N-CSR 1 dit1.txt PUTNAM DIVERSIFIED INCOME TRUST Putnam Diversified Income Trust 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: SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK 3-31-05 [GRAPHIC OMITTED: MAGNIFYING GLASS] [SCALE LOGO OMITTED] From the Trustees [GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III] John A. Hill and George Putnam, III Dear Fellow Shareholder: Throughout the period ended March 31, 2005, the Federal Reserve Board's series of gradual increases in the federal funds rate occupied much of investors' attention. However, these increases did not begin to have a significant impact on stock and bond prices until approximately March 2005. Also in March, we began to see a measurable increase in longer-term interest rates, which, along with continued record-high energy prices, has slowed the stock market's momentum. Concerns about inflation have also begun to influence the markets once again and may affect bond prices going forward. In such an environment, security selection takes on even greater importance and the in-depth, professional research and active management that mutual funds can provide makes them an even more intelligent choice for today's investors. Given these trends, we want you to know that Putnam Investments' management team, under the leadership of Chief Executive Officer Ed Haldeman, continues to focus on improving investment performance and remains committed to putting the interests of shareholders first. In keeping with these goals, we are including additional disclosure about your fund's management team in this report. Following the Outlook for Your Fund, we provide manager compensation information that pertains to your fund, list any changes in your fund's Portfolio Leader and Portfolio Members during the prior year, and disclose these individuals' other fund management responsibilities at Putnam. We also show how much these individuals, as well as the members of Putnam's Executive Board, have invested in the fund (in dollar ranges). Furthermore, on page 18, we provide information about the most recent approval by the Trustees of your fund's management contract with Putnam. In the following pages, members of your fund's management teams discuss the fund's performance and the teams' plan for responding to recent changes in the market climate. As always, we thank you for your continuing confidence in Putnam. Respectfully yours, /S/ JOHN A. HILL /S/ GEORGE PUTNAM, III John A. Hill George Putnam, III Chairman of the Trustees President of the Funds May 18, 2005 Report from Fund Management Fund highlights * During the semiannual period ended March 31, 2005, Putnam Diversified Income Trust had a total return of 3.29% without sales charges. * The fund's primary benchmark, the Lehman Aggregate Bond Index, returned 0.47%. * The average return for the fund's Lipper category, Multi-Sector Income Funds, was 3.22%. * The fund paid a special dividend of $0.04 per share in December 2004. See page 5 for details. * See the Performance Summary beginning on page 10 for additional fund performance, comparative performance, and Lipper data. Performance commentary The first four months of your fund's semiannual period were generally favorable for global bond markets. However, this atmosphere shifted during the final two months, when the Federal Reserve Board (the Fed) again raised short-term interest rates and, for the first time since the economic recovery began, expressed greater concern about the potential for inflation. This commentary prompted sell-offs in all sectors of the bond market; however, sectors with higher credit risk saw greater price declines (and corresponding yield increases). Because your fund invests in a variety of fixed-income sources, it was able to outperform its benchmark, based on results at net asset value (NAV, or without sales charges). The fund was also in line of its Lipper category average, in part because we had attempted to position the portfolio to be less sensitive to interest-rate movements. Thus, when rates rose sharply at the end of the period, relative performance benefited. The fund's currency strategy, which has begun to shift toward increasing exposure to the U.S. dollar, was also helpful as the dollar strengthened toward the end of the period. ------------------------------------------------------ TOTAL RETURN FOR PERIODS ENDED 3/31/05 ------------------------------------------------------ Class A (inception 10/3/88) NAV POP ------------------------------------------------------ 6 months 3.29% -1.40% ------------------------------------------------------ 1 year 5.61 0.84 ------------------------------------------------------ 5 years 42.29 35.88 Annual average 7.31 6.32 ------------------------------------------------------ 10 years 91.93 83.32 Annual average 6.74 6.25 ------------------------------------------------------ Annual average (life of fund) 7.76 7.46 ------------------------------------------------------ Data is historical. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate and you may have a gain or a loss when you sell your shares. Performance assumes reinvestment of distributions and does not account for taxes. Returns at NAV do not reflect a sales charge of 4.50%. For the most recent month-end performance, visit www.putnaminvestments.com. A short-term trading fee of up to 2% may apply. FUND PROFILE Putnam Diversified Income Trust is a multisector fund that seeks income from three sectors: U.S. corporate and government investment-grade bonds, foreign bonds, and higher-yielding, lower-rated corporate bonds. The fund may be suitable for investors seeking a high level of current income, consistent with preservation of capital, and asset class diversification. Market overview One of the most important events of the six-month period was the change in tone from the Fed when it raised the federal funds rate in March. This rate increase was the seventh in a series of increases that began in June 2004. At the time of the first increase, the Fed's official comment implied that future rate increases would not necessarily be designed to slow the economy or stave off inflation. Rather, investors felt that the impending increases, which the Fed said would come at a "measured pace," were intended to bring short-term rates back up to their more "normal" levels (from a 46-year low). As a result, long-term bond investors were not concerned about an abrupt, sharp hike in interest rates, and yields on long-term bonds continued to decline through calendar 2004 and into early 2005. The economy, meanwhile, continued to grow at a solid, moderate pace with low inflation. However, in the first calendar quarter of 2005 -- the second half of this six-month reporting period -- there were some indications of inflation pressures picking up as the economic recovery strengthened. Record-high energy prices began to affect the prices of goods and services. More importantly, companies began to see that productivity was slowing, and that, because of this, they might try to pass along wage increases in the form of higher prices for their products. At its meetings in January, February, and March, the Fed gradually changed its tone to reflect concerns about inflation. In March, it stated it would continue to raise rates at a measured pace but would "respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability." The U.S. and international bond markets saw this as a signal that future rate increases could be more frequent and higher. Bonds sold off, with lower-quality, higher-yield bond sectors -- including emerging markets and high-yield corporates -- experiencing the greatest price declines (and yield increases). ------------------------------------------------------------------------------ MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 3/31/05 ------------------------------------------------------------------------------ Bonds ------------------------------------------------------------------------------ Lehman Aggregate Bond Index (broad bond market) 0.47% ------------------------------------------------------------------------------ JP Morgan Global Diversified Emerging Markets Bond Index (global emerging-market bonds) 3.49% ------------------------------------------------------------------------------ Citigroup Non-U.S. World Government Bond Index (international government bonds) 7.21% ------------------------------------------------------------------------------ JP Morgan Global High Yield Index (global high-yield corporate bonds) 3.23% ------------------------------------------------------------------------------ Equities ------------------------------------------------------------------------------ S&P 500 Index (broad stock market) 6.88% ------------------------------------------------------------------------------ Russell 2000 Growth Index (small-company growth stocks) 7.23% ------------------------------------------------------------------------------ Russell 2000 Value Index (small-company value stocks) 8.70% ------------------------------------------------------------------------------ These indexes provide an overview of performance in different market sectors for the six months ended 3/31/05. ------------------------------------------------------------------------------ Strategy overview A key element of the fund's strategy has been to continue reducing the level of credit risk in the portfolio. During the period, we reduced the fund's weightings in the emerging-markets sector. We also increased the average credit quality of the fund's high-yield holdings by selling lower-quality bonds and buying bonds with higher ratings. (The high-yield sector, which is generally lower in quality than other sectors such as Treasuries, has several tiers of credit quality.) Another key component of our strategy during the period was to reduce the portfolio's sensitivity to changes in interest rates by shortening the fund's overall duration. Duration, which is measured in years, is the primary indicator of interest-rate sensitivity. The shorter a bond's duration, the less sensitive its price will be to interest-rate changes. The fund's lower interest-rate sensitivity hurt its performance during the first half of the period, but it was significantly helpful in the second half -- especially during the final month, when rates rose more substantially. During the period, we continued to increase the fund's position in bank loans (included in the "high yield" sector in the chart below). These securities offer a higher level of credit quality than high-yield bonds. In addition, they offer floating interest rates that, like an adjustable home mortgage, move with market rates and therefore can help provide some protection from interest-rate risk. We also continued to favor international bonds from developing countries, which we believe may benefit from a weak dollar environment, over emerging-market bonds. However, we think that going forward, gains from foreign currencies in the portfolio are likely to be more modest than those seen in recent years. [GRAPHIC OMITTED: horizontal bar chart SECTOR WEIGHTINGS COMPARED] SECTOR WEIGHTINGS COMPARED as of 9/30/04 as of 3/31/05 High yield 40.5% 42.8% U.S. investment grade 36.7% 37.7% International* 22.8% 19.5% Footnote reads: This chart shows how the fund's sector weightings have changed over the last six months. Weightings are shown as a percentage of market value. Holdings will vary over time. * Includes emerging markets. How fund holdings affected performance The semiannual period was marked by interest-rate fluctuation within a relatively moderate range. In such an environment, securitized bonds, or structured securities, tend to perform well because they typically offer higher income than corporate bonds of comparable credit quality. They also offer short maturities, so as interest rates rise, we can reinvest the proceeds in higher-yielding securities. The most common type of securitized bonds are mortgage-backed securities (MBSs), such as those issued by the Federal National Mortgage Association (Fannie Mae) and the Government National Mortgage Association (Ginnie Mae). Other types of securitized bonds include asset-backed securities (ABSs), which are typically backed by car loans and credit card payments, and commercial mortgage-backed securities (CMBSs), which are backed by loans on large commercial real estate projects, such as office parks or shopping malls. During the six-month period, the fund's holdings of ABSs, CMBSs, and MBSs backed by adjustable-rate mortgages all performed well relative to most other bond sectors. [GRAPHIC OMITTED: TOP HOLDINGS] TOP HOLDINGS (Percent of fund's net assets as of 3/31/05) International Sector 1 Germany (Federal Republic of) bonds (1.3%) Ser. 97, 6%, 2007 2 France (Government of) bonds (1.3%) 4%, 2013 3 Germany (Federal Republic of) bonds (0.8%) Ser. 97, 6%, 2007 High-Yield Sector 1 Conseco Finance Securitizations Corp. (0.5%) Ser. 01-3, Class A4, 6.91%, 2033 2 Conseco Finance Securitizations Corp. (0.5%) Ser. 00-4, Class A6, 8.31%, 2032 3 Qwest Corp. (0.4%) 144A notes 9.125%, 2012 U.S Investment-Grade Sector 1 U.S. Treasury bonds (5.4%) 6.25%, May 15, 2030 2 Federal National Mortgage Association Pass-Through Certificates (4.9%) TBA, 4.5%, April 1, 2020 3 Federal National Mortgage Association Pass-Through Certificates (4.1%) 6.5%, with due dates from December 1, 2023 to March 1, 2035 Footnote reads: The fund's holdings will change over time. The fund's holdings of Treasury bonds underperformed most fixed-income sectors for most of the period (until the final month), but the fund was underweighted in this sector compared to many of its peers, so this positioning helped 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. While the fund remains significantly underweighted -- relative to its peer group -- in emerging-market securities, we added some emerging-market bonds during the period, believing they were more attractive than high-yield corporate bonds. We emphasized bonds from Brazil, Mexico, and Russia, while reducing exposure in Turkey and Colombia. In the high-yield corporate bond portion of the fund, we continued to favor bonds issued by wireless telecommunications companies, including Nextel Communi cations, 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 plagued by operational issues and rising oil prices. Nevertheless, we are still positive about its prospects and maintained the holding in the fund. We increased the fund's holdings of senior-secured bank loans during the period. These loans carry floating interest rates, which means they reset in accordance with changes in short-term interest rates, which is beneficial if rates rise. The loans' "senior-secured" status means that they are fully backed by each issuing company's assets, such as plants, equipment, and inventory. Moreover, senior-secured loan lenders are 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 Special dividend paid In addition to its regular monthly dividend, the fund paid a special dividend in December 2004 of $0.04 per share, which was a distribution of income generated by currency gains in the portfolio. 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. During the period, the fund's lower returns reflected investors' more cautious view of the bond market and a more mature global economic recovery. Our forecast is for continued 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 the possibility for long-term bond yields to continue moving upward. In such an environment, we believe the fund's shorter duration and higher credit quality would help it to weather the impact of higher interest rates, if they come to pass (as we believe they will). Of course, we will continue to remain vigilant about any possible disruptions to global economies and fixed-income markets, seeking to keep the fund positioned defensively while remaining well diversified in a broad range of fixed-income sectors and securities. The views expressed in this report are exclusively those of Putnam Management. They are not meant as investment advice. International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Additional risks may be associated with emerging-market securities, including illiquidity and volatility. Lower-rated bonds may offer higher yields in return for more risk. Mutual funds that invest in government securities are not guaranteed. Mortgage-backed securities are subject to prepayment risk. Mutual funds that invest in bonds are subject to certain risks, including interest-rate risk, credit risk, and inflation risk. As interest rates rise, the prices of bonds fall. Long-term bonds are more exposed to interest-rate risk than short-term bonds. Unlike bonds, bond funds have ongoing fees and expenses. Your fund's management Your fund is managed by the members of the Putnam Core Fixed-Income and Core Fixed-Income High-Yield teams. D. William Kohli is the Portfolio Leader. Rob Bloemker, Jeffrey Kaufman, Paul Scanlon, and David Waldman are Portfolio Members of the fund. The Portfolio Leader and Portfolio Members coordinate the team's management of the fund. For a complete listing of the members of the Putnam Core Fixed-Income 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.putnaminvestments.com. Fund ownership The table below shows how much the fund's current Portfolio Leader and Portfolio Members have invested in the fund (in dollar ranges). Information shown is for March 31, 2005, and March 31, 2004.
------------------------------------------------------------------------------------------------------------- FUND PORTFOLIO LEADER AND PORTFOLIO MEMBERS ------------------------------------------------------------------------------------------------------------- $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 3/31/04.
Fund manager compensation The total 2004 fund manager compensation that is attributable to your fund is approximately $3,100,000. 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. These percentages are determined as of the fund's fiscal period-end. For personnel who joined Putnam Management during or after 2004, the calculation reflects annualized 2004 compensation or an estimate of 2005 compensation, as applicable. Other Putnam funds managed by the Portfolio Leader and Portfolio Members D. William Kohli is also a Portfolio Leader of Putnam Master Intermediate Income Trust and Putnam Premier 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 Income Fund, Putnam Limited Duration Government Income Fund, Putnam Master Intermediate Income Trust, Putnam Premier Income Trust, and Putnam U.S. Government Income Trust. Jeffrey Kaufman is also a Portfolio Member of Putnam Master Intermediate Income Trust and Putnam Premier 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. He is also a Portfolio Member of Putnam Master Intermediate Income Trust and Putnam Premier Income Trust. David Waldman is also a Portfolio Member of Putnam Master Intermediate Income Trust and Putnam Premier 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. Changes in your fund's Portfolio Leader and Portfolio Members During the year ended March 31, 2005, Rob Bloemker, Jeffrey Kaufman, and Paul Scanlon became Portfolio Members of your fund. In addition, Portfolio Member Stephen Peacher left Putnam. Fund ownership The table below shows how much the members of Putnam's Executive Board have invested in the fund (in dollar ranges). Information shown is for March 31, 2005, and March 31, 2004.
------------------------------------------------------------------------------------------------ PUTNAM EXECUTIVE BOARD ------------------------------------------------------------------------------------------------ $1 - $10,001 - $50,001 - $100,001 Year $0 $10,000 $50,000 $100,000 and over ------------------------------------------------------------------------------------------------ Philippe Bibi 2005 * ------------------------------------------------------------------------------------------------ Chief Technology Officer 2004 * ------------------------------------------------------------------------------------------------ John Boneparth 2005 * ------------------------------------------------------------------------------------------------ Head of Global Institutional Mgmt 2004 * ------------------------------------------------------------------------------------------------ Joshua Brooks 2005 * ------------------------------------------------------------------------------------------------ Deputy Head of Investments N/A ------------------------------------------------------------------------------------------------ Kevin Cronin 2005 * ------------------------------------------------------------------------------------------------ Head of Investments N/A ------------------------------------------------------------------------------------------------ Charles Haldeman, Jr. 2005 * ------------------------------------------------------------------------------------------------ President and CEO 2004 * ------------------------------------------------------------------------------------------------ Amrit Kanwal 2005 * ------------------------------------------------------------------------------------------------ Chief Financial Officer 2004 * ------------------------------------------------------------------------------------------------ Steven Krichmar 2005 * ------------------------------------------------------------------------------------------------ Chief of Operations N/A ------------------------------------------------------------------------------------------------ Francis McNamara, III 2005 * ------------------------------------------------------------------------------------------------ General Counsel N/A ------------------------------------------------------------------------------------------------ Richard Monaghan 2005 * ------------------------------------------------------------------------------------------------ Head of Retail Management 2004 * ------------------------------------------------------------------------------------------------ Richard Robie, III 2005 * ------------------------------------------------------------------------------------------------ Chief Administrative Officer 2004 * ------------------------------------------------------------------------------------------------ Edward Shadek 2005 * ------------------------------------------------------------------------------------------------ Deputy Head of Investments N/A ------------------------------------------------------------------------------------------------ N/A indicates the individual was not a member of Putnam's Executive Board as of 3/31/04.
Performance summary This section shows your fund's performance during the first half of its fiscal year, which ended March 31, 2005. Performance should always be considered in light of a fund's investment strategy. Data represents past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate and you may have a gain or a loss when you sell your shares. For the most recent month-end performance, please visit www.putnaminvestments.com.
---------------------------------------------------------------------------------------------------------------------------- TOTAL RETURN FOR PERIODS ENDED 3/31/05 ---------------------------------------------------------------------------------------------------------------------------- Class A Class B Class C Class M Class R (inception dates) (10/3/88) (3/1/93) (2/1/99) (12/1/94) (12/1/03) ---------------------------------------------------------------------------------------------------------------------------- NAV POP NAV CDSC NAV CDSC NAV POP NAV ---------------------------------------------------------------------------------------------------------------------------- 6 months 3.29% -1.40% 2.91% -2.09% 2.91% 1.91% 3.20% -0.19% 3.22% ---------------------------------------------------------------------------------------------------------------------------- 1 year 5.61 0.84 4.83 -0.17 4.82 3.82 5.40 1.96 5.35 ---------------------------------------------------------------------------------------------------------------------------- 5 years 42.29 35.88 36.71 34.80 36.83 36.83 40.28 35.78 40.62 Annual average 7.31 6.32 6.45 6.15 6.47 6.47 7.00 6.31 7.05 ---------------------------------------------------------------------------------------------------------------------------- 10 years 91.93 83.32 77.78 77.78 77.73 77.73 87.03 80.89 87.23 Annual average 6.74 6.25 5.92 5.92 5.92 5.92 6.46 6.11 6.47 ---------------------------------------------------------------------------------------------------------------------------- Annual average (life of fund) 7.76 7.46 6.92 6.92 6.94 6.94 7.45 7.23 7.49 ----------------------------------------------------------------------------------------------------------------------------
Performance assumes reinvestment of distributions and does not account for taxes. Returns at public offering price (POP) for class A and M shares reflect a sales charge of 4.50% and 3.25%, respectively (which for class A shares does not reflect a reduction in sales charges that went into effect on April 1, 2005; if this reduction had been in place for all periods indicated, returns would have been higher). Class B share returns reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declining to 1% in the sixth year, and is eliminated thereafter. Class C shares reflect a 1% CDSC the first year that is eliminated thereafter. Class R shares have no initial sales charge or CDSC. Performance for class B, C, M, and R shares before their inception is derived from the historical performance of class A shares, adjusted for the applicable sales charge (or CDSC) and higher operating expenses for such shares. A 2% short-term trading fee may be imposed on shares exchanged or sold within 5 days of purchase.
-------------------------------------------------------------------------------------------------- COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 3/31/05 -------------------------------------------------------------------------------------------------- Citigroup Lipper Multi- Lehman Non-U.S. JP Morgan Sector Income Aggregate World Govt. Global High Funds category Bond Index Bond Index Yield Index* average+ -------------------------------------------------------------------------------------------------- 6 months 0.47% 7.21% 3.23% 3.22% -------------------------------------------------------------------------------------------------- 1 year 1.15 6.98 7.36 5.14 -------------------------------------------------------------------------------------------------- 5 years 41.16 49.29 45.11 39.97 Annual average 7.14 8.34 7.73 6.90 -------------------------------------------------------------------------------------------------- 10 years 99.32 71.75 113.36 100.21 Annual average 7.14 5.56 7.87 7.13 -------------------------------------------------------------------------------------------------- Annual average (life of fund) 7.88 7.95 -- 7.97 -------------------------------------------------------------------------------------------------- Index and Lipper results should be compared to fund performance at net asset value. * The inception date of the JP Morgan Global High Yield Index was 12/31/93. + Over the 6-month and 1-, 5-, and 10-year periods ended 3/31/05, there were 111, 110, 87, and 43 funds, respectively, in this Lipper category.
------------------------------------------------------------------------------------------------------- PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 3/31/05 ------------------------------------------------------------------------------------------------------- Class A Class B Class C Class M Class R ------------------------------------------------------------------------------------------------------- Distributions (number) 6 6 6 6 6 ------------------------------------------------------------------------------------------------------- Income $0.292 $0.252 $0.252 $0.280 $0.284 ------------------------------------------------------------------------------------------------------- Capital gains -- -- -- -- -- ------------------------------------------------------------------------------------------------------- Total $0.292 $0.252 $0.252 $0.280 $0.284 ------------------------------------------------------------------------------------------------------- Share value: NAV POP NAV NAV NAV POP NAV ------------------------------------------------------------------------------------------------------- 9/30/04 $10.10 $10.58 $10.02 $10.04 $10.02 $10.36 $10.09 ------------------------------------------------------------------------------------------------------- 3/31/05 10.14 10.62 10.06 10.08 10.06 10.40 10.13 ------------------------------------------------------------------------------------------------------- Current return (end of period) ------------------------------------------------------------------------------------------------------- Current dividend rate 1 4.97% 4.75% 4.29% 4.29% 4.77% 4.62% 4.74% ------------------------------------------------------------------------------------------------------- Current 30-day SEC yield 2 4.35 4.15 3.59 3.59 4.09 3.96 4.09 ------------------------------------------------------------------------------------------------------- 1 Most recent distribution, excluding capital gains, annualized and divided by NAV or POP at end of period. 2 Based only on investment income, calculated using SEC guidelines.
Understanding your fund's expenses As a mutual fund investor, you pay ongoing expenses, such as management fees, distribution fees (12b-1 fees), and other expenses. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds. You may also pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund's prospectus or talk to your financial advisor. Review your fund's expenses The table below shows the expenses you would have paid on a $1,000 investment in Putnam Diversified Income Trust from October 1, 2004, to March 31, 2005. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
------------------------------------------------------------------------------------------ EXPENSES AND VALUE OF A $1,000 INVESTMENT assuming actual returns for the 6 months ended 3/31/05 ------------------------------------------------------------------------------------------ Class A Class B Class C Class M Class R ------------------------------------------------------------------------------------------ Expenses paid per $1,000* $4.66 $8.45 $8.45 $5.93 $5.93 ------------------------------------------------------------------------------------------ Ending value (after expenses) $1,032.90 $1,029.10 $1,029.10 $1,032.00 $1,032.20 ------------------------------------------------------------------------------------------ * Expenses for each share class are calculated using the fund's annualized expense ratio for each class, which represents the ongoing expenses as a percentage of net assets for the six months ended 3/31/05. The expense ratio may differ for each share class (see the table at the bottom of the next page). Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.
Estimate the expenses you paid To estimate the ongoing expenses you paid for the six months ended March 31, 2005, use the calculation method below. To find the value of your investment on October 1, 2004, go to www.putnaminvestments.com and log on to your account. Click on the "Transaction History" tab in your Daily Statement and enter 10/01/2004 in both the "from" and "to" fields. Alternatively, call Putnam at 1-800-225-1581. ------------------------------------------------------------------------------ HOW TO CALCULATE THE EXPENSES YOU PAID ------------------------------------------------------------------------------ Total Value of your Expenses paid expenses investment on 10/1/04 [DIV] $1,000 x per $1,000 = paid ------------------------------------------------------------------------------ Example Based on a $10,000 investment in class A shares of your fund. ------------------------------------------------------------------------------ $10,000 [DIV] $1,000 x $4.66 (see table above) = $46.60 ------------------------------------------------------------------------------ Comparing your fund's expenses with those of other funds Using the SEC's method to compare expenses The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund's expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total costs) of investing in the fund with those of other funds. All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
------------------------------------------------------------------------------------------ EXPENSES AND VALUE OF A $1,000 INVESTMENT assuming a hypothetical 5% annualized return for the 6 months ended 3/31/05 ------------------------------------------------------------------------------------------ Class A Class B Class C Class M Class R ------------------------------------------------------------------------------------------ Expenses paid per $1,000* $4.63 $8.40 $8.40 $5.89 $5.89 ------------------------------------------------------------------------------------------ Ending value (after expenses) $1,020.34 $1,016.60 $1,016.60 $1,019.10 $1,019.10 ------------------------------------------------------------------------------------------ * Expenses for each share class are calculated using the fund's annualized expense ratio for each class, which represents the ongoing expenses as a percentage of net assets for the six months ended 3/31/05. The expense ratio may differ for each share class (see the table at the bottom of this page). Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.
