day of execution and pay quarterly 360 basis points times the notional
amount. Upon a credit default event of a reference entity within the DJ HY
CDX 5 year Series 4 Index, the fund receives a payment of the proportional
notional amount times the difference between the par value and the
then-market value of the reference entity within the DJ HY CDX 5 year
Series 4 Index. 4,713,390 (110,690)
Agreement with Lehman Brothers Special Financing, Inc. effective June 14,
2005, maturing on June 20, 2010, to receive/(pay) a premium based on the
difference between the original spread on issue and the market spread on
day of execution and pay quarterly 360 basis points times the notional
amount. Upon a credit default event of a reference entity within the DJ HY
CDX 5 year Series 4 Index, the fund receives a payment of the proportional
notional amount times the difference between the par value and the
then-market value of the reference entity within the DJ HY CDX 5 year Series 4 Index. 2,838,330 (70,060)
Agreement with Merrill Lynch International effective April 14, 2005,
maturing on June 20, 2010, to receive/(pay) a premium based on the
difference between the original spread on issue and the market spread on
day of execution and receives quarterly 360 basis points times the
notional amount. Upon a credit default event of a reference entity within
the DJ HY CDX 3 Index, the fund makes a payment of the proportional
notional amount times the difference between the par value and the
then-market value of the reference entity within the DJ HY CDX 3 Index. 2,277,000 78,759
Agreement with Bank of America, N.A. effective April 14, 2005, maturing on
June 20, 2010, to receive/(pay) a premium based on the difference between
the original spread on issue and the market spread on day of execution and
receive quarterly 360 basis points times the notional amount. Upon a
credit default event of a reference entity within the DJ HY CDX 3 Index,
the fund makes a payment of the proportional notional amount times the
difference between the par value and the then-market value of the
reference entity within the DJ HY CDX 3 Index. 3,663,000 131,406
Agreement with Morgan Stanley Capital Services, Inc. effective May 24,
2005, maturing on June 20, 2010, to receive/(pay) a premium based on the
difference between the original spread on issue and the market spread on
day of execution and pay quarterly 90 basis points times the notional
amount. Upon a credit default event of a reference entity within the DJ IG
CDX 5 year Series 4 Index, the fund receives a payment of the proportional
notional amount times the difference between the par value and the
then-market value of the reference entity within the DJ IG CDX 5 year Series 4 Index. 44,075,000 (955,403)
Agreement with Morgan Stanley Capital Services, Inc. effective May 24,
2005, maturing on June 20, 2010, to receive/(pay) a premium based on the
difference between the original spread on issue and the market spread on
day of execution and receive quarterly 500 basis points times the notional
amount. Upon a credit default event of a reference entity within the DJ IG
CDX 5 year Series 4 Index 0-3% tranche, the fund makes a payment of the
proportional notional amount times the difference between the par value
and the then-market value of the reference entity within the DJ IG CDX 5
year Series 4 Index 0-3% tranche. 8,815,000 1,337,733
Agreement with Lehman Brothers Special Financing, Inc. effective July 25,
2005, maturing on June 20, 2012, to receive/(pay) a premium based on the
difference between the original spread on issue and the market spread on
day of execution and to pay quarterly 55 basis points times the notional
amount. Upon a credit default event of any reference entity within the DJ
IG CDX Series 4 Index, the fund receives a payment of the proportional
notional amount times the difference between the par value and the
then-market value of the reference entity within the DJ IG CDX Series 4 Index. 5,905,200 (13,890)
Agreement with Lehman Brothers Special Financing, Inc. effective July 25,
2005, maturing on June 20, 2012, to receive/(pay) a premium based on the
difference between the original spread on issue and the market spread on
day of execution and to receive quarterly 21.5 basis points times the
notional amount. Upon a credit default event of any reference entity
within the DJ IG CDX Series 4 Index, 15-30% tranche, the fund makes a
payment of the proportional notional amount times the difference between
the par value and the then-market value of the reference entity within the
DJ IG CDX Series 4 Index,15-30% tranche. 8,436,000 (10,083)
Agreement with Goldman Sachs Capital Markets, L.P. effective July 8, 2005,
maturing on June 20, 2010, to receive/(pay) a premium based on the
difference between the original spread on issue and the market spread on
day of execution and pays quarterly 40 basis points times the notional
amount. Upon a credit default event of a reference entity within the DJ IG
CDX Series 4 Index, the fund receives a payment of the proportional
notional amount times the difference between the par value and the
then-market value of the reference entity within the DJ IG CDX Series 4 Index. 2,050,500 (8,524)
Agreement with Lehman Brothers Special Financing, Inc. effective July 14,
2005, maturing on June 20, 2012, to receive/(pay) a premium based on the
difference between the original spread on issue and the market spread on
day of execution and to receive quarterly 25 basis points times the
notional amount. Upon a credit default event of any reference entity
within the DJ IG CDX Series 4 Index, 15-30% tranche, the fund makes a
payment of the proportional notional amount times the difference between
the par value and the then-market value of the reference entity within the
DJ IG CDX Series 4 Index,15-30% tranche. 2,106,000 477
Agreement with Lehman Brothers Special Financing, Inc. effective July 14,
2005, maturing on June 20, 2012, to receive/(pay) a premium based on the
difference between the original spread on issue and the market spread on
day of execution and to receive quarterly 36 basis points times the
notional amount. Upon a credit default event of any reference entity
within the DJ IG CDX Series 4 Index,10-15% tranche, the fund makes a
payment of the proportional notional amount times the difference between
the par value and the then-market value of the reference entity within the
