Document File Name: PUTNAM PREMIER INCOME TRUST POS EX
As filed with the Securities and Exchange Commission on
March 10, 2005
Registration No. 333-119287
(Investment Company Act Registration No. 811-05452)
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-14
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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Pre-Effective Amendment No. / /
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Post-Effective Amendment No.1 /X/
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(Check appropriate box or boxes)
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PUTNAM PREMIER INCOME TRUST
(Exact Name of Registrant as Specified in Charter)
One Post Office Square, Boston, Massachusetts 02109
(Address of Principal Executive Offices)
617-292-1000
(Area Code and Telephone Number)
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BETH S. MAZOR, Vice President
PUTNAM PREMIER INCOME TRUST
One Post Office Square
Boston, Massachusetts 02109
(Name and address of Agent for Service)
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Copy to:
JOHN W. GERSTMAYR, Esquire
ROPES & GRAY LLP
One International Place
Boston, Massachusetts 02110
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It is proposed that this filing will become effective immediately upon
filing pursuant to paragraph (d) of Rule 462 under the Securities Act of
1933, as amended. This amendment to the registration statement on Form N-14
of Putnam Premier Income Trust, filed with the Commission on September 27,
2004 (Registration No. 333-119287) (the "Registration Statement"), is being
filed to add Exhibit 12 to the Registration Statement. No other information
contained in the Registration Statement is amended, deleted, or superseded
hereby.
Important information for shareholders of
PUTNAM MASTER INCOME TRUST AND
PUTNAM PREMIER INCOME TRUST
The document you hold in your hands contains a combined prospectus/proxy
statement and proxy card. A proxy card is, in essence, a ballot. When
you complete and sign your proxy card, the Trustees of your fund will
vote on your behalf exactly as you have indicated. If you simply sign
the proxy card, it will be voted in accordance with the Trustees'
recommendations on page 12. The Trustees recommend that shareholders
vote in favor of the proposal described in this document and listed on
your proxy card.
Please take a few moments and decide how you want to vote. When
shareholders don't return their proxies in sufficient numbers, follow-up
solicitations are required, which may cost your fund money.
You can vote by returning your proxy card in the envelope provided. Or
you can call our toll-free number, or go to the Web. See your proxy card
for the phone number and Web address. If you have any questions, please
call 1-877-519-9667 or call your financial advisor.
PUTNAM INVESTMENTS
[SCALE LOGO OMITTED]
Table of contents
A Message from the Chairman 1
Notice of a Joint Meeting of Shareholders 5
Combined Prospectus/Proxy Statement 8
PROXY CARD(S) ENCLOSED
If you have any questions, please call 1-877-519-9667 or call your
financial advisor.
A Message from the Chairman
[PHOTO OF JOHN A. HILL OMITTED]
Dear Shareholder of Putnam Master Income Trust:
I am writing to you to ask for your vote on an important matter that
affects your investment in Putnam Master Income Trust ("Master Income
Trust"). While you are, of course, welcome to join us at the meeting,
most shareholders cast their vote by filling out and signing the
enclosed proxy card, by calling or by voting via the Internet.
We are asking for your vote on the following matter:
Approving a proposed merger of Master Income Trust into Putnam Premier
Income Trust ("Premier Income Trust"). In this merger, the shares of
Master Income Trust would, in effect, be exchanged on a tax-free basis
for shares of Premier Income Trust with an equal total net asset value.
The proposed merger is not intended to change significantly the nature
of your investment. The investment objective and policies of Premier
Income Trust and your fund are similar. Both are closed-end funds that
seek to provide high current income, and both allocate their investments
among three sectors of the fixed-income securities market: a U.S.
investment grade sector, a high-yield sector and an international
sector.
The proposal is intended to result in a combined fund that is more
attractive to investors than either of the two funds separately. Putnam
Investment Management, LLC believes that creating a broader shareholder
base for the combined fund's shares may attract more interest in the
combined fund than is currently the case with either fund, which may
result in higher trading levels for the combined fund's shares. However,
there can be no guarantee that the proposed merger will have the
intended effect.
Your vote is important to us. We appreciate the time and consideration I
am sure you will give this important matter. If you have questions about
the proposal, please call 1-877-519-9667 or call your financial advisor.
Sincerely yours,
/S/ JOHN A. HILL
John A. Hill, Chairman
A Message from the Chairman
[PHOTO OF JOHN A. HILL OMITTED]
Dear Shareholder of Putnam Premier Income Trust:
I am writing to you to ask for your vote on an important matter that
affects your investment in Putnam Premier Income Trust ("Premier Income
Trust"). While you are, of course, welcome to join us at the meeting,
most shareholders cast their vote by filling out and signing the
enclosed proxy card, by calling or by voting via the Internet.
We are asking for your vote on the following matter:
Approving a proposed merger of Putnam Master Income Trust ("Master
Income Trust") into Premier Income Trust. In this merger, the shares of
Master Income Trust would, in effect, be exchanged on a tax-free basis
for shares of Premier Income Trust with an equal total net asset value.
The proposed merger is not intended to change significantly the nature
of your investment. The investment objective and policies of Master
Income Trust and your fund are similar. Both are closed-end funds that
seek to provide high current income, and both allocate their investments
among three sectors of the fixed-income securities market: a U.S.
investment grade sector, a high-yield sector and an international
sector. Although the proposed merger will not materially affect the
operation of your fund, we are required by the rules of the New York
Stock Exchange to solicit your vote on this matter.
The proposal is intended to result in a combined fund that is more
attractive to investors than either of the two funds separately. Putnam
Investment Management, LLC believes that creating a broader shareholder
base for the combined fund's shares may attract more interest in the
combined fund than is currently the case with either fund, which may
result in higher trading levels for the combined fund's shares. However,
there can be no guarantee that the proposed merger will have the
intended effect.
Your vote is important to us. We appreciate the time and consideration I
am sure you will give this important matter. If you have questions about
the proposal, please call 1-877-519-9667 or call your financial advisor.
Sincerely yours,
/S/ JOHN A. HILL
John A. Hill, Chairman
PUTNAM MASTER INCOME TRUST ("MASTER INCOME TRUST") AND PUTNAM PREMIER
INCOME TRUST ("PREMIER INCOME TRUST")
Notice of a Joint Meeting of Shareholders
* This is the formal agenda for the joint meeting of shareholders. It
tells you what matter will be voted on and the time and place of the
meeting.
To the Shareholders of Master Income Trust:
A Meeting of Shareholders of Master Income Trust will be held on
Thursday, January 13, 2005, at 11:00 a.m., Boston time, on the twelfth
floor of One Post Office Square, Boston, Massachusetts, to consider the
following:
Approving an Agreement and Plan of Reorganization and the transactions
contemplated thereby, including the transfer of all of the assets of
Master Income Trust to Premier Income Trust in exchange for the issuance
and delivery of shares of beneficial interest of Premier Income Trust
and the assumption by Premier Income Trust of all of the liabilities of
Master Income Trust, and the distribution of such shares to the
shareholders of Master Income Trust in complete liquidation of Master
Income Trust. See page 10.
To the Shareholders of Premier Income Trust:
A Meeting of Shareholders of Premier Income Trust will be held on
Thursday, January 13, 2005, at 11:00 a.m., Boston time, on the twelfth
floor of One Post Office Square, Boston, Massachusetts, to consider the
following:
Approving an Agreement and Plan of Reorganization and the transactions
contemplated thereby, including the transfer of all of the assets of
Master Income Trust to Premier Income Trust in exchange for the issuance
and delivery of shares of beneficial interest of Premier Income Trust
and the assumption by Premier Income Trust of all of the liabilities of
Master Income Trust, and the distribution of such shares to the
shareholders of Master Income Trust in complete liquidation of Master
Income Trust. See page 10.
By the Trustees
John A. Hill, Chairman
George Putnam, III, President
Jameson A. 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
A.J.C. Smith
W. Thomas Stephens
Richard B. Worley
WE URGE YOU TO MARK, SIGN, DATE AND MAIL THE ENCLOSED PROXY IN THE
POSTAGE-PAID ENVELOPE PROVIDED OR RECORD YOUR VOTING INSTRUCTIONS BY
TELEPHONE OR VIA THE INTERNET SO THAT YOU WILL BE REPRESENTED AT THE
MEETING.
November 15, 2004
Prospectus/Proxy Statement
November 10, 2004
This Prospectus/Proxy Statement relates to the proposed merger of Putnam
Master Income Trust ("Master Income Trust") into Putnam Premier Income
Trust ("Premier Income Trust"), each located at One Post Office Square,
Boston, MA 02109; 1-617-292-1000. As a result of the proposed merger,
each shareholder of Master Income Trust would receive a number of full
and fractional shares of Premier Income Trust of equal net asset value
at the date of the exchange to the total net asset value of the
shareholder's Master Income Trust shares.
This Prospectus/Proxy Statement is being mailed on or about November 15,
2004. It explains concisely what you should know before voting on the
matter described herein or investing in Premier Income Trust, a closed-end
management investment company. Please read this Prospectus/Proxy Statement
and keep it for future reference.
A Statement of Additional Information (the "SAI"), dated November 10,
2004, relating to the proposed merger has been filed with the Securities
and Exchange Commission ("SEC") and is incorporated by reference into
this Prospectus/Proxy Statement. For a free copy of the SAI, please
contact us at 1-800-225-1581.
The securities offered by this Prospectus/Proxy Statement have not been
approved or disapproved by the SEC, nor has the SEC passed upon the
accuracy or adequacy of this Prospectus/Proxy Statement. Any
representation to the contrary is a criminal offense.
Shares of Premier Income Trust are not deposits or obligations of, or
guaranteed or endorsed by, any financial institution, are not insured by
the Federal Deposit Insurance Corporation, the Federal Reserve Board or
any other agency, and involve risk, including the possible loss of
principal amount invested.
This document will give you the information you need to vote on the
proposal. Much of the information is required under rules of the SEC;
some of it is technical. If there is anything you don't understand,
please call 1-877-519-9667 or call your financial advisor. Like Premier
Income Trust, Master Income Trust is in the family of funds managed by
Putnam Investment Management, LLC ("Putnam Management"). Premier Income
Trust and Master Income Trust are collectively referred to herein as the
"funds," and each is referred to individually as a "fund."
The common shares of Premier Income Trust are listed on the New York
Stock Exchange (the "NYSE") under the symbol "PPT," and the common
shares of Master Income Trust are listed on the NYSE under the symbol
"PMT." You may inspect reports, proxy material and other information
concerning either Premier Income Trust or Master Income Trust at the
NYSE.
Premier Income Trust and Master Income Trust are subject to the
informational requirements of the Securities Exchange Act of 1934 and,
as a result, file reports and other information with the SEC. You may
review and copy information about the funds, including the SAI, at the
SEC's public reference room at 450 Fifth Street, NW, Washington, D.C.;
or at the public reference facilities in its Northeast and Midwest
regional offices, at 233 Broadway, New York, NY, and 175 W. Jackson
Boulevard, Suite 900, Chicago, IL. You may call the SEC at
1-800-SEC-0330 for information about the operation of the public
reference room. You may obtain copies of this information, with payment
of a duplication fee, by electronic request at the following e-mail
address: publicinfo@sec.gov, or by writing the SEC's Public Reference
Section, Washington, D.C. 20549-0102. You may also access reports and
other information about the funds on the EDGAR Database on the SEC's
Internet site at http://www.sec.gov.
I. Synopsis
* The responses to the questions that follow provide an overview of key
points typically of concern to shareholders considering a proposed
merger between closed-end funds. These responses are qualified in their
entirety by the remainder of the Prospectus/Proxy Statement, which
contains additional information and further details regarding the
proposed merger.
1. What is being proposed?
The Trustees of the funds are recommending that shareholders of each
fund approve the merger of Master Income Trust into Premier Income Trust
and the related transactions contemplated by the Agreement and Plan of
Reorganization among each of the funds and Putnam Management, dated as
of November 3, 2004 (the "Agreement"). The Agreement is attached to this
Prospectus/Proxy Statement as Appendix A. If approved by shareholders of
each fund, all of the assets of Master Income Trust will be transferred
to Premier Income Trust in exchange for the issuance and delivery to
Master Income Trust of shares of Premier Income Trust (the "Merger
Shares") with a net asset value equal to the value of Master Income
Trust's assets net of liabilities and for the assumption by Premier
Income Trust of all of the liabilities of Master Income Trust.
Immediately following the transfer, the Merger Shares received by Master
Income Trust will be distributed to its shareholders, pro rata.
2. What will happen to my shares as a result of the proposed merger?
If you are a shareholder of Master Income Trust, your shares will, in
effect, be exchanged on a tax-free basis for shares of Premier Income
Trust with an equal aggregate net asset value on the date of the merger.
It is possible, however, that the market value of such shares may
differ. See question 12 below.
If you are a shareholder of Premier Income Trust, your shares of Premier
Income Trust will not be directly affected by the merger, but will
represent interests in a larger fund pursuing the same investment
objective and policies.
3. Why is the merger being proposed at this time?
Putnam Management proposed the merger of Master Income Trust into
Premier Income Trust to the funds' Trustees because it believes the
proposed merger may result in a combined fund that is more attractive to
investors than either of the two funds separately. Putnam Management
believes that creating a broader shareholder base for the combined
fund's shares may attract more interest in the combined fund than is
currently the case with either fund, which may result in higher trading
levels for the combined fund's shares. However, there can be no
guarantee that the proposed merger will have the intended effect.
In addition, the merger would offer shareholders of both funds the
opportunity to invest in a considerably larger fund with similar
investment policies and the potential to achieve greater economies of
scale and a lower expense ratio. In addition, the funds are managed by
the same investment teams with a common investment process and similar
objectives; therefore, the proposed merger would permit the funds'
investment team to concentrate its efforts and resources more
efficiently.
Both funds, launched in the 1980s, are multi-sector income funds. Master
Income Trust initially employed a relatively static and evenly balanced
allocation among the U.S. government, high-yield and international
sectors, while Premier Income Trust generally followed a more flexible
approach to allocating assets among those fixed-income sectors. Over
time, the U.S. government sleeve of each fund was expanded to include
U.S. investment-grade bonds, and the funds adopted identical policies
concerning minimum and maximum allocation to each sector. The management
of the two funds has converged, and there is now no practical difference
in how the funds are managed.
For these reasons, Putnam Management recommended that Master Income
Trust, which had assets of $380 million as of July 31, 2004, be combined
with Premier Income Trust, which had assets of $993 million as of July
31, 2004. As Premier Income Trust is considerably larger than Master
Income Trust, the Trustees believe that it is appropriate for the
smaller Master Income Trust to be merged into Premier Income Trust.
***
The Trustees of the Putnam Funds, who serve as Trustees of each of the
funds involved in the proposed merger, have carefully considered Putnam
Management's recommendations. Following a review of the anticipated
benefits and costs of the proposed merger to the shareholders of each
fund, the Trustees of the funds, including all of the independent
Trustees who are not affiliated with Putnam Management, unanimously
determined that the proposed merger is in the best interests of each
fund and recommend that shareholders vote FOR approval of the proposed
merger.
4. How do the investment goals, policies and restrictions of the two
funds compare?
Investment Goals
The investment goals and strategies of the funds are similar. Premier
Income Trust seeks to provide high current income, while Master Income
Trust seeks to provide high current income consistent with preservation
of capital. The management of the two funds has converged, and there is
now no practical difference in how the funds are managed. As of July 31,
2004, Premier Income Trust and Master Income Trust had 39% and 38% of
assets in U.S. investment-grade =securities and 41% and 42% of assets in
high-yield bonds, respectively, and each fund had 20% of assets in
foreign bonds.
Investment Policies
The funds share substantially similar fundamental investment policies,
except that Premier Income Trust is a "non-diversified" investment
company, meaning that it may invest more of its assets in the securities
of fewer companies than Master Income Trust, which is a "diversified"
investment company. In particular, Premier Income Trust's
diversification policies apply only to 50% of its net assets, while
Master Income Trust's diversification policies apply to 75% of its net
assets. That said, in recent years, Premier Income Trust has not taken
advantage, to a significant extent, of its ability to concentrate its
investments among fewer issuers.
The funds share identical non-fundamental investment policies.
5. How do the management fees and other expenses of the two funds
compare, and what are they estimated to be following the proposed
merger?
The following tables summarize the maximum fees and expenses you may pay
when investing in the funds, expenses that each of the funds incurred for
its most recent fiscal year as well as the pro forma expenses of Premier
Income Trust. As shown below, the merger is expected to result in decreased
total expenses for shareholders of each fund. For more information on the
management fees paid by the funds, see "Information about the Funds --
Management" below.
Shareholder Transaction Expenses
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Premier Master
Income Trust Income Trust
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Maximum sales charge imposed on
purchases (as a percentage of offering price) None(a) None(a)
Dividend Reinvestment Plan None(b) None(b)
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Annual Fund Operating Expenses
(Expenses that are deducted from fund assets)
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Premier
Income Trust
Premier Master (Pro forma
Income Trust Income Trust combined)
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Management Fees 0.70% 0.75% 0.67%
Other Expenses 0.13% 0.19% 0.13%*
Total Annual Fund
Operating Expenses 0.83% 0.94% 0.80%*+
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(a) Shares of either fund purchased on the secondary market are not
subject to sales charges but may be subject to brokerage commissions or
other charges. The table does not include an underwriting commission
paid by shareholders in the initial offering of each fund.
(b) Each participant in a fund's dividend reinvestment plan pays a
proportionate share of the brokerage commissions incurred with respect
to open market purchases in connection with such plan. With respect to
each fund's most recent fiscal year, participants in each fund's
dividend reinvestment plan incurred brokerage commissions representing
less than $0.01 per share.
* Does not reflect non-recurring expenses related to the merger. If such
expenses had been reflected, pro forma "other expenses" and Total Annual
Fund Operating Expenses would have been 0.15% and 0.82%, respectively.
+ Putnam Management estimates that the combined fund will incur lower
total annual fund operating expenses during the year following the
completion of the merger than the expenses incurred by Premier Income
Trust during its most recent fiscal year due largely to a lower
effective management fee resulting from breakpoints in Premier Income
Trust's investment management contract with Putnam Management.
The tables are provided to help you understand the expenses of investing
in the funds and your share of the operating expenses that each fund
incurs and that Putnam Management expects the combined fund to incur in
the first year following the merger. The expenses shown in the table do
not reflect the application of credits related to expense offset
arrangements that reduce certain fund expenses.
Examples
These examples translate the "Total Annual Fund Operating Expenses"
shown in the preceding table into dollar amounts. By doing this, you can
more easily compare the cost of investing in the funds. The examples
make certain assumptions. They assume that you invest $1,000 in a fund
for the time periods shown. They also assume, as required by the SEC, a
5% return on your investment each year and that a fund's operating
expenses remain the same. The examples are hypothetical; your actual
costs and returns may be higher or lower.
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1 Year 3 Years 5 Years 10 Years
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Premier Income Trust $8 $26 $46 $103
Master Income Trust $10 $30 $52 $115
Premier Income Trust
(Pro forma combined) $8 $26 $44 $99
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6. How does the investment performance of the funds compare?
As shown in the table below, in recent years, the total returns at NAV
of Master Income Trust have approximated those of Premier Income Trust.
Each fund's performance at market price may differ from its results at
NAV. Although market price performance generally reflects investment
results, it may also be influenced by several factors, includ ing
changes in investor perceptions of each fund or its investment adviser,
market conditions, fluctuations in supply and demand for each fund's
shares and changes in each fund's distributions.
TOTAL RETURN FOR PERIODS ENDED 7/31/04
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Premier Master
Income Trust Income Trust
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Market Market
NAV Price NAV Price
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1 year 11.98% 7.18% 12.02% 2.15%
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5 years 43.09% 35.73% 41.78% 39.32%
Annual average 7.43% 6.30% 7.23% 6.86%
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10 years 103.81% 98.27% 99.92% 86.63%
Annual average 7.38% 7.08% 7.17% 6.44%
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Annual average
(life of fund*) 8.35% 7.14% 8.66% 7.32%
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* The inception dates of Premier Income Trust and Master Income Trust
were 2/29/88 and 12/28/87, respectively.
Performance information does not account for taxes.
COMPARATIVE RETURNS FOR PERIODS ENDED 7/31/04
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Lipper
Flexible
Citigroup Income
Lehman Non-U.S. JP Morgan Funds
Lehman Government/ World Global (closed-end)
Government Credit Bond Government High Yield category
Bond Index* Index** Bond Index Index*** average****
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1 year 3.86% 4.72% 9.48% 13.83% 10.66%
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5 years 39.95% 42.86% 33.28% 34.41% 32.29%
Annual average 6.95% 7.40% 5.91% 6.09% 5.57%
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10 years 97.87% 102.97% 79.41% 112.79% 103.44%
Annual average 7.06% 7.34% 6.02% 7.84% 7.25%
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Life of Premier
Income Trust
(2/29/88) 7.68% 7.92% 7.07% -- 8.10%
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Life of Master
Income Trust
(12/28/87) 7.87% 8.13% 6.80% -- 8.45%
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* Primary benchmark for Premier Income Trust.
** Primary benchmark for Master Income Trust.
*** Inception date of 12/31/93.
**** Over the 1-, 5- and 10-year periods ended 7/31/04, there were 11
funds in this Lipper category.
Index and Lipper results should be compared to each fund's performance
at NAV.
7. What are the federal income tax consequences of the proposed merger?
For federal income tax purposes, no gain or loss will be recognized by
the funds or their shareholders directly as a result of the proposed
merger. Certain other tax consequences are discussed below under
"Information about the Proposed Merger--Federal Income Tax
Consequences."
8. Will my dividend be affected by the proposed merger?
The merger will not result in a change in dividend policy. Because the
funds' earning rates are currently substantially similar, the merger
will not result in any immediate material change in current dividend
rate. As of July 15, 2004, the current dividend rates for Premier Income
Trust and Master Income Trust were 6.62% and 6.20%, respectively, and
the estimated dividend rate for shares of Premier Income Trust on a pro
forma basis, after giving effect to the merger, would have been 6.62%.
As of July 15, 2004, the SEC yields for shares of Premier Income Trust
and Master Income Trust were 5.20% and 4.96%, respectively. Over the
longer term, the level of dividends will depend on market conditions and
the ability of Putnam Management to invest the fund's assets, including
those received in the merger, in securities meeting Premier Income
Trust's investment objectives and policies.
Premier Income Trust will not permit any holder of Master Income Trust
shares holding certificates for such shares at the time of the merger to
receive cash dividends or other distributions, receive certificates for
Merger Shares or pledge Merger Shares until such certificates for Master
Income Trust shares have been surrendered, or, in the case of lost
certificates, until an adequate surety bond has been posted.
If a shareholder is not, for the reason above, permitted to receive cash
dividends or other distributions on Merger Shares, Premier Income Trust
will pay all such dividends and distributions in additional shares,
notwithstanding any election the shareholder may have made previously to
receive dividends and distributions on Master Income Trust shares in
cash.
9. Do the procedures for purchasing and selling shares of the two funds
differ?
No. The procedures for purchasing and selling shares of each fund are
identical. As closed-end funds, the funds are not required to redeem
outstanding shares, and do not continuously offer shares. The funds'
shares currently may be bought and sold at prevailing market prices on
the NYSE. Premier Income Trust will apply to list the Merger Shares on
the NYSE. It is a condition to the closing of the merger that the Merger
Shares be approved for listing.
10. How will I be notified of the outcome of the vote?
If the proposed merger is approved and you are a shareholder of Master
Income Trust, you will receive a confirmation after the reorganization
is completed, indicating your new account number, the number of shares
you are receiving and the procedures for surrendering your certificates,
if you have any. Otherwise, you will be notified in the next annual
report of your fund.
11. Will the number of shares I own change?
If you are a shareholder of Master Income Trust, the number of shares
you own will change, but the total net asset value of the shares of
Premier Income Trust you receive will equal the total net asset value of
the shares of Master Income Trust that you hold at the time of the
merger. If you are a shareholder of Premier Income Trust, the number of
Premier Income Trust shares you own will not change. Even though the net
asset value per share of each fund is different, the total net asset
value of a shareholder's holdings will not change as a result of the
merger. Of course, the Merger Shares may trade on the NYSE at a discount
from net asset value, which might be greater or less than the trading
discount of Master Income Trust shares at the time of the merger.
12. Will the market value of my investment change?
Shares of each fund will continue to be traded on the NYSE (in the case
of Master Income Trust, until the time of the merger), and may at times
trade at a market price greater or less than net asset value. In recent
years, shares of both funds have traded at a discount to net asset
value. Depending on market conditions immediately prior to the exchange,
shares of Premier Income Trust may trade at a larger or smaller discount
to net asset value than shares of Master Income Trust. This could result
in the Merger Shares having a market value that is greater or less than
the market value the Master Income Trust shares currently have.
13. Why is the vote of Premier Income Trust's shareholders being
solicited?
Although Premier Income Trust will continue its legal existence and
operations as before, we are required by the rules of the NYSE to
solicit the vote of Premier Income Trust's shareholders in this matter.
14. What percentage of shareholders' votes is required to approve the
merger?
Approval of the merger will require the "yes" vote of the holders of:
* a majority of the outstanding shares of Premier Income Trust voted, if
holders of more than 50% of such shares vote, and
* a majority of the outstanding shares of Master Income Trust.
The Trustees believe that the proposed merger is in the best interests
of each fund's shareholders. Accordingly, the Trustees unanimously
recommend that shareholders vote FOR approval of the proposed merger.
II. Risk Factors
* What are the risks of Premier Income Trust, and how do they compare
with those of Master Income Trust?
The risks of an investment in Premier Income Trust (the "fund" as used
in the following discussion of main risks) are generally similar to the
risks of an investment in Master Income Trust, except that, because
Premier Income Trust is "non-diversified," it may invest more of its
assets in a smaller number of issuers, which may increase the
vulnerability of the fund to factors affecting those issuers. However,
the fund has not taken advantage of this flexibility to a significant
extent in recent years. Because there is currently no practical
difference in how the funds are managed, the funds generally share the
same risks.
The main risks that could adversely affect the value of the fund's
shares and the total return on your investment include:
* The risk that the issuers of the fund's fixed-income investments will
not make timely payments of interest and principal. Because the fund
invests significantly in junk bonds, it is subject to heightened credit
risk. Investors should carefully consider the risks associated with an
investment in the fund.
* The risk that movements in financial markets will adversely affect the
value of the fund's investments. This risk includes interest rate risk,
which means that the prices of the fund's investments are likely to fall
if interest rates rise. Interest rate risk is generally higher for
investments with longer maturities.
* The risk that, compared to other debt, mortgage-backed investments may
increase in value less when interest rates decline, and decline in value
more when interest rates rise.
* The risks of investing outside the United States, such as currency
fluctuations, economic or financial instability, lack of timely or
reliable financial information or unfavorable political or legal
developments. These risks are increased for investments in emerging
markets.
* The risk that the fund's shares may trade at a discount to net asset
value. Although the market price of the fund's shares generally reflects
investment results, it may also be influenced by several factors,
including changes in investor perceptions of the fund or its investment
adviser, market conditions, fluctuations in supply and demand for the
fund's shares and changes in fund distributions. As a result, the fund
cannot predict whether its shares will trade at, below or above net
asset value.
* What are the main investment strategies and related risks of Premier
Income Trust, and how do they compare with those of Master Income Trust?
Because the funds share similar goals and policies, the risks described
below for an investment in Premier Income Trust are virtually identical
to the risks of an investment in Master Income Trust, except as noted
above with respect to diversification. (However, Premier Income Trust
has not taken advantage of its non-diversified status to a significant
extent in recent years. Because there is currently no practical
difference in how the funds are managed, the funds generally share the
same risks.)
Any investment carries with it some level of risk that generally
reflects its potential for reward. Putnam Management pursues the fund's
goal by investing mainly in bonds from multiple sectors, including the
U.S. investment-grade sector, the high-yield sector and the
international sector. Putnam Management will not invest less than 15% of
the fund's net assets in U.S. government securities. Putnam Management
will consider, among other things, credit, interest rate and prepayment
risks as well as general market conditions when deciding whether to buy
or sell investments. A description of the risks associated with the
fund's main investment strategies follows:
Interest rate risk. The values of bonds and other debt usually rise and
fall in response to changes in interest rates. Declining interest rates
generally increase the values of existing debt instruments, and rising
interest rates generally decrease the values of existing debt
instruments. Changes in a debt instrument's value usually will not
affect the amount of interest income paid to the fund, but will affect
the value of the fund's shares. Interest rate risk is generally greater
for investments with longer maturities.
Some investments give the issuer the option to call, or redeem, them
before their maturity date. If an issuer calls or redeems an investment
during a time of declining interest rates, Putnam Management might have
to reinvest the proceeds in an investment offering a lower yield, and
therefore the fund might not benefit from any increase in value as a
result of declining interest rates.
"Premium investments" offer coupon rates higher than prevailing market
rates. However, they involve a greater risk of loss, because their
values tend to decline over time.
Credit risk. Investors normally expect to be compensated in proportion
to the risk they are assuming. Thus, debt of issuers with poor credit
prospects usually offers higher yields than debt of issuers with more
secure credit. Higher-rated investments generally offer lower credit
risk.
Putnam Management may invest up to 70% of the fund's total assets in
higher-yield, higher-risk debt investments that are rated below BBB or
its equivalent at the time of purchase by each nationally recognized
securities rating agency rating such investments, or are unrated
investments that Putnam Management believes are of comparable quality.
Putnam Management may invest up to 5% of the fund's total assets in debt
investments rated below CCC or its equivalent, at the time of the
purchase, by each agency rating such investments, including investments
in the lowest rating category of the rating agency, and unrated
investments that Putnam Management believes are of comparable quality.
Putnam Management will not necessarily sell an investment if its rating
is reduced after it buys it.
Investments rated below BBB or its equivalent are known as "junk bonds."
This rating reflects a greater possibility that the issuers may be
unable to make timely payments of interest and principal and thus
default. If this happens, or is perceived as likely to happen, the
values of those investments will usually be more volatile and are likely
to fall. A default or expected default could also make it difficult for
us to sell the investments at prices approximating the values we had
previously placed on them. Lower-rated debt usually has a more limited
market than higher-rated debt, which may at times make it difficult for
us to buy or sell certain debt instruments or to establish their fair
value. Credit risk is generally greater for zero coupon bonds and other
investments that are issued at less than their face value and that are
required to make interest payments only at maturity rather than at
intervals during the life of the investment.
Credit ratings are based largely on the issuer's historical financial
condition and the rating agencies' investment analysis at the time of
rating. The rating assigned to any particular investment does not
necessarily reflect the issuer's current financial condition, and does
not reflect an assessment of an investment's volatility or liquidity.
Although Putnam Management considers credit ratings in making investment
decisions, it performs its own investment analysis and does not rely on
ratings assigned by the rating agencies. The fund depends more on Putnam
Management's ability in buying lower-rated debt than it does in buying
investment-grade debt. The fund may have to participate in legal
proceedings involving the issuer. This could increase the fund's
operating expenses and decrease its net asset value.
Although investment-grade investments generally have lower credit risk,
they may share some of the risks of lower-rated investments. U.S.
government investments generally have the least credit risk, but are not
completely free of credit risk. While some investments, such as U.S.
Treasury obligations and Ginnie Mae certificates, are backed by the full
faith and credit of the U.S. government, others are backed only by the
credit of the issuer. Mortgage-backed securities may be subject to the
risk that underlying borrowers will be unable to meet their obligations.
Prepayment risk. Traditional debt investments typically pay a fixed rate
of interest until maturity, when the entire principal amount is due. By
contrast, payments on mortgage-backed investments typically include both
interest and partial payment of principal. Principal may also be prepaid
voluntarily, or as a result of refinancing or foreclosure. The fund may
have to invest the proceeds from prepaid investments in other
investments with less attractive terms and yields. Compared to debt that
cannot be prepaid, mortgage-backed investments are less likely to
increase in value during periods of declining interest rates and have a
higher risk of decline in value during periods of rising interest rates.
They may increase the volatility of a fund. Some mortgage-backed
investments receive only the interest portion or the principal portion
of payments on the underlying mortgages. The yields and values of these
investments are extremely sensitive to changes in interest rates and in
the rate of principal payments on the underlying mortgages. The market
for these investments may be volatile and limited, which may make them
difficult to buy or sell.
Foreign investments. The fund considers a foreign company to be one that
is domiciled outside the U.S. or has its principal operations located
outside of the U.S. Foreign investments involve certain special risks,
including:
* Unfavorable changes in currency exchange rates: Foreign investments
are typically issued and traded in foreign currencies. As a result,
their values may be affected by changes in exchange rates between
foreign currencies and the U.S. dollar.
* Political and economic developments: Foreign investments may be
subject to the risks of seizure by a foreign government, imposition of
restrictions on the exchange or export of foreign currency and tax
increases.
* Unreliable or untimely information: There may be less information
publicly available about a foreign company than about most U.S.
companies, and foreign companies are usually not subject to accounting,
auditing and financial reporting standards and practices as stringent as
those in the United States.
* Limited legal recourse: Legal remedies for investors may be more
limited than the remedies available in the United States.
* Limited markets: Certain foreign investments may be less liquid
(harder to buy and sell) and more volatile than most U.S. investments,
which means Putnam Management may at times be unable to sell these
foreign investments at desirable prices. For the same reason, Putnam
Management may at times find it difficult to value the fund's foreign
investments.
* Trading practices: Brokerage commissions and other fees are generally
higher for foreign investments than for U.S. investments. The procedures
and rules governing foreign transactions and custody may also involve
delays in payment, delivery or recovery of money or investments.
* Sovereign issuers: The willingness and ability of sovereign issuers to
pay principal and interest on government securities depends on various
economic factors, including the issuer's balance of payments, overall
debt level and cash flow from tax or other revenues.
* Lower yield: Foreign withholding taxes may reduce the proceeds from
dividends or interest on, or the sale of, foreign investments.
The risks of foreign investments are typically increased in less
developed countries, which are sometimes referred to as emerging
markets. For example, political and economic structures in these
countries may be changing rapidly, which can cause instability. These
countries are also more likely to experience high levels of inflation,
deflation or currency devaluation, which could hurt their economies and
securities markets. For these and other reasons, investments in emerging
markets are often considered speculative.
Certain of these risks may also apply to some extent to U.S.-traded
investments that are denominated in foreign currencies, investments in
U.S. companies that are traded in foreign markets or investments in U.S.
companies that have significant foreign operations. Special U.S. tax
considerations may apply to the fund's foreign investments.
Derivatives. Putnam Management may engage in a variety of transactions
involving derivatives, such as futures, options and swap contracts.
Derivatives are financial instruments whose value depends upon, or is
derived from, the value of something else, such as one or more
underlying investments, pools of investments, indexes or currencies.
Putnam Management may use derivatives both for hedging and non-hedging
purposes. For example, Putnam Management may use derivatives to increase
or decrease the fund's exposure to long- or short-term interest rates
(in the United States or abroad). However, Putnam Management may also
choose not to use derivatives, based on our evaluation of market
conditions or the availability of suitable derivatives. Investments in
derivatives may be applied toward meeting a requirement to invest in a
particular kind of investment if the derivatives have economic
characteristics similar to that investment.
Derivatives involve special risks and may result in losses. The
successful use of derivatives depends on Putnam Management's ability to
manage these sophisticated instruments. The prices of derivatives may
move in unexpected ways due to the use of leverage or other factors,
especially in unusual market conditions, and may result in increased
volatility. The use of derivatives may also increase the amount of taxes
payable by shareholders.
Other risks arise from our potential inability to terminate or sell
derivatives positions. A liquid secondary market may not always exist
for the fund's derivatives positions at any time. In fact, many
over-the-counter instruments (investments not traded on an exchange)
will not be liquid.
Over-the-counter instruments also involve the risk that the other party
to the derivative transaction will not meet its obligations. For further
information about the risks of derivatives, see the SAI.
Anti-takeover provisions. The fund's agreement and declaration of trust, as
amended, includes provisions that could limit the ability of other persons
or entities to acquire control of the fund or to cause it to engage in
certain transactions or to modify its structure. Such provisions may have
the effect of depriving shareholders of an opportunity to sell their shares
at a premium over prevailing market prices or inhibiting the fund's
conversion to open-end status.
Possible conversion to open-end status. Under the fund's agreement and
declaration of trust, as amended, because the fund's shares have traded on
the NYSE at an average discount of more than 10%, determined as of the end
of the last trading day in each week during the period of twelve calendar
weeks preceding August 1, 2004, the Trustees are required to submit to the
next annual meeting of the fund's shareholders, which is currently expected
to take place in July 2005, a proposal to convert the fund from a
"closed-end company" to an "open-end company," as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"). If the fund's
shareholders were to approve this proposal, the fund's management team may,
upon conversion, be forced to maintain a portion of the fund's portfolio in
cash due to cash flows from sales and redemptions of fund shares. In
addition, a conversion to open-end status may result in a lower yield
because of increased fund expenses. Because Master Income Trust's shares
also have traded on the NYSE at an average discount of more than 10%,
determined as of the end of the last trading day in each week during the
period of twelve calendar weeks preceding November 1, 2004, if the proposed
merger does not take place, the Trustees are required to submit to the next
annual meeting of Master Income Trust's shareholders, which is currently
expected to take place in October 2005, a proposal to convert Master Income
Trust from a closed-end company to an open-end company.
Market price of shares. Shares of closed-end investment companies often
trade at a discount to their net asset values, and the fund's shares may
likewise trade at a discount, although it is possible that they may
trade at a premium above net asset value. Net asset value will be
reduced immediately following the merger as a result of merger-related
expenses. Although the market price of the fund's shares generally
reflects investment results, it may also be influenced by several
factors, including changes in investor perceptions of the fund or its
investment adviser, market conditions, fluctuations in supply and demand
for the fund's shares and changes in fund distributions. As a result,
the fund cannot predict whether its shares will trade at, below or above
net asset value.
Other investments. In addition to the main investment strategies
described above, the fund may make other types of investments, such as
investments in repurchase agreements and forward commitments, which may
be subject to other risks, as described in the SAI.
Alternative strategies. Under normal market conditions, Putnam
Management keeps the fund's portfolio fully invested, with minimal cash
holdings. However, at times Putnam Management may judge that market
conditions make pursuing the fund's usual investment strategies
inconsistent with the best interests of the fund's shareholders. Putnam
Management then may temporarily use alternative strategies that are
mainly designed to limit losses. However, Putnam Management may choose
not to use these strategies for a variety of reasons, even in very
volatile market conditions. These strategies may cause the fund to miss
out on investment opportunities, and may prevent the fund from achieving
its goal.
Changes in policies. The fund's Trustees may change the fund's goal,
investment strategies and other policies without shareholder approval,
except as otherwise indicated.
An investment in Premier Income Trust may not be appropriate for all
investors, and there is no assurance that Premier Income Trust will
achieve its investment objective. Premier Income Trust is designed
primarily as a long-term investment and not as a trading vehicle.
III. Information about the Proposed Merger
General. The shareholders of each fund are being asked to approve a
merger between Master Income Trust and Premier Income Trust pursuant to
the Agreement, which is attached to this Prospectus/Proxy Statement as
Appendix A. Although the term "merger" is used for ease of reference,
the transaction is structured as a transfer of all of the assets of
Master Income Trust to Premier Income Trust in exchange for the
assumption by Premier Income Trust of all of the liabilities of Master
Income Trust and for the issuance and delivery to Master Income Trust of
shares of Premier Income Trust equal in aggregate value to the net value
of the assets transferred to Premier Income Trust.
After receipt of the Merger Shares, Master Income Trust will distribute
the Merger Shares to its shareholders, in proportion to their existing
shareholdings, in complete liquidation of Master Income Trust, and the
legal existence of Master Income Trust as a separate business trust
under Massachusetts law will be terminated. Each shareholder of Master
Income Trust will receive a number of full and fractional Merger Shares
equal in value at the date of the exchange to the aggregate net asset
value of the shareholder's Master Income Trust shares.
Prior to the date of the transfer (the "Exchange Date"), Master Income
Trust will declare a dividend that will have the effect of distributing
to shareholders all of its remaining investment company income (computed
without regard to the deduction for dividends paid) and net realized
capital gains, if any, through the Exchange Date.
The Trustees have voted unanimously to approve the proposed merger and
to recommend that shareholders also approve the merger. The actions
contemplated by the Agreement and the related matters described therein
will be consummated only if approved by the affirmative vote of the
holders of a majority of the outstanding shares of Premier Income Trust
voted, if holders of more than 50% of such shares vote, and a majority
of the outstanding shares of Master Income Trust.
The Agreement provides that the investment restrictions of Master Income
Trust will be temporarily amended to the extent necessary to effect the
transactions contemplated by the Agreement.
In the event that the merger does not receive the required approvals,
each fund will continue to be managed as a separate fund in accordance
with its current investment objective and policies, and the Trustees may
consider such alternatives as may be in the best interests of each
fund's respective shareholders.
Trustees' Considerations Relating to the Proposed Merger. The Trustees
of the Putnam Funds, who serve as Trustees of each of the funds involved
in the proposed merger, have carefully considered the anticipated
benefits and costs of the proposed merger from the perspective of each
fund. The Contract Committee of the Trustees of the Putnam Funds, which
consists solely of Trustees who are not "interested persons" of the
funds as defined in the Investment Company Act of 1940 (the "independent
Trustees"), reviewed the terms of the proposed merger. The Contract
Committee and the Trustees were assisted in this process by independent
legal counsel for both the funds and the independent Trustees. Following
the conclusion of this process, the Trustees, including all of the
independent Trustees, determined that the proposed merger of Master
Income Trust into Premier Income Trust would be in the best interests of
each fund and its shareholders, and that the interests of existing
shareholders of each fund would not be diluted by the proposed merger.
The Trustees unanimously approved the proposed merger and recommended
its approval by shareholders of each fund.
In evaluating the proposed merger, the Trustees first considered the
underlying investment rationale articulated by Putnam Management. The
Trustees noted the similarity of the funds' investment objectives,
policies and restrictions. The Trustees also considered the historical
investment performance of each fund and its current distribution rate,
as well as the expected savings in annual fund operating expenses for
shareholders of the combined fund, based on Putnam Management's
unaudited estimates of the funds' expense ratios as of July 31, 2004 and
the expected pro forma expense ratio based on combined assets of the
funds as of the same date, as shown in the table below:
-------------------------------------------------------
Total Expenses
-------------------------------------------------------
Premier Income Trust 0.83%
Master Income Trust 0.94%
Premier Income Trust Pro Forma Combined 0.80%
-------------------------------------------------------
The Trustees also considered the tax effects of the proposed merger. In
particular, using data as of July 31, 2004, they reviewed the historical
and pro forma tax attributes of the funds and examined the effect of a
hypothetical merger occurring as of that date on certain tax losses of
the funds (see "Federal Income Tax Consequences" below). The Trustees
noted that since the funds had similar gain/loss positions at that time,
there was no significant prospect that one fund's shareholders would
have been placed at a disadvantage, for example, due to the spreading of
their losses (which are a potential tax benefit) among a larger group of
shareholders. The Trustees also noted that, at that time, since Master
Income Trust did not have significant capital losses, the impact of the
loss limitation rules governing the use of pre-merger losses by the
combined fund was expected to be minimal. The effect of this limitation
on the proposed merger, however, will depend on the amount of losses in
each fund at the time of the merger.
The Trustees took into account the expected costs of the proposed
merger, including proxy solicitation costs, fees associated with
registering the sale of Premier Income Trust's shares to be issued in
the proposed merger, accounting fees and legal fees. The Trustees
weighed these costs (and the estimated portfolio transaction expenses
described below) against the quantifiable expected benefits of the
proposed merger and considered Putnam Management's agreement to bear
these costs to the extent they exceed certain limits established by the
Trustees and set forth in the Agreement. Accordingly, the funds are
expected to bear these costs in the following amounts:
----------------------------------------------------------------
Premier Income Trust $157,343 (0.02% of July 31, 2004 assets)
Master Income Trust $164,551 (0.04% of July 31, 2004 assets)
----------------------------------------------------------------
The Trustees also took into account a number of factors, including: (1)
a comparison of the investment objectives and policies of the funds; (2)
the classification and performance rating of each fund by independent
research firms such as Morningstar, Inc. and Lipper Inc.; (3) the
performance history of each fund; (4) the performance history of each
fund as compared to its benchmark indexes; (5) the volatility of each
fund's portfolio relative to the market; (6) the composition of each
fund's management team; (7) the net assets, average duration and average
credit quality of each fund; (8) the current dividend rates and SEC
yield for each fund; and (9) the terms of the Agreement.
Agreement and Plan of Reorganization. The proposed merger will be
governed by the Agreement, a copy of which is attached as Appendix A.
The Agreement provides that Premier Income Trust will acquire all of the
assets of Master Income Trust in exchange for the assumption by Premier
Income Trust of all of the liabilities of Master Income Trust and for
the issuance of and delivery to Master Income Trust of Merger Shares
equal in value to the value of the transferred assets net of assumed
liabilities. The shares will be issued on the next full business day
(the "Exchange Date") following the time as of which the funds' shares
are valued for determining net asset value for the merger (4:00 p.m.,
Boston time, on January 21, 2005, or such other date as may be agreed
upon by the parties (the "Valuation Time")). The following discussion of
the Agreement is qualified in its entirety by the full text of the
Agreement.
Master Income Trust will sell all of its assets to Premier Income Trust,
and in exchange, Premier Income Trust will assume all of the liabilities
of Master Income Trust and deliver to Master Income Trust a number of
full and fractional Merger Shares having an aggregate net asset value
equal to the value of assets of Master Income Trust, less the value of
the liabilities of Master Income Trust assumed by Premier Income Trust.
The Agreement provides that the investment restrictions of Master Income
Trust will be temporarily amended to the extent necessary to effect the
transactions contemplated by the Agreement.
Immediately following the Exchange Date, Master Income Trust will
distribute pro rata to its shareholders of record, as of the close of
business on the Exchange Date, the full and fractional Merger Shares
received by Master Income Trust. As a result of the proposed merger,
each shareholder of Master Income Trust will receive a number of Merger
Shares equal in aggregate value at the Exchange Date to the net asset
value of Master Income Trust shares held by the shareholder. This
distribution will be accomplished by the establishment of accounts on
the share records of Premier Income Trust in the name of such
shareholders, each account representing the respective number of full
and fractional Merger Shares due such shareholder. New certificates for
Merger Shares will be issued only upon written request. If you hold
certificates for shares of Master Income Trust, you will not, following
the merger, be able to receive any dividends or transfer your Premier
Income Trust shares until you have delivered your Master Income Trust
share certificates to Putnam Fiduciary Trust Company.