Using industry averages to compare expenses You can also compare your fund's expenses with the average of its peer group, as defined by Lipper, an independent fund-rating agency that ranks funds relative to others that Lipper considers to have similar investment styles or objectives. The expense ratio for each share class shown below indicates how much of your fund's net assets have been used to pay ongoing expenses during the period. ------------------------------------------------------------------------------ EXPENSE RATIO COMPARISONS USING ANNUALIZED DATA ------------------------------------------------------------------------------ Class A Class B Class C Class M Class R ------------------------------------------------------------------------------ Your fund's annualized expense ratio 0.92% 1.67% 1.67% 1.17% 1.17% ------------------------------------------------------------------------------ Average annualized expense ratio for Lipper peer group+ 1.14% 1.89% 1.89% 1.39% 1.39% ------------------------------------------------------------------------------ + Simple average of the expenses of all front-end load funds in the fund's Lipper peer group, calculated in accordance with Lipper's standard method for comparing fund expenses (excluding 12b-1 fees and without giving effect to any expense offset and brokerage service arrangements that may reduce fund expenses). This average reflects each fund's expenses for its most recent fiscal year available to Lipper as of 3/31/05. To facilitate comparison, Putnam has adjusted this average to reflect the 12b-1 fees carried by each class of shares. The peer group may include funds that are significantly smaller or larger than the fund, which may limit the comparability of the fund's expenses to the simple average, which typically is higher than the asset-weighted average. Understanding your fund's portfolio turnover Putnam funds are actively managed by teams of experts who buy and sell securities based on intensive analysis of companies, industries, economies, and markets. Portfolio turnover is a measure of how often a fund's managers buy and sell securities for your fund. A portfolio turnover of 100%, for example, means that the managers sold and replaced securities valued at 100% of a fund's assets within a one-year period. Funds with high turnover may be more likely to generate capital gains and dividends that must be distributed to shareholders as taxable income. High turnover may also cause a fund to pay more brokerage commissions and other transaction costs, which may detract from performance. Funds that invest in bonds or other fixed-income instruments may have higher turnover than funds that invest only in stocks. Short-term bond funds tend to have higher turnover than longer-term bond funds, because shorter-term bonds will mature or be sold more frequently than longer-term bonds. You can use the table below to compare your fund's turnover with the average turnover for funds in its Lipper category. ------------------------------------------------------------------------------ TURNOVER COMPARISONS percentage of holdings that change every year ------------------------------------------------------------------------------ 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------ Putnam Diversified Income Trust 99% 146%* 209%*+ 150%* 143% ------------------------------------------------------------------------------ Lipper Multi-Sector Income Funds category average 125% 155% 133% 131% 110% ------------------------------------------------------------------------------ Turnover data for the fund is calculated based on the fund's fiscal-year period, which ends on September 30. Turnover data for the fund's Lipper category is calculated based on the average of the turnover of each fund in the category for its fiscal year ended during the indicated year. Fiscal years vary across funds in the Lipper category, which may limit the compatibility of the fund's portfolio turnover rate to the Lipper average. Comparative data for 2004 is based on information available as of 3/31/05. * Portfolio turnover excludes certain Treasury Note transactions executed in connection with a short-term trading strategy. + Portfolio turnover excludes the impact of assets received from the acquisition of Putnam Strategic Income Fund. Risk comparison This risk comparison is designed to help you understand how your fund compares with other funds. The comparison utilizes a risk measure developed by Morningstar, an independent fund-rating agency. This risk measure is referred to as the fund's Overall Morningstar Risk. Your fund's Overall Morningstar Risk is shown alongside that of the average fund in its broad asset class, as determined by Morningstar. The risk bar broadens the comparison by translating the fund's Overall Morningstar Risk into a percentile, which is based on the fund's ranking among all funds rated by Morningstar as of March 31, 2005. A higher Overall Morningstar Risk generally indicates that a fund's monthly returns have varied more widely. [GRAPHIC OMITTED: chart MORNINGSTAR [REGISTRATION MARK] RISK] MORNINGSTAR [REGISTRATION MARK] RISK Fund's Overall Morningstar Risk 0.28 Taxable bond fund average 0.30 0% INCREASING RISK 100% Morningstar determines a fund's Overall Morningstar Risk by assessing variations in the fund's monthly returns -- with an emphasis on downside variations -- over 3-, 5-, and 10-year periods, if available. Those measures are weighted and averaged to produce the fund's Overall Morningstar Risk. The information shown is provided for the fund's class A shares only; information for other classes may vary. Overall Morningstar Risk is based on historical data and does not indicate future results. Morningstar does not purport to measure the risk associated with a current investment in a fund, either on an absolute basis or on a relative basis. Low Overall Morningstar Risk does not mean that you cannot lose money on an investment in a fund. Copyright 2004 Morningstar, Inc. All Rights Reserved. The information contained herein (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Terms and definitions Total return shows how the value of the fund's shares changed over time, assuming you held the shares through the entire period and reinvested all distributions in the fund. Net asset value (NAV) is the price, or value, of one share of a mutual fund, without a sales charge. NAVs fluctuate with market conditions. NAV is calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class. Public offering price (POP) is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. POP performance figures shown here assume the 4.50% maximum sales charge for class A shares (since reduced to 3.75%) and 3.25% for class M shares. Contingent deferred sales charge (CDSC) is a charge applied at the time of the redemption of class B or C shares and assumes redemption at the end of the period. Your fund's class B CDSC declines from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. The CDSC for class C shares is 1% for one year after purchase. Class A shares are generally subject to an initial sales charge and no sales charge on redemption (except on certain redemptions of shares bought without an initial sales charge). Class B shares may be subject to a sales charge upon redemption. Class C shares are not subject to an initial sales charge and are subject to a contingent deferred sales charge only if the shares are redeemed during the first year. Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no sales charge on redemption (except on certain redemptions of shares bought without an initial sales charge). Class R shares are not subject to an initial sales charge or CDSC and are available only to certain defined contribution plans. Comparative indexes 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 un man aged 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 Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities. Russell 2000 Growth Index is an unmanaged index of those companies in the small-cap Russell 2000 Index chosen for their growth orientation. Russell 2000 Value Index is an unmanaged index of those companies in the small-cap Russell 2000 Index chosen for their value orientation. S&P 500 Index is an unmanaged index of common stock performance. Indexes assume reinvestment of all distributions and do not account for fees. Securities and performance of a fund and an index will differ. You cannot invest directly in an index. Lipper is a third-party industry ranking entity that ranks funds (without sales charges) with similar current investment styles or objectives as determined by Lipper. Lipper category averages reflect performance trends for funds within a category and are based on results at net asset value. Trustee approval of management contract General conclusions The Board of Trustees of the Putnam funds oversees the management of each fund and, as required by law, determines annually whether to approve the continuance of each fund's management contract with Putnam Management. In this regard the Board of Trustees, with the assistance of its Contract Committee consisting solely of Independent Trustees, requests and evaluates all information it deems reasonably necessary in the circumstances. Over the course of several months beginning in March and ending in June of 2004, the Contract Committee reviewed the information provided by Putnam Management and other information developed with the assistance of the Board's independent counsel and independent staff. The Contract Committee reviewed and discussed key aspects of this information with all of the Independent Trustees. Upon completion of this review, the Contract Committee recommended and the Independent Trustees approved the continuance of your fund's contract, effective July 1, 2004. This approval was based on the following conclusions: * That the fee schedule currently in effect for your fund represents reasonable compensation in light of the nature and quality of the services being provided to the fund, the fees paid by competitive funds and the costs incurred by Putnam Management in providing such service, and * That such fee schedule represents an appropriate sharing between fund shareholders and Putnam Management of such economies of scale as may exist in the management of the fund at current asset levels. These conclusions were based on a comprehensive consideration of all information provided to the Trustees and were not the result of any single factor. Some of the factors that figured particularly in the Trustees' deliberations are described below. Model fee schedules and categories; total expenses The Trustees, working in cooperation with Putnam Management, have developed and implemented a series of model fee schedules for the Putnam funds designed to ensure that each fund's management fee is consistent with the fees for similar funds in the Putnam complex and compares favorably with fees paid by competitive funds sponsored by other advisors. The Trustees reviewed the model fee schedule currently in effect for the fund, including fee levels and breakpoints, and the assignment of the fund to a particular fee category under this structure. The Trustees also reviewed comparative fee and expense information for competitive funds. The Trustees concluded that no changes should be made in the fund's current fee schedule at this time. The Trustees noted that expense ratios for a number of Putnam funds had been increasing recently as a result of declining net assets and the natural operation of fee breakpoints. They noted that such expense ratio increases were currently being controlled by expense limitations implemented in January 2004. They also noted that the competitive landscape regarding mutual fund fees may be changing as a result of fee reductions accepted by various other fund groups in connection with recent regulatory settlements and greater focus on fees and expenses in the mutual fund industry generally. The Trustees indicated an intention to monitor these developments closely. Economies of scale As noted above, the Trustees concluded that the fee schedule currently in effect for your fund represents an appropriate sharing of economies of scale at current asset levels. The Trustees indicated their intention to continue their ongoing consideration of economies of scale and in particular to consider further the possible operation of such economies in the event that a significant recovery in the equity markets or net fund sales were to raise asset levels substantially above current levels. In this regard, the Trustees noted that they had reviewed data relating to the substantial increase in asset levels of the Putnam funds that occurred during the years leading up to the market peak in 2000, the subsequent decline in assets and the resulting impact on revenues and expenses of Putnam Management. The Trustees also noted that recent declines in net assets in many Putnam funds, together with significant changes in the cost structure of Putnam Management have altered the economics of Putnam Management's business in significant ways. The Trustees concluded that they would monitor these changes carefully and evaluate the resulting impact on Putnam Management's economics and the sharing of economies of scale between the parties. Investment performance The quality of the investment process provided by Putnam Management represented a major factor in the Trustees' evaluation of the quality of services provided by Putnam Management under the Management Contracts. The Trustees recognized that a high quality investment process -- as measured by the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to such personnel, and in general the ability of Putnam Management to attract and retain high-quality personnel -- does not guarantee favorable investment results for every fund in every time period. The Trustees considered the investment performance of each fund over multiple time periods and considered information comparing the fund's performance with various benchmarks and with the performance of competitive funds. The Trustees noted the satisfactory investment performance of many Putnam funds. They also noted the disappointing investment performance of certain funds in recent years and continued to discuss with senior management of Putnam Management the factors contributing to such under-performance and actions being taken to improve performance. The Trustees recognized that, in recent years, Putnam Management has made significant changes in its investment personnel and processes and in the fund product line in an effort to address areas of underperformance. The Trustees indicated their intention to continue to monitor performance trends to assess the effectiveness of these changes and to evaluate whether additional remedial changes are warranted. As a general matter, the Trustees concluded that consultation between the Trustees and Putnam Management represents the most effective way to address investment performance problems. The Trustees believe that investors in the Putnam funds and their financial advisors have, as a general matter, effectively placed their trust in the Putnam organization, under the supervision of the funds' Trustees, to make appropriate decisions regarding the management of the funds. The Trustees believe that the termination of the Management Contract and engagement of a new investment adviser for under-performing funds, with all the attendant disruptions, would not serve the interests of fund shareholders at this time and would not necessarily provide any greater assurance of improved investment performance. Brokerage and soft-dollar allocations; other benefits The Trustees considered various potential benefits that Putnam Management may receive in connection with the services it provides under the Management Contract with your fund. These include principally benefits related to brokerage and soft-dollar allocations, which pertain mainly to funds investing in equity securities. The Trustees believe that soft-dollar credits and other potential benefits associated with the allocation of fund brokerage represent assets of the funds that should be used for the benefit of fund shareholders. The Trustees noted recent trends in the allocation of fund brokerage, including commission costs, the allocation of brokerage to firms that provide research services to Putnam Management, and the sources and application of available soft-dollar credits. Effective December 31, 2003, reflecting a decision made by the Trustees earlier that year, Putnam Management ceased allocating brokerage in connection with the sale of fund shares. In addition, in preparing its budget for commission allocations in 2004, Putnam Management voluntarily reduced substantially the allocation of brokerage commissions to acquire research services from third-party service providers. In light of evolving best practices in the mutual fund industry, the Trustees concluded that this practice should be further curtailed and possibly eliminated in the near future. The Trustees indicated that they would continue to monitor the allocation of the funds' brokerage to ensure that the principle of "best price and execution" remains paramount in the portfolio trading process. Comparison of retail and institutional fee schedules The information examined by the Trustees as part of the annual contract reviews included information regarding fees charged by Putnam Management and its affiliates to institutional clients such as defined benefit pension plans and college endowments. This information included comparison of such fees with fees charged to the Putnam funds, as well as a detailed assessment of the differences in the services provided to these two types of clients. The Trustees devoted special attention to these issues and reviewed recent articles by critics of mutual fund fees, articles by the ICI defending such fee differences, and relevant guidance provided by decisions of the courts. The Trustees observed, in this regard, that the differences in fee rates between institutional clients and mutual funds are by no means uniform when examined by individual asset sectors, suggesting that differences in the pricing of investment management services to these types of clients reflects to a substantial degree historical competitive forces operating in separate market places. In reaching their conclusions, the Trustees considered the fact that fee rates across all asset sectors are higher on average for mutual funds than for institutional clients, and also considered the differences between the services that Putnam provides to the Putnam funds and those that it provides to institutional clients of the firm. Settlement of regulatory charges related to market timing Finally, in reaching their conclusions, the Trustees considered all matters pertinent to the administrative charges filed against Putnam Management by the SEC and the Commonwealth of Massachusetts in October 2003 relating to market timing, the firm's settlement of those charges, and the conclusions and recommendations of the Trustees' Audit and Pricing Committee based on its review of these matters. The Trustees considered the actions taken by the owner of Putnam Management and its new senior management to terminate or discipline the individuals involved, to implement new compliance systems, to indemnify the funds against all costs and liabilities related to these matters, and otherwise to ensure that the interests of the funds and their shareholders are fully protected. The Trustees noted that, in addition to the settlements of the regulatory charges which will provide comprehensive restitution for any losses suffered by shareholders, the new senior management of Putnam Management has moved aggressively to control expense ratios of funds affected by market timing, to reduce charges to new investors, to improve disclosure of fees and expenses, and to emphasize the paramount role of investment performance in achieving shareholders' investment goals. Other information for shareholders A note about duplicate mailings In response to investors' requests, the SEC has modified mailing regulations for proxy statements, semiannual and annual reports, and prospectuses. Putnam is now able to send a single copy of these materials to customers who share the same address. This change will automatically apply to all shareholders except those who notify us. If you would prefer to receive your own copy, please call Putnam at 1-800-225-1581. Proxy voting Putnam is committed to managing our mutual funds in the best interests of our shareholders. The Putnam funds' proxy voting guidelines and procedures, as well as information regarding how your fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2004, are available on the Putnam Individual Investor Web site, www.putnaminvestments.com/individual, and on the SEC's Web site, www.sec.gov. If you have questions about finding forms on the SEC's Web site, you may call the SEC at 1-800-SEC-0330. You may also obtain the Putnam funds' proxy voting guidelines and procedures at no charge by calling Putnam's Shareholder Services at 1-800-225-1581. Fund portfolio holdings For periods ending on or after July 9, 2004, the fund will file a complete schedule of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Shareholders may obtain the fund's Forms N-Q on the SEC's Web site at www.sec.gov. In addition, the fund's Forms N-Q may be reviewed and copied at the SEC's public reference room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC's Web site or the operation of the public reference room. The fund's portfolio March 31, 2005 (Unaudited) Corporate bonds and notes (33.8%) (a) Principal amount Value Basic Materials (2.9%) ------------------------------------------------------------------------------- $4,039,000 AK Steel Corp. company guaranty 7 3/4s, 2012 $3,887,538 3,250,000 ALROSA Finance SA 144A company guaranty 8 7/8s, 2014 (Luxembourg) 3,359,688 3,475,000 BCP Caylux Holdings Luxembourg SCA 144A sr. sub. notes 9 5/8s, 2014 3,961,500 EUR 1,845,000 Cognis Holding GmbH & Co. 144A sr. notes 9 1/2s, 2014 (Germany) 2,649,323 $1,715,000 Compass Minerals International, Inc. sr. disc. notes stepped-coupon Ser. B, zero % (12s, 6/1/08), 2013 (STP) 1,423,450 5,065,000 Compass Minerals International, Inc. sr. notes stepped-coupon zero % (12 3/4s, 12/15/07), 2012 (STP) 4,355,900 2,665,000 Crystal US Holdings, LLC/US Sub 3 Corp. 144A sr. disc. notes stepped-coupon zero % (10s, 10/1/09), 2014 (STP) 1,918,800 2,520,000 Equistar Chemicals LP notes 8 3/4s, 2009 2,702,700 8,082,000 Equistar Chemicals LP/Equistar Funding Corp. company guaranty 10 1/8s, 2008 8,890,200 755,000 Georgia-Pacific Corp. bonds 7 3/4s, 2029 822,950 1,000,000 Georgia-Pacific Corp. bonds 7 1/4s, 2028 1,030,000 715,000 Georgia-Pacific Corp. company guaranty 8 7/8s, 2010 798,119 6,225,000 Georgia-Pacific Corp. debs. 7.7s, 2015 6,824,156 2,950,000 Georgia-Pacific Corp. sr. notes 8s, 2024 3,289,250 6,625,000 Gerdau Ameristeel Corp. sr. notes 10 3/8s, 2011 (Canada) 7,386,875 9,270,000 Hercules, Inc. company guaranty 11 1/8s, 2007 10,614,150 1,410,000 Huntsman Advanced Materials, LLC 144A sec. FRN 10.89s, 2008 1,487,550 1,495,000 Huntsman Advanced Materials, LLC 144A sec. notes 11s, 2010 1,715,513 2,259,000 Huntsman, LLC company guaranty 11 5/8s, 2010 2,643,030 1,428,000 Huntsman, LLC 144A company guaranty 12s, 2012 1,670,760 1,720,000 Innophos, Inc. 144A sr. sub. notes 8 7/8s, 2014 1,806,000 930,000 International Steel Group, Inc. sr. notes 6 1/2s, 2014 948,600 5,415,000 ISP Chemco, Inc. company guaranty Ser. B, 10 1/4s, 2011 5,888,813 1,480,000 Jefferson Smurfit Corp. company guaranty 8 1/4s, 2012 1,520,700 285,000 Jefferson Smurfit Corp. company guaranty 7 1/2s, 2013 283,575 EUR 3,900,000 JSG Holding PLC 144A sr. notes 11 1/2s, 2015 (Ireland) (PIK) 4,687,946 $1,640,000 MDP Acquisitions PLC sr. notes 9 5/8s, 2012 (Ireland) 1,763,000 EUR 3,045,000 MDP Acquisitions PLC sr. notes Ser. EUR, 10 1/8s, 2012 (Ireland) 4,451,600 EUR 505,000 Nalco Co. sr. notes 7 3/4s, 2011 708,419 EUR 505,000 Nalco Co. sr. sub. notes 9s, 2013 729,091 $9,340,000 Nalco Co. sr. sub. notes 8 7/8s, 2013 9,993,800 1,804,000 Norske Skog Canada, Ltd. sr. notes 7 3/8s, 2014 (Canada) 1,749,880 6,915,000 Novelis, Inc. 144A sr. notes 7 1/4s, 2015 (Canada) 6,776,700 2,904,664 PCI Chemicals Canada sec. sr. notes 10s, 2008 (Canada) 3,107,990 539,889 Pioneer Companies, Inc. sec. sr.notes FRN 6.593s, 2006 569,583 1,690,000 PQ Corp. 144A company guaranty 7 1/2s, 2013 1,664,650 EUR 2,750,000 Rockwood Specialties Group, Inc. company guaranty 7 5/8s, 2014 3,600,427 $1,100,000 Rockwood Specialties Group, Inc. 144A sub. notes 7 1/2s, 2014 1,100,000 EUR 3,360,000 SGL Carbon SA 144A sr. notes 8 1/2s, 2012 (Luxembourg) 4,706,893 $4,955,000 Steel Dynamics, Inc. company guaranty 9 1/2s, 2009 5,339,013 862,593 Sterling Chemicals, Inc. sec. notes 10s, 2007 (PIK) 862,593 865,000 Stone Container Corp. sr. notes 9 3/4s, 2011 925,550 60,000 Stone Container Corp. sr. notes 8 3/8s, 2012 61,950 1,080,000 Stone Container Finance company guaranty 7 3/8s, 2014 (Canada) 1,069,200 1,000 Tembec Industries, Inc. company guaranty 8 5/8s, 2009 (Canada) 965 50,000 Tembec Industries, Inc. company guaranty 7 3/4s, 2012 (Canada) 45,500 3,140,000 Ucar Finance, Inc. company guaranty 10 1/4s, 2012 3,359,800 1,857,000 United Agri Products sr. notes 9s, 2011 1,931,280 1,682,000 United States Steel Corp. sr. notes 9 3/4s, 2010 1,862,815 682,000 United States Steel, LLC sr. notes 10 3/4s, 2008 784,300 178,693 Wheeling-Pittsburgh Steel Corp. sr. notes 6s, 2010 (PIK) 145,635 346,423 Wheeling-Pittsburgh Steel Corp. sr. notes 5s, 2011 (PIK) 282,335 1,065,000 WHX Corp. sr. notes 10 1/2s, 2005 (In default) (NON) 1,065,000 -------------- 145,225,055 Capital Goods (2.7%) ------------------------------------------------------------------------------- 1,795,000 AEP Industries, Inc. 144A sr. notes 7 7/8s, 2013 1,802,623 5,158,000 Allied Waste North America, Inc. company guaranty Ser. B, 8 1/2s, 2008 5,338,530 2,860,000 Amsted Industries, Inc. 144A sr. notes 10 1/4s, 2011 3,117,400 439,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8 7/8s, 2011 444,488 3,851,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 3,822,118 4,190,000 Blount, Inc. sr. sub. notes 8 7/8s, 2012 4,420,450 440,000 Browning-Ferris Industries, Inc. debs. 7.4s, 2035 360,800 2,115,000 Browning-Ferris Industries, Inc. sr. notes 6 3/8s, 2008 2,030,400 9,740,000 Crown Euro Holdings SA sec. notes 10 7/8s, 2013 (France) 11,298,400 EUR 585,000 Crown Euro Holdings SA sec. notes 10 1/4s, 2011 (France) 859,034 $1,695,000 Crown Euro Holdings SA sec. notes 9 1/2s, 2011 (France) 1,860,263 EUR 845,000 Crown Euro Holdings SA sec. notes 6 1/4s, 2011 (France) 1,163,962 $8,500,000 Decrane Aircraft Holdings Co. company guaranty zero %, 2008 3,230,000 5,115,000 Earle M. Jorgensen Co. sec. notes 9 3/4s, 2012 5,600,925 198,000 FIMEP SA sr. notes 10 1/2s, 2013 (France) 223,740 EUR 2,445,000 Flender Holdings 144A sr. notes 11s, 2010 (Germany) 3,849,272 $2,779,000 Flowserve Corp. company guaranty 12 1/4s, 2010 3,018,689 3,623,000 Invensys, PLC notes 9 7/8s, 2011 (United Kingdom) 3,686,403 1,000,000 L-3 Communications Corp. company guaranty 7 5/8s, 2012 1,062,500 5,460,000 L-3 Communications Corp. company guaranty 6 1/8s, 2013 5,391,750 12,135,000 L-3 Communications Corp. sr. sub. notes 5 7/8s, 2015 11,649,600 7,999,000 Legrand SA debs. 8 1/2s, 2025 (France) 9,638,795 256,000 Manitowoc Co., Inc. (The) company guaranty 10 1/2s, 2012 290,560 EUR 1,120,000 Manitowoc Co., Inc. (The) company guaranty 10 3/8s, 2011 1,598,801 $1,510,000 Manitowoc Co., Inc. (The) sr. notes 7 1/8s, 2013 1,555,300 1,707,000 Milacron Escrow Corp. sec. notes 11 1/2s, 2011 1,860,630 1,885,000 Mueller Group, Inc. sr. sub. notes 10s, 2012 2,035,800 1,465,000 Mueller Holdings, Inc. disc. notes stepped-coupon zero % (14 3/4s, 4/15/09), 2014 (STP) 1,010,850 910,000 Owens-Brockway Glass company guaranty 8 7/8s, 2009 969,150 4,580,000 Owens-Brockway Glass company guaranty 8 1/4s, 2013 4,843,350 2,830,000 Owens-Brockway Glass company guaranty 7 3/4s, 2011 2,964,425 6,145,000 Owens-Brockway Glass sr. sec. notes 8 3/4s, 2012 6,713,413 485,000 Owens-Illinois, Inc. debs. 7.8s, 2018 493,488 2,135,000 Pliant Corp. sec. notes 11 1/8s, 2009 2,135,000 EUR 1,140,000 Polypore, Inc. notes 8 3/4s, 2012 1,414,766 $2,025,000 Polypore, Inc. sr. sub. notes 8 3/4s, 2012 1,893,375 6,191,000 Sequa Corp. sr. notes 9s, 2009 6,655,325 1,371,000 Sequa Corp. sr. notes Ser. B, 8 7/8s, 2008 1,453,260 1,545,000 Siebe PLC 144A sr. unsub. 