DJ IG CDX Series 4 Index,10-15% tranche. 2,018,000 (4,638)
Agreement with Deutsche Bank AG effective July 14, 2005, maturing on June
20, 2012, to receive/(pay) a premium based on the difference between the
original spread on issue and the market spread on day of execution and
receive quarterly 35.5 basis points times the notional amount. Upon a
credit default event of a reference entity within the DJ IG CDX Series 4
Index, 10-15% tranche, the fund makes a payment of the proportional
notional amount times the difference between the par value and the
then-market value of the reference entity within the DJ IG CDX Series 4 Index,
10-15% tranche. 2,193,000 4,439
Agreement with Citigroup Financial Products, Inc. effective April 28,
2005, maturing on June 20, 2010, to receive/(pay) a premium based on the
difference between the original spread on issue and the market spread on
day of execution and receives quarterly 201 basis points times the
notional amount. Upon a credit default event of a reference entity within
the DJ HY CDX 4 Index 25-35% tranche, the fund makes a payment of the
proportional notional amount times the difference between the par value
and the then-market value of the reference entity within the DJ HY CDX 4
Index 25-35% tranche. 4,600,000 295,401
Agreement with Deutsche Bank AG effective July 14, 2005, maturing on June
20, 2012, to receive/(pay) a premium based on the difference between the
original spread on issue and the market spread on day of execution and
pays quarterly 55 basis points times the notional amount. Upon a credit
default event of a reference entity within the DJ IG CDX Series 4 Index,
the fund receives a payment of the proportional notional amount times the
difference between the par value and the then- market value of the
reference entity within the DJ IG CDX Series 4 Index. 3,290,000 (15,316)
--------------------------------------------------------------------------------------------------------------------------
Total 2,663,549
Statement of assets and liabilities 7/31/05
-----------------------------------------------------------------------------
ASSETS
-----------------------------------------------------------------------------
Investment in securities, at value, including
$1,022,665 of securities on loan (Note 1):
Unaffiliated issuers (identified cost $1,281,977,091) $1,294,383,104
Affiliated issuers (identified cost $192,621,149) (Note 4) 192,621,149
-----------------------------------------------------------------------------
Cash 7,119,645
-----------------------------------------------------------------------------
Foreign currency (cost $2,924,519) (Note 1) 2,946,180
-----------------------------------------------------------------------------
Interest and other receivables 16,786,826
-----------------------------------------------------------------------------
Receivable for securities sold 3,807,687
-----------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 2,572,903
-----------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 5,322,195
-----------------------------------------------------------------------------
Receivable for open credit default contracts (Note 1) 4,416,407
-----------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 860,932
-----------------------------------------------------------------------------
Receivable for closed swap contracts (Note 1) 880,302
-----------------------------------------------------------------------------
Total assets 1,531,717,330
-----------------------------------------------------------------------------
LIABILITIES
-----------------------------------------------------------------------------
Payable for variation margin (Note 1) 149,068
-----------------------------------------------------------------------------
Distributions payable to shareholders 5,844,342
-----------------------------------------------------------------------------
Payable for securities purchased 26,514,814
-----------------------------------------------------------------------------
Payable for purchases of delayed delivery securities (Note
1) 84,454,233
-----------------------------------------------------------------------------
Payable for compensation of Manager (Notes 2 and 4) 2,269,002
-----------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 131,411
-----------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 160,689
-----------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,449
-----------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 2,405,358
-----------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 2,400,655
-----------------------------------------------------------------------------
Payable for open swap contracts (Note 1) 3,003,807
-----------------------------------------------------------------------------
Payable for open credit default contracts (Note 1) 1,752,858
-----------------------------------------------------------------------------
Premiums received on credit default contracts (Note 1) 3,994,425
-----------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 1,049,814
-----------------------------------------------------------------------------
Other accrued expenses 604,218
-----------------------------------------------------------------------------
Total liabilities 134,737,143
-----------------------------------------------------------------------------
Net assets $1,396,980,187
-----------------------------------------------------------------------------
REPRESENTED BY
-----------------------------------------------------------------------------
Paid-in capital (Unlimited shares authorized) (Note 1) $1,663,100,642
-----------------------------------------------------------------------------
Undistributed net investment income (Note 1) 8,324,672
-----------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (291,479,587)
-----------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 17,034,460
-----------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $1,396,980,187
-----------------------------------------------------------------------------
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
-----------------------------------------------------------------------------
Net asset value per share
($1,396,980,187 divided by 195,156,300 shares) $7.16
The accompanying notes are an integral part of these financial statements.