The consummation of the merger is subject to the conditions set forth in
the Agreement. The Agreement may be terminated and the merger abandoned
at any time, before or after approval by the shareholders, prior to the
Exchange Date, by mutual consent of Premier Income Trust and Master
Income Trust or, if any condition set forth in the Agreement has not
been fulfilled and has not been waived by the party entitled to its
benefits, by such party.
If shareholders of each fund approve the proposed merger, Master Income
Trust will liquidate such of its portfolio securities as Premier Income
Trust shall indicate it does not wish to acquire. The Agreement provides
that the liquidation will be substantially completed prior to the
Exchange Date, unless otherwise agreed upon by Master Income Trust and
Premier Income Trust. Master Income Trust shareholders will bear the
portfolio trading costs associated with this liquidation to the extent
that it is completed prior to the Exchange Date. There can be no
assurance that such liquidation will be accomplished prior to the
Exchange Date. To the extent the liquidation is not accomplished prior
to the Exchange Date, the costs of the liquidation will be borne by the
shareholders of the combined fund, including current shareholders of
Premier Income Trust. Putnam Management does not expect that Premier
Income Trust will require Master Income Trust to make any significant
dispositions of securities in connection with the proposed merger.
Except for the trading costs associated with the liquidation described
above, the fees and expenses for the merger and related transactions are
estimated to be $427,892, of which $321,894 is expected to be paid by
the funds and the balance will be paid by Putnam Management. These fees
and expenses, including legal and accounting expenses, portfolio
transfer taxes (if any) or other similar expenses incurred in connection
with the consummation of the proposed merger and related transactions
contemplated by the Agreement, will be allocated ratably between the two
funds in proportion to their net assets as of the Valuation Time, except
that the costs of proxy materials and proxy solicitations for each fund
will be borne by that fund. However, to the extent that any payment by
either fund of such fees or expenses would result in the
disqualification of Premier Income Trust or Master Income Trust as a
"regulated investment company" within the meaning of Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code"), such fees and
expenses will be paid directly by the party incurring them.
Description of the Merger Shares. The Merger Shares, which are shares of
Premier Income Trust, will be issued to Master Income Trust's
shareholders in accordance with the procedures under the Agreement as
described above. The Merger Shares are fully paid and nonassessable when
issued and will have no preemptive or conversion rights. The Merger
Shares will be transferable without restriction.
Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of Premier Income Trust.
However, Premier Income Trust's agreement and declaration of trust, as
amended, disclaims shareholder liability for acts or obligations of Premier
Income Trust and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by Premier
Income Trust or its Trustees. The agreement and declaration of trust, as
amended, provides for indemnification out of fund property for all loss and
expense of any shareholder held personally liable for the obligations of
Premier Income Trust. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in
which Premier Income Trust would be unable to meet its obligations. The
likelihood of such circumstances is remote. The shareholders of Master
Income Trust are currently subject to this same risk of shareholder
liability.
Federal Income Tax Consequences. As a condition to each fund's
obligation to consummate the reorganization, each fund will receive a
tax opinion from Ropes & Gray LLP, counsel to the funds (which opinion
would be based on certain factual representations and certain customary
assumptions), to the effect that, on the basis of the existing
provisions of the Code, current administrative rules and court
decisions, for federal income tax purposes:
(i) the acquisition by Premier Income Trust of substantially all of
the assets of Master Income Trust solely in exchange for Merger Shares
and the assumption by Premier Income Trust of liabilities of Master
Income Trust followed by the distribution by Master Income Trust to its
shareholders of Merger Shares in complete liquidation of Master Income
Trust, all pursuant to the Agreement, constitutes a reorganization
within the meaning of Section 368(a) of the Code, and Master Income
Trust and Premier Income Trust will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code;
(ii) under Section 361 of the Code, no gain or loss will be recognized
by Premier Income Trust or Master Income Trust upon the transfer of
Master Income Trust's assets to and the assumption of Master Income
Trust's liabilities by Premier Income Trust or upon the distribution of
the Merger Shares to Master Income Trust's shareholders in liquidation
of Master Income Trust;
(iii) under Section 354 of the Code, no gain or loss will be recognized
by shareholders of Master Income Trust on the exchange of their shares
of Master Income Trust for Merger Shares;
(iv) under Section 358 of the Code, the aggregate tax basis of the
Merger Shares received by Master Income Trust's shareholders will be the
same as the aggregate tax basis of Master Income Trust shares exchanged
therefor;
(v) under Section 1223(1) of the Code, the holding periods of the
Merger Shares received by the shareholders of Master Income Trust will
include the holding periods of Master Income Trust shares exchanged
therefor, provided that at the time of the reorganization Master Income
Trust shares are held by such shareholders as a capital asset;
(vi) under Section 1032 of the Code, no gain or loss will be
recognized by Premier Income Trust upon the receipt of assets of Master
Income Trust in exchange for Merger Shares and the assumption by Premier
Income Trust of the liabilities of Master Income Trust;
(vii) under Section 362(b) of the Code, the tax basis in the hands of
Premier Income Trust of the assets of Master Income Trust transferred to
Premier Income Trust will be the same as the tax basis of such assets in
the hands of Master Income Trust immediately prior to the transfer;
(viii) under Section 1223(2) of the Code, the holding periods of the
assets of Master Income Trust in the hands of Premier Income Trust will
include the periods during which such assets were held by Master Income
Trust; and
(ix) Premier Income Trust will succeed to and take into account the
items of Master Income Trust described in Section 381(c) of the Code,
subject to the conditions and limitations specified in Sections 381,
382, 383 and 384 of the Code and regulations thereunder.
Ropes & Gray LLP will express no view with respect to the effect of the
reorganization on any transferred asset as to which any unrealized gain
or loss is required to be recognized at the end of a taxable year (or on
the termination or transfer thereof) under federal income tax
principles.
Premier Income Trust will file the tax opinion with the SEC shortly
after the completion of the proposed merger. This description of the
federal income tax consequences of the proposed merger is made without
regard to the particular facts and circumstances of any shareholder.
Shareholders are urged to consult their own tax advisors as to the
specific consequences to them of the proposed merger, including the
applicability and effect of state, local and other tax laws.
Premier Income Trust's ability to carry forward the pre-merger losses of
Master Income Trust will be limited as a result of the merger. The
effect of this limitation, however, will depend on the amount of losses
in each fund at the time of the merger. For example, if the merger were
to have occurred on July 31, 2004, approximately 12% of Master Income
Trust's losses would have been unavailable post-merger due to the tax
law's loss limitation rules. Premier Income Trust's losses, however,
would have been available to mitigate the effect of this limitation. In
addition, there would have been no spreading of losses as a result of
the merger due to the similarity between the funds with respect to each
fund's losses relative to its net assets (22% and 23%, respectively). As
a result, although Master Income Trust's losses would have been limited
due to the tax law's limitation rules, the net effect to shareholders of
Master Income Trust would have been minimal because the amount of losses
limited would have been small and Premier Income Trust, which was
significantly larger than Master Income Trust at that time, had a
similar percentage of losses, so the spreading of Master Income Trust's
tax attributes over the combined asset base of the two funds would also
have had little effect.
Capitalization. The following table shows the capitalization of the
funds as of July 31, 2004, and on a pro forma combined basis, giving
effect to the proposed acquisition of assets at net asset value as of
that date:
---------------------------------------------------------------------
(Unaudited)
Premier
Premier Master Income Trust
Income Income Pro Forma
Trust Trust Combined
---------------------------------------------------------------------
Net assets (000's omitted) $992,676 $380,022 $1,372,376*
Shares outstanding (000's omitted) 141,199 53,330 195,233**
Net asset value per share $7.03 $7.13 $7.03
---------------------------------------------------------------------
* Pro forma combined net assets reflect estimated proxy, legal,
accounting and SEC registration merger-related costs of $157,343 for
Premier Income Trust and $164,551 for Master Income Trust.
** Reflects the issuance of an estimated 54,033,849 shares of Premier
Income Trust in a tax-free exchange for the net assets of Master Income
Trust.
Unaudited pro forma combining financial statements of the funds as of
July 31, 2004, and for the twelve-month period then ended, are included
in the SAI. Because the Agreement provides that Premier Income Trust
will be the surviving fund following the proposed merger and because
Premier Income Trust's investment objective and policies will remain
unchanged, the pro forma combining financial statements reflect the
transfer of the assets and liabilities of Master Income Trust to Premier
Income Trust as contemplated by the Agreement.
The Trustees, including the independent Trustees, unanimously recommend
approval of the proposed merger.
IV. Information about the Funds
Premier Income Trust and Master Income Trust are both Massachusetts
business trusts and are both closed-end management companies. Master
Income Trust is a diversified company while Premier Income Trust is a
non-diversified company (although in recent years Premier Income Trust
has not taken advantage, to a significant extent, of its ability to
concentrate its investments among fewer issuers). Premier Income Trust
was organized on January 14, 1988, and Master Income Trust was organized
on September 30, 1987.
Financial Highlights. The financial highlights tables are intended to
help you understand the funds' recent financial performance. Certain
information reflects financial results for a single fund share. The
total returns represent the rate that an investor would have earned or
lost on an investment in the relevant fund, assuming reinvestment of all
dividends and distributions. This information has been derived from the
funds' financial statements, which, for the last five fiscal years
(excluding the unaudited information for Master Income Trust for the six
months ended April 30, 2004), have been audited by KPMG LLP. Its reports
and the funds' financial statements are included in each fund's annual
report to shareholders, which is available upon request.
FINANCIAL HIGHLIGHTS
PUTNAM PREMIER INCOME TRUST
(For a common share outstanding throughout the period)
Year ended July 31
---------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.75 $6.22 $6.68 $7.19 $7.62 $8.71 $8.88 $8.53 $8.46 $8.29
--------------------------------------------------------------------------------------------------------------------------------
Investment operations:
--------------------------------------------------------------------------------------------------------------------------------
Net investment
income (a) .44(e) .51 .55 .61 .63 .64 .74 .65 .64 .68
--------------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized
gain (loss) on
investments .31 .54 (.47) (.50) (.39) (.99) (.18) .38 .09 .17
--------------------------------------------------------------------------------------------------------------------------------
Total from
investment
operations .75 1.05 .08 .11 .24 (.35) .56 1.03 .73 .85
--------------------------------------------------------------------------------------------------------------------------------
Less distributions:
--------------------------------------------------------------------------------------------------------------------------------
From net investment
income (.47) (.52) (.53) (.51) (.67) (.62) (.66) (.68) (.66) (.58)
--------------------------------------------------------------------------------------------------------------------------------
From net realized gain -- -- -- -- -- (.12) (.07) -- -- --
--------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- (.01) (.11) -- -- -- -- -- (.10)
--------------------------------------------------------------------------------------------------------------------------------
Total distributions (.47) (.52) (.54) (.62) (.67) (.74) (.73) (.68) (.66) (.68)
--------------------------------------------------------------------------------------------------------------------------------
Net asset value, end
of period $7.03 $6.75 $6.22 $6.68 $7.19 $7.62 $8.71 $8.88 $8.53 $8.46
--------------------------------------------------------------------------------------------------------------------------------
Market value, end of
period $6.29 $6.31 $6.03 $6.29 $6.38 $7.19 $8.50 $8.56 $7.38 $7.44
--------------------------------------------------------------------------------------------------------------------------------
Total return at market
value (%)(b) 7.18 13.41 4.44 8.56 (1.51) (7.24) 8.06 26.24 7.94 6.86
--------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------------------------------
Ratios and
supplemental data
--------------------------------------------------------------------------------------------------------------------------------
Net assets, end of
period
(in thousands) $992,676 $952,730 $877,649 $942,125 $1,013,487 $1,073,980 $1,221,188 $1,245,444 $1,199,854 $1,190,375
--------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets
(%) (c)(d) .83(e) .85 .86 .85 .83 .86 .89 .83 .85 .82
--------------------------------------------------------------------------------------------------------------------------------
Ratio of net
investment income
to average net
assets (%) (c) 6.19(e) 7.91 8.39 8.87 8.48 8.05 8.34 7.42 7.43 8.29
--------------------------------------------------------------------------------------------------------------------------------
Portfolio
turnover (%) 78.43 96.21(d) 175.78(d) 231.58 133.80 165.79 209.50 262.01 332.00 196.83
--------------------------------------------------------------------------------------------------------------------------------
(a) Per share net investment income has been determined on the basis of
the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment.
(c) The ratio of expenses to average net assets for the period ended
July 31, 1996 and thereafter includes amounts paid through expense
offset arrangements. Prior period ratios exclude these amounts.
(d) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
(e) Reflects waivers of certain fund expenses during the period. As a
result of such waivers, the expenses of the fund for the period ended
July 31, 2004 reflect a reduction of less than 0.01% of average net
assets.
FINANCIAL HIGHLIGHTS
PUTNAM MASTER INCOME TRUST
(For a common share outstanding throughout the period)
-------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share April 30
operating 2004 Year ended October 31
performance (unaudited) 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994
-------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $7.18 $6.37 $6.80 $7.13 $7.72 $8.27 $9.26 $9.33 $9.04 $8.63 $9.62
-------------------------------------------------------------------------------------------------------------------------------
Investment operations:
-------------------------------------------------------------------------------------------------------------------------------
Net investment
income (a) .22 .50 .55 .61 .66 .64 .71 .66 .68 .68 .74
-------------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss)
on investments .13 .83 (.40) (.31) (.58) (.48) (.96) .13 .30 .42 (.88)
-------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations .35 1.33 .15 .30 .08 .16 (.25) .79 .98 1.10 (.14)
-------------------------------------------------------------------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------------------------------------------------------------------
From net investment
income (.37) (.52) (.58) (.58) (.56) (.65) (.65) (.52) (.69) (.64) (.52)
-------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- -- -- -- (.33) -- -- (.08)
-------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- (.05) (.11) (.06) (.09) (.01) -- (.05) (.25)
-------------------------------------------------------------------------------------------------------------------------------
Total distributions (.37) (.52) (.58) (.63) (.67) (.71) (.74) (.86) (.69) (.69) (.85)
-------------------------------------------------------------------------------------------------------------------------------
Net asset value, end
of period $7.16 $7.18 $6.37 $6.80 $7.13 $7.72 $8.27 $9.26 $9.33 $9.04 $8.63
-------------------------------------------------------------------------------------------------------------------------------
Market value, end of
period $6.25 $6.57 $6.15 $6.53 $6.44 $6.63 $8.13 $8.50 $8.38 $8.13 $7.88
-------------------------------------------------------------------------------------------------------------------------------
Total return at market
value (%)(b) 0.41* 15.48 2.71 11.27 7.70 (10.50) 4.15 11.34 12.08 14.16 (1.92)
-------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental
data
-------------------------------------------------------------------------------------------------------------------------------
Net assets, end of
period (total funds)
(in thousands) $382,204 $382,818 $339,228 $361,297 $378,800 $410,012 $438,972 $491,652 $495,724 $481,914 $460,760
-------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net
assets (%) (c) .47* .94 .98 .94 .94 .94 1.00 .96 .95 1.02 .95
-------------------------------------------------------------------------------------------------------------------------------
Ratio of net
investment income
to average net
assets (%) (c) 3.03* 7.36 8.22 8.63 8.66 7.93 7.18 7.18 7.43 7.98 7.33
-------------------------------------------------------------------------------------------------------------------------------
Portfolio
turnover (%) 45.20* 118.17(d) 205.33(d) 131.14(d) 147.33 124.21 202.83 246.84 280.38 290.44 201.95
-------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment.
(c) The ratio of expenses to average net assets for the periods ended
October 31, 1995 and thereafter includes amounts paid through expense
offset arrangements. Prior period ratios exclude these amounts.
(d) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
Investment Restrictions. Each fund has adopted the following investment
restrictions which may not be changed without the affirmative vote of a
"majority of the outstanding voting securities" of the fund, which is
defined in the 1940 Act to mean the affirmative vote of the lesser of
(1) more than 50% of the outstanding shares of the fund, or (2) 67% or
more of the shares present at a meeting if more than 50% of the
outstanding shares of the fund are represented at the meeting in person
or by proxy. Each fund may not:
(i) Borrow money or issue senior securities (as defined in the 1940 Act),
except that the fund may borrow amounts not exceeding 15% of the value
(taken at the lower of cost or current value) of its total assets
(not including the amount borrowed) at the time the borrowing is made
for temporary purposes (including repurchasing its shares while
effecting an orderly liquidation of portfolio securities) or for
emergency purposes.
(ii) Underwrite securities issued by other persons except to the
extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under the federal
securities laws.
(iii) Purchase or sell real estate, although it may purchase securities
of issuers which deal in real estate, securities which are secured by
interests in real estate, and securities representing interests in real
estate, and it may acquire and dispose of real estate or interests in
real estate acquired through the exercise of its rights as a holder of
debt obligations secured by real estate or interests therein.
(iv) Purchase or sell commodities or commodity contracts, except that
the fund may purchase and sell financial futures contracts and options
and may enter into foreign exchange contracts and other financial
transactions not involving physical commodities.
(v) Make loans, except by purchase of debt obligations in which the
fund may invest consistent with its investment policies (including
without limitation debt obligations issued by other Putnam funds), by
entering into repurchase agreements or by lending its portfolio
securities.
(vi) With respect to 75% (50% in the case of Premier Income Trust) of
its total assets, invest in securities of any issuer if, immediately
after such investment, more than 5% of the total assets of the fund
(taken at current value) would be invested in the securities of such
issuer; provided that this limitation does not apply to obligations
issued or guaranteed as to interest or principal by the U.S. Government
or its agencies or instrumentalities.
(vii) With respect to 75% (50% in the case of Premier Income Trust) of
its total assets, acquire more than 10% of the outstanding voting
securities of any issuer.
(viii) Invest more than 25% of the value of its total assets in any one
industry. (Securities of the U.S. Government, its agencies or
instrumentalities, or of any foreign government, its agencies or
instrumentalities, securities of supranational entities, and securities
backed by the credit of a governmental entity are not considered to
represent industries.)
The following non-fundamental investment policy may be changed by the
Trustees without shareholder approval:
Each fund will not invest in the securities of registered open-end
investment companies, except as they may be acquired as part of a merger
or consolidation or acquisition of assets or by purchases in the open
market involving only customary brokers' commissions.
All percentage limitations on investments will apply at the time of
investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment. Except for the fundamental investment restrictions listed
above, the other investment policies described in this Prospectus/Proxy
Statement are not fundamental and may be changed by approval of the
Trustees. As a matter of policy, the Trustees would not materially
change the fund's investment objective without shareholder approval.
Management. Each fund's Trustees oversee the general conduct of each fund's
business. The funds have the same Trustees. The Trustees have retained
Putnam Management to be each fund's investment manager, responsible for
making investment decisions for each fund and managing each fund's other
affairs and business. Putnam Management's address is One Post Office
Square, Boston, MA 02109.
Putnam Management is paid for management and investment advisory
services quarterly based on the average net assets of each fund. Each
fund pays such fee at the following rates: 0.75% on the first $500
million of average weekly net assets, 0.65% of the next $500 million,
0.60% of the next $500 million and 0.55% of any excess over $1.5 billion
of such average net asset value. Premier Income Trust and Master Income
Trust pay no separate administrative services fee.
Putnam Management is one of America's oldest and largest money
management firms. Putnam Management's staff of experienced portfolio
managers and research analysts selects securities and constantly
supervises each fund's portfolio. By pooling an investor's money with
that of other investors, a greater variety of securities can be
purchased than would be the case individually; the resulting
diversification helps reduce investment risk. Putnam Management has been
managing mutual funds since 1937.
Putnam Management is a subsidiary of Putnam Investment Management
Trust, a Massachusetts business trust owned by Putnam, LLC, which is
also the parent company of Putnam Retail Management Limited Partnership,
Putnam Advisory Company, LLC (a wholly-owned subsidiary of The Putnam
Advisory Company Trust) and Putnam Fiduciary Trust Company. Putnam, LLC,
which generally conducts business under the name Putnam Investments, is
a wholly-owned subsidiary of Putnam Investments Trust, a holding company
that, except for a minority stake owned by employees, is owned by Marsh
& McLennan Companies, Inc., a publicly-owned holding company whose
principal businesses are international insurance and reinsurance
brokerage, employee benefit consulting and investment management.
Putnam Management has retained its affiliate, Putnam Investments Limited
("PIL"), to manage a separate portion of the assets of each fund as
determined by Putnam Management from time to time. Subject to the
supervision of Putnam Management, PIL is responsible for making
investment decisions for the portion of the assets of each fund that it
manages.
PIL provides a full range of international investment advisory services
to institutional and retail clients.
Putnam Management (and not each fund) pays a quarterly sub-management
fee to PIL for its services at the annual rate of 0.40% of the average
aggregate net asset value of the portion of the assets of each fund that
may be managed by PIL from time to time. PIL's address is Cassini House,
57-59 St James's Street, London, England, SW1A 1LD.
Putnam Management's and PIL's investment professionals are organized into
investment management teams, with a particular team dedicated to a
specific asset class. The members of the Core Fixed Income Team are
responsible for the day-to-day management of each fund. The names of
all team members can be found at www.putnaminvestments.com.
The following team members coordinate the team's management of each fund's
portfolio. Their experience as investment professionals over the last five
years is shown.
Positions Over
Portfolio leader Since Employer Past Five Years
----------------------------------------------------------------------
D. William Kohli 2002 Putnam Management Director, Core Fixed
1994 -- Present Income Team
----------------------------------------------------------------------
Positions Over
Portfolio member Since Employer Past Five Years
----------------------------------------------------------------------
David L. Waldman 1998 Putnam Management Director, Fixed Income
1997 -- Present Quantitative Research;
Previously, Senior
Portfolio Manager
----------------------------------------------------------------------
The funds pay all expenses not assumed by Putnam Management, including
Trustees' fees, auditing, legal, custodial, investor servicing and
shareholder reporting expenses. The funds also reimburse Putnam
Management for the compensation and related expenses of certain fund
officers and their staff who provide administrative services. The total
reimbursement is determined annually by the Trustees.
Putnam Fiduciary Trust Company, One Post Office Square, Boston,
Massachusetts 02109, is the custodian of the funds' securities. Putnam
Investor Services, P.O. Box 41203, Providence, Rhode Island 02940-1203,
a division of Putnam Fiduciary Trust Company, is the investor servicing,
transfer and dividend disbursing agent for the funds.
Regulatory matters and litigation. On April 8, 2004, Putnam Management
entered into agreements with the SEC and the Massa chusetts Securities
Division representing a final settlement of all charges brought against
Putnam Management by those agencies on October 28, 2003 in connection
with excessive short-term trading by Putnam employees and, in the case
of the charges brought by the Massachusetts Securities Division, by
participants in some Putnam-administered 401(k) plans. The settlement
with the SEC requires Putnam Management to pay $5 million in
disgorgement plus a civil monetary penalty of $50 million and the
settlement with the Massachu setts Securities Division requires Putnam
Management to pay $5 million in restitution and an administrative fine
of $50 million. The settlements also leave intact the process
established under an earlier partial settlement with the SEC under which
Putnam Management agreed to pay the amount of restitution determined by
an independent consultant, which may exceed the disgorgement and
restitution amounts specified above, pursuant to a plan to be developed
by the independent consultant.
Putnam Management, and not the investors in any Putnam fund, will bear
all costs, including restitution, civil penalties and associated legal
fees stemming from both of these proceedings. The SEC's and
Massachusetts Securities Division's allegations and related matters also
serve as the general basis for numerous lawsuits, including purported
class action lawsuits filed against Putnam Management and certain
related parties, including certain Putnam funds. Putnam Management has
agreed to bear any costs incurred by Putnam funds in connection with
these lawsuits. Based on currently available information, Putnam
Management believes that the likelihood that the pending private
lawsuits and purported class action lawsuits will have a material
adverse financial impact on the fund is remote, and the pending actions
are not likely to materially affect its ability to provide investment
management services to its clients, including the Putnam funds.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees
is continuing.
Description of Fund Shares. The Trustees of each fund have authority to
issue an unlimited number of shares of beneficial interest without par
value. Except for the Merger Shares to be issued in the merger, neither
fund has a present intention of offering additional shares, other than
under its dividend reinvestment plan. See "Dividend Reinvestment Plan"
below. All other offerings of a fund's shares require approval of the
Trustees. Any additional offering would be subject to the requirements of
the 1940 Act that such shares may not be sold at a price below the then
current net asset value per share, exclusive of underwriting discounts and
commissions, except in connection with an offering to existing shareholders
or with the consent of the holders of a majority of a fund's outstanding
common shares.
The outstanding shares of each fund are, and the Merger Shares, when
issued and sold, will be fully paid and non-assessable by the fund. The
outstanding shares of each fund have, and the Merger Shares will have,
no preemptive, conversion, exchange or redemption rights. Each share of
a fund has one vote, with fractional shares voting proportionately, and
is freely transferable. Common shares of Premier Income Trust are traded
on the NYSE, with an average weekly trading volume for the year ended
December 31, 2003 of 1,180,000 shares. Common shares of Master Income
Trust also are traded on the NYSE, with an average weekly trading volume
for the year ended December 31, 2003 of 465,489 shares.
Set forth below is information about each fund's securities as of July
31, 2004 (except where otherwise noted):
Premier Income Trust
----------------------------------------------------------------------
Amount Amount Amount
Title of Class Authorized Held by Fund Outstanding
----------------------------------------------------------------------
Common Shares Unlimited 0 141,198,870
----------------------------------------------------------------------
Master Income Trust
----------------------------------------------------------------------
Amount Amount Amount
Title of Class Authorized Held by Fund Outstanding
----------------------------------------------------------------------
Common Shares Unlimited 0 53,329,917
----------------------------------------------------------------------
Repurchase of shares. Because each fund is a closed-end investment
company, shareholders of each fund do not, and will not, have the right
to redeem their shares. A fund, however, may repurchase its shares from
time to time in open-market or private transactions when it can do so at
prices below the current net asset value per share and on terms that
represent a favorable investment opportunity. The funds currently are
authorized to make periodic repurchases of shares in open-market
transactions at times when discount levels make such purchases an
attractive investment, although neither fund has recently done so or has
any current plan to do so.
Shares of the funds trade in the open market at a price which will be a
function of several factors. Shares of closed-end investment companies
frequently trade at a discount from net asset value, but in some cases
trade at a premium. When a fund repurchases its shares at a price below
their net asset value, the net asset value of those shares that remain
outstanding will be increased, but this does not necessarily mean that the
market price of those outstanding shares will be affected either positively
or negatively.
Determination of net asset value. The net asset value of each fund's
shares are valued as of the close of regular trading on the NYSE each
day the exchange is open by dividing the total value of its assets, less
liabilities, by the number of its shares outstanding.
Securities for which market quotations are readily available are valued
at market values. Short-term investments that have remaining maturities
of 60 days or less are valued at amortized cost, which approximates
market value. All other securities and assets are valued at their fair
value following procedures approved by the Trustees.
Dividend reinvestment plan. Each fund offers a dividend reinvestment
plan (each, a "Plan"). If a shareholder has elected to participate in a
Plan, all income dividends and capital gains distributions are
automatically reinvested in additional shares of a fund. Reinvestment
transactions are executed by Investors Bank and Trust Company, 200
Clarendon Street, Boston, MA (617-937-6300) (the "Plan Agent"). If a
shareholder is not participating in a Plan, every month the shareholder
will receive all dividends and/or capital gains distributions in cash,
paid by check and mailed directly to the shareholder. If a shareholder
would like to participate in a Plan, the shareholder may instruct Putnam
Investor Services (which provides certain administrative and bookkeeping
services to a Plan) to enroll the shareholder. The Plan Agent will
automatically reinvest subsequent distributions, and Putnam Investor
Services will send the shareholder a confirmation in the mail telling
the shareholder how many additional shares were issued to the
shareholder's account. For both Premier Income Trust and Master Income
Trust shareholders, shareholders are automatically enrolled in a Plan
and must elect not to participate in a Plan. Holders of Master Income
Trust shares who have elected not to participate in Master Income
Trust's Plan will, if the merger is approved, be deemed to have elected
not to participate in Premier Income Trust's Plan.
Shareholders may contact Putnam Investor Services either in writing, at
P.O. Box 41203, Providence, RI 02940-1203, or by telephone at
1-800-225-1581 during normal East Coast business hours.
If the market price of a fund's shares is equal to or exceed their net
asset value on the payment date, the shareholder will be issued shares
of the fund at a value equal to the higher of the net asset value or 95%
of the market price on that date. This discount reflects savings in
underwriting and other costs that the fund would otherwise incur. If net
asset value exceeds the market price of the shares at the time, or if a
fund declares any distribution payable only in cash, the Plan Agent will
buy fund shares for participating accounts in the open market. If the
market price of fund shares rises to exceed the net asset value before
the open-market purchase has been completed, or if the Plan Agent is not
able to complete the open-market purchases within a specified time
(generally seven days), the Plan Agent will invest the uninvested
portion in newly issued shares at a value equal to the greatest of:
* The net asset value of the shares on the date they are issued,
* 95% of the fair market value of shares on the payment date for the
distribution, or
* 95% of the fair market value of shares on the date they are issued.
Participants may withdraw from a Plan at any time by notifying Putnam
Investor Services, either in writing or by telephone. If a participant
withdraws from a Plan (or if a Plan is terminated), the participant will
receive certificates for whole shares credited to the participant's
account, as well as a cash payment for any fraction of a share credited
to the participant's account. There is no penalty for withdrawing from
or not participating in a Plan.
Putnam Investor Services maintains all participants' accounts in a Plan
on behalf of the Plan Agent and furnishes written confirmation of all
transactions, including information needed by participants for tax
records. Each participant's shares will be held by Putnam Investor
Services in the participant's name, and each participant's proxy will
include those shares purchased through a Plan.
There are no brokerage charges applied to shares issued directly by a
fund as a result of dividends or capital gains distributions. However,
each participant pays a proportionate share of brokerage commissions
incurred if the Plan Agent purchases additional shares on the open
market, in accordance with a Plan. In each case, the cost of shares
purchased for each participant's account will be the average cost
(including brokerage commissions) of any shares so purchased, plus the
cost of any shares issued by a fund. If a participant instructs the Plan
Agent to sell the participant's shares, the participant will incur
brokerage commissions for the sale.
Reinvesting dividends and capital gains distributions in shares of a
fund does not relieve a participant of tax obligations, which are the
same as if the participant had received cash distributions. Putnam
Investor Services supplies tax information to the participant and to the
IRS annually and complies with all IRS withholding requirements. A fund
reserves the right to amend a Plan to include service charges, to make
other changes or to terminate a Plan upon 30-days' written notice.
If a shareholder's shares are held in the name of a broker or nominee
offering a dividend reinvestment service, the shareholder should consult
the shareholder's broker or nominee to ensure that an appropriate
election is made on the shareholder's behalf. If the broker or nominee
holding the shareholder's shares does not provide a reinvestment
service, the shareholder may need to register the shareholder's shares
in the shareholder's own name in order to participate in a Plan.
In situations where a bank, broker or nominee holds shares for others, a
Plan will be administered according to instructions and information
provided by the bank, broker or nominee.
It may be necessary to suspend operation of Master Income Trust's Plan
for one or two dividend payments immediately prior to the combination so
that all purchase activity under the Plan is settled in advance of the
effective date of merger. In that event all shareholders, including
those in the Plan, will receive those dividends in cash.
Dividends and distributions. Each fund has a policy to make monthly
distributions to shareholders from net investment income.
Net investment income of each fund consists of all interest and other
income (excluding capital gains and losses) accrued on portfolio assets,
less all expenses of each fund allocable thereto. Income and expenses of
each fund are accrued each day.
To permit each fund to maintain a more stable monthly distribution, each
fund may from time to time pay out less than the entire amount of
available net investment income to shareholders earned in any particular
period. Any such amount retained by a fund would be available to
stabilize future distributions. As a result, the distributions paid by a
fund for any particular period may be more or less than the amount of
net investment income actually earned by that fund during such period.
For information concerning the tax treatment of distributions to common
shareholders, see the discussion under "Taxation" below. Both funds
intend, however, to make such distributions as are necessary to maintain
qualification as a regulated investment company.
Common shareholders may have their dividend or distribution checks sent
to parties other than themselves. A "Dividend Order" form is available
from Putnam Investor Services, mailing address: P.O. Box 41203,
Providence, Rhode Island 02940-1203. After Putnam Investor Services
receives this completed form with all registered owners' signatures
guaranteed, the shareholder's distribution checks will be sent to the
bank or other person that the shareholder has designated.
For information concerning the tax treatment of such dividends and
distributions to shareholders, see the discussion under "Taxation"
below.
Declaration of Trust and Bylaws. Each fund's agreement and declaration of
trust, as amended, includes provisions that could have the effect of
limiting the ability of other entities or persons to acquire control of the
fund, or to cause it to engage in certain transactions or to modify its
structure. The affirmative vote of at least two-thirds of the outstanding
shares of a fund is required to authorize any of the following actions:
(1) merger or consolidation of the fund,
(2) sale of all or substantially all of the assets of the fund,
(3) conversion of the fund to an open-end investment company, or
(4) amendment of the agreement and declaration of trust, as amended, to
reduce the two-thirds vote required to authorize the actions in (1)
through (3) above,
unless, with respect to the actions in (1) through (3) above, such action
has been authorized by the affirmative vote of two-thirds of the total
number of Trustees, in which case the affirmative vote of a majority of the
shares entitled to vote is required.
The Trustees have determined that the two-thirds voting requirements
described above, which are greater than the minimum requirements under the
1940 Act, are in the best interests of each fund and its shareholders
generally. Reference is made to the agreement and declaration of trust, as
amended, of each fund, on file with the SEC, for the full text of these
provisions.
These provisions could have the effect of depriving shareholders of an
opportunity to sell their shares at a premium over prevailing market
prices by discouraging a third party from seeking to obtain control of a
fund in a tender offer or similar transaction and may have the effect of
inhibiting the fund's conversion to open-end status.
Taxation. The following federal tax discussion is based on the advice of
Ropes & Gray LLP, counsel to the funds, and reflects provisions of the
Code, existing treasury regulations, rulings published by the Service,
and other applicable authority, as of the date of this Prospectus/Proxy
Statement.
These authorities are subject to change by legislative or administrative
action.
The following discussion is only a summary of some of the important tax
considerations generally applicable to investments in Premier Income
Trust. For more detailed information regarding tax considerations, see
the SAI. There may be other tax considerations applicable to particular
investors. In addition, income earned through an investment in Premier
Income Trust may be subject to state and local taxes. Because Premier
Income Trust will be the surviving fund if the merger is approved, the
discussion deals only with the taxation of Premier Income Trust.
Premier Income Trust intends to qualify each year for taxation as a
regulated investment company under Subchapter M of the Code. If the fund
so qualifies, it will not be subject to federal income tax on income
distributed timely to its shareholders in the form of dividends or
capital gain distributions.
To satisfy the distribution requirement applicable to regulated
investment companies, amounts paid as dividends by Premier Income Trust
to its shareholders must qualify for the dividends-paid deduction.
Fund distributions designated as "tax-exempt dividends" are not
generally subject to federal income tax. In addition, an investment in
the fund may result in liability for federal alternative minimum tax,
both for individual and corporate shareholders.
The fund may at times buy tax-exempt investments at a discount from the
price at which they were originally issued, especially during periods of
rising interest rates. For federal income tax purposes, some or all of
this market discount will be included in the fund's ordinary income and
will be taxable to shareholders as such when it is distributed.
The fund's investments in certain debt obligations may cause the fund to
recognize taxable income in excess of the cash generated by such
obligations. Thus, the fund could be required at times to liquidate
other investments in order to satisfy its distribution requirements.
Each fund's investments in foreign securities may be subject to foreign
withholding taxes. In that case, the fund's yield on those securities
would be decreased. Shareholders generally will not be entitled to claim
a credit or deduction with respect to foreign taxes. In addition, each
fund's investments in foreign securities or foreign currencies may
increase or accelerate the fund's recognition of ordinary income and may
affect the timing or amount of the fund's distributions.
For federal income tax purposes, distributions of investment income
other than "tax-exempt dividends" are taxable as ordinary income.
Generally, gains realized by a fund on the sale or exchange of
investments will be taxable to its shareholders, even though the income
from such investments generally will be tax-exempt.
Taxes on distributions of capital gains are determined by how long the
fund owned the investments that generated them, rather than how long a
shareholder has owned his or her shares. Distributions are taxable to
shareholders even if they are paid from income or gains earned by the
fund before a shareholder's investment (and thus were included in the
price the shareholder paid). Distributions of gains from investments
that the fund owned for more than one year will be taxable as capital
gains. Distributions of gains from investments that the fund owned for
one year or less will be taxable as ordinary income. Distributions are
taxable whether shareholders receive them in cash or reinvest them in
additional shares through the Dividend Reinvestment Plan.
Any gain resulting from the sale of fund shares will generally also be
subject to tax. You should consult your tax advisor for more information
on your own tax situation, including possible state and local taxes.
For taxable years beginning on or before December 31, 2008, each fund
may designate distributions of investment income derived from dividends
of U.S. corporations and some foreign corporations as "qualified
dividend income," provided the fund meets holding period and other
requirements. Qualified dividend income will be taxed in the hands of
individuals at the rates applicable to long-term capital gain, provided
the shareholder meets the same holding period and other requirements.
Fund dividends representing distributions of interest income and
short-term capital gains cannot be designated as qualified dividend
income and will not qualify for the reduced rates. In light of this,
each fund does not expect a significant portion of fund distributions to
be derived from qualified dividend income.
The long-term capital gain rates applicable to most shareholders will be
15% (with lower rates applying to taxpayers in the 10% and 15% ordinary
income tax brackets) for taxable years beginning on or before December
31, 2008.
Under current law, the backup withholding tax rate is 28% for amounts
paid through 2010 and will be 31% for amounts paid after December 31,
2010. Each fund is required to apply backup withholding to certain
taxable distributions including, for example, distributions paid to any
individual shareholder who fails to properly furnish the fund with a
correct taxpayer identification number.
Trading Information. The following chart shows quarterly per share
trading information for the past two fiscal years and the current fiscal
year of the funds, as listed on the NYSE:
Premier Income Trust
----------------------------------------------------------------
(Unaudited)
Market Market Closing
High Low Market Closing (Discount) or
Quarter Price Price Price NAV Premium
Ended ($) ($) ($) ($) to NAV (%)
----------------------------------------------------------------
7/31/02 6.58 5.70 6.03 6.22 (3.05)
10/31/02 6.38 5.85 6.07 6.16 (1.46)
1/31/03 6.56 6.07 6.54 6.45 1.40
4/30/03 6.69 6.28 6.28 6.73 (6.69)
7/31/03 6.72 6.22 6.31 6.75 (6.52)
10/31/03 6.50 6.06 6.29 6.97 (9.76)
1/31/04 6.72 6.21 6.71 7.22 (7.06)
4/30/04 6.82 6.15 6.15 7.08 (13.14)
7/31/04 6.33 6.00 6.29 7.03 (10.53)
10/31/04 6.64 6.29 6.60 7.21 (8.46)
----------------------------------------------------------------
Master Income Trust
----------------------------------------------------------------
(Unaudited)
Market Market Closing
High Low Market Closing (Discount) or
Quarter Price Price Price NAV Premium
Ended ($) ($) ($) ($) to NAV (%)
----------------------------------------------------------------
10/31/02 6.96 5.99 6.15 6.37 (3.45)
1/31/03 6.92 6.18 6.73 6.65 1.20
4/30/03 6.92 6.24 6.45 6.94 (7.06)
7/31/03 6.85 6.55 6.68 6.96 (4.02)
10/31/03 6.88 6.50 6.57 7.18 (8.50)
1/31/04 7.05 6.47 6.68 7.30 (8.49)
4/30/04 6.77 6.21 6.25 7.16 (12.71)
7/31/04 6.39 6.06 6.24 7.13 (12.48)
10/31/04 6.52 6.23 6.51 7.33 (11.19)
----------------------------------------------------------------
On October 31, 2004, the market price, net asset value per share and
discount to net asset value were $6.51, $7.33, and 11.19% respectively,
for Master Income Trust and $6.60, $7.21, and 8.46% respectively, for
Premier Income Trust.
V. Information about Voting and the Shareholder Meeting
General. This Prospectus/Proxy Statement is furnished in connection with
the proposed merger of Master Income Trust into Premier Income Trust and
the solicitation of proxies by and on behalf of the Trustees for use at
the Joint Meeting of Shareholders (the "Meeting"). The Meeting is to be
held on Thursday, January 13, 2005 at 11:00 a.m. at One Post Office
Square, Twelfth Floor, Boston, Massachusetts, or at such later time as
is made necessary by adjournment. The Notice of the Meeting, the
combined Prospectus/ Proxy Statement and the enclosed form of proxy are
being mailed to shareholders on or about November 15, 2004.
As of July 31, 2004, there were 53,329,917 outstanding shares of
beneficial interest of Master Income Trust, and 141,198,870 outstanding
shares of beneficial interest of Premier Income Trust. Only shareholders
of record at the close of business on October 22, 2004 will be entitled
to notice of and to vote at the Meeting. Each share is entitled to one
vote, with fractional shares voting proportionally.
The Trustees know of no matters other than those set forth herein to be
brought before the Meeting. If, however, any other matters properly come
before the Meeting, it is the Trustees' intention that proxies will be
voted on such matters in accordance with the judgment of the persons
named in the enclosed form of proxy.
Shareholders who object to the proposed merger will not be entitled under
Massachusetts law or the agreement and declaration of trust, as amended, of
each fund to demand payment for, or an appraisal of, their shares. However,
shareholders should be aware that the merger as proposed is not expected to
result in recognition of gain or loss to shareholders for federal income
tax purposes and that shares of each fund may be sold at any time prior to
the consummation of the proposed merger.
Required vote. Proxies are being solicited from each fund's shareholders
by its Trustees for the Meeting. Unless revoked, all valid proxies will
be voted in accordance with the specification thereon or, in the absence
of specifications, FOR approval of the Agreement. The transactions
contemplated by the Agreement will be consummated only if approved by
the affirmative vote of the holders of:
* a majority of the outstanding shares of Premier Income Trust voted, if
holders of more than 50% of such shares vote, and
* a majority of the outstanding shares of Master Income Trust.
Record date, quorum and method of tabulation. Shareholders of record of
each fund at the close of business on October 22, 2004 (the "Record
Date") will be entitled to vote at the Meeting or any adjournment
thereof. The holders of a majority of the shares of Premier Income Trust
outstanding at the close of business on the Record Date present in
person or represented by proxy will constitute a quorum for action by
shareholders of Premier Income Trust at the Meeting, and the holders of
30% of the shares of Master Income Trust outstanding at the close of
business on the Record Date will constitute a quorum for action by
shareholders of Master Income Trust.
Votes cast by proxy or in person at the meeting will be counted by
persons appointed by the relevant fund as tellers for the Meeting. The
tellers will count the total number of votes cast "for" approval of the
proposal for purposes of determining whether sufficient affirmative
votes have been cast. The tellers will count shares represented by
proxies that reflect abstentions and "broker non-votes" (i.e., shares
held by brokers or nominees as to which (i) instructions have not been
received from the beneficial owners or the persons entitled to vote and
(ii) the broker or nominee does not have the discretionary voting power
on a particular matter) as shares that are present and entitled to vote
on the matter for purposes of determining the presence of a quorum.
Abstentions and broker non-votes have the effect of a negative vote on
the proposal.
Share ownership. As of October 31, 2004, the officers and Trustees of
each fund as a group beneficially owned less than 1% of the outstanding
shares of such fund and, to the knowledge of each fund, no person (other
than The Depository Trust Company ("DTC")), owned of record or
beneficially 5% or more of the outstanding shares of the fund. In
addition, upon consummation of the proposed merger, to the knowledge of
the fund, no person (other than DTC) is expected to own of record or
beneficially 5% or more of the outstanding shares of the combined fund.
Solicitation of proxies. In addition to soliciting proxies by mail, the
Trustees of each fund and employees of Putnam Management, Putnam
Fiduciary Trust Company and Putnam Retail Management may solicit proxies
in person or by telephone. Each fund may also arrange to have a proxy
solicitation firm call you to record your voting instructions by
telephone. If you wish to speak to a representative, call
1-877-519-9667. The procedure for solicitation of proxies by telephone
is designed to authenticate shareholders' identities, to allow them to
authorize the voting of their shares in accordance with their
instructions and to confirm that their instructions have been properly
recorded. Each fund has been advised by counsel that these procedures
are consistent with the requirements of applicable law. If these
procedures were subject to a successful legal challenge, such votes
would not be counted at the Meeting. Each fund is unaware of any such
challenge at this time. Shareholders would be called at the phone number
Putnam Management has in its records for their accounts, and would be
asked for their Social Security number or other identifying information.
The shareholders would then be given an opportunity to authorize the
proxies to vote their shares at the meeting in accordance with their
instructions. To ensure that shareholders' instructions have been
recorded correctly, they will also receive a confirmation of their
instructions in the mail. A special toll-free number will be available
in case the information contained in the confirmation is incorrect.
Shareholders of each fund have the opportunity to submit their voting
instructions via the Internet by utilizing a program provided by a
third-party vendor hired by Putnam Fiduciary Trust Company, or by
"touch-tone" telephone voting. The giving of such a proxy will not
affect your right to vote in person should you decide to attend the
Meeting. To vote via the Internet or by automated telephone, follow the
directions on your proxy ballot. To use the Internet, please access the
Internet address found on your proxy card. To record your voting
instructions by automated telephone, please call the toll-free number
listed on your proxy card. The Internet and automated telephone voting
instructions are designed to authenticate shareholder identities, to
allow shareholders to give their voting instructions, and to confirm
that shareholders' instructions have been recorded properly.
Shareholders submitting their voting instructions via the Internet
should understand that there may be costs associated with Internet
access, such as usage charges from Internet access providers and
telephone companies, that must be borne by the shareholders.
Each fund's Trustees have adopted a general policy of maintaining
confidentiality in the voting of proxies. Consistent with that policy,
each fund may solicit proxies from shareholders who have not voted their
shares or who have abstained from voting.