6 1/2s, 2010 (United Kingdom) 1,463,888 1,310,000 Terex Corp. company guaranty 9 1/4s, 2011 1,427,900 4,590,000 Terex Corp. company guaranty Ser. B, 10 3/8s, 2011 5,003,100 2,380,000 Titan Corp. (The) company guaranty 8s, 2011 2,475,200 -------------- 132,127,723 Communication Services (2.6%) ------------------------------------------------------------------------------- 1,799,000 Alamosa Delaware, Inc. company guaranty 11s, 2010 2,050,860 1,719,000 Alamosa Delaware, Inc. company guaranty stepped-coupon zero % (12s, 7/31/05), 2009 (STP) 1,869,413 1,350,000 American Cellular Corp. company guaranty 9 1/2s, 2009 1,248,750 4,200,000 American Towers, Inc. company guaranty 7 1/4s, 2011 4,336,500 3,367,254 Asia Global Crossing, Ltd. sr. notes 13 3/8s, 2010 (Bermuda) (In default) (NON) 168,363 1,105,000 Cincinnati Bell Telephone Co. company guaranty 6.3s, 2028 961,350 4,675,000 Cincinnati Bell, Inc. sr. sub. notes 8 3/8s, 2014 4,604,875 2,845,000 Cincinnati Bell, Inc. sr. sub. notes 7 1/4s, 2023 2,716,975 3,974,000 Citizens Communications Co. notes 9 1/4s, 2011 4,351,530 17,335,000 Citizens Communications Co. sr. notes 6 1/4s, 2013 16,294,900 703,373 Globix Corp. company guaranty 11s, 2008 (PIK) 675,238 4,135,000 Inmarsat Finance PLC company guaranty 7 5/8s, 2012 (United Kingdom) 4,155,675 6,035,000 Inmarsat Finance PLC company guaranty stepped-coupon zero % (10 3/8s, 10/15/08), 2012 (United Kingdom) (STP) 4,254,675 2,160,000 iPCS, Inc. sr. notes 11 1/2s, 2012 2,430,000 680,000 IWO Escrow Co. 144A sec. FRN 6.32s, 2012 693,600 680,000 IWO Escrow Co. 144A sr. disc. notes stepped-coupon zero % (10 3/4s, 1/15/10), 2015 (STP) 435,200 4,930,000 Madison River Capital Corp. sr. notes 13 1/4s, 2010 5,275,100 7,109,000 MCI, Inc. sr. notes 8.735s, 2014 7,819,900 16,660,000 Nextel Communications, Inc. sr. notes 5.95s, 2014 16,576,700 2,305,000 PanAmSat Corp. notes 6 3/8s, 2008 2,339,575 3,595,000 Qwest Communications International, Inc. 144A sr. notes 7 3/4s, 2014 3,514,113 16,415,000 Qwest Corp. 144A notes 9 1/8s, 2012 17,851,313 2,730,000 Qwest Services Corp. 144A notes 14 1/2s, 2014 3,296,475 1,265,000 Rogers Cantel, Inc. debs. 9 3/4s, 2016 (Canada) 1,492,700 2,165,000 Rogers Wireless Communications, Inc. sec. notes 7 1/2s, 2015 (Canada) 2,224,538 9,730,000 Rural Cellular Corp. sr. sub. notes 9 3/4s, 2010 8,902,950 1,900,000 SBA Communications Corp. 144A sr. notes 8 1/2s, 2012 1,966,500 2,400,000 SBA Telecommunications, Inc./SBA Communications Corp. sr. disc. notes stepped-coupon zero % (9 3/4s, 12/15/07), 2011 (STP) 2,070,000 1,199,000 TSI Telecommunication Services, Inc. company guaranty Ser. B, 12 3/4s, 2009 1,336,885 1,680,000 Valor Telecommunications Enterprises LLC/Finance Corp. 144A sr. notes 7 3/4s, 2015 1,671,600 -------------- 127,586,253 Consumer Cyclicals (7.9%) ------------------------------------------------------------------------------- 4,110,000 Advertising Direct 144A sr. notes 9 1/4s, 2012 (Canada) 4,315,500 2,330,000 Ameristar Casinos, Inc. company guaranty 10 3/4s, 2009 2,545,525 5,145,000 ArvinMeritor, Inc. notes 8 3/4s, 2012 5,350,800 2,780,000 Asbury Automotive Group, Inc. sr. sub. notes 8s, 2014 2,696,600 5,230,000 Autonation, Inc. company guaranty 9s, 2008 5,753,000 1,691,000 Bear Creek Corp. 144A sr. notes 9s, 2013 1,674,090 1,055,000 Beazer Homes USA, Inc. company guaranty 8 3/8s, 2012 1,118,300 3,415,000 Boyd Gaming Corp. sr. sub. notes 8 3/4s, 2012 3,688,200 1,175,000 Boyd Gaming Corp. sr. sub. notes 7 3/4s, 2012 1,230,813 1,325,000 Boyd Gaming Corp. sr. sub. notes 6 3/4s, 2014 1,308,438 6,990,443 CanWest Media, Inc. 144A sr. sub. notes 8s, 2012 (Canada) 7,252,585 4,969,000 Coinmach Corp. sr. notes 9s, 2010 5,080,803 1,630,000 Cooper-Standard Automotive, Inc. 144A notes 8 3/8s, 2014 1,324,375 545,000 Cooper-Standard Automotive, Inc. 144A notes 7s, 2012 506,850 3,650,000 D.R. Horton, Inc. sr. notes 7 7/8s, 2011 3,969,375 960,000 D.R. Horton, Inc. sr. notes 6 7/8s, 2013 993,600 6,129,000 D.R. Horton, Inc. sr. notes 5 7/8s, 2013 6,022,190 1,015,000 Dana Corp. notes 10 1/8s, 2010 1,060,648 4,105,000 Dana Corp. notes 9s, 2011 4,520,608 530,000 Dana Corp. notes 7s, 2029 465,435 1,865,000 Dana Corp. notes 6 1/2s, 2009 1,828,610 3,905,000 Dayton Superior Corp. sec. notes 10 3/4s, 2008 3,826,900 970,000 Delco Remy International, Inc. company guaranty 11s, 2009 950,600 3,770,000 Delco Remy International, Inc. sr. sub. notes 9 3/8s, 2012 3,166,800 3,200,000 Dex Media West, LLC/Dex Media Finance Co. sr. notes Ser. B, 8 1/2s, 2010 3,416,000 3,520,000 Dex Media, Inc. disc. notes zero %, 2013 2,675,200 4,025,000 Dex Media, Inc. notes 8s, 2013 4,165,875 1,320,000 Dura Operating Corp. company guaranty Ser. B, 8 5/8s, 2012 1,217,700 3,792,000 FelCor Lodging LP company guaranty 9s, 2008 (R) 4,076,400 3,184,000 Finlay Fine Jewelry Corp. sr. notes 8 3/8s, 2012 3,008,880 4,920,000 Gaylord Entertainment Co. sr. notes 8s, 2013 5,092,200 6,060,000 Goodyear Tire & Rubber Co. (The) notes 7.857s, 2011 5,847,900 1,530,000 Goodyear Tire & Rubber Co. (The) notes 6 3/8s, 2008 1,514,700 155,000 Harrah's Operating Co., Inc. company guaranty 8s, 2011 175,889 1,151,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 (R) 1,174,020 1,020,000 Host Marriott LP company guaranty Ser. G, 9 1/4s, 2007 (R) 1,099,050 5,515,000 Host Marriott LP sr. notes Ser. M, 7s, 2012 (R) 5,459,850 2,440,000 Houghton Mifflin Co. sr. sub. notes 9 7/8s, 2013 2,513,200 4,660,000 Icon Health & Fitness company guaranty 11 1/4s, 2012 3,285,300 6,255,000 JC Penney Co., Inc. debs. 7.95s, 2017 5,942,250 5,260,000 JC Penney Co., Inc. debs. 7 1/8s, 2023 5,207,400 2,260,000 JC Penney Co., Inc. notes 9s, 2012 2,350,400 175,000 JC Penney Co., Inc. notes 8s, 2010 175,000 7,500,000 John Q. Hammons Hotels LP/John Q. Hammons Hotels Finance Corp. III 1st mtge. Ser. B, 8 7/8s, 2012 8,118,750 1,836,000 Jostens Holding Corp. sr. disc. notes stepped-coupon zero % (10 1/4s, 12/1/08), 2013 (STP) 1,340,280 8,865,000 Jostens IH Corp. company guaranty 7 5/8s, 2012 8,776,350 4,335,000 K. Hovnanian Enterprises, Inc. company guaranty 8 7/8s, 2012 4,638,450 2,945,000 K. Hovnanian Enterprises, Inc. company guaranty 6 3/8s, 2014 2,841,925 1,950,000 K. Hovnanian Enterprises, Inc. sr. notes 6 1/2s, 2014 1,906,125 802,000 K2, Inc. sr. notes 7 3/8s, 2014 830,070 1,995,000 KB Home company guaranty 5 7/8s, 2015 1,906,129 2,850,000 KB Home sr. notes 5 3/4s, 2014 2,729,804 4,722,000 Laidlaw International, Inc. sr. notes 10 3/4s, 2011 5,347,665 3,615,000 Lamar Media Corp. company guaranty 7 1/4s, 2013 3,759,600 4,892,000 Levi Strauss & Co. sr. notes 12 1/4s, 2012 5,332,280 4,625,000 Levi Strauss & Co. 144A sr. notes 9 3/4s, 2015 4,544,063 1,642,000 Mandalay Resort Group sr. notes 6 3/8s, 2011 1,658,420 5,105,000 MeriStar Hospitality Corp. company guaranty 9 1/8s, 2011 (R) 5,334,725 1,410,000 Meritage Homes Corp. sr. notes 7s, 2014 1,410,000 1,680,000 Meritage Homes Corp. 144A sr. notes 6 1/4s, 2015 1,579,200 4,820,000 Meritor Automotive, Inc. notes 6.8s, 2009 4,771,800 3,230,000 Metaldyne Corp. 144A sr. notes 10s, 2013 2,939,300 3,970,000 MGM Mirage, Inc. company guaranty 8 1/2s, 2010 4,347,150 6,691,000 MGM Mirage, Inc. company guaranty 6s, 2009 6,598,999 1,395,000 Mirage Resorts, Inc. debs. 7 1/4s, 2017 1,395,000 1,775,000 Owens Corning bonds 7 1/2s, 2018 (In default) (NON) 1,149,313 5,405,000 Owens Corning notes 7 1/2s, 2005 (In default) (NON) 3,567,300 2,940,000 Oxford Industries, Inc. sr. notes 8 7/8s, 2011 3,116,400 2,615,000 Park Place Entertainment Corp. sr. notes 7 1/2s, 2009 2,817,663 3,265,000 Park Place Entertainment Corp. sr. notes 7s, 2013 3,501,713 4,800,000 Park Place Entertainment Corp. sr. sub. notes 8 7/8s, 2008 5,262,000 6,500,000 Penn National Gaming, Inc. sr. sub. notes 8 7/8s, 2010 6,890,000 1,440,000 Penn National Gaming, Inc. 144A sr. sub. notes 6 3/4s, 2015 1,418,400 1,755,000 Pinnacle Entertainment, Inc. sr. sub. notes 8 3/4s, 2013 1,816,425 5,145,000 Pinnacle Entertainment, Inc. sr. sub. notes 8 1/4s, 2012 5,145,000 9,265,000 PRIMEDIA, Inc. sr. notes 8s, 2013 9,450,300 885,000 R.H. Donnelley, Inc. company guaranty 8 7/8s, 2010 964,650 2,775,000 R.H. Donnelley Corp. 144A sr. notes 6 7/8s, 2013 2,747,250 2,080,000 R.H. Donnelley Finance Corp. I 144A company guaranty 8 7/8s, 2010 2,267,200 2,985,000 R.H. Donnelley Finance Corp. I 144A sr. sub. notes 10 7/8s, 2012 3,440,213 EUR 2,450,000 Ray Acquisition sr. notes 9 3/8s, 2015 (France) 2,968,870 $2,795,000 Reader's Digest Association, Inc. (The) sr. notes 6 1/2s, 2011 2,788,013 3,705,000 Resorts International Hotel and Casino, Inc. company guaranty 11 1/2s, 2009 4,219,069 4,460,000 Russell Corp. company guaranty 9 1/4s, 2010 4,738,750 7,501,000 Saks, Inc. company guaranty 7s, 2013 6,788,405 8,590,000 Samsonite Corp. sr. sub. notes 8 7/8s, 2011 8,998,025 2,340,000 Schuler Homes, Inc. company guaranty 10 1/2s, 2011 2,587,972 4,989,000 Scientific Games Corp. 144A sr. sub. notes 6 1/4s, 2012 4,964,055 5,165,000 Sealy Mattress Co. sr. sub. notes 8 1/4s, 2014 5,384,513 3,035,000 Standard Pacific Corp. sr. notes 7 3/4s, 2013 3,163,988 4,880,000 Starwood Hotels & Resorts Worldwide, Inc. company guaranty 7 7/8s, 2012 5,331,400 2,410,000 Starwood Hotels & Resorts Worldwide, Inc. company guaranty 7 3/8s, 2007 2,488,325 3,920,000 Starwood Hotels & Resorts Worldwide, Inc. debs. 7 3/8s, 2015 4,214,000 1,000 Starwood Hotels & Resorts Worldwide, Inc. notes 6 3/4s, 2005 1,008 3,250,000 Station Casinos, Inc. sr. notes 6s, 2012 3,225,625 3,910,000 Station Casinos, Inc. sr. sub. notes 6 7/8s, 2016 3,914,888 2,410,000 Technical Olympic USA, Inc. company guaranty 10 3/8s, 2012 2,638,950 1,510,000 Technical Olympic USA, Inc. company guaranty 9s, 2010 1,562,850 2,730,000 Technical Olympic USA, Inc. sr. sub. notes 7 1/2s, 2015 2,525,250 EUR 820,000 Teksid Aluminum 144A company guaranty 11 3/8s, 2011 (Luxembourg) 927,063 $9,990,000 Tenneco Automotive, Inc. sec. notes Ser. B, 10 1/4s, 2013 11,138,850 3,370,000 Tenneco Automotive, Inc. 144A sr. sub. notes 8 5/8s, 2014 3,277,325 4,655,000 THL Buildco, Inc. (Nortek Holdings, Inc.) sr. sub. notes 8 1/2s, 2014 4,492,075 2,945,000 Toys R Us, Inc. notes 7 5/8s, 2011 2,768,300 4,100,000 United Auto Group, Inc. company guaranty 9 5/8s, 2012 4,325,500 4,945,000 Vertis, Inc. company guaranty Ser. B, 10 7/8s, 2009 4,722,475 5,055,000 Vertis, Inc. 144A sub. notes 13 1/2s, 2009 4,119,825 1,490,000 WCI Communities, Inc. company guaranty 10 5/8s, 2011 1,603,613 4,965,000 WCI Communities, Inc. company guaranty 9 1/8s, 2012 5,300,138 3,023,000 William Carter Holdings Co. (The) company guaranty Ser. B, 10 7/8s, 2011 3,363,088 4,185,000 WRC Media Corp. sr. sub. notes 12 3/4s, 2009 3,855,431 4,605,000 Wynn Las Vegas, LLC/Wynn Las Vegas Capital Corp. 144A 1st mtge. 6 5/8s, 2014 4,374,750 -------------- 391,480,160 Consumer Staples (4.6%) ------------------------------------------------------------------------------- 4,155,000 Affinity Group, Inc. sr. sub. notes 9s, 2012 4,362,750 3,515,000 Affinity Group, Inc. 144A sr. notes 10 7/8s, 2012 3,409,550 2,425,000 AMC Entertainment, Inc. sr. sub. notes 9 7/8s, 2012 2,558,375 8,664,000 AMC Entertainment, Inc. sr. sub. notes 8s, 2014 8,274,120 762,800 Archibald Candy Corp. company guaranty 10s, 2007 (In default) (NON) (PIK) (F) 162,476 4,700,000 Brand Services, Inc. company guaranty 12s, 2012 5,217,000 3,350,000 Cablevision Systems Corp. 144A sr. notes 8s, 2012 3,442,125 3,070,000 Charter Communications Holdings, LLC/Capital Corp. sr. disc. notes stepped-coupon zero % (12 1/8s, 1/15/07), 2012 (STP) 1,918,750 3,435,000 Charter Communications Holdings, LLC/Capital Corp. sr. disc. notes stepped-coupon zero % (11 3/4s, 5/15/06), 2011 (STP) 2,370,150 2,875,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes 11 1/8s, 2011 2,321,563 6,603,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes 10 3/4s, 2009 5,414,460 11,980,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes 10s, 2011 9,164,700 3,512,000 Church & Dwight Co., Inc. 144A sr. sub. notes 6s, 2012 3,424,200 1,450,000 Cinemark USA, Inc. sr. sub. notes 9s, 2013 1,573,250 7,620,000 Cinemark, Inc. sr. disc. notes stepped-coupon zero % (9 3/4s, 3/15/07), 2014 (STP) 5,410,200 6,080,000 Constellation Brands, Inc. company guaranty Ser. B, 8s, 2008 6,460,000 2,520,000 Constellation Brands, Inc. sr. sub. notes Ser. B, 8 1/8s, 2012 2,683,800 5,994,000 CSC Holdings, Inc. debs. 7 5/8s, 2018 6,233,760 5,005,000 CSC Holdings, Inc. 144A sr. notes 6 3/4s, 2012 4,967,463 6,920,000 Dean Foods Co. sr. notes 6 5/8s, 2009 7,041,100 3,605,000 Del Monte Corp. sr. sub. notes 8 5/8s, 2012 3,902,413 2,780,000 Del Monte Corp. 144A sr. sub. notes 6 3/4s, 2015 2,710,500 11,641,000 Diva Systems Corp. sr. disc. notes Ser. B, 12 5/8s,2008 (In default) (NON) 58,205 5,730,000 Doane Pet Care Co. sr. sub. debs. 9 3/4s, 2007 5,615,400 1,000,000 Echostar DBS Corp. FRN 5.81s, 2008 1,023,750 5,315,000 Echostar DBS Corp. sr. notes 6 3/8s, 2011 5,208,700 17,310,000 Echostar DBS Corp. 144A company guaranty 6 5/8s, 2014 16,725,788 2,475,000 Elizabeth Arden, Inc. company guaranty 7 3/4s, 2014 2,549,250 7,390,000 Granite Broadcasting Corp. sec. notes 9 3/4s, 2010 6,872,700 5,605,000 Intelsat Bermuda, Ltd. 144A sr. notes 8 5/8s, 2015 (Bermuda) 5,717,100 2,660,000 Intelsat Bermuda, Ltd. 144A sr. notes 8 1/4s, 2013 (Bermuda) 2,686,600 2,045,000 Interpublic Group Companies, Inc. notes 6 1/4s, 2014 1,932,525 2,620,000 Jean Coutu Group, Inc. sr. notes 7 5/8s, 2012 (Canada) 2,672,400 3,150,000 Jean Coutu Group, Inc. sr. sub. notes 8 1/2s, 2014 (Canada) 3,059,438 5,695,000 Kabel Deutsheland GmbH 144A sr. notes 10 5/8s, 2014 (Germany) 6,292,975 2,500,000 Paxson Communications Corp. company guaranty 10 3/4s, 2008 2,475,000 6,600,000 Pinnacle Foods Holding Corp. sr. sub. notes 8 1/4s, 2013 5,643,000 5,970,000 Playtex Products, Inc. company guaranty 9 3/8s, 2011 6,208,800 5,850,000 Playtex Products, Inc. sec. notes 8s, 2011 6,303,375 3,465,000 Prestige Brands, Inc. sr. sub. notes 9 1/4s, 2012 3,655,575 5,300,000 Rainbow National Services, LLC 144A sr. notes 8 3/4s, 2012 5,697,500 5,810,000 Remington Arms Co., Inc. company guaranty 10 1/2s, 2011 5,722,850 3,685,000 Rite Aid Corp. company guaranty 9 1/2s, 2011 3,906,100 255,000 Rite Aid Corp. debs. 6 7/8s, 2013 237,150 1,080,000 Rite Aid Corp. notes 7 1/8s, 2007 1,080,000 3,510,000 Rite Aid Corp. sr. notes 9 1/4s, 2013 3,492,450 2,735,000 Rite Aid Corp. 144A sec. notes 7 1/2s, 2015 2,625,600 5,225,000 Sbarro, Inc. company guaranty 11s, 2009 5,042,125 1,760,000 Scotts Co. (The) sr. sub. notes 6 5/8s, 2013 1,777,600 4,830,000 Six Flags, Inc. sr. notes 9 5/8s, 2014 4,455,675 EUR 1,705,000 United Biscuits Finance company guaranty 10 5/8s, 2011 (United Kingdom) 2,309,813 $6,835,000 United Rentals (North America), Inc. company guaranty 6 1/2s, 2012 6,647,038 1,900,000 Universal City Florida Holding Co. 144A sr. notes 8 3/8s, 2010 1,938,000 2,695,000 Universal City Florida Holding Co. 144A sr. notes FRN 7.493s, 2010 2,789,325 3,474,000 Young Broadcasting, Inc. company guaranty 10s, 2011 3,552,165 2,745,000 Young Broadcasting, Inc. sr. sub. notes 8 3/4s, 2014 2,600,888 -------------- 231,597,565 Energy (3.8%) ------------------------------------------------------------------------------- 6,435,000 Amerada Hess Corp. unsub notes 6.65s, 2011 6,891,261 9,515,000 Arch Western Finance, LLC sr. notes 6 3/4s, 2013 9,562,575 3,265,000 Bluewater Finance, Ltd. company guaranty 10 1/4s, 2012 (Cayman Islands) 3,542,525 4,045,000 CHC Helicopter Corp. sr. sub. notes 7 3/8s, 2014 (Canada) 3,938,819 2,465,000 CHC Helicopter Corp. 144A sr. sub. notes 7 3/8s, 2014 (Canada) 2,400,294 2,160,000 Chesapeake Energy Corp. company guaranty 9s, 2012 2,386,800 1,852,000 Chesapeake Energy Corp. company guaranty 7 3/4s, 2015 1,958,490 5,575,000 Chesapeake Energy Corp. sr. notes 7 1/2s, 2013 5,881,625 2,100,000 Chesapeake Energy Corp. sr. notes 7s, 2014 2,163,000 3,895,000 Comstock Resources, Inc. sr. notes 6 7/8s, 2012 3,875,525 5,260,000 Dresser, Inc. company guaranty 9 3/8s, 2011 5,582,175 2,463,000 Dresser-Rand Group, Inc. 144A sr. sub. notes 7 3/8s, 2014 2,463,000 3,455,000 Encore Acquisition Co. company guaranty 8 3/8s, 2012 3,731,400 1,975,000 Encore Acquisition Co. sr. sub. notes 6 1/4s, 2014 1,975,000 5,425,000 Exco Resources, Inc. company guaranty 7 1/4s, 2011 5,506,375 2,740,000 Forest Oil Corp. company guaranty 7 3/4s, 2014 2,931,800 3,730,000 Forest Oil Corp. sr. notes 8s, 2011 4,103,000 1,065,000 Forest Oil Corp. sr. notes 8s, 2008 1,139,550 2,865,000 Hanover Compressor Co. sr. notes 9s, 2014 3,065,550 1,853,000 Hanover Compressor Co. sr. notes 8 5/8s, 2010 1,936,385 4,005,000 Hanover Compressor Co. sub. notes zero %, 2007 3,524,400 1,305,000 Hanover Equipment Trust sec. notes Ser. B, 8 3/4s, 2011 1,376,775 4,610,000 Harvest Operations Corp. sr. notes 7 7/8s, 2011 (Canada) 4,552,375 4,355,000 Hornbeck Offshore Services, Inc. sr. notes Ser. B, 6 1/8s, 2014 4,289,675 5,175,000 Inergy LP/Inergy Finance Corp. 144A sr. notes 6 7/8s, 2014 4,968,000 3,225,000 Key Energy Services, Inc. sr. notes 6 3/8s, 2013 3,128,250 5,565,000 Massey Energy Co. sr. notes 6 5/8s, 2010 5,592,825 3,940,000 Newfield Exploration Co. sr. notes 7 5/8s, 2011 4,294,600 2,650,000 Newfield Exploration Co. sr. sub. notes 6 5/8s, 2014 2,683,125 5,040,000 Offshore Logistics, Inc. company guaranty 6 1/8s, 2013 4,788,000 3,823,673 Oslo Seismic Services, Inc. 1st mtge. 8.28s, 2011 4,036,846 2,625,000 Pacific Energy Partners/Pacific Energy Finance Corp. sr. notes 7 1/8s, 2014 2,716,875 1,627,000 Parker Drilling Co. company guaranty Ser. B, 10 1/8s, 2009 1,708,350 5,820,000 Peabody Energy Corp. sr. notes 5 7/8s, 2016 5,616,300 4,295,000 Pemex Project Funding Master Trust company guaranty 8 5/8s, 2022 4,853,350 9,260,000 Pemex Project Funding Master Trust 144A company guaranty 9 1/2s, 2027 11,181,450 4,290,000 Petroleum Geo-Services notes 10s, 2010 (Norway) 4,815,525 5,435,000 Petronas Capital, Ltd. company guaranty 7 7/8s, 2022 (Malaysia) 6,508,413 3,505,000 Plains Exploration & Production Co. sr. notes 7 1/8s, 2014 3,662,725 4,525,000 Plains Exploration & Production Co. sr. sub. notes 8 3/4s, 2012 4,932,250 4,365,000 Pogo Producing Co. sr. sub. notes Ser. B, 8 1/4s, 2011 4,648,725 6,145,000 Pride International, Inc. sr. notes 7 3/8s, 2014 6,513,700 4,065,000 Seabulk International, Inc. company guaranty 9 1/2s, 2013 4,674,750 4,320,000 Star Gas Partners LP/Star Gas Finance Co. sr. notes 10 1/4s, 2013 3,996,000 2,730,000 Stone Energy Corp. sr. sub. notes 6 3/4s, 2014 2,648,100 2,175,000 Tengizchevroll Finance Co. 144A sec. notes 6.124s, 2014 (Kazakhstan) 2,153,250 1,240,000 Vintage Petroleum, Inc. sr. notes 8 1/4s, 2012 1,326,800 935,000 Vintage Petroleum, Inc. sr. sub. notes 7 7/8s, 2011 981,750 -------------- 191,208,333 Financial (1.0%) ------------------------------------------------------------------------------- 11,440,000 Bosphorus Financial Services Ltd. 144A sec. FRN 4.83s, 2012 (Cayman Islands) 11,435,470 2,440,000 Crescent Real Estate Equities LP notes 7 1/2s, 2007 (R) 2,519,300 2,787,000 Crescent Real Estate Equities LP sr. notes 9 1/4s, 2009 (R) 3,030,863 4,845,000 E*Trade Finance Corp. sr. notes 8s, 2011 4,990,350 6,874,560 Finova Group, Inc. notes 7 1/2s, 2009 2,973,247 10,000,000 Liberty Mutual Insurance 144A notes 7.697s, 2097 10,659,370 9,265,000 VTB Bank (VTB Capital) 144A notes 7 1/2s, 2011 (Luxembourg) 9,519,788 3,360,000 Western Financial Bank sub. debs. 9 5/8s, 2012 3,654,000 -------------- 48,782,388 Health Care (2.8%) ------------------------------------------------------------------------------- 2,026,000 Alderwoods Group, Inc. 144A sr. notes 7 3/4s, 2012 (Canada) 2,071,585 3,785,000 AmerisourceBergen Corp. company guaranty 7 1/4s, 2012 4,012,100 3,190,000 AmerisourceBergen Corp. sr. notes 8 1/8s, 2008 3,421,275 6,750,000 Ardent Health Services, Inc. sr. sub. notes 10s, 2013 7,998,750 2,720,000 Community Health Systems, Inc. 144A sr. sub. notes 6 1/2s, 2012 2,652,000 2,760,000 Coventry Health Care, Inc. 144A sr. notes 5 7/8s, 2012 2,746,200 1,230,000 DaVita, Inc. 144A sr. notes 6 5/8s, 2013 1,217,700 2,460,000 DaVita, Inc. 144A sr. sub. notes 7 1/4s, 2015 2,410,800 2,684,000 Elan Finance PLC/Elan Finance Corp. 144A sr. notes 7 3/4s, 2011 (Ireland) 2,006,290 1,905,000 Extendicare Health Services, Inc. company guaranty 9 1/2s, 2010 2,083,594 3,820,000 Extendicare Health Services, Inc. sr. sub. notes 6 7/8s, 2014 3,772,250 1,135,000 HCA, Inc. debs. 7.19s, 2015 1,176,990 5,400,000 HCA, Inc. med. term notes 8.85s, 2007 5,734,670 1,930,000 HCA, Inc. notes 8.36s, 2024 2,114,134 2,030,000 HCA, Inc. notes 7.69s, 2025 2,087,429 4,458,000 HCA, Inc. notes 7s, 2007 4,619,808 2,185,000 HCA, Inc. notes 6 3/8s, 2015 2,168,923 4,639,000 HCA, Inc. notes 6 1/4s, 2013 4,602,844 1,985,000 HCA, Inc. notes 5 3/4s, 2014 1,894,690 4,030,000 Healthsouth Corp. notes 7 5/8s, 2012 3,909,100 3,090,000 Healthsouth Corp. sr. notes 8 1/2s, 2008 3,074,550 1,570,000 Healthsouth Corp. sr. notes 8 3/8s, 2011 1,566,075 1,315,000 Healthsouth Corp. sr. notes 7s, 2008 1,278,838 3,295,000 MedQuest, Inc. company guaranty Ser. B, 11 7/8s, 2012 3,262,050 5,150,000 MQ Associates, Inc. sr. disc. notes stepped-coupon zero % (12 1/4s, 8/15/08), 2012 (STP) 2,935,500 4,560,000 Omnicare, Inc. sr. sub. notes 6 1/8s, 2013 4,446,000 5,183,000 PacifiCare Health Systems, Inc. company guaranty 10 3/4s, 2009 5,714,258 1,920,000 Service Corp. International debs. 7 7/8s, 2013 1,977,600 485,000 Service Corp. International notes 7.2s, 2006 492,275 2,155,000 Service Corp. International notes 6 7/8s, 2007 2,181,938 725,000 Service Corp. International notes 6 1/2s, 2008 726,813 1,725,000 Service Corp. International notes Ser. (a), 7.7s, 2009 1,776,750 5,950,000 Service Corp. International 144A sr. notes 6 3/4s, 2016 5,712,000 3,922,000 Stewart Enterprises, Inc. 144A sr. notes 6 1/4s, 2013 3,804,340 2,680,000 Tenet Healthcare Corp. notes 7 3/8s, 2013 2,525,900 8,505,000 Tenet Healthcare Corp. sr. notes 9 7/8s, 2014 8,845,200 2,345,000 Tenet Healthcare Corp. sr. notes 6 1/2s, 2012 2,157,400 5,810,000 Triad Hospitals, Inc. sr. notes 7s, 2012 5,868,100 4,020,000 Triad Hospitals, Inc. sr. sub. notes 7s, 2013 3,949,650 3,685,000 Universal Hospital Services, Inc. sr. notes 10 1/8s, 2011 (Canada) 3,777,125 3,170,000 US Oncology, Inc. 144A sr. notes 9s, 2012 3,344,350 3,315,000 Vanguard Health Holding Co. II, LLC sr. sub. notes 9s, 2014 3,489,038 2,840,000 Ventas Realty LP/Capital Corp. company guaranty 9s, 2012 (R) 3,223,400 1,350,000 Ventas Realty LP/Capital Corp. sr. notes 6 5/8s, 2014 (R) 1,339,875 -------------- 140,170,157 Technology (1.4%) ------------------------------------------------------------------------------- 5,835,000 Advanced Micro Devices, Inc. 144A sr. notes 7 3/4s, 2012 5,732,888 3,690,000 AMI Semiconductor, Inc. company guaranty 10 3/4s, 2013 4,400,325 10,995,000 Celestica, Inc. sr.sub. notes 7 7/8s, 2011 (Canada) 11,132,438 10,955,000 Freescale Semiconductor, Inc. sr. notes Ser. B, 7 1/8s, 2014 11,447,975 6,480,000 Iron Mountain, Inc. company guaranty 8 5/8s, 2013 6,544,800 2,000,000 Iron Mountain, Inc. company guaranty 6 5/8s, 2016 1,825,000 400,000 Lucent Technologies, Inc. debs. 6 1/2s, 2028 343,000 7,080,000 Lucent Technologies, Inc. debs. 6.45s, 2029 6,106,500 2,505,000 SCG Holding Corp. 144A notes zero %, 2011 3,757,500 3,545,000 UGS Corp. 144A sr. sub. notes 10s, 2012 3,917,225 2,620,000 Xerox Corp. notes Ser. MTN, 7.2s, 2016 2,698,600 EUR 1,230,000 Xerox Corp. sr. notes 9 3/4s, 2009 1,904,476 $8,640,000 Xerox Corp. sr. notes 7 5/8s, 2013 9,028,800 -------------- 68,839,527 Transportation (0.5%) ------------------------------------------------------------------------------- 3,485,000 American Airlines, Inc. pass-through certificates Ser. 01-1, 6.817s, 2011 3,223,625 5,235,000 Calair, LLC/Calair Capital Corp. company guaranty 8 1/8s, 