Statement of operations Year ended 7/31/05
-----------------------------------------------------------------------------
INVESTMENT INCOME
-----------------------------------------------------------------------------
Interest (including interest income of $3,665,474 from
investments in affiliated issuers) (Note 4) $68,071,341
-----------------------------------------------------------------------------
Dividends 411,470
-----------------------------------------------------------------------------
Securities lending 3,908
-----------------------------------------------------------------------------
Total investment income 68,486,719
-----------------------------------------------------------------------------
EXPENSES
-----------------------------------------------------------------------------
Compensation of Manager (Note 2) 8,043,076
-----------------------------------------------------------------------------
Investor servicing fees (Note 2) 591,296
-----------------------------------------------------------------------------
Custodian fees (Note 2) 390,318
-----------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 56,350
-----------------------------------------------------------------------------
Administrative services (Note 2) 47,630
-----------------------------------------------------------------------------
Other 953,483
-----------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 4) (228,558)
-----------------------------------------------------------------------------
Total expenses 9,853,595
-----------------------------------------------------------------------------
Expense reduction (Note 2) (223,204)
-----------------------------------------------------------------------------
Net expenses 9,630,391
-----------------------------------------------------------------------------
Net investment income 58,856,328
-----------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 8,249,302
-----------------------------------------------------------------------------
Net realized gain on swap contracts (Note 1) 2,818,923
-----------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 5,834,477
-----------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 2,739,033
-----------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year 1,614,625
-----------------------------------------------------------------------------
Net unrealized appreciation of investments, futures
contracts, swap contracts and credit default contracts
during the year 14,363,788
-----------------------------------------------------------------------------
Net gain on investments 35,620,148
-----------------------------------------------------------------------------
Net increase in net assets resulting from operations $94,476,476
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
-----------------------------------------------------------------------------
INCREASE IN NET ASSETS
-----------------------------------------------------------------------------
Year ended Year ended
7/31/05 7/31/04
-----------------------------------------------------------------------------
Operations:
Net investment income $58,856,328 $61,479,944
-----------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 19,641,735 21,907,198
-----------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign
currencies 15,978,413 22,638,395
-----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 94,476,476 106,025,537
-----------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
-----------------------------------------------------------------------------
From net investment income (80,509,420) (66,079,263)
-----------------------------------------------------------------------------
Increase from issuance of shares in
connection with the merger of Putnam Master
Income Trust (Note 7) 390,337,325 --
-----------------------------------------------------------------------------
Total increase in net assets 404,304,381 39,946,274
-----------------------------------------------------------------------------
NET ASSETS
-----------------------------------------------------------------------------
Beginning of year 992,675,806 952,729,532
-----------------------------------------------------------------------------
End of year (including undistributed net
investment income of $8,324,672 and
$15,779,069, respectively) $1,396,980,187 $992,675,806
-----------------------------------------------------------------------------
NUMBER OF FUND SHARES
-----------------------------------------------------------------------------
Shares outstanding at beginning of year 141,198,870 141,198,870
-----------------------------------------------------------------------------
Shares issued in connection with the merger
of Putnam Master Income Trust (Note 7) 53,957,430 --
-----------------------------------------------------------------------------
Shares outstanding at end of year 195,156,300 141,198,870
The accompanying notes are an integral part of these financial statements.
Financial highlights (For a common share outstanding throughout the period)
--------------------------------------------------------------------------------------------------------------------
PER-SHARE OPERATING PERFORMANCE
--------------------------------------------------------------------------------------------------------------------
Year ended
7/31/05 7/31/04 7/31/03 7/31/02 7/31/01
--------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $7.03 $6.75 $6.22 $6.68 $7.19
--------------------------------------------------------------------------------------------------------------------
Investment operations:
Net investment income (a) .36 (e) .44 (e) .51 .55 .61
--------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .28 .31 .54 (.47) (.50)
--------------------------------------------------------------------------------------------------------------------
Total from
investment operations .64 .75 1.05 .08 .11
--------------------------------------------------------------------------------------------------------------------
Less distributions:
From net investment income (.51) (.47) (.52) (.53) (.51)
--------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- (.01) (.11)
--------------------------------------------------------------------------------------------------------------------
Total distributions (.51) (.47) (.52) (.54) (.62)
--------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.16 $7.03 $6.75 $6.22 $6.68
--------------------------------------------------------------------------------------------------------------------
Market price,
end of period $6.31 $6.29 $6.31 $6.03 $6.29
--------------------------------------------------------------------------------------------------------------------
Total return at
market price (%)(b) 8.35 7.18 13.41 4.44 8.56
--------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,396,980 $992,676 $952,730 $877,649 $942,125
--------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .84 (e) .83 (e) .85 .86 .85
--------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.99 (e) 6.19 (e) 7.91 8.39 8.87
--------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 139.74 (f) 78.43 96.21 (d) 175.78 (d) 231.58
--------------------------------------------------------------------------------------------------------------------
(a) Per share net investment income has been determined on the basis of
the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment.
(c) 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 Putnam
Prime Money Market Fund during the period. As a result of such waivers,
the expenses of the fund for the periods ended July 31, 2005 and July 31,
2004 reflect a reduction of 0.02% and less than 0.01% of average net
assets, respectively (Note 4).
(f) Portfolio turnover excludes dollar roll transactions.
The accompanying notes are an integral part of these financial statements.
Notes to financial statements 7/31/05
Note 1: Significant accounting policies
Putnam Premier Income Trust (the "fund"), a Massachusetts business trust,
is registered under the Investment Company Act of 1940, as amended, as a
non-diversified, closed-end management investment company. The fund's
investment objective is to seek high current income consistent with the
preservation of capital by allocating its investments among the U.S.
government sector, high yield sector and international sector of the
fixed-income securities market. The fund invests in higher yielding,
lower-rated bonds that have a higher rate of default due to the nature of
the investments.
In the normal course of business, the fund enters into contracts that may
include agreements to indemnify another party under given circumstances.