Persons holding shares as nominees will, upon request, be reimbursed for
their reasonable expenses in soliciting instructions from their
principals. Each fund has retained at its own expense PFPC Inc., 4400
Computer Drive, Westborough, MA 01580, to aid in the solicitation of
instructions for nominee and registered accounts for a fee not to exceed
$500.00 for Premier Income Trust and $61,930.00 for Master Income Trust,
plus reasonable out-of-pocket expenses for mailing and phone costs.
Subject to Putnam Management's agreement to limit such expenses, the
expenses of the preparation of proxy statements and related materials,
including printing and delivery costs, are borne by each fund.
Revocation of proxies. Proxies, including proxies given by telephone or
over the Internet, may be revoked at any time before they are voted
either (i) by a written revocation received by the Clerk of the funds
(addressed to the funds' Clerk at the principal office of the funds, One
Post Office Square, Boston, Massachusetts 02109), (ii) by properly
executing a later-dated proxy, (iii) by recording later-dated voting
instructions via the Internet or (iv) by attending the Meeting and
voting in person.
Adjournment. If sufficient votes in favor of the proposal set forth in
the Notice of the Meeting are not received by the time scheduled for the
Meeting, the persons named as proxies may propose adjournments of the
Meeting for a period or periods of not more than 60 days in the
aggregate to permit further solicitation of proxies. Any adjournment
will require the affirmative vote of a majority of the votes cast on the
question in person or by proxy at the session of the Meeting to be
adjourned. The persons named as proxies will vote in favor of such
adjournment those proxies that they are entitled to vote in favor of the
proposal. They will vote against adjournment those proxies required to
be voted against the proposal. Each fund pays the costs of any
additional solicitation and of any adjourned session for that fund,
subject to Putnam Management's agreement, as set forth in the Agreement,
to limit the expenses incurred by each fund in connection with the
transactions contemplated by the Agreement.
Appendix A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as
of November 3, 2004 in Boston, Massachusetts, by and among Putnam
Premier Income Trust, a Massachusetts business trust ("Acquiring Fund"),
Putnam Master Income Trust, a Massachusetts business trust ("Acquired
Fund") and Putnam Investment Management, LLC, a Delaware limited
liability company.
PLAN OF REORGANIZATION
(a) Acquired Fund will sell, assign, convey, transfer and deliver to
Acquiring Fund on the Exchange Date (as defined in Section 6) all of its
properties and assets existing at the Valuation Time (as defined in
Section 3(d)). In consideration therefor, Acquiring Fund shall, on the
Exchange Date, assume all of the liabilities of Acquired Fund existing
at the Valuation Time and deliver to Acquired Fund a number of full and
fractional shares of beneficial interest of Acquiring Fund (the "Merger
Shares") having an aggregate net asset value equal to the value of the
assets of Acquired Fund transferred to Acquiring Fund on such date less
the value of the liabilities of Acquired Fund assumed by Acquiring Fund
on such date. It is intended that the reorganization described in this
Plan shall be a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"). Prior to the
Exchange Date, Acquired Fund will declare and pay to its shareholders a
dividend and/or other distribution in an amount such that it will have
distributed all of its net investment income and capital gains as
described in Section 8(l) hereof.
(b) Upon consummation of the transactions described in paragraph (a)
of this Agreement, Acquired Fund shall distribute in complete
liquidation to its shareholders of record as of the Exchange Date Merger
Shares, each shareholder being entitled to receive that proportion of
such Merger Shares that the number of shares of beneficial interest of
Acquired Fund held by such shareholder bears to the number of such
shares of Acquired Fund outstanding on such date. Certificates
representing the Merger Shares will be issued only if the shareholder so
requests.
AGREEMENT
Acquiring Fund and Acquired Fund agree as follows:
1. Representations and warranties of Acquiring Fund.
Acquiring Fund represents and warrants to and agrees with Acquired Fund
that:
(a) Acquiring Fund is a business trust duly established and validly
existing under the laws of The Commonwealth of Massachusetts, and has
power to own all of its properties and assets and to carry out its
obligations under this Agreement. Acquiring Fund is not required to
qualify as a foreign association in any jurisdiction. Acquiring Fund has
all necessary federal, state and local authorizations to carry on its
business as now being conducted and to carry out this Agreement.
(b) Acquiring Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as a closed-end management investment
company, and such registration has not been revoked or rescinded and is
in full force and effect.
(c) A statement of assets and liabilities, statement of operations,
statement of changes in net assets and schedule of investments
(indicating their market values) of Acquiring Fund for the fiscal year
ended July 31, 2004, such statements and schedule having been audited by
KPMG LLP, independent registered public accounting firm, have been
furnished to Acquired Fund. Such statements of assets and liabilities
and schedules of investments fairly present the financial position of
Acquiring Fund as of the dates thereof, and such statements of
operations and changes in net assets fairly reflect the results of its
operations and changes in net assets for the periods covered thereby in
conformity with U.S. generally accepted accounting principles.
(d) There are no material legal, administrative or other proceedings
pending or, to the knowledge of Acquiring Fund, threatened against
Acquiring Fund which assert liability or may, if successfully prosecuted
to their conclusion, result in liability on the part of Acquiring Fund,
other than as have been disclosed in the Prospectuses (as defined below)
or otherwise disclosed in writing to Acquired Fund.
(e) Acquiring Fund has no known liabilities of a material nature,
contingent or otherwise, other than those shown as belonging to it on
its statement of assets and liabilities as of July 31, 2004 and those
incurred in the ordinary course of Acquiring Fund's business as an
investment company since such date.
(f) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Acquiring
Fund of the transactions contemplated by this Agreement, except such as
may be required under the Securities Act of 1933, as amended (the "1933
Act"), the Securities Exchange Act of 1934, as amended (the "1934 Act"),
the 1940 Act, state securities or blue sky laws (which term as used
herein shall include the laws of the District of Columbia and of Puerto
Rico) or the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"H-S-R Act").
(g) The registration statement and any amendment thereto (including
any post-effective amendment) (the "Registration Statement") filed with
the Securities and Exchange Commission (the "Commission") by Acquiring
Fund on Form N-14 relating to the Merger Shares issuable hereunder, the
proxy statement of Acquired Fund included therein (the "Acquired Fund
Proxy Statement") and the proxy statement of Acquiring Fund included
therein (the "Acquiring Fund Proxy Statement" and, together with the
Acquired Fund Proxy Statement, the "Proxy Statements"), on the effective
date of the Registration Statement (i) will comply in all material
respects with the provisions of the 1933 Act, the 1934 Act and the 1940
Act and the rules and regulations thereunder and (ii) will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; and at the time of the shareholders' meeting
referred to in Section 7(a) and at the Exchange Date, each prospectus
contained in the Registration Statement (collectively, the
"Prospectuses"), as amended or supplemented by any amendments or
supplements filed or requested to be filed with the Commission by
Acquired Fund, will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided
however, that none of the representations and warranties in this
subsection shall apply to statements in or omissions from the
Registration Statement, the Prospectuses or the Proxy Statements made in
reliance upon and in conformity with information furnished by Acquired
Fund for use in the Registration Statement, the Prospectuses or the
Proxy Statements.
(h) There are no material contracts outstanding to which Acquiring
Fund is a party, other than as disclosed in the Registration Statement,
the Prospectuses, or the Proxy Statements.
(i) All of the issued and outstanding shares of beneficial interest
of Acquiring Fund have been offered for sale and sold in conformity with
all applicable federal securities laws.
(j) Acquiring Fund is and will at all times through the Exchange Date
qualify for taxation as a "regulated investment company" under Sections
851 and 852 of the Code.
(k) Acquiring Fund has filed or will file all federal and state tax
returns which, to the knowledge of Acquiring Fund's officers, are
required to be filed by Acquiring Fund and has paid or will pay all
federal and state taxes shown to be due on said returns or on any
assessments received by Acquiring Fund. All tax liabilities of Acquiring
Fund have been adequately provided for on its books, and to the
knowledge of Acquiring Fund, no tax deficiency or liability of Acquiring
Fund has been asserted, and no question with respect thereto has been
raised, by the Internal Revenue Service or by any state or local tax
authority for taxes in excess of those already paid. As of the Exchange
Date, Acquiring Fund is not under audit by the Internal Revenue Service
or by any state or local tax authority for taxes in excess of those
already paid.
(l) The issuance of the Merger Shares pursuant to this Agreement will
be in compliance with all applicable federal securities laws.
(m) The Merger Shares to be issued to Acquired Fund have been duly
authorized and, when issued and delivered pursuant to this Agreement,
will be legally and validly issued and will be fully paid and
nonassessable by Acquiring Fund, and no shareholder of Acquiring Fund
will have any preemptive right of subscription or purchase in respect
thereof.
2. Representations and warranties of Acquired Fund.
Acquired Fund represents and warrants to and agrees with Acquiring Fund
that:
(a) Acquired Fund is a business trust duly established and validly
existing under the laws of The Commonwealth of Massachusetts, and has
power to own all of its properties and assets and to carry out its
obligations under this Agreement. Acquired Fund is not required to
qualify as a foreign association in any jurisdiction. Acquired Fund has
all necessary federal, state and local authorizations to carry on its
business as now being conducted and to carry out this Agreement.
(b) Acquired Fund is registered under the 1940 Act as a closed-end
management investment company, and such registration has not been
revoked or rescinded and is in full force and effect.
(c) A statement of assets and liabilities, statement of operations,
statement of changes in net assets and schedule of investments
(indicating their market values) of Acquired Fund for the fiscal year
ended October 31, 2003, such statements and schedule having been audited
by KPMG LLP, independent registered public accounting firm, and an
unaudited statement of assets and liabilities, statement of operations,
statement of changes in net assets and schedule of investments
(indicating their market values) of Acquired Fund for the six months
ended April 30, 2004, have been furnished to Acquiring Fund. Such
statements of assets and liabilities and schedules of investments fairly
present the financial position of Acquired Fund as of October 31, 2003,
and such statements of operations and changes in net assets fairly
reflect the results of its operations and changes in net assets for the
period covered thereby in conformity with U.S. generally accepted
accounting principles.
(d) There are no material legal, administrative or other proceedings
pending or, to the knowledge of Acquired Fund, threatened against
Acquired Fund which assert liability or may, if successfully prosecuted
to their conclusion, result in liability on the part of Acquired Fund,
other than as have been disclosed in the Registration Statement or
otherwise disclosed in writing to Acquiring Fund.
(e) Acquired Fund has no known liabilities of a material nature,
contingent or otherwise, other than those shown as belonging to it on
its statement of assets and liabilities as of October 31, 2003 and those
incurred in the ordinary course of Acquired Fund's business as an
investment company since such date. Prior to the Exchange Date, Acquired
Fund will advise Acquiring Fund of all material liabilities, contingent
or otherwise, incurred by it subsequent to October 31, 2003, whether or
not incurred in the ordinary course of business.
(f) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Acquired Fund
of the transactions contemplated by this Agreement, except such as may
be required under the 1933 Act, the 1934 Act, the 1940 Act, state
securities or blue sky laws, or the H-S-R Act.
(g) The Registration Statement, the Prospectuses and the Proxy
Statements, on the Effective Date of the Registration Statement and
insofar as they do not relate to Acquiring Fund (i) will comply in all
material respects with the provisions of the 1933 Act, the 1934 Act and
the 1940 Act and the rules and regulations thereunder and (ii) will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and at the time of the shareholders'
meeting referred to in Section 7(a) below and on the Exchange Date, the
Prospectuses, as amended or supplemented by any amendments or
supplements filed or requested to be filed with the Commission by
Acquiring Fund, will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided
however, that the representations and warranties in this subsection
shall apply only to statements of fact relating to Acquired Fund
contained in the Registration Statement, the Prospectuses or the Proxy
Statements, or omissions to state in any thereof a material fact
relating to Acquired Fund, as such Registration Statement, Prospectuses
and Proxy Statements shall be furnished to Acquired Fund in definitive
form as soon as practicable following effectiveness of the Registration
Statement and before any public distribution of the Prospectuses or
Proxy Statements.
(h) There are no material contracts outstanding to which Acquired
Fund is a party, other than as will be disclosed in the Prospectuses or
the Proxy Statements.
(i) All of the issued and outstanding shares of beneficial interest
of Acquired Fund have been offered for sale and sold in conformity with
all applicable federal securities laws.
(j) Acquired Fund is and will at all times through the Exchange Date
qualify for taxation as a "regulated investment company" under Sections
851 and 852 of the Code.
(k) Acquired Fund has filed or will file all federal and state tax
returns which, to the knowledge of Acquired Fund's officers, are
required to be filed by Acquired Fund and has paid or will pay all
federal and state taxes shown to be due on said returns or on any
assessments received by Acquired Fund. All tax liabilities of Acquired
Fund have been adequately provided for on its books, and to the
knowledge of Acquired Fund, no tax deficiency or liability of Acquired
Fund has been asserted, and no question with respect thereto has been
raised, by the Internal Revenue Service or by any state or local tax
authority for taxes in excess of those already paid. As of the Exchange
Date, Acquired Fund is not under audit by the Internal Revenue Service
or by any state or local tax authority for taxes in excess of those
already paid.
(l) At both the Valuation Time and the Exchange Date, Acquired Fund
will have full right, power and authority to sell, assign, transfer and
deliver the Investments and any other assets and liabilities of Acquired
Fund to be transferred to Acquiring Fund pursuant to this Agreement. At
the Exchange Date, subject only to the delivery of the Investments and
any such other assets and liabilities as contemplated by this Agreement,
Acquiring Fund will acquire the Investments and any such other assets
and liabilities subject to no encumbrances, liens or security interests
whatsoever and without any restrictions upon the transfer thereof
(except for such restrictions as previously disclosed to Acquiring Fund
by Acquired Fund). As used in this Agreement, the term "Investments"
shall mean Acquired Fund's investments shown on the schedule of its
investments as of October 31, 2003 referred to in Section 2(c) hereof,
as supplemented with such changes as Acquired Fund shall make, and
changes resulting from stock dividends, stock splits, mergers and
similar corporate actions.
(m) No registration under the 1933 Act of any of the Investments
would be required if they were, as of the time of such transfer, the
subject of a public distribution by either of Acquiring Fund or Acquired
Fund, except as previously disclosed to Acquiring Fund by Acquired Fund.
(n) At the Exchange Date, Acquired Fund will have sold such of its
assets, if any, as may be necessary to ensure that, after giving effect
to the acquisition of the assets of Acquired Fund pursuant to this
Agreement, Acquiring Fund will remain in compliance with its investment
restrictions as set forth in the Registration Statement.
3. Reorganization.
(a) Subject to the requisite approval of the shareholders of each of
Acquired Fund and Acquiring Fund and to the other terms and conditions
contained herein (including Acquired Fund's obligation to distribute to
its shareholders all of its net investment income and capital gains as
described in Section 8(l) hereof), Acquired Fund agrees to sell, assign,
convey, transfer and deliver to Acquiring Fund, and Acquiring Fund
agrees to acquire from Acquired Fund, on the Exchange Date all of the
Investments and all of the cash and other properties and assets of
Acquired Fund, whether accrued or contingent (including cash received by
Acquired Fund upon the liquidation by Acquired Fund of any investments
purchased by Acquired Fund after October 31, 2003 and designated by
Acquiring Fund as being unsuitable for it to acquire), in exchange for
that number of Merger Shares provided for in Section 4 and the
assumption by Acquiring Fund of all of the liabilities of Acquired Fund,
whether accrued or contingent, existing at the Valuation Time. Pursuant
to this Agreement, Acquired Fund will, as soon as practicable after the
Exchange Date, distribute all of the Merger Shares received by it to the
shareholders of Acquired Fund, in complete liquidation of Acquired Fund.
(b) As soon as practicable following the requisite approval of the
shareholders of each of Acquired Fund and Acquiring Fund, Acquired Fund
will, at its expense, liquidate such of its portfolio securities as
Acquiring Fund shall indicate it does not wish to acquire. Such
liquidation will be substantially completed prior to the Exchange Date,
unless otherwise agreed by Acquired Fund and Acquiring Fund.
(c) Acquired Fund will pay or cause to be paid to Acquiring Fund any
interest, cash or such dividends, rights and other payments received by
it on or after the Exchange Date with respect to the Investments and
other properties and assets of Acquired Fund, whether accrued or
contingent, received by it on or after the Exchange Date. Any such
distribution shall be deemed included in the assets transferred to
Acquiring Fund at the Exchange Date and shall not be separately valued
unless the securities in respect of which such distribution is made
shall have gone "ex" such distribution prior to the Valuation Time, in
which case any such distribution which remains unpaid at the Exchange
Date shall be included in the determination of the value of the assets
of Acquired Fund acquired by Acquiring Fund.
(d) The Valuation Time shall be 4:00 p.m. Boston time on January 21,
2005 or such earlier or later day as may be mutually agreed upon in
writing by the parties hereto (the "Valuation Time").
4. Exchange date; valuation time.
On the Exchange Date, Acquiring Fund will deliver to Acquired Fund a
number of full and fractional Merger Shares having an aggregate net
asset value equal to the value of assets of Acquired Fund attributable
to shares of Acquired Fund transferred to Acquiring Fund on such date
less the value of the liabilities of Acquired Fund attributable to the
shares of Acquired Fund assumed by Acquiring Fund on that date,
determined as hereafter provided in this Section 4.
(a) The net asset value of the Merger Shares to be delivered to
Acquired Fund, the value of the assets attributable to the shares of
Acquired Fund and the value of the liabilities attributable to the
shares of Acquired Fund to be assumed by Acquiring Fund shall in each
case be determined as of the Valuation Time.
(b) The net asset value of the Merger Shares and the value of the
assets and liabilities of the shares of Acquired Fund shall be
determined by Acquiring Fund, in cooperation with Acquired Fund,
pursuant to procedures customarily used by Acquiring Fund in determining
the fair market value of Acquiring Fund's assets and liabilities.
(c) No adjustment shall be made in the net asset value of either
Acquired Fund or Acquiring Fund to take into account differences in
realized and unrealized gains and losses.
(d) The investment restrictions of Acquired Fund shall be temporarily
amended to the extent necessary to effect the transactions contemplated
by this Agreement.
(e) Acquiring Fund shall issue the Merger Shares to Acquired Fund in
a certificate registered in the name of Acquired Fund. Acquired Fund
shall distribute the Merger Shares to the shareholders of Acquired Fund
by redelivering such certificates to Acquiring Fund's transfer agent,
which will as soon as practicable set up open accounts for each
shareholder of Acquiring Fund in accordance with written instructions
furnished by Acquired Fund. With respect to any Acquired Fund
shareholder holding share certificates as of the Exchange Date,
Acquiring Fund will not permit such shareholder to receive dividends and
other distributions on the Merger Shares (although such dividends and
other distributions shall be credited to the account of such
shareholder), receive certificates representing the Merger Shares or
pledge such Merger Shares until such shareholder has surrendered his or
her outstanding Acquired Fund certificates or, in the event of lost,
stolen or destroyed certificates, posted adequate bond. In the event
that a shareholder shall not be permitted to receive dividends and other
distributions on the Merger Shares as provided in the preceding
sentence, Acquiring Fund shall pay any such dividends or distributions
in additional shares, notwithstanding any election such shareholder
shall have made previously with respect to the payment, in cash or
otherwise, of dividends and distributions on shares of Acquired Fund.
Acquired Fund will, at its expense, request the shareholders of Acquired
Fund to surrender their outstanding Acquired Fund certificates, or post
adequate bond, as the case may be.
(f) Acquiring Fund shall assume all liabilities of Acquired Fund,
whether accrued or contingent, in connection with the acquisition of
assets and subsequent dissolution of Acquired Fund or otherwise.
5. Expenses, fees, etc.
(a) All fees and expenses, including legal and accounting expenses,
portfolio transfer taxes (if any) or other similar expenses incurred in
connection with the consummation by Acquired Fund and Acquiring Fund of
the transactions contemplated by this Agreement (together with the costs
specified below in (i) below, "Expenses") will be allocated ratably
between Acquiring Fund and Acquired Fund in proportion to their net
assets as of the Valuation Time, except that (i) the costs of proxy
materials and proxy solicitation for each fund will be borne by that
fund, (ii) the cost of the SEC registration fee will be borne by
Acquiring Fund and (iii) the costs of liquidating such of Acquired
Fund's portfolio securities as Acquiring Fund shall indicate it does not
wish to acquire prior to the Exchange Date shall be borne by Acquired
Fund; provided, however, that the Expenses to be borne by the Acquired
Fund will not exceed $261,060, the Expenses to be borne by the Acquiring
Fund will not exceed $157,343 and the remainder of any Expenses will be
borne by Putnam Investment Management, LLC; and provided further that
such Expenses will in any event be paid by the party directly incurring
such Expenses if and to the extent that the payment by the other party
of such Expenses would result in the disqualification of Acquiring Fund
or Acquired Fund, as the case may be, as a "regulated investment
company" within the meaning of Section 851 of the Code.
(b) In the event the transactions contemplated by this Agreement are
not consummated by reason of Acquiring Fund's being either unwilling or
unable to go forward (other than by reason of the nonfulfillment or
failure of any condition to Acquiring Fund's obligations referred to in
Section 8), or by reason of the nonfulfillment or failure of any
condition to Acquired Fund's obligations referred to in Section 9,
Acquiring Fund shall pay directly all reasonable fees and expenses
incurred by Acquired Fund in connection with such transactions,
including, without limitation, legal, accounting and filing fees.
(c) In the event the transactions contemplated by this Agreement are
not consummated by reason of Acquired Fund's being either unwilling or
unable to go forward (other than by reason of the nonfulfillment or
failure of any condition to Acquired Fund's obligations referred to in
Section 9), or by reason of the nonfulfillment or failure of any
condition to Acquiring Fund's obligations referred to in Section 8,
Acquired Fund shall pay directly all reasonable fees and expenses
incurred by Acquiring Fund in connection with such transactions,
including without limitation legal, accounting and filing fees.
(d) In the event the transactions contemplated by this Agreement are
not consummated for any reason other than (i) Acquiring Fund's or
Acquired Fund's being either unwilling or unable to go forward or (ii)
the nonfulfillment or failure of any condition to Acquiring Fund's or
Acquired Fund's obligations referred to in Section 8 or Section 9 of
this Agreement, then each of Acquiring Fund and Acquired Fund shall bear
all of its own expenses incurred in connection with such transactions.
(e) Notwithstanding any other provisions of this Agreement, if for
any reason the transactions contemplated by this Agreement are not
consummated, no party shall be liable to the other party for any damages
resulting therefrom, including without limitation consequential damages,
except as specifically set forth above.
6. Exchange date.
Delivery of the assets of Acquired Fund to be transferred, assumption of
the liabilities of Acquired Fund to be assumed and the delivery of the
Merger Shares to be issued shall be made at the offices of Ropes & Gray
LLP, One International Place, Boston, Massachusetts, at 10:00 A.M. on
the next full business day following the Valuation Time, or at such
other time and date agreed to by Acquiring Fund and Acquired Fund, the
date and time upon which such delivery is to take place being referred
to herein as the "Exchange Date."
7. Meeting of shareholders; dissolution.
(a) Each of Acquired Fund and Acquiring Fund agrees to call a meeting
of its shareholders as soon as is practicable after the effective date
of the Registration Statement for, among other things, the purpose of
considering the matters contemplated by this Agreement.
(b) Acquired Fund agrees that the liquidation and dissolution of
Acquired Fund will be effected in the manner provided in the Agreement
and Declaration of Trust, as amended, of Acquired Fund in accordance with
applicable law and that on and after the Exchange Date, Acquired Fund
shall not conduct any business except in connection with its liquidation
and dissolution.
(c) Acquiring Fund has, after the preparation and delivery to
Acquiring Fund by Acquired Fund of a preliminary version of the Proxy
Statement which was satisfactory to Acquiring Fund and to Ropes & Gray
LLP for inclusion in the Registration Statement, filed the Registration
Statement with the Commission. Each of Acquired Fund and Acquiring Fund
will cooperate with the other, and each will furnish to the other the
information relating to itself required by the 1933 Act, the 1934 Act
and the 1940 Act and the rules and regulations thereunder set forth in
the Registration Statement, including the Prospectuses and the Proxy
Statements.
8. Conditions to Acquiring Fund's obligations.
The obligations of Acquiring Fund hereunder shall be subject to the
following conditions:
(a) That this Agreement shall have been adopted and the transactions
contemplated hereby shall have been approved by the affirmative vote of
(i) at least two-thirds of the Trustees of Acquired Fund (including a
majority of those Trustees who are not "interested persons" of Acquired
Fund, as defined in Section 2(a)(19) of the 1940 Act), (ii) holders of a
majority of the outstanding shares of Acquired Fund, (iii) holders of a
majority of the outstanding shares of Acquiring Fund voted, if holders
of more than 50% of such shares are represented at the meeting in person
or by proxy and (iv) a majority of the Trustees of Acquiring Fund
(including a majority of those Trustees who are not "interested persons"
of Acquiring Fund, as defined in Section 2(a)(19) of the 1940 Act).
(b) That Acquired Fund shall have furnished to Acquiring Fund a
statement of Acquired Fund's net assets, with values determined as
provided in Section 4 of this Agreement, together with a list of
Investments with their respective tax costs, all as of the Valuation
Time, certified on Acquired Fund's behalf by Acquired Fund's President
(or any Vice President) and Treasurer (or any Assistant Treasurer) and a
certificate of both such officers, dated the Exchange Date, to the
effect that as of the Valuation Time and as of the Effective Date there
has been no material adverse change in the financial position of
Acquired Fund since October 31, 2003 other than changes in the
Investments and other assets and properties since that date or changes
in the market value of the Investments and other assets of Acquired Fund
or changes due to dividends paid or losses from operations.
(c) That Acquired Fund shall have furnished to Acquiring Fund a
statement, dated the Exchange Date, signed on behalf of Acquired Fund by
Acquired Fund's President (or any Vice President) and Treasurer (or any
Assistant Treasurer) certifying that as of the Valuation Time and as of
the Exchange Date all representations and warranties of Acquired Fund
made in this Agreement are true and correct in all material respects as
if made at and as of such dates, and that Acquired Fund has complied
with all of the agreements and satisfied all of the conditions on its
part to be performed or satisfied at or prior to each of such dates.
(d) That Acquired Fund shall have delivered to Acquiring Fund an
agreed upon procedures letter from KPMG LLP dated the Exchange Date,
setting forth findings of KPMG LLP pursuant to its performance of the
agreed upon procedures set forth therein relating to management's
assertions that (i) for the taxable period from November 1, 2003 to the
Exchange Date Acquired Fund qualified as a regulated investment company
under the Code, (ii) as of the Exchange Date, has no liability other
than liabilities stated for federal or state income taxes and (iii) as
of the Exchange Date, has no liability for federal excise tax purposes
under section 4982 of the Code.
(e) That there shall not be any material litigation pending with
respect to the matters contemplated by this Agreement.
(f) That Acquiring Fund shall have received an opinion of Ropes &
Gray LLP, in form satisfactory to Acquiring Fund and dated the Exchange
Date, to the effect that (i) Acquired Fund is a business trust duly
established and validly existing under the laws of The Commonwealth of
Massachusetts, and, to the knowledge of such counsel, is not required to
qualify to do business as a foreign association in any jurisdiction
except as may be required by state securities or blue sky laws, (ii)
this Agreement has been duly authorized, executed, and delivered by
Acquired Fund and, assuming that the Registration Statement, the
Prospectuses and the Proxy Statements comply with the 1933 Act, the 1934
Act and the 1940 Act and assuming due authorization, execution and
delivery of this Agreement by Acquiring Fund, is a valid and binding
obligation of Acquired Fund, (iii) Acquired Fund has power to sell,
assign, convey, transfer and deliver the assets contemplated hereby and,
upon consummation of the transactions contemplated hereby in accordance
with the terms of this Agreement, Acquired Fund will have duly sold,
assigned, conveyed, transferred and delivered such assets to Acquiring
Fund, (iv) the execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, violate
Acquired Fund's Agreement and Declaration of Trust, as amended, or
Bylaws or any provision of any agreement known to such counsel to which
Acquired Fund is a party or by which it is bound, it being understood
that with respect to investment restrictions as contained in Acquired
Fund's Agreement and Declaration of Trust, as amended, Bylaws,
then-current prospectus or statement of additional information or the
Registration Statement, such counsel may rely upon a certificate of an
officer of Acquired Fund's whose responsibility it is to advise Acquired
Fund with respect to such matters, (v) no consent, approval, authorization
or order of any court or governmental authority is required for the
consummation by Acquired Fund of the transactions contemplated hereby,
except such as have been obtained under the 1933 Act, the 1934 Act, the
1940 Act and such as may be required under state securities or blue sky
laws and the H-S-R Act and (vi) such other matters as Acquiring Fund may
reasonably deem necessary or desirable.
(g) That Acquiring Fund shall have received an opinion of Ropes &
Gray LLP dated the Exchange Date (which opinion would be based upon
certain factual representations and subject to certain qualifications),
to the effect that, on the basis of the existing provisions of the Code,
current administrative rules and court decisions, for federal income tax
purposes: (i) the acquisition by Acquiring Fund of substantially all of
the assets of Acquired Fund solely in exchange for Merger Shares and the
assumption by Acquiring Fund of liabilities of Acquired Fund followed by
the distribution of Acquired Fund to its shareholders of Merger Shares
in complete liquidation of Acquired Fund, all pursuant to the plan of
reorganization, constitutes a reorganization within the meaning of
Section 368(a) of the Code and Acquired Fund and Acquiring Fund will
each be a "party to a reorganization" within the meaning of Section
368(b) of the Code, (ii) no gain or loss will be recognized by Acquiring
Fund or its shareholders upon receipt of the Investments transferred to
Acquiring Fund pursuant to this Agreement in exchange for the Merger
Shares, (iii) the basis to Acquiring Fund of the Investments will be the
same as the basis of the Investments in the hands of Acquired Fund
immediately prior to such exchange (iv) Acquiring Fund's holding periods
with respect to the Investments will include the respective periods for
which the Investments were held by Acquired Fund, and (v) Acquiring Fund
will succeed to and take into account the items of Acquired Fund
described in Section 381(c) of the Code, subject to the conditions and
limitations specified in Sections 381, 382, 383 and 384 of the Code and
Regulations thereunder; however, Ropes & Gray LLP will express no view
with respect to the effect of the reorganization on any transferred asset
as to which any unrealized gain or loss is required to be recognized at
the end of a taxable year (or on the termination or transfer thereof)
under federal income tax principles.
(h) That the assets of Acquired Fund to be acquired by Acquiring Fund
will include no assets which Acquiring Fund, by reason of charter
limitations or of investment restrictions disclosed in the Registration
Statement in effect on the Exchange Date, may not properly acquire.
(i) That the Registration Statement shall have become effective under
the 1933 Act, and no stop order suspending such effectiveness shall have
been instituted or, to the knowledge of Acquiring Fund, threatened by
the Commission.
(j) That Acquiring Fund shall have received from the Commission, any
relevant state securities administrator, the Federal Trade Commission
(the "FTC") and the Department of Justice (the "Department") such order
or orders as Ropes & Gray LLP deems reasonably necessary or desirable
under the 1933 Act, the 1934 Act, the 1940 Act, any applicable state
securities or blue sky laws and the H-S-R Act in connection with the
transactions contemplated hereby, and that all such orders shall be in
full force and effect.
(k) That all proceedings taken by Acquired Fund in connection with
the transactions contemplated by this Agreement and all documents
incidental thereto shall be satisfactory in form and substance to
Acquiring Fund and Ropes & Gray LLP.
(l) That, prior to the Exchange Date, Acquired Fund shall have
declared a dividend or dividends which, together with all previous such
dividends, shall have the effect of distributing to the shareholders of
Acquired Fund (i) all of the excess of (X) Acquired Fund's investment
income excludable from gross income under Section 103 of the Code over
(Y) Acquired Fund's deductions disallowed under Sections 265 and 171 of
the Code, (ii) all of Acquired Fund's investment company taxable income
(as defined in Section 852 of the Code) for its taxable years ending on
or after October 31, 2003, and on or prior to the Exchange Date
(computed in each case without regard to any deduction for dividends
paid), and (iii) all of its net capital gain realized after reduction by
any capital loss carryover in each of its taxable years ending on or
after October 31, 2003, and on or prior to the Exchange Date.
(m) That Acquired Fund's custodian shall have delivered to Acquiring
Fund a certificate identifying all of the assets of Acquired Fund held
by such custodian as of the Valuation Time.
(n) That Acquired Fund's transfer agent shall have provided to
Acquiring Fund (i) the originals or true copies of all of the records of
Acquired Fund in the possession of such transfer agent as of the
Exchange Date, (ii) a certificate setting forth the number of shares of
Acquired Fund outstanding as of the Valuation Time, and (iii) the name
and address of each holder of record of any such shares and the number
of shares held of record by each such shareholder.
(o) That all of the issued and outstanding shares of beneficial
interest of Acquired Fund shall have been offered for sale and sold in
conformity with all applicable state securities or blue sky laws and, to
the extent that any audit of the records of Acquired Fund or its
transfer agent by Acquiring Fund or its agents shall have revealed
otherwise, either (i) Acquired Fund shall have taken all actions that in
the opinion of Acquiring Fund or its counsel are necessary to remedy any
prior failure on the part of Acquired Fund to have offered for sale and
sold such shares in conformity with such laws or (ii) Acquired Fund
shall have furnished (or caused to be furnished) surety, or deposited
(or caused to be deposited) assets in escrow, for the benefit of
Acquiring Fund in amounts sufficient and upon terms satisfactory, in the
opinion of Acquiring Fund or its counsel, to indemnify Acquiring Fund
against any expense, loss, claim, damage or liability whatsoever that
may be asserted or threatened by reason of such failure on the part of
Acquired Fund to have offered and sold such shares in conformity with
such laws.
(p) That Acquiring Fund shall have received from KPMG LLP an agreed
upon procedures letter addressed to Acquiring Fund dated as of the
Exchange Date satisfactory in form and substance to Acquiring Fund
setting forth the findings of KPMG LLP pursuant to its performance of
the agreed upon procedures set forth therein relating to management's
assertion that as of the Valuation Time the value of the assets of
Acquired Fund to be exchanged for the Merger Shares has been determined
in accordance with the provisions of Article 10, Section 5 of Acquiring
Fund's Bylaws pursuant to the procedures customarily utilized by
Acquiring Fund in valuing its assets and issuing its shares.
(q) That Acquired Fund shall have executed and delivered to Acquiring
Fund an instrument of transfer dated as of the Exchange Date pursuant to
which Acquired Fund will assign, transfer and convey all of the assets
and other property to Acquiring Fund at the Valuation Time in connection
with the transactions contemplated by this Agreement.
(r) That the Merger Shares shall have been approved for listing by
the New York Stock Exchange.
9. Conditions to Acquired Fund's obligations.
The obligations of Acquired Fund hereunder shall be subject to the
following conditions:
(a) That this Agreement shall have been adopted and the transactions
contemplated hereby shall have been approved by the affirmative vote of
(i) at least two-thirds of the Trustees of Acquired Fund (including a
majority of those Trustees who are not "interested persons" of Acquired
Fund, as defined in Section 2(a)(19) of the 1940 Act), (ii) holders of a
majority of the outstanding shares of Acquired Fund, (iii) holders of a
majority of the outstanding shares of Acquiring Fund voted, if holders
of more than 50% of such shares are represented at the meeting in person
or by proxy and (iv) a majority of the Trustees of Acquiring Fund
(including a majority of those Trustees who are not "interested persons"
of Acquiring Fund, as defined in Section 2(a)(19) of the 1940 Act).
(b) That Acquiring Fund shall have furnished to Acquired Fund a
statement of Acquiring Fund's net assets, together with a list of
portfolio holdings with values determined as provided in Section 4 of
this Agreement, all as of the Valuation Time, certified on behalf of
Acquiring Fund by Acquiring Fund's President (or any Vice President) and
Treasurer (or any Assistant Treasurer) and a certificate of both such
officers, dated the Exchange Date, to the effect that as of the
Valuation Time and as of the Exchange Date there has been no material
adverse change in the financial position of Acquiring Fund since July
31, 2004, other than changes in its portfolio securities since that
date, changes in the market value of its portfolio securities or changes
due to dividends paid or losses from operations.
(c) That Acquiring Fund shall have executed and delivered to Acquired
Fund an Assumption of Liabilities dated as of the Exchange Date pursuant
to which Acquiring Fund will assume all of the liabilities of Acquired
Fund existing at the Valuation Time in connection with the transactions
contemplated by this Agreement.
(d) That Acquiring Fund shall have furnished to Acquired Fund a
statement, dated the Exchange Date, signed on behalf of Acquiring Fund
by Acquiring Fund's President (or any Vice President) and Treasurer (or
any Assistant Treasurer) certifying that as of the Valuation Time and as
of the Exchange Date all representations and warranties of Acquiring
Fund made in this Agreement are true and correct in all material
respects as if made at and as of such dates, and that Acquiring Fund has
complied with all of the agreements and satisfied all of the conditions
on its part to be performed or satisfied at or prior to each of such
dates.
(e) That there shall not be any material litigation pending or
threatened with respect to the matters contemplated by this Agreement.
(f) That Acquired Fund shall have received an opinion of Ropes & Gray
LLP, in form satisfactory to Acquired Fund and dated the Exchange Date,
to the effect that (i) Acquiring Fund is a business trust duly
established and validly existing in conformity with the laws of The
Commonwealth of Massachusetts, and, to the knowledge of such counsel, is
not required to qualify to do business as a foreign association in any
jurisdiction except as may be required by state securities or blue sky
laws, (ii) this Agreement has been duly authorized, executed and
delivered by Acquiring Fund and, assuming that the Prospectuses, the
Registration Statement and the Proxy Statements comply with the 1933
Act, the 1934 Act and the 1940 Act and assuming due authorization,
execution and delivery of this Agreement by Acquired Fund, is a valid
and binding obligation of Acquiring Fund, (iii) the Merger Shares to be
delivered to Acquired Fund as provided for by this Agreement are duly
authorized and upon such delivery will be validly issued and will be
fully paid and nonassessable by Acquiring Fund and no shareholder of
Acquiring Fund has any preemptive right to subscription or purchase in
respect thereof, (iv) the execution and delivery of this Agreement did
not, and the consummation of the transactions contemplated hereby will
not, violate Acquiring Fund's Agreement and Declaration of Trust, as
amended, or Bylaws, or any provision of any agreement known to such
counsel to which Acquiring Fund is a party or by which it is bound, it
being understood that with respect to investment restrictions as
contained in Acquiring Fund's Agreement and Declaration of Trust, as
amended, Bylaws or the Registration Statement, such counsel may rely
upon a certificate of an officer of Acquiring Fund whose responsibility
it is to advise Acquiring Fund with respect to such matters, (v) no
consent, approval, authorization or order of any court or governmental
authority is required for the consummation by Acquiring Fund of the
transactions contemplated herein, except such as have been obtained
under the 1933 Act, the 1934 Act, and the 1940 Act and such as may be
required under state securities or blue sky laws and the H-S-R Act and
(vi) the Registration Statement has become effective under the 1933 Act,
and to the best of the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been instituted or are
pending or contemplated under the 1933 Act.
(g) That Acquired Fund shall have received an opinion of Ropes & Gray
LLP dated the Exchange Date (which opinion would be based upon certain
factual representations and subject to certain qualifications), to the
effect that, on the basis of the existing provisions of the Code,
current administrative rules and court decisions, subject to the
qualification below, for federal income tax purposes: (i) the
acquisition by Acquiring Fund of substantially all of the assets of
Acquired Fund solely in exchange for Merger Shares and the assumption by
Acquiring Fund of liabilities of Acquired Fund followed by the
distribution of Acquired Fund to its shareholders of Merger Shares in
complete liquidation of Acquired Fund, all pursuant to the plan of
reorganization, constitutes a reorganization within the meaning of
Section 368(a) of the Code and Acquired Fund and Acquiring Fund will
each be a "party to a reorganization" within the meaning of Section
368(b) of the Code, (ii) no gain or loss will be recognized by Acquired
Fund upon the transfer of the Investments to Acquiring Fund and the
assumption by Acquiring Fund of the liabilities of Acquired Fund, or
upon the distribution of the Merger Shares by Acquired Fund to its
shareholders, pursuant to this Agreement, (iii) no gain or loss will be
recognized by the Acquired Fund shareholders on the exchange of their
shares of the Acquired Fund for Merger Shares, (iv) the aggregate basis
of the Merger Shares an Acquired Fund shareholder receives in connection
with the transaction will be the same as the aggregate basis of his or
her Acquired Fund shares exchanged therefor and (v) an Acquired Fund
shareholder's holding period for his or her Merger Shares will be
determined by including the period for which he or she held Acquired
Fund shares exchanged therefor, provided that the shareholder held
Acquired Fund's shares as a capital asset; however, Ropes & Gray LLP
will express no view with respect to the effect of the reorganization on
any transferred asset as to which any unrealized gain or loss is
required to be recognized at the end of a taxable year (or on the
termination or transfer thereof) under federal income tax principles.
(h) That all proceedings taken by or on behalf of Acquiring Fund in
connection with the transactions contemplated by this Agreement and all
documents incidental thereto shall be satisfactory in form and substance
to Acquired Fund and Ropes & Gray LLP.
(i) That the Registration Statement shall have become effective under
the 1933 Act, and no stop order suspending such effectiveness shall have
been instituted or, to the knowledge of Acquiring Fund, threatened by
the Commission.
(j) That Acquired Fund shall have received from the Commission, any
relevant state securities administrator, the FTC and the Department such
order or orders as Ropes & Gray LLP deems reasonably necessary or
desirable under the 1933 Act, the 1934 Act, the 1940 Act, any applicable
state securities or blue sky laws and the H-S-R Act in connection with
the transactions contemplated hereby, and that all such orders shall be
in full force and effect.
(k) That the Merger Shares shall have been approved for listing by the
New York Stock Exchange.
10. Indemnification.
(a) Acquired Fund will indemnify and hold harmless, out of the assets of
Acquired Fund but no other assets, Acquiring Fund, its trustees and its
officers (for purposes of this subparagraph, the "Indemnified Parties")
against any and all expenses, losses, claims, damages and liabilities at
any time imposed upon or reasonably incurred by any one or more of the
Indemnified Parties in connection with, arising out of, or resulting
from any claim, action, suit or proceeding in which any one or more of
the Indemnified Parties may be involved or with which any one or more of
the Indemnified Parties may be threatened by reason of any untrue
statement or alleged untrue statement of a material fact relating to
Acquired Fund contained in the Registration Statement, the Prospectuses,
the Proxy Statements or any amendment or supplement to any of the
foregoing, or arising out of or based upon the omission or alleged
omission to state in any of the foregoing a material fact relating to
Acquired Fund required to be stated therein or necessary to make the
statements relating to Acquired Fund therein not misleading, including,
without limitation, any amounts paid by any one or more of the
Indemnified Parties in a reasonable compromise or settlement of any such
claim, action, suit or proceeding, or threatened claim, action, suit or
proceeding made with the consent of Acquired Fund. The Indemnified
Parties will notify Acquired Fund in writing within ten days after the
receipt by any one or more of the Indemnified Parties of any notice of
legal process or any suit brought against or claim made against such
Indemnified Party as to any matters covered by this Section 10(a).
Acquired Fund shall be entitled to participate at its own expense in the
defense of any claim, action, suit or proceeding covered by this Section
10(a), or, if it so elects, to assume at its expense by counsel
satisfactory to the Indemnified Parties the defense of any such claim,
action, suit or proceeding, and if Acquired Fund elects to assume such
defense, the Indemnified Parties shall be entitled to participate in the
defense of any such claim, action, suit or proceeding at their expense.
Acquired Fund's obligation under this Section 10(a) to indemnify and
hold harmless the Indemnified Parties shall constitute a guarantee of
payment so that Acquired Fund will pay in the first instance any
expenses, losses, claims, damages and liabilities required to be paid by
it under this Section 10(a) without the necessity of the Indemnified
Parties' first paying the same.
(b) Acquiring Fund will indemnify and hold harmless, out of the assets
of Acquiring Fund but no other assets, Acquired Fund, its trustees and
its officers (for purposes of this subparagraph, the "Indemnified
Parties") against any and all expenses, losses, claims, damages and
liabilities at any time imposed upon or reasonably incurred by any one
or more of the Indemnified Parties in connection with, arising out of,
or resulting from any claim, action, suit or proceeding in which any one
or more of the Indemnified Parties may be involved or with which any one
or more of the Indemnified Parties may be threatened by reason of any
untrue statement or alleged untrue statement of a material fact relating
to Acquiring Fund contained in the Registration Statement, the
Prospectuses, the Proxy Statements, or any amendment or supplement to
any thereof, or arising out of, or based upon, the omission or alleged
omission to state in any of the foregoing a material fact relating to
Acquiring Fund required to be stated therein or necessary to make the
statements relating to Acquiring Fund therein not misleading, including
without limitation any amounts paid by any one or more of the
Indemnified Parties in a reasonable compromise or settlement of any such
claim, action, suit or proceeding, or threatened claim, action, suit or
proceeding made with the consent of Acquiring Fund. The Indemnified
Parties will notify Acquiring Fund in writing within ten days after the
receipt by any one or more of the Indemnified Parties of any notice of
legal process or any suit brought against or claim made against such
Indemnified Party as to any matters covered by this Section 10(b).
Acquiring Fund shall be entitled to participate at its own expense in
the defense of any claim, action, suit or proceeding covered by this
Section 10(b), or, if it so elects, to assume at its expense by counsel
satisfactory to the Indemnified Parties the defense of any such claim,
action, suit or proceeding, and, if Acquiring Fund elects to assume such
defense, the Indemnified Parties shall be entitled to participate in the
defense of any such claim, action, suit or proceeding at their own
expense. Acquiring Fund's obligation under this Section 10(b) to
indemnify and hold harmless the Indemnified Parties shall constitute a
guarantee of payment so that Acquiring Fund will pay in the first
instance any expenses, losses, claims, damages and liabilities required
to be paid by it under this Section 10(b) without the necessity of the
Indemnified Parties' first paying the same.
11. No broker, etc.
Each of Acquired Fund and Acquiring Fund represents that there is no
person who has dealt with it who by reason of such dealings is entitled
to any broker's or finder's or other similar fee or commission arising
out of the transactions contemplated by this Agreement.