2008 4,135,650 5,870,000 Kansas City Southern Railway Co. company guaranty 9 1/2s, 2008 6,398,300 1,190,000 Kansas City Southern Railway Co. company guaranty 7 1/2s, 2009 1,213,800 5,700,000 Navistar International Corp. sr. notes 7 1/2s, 2011 5,742,750 2,400,000 Navistar International Corp. 144A sr. notes 6 1/4s, 2012 2,280,000 1,646,769 NWA Trust sr. notes Ser. A, 9 1/4s, 2012 1,692,055 930,000 Travelcenters of America, Inc. company guaranty 12 3/4s, 2009 1,027,650 -------------- 25,713,830 Utilities & Power (3.6%) ------------------------------------------------------------------------------- 361,000 AES Corp. (The) sr. notes 8 7/8s, 2011 389,880 196,000 AES Corp. (The) sr. notes 8 3/4s, 2008 206,780 4,036,000 AES Corp. (The) 144A sec. notes 9s, 2015 4,439,600 3,250,000 AES Corp. (The) 144A sec. notes 8 3/4s, 2013 3,526,250 3,225,000 Allegheny Energy Supply 144A bonds 8 1/4s, 2012 3,418,500 2,195,000 Allegheny Energy Supply 144A sec. notes 10 1/4s, 2007 2,425,475 1,572,000 ANR Pipeline Co. debs. 9 5/8s, 2021 1,952,135 3,580,000 CMS Energy Corp. sr. notes 8.9s, 2008 3,844,025 1,225,000 CMS Energy Corp. sr. notes 7 3/4s, 2010 1,277,063 1,249,000 Colorado Interstate Gas Co. 144A sr. notes 5.95s, 2015 1,258,368 4,275,000 DPL, Inc. sr. notes 6 7/8s, 2011 4,542,055 10,305,000 Dynegy Holdings, Inc. 144A sec. notes 10 1/8s, 2013 11,232,450 2,720,000 Dynegy-Roseton Danskamme company guaranty Ser. A, 7.27s, 2010 2,658,800 4,185,000 Dynegy-Roseton Danskamme company guaranty Ser. B, 7.67s, 2016 3,776,963 1,605,000 Edison Mission Energy sr. notes 10s, 2008 1,783,556 100,000 Edison Mission Energy sr. notes 9 7/8s, 2011 115,500 4,310,000 El Paso Corp. sr. notes 8.05s, 2030 4,116,050 2,680,000 El Paso Corp. sr. notes 7 3/8s, 2012 2,592,900 2,995,000 El Paso Corp. sr. notes Ser. MTN, 7.8s, 2031 2,815,300 1,315,000 El Paso Natural Gas Co. debs. 8 5/8s, 2022 1,493,355 9,075,000 El Paso Production Holding Co. company guaranty 7 3/4s, 2013 9,188,438 4,660,000 Ferrellgas Partners LP/Ferrellgas Partners Finance sr. notes 6 3/4s, 2014 4,543,500 6,730,000 FirstEnergy Corp. notes Ser. B, 6.45s, 2011 7,100,453 10,475,000 Midwest Generation, LLC sec. sr. notes 8 3/4s, 2034 11,679,625 4,402,000 Mission Energy Holding Co. sec. notes 13 1/2s, 2008 5,282,400 2,885,000 Monongahela Power Co. 1st mtge. 6.7s, 2014 3,166,288 4,495,000 Nevada Power Co. 2nd mtge. 9s, 2013 5,045,638 1,885,000 Nevada Power Co. 144A general ref. mtge. 5 7/8s, 2015 1,837,875 3,381,000 Northwest Pipeline Corp. company guaranty 8 1/8s, 2010 3,617,670 2,525,000 Northwestern Corp. 144A sr. sec. notes 5 7/8s, 2014 2,511,923 12,502,000 NRG Energy, Inc. 144A sr. sec. notes 8s, 2013 13,220,865 5,195,000 Orion Power Holdings, Inc. sr. notes 12s, 2010 6,311,925 3,895,000 PSEG Energy Holdings, Inc. notes 7 3/4s, 2007 4,002,113 3,346,000 SEMCO Energy, Inc. sr. notes 7 3/4s, 2013 3,456,983 1,075,000 Sierra Pacific Power Co. general ref. mtge. 6 1/4s, 2012 1,091,125 5,095,000 Sierra Pacific Resources sr. notes 8 5/8s, 2014 5,426,175 490,000 Southern California Edison Co. notes 6 3/8s, 2006 499,116 2,000,000 Teco Energy, Inc. notes 10 1/2s, 2007 2,245,000 1,165,000 Teco Energy, Inc. notes 7.2s, 2011 1,227,619 3,215,000 Teco Energy, Inc. notes 7s, 2012 3,355,656 520,000 Tennessee Gas Pipeline Co. debs. 7s, 2028 510,236 2,755,000 Tennessee Gas Pipeline Co. unsecd. notes 7 1/2s, 2017 2,959,118 4,890,000 Texas Genco LLC/Texas Genco Financing Corp. 144A sr. notes 6 7/8s, 2014 4,902,225 745,000 Transcontinental Gas Pipeline Corp. debs. 7 1/4s, 2026 785,975 4,309,000 Utilicorp Canada Finance Corp. company guaranty 7 3/4s, 2011 (Canada) 4,438,270 2,715,000 Utilicorp United, Inc. sr. notes 9.95s, 2011 3,040,800 EUR 3,125,000 Veolia Environnement sr. unsub. Ser. EMTN, 5 3/8s, 2018 (France) 4,417,041 $3,790,000 Williams Cos., Inc. (The) notes 8 3/4s, 2032 4,500,625 3,475,000 Williams Cos., Inc. (The) notes 7 5/8s, 2019 3,761,688 1,475,235 York Power Funding 144A notes 12s, 2007 (Cayman Islands) (In default) (NON) (F) 15 -------------- 181,991,385 -------------- Total Corporate bonds and notes (cost $1,662,662,553) $1,684,722,376 U.S. government agency mortgage obligations (16.7%) (a) Principal amount Value ------------------------------------------------------------------------------- Federal Home Loan Mortgage Corporation Pass-Through Certificates $49,726,612 6 1/2s, with due dates from December 1, 2023 to October 1, 2034 $51,642,955 29,300,000 6 1/2s, TBA, April 1, 2035 30,391,882 Federal National Mortgage Association Pass-Through Certificates 4,187 8s, April 1, 2027 4,537 130,751 7s, with due dates from July 1, 2031 to April 1, 2034 138,109 197,438,046 6 1/2s, with due dates from December 1, 2023 to March 1, 2035 205,140,011 88,030 6 1/2s, with due dates from February 1, 2010 to November 1, 2017 91,666 5,000,000 6 1/2s, TBA, April 1, 2035 5,188,281 188,500,000 5 1/2s, TBA, April 1, 2035 188,779,809 170,717 5s, with due dates from January 1, 2019 to January 1, 2020 170,771 21,800,000 5s, TBA, June 1, 2035 21,212,422 21,800,000 5s, TBA, May 1, 2035 21,261,813 22,300,000 5s, TBA, April 1, 2035 21,808,704 25,340,000 5s, TBA, April 1, 2020 25,310,304 14,966,715 4 1/2s, with due dates from August 1, 2033 to June 1, 2034 14,241,742 249,900,000 4 1/2s, TBA, April 1, 2020 244,335,827 878,697 4s, May 1, 2019 842,279 -------------- Total U.S. government agency mortgage obligations (cost $832,018,651) $830,561,112 U.S. government agency obligations (0.2%) (a) (cost $10,000,000) Principal amount Value ------------------------------------------------------------------------------- $10,000,000 Fannie Mae Notes 1.8s, May 27, 2005 $9,981,250 U.S. Treasury obligations (12.8%) (a) Principal amount Value ------------------------------------------------------------------------------- U.S. Treasury Bonds $37,950,000 7 1/2s, November 15, 2016 $47,597,603 225,772,000 6 1/4s, May 15, 2030 271,455,564 77,090,000 6 1/4s, August 15, 2023 89,797,809 U.S. Treasury Notes 49,000 4 3/8s, May 15, 2007 49,547 1,500,000 4 1/4s, August 15, 2014 1,471,641 74,905,000 4 1/4s, August 15, 2013 73,886,756 22,000,000 3 5/8s, May 15, 2013 20,886,250 100,342,000 3 1/4s, August 15, 2008 97,927,521 98,235,000 U.S. Treasury Strip zero %, November 15, 2024 37,051,098 -------------- Total U.S. Treasury obligations (cost $622,872,628) $640,123,789 Foreign government bonds and notes (12.6%) (a) Principal amount Value ------------------------------------------------------------------------------- $32,400,000 Brazil (Federal Republic of) bonds 10 1/2s, 2014 $35,721,000 12,715,000 Brazil (Federal Republic of) bonds 8 7/8s, 2019 12,371,695 6,710,000 Brazil (Federal Republic of) notes 8 3/4s, 2025 6,273,850 7,073,000 Bulgaria (Republic of) 144A bonds 8 1/4s, 2015 8,657,352 CAD 9,650,000 Canada (Government of) bonds 5 1/2s, 2010 8,573,789 CAD 8,915,000 Canada (Government of) bonds Ser. WB60, 7 1/4s, 2007 7,977,510 CAD 1,550,000 Canada (Government of) bonds Ser. WL43, 5 3/4s, 2029 1,464,273 $4,490,000 China Development Bank notes 4 3/4s, 2014 (China) 4,324,912 2,650,000 Colombia (Republic of) bonds 10 3/8s, 2033 2,795,750 8,450,000 Colombia (Republic of) notes 10 3/4s, 2013 9,442,875 6,965,000 Colombia (Republic of) unsub. 9 3/4s, 2009 7,602,298 5,775,000 Ecuador (Republic of) bonds stepped-coupon Ser. REGS, 8s (9s, 8/15/05), 2030 (STP) 5,183,063 EUR 17,480,000 France (Government of) bonds 5 3/4s, 2032 28,802,950 EUR 22,675,000 France (Government of) bonds 5 1/2s, 2010 32,987,369 EUR 47,000,000 France (Government of) bonds 4s, 2013 63,397,407 EUR 6,430,000 France (Government of) debs. 4s, 2009 8,715,084 EUR 9,780,000 Germany (Federal Republic of) bonds 5s, 2012 13,999,085 EUR 45,510,000 Germany (Federal Republic of) bonds Ser. 97, 6s, 2007 63,516,623 EUR 29,920,000 Germany (Federal Republic of) bonds Ser. 97, 6s, 2007 41,213,902 EUR 8,050,000 Greece (Hellenic Republic of) bonds 3 1/2s, 2008 10,675,425 $1,300,000 Indonesia (Republic of) FRN 2.795s, 2006 1,285,375 2,555,000 Indonesia (Republic of) 144A sr. notes 6 3/4s, 2014 2,529,450 2,995,000 Peru (Republic of) bonds 8 3/4s, 2033 3,114,800 3,265,000 Peru (Republic of) bonds 8 3/8s, 2016 3,420,088 5,055,000 Philippines (Republic of) bonds 9 1/2s, 2024 5,396,213 5,025,000 Philippines (Republic of) bonds 8 3/8s, 2011 5,057,663 JPY580,000,000 Philippines (Republic of) 144A sr. sub. notes 3.2s, 2005 5,445,296 $15,000 Russia (Federation of) bonds 12 3/4s, 2028 24,488 33,065,000 Russia (Federation of) unsub. stepped-coupon 5s (7 1/2s, 3/31/07), 2030 (STP) 33,941,223 21,131,875 Russia (Federation of) 144A unsub. stepped-coupon 5s (7 1/2s, 3/31/07), 2030 (STP) 21,691,870 7,605,000 Russia (Ministry of Finance) debs. Ser. V, 3s, 2008 6,996,600 5,460,000 South Africa (Republic of) notes 7 3/8s, 2012 6,006,000 6,785,000 South Africa (Republic of) notes 6 1/2s, 2014 7,090,325 SEK226,060,000 Sweden (Government of) bonds Ser. 3101, 4s, 2008 39,730,337 SEK215,045,000 Sweden (Government of) debs. Ser. 1041, 6 3/4s, 2014 37,788,328 $26,710,000 United Mexican States bonds Ser. MTN, 8.3s, 2031 30,582,950 24,960,000 United Mexican States notes 6 5/8s, 2015 (S) 25,958,400 3,320,000 Venezuela (Republic of) bonds 9 3/8s, 2034 3,286,800 1,395,000 Venezuela (Republic of) notes 10 3/4s, 2013 1,551,938 5,905,000 Venezuela (Republic of) notes 8 1/2s, 2014 5,816,425 6,315,000 Venezuela (Republic of) unsub. bonds 5 3/8s, 2010 5,620,350 -------------- Total Foreign government bonds and notes (cost $570,158,625) $626,031,131 Asset-backed securities (11.1%) (a) Principal amount Value ------------------------------------------------------------------------------- $77,221 Aames Mortgage Trust 144A Ser. 03-1N, Class A, 7 1/2s, 2033 $77,146 1,447,459 ABSC NIMS Trust 144A Ser. 03-HE5, Class A, 7s, 2033 1,451,078 Aegis Asset Backed Securities Trust 144A 446,293 Ser. 04-1N, Class Note, 5s, 2034 446,293 1,303,019 Ser. 04-2N, Class N1, 4 1/2s, 2034 1,299,965 1,013,632 Ser. 04-4N, Class Note, 5s, 2034 1,014,265 1,770,000 Ameriquest Finance NIM Trust 144A Ser. 04-RN9, Class N2, 10s, 2034 (Cayman Islands) 1,639,551 210,591 AQ Finance NIM Trust 144A Ser. 03-N9A, Class Note, 7.385s, 2033 (Cayman Islands) 211,117 Arcap REIT, Inc. 144A 2,906,000 Ser. 03-1A, Class E, 7.11s, 2038 3,013,159 1,768,000 Ser. 04-1A, Class E, 6.42s, 2039 1,757,779 247,356 Argent NIM Trust 144A Ser. 04-WN2, Class A, 4.55s, 2034 (Cayman Islands) 247,433 Asset Backed Funding Corp. NIM Trust 144A 1,266,000 Ser. 04-0PT1, Class N2, 6.9s, 2033 (Cayman Islands) 1,265,994 1,106,076 Ser. 04-0PT5, Class N1, 4.45s, 2034 (Cayman Islands) 1,106,076 467,203 Ser. 04-AHL1, Class Note, 5.6s, 2033 467,186 1,550,833 Ser. 04-FF1, Class N1, 5s, 2034 (Cayman Islands) 1,545,733 118,000 Ser. 04-FF1, Class N2, 5s, 2034 (Cayman Islands) 108,759 1,909,000 Ser. 04-HE1, Class N2, 8s, 2034 1,854,811 2,253,099 Aviation Capital Group Trust 144A FRB Ser. 03-2A, Class G1, 3.55s, 2033 2,256,443 31,026,583 Bank of America Alternative Loan Trust Ser. 03-11, Class 15, Interest Only (IO), 0.351s, 2019 397,528 3,310,000 Bank One Issuance Trust FRB Ser. 03-C4, Class C4, 3.84s, 2011 3,382,406 1,745,455 Bayview Financial Acquisition Trust Ser. 03-F, Class A, IO, 4s, 2006 42,476 108,011,159 Bayview Financial Asset Trust Ser. 03-X, Class A, IO, 0.9s, 2006 1,890,195 38,113,191 Bayview Financial Asset Trust 144A Ser. 03-Z, Class AIO1, IO, 0.48s, 2005 83,470 Bear Stearns Asset Backed Securities NIM Trust 144A 90,203 Ser. 04-FR1, Class A1, 5s, 2034 (Cayman Islands) 90,203 1,556,354 Ser. 04-HE10, Class A1, 4 1/4s, 2034 (Cayman Islands) 1,552,463 1,200,002 Ser. 04-HE5N, Class A1, 5s, 2034 (Cayman Islands) 1,200,002 617,000 Ser. 04-HE5N, Class A2, 5s, 2034 (Cayman Islands) 617,000 764,710 Ser. 04-HE6, Class A1, 5 1/4s, 2034 765,905 1,629,632 Ser. 04-HE7N, Class A1, 5 1/4s, 2034 1,632,688 1,703,000 Bear Stearns Asset Backed Securities, Inc. Ser. 04-FR3, Class M6, 6.1s, 2034 1,720,030 Bombardier Capital Mortgage Securitization Corp. 1,213,193 Ser. 00-A, Class A2, 7.575s, 2030 888,755 4,526,522 Ser. 00-A, Class A4, 8.29s, 2030 3,734,381 8,765,530 Ser. 99-B, Class A3, 7.18s, 2015 6,617,975 5,917,613 Ser. 99-B, Class A4, 7.3s, 2016 4,473,810 956,760 CARSS Finance Limited Partnership 144A FRN Ser. 04-A, Class B2, 3.76s, 2011 961,091 CARSSX Finance, Ltd. 144A FRB Ser. 04-AA 1,180,438 Class B3, 6.16s, 2011 (Cayman Islands) 1,197,499 980,008 Class B4, 8.31s, 2011 (Cayman Islands) 1,008,604 3,730,000 Chase Credit Card Master Trust FRB Ser. 03-3, Class C, 3.89s, 2010 3,818,121 Chase Funding Net Interest Margin 144A 26,888 Ser. 03-4A, Class Note, 6 3/4s, 2036 26,888 65,979 Ser. 03-6A, Class Note, 5s, 2035 65,979 CHEC NIM Ltd., 144A Ser. 04-2 1,774,224 Class N1, 4.45s, 2034 (Cayman Islands) 1,774,122 687,000 Class N2, 8s, 2034 (Cayman Islands) 683,077 422,000 Class N3, 8s, 2034 (Cayman Islands) 362,920 Conseco Finance Securitizations Corp. 2,391,000 FRB Ser. 01-4, Class M1, 4.44s, 2033 980,310 1,968,390 Ser. 00-2, Class A4, 8.48s, 2030 1,966,226 12,938,581 Ser. 00-4, Class A4, 7.73s, 2031 12,578,296 1,762,000 Ser. 00-4, Class A5, 7.97s, 2032 1,490,564 26,321,000 Ser. 00-4, Class A6, 8.31s, 2032 22,731,309 722,000 Ser. 00-6, Class A5, 7.27s, 2032 674,330 3,432,909 Ser. 00-6, Class M2, 8.2s, 2032 343,291 2,000,000 Ser. 01-04, Class A4, 7.36s, 2033 2,005,274 15,259,000 Ser. 01-1, Class A5, 6.99s, 2032 14,260,449 104,000 Ser. 01-3, Class A3, 5.79s, 2033 105,752 23,474,000 Ser. 01-3, Class A4, 6.91s, 2033 22,775,367 1,900,000 Ser. 01-3, Class M2, 7.44s, 2033 313,500 3,956,777 Ser. 01-4, Class B1, 9.4s, 2033 534,165 12,555,877 Ser. 02-1, Class A, 6.681s, 2033 12,863,122 4,668,000 Consumer Credit Reference IDX Securities 144A FRB Ser. 02-1A, Class A, 5.05s, 2007 4,738,020 2,170,000 Countrywide Asset Backed Certificates Ser. 03-SC1, Class A, IO, 4 3/4s, 2005 7,459 Countrywide Asset Backed Certificates 144A 432,035 Ser. 04-1NIM, Class Note, 6s, 2034 434,947 8,283,867 Ser. 04-6N, Class N1, 6 1/4s, 2035 8,325,866 1,448,926 Ser. 04-BC1N, Class Note, 5 1/2s, 2035 1,452,096 79,875,378 Countrywide Home Loans Ser. 05-2, Class 2X, IO, 1.295s, 2035 2,670,833 116,186 Countrywide Home Loans 144A Ser. 03-R4, Class 1A, Principal Only (PO), zero %, 2034 86,413 3,427,000 Crest, Ltd. 144A Ser. 03-2A, Class E2, 8s, 2038 (Cayman Islands) 3,407,809 1,365,000 Dryden Leveraged Loan CDO 144A FRN Ser. 03-4A, Class D, 11.7s, 2015 1,409,363 13,100,002 First Chicago Lennar Trust 144A Ser. 97-CHL1, Class E, 7.751s, 2039 13,456,158 3,364,364 First Consumers Master Trust FRN Ser. 01-A, Class A, 3.12s, 2008 3,337,028 1,539,202 First Franklin Mortgage Loan NIM Trust 144A Ser. 04-FF10, Class N1, 4.45s, 2034 (Cayman Islands) 1,539,100 577,209 First Franklin NIM Trust 144A Ser. 03-FF3A, Class A, 6 3/4s, 2033 574,968 1,229,000 Fort Point CDO, Ltd. FRN Ser. 03-2A, Class A2, 3.97s, 2038 1,241,290 Fremont NIM Trust 144A 429,215 Ser. 04-3, Class B, 7 1/2s, 2034 414,149 1,384,166 Ser. 04-A, Class Note, 4 3/4s, 2034 1,379,044 1,542,936 Ser. 04-3, Class A, 4 1/2s, 2034 1,540,313 614,000 G-Star, Ltd. 144A FRN Ser. 02-2A, Class BFL, 4.85s, 2037 640,648 Granite Mortgages PLC FRB EUR 10,080,000 Ser. 03-2, Class 2C1, 5.2s, 2043 (United Kingdom) 13,976,590 GBP 7,560,000 Ser. 03-2, Class 3C, 6.42s, 2043 (United Kingdom) 14,869,502 $3,300,000 Ser. 02-1, Class 1C, 3.97s, 2042 (United Kingdom) 3,351,810 370,000 Ser. 02-2, Class 1C, 3.92s, 2043 (United Kingdom) 375,920 Green Tree Financial Corp. 2,913,749 Ser. 94-4, Class B2, 8.6s, 2019 2,076,536 6,599,774 Ser. 94-6, Class B2, 9s, 2020 5,355,677 2,737,142 Ser. 95-4, Class B1, 7.3s, 2025 2,662,726 2,796,090 Ser. 95-8, Class B1, 7.3s, 2026 2,134,303 1,398,105 Ser. 95-F, Class B2, 7.1s, 2021 1,333,443 2,979,000 Ser. 96-8, Class M1, 7.85s, 2027 2,549,127 665,791 Ser. 99-3, Class A5, 6.16s, 2031 678,066 9,206,000 Ser. 99-5, Class A5, 7.86s, 2030 8,095,599 1,054,818 Green Tree Home Improvement Loan Trust Ser. 95-D, Class B2, 7.45s, 2025 1,054,818 Greenpoint Manufactured Housing 17,676,704 Ser. 00-3, Class IA, 8.45s, 2031 16,856,080 632,000 Ser. 99-5, Class A4, 7.59s, 2028 657,502 9,693,000 GS Auto Loan Trust 144A Ser. 04-1, Class D, 5s, 2011 9,533,876 GSAMP Trust 144A 225,008 Ser. 03-HE1N, Class Note, 7 1/4s, 2033 225,008 342,172 Ser. 04-FM1N, Class Note, 5 1/4s, 2033 341,761 1,011,973 Ser. 04-HE1N, Class N1, 5s, 2034 1,009,848 8,400,570 Ser. 04-NIM1, Class N1, 5 1/2s, 2034 8,389,649 3,884,000 Ser. 04-NIM1, Class N2, zero %, 2034 2,846,972 8,176,076 Ser. 04-NIM2, Class N, 4 7/8s, 2034 8,163,812 1,087,251 Ser. 04-SE2N, Class Note, 5 1/2s, 2034 1,085,947 2,434,066 GSMPS Mortgage Loan Trust 144A Ser. 01-2, IO, 0.142s, 2032 11,410 Holmes Financing PLC FRB 2,320,000 Ser. 4, Class 3C, 3.96s, 2040 (United Kingdom) 2,349,696 1,938,000 Ser. 8, Class 2C, 3.38s, 2040 (United Kingdom) 1,950,113 Home Equity Asset Trust 144A 480,316 Ser. 02-5N, Class A, 8s, 2033 480,316 2,980,355 Ser. 05-6N, Class A, 5 1/4s, 2035 2,970,341 659,216 Ser. 03-7N, Class A, 5 1/4s, 2034 659,628 539,902 Ser. 04-5N, Class A, 5 1/4s, 2034 539,902 LNR CDO, Ltd. 144A FRB 7,500,000 Ser. 02-1A, Class FFL, 5.6s, 2037 (Cayman Islands) 7,544,250 11,120,000 Ser. 03-1A, Class EFL, 5.85s, 2036 (Cayman Islands) 12,120,800 Long Beach Asset Holdings Corp. NIM Trust 144A 990,746 Ser. 04-2, Class N1, 4.94s, 2034 990,746 1,571,640 Ser. 04-5, Class Note, 5s, 2034 1,575,098 Long Beach Mortgage Loan Trust Ser. 04-3 16,128,109 Class S1, IO, 4 1/2s, 2006 816,082 7,213,426 Class S2, IO, 4 1/2s, 2006 364,999 GBP 6,500,000 Lothian Mortgages PLC 144A FRN Ser. 3A, Class D, 5.67s, 2039 (United Kingdom) 12,281,100 $6,357,565 Madison Avenue Manufactured Housing Contract FRB Ser. 02-A, Class B1, 6.1s, 2032 3,051,631 Master Asset Backed Securities NIM Trust 144A 1,058,000 Ser. 04-CI5, Class N2, 9s, 2034 1,054,826 1,322,843 Ser. 04-HE1A, Class Note, 5.191s, 2034 1,314,906 3,730,000 MBNA Credit Card Master Note Trust FRN Ser. 03-C5, Class C5, 3.99s, 2010 3,807,841 316,730 Merrill Lynch Mortgage Investors, Inc. Ser. 03-WM3N, Class N1, 8s, 2005 317,026 Merrill Lynch Mortgage Investors, Inc. 144A 905,561 Ser. 04-FM1N, Class N1, 5s, 2035 (Cayman Islands) 899,901 773,858 Ser. 04-HE1N, Class N1, 5s, 2006 768,296 78,520 Ser. 04-WM2N, Class N1, 4 1/2s, 2005 78,177 133,326 Ser. 04-WM3N, Class N1, 4 1/2s, 2005 132,618 1,448,773 Mid-State Trust Ser. 11, Class B, 8.221s, 2038 1,468,581 1,597,000 Morgan Stanley ABS Capital I FRB Ser. 04-HE8, Class B3, 6.05s, 2034 1,656,211 Morgan Stanley Auto Loan Trust 144A 154,000 Ser. 04-HB1, Class D, 5 1/2s, 2011 152,614 1,297,000 Ser. 04-HB2, Class E, 5s, 2012 1,243,904 Morgan Stanley Dean Witter Capital I FRN 1,134,681 Ser. 01-NC3, Class B1, 5.3s, 2031 1,129,959 168,182 Ser. 01-NC4, Class B1, 5.35s, 2032 166,850 2,000,000 N-Star Real Estate CDO, Ltd. 144A FRB Ser. 1A, Class C1A, 5.89s, 2038 (Cayman Islands) 2,020,000 Neon Capital, Ltd. 144A limited recourse sec. notes 2,649,208 Ser. 94, 1.105s, 2013 (Cayman Islands) (F) (g) 2,340,583 2,028,770 Ser. 95, 2.319s, 2013 (Cayman Islands) (F) (g) 763,645 4,330,907 Ser. 96, 1.686s, 2013 (Cayman Islands) (F) (g) 2,974,735 20,169,472 Ser. 96, 1.458s, 2013 (Cayman Islands) (F) (g) (h) 21,110,680 650,826 New Century Mortgage Corp. NIM Trust 144A Ser. 03-B, Class Note, 6 1/2s, 2033 652,250 Novastar NIM Trust 144A 508,280 Ser. 04-N1, Class Note, 4.458s, 2034 508,280 116,132 Ser. 04-N2, Class Note, 4.458s, 2034 116,132 Oakwood Mortgage Investors, Inc. 976,620 Ser. 01-C, Class A1, 5.16s, 2012 550,255 10,899,783 Ser. 01-C, Class A2, 5.92s, 2017 6,608,593 5,085,765 Ser. 01-C, Class A4, 7.405s, 2030 3,425,552 200,000 Ser. 01-D, Class A4, 6.93s, 2031 154,394 9,971,455 Ser. 01-E, Class A2, 5.05s, 2019 8,122,059 1,028,312 Ser. 02-A, Class A2, 5.01s, 2020 845,345 3,244,000 Ser. 02-B, Class A4, 7.09s, 2032 2,855,907 16,397,392 Ser. 02-C, Class A1, 5.41s, 2032 14,269,010 10,777,580 Ser. 99-B, Class A4, 6.99s, 2026 9,721,712 9,749,687 Ser. 99-D, Class A1, 7.84s, 2029 9,074,804 1,083,072 Oakwood Mortgage Investors, Inc. 144A Ser. 01-B, Class A4, 7.21s, 2030 1,009,026 3,643,000 Ocean Star PLC 144A FRB Ser. 04-A, Class E, 9.29s, 2018 (Ireland) 3,643,000 1,245,000 Octagon Investment Parties VI, Ltd. FRN Ser. 03-6A, Class B2L, 9.46s, 2016 1,301,025 99,985 Option One Mortgage Securities Corp. NIM Trust 144A Ser. 03-5, Class Note, 6.9s, 2033 100,485 542,000 Park Place Securities NIM Trust 144A Ser. 04-WCW2, Class D, 7.387s, 2034 (Cayman Islands) 542,000 854,267 Pass-Through Amortizing Credit Card Trust Ser. 02-1A, Class A4FL, 8.33s, 2012 856,069 774,000 People's Choice Net Interest Margin Note 144A Ser. 04-2, Class B, 5s, 2034 701,244 Permanent Financing PLC FRB 2,390,000 Ser. 1, Class 3C, 4.17s, 2042 (United Kingdom) 2,412,944 3,300,000 Ser. 3, Class 3C, 4.12s, 2042 (United Kingdom) 3,344,880 GBP 6,492,000 Ser. 6, Class 3C, 5.686s, 2042 (United Kingdom) 12,265,985 Providian Gateway Master Trust $6,550,000 FRN Ser. 04-EA, Class E, 5.81s, 2011 6,460,031 10,606,000 Ser. 02, Class B, PO, zero %, 2006 10,070,416 220,000 Providian Gateway Master Trust 144A FRN Ser. 04-BA, Class D, 4.21s, 2010 221,673 14,133,291 Residential Asset Mortgage Products, Inc. Ser. 03-RZ1, Class A, IO, 5 3/4s, 2005 201,298 2,982,529 Residential Asset Securities Corp. 144A Ser. 04-N10B, Class A1, 5s, 2034 2,982,529 950,000 Residential Mortgage Securities 144A FRB Ser. 20A, Class B1A, 5.766s, 2038 (United Kingdom) 1,794,930 1,348,077 Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 1,371,247 SAIL Net Interest Margin Notes 144A 1,646,053 Ser. 03-10A, Class A, 7 1/2s, 2033 (Cayman Islands) 1,654,283 514,717 Ser. 03-12A, Class A, 7.35s, 2033 (Cayman Islands) 519,864 218,813 Ser. 03-13A, Class A, 6 3/4s, 2033 (Cayman Islands) 219,907 319,905 Ser. 03-3, Class A, 7 3/4s, 2033 (Cayman Islands) 322,304 145,546 Ser. 03-4, Class A, 7 1/2s, 2033 (Cayman Islands) 145,386 767,536 Ser. 03-5, Class A, 7.35s, 2033 (Cayman Islands) 767,312 700,347 Ser. 03-6A, Class A, 7s, 2033 (Cayman Islands) 700,347 751,290 Ser. 03-7A, Class A, 7s, 2033 (Cayman Islands) 745,716 185,416 Ser. 03-8A, Class A, 7s, 2033 (Cayman Islands) 184,483 563,610 Ser. 03-9A, Class A, 7s, 2033 (Cayman Islands) 560,679 764,233 Ser. 03-BC2A, Class A, 7 3/4s, 2033 (Cayman Islands) 762,012 3,608,730 Ser. 04-10A, Class A, 5s, 2034 (Cayman Islands) 3,610,173 2,541,654 Ser. 04-2A, Class A, 5 1/2s, 2034 (Cayman Islands) 2,541,654 2,678,860 Ser. 04-4A, Class A, 5s, 2034 (Cayman Islands) 2,674,842 120,000 Ser. 04-4A, Class B, 7 1/2s, 2034 (Cayman Islands) 117,600 89,293 Ser. 04-5A, Class A, 4 1/2s, 2034 (Cayman Islands) 89,162 489,637 Ser. 04-7A, Class A, 4 3/4s, 2034 (Cayman Islands) 488,956 106,037 Ser. 04-7A, Class B, 6 3/4s, 2034 (Cayman Islands) 103,132 1,674,594 Ser. 04-8A, Class A, 5s, 2034 (Cayman Islands) 1,674,594 1,402,678 Ser. 04-8A, Class B, 6 3/4s, 2034 (Cayman Islands) 1,383,742 1,617,424 Ser. 04-AA, Class A, 4 1/2s, 2034 (Cayman Islands) 1,611,763 Sasco Net Interest Margin Trust 144A 54,875 Ser. 03-AM1, Class A, 7 3/4s, 2033 (Cayman Islands) 54,607 1,883,626 Ser. 03-BC1, Class B, zero %, 2033 (Cayman Islands) 847,632 3,948,951 Ser. 05-WF1A, Class A, 4 3/4s, 2035 3,958,033 280,671 Saxon Net Interest Margin Trust 144A Ser. 03-A, Class A, 6.656s, 2033 280,671 Sharps SP I, LLC Net Interest Margin Trust 144A 536,035 Ser. 03-0P1N, Class NA, 4.45s, 2033 536,035 243,375 Ser. 03-NC1N, Class N, 7 1/4s, 2033 243,375 142,377 Ser. 03-TC1N, Class N, 7.45s, 2033 142,377 685,435 Ser. 04-HE2N, Class NA, 5.43s, 2034 683,721 2,070,000 South Coast Funding 144A FRB Ser. 3A, Class A2, 3.971s, 2038 (Cayman Islands) 2,088,837 Structured Asset Investment Loan Trust 1,973,571 Ser. 03-BC13, Class A, IO, 6s, 2005 17,697 560,899 Ser. 03-BC1A, Class A, 7 3/4s, 2033 (Cayman Islands) 562,652 1,319,327 Ser. 03-BC8, Class A, IO, 6s, 2005 31,433 74,533,073 Ser. 04-1, Class A, IO, 6s, 2005 1,407,528 586,237 Structured Asset Securities Corp. Ser. 98-RF3, Class A, IO, 6.1s, 2028 71,814 3,688,000 TIAA Real Estate CD0, Ltd. Ser. 03-1A, Class E, 8s, 2038 (Cayman Islands) 3,494,765 2,403,000 TIAA Real Estate CD0, Ltd. 144A Ser. 02-1A, Class IV, 6.84s, 2037 2,230,806 1,467,335 Wells Fargo Home Equity Trust Ser. 04-1, Class A, IO, 6s, 2005 42,250 Wells Fargo Home Equity Trust 144A 5,411,789 Ser. 04-2, Class N1, 4.45s, 2034 (Cayman Islands) 5,411,468 1,608,000 Ser. 04-2, Class N2, 8s, 2034 (Cayman Islands) 1,527,600 Whole Auto Loan Trust 144A 4,427,756 Ser. 03-1, Class D, 6s, 2010 4,437,848 3,251,000 Ser. 04-1, Class D, 5.6s, 2011 3,239,825 -------------- Total Asset-backed securities (cost $561,446,850) $556,131,832 Senior loans (6.4%) (a) (c) Principal amount Value Basic Materials (0.5%) ------------------------------------------------------------------------------- $993,750 Buckeye Technologies, Inc. bank term loan FRN 4.964s, 2010 $1,007,828 403,734 Graphic Packaging Corp. bank term loan FRN Ser. C, 5.143s, 2010 410,496 4,120,532 Hercules, Inc. bank term loan FRN Ser. B, 3.985s, 2010 4,172,039 455,000 Huntsman Corp. bank term loan FRN Ser. B, 5.88s, 2010 462,280 1,985,487 Innophos, Inc. bank term loan FRN 5.365s, 2010 2,015,269 2,437,006 Koch Cellulose, LLC bank term loan FRN Ser. B, 4.8s, 2011 2,472,038 612,994 Koch Cellulose, LLC bank term loan FRN Ser. C, 4.44s, 2011 621,806 1,100,000 Mosaic Co. (The) bank term loan FRN Ser. B, 4.452s, 2012 1,112,375 915,592 Nalco Co. bank term loan FRN Ser. B, 4.951s, 2010 933,014 444,841 Novelis, Inc. bank term loan FRN Ser. B, 4 1/2s, 2012 (Canada) 451,847 256,121 Novelis, Inc. bank term loan FRN, 4 1/2s, 2012 (Canada) 260,122 600,000 PQ Corp. bank term loan FRN Ser. B, 4 3/4s, 2012 609,375 5,000,000 Rockwood Specialties Group, Inc. bank term loan FRN Ser. D, 4.95s, 2012 5,100,000 1,181,405 SGL Carbon, LLC bank term loan FRN 5.989s, 2009 (Germany) 1,202,079 323,121 Smurfit-Stone Container Corp. bank term loan FRN 2.3s, 2010 328,978 2,582,319 Smurfit-Stone Container Corp. bank term loan FRN Ser. B, 4.777s, 2011 2,629,661 794,560 Smurfit-Stone Container Corp. bank term loan FRN Ser. C, 4 7/8s, 2011 809,259 987,500 St. Mary's Cement Corp. bank term loan FRN Ser. B, 4.56s, 2009 1,002,313 -------------- 25,600,779 Capital Goods (0.9%) ------------------------------------------------------------------------------- 1,373,500 AGCO Corp. bank term loan FRN 4.729s, 2008 1,394,961 775,950 Alliant Techsystems, Inc. bank term loan FRN Ser. B, 4.359s, 2011 788,074 2,297,297 Allied