The fund's maximum exposure under these arrangements is unknown as this
would involve future claims that may be, but have not yet been, made
against the fund. However, the fund expects the risk of material loss to
be remote.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with accounting
principles generally accepted in the United States of America and requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities in the financial statements and the
reported amounts of increases and decreases in net assets from operations
during the reporting period. Actual results could differ from those
estimates.
A) Security valuation 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 on the basis of valuations furnished by an
independent pricing service or dealers, approved by the Trustees. Such
services or dealers determine valuations for normal institutional-size
trading units of such securities using methods based on market
transactions for comparable securities and various relationships,
generally recognized by institutional traders, between securities. Many
securities markets and exchanges outside the U.S. close prior to the close
of the New York Stock Exchange and therefore the closing prices for
securities in such markets or on such exchanges may not fully reflect
events that occur after such close but before the close of the New York
Stock Exchange. Accordingly, on certain days, the fund will fair value
foreign securities taking into account multiple factors, including
movements in the U.S. securities markets. The number of days on which fair
value prices will be used will depend on market activity and it is
possible that fair value prices will be used by the fund to a significant
extent. Securities quoted in foreign currencies are translated into U.S.
dollars at the current exchange rate. Short-term investments having
remaining maturities of 60 days or less are valued at amortized cost,
which approximates fair value. Other investments, including certain
restricted securities, are valued at fair value following procedures
approved by the Trustees. Such valuations and procedures are reviewed
periodically by the Trustees.
B) Joint trading account Pursuant to an exemptive order from the
Securities and Exchange Commission, the 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 issues of high-grade short-term investments
having maturities of up to 397 days for collateral received under security
lending arrangements and up to 90 days for other cash investments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the market
value of which at the time of purchase is required to be in an amount at
least equal to the resale price, including accrued interest. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are recorded on the trade date (date the order to buy or sell
is executed). Gains or losses on securities sold are determined on the
identified cost basis.
Interest income is recorded on the accrual basis. 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.
Securities purchased or sold on a when-issued or forward commitment or
delayed delivery basis may be settled a month or more after the trade
date; interest income is accrued based on the terms of the securities.
Losses may arise due to changes in the market value of the underlying
securities or if the counterparty does not perform under the contract.
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 a reduction to the cost of investments.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. The fund and the broker
agree to exchange an amount of cash equal to the daily fluctuation in the
value of the futures contract. Such receipts or payments are known as
"variation margin." Exchange traded options are valued at the last sale
price, or if no sales are reported, the last bid price for purchased
options and the last ask price for written options. Options traded
over-the-counter are valued using prices supplied by dealers. Futures and
written option contracts outstanding at period end, if any, are listed
after the fund's portfolio.
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) Dollar rolls To enhance returns, the fund may enter into dollar rolls
(principally using TBAs) in which the fund sells securities for delivery
in the current month and simultaneously contracts to purchase similar
securities on a specified future date. During the period between the sale
and subsequent purchase, the fund will not be entitled to receive income
and principal payments on the securities sold. The fund will, however,
retain the difference between the initial sales price and the forward
price for the future purchase. The fund will also be able to earn interest
on the cash proceeds that are received from the initial sale. The fund may
be exposed to market or credit risk if the price of the security changes
unfavorably or the counterparty fails to perform under the terms of the
agreement.
L) Security lending The fund may lend securities, through its agents, to
qualified borrowers in order to earn additional income. The loans are
collateralized by cash and/or securities in an amount at least equal to
the market value of the securities loaned. The market value of securities
loaned is determined daily and any additional required collateral is
allocated to the fund on the next business day. The risk of borrower
default will be borne by the fund's agents; the fund will bear the risk of
loss with respect to the investment of the cash collateral. Income from
securities lending is included in investment income on the statement of
operations. At July 31, 2005, the value of securities loaned amounted to
$1,022,665. The fund received cash collateral of $1,049,814 which is
pooled with collateral of other Putnam funds into 26 issues of high grade
short-term investments.
M) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code of 1986 (the "Code") applicable to
regulated investment companies. It is also the intention of the fund to
distribute an amount sufficient to avoid imposition of any excise tax
under Section 4982 of the Code, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains.
At July 31, 2005, the fund had a capital loss carryover of $289,635,841
available to the extent allowed by the Code to offset future net capital
gain, if any. This amount includes $68,606,363 of capital losses acquired
in connection with the acquisition of Putnam Master Income Trust which are
subject to limitations imposed by the Internal Revenue Code. The amount of
the carryover and the expiration dates are:
Loss Carryover Expiration
----------------------------------
$14,335,502 July 31, 2006
37,732,461 July 31, 2007
60,809,014 July 31, 2008
51,721,443 July 31, 2009
44,917,486 July 31, 2010
80,119,935 July 31, 2011
Pursuant to federal income tax regulations applicable to regulated
investment companies, the fund has elected to defer to its fiscal year
ending July 31, 2006, $1,707,863 of losses recognized during the period
November 1, 2004 to July 31, 2005 a portion of which could be limited by
Section 381 of the Code.
N) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the ex-dividend
date and paid at least annually. The amount and character of income and
gains to be distributed are determined in accordance with income tax
regulations, which may differ from generally accepted accounting
principles.