12. Termination.
Acquired Fund and Acquiring Fund may, by mutual consent of their
trustees, terminate this Agreement, and Acquired Fund or Acquiring Fund,
after consultation with counsel and by consent of their trustees or an
officer authorized by such trustees, may waive any condition to their
respective obligations hereunder. If the transactions contemplated by
this Agreement have not been substantially completed by December 31,
2005, this Agreement shall automatically terminate on that date unless a
later date is agreed to by Acquired Fund and Acquiring Fund.
13. Rule 145.
Pursuant to Rule 145 under the 1933 Act, Acquiring Fund will, in
connection with the issuance of any Merger Shares to any person who at
the time of the transaction contemplated hereby is deemed to be an
affiliate of a party to the transaction pursuant to Rule 145(c), cause
to be affixed upon the certificates issued to such person (if any) a
legend as follows:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO
PUTNAM PREMIER INCOME TRUST OR ITS PRINCIPAL UNDERWRITER UNLESS (I) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (II) IN THE OPINION OF COUNSEL
REASONABLY SATISFACTORY TO PUTNAM PREMIER INCOME TRUST SUCH REGISTRATION
IS NOT REQUIRED."
and, further, Acquiring Fund will issue stop transfer instructions to
Acquiring Fund's transfer agent with respect to such shares. Acquired Fund
will provide Acquiring Fund on the Exchange Date with the name of any
Acquired Fund shareholder who is to the knowledge of Acquired Fund an
affiliate of Acquired Fund on such date.
14. Covenants, etc. deemed material.
All covenants, agreements, representations and warranties made under
this Agreement and any certificates delivered pursuant to this Agreement
shall be deemed to have been material and relied upon by each of the
parties, notwithstanding any investigation made by them or on their
behalf.
15. Sole agreement; amendments.
This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the subject matter hereof,
constitutes the only understanding with respect to such subject matter,
may not be changed except by a letter of agreement signed by each party
hereto, and shall be construed in accordance with and governed by the
laws of The Commonwealth of Massachusetts.
16. Agreement and declaration of trust.
Copies of the Agreements and Declarations of Trust, as amended, of
Acquired Fund and Acquiring Fund are on file with the Secretary of
The Commonwealth of Massachusetts, and notice is hereby given that this
instrument is executed on behalf of the Trustees of each Trust,
respectively, as Trustees and not individually and that the obligations
of this instrument are not binding upon any of the Trustees, officers or
shareholders of Acquired Fund or Acquiring Fund individually but are
binding only upon the assets and property of Acquired Fund and Acquiring
Fund, respectively.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
Putnam Premier Income Trust
By: /s/ Charles E. Porter
--------------------------
Name: Charles E. Porter
Title: Executive Vice President, Associate Treasurer and Principal
Executive Officer
Putnam Master Income Trust
By: /s/ Charles E. Porter
--------------------------
Name: Charles E. Porter
Title: Executive Vice President, Associate Treasurer and Principal
Executive Officer
Putnam Investment Management, LLC
By: /s/ James P. Pappas
--------------------------
Name: James P. Pappas
Title: Managing Director
For more information about
Premier Income Trust and Master Income Trust
Premier Income Trust's statement of additional information (SAI) and the
funds' annual and semi-annual reports to shareholders include additional
information about the funds. The SAI is incorporated by reference into
this prospectus/proxy statement, which means it is part of this
prospectus/proxy statement for legal purposes. The funds' annual and
semi-annual reports discuss the market conditions and investment
strategies that significantly affected the fund's performance during the
relevant period. Shareholders of the funds may get free copies of these
materials, request other information about the funds, or make
shareholder inquiries, by contacting their financial advisor, by
visiting Putnam's Internet site, or by calling Putnam toll-free at
1-800-225-1581.
Table of contents
I. Synopsis 10
II. Risk Factors 19
III. Information about the Proposed Merger 27
IV. Information about the Funds 36
V. Information about Voting and the Shareholder Meeting 55
Appendix A -- Agreement and Plan of Reorganization A-1
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581 219486 11/04
PUTNAM INVESTMENTS
The proxy ballot
To vote by mail
Read the proxy statement.
Check the appropriate box on the reverse side.
Sign and date the proxy ballot.
Return the proxy ballot in the envelope provided.
To vote by telephone
Read the proxy statement and have the proxy ballot at hand.
Call 1-800-690-6903.
Follow the automated telephone directions.
There is no need for you to return your proxy ballot.
To vote on the Web
Read the proxy statement and have the proxy ballot at hand.
Go to https://www.proxyweb.com/Putnam
Follow the instructions on the site.
There is no need for you to return your proxy ballot.
------------------------------------------------------------------------
By signing below, you, as a Putnam fund shareholder, appoint Trustees
John A. Hill and Robert E. Patterson, and each of them separately, with
power of substitution to each, to be your proxies. You are empowering
them to vote your Putnam fund shares on your behalf at a joint meeting
of the shareholders of each of Putnam Premier Income Trust and Putnam
Master Income Trust. The meeting will take place on January 13, 2005 at
11:00 a.m. in Boston, and may be adjourned to later times or dates.
Your vote is being solicited on behalf of the Trustees. When you
complete and sign the proxy ballot, the Trustees will vote exactly as
you have indicated on the other side of this card. If you simply sign
the proxy ballot, or don't vote on a specific proposal, your shares will
be automatically voted as the Trustees recommend. The Trustees are also
authorized to vote at their discretion on any other matter that arises
at the meeting or any adjournment of the meeting.
Please be sure to sign and date here
------------------------------------------- -----------------------
Signature(s) Date
Sign your name exactly as it appears on this card. If you own shares
jointly, each owner should sign. When signing as executor,
administrator, attorney, trustee, guardian, or as custodian for a minor,
please give your full title as such. If you are signing for a
corporation, please sign the full corporate name and indicate the
signer's office. If you are a partner, sign in the partnership name.
Please place an X in the appropriate box using black
or blue ink or number 2 pencil. Please do not use
Proposal a fine point pen.
------------------------------------------------------------------------------
The Trustees recommend voting FOR Proposal 1.
1. Approval of an Agreement and Plan of Reorganization and the
transactions contemplated thereby, including the transfer of all
of the assets of Putnam Master Income Trust to Putnam Premier
Income Trust in exchange for the issuance and delivery of shares
of beneficial interest of Putnam Premier Income Trust and the
assumption by Putnam Premier Income Trust of the liabilities of
Putnam Master Income Trust, and the distribution of such shares
to the shareholders of Putnam Master Income Trust in complete
liquidation of Putnam Master Income Trust.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
If you have questions on the proposal, please call 1-877-519-9667.
Please sign and date the other side of this card.
PUTNAM INVESTMENTS
The proxy ballot
To vote by mail
Read the proxy statement.
Check the appropriate box on the reverse side.
Sign and date the proxy ballot.
Return the proxy ballot in the envelope provided.
To vote by telephone
Read the proxy statement and have the proxy ballot at hand.
Call 1-800-690-6903.
Follow the automated telephone directions.
There is no need for you to return your proxy ballot.
To vote on the Web
Read the proxy statement and have the proxy ballot at hand.
Go to https://www.proxyweb.com/Putnam
Follow the instructions on the site.
There is no need for you to return your proxy ballot.
------------------------------------------------------------------------
By signing below, you, as a Putnam fund shareholder, appoint Trustees
John A. Hill and Robert E. Patterson, and each of them separately, with
power of substitution to each, to be your proxies. You are empowering
them to vote your Putnam fund shares on your behalf at a joint meeting
of the shareholders of each of Putnam Premier Income Trust and Putnam
Master Income Trust. The meeting will take place on January 13, 2005 at
11:00 a.m. in Boston, and may be adjourned to later times or dates.
Your vote is being solicited on behalf of the Trustees. When you
complete and sign the proxy ballot, the Trustees will vote exactly as
you have indicated on the other side of this card. If you simply sign
the proxy ballot, or don't vote on a specific proposal, your shares will
be automatically voted as the Trustees recommend. The Trustees are also
authorized to vote at their discretion on any other matter that arises
at the meeting or any adjournment of the meeting.
Please be sure to sign and date here
------------------------------------------- -----------------------
Signature(s) Date
Sign your name exactly as it appears on this card. If you own shares
jointly, each owner should sign When signing as executor,
administrator, attorney, trustee, guardian, or as custodian for a minor,
please give your full title as such. If you are signing for a
corporation, please sign the full corporate name and indicate the
signer's office. If you are a partner, sign in the partnership name.
Please place an X in the appropriate box using black
or blue ink or number 2 pencil. Please do not use
Proposal a fine point pen.
------------------------------------------------------------------------------
The Trustees recommend voting FOR Proposal 1.
1. Approval of an Agreement and Plan of Reorganization and the transactions
contemplated thereby, including the transfer of all of the assets of Putnam
Master Income Trust to Putnam Premier Income Trust in exchange for the
issuance and delivery of shares of beneficial interest of Putnam Premier
Income Trust and the assumption by Putnam Premier Income Trust of the
liabilities of Putnam Master Income Trust, and the distribution of such
shares to the shareholders of Putnam Master Income Trust in complete
liquidation of Putnam Master Income Trust.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
If you have questions on the proposal, please call 1-877-519-9667.
Please sign and date the other side of this card.
PUTNAM PREMIER INCOME TRUST
FORM N-14
PART B
STATEMENT OF ADDITIONAL INFORMATION
November 10, 2004
This Statement of Additional Information ("SAI") contains material that
may be of interest to investors but that is not included in the
Prospectus/Proxy Statement (the "Prospectus") of Putnam Premier Income
Trust ("Premier Income Trust") dated November 10, 2004 relating to the sale of
all or substantially all of the assets of Putnam Master Income Trust
("Master Income Trust" and, together with Premier Income Trust, the
"funds") to Premier Income Trust. This SAI is not a Prospectus and is
authorized for distribution only when it accompanies or follows delivery
of the Prospectus. This SAI should be read in conjunction with the
Prospectus. Investors may obtain a free copy of the Prospectus by
writing Putnam Investor Services, One Post Office Square, Boston, MA
02109 or by calling 1-800-225-1581.
CHARGES AND EXPENSES 2
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS 8
TAXES 39
MANAGEMENT 45
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND
FINANCIAL STATEMENTS 60
APPENDIX A 121
CHARGES AND EXPENSES
Management fees
Under a Management Contract dated as of July 11, 1991, Premier Income
Trust pays a quarterly fee to Putnam Management based on the average net
assets of the fund, as determined at the close of each business day
during the quarter, at the following rates:
0.75% of the first $500 million of average net assets;
0.65% of the next $500 million of average net assets;
0.60% of the next $500 million of average net assets; and
0.55% of any excess thereafter.
Under a Management Contract dated as of July 11, 1991, Master Income
Trust pays a quarterly fee to Putnam Management based on the average net
assets of the fund, as determined at the close of each business day
during the quarter. Such fee is based on 0.75% of the first $500
million of average net assets.
For the past three fiscal years, pursuant to its management contract,
each fund incurred the following fees:
Amount
management fee
Amount of the would have been
Fiscal Management management fee without expense
Fund Name Year fee paid limitation* limitation
PREMIER
INCOME TRUST 2004 $6,899,852 $44,468 $6,944,320
2003 $6,446,466 -- $6,446,466
2002 $6,502,446 -- $6,502,446
MASTER INCOME
TRUST 2003 $2,744,965 -- $2,744,965
2002 $2,692,286 -- $2,692,286
2001 $2,771,121 -- $2,771,121
* Expense limitation. The fund invests a portion of its assets in Putnam
Prime Money Market Fund. In connection with such investments, management
fees paid by the fund are reduced by an amount equal to the management
fees paid by Putnam Prime Money Market Fund with respect to assets
invested by the fund in Putnam Prime Money Market Fund. Net management
fees paid for fiscal 2004 reflect the waiver of $44,468 in management
fees otherwise payable by the fund to Putnam Management in respect of
such investments.
Pursuant to the terms of a sub-management agreement between Putnam
Management and Putnam Investments Limited ("PIL"), Putnam Managment (and
not the fund) pays a quarterly sub-management fee to PIL for its
services at the annual rate of 0.40% of the average aggregate net asset
value of the portion of the fund, if any, managed by PIL from time to
time.
Brokerage commissions
The following table shows brokerage commissions paid during the fiscal
periods indicated:
Fiscal Brokerage
Fund name Year commissions
PREMIER INCOME TRUST 2004 $69,692
2003 $53,799
2002 $44,872
MASTER INCOME TRUST 2003 $18,503
2002 $19,938
2001 $14,883
The following table shows transactions placed with brokers and dealers
during the most recent fiscal year to recognize research, statistical
and quotation services received by Putnam Management and its affiliates:
Dollar value of Percentage of Amount of
Fund name these transactions total transactions commissions
PREMIER
INCOME TRUST $0 $0 $0
MASTER
INCOME TRUST $0 $0 $0
Administrative expense reimbursement
Each fund reimbursed Putnam Management for administrative services
during its most recent fiscal year, including compensation of certain
fund officers and contributions to the Putnam Investments Profit Sharing
Retirement Plan for their benefit, as follows:
Portion of total
reimbursement for
Total compensation and
Fund name Reimbursement contributions
PREMIER
INCOME TRUST $16,590 $13,008
MASTER
INCOME TRUST $8,512 $6,666
Trustee responsibilities and fees
The Trustees are responsible for generally overseeing the conduct of
each fund's business. Subject to such policies as the Trustees may
determine, Putnam Management furnishes a continuing investment program
for each fund and makes investment decisions on its behalf. Subject to
the control of the Trustees, Putnam Management also manages each fund's
other affairs and business.
The table below shows the value of each Trustee's holdings in each fund
and in all of the Putnam funds as of December 31, 2003.
Dollar range of Dollar range of Aggregate dollars range
Premier Master Income of shares held in all of
Income Trust Trust the Putnam Funds
Name of Trustee Shares Owned Shares Owned overseen by Trustee
Jameson A. Baxter $1-10,000 $1-10,000 over $100,000
Charles B. Curtis $1-10,000 $1-10,000 over $100,000
+Myra R. Drucker N/A N/A N/A
John A. Hill $1-10,000 $1-10,000 over $100,000
Ronald J. Jackson $1-10,000 $1-10,000 over $100,000
Paul L. Joskow $1-10,000 $1-10,000 over $100,000
Elizabeth T. Keenan $1-10,000 $1-10,000 over $100,000
John H. Mullin, III $1-10,000 $1-10,000 over $100,000
Robert E. Patterson $1-10,000 $1-10,000 over $100,000
W. Thomas Stephens $1-10,000 $1-10,000 over $100,000
+Richard B. Worley N/A N/A N/A
+*Charles E. Haldeman, Jr. N/A N/A N/A
*George Putnam, III $1-10,000 $1-10,000 over $100,000
*A.J.C. Smith $1-10,000 $1-10,000 over $100,000
+ Elected to the Board of Trustees after December 31, 2003.
* Trustees who are or may be deemed to be "interested persons" (as defined
in the Investment Company Act of 1940) of the fund, Putnam Management,
Putnam Retail Management Limited Partnership ("Putnam Retail
Management") or Marsh & McLennan Companies, Inc., the parent company of
Putnam Investments and its affiliated companies. Messrs. Putnam, III,
Haldeman and Smith are deemed "interested persons" by virtue of their
positions as officers of the fund, Putnam Management, Putnam Retail
Management, or Marsh & McLennan Companies, Inc., or shareholders of
Marsh & McLennan Companies, Inc. Mr. Haldeman is the Chief Executive of
Putnam Investments. He was elected to the Board of Trustees after
December 31, 2003. Mr. Putnam is the President of the fund and each of
the other Putnam funds. Mr. Smith is the Chairman of Putnam Investments
and serves as a Director of and consultant to Marsh & McLennan
Companies, Inc. The balance of the Trustees are not "interested
persons."
Each independent Trustee of the fund receives a fee for his or her
services.
Each independent Trustee of the fund also receives fees for serving as
Trustee of the other Putnam funds. Each independent Trustee of the fund
receives an annual retainer fee and an additional meeting fee for each
Trustees' meeting attended. Independent Trustees who serve on board
committees receive additional fees for attendance at certain committee
meetings and for special services rendered in that connection. All of
the current independent Trustees of the fund are Trustees of all the
Putnam funds and receive fees for their services from each fund. Mr.
Putnam also receives the foregoing fees for his services as Trustee of
each Putnam fund.
The Trustees periodically review their fees to ensure that such fees
continue to be appropriate in light of their responsibilities as well as
in relation to fees paid to trustees of other mutual fund complexes. The
Board Policy and Nominating Committee, which consists solely of
independent Trustees, estimates that committee and Trustee meeting time,
together with the appropriate preparation, requires the equivalent of at
least three business days per Trustee meeting. The committee of the Board
of Trustees, and the number of times each committee met during each
fund's most recent fiscal year, are shown in the tables below:
PREMIER INCOME TRUST
Audit and Pricing Committee 21
Board Policy and Nominating Committee 8
Brokerage and Custody Committee 7
Communication, Service and Marketing Committee 10
Contract Committee 16
Distributions Committee 5
Executive Committee 1
Investment Oversight Committee 32
MASTER INCOME TRUST
Audit and Pricing Committee 12
Board Policy and Nominating Committee 10
Brokerage and Custody Committee 3
Communication, Service and Marketing Committee 9
Contract Committee 12
Distributions Committee 6
Executive Committee 1
Investment Oversight Committees 34
The following tables shows the year each Trustee was first elected a
Trustee of the Putnam funds, the fees paid to each Trustee by each fund
for its most recent fiscal year, and the fees paid to each Trustee by
all of the Putnam funds during calendar year 2003:
Pension or Pension or
retirement retirement Estimated
benefits benefits annual
Aggregate accrued as Aggregate accrued as benefits from Total
Compensation part of Compensation part of all Putnam compensation
from Premier Premier from Master Master funds upon from all
Income Trust Income Trust Income Trust Income Trust retirement Putnam
Trustees/Year (1) expenses (1) expenses (2) funds (3)(4)
Jameson A.
Baxter
/1994(5) $1,575 $422 $920 $272 $100,000 $215,500
Charles B.
Curtis
/2001 $1,561 $497 $910 $230 $100,000 $210,250
Myra R.
Drucker
/2004 (10) N/A N/A N/A N/A N/A N/A
Charles E.
Haldeman
/2004 (10) N/A N/A N/A N/A N/A N/A
John A.
Hill
/1985(5)(7) $2,475 $523 $1,549 $318 $200,000 $413,625
Ronald J.
Jackson
/1996(5) $1,571 $421 $923 $251 $100,000 $214,500
Paul L.
Joskow
/1997(5) $1,562 $301 $910 $193 $100,000 $215,250
Elizabeth T.
Kennan
/1992 $1,572 $538 $903 $328 $100,000 $207,000
Lawrence J.
Lasser
/1992(8) -- $98 -- $150 $93,333 $0
John H.
Mullin, III
/1997(5) $1,561 $462 $913 $297 $100,000 $208,750
Robert E.
Patterson
/1984 $1,558 $292 $914 $179 $100,000 $206,500
George
Putnam, III
/1984(7) $1,961 $240 $1,133 $147 $125,000 $260,500
A.J.C.
Smith
/1986(6) -- $561 -- $339 $93,333 $0
W. Thomas
Stephens
/1997(5) $1,563 $421 $901 $270 $100,000 $206,500
W. Nicholas
Thorndike
/1992(9) $1,256 $693 $919 $424 $100,000 $212,250
Richard B.
Worley
/2004 (10) N/A N/A N/A N/A N/A N/A
(1) Includes an annual retainer and an attendance fee for each meeting
attended.
(2) Assumes that each Trustee retires at the normal retirement date. For
Trustees who are not within three years of retirement, estimated
benefits for each Trustee are based on Trustee fee rates in effect
during calendar 2003.
(3) As of December 31, 2003, there were 101 funds in the Putnam family.
For Mr. Hill, amounts shown also include compensation for service as a
trustee of TH Lee, Putnam Emerging Opportunities Portfolio, a closed-end
fund advised by an affiliate of Putnam Management.
(4) Includes amounts (ranging from $2,000 to $11,000 per Trustee) for
which the Putnam funds were reimbursed by Putnam Management for special
Board and committee meetings in connection with certain regulatory and
other matters relating to alleged improper trading by certain Putnam
Management employees and participants in certain 401(k) plans
administered by Putnam Fiduciary Trust Company.
(5) Includes compensation deferred pursuant to a Trustee Compensation
Deferral Plan.
(6) Marsh & McLennan Companies, Inc. compensates Mr. Smith for his
service as Trustee. Mr. Smith has waived any retirement benefits that he
is entitled to receive under the Retirement Plan for Trustees of the
Putnam funds.
(7) Includes additional compensation to Messrs. Hill and Putnam for
service as Chairman of the Trustees and President of the Funds,
respectively.
(8) Mr. Lasser resigned from the Board of Trustees of the Putnam funds
on November 3, 2003.
(9) Mr. Thorndike retired from the Board of Trustees of the Putnam
funds on June 30, 2004.
(10) Ms. Drucker and Messrs. Haldeman and Worley were elected to the
Board of Trustees of Master Income Trust on October 14, 2004 and were
appointed to the Board of Trustees of Premier Income Trust on October
15, 2004.
Under a Retirement Plan for Trustees of the Putnam funds (the "Plan"),
each Trustee who retires with at least five years of service as a
Trustee of the funds is entitled to receive an annual retirement benefit
equal to one-half of the average annual compensation paid to such
Trustee for the last three years of service prior to retirement. This
retirement benefit is payable during a Trustee's lifetime, beginning the
year following retirement, for a number of years equal to such Trustee's
years of service. A death benefit, also available under the Plan,
ensures that the Trustee and his or her beneficiaries will receive
benefit payments for the lesser of an aggregate period of (i) ten years
or (ii) such Trustee's total years of service.
The Plan Administrator (currently the Board Policy and Nominating
Committee) may terminate or amend the Plan at any time, but no
termination or amendment will result in a reduction in the amount of
benefits (i) currently being paid to a Trustee at the time of such
termination or amendment, or (ii) to which a current Trustee would have
been entitled had he or she retired immediately prior to such
termination or amendment. The Trustees have terminated the Plan as to
any Trustee first elected to the board after 2003.
For additional information concerning the Trustees, see "Management."
Share ownership
At October 31, 2004, the officers and Trustees of Premier Income Trust as a
group owned less than 1% of the outstanding shares of the fund, and no
person owned of record or to the knowledge of the fund beneficially 5%
or more of the shares of the fund.
At October 31, 2004, the officers and Trustees of Master Income Trust as a
group owned less than 1% of the outstanding shares of the fund, and no
person owned of record or to the knowledge of the fund beneficially 5% or
more of the shares of the fund.
Investor servicing and custody fees and expenses
During its most recent fiscal year, each fund incurred the following
fees and out-of-pocket expenses for investor servicing and custody
services provided by Putnam Fiduciary Trust Company:
PREMIER INCOME TRUST $884,612
MASTER INCOME TRUST $502,719
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS
In addition to the principal investment strategies and the principal
risks described in the Prospectus, each fund may employ other investment
practices and may be subject to other risks, which are described below.
Certain investment strategies and risks that are described briefly in
the Prospectus are described in greater detail below.
Foreign Investments
Foreign securities are normally denominated and traded in foreign
currencies. As a result, the value of each fund's foreign investments
and the value of its shares may be affected favorably or unfavorably by
changes in currency exchange rates relative to the U.S. dollar. There
may be less information publicly available about a foreign issuer than
about a U.S. issuer, and foreign issuers may not be subject to
accounting, auditing and financial reporting standards and practices
comparable to those in the United States. The securities of some
foreign issuers are less liquid and at times more volatile than
securities of comparable U.S. issuers. Foreign brokerage commissions
and other fees are also generally higher than in the United States.
Foreign settlement procedures and trade regulations may involve certain
risks (such as delay in payment or delivery of securities or in the
recovery of the fund's assets held abroad) and expenses not present in
the settlement of investments in U.S. markets.
In addition, foreign securities may be subject to the risk of
nationalization or expropriation of assets, imposition of currency
exchange controls, foreign withholding taxes or restrictions on the
repatriation of foreign currency, confiscatory taxation, political or
financial instability and diplomatic developments which could affect the
value of the fund's investments in certain foreign countries. Dividends
or interest on, or proceeds from the sale of, foreign securities may be
subject to foreign withholding taxes, and special U.S. tax
considerations may apply.
Legal remedies available to investors in certain foreign countries may
be more limited than those available with respect to investments in the
United States or in other foreign countries. The laws of some foreign
countries may limit each fund's ability to invest in securities of
certain issuers organized under the laws of those foreign countries.
The risks described above, including the risks of nationalization or
expropriation of assets, typically are increased in connection with
investments in "emerging markets." For example, political and economic
structures in these countries may be in their infancy and developing
rapidly, and such countries may lack the social, political and economic
stability characteristic of more developed countries. Certain of these
countries have in the past failed to recognize private property rights
and have at times nationalized and expropriated the assets of private
companies. High rates of inflation or currency devaluations may
adversely affect the economies and securities markets of such countries.
Investments in emerging markets may be considered speculative.
The currencies of certain emerging market countries have experienced
devaluations relative to the U.S. dollar, and future devaluations may
adversely affect the value of assets denominated in such currencies.
Many emerging market countries have experienced substantial, and in some
periods extremely high, rates of inflation or deflation for many years,
and future inflation may adversely affect the economies and securities
markets of such countries.
In addition, unanticipated political or social developments may affect
the value of investments in emerging markets and the availability of
additional investments in these markets. The small size, limited
trading volume and relative inexperience of the securities markets in
these countries may make investments in securities traded in emerging
markets illiquid and more volatile than investments in securities traded
in more developed countries, and each fund may be required to establish
special custodial or other arrangements before making investments in
securities traded in emerging markets. There may be little financial or
accounting information available with respect to issuers of emerging
market securities, and it may be difficult as a result to assess the
value of prospects of an investment in such securities.
Certain of the foregoing risks may also apply to some extent to
securities of U.S. issuers that are denominated in foreign currencies or
that are traded in foreign markets, or securities of U.S. issuers having
significant foreign operations.
Foreign Currency Transactions
To manage its exposure to foreign currencies, each fund may engage in
foreign currency exchange transactions, including purchasing and selling
foreign currency, foreign currency options, foreign currency forward
contracts and foreign currency futures contracts and related options. In
addition, each fund may write covered call and put options on foreign
currencies for the purpose of increasing its current return.
Generally, each fund may engage in both "transaction hedging" and
"position hedging." Each fund may also engage in foreign currency
transactions for non-hedging purposes, subject to applicable law. When
it engages in transaction hedging, a fund enters into foreign currency
transactions with respect to specific receivables or payables, generally
arising in connection with the purchase or sale of portfolio securities.
Each fund may engage in transaction hedging when it desires to "lock in"
the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging a fund may protect itself against a
possible loss resulting from an adverse change in the relationship between
the U.S. dollar and the applicable foreign currency during the period
between the date on which the security is purchased or sold, or on which
the dividend or interest payment is earned, and the date on which such
payments are made or received.
Each fund may purchase or sell a foreign currency on a spot (or cash)
basis at the prevailing spot rate in connection with the settlement of
transactions in portfolio securities denominated in that foreign
currency. If conditions warrant, for transaction hedging purposes a fund
may also enter into contracts to purchase or sell foreign currencies at
a future date ("forward contracts") and purchase and sell foreign
currency futures contracts. A foreign currency forward contract is a
negotiated agreement to exchange currency at a future time at a rate or
rates that may be higher or lower than the spot rate. Foreign currency
futures contracts are standardized exchange-traded contracts and have
margin requirements.
For transaction hedging purposes a fund may also purchase or sell
exchange-listed and over-the-counter call and put options on foreign
currency futures contracts and on foreign currencies. A put option on a
futures contract gives a fund the right to assume a short position in
the futures contract until the expiration of the option. A put option
on a currency gives a fund the right to sell the currency at an exercise
price until the expiration of the option. A call option on a futures
contract gives a fund the right to assume a long position in the futures
contract until the expiration of the option. A call option on a
currency gives a fund the right to purchase the currency at the exercise
price until the expiration of the option.
Each fund may engage in position hedging to protect against a decline in
the 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 the currency in which the securities a fund intends to buy are
denominated, when a fund holds cash or short-term investments). For
position hedging purposes, a fund may purchase or sell, on exchanges or
in over-the-counter markets, foreign currency futures contracts, foreign
currency forward contracts and options on foreign currency futures
contracts and on foreign currencies. In connection with position
hedging, a fund may also purchase or sell foreign currency on a spot
basis.
It is impossible to forecast with precision the market value of
portfolio securities at the expiration or maturity of a forward or
futures contract. Accordingly, it may be necessary for a fund to
purchase additional foreign currency on the spot market (and bear the
expense of such purchase) if the market value of the security or
securities being hedged is less than the amount of foreign currency the
fund is obligated to deliver and a decision is made to sell the security
or securities and make delivery of the foreign currency. Conversely, it
may be necessary to sell on the spot market some of the foreign currency
received upon the sale of the portfolio security or securities if the
market value of such security or securities exceeds the amount of
foreign currency a fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities that a fund owns or intends to
purchase or sell. They simply establish a rate of exchange which one
can achieve at some future point in time. Additionally, although these
techniques tend to minimize the risk of loss due to a decline in the
value of the hedged currency, they tend to limit any potential gain
which might result from the increase in value of such currency. See
"Risk factors in options transactions."
Each fund may seek to increase its current return or to offset some of
the costs of hedging against fluctuations in current exchange rates by
writing covered call options and covered put options on foreign
currencies. A fund receives a premium from writing a call or put
option, which increases a fund's current return if the option expires
unexercised or is closed out at a net profit. A fund may terminate an
option that it has written prior to its expiration by entering into a
closing purchase transaction in which it purchases an option having the
same terms as the option written.
A fund's currency hedging transactions may call for the delivery of one
foreign currency in exchange for another foreign currency and may at
times not involve currencies in which its portfolio securities are then
denominated. Putnam Management will engage in such "cross hedging"
activities when it believes that such transactions provide significant
hedging opportunities for a fund. Cross hedging transactions by a fund
involve the risk of imperfect correlation between changes in the values
of the currencies to which such transactions relate and changes in the
value of the currency or other asset or liability which is the subject
of the hedge.
Each fund may also engage in non-hedging currency transactions. For
example, Putnam Management may believe that exposure to a currency is in
a fund's best interest but that securities denominated in that currency
are unattractive. In that case a fund may purchase a currency forward
contract or option in order to increase its exposure to the currency.
In accordance with SEC regulations, a fund will segregate liquid assets
in its portfolio to cover forward contracts used for non-hedging
purposes.
The value of any currency, including U.S. dollars and foreign
currencies, may be affected by complex political and economic factors
applicable to the issuing country. In addition, the exchange rates of
foreign currencies (and therefore the values of foreign currency
options, forward contracts and futures contracts) may be affected
significantly, fixed, or supported directly or indirectly by U.S. and
foreign government actions. Government intervention may increase risks
involved in purchasing or selling foreign currency options, forward
contracts and futures contracts, since exchange rates may not be free to
fluctuate in response to other market forces.
The value of a foreign currency option, forward contract or futures
contract reflects the value of an exchange rate, which in turn reflects
relative values of two currencies--the U.S. dollar and the foreign
currency in question. Because foreign currency transactions occurring
in the interbank market involve substantially larger amounts than those
that may be involved in the exercise of foreign currency options,
forward contracts and futures contracts, investors may be disadvantaged
by having to deal in an odd-lot market for the underlying foreign
currencies in connection with options at prices that are less favorable
than for round lots. Foreign governmental restrictions or taxes could
result in adverse changes in the cost of acquiring or disposing of
foreign currencies.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations
available through dealers or other market sources be firm or revised on
a timely basis. Available quotation information is generally
representative of very large round-lot transactions in the interbank
market and thus may not reflect exchange rates for smaller odd-lot
transactions (less than $1 million) where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock
market. To the extent that options markets are closed while the markets
for the underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be
reflected in the options markets.
The decision as to whether and to what extent a fund will engage in
foreign currency exchange transactions will depend on a number of
factors, including prevailing market conditions, the composition of the
fund's portfolio and the availability of suitable transactions.
Accordingly, there can be no assurance that a fund will engage in
foreign currency exchange transactions at any given time or from time to
time.
Currency forward and futures contracts. A forward foreign currency
contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of
the contract as agreed by the parties, at a price set at the time of the
contract. In the case of a cancelable forward contract, the holder has
the unilateral right to cancel the contract at maturity by paying a
specified fee. The contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial
banks) and their customers. A forward contract generally has no deposit
requirement, and no commissions are charged at any stage for trades. A
foreign currency futures contract is a standardized contract for the
future delivery of a specified amount of a foreign currency at a price
set at the time of the contract. Foreign currency futures contracts
traded in the United States are designed by and traded on exchanges
regulated by the CFTC, such as the New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. For example, the maturity date
of a forward contract may be any fixed number of days from the date of
the contract agreed upon by the parties, rather than a predetermined
date in a given month. Forward contracts may be in any amount agreed
upon by the parties rather than predetermined amounts. Also, forward
foreign exchange contracts are traded directly between currency traders
so that no intermediary is required. A forward contract generally
requires no margin or other deposit.
At the maturity of a forward or futures contract, a fund either may
accept or make delivery of the currency specified in the contract, or at
or prior to maturity enter into a closing transaction involving the
purchase or sale of an offsetting contract. Closing transactions with
respect to forward contracts are usually effected with the currency
trader who is a party to the original forward contract. Closing
transactions with respect to futures contracts are effected on a
commodities exchange; a clearing corporation associated with the
exchange assumes responsibility for closing out such contracts.
Positions in the foreign currency futures contracts may be closed out
only on an exchange or board of trade which provides a secondary market
in such contracts. Although each fund intends to purchase or sell
foreign currency futures contracts only on exchanges or boards of trade
where there appears to be an active secondary market, there is no
assurance that a secondary market on an exchange or board of trade will
exist for any particular contract or at any particular time. In such
event, it may not be possible to close a futures position and, in the
event of adverse price movements, a fund would continue to be required
to make daily cash payments of variation margin.
Foreign currency options. In general, options on foreign currencies
operate similarly to options on securities and are subject to many of
the risks described above. Foreign currency options are traded
primarily in the over-the-counter market, although options on foreign
currencies are also listed on several exchanges. Options are traded not
only on the currencies of individual nations, but also on the euro, the
joint currency of most countries in the European Union.
Each fund will only purchase or write foreign currency options when
Putnam Management believes that a liquid secondary market exists for
such options. There can be no assurance that a liquid secondary market
will exist for a particular option at any specific time. Options on
foreign currencies are affected by all of those factors which influence
foreign exchange rates and investments generally.
Settlement procedures. Settlement procedures relating to a fund's
investments in foreign securities and to a fund's foreign currency
exchange transactions may be more complex than settlements with respect
to investments in debt or equity securities of U.S. issuers, and may
involve certain risks not present in a fund's domestic investments. For
example, settlement of transactions involving foreign securities or
foreign currencies may occur within a foreign country, and a fund may be
required to accept or make delivery of the underlying securities or
currency in conformity with any applicable U.S. or foreign restrictions
or regulations, and may be required to pay any fees, taxes or charges
associated with such delivery. Such investments may also involve the
risk that an entity involved in the settlement may not meet its
obligations.
Foreign currency conversion. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on
the difference (the "spread") between prices at which they are buying
and selling various currencies. Thus, a dealer may offer to sell a
foreign currency to a fund at one rate, while offering a lesser rate of
exchange should the fund desire to resell that currency to the dealer.
Options on Securities
Writing covered options. Each fund may write covered call options and
covered put options on optionable securities held in its portfolio or that
it has an absolute and immediate right to acquire without additional cash
consideration (or, if additional cash consideration is required, cash or
other assets determined to be liquid by Putnam Management in accordance
with procedures established by the Trustees, in such amount are segregated
by its custodian), when in the opinion of Putnam Management such
transactions are consistent with the fund's investment objective(s) and
policies. Call options written by a fund give the purchaser the right to
buy the underlying securities from the fund at a stated exercise price; put
options give the purchaser the right to sell the underlying securities to
the fund at a stated price.
Each fund may write only covered options, which means that, so long as the
fund is obligated as the writer of a call option, it will own the
underlying securities subject to the option (or comparable securities
satisfying the cover requirements of securities exchanges) or have an
absolute and immediate right to acquire without additional cash
consideration (or, if additional cash consideration is required, cash or
other assets determined to be liquid by Putnam Management in accordance
with procedures established by the Trustees, in such amount are segregated
by its custodian). In the case of put options, a fund will segregate
assets determined to be liquid by Putnam Management in accordance with
procedures established by the Trustees equal to the price to be paid if the
option is exercised. In addition, a fund will be considered to have
covered a put or call option if and to the extent that it holds an option
that offsets some or all of the risk of the option it has written. A fund
may write combinations of covered puts and calls on the same underlying
security.
A fund will receive a premium from writing a put or call option, which
increases the fund's return on the underlying security in the event the
option expires unexercised or is closed out at a profit. The amount of
the premium reflects, among other things, the relationship between the
exercise price and the current market value of the underlying security,
the volatility of the underlying security, the amount of time remaining
until expiration, current interest rates, and the effect of supply and
demand in the options market and in the market for the underlying
security. By writing a call option, if the fund holds the security, the
fund limits its opportunity to profit from any increase in the market
value of the underlying security above the exercise price of the option
but continues to bear the risk of a decline in the value of the
underlying security. If the fund does not hold the underlying security,
the fund bears the risk that, if the market price exceeds the option
strike price, the fund will suffer a loss equal to the difference at the
time of exercise. By writing a put option, a fund assumes the risk that
it may be required to purchase the underlying security for an exercise
price higher than its then-current market value, resulting in a
potential capital loss unless the security subsequently appreciates in
value.
A fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction, in which it
purchases an offsetting option. A fund realizes a profit or loss from
a closing transaction if the cost of the transaction (option premium
plus transaction costs) is less or more than the premium received from
writing the option. If a fund writes a call option but does not own the
underlying security, and when it writes a put option, the fund may be
required to deposit cash or securities with its broker as "margin," or
collateral, for its obligation to buy or sell the underlying security.
As the value of the underlying security varies, the fund may have to
deposit additional margin with the broker. Margin requirements are
complex and are fixed by individual brokers, subject to minimum
requirements currently imposed by the Federal Reserve Board and by stock
exchanges and other self-regulatory organizations.
Purchasing put options. Each fund may purchase put options to protect
its portfolio holdings in an underlying security against a decline in
market value. Such protection is provided during the life of the put
option since a fund, as holder of the option, is able to sell the
underlying security at the put exercise price regardless of any decline
in the underlying security's market price. In order for a put option to
be profitable, the market price of the underlying security must decline
sufficiently below the exercise price to cover the premium and
transaction costs. By using put options in this manner, a fund will
reduce any profit it might otherwise have realized from appreciation of
the underlying security by the premium paid for the put option and by
transaction costs.
Purchasing call options. Each fund may purchase call options to hedge
against an increase in the price of securities that a fund wants
ultimately to buy. Such hedge protection is provided during the life of
the call option since a fund, as holder of the call option, is able to
buy the underlying security at the exercise price regardless of any
increase in the underlying security's market price. In order for a call
option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs.
Risk Factors in Options Transactions
The successful use of a fund's options strategies depends on the ability
of Putnam Management to forecast correctly interest rate and market
movements. For example, if a fund were to write a call option based on
Putnam Management's expectation that the price of the underlying
security would fall, but the price were to rise instead, the fund could
be required to sell the security upon exercise at a price below the
current market price. Similarly, if a fund were to write a put option
based on Putnam Management's expectation that the price of the
underlying security would rise, but the price were to fall instead, the
fund could be required to purchase the security upon exercise at a price
higher than the current market price.
When a fund purchases an option, it runs the risk that it will lose its
entire investment in the option in a relatively short period of time,
unless the fund exercises the option or enters into a closing sale
transaction before the option's expiration. If the price of the
underlying security does not rise (in the case of a call) or fall (in
the case of a put) to an extent sufficient to cover the option premium
and transaction costs, the fund will lose part or all of its investment
in the option. This contrasts with an investment by the fund in the
underlying security, since the fund will not realize a loss if the
security's price does not change.
The effective use of options also depends on a fund's ability to
terminate option positions at times when Putnam Management deems it
desirable to do so. There is no assurance that a fund will be able to
effect closing transactions at any particular time or at an acceptable
price.
If a secondary market in options were to become unavailable, a fund
could no longer engage in closing transactions. Lack of investor
interest might adversely affect the liquidity of the market for
particular options or series of options. A market may discontinue
trading of a particular option or options generally. In addition, a
market could become temporarily unavailable if unusual events--such as
volume in excess of trading or clearing capability--were to interrupt its
normal operations.
A market may at times find it necessary to impose restrictions on
particular types of options transactions, such as opening transactions.
For example, if an underlying security ceases to meet qualifications
imposed by the market or the Options Clearing Corporation, new series of
options on that security will no longer be opened to replace expiring
series, and opening transactions in existing series may be prohibited.
If an options market were to become unavailable, a fund as a holder of
an option would be able to realize profits or limit losses only by
exercising the option, and the fund, as option writer, would remain
obligated under the option until expiration or exercise.
Disruptions in the markets for the securities underlying options
purchased or sold by a fund could result in losses on the options. If
trading is interrupted in an underlying security, the trading of options
on that security is normally halted as well. As a result, a fund as
purchaser or writer of an option will be unable to close out its
positions until options trading resumes, and it may be faced with
considerable losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing
Corporation or other options markets may impose exercise restrictions.
If a prohibition on exercise is imposed at the time when trading in the
option has also been halted, a fund as purchaser or writer of an option
will be locked into its position until one of the two restrictions has
been lifted. If the Options Clearing Corporation were to determine that
the available supply of an underlying security appears insufficient to
permit delivery by the writers of all outstanding calls in the event of
exercise, it may prohibit indefinitely the exercise of put options. A
fund, as holder of such a put option, could lose its entire investment
if the prohibition remained in effect until the put option's expiration.
Foreign-traded options are subject to many of the same risks presented
by internationally-traded securities. In addition, because of time
differences between the United States and various foreign countries, and
because different holidays are observed in different countries, foreign
options markets may be open for trading during hours or on days when
U.S. markets are closed. As a result, option premiums may not reflect
the current prices of the underlying interest in the United States.
Over-the-counter ("OTC") options purchased by a fund and assets held to
cover OTC options written by the fund may, under certain circumstances,
be considered illiquid securities for purposes of any limitation on the
fund's ability to invest in illiquid securities.
Investments in Miscellaneous Fixed-Income Securities
If a fund may invest in inverse floating obligations, premium
securities, or interest-only or principal-only classes of
mortgage-backed securities (IOs and POs), it may do so without limit.
Each fund, however, currently does not intend to invest more than 15% of
its assets in inverse floating obligations or more than 35% of its
assets in IOs and POs under normal market conditions.
Lower-rated Securities
Each fund may invest in lower-rated fixed-income securities (commonly
known as "junk bonds"). The lower ratings of certain securities held by
a fund reflect a greater possibility that adverse changes in the
financial condition of the issuer or in general economic conditions, or
both, or an unanticipated rise in interest rates, may impair the ability
of the issuer to make payments of interest and principal. The inability
(or perceived inability) of issuers to make timely payment of interest
and principal would likely make the values of securities held by a fund
more volatile and could limit the fund's ability to sell its securities
at prices approximating the values the fund had placed on such
securities. In the absence of a liquid trading market for securities
held by it, a fund at times may be unable to establish the fair value of
such securities.
Securities ratings are based largely on the issuer's historical
financial condition and the rating agencies' analysis at the time of
rating. Consequently, the rating assigned to any particular security is
not necessarily a reflection of the issuer's current financial
condition, which may be better or worse than the rating would indicate.
In addition, the rating assigned to a security by Moody's Investors
Service, Inc. or Standard & Poor's (or by any other nationally
recognized securities rating agency) does not reflect an assessment of
the volatility of the security's market value or the liquidity of an
investment in the security. See "Securities ratings."
Like those of other fixed-income securities, the values of lower-rated
securities fluctuate in response to changes in interest rates. A
decrease in interest rates will generally result in an increase in the
value of a fund's assets. Conversely, during periods of rising interest
rates, the value of a fund's assets will generally decline. The values
of lower-rated securities may often be affected to a greater extent by
changes in general economic conditions and business conditions affecting
the issuers of such securities and their industries. Negative publicity
or investor perceptions may also adversely affect the values of
lower-rated securities. Changes by nationally recognized securities
rating agencies in their ratings of any fixed-income security and
changes in the ability of an issuer to make payments of interest and
principal may also affect the value of these investments. Changes in
the value of portfolio securities generally will not affect income
derived from these securities, but will affect a fund's net asset value.
A fund will not necessarily dispose of a security when its rating is
reduced below its rating at the time of purchase. However, Putnam
Management will monitor the investment to determine whether its
retention will assist in meeting a fund's investment objective(s).
Issuers of lower-rated securities are often highly leveraged, so that
their ability to service their debt obligations during an economic
downturn or during sustained periods of rising interest rates may be
impaired. Such issuers may not have more traditional methods of
financing available to them and may be unable to repay outstanding
obligations at maturity by refinancing. The risk of loss due to default
in payment of interest or repayment of principal by such issuers is
significantly greater because such securities frequently are unsecured
and subordinated to the prior payment of senior indebtedness.
At times, a substantial portion of a fund's assets may be invested in an
issue of which the fund, by itself or together with other funds and
accounts managed by Putnam Management or its affiliates, holds all or a
major portion. Although Putnam Management generally considers such
securities to be liquid because of the availability of an institutional
market for such securities, it is possible that, under adverse market or
economic conditions or in the event of adverse changes in the financial
condition of the issuer, a fund could find it more difficult to sell
these securities when Putnam Management believes it advisable to do so
or may be able to sell the securities only at prices lower than if they
were more widely held. Under these circumstances, it may also be more
difficult to determine the fair value of such securities for purposes of
computing a fund's net asset value. In order to enforce its rights in
the event of a default, a fund may be required to participate in various
legal proceedings or take possession of and manage assets securing the
issuer's obligations on such securities. This could increase the fund's
operating expenses and adversely affect the fund's net asset value. The
ability of a holder of a tax-exempt security to enforce the terms of
that security in a bankruptcy proceeding may be more limited than would
be the case with respect to securities of private issuers. In addition,
a fund's intention to qualify as a "regulated investment company" under
the Internal Revenue Code may limit the extent to which the fund may
exercise its rights by taking possession of such assets.