Waste Industries, Inc. bank term loan FRN 4.564s, 2012 2,316,537 6,202,703 Allied Waste Industries, Inc. bank term loan FRN Ser. B, 4.564s, 2012 6,254,861 1,458,954 Amsted Industries, Inc. bank term loan FRN 5.439s, 2010 1,478,406 1,600,000 Ashtead Group PLC bank term loan FRN Ser. B, 5.063s, 2009 (United Kingdom) 1,622,000 848,005 Berry Plastics Corp. bank term loan FRN 4.77s, 2010 861,785 2,507,720 Communications & Power, Inc. bank term loan FRN 6 1/2s, 2010 2,539,067 2,273,010 Decrane Aircraft Holdings Co. bank term loan FRN 12s, 2008 (PIK) 2,273,010 748,116 Enersys Capital, Inc. bank term loan FRN Ser. B, 4.15s, 2011 761,208 602,285 Flowserve Corp. bank term loan FRN Ser. C, 5.473s, 2009 612,825 3,700,000 Hexcel Corp. bank term loan FRN Ser. B, 4 5/8s, 2012 3,749,721 810,634 Invensys, PLC bank term loan FRN Ser. B-1, 6.091s, 2009 (United Kingdom) 824,314 3,593,349 Mueller Group, Inc. bank term loan FRN 5.569s, 2011 3,624,790 394,214 Owens-Illinois, Inc. bank term loan FRN Ser. B, 5.58s, 2008 401,212 500,000 Polypore, Inc. bank term loan FRN 4.92s, 2011 505,625 2,400,000 Roper Industries, Inc. bank term loan FRN Ser. A, 4 1/4s, 2009 2,410,001 1,014,750 Solo Cup Co. bank term loan FRN 5.076s, 2011 1,028,957 830,769 Standard Aero Holdings, Inc. bank term loan FRN Ser. B, 5.299s, 2012 842,192 5,145,966 Terex Corp. bank term loan FRN Class C, 5.064s, 2009 5,201,712 1,240,565 Terex Corp. bank term loan FRN Ser. B, 4.89s, 2009 1,253,488 3,349,311 Transdigm, Inc. bank term loan FRN Ser. C, 4.935s, 2010 3,397,458 -------------- 44,142,204 Communication Services (0.5%) ------------------------------------------------------------------------------- 1,000,000 Alaska Communications Systems Group, Inc. bank term loan FRN Ser. B, 4.64s, 2012 1,014,688 3,217,500 Consolidated Communications Holdings bank term loan FRN Ser. C, 5.185s, 2012 3,241,631 320,476 Consolidated Communications Holdings bank term loan FRN Ser. D, 5.064s, 2011 323,681 4,000,000 Fairpoint Communications, Inc. bank term loan FRN Ser. B, 4 3/4s, 2012 4,053,000 2,265,708 PanAmSat Corp. bank term loan FRN Ser. B, 5.37s, 2010 2,300,128 1,381,250 Qwest Communications International, Inc. bank term loan FRN Ser. A, 7.39s, 2007 1,426,788 2,488,001 SBA Senior Finance, Inc. bank term loan FRN 5.905s, 2008 2,529,986 3,404,957 Syniverse Holdings, Inc. bank term loan FRN Ser. B, 5.011s, 2012 3,456,032 4,682,000 Valor Telecommunications Enterprises LLC/Finance Corp. bank term loan FRN Ser. B, 6.243s, 2012 4,749,304 -------------- 23,095,238 Consumer Cyclicals (1.3%) ------------------------------------------------------------------------------- 1,970,038 Adams Outdoor Advertising bank term loan FRN 4.92s, 2011 1,986,044 4,755,600 Advertising Directory Solutions, Inc. bank term loan FRN 4.72s, 2011 (Canada) 4,761,545 576,016 American Media Operations bank term loan FRN Ser. C, 4.793s, 2007 583,936 2,000,000 Boise Cascade Corp. bank term loan FRN Ser. B, 4.938s, 2011 2,035,000 1,069,509 Coinmach Corp. bank term loan FRN Ser. B, 5.774s, 2009 1,082,209 55,530 Corrections Corporation of America bank term loan FRN Ser. D, 4.95s, 2008 56,224 1,556,297 Dex Media East, LLC/Dex Media East Finance Co. bank term loan FRN Class A, 4.659s, 2008 1,577,047 3,098,074 Dex Media West, LLC/Dex Media West Finance Co. bank term loan FRN Ser. B, 4.654s, 2010 3,146,160 525,000 Federal Mogul Corp. bank term loan FRN Ser. A, 4.92s, 2006 490,547 975,000 Federal Mogul Corp. bank term loan FRN Ser. B, 5.17s, 2006 913,149 820,000 Goodyear Tire & Rubber Co. (The) bank term loan FRN 9 1/4s, 2006 826,150 375,000 Goodyear Tire & Rubber Co. (The) bank term loan FRN 4.6s, 2007 377,109 1,210,542 Hayes Lemmerz International, Inc. bank term loan FRN 6.574s, 2009 1,227,187 5,716,000 Jostens IH Corp. bank term loan FRN Ser. C, 5.19s, 2010 5,804,124 2,000,000 Journal Register Co. bank term loan FRN Ser. B, 4.176s, 2012 2,015,626 975,333 Lamar Media Corp. bank term loan FRN Ser. D, 4.531s, 2010 986,306 2,900,000 Landsource, Inc. bank term loan FRN Ser. B, 5 3/8s, 2010 2,936,250 860,283 NCI Building Systems, Inc. bank term loan FRN Ser. B, 4 3/4s, 2010 872,112 3,000,000 Nortek Holdings, Inc. bank term loan FRN Ser. B, 5.344s, 2011 3,041,250 763,047 PRIMEDIA, Inc. bank term loan FRN Ser. B, 5.62s, 2009 767,340 1,538,144 R.H. Donnelley Finance Corp. bank term loan FRN Ser. A-3, 4.389s, 2009 1,552,603 858,961 R.H. Donnelley Finance Corp. bank term loan FRN Ser. D, 4.601s, 2011 872,626 5,700,000 Resorts International Hotel and Casino, Inc. bank term loan FRN 5.064s, 2012 5,811,623 680,893 Sealy Mattress Co. bank term loan FRN Ser. C, 4.768s, 2012 693,376 2,700,000 TransWestern Publishing/TWP Cap bank term loan FRN 4.563s, 2011 2,735,999 984,933 TransWestern Publishing/TWP Cap bank term loan FRN Ser. B, 4.201s, 2011 987,806 3,887,188 TRW Automotive, Inc. bank term loan FRN Ser. B, 4 3/8s, 2010 3,922,822 1,497,500 TRW Automotive, Inc. bank term loan FRN Ser. E, 3 7/8s, 2010 1,511,539 6,571,282 Venetian Casino Resort, LLC bank term loan FRN Ser. B, 4.81s, 2011 6,651,780 1,354,904 Venetian Casino Resort, LLC bank term loan FRN Ser. DD, 4.314s, 2011 (U) 1,371,840 1,127,500 WRC Media Corp. bank term loan FRN 6.761s, 2009 1,124,681 -------------- 62,722,010 Consumer Staples (1.5%) ------------------------------------------------------------------------------- 243,291 Affinity Group Holdings bank term loan FRN Ser. B1, 5.915s, 2009 245,926 608,227 Affinity Group Holdings bank term loan FRN Ser. B2, 5.78s, 2009 614,816 1,000,000 American Lawyer Media Holdings bank term loan FRN 7 1/4s, 2010 (U) 1,007,500 717,615 AMF Bowling Worldwide bank term loan FRN Ser. B, 5.893s, 2009 721,651 6,280,000 Century Cable Holdings bank term loan FRN 7 3/4s, 2009 6,235,142 4,911,159 Charter Communications Holdings, LLC/Capital Corp. bank term loan FRN Ser. B, 5.98s, 2011 (United Kingdom) 4,933,082 2,834,625 Cinemark, Inc. bank term loan FRN Class C, 5.12s, 2011 2,891,318 7,530,833 Constellation Brands, Inc. bank term loan FRN Ser. B, 4.395s, 2011 7,647,983 1,200,000 Dean Foods Co. bank term loan FRN Ser. A, 3.81s, 2009 1,209,750 1,042,409 DirecTV Holdings/Finance bank term loan FRN Ser. B-3, 4.56s, 2010 1,043,191 228,328 Dole Food Co., Inc. bank term loan FRN Ser. D, 5.115s, 2009 228,518 1,500,000 Domino's, Inc. bank term loan FRN, 4.313s, 2010 1,521,251 4,250,000 Freedom Communications, Inc. bank term loan FRN Ser. B, 4.597s, 2012 4,319,063 150,000 Frontier Vision bank term loan FRN Ser. B, 7.025s, 2006 150,563 1,668,875 Insight Midwest LP/Insight Capital, Inc. bank term loan FRN 5.438s, 2009 1,698,427 4,884,951 Intelsat Bermuda, Ltd. bank term loan FRN Ser. B, 6 1/2s, 2011 (Bermuda) 4,950,595 700,608 Itron, Inc. bank term loan FRN 4.841s, 2010 707,322 4,485,000 Jean Coutu Group PJC, Inc. bank term loan FRN Ser. B, 5s, 2011 4,571,197 3,459,405 Loews Cineplex bank term loan FRN Ser. B, 4.901s, 2011 3,517,243 2,244,375 Mediacom Communications Corp. bank term loan FRN Ser. B, 4.963s, 2012 2,281,549 1,223,850 MGM Studios, Inc. bank term loan FRN Ser. B, 5.06s, 2011 1,223,085 4,085,000 Olympus Cable bank term loan FRN Ser. B, 7 1/2s, 2010 4,047,340 2,232,500 Pinnacle Foods Holding Corp. bank term loan FRN 5.813s, 2010 2,256,220 2,000,000 Prestige Brands, Inc. bank term loan FRN Ser. B, 5.388s, 2011 2,030,000 5,091,184 Regal Cinemas, Inc. bank term loan FRN Ser. B, 4.56s, 2010 5,175,733 1,164,075 Roundy's bank term loan FRN Ser. B, 4.926s, 2009 1,173,170 2,715,625 Sinclair Broadcast Group, Inc. bank term loan FRN Ser. A, 4.17s, 2009 2,724,111 673,989 Six Flags, Inc. bank term loan FRN Ser. B, 5 1/4s, 2009 684,099 386,975 Sun Media Corp. bank term loan FRN Ser. B, 4.73s, 2009 (Canada) 392,457 6,088,500 Universal City Development bank term loan FRN Ser. B, 4.725s, 2011 6,187,438 990,000 Warner Music Group bank term loan FRN Ser. B, 5.088s, 2011 997,012 -------------- 77,386,752 Energy (0.2%) ------------------------------------------------------------------------------- 447,500 Belden and Blake Corp. bank term loan FRN 5.894s, 2011 451,975 1,230,000 Dresser, Inc. bank term loan FRN 5.84s, 2010 1,248,450 464,223 Dresser, Inc. bank term loan FRN Ser. C, 4.15s, 2009 473,121 5,648,768 Magellan Midstream Holdings bank term loan FRN Ser. B, 5.09s, 2011 5,733,499 1,874,536 Trico Marine Services, Inc. bank term loan FRN 8.05s, 2005 1,855,791 2,950,000 Universal Compression, Inc. bank term loan FRN Ser. B, 4.34s, 2012 2,991,486 -------------- 12,754,322 Financial (0.4%) ------------------------------------------------------------------------------- 4,750,000 Fidelity National Information Solutions bank term loan FRN Ser. B, 4.51s, 2013 4,764,844 8,630,861 General Growth Properties bank term loan FRN Ser. B, 4.94s, 2008 (R) 8,772,097 552,943 Hilb, Rogal & Hamilton Co. bank term loan FRN Ser. B, 4.813s, 2011 561,583 5,000,000 Maguire Properties, Inc. bank term loan FRN Ser. B, 6 1/2s, 2010 5,050,000 -------------- 19,148,524 Health Care (0.5%) ------------------------------------------------------------------------------- 3,065,657 Beverly Enterprises, Inc. bank term loan FRN 5.186s, 2008 3,091,203 5,400,900 Community Health Systems, Inc. bank term loan FRN Ser. B, 4.639s, 2011 5,468,411 1,572,120 Concentra bank term loan FRN 5.167s, 2009 1,593,081 5,735,516 Express Scripts, Inc. bank term loan FRN Ser. B, 4.131s, 2010 5,785,702 813,850 Fisher Scientific International, Inc. bank term loan FRN Ser. B, 4.17s, 2011 820,632 788,000 Hanger Orthopedic Group, Inc. bank term loan FRN 6.06s, 2009 794,895 1,162,500 Healthsouth Corp. bank term loan FRN 7 1/4s, 2010 1,171,583 313,690 Healthsouth Corp. bank term loan FRN 5.064s, 2010 316,435 1,454,655 Kinetic Concepts, Inc. bank term loan FRN Ser. B, 4.31s, 2011 1,472,838 684,073 Stewart Enterprises, Inc. bank term loan FRN Class B, 4.64s, 2011 695,189 1,449,718 Triad Hospitals, Inc. bank term loan FRN Ser. B, 4.92s, 2008 1,472,270 1,975,287 VWR International, Inc. bank term loan FRN Ser. B, 5.17s, 2011 2,008,620 16,562 Warner Chilcott Corp. bank term loan FRN, 5.314s, 2012 (U) 16,665 672,124 Warner Chilcott Corp. bank term loan FRN Ser. C, 5.584s, 2012 678,509 310,502 Warner Chilcott Corp. bank term loan FRN Ser. D, 5.584s, 2012 313,452 82,808 Warner Chilcott Corp. bank term loan FRN, 5.314s, 2012 (U) 83,325 1,668,004 Warner Chilcott Corp. bank term loan FRN Ser. B, 5.584s, 2012 1,683,850 -------------- 27,466,660 Technology (0.2%) ------------------------------------------------------------------------------- 2,700,000 AMI Semiconductor, Inc. bank term loan FRN Class B, 4.064s, 2012 2,710,260 992,500 Iron Mountain, Inc. bank term loan FRN Ser. C, 4.688s, 2011 1,003,914 2,142,900 Seagate Technology Hdd Holdings bank term loan FRN 5 1/8s, 2007 (Cayman Islands) 2,179,507 857,100 Seagate Technology Hdd Holdings bank term loan FRN Ser. B, 5 1/8s, 2007 (Cayman Islands) 871,742 2,187,494 UGS PLM Solutions, Inc. bank term loan FRN Ser. B, 7s, 2011 2,228,510 -------------- 8,993,933 Transportation (0.1%) ------------------------------------------------------------------------------- 2,992,500 Kansas City Southern Railway Co. bank term loan FRN Ser. B, 4.533s, 2008 3,038,136 810,833 Pacer International, Inc. bank term loan FRN 4.674s, 2010 827,050 894,286 Rail America, Inc. bank term loan FRN Ser. B, 4 7/8s, 2011 910,681 105,714 Rail America, Inc. bank term loan FRN Ser. B, 4 7/8s, 2011 107,652 -------------- 4,883,519 Utilities & Power (0.3%) ------------------------------------------------------------------------------- 815,900 Dynegy, Inc. bank term loan FRN Ser. B, 6.72s, 2010 831,963 1,725,000 El Paso Corp. bank term loan FRN Ser. C, 2.3s, 2009 1,745,215 6,130,560 El Paso Corp. bank term loan FRN Ser. B, 5.438s, 2009 6,211,024 1,203,125 NRG Energy, Inc. bank term loan FRN 2.45s, 2011 1,220,570 1,543,008 NRG Energy, Inc. bank term loan FRN Ser. B, 4.515s, 2011 1,565,381 1,825,153 Williams Cos., Inc. bank term loan FRN Ser. C, 5.315s, 2007 1,850,249 -------------- 13,424,402 -------------- Total Senior loans (cost $318,270,751) $319,618,343 Collateralized mortgage obligations (6.0%) (a) Principal amount Value ------------------------------------------------------------------------------- Banc of America Commercial Mortgage, Inc. 144A $1,170,000 Ser. 01-1, Class J, 6 1/8s, 2036 $1,143,081 2,633,000 Ser. 01-1, Class K, 6 1/8s, 2036 1,945,026 Banc of America Large Loan 144A 1,090,000 FRB Ser. 02-FL2A, Class L1, 5.746s, 2014 1,091,838 600,000 FRB Ser. 05-BOCA, Class M, 4.93s, 2016 600,961 843,000 FRB Ser. 05-BOCA, Class L, 4.53s, 2016 844,350 655,000 FRB Ser. 05-BOCA, Class K, 4.18s, 2016 655,716 212,000 FRB Ser. 05-BOCA, Class J, 3.93s, 2016 212,232 504,000 FRB Ser. 05-BOCA, Class H, 3.78s, 2016 504,394 12,033,276 Ser. 03-BBA2, Class X1A, IO, 0.746s, 2015 53,047 1,174,000 Bear Stearns Commercial Mortgage Securitization Corp. Ser. 00-WF2, Class F, 8.204s, 2032 1,364,723 3,000,000 Bear Stearns Commercial Mortgage Securitization Corp. 144A Ser. 04-ESA, Class K, 5.3s, 2016 2,999,987 116,581,070 Commercial Mortgage Acceptance Corp. Ser. 97-ML1, IO, 0.716s, 2017 2,477,348 3,948,000 Commercial Mortgage Pass-Through Certificates 144A Ser. 01-FL4A, Class D, 3.66s, 2013 3,908,899 3,310,500 Criimi Mae Commercial Mortgage Trust Ser. 98-C1, Class A2, 7s, 2033 3,510,165 14,703,000 Criimi Mae Commercial Mortgage Trust 144A Ser. 98-C1, Class B, 7s, 2033 15,271,848 CS First Boston Mortgage Securities Corp. 144A 4,911,000 FRB Ser. 05-TFLA, Class L, 4.66s, 2020 4,911,000 1,310,000 FRB Ser. 05-TFLA, Class K, 4.11s, 2020 1,310,000 2,934,000 FRN Ser. 03-TF2A, Class L, 6.81s, 2014 2,923,790 7,396,000 Ser. 98-C1, Class F, 6s, 2040 5,425,395 2,599,000 Ser. 02-CP5, Class M, 5 1/4s, 2035 1,836,453 224,245,927 Deutsche Mortgage & Asset Receiving Corp. Ser. 98-C1, Class X, IO, 0.715s, 2031 6,584,508 DLJ Commercial Mortgage Corp. 2,235,111 Ser. 98-CF2, Class B4, 6.04s, 2031 2,164,191 7,128,872 Ser. 98-CF2, Class B5, 5.95s, 2031 4,948,439 DLJ Mortgage Acceptance Corp. 144A 1,974,000 Ser. 97-CF1, Class B2, 8.16s, 2030 1,184,400 1,948,000 Ser. 97-CF1, Class B1, 7.91s, 2030 2,080,939 GBP 984,468 European Loan Conduit 144A FRN Ser. 6A, Class F, 7.116s, 2010 (United Kingdom) 1,884,049 GBP 2,643,178 European Loan Conduit FRN Ser. 6X, Class E, 6.616s, 2010 (United Kingdom) 5,062,937 Fannie Mae $2,272,231 IFB Ser. 02-36, Class SJ, 13s, 2029 2,359,937 22,076,675 IFB Ser. 03-118, Class SF, IO, 5 1/4s, 2033 2,670,836 4,923,190 IFB Ser. 02-36, Class QH, IO, 5.2s, 2029 152,491 233,486 IFB Ser. 03-87, Class SP, 10.863s, 2032 222,451 644,803 Ser. 98-51, Class SG, IO, 22.6s, 2022 307,267 505,569 Ser. 96-40, Class SD, IO, 10.692s, 2022 10,111 3,762 Ser. 92-15, Class L, IO, 10.376s, 2022 42,097 184,352 Ser. 03-W6, Class PT1, 9.371s, 2042 199,941 2,493,664 Ser. 03-W3, Class 1A3, 7 1/2s, 2042 2,643,670 432,512 Ser. 02-T19, Class A3, 7 1/2s, 2042 458,429 461,078 Ser. 03-W2, Class 1A3, 7 1/2s, 2042 488,941 598,861 Ser. 02-W6, Class 2A, 7 1/2s, 2042 634,128 626,997 Ser. 02-T12, Class A3, 7 1/2s, 2042 664,046 6,913 Ser. 02-W1, Class 2A, 7 1/2s, 2042 7,293 27,582 Ser. 02-14, Class A2, 7 1/2s, 2042 29,212 2,612,576 Ser. 01-T10, Class A2, 7 1/2s, 2041 2,763,222 760,192 Ser. 02-T4, Class A3, 7 1/2s, 2041 804,200 43,529 Ser. 01-T8, Class A1, 7 1/2s, 2041 45,995 11,075,901 Ser. 01-T7, Class A1, 7 1/2s, 2041 11,693,136 1,598,124 Ser. 01-T3, Class A1, 7 1/2s, 2040 1,687,912 4,995,547 Ser. 01-T1, Class A1, 7 1/2s, 2040 5,285,801 1,952,420 Ser. 99-T2, Class A1, 7 1/2s, 2039 2,067,737 965,194 Ser. 00-T6, Class A1, 7 1/2s, 2030 1,018,982 12,739,007 Ser. 01-T4, Class A1, 7 1/2s, 2028 13,532,767 13,956 Ser. 02-W3, Class A5, 7 1/2s, 2028 14,780 427,415 Ser. 93-80, Class S, FRN, 7.364s, 2023 413,477 364,146 Ser. 98-T2, Class A4, IO, 6 1/2s, 2036 22,286 1,337,236 Ser. 04-78, Class HI, IO, 6s, 2034 277,476 475,504 Ser. 03-135, IO, 6s, 2033 90,049 6,658,049 Ser. 03-58, Class ID, IO, 6s, 2033 1,398,190 5,821,511 Ser. 03-22, IO, 6s, 2033 1,227,955 6,099,145 Ser. 03-26, Class IG, IO, 6s, 2033 1,137,036 1,314,910 Ser. 328, Class 2, IO, 6s, 2032 286,140 5,084,849 Ser. 322, Class 2, IO, 6s, 2032 1,116,188 6,452,236 Ser. 318, Class 2, IO, 6s, 2032 1,414,331 10,656,356 Ser. 350, Class 2, IO, 5 1/2s, 2034 2,465,115 925,807 Ser. 346, Class 2, IO, 5 1/2s, 2033 214,530 37,157,430 Ser. 338, Class 2, IO, 5 1/2s, 2033 8,741,415 11,201,684 Ser. 333, Class 2, IO, 5 1/2s, 2033 2,637,594 33,693,884 Ser. 329, Class 2, IO, 5 1/2s, 2033 7,855,371 813,661 Ser. 331, Class 1, IO, 5 1/2s, 2032 172,122 4,601,391 Ser. 03-30, Class PI, IO, 5 1/2s, 2029 497,640 4,013,035 Ser. 03-86, Class IB, IO, 5 1/2s, 2028 305,994 260,070 Ser. 03-8, Class IP, IO, 5 1/2s, 2028 18,662 18,089,246 Ser. 03-37, Class IC, IO, 5 1/2s, 2027 1,820,230 4,559,831 Ser. 03-6, Class IB, IO, 5 1/2s, 2022 83,190 12,775,750 Ser. 03-118, Class S, IO, 5 1/4s, 2033 1,501,151 636,616 Ser. 343, Class 25, IO, 4 1/2s, 2018 102,666 364,284 Ser. 343, Class 26, IO, 4 1/2s, 2018 60,445 2,284,121 Ser. 03-W10, Class 3, IO, 1.957s, 2043 112,065 64,950,942 Ser. 03-W10, Class 1A, IO, 1.551s, 2043 1,380,208 78,320,377 Ser. 03-W10, Class 3A, IO, 1.527s, 2043 1,688,783 38,462,683 Ser. 03-W17, Class 12, IO, 1.16s, 2033 1,106,681 2,002,663 Ser. 01-T1, Class 1, IO, 0.812s, 2040 32,844 36,335,864 Ser. 00-T6, IO, 0.761s, 2030 522,328 106,230,886Ser. 02-T18, IO, 0.519s, 2042 1,266,966 54,050,482 Ser. 02-W8, Class 1, IO, 0.355s, 2042 472,942 1,724,388 Ser. 352, Class 1, PO, zero %, 2034 1,310,215 790,050 Ser. 99-51, Class N, PO, zero %, 2029 660,185 Federal Home Loan Mortgage Corp. Structured Pass-Through Securities 83,283 Ser. T-58, Class 4A, 7 1/2s, 2043 88,139 1,084,262 Ser. T-42, Class A5, 7 1/2s, 2042 1,147,985 110,837 Ser. T-41, Class 3A, 7 1/2s, 2032 117,148 268,654 Ser. 212, IO, 6s, 2031 54,381 32,687,085 Ser. T-57, Class 1AX, IO, 0.446s, 2043 317,065 67,437,818 FFCA Secured Lending Corp. Ser. 00-1, Class X, IO, 1.558s, 2020 4,383,458 3,121,100 First Union Commercial Mortgage Trust 144A Ser. 99-C1, Class G, 5.35s, 2035 1,954,589 Freddie Mac 459,813 IFB Ser. 2771, Class SV, 17.64s, 2034 530,541 8,450,891 IFB Ser. 2763, Class SC, 17.36s, 2032 9,259,635 634,995 IFB Ser. 2828, Class GI, IO, 4.69s, 2034 78,370 1,672,652 IFB Ser. 2869, Class JS, IO, 4.44s, 2034 144,478 327,426 IFB Ser. 2882, Class SL, IO, 4.39s, 2034 33,792 586,391 IFB Ser. 2737, Class SQ, IO, 4.29s, 2034 41,951 1,648,819 Ser. 2728, IO, 6s, 2032 267,933 18,521,580 Ser. 216, IO, 6s, 2032 3,967,324 8,480,640 Ser. 226, IO, 5 1/2s, 2034 2,019,870 10,684,436 Ser. 2515, Class IG, IO, 5 1/2s, 2032 2,903,767 5,857,770 Ser. 2626, Class IK, IO, 5 1/2s, 2030 1,167,485 5,463,961 Ser. 2590, Class IH, IO, 5 1/2s, 2028 1,188,412 2,000,000 Ser. 2745, Class CI, IO, 5 1/2s, 2027 391,360 2,661,572 Ser. 2833, Class IK, IO, 5 1/2s, 2023 401,392 1,136,405 Ser. 2553, Class IJ, IO, 5 1/2s, 2020 28,204 2,000,000 Ser. 2762, Class UI, IO, 5s, 2029 505,146 296,764 Ser. 2852, Class WI, IO, 5s, 2019 60,837 4,014,755 Ser. 2852, Class VS, IO, 4.150s, 2034 161,993 470,520 Ser. 2696, PO, zero %, 2033 304,795 1,011,976 Ser. 215, PO, zero %, 2031 886,858 2,151,735 Ser. 2235, PO, zero %, 2030 1,752,993 518,407 Ser. 2191, Class MO, PO, zero %, 2027 498,203 787,154 Ser. 1208, Class F, PO, zero %, 2022 714,734 1,657,530 Freddie Mac FRB Ser. 1615, Class SB, 8.893s, 2008 1,698,123 1,471,000 G-Force CDO, Ltd. 144A Ser. 03-1A, Class E, 6.58s, 2038 (Cayman Islands) 1,448,705 GE Capital Commercial Mortgage Corp. 144A Ser. 00-1 4,588,975 Class G, 6.131s, 2033 4,119,523 2,837,147 Class H, 6.131s, 2033 1,765,273 4,134,628 GMAC Commercial Mortgage Securities, Inc. 144A Ser. 99-C3, Class G, 6.974s, 2036 3,267,340 Government National Mortgage Association 985,436 IFB Ser. 03-114, Class SP, 11.49s, 2027 996,286 881,092 IFB Ser. 04-86, Class SW, IO, 3.9s, 2034 63,415 469,220 Ser. 97-13, Class PI, IO, 8s, 2027 82,456 8,342,908 Ser. 96-16, Class S, IO, 5 5/8s, 2010 553,506 1,187,019 Ser. 01-43, Class SJ, IO, 4 3/4s, 2029 11,128 98,850 Ser. 99-31, Class MP, PO, zero %, 2029 85,988 709,073 Ser. 98-2, Class EA, PO, zero %, 2028 585,207 1,843,461 GS Mortgage Securities Corp. II 144A FRB Ser. 03-FL6A, Class L, 6.06s, 2015 1,845,765 GBP 7,519,786 Hermione (European Loan Conduit No. 14) 144A FRB Class A, 5.319s, 2011 (Ireland) 14,286,027 LB Commercial Conduit Mortgage Trust 144A $1,960,723 Ser. 99-C1, Class G, 6.41s, 2031 1,850,728 7,070,000 Ser. 98-C4, Class J, 5.6s, 2035 5,048,146 4,196,208 Lehman Brothers Floating Rate Commercial Mortgage Trust 144A FRB Ser. 03-LLFA, Class L, 6.55s, 2014 4,046,141 Mach One Commercial Mortgage Trust 144A Ser. 04-1A 4,511,500 Class J, 5.45s, 2040 3,692,381 1,653,000 Class K, 5.45s, 2040 1,319,817 752,500 Class L, 5.45s, 2040 538,038 41,749,145 Merrill Lynch Mortgage Investors, Inc. Ser. 96-C2, Class JS, IO, 2.13s, 2028 1,813,479 8,375,486 Mezz Cap Commercial Mortgage Trust 144A Ser. 04-C1, Class X, IO, 6.18s, 2037 3,668,201 Morgan Stanley Capital I 144A 275,000 Ser. 96-C1, Class E, 7.442s, 2028 281,413 13,869,752 Ser. 04-RR, Class F7, 6s, 2039 9,660,633 28,861,574 Mortgage Capital Funding, Inc. Ser. 97-MC2, Class X, IO, 0.847s, 2012 665,375 2,378,284 Mortgage Capital Funding, Inc. FRB Ser. 98-MC2, Class E, 7.106s, 2030 2,529,643 880,000 PNC Mortgage Acceptance Corp. 144A Ser. 00-C1, Class J, 6 5/8s, 2010 764,227 GBP 3,190,000 Quick Star PLC FRN Class 1-D, 5.758s, 2011 (United Kingdom) 6,059,733 $5,193,000 QUIZNOS 144A Ser. 05-1, 7.3s, 2025 5,148,441 19,319,045 Salomon Brothers Mortgage Securities VII 144A Ser. 03-CDCA, Class X3CD, IO, 1.06s, 2015 376,895 Starwood Asset Receivables Trust 144A FRB Ser. 03-1A 2,468,179 Class F, 3.95s, 2022 2,471,387 3,131,502 Class E, 3.9s, 2022 3,135,573 STRIPS 144A 1,339,000 Ser. 03-1A, Class M, 5s, 2018 (Cayman Islands) 1,085,393 1,590,000 Ser. 03-1A, Class N, 5s, 2018 (Cayman Islands) 1,160,700 1,438,000 Ser. 04-1A, Class M, 5s, 2018 (Cayman Islands) 1,185,775 1,371,000 Ser. 04-1A, Class N, 5s, 2018 (Cayman Islands) 1,028,798 Titan Europe PLC 144A FRN Ser. 04-2A EUR 2,846,000 Class D, 3.044s, 2014 (Ireland) 3,698,377 EUR 3,577,000 Class C, 2.644s, 2014 (Ireland) 4,648,312 -------------- Total Collateralized mortgage obligations (cost $332,887,103) $301,176,754 Brady bonds (0.4%) (a) Principal amount Value ------------------------------------------------------------------------------- $12,710,000 Argentina (Republic of) govt. guaranty FRB Ser. L-GL, 3 1/2s, 2023 (In default) (NON) $7,371,800 5,452,985 Brazil (Federal Republic of) govt. guaranty FRB Ser. RG, 3 1/8s, 2012 5,119,262 5,588,550 Peru (Republic of) coll. FLIRB Ser. 20YR, 5s, 2017 5,155,437 4,925,750 Peru (Republic of) FRB Ser. 20 YR, 5s, 2017 4,654,834 -------------- Total Brady bonds (cost $19,515,893) $22,301,333 Convertible bonds and notes (0.1%) (a) Principal amount Value ------------------------------------------------------------------------------- $4,318,000 Lear Corp. cv. company guaranty zero %, 2022 $1,970,088 1,950,000 WCI Communities, Inc. cv. sr. sub. notes 4s, 2023 2,403,375 -------------- Total Convertible bonds and notes (cost $4,259,564) $4,373,463 Short-term investments (10.6%) (a) Principal amount Value ------------------------------------------------------------------------------- $25,989,000 Interest in $640,000,000 joint tri-party repurchase agreement dated March 31, 2005 with Bank of America Securities, LLC due April 1, 2005 with respect to various U.S. Government obligations -- maturity value of $25,991,079 for an effective yield of 2.88% (collateralized by Freddie Mac and Fannie Mae with yields ranging from 5.50% to 5.60% and due dates ranging from December 1, 2018 to February 1, 2035, valued at $652,800,000) $25,989,000 35,000,000 Lehman Brothers Holding, for an effective yield of zero %, April 1, 2035 34,997,229 444,241,891 Putnam Prime Money Market Fund (e) 444,241,891 13,799,796 Short-term investments held as collateral for loaned securities with yields ranging from 2.70% to 3.025% and due dates ranging from April 1, 2005 to May 3, 2005 (d) 13,780,000 8,000,000 U.S. Treasury Bill zero %, June 30, 2005 (SEG) 7,944,439 -------------- Total Short-term investments (cost $526,952,559) $526,952,559 ------------------------------------------------------------------------------- Total Investments (cost $5,461,045,177) $5,521,973,942 ------------------------------------------------------------------------------- (a) Percentages indicated are based on net assets of $4,987,780,248. (STP) The interest rate and date shown parenthetically represent the new interest rate to be paid and the date the fund will begin accruing interest at this rate. (PIK) Income may be received in cash or additional securities at the discretion of the issuer. (SEG) This security was pledged and segregated with the custodian to cover margin requirements for futures contracts at March 31, 2005. (F) Security is valued at fair value following procedures approved by the Trustees (Note 1). (R) Real Estate Investment Trust. (S) Securities on loan, in part or in entirety, at March 31, 2005. (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 March 31, 2005 was less than 0.01% of net assets. (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 March 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 6). (d) See Note 1 to the financial statements. (e) See Note 5 to the financial statements regarding investments in Putnam Prime Money Market Fund. (g) The notes are secured by debt and equity securities and equity participation agreements held by Neon Capital, Ltd. (h) The notes are primarily secured by shares of PSF Group Holdings, Inc. class A common stock valued at approximately $17.1 million. 144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. TBA after the name of a security represents to be announced securities (Note 1). FLIRB represents Front Loaded Interest Reduction Bond. The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interest rates at March 31, 2005. The rates shown on Inverse Floating Rate Bonds (IFB), which are securities paying interest rates that vary inversely to changes in the market interest rates, are the current interest rates at March 31, 2005. DIVERSIFICATION BY COUNTRY Distribution of investments by country of issue at March 31, 2005: (as a percentage of Portfolio Value) Brazil 1.0% Canada 1.8 Cayman Islands 2.4 France 3.0 Germany 2.4 Ireland 0.7 Mexico 1.0 Russia 1.1 Sweden 1.4 United Kingdom 1.9 United States 80.3 Other 3.0 ----- Total 100.0%