These differences include temporary and permanent differences of losses on
wash sale transactions, foreign currency gains and losses, post-October
loss deferrals, 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 July 31, 2005, the fund reclassified $20,772,724 to decrease
distributions in excess of net investment income and $11,231,260 to
decrease paid-in-capital, with an increase to accumulated net realized
losses of $9,541,464.
The tax basis components of distributable earnings and the federal tax
cost as of period end were as follows:
Unrealized appreciation $51,408,977
Unrealized depreciation (40,905,744)
------------
Net unrealized appreciation 10,503,233
Undistributed ordinary income 21,133,360
Capital loss carryforward (289,635,841)
Post-October Loss (1,707,863)
Cost for federal income tax
purposes $1,476,636,654
Note 2: Management fee, administrative
services and other transactions
Putnam Management is paid for management and investment advisory services
quarterly based on the "average weekly assets" of the fund. "Average
weekly assets" is defined to mean the average of the weekly determinations
of the difference between the total assets of the fund (including any
assets attributable to leverage for investment purposes though incurrence
of indebtedness) and the total liabilities of the fund (excluding
liabilities incurred in connection with leverage for investment purposes).
This fee is based on the following annual rates: 0.75% of the first
$500 million of average weekly assets, 0.65% of the next $500 million,
0.60% of the next $500 million and 0.55% thereafter.
In June 2005, the Trustees and Putnam Management agreed to a reduced
management fee structure for the fund that will go into effect on January
1, 2006. Based on the fund's current asset levels, this new fee structure
is not expected to have an effect on the fund's effective management fee
rate. However, the new fee structure incorporates additional breakpoints
at higher asset levels.
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 weekly assets (calculated in the same manner as under the
fund's management contract with Putnam Management) 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. PFTC receives fees
for custody services based on the fund's asset level, the number of its
security holdings and transaction volumes. Putnam Investor Services, a
division of PFTC, provides investor servicing agent functions to the fund.
Putnam Investor Services is paid a monthly fee for investor servicing at
an annual rate of 0.05% of the fund's average net assets. During the year
ended July 31, 2005, the fund paid PFTC $981,614 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 July 31, 2005, the
fund's expenses were reduced by $223,204 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $449, 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. George
Putnam III, who is not an independent Trustee, also receives the foregoing
fees for his services as Trustee.
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 July 31, 2005, cost of purchases and proceeds from
sales of investment securities other than U.S. government securities and
short-term investments aggregated $1,383,690,573 and $1,405,532,120,
respectively. Purchases and sales of U.S. government securities aggregated
no monies and $21,926,797, respectively.
Note 4: Investment in Putnam Prime Money Market Fund
Pursuant to an exemptive order from the Securities and Exchange
Commission, the fund invests in Putnam Prime Money Market Fund, an
open-end management investment company managed by Putnam Management.
Management fees paid by the fund are reduced by an amount equal to the
management and administrative services fees paid by Putnam Prime Money
Market Fund with respect to assets invested by the fund in Putnam Prime
Money Market Fund. For the year ended July 31, 2005, management fees paid
were reduced by $228,558 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 $3,665,474 for the
period ended July 31, 2005. During the year ended July 31, 2005, cost of
purchases and cost of sales of investments in Putnam Prime Money Market
Fund aggregated $637,317,042 and $616,212,425, respectively.
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: Regulatory matters and litigation
Putnam Management has entered into agreements with the Securities and
Exchange Commission and the Massachusetts Securities Division settling
charges connected with excessive short-term trading by Putnam employees
and, in the case of the charges brought by the Massachusetts Securities
Division, by participants in some Putnam-administered 401(k) plans.
Pursuant to these settlement agreements, Putnam Management will pay a
total of $193.5 million in penalties and restitution, with $153.5 million
being paid to shareholders and the funds. The restitution amount will be
allocated to shareholders pursuant to a plan developed by an independent
consultant, with payments to shareholders following approval of the plan
by the SEC and the Massachusetts Securities Division.
The Securities and Exchange Commission's and Massachusetts Securities
Division's allegations and related matters also serve as the general basis
for numerous lawsuits, including purported class action lawsuits filed
against Putnam Management and certain related parties, including certain
Putnam funds. Putnam Management will bear any costs incurred by Putnam
funds in connection with these lawsuits. Putnam Management believes that
the likelihood that the pending private lawsuits and purported class
action lawsuits will have a material adverse financial impact on the
fund is remote, and the pending actions are not likely to materially
affect its ability to provide investment management services to its
clients, including the Putnam funds.
Putnam Management and Putnam Retail Management are named as defendants in
a civil suit in which the plaintiffs allege that the management and
distribution fees paid by certain Putnam funds were excessive and seek
recovery under the Investment Company Act of 1940. Putnam Management and
Putnam Retail Management have contested the plaintiffs' claims and the
matter is currently pending in the U.S. District Court for the District of
Massachusetts. Based on currently available information, Putnam Management
believes that this action is without merit and that it is unlikely to have
a material effect on Putnam Management's and Putnam Retail Management's
ability to provide services to their clients, including the fund.
Note 7: Acquisition of Putnam Master Income Trust
On February 28, 2005, the fund issued 53,957,430, shares in exchange for
53,329,917 shares of Putnam Master Income Trust to acquire that fund's net
assets in a tax-free exchange approved by the shareholders. The net assets
of the fund and Putnam Master Income Trust on February 25, 2005 valuation
date, were $1,021,456,879 and $390,337,325, respectively. On February 25,
2005, Putnam Master Income Trust had distributions in excess of net
investment income of $6,574,029, accumulated net realized loss of
$79,376,154 and unrealized appreciation of $8,668,150. The aggregate net
assets of the fund immediately following the acquisition were
$1,411,794,204.