Certain securities held by a fund may permit the issuer at its option to
"call," or redeem, its securities. If an issuer were to redeem
securities held by a fund during a time of declining interest rates, the
fund may not be able to reinvest the proceeds in securities providing
the same investment return as the securities redeemed.
Each fund may invest without limit in so-called "zero-coupon" bonds and
"payment-in-kind" bonds. Zero-coupon bonds are issued at a significant
discount from their principal amount in lieu of paying interest
periodically. Payment-in-kind bonds allow the issuer, at its option, to
make current interest payments on the bonds either in cash or in
additional bonds. Because zero-coupon and payment-in-kind bonds do not
pay current interest in cash, their value is subject to greater
fluctuation in response to changes in market interest rates than bonds
that pay interest currently. Both zero-coupon and payment-in-kind bonds
allow an issuer to avoid the need to generate cash to meet current
interest payments. Accordingly, such bonds may involve greater credit
risks than bonds paying interest currently in cash. Each fund is
required to accrue interest income on such investments and to distribute
such amounts at least annually to shareholders even though such bonds do
not pay current interest in cash. Thus, it may be necessary at times
for a fund to liquidate investments in order to satisfy its dividend
requirements.
To the extent a fund invests in securities in the lower rating
categories, the achievement of the fund's goals is more dependent on
Putnam Management's investment analysis than would be the case if the
fund were investing in securities in the higher rating categories. This
also may be true with respect to tax-exempt securities, as the amount of
information about the financial condition of an issuer of tax-exempt
securities may not be as extensive as that which is made available by
corporations whose securities are publicly traded.
Loan Participations and Other Floating Rate Loans
Each fund may invest in "loan participations." By purchasing a loan
participation, a fund acquires some or all of the interest of a bank or
other lending institution in a loan to a particular borrower. Many such
loans are secured, and most impose restrictive covenants which must be
met by the borrower. These loans are typically made by a syndicate of
banks, represented by an agent bank which has negotiated and structured
the loan and which is responsible generally for collecting interest,
principal, and other amounts from the borrower on its own behalf and on
behalf of the other lending institutions in the syndicate, and for
enforcing its and their other rights against the borrower. Each of the
lending institutions, including the agent bank, lends to the borrower a
portion of the total amount of the loan, and retains the corresponding
interest in the loan.
A fund's ability to receive payments of principal and interest and other
amounts in connection with loan participations held by it will depend
primarily on the financial condition of the borrower. The failure by a
fund to receive scheduled interest or principal payments on a loan
participation would adversely affect the income of the fund and would
likely reduce the value of its assets, which would be reflected in a
reduction in the fund's net asset value. Banks and other lending
institutions generally perform a credit analysis of the borrower before
originating a loan or participating in a lending syndicate. In
selecting the loan participations in which a fund will invest, however,
Putnam Management will not rely solely on that credit analysis, but will
perform its own investment analysis of the borrowers. Putnam
Management's analysis may include consideration of the borrower's
financial strength and managerial experience, debt coverage, additional
borrowing requirements or debt maturity schedules, changing financial
conditions, and responsiveness to changes in business conditions and
interest rates. Putnam Management will be unable to access non-public
information to which other investors in syndicated loans may have
access. Because loan participations in which a fund may invest are not
generally rated by independent credit rating agencies, a decision by the
fund to invest in a particular loan participation will depend almost
exclusively on Putnam Management's, and the original lending
institution's, credit analysis of the borrower. Investments in loan
participations may be of any quality, including "distressed" loans, and
will be subject to a fund's credit quality policy.
Loan participations may be structured in different forms, including
novations, assignments and participating interests. In a novation, a
fund assumes all of the rights of a lending institution in a loan,
including the right to receive payments of principal and interest and
other amounts directly from the borrower and to enforce its rights as a
lender directly against the borrower. The fund assumes the position of
a co-lender with other syndicate members. As an alternative, a fund may
purchase an assignment of a portion of a lender's interest in a loan.
In this case, the fund may be required generally to rely upon the
assigning bank to demand payment and enforce its rights against the
borrower, but would otherwise be entitled to all of such bank's rights
in the loan. A fund may also purchase a participating interest in a
portion of the rights of a lending institution in a loan. In such case,
it will be entitled to receive payments of principal, interest and
premium, if any, but will not generally be entitled to enforce its
rights directly against the agent bank or the borrower, and must rely
for that purpose on the lending institution. A fund may also acquire a
loan participation directly by acting as a member of the original
lending syndicate.
A fund will in many cases be required to rely upon the lending
institution from which it purchases the loan participation to collect
and pass on to the fund such payments and to enforce the fund's rights
under the loan. As a result, an insolvency, bankruptcy or
reorganization of the lending institution may delay or prevent a fund
from receiving principal, interest and other amounts with respect to the
underlying loan. When a fund is required to rely upon a lending
institution to pay to the fund principal, interest and other amounts
received by it, Putnam Management will also evaluate the
creditworthiness of the lending institution.
The borrower of a loan in which a fund holds a participation interest
may, either at its own election or pursuant to terms of the loan
documentation, prepay amounts of the loan from time to time. There is
no assurance that a fund will be able to reinvest the proceeds of any
loan prepayment at the same interest rate or on the same terms as those
of the original loan participation.
Corporate loans in which a fund may purchase a loan participation are
made generally to finance internal growth, mergers, acquisitions, stock
repurchases, leveraged buy-outs and other corporate activities. Under
current market conditions, most of the corporate loan participations
purchased by a fund will represent interests in loans made to finance
highly leveraged corporate acquisitions, known as "leveraged buy-out"
transactions. The highly leveraged capital structure of the borrowers
in such transactions may make such loans especially vulnerable to
adverse changes in economic or market conditions. In addition, loan
participations generally are subject to restrictions on transfer, and
only limited opportunities may exist to sell such participations in
secondary markets. As a result, a fund may be unable to sell loan
participations at a time when it may otherwise be desirable to do so or
may be able to sell them only at a price that is less than their fair
market value.
Certain of the loan participations acquired by a fund may involve
revolving credit facilities under which a borrower may from time to time
borrow and repay amounts up to the maximum amount of the facility. In
such cases, a fund would have an obligation to advance its portion of
such additional borrowings upon the terms specified in the loan
participation. To the extent that a fund is committed to make
additional loans under such a participation, it will at all times hold
and maintain in a segregated account liquid assets in an amount
sufficient to meet such commitments. Certain of the loan participations
acquired by a fund may also involve loans made in foreign currencies. A
fund's investment in such participations would involve the risks of
currency fluctuations described above with respect to investments in the
foreign securities.
With respect to its management of investments in floating rate loans,
Putnam will normally seek to avoid receiving material, non-public
information ("Confidential Information") about the issuers of floating
rate loans being considered for acquisition by a fund or held in a
fund's portfolio. In many instances, issuers may offer to furnish
Confidential Information to prospective purchasers, and to holders, of
the issuer's floating rate loans. Putnam's decision not to receive
Confidential Information may place Putnam at a disadvantage relative to
other investors in floating rate loans (which could have an adverse
effect on the price a fund pays or receives when buying or selling
loans). Also, in instances where holders of floating rate loans are
asked to grant amendments, waivers or consent, Putnam's ability to
assess their significance or desirability may be adversely affected. For
these and other reasons, it is possible that Putnam's decision not to
receive Confidential Information under normal circumstances could
adversely affect a fund's investment performance.
Notwithstanding its intention generally not to receive material,
non-public information with respect to its management of investments in
floating rate loans, Putnam may from time to time come into possession
of material, non-public information about the issuers of loans that may
be held in a fund's portfolio. Possession of such information may in
some instances occur despite Putnam's efforts to avoid such possession,
but in other instances Putnam may choose to receive such information
(for example, in connection with participation in a creditors' committee
with respect to a financially distressed issuer). As, and to the
extent, required by applicable law, Putnam's ability to trade in these
loans for the account of a fund could potentially be limited by its
possession of such information. Such limitations on Putnam's ability to
trade could have an adverse effect on a fund by, for example, preventing
the fund from selling a loan that is experiencing a material decline in
value. In some instances, these trading restrictions could continue in
effect for a substantial period of time.
In some instances, other accounts managed by Putnam may hold other
securities issued by borrowers whose floating rate loans may be held in
a fund's portfolio. These other securities may include, for example,
debt securities that are subordinate to the floating rate loans held in
a fund's portfolio, convertible debt or common or preferred equity
securities. In certain circumstances, such as if the credit quality of
the issuer deteriorates, the interests of holders of these other
securities may conflict with the interests of the holders of the
issuer's floating rate loans. In such cases, Putnam may owe conflicting
fiduciary duties to a fund and other client accounts. Putnam will
endeavor to carry out its obligations to all of its clients to the
fullest extent possible, recognizing that in some cases certain clients
may achieve a lower economic return, as a result of these conflicting
client interests, than if Putnam's client accounts collectively held
only a single category of the issuer's securities.
Floating Rate and Variable Rate Demand Notes
Floating rate and variable rate demand notes and bonds may have a stated
maturity in excess of one year, but may have features that permit a
holder to demand payment of principal plus accrued interest upon a
specified number of days notice. Frequently, such obligations are
secured by letters of credit or other credit support arrangements
provided by banks. The issuer has a corresponding right, after a given
period, to prepay in its discretion the outstanding principal of the
obligation plus accrued interest upon a specific number of days notice
to the holders. The interest rate of a floating rate instrument may be
based on a known lending rate, such as a bank's prime rate, and is reset
whenever such rate is adjusted. The interest rate on a variable rate
demand note is reset at specified intervals at a market rate.
Mortgage Related and Asset-backed Securities
Mortgage-backed securities, including collateralized mortgage
obligations ("CMOs") and certain stripped mortgage-backed securities
represent a participation in, or are secured by, mortgage loans.
Asset-backed securities are structured like mortgage-backed securities,
but instead of mortgage loans or interests in mortgage loans, the
underlying assets may include such items as motor vehicle installment
sales or installment loan contracts, leases of various types of real and
personal property and receivables from credit card agreements. The
ability of an issuer of asset-backed securities to enforce its security
interest in the underlying assets may be limited.
Mortgage-backed securities have yield and maturity characteristics
corresponding to the underlying assets. Unlike traditional debt
securities, which may pay a fixed rate of interest until maturity, when
the entire principal amount comes due, payments on certain
mortgage-backed securities include both interest and a partial repayment
of principal. Besides the scheduled repayment of principal, repayments
of principal may result from the voluntary prepayment, refinancing or
foreclosure of the underlying mortgage loans. If property owners make
unscheduled prepayments of their mortgage loans, these prepayments will
result in early payment of the applicable mortgage-related securities.
In that event a fund may be unable to invest the proceeds from the early
payment of the mortgage-related securities in an investment that
provides as high a yield as the mortgage-related securities.
Consequently, early payment associated with mortgage-related securities
may cause these securities to experience significantly greater price and
yield volatility than that experienced by traditional fixed-income
securities. The occurrence of mortgage prepayments is affected by
factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions. During periods of falling interest rates, the
rate of mortgage prepayments tends to increase, thereby tending to
decrease the life of mortgage-related securities. During periods of
rising interest rates, the rate of mortgage prepayments usually
decreases, thereby tending to increase the life of mortgage-related
securities. If the life of a mortgage-related security is inaccurately
predicted, a fund may not be able to realize the rate of return it
expected.
Mortgage-backed and asset-backed securities are less effective than
other types of securities as a means of "locking in" attractive
long-term interest rates. One reason is the need to reinvest
prepayments of principal; another is the possibility of significant
unscheduled prepayments resulting from declines in interest rates.
These prepayments would have to be reinvested at lower rates. As a
result, these securities may have less potential for capital
appreciation during periods of declining interest rates than other
securities of comparable maturities, although they may have a similar
risk of decline in market value during periods of rising interest rates.
Prepayments may also significantly shorten the effective maturities of
these securities, especially during periods of declining interest rates.
Conversely, during periods of rising interest rates, a reduction in
prepayments may increase the effective maturities of these securities,
subjecting them to a greater risk of decline in market value in response
to rising interest rates than traditional debt securities, and,
therefore, potentially increasing the volatility of a fund.
Prepayments may cause losses on securities purchased at a premium. At
times, some mortgage-backed and asset-backed securities will have higher
than market interest rates and therefore will be purchased at a premium
above their par value.
CMOs may be issued by a U.S. government agency or instrumentality or by
a private issuer. Although payment of the principal of, and interest
on, the underlying collateral securing privately issued CMOs may be
guaranteed by the U.S. government or its agencies or instrumentalities,
these CMOs represent obligations solely of the private issuer and are
not insured or guaranteed by the U.S. government, its agencies or
instrumentalities or any other person or entity.
Prepayments could cause early retirement of CMOs. CMOs are designed to
reduce the risk of prepayment for investors by issuing multiple classes
of securities, each having different maturities, interest rates and
payment schedules, and with the principal and interest on the underlying
mortgages allocated among the several classes in various ways. Payment
of interest or principal on some classes or series of CMOs may be
subject to contingencies or some classes or series may bear some or all
of the risk of default on the underlying mortgages. CMOs of different
classes or series are generally retired in sequence as the underlying
mortgage loans in the mortgage pool are repaid. If enough mortgages are
repaid ahead of schedule, the classes or series of a CMO with the
earliest maturities generally will be retired prior to their maturities.
Thus, the early retirement of particular classes or series of a CMO
would have the same effect as the prepayment of mortgages underlying
other mortgage-backed securities. Conversely, slower than anticipated
prepayments can extend the effective maturities of CMOs, subjecting them
to a greater risk of decline in market value in response to rising
interest rates than traditional debt securities, and, therefore,
potentially increasing their volatility.
Prepayments could result in losses on stripped mortgage-backed
securities. Stripped mortgage-backed securities are usually structured
with two classes that receive different portions of the interest and
principal distributions on a pool of mortgage loans. The yield to
maturity on an interest only or "IO" class of stripped mortgage-backed
securities is extremely sensitive not only to changes in prevailing
interest rates but also to the rate of principal payments (including
prepayments) on the underlying assets. A rapid rate of principal
prepayments may have a measurable adverse effect on a fund's yield to
maturity to the extent it invests in IOs. If the assets underlying the
IO experience greater than anticipated prepayments of principal, a fund
may fail to recoup fully its initial investment in these securities.
Conversely, principal only or "POs" tend to increase in value if
prepayments are greater than anticipated and decline if prepayments are
slower than anticipated.
The secondary market for stripped mortgage-backed securities may be more
volatile and less liquid than that for other mortgage-backed securities,
potentially limiting a fund's ability to buy or sell those securities at
any particular time.
Hybrid Instruments
These instruments are generally considered derivatives and include
indexed or structured securities, and combine the elements of futures
contracts or options with those of debt, preferred equity or a
depository instrument. A hybrid instrument may be a debt security,
preferred stock, warrant, convertible security, certificate of deposit
or other evidence of indebtedness on which a portion of or all interest
payments, and/or the principal or stated amount payable at maturity,
redemption or retirement, is determined by reference to prices, changes
in prices, or differences between prices, of securities, currencies,
intangibles, goods, articles or commodities (collectively, "underlying
assets"), or by another objective index, economic factor or other
measure, including interest rates, currency exchange rates, or
commodities or securities indices (collectively, "benchmarks"). Hybrid
instruments may take a number of forms, including, but not limited to,
debt instruments with interest or principal payments or redemption terms
determined by reference to the value of an index at a future time,
preferred stock with dividend rates determined by reference to the value
of a currency, or convertible securities with the conversion terms
related to a particular commodity.
The risks of investing in hybrid instruments reflect a combination of
the risks of investing in securities, options, futures and currencies.
An investment in a hybrid instrument may entail significant risks that
are not associated with a similar investment in a traditional debt
instrument that has a fixed principal amount, is denominated in U.S.
dollars or bears interest either at a fixed rate or a floating rate
determined by reference to a common, nationally published benchmark. The
risks of a particular hybrid instrument will depend upon the terms of
the instrument, but may include the possibility of significant changes
in the benchmark(s) or the prices of the underlying assets to which the
instrument is linked. Such risks generally depend upon factors
unrelated to the operations or credit quality of the issuer of the
hybrid instrument, which may not be foreseen by the purchaser, such as
economic and political events, the supply and demand of the underlying
assets and interest rate movements. Hybrid instruments may be highly
volatile and their use by a fund may not be successful.
Hybrid instruments may bear interest or pay preferred dividends at below
market (or even relatively nominal) rates. Alternatively, hybrid
instruments may bear interest at above market rates but bear an
increased risk of principal loss (or gain). The latter scenario may
result if "leverage" is used to structure the hybrid instrument.
Leverage risk occurs when the hybrid instrument is structured so that a
given change in a benchmark or underlying asset is multiplied to produce
a greater value change in the hybrid instrument, thereby magnifying the
risk of loss as well as the potential for gain.
Hybrid instruments can be an efficient means of creating exposure to a
particular market, or segment of a market, with the objective of
enhancing total return. For example, a fund may wish to take advantage
of expected declines in interest rates in several European countries,
but avoid the transaction costs associated with buying and
currency-hedging the foreign bond positions. One solution would be to
purchase a U.S. dollar-denominated hybrid instrument whose redemption
price is linked to the average three year interest rate in a designated
group of countries. The redemption price formula would provide for
payoffs of less than par if rates were above the specified level.
Furthermore, a fund could limit the downside risk of the security by
establishing a minimum redemption price so that the principal paid at
maturity could not be below a predetermined minimum level if interest
rates were to rise significantly. The purpose of this arrangement,
known as a structured security with an embedded put option, would be to
give the fund the desired European bond exposure while avoiding currency
risk, limiting downside market risk, and lowering transaction costs. Of
course, there is no guarantee that the strategy will be successful and a
fund could lose money if, for example, interest rates do not move as
anticipated or credit problems develop with the issuer of the hybrid
instrument.
Hybrid instruments are potentially more volatile and carry greater
market risks than traditional debt instruments. Depending on the
structure of the particular hybrid instrument, changes in a benchmark
may be magnified by the terms of the hybrid instrument and have an even
more dramatic and substantial effect upon the value of the hybrid
instrument. Also, the prices of the hybrid instrument and the benchmark
or underlying asset may not move in the same direction or at the same
time.
Hybrid instruments may also carry liquidity risk since the instruments
are often "customized" to meet the portfolio needs of a particular
investor, and therefore, the number of investors that are willing and
able to buy such instruments in the secondary market may be smaller than
that for more traditional debt securities. Under certain conditions,
the redemption value of such an investment could be zero. In addition,
because the purchase and sale of hybrid investments could take place in
an over-the-counter market without the guarantee of a central clearing
organization, or in a transaction between the fund and the issuer of the
hybrid instrument, the creditworthiness of the counterparty of the
issuer of the hybrid instrument would be an additional risk factor a
fund would have to consider and monitor. Hybrid instruments also may
not be subject to regulation by the CFTC, which generally regulates the
trading of commodity futures by U.S. persons, the SEC, which regulates
the offer and sale of securities by and to U.S. persons, or any other
governmental regulatory authority.
Structured investments. A structured investment is a security having a
return tied to an underlying index or other security or asset class.
Structured investments generally are individually negotiated agreements
and may be traded over-the-counter. Structured investments are
organized and operated to restructure the investment characteristics of
the underlying security. This restructuring involves the deposit with
or purchase by an entity, such as a corporation or trust, or specified
instruments (such as commercial bank loans) and the issuance by that
entity or one or more classes of securities ("structured securities")
backed by, or representing interests in, the underlying instruments. The
cash flow on the underlying instruments may be apportioned among the
newly issued structured securities to create securities with different
investment characteristics, such as varying maturities, payment
priorities and interest rate provisions, and the extent of such payments
made with respect to structured securities is dependent on the extent of
the cash flow on the underlying instruments. Because structured
securities typically involve no credit enhancement, their credit risk
generally will be equivalent to that of the underlying instruments.
Investments in structured securities are generally of a class of
structured securities that is either subordinated or unsubordinated to
the right of payment of another class. Subordinated structured
securities typically have higher yields and present greater risks than
unsubordinated structured securities. Structured securities are
typically sold in private placement transactions, and there currently is
no active trading market for structured securities. Investments in
government and government-related and restructured debt instruments are
subject to special risks, including the inability or unwillingness to
repay principal and interest, requests to reschedule or restructure
outstanding debt and requests to extend additional loan amounts.
Securities of Other Investment Companies. Securities of other
investment companies, including shares of open- and closed-end
investment companies and unit investment trusts (which may include
exchange-traded funds ("ETFs")), represent interests in collective
investment portfolios that, in turn, invest directly in underlying
instruments. The fund may invest in other investment companies when it
has more uninvested cash than Putnam Management believes is advisable,
when it receives cash collateral from securities lending arrangements,
when there is a shortage of direct investments available, or when Putnam
Management believes that investment companies offer attractive values.
Investment companies may be structured to perform in a similar fashion
to a broad-based securities index or may focus on a particular strategy
or class of assets. ETFs typically seek to track the performance or
dividend yield of specific indexes or companies in related industries.
These indexes may be broad-based, sector-based or international.
Investing in investment companies involves substantially the same risks
as investing directly in the underlying instruments, but also involves
expenses at the investment company-level, such as portfolio management
fees and operating expenses. These expenses are in addition to the fees
and expenses of the fund itself, which may lead to duplication of
expenses while the fund owns another investment company's shares. In
addition, investing in investment companies involves the risk that they
will not perform in exactly the same fashion, or in response to the same
factors, as the underlying instruments or index. To the extent the fund
invests in other investment companies that are professionally managed,
its performance will also depend on the investment and research
abilities of investment managers other than Putnam Management.
Open-end investment companies typically offer their shares continuously
at net asset value plus any applicable sales charge and stand ready to
redeem shares upon shareholder request. The shares of certain other
types of investment companies, such as ETFs and closed-end investment
companies, typically trade on a stock exchange or over-the-counter at a
premium or a discount to their net asset value. In the case of
closed-end investment companies, the number of shares is typically
fixed. The securities of closed-end investment companies and ETFs carry
the risk that the price the fund pays or receives may be higher or lower
than the investment company's net asset value. ETFs and closed-end
investment companies are also subject to certain additional risks,
including the risks of illiquidity and of possible trading halts due to
market conditions or other reasons, based on the policies of the
relevant exchange. The shares of investment companies, particularly
closed-end investment companies, may also be leveraged, which would
increase the volatility of the fund's net asset value.
The extent to which the fund can invest in securities of other
investment companies, including EFTs, is generally limited by federal
securities laws.
Tax-exempt Securities
General description. As used in this SAI, the term "Tax-exempt
securities" includes debt obligations issued by a state, its political
subdivisions (for example, counties, cities, towns, villages, districts
and authorities) and their agencies, instrumentalities or other
governmental units, the interest from which is, in the opinion of bond
counsel, exempt from federal income tax and the corresponding state's
personal income tax. Such obligations are issued to obtain funds for
various public purposes, including the construction of a wide range of
public facilities, such as airports, bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and sewer
works. Other public purposes for which Tax-exempt securities may be
issued include the refunding of outstanding obligations or the payment
of general operating expenses.
Short-term Tax-exempt securities are generally issued by state and local
governments and public authorities as interim financing in anticipation
of tax collections, revenue receipts or bond sales to finance such
public purposes.
In addition, certain types of "private activity" bonds may be issued by
public authorities to finance projects such as privately operated
housing facilities; certain local facilities for supplying water, gas or
electricity; sewage or solid waste disposal facilities; student loans;
or public or private institutions for the construction of educational,
hospital, housing and other facilities. Such obligations are included
within the term Tax-exempt securities if the interest paid thereon is,
in the opinion of bond counsel, exempt from federal income tax and state
personal income tax (such interest may, however, be subject to federal
alternative minimum tax). Other types of private activity bonds, the
proceeds of which are used for the construction, repair or improvement
of, or to obtain equipment for, privately operated industrial or
commercial facilities, may also constitute Tax-exempt securities,
although the current federal tax laws place substantial limitations on
the size of such issues.
Stand-by commitments. When a fund purchases Tax-exempt securities, it
has the authority to acquire stand-by commitments from banks and
broker-dealers with respect to those Tax-exempt securities. A stand-by
commitment may be considered a security independent of the Tax-exempt
security to which it relates. The amount payable by a bank or dealer
during the time a stand-by commitment is exercisable, absent unusual
circumstances, would be substantially the same as the market value of
the underlying Tax-exempt security to a third party at any time. A fund
expects that stand-by commitments generally will be available without
the payment of direct or indirect consideration. A fund does not expect
to assign any value to stand-by commitments.
Yields. The yields on Tax-exempt securities depend on a variety of
factors, including general money market conditions, effective marginal
tax rates, the financial condition of the issuer, general conditions of
the Tax-exempt security market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. The ratings of
nationally recognized securities rating agencies represent their
opinions as to the credit quality of the Tax-exempt securities which
they undertake to rate. It should be emphasized, however, that ratings
are general and are not absolute standards of quality. Consequently,
Tax-exempt securities with the same maturity and interest rate but with
different ratings may have the same yield. Yield disparities may occur
for reasons not directly related to the investment quality of particular
issues or the general movement of interest rates and may be due to such
factors as changes in the overall demand or supply of various types of
Tax-exempt securities or changes in the investment objectives of
investors. Subsequent to purchase by a fund, an issue of Tax-exempt
securities or other investments may cease to be rated, or its rating may
be reduced below the minimum rating required for purchase by the fund.
Neither event will require the elimination of an investment from a
fund's portfolio, but Putnam Management will consider such an event in
its determination of whether a fund should continue to hold an
investment in its portfolio.
"Moral obligation" bonds. Each fund does not currently intend to invest
in so-called "moral obligation" bonds, where repayment is backed by a
moral commitment of an entity other than the issuer, unless the credit
of the issuer itself, without regard to the "moral obligation," meets
the investment criteria established for investments by a fund.
Municipal leases. Each fund may acquire participations in lease
obligations or installment purchase contract obligations (collectively,
"lease obligations") of municipal authorities or entities. Lease
obligations do not constitute general obligations of the municipality
for which the municipality's taxing power is pledged. Certain of these
lease obligations contain "non-appropriation" clauses, which provide
that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such
purpose on a yearly basis. In the case of a "non-appropriation" lease,
a fund's ability to recover under the lease in the event of
non-appropriation or default will be limited solely to the repossession
of the leased property, and in any event, foreclosure of that property
might prove difficult.
Inverse Floaters have variable interest rates that typically move in the
opposite direction from movements in prevailing short-term interest rate
levels--rising when prevailing short-term interest rate fall, and vice
versa. The prices of inverse floaters can be considerably more volatile
than the prices of bonds with comparable maturities.
Additional risks. Securities in which a fund may invest, including
Tax-exempt securities, are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of
creditors, such as the federal Bankruptcy Code (including special
provisions related to municipalities and other public entities), and
laws, if any, that may be enacted by Congress or state legislatures
extending the time for payment of principal or interest, or both, or
imposing other constraints upon enforcement of such obligations. There
is also the possibility that, as a result of litigation or other
conditions, the power, ability or willingness of issuers to meet their
obligations for the payment of interest and principal on their
Tax-exempt securities may be materially affected.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax
exemption for interest on debt obligations issued by states and their
political subdivisions. Federal tax laws limit the types and amounts of
tax-exempt bonds issuable for certain purposes, especially industrial
development bonds and private activity bonds. Such limits may affect
the future supply and yields of these types of Tax-exempt securities.
Further proposals limiting the issuance of Tax-exempt securities may
well be introduced in the future. If it appeared that the availability
of Tax-exempt securities for investment by a fund and the value of a
fund's portfolio could be materially affected by such changes in law,
the Trustees of a fund would reevaluate its investment objective and
policies and consider changes in the structure of a fund or its
dissolution.
Convertible Securities
Convertible securities include bonds, debentures, notes, preferred
stocks and other securities that may be converted into or exchanged for,
at a specific price or formula within a particular period of time, a
prescribed amount of common stock or other equity securities of the same
or a different issuer. Convertible securities entitle the holder to
receive interest paid or accrued on debt or dividends paid or accrued on
preferred stock until the security matures or is redeemed, converted or
exchanged.
The market value of a convertible security is a function of its
"investment value" and its "conversion value." A security's "investment
value" represents the value of the security without its conversion
feature (i.e., a nonconvertible fixed income security). The investment
value may be determined by reference to its credit quality and the
current value of its yield to maturity or probable call date. At any
given time, investment value is dependent upon such factors as the
general level of interest rates, the yield of similar nonconvertible
securities, the financial strength of the issuer and the seniority of
the security in the issuer's capital structure. A security's "conversion
value" is determined by multiplying the number of shares the holder is
entitled to receive upon conversion or exchange by the current price of
the underlying security.
If the conversion value of a convertible security is significantly below
its investment value, the convertible security will trade like
nonconvertible debt or preferred stock and its market value will not be
influenced greatly by fluctuations in the market price of the underlying
security. Conversely, if the conversion value of a convertible security
is near or above its investment value, the market value of the
convertible security will be more heavily influenced by fluctuations in
the market price of the underlying security.
A fund's investments in convertible securities may at times include
securities that have a mandatory conversion feature, pursuant to which
the securities convert automatically into common stock or other equity
securities at a specified date and a specified conversion ratio, or that
are convertible at the option of the issuer. Because conversion of the
security is not at the option of the holder, a fund may be required to
convert the security into the underlying common stock even at times when
the value of the underlying common stock or other equity security has
declined substantially.
A fund's investments in convertible securities, particularly securities
that are convertible into securities of an issuer other than the issuer
of the convertible security, may be illiquid. A fund may not be able to
dispose of such securities in a timely fashion or for a fair price,
which could result in losses to the fund.
Alternative Investment Strategies
Under normal market conditions, each fund seeks to remain fully invested
and to minimize its cash holdings. However, at times Putnam Management
may judge that market conditions make pursuing a fund's investment
strategies inconsistent with the best interests of its shareholders.
Putnam Management then may temporarily use alternative strategies that
are mainly designed to limit the fund's losses. In implementing these
strategies, the funds may invest primarily in debt securities, preferred
stocks, U.S. Government and agency obligations, cash or money market
instruments, or any other securities Putnam Management considers
consistent with such defensive strategies.
Money market instruments, or short-term debt instruments, consist of
obligations such as commercial paper, bank obligations (i.e.,
certificates of deposit and bankers' acceptances), repurchase agreements
and various government obligations, such as Treasury bills. These
instruments have a remaining maturity of one year or less and are
generally of high credit quality. Money market instruments may be
structured to be, or may employ a trust or other form so that they are,
eligible investments for money market funds. For example, put features
can be used to modify the maturity of a security or interest rate
adjustment features can be used to enhance price stability. If a
structure fails to function as intended, adverse tax or investment
consequences may result. Neither the Internal Revenue Service (IRS) nor
any other regulatory authority has ruled definitively on certain legal
issues presented by certain structured securities. Future tax or other
regulatory determinations could adversely affect the value, liquidity,
or tax treatment of the income received from these securities or the
nature and timing of distributions made by the funds.
Private Placements and Restricted Securities
A fund may invest in securities that are purchased in private placements
and, accordingly, are subject to restrictions on resale as a matter of
contract or under federal securities laws. Because there may be
relatively few potential purchasers for such investments, especially
under adverse market or economic conditions or in the event of adverse
changes in the financial condition of the issuer, a fund could find it
more difficult to sell such securities when Putnam Management believes
it advisable to do so or may be able to sell such securities only at
prices lower than if such securities were more widely held. At times,
it may also be more difficult to determine the fair value of such
securities for purposes of computing the fund's net asset value.
While such private placements may often offer attractive opportunities
for investment not otherwise available on the open market, the
securities so purchased are often "restricted securities," i.e.,
securities which cannot be sold to the public without registration
under the Securities Act of 1933 or the availability of an exemption
from registration (such as Rules 144 or 144A), or which are "not readily
marketable" because they are subject to other legal or contractual
delays in or restrictions on resale.
The absence of a trading market can make it difficult to ascertain a
market value for illiquid investments. Disposing of illiquid
investments may involve time-consuming negotiation and legal expenses,
and it may be difficult or impossible for a fund to sell them promptly
at an acceptable price. A fund may have to bear the extra expense of
registering such securities for resale and the risk of substantial delay
in effecting such registration. Also market quotations are less readily
available. The judgment of Putnam Management may at times play a
greater role in valuing these securities than in the case of publicly
traded securities.
Generally speaking, restricted securities may be sold only to qualified
institutional buyers, or in a privately negotiated transaction to a
limited number of purchasers, or in limited quantities after they have
been held for a specified period of time and other conditions are met
pursuant to an exemption from registration, or in a public offering for
which a registration statement is in effect under the Securities Act of
1933. A fund may be deemed to be an "underwriter" for purposes of the
Securities Act of 1933 when selling restricted securities to the public,
and in such event the fund may be liable to purchasers of such
securities if the registration statement prepared by the issuer, or the
prospectus forming a part of it, is materially inaccurate or misleading.
The SEC Staff currently takes the view that any delegation by the
Trustees of the authority to determine that a restricted security is
readily marketable (as described in the investment restrictions of the
funds) must be pursuant to written procedures established by the
Trustees and the Trustees have delegated such authority to Putnam
Management.
Futures Contracts and Related Options
Subject to applicable law each fund may invest without limit in futures
contracts and related options for hedging and non-hedging purposes, such
as to manage the effective duration of the fund's portfolio or as a
substitute for direct investment. A financial futures contract sale
creates an obligation by the seller to deliver the type of financial
instrument called for in the contract in a specified delivery month for
a stated price. A financial futures contract purchase creates an
obligation by the purchaser to take delivery of the type of financial
instrument called for in the contract in a specified delivery month at a
stated price. The specific instruments delivered or taken,
respectively, at settlement date are not determined until on or near
that date. The determination is made in accordance with the rules of
the exchange on which the futures contract sale or purchase was made.
Futures contracts are traded in the United States only on commodity
exchanges or boards of trade--known as "contract markets"--approved for
such trading by the Commodity Futures Trading Commission (the "CFTC"),
and must be executed through a futures commission merchant or brokerage
firm which is a member of the relevant contract market.
Although futures contracts (other than index futures) by their terms
call for actual delivery or acceptance of commodities or securities, in
most cases the contracts are closed out before the settlement date
without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or
commodity with the same delivery date. If the price of the initial sale
of the futures contract exceeds the price of the offsetting purchase,
the seller is paid the difference and realizes a gain. Conversely, if
the price of the offsetting purchase exceeds the price of the initial
sale, the seller realizes a loss. If a fund is unable to enter into a
closing transaction, the amount of the fund's potential loss is
unlimited. The closing out of a futures contract purchase is effected
by the purchaser's entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the purchaser realizes
a gain, and if the purchase price exceeds the offsetting sale price, he
realizes a loss. In general, 40% of the gain or loss arising from the
closing out of a futures contract traded on an exchange approved by the
CFTC is treated as short-term gain or loss, and 60% is treated as
long-term gain or loss.
Unlike when a fund purchases or sells a security, no price is paid or
received by a fund upon the purchase or sale of a futures contract. Upon
entering into a contract, a fund is required to deposit with its
custodian in a segregated account in the name of the futures broker an
amount of liquid assets. This amount is known as "initial margin." The
nature of initial margin in futures transactions is different from that
of margin in security transactions in that futures contract margin does
not involve the borrowing of funds to finance the transactions. Rather,
initial margin is similar to a performance bond or good faith deposit
which is returned to a fund upon termination of the futures contract,
assuming all contractual obligations have been satisfied. Futures
contracts also involve brokerage costs.
Subsequent payments, called "variation margin" or "maintenance margin,"
to and from the broker (or the custodian) are made on a daily basis as
the price of the underlying security or commodity fluctuates, making the
long and short positions in the futures contract more or less valuable,
a process known as "marking to the market." For example, when a fund
has purchased a futures contract on a security and the price of the
underlying security has risen, that position will have increased in
value and the fund will receive from the broker a variation margin
payment based on that increase in value. Conversely, when a fund has
purchased a security futures contract and the price of the underlying
security has declined, the position would be less valuable and the fund
would be required to make a variation margin payment to the broker.
A fund may elect to close some or all of its futures positions at any
time prior to their expiration in order to reduce or eliminate a hedge
position then currently held by the fund. The fund may close its
positions by taking opposite positions which will operate to terminate
the fund's position in the futures contracts. Final determinations of
variation margin are then made, additional cash is required to be paid
by or released to the fund, and the fund realizes a loss or a gain. Such
closing transactions involve additional commission costs.
Each fund does not intend to purchase or sell futures or related options
for other than hedging purposes, if, as a result, the sum of the initial
margin deposits on a fund's existing futures and related options
positions and premiums paid for outstanding options on futures contracts
would exceed 5% of a fund's net assets.
Each fund has claimed an exclusion from the definition of the term
"commodity pool operator" under the Commodity Exchange Act (the "CEA"),
and therefore, is not subject to registration or regulation as a pool
operator under the CEA.
Options on futures contracts. Each fund may purchase and write call and
put options on futures contracts it may buy or sell and enter into
closing transactions with respect to such options to terminate existing
positions. In return for the premium paid, options on futures contracts
give the purchaser the right to assume a position in a futures contract
at the specified option exercise price at any time during the period of
the option. A fund may use options on futures contracts in lieu of
writing or buying options directly on the underlying securities or
purchasing and selling the underlying futures contracts. For example,
to hedge against a possible decrease in the value of its portfolio
securities, a fund may purchase put options or write call options on
futures contracts rather than selling futures contracts. Similarly, a
fund may purchase call options or write put options on futures contracts
as a substitute for the purchase of futures contracts to hedge against a
possible increase in the price of securities which the fund expects to
purchase. Such options generally operate in the same manner as options
purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may
terminate his position by selling or purchasing an offsetting option.
There is no guarantee that such closing transactions can be effected.
A fund will be required to deposit initial margin and maintenance margin
with respect to put and call options on futures contracts written by it
pursuant to brokers' requirements similar to those described above in
connection with the discussion of futures contracts.
Risks of transactions in futures contracts and related options.
Successful use of futures contracts by a fund is subject to Putnam
Management's ability to predict movements in various factors affecting
securities markets, including interest rates. Compared to the purchase
or sale of futures contracts, the purchase of call or put options on
futures contracts involves less potential risk to a fund because the
maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the
purchase of a call or put option on a futures contract would result in a
loss to a fund when the purchase or sale of a futures contract would
not, such as when there is no movement in the prices of the hedged
investments. The writing of an option on a futures contract involves
risks similar to those risks relating to the sale of futures contracts.
The use of options and futures strategies also involves the risk of
imperfect correlation among movements in the prices of the securities
underlying the futures and options purchased and sold by a fund, of the
options and futures contracts themselves, and, in the case of hedging
transactions, of the securities which are the subject of a hedge. The
successful use of these strategies further depends on the ability of
Putnam Management to forecast interest rates and market movements
correctly.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain market
clearing facilities inadequate, and thereby result in the institution by
exchanges of special procedures which may interfere with the timely
execution of customer orders.
To reduce or eliminate a position held by a fund, a fund may seek to
close out such a position. The ability to establish and close out
positions will be subject to the development and maintenance of a liquid
secondary market. It is not certain that this market will develop or
continue to exist for a particular futures contract or option. Reasons
for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain
contracts or options; (ii) restrictions may be imposed by an exchange on
opening transactions or closing transactions or both; (iii) trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of contracts or options, or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt
normal operations on an exchange; (v) the facilities of an exchange or a
clearing corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue
the trading of contracts or options (or a particular class or series of
contracts or options), in which event the secondary market on that
exchange for such contracts or options (or in the class or series of
contracts or options) would cease to exist, although outstanding
contracts or options on the exchange that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
U.S. Treasury security futures contracts and options. U.S. Treasury
security futures contracts require the seller to deliver, or the
purchaser to take delivery of, the type of U.S. Treasury security called
for in the contract at a specified date and price. Options on U.S.
Treasury security futures contracts give the purchaser the right in
return for the premium paid to assume a position in a U.S. Treasury
security futures contract at the specified option exercise price at any
time during the period of the option.
Successful use of U.S. Treasury security futures contracts by a fund is
subject to Putnam Management's ability to predict movements in the
direction of interest rates and other factors affecting markets for debt
securities. For example, if a fund has sold U.S. Treasury security
futures contracts in order to hedge against the possibility of an
increase in interest rates which would adversely affect securities held
in its portfolio, and the prices of the fund's securities increase
instead as a result of a decline in interest rates, the fund will lose
part or all of the benefit of the increased value of its securities
which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if a fund has
insufficient cash, it may have to sell securities to meet daily
maintenance margin requirements at a time when it may be disadvantageous
to do so.
There is also a risk that price movements in U.S. Treasury security
futures contracts and related options will not correlate closely with
price movements in markets for particular securities. For example, if a
fund has hedged against a decline in the values of tax-exempt securities
held by it by selling Treasury security futures and the values of
Treasury securities subsequently increase while the values of its
tax-exempt securities decrease, the fund would incur losses on both the
Treasury security futures contracts written by it and the tax-exempt
securities held in its portfolio.
Index futures contracts. An index futures contract is a contract to buy
or sell units of an index at a specified future date at a price agreed
upon when the contract is made. Entering into a contract to buy units
of an index is commonly referred to as buying or purchasing a contract
or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or
holding a short position. A unit is the current value of the index. A
fund may enter into stock index futures contracts, debt index futures
contracts, or other index futures contracts appropriate to its
objective(s). A fund may also purchase and sell options on index
futures contracts.
For example, the Standard & Poor's 500 Composite Stock Price Index ("S&P
500") is composed of 500 selected common stocks, most of which are
listed on the New York Stock Exchange. The S&P 500 assigns relative
weightings to the common stocks included in the Index, and the value
fluctuates with changes in the market values of those common stocks. In
the case of the S&P 500, contracts are to buy or sell 500 units. Thus,
if the value of the S&P 500 were $150, one contract would be worth
$75,000 (500 units x $150). The stock index futures contract specifies
that no delivery of the actual stocks making up the index will take
place. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being the difference between the
contract price and the actual level of the stock index at the expiration
of the contract. For example, if a fund enters into a futures contract
to buy 500 units of the S&P 500 at a specified future date at a contract
price of $150 and the S&P 500 is at $154 on that future date, the fund
will gain $2,000 (500 units x gain of $4). If a fund enters into a
futures contract to sell 500 units of the stock index at a specified
future date at a contract price of $150 and the S&P 500 is at $152 on
that future date, the fund will lose $1,000 (500 units x loss of $2).
There are several risks in connection with the use by a fund of index
futures. One risk arises because of the imperfect correlation between
movements in the prices of the index futures and movements in the prices
of securities which are the subject of the hedge. Putnam Management
will, however, attempt to reduce this risk by buying or selling, to the
extent possible, futures on indices the movements of which will, in its
judgment, have a significant correlation with movements in the prices of
the securities sought to be hedged.
Successful use of index futures by a fund is also subject to Putnam
Management's ability to predict movements in the direction of the
market. For example, it is possible that, where a fund has sold futures
to hedge its portfolio against a decline in the market, the index on
which the futures are written may advance and the value of securities
held in the fund's portfolio may decline. If this occurred, a fund
would lose money on the futures and also experience a decline in value
in its portfolio securities. It is also possible that, if a fund has
hedged against the possibility of a decline in the market adversely
affecting securities held in its portfolio and securities prices
increase instead, the fund will lose part or all of the benefit of the
increased value of those securities it has hedged because it will have
offsetting losses in its futures positions. In addition, in such
situations, if a fund has insufficient cash, it may have to sell
securities to meet daily variation margin requirements at a time when it
is disadvantageous to do so.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the index
futures and the portion of the portfolio being hedged, the prices of
index futures may not correlate perfectly with movements in the
underlying index due to certain market distortions. First, all
participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the
index and futures markets. Second, margin requirements in the futures
market are less onerous than margin requirements in the securities
market, and as a result the futures market may attract more speculators
than the securities market does. Increased participation by speculators
in the futures market may also cause temporary price distortions. Due
to the possibility of price distortions in the futures market and also
because of the imperfect correlation between movements in the index and
movements in the prices of index futures, even a correct forecast of
general market trends by Putnam Management may still not result in a
profitable position over a short time period.
Options on stock index futures. Options on index futures are similar to
options on securities except that options on index futures give the
purchaser the right, in return for the premium paid, to assume a
position in an index futures contract (a long position if the option is
a call and a short position if the option is a put) at a specified
exercise price at any time during the period of the option. Upon
exercise of the option, the delivery of the futures position by the
writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures margin
account which represents the amount by which the market price of the
index futures contract, at exercise, exceeds (in the case of a call) or
is less than (in the case of a put) the exercise price of the option on
the index future. If an option is exercised on the last trading day
prior to its expiration date, the settlement will be made entirely in
cash equal to the difference between the exercise price of the option
and the closing level of the index on which the future is based on the
expiration date. Purchasers of options who fail to exercise their
options prior to the exercise date suffer a loss of the premium paid.
Options on Indices
As an alternative to purchasing call and put options on index futures,
each fund may purchase and sell call and put options on the underlying
indices themselves. Such options would be used in a manner identical to
the use of options on index futures.
Index Warrants
Each fund may purchase put warrants and call warrants whose values vary
depending on the change in the value of one or more specified securities
indices ("index warrants"). Index warrants are generally issued by
banks or other financial institutions and give the holder the right, at
any time during the term of the warrant, to receive upon exercise of the
warrant a cash payment from the issuer based on the value of the
underlying index at the time of exercise. In general, if the value of
the underlying index rises above the exercise price of the index
warrant, the holder of a call warrant will be entitled to receive a cash
payment from the issuer upon exercise based on the difference between
the value of the index and the exercise price of the warrant; if the
value of the underlying index falls, the holder of a put warrant will be
entitled to receive a cash payment from the issuer upon exercise based
on the difference between the exercise price of the warrant and the
value of the index. The holder of a warrant would not be entitled to
any payments from the issuer at any time when, in the case of a call
warrant, the exercise price is greater than the value of the underlying
index, or, in the case of a put warrant, the exercise price is less than
the value of the underlying index. If a fund were not to exercise an
index warrant prior to its expiration, then the fund would lose the
amount of the purchase price paid by it for the warrant.