Forward currency contracts to buy at March 31, 2005 (Unaudited) (aggregate face value $547,283,372) Unrealized Aggregate Delivery appreciation/ Value face value date (depreciation) ------------------------------------------------------------------------------------------------------ Australian Dollar $141,802,938 $141,789,242 4/20/05 $13,696 British Pound 87,897,790 88,300,889 6/15/05 (403,099) Canadian Dollar 19,750,201 19,593,953 4/20/05 156,248 Danish Krone 6,817,640 6,892,645 6/15/05 (75,005) Euro 30,687,462 31,392,904 6/15/05 (705,442) Japanese Yen 151,906,215 158,798,444 5/18/05 (6,892,229) Korean Won 12,552,989 12,610,612 5/18/05 (57,623) Norwegian Krone 37,621,780 38,673,946 6/15/05 (1,052,166) Polish Zloty 4,284,067 4,495,977 6/15/05 (211,910) Singapore Dollar 12,468,524 12,496,273 5/18/05 (27,749) Swiss Franc 18,921,065 19,026,566 6/15/05 (105,501) Taiwan Dollar 13,508,819 13,211,921 5/18/05 296,898 ------------------------------------------------------------------------------------------------------ $(9,063,882) ------------------------------------------------------------------------------------------------------
Forward currency contracts to sell at March 31, 2005 (Unaudited) (aggregate face value $707,848,529) Unrealized Aggregate Delivery appreciation/ Value face value date (depreciation) ------------------------------------------------------------------------------------------------------ Australian Dollar $20,904,678 $20,698,038 4/20/05 $(206,640) British Pound 43,492,549 43,543,752 6/15/05 51,203 Canadian Dollar 176,076,663 175,172,292 4/20/05 (904,371) Euro 214,058,230 216,114,233 6/15/05 2,056,003 Japanese Yen 19,529,576 19,578,574 5/18/05 48,998 Norwegian Krone 20,895,280 21,077,560 6/15/05 182,280 Swedish Krona 161,458,956 164,857,082 6/15/05 3,398,126 Swiss Franc 45,601,977 46,806,998 6/15/05 1,205,021 ------------------------------------------------------------------------------------------------------ $5,830,620 ------------------------------------------------------------------------------------------------------
Futures contracts outstanding at March 31, 2005 (Unaudited) Unrealized Number of Expiration appreciation/ contracts Value date (depreciation) ------------------------------------------------------------------------------------------------------ Euro 90 day (Long) 50 $11,938,750 Jun-06 $(68,125) Euro 90 day (Long) 18 4,302,900 Mar-06 (24,075) Euro 90 day (Long) 18 4,309,425 Dec-05 (23,400) Euro 90 day (Long) 17 4,081,063 Sep-05 (19,551) Euro 90 day (Long) 37 8,924,863 Jun-05 (22,201) Euro-Bobl 5 yr (Long) 505 73,886,881 Jun-05 235,010 Euro-Bund 10 yr (Long) 302 46,548,360 Jun-05 352,207 Interest Rate Swap 10 yr (Long 152 16,382,750 Jun-05 (164,163) Japanese Government Bond - Mini 10 yr (Long) 276 35,977,558 Jun-05 471,270 Japanese Government Bond - TSE 10 yr (Long) 60 78,217,692 Jun-05 949,984 U.K. Gilt 10 yr (Long) 158 32,852,670 Jun-05 81,147 U.S. Treasury Bond 20 yr (Short) 2,862 318,755,250 Jun-05 5,287,345 U.S. Treasury Note 10 yr (Long) 4,922 537,805,406 Jun-05 (6,474,867) U.S. Treasury Note 5 yr (Short) 7,258 777,286,438 Jun-05 8,283,084 ------------------------------------------------------------------------------------------------------ $8,863,665 ------------------------------------------------------------------------------------------------------
TBA sale commitments outstanding at March 31, 2005 (Unaudited) (proceeds receivable $237,992,688) Principal Settlement Agency amount date Value ------------------------------------------------------------------------------------------------------ FNMA, 6 1/2s, April 1, 2035 $183,300,000 4/13/05 $190,202,381 FNMA, 5 1/2s, April 1, 2035 5,400,000 4/13/05 5,408,016 FNMA, 5s, May 1, 2035 21,800,000 5/12/05 21,261,813 FNMA, 5s, April 1, 2035 21,800,000 4/13/05 21,319,720 ------------------------------------------------------------------------------------------------------ $238,191,930 ------------------------------------------------------------------------------------------------------
Interest rate swap contracts outstanding at March 31, 2005 (Unaudited) Unrealized Notional Termination appreciation/ amount date (depreciation) ------------------------------------------------------------------------------------------------------ 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. $132,900,000 1/26/06 $1,996,621 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. 44,236,000 12/5/05 82,688 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. 42,000,000 1/27/14 1,471,291 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. 42,918,600 7/9/14 (340,270) 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. 37,886,000 7/9/06 (441,848) Agreement with Deutsche Bank AG dated July 31, 2002 to pay quarterly the notional amount multiplied by the three month USD-LIBOR-BBA and receive semi-annually the notional amount multiplied by 5.7756%. 21,693,259 8/2/22 1,631,501 Agreement with Deutsche Bank AG dated July 31, 2002 to receive semi-annually the notional amount multiplied by the three month USD-LIBOR-BBA and pay quarterly the notional amount multiplied by 5.86%. 24,344,349 8/2/32 (2,282,914) Agreement with Goldman Sachs Capital Markets, L.P. dated July 30, 2002 to pay quarterly the notional amount multiplied by the three month USD-LIBOR-BBA and receive semi-annually the notional amount multiplied by 5.845%. 43,565,000 8/1/22 3,568,009 Agreement with Goldman Sachs Capital Markets, L.P. dated July 30, 2002 to receive quarterly the notional amount multiplied by the three month USD-LIBOR-BBA and pay semi-annually the notional amount multiplied by 5.919%. 48,888,992 8/1/32 (4,942,758) Agreement with Goldman Sachs Capital Markets, L.P. dated August 8, 2002 to receive quarterly the notional amount multiplied by the three month USD-LIBOR-BBA and pay semi-annually the notional amount multiplied by 5.689%. 24,344,349 8/12/32 (1,611,318) Agreement with Goldman Sachs Capital Markets, L.P. dated August 8, 2002 to pay quarterly the notional amount multiplied by the three month USD-LIBOR-BBA and receive semi-annually the notional amount multiplied by 5.601%. 21,693,259 8/12/22 1,136,736 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. 132,900,000 1/26/06 2,000,496 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. 68,727,000 12/15/13 (301,734) 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. 42,000,000 1/26/14 1,502,365 Agreement with Lehman Brothers Special Financing, Inc. dated July 19, 2002 to receive semi-annually the notional amount multiplied by 5.114% and pay quarterly the notional amount multiplied by the three month USD-LIBOR-BBA adjusted by a specified spread. 35,000,000 7/23/12 849,796 Agreement with Lehman Brothers Special Financing, Inc. dated July 31, 2002 to receive semi-annually the notional amount multiplied by 5.7756% and pay quarterly the notional amount multiplied by the three month USD-LIBOR-BBA. 21,693,259 8/2/22 1,620,185 Agreement with Lehman Brothers Special Financing, Inc. dated July 31, 2002 to pay semi-annually the notional amount multiplied by 5.152% and receive quarterly the notional amount multiplied by the three month USD-LIBOR-BBA. 21,082,941 8/2/12 (553,157) 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 at maturity the notional amount multiplied by 2.5645%. EUR 337,100,000 2/19/07 118,362 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 16,727,000,000 10/1/07 (808,196) Agreement with Merrill Lynch Capital Services, Inc. dated July 30, 2002 to pay quarterly the notional amount multiplied by the three month LIBOR-BBA and receive semi-annually the notional amount multiplied by 5.845%. $43,565,000 8/1/22 3,682,437 Agreement with Merrill Lynch Capital Services, Inc. dated July 30, 2002 to receive quarterly the notional amount multiplied by the three month LIBOR-BBA and pay semi-annually the notional amount multiplied by 5.204%. 42,339,343 8/1/12 (1,212,662) Agreement with Merrill Lynch Capital Services, Inc. dated October 27, 2000 to receive semi-annually the notional amount multiplied by 6.74% and pay quarterly the notional amount multiplied by the three month USD-LIBOR. 33,300,000 10/31/05 1,414,480 Agreement with Merrill Lynch Capital Services, Inc. dated August 8, 2002 to pay quarterly the notional amount multiplied by the three month USD-LIBOR-BBA and receive semi-annually the notional amount multiplied by 5.601%. 21,693,259 8/12/22 1,191,984 Agreement with Merrill Lynch Capital Services, Inc. dated August 8, 2002 to receive quarterly the notional amount multiplied by the three month USD-LIBOR-BBA and pay semi-annually the notional amount multiplied by 4.94%. 21,082,941 8/13/12 (236,257) Agreement with Morgan Stanley Capital Services, Inc. dated May 15, 2002 to receive semi-annually the notional amount multiplied by 5.7775% and pay quarterly the notional amount multiplied by the three month USD-LIBOR-BBA. 15,000,000 5/17/12 1,170,842 Agreement with Morgan Stanley Capital Services, Inc. dated September 28, 2000 to pay semi-annually the notional amount multiplied by 6.94% and receive quarterly the notional amount multiplied by the three month USD-LIBOR-BBA. 2,000,000 10/2/10 (276,096) ------------------------------------------------------------------------------------------------------ $10,430,583 ------------------------------------------------------------------------------------------------------
Total return swap contracts outstanding at March 31, 2005 (Unaudited) Notional Termination Unrealized amount date appreciation ------------------------------------------------------------------------------------------------------ Agreement with Lehman Brothers Special Financing, Inc. dated October 9, 2003 to receive (pay) semi-annually the notional amount multiplied by the total rate of return of the Lehman Brothers U.S. High Yield Index and pay semi-annually the notional amount multiplied by the six month USD-LIBOR adjusted by a specified spread. $11,339,780 5/1/06 $43,666 ------------------------------------------------------------------------------------------------------
Credit default contracts outstanding at March 31, 2005 (Unaudited) Unrealized Notional appreciation/ amount (depreciation) ------------------------------------------------------------------------------------------------------ Agreement with Bank of America, N.A. effective March 2, 2005, maturing on December 20, 2009, to receive a premium based on the difference between the original spread on issue and the market spread on day of execution and pay quarterly 375 basis points times the notional amount. Upon a credit default event of a reference entity within the CDX HY Series 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 CDX HY Series 3 Index. $17,000,000 $410,439 Agreement with Citigroup effective January 6, 2005, maturing on December 20, 2009, to receive a premium based on the difference between the original spread on issue and the market spread on day of execution and pay quarterly 375 basis points times the notional amount. Upon a credit default event of a reference entity within the CDX BB HY Series 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 CDX BB HY Series 3 Index. 32,000,000 663,690 Agreement with Deutsche Bank AG effective January 6, 2005, maturing on December 20, 2009, to receive a premium based on the difference between the original spread on issue and the market spread on day of execution and pay quarterly 375 basis points times the notional amount. Upon a credit default event of a reference entity within the CDX HY Series 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 CDX HY Series 3 Index. 16,000,000 351,150 Agreement with Goldman Sachs effective January 13, 2005, maturing on December 20, 2009, to receive a premium based on the difference between the original spread on issue and the market spread on day of execution and pay quarterly 375 basis points times the notional amount. Upon a credit default event of a reference entity within the CDX HY Series 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 CDX HY Series 3 Index. 12,000,000 167,709 Agreement with Goldman Sachs effective September 2, 2004, terminating on the date on which the notional amount is reduced to zero or the date on which the assets securing the reference obligation are liquidated, the fund receives a payment of the outstanding notional amount times 2.35% and the fund pays in the event of a credit default in one of the underlying securities in the basket of BB CMBS securities. 8,516,444 416,695 Agreement with Goldman Sachs effective September 2, 2004, terminating on the date on which the notional amount is reduced to zero or the date on which the assets securing the reference obligation are liquidated, the fund receives a payment of the outstanding notional amount times 2.55625% and the fund pays in the event of a credit default in one of the underlying securities in the basket of BB CMBS securities. 8,516,444 220,311 Agreement with Goldman Sachs effective September 2, 2004, terminating on the date on which the notional amount is reduced to zero or the date on which the assets securing the reference obligation are liquidated, the fund receives a payment of the outstanding notional amount times 2.4625% and the fund pays in the event of a credit default in one of the underlying securities in the basket of BB CMBS securities. 4,258,222 194,560 Agreement with Goldman Sachs effective September 2, 2004, terminating on the date on which the notional amount is reduced to zero or the date on which the assets securing the reference obligation are liquidated, the fund receives a payment of the outstanding notional amount times 2.433% and the fund pays in the event of a credit default in one of the underlying securities in the basket of BB CMBS securities. 3,193,667 137,787 Agreement with Goldman Sachs effective September 2, 2004, terminating on the date on which the notional amount is reduced to zero or the date on which the assets securing the reference obligation are liquidated, the fund receives a payment of the outstanding notional amount times 2.475% and the fund pays in the event of a credit default in one of the underlying securities in the basket of BB CMBS securities. 2,129,110 68,352 Agreement with Goldman Sachs effective September 2, 2004, terminating on the date on which the notional amount is reduced to zero or the date on which the assets securing the reference obligation are liquidated, the fund receives a payment of the outstanding notional amount times 2.5% and the fund pays in the event of a credit default in one of the underlying securities in the basket of BB CMBS securities. 1,064,556 66,602 Agreement with Goldman Sachs effective September 2, 2004, terminating on the date on which the notional amount is reduced to zero or the date on which the assets securing the reference obligation are liquidated, the fund receives a payment of the outstanding notional amount times 2.6% and the fund pays in the event of a credit default in one of the underlying securities in the basket of BB CMBS securities. 1,064,556 10,436 Agreement with JP Morgan effective January 14, 2005, maturing on December 20, 2009, to receive a premium based on the difference between the original spread on issue and the market spread on day of execution and pay quarterly 375 basis points times the notional amount. Upon a credit default event of a reference entity within the CDX HY Series 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 CDX HY Series 3 Index. 20,000,000 238,878 Agreement with JP Morgan effective January 18, 2005, maturing on December 20, 2009, to receive a premium based on the difference between the original spread on issue and the market spread on day of execution and pay quarterly 375 basis points times the notional amount. Upon a credit default event of a reference entity within the CDX HY Series 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 CDX HY Series 3 Index. 16,000,000 152,847 Agreement with JP Morgan effective January 10, 2005, maturing on December 20, 2009, to receive a premium based on the difference between the original spread on issue and the market spread on day of execution and pay quarterly 375 basis points times the notional amount. Upon a credit default event of a reference entity within the CDX HY Series 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 CDX HY Series 3 Index. 16,000,000 253,190 Agreement with Lehman Brothers effective January 14, 2005, maturing on December 20, 2009, to receive a premium based on the difference between the original spread on issue and the market spread on day of execution and pay quarterly 375 basis points times the notional amount. Upon a credit default event of a reference entity within the CDX HY Series 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 CDX HY Series 3 Index. 6,000,000 64,782 Agreement with Lehman Brothers effective March 24, 2005, maturing on December 20, 2009, to pay 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 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 3 Index. 6,546,000 (62,023) ------------------------------------------------------------------------------------------------------ $3,355,405 ------------------------------------------------------------------------------------------------------ The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities March 31, 2005 (Unaudited) Assets ------------------------------------------------------------------------------- Investment in securities, at value, including $13,508,987 of securities on loan (Note 1): ------------------------------------------------------------------------------- Unaffiliated issuers (identified cost $5,016,803,286) $5,077,732,051 ------------------------------------------------------------------------------- Affiliated issuers (identified cost $444,241,891) (Note 5) 444,241,891 ------------------------------------------------------------------------------- Cash 71,887,458 ------------------------------------------------------------------------------- Foreign currency (cost $2,563,749) (Note 1) 2,533,387 ------------------------------------------------------------------------------- Interest and other receivables 68,662,311 ------------------------------------------------------------------------------- Receivable for shares of the fund sold 9,676,181 ------------------------------------------------------------------------------- Receivable for securities sold 55,795,842 ------------------------------------------------------------------------------- Receivable for sales of delayed delivery securities (Note 1) 283,538,523 ------------------------------------------------------------------------------- Receivable for open forward currency contracts (Note 1) 8,960,832 ------------------------------------------------------------------------------- Receivable for closed forward currency contracts (Note 1) 10,908,368 ------------------------------------------------------------------------------- Receivable for open swap contracts (Note 1) 23,481,459 ------------------------------------------------------------------------------- Receivable for open credit default contracts (Note 1) 3,417,428 ------------------------------------------------------------------------------- Total assets 6,060,835,731 Liabilities ------------------------------------------------------------------------------- Payable for variation margin (Note 1) 814,523 ------------------------------------------------------------------------------- Payable for securities purchased 758,091,838 ------------------------------------------------------------------------------- Payable for shares of the fund repurchased 12,538,634 ------------------------------------------------------------------------------- Payable for compensation of Manager (Notes 2 and 5) 6,649,420 ------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 393,117 ------------------------------------------------------------------------------- Payable for Trustee compensation and expenses (Note 2) 327,793 ------------------------------------------------------------------------------- Payable for administrative services (Note 2) 5,147 ------------------------------------------------------------------------------- Payable for distribution fees (Note 2) 2,706,051 ------------------------------------------------------------------------------- Payable for open forward currency contracts (Note 1) 12,194,094 ------------------------------------------------------------------------------- Payable for closed forward currency contracts (Note 1) 11,130,239 ------------------------------------------------------------------------------- TBA sale commitments, at value (proceeds receivable $237,992,688) (Note 1) 238,191,930 ------------------------------------------------------------------------------- Payable for open swap contracts (Note 1) 13,007,210 ------------------------------------------------------------------------------- Payable for open credit default contracts (Note 1) 62,023 ------------------------------------------------------------------------------- Premiums received on credit default contracts (Note 1) 2,731,988 ------------------------------------------------------------------------------- Collateral on securities loaned, at value (Note 1) 13,780,000 ------------------------------------------------------------------------------- Other accrued expenses 431,476 ------------------------------------------------------------------------------- Total liabilities 1,073,055,483 ------------------------------------------------------------------------------- Net assets $4,987,780,248 Represented by ------------------------------------------------------------------------------- Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) $5,729,214,827 ------------------------------------------------------------------------------- Undistributed net investment income (Note 1) 1,129,431 ------------------------------------------------------------------------------- Accumulated net realized loss on investments and foreign currency transactions (Note 1) (822,817,295) ------------------------------------------------------------------------------- Net unrealized appreciation of investments and assets and liabilities in foreign currencies 80,253,285 ------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $4,987,780,248 Computation of net asset value and offering price ------------------------------------------------------------------------------- Net asset value and redemption price per class A share ($1,354,714,662 divided by 133,589,397 shares) $10.14 ------------------------------------------------------------------------------- Offering price per class A share (100/95.50 of $10.14)* $10.62 ------------------------------------------------------------------------------- Net asset value and offering price per class B share ($445,233,949 divided by 44,242,144 shares)** $10.06 ------------------------------------------------------------------------------- Net asset value and offering price per class C share ($227,769,127 divided by 22,594,609 shares)** $10.08 ------------------------------------------------------------------------------- Net asset value and redemption price per class M share ($2,931,173,560 divided by 291,435,986 shares) $10.06 ------------------------------------------------------------------------------- Offering price per class M share (100/96.75 of $10.06)* $10.40 ------------------------------------------------------------------------------- Net asset value, offering price and redemption price per class R share ($396,943 divided by 39,194 shares) $10.13 ------------------------------------------------------------------------------- Net asset value, offering price and redemption price per class Y share ($28,492,007 divided by 2,808,684 shares) $10.14 ------------------------------------------------------------------------------- * On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales, the offering price is reduced. ** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. The accompanying notes are an integral part of these financial statements. Statement of operations Six months ended March 31, 2005 (Unaudited) Investment income: ------------------------------------------------------------------------------- Interest (including interest income of $4,119,132 from investments in affiliated issuers) (Note 5) $148,557,511 ------------------------------------------------------------------------------- Dividends 73,010 ------------------------------------------------------------------------------- Securities lending 21,875 ------------------------------------------------------------------------------- Total investment income 148,652,396 Expenses: ------------------------------------------------------------------------------- Compensation of Manager (Note 2) 13,867,858 ------------------------------------------------------------------------------- Investor servicing fees (Note 2) 2,782,172 ------------------------------------------------------------------------------- Custodian fees (Note 2) 418,455 ------------------------------------------------------------------------------- Trustee compensation and expenses (Note 2) 56,456 ------------------------------------------------------------------------------- Administrative services (Note 2) 68,171 ------------------------------------------------------------------------------- Distribution fees -- Class A (Note 2) 1,696,579 ------------------------------------------------------------------------------- Distribution fees -- Class B (Note 2) 2,441,200 ------------------------------------------------------------------------------- Distribution fees -- Class C (Note 2) 1,208,798 ------------------------------------------------------------------------------- Distribution fees -- Class M (Note 2) 7,703,623 ------------------------------------------------------------------------------- Distribution fees -- Class R (Note 2) 718 ------------------------------------------------------------------------------- Other 531,256 ------------------------------------------------------------------------------- Non-recurring