Information presented in the Statement of operations and changes in net
assets reflect only operations of Putnam Premier Income Trust.
Federal tax information
(Unaudited)
The fund has designated 0.25% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
For its tax year ended July 31, 2005, the fund hereby designates 0.25% 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 2006 will show the tax status of all
distributions paid to your account in calendar 2005.
Shareholder meeting results (Unaudited)
------------------------------------------------------------------
January 13, 2005 meeting
A special meeting of shareholders of the fund was held on January 13,
2005. At the meeting, the following proposal was approved:
Agreement and Plan of Reorganization and the transactions contemplated
thereby, including the transfer of all of the assets of Putnam Master
Income Trust to Putnam Premier Income Trust in exchange for the issuance
and delivery of shares of beneficial interest of Putnam Premier Income
Trust and the assumption by Putnam Premier Income Trust of the liabilities
of Putnam Master Income Trust, and the distribution of such shares to the
shareholders of Putnam Master Income Trust in complete liquidation of
Putnam Master Income Trust.
Votes For Votes Against Abstentions
------------------------------------------------------------------
67,764,834 4,292,013 3,413,230
------------------------------------------------------------------
July 14, 2005 meeting
The annual meeting of shareholders of the fund was held on July 14, 2005.
At the meeting, each of the nominees for Trustees was elected, as follows:
Votes For Votes Withheld
------------------------------------------------------------------
Jameson A. Baxter 119,809,330 8,968,523
Charles B. Curtis 119,938,750 8,839,103
Myra R. Drucker 119,804,302 8,973,551
Charles E. Haldeman, Jr. 119,951,705 8,826,148
John A. Hill 119,476,888 9,300,965
Paul L. Joskow 119,984,596 8,793,257
Elizabeth T. Kennan 119,832,244 8,945,609
John H. Mullin, III 119,956,206 8,821,647
Robert E. Patterson 119,971,546 8,806,307
George Putnam, III 119,843,331 8,934,522
W. Thomas Stephens 119,928,332 8,849,521
Richard B. Worley 119,942,586 8,835,267
A proposal to amend the fund's fundamental investment restriction with
respect to borrowing and senior securities to permit the fund to engage in
investment leverage was approved as follows:
Votes For Votes Against Abstentions
------------------------------------------------------------------
92,618,223 11,208,556 24,951,074
A proposal to approve the Amended and Restated Management Contract between
the fund and Putnam Investment Management, LLC, which provides for payment
of management fees with respect to fund assets attributable to investment
leverage, was approved as follows:
Votes For Votes Against Abstentions
------------------------------------------------------------------
91,933,014 11,908,966 24,935,873
A proposal to convert the fund to an open-end investment company and
approve certain related changes to the fund's Agreement and Declaration of
Trust was defeated as follows:
Votes For Votes Against Abstentions
------------------------------------------------------------------
20,644,293 81,498,277 26,635,283
All tabulations are rounded to nearest whole number.
Compliance certifications
(Unaudited)
On July 28, 2005, your fund submitted a CEO annual certification to the
New York Stock Exchange ("NYSE") on which the fund's principal executive
officer certified that he was not aware, as of that date, of any violation
by the fund of the NYSE's Corporate Governance listing standards. In
addition, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and
related SEC rules, the fund's principal executive and principal financial
officers have made quarterly certifications, included in filings with the
SEC on Forms N-CSR and N-Q, relating to, among other things, the fund's
disclosure controls and procedures and internal control over financial
reporting.
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), the Mutual Fund Directors Forum, 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), Trustee since 2004
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).
Ms. Drucker is an ex-officio member of the New York Stock Exchange (NYSE)
Pension Managers Advisory Committee, having served as Chair for seven
years and a member of the Executive Committee of the Committee on
Investment of Employee Benefit Assets. She is Chair of the Advisory Board
of Hamilton Lane Advisors (an investment management firm) and a member of
the Advisory Board of RCM (an investment management firm). 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 and various private companies controlled by First Reserve
Corporation, as well as Chairman of TH Lee, Putnam Investment Trust (a
closed-end investment company advised by an affiliate of Putnam
Management). He is also a Trustee of Sarah Lawrence College. Until 2005,
he was a Director of Continuum Health Partners of New York.
Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held
executive positions in investment banking and investment management with
several firms and with the federal government, including Deputy Associate
Director of the Office of Management and Budget and Deputy Director of the
Federal Energy Administration. He is active in various business
associations, including the Economic Club of New York, and lectures on
energy issues in the United States and Europe. Mr. Hill holds a B.A. degree
in Economics from Southern Methodist University and pursued graduate studies
there as a Woodrow Wilson Fellow.
-----------------------------------------------------------------------------
Paul L. Joskow (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 plc (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 Overseers of the Boston Symphony Orchestra.