A fund will normally use index warrants in a manner similar to its use
of options on securities indices. The risks of a fund's use of index
warrants are generally similar to those relating to its use of index
options. Unlike most index options, however, index warrants are issued
in limited amounts and are not obligations of a regulated clearing
agency, but are backed only by the credit of the bank or other
institution which issues the warrant. Also, index warrants generally
have longer terms than index options. Although a fund will normally
invest only in exchange-listed warrants, index warrants are not likely
to be as liquid as certain index options backed by a recognized clearing
agency. In addition, the terms of index warrants may limit a fund's
ability to exercise the warrants at such time, or in such quantities, as
the fund would otherwise wish to do.
Short-term Trading
In seeking each fund's objective(s), Putnam Management will buy or sell
portfolio securities whenever Putnam Management believes it appropriate
to do so. From time to time a fund will buy securities intending to
seek short-term trading profits. A change in the securities held by a
fund is known as "portfolio turnover" and generally involves some
expense to the fund. This expense may include brokerage commissions or
dealer markups and other transaction costs on both the sale of
securities and the reinvestment of the proceeds in other securities. If
sales of portfolio securities cause a fund to realize net short-term
capital gains, such gains will be taxable as ordinary income. As a
result of a fund's investment policies, under certain market conditions
a fund's portfolio turnover rate may be higher than that of other mutual
funds. Portfolio turnover rate for a fiscal year is the ratio of the
lesser of purchases or sales of portfolio securities to the monthly
average of the value of portfolio securities--excluding securities whose
maturities at acquisition were one year or less. A fund's portfolio
turnover rate is not a limiting factor when Putnam Management considers
a change in a fund's portfolio.
Securities Loans
Each fund may make secured loans of its portfolio securities, on either
a short-term or long-term basis, amounting to not more than 25% of its
total assets, thereby realizing additional income. The risks in lending
portfolio securities, as with other extensions of credit, consist of
possible delay in recovery of the securities or possible loss of rights
in the collateral should the borrower fail financially. As a matter of
policy, securities loans are made to broker-dealers pursuant to
agreements requiring that the loans be continuously secured by
collateral consisting of cash or short-term debt obligations at least
equal at all times to the value of the securities on loan,
"marked-to-market" daily. The borrower pays to a fund an amount equal
to any dividends or interest received on securities lent. The fund
retains all or a portion of the interest received on investment of the
cash collateral or receives a fee from the borrower. Although voting
rights, or rights to consent, with respect to the loaned securities may
pass to the borrower, the fund retains the right to call the loans at
any time on reasonable notice, and it will do so to enable the fund to
exercise voting rights on any matters materially affecting the
investment. The fund may also call such loans in order to sell the
securities.
Repurchase Agreements
Each fund may enter into repurchase agreements, amounting to not more
than 25% of its total assets. A repurchase agreement is a contract
under which a fund acquires a security for a relatively short period
(usually not more than one week) subject to the obligation of the seller
to repurchase and the fund to resell such security at a fixed time and
price (representing the fund's cost plus interest). It is each fund's
present intention to enter into repurchase agreements only with
commercial banks and registered broker-dealers and only with respect to
obligations of the U.S. government or its agencies or instrumentalities.
Repurchase agreements may also be viewed as loans made by a fund which
are collateralized by the securities subject to repurchase. Putnam
Management will monitor such transactions to ensure that the value of
the underlying securities will be at least equal at all times to the
total amount of the repurchase obligation, including the interest
factor. If the seller defaults, a fund could realize a loss on the sale
of the underlying security to the extent that the proceeds of the sale
including accrued interest are less than the resale price provided in
the agreement including interest. In addition, if the seller should be
involved in bankruptcy or insolvency proceedings, a fund may incur delay
and costs in selling the underlying security or may suffer a loss of
principal and interest if the fund is treated as an unsecured creditor
and required to return the underlying collateral to the seller's estate.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, a fund may transfer uninvested cash balances into a joint
account, along with cash of other Putnam funds and certain other
accounts. These balances may be invested in one or more repurchase
agreements and/or short-term money market instruments.
Forward Commitments
Each fund may enter into contracts to purchase securities for a fixed
price at a future date beyond customary settlement time ("forward
commitments") if a fund sets aside, on the books and records of its
custodian, liquid assets in an amount sufficient to meet the purchase
price, or if a fund enters into offsetting contracts for the forward
sale of other securities it owns. In the case of to-be-announced
("TBA") purchase commitments, the unit price and the estimated principal
amount are established when a fund enters into a contract, with the
actual principal amount being within a specified range of the estimate.
Forward commitments may be considered securities in 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 a fund's other assets. Where such
purchases are made through dealers, a fund relies on the dealer to
consummate the sale. The dealer's failure to do so may result in the
loss to the fund of an advantageous yield or price. Although a fund
will generally enter into forward 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. A fund may realize short-term profits or losses upon the sale
of forward commitments.
Each fund may enter into TBA sale commitments to hedge its portfolio
positions or to sell 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 current market value of the underlying securities. If the
TBA sale commitment is closed through the acquisition of an offsetting
purchase commitment, the fund realizes a gain or loss on the commitment
without regard to any unrealized gain or loss on the underlying
security. If a fund delivers securities under the commitment, the fund
realizes a gain or loss from the sale of the securities based upon the
unit price established at the date the commitment was entered into.
Swap Agreements
Each fund may enter into swap agreements and other types of
over-the-counter transactions with broker-dealers or other financial
institutions. Depending on their structures, swap agreements may
increase or decrease a fund's exposure to long-or short-term interest
rates (in the United States or abroad), foreign currency values,
mortgage securities, corporate borrowing rates, or other factors such as
security prices or inflation rates. The value of a fund's swap
positions would increase or decrease depending on the changes in value
of the underlying rates, currency values, or other indices or measures.
A fund's ability to engage in certain swap transactions may be limited
by tax considerations.
A fund's ability to realize a profit from such transactions will depend
on the ability of the financial institutions with which it enters into
the transactions to meet their obligations to the fund. Under certain
circumstances, suitable transactions may not be available to a fund, or
a fund may be unable to close out its position under such transactions
at the same time, or at the same price, as if it had purchased
comparable publicly traded securities.
Derivatives
Certain of the instruments in which a fund may invest, such as futures
contracts, options and forward contracts, are considered to be
"derivatives." Derivatives are financial instruments whose value
depends upon, or is derived from, the value of an underlying asset, such
as a security or an index. Further information about these instruments
and the risks involved in their use is included elsewhere in the
Prospectus or in this SAI. A fund's use of derivatives may cause the
fund to recognize higher amounts of short-term capital gains, generally
taxed to shareholders at ordinary income tax rates. Investments in
derivatives may be applied toward meeting a requirement to invest in a
particular kind of investment if the derivatives have economic
characteristics similar to that investment.
Industry and Sector Groups
Putnam uses a customized set of industry and sector groups for
classifying securities ("Putnam Investment Codes"). The Putnam
Investment Codes are based on an expanded Standard & Poor's industry
classification model, modified to be more representative of global
investing and more applicable to both large and small capitalization
securities.
TAXES
The following discussion of U.S. Federal income tax consequences is
based on the Internal Revenue Code of 1986, as amended (the "Code"),
existing U.S. Treasury regulations, and other applicable authority, as
of the date of this SAI. These authorities are subject to change by
legislative or administrative action, possibly with retroactive effect.
The following discussion is only a summary of some of the important U.S.
Federal tax considerations generally applicable to investments in each
fund. There may be other tax considerations applicable to particular
shareholders. Shareholders should consult their own tax advisers
regarding their particular situation and the possible application of
foreign, state and local tax laws.
Taxation of the funds. Each fund intends to qualify each year as a
regulated investment company under Subchapter M of the Code. In order
to qualify for the special tax treatment accorded regulated investment
companies and their shareholders, a fund must, among other things:
(a) derive at least 90% of its gross income from dividends, interest,
payments with respect to certain securities loans, and gains from the
sale of stock, securities and foreign currencies, or other income
(including but not limited to gains from options, futures, or forward
contracts) derived with respect to its business of investing in such
stock, securities, or currencies;
(b) distribute with respect to each taxable year at least 90% of the sum
of its taxable net investment income, its net tax-exempt income, and the
excess, if any, of net short-term capital gains over net long-term
capital losses for such year; and
(c) diversify its holdings so that, at the end of each fiscal quarter,
(i) at least 50% of the market value of the fund's assets is represented
by cash and cash items, U.S. government securities, securities of other
regulated investment companies, and other securities limited in respect
of any one issuer to a value not greater than 5% of the value of the
fund's total assets and to not more than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of
its assets is invested in the securities (other than those of the U.S.
Government or other regulated investment companies) of any one issuer or
of two or more issuers which the fund controls and which are engaged in
the same, similar, or related trades or businesses.
If a fund qualifies as a regulated investment company that is accorded
special tax treatment, the fund will not be subject to federal income
tax on income distributed in a timely manner, to its shareholders in the
form of dividends (including capital gain dividends).
If a fund failed to qualify as a regulated investment company accorded
special tax treatment in any taxable year, the fund would be subject to
tax on its taxable income at corporate rates, and all distributions from
earnings and profits, including any distributions of net tax-exempt
income and net long-term capital gains, would be taxable to shareholders
as ordinary income. In addition, the fund could be required to
recognize unrealized gains, pay substantial taxes and interest and make
substantial distributions before requalifying as a regulated investment
company that is accorded special tax treatment.
If a fund fails to distribute in a calendar year substantially all of
its ordinary income for such year and substantially all of its capital
gain net income for the one-year period ending October 31 (or later if
the fund is permitted so to elect and so elects), plus any retained
amount from the prior year, the fund will be subject to a 4% excise tax
on the undistributed amounts. A dividend paid to shareholders by the
fund in January of a year generally is deemed to have been paid by the
fund on December 31 of the preceding year, if the dividend was declared
and payable to shareholders of record on a date in October, November or
December of that preceding year. Each fund intends generally to make
distributions sufficient to avoid imposition of the 4% excise tax.
Fund distributions. Distributions from each fund (other than
exempt-interest dividends, as discussed below) will be taxable to
shareholders as ordinary income to the extent derived from the fund's
investment income and net short-term capital gains. Distributions of
net capital gains (that is, the excess of net gains from the sale of
capital assets held more than one year over net losses from the sale of
capital assets held for not more than one year) will be taxable to
shareholders as such, regardless of how long a shareholder has held the
shares in a fund.
For taxable years beginning on or before December 31, 2008, "qualified
dividend income" received by an individual will be taxed at the rates
applicable to long-term capital gain. In order for some portion of the
dividends received by a fund shareholder to be qualified dividend
income, a fund must meet holding period and other requirements with
respect to some portion of the dividend paying stocks in its portfolio
and the shareholder must meet holding period and other requirements with
respect to a fund's shares. A dividend will not be treated as qualified
dividend income (at either the fund or shareholder level) (1) if the
dividend is received with respect to any share of stock held for fewer
than 61 days during the 120-day period beginning on the date which is 60
days before the date on which such share becomes ex-dividend with
respect to such dividend (or, in the case of certain preferred stock, 91
days during the 180-day period beginning 90 days before such date), (2)
to the extent that the recipient is under an obligation (whether
pursuant to a short sale or otherwise) to make related payments with
respect to positions in substantially similar or related property, (3)
if the recipient elects to have the dividend income treated as
investment income for purposes of the limitation on deductibility of
investment interest, or (4) if the dividend is received from a foreign
corporation that is (a) not eligible for the benefits of a comprehensive
income tax treaty with the United States (with the exception of
dividends paid on stock of such a foreign corporation readily tradable
on an established securities market in the United States) or (b) treated
as a foreign personal holding company, foreign investment company, or
passive foreign investment company.
In general, distributions of investment income designated by a fund as
derived from qualified dividend income will be treated as qualified
dividend income by a shareholder taxed as an individual provided the
shareholder meets the holding period and other requirements described
above with respect to the fund's shares. Only qualified dividend income
received by a fund after December 31, 2002 is eligible for pass-through
treatment. If the aggregate qualified dividends received by a fund
during any taxable year are 95% or more of its gross income, then 100%
of the fund's dividends (other than properly designated capital gain
dividends) will be eligible to be treated as qualified dividend income.
For this purpose, the only gain included in the term "gross income" is
the excess of net short-term capital gain over net long-term capital
loss.
Long-term capital gain rates applicable to individuals have been
temporarily reduced--in general, to 15% with lower rates applying to
taxpayers in the 10% and 15% rate brackets--for taxable years beginning
on or before December 31, 2008.
Exempt-interest dividends. Each fund will be qualified to pay
exempt-interest dividends to its shareholders only if, at the close of
each quarter of a fund's taxable year, at least 50% of the total value
of the fund's assets consists of obligations the interest on which is
exempt from federal income tax. Distributions that a fund properly
designates as exempt-interest dividends are treated as interest
excludable from shareholders' gross income for federal income tax
purposes but may be taxable for federal alternative minimum tax purposes
and for state and local purposes. If a fund intends to be qualified to
pay exempt-interest dividends, the fund may be limited in its ability to
enter into taxable transactions involving forward commitments,
repurchase agreements, financial futures and options contracts on
financial futures, tax-exempt bond indices and other assets.
Part or all of the interest on indebtedness, if any, incurred or
continued by a shareholder to purchase or carry shares of a fund paying
exempt-interest dividends is not deductible. The portion of interest
that is not deductible is equal to the total interest paid or accrued on
the indebtedness, multiplied by the percentage of a fund's total
distributions (not including distributions from net long-term capital
gains) paid to the shareholder that are exempt-interest dividends.
Under rules used by the Internal Revenue Service to determine when
borrowed funds are considered used for the purpose of purchasing or
carrying particular assets, the purchase of shares may be considered to
have been made with borrowed funds even though such funds are not
directly traceable to the purchase of shares.
In general, exempt-interest dividends, if any, attributable to interest
received on certain private activity obligations and certain industrial
development bonds will not be tax-exempt to any shareholders who are
"substantial users" of the facilities financed by such obligations or
bonds or who are "related persons" of such substantial users.
A fund that is qualified to pay exempt-interest dividends will inform
investors within 60 days of the fund's fiscal year-end of the percentage
of its income distributions designated as tax-exempt. The percentage is
applied uniformly to all distributions made during the year. The
percentage of income designated as tax-exempt for any particular
distribution may be substantially different from the percentage of the
fund's income that was tax-exempt during the period covered by the
distribution.
Hedging transactions. If a fund engages in hedging transactions,
including hedging transactions in options, futures contracts, and
straddles, or other similar transactions, it will be subject to special
tax rules (including constructive sale, mark-to-market, straddle, wash
sale, and short sale rules), the effect of which may be to accelerate
income to the fund, defer losses to the fund, cause adjustments in the
holding periods of the fund's securities, convert long-term capital
gains into short-term capital gains or convert short-term capital losses
into long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders. Each
fund will endeavor to make any available elections pertaining to such
transactions in a manner believed to be in the best interests of the
fund.
Certain of a fund's hedging activities (including its transactions, if
any, in foreign currencies or foreign currency-denominated instruments)
are likely to produce a difference between its book income and its
taxable income. If a fund's book income exceeds its taxable income, the
distribution (if any) of such excess will be treated as (i) a dividend
to the extent of the fund's remaining earnings and profits (including
earnings and profits arising from tax-exempt income), (ii) thereafter as
a return of capital to the extent of the recipient's basis in the
shares, and (iii) thereafter as gain from the sale or exchange of a
capital asset. If a fund's book income is less than its taxable income,
(or, for tax-exempt funds, the sum of its net tax-exempt and taxable
income), the fund could be required to make distributions exceeding book
income to qualify as a regulated investment company that is accorded
special tax treatment.
Return of capital distributions. If a fund makes a distribution to you
in excess of its current and accumulated "earnings and profits" in any
taxable year, the excess distribution will be treated as a return of
capital to the extent of your tax basis in your shares, and thereafter
as capital gain. A return of capital is not taxable, but it reduces
your tax basis in your shares, thus reducing any loss or increasing any
gain on a subsequent taxable disposition by you of your shares.
Dividends and distributions on a fund's shares are generally subject to
federal income tax as described herein to the extent they do not exceed
the fund's realized income and gains, even though such dividends and
distributions may economically represent a return of a particular
shareholder's investment. Such distributions are likely to occur in
respect of shares purchased at a time when a fund's net asset value
reflects gains that are either unrealized, or realized but not
distributed. Distributions are taxable to a shareholder even if they
are paid from income or gains earned by a fund prior to the
shareholder's investment (and thus included in the price paid by the
shareholder).
Securities issued or purchased at a discount. A fund's investment in
securities issued at a discount and certain other obligations will (and
investments in securities purchased at a discount may) require the fund
to accrue and distribute income not yet received. In order to generate
sufficient cash to make the requisite distributions, a fund may be
required to sell securities in its portfolio that it otherwise would
have continued to hold.
Capital loss carryover. Distributions from capital gains are generally
made after applying any available capital loss carryovers. The amounts
and expiration dates of any capital loss carryovers available to a fund
are shown in Note 1 (Federal income taxes) to the financial statements
included in this SAI or incorporated by reference into this SAI.
Foreign currency-denominated securities and related hedging
transactions. A fund's transactions in foreign currencies, foreign
currency-denominated debt securities and certain foreign currency
options, futures contracts and forward contracts (and similar
instruments) may give rise to ordinary income or loss to the extent such
income or loss results from fluctuations in the value of the foreign
currency concerned.
If more than 50% of a fund's assets at year end consists of the
securities of foreign corporations, the fund may elect to permit
shareholders to claim a credit or deduction on their income tax returns
for their pro rata portion of qualified taxes paid by the fund to
foreign countries in respect of foreign securities the fund has held for
at least the minimum period specified in the Code. In such a case,
shareholders will include in gross income from foreign sources their pro
rata shares of such taxes. A shareholder's ability to claim a foreign
tax credit or deduction in respect of foreign taxes paid by a fund may
be subject to certain limitations imposed by the Code, as a result of
which a shareholder may not get a full credit or deduction for the
amount of such taxes. In particular, shareholders must hold their fund
shares (without protection from risk of loss) on the ex-dividend date
and for at least 15 additional days during the 30-day period surrounding
the ex-dividend date to be eligible to claim a foreign tax credit with
respect to a given dividend. Shareholders who do not itemize on their
federal income tax returns may claim a credit (but no deduction) for
such foreign taxes.
Investment by a fund in "passive foreign investment companies" could
subject the fund to a U.S. federal income tax or other charge on the
proceeds from the sale of its investment in such a company; however,
this tax can be avoided by making an election to mark such investments
to market annually or to treat the passive foreign investment company as
a "qualified electing fund."
A "passive foreign investment company" is any foreign corporation: (i)
75 percent or more of the income of which for the taxable year is
passive income, or (ii) the average percentage of the assets of which
(generally by value, but by adjusted tax basis in certain cases) that
produce or are held for the production of passive income is at least 50
percent. Generally, passive income for this purpose means dividends,
interest (including income equivalent to interest), royalties, rents,
annuities, the excess of gains over losses from certain property
transactions and commodities transactions, and foreign currency gains.
Passive income for this purpose does not include rents and royalties
received by the foreign corporation from active business and certain
income received from related persons.
Sale or redemption of shares. The sale of fund shares may give rise to
a gain or loss. In general, any gain or loss realized upon a taxable
disposition of shares will be treated as long-term capital gain or loss
if the shares have been held for more than 12 months. Otherwise the
gain or loss on the sale of fund shares will be treated as short-term
capital gain or loss. However, if a shareholder sells shares at a loss
within six months of purchase, any loss will be disallowed for Federal
income tax purposes to the extent of any exempt-interest dividends
received on such shares. In addition, any loss (not already disallowed
as provided in the preceding sentence) realized upon a taxable
disposition of shares held for six months or less will be treated as
long-term, rather than short-term, to the extent of any long-term
capital gain distributions received by the shareholder with respect to
the shares. All or a portion of any loss realized upon a taxable
disposition of fund shares will be disallowed if other shares of the
same fund are purchased within 30 days before or after the disposition.
In such a case, the basis of the newly purchased shares will be adjusted
to reflect the disallowed loss.
Shares purchased through tax-qualified plans. Special tax rules apply
to investments though defined contribution plans and other tax-qualified
plans. Shareholders should consult their tax advisers to determine the
suitability of shares of a fund as an investment through such plans and
the precise effect of an investment on their particular tax situation.
Backup withholding. Each fund generally is required to withhold and
remit to the U.S. Treasury a percentage of the taxable dividends and
other distributions paid to any individual shareholder who fails to
furnish the fund with a correct taxpayer identification number (TIN),
who has under-reported dividends or interest income, or who fails to
certify to the fund that he or she is not subject to such withholding.
The back-up withholding tax rate is 28% for amounts paid through 2010.
This legislation will expire and the back-up withholding rate will be
31% for amounts paid after December 31, 2010, unless Congress enacts tax
legislation providing otherwise.
In order for a foreign investor to qualify for exemption from the
back-up withholding tax rates and for reduced withholding tax rates
under income tax treaties, the foreign investor must comply with special
certification and filing requirements. Foreign investors in a fund
should consult their tax advisers in this regard.
Tax shelter reporting regulations. Under U.S. Treasury regulations
issued on February 28, 2003, if a shareholder realizes a loss on
disposition of fund shares of $2 million or more for an individual
shareholder or $10 million or more for a corporate shareholder, the
shareholder must file with the Internal Revenue Service a disclosure
statement on Form 8886. Direct shareholders of portfolio securities are
in many cases excepted from this reporting requirement, but under
current guidance, shareholders of a regulated investment company are not
excepted. Future guidance may extend the current exception from this
reporting requirement to shareholders of most or all regulated
investment companies.
MANAGEMENT
Trustees
-----------------------------------------------------------------------------------------------------------
Name, Address (1), Date of
Birth, Position(s) Held
with Fund and Length of Principal
Service as a Putnam Fund Occupation(s) During Other Directorships
Trustee (2) Past 5 Years Held by Trustee
-----------------------------------------------------------------------------------------------------------
Jameson A. Baxter President of Baxter Director of ASHTA Chemicals, Inc., Banta
(9/6/43), Trustee since 1994 Associates, Inc., Corporation (a printing and digital
a private investment firm imaging firm), Ryerson Tull, Inc.
that she founded in 1986. (a steel service corporation),
Advocate Health Care and BoardSource
(formerly the National Center for Nonprofit
Boards). She is Chairman Emeritus of the
Board of Trustees, Mount Holyoke College,
having served as Chairman for five years and
as a board member for thirteen years. Until
2002, Ms. Baxter was a Director of Intermatic
Corporation (a manufacturer of energy control
products).
-----------------------------------------------------------------------------------------------------------
Charles B. Curtis President and Chief Member of the Council on Foreign
(4/27/40), Trustee since 2001 Operating Officer, Relations and the Trustee Advisory Council
Nuclear Threat Initiative of the Applied Physics Laboratory, Johns
(a private foundation Hopkins University. Until 2003, Mr. Curtis was
dealing with national a Member of the Electric Power Research
security issues) and Institute Advisory Council and the University
serves as Senior Advisor of Chicago Board of Governors for Argonne
to the United Nations National Laboratory. Prior to 2002, Mr. Curtis
Foundaton. From August was a Member of the Board of Directors of the
1997 to December 1999, Gas Technology Institute and the Board of
Mr. Curtis was a partner Directors of the Environment and Natural
at Hogan & Hartson Resources Program Steering Committee, John F.
L.L.P., a Washington, DC Kennedy School of Government, Harvard
law firm. University. Until 2001, Mr. Curtis was a Member
of the Department of Defense Policy Board and
Director of EG&G Technical Services, Inc.
(a fossil energy research and development
support company).
-----------------------------------------------------------------------------------------------------------
Myra R. Drucker
(1/16/48), Trustee since 2004 Managing Director and Vice Chair of Board of Trustees, Sarah Lawrence
Member of Board of Direc- College; Trustee, Commonfund; Member of Investment
tors, General Motors Asset Committee, Kresge Foundation.
Management; Chief Invest-
ment Officer, General
Motors Trust Bank. Prior
to 2001, Ms. Drucker
served as Chief Investment
Officer at Xerox Corpor-
ation and Staff Vice
President and Director of
Trust Investments for
International Paper.
-----------------------------------------------------------------------------------------------------------
John A. Hill Vice Chairman, First Director of Devon Energy Corporation,
(1/31/42), Reserve Corporation (a TransMontaigne Oil Company, Continuum
Trustee since 1985 and private equity buyout Health Partners of New York and various
Chairman since 2000 firm that specializes private companies controlled by First
in energy investments Reserve Corporation, as well as a Trustee
in the diversified of TH Lee Putnam Investment Trust (a
world-wide energy closed-end investment company advised by an
industry). affiliate of Putnam Management). He is also
a Trustee of Sarah Lawrence College.
-----------------------------------------------------------------------------------------------------------
Ronald J. Jackson Private investor. President of the Kathleen and Ronald J. Jackson
(12/17/43), Foundation (a charitable trust). He is also
Trustee since 1996 a Member of the Board of Overseers of WGBH (a
public television and radio station) as well as
a Member of the Board of Overseers of the
Peabody Essex Museum.
-----------------------------------------------------------------------------------------------------------
Paul L. Joskow (6/30/47), Elizabeth and James Director of National Grid Transco (a UK-based
Trustee since 1997 Killian Professor of holding company with interests in electric and
Economics and Management gas transmission and distribution and
and Director of the telecommunications infrastructure) and
Center for Energy and TransCanada Corporation (an energy company
Environmental Policy focused on natural gas transmission and power
Research at the services). He also serves on the board of the
Massachusetts Institute Whitehead Institute for Biomedical Research
of Technology. (a non-profit research institution) and has
been President of the Yale University Council
since 1993. Prior to February 2002, he was a
Director of State Farm Indemnity Company (an
automobile insurance company), and prior to
March 2000, he was a Director of New England
Electric System (a public utility holding
company).
-----------------------------------------------------------------------------------------------------------
Elizabeth T. Kennan Partner in Cambus-Kenneth Lead Director of Northeast Utilities and is a
(2/25/38), Trustee Farm (thoroughbred horse Director of Talbots, Inc. (a distributor of
since 1992 and cattle breeding). women's apparel). She is a Trustee of National
She is President Emeritus Trust for Historic Preservation, of Centre
of Mount Holyoke College. College and of Midway College (in Midway,
Kentucky). She is also a Member of The Trustees
of Reservations. Prior to 2001, Dr. Kennan
served on the oversight committee of the Folger
Shakespeare Library. Prior to September 2000,
she was a Director of Chastain Real Estate;
prior to June 2000, she was a Director of Bell
Atlantic Corp.; and prior to November 1999,
she was a Director of Kentucky Home Life
Insurance Co.
-----------------------------------------------------------------------------------------------------------
John H. Mullin, III Chairman and CEO of Director of The Liberty Corporation (a
(6/15/41), Trustee Ridgeway Farm (a limited broadcasting company), Progress Energy, Inc. (a
since 1997 liability company engaged utility company, formerly known as Carolina
in timber and farming). Power & Light) and Sonoco Products, Inc. (a
packaging company). Mr. Mullin is Trustee
Emeritus of The National Humanitites Center and
Washington & Lee University, where he served as
Chairman of the Investment Committee. Until
February 2004 and May 2001, he was a Director
of Alex Brown Realty, Inc. and Graphic
Packaging International Corp., respectively.
-----------------------------------------------------------------------------------------------------------
Robert E. Patterson Senior Partner of Cabot Chairman of the Joslin Diabetes Center and a
(3/15/45), Trustee Properties, L.P. and Director of Brandywine Trust Company. Prior to
since 1984 Chairman of Cabot June 2003 and December 2001, Mr. Patterson
Properties, Inc. (a served as a Trustee of Sea Education Association
private equity firm and Cabot Industrial Trust, respectively.
specializing in real
estate investments).
Prior to December 2001,
he was President of Cabot
Industrial Trust (a
publicly traded real
estate investment
trust).
-----------------------------------------------------------------------------------------------------------
W. Thomas Stephens Serves on a number Director of Xcel Energy Incorporated (a public
(9/2/42), Trustee of corporate boards. utility company) and TransCanada Pipelines
since 1997 Limited. Until 2004, Mr. Stephens was a Director
of Qwest Communications and Norske Canada, Inc.
(a paper manufacturer). Until 2003, Mr.
Stephens was a Director of Mail-Well, Inc. (a
diversified printing company). Prior to July
2001, Mr. Stephens was Chairman of Mail-Well;
and prior to October 1999, he was CEO of
MacMillan-Bloedel, Ltd. (a forest products
company).
-----------------------------------------------------------------------------------------------------------
Richard B. Worley Managing Partner, Member, Executive Committee of University of
(11/15/45), Trustee Permit Capital LLC. Pennsylvania Medical Center; Trustee, The Robert
since 2004 Wood Johnson Foundation; Director, The Colonial
Williamsburg Foundation.
-----------------------------------------------------------------------------------------------------------
Interested Trustees
-----------------------------------------------------------------------------------------------------------
*Charles E. Haldeman, Jr. President and Chief Trustee, Dartmouth College; Emeritus Trustee,
(10/29/48), Executive Officer, Abington Memorial Hospital.
Trustee since 2004 Putnam Investments.
Prior to November 2003,
Mr. Haldeman served as
Co-Head of Putnam Invest-
ments' Investment
Division. Prior to
joining Putnam Investments
in 2002, Mr. Haldeman
served as Chief Executive
Officer of Delaware
Investments and President
& Chief Operating Officer
of United Asset
Management.
-----------------------------------------------------------------------------------------------------------
*George Putnam III President of New Director of The Boston Family Office, L.L.C.
(8/10/51), Trustee Generation Research, Inc. (a registered investment advisor), and a Trustee
since 1984 and (a publisher of financial of St. Mark's School and Shore Country Day School.
President since advisory and other Until 2002, Mr. Putnam was a Trustee of the Sea
2000 research services) and Education Association.
of New Generation
Advisers, Inc. (a
registered investment
adviser to private funds).
Both firms he founded
in 1986.
-----------------------------------------------------------------------------------------------------------
*A.J.C. Smith Chairman of Putnam Director of Trident Corp. (a limited partnership
(4/13/34), Trustee Investments and Director with over thirty institutional investors). He
since 1986 of and Consultant to is also a Trustee of the Carnegie Hall Society,
Marsh & McLennan the Educational Broadcasting Corporation and the
Companies, Inc. Prior National Museums of Scotland. He is Chairman of
to May 2000 and November the Central Park Conservancy and a Member of the
1999, Mr. Smith was Board of Overseers of the Joan and Sanford I.
Chairman and CEO, Weill Graduate School of Medical Sciences of
respectively, of Marsh Cornell University.
& McLennan Companies, Inc.
-----------------------------------------------------------------------------------------------------------
1 The address of each Trustee is One Post Office Square, Boston, MA
02109. As of December 31, 2003, there were 101 Putnam Funds.
2 Each Trustee serves for an indefinite term, until his or her
resignation, retirement at age 72, death or removal.
* Trustees who are or may be deemed to be "interested persons" (as defined
in the Investment Company Act of 1940) of the fund, Putnam Management,
Putnam Retail Management, or Marsh & McLennan Companies, Inc., the parent
company of Putnam Investments and its affiliated companies. Messrs.
Putnam, III, Haldeman and Smith are deemed "interested persons" by virtue
of their positions as officers of the funds, Putnam Management, Putnam
Retail Management or Marsh & McLennan Companies, Inc. and as shareholders
of Marsh & McLennan Companies, Inc. Mr. Haldeman is the Chief Executive
Officer of Putnam Investments. He was elected to the Board of Trustees
after December 31, 2003. Mr. Putnam, III is the President of your fund and
each of the other Putnam Funds. Mr. Smith is Chairman of Putnam
Investments and serves as Director of and Consultant to Marsh & McLennan
Companies, Inc.
Officers
In addition to George Putnam III, the other officers of the fund are shown below:
-----------------------------------------------------------------------------------------------------------
Name, Address (1), Date of
Birth, Position(s) Held Length of service with
with Fund the Putnam Funds Principal Occupation(s) During Past 5 Years
-----------------------------------------------------------------------------------------------------------
Charles E. Porter Since 1989 Managing Director, Putnam Investments and
(7/26/38), Executive Putnam Management.
Vice President, Associate
Treasurer and Principal
Executive Officer
-----------------------------------------------------------------------------------------------------------
Jonathan S. Horwitz Since 2004 Managing Director, Putnam Investments.
(6/4/55), Senior Vice
President and Treasurer
-----------------------------------------------------------------------------------------------------------
Steven D. Krichmar Since 2002 Senior Managing Director, Putnam Investments.
(6/27/58), Vice President Prior to 2001, Mr. Krichmar was a partner at
and Principal Financial PricewaterhouseCoopers LLP.
Officer
-----------------------------------------------------------------------------------------------------------
Michael T. Healy Since 2000 Managing Director, Putnam Investments.
(1/24/58), Assistant
Treasurer and Principal
Accounting Officer
-----------------------------------------------------------------------------------------------------------
Beth S. Mazor Since 2002 Senior Vice President, Putnam Investments.
(4/6/58), Vice President
-----------------------------------------------------------------------------------------------------------
Daniel T. Gallagher Since 2004 Vice President, Putnam Investments. Prior to 2004,
(2/27/62), Vice President Mr. Gallagher was an attorney for Ropes & Gray
and Legal and Compliance LLP; prior to 2000, he was a law clerk for the
Liaison Officer Massachusetts Supreme Judicial Court.
-----------------------------------------------------------------------------------------------------------
Mark C. Trenchard Since 2002 Senior Vice President, Putnam Investments.
(6/5/62), Vice President
and BSA Compliance Officer
-----------------------------------------------------------------------------------------------------------
Francis J. McNamara, III Since 2004 Senior Managing Director, Putnam Investments,
(8/19/55), Vice President Putnam Management and Putnam Retail Management.
and Chief Legal Officer Prior to 2004, Mr. McNamara was General Counsel
of State Street Research & Management Company.
-----------------------------------------------------------------------------------------------------------
Charles A. Ruys de Perez Since 2004 Managing Director, Putnam Investments.
(6/17/57), Vice President
and Chief Compliance
Officer
-----------------------------------------------------------------------------------------------------------
James P. Pappas Since 2004 Managing Director, Putnam Investments and Putnam
(2/24/53), Vice President Management. During 2002, Mr. Pappas was Chief
Operating Officer of Atalanta/Sosnoff Management
Corporation. Prior to 2001, he was President and
Chief Executive Officer of UAM Investment
Services, Inc.
-----------------------------------------------------------------------------------------------------------
Richard S. Robie, III Since 2004 Senior Managing Director, Putnam Investments,
(3/30/60), Vice President Putnam Management and Putnam Retail Management.
Prior to 2003, Mr. Robie was Senior Vice President
of United Asset Management Corporation.
-----------------------------------------------------------------------------------------------------------
Judith Cohen Since 1993 Clerk and Assistant Treasurer, The Putnam Funds.
(6/7/45), Clerk and
Assistant Treasurer
-----------------------------------------------------------------------------------------------------------
1 The address of each Officer is One Post Office Square, Boston, MA 02109.
Except as stated above, the principal occupations of the officers and
Trustees for the last five years have been with the employers as shown
above, although in some cases they have held different positions with
such employers.
Committees of the Board of Trustees
Audit and Pricing Committee. The Audit and Pricing Committee provides
oversight on matters relating to the preparation of the funds' financial
statements, compliance matters and Code of Ethics issues. This oversight
is discharged by regularly meeting with management and the funds'
independent registered public accounting firm and keeping current on
industry developments. Duties of this Committee also include the review
and evaluation of all matters and relationships pertaining to the funds'
independent registered public accounting firm, including their
independence. The members of the Committee include only Trustees who are
not "interested persons" of the funds or Putnam Management. Each member of
the Committee is "independent" as defined in Sections 303.01(B)(2)(a) and
(3) of the listing standards of the New York Stock Exchange and as defined
in Section 121(A) of the listing standards of the American Stock Exchange.
The Trustees have adopted a written charter for the Committee. The
Committee also reviews the funds' policies and procedures for achieving
accurate and timely pricing of the funds' shares, including oversight of
fair value determinations of individual securities made by Putnam
Management or other designated agents of the funds. The Committee oversees
compliance by money market funds with Rule 2a-7, interfund transactions
pursuant to Rule 17a-7, and the correction of occasional pricing errors.
The Committee also receives reports regarding the liquidity of portfolio
securities. The Audit and Pricing Committee currently consists of Drs.
Joskow (Chairperson) and Kennan, and Messrs. Patterson and Stephens.
Board Policy and Nominating Committee. The Board Policy and Nominating
Committee reviews matters pertaining to the operations of the Board of
Trustees and its Committees, the compensation of the Trustees and their
staff, and the conduct of legal affairs for the funds. The Committee
evaluates and recommends all candidates for election as Trustees and
recommends the appointment of members and chairs of each board
committee. The Committee also reviews policy matters affecting the
operation of the Board and its independent staff and makes
recommendations to the Board as appropriate. The Committee consists
only of Trustees who are not "interested persons" of the funds or Putnam
Management. The Committee also oversees the voting of proxies
associated with portfolio investments of the Putnam funds with the goal
of ensuring that these proxies are voted in the best interest of the
funds' shareholders. The Board Policy and Nominating Committee
currently consists of Dr. Kennan (Chairperson), Ms. Baxter and Messrs.
Hill, Mullin and Patterson. The Board Policy and Nominating Committee
will consider nominees for trustee recommended by shareholders of a fund
provided shareholders submit their recommendations by the date disclosed
in the fund's proxy statement and provided the shareholders'
recommendations otherwise comply with applicable securities laws,
including Rule 14a-8 under the Securities Exchange Act of 1934.
Brokerage and Custody Committee. The Brokerage and Custody Committee
reviews the policies and procedures of the funds regarding the execution
of portfolio transactions for the funds, including policies regarding
the allocation of brokerage commissions and soft dollar credits. The
Committee reviews periodic reports regarding the funds' activities
involving derivative securities. The Committee also reviews and
evaluates matters relating to the funds' custody arrangements. The
Committee currently consists of Messrs. Jackson (Chairperson), Curtis
and Mullin, Ms. Baxter and Dr. Kennan.
Communication, Service, and Marketing Committee. This Committee
examines the quality, cost and levels of services provided to the
shareholders of the Putnam funds. The Committee also reviews
communications sent from the funds to their shareholders, including
shareholder reports, prospectuses, newsletters and other materials. In
addition, this Committee oversees marketing and sales communications of
the funds' distributor. The Committee currently consists of Messrs.
Putnam (Chairperson), Smith and Stephens and Dr. Joskow.
Contract Committee. The Contract Committee reviews and evaluates at
least annually all arrangements pertaining to (i) the engagement of
Putnam Investment Management and its affiliates to provide services to
the funds, (ii) the expenditure of the funds' assets for distribution
purposes pursuant to the Distribution Plans of the funds, and (iii) the
engagement of other persons to provide material services to the funds,
including in particular those instances where the cost of services is
shared between the funds and Putnam Investment Management and its
affiliates or where Putnam Investment Management or its affiliates have
a material interest. The Committee recommends to the Trustees such
changes in arrangements that it deems appropriate. After review and
evaluation, the Committee recommends to the Trustees the proposed
organization of new fund products, and proposed structural changes to
existing funds. The Committee is comprised exclusively of Independent
Trustees. The Committee currently consists of Ms. Baxter (Chairperson),
Messrs. Curtis, Jackson, and Mullin and Dr. Kennan.
Distributions Committee. This Committee oversees all fund distributions
and the management of the closed-end funds. In regard to distributions,
the Committee approves the amount and timing of distributions paid by
all the funds to the shareholders when the Trustees are not in session.
This Committee also meets regularly with representatives of Putnam
Investments to review distribution levels and the funds' distribution
policies. Its oversight of the funds includes (i) investment
performance, (ii) trading activity, (iii) determinations with respect to
sunroof provisions, (iv) disclosure practices and (v) the use of
leverage. The Committee currently consists of Messrs. Patterson
(Chairperson) and Jackson and Dr. Joskow.
Executive Committee. The functions of the Executive Committee are
twofold. The first is to ensure that the funds' business may be
conducted at times when it is not feasible to convene a meeting of the
Trustees or for the Trustees to act by written consent. The Committee
may exercise any or all of the power and authority of the Trustees when
the Trustees are not in session. The second is to establish annual and
ongoing goals, objectives and priorities for the Board of Trustees and
to insure coordination of all efforts between the Trustees and Putnam
Investments on behalf of the shareholders of the Putnam funds. The
Committee currently consists of Messrs. Hill (Chairman), Jackson, and
Putnam, Dr. Joskow and Ms. Baxter.
Investment Oversight Committees. These Committees regularly meet with
investment personnel of Putnam Investment Management to review the
investment performance and strategies of the Putnam funds in light of
their stated investment objectives and policies. Investment Oversight
Committee A currently consists of Ms. Baxter (Acting Chairperson), and
Mr. Smith. Investment Oversight Committee B currently consists of
Messrs. Curtis (Chairperson), Hill and Stephens. Investment Committee C
currently consists of Messrs. Mullin (Chairperson) and Putnam, and Dr.
Kennan. Investment Oversight Committee D currently consists of Messrs.
Patterson (Chairperson) and Jackson and Dr. Joskow.
The Agreement and Declaration of Trust of each fund provides that the
fund will indemnify its Trustees and officers against liabilities and
expenses incurred in connection with litigation in which they may be
involved because of their offices with the fund, except if it is
determined in the manner specified in the Agreement and Declaration of
Trust that they have not acted in good faith in the reasonable belief
that their actions were in the best interests of the fund or that such
indemnification would relieve any officer or Trustee of any liability to
the fund or its shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of his or her duties.
Each fund, at its expense, provides liability insurance for the benefit
of its Trustees and officers.
Putnam Management and its affiliates
Putnam Management is one of America's oldest and largest money
management firms. Putnam Management's staff of experienced portfolio
managers and research analysts selects securities and constantly
supervises each fund's portfolio. By pooling an investor's money with
that of other investors, a greater variety of securities can be
purchased than would be the case individually; the resulting
diversification helps reduce investment risk. Putnam Management has
been managing mutual funds since 1937.
Putnam Management is a subsidiary of Putnam Management Trust, a
Massachusetts business trust owned by Putnam LLC, which is also the parent
company of Putnam Retail Management, Putnam Advisory Company, LLC (a
wholly-owned subsidiary of The Putnam Advisory Company Trust), Putnam
Investments Limited (a wholly-owned subsidiary of The Putnam Advisory
Company Trust) and Putnam Fiduciary Trust Company. Putnam LLC, which
generally conducts business under the name Putnam Investments, is a
wholly-owned subsidiary of Putnam Investments Trust, a holding company
that, except for a minority stake owned by employees, is owned by Marsh &
McLennan Companies, Inc., a publicly-owned holding company whose principal
businesses are international insurance and reinsurance brokerage, employee
benefit consulting and investment management.
Trustees and officers of the funds who are also officers of Putnam
Management or its affiliates or who are stockholders of Marsh & McLennan
Companies, Inc. will benefit from the advisory fees, sales commissions,
distribution fees, custodian fees and transfer agency fees paid or
allowed by each fund.
The Management Contract
Under a Management Contract between each fund and Putnam Management,
subject to such policies as the Trustees may determine, Putnam
Management, at its expense, furnishes continuously an investment program
for the fund and makes investment decisions on behalf of the fund.
Subject to the control of the Trustees and under a management contract
for each fund, Putnam Management also manages, supervises and conducts
the other affairs and business of each fund, furnishes office space and
equipment, provides bookkeeping and clerical services (including
determination of the fund's net asset value, but excluding shareholder
accounting services) and places all orders for the purchase and sale of
the fund's portfolio securities. Putnam Management may place fund
portfolio transactions with broker-dealers that furnish Putnam
Management, without cost to it, certain research, statistical and
quotation services of value to Putnam Management and its affiliates in
advising the fund and other clients. In so doing, Putnam Management may
cause a fund to pay greater brokerage commissions than it might
otherwise pay.
For details of Putnam Management's compensation under the Management
Contract, see "Charges and expenses." Putnam Management's compensation
under the Management Contract may be reduced in any year if a fund's
expenses exceed the limits on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of
the fund are qualified for offer or sale. The term "expenses" is
defined in the statutes or regulations of such jurisdictions, and
generally excludes brokerage commissions, taxes, interest, extraordinary
expenses and, if a fund has a distribution plan, payments made under
such plan.
Under each fund's Management Contract, Putnam Management may reduce its
compensation to the extent that a fund's expenses exceed such lower expense
limitation as Putnam Management may, by notice to the fund, declare to be
effective. For the purpose of determining any such limitation on Putnam
Management's compensation, expenses of a fund shall not reflect the
application of commissions or cash management credits that may reduce
designated fund expenses. The terms of any such expense limitation from
time to time in effect are described in the Prospectus.
In addition to the fee paid to Putnam Management, each fund reimburses
Putnam Management for the compensation and related expenses of certain
officers of the fund and their assistants who provide certain
administrative services for the fund and the other Putnam funds, each of
which bears an allocated share of the foregoing costs. The aggregate
amount of all such payments and reimbursements is determined annually by
the Trustees.
The amount of this reimbursement for each fund's most recent fiscal year
is included in "Charges and Expenses." Putnam Management pays all other
salaries of officers of each fund. Each fund pays all expenses not
assumed by Putnam Management including, without limitation, auditing,
legal, custodial, investor servicing and shareholder reporting expenses.
Each fund pays the cost of typesetting for its prospectuses and the
cost of printing and mailing any prospectuses sent to its shareholders.
The Management Contract provides that Putnam Management shall not be
subject to any liability to a fund or to any shareholder of a fund for
any act or omission in the course of or connected with rendering
services to a fund in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its duties on the part of
Putnam Management.
The Management Contract may be terminated without penalty by vote of the
Trustees or the shareholders of each fund, or by Putnam Management, on
30 days' written notice. It may be amended only by a vote of the
shareholders of a fund. The Management Contract also terminates without
payment of any penalty in the event of its assignment. The Management
Contract provides that it will continue in effect only so long as such
continuance is approved at least annually by vote of either the Trustees
or the shareholders, and, in either case, by a majority of the Trustees
who are not "interested persons" of Putnam Management or the applicable
fund. In each of the foregoing cases, the vote of the shareholders is
the affirmative vote of a "majority of the outstanding voting
securities" as defined in the Investment Company Act of 1940.