costs (Notes 2 and 7) 35,591 ------------------------------------------------------------------------------- Costs assumed by Manager (Notes 2 and 7) (35,591) ------------------------------------------------------------------------------- Fees waived and reimbursed by Manager (Note 5) (307,181) ------------------------------------------------------------------------------- Total expenses 30,468,105 ------------------------------------------------------------------------------- Expense reduction (Note 2) (270,979) ------------------------------------------------------------------------------- Net expenses 30,197,126 ------------------------------------------------------------------------------- Net investment income 118,455,270 ------------------------------------------------------------------------------- Net realized gain on investments (Notes 1 and 3) 91,587,660 ------------------------------------------------------------------------------- Net realized gain on swap contracts (Note 1) 11,489,455 ------------------------------------------------------------------------------- Net realized gain on futures contracts (Note 1) 15,919,891 ------------------------------------------------------------------------------- Net realized loss on credit default contracts (Note 1) (689,734) ------------------------------------------------------------------------------- Net realized gain on foreign currency transactions (Note 1) 3,891,166 ------------------------------------------------------------------------------- Net unrealized appreciation of assets and liabilities in foreign currencies during the period 6,025,566 ------------------------------------------------------------------------------- Net unrealized depreciation of investments, futures contracts, swap contracts, credit default contracts and TBA sale commitments during the period (79,304,276) ------------------------------------------------------------------------------- Net gain on investments 48,919,728 ------------------------------------------------------------------------------- Net increase in net assets resulting from operations $167,374,998 ------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements. Statement of changes in net assets Six months ended Year ended March 31 September 30 Decrease in net assets 2005* 2004 ------------------------------------------------------------------------------- Operations: ------------------------------------------------------------------------------- Net investment income $118,455,270 $293,663,745 ------------------------------------------------------------------------------- Net realized gain on investments and foreign currency transactions 122,198,438 61,110,106 ------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investments and assets and liabilities in foreign currencies (73,278,710) 142,974,690 ------------------------------------------------------------------------------- Net increase in net assets resulting from operations 167,374,998 497,748,541 ------------------------------------------------------------------------------- Distributions to shareholders: (Note 1) ------------------------------------------------------------------------------- From net investment income Class A (38,714,005) (92,685,188) ------------------------------------------------------------------------------- Class B (12,210,003) (38,106,743) ------------------------------------------------------------------------------- Class C (6,023,219) (17,458,283) ------------------------------------------------------------------------------- Class M (85,381,686) (222,273,258) ------------------------------------------------------------------------------- Class R (7,939) (164) ------------------------------------------------------------------------------- Class Y (813,214) (1,806,730) ------------------------------------------------------------------------------- Redemption fees (Note 1) 4,625 245 ------------------------------------------------------------------------------- Decrease from capital share transactions (Note 4) (360,771,904) (289,881,834) ------------------------------------------------------------------------------- Total decrease in net assets (336,542,347) (164,463,414) Net assets ------------------------------------------------------------------------------- Beginning of period 5,324,322,595 5,488,786,009 ------------------------------------------------------------------------------- End of period (including undistributed net investment income of $1,129,431 and $25,824,227, respectively) $4,987,780,248 $5,324,322,595 ------------------------------------------------------------------------------- * Unaudited The accompanying notes are an integral part of these financial statements.
Financial highlights (For a common share outstanding throughout the period) CLASS A ------------------------------------------------------------------------------------------------------------------------------- Six months ended March 31 Per-share (Unaudited) Year ended September 30 operating performance 2005 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.10 $9.85 $8.89 $9.26 $10.13 $10.77 ------------------------------------------------------------------------------------------------------------------------------- Investment operations: ------------------------------------------------------------------------------------------------------------------------------- Net investment income (a) .24 (d) .54 (d) .68 .73 .84 .92 ------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments .09 .39 1.00 (.31) (.81) (.61) ------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .33 .93 1.68 .42 .03 .31 ------------------------------------------------------------------------------------------------------------------------------- Less distributions: ------------------------------------------------------------------------------------------------------------------------------- From net investment income (.29) (.68) (.72) (.74) (.68) (.95) ------------------------------------------------------------------------------------------------------------------------------- From return of capital -- -- -- (.05) (.22) -- (e) ------------------------------------------------------------------------------------------------------------------------------- Total distributions (.29) (.68) (.72) (.79) (.90) (.95) ------------------------------------------------------------------------------------------------------------------------------- Redemption fees -- (e) -- (e) -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $10.14 $10.10 $9.85 $8.89 $9.26 $10.13 ------------------------------------------------------------------------------------------------------------------------------- Total return at net asset value (%)(b) 3.29* 9.73 19.65 4.61 .22 2.96 ------------------------------------------------------------------------------------------------------------------------------- Ratios and supplemental data ------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $1,354,715 $1,340,885 $1,478,254 $1,296,859 $1,378,591 $1,285,717 ------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) .46* (d) .95 (d) .96 .94 .95 .94 ------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) 2.39* (d) 5.44 (d) 7.22 7.96 8.75 8.73 ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 61.82* (f) 99.17 146.21 (g) 209.42 (g)(h) 150.11 (g) 142.85 ------------------------------------------------------------------------------------------------------------------------------- * Not annualized. (a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. (b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (c) Includes amounts paid through expense offset arrangements (Note 2). (d) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund during the period. As a result of such waivers, the expenses of the fund for the periods ended March 31, 2005 and September 30, 2004 reflect a reduction of 0.01% and less than 0.01%, respectively, of average net assets for class A shares (Note 5). (e) Amount represents less than $0.01 per share. (f) Portfolio turnover excludes dollar roll transactions. (g) Portfolio turnover excludes certain treasury note transactions executed in connection with a short-term trading strategy. (h) Portfolio turnover excludes the impact of assets received from the acquisition of Putnam Strategic Income Fund. The accompanying notes are an integral part of these financial statements.
Financial highlights (For a common share outstanding throughout the period) CLASS B ------------------------------------------------------------------------------------------------------------------------------- Six months ended March 31 Per-share (Unaudited) Year ended September 30 operating performance 2005 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.02 $9.78 $8.84 $9.22 $10.09 $10.72 ------------------------------------------------------------------------------------------------------------------------------- Investment operations: ------------------------------------------------------------------------------------------------------------------------------- Net investment income (a) .21 (d) .47 (d) .61 .66 .79 .83 ------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments .08 .37 .98 (.32) (.83) (.59) ------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .29 .84 1.59 .34 (.04) .24 ------------------------------------------------------------------------------------------------------------------------------- Less distributions: ------------------------------------------------------------------------------------------------------------------------------- From net investment income (.25) (.60) (.65) (.68) (.63) (.87) ------------------------------------------------------------------------------------------------------------------------------- From return of capital -- -- -- (.04) (.20) -- (e) ------------------------------------------------------------------------------------------------------------------------------- Total distributions (.25) (.60) (.65) (.72) (.83) (.87) ------------------------------------------------------------------------------------------------------------------------------- Redemption fees -- (e) -- (e) -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $10.06 $10.02 $9.78 $8.84 $9.22 $10.09 ------------------------------------------------------------------------------------------------------------------------------- Total return at net asset value (%)(b) 2.91* 8.85 18.67 3.70 (.53) 2.30 ------------------------------------------------------------------------------------------------------------------------------- Ratios and supplemental data ------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $445,234 $516,726 $742,979 $696,733 $738,611 $1,214,668 ------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) .83* (d) 1.70 (d) 1.71 1.69 1.70 1.69 ------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) 2.03* (d) 4.73 (d) 6.49 7.20 8.01 7.96 ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 61.82* (f) 99.17 146.21 (g) 209.42 (g)(h) 150.11 (g) 142.85 ------------------------------------------------------------------------------------------------------------------------------- * Not annualized. (a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. (b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (c) Includes amounts paid through expense offset arrangements (Note 2). (d) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund during the period. As a result of such waivers, the expenses of the fund for the periods ended March 31, 2005 and September 30, 2004 reflect a reduction of 0.01% and less than 0.01%, respectively, of average net assets for class B shares (Note 5). (e) Amount represents less than $0.01 per share. (f) Portfolio turnover excludes dollar roll transactions. (g) Portfolio turnover excludes certain treasury note transactions executed in connection with a short-term trading strategy. (h) Portfolio turnover excludes the impact of assets received from the acquisition of Putnam Strategic Income Fund. The accompanying notes are an integral part of these financial statements.
Financial highlights (For a common share outstanding throughout the period) CLASS C ------------------------------------------------------------------------------------------------------------------------------- Six months ended March 31 Per-share (Unaudited) Year ended September 30 operating performance 2005 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.04 $9.80 $8.86 $9.24 $10.11 $10.75 ------------------------------------------------------------------------------------------------------------------------------- Investment operations: ------------------------------------------------------------------------------------------------------------------------------- Net investment income (a) .21 (e) .47 (e) .57 .65 .77 .84 ------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments .08 .37 1.03 (.31) (.81) (.61) ------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .29 .84 1.60 .34 (.04) .23 ------------------------------------------------------------------------------------------------------------------------------- Less distributions: ------------------------------------------------------------------------------------------------------------------------------- From net investment income (.25) (.60) (.66) (.68) (.63) (.87) ------------------------------------------------------------------------------------------------------------------------------- From return of capital -- -- -- (.04) (.20) -- (e) ------------------------------------------------------------------------------------------------------------------------------- Total distributions (.25) (.60) (.66) (.72) (.83) (.87) ------------------------------------------------------------------------------------------------------------------------------- Redemption fees -- (e) -- (e) -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $10.08 $10.04 $9.80 $8.86 $9.24 $10.11 ------------------------------------------------------------------------------------------------------------------------------- Total return at net asset value (%)(b) 2.91* 8.87 18.70 3.72 (.50) 2.22 ------------------------------------------------------------------------------------------------------------------------------- Ratios and supplemental data ------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $227,769 $265,151 $237,437 $26,673 $18,589 $12,441 ------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) .83* (d) 1.70 (d) 1.71 1.69 1.70 1.69 ------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) 2.03* (d) 4.67 (d) 6.10 7.17 7.96 8.07 ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 61.82* (f) 99.17 146.21 (g) 209.42 (g)(h) 150.11 (g) 142.85 ------------------------------------------------------------------------------------------------------------------------------- * Not annualized. (a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. (b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (c) Includes amounts paid through expense offset arrangements (Note 2). (d) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund during the period. As a result of such waivers, the expenses of the fund for the periods ended March 31, 2005 and September 30, 2004 reflect a reduction of 0.01% and less than 0.01%, respectively, of average net assets for class C shares (Note 5). (e) Amount represents less than $0.01 per share. (f) Portfolio turnover excludes dollar roll transactions. (g) Portfolio turnover excludes certain treasury note transactions executed in connection with a short-term trading strategy. (h) Portfolio turnover excludes the impact of assets received from the acquisition of Putnam Strategic Income Fund. The accompanying notes are an integral part of these financial statements.
Financial highlights (For a common share outstanding throughout the period) CLASS M ------------------------------------------------------------------------------------------------------------------------------- Six months ended March 31 Per-share (Unaudited) Year ended September 30 operating performance 2005 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.02 $9.78 $8.83 $9.22 $10.09 $10.73 ------------------------------------------------------------------------------------------------------------------------------- Investment operations: ------------------------------------------------------------------------------------------------------------------------------- Net investment income (a) .23 (d) .51 (d) .65 .70 .81 .88 ------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments .09 .38 1.00 (.32) (.80) (.59) ------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .32 .89 1.65 .38 .01 .29 ------------------------------------------------------------------------------------------------------------------------------- Less distributions: ------------------------------------------------------------------------------------------------------------------------------- From net investment income (.28) (.65) (.70) (.72) (.67) (.93) ------------------------------------------------------------------------------------------------------------------------------- From return of capital -- -- -- (.05) (.21) -- (e) ------------------------------------------------------------------------------------------------------------------------------- Total distributions (.28) (.65) (.70) (.77) (.88) (.93) ------------------------------------------------------------------------------------------------------------------------------- Redemption fees -- (e) -- (e) -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $10.06 $10.02 $9.78 $8.83 $9.22 $10.09 ------------------------------------------------------------------------------------------------------------------------------- Total return at net asset value (%)(b) 3.20* 9.43 19.37 4.13 (.02) 2.74 ------------------------------------------------------------------------------------------------------------------------------- Ratios and supplemental data ------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $2,931,174 $3,174,449 $3,004,689 $2,258,273 $1,368,935 $1,022,625 ------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) .58* (d) 1.20 (d) 1.21 1.19 1.20 1.19 ------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) 2.27* (d) 5.17 (d) 6.96 7.68 8.47 8.48 ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 61.82* (f) 99.17 146.21 (g) 209.42 (g)(h) 150.11 (g) 142.85 ------------------------------------------------------------------------------------------------------------------------------- * Not annualized. (a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. (b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (c) Includes amounts paid through expense offset arrangements (Note 2). (d) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund during the period. As a result of such waivers, the expenses of the fund for the periods ended March 31, 2005 and September 30, 2004 reflect a reduction of 0.01% and less than 0.01%, respectively, of average net assets for class M shares (Note 5). (e) Amount represents less than $0.01 per share. (f) Portfolio turnover excludes dollar roll transactions. (g) Portfolio turnover excludes certain treasury note transactions executed in connection with a short-term trading strategy. (h) Portfolio turnover excludes the impact of assets received from the acquisition of Putnam Strategic Income Fund. The accompanying notes are an integral part of these financial statements.
Financial highlights (For a common share outstanding throughout the period) CLASS R --------------------------------------------------------------------------------------------- For the Six months period ended Dec. 1, March 31 2003+ to Per-share (Unaudited) Sept. 30 operating performance 2005 2004 --------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.09 $9.93 --------------------------------------------------------------------------------------------- Investment operations: --------------------------------------------------------------------------------------------- Net investment income (a)(b) .23 .46 --------------------------------------------------------------------------------------------- Net realized and unrealized gain on investments .09 .24 --------------------------------------------------------------------------------------------- Total from investment operations .32 .70 --------------------------------------------------------------------------------------------- Less distributions: --------------------------------------------------------------------------------------------- From net investment income (.28) (.54) --------------------------------------------------------------------------------------------- Total distributions (.28) (.54) --------------------------------------------------------------------------------------------- Redemption fees (c) -- -- --------------------------------------------------------------------------------------------- Net asset value, end of period $10.13 $10.09 --------------------------------------------------------------------------------------------- Total return at net asset value (%)(d) 3.22* 7.30* --------------------------------------------------------------------------------------------- Ratios and supplemental data --------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $397 $94 --------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(b)(e) .58* 1.00* --------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%)(b) 2.18* 4.32* --------------------------------------------------------------------------------------------- Portfolio turnover (%) 61.82* (f) 99.17 --------------------------------------------------------------------------------------------- + Commencement of operations. * Not annualized. (a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. (b) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund during the period. As a result of such waivers, the expenses of the fund for the periods ended March 31, 2005 and September 30, 2004 reflect a reduction of 0.01% and less than 0.01%, respectively, of average net assets for class R shares (Note 5). (c) Amount represents less than $0.01 per share. (d) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (e) Includes amounts paid through expense offset arrangements (Note 2). (f) Portfolio turnover excludes dollar roll transactions. The accompanying notes are an integral part of these financial statements.
Financial highlights (For a common share outstanding throughout the period) CLASS Y ------------------------------------------------------------------------------------------------------------------------------- Six months ended March 31 Per-share (Unaudited) Year ended September 30 operating performance 2005 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.10 $9.85 $8.89 $9.28 $10.15 $10.78 ------------------------------------------------------------------------------------------------------------------------------- Investment operations: ------------------------------------------------------------------------------------------------------------------------------- Net investment income (a) .26 (d) .56 (d) .70 .77 .85 .92 ------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments .08 .39 1.00 (.34) (.80) (.57) ------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .34 .95 1.70 .43 .05 .35 ------------------------------------------------------------------------------------------------------------------------------- Less distributions: ------------------------------------------------------------------------------------------------------------------------------- From net investment income (.30) (.70) (.74) (.77) (.70) (.98) ------------------------------------------------------------------------------------------------------------------------------- From return of capital -- -- -- (.05) (.22) -- (e) ------------------------------------------------------------------------------------------------------------------------------- Total distributions (.30) (.70) (.74) (.82) (.92) (.98) ------------------------------------------------------------------------------------------------------------------------------- Redemption fees -- (e) -- (e) -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $10.14 $10.10 $9.85 $8.89 $9.28 $10.15 ------------------------------------------------------------------------------------------------------------------------------- Total return at net asset value (%)(b) 3.41* 9.99 19.96 4.65 .48 3.29 ------------------------------------------------------------------------------------------------------------------------------- Ratios and supplemental data ------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $28,492 $27,017 $25,427 $17,109 $24,014 $17,010 ------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) .33* (d) .70 (d) .71 .69 .70 .69 ------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) 2.51* (d) 5.68 (d) 7.45 8.20 8.98 8.97 ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 61.82* (f) 99.17 146.21 (g) 209.42 (g)(h) 150.11 (g) 142.85 ------------------------------------------------------------------------------------------------------------------------------- * Not annualized. (a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. (b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (c) Includes amounts paid through expense offset arrangements (Note 2). (d) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund during the period. As a result of such waivers, the expenses of the fund for the periods ended March 31, 2005 and September 30, 2004 reflect a reduction of 0.01% and less than 0.01%, respectively, of average net assets for class Y shares (Note 5). (e) Amount represents less than $0.01 per share. (f) Portfolio turnover excludes dollar roll transactions. (g) Portfolio turnover excludes certain treasury note transactions executed in connection with a short-term trading strategy. (h) Portfolio turnover excludes the impact of assets received from the acquisition of Putnam Strategic Income Fund. The accompanying notes are an integral part of these financial statements.