Prior to February 2005, he served 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 a 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. Until 2005, she was 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 Emeritus and Trustee of the Joslin
Diabetes Center and as a Director of Brandywine Trust Group, LLC. Prior to
June 2003, he was a Trustee of Sea Education Association. Prior to
December 2001, he was President and Trustee of Cabot Industrial Trust
(a publicly traded real estate investment trust). Prior to February 1998,
he was Executive Vice President and Director of Acquisitions of Cabot
Partners Limited Partnership (a registered investment adviser involved in
institutional real estate investments). Prior to 1990, he served as
Executive Vice President of Cabot, Cabot & Forbes Realty Advisors, Inc.
(the predecessor company of Cabot Partners).
Mr. Patterson practiced law and held various positions in state government
and was the founding Executive Director of the Massachusetts Industrial
Finance Agency. Mr. Patterson is a graduate of Harvard College and Harvard
Law School.
-----------------------------------------------------------------------------
W. Thomas Stephens (9/2/42), Trustee since 1997
Mr. Stephens is Chairman and Chief Executive Officer of Boise Cascade,
L.L.C. (a paper, forest products and timberland assets company).
Mr. Stephens 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), Trustee since 2004
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), Trustee since 2004
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 and 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.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of July 31, 2005, there were 108 Putnam Funds. All Trustees serve as
Trustees of all Putnam funds.
Each Trustee serves for an indefinite term, until his or her resignation,
retirement at age 72, death, or removal.
* 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 and Putnam, III are deemed "interested persons" by virtue of
their positions as officers of the fund, Putnam Management or Putnam
Retail Management 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.
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
Jonathan S. Horwitz (6/4/55)
Senior Vice President and Treasurer
Since 2004
Prior to 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)
Senior Vice President, Staff Counsel and Compliance Liaison
Since 2004
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)
Vice President, Clerk and Assistant Treasurer
Since 1993
Wanda M. McManus (1/4/47)
Vice President, Senior Associate Treasurer and Assistant Clerk
Since 2005
Nancy T. Florek (6/13/57)
Vice President, Assistant Clerk, Assistant Treasurer and Proxy Manager
Since 2005
The address of each Officer is One Post Office Square, Boston, MA 02109.
Fund information
About Putnam Investments
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 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.
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin, III
Robert E. Patterson
George Putnam, III
W. Thomas Stephens
Richard B. Worley
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President, Associate
Treasurer and Principal Executive
Officer
Jonathan S. Horwitz
Senior Vice President and Treasurer
Steven D. Krichmar
Vice President and Principal Financial Officer
Michael T. Healy
Assistant Treasurer and Principal Accounting Officer
Beth S. Mazor
Vice President
Daniel T. Gallagher
Senior Vice President, Staff Counsel and Compliance Liaison
James P. Pappas
Vice President
Richard S. Robie, III
Vice President
Mark C. Trenchard
Vice President and BSA Compliance Officer
Francis J. McNamara, III
Vice President and Chief Legal Officer
Charles A. Ruys de Perez
Vice President and Chief Compliance Officer
Judith Cohen
Vice President, Clerk and Assistant Treasurer
Wanda M. McManus
Vice President, Senior Associate
Treasurer and Assistant Clerk
Nancy T. Florek
Vice President, Assistant Clerk, Assistant Treasurer and Proxy Manager
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or visit
our Web site (www.putnam.com) any time for up-to-date information about
the fund's NAV.
inside back cover
[blank page]
[LOGO OMITTED]
PUTNAM INVESTMENTS
One Post Office Square
Boston, Massachusetts 02109
www.putnam.com
1-800-225-1581
Founded in 1937, Putnam Investments began with the principle
that a balance between risk and reward is the mark of
a well-rounded financial program. Today, we manage money
with a focus on seeking consistent results over time. This
balanced approach continues to underscore everything we do.
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
[GRAPHIC OMITTED: SCALE]
AN708 226692 9/05
Item 2. Code of Ethics:
-----------------------
(a) 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.
(c) In July 2004, Putnam Investment Management, LLC, the Fund's investment
manager, Putnam Retail Management Limited Partnership, the Fund's principal
underwriter, and Putnam Investments Limited, the sub-manager for a portion
of the assets of certain funds as determined by Putnam Management from time
to time, adopted several amendments to their Code of Ethics. Some of these
amendments were adopted as a result of Putnam Investment Management's
partial settlement order with the SEC on November 13, 2003. Insofar as such
Code of Ethics applies to the Fund's principal executive officer, principal
financial officer and principal accounting officer, the amendments provided
for the following: (i) a 90-day blackout period for all shares of Putnam
open-end funds (except for money market funds) purchased or sold (including
exchanges into or out of a fund) by Putnam employees and certain family
members; (ii) a one-year holding period for all access persons that operates
in the same manner as the 90-day rule; (iii) delivery by Putnam employees to
the Code of Ethics Administrator of both quarterly account statements for
all brokerage accounts (irrespective of activity in the accounts) and
account statements for any Putnam funds not held at Putnam or for any funds
sub-advised by Putnam; (iv) a prohibition of Putnam employees from making
more than 25 trades in individual securities in their personal accounts in
any given quarter; (v) the extension of the existing prohibition of access
persons from a purchase and sale or sale and purchase of an individual
security within 60 days to include trading based on tax-lot election; (vi)
the inclusion of trades in Marsh & McLennan Companies, Inc. (ultimate parent
company of Putnam Investment Management) securities in pre-clearance and
reporting requirements; (vii) a prohibition of limit and good-until-canceled
orders as inconsistent with the requirements of daily pre-clearance; (viii)
new limits and procedures for accounts managed by outside managers and
brokers, in order for trading in such accounts to be exempt from
pre-clearance requirements; (ix) a new gift and entertainment policy that
imposes a reporting obligation on all meals and entertainment and new limits
on non-meal entertainment; (x) a number of alternatives for the reporting of
irregular activity.