In considering the Management Contract, the Trustees consider numerous
factors they believe to be relevant, including the advisor's research
and decision-making processes, the methods adopted to assure compliance
with the fund's investment objectives, policies and restrictions; the
level of research required to select the securities appropriate for
investment by the fund; the education, experience and number of advisory
personnel; the level of skill and effort required to manage a fund; the
value of services provided by the advisor; the economies and
diseconomies of scale reflected in the management fee; the advisor's
profitability; the financial condition and stability of the advisor; the
advisor's trade allocation methods; the standards and performance in
seeking best execution; allocation for brokerage and research and use of
soft dollars; and a fund's total return performance compared with its
peers. Putnam has established several management fee categories to fit
the particular characteristics of different types of funds.
The nature and complexity of international and global funds generally
makes these funds more research intensive than funds that invest mainly
in U.S. companies, due to the greater difficulty of obtaining
information regarding the companies in which a fund invests, and the
governmental, economic and market conditions of the various countries
outside of the U.S. In addition, trade execution and settlement may be
more costly than in the U.S.
Conversely, the research intensity for a U.S. money market or bond fund
is typically less than for a international or global fund or a U.S.
equity fund due to the more ready availability of information regarding
the issuer, the security, the accessibility of the trading market and
the typically lower trading and execution costs. See "Portfolio
Transactions--Brokerage and Research Services."
The Sub-Manager
Putnam Investments Limited ("PIL"), a wholly-owned subsidiary of The
Putnam Advisory Company, LLC and an affiliate of Putnam Management, has
been retained as the sub-manager for a portion of the assets of each
fund as determined by Putnam Management from time to time. PIL may
serve as sub-manager pursuant to the terms of a sub-management agreement
between Putnam Management and PIL. PIL's address is Cassini House,
57-59 St James's Street, London, England, SW1A 1LD.
Under the terms of the sub-management contract, PIL, at its own expense,
furnishes continuously an investment program for that portion of each
fund that is allocated to PIL from time to time by Putnam Management and
makes investment decisions on behalf of such portion of each fund,
subject to the supervision of Putnam Management. Putnam Management may
also, at its discretion, request PIL to provide assistance with
purchasing and selling securities for each fund, including placement of
orders with certain broker-dealers. PIL, at its expense, furnishes all
necessary investment and management facilities, including salaries of
personnel, required for it to execute its duties.
The sub-management contract provides that PIL shall not be subject to
any liability to Putnam Management, each fund or any shareholder of each
fund for any act or omission in the course of or connected with
rendering services to each fund in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations and
duties on the part of PIL.
The sub-management contract may be terminated with respect to each fund
without penalty by vote of the Trustees or the shareholders of each
fund, or by PIL or Putnam Management, on 30 days' written notice. The
sub-management contract also terminates without payment of any penalty
in the event of its assignment. Subject to applicable law, it may be
amended by a majority of the Trustees who are not "interested persons"
of Putnam Management or the fund. The sub-management contract provides
that it will continue in effect only so long as such continuance is
approved at least annually by vote of either the Trustees or the
shareholders, and, in either case, by a majority of the Trustees who are
not "interested persons" of Putnam Management or each fund. In each of
the foregoing cases, the vote of the shareholders is the affirmative
vote of a "majority of the outstanding voting securities" as defined in
the Investment Company Act of 1940.
Portfolio Transactions
Investment decisions. Investment decisions for a fund and for the other
investment advisory clients of Putnam Management and its affiliates are
made with a view to achieving their respective investment objectives.
Investment decisions are the product of many factors in addition to
basic suitability for the particular client involved. Thus, a
particular security may be bought or sold for certain clients even
though it could have been bought or sold for other clients at the same
time. Likewise, a particular security may be bought for one or more
clients when one or more other clients are selling the security. In
some instances, one client may sell a particular security to another
client. It also sometimes happens that two or more clients
simultaneously purchase or sell the same security, in which event each
day's transactions in such security are, insofar as possible, averaged
as to price and allocated between such clients in a manner which in
Putnam Management's opinion is equitable to each and in accordance with
the amount being purchased or sold by each. There may be circumstances
when purchases or sales of portfolio securities for one or more clients
will have an adverse effect on other clients.
Brokerage and research services. Transactions on U.S. stock exchanges,
commodities markets and futures markets and other agency transactions
involve the payment by a fund of negotiated brokerage commissions. Such
commissions vary among different brokers. A particular broker may
charge different commissions according to such factors as the difficulty
and size of the transaction. Transactions in foreign investments often
involve the payment of fixed brokerage commissions, which may be higher
than those in the United States. Each fund pays commissions on certain
securities traded in the over-the-counter markets. In underwritten
offerings, the price paid by a fund includes a disclosed, fixed
commission or discount retained by the underwriter or dealer. It is
anticipated that most purchases and sales of securities by funds
investing primarily in tax-exempt securities and certain other
fixed-income securities will be with the issuer or with underwriters of
or dealers in those securities, acting as principal. Accordingly, those
funds would not ordinarily pay significant brokerage commissions with
respect to securities transactions. See "Charges and expenses" for
information concerning commissions paid by each fund.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional
investors to receive brokerage and research services (as defined in the
Securities Exchange Act of 1934, as amended (the "1934 Act")) from
broker-dealers that execute portfolio transactions for the clients of
such advisers and from third parties with which such broker-dealers have
arrangements. Consistent with this practice, Putnam Management receives
brokerage and research services and other similar services from many
broker-dealers with which Putnam Management places the fund's portfolio
transactions and from third parties with which these broker-dealers have
arrangements. These services include such matters as economic analysis,
investment research and database services, industry and company reviews,
evaluations of investments, recommendations as to the purchase and sale
of investments, performance measurement services, subscriptions, pricing
services, quotation services, news services and computer equipment
(investment-related hardware and software) utilized by Putnam
Management's managers and analysts. Where the services referred to
above are used by Putnam Management not exclusively for research
purposes, Putnam Management, based upon its own allocations of expected
use, bears that portion of the cost of these services which directly
relates to their non-research use. Some of these services are of value
to Putnam Management and its affiliates in advising various of their
clients (including the fund), although not all of these services are
necessarily useful and of value in managing the fund. The management
fee paid by a fund is not reduced because Putnam Management and its
affiliates receive these services even though Putnam Management might
otherwise be required to purchase some of these services for cash.
Putnam Management places all orders for the purchase and sale of
portfolio investments for each fund and buys and sells investments for
each fund through a substantial number of brokers and dealers. In so
doing, Putnam Management uses its best efforts to obtain for the fund
the most favorable price and execution available, except to the extent
it may be permitted to pay higher brokerage commissions as described
below. In seeking the most favorable price and execution, Putnam
Management, having in mind each fund's best interests, considers all
factors it deems relevant, including, by way of illustration, price, the
size of the transaction, the nature of the market for the security or
other investment, the amount of the commission, the timing of the
transaction taking into account market prices and trends, the
reputation, experience and financial stability of the broker-dealer
involved and the quality of service rendered by the broker-dealer in
other transactions.
As permitted by Section 28(e) of the 1934 Act, and by the Management
Contract, Putnam Management may cause a fund to pay a broker-dealer
which provides "brokerage and research services" (as defined in the 1934
Act) to Putnam Management an amount of disclosed commission for
effecting securities transactions on stock exchanges and other
transactions for the fund on an agency basis in excess of the commission
which another broker-dealer would have charged for effecting that
transaction. Putnam Management's authority to cause a fund to pay any
such greater commissions is subject to such policies as the Trustees may
adopt from time to time. Putnam Management does not currently intend to
cause the funds to make such payments. It is the position of the staff
of the Securities and Exchange Commission that Section 28(e) does not
apply to the payment of such greater commissions in "principal"
transactions. Accordingly Putnam Management will use its best effort to
obtain the most favorable price and execution available with respect to
such transactions, as described above.
The Management Contract provides that commissions, fees, brokerage or
similar payments received by Putnam Management or an affiliate in
connection with the purchase and sale of portfolio investments of each
fund, less any direct expenses approved by the Trustees, shall be
recaptured by the fund through a reduction of the fee payable by the
fund under the Management Contract. Putnam Management seeks to
recapture for the fund soliciting dealer fees on the tender of the
fund's portfolio securities in tender or exchange offers. Any such fees
which may be recaptured are likely to be minor in amount.
Personal Investments by Employees of Putnam Management and Officers and
Trustees of the Funds
Employees of Putnam Management and officers and Trustees of the funds
are subject to significant restrictions on engaging in personal
securities transactions. These restrictions are set forth in the Codes
of Ethics adopted by Putnam Management (The Putnam Investments' Code of
Ethics) and by the funds (the Putnam Funds' Code of Ethics). The Putnam
Investments' Code of Ethics and the Putnam Funds' Code of Ethics, in
accordance with Rule 17j-1 of the Investment Company Act of 1940, as
amended, contain provisions and requirements designed to identify and
address certain conflicts of interest between personal investment
activities and the interests of the fund.
The Putnam Investments' Code of Ethics does not prohibit personnel from
investing in securities that may be purchased or held by the funds.
However, the Putnam Investments' Code, consistent with standards
recommended by the Investment Company Institute's Advisory Group on
Personal Investing and requirements established by Rule 17j-1, among
other things, prohibits personal securities investments without
pre-clearance, imposes time periods during which personal transactions
may not be made in certain securities by employees with access to
investment information, and requires the timely submission of broker
confirmations and quarterly reporting of personal securities
transactions. Additional restrictions apply to portfolio managers,
traders, research analysts and others involved in the investment
advisory process.
The Putnam Funds' Code of Ethics incorporates and applies the
restrictions of Putnam Investments' Code of Ethics to officers and
Trustees of the funds who are affiliated with Putnam Investments. The
Putnam Funds' Code does not prohibit unaffiliated officers and Trustees
from investing in securities that may be held by the funds; however, the
Putnam Funds' Code regulates the personal securities transactions of
unaffiliated Trustees of the funds, including limiting the time periods
during which they may personally buy and sell certain securities and
requiring them to submit reports of personal securities transactions
under certain circumstances.
The funds' Trustees, in compliance with Rule 17j-1, approved Putnam
Investments' and the Putnam Funds' Codes of Ethics and are required to
approve any material changes to these Codes. The Trustees also provide
continued oversight of personal investment policies and annually
evaluate the implementation and effectiveness of the Codes of Ethics.
You may review and copy the Codes of Ethics at the SEC's public reference
room at 450 Fifth Street, NW, Washington, D.C. You may call the SEC at
1-800-SEC-0330 for information about the operation of the public
reference room. You may obtain copies of this information, with payment
of a duplication fee, by electronic request at the following e-mail
address: publicinfo@sec.gov, or by writing the SEC's Public Reference
Section, Washington, D.C. 20549-0102. You may also access this
information on the EDGAR Database on the SEC's Internet site at
http://www.sec.gov.
Investor Servicing Agent and Custodian
Putnam Investor Services, a division of Putnam Fiduciary Trust Company
("PFTC"), is the funds' investor servicing agent (transfer, plan and
dividend disbursing agent), for which it receives fees that are paid
monthly by each fund as an expense of each fund's shareholders. The fee
paid to Putnam Investor Services is determined on the basis of the
number of shareholder accounts and the assets of each fund.
PFTC is the custodian of each fund's assets. In carrying out its duties
under its custodian contract, PFTC may employ one or more subcustodians
whose responsibilities include safeguarding and controlling each fund's
cash and securities, handling the receipt and delivery of securities and
collecting interest and dividends on each fund's investments. PFTC and
any subcustodians employed by it have a lien on the securities of each
fund (to the extent permitted by each fund's investment restrictions) to
secure charges and any advances made by such subcustodians at the end of
any day for the purpose of paying for securities purchased by a fund.
Each fund expects that such advances will exist only in unusual
circumstances. Neither PFTC nor any subcustodian determines the
investment policies of each fund or decides which securities each fund
will buy or sell. PFTC pays the fees and other charges of any
subcustodians employed by it. Each fund pays PFTC an annual fee based
on each fund's assets, securities transactions and securities holdings
and reimburses PFTC for certain out-of-pocket expenses incurred by it or
any subcustodian employed by it in performing custodial services.
Each fund may from time to time pay custodial or investor servicing
agent expenses in full or in part through the placement by Putnam
Management of each fund's portfolio transactions with the subcustodians
or with a third party broker having an agreement with the subcustodians.
See "Charges and expenses" for information on fees and reimbursements
for investor servicing and custody received by PFTC. The fees may be
reduced by credits allowed by PFTC.
Counsel to the Funds and the Independent Trustees
Ropes & Gray LLP serves as counsel to the funds and the independent
Trustees, and is located at One International Place, Boston,
Massachusetts 02110.
PROXY VOTING GUIDELINES AND PROCEDURES
The Trustees of the Putnam funds have established proxy voting
guidelines and procedures that govern the voting of proxies for the
securities held in the funds' portfolios. The proxy voting guidelines
summarize the funds' positions on various issues of concern to
investors, and provide direction to the proxy voting service used by the
funds as to how fund portfolio securities should be voted on proposals
dealing with particular issues. The proxy voting procedures explain the
role of the Trustees, Putnam Management, the proxy voting service and
the funds' proxy coordinator in the proxy voting process, describe the
procedures for referring matters involving investment considerations to
the investment personnel of Putnam Management and describe the
procedures for handling potential conflicts of interest. The Putnam
funds' proxy voting guidelines and procedures are included in this SAI
as Appendix A.
Information regarding how the funds voted proxies relating to portfolio
securities during the 12-month period ended June 30, 2004 is available
on the Putnam Individual Investor Web site, www.putnam.com/individual,
and on the SEC's Web site at http://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 by calling Putnam's Shareholder Services at
1-800-225-1581.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND FINANCIAL STATEMENTS
KPMG LLP, 99 High Street, Boston, Massachusetts 02110, is the
independent registered public accounting firm for both Premier Income
Trust and Master Income Trust, providing audit services, tax return
review and other tax consulting services and assistance and consultation
in connection with the review of various Securities and Exchange
Commission filings for each fund. The following documents are
incorporated by reference into this Statement of Additional Information:
(i) the Report of Independent Registered Public Accounting Firm and
financial statements included in Premier Income Trust's Annual Report
for the fiscal year ended July 31, 2004, filed electronically on
September 27, 2004 (File No. 811-05452), (ii) the Report of
Independent Registered Public Accounting Firm and financial statements
included in Master Income Trust's Annual Report for the fiscal year
ended October 31, 2003, filed electronically on December 29, 2003 (File
No. 811-05375) and (iii) the financial highlights and financial
statements included in Master Income Trust's Semi-Annual Report for the
six months ended April 30, 2004, filed electronically on June 28, 2004
(File No. 811-05375). The audited financial statements for Premier
Income Trust and Master Income Trust incorporated by reference into this
Statement of Additional Information have been so included and
incorporated in reliance upon the reports of KPMG LLP, given on their
authority as experts in auditing and accounting.
Putnam Master Income Trust
and
Putnam Premier Income Trust
Proforma Combining Financial Statements
(Unaudited)
The accompanying unaudited proforma combining investment portfolio and
statement of assets and liabilities assumes that the exchange described
in the next paragraph occurred as of July 31, 2004, and the unaudited
proforma combining statement of operations for the twelve months ended
July 31, 2004 presents the results of operations of Putnam Premier
Income Trust as if the combination with Putnam Master Income Trust had
been consummated at August 1, 2003. The proforma results of operations
are not necessarily indicative of future operations or the actual
results that would have occurred had the combination been consummated at
August 1, 2003. These historical statements have been derived from
Putnam Premier Income Trust's and Putnam Master Income Trust's books and
records utilized in calculating daily net asset value at July 31, 2004,
and for the twelve month period then ended.
The proforma statements give effect to the proposed transfer of all of
the assets of Putnam Master Income Trust to Putnam Premier Income Trust
in exchange for the assumption by Putnam Premier Income Trust of all of
the liabilities of Putnam Master Income Trust and for a number of Putnam
Premier Income Trust's shares equal in value to the value of the net
assets of Putnam Master Income Trust transferred to Putnam Premier
Income Trust. Under U.S. generally accepted accounting principles, the
historical cost of investment securities will be carried forward to the
surviving entity and the results of operations of Putnam Premier Income
Trust for pre-combination periods will not be restated. The proforma
statement of operations does not reflect the expenses of either fund in
carrying out its obligations under the Agreement and Plan of
Reorganization.
The unaudited proforma combining statements should be read in
conjunction with the separate financial statements of Putnam Premier
Income Trust and Putnam Master Income Trust incorporated by reference in
this statement of additional information.
Putnam Premier Income Trust
Pro Forma Combining (Unaudited)
Statement of Assets and Liabilities
7/31/2004
Putnam Premier
Putnam Putnam Income Trust
Assets Premier Income Master Income Pro Forma Pro Forma
Trust Trust Adjustments Combined
---------------------------------------------------------------------------------------------------------------------------
Investments in securities, at value
Unaffiliated issuers $949,062,277 $358,558,697 1,307,620,974
Affiliated issuers 171,516,532 62,277,762 233,794,294
Cash 1,210,484 484,048 1,694,532
Foreign currency 1,359,982 1,028,962 2,388,944
Dividends, interest and other receivables 15,168,695 5,708,150 20,876,845
Receivable for securities sold 4,647,295 1,905,602 6,552,897
Receivable for open swap contracts 2,437,135 825,722 3,262,857
Receivable for variation margin 291,153 133,862 425,015
Receivable for open forward currency contracts 1,099,625 427,951 1,527,576
Receivable for closed forward currency contracts 339,336 121,723 461,059
---------------------------------------------------------------------------------------------------------------------------
Total assets 1,147,132,514 431,472,479 1,578,604,993
---------------------------------------------------------------------------------------------------------------------------
Liabilities
Distributions payable to shareholders 5,497,322 1,705,232 7,202,554
Payable for securities purchased 144,495,751 48,437,379 192,933,130
Payable for compensation of Manager 1,679,186 689,530 2,368,716
Payable for investor servicing and custodian fees 169,042 98,457 267,499
Payable for Trustee compensation and expenses 98,773 38,192 136,965
Payable for administrative services 1,273 807 2,080
Payable for open forward currency contracts 598,039 228,745 826,784
Payable for closed forward currency contracts 311,459 131,856 443,315
Payable for open swap contracts 217,793 85,486 303,279
Collateral on securities loaned, at value 1,316,566 -- 1,316,566
Other accrued expenses 71,504 34,285 321,894 B 427,683
---------------------------------------------------------------------------------------------------------------------------
Total liabilities 154,456,708 51,449,969 321,894 206,228,571
---------------------------------------------------------------------------------------------------------------------------
Net assets $992,675,806 $380,022,510 (321,894) 1,372,376,422
---------------------------------------------------------------------------------------------------------------------------
Common Shares
Net assets $992,675,806 $380,022,510 (321,894) B $1,372,376,422
Shares outstanding 141,198,870 53,329,917 703,932 C 195,232,719
Net asset value per share $7.03 $7.13 $7.03
Cost of investments
Unaffiliated issuers $959,890,396 $362,232,018 $1,322,122,414
Affiliated issuers 171,516,532 62,277,762 233,794,294
Foreign currency cost 1,379,720 1,029,760 2,409,480
Value of securities on loan 1,258,023 - 1,258,023
Proforma Combining
Statement of Operations
Twelve months ended July 31, 2004 (Unaudited)
Putnam Premier
Putnam Putnam Income Trust
Premier Income Master Income Pro Forma Pro Forma
Trust Trust Adjustments Combined
--------------------------------------------------------------------------------------------------------------------------
Investment Income
Interest (including interest income of $304,226, $68,777 and
$373,003, respectively, from investments in
affiliates) $68,118,359 $26,312,296 94,430,655
Dividends 1,576,800 597,666 2,174,466
Securities lending 2,134 -- 2,134
Total investment income 69,697,293 26,909,962 96,607,255
Expenses:
Compensation of Manager 6,944,320 2,869,050 $(581,245) A 9,232,125
Investor servicing and custodian fees 884,612 489,511 (265,583) A 1,108,540
Compensation of Trustees and expenses 33,083 16,112 (4,595) A 44,600
Administrative Services 16,590 8,537 (1,646) A 23,481
Other expenses 405,981 219,181 (2,860) A 622,302
Fees waived and reimbursed by Manager (44,468) (16,048) (60,516)
---------------------------------------------------------------------------------------------------------------------------
Total Expenses 8,240,118 3,586,343 (855,929) 10,970,532
---------------------------------------------------------------------------------------------------------------------------
Expense reduction (22,769) (15,684) (38,453)
---------------------------------------------------------------------------------------------------------------------------
Net expenses 8,217,349 3,570,659 (855,929) 10,932,079
---------------------------------------------------------------------------------------------------------------------------
Net investment income 61,479,944 23,339,303 855,929 85,675,176
---------------------------------------------------------------------------------------------------------------------------
Net realized income on investments 26,756,700 11,109,449 37,866,149
Net realized loss on futures contracts (6,487,131) (2,140,802) (8,627,933)
Net realized income on credit default contracts 74,035 28,474 102,509
Net realized income on swap contracts 2,018,132 698,413 2,716,545
Net realized loss on foreign currency transactions (454,538) (604,704) (1,059,242)
Net unrealized (depreciation)/appreciation of assets
and liabilities in foreign currency during the year (429,315) 89,893 (339,422)
Net unrealized appreciation of investments, futures
contracts, Swap contracts, TBA sales commitments
and credit default contracts during the year 23,067,710 8,553,835 31,621,545
---------------------------------------------------------------------------------------------------------------------------
Net gain on investments 44,545,593 17,734,558 62,280,151
---------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations $106,025,537 $41,073,861 $855,929 $147,955,327
---------------------------------------------------------------------------------------------------------------------------
The Proforma Combining Investment Portfolio Putnam Premier Income
Trust and Putnam Master Income Trust
July 31, 2004 (unaudited)
Putnam Putnam Putnam Premier
Premier Master Income Trust
Income Income Proforma
Trust Trust Combined
Corporate bonds and notes (a) 40.9% 41.4% 41.1%
Principal Principal Principal
amount Value amount Value amount Value
Basic Materials 4.3% 4.4% 4.3%
Acetex Corp. sr. notes 10 7/8s, 2009 (Canada) $850,000 $928,625 $325,000 $355,063 $1,175,000 $1,283,688
AK Steel Corp. company guaranty 7 7/8s, 2009 1,085,000 1,033,463 280,000 266,700 1,365,000 1,300,163
AK Steel Corp. company guaranty 7 3/4s, 2012 575,000 531,875 345,000 319,125 920,000 851,000
Avecia Group PLC company guaranty
11s, 2009 (United Kingdom) 915,000 699,975 340,000 260,100 1,255,000 960,075
BCP Caylux Holdings Luxembourg SCA 144A sr.
sub. notes 9 5/8s, 2014 (Luxembourg) 815,000 843,525 315,000 326,025 1,130,000 1,169,550
Compass Minerals Group, Inc. company guaranty
10s, 2011 1,035,000 1,148,850 390,000 432,900 1,425,000 1,581,750
Compass Minerals International, Inc. sr. disc.
notes stepped-coupon zero % (12s, 6/1/08),
2013 (STP) 400,000 312,000 155,000 120,900 555,000 432,900
Compass Minerals International, Inc. sr. notes
stepped-coupon zero % (12 3/4s, 12/15/07),
2012 (STP) 1,070,000 877,400 420,000 344,400 1,490,000 1,221,800
Doe Run Resources Corp. company guaranty Ser.
A1, 11 3/4s, 2008 (PIK) 1,603,487 1,202,615 653,280 489,960 2,256,767 1,692,575
Dow Chemical Co. (The) notes 5 3/4s, 2009 1,065,000 1,122,225 415,000 437,299 1,480,000 1,559,524
Equistar Chemicals LP notes 8 3/4s, 2009 265,000 273,613 115,000 118,738 380,000 392,351
Equistar Chemicals LP/Equistar Funding Corp.
company guaranty 10 1/8s, 2008 2,345,000 2,556,050 910,000 991,900 3,255,000 3,547,950
Four M Corp. sr. notes Ser. B, 12s, 2006 -- -- 200,000 200,000 200,000 200,000
Georgia-Pacific Corp. bonds 7 3/4s, 2029 600,000 600,000 230,000 230,000 830,000 830,000
Georgia-Pacific Corp. debs. 7.7s, 2015 1,340,000 1,447,200 500,000 540,000 1,840,000 1,987,200
Georgia-Pacific Corp. sr. notes 7 3/8s, 2008 4,000 4,300 -- -- 4,000 4,300
Gerdau Ameristeel Corp. sr. notes 10 3/8s,
2011 (Canada) 950,000 1,059,250 365,000 406,975 1,315,000 1,466,225
Graphics Packaging bank term loan FRN 4.35s,
2010 (acquired 8/6/03, cost $222,750,
$74,250, $297,000) (RES) 222,750 225,998 74,250 75,333 297,000 301,331
Hercules, Inc. bank term loan FRN 3.497s,
2010 (acquired 4/7/04, cost $349,125,
$174,563, $523,688) (RES) 349,125 350,871 174,563 175,435 523,688 526,306
Hercules, Inc. company guaranty 11 1/8s, 2007 1,385,000 1,620,450 550,000 643,500 1,935,000 2,263,950
Huntsman Advanced Materials, LLC 144A sec.
FRN 11.86, 2008 280,000 294,000 105,000 110,250 385,000 404,250
Huntsman Advanced Materials, LLC 144A sec.
notes 11s, 2010 330,000 374,550 125,000 141,875 455,000 516,425
Huntsman Co., LLC sr. disc. notes zero %, 2008 1,099,000 637,420 426,000 247,080 1,525,000 884,500
Huntsman ICI Chemicals, Inc. company
guaranty 10 1/8s, 2009 695,000 707,163 265,000 269,638 960,000 976,801
Huntsman ICI Holdings sr. disc. notes
zero %, 2009 2,190,000 1,095,000 845,000 422,500 3,035,000 1,517,500
Huntsman International, LLC sr. sub. notes
Ser. EXCH, 10 1/8s, 2009 EUR 590,000 709,236 225,000 270,471 815,000 979,707
Huntsman LLC company guaranty 11 5/8s, 2010 $ 555,000 617,438 215,000 239,188 770,000 856,626
Huntsman, LLC 144A company guaranty 11 1/2s,
2012 415,000 417,075 160,000 160,800 575,000 577,875
International Steel Group, Inc. 144A sr.
notes 6 1/2s, 2014 180,000 170,550 70,000 66,325 250,000 236,875
ISP Chemco, Inc. company guaranty Ser. B,
10 1/4s, 2011 1,910,000 2,129,650 765,000 852,975 2,675,000 2,982,625
Kaiser Aluminum & Chemical Corp. sr. notes
Ser. B, 10 7/8s, 2006 (In default) (NON) 80,000 84,400 30,000 31,650 110,000 116,050
Kaiser Aluminum & Chemical Corp. sr. sub.
notes 12 3/4s, 2003 (In default) (NON)(DEF) 910,000 172,900 345,000 65,550 1,255,000 238,450
Lyondell Chemical Co. bonds 11 1/8s, 2012 100,000 111,625 40,000 44,650 140,000 156,275
Lyondell Chemical Co. company guaranty
9 1/2s, 2008 980,000 1,025,325 400,000 418,500 1,380,000 1,443,825
Lyondell Chemical Co. notes Ser. A,
9 5/8s, 2007 895,000 945,344 320,000 338,000 1,215,000 1,283,344
MDP Acquisitions PLC sr. notes 10 1/8s,
2012 (Ireland) EUR 610,000 813,325 235,000 313,330 845,000 1,126,655
MDP Acquisitions PLC sr. notes 9 5/8s,
2012 (Ireland) $ 125,000 140,000 45,000 50,400 170,000 190,400
MDP Acquisitions PLC sub. notes 15 1/2s,
2013 (Ireland) (PIK) 515,217 600,228 188,351 219,429 703,568 819,657
Millennium America, Inc. company guaranty
9 1/4s, 2008 1,390,000 1,501,200 660,000 712,800 2,050,000 2,214,000
Millennium America, Inc. 144A sr. notes
9 1/4s, 2008 210,000 226,800 80,000 86,400 290,000 313,200
Nalco Co. bank term loan FRN Ser. B,
4.126s, 2010 (acquired 11/6/03, cost
$186,761, $62,254, $250,015) (RES) 186,761 189,475 62,254 63,158 249,015 252,633
Nalco Co. 144A sr. notes 7 3/4s, 2011 EUR 100,000 126,410 40,000 50,564 140,000 176,974
Nalco Co. 144A sr. sub. notes 9s,
2013 EUR 100,000 125,928 40,000 50,371 140,000 176,299
Nalco Co. 144A sr. sub. notes 8 7/8s, 2013 $ 1,490,000 1,564,500 565,000 593,250 2,055,000 2,157,750
Norska Skog Canada Ltd. sr. notes 7 3/8s,
2014 (Canada) 795,000 791,025 305,000 303,475 1,100,000 1,094,500
PCI Chemicals Canada sec. sr. notes 10s,
2008 (Canada) 609,379 591,098 233,383 226,382 842,762 817,480
Pioneer Companies, Inc. sec. FRN 5.086s,
2006 192,965 182,352 73,902 69,837 266,867 252,189
Potlatch Corp. company guaranty 10s, 2011 1,095,000 1,231,875 430,000 483,750 1,525,000 1,715,625
Resolution Performance Products, LLC sr.
notes 9 1/2s, 2010 180,000 188,100 70,000 73,150 250,000 261,250
SGL Carbon SA 144A sr. notes 8 1/2s, 2012
(Luxembourg) EUR 620,000 725,518 235,000 274,995 855,000 1,000,513
SGL Carbon, LLC bank term loan FRN 4.22s,
2009 (acquired 2/26/04, cost $234,921,
$117,461, $352,382) (R) $ 233,752 233,752 116,876 116,876 350,628 350,628
Smurfit-Stone Container Corp. company
guaranty 8 1/4s, 2012 310,000 330,925 105,000 112,088 415,000 443,013
Smurfit-Stone Container Corp. company
guaranty 7 1/2s, 2013 55,000 55,825 20,000 20,300 75,000 76,125
Steel Dynamics, Inc. company guaranty
9 1/2s, 2009 965,000 1,071,150 370,000 410,700 1,335,000 1,481,850
Sterling Chemicals, Inc. sec. notes 10s,
2007 (PIK) 207,976 195,497 81,826 76,916 289,802 272,413
Stone Container Corp. sr. notes
9 3/4s, 2011 710,000 784,550 305,000 337,025 1,015,000 1,121,575
Stone Container Corp. sr. notes
8 3/8s, 2012 345,000 369,150 120,000 128,400 465,000 497,550
Stone Container Finance 144A company
guaranty 7 3/8s, 2014 (Canada) 210,000 213,675 80,000 81,400 290,000 295,075
Ucar Finance, Inc. company guaranty
10 1/4s, 2012 1,225,000 1,372,000 475,000 532,000 1,700,000 1,904,000
United Agri Products 144A sr. notes
8 1/4s, 2011 550,000 596,750 215,000 233,275 765,000 830,025
United States Steel Corp. sr. notes
9 3/4s, 2010 706,000 785,425 274,000 304,825 980,000 1,090,250
Wellman 1st. lien bank term loan FRN
6s, 2009 (acquired 2/4/04, cost $350,000,
$160,000 $510,000) (RES) 350,000 355,104 160,000 162,333 510,000 517,437
Wellman 2nd. lien bank term loan FRN
8 3/4s, 2010 (acquired 2/4/04, cost
$372,400, $142,100, $514,500) (RES) 380,000 371,133 145,000 141,617 525,000 512,750
Wheeling-Pittsburgh Steel Corp. sr.
notes 6s, 2010 77,422 52,647 22,805 15,507 100,227 68,154
Wheeling-Pittsburgh Steel Corp. sr.
notes 5s, 2011 147,827 99,044 43,545 29,175 191,372 128,219
WHX Corp. sr. notes 10 1/2s, 2005 260,000 241,800 105,000 97,650 365,000 339,450
42,456,222 16,785,183 59,241,405
Capital Goods
3.4% 3.5% 3.5%
AEP Industries, Inc. sr. sub. notes
9 7/8s, 2007 698,000 715,450 280,000 287,000 978,000 1,002,450
Air2 US 144A sinking fund Ser. D, 12.266s,
2020 (In default) (NON) 1,340,093 13 520,612 5 1,860,705 18
Allied Waste Industries, Inc. bank term
loan FRN 4.136s, 2010 (acquired 4/25/03,
cost $209,491, $82,526, $292,017) (RES) 209,491 212,070 82,526 83,542 292,017 295,612
Allied Waste Industries, Inc. bank term
loan FRN Ser. C, 1.369s, 2010 (acquired 4/25/03,
cost $35,357, $13,929, $49,286) (RES) 35,357 35,902 13,929 14,144 49,286 50,046
Allied Waste North America, Inc. company
guaranty Ser. B, 8 1/2s, 2008 1,670,000 1,824,475 645,000 704,663 2,315,000 2,529,138
Allied Waste North America, Inc. sec.
notes 6 1/2s, 2010 765,000 757,350 295,000 292,050 1,060,000 1,049,400
Amsted Industries bank term loan FRN 5.364s,
2010 (acquired 8/12/03 cost $295,515, $98,505,
$394,020) (RES) 297,000 303,311 99,000 101,104 396,000 404,415
Argo-Tech Corp. 144A sr. notes 9 1/4s, 2011 775,000 809,875 295,000 308,275 1,070,000 1,118,150
BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 840,000 850,500 335,000 339,188 1,175,000 1,189,688
BE Aerospace, Inc. sr. sub. notes Ser. B,
8 7/8s, 2011 285,000 277,875 110,000 107,250 395,000 385,125
BE Aerospace, Inc. sr. sub. notes Ser. B,
8s, 2008 660,000 636,900 245,000 236,425 905,000 873,325
Berry Plastics Corp. company guaranty
10 3/4s, 2012 190,000 211,375 70,000 77,875 260,000 289,250
Blount, Inc. company guaranty 13s, 2009 1,195,000 1,284,625 465,000 499,875 1,660,000 1,784,500
Blount, Inc. company guaranty 7s, 2005 345,000 352,763 -- -- 345,000 352,763
Browning-Ferris Industries, Inc. debs.
7.4s, 2035 970,000 863,300 350,000 311,500 1,320,000 1,174,800
Browning-Ferris Industries, Inc. sr. notes
6 3/8s, 2008 880,000 897,600 290,000 295,800 1,170,000 1,193,400
Crown Cork & Seal Company, Inc. bank term
loan FRN Ser. B, 4.586s, 2008 (acquired
2/21/03, cost $282,150, $94,050,
$376,200) (RES) 285,000 288,919 95,000 96,306 380,000 385,225
Crown Holdings SA bonds 10 1/4s, 2011
(France) EUR 115,000 156,101 45,000 61,083 160,000 217,184
Crown Holdings SA notes 10 7/8s, 2013
(France) $ 1,240,000 1,422,900 475,000 545,063 1,715,000 1,967,963
Crown Holdings SA notes 9 1/2s, 2011
(France) 545,000 596,775 215,000 235,425 760,000 832,200
Decrane Aircraft Holdings Co. company
guaranty Ser. B, 12s, 2008 1,310,000 851,500 500,000 325,000 1,810,000 1,176,500
EaglePicher bank term loan FRN 4.41s,
2009 (acquired 8/6/03, cost $216,085,
$72,028, $288,113) (RES) 214,772 216,249 71,591 72,083 286,363 288,332
Earle M. Jorgensen Co. sec. notes
9 3/4s, 2012 985,000 1,083,500 380,000 418,000 1,365,000 1,501,500
FIMEP SA sr. notes 10 1/2s, 2013
(France) 840,000 966,000 345,000 396,750 1,185,000 1,362,750
Flender Holdings 144A sr. notes 11s,
2010 (Germany) EUR 500,000 686,524 195,000 267,744 695,000 954,268
Flowserve Corp. bank term loan FRN.
C, 4.212s, 2009 (acquired various dates
from 4/30/02 to 2/26/04, cost $284,035)
(RES) $ 181,134 183,285 100,801 101,998 281,935 285,283
Flowserve Corp. company guaranty 12 1/4s,
2010 770,000 872,025 297,000 336,353 1,067,000 1,208,378
Graham Packaging bank term loan FRN 4.291s,
2010 (acquired 2/18/03, cost $296,405,
$98,802, $395,207) (RES) 297,895 299,260 99,298 99,753 397,193 399,013
Hexcel Corp. sr. sub. notes 9 3/4s, 2009 915,000 958,463 365,000 382,338 1,280,000 1,340,801
Impress Metal Packaging Holding NV sr.
sub. notes 9 7/8s, 2007 (Netherlands) DEM 1,075,000 638,550 405,000 240,570 1,480,000 879,120
Invensys, PLC bank term loan FRN 5.477s,
2009 (acquired 3/11/04, cost $159,268,
$79,634, $238,902) (United Kingdom) (RES) $ 159,668 162,063 79,834 81,031 239,502 243,094
Invensys, PLC notes 9 7/8s, 2011 (United
Kingdom) 1,370,000 1,380,275 505,000 508,788 1,875,000 1,889,063
K&F Industries, Inc. sr. sub. notes Ser.
B, 9 5/8s, 2010 710,000 775,675 275,000 300,438 985,000 1,076,113
L-3 Communications Corp. company guaranty
7 5/8s, 2012 -- -- 120,000 128,100 120,000 128,100
L-3 Communications Corp. company guaranty
6 1/8s, 2013 -- -- 220,000 213,400 220,000 213,400
Legrand SA debs. 8 1/2s, 2025 (France) 1,025,000 1,081,375 385,000 406,175 1,410,000 1,487,550
Manitowoc Co., Inc. (The) company guaranty
10 1/2s, 2012 120,000 136,800 40,000 45,600 160,000 182,400
Manitowoc Co., Inc. (The) company guaranty
10 3/8s, 2011 EUR 240,000 321,152 95,000 127,123 335,000 448,275
Manitowoc Co., Inc. (The) sr. notes 7 1/8s,
2013 $ 305,000 309,575 120,000 121,800 425,000 431,375
Mueller Group bank term loan FRN 4.559s, 2011
(acquired 4/22/04, cost $188,991, $94,495,
$283,486) (RES) 188,991 190,526 94,495 95,263 283,486 285,789
Mueller Group Inc. 144A sec. FRN 5.919s, 2011 265,000 272,950 100,000 103,000 365,000 375,950
Mueller Group Inc. 144A sr. sub. notes 10s,
2012 370,000 388,500 140,000 147,000 510,000 535,500
Owens-Brockway Glass company guaranty
8 1/4s, 2013 775,000 811,813 300,000 314,250 1,075,000 1,126,063
Owens-Brockway Glass company guaranty
7 3/4s, 2011 725,000 768,500 280,000 296,800 1,005,000 1,065,300
Owens-Brockway Glass sr. sec. notes
8 3/4s, 2012 955,000 1,050,500 370,000 407,000 1,325,000 1,457,500
Pliant Corp. sec. notes 11 1/8s, 2009 715,000 772,200 275,000 297,000 990,000 1,069,200
Roper bank term loan FRN 3.61s, 2008
(acquired 12/22/03, cost $195,000,
$97,500, $292,500) (RES) 195,000 197,600 97,500 98,800 292,500 296,400
Sequa Corp. sr. notes 9s, 2009 1,650,000 1,782,000 630,000 680,400 2,280,000 2,462,400
Siebe PLC 144A sr. unsub. 6 1/2s,
2010 (United Kingdom) 325,000 292,500 125,000 112,500 450,000 405,000
Solo Cup Co. bank term loan FRN 3.945s,
2011 (acquired 2/19/04, cost $200,639,
$100,319, $300,958) (RES) 199,500 201,661 99,750 100,831 299,250 302,492
Solo Cup Co. 144A sr. sub. notes 8 1/2s, 2014 210,000 193,200 65,000 59,800 275,000 253,000
Tekni-Plex, Inc. company guaranty Ser. B,
12 3/4s, 2010 1,090,000 1,062,750 415,000 404,625 1,505,000 1,467,375
Tekni-Plex, Inc. 144A sr. sec. notes
8 3/4s, 2013 640,000 620,000 245,000 237,344 885,000 857,344
Terex Corp. company guaranty 9 1/4s, 2011 265,000 294,813 100,000 111,250 365,000 406,063
Terex Corp. company guaranty Ser. B,
10 3/8s, 2011 995,000 1,109,425 380,000 423,700 1,375,000 1,533,125
Transdigm, Inc. bank term loan FRN 3.61s,
2010 (acquired 4/19/04, cost $74,625,
$24,875, $99,500) (RES) 74,625 75,512 24,875 25,171 99,500 100,683
Trimas Corp. company guaranty 9 7/8s, 2012 575,000 600,875 215,000 224,675 790,000 825,550
Vought Aircraft Industries, Inc. 144A
sr. notes 8s, 2011 510,000 499,800 200,000 196,000 710,000 695,800
34,605,475 13,505,026 48,110,501
Communication Services 3.3% 3.4% 3.4%
Alamosa Delaware, Inc. company guaranty
11s, 2010 469,000 512,383 173,000 189,003 642,000 701,386
Alamosa Delaware, Inc. company guaranty
stepped-coupon zero % (12s, 7/31/05),
2009 (STP) 371,000 362,653 145,000 141,738 516,000 504,391
Alamosa Delaware, Inc. 144A sr. notes
8 1/2s, 2012 580,000 566,950 225,000 219,938 805,000 786,888
American Cellular Corp. company guaranty
9 1/2s, 2009 270,000 232,200 105,000 90,300 375,000 322,500
American Cellular Corp. sr. notes Ser.
B, 10s, 2011 1,115,000 970,050 430,000 374,100 1,545,000 1,344,150
American Tower Corp. 144A sr. notes
7 1/2s, 2012 515,000 505,988 195,000 191,588 710,000 697,576
American Towers, Inc. company guaranty
7 1/4s, 2011 1,040,000 1,047,800 405,000 408,038 1,445,000 1,455,838
Asia Global Crossing, Ltd. sr. notes
13 3/8s, 2010 (Bermuda) (In default) (NON) 770,000 69,300 300,000 27,000 1,070,000 96,300
Centennial Cellular Operating Co.
company guaranty 10 1/8s, 2013 1,245,000 1,282,350 475,000 489,250 1,720,000 1,771,600
Cincinnati Bell Telephone Co. company
guaranty 6.3s, 2028 205,000 178,350 80,000 69,600 285,000 247,950
Cincinnati Bell, Inc. company guaranty
7 1/4s, 2013 505,000 470,913 200,000 186,500 705,000 657,413
Cincinnati Bell, Inc. notes 7 1/4s, 2023 565,000 502,850 215,000 191,350 780,000 694,200
Cincinnati Bell, Inc. sr. sub. notes
8 3/8s, 2014 1,145,000 1,007,600 440,000 387,200 1,585,000 1,394,800
Colo.com, Inc. 144A sr. notes
13 7/8s, 2010 (In default) (NON) 441,450 44 191,573 19 633,023 63
Consolidated Communications bank
term loan FRN 4.081s, 2012 (acquired
4/7/04, cost $100,000, $50,000,
$150,000) (RES) 100,000 101,750 50,000 50,875 150,000 152,625
Crown Castle International Corp.
bank term loan FRN 5.09s, 2010 (acquired
10/3/03, cost $148,875, $49,625,
$198,500) (RES) 148,875 149,061 49,625 49,687 198,500 198,748
Crown Castle International Corp. sr.
notes 9 3/8s, 2011 1,060,000 1,195,150 410,000 462,275 1,470,000 1,657,425
Dobson Communications Corp. bank term
loan FRN 4.915s, 2010 (acquired 10/20/03,
cost $148,875, $49,625, $198,500) (RES) 148,875 149,038 49,625 49,679 198,500 198,717
Dobson Communications Corp. sr. notes 8
7/8s, 2013 585,000 447,525 230,000 175,950 815,000 623,475
Eircom Funding notes 8 1/4s, 2013 (Ireland) 365,000 383,250 140,000 147,000 505,000 530,250
Fairpoint Communications, Inc. sr. sub.
notes 12 1/2s, 2010 540,000 588,600 210,000 228,900 750,000 817,500
Firstworld Communication Corp. sr. disc.
notes zero %, 2008 (In default) (NON) 337,135 34 186,311 19 523,446 53
Globix Corp. company guaranty 11s,
2008 (PIK) 300,220 250,684 117,944 98,483 418,164 349,167
Inmarsat Finance PLC 144A company guaranty
7 5/8s, 2012 (United Kingdom) 1,200,000 1,149,000 455,000 435,663 1,655,000 1,584,663
iPCS, Inc. 144A sr. notes 11 1/2s, 2012 420,000 433,650 160,000 165,200 580,000 598,850
Level 3 Financing Inc. 144A sr. notes
10 3/4s, 2011 1,055,000 902,025 405,000 346,275 1,460,000 1,248,300
Madison River Capital Corp. sr. notes
13 1/4s, 2010 1,005,000 1,067,813 390,000 414,375 1,395,000 1,482,188
MCI, Inc. sr. notes 7.735s, 2014 1,458,000 1,314,023 557,000 501,996 2,015,000 1,816,019
MCI, Inc. sr. notes 6.688s, 2009 358,000 329,808 137,000 126,211 495,000 456,019
MCI, Inc. sr. notes 5.908s, 2007 1,000 969 3,000 2,906 4,000 3,875
Nextel bank term loan FRN Ser. E,
3.813s, 2010 (acquired 12/19/02, cost
$322,044, $107,377, $429,421) (RES) 348,250 350,489 116,083 116,830 464,333 467,319
Nextel Communications, Inc. sr. notes
7 3/8s, 2015 2,080,000 2,184,000 795,000 834,750 2,875,000 3,018,750
Nextel Partners, Inc. sr. notes 12 1/2s,
2009 58,000 67,570 20,000 23,300 78,000 90,870
Nextel Partners, Inc. sr. notes 8 1/8s,
2011 1,765,000 1,817,950 675,000 695,250 2,440,000 2,513,200
PanAmSat Corp. company guaranty 8 1/2s,
2012 1,160,000 1,338,350 450,000 519,188 1,610,000 1,857,538
Qwest Communications International, Inc.
bank term loan FRN 6 1/2s, 2007 (acquired
6/5/03, cost $265,444, $104,569,
$370,013) (RES) 268,125 277,677 105,625 109,388 373,750 387,065
Qwest Communications International, Inc.