Notes to financial statements March 31, 2005 (Unaudited) Note 1 Significant accounting policies Putnam Diversified Income Trust (the "fund"), a Massachusetts business trust, is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The fund seeks as high a level of current income as Putnam Investment Management, LLC ("Putnam Management"), the fund's manager, an indirect wholly-owned subsidiary of Putnam, LLC, believes is consistent with capital preservation by allocating its investments among the U.S. government and investment-grade corporate, the high-yield corporate and the international sectors 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 fund's investments. The fund offers class A, class B, class C, class M, class R and class Y shares. Class A and class M shares are sold with a maximum front-end sales charge of 4.50% and 3.25%, respectively, and do not pay a contingent deferred sales charge. Effective April 1, 2005, the class A maximum front-end sales charge will be 3.75%. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge and are subject to a contingent deferred sales charge, if those shares are redeemed within six years of purchase. Class C shares are subject to the same fees as class B shares, except that class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. Class C shares sold in Japan are subject to a contingent deferred sales charge if those shares are redeemed within five years of purchase. Class R shares, which are offered to qualified employee-benefit plans are sold without a front-end sales charge or a contingent deferred sales charge. The expenses for class A, class B, class C, class M and class R shares may differ based on each class' distribution fee, which is identified in Note 2. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C, class M and class R shares, but do not bear a distribution fee. Class Y shares are sold to certain eligible purchasers including certain defined contribution plans (including corporate IRAs), bank trust departments and trust companies. Effective April 19, 2004 (May 3, 2004 for defined contribution plans administered by Putnam), a 2.00% redemption fee may apply to any shares that are redeemed (either by selling or exchanging into another fund) within 5 days of purchase. The redemption fee is accounted for as an addition to paid-in-capital. Investment income, realized and unrealized gains and losses and expenses of the fund are borne pro-rata based on the relative net assets of each class to the total net assets of the fund, except that each class bears expenses unique to that class (including the distribution fees applicable to such classes). Each class votes as a class only with respect to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. Shares of each class would receive their pro-rata share of the net assets of the fund, if the fund were liquidated. In addition, the Trustees declare separate dividends on each class of shares. The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. A) Security valuation Investments for which market quotations are readily available are valued at the last reported sales price on their principal exchange, or official closing price for certain markets. If no sales are reported -- as in the case of some securities traded over-the-counter -- a security is valued at its last reported bid price. Market quotations are not considered to be readily available for certain debt obligations; such investments are valued at fair value on the basis of valuations furnished by an independent pricing service or dealers, approved by the Trustees. Such services or dealers determine valuations for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships, generally recognized by institutional traders, between securities. Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange. Accordingly, on certain days, the fund will fair value foreign securities taking into account multiple factors, including movements in the U.S. securities markets. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant extent. Securities quoted in foreign currencies are translated into U.S. dollars at the current exchange rate. Short-term investments having remaining maturities of 60 days or less are valued at amortized cost, which approximates fair value. Other investments, including certain restricted securities, are valued at fair value following procedures approved by the Trustees. Such valuations and procedures are reviewed periodically by the Trustees. B) Joint trading account Pursuant to an exemptive order from the Securities and Exchange Commission (the "SEC"), the fund may transfer uninvested cash balances, including cash collateral received under security lending arrange ments, into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Management. These balances may be invested in issues of high-grade short-term investments having maturities of up to 397 days for collateral received under security lending arrangements and up to 90 days for other cash investments. C) Repurchase agreements The fund, or any joint trading account, through its custodian, receives delivery of the underlying securities, the market value of which at the time of purchase is required to be in an amount at least equal to the resale price, including accrued interest. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the fund and the counterparty. Putnam Management is responsible for determining that the value of these underlying securities is at all times at least equal to the resale price, including accrued interest. D) Security transactions and related investment income Security transactions are recorded on the trade date (date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis. Interest income is recorded on the accrual basis. Dividend income, net of applicable withholding taxes, is recognized on the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. All premiums/discounts are amortized/accreted on a yield-to-maturity basis. 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) Total return swap contracts The fund may enter into total return swap contracts, which are arrangements to exchange a market linked return for a periodic payment, both based on a notional principal amount. To the extent that the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the fund will receive a payment from or make a payment to the counterparty. Total return swap contracts are marked to market daily based upon quotations from market makers and the change, if any, is recorded as unrealized gain or loss. Payments received or made are recorded as realized gains or loss. The fund could be exposed to credit or market risk due to unfavorable changes in the fluctuation of interest rates or in the price of the underlying security or index, the possibility that there is no liquid market for these agreements or that the counterparty may default on its obligation to perform. Risk of loss may exceed amounts recognized on the statement of assets and liabilities. Total return swap contracts outstanding at period end, if any, are listed after the fund's portfolio. I) 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. J) 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. K) 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. L) TBA sale commitments The fund may enter into TBA sale commitments to hedge its portfolio positions or to sell mortgage-backed securities it owns under delayed delivery arrangements. Proceeds of TBA sale commitments are not received until the contractual settlement date. During the time a TBA sale commitment is outstanding, equivalent deliverable securities or an offsetting TBA purchase commitment deliverable on or before the sale commitment date, are held as "cover" for the transaction. Unsettled TBA sale commitments are valued at fair value of the underlying securities, generally accord ing to the procedures described under "Security valuation" above. The contract is "marked-to-market" daily and the change in market value is recorded by the fund as an unrealized gain or loss. If the TBA sale commitment is closed through the acquisition of an offsetting purchase commitment, the fund realizes a gain or loss. If the fund delivers securities under the commitment, the fund realizes a gain or a loss from the sale of the securities based upon the unit price established at the date the commitment was entered into. TBA sale commitments outstanding at period end, if any, are listed after the fund's portfolio. M) 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. N) 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 March 31, 2005, the value of securities loaned amounted to $13,508,987. The fund received cash collateral of $13,780,000 which is pooled with collateral of other Putnam funds into 28 issuers of high grade short-term investments. O) 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 September 30, 2004, the fund had a capital loss carryover of $935,681,420 available to the extent allowed by the Code to offset future net capital gain, if any. The amount of the carryover and the expiration dates are: Loss Carryover Expiration ------------------------------------------ $2,729,749 September 30, 2005 30,612,204 September 30, 2006 77,029,101 September 30, 2007 234,609,900 September 30, 2008 110,840,621 September 30, 2009 164,353,970 September 30, 2010 311,230,234 September 30, 2011 4,275,641 September 30, 2012 Pursuant to federal income tax regulations applicable to regulated investment companies, the fund has elected to defer to its fiscal year ending September 30, 2005 $3,630,134 of losses recognized during the period November 1, 2003 to September 30, 2004. The aggregate identified cost on a tax basis is $5,464,958,255, resulting in gross unrealized appreciation and depreciation of $185,074,555 and $128,058,868, respectively, or net unrealized appreciation of $57,015,687. P) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Distributions from capital gains, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. Note 2 Management fee, administrative services and other transactions Putnam Management is paid for management and investment advisory services quarterly based on the average net assets of the fund. Such fee is based on the following annual rates: 0.70% of the first $500 million of average net assets, 0.60% of the next $500 million, 0.55% of the next $500 million, 0.50% of the next $5 billion, 0.475% of the next $5 billion, 0.455% of the next $5 billion, 0.44% of the next $5 billion and 0.43% thereafter. Putnam Management has agreed to waive fees and reimburse expenses of the fund through September 30, 2005 to the extent necessary to ensure that the fund's expenses do not exceed the average expenses of the front-end load funds viewed by Lipper Inc. as having the same investment classification or objective as the fund. The expense reimbursement is based on a comparison of the fund's expenses with the average annualized operating expenses of the funds in its Lipper peer group for each calendar quarter during the fund's last fiscal year, excluding 12b-1 fees and without giving effect to any expense offset and brokerage service arrangements that may reduce fund expenses. For the period ended March 31, 2005, Putnam Management did not waive any of its management fee from the fund. For the period ended March 31, 2005, Putnam Management has assumed $35,591 of legal, shareholder servicing and communication, audit and Trustee fees incurred by the fund in connection with certain legal and regulatory matters (including those described in Note 7). Effective September 13, 2004, Putnam Investments Limited ("PIL"), an affiliate of Putnam Manage ment is authorized by the Trustees to manage a separate portion of the assets of the fund as determined by Putnam Management from time to time. Putnam Management pays a quarterly sub-management fee to PIL for its services at an annual rate of 0.40% of the average net assets of the portion of the fund managed by PIL. The fund reimburses Putnam Management an allocated amount for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees. Custodial functions for the fund's assets are provided by Putnam Fiduciary Trust Company ("PFTC"), a subsidiary of Putnam, LLC. Putnam Investor Services, a division of PFTC, provides investor servicing agent functions to the fund. During the six months ended March 31, 2005, the fund paid PFTC $3,198,912 for these services. The fund has entered into an arrangement with PFTC whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the fund's expenses. For the six months ended March 31, 2005, the fund's expenses were reduced by $270,979 under these arrangements. Each independent Trustee of the fund receives an annual Trustee fee, of which $4,165, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees receive additional fees for attendance at certain committee meetings. The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which allows the Trustees to defer the receipt of all or a portion of Trustees fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan. The fund has adopted an unfunded noncontributory defined benefit pension plan (the "Pension Plan") covering all Trustees of the fund who have served as a Trustee for at least five years. Benefits under the Pension Plan are equal to 50% of the Trustee's average total retainer and meeting fees for the three years preceding retirement. Pension expense for the fund is included in Trustee compensation and expenses in the statement of operations. Accrued pension liability is included in Payable for Trustee compensation and expenses in the statement of assets and liabilities. The Trustees have terminated the Pension Plan with respect to any Trustee first elected after 2003. The fund has adopted distribution plans (the "Plans") with respect to its class A, class B, class C, class M and class R shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam Retail Management, a wholly-owned subsidiary of Putnam, LLC and Putnam Retail Management GP, Inc., for services provided and expenses incurred in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management at an annual rate of up to 0.35%, 1.00%, 1.00%, 1.00% and 1.00% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%, 0.50% and 0.50% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively. For the six months ended March 31, 2005, Putnam Retail Management, acting as underwriter, received net commissions of $57,447 and $560,000 from the sale of class A and class M shares, respectively, and received $282,384 and $1,326 in contingent deferred sales charges from redemptions of class B and class C shares, respectively. A deferred sales charge of up to 1.00% and 0.40% is assessed on certain redemptions of class A and class M shares, respectively. For the six months ended March 31, 2005, Putnam Retail Management, acting as underwriter, received $907 and no monies on class A and class M redemptions, respectively. Note 3 Purchases and sales of securities During the six months ended March 31, 2005, cost of purchases and proceeds from sales of investment securities other than U.S. government securities and short-term investments aggregated $2,740,504,546 and $2,874,884,053, respectively. Purchases and sales of U.S. government securities aggregated $1,509,844 and $92,696,484, respectively. Note 4 Capital shares At March 31, 2005, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: Six months ended March 31, 2005 ---------------------------------------------------------------- Class A Shares Amount ---------------------------------------------------------------- Shares sold 14,370,959 $147,551,595 ---------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 2,736,673 28,030,754 ---------------------------------------------------------------- 17,107,632 175,582,349 Shares repurchased (16,282,382) (166,978,023) ---------------------------------------------------------------- Net increase 825,250 $8,604,326 ---------------------------------------------------------------- Year ended September 30, 2004 ---------------------------------------------------------------- Class A Shares Amount ---------------------------------------------------------------- Shares sold 27,850,112 $277,462,445 ---------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 6,625,560 65,749,125 ---------------------------------------------------------------- 34,475,672 343,211,570 Shares repurchased (51,777,227) (514,806,637) ---------------------------------------------------------------- Net decrease (17,301,555) $(171,595,067) ---------------------------------------------------------------- Six months ended March 31, 2005 ---------------------------------------------------------------- Class B Shares Amount ---------------------------------------------------------------- Shares sold 3,001,270 $30,559,133 ---------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 850,469 8,647,883 ---------------------------------------------------------------- 3,851,739 39,207,016 Shares repurchased (11,164,246) (113,680,656) ---------------------------------------------------------------- Net decrease (7,312,507) $(74,473,640) ---------------------------------------------------------------- Year ended September 30, 2004 ---------------------------------------------------------------- Class B Shares Amount ---------------------------------------------------------------- Shares sold 10,528,573 $104,169,004 ---------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 2,727,142 26,875,381 ---------------------------------------------------------------- 13,255,715 131,044,385 Shares repurchased (37,674,574) (371,911,016) ---------------------------------------------------------------- Net decrease (24,418,859) $(240,866,631) ---------------------------------------------------------------- Six months ended March 31, 2005 ---------------------------------------------------------------- Class C Shares Amount ---------------------------------------------------------------- Shares sold 4,493,889 $45,897,756 ---------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 74,869 762,927 ---------------------------------------------------------------- 4,568,758 46,660,683 Shares repurchased (8,385,094) (85,419,751) ---------------------------------------------------------------- Net decrease (3,816,336) $(38,759,068) ---------------------------------------------------------------- Year ended September 30, 2004 ---------------------------------------------------------------- Class C Shares Amount ---------------------------------------------------------------- Shares sold 13,480,375 $133,745,318 ---------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 195,394 1,929,159 ---------------------------------------------------------------- 13,675,769 135,674,477 Shares repurchased (11,497,122) (113,579,200) ---------------------------------------------------------------- Net increase 2,178,647 $22,095,277 ---------------------------------------------------------------- Six months ended March 31, 2005 ---------------------------------------------------------------- Class M Shares Amount ---------------------------------------------------------------- Shares sold 22,662,111 $230,764,277 ---------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 59,313 602,739 ---------------------------------------------------------------- 22,721,424 231,367,016 Shares repurchased (48,102,219) (489,207,999) ---------------------------------------------------------------- Net decrease (25,380,795) $(257,840,983) ---------------------------------------------------------------- Year ended September 30, 2004 ---------------------------------------------------------------- Class M Shares Amount ---------------------------------------------------------------- Shares sold 123,937,420 $1,226,499,648 ---------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 161,866 1,588,588 ---------------------------------------------------------------- 124,099,286 1,228,088,236 Shares repurchased (114,513,916) (1,128,669,921) ---------------------------------------------------------------- Net increase 9,585,370 $99,418,315 ---------------------------------------------------------------- Six months ended March 31, 2005 ---------------------------------------------------------------- Class R Shares Amount ---------------------------------------------------------------- Shares sold 30,840 $316,317 ---------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 775 7,939 ---------------------------------------------------------------- 31,615 324,256 Shares repurchased (1,715) (17,640) ---------------------------------------------------------------- Net increase 29,900 $306,616 ---------------------------------------------------------------- For the period December 1, 2003 (commencement of operations) to September 30, 2004 ---------------------------------------------------------------- Class R Shares Amount ---------------------------------------------------------------- Shares sold 9,281 $93,478 ---------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 17 164 ---------------------------------------------------------------- 9,298 93,642 Shares repurchased (4) (39) ---------------------------------------------------------------- Net increase 9,294 $93,603 ---------------------------------------------------------------- Six months ended March 31, 2005 ---------------------------------------------------------------- Class Y Shares Amount ---------------------------------------------------------------- Shares sold 652,638 $6,707,692 ---------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 79,389 813,214 ---------------------------------------------------------------- 732,027 7,520,906 Shares repurchased (597,730) (6,130,061) ---------------------------------------------------------------- Net increase 134,297 $1,390,845 ---------------------------------------------------------------- Year ended September 30, 2004 ---------------------------------------------------------------- Class Y Shares Amount ---------------------------------------------------------------- Shares sold 1,033,952 $10,328,022 ---------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 182,046 1,806,730 ---------------------------------------------------------------- 1,215,998 12,134,752 Shares repurchased (1,122,401) (11,162,083) ---------------------------------------------------------------- Net increase 93,597 $972,669 ---------------------------------------------------------------- At March 31, 2005, Putnam , LLC owned 109 class R shares of the fund (0.28% of class R shares outstanding), valued at $1,104. Note 5 Investment in Putnam Prime Money Market Fund Pursuant to an exemptive order from the Securities and Exchange Commission, the fund invests in Putnam Prime Money Market Fund, an open-end management investment company managed by Putnam Management. Management fees paid by the fund are reduced by an amount equal to the management and administrative services fees paid by Putnam Prime Money Market Fund with respect to assets invested by the fund in Putnam Prime Money Market Fund. For the period ended March 31, 2005, management fees paid were reduced by $307,181 relating to the fund's investment in Putnam Prime Money Market Fund. Income distributions earned by the fund are recorded as income in the statement of operations and totaled $4,119,132 for the period ended March 31, 2005. During the period ended March 31, 2005, cost of purchases and cost of sales of investments in Putnam Prime Money Market Fund aggregated $1,381,807,074 and $1,285,584,100, respectively Note 6 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 7 Regulatory matters and litigation Putnam Management has entered into agreements with the Securities and Exchange Commission and the Massachusetts Securities Division settling charges connected with excessive short-term trading by Putnam employees and, in the case of the charges brought by the Massachusetts Securities Division, by participants in some Putnam-administered 401(k) plans. Pursuant to these settlement agreements, Putnam Management will pay a total of $193.5 million in penalties and restitution, with $153.5 million being paid to shareholders and the funds. The restitution amount will be allocated to shareholders pursuant to a plan developed by an independent consultant, with payments to shareholders currently expected by the end of the summer. The SEC's and Massachusetts Securities Division's allegations and related matters also serve as the general basis for numerous lawsuits, including purported class action lawsuits filed against Putnam Management and certain related parties, including certain Putnam funds. Putnam Management will bear any costs incurred by Putnam funds in connection with these lawsuits. Putnam Management believes that the likelihood that the pending private lawsuits and purported class action lawsuits will have a material adverse financial impact on the fund is remote, and the pending actions are not likely to materially affect its ability to provide investment management services to its clients, including the Putnam funds. Putnam Investments has recorded a charge of $30 million for the estimated cost that it believes will be necessary to address issues relating to the calculation of certain amounts paid by the Putnam mutual funds in previous years. The previous payments were cost reimbursements by the Putnam funds to Putnam for transfer agent services relating to defined contribution operations. Putnam currently anticipates that any payments made by Putnam related to this issue will be paid to the Putnam funds. Review of this issue is ongoing. Results of November 11, 2004 shareholder meeting (Unaudited) An special meeting of shareholders of the fund was held on November 11, 2004. At the meeting, each of the nominees for Trustees was elected, as follows: Votes Votes For Withheld ------------------------------------------------------------------------------ Jameson A. Baxter 505,060,183 4,459,757 Charles B. Curtis 505,249,313 4,270,627 Myra R. Drucker 505,192,310 4,327,630 Charles E. Haldeman, Jr. 504,964,071 4,555,869 John A. Hill 505,055,590 4,464,350 Ronald J. Jackson 505,171,436 4,348,504 Paul L. Joskow 505,231,244 4,288,696 Elizabeth T. Kennan 505,209,127 4,310,813 John H. Mullin, III 505,230,938 4,289,002 Robert E. Patterson 505,227,590 4,292,350 George Putnam, III 505,010,005 4,509,935 A.J.C. Smith* 505,141,029 4,378,911 W. Thomas Stephens 505,218,798 4,301,142 Richard B. Worley 505,166,105 4,353,835 A proposal to amend the fund's fundamental investment restriction with respect to borrowing to allow the fund the investment flexibility permitted by the Investment Company Act was approved as follows: Votes Votes For Against Abstentions ------------------------------------------------------------------------------ 445,526,201 6,930,311 57,063,428 A proposal to amend the fund's fundamental investment restriction with respect to making loans to enhance the fund's ability to participate in an interfund borrowing and lending program was approved as follows: Votes Votes For Against Abstentions ------------------------------------------------------------------------------ 445,650,341 6,819,020 57,050,579 * Mr. Smith resigned from the Board of Trustees on January 14, 2005. All tabulations are rounded to nearest whole number. A proposal to amend the fund's fundamental investment restriction with respect to diversification of investments to enhance the fund's ability to invest in registered investment companies such as Putnam Prime Money Market Fund was approved as follows: Votes Votes For Against Abstentions ------------------------------------------------------------------------------ 448,650,465 4,328,498 56,540,977 A motion with respect to a proposal to approve an amendment to the fund's Agreement and Declaration of Trust was not brought before the meeting and accordingly no vote was taken with respect to the proposal. All tabulations are rounded to nearest whole number. Fund information One of the largest mutual fund families in the United States, Putnam Investments has a heritage of investment leadership dating back to Judge Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition and practice since 1830. Founded over 65 years ago, Putnam Investments was built around the concept that a balance between risk and reward is the hallmark of a well-rounded financial program. We presently manage over 100 mutual funds in growth, value, blend, fixed income, and international. Investment Manager Putnam Investment Management, LLC One Post Office Square Boston, MA 02109 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 Trustees John A. Hill, Chairman Jameson Adkins Baxter Charles B. Curtis Myra R. Drucker Charles E. Haldeman, Jr. Ronald J. Jackson Paul L. Joskow Elizabeth T. Kennan John H. Mullin, III Robert E. Patterson George Putnam, III W. Thomas Stephens Richard B. Worley Officers George Putnam, III President Charles E. Porter Executive Vice President, Associate Treasurer and Principal Executive Officer Jonathan S. Horwitz Senior Vice President and Treasurer Steven D. Krichmar Vice President and Principal Financial Officer Michael T. Healy Assistant Treasurer and Principal Accounting Officer Daniel T. Gallagher Senior Vice President, Compliance Liaison and Staff Counsel Beth S. Mazor Vice President James P. Pappas Vice President Richard S. Robie, III Vice President Mark C. Trenchard Vice President and BSA Compliance Officer Francis J. McNamara, III Vice President and Chief Legal Officer Charles A. Ruys de Perez Vice President and Chief Compliance Officer Judith Cohen Vice President, Clerk and Assistant Treasurer This report is for the information of shareholders of Putnam Diversified Income Trust. It may also be used as sales literature when preceded or accompanied by the current prospectus, the most recent copy of Putnam's Quarterly Performance Summary, and Putnam's Quarterly Ranking Summary. For more recent performance, please visit www.putnaminvestments.com. Investors should carefully consider the investment objective, risks, charges, and expenses of a fund, which are described in its prospectus. For this and other information or to request a prospectus, call 1-800-225-1581 toll free. Please read the prospectus carefully before investing. The fund's Statement of Additional Information contains additional information about the fund's Trustees and is available without charge upon request by calling 1-800-225-1581. [LOGO OMITTED] PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 PRSRT STD U.S. POSTAGE PAID PUTNAM INVESTMENTS Call 1-800-225-1581 or visit our Web site www.putnaminvestments.com. SA028-223910 5/05 Not FDIC Insured May Lose Value No Bank Guarantee PUTNAM INVESTMENTS [SCALE LOGO OMITTED] ---------------------------------------------------------------------------- Putnam Diversified Income Trust Supplement to Semiannual Report dated 3/31/05 The following information has been prepared to provide class Y shareholders with a performance overview specific to their holdings. Class Y shares are offered exclusively to clients that meet the eligibility requirements specified in the fund's prospectus for such shares. Performance of class Y shares, which do not incur a front-end load, a distribution fee, or a contingent deferred sales charge, will differ from the performance of class A, B, C, M, and R shares, which are discussed more extensively in the semiannual report. RESULTS AT A GLANCE ---------------------------------------------------------------------------- Total return for periods ended 3/31/05 NAV 6 months 3.41% 1 year 5.86 5 years 43.74 Annual average 7.53 10 years 96.06 Annual average 6.96 Life of fund (since class A inception, 10/3/88) Annual average 7.90 Share value: NAV 9/30/04 $10.10 3/31/05 $10.14 ---------------------------------------------------------------------------- Distributions: No. Income Capital gains Total 6 $0.304 -- $0.304 ---------------------------------------------------------------------------- Data represents past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate and you may have a gain or a loss when you sell your shares. For the most recent month-end performance, please visit www.putnaminvestments.com. Performance assumes reinvestment of distributions and does not account for taxes. Returns shown for class Y shares for periods prior to their inception (7/1/96) are derived from the historical performance of class A shares, and are not adjusted to reflect the initial sales charge currently applicable to class A shares. Returns have not been adjusted to reflect differences in operating expenses which, for class Y shares, are lower than the operating expenses applicable to class A shares. See full report for information on comparative benchmarks. If you have questions, please consult your fund prospectus or call Putnam toll free at 1-800-752-9894. A short-term trading fee of up to 2% may apply. Please see pages 12-13 of the accompanying shareholder report for a discussion of the information appearing in the tables below: ---------------------------------------------------------------------------- EXPENSES AND VALUE OF A $1,000 INVESTMENT assuming actual returns for the 6 months ended 3/31/05 Class Y Expenses paid per $1,000* $3.40 Ending value (after expenses) $1,034.10 ---------------------------------------------------------------------------- EXPENSES AND VALUE OF A $1,000 INVESTMENT assuming a hypothetical 5% annualized return for the 6 months ended 3/31/05 Class Y Expenses paid per $1,000* $3.38 Ending value (after expenses) $1,021.59 ---------------------------------------------------------------------------- EXPENSE RATIO COMPARISON USING ANNUALIZED DATA Your fund's annualized expense ratio 0.67% Average annualized expense ratio for Lipper peer group+ 0.89% + For class Y shares, Putnam has adjusted the Lipper total expense average to reflect that class Y shares do not incur 12b-1 fees. ---------------------------------------------------------------------------- Item 2. Code of Ethics: ----------------------- Not applicable Item 3. Audit Committee Financial Expert: ----------------------------------------- Not applicable Item 4. Principal Accountant Fees and Services: ----------------------------------------------- Not applicable Item 5. Audit Committee: Not applicable ------------------------- Item 6. Schedule of Investments: Not applicable -------------------------------- Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End ------------------------------------------------------------------------- Management Investment Companies: Not applicable -------------------------------- Item 8. Purchases of Equity Securities by Closed-End Management Investment -------------------------------------------------------------------------- Companies and Affiliated Purchasers: Not applicable ------------------------------------ Item 9. Submission of Matters to a Vote of Security Holders: ------------------------------------------------------------ Not applicable Item 10. Controls and Procedures: --------------------------------- (a) The registrant's principal executive officer and principal financial officer have concluded, based on their evaluation of the effectiveness of the design and operation of the registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the design and operation of such procedures are generally effective to provide reasonable assurance that information required to be disclosed by the registrant in this report is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms. (b) Changes in internal control over financial reporting: Not applicable Item 11. Exhibits: ------------------ (a) Not applicable (b) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2 under the Investment Company Act of 1940, as amended, and the officer certifications as required by Section 906 of the Sarbanes-Oxley Act of 2002 are filed herewith. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NAME OF REGISTRANT By (Signature and Title): /s/Michael T. Healy -------------------------- Michael T. Healy Principal Accounting Officer Date: May 27, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title): /s/Charles E. Porter --------------------------- Charles E. Porter Principal Executive Officer Date: May 27, 2005 By (Signature and Title): /s/Steven D. Krichmar --------------------------- Steven D. Krichmar Principal Financial Officer Date: May 27, 2005