In December 2004, additional amendments to the Code of Ethics were adopted.
Insofar as such Code of Ethics applies to the Fund's principal executive
officer, principal financial officer and principal accounting officer, the
amendments provided for the following: (i) implementation of minimum
monetary sanctions for violations of the Code; (ii) expansion of the
definition of "access person" under the Code to include all Putnam employees
with access to non-public information regarding Putnam-managed mutual fund
portfolio holdings; (iii) lengthening the period during which access persons
are required to complete quarterly reports; (iv) reducing the maximum number
of trades than can be made by Putnam employees in their personal accounts in
any calendar quarter from 25 trades to 10 trades; and (v) lengthening the
required holding period for securities by access persons from 60 days to 90
days.
In March 2005, additional amendments to the Code of Ethics were adopted,
that went into effect on April 1, 2005. Insofar as such Code of Ethics
applies to the Fund's principal executive officer, principal financial
officer and principal accounting officer, the amendments (i) prohibit Putnam
employees and their immediate family members from having any direct or
indirect personal financial interest in companies that do business with
Putnam (excluding investment holdings in public companies that are not
material to the employee), unless such interest is disclosed and approved by
the Code of Ethics Officer; (ii) prohibit Putnam employees from using Putnam
assets, letterhead or other resources in making political or campaign
contributions, solicitations or endorsements;(iii) require Putnam employees
to obtain pre-clearance of personal political or campaign contributions or
other gifts to government officials or political candidates in certain
jurisdictions and to officials or candidates with whom Putnam has or is
seeking to establish a business relationship and (iv) require Putnam
employees to obtain pre-approval from Putnam's Director of Government
Relations prior to engaging in lobbying activities.
In July 2005, additional amendments to the Code of Ethics were adopted.
Insofar as such Code of Ethics applies to the Fund's principal executive
officer, principal financial officer and principal accounting officer, the
amendments provided for an exception to the standard 90-day holding period
(one year, in the case of employees deemed to be "access persons" under the
Code) for shares of Putnam mutual funds in the case of redemptions from an
employee's account in a college savings plan qualified under Section 529 of
the Internal Revenue Code. Under this exception, an employee may, without
penalty under the Code, make "qualified redemptions" of shares from such an
account less than 90 days (or one year, as applicable) after purchase.
"Qualified redemptions" include redemptions for higher education purposes
for the account beneficiary and redemptions made upon death or disability.
The July 2005 amendments also provide that an employee may, for purposes of
the rule limiting the number of trades per calendar quarter in an employee's
personal account to a maximum of 10, count all trades of the same security
in the same direction (all buys or all sells) over a period of five
consecutive business days as a single trade.
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
----------------- ---------- ------------- ------- ---------
July 31, 2005 $42,192 $18,000* $4,192 $--
July 31, 2004 $40,150 $-- $4,150 $176
* Includes fees billed to the fund for services relating to one or more fund
mergers. A portion of such fees was paid by Putnam Management.
For the fiscal years ended July 31, 2005 and July 31, 2004, the fund's
independent auditors billed aggregate non-audit fees in the amounts of $
22,192 and $ 4,326 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 to 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
----------------- ------------- ---- --------- ----------
July 31, 2005 $-- $-- $-- $--
July 31, 2004 $-- $-- $-- $--
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 proxy voting procedures below explain the role of the funds' Trustees,
the proxy voting service and the Proxy Coordinator, as well as how the
process will work when a proxy question needs to be handled on a
case-by-case basis, or when there may be a conflict of interest.
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 that need to be handled on a case-by-case basis. The
Committee annually reviews and recommends, for Trustee approval, 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 ("Office of the Trustees"), independent legal counsel,
and an independent proxy voting service. The Trustees also receive
assistance from Putnam Investment Management, LLC ("Putnam Management"), the
funds' investment advisor, 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 that, 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 the Office of the Trustees 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 the Office of the
Trustees, 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 one of more senior staff members of the Office of
the Trustees 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 one of more senior staff members of the Office
of the Trustees 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 and/or one of more senior staff
members of the Office of the Trustees 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 11, 2005
Item 8. Purchases of Equity Securities by Closed-End Management Investment
--------------------------------------------------------------------------
Companies and Affiliated Purchasers: Not applicable
------------------------------------
Item 9. Submission of Matters to a Vote of Security Holders:
------------------------------------------------------------
Not applicable
Item 10. Controls and Procedures:
--------------------------------
(a) The registrant's principal executive officer and principal
financial officer have concluded, based on their evaluation of the
effectiveness of the design and operation of the registrant's
disclosure controls and procedures as of a date within 90 days of
the filing date of this report, that the design and operation of
such procedures are generally effective to provide reasonable
assurance that information required to be disclosed by the registrant
in this report is recorded, processed, summarized and reported within
the time periods specified in the Commission's rules and forms.
(b) Changes in internal control over financial reporting:
Not applicable
Item 11. Exhibits:
------------------
(a) 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
and the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: September 28, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Executive Officer
Date: September 28, 2005
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: September 28, 2005