144A sr. notes 7 1/2s, 2014 1,765,000 1,650,275 675,000 631,125 2,440,000 2,281,400
Qwest Communications International, Inc.
144A sr. notes FRN 4.75s, 2009 240,000 229,200 120,000 114,600 360,000 343,800
Qwest Corp. 144A notes 9 1/8s, 2012 3,360,000 3,695,945 1,300,000 1,430,000 4,660,000 5,125,945
Qwest Services Corp. 144A notes 14 1/2s,
2014 505,000 606,000 195,000 234,000 700,000 840,000
Rogers Wireless, Inc. sec. notes 9 5/8s,
2011 (Canada) 380,000 427,500 145,000 163,125 525,000 590,625
Rural Cellular Corp. sr. sub. notes
Ser. B, 9 5/8s, 2008 420,000 399,000 170,000 161,500 590,000 560,500
SBA Communications Corp. sr. notes
10 1/4s, 2009 225,000 232,875 90,000 93,150 315,000 326,025
SBA Senior Finance, Inc. bank term loan
FRN 4.687s, 2008 (acquired 2/3/04,
cost $100,000. $50,000, $150,000) (RES) 100,000 100,656 50,000 50,328 150,000 150,984
SBA Telecommunications Inc./SBA
Communication Corp. sr. disc. notes
stepped-coupon zero % (9 3/4s,
12/15/07), 2011 445,000 337,088 175,000 132,563 620,000 469,651
Triton PCS, Inc. company guaranty
8 3/4s, 2011 540,000 417,150 205,000 158,363 745,000 575,513
TSI Telecommunication Services, Inc.
company guaranty Ser. B, 12 3/4s, 2009 935,000 1,005,125 365,000 392,375 1,300,000 1,397,500
UbiquiTel Operating Co. bonds stepped-
coupon zero % (14s, 4/15/05), 2010 (STP) 577,000 579,885 225,000 226,125 802,000 806,010
UbiquiTel Operating Co. sr. notes
9 7/8s, 2011 510,000 506,175 195,000 193,538 705,000 699,713
Western Wireless Corp. sr. notes
9 1/4s, 2013 765,000 782,213 290,000 296,525 1,055,000 1,078,738
33,176,934 12,797,141 45,974,075
Consumer Cyclicals 9.9% 10.0% 9.9%
Advance Stores bank term loan FRN
Ser. C, 3.312s, 2007 (acquired 3/4/03,
cost $84,124, $33,140, $117,264) (RES) 84,124 85,123 33,140 33,533 117,264 118,656
Ameristar Casinos, Inc. company guaranty
10 3/4s, 2009 395,000 444,375 155,000 174,375 550,000 618,750
Argosy Gaming Co. sr. sub. notes 9s,
2011 230,000 255,300 90,000 99,900 320,000 355,200
Argosy Gaming Co. 144A sr. sub. notes
7s, 2014 915,000 911,569 350,000 348,688 1,265,000 1,260,257
Asbury Automotive Group, Inc. sr. sub.
notes 8s, 2014 640,000 601,600 240,000 225,600 880,000 827,200
Autonation, Inc. company guaranty 9s,
2008 1,230,000 1,389,900 475,000 536,750 1,705,000 1,926,650
Beazer Homes USA, Inc. company guaranty
8 3/8s, 2012 210,000 224,700 80,000 85,600 290,000 310,300
Borgata Resorts bank term loan FRN
Ser. B, 4.126s, 2007 (acquired 6/5/02,
cost $236,742, $66,289, $303,031) (RES) 237,336 238,967 66,454 66,911 303,790 305,878
Boyd Gaming Corp. sr. sub. notes
8 3/4s, 2012 820,000 885,600 315,000 340,200 1,135,000 1,225,800
Boyd Gaming Corp. sr. sub. notes
7 3/4s, 2012 230,000 236,900 85,000 87,550 315,000 324,450
Building Materials Corp. company guaranty 8s,
2008 450,000 450,000 180,000 180,000 630,000 630,000
Chumash Casino & Resort Enterprise 144A
sr. notes 9s, 2010 500,000 545,000 190,000 207,100 690,000 752,100
Coinmach Corp. bank term loan FRN Ser. B,
4.316s,
2009 (acquired 1/31/02, cost $188,024,
$87,391, $275,415) (RES) 188,259 189,765 87,500 88,200 275,759 277,965
Coinmach Corp. sr. notes 9s, 2010 1,655,000 1,679,825 650,000 659,750 2,305,000 2,339,575
Collins & Aikman Products company guaranty
10 3/4s, 2011 1,090,000 1,100,900 420,000 424,200 1,510,000 1,525,100
Corrections Corporation of America bank term
loan FRN 3.36s, 2008 (acquired various dates
from 8/5/03 to 6/7/04, cost $73,858, $24,619,
$98,477) (RES) 73,858 74,874 24,619 24,958 98,477 99,832
D.R. Horton, Inc. company guaranty 8s, 2009 145,000 161,675 55,000 61,325 200,000 223,000
D.R. Horton, Inc. sr. notes 7 7/8s, 2011 880,000 976,800 350,000 388,500 1,230,000 1,365,300
D.R. Horton, Inc. sr. notes 6 7/8s, 2013 220,000 228,250 80,000 83,000 300,000 311,250
D.R. Horton, Inc. sr. notes 5 7/8s, 2013 600,000 584,250 220,000 214,225 820,000 798,475
Dana Corp. notes 10 1/8s, 2010 220,000 250,800 90,000 102,600 310,000 353,400
Dana Corp. notes 9s, 2011 785,000 926,300 300,000 354,000 1,085,000 1,280,300
Dana Corp. notes 7s, 2029 135,000 133,650 50,000 49,500 185,000 183,150
Dana Corp. notes 6 1/2s, 2009 405,000 425,250 155,000 162,750 560,000 588,000
Dayton Superior Corp. sec. notes 10 3/4s, 2008 780,000 799,500 305,000 312,625 1,085,000 1,112,125
Delco Remy International, Inc. company
guaranty 11s, 2009 295,000 316,388 85,000 91,163 380,000 407,551
Delco Remy International, Inc. 144A sr.
sub. notes 9 3/8s, 2012 740,000 714,100 285,000 275,025 1,025,000 989,125
Derby Cycle Corp. (The) sr. notes 10s,
2008 (In default) (NON) 661,675 66 240,472 24 902,147 90
Derby Cycle Corp. (The) sr. notes 9 3/8s,
2008 (In default) (NON) DEM 1,700,694 105 688,142 42 2,388,836 147
Dex Media East, LLC/Dex Media East
Finance Co. sr. notes Ser. B, 8 1/2s, 2010 1,545,000 1,699,500 600,000 660,000 2,145,000 2,359,500
Dex Media West, LLC bank term loan
FRN 3.691s, 2010 (acquired 9/9/03, cost
$267,361, $89,120, $356,481) (RES) 267,361 272,207 89,120 90,736 356,481 362,943
Dex Media, Inc. 144A disc. notes stepped-
coupon zero % (9s, 11/15/08), 2013 (STP) 705,000 489,975 275,000 191,125 980,000 681,100
Dex Media, Inc. 144A notes 8s, 2013 805,000 809,025 310,000 311,550 1,115,000 1,120,575
Dura Operating Corp. company guaranty
Ser. B, 8 5/8s, 2012 265,000 262,350 100,000 99,000 365,000 361,350
Dura Operating Corp. company guaranty
Ser. D, 9s, 2009 710,000 678,050 270,000 257,850 980,000 935,900
FelCor Lodging LP company guaranty 10s,
2008 (R) 140,000 147,700 56,000 59,080 196,000 206,780
Finlay Fine Jewelry Corp. 144A sr. notes
8 3/8s, 2012 680,000 714,000 260,000 273,000 940,000 987,000
Gaylord Entertainment Co. sr. notes 8s,
2013 965,000 992,744 375,000 385,781 1,340,000 1,378,525
Goodyear Tire & Rubber Co. (The) bank
term loan FRN 6.059s, 2006 (acquired 2/19/04,
cost $160,000, $80,000, $240,000) (RES) 160,000 161,550 80,000 80,775 240,000 242,325
Goodyear Tire & Rubber Co. (The) notes
7.857s, 2011 1,700,000 1,581,000 770,000 716,100 2,470,000 2,297,100
Goodyear Tire & Rubber Co. (The) notes
6 3/8s, 2008 285,000 267,900 110,000 103,400 395,000 371,300
Hayes Lemmerz International, Inc. bank
term loan FRN 5.1s, 2009 (acquired 6/3/03,
cost $233,863, $92,128, $325,991) (RES) 236,225 240,581 93,058 94,774 329,283 335,355
Herbst Gaming, Inc. 144A sr. sub. notes 8
1/8s, 2012 565,000 557,938 215,000 212,313 780,000 770,251
Hilton Hotels Corp. notes 7 5/8s, 2012 1,175,000 1,296,906 455,000 502,206 1,630,000 1,799,112
HMH Properties, Inc. company guaranty Ser.
B, 7 7/8s, 2008 1,235,000 1,268,963 324,000 332,910 1,559,000 1,601,873
Hollinger Participation Trust 144A sr.
notes 12 1/8s, 2010 (Canada) (PIK) 1,848,767 2,163,057 710,734 831,559 2,559,501 2,994,616
Hollywood Park, Inc. company guaranty
Ser. B, 9 1/4s, 2007 1,370,000 1,404,250 530,000 543,250 1,900,000 1,947,500
Horseshoe Gaming Holdings company guaranty
8 5/8s, 2009 1,250,000 1,303,125 490,000 510,825 1,740,000 1,813,950
Host Marriott LP sr. notes Ser. E, 8 3/8s,
2006 (R) 389,000 411,368 151,000 159,683 540,000 571,051
Host Marriott LP 144A sr. notes 7s, 2012 1,050,000 1,036,875 410,000 404,875 1,460,000 1,441,750
Houghton Mifflin Co. sr. sub. notes 9
7/8s, 2013 475,000 488,063 180,000 184,950 655,000 673,013
Icon Health & Fitness company guaranty
11 1/4s, 2012 1,205,000 1,313,450 470,000 512,300 1,675,000 1,825,750
IESI Corp. bank term loan FRN 4.601s,
2010 (acquired various dates from 10/20/03
to 10/21/03, cost $149,719, $49,896,
$199,615) (RES) 148,875 151,108 49,625 50,369 198,500 201,477
IESI Corp. company guaranty 10 1/4s, 2012 895,000 971,075 345,000 374,325 1,240,000 1,345,400
Inn of the Mountain Gods sr. notes 12s,
2010 385,000 431,200 150,000 168,000 535,000 599,200
ITT Corp. debs. 7 3/8s, 2015 725,000 741,313 275,000 281,188 1,000,000 1,022,501
ITT Corp. notes 6 3/4s, 2005 815,000 844,544 320,000 331,600 1,135,000 1,176,144
JC Penney Co., Inc. debs. 7.95s, 2017 1,370,000 1,548,100 515,000 581,950 1,885,000 2,130,050
JC Penney Co., Inc. debs. 7.65s, 2016 245,000 269,500 95,000 104,500 340,000 374,000
JC Penney Co., Inc. debs. 7 1/8s, 2023 615,000 639,600 235,000 244,400 850,000 884,000
JC Penney Co., Inc. notes 8s, 2010 40,000 44,900 15,000 16,838 55,000 61,738
John Q. Hammons Hotels LP/John Q. Hammons
Hotels Finance Corp. III 1st mtge. Ser. B,
8 7/8s, 2012 2,245,000 2,469,500 870,000 957,000 3,115,000 3,426,500
Jostens Holding Corp. sr. disc. notes
stepped-coupon zero % (10 1/4s, 12/1/08),
2013 (STP) 1,310,000 877,700 510,000 341,700 1,820,000 1,219,400
Jostens, Inc. bank term loan FRN Ser. B,
3.869s, 2010 (acquired 7/28/03, cost
$258,637, $86,213, $344,851) (RES) 258,638 261,871 86,213 87,290 344,851 349,161
Jostens, Inc. sr. sub. notes 12 3/4s, 2010 730,000 824,900 285,000 322,050 1,015,000 1,146,950
K. Hovnanian Enterprises, Inc. company
guaranty 10 1/2s, 2007 180,000 207,900 75,000 86,625 255,000 294,525
K. Hovnanian Enterprises, Inc. company
guaranty 8 7/8s, 2012 795,000 868,538 310,000 338,675 1,105,000 1,207,213
K. Hovnanian Enterprises, Inc. company
guaranty 6 3/8s, 2014 540,000 504,900 205,000 191,675 745,000 696,575
K. Hovnanian Enterprises, Inc. sr. notes
6 1/2s, 2014 405,000 383,738 160,000 151,600 565,000 535,338
K2, Inc. 144A sr. notes 7 3/8s, 2014 500,000 508,750 190,000 193,325 690,000 702,075
Laidlaw International, Inc. sr. notes
10 3/4s, 2011 1,885,000 2,087,638 720,000 797,400 2,605,000 2,885,038
Lamar Media Corp. bank term loan FRN
3 3/8s, 2010 (acquired 2/27/03, cost
$244,444, $81,482, $325,926) (RES) 244,444 246,644 81,481 82,215 325,925 328,859
Lamar Media Corp. company guaranty
7 1/4s, 2013 780,000 805,350 305,000 314,913 1,085,000 1,120,263
Landsource bank term loan FRN 4s, 2010
(acquired 1/12/04, cost $100,000, $50,000,
$150,000) (RES) 100,000 101,313 50,000 50,656 150,000 151,969
Levi Strauss & Co. sr. notes 12 1/4s, 2012 1,310,000 1,329,650 505,000 512,575 1,815,000 1,842,225
Mandalay Resort Group sr. notes 6 3/8s,
2011 600,000 612,000 235,000 239,700 835,000 851,700
Meristar Hospitality Corp. company
guaranty 9 1/8s, 2011 (R) 985,000 1,017,013 380,000 392,350 1,365,000 1,409,363
Meristar Hospitality Corp. company
guaranty 9s, 2008 (R) 530,000 548,550 205,000 212,175 735,000 760,725
Meritage Corp. company guaranty 9 3/4s,
2011 410,000 453,050 160,000 176,800 570,000 629,850
Meritage Corp. sr. notes 7s, 2014 275,000 264,000 85,000 81,600 360,000 345,600
Meritor Automotive, Inc. notes 6.8s,
2009 560,000 562,800 215,000 216,075 775,000 778,875
Metaldyne Corp. 144A sr. notes 10s,
2013 875,000 875,000 340,000 340,000 1,215,000 1,215,000
MGM Mirage, Inc. company guaranty 8
1/2s, 2010 1,085,000 1,198,925 425,000 469,625 1,510,000 1,668,550
MGM Mirage, Inc. company guaranty 6s,
2009 680,000 674,900 260,000 258,050 940,000 932,950
Mohegan Tribal Gaming Authority sr.
notes 8 1/8s, 2006 75,000 80,438 30,000 32,175 105,000 112,613
Mohegan Tribal Gaming Authority sr.
sub. notes 8 3/8s, 2011 270,000 307,125 100,000 113,750 370,000 420,875
Mohegan Tribal Gaming Authority sr.
sub. notes 8s, 2012 165,000 179,231 -- -- 165,000 179,231
Mohegan Tribal Gaming Authority sr.
sub. notes 6 3/8s, 2009 1,605,000 1,615,031 685,000 689,281 2,290,000 2,304,312
Nortek Holdings, Inc. 144A sr. notes
stepped-coupon zero % (10s, 11/15/07), 2011 (STP) 760,000 635,360 300,000 250,800 1,060,000 886,160
Nortek, Inc. sr. sub. notes Ser. B, 9
7/8s, 2011 555,000 647,963 220,000 256,850 775,000 904,813
Owens Corning bonds 7 1/2s, 2018
(In default) (NON) 415,000 180,525 115,000 50,025 530,000 230,550
Owens Corning notes 7 1/2s, 2005
(In default) (NON) 1,185,000 515,475 460,000 200,100 1,645,000 715,575
Oxford Industries, Inc. 144A sr. notes
8 7/8s, 2011 635,000 676,275 245,000 260,925 880,000 937,200
Park Place Entertainment Corp. sr.
notes 7 1/2s, 2009 1,250,000 1,362,500 490,000 534,100 1,740,000 1,896,600
Park Place Entertainment Corp. sr.
notes 7s, 2013 680,000 709,750 265,000 276,594 945,000 986,344
Park Place Entertainment Corp. sr.
sub. notes 8 7/8s, 2008 545,000 606,313 200,000 222,500 745,000 828,813
Park Place Entertainment Corp. sr.
sub. notes 8 1/8s, 2011 5,000 5,519 -- -- 5,000 5,519
Penn National Gaming, Inc. bank term
loan FRN 4.07s, 2010 (acquired 2/19/03,
cost $188,882, $62,961, $251,843) (RES) 189,118 191,766 63,039 63,922 252,157 255,688
Penn National Gaming, Inc. company
guaranty Ser. B, 11 1/8s, 2008 640,000 702,400 255,000 279,863 895,000 982,263
Penn National Gaming, Inc. sr. sub.
notes 8 7/8s, 2010 1,320,000 1,443,750 500,000 546,875 1,820,000 1,990,625
PETCO Animal Supplies, Inc. bank term
loan FRN 3.61s, 2009 (acquired 8/6/03,
cost $108,588) (RES) -- -- 108,588 109,810 108,588 109,810
Phillips-Van Heusen Corp. 144A sr.
notes 7 1/4s, 2011 310,000 316,200 120,000 122,400 430,000 438,600
Pinnacle Entertainment, Inc. bank
term loan FRN 4.84s, 2009 (acquired
12/15/03, cost $157,325, $61,976,
$219,301) (RES) 157,325 159,291 61,976 62,751 219,301 222,042
Pinnacle Entertainment, Inc. sr. sub.
notes 8 3/4s, 2013 765,000 761,175 300,000 298,500 1,065,000 1,059,675
Pinnacle Entertainment, Inc. sr. sub.
notes 8 1/4s, 2012 360,000 345,600 135,000 129,600 495,000 475,200
PRIMEDIA, Inc. bank term loan FRN Ser.
B, 4 1/4s, 2009 (acquired 2/10/03,
cost $182,654, $60,885, $243,539) (RES) 190,762 182,654 63,587 60,885 254,349 243,539
PRIMEDIA, Inc. company guaranty 8 7/8s,
2011 1,515,000 1,488,488 590,000 579,675 2,105,000 2,068,163
PRIMEDIA, Inc. 144A sr. notes 8s, 2013 1,110,000 1,032,300 435,000 404,550 1,545,000 1,436,850
Reader's Digest Association, Inc. (The)
sr. notes 6 1/2s, 2011 510,000 504,900 195,000 193,050 705,000 697,950
Resorts International Hotel and Casino,
Inc. company guaranty 11 1/2s, 2009 995,000 1,119,375 375,000 421,875 1,370,000 1,541,250
RH Donnelley Finance Corp. I bank term
loan FRN Ser. B, 3.786s, 2010 (acquired
12/4/02, cost $369,472, $123,155,
$492,627) (RES) 369,472 373,513 123,154 124,502 492,626 498,015
RH Donnelley Finance Corp. I company
guaranty 8 7/8s, 2010 175,000 192,500 70,000 77,000 245,000 269,500
RH Donnelley Finance Corp. I 144A sr.
notes 8 7/8s, 2010 1,290,000 1,419,000 500,000 550,000 1,790,000 1,969,000
RH Donnelley Finance Corp. I 144A sr.
sub. notes 10 7/8s, 2012 650,000 760,500 250,000 292,500 900,000 1,053,000
Russell Corp. company guaranty 9 1/4s,
2010 920,000 984,400 360,000 385,200 1,280,000 1,369,600
Saks, Inc. company guaranty 7s, 2013 1,538,000 1,507,240 597,000 585,060 2,135,000 2,092,300
Samsonite Corp. 144A sr. sub. notes
8 7/8s, 2011 1,665,000 1,694,138 640,000 651,200 2,305,000 2,345,338
Schuler Homes, Inc. company guaranty
10 1/2s, 2011 530,000 606,850 210,000 240,450 740,000 847,300
Scientific Gaming bank term loan FRN 3.84s,
2008 (acquired various dates from 12/11/02
to 7/21/04, cost $368,475, $122,825,
$491,300) (RES) 370,327 374,338 123,442 124,779 493,769 499,117
Sealy Mattress Co. bank term loan FRN
4.221s, 2012 (acquired 4/2/04, cost
$155,714, $77,857, $233,571) (RES) 155,714 157,920 77,857 78,960 233,571 236,880
Sealy Mattress Co. 144A sr. sub. notes
8 1/4s, 2014 1,545,000 1,545,000 585,000 585,000 2,130,000 2,130,000
SPX Corp. bank term loan FRN Ser. B,
3 3/8s, 2009 (acquired various dates
from 7/23/02 to 8/26/03, cost $138,175,
$46,059, $184,234) (RES) 138,175 140,162 46,059 46,721 184,234 186,883
Standard Pacific Corp. sr. notes 7 3/4s,
2013 590,000 606,225 225,000 231,188 815,000 837,413
Starwood Hotels & Resorts Worldwide, Inc.
company guaranty 7 7/8s, 2012 70,000 75,425 25,000 26,938 95,000 102,363
Starwood Hotels & Resorts Worldwide, Inc.
company guaranty 7 3/8s, 2007 535,000 564,425 210,000 221,550 745,000 785,975
Station Casinos, Inc. sr. notes 6s, 2012 665,000 648,375 245,000 238,875 910,000 887,250
Station Casinos, Inc. sr. sub. notes
6 7/8s, 2016 715,000 695,338 275,000 267,438 990,000 962,776
Technical Olympic USA, Inc. company
guaranty 10 3/8s, 2012 470,000 497,025 180,000 190,350 650,000 687,375
Technical Olympic USA, Inc. company
guaranty 9s, 2010 305,000 314,150 120,000 123,600 425,000 437,750
Teksid Aluminum 144A company guaranty
11 3/8s, 2011 (Luxembourg) EUR 185,000 192,654 80,000 83,310 265,000 275,964
Tenneco Automotive, Inc. sec. notes
Ser. B, 10 1/4s, 2013 1,040,000 1,185,600 410,000 467,400 1,450,000 1,653,000
Trump Atlantic City Associates company
guaranty 11 1/4s, 2006 1,700,000 1,496,000 655,000 576,400 2,355,000 2,072,400
Trump Casino Holdings, LLC company
guaranty 12 5/8s, 2010 745,000 761,763 287,000 293,458 1,032,000 1,055,221
TRW Automotive bank term loan FRN
4 1/8s, 2011 (acquired 1/7/04, cost
$154,613, $69,772, $224,385) (RES) 154,613 157,222 69,825 71,003 224,438 228,225
United Auto Group, Inc. company
guaranty 9 5/8s, 2012 715,000 782,925 270,000 295,650 985,000 1,078,575
Vertis, Inc. company guaranty Ser.
B, 10 7/8s, 2009 1,215,000 1,327,388 470,000 513,475 1,685,000 1,840,863
Vertis, Inc. sub. notes 13 1/2s,
2009 1,015,000 1,035,300 390,000 397,800 1,405,000 1,433,100
Von Hoffman Press, Inc. company
guaranty 10 3/8s, 2007 370,000 373,700 170,000 171,700 540,000 545,400
Von Hoffman Press, Inc. company
guaranty 10 1/4s, 2009 1,060,000 1,155,400 370,000 403,300 1,430,000 1,558,700
Von Hoffman Press, Inc. debs.
13s, 2009 (PIK) 534,185 520,830 220,907 215,384 755,092 736,214
WCI Communities, Inc. company
guaranty 9 1/8s, 2012 1,135,000 1,222,963 435,000 468,713 1,570,000 1,691,676
William Carter Holdings Co. (The)
company guaranty Ser. B, 10 7/8s, 2011 552,000 621,000 214,000 240,750 766,000 861,750
WRC Media Corp. bank term loan
FRN 6.761s, 2009 (acquired 3/25/04,
cost $220,000, $110,000, $330,000)
(RES) 220,000 219,313 110,000 109,656 330,000 328,969
WRC Media Corp. sr. sub. notes
12 3/4s, 2009 770,000 700,700 295,000 268,450 1,065,000 969,150
Yell Finance BV sr. notes
10 3/4s, 2011 (Netherlands) 87,000 99,920 36,000 41,346 123,000 141,266
98,496,685 37,983,342 136,480,027
Consumer Staples 5.80% 5.70% 5.70%
Adelphia Communications Corp. notes Ser.
B, 9 7/8s, 2005 (In default) (NON) 110,000 94,600 50,000 43,000 160,000 137,600
Adelphia Communications Corp. sr. notes
10 7/8s, 2010 (In default) (NON) 560,000 490,000 250,000 218,750 810,000 708,750
Adelphia Communications Corp. sr. notes
10 1/4s, 2011 (In default) (NON) 25,000 22,375 -- -- 25,000 22,375
Adelphia Communications Corp. sr. notes
Ser. B, 9 7/8s, 2007 (In default) (NON) -- -- 110,000 94,600 110,000 94,600
Adelphia Communications Corp. sr. notes
9 3/8s, 2009 (In default) (NON) 75,000 65,625 30,000 26,250 105,000 91,875
Adelphia Communications Corp. sr. notes
Ser. B, 7 3/4s, 2009 (In default) (NON) 1,505,000 1,264,200 405,000 340,200 1,910,000 1,604,400
Affinity Group Holdings bank term loan
FRN Ser. B1, 5.528s, 2009 (acquired
5/27/03, cost $47,550, $18,732,
$66,282) (RES) 47,669 48,086 18,778 18,943 66,447 67,029
Affinity Group Holdings bank term loan
FRN Ser. B2, 5.321s, 2009 (acquired
various dates from 10/28/99 to 5/27/03,
cost $118,875, $46,829, $165,704) (RES) 119,173 120,215 46,947 47,358 166,120 167,573
Affinity Group, Inc. 144A sr. sub.
notes 9s, 2012 765,000 792,731 290,000 300,513 1,055,000 1,093,244
AMC Entertainment, Inc. sr. sub.
notes 9 7/8s, 2012 915,000 937,875 350,000 358,750 1,265,000 1,296,625
AMC Entertainment, Inc. 144A sr. sub.
notes 8s, 2014 770,000 710,325 295,000 272,138 1,065,000 982,463
American Seafood Group, LLC bank term
loan FRN Ser. B, 4.59s, 2009 (acquired
4/11/02, cost $440,124, $440,124,
$880,248) (RES) 440,565 441,574 440,565 441,574 881,130 883,148
AMF Bowling Worldwide bank term loan
FRN 4.372s, 2009 (acquired 2/25/04,
cost $239,400, $119,700, $359,100) (RES) 239,400 241,196 119,700 120,598 359,100 361,794
Archibald Candy Corp. company guaranty
10s, 2007 (In default) (NON)(PIK) 458,590 302,669 179,185 118,262 637,775 420,931
Armkel, LLC/Armkel Finance sr. sub.
notes 9 1/2s, 2009 890,000 967,875 350,000 380,625 1,240,000 1,348,500
Brand Services, Inc. company guaranty
12s, 2012 790,000 908,500 300,000 345,000 1,090,000 1,253,500
Cablevision Systems Corp. 144A sr.
notes 8s, 2012 945,000 928,463 348,000 341,910 1,293,000 1,270,373
Capital Records, Inc. 144A company
guaranty 8 3/8s, 2009 700,000 755,082 265,000 285,853 965,000 1,040,935
Century Cable Holdings bank term loan
FRN 6 1/4s, 2009 (acquired various dates
from 5/22/02 to 6/11/02, cost $980,796,
$80,500, $1,061,296) (RES) 1,120,000 1,081,033 100,000 96,521 1,220,000 1,177,554
Charter bank term loan FRN 4.42s, 2011
(acquired 4/21/04, cost $320,000, $160,000,
$480,000) (RES) 320,000 315,160 160,000 157,580 480,000 472,740
Charter Communications Holdings, LLC/
Capital Corp. sr. disc. notes stepped-
coupon zero % (12 1/8s, 1/15/07), 2012
(STP) 360,000 195,300 225,000 122,063 585,000 317,363
Charter Communications Holdings, LLC/
Capital Corp. sr. disc. notes stepped-
coupon zero % (11 3/4s, 5/15/06), 2011
(STP) 735,000 433,650 285,000 168,150 1,020,000 601,800
Charter Communications Holdings, LLC/
Capital Corp. sr. notes 11 1/8s, 2011 980,000 776,650 300,000 237,750 1,280,000 1,014,400
Charter Communications Holdings, LLC/
Capital Corp. sr. notes 10 3/4s, 2009 1,195,000 961,975 440,000 354,200 1,635,000 1,316,175
Charter Communications Holdings, LLC/
Capital Corp. sr. notes 10 1/4s, 2010 585,000 454,838 225,000 174,938 810,000 629,776
Charter Communications Holdings, LLC/
Capital Corp. sr. notes 10s, 2011 2,310,000 1,749,825 955,000 723,413 3,265,000 2,473,238
Charter Communications Holdings, LLC/
Capital Corp. sr. notes 8 5/8s, 2009 265,000 200,075 50,000 37,750 315,000 237,825
Cinemark USA, Inc. sr. sub. notes 9s,
2013 910,000 998,725 350,000 384,125 1,260,000 1,382,850
Cinemark, Inc. 144A sr. disc. notes
stepped-coupon zero % (9 3/4s, 3/15/09),
2014 (STP) 1,385,000 914,100 530,000 349,800 1,915,000 1,263,900
Constellation Brands, Inc. bank term
loan FRN 3.213s, 2008 (acquired 11/3/03,
cost $154,685, $60,935, $215,620) (RES) 154,685 156,812 60,935 61,773 215,620 218,585
Constellation Brands, Inc. company
guaranty Ser. B, 8s, 2008 420,000 458,850 210,000 226,275 630,000 685,125
Constellation Brands, Inc. sr. sub.
notes Ser. B, 8 1/8s, 2012 595,000 641,113 -- -- 595,000 641,113
CSC Holdings, Inc. debs. 7 5/8s, 2018 600,000 568,500 230,000 217,925 830,000 786,425
CSC Holdings, Inc. sr. notes Ser. B,
7 5/8s, 2011 515,000 520,150 202,000 204,020 717,000 724,170
CSC Holdings, Inc. 144A sr. notes 6
3/4s, 2012 515,000 496,975 200,000 193,000 715,000 689,975
Dean Foods Co. sr. notes 6 5/8s, 2009 240,000 248,400 90,000 93,150 330,000 341,550
Del Monte Corp. company guaranty Ser.
B, 9 1/4s, 2011 310,000 337,900 120,000 130,800 430,000 468,700
Del Monte Corp. sr. sub. notes 8
5/8s, 2012 780,000 850,200 305,000 332,450 1,085,000 1,182,650
Del Monte Foods Co. bank term loan
FRN Ser. B, 3.505s, 2010 (acquired
12/16/02, cost $238,490, $79,498,
$317,988) (RES) 239,688 242,984 79,897 80,996 319,585 323,980
DirecTV bank term loan FRN Ser. B,
3.607s, 2010 (acquired various dates
from 3/4/03 to 8/5/03, cost $202,350,
$82,592, $284,942) (RES) 202,350 204,930 82,592 83,645 284,942 288,575
Diva Systems Corp. sr. disc. notes
Ser. B, 12 5/8s, 2008 (In default) (NON) 3,586,000 4,483 1,162,000 1,453 4,748,000 5,936
Doane Pet Care Co. sr. sub. debs. 9
3/4s, 2007 1,150,000 1,081,000 430,000 404,200 1,580,000 1,485,200
Dole Food Co. bank term loan FRN Ser.
D, 4.386s, 2009 (acquired various dates
from 12/8/03 to 3/28/03, cost $22,278,
$8,776, $31,054) (RES) 22,277 22,612 8,776 8,908 31,053 31,520
Dole Food Co. sr. notes 8 7/8s, 2011 365,000 385,988 145,000 153,338 510,000 539,326
Dole Food Co. sr. notes 8 5/8s, 2009 275,000 288,750 105,000 110,250 380,000 399,000
Dole Holding Co. bank term loan FRN
6.61s, 2010 (acquired 7/20/04, cost
$159,200, $79,600, $238,800) (RES) 160,000 159,300 80,000 79,650 240,000 238,950
Domino's, Inc. sr. sub. notes 8 1/4s,
2011 678,000 725,460 266,000 284,620 944,000 1,010,080
Duane Reade, Inc. 144A sr. sub. notes
9 3/4s, 2011 175,000 174,563 65,000 64,838 240,000 239,401
Eagle Family Foods company guaranty
Ser. B, 8 3/4s, 2008 560,000 392,000 30,000 21,000 590,000 413,000
Echostar DBS Corp. sr. notes 6 3/8s,
2011 1,305,000 1,295,213 505,000 501,213 1,810,000 1,796,426
Elizabeth Arden, Inc. company
guaranty 7 3/4s, 2014 350,000 357,438 135,000 137,869 485,000 495,307
Granite Broadcasting Corp. sec.
notes 9 3/4s, 2010 2,035,000 1,862,025 790,000 722,850 2,825,000 2,584,875
Insight Midwest LP/Insight Capital,
Inc. bank term loan FRN 3.938s, 2009
(acquired 11/5/01, cost $104,279,
$34,760, $139,039) (RES) 104,475 105,941 34,825 35,314 139,300 141,255
Jean Coutu Group, Inc. 144A sr. notes
7 5/8s, 2012 (Canada) 500,000 503,750 195,000 196,463 695,000 700,213
Jean Coutu Group, Inc. 144A sr. sub.
notes 8 1/2s, 2014 (Canada) 1,005,000 996,206 385,000 381,631 1,390,000 1,377,837
Kabel Deutsheland GmbH 144A sr. notes
10 5/8s, 2014 (Germany) 1,515,000 1,554,769 480,000 492,600 1,995,000 2,047,369
Knology, Inc. 144A sr. notes 12s, 2009
(PIK) 59,690 56,109 20,707 19,465 80,397 75,574
Land O'Lakes, Inc. sr. notes 8 3/4s,
2011 815,000 753,875 305,000 282,125 1,120,000 1,036,000
Mediacom LLC/Mediacom Capital Corp.
sr. notes 9 1/2s, 2013 850,000 786,250 325,000 300,625 1,175,000 1,086,875
MGM bank term loan FRN 3.84s, 2011
(acquired 4/21/04, cost $240,000,
$120,000, $360,000) (RES) 240,000 241,020 120,000 120,510 360,000 361,530
News America Holdings, Inc. company
guaranty 9 1/4s, 2013 1,270,000 1,605,893 490,000 619,597 1,760,000 2,225,490
North Atlantic Trading Co. sr. notes
9 1/4s, 2012 515,000 504,700 195,000 191,100 710,000 695,800
Olympus Cable bank term loan FRN Ser.
B, 6 1/4s, 2010 (acquired various dates
from 6/20/02 to 11/06/02 cost
$374,206, $235,305, $609,511) (RES) 465,000 448,559 270,000 260,454 735,000 709,013
Pinnacle Foods Holding Corp. 144A
sr. sub. notes 8 1/4s, 2013 965,000 926,400 375,000 360,000 1,340,000 1,286,400
Playtex Products, Inc. company
guaranty 9 3/8s, 2011 1,165,000 1,173,738 445,000 448,338 1,610,000 1,622,076
Playtex Products, Inc. 144A secd.
notes 8s, 2011 1,075,000 1,115,313 415,000 430,563 1,490,000 1,545,876
Premier International Foods PLC
sr. notes 12s, 2009 (United Kingdom) 900,000 958,500 350,000 372,750 1,250,000 1,331,250
Prestige Brands, Inc. 144A sr.
sub. notes 9 1/4s, 2012 1,030,000 1,045,450 395,000 400,925 1,425,000 1,446,375
Quebecor Media, Inc. sr. disc.
notes stepped-coupon zero % (13 3/4s,
7/15/06), 2011 (Canada) (STP) 45,000 42,188 10,000 9,375 55,000 51,563
Quebecor Media, Inc. sr. notes 11
1/8s, 2011 (Canada) 800,000 916,000 305,000 349,225 1,105,000 1,265,225
Rayovac Corp. bank term loan FRN
Ser. B, 3.903s, 2009 (acquired
9/26/02, cost $144,165, $72,082,
$216,247) (RES) 144,309 145,933 72,155 72,966 216,464 218,899
Remington Arms Co., Inc. company
guaranty 10 1/2s, 2011 1,030,000 1,009,400 405,000 396,900 1,435,000 1,406,300
Rite Aid Corp. bank term loan FRN
4.408s, 2008 (acquired 5/16/03,
cost $164,382, $64,757, $229,139)
(RES) 164,587 167,879 64,838 66,134 229,425 234,013
Rite Aid Corp. company guaranty
9 1/2s, 2011 780,000 856,050 305,000 334,738 1,085,000 1,190,788
Rite Aid Corp. debs. 6 7/8s,
2013 50,000 45,750 20,000 18,300 70,000 64,050
Rite Aid Corp. notes 7 1/8s,
2007 105,000 106,838 40,000 40,700 145,000 147,538
Rite Aid Corp. sec. notes 8
1/8s, 2010 525,000 549,938 205,000 214,738 730,000 764,676
Rite Aid Corp. sr. notes 9
1/4s, 2013 710,000 743,725 270,000 282,825 980,000 1,026,550
Rite Aid Corp. 144A notes 6s,
2005 55,000 55,275 20,000 20,100 75,000 75,375
Roundy's bank term loan FRN
3.11s, 2009 (acquired 6/3/02,
cost $293,263) (RES) 293,263 295,646 -- -- 293,263 295,646
Sbarro, Inc. company guaranty
11s, 2009 1,220,000 1,079,700 470,000 415,950 1,690,000 1,495,650
Scotts Co. (The) bank term
loan FRN 3.328s, 2010 (acquired
10/16/03, cost $119,700, $39,900,
$159,600) (RES) 119,700 120,256 39,900 40,085 159,600 160,341
Scotts Co. (The) sr. sub. notes
6 5/8s, 2013 355,000 358,550 140,000 141,400 495,000 499,950
Six Flags, Inc. bank term loan
FRN Ser. B, 3.87s, 2009 (acquired
1/15/03, cost $127,169, $42,390,
$169,559) (RES) 127,328 128,495 42,443 42,832 169,771 171,327
Six Flags, Inc. sr. notes 9 5/8s,
2014 1,350,000 1,252,125 527,000 488,793 1,877,000 1,740,918
Six Flags, Inc. sr. notes 8 7/8s,
2010 3,140,000 2,908,425 1,105,000 1,023,506 4,245,000 3,931,931
Sum Media bank term loan FRN Ser.
B, 3.42s, 2009 (acquired 2/4/03,
cost $235,736, $78,579, $314,315)
(RES) 235,736 237,603 78,579 79,201 314,315 316,804
Videotron Ltee company guaranty 6
7/8s, 2014 (Canada) 405,000 392,850 155,000 150,350 560,000 543,200
Vivendi Universal SA bank term
loan FRN Ser. B, 4.07s, 2008
(acquired 6/23/03, cost $165,000,
$65,000, $230,000) (France) (RES) 165,000 165,619 65,000 65,244 230,000 230,863
Vivendi Universal SA sr. notes
6 1/4s, 2008 (France) 1,070,000 1,139,550 540,000 575,100 1,610,000 1,714,650
Warner Music bank term loan FRN
4.173s, 2011 (acquired 4/8/04,
cost $400,812, $65,000, $601,218)
(RES) 399,000 404,486 199,500 202,243 598,500 606,729
Williams Scotsman, Inc. company
guaranty 9 7/8s, 2007 1,010,000 999,900 390,000 386,100 1,400,000 1,386,000
Young Broadcasting, Inc. company
guaranty 10s, 2011 1,068,000 1,078,680 404,000 408,040 1,472,000 1,486,720
Young Broadcasting, Inc. sr. sub.
notes 8 3/4s, 2014 510,000 484,500 200,000 190,000 710,000 674,500
57,110,202 21,602,142 78,712,344
Energy 3.8% 3.9% 3.8%
Arch Western Finance, LLC 144A sr.
notes 7 1/4s, 2013 1,105,000 1,121,575 430,000 436,450 1,535,000 1,558,025
Belden & Blake Corp. 144A sec.
notes 8 3/4s, 2012 300,000 305,625 115,000 117,156 415,000 422,781
BRL Universal Equipment sec.
notes 8 7/8s, 2008 890,000 950,075 350,000 373,625 1,240,000 1,323,700
CHC Helicopter Corp. 144A sr.
sub. notes 7 3/8s, 2014 (Canada) 795,000 793,013 300,000 299,250 1,095,000 1,092,263
Chesapeake Energy Corp. company
guaranty 9s, 2012 475,000 542,688 180,000 205,650 655,000 748,338
Chesapeake Energy Corp. company
guaranty 7 3/4s, 2015 371,000 392,333 142,000 150,165 513,000 542,498
Chesapeake Energy Corp. sr.
notes 7 1/2s, 2013 1,365,000 1,450,313 626,000 665,125 1,991,000 2,115,438
Chesapeake Energy Corp. sr.
notes 7s, 2014 400,000 403,000 157,000 158,178 557,000 561,178
Comstock Resources, Inc. sr.
notes 6 7/8s, 2012 720,000 707,400 275,000 270,188 995,000 977,588
Dresser, Inc. bank term loan
FRN 4.68s, 2010 (acquired
2/27/04, cost $241,683, $120,900,
$362,583) (RES) 240,000 244,380 120,000 122,190 360,000 366,570
Dresser, Inc. company guaranty
9 3/8s, 2011 975,000 1,053,000 380,000 410,400 1,355,000 1,463,400
El Paso Energy Partners LP
company guaranty Ser. B,
8 1/2s, 2011 208,000 227,760 77,000 84,315 285,000 312,075
Encore Acquisition Co.
company guaranty 8 3/8s,
2012 755,000 819,175 295,000 320,075 1,050,000 1,139,250
Encore Acquisition Co.
144A sr. sub. notes 6 1/4s, 2014 360,000 346,500 140,000 134,750 500,000 481,250
Exco Resources, Inc. company
guaranty 7 1/4s, 2011 1,020,000 1,055,700 390,000 403,650 1,410,000 1,459,350
Forest Oil Corp. company
guaranty 7 3/4s, 2014 480,000 498,000 185,000 191,938 665,000 689,938
Forest Oil Corp. sr. notes
8s, 2011 320,000 344,800 520,000 560,300 840,000 905,100
Forest Oil Corp. sr. notes
8s, 2008 275,000 295,625 115,000 123,625 390,000 419,250
Forest Oil Corp. 144A sr.
notes 8s, 2011 450,000 484,875 175,000 188,563 625,000 673,438
Gazprom OAO 144A notes
9 5/8s, 2013 (Russia) 1,190,000 1,245,038 440,000 460,350 1,630,000 1,705,388
Hanover Compressor Co.
sr. notes 9s, 2014 555,000 584,138 215,000 226,288 770,000 810,426
Hanover Compressor Co.
sr. notes 8 5/8s, 2010 495,000 524,700 195,000 206,700 690,000 731,400
Hanover Compressor Co.
sub. notes zero %, 2007 745,000 607,175 290,000 236,350 1,035,000 843,525
Hanover Equipment Trust
sec. notes Ser. A, 8 1/2s, 2008 495,000 528,413 190,000 202,825 685,000 731,238
Hornbeck Offshore Services,
Inc. sr. notes 10 5/8s, 2008 670,000 733,650 265,000 290,175 935,000 1,023,825
KCS Energy, Inc. 144A sr.
notes 7 1/8s, 2012 515,000 515,000 195,000 195,000 710,000 710,000
Key Energy Services, Inc.
sr. notes 6 3/8s, 2013 410,000 386,425 160,000 150,800 570,000 537,225
Magellan Midstream Holdings
bank term loan FRN 4.65s,
2008 (acquired 6/13/03, cost
$91,009, $35,852, $126,861)
(RES) 91,928 93,077 36,214 36,667 128,142 129,744
Massey Energy Co. sr. notes
6 5/8s, 2010 765,000 780,300 295,000 300,900 1,060,000 1,081,200
Newfield Exploration Co.
sr. notes 7 5/8s, 2011 980,000 1,053,500 380,000 408,500 1,360,000 1,462,000
Offshore Logistics, Inc.
company guaranty 6 1/8s, 2013 655,000 635,350 255,000 247,350 910,000 882,700
Oslo Seismic Services, Inc.
1st mtge. 8.28s, 2011 804,693 748,364 311,190 289,407 1,115,883 1,037,771
Pacific Energy Partners/
Pacific Energy Finance Corp.
144A sr. notes 7 1/8s, 2014 505,000 516,363 190,000 194,275 695,000 710,638
Parker Drilling Co. bank
term loan FRN 5.72s, 2007
(acquired 10/22/03, cost
$150,000, $49,500, $199,500)
(RES) 150,000 150,469 50,000 50,156 200,000 200,625
Parker Drilling Co. company
guaranty Ser. B, 10 1/8s, 2009 755,000 800,300 290,000 307,400 1,045,000 1,107,700
Peabody Energy Corp. bank
term loan FRN Ser. B, 3.252s,
2010 (acquired 3/20/03, cost
$122,203, $48,141, $170,344)
(RES) 122,203 123,425 48,141 48,622 170,344 172,047
Peabody Energy Corp. sr. notes
5 7/8s, 2016 1,065,000 985,125 405,000 374,625 1,470,000 1,359,750
Pemex Project Funding Master
Trust company guaranty 8 5/8s, 2022 880,000 941,600 335,000 358,450 1,215,000 1,300,050
Petro Geo-Services notes 10s,
2010 (Norway) 795,000 842,700 300,000 318,000 1,095,000 1,160,700
Petroleos Mexicanos company
guaranty 9 1/2s, 2027 (Mexico) 1,626,000 1,869,900 630,000 724,500 2,256,000 2,594,400
Petronas Capital, Ltd. company
guaranty 7 7/8s, 2022 (Malaysia) 1,410,000 1,570,458 550,000 612,590 1,960,000 2,183,048
Petronas Capital, Ltd. company
guaranty 7s, 2012 (Malaysia) 315,000 345,335 125,000 137,038 440,000 482,373
Petronas Capital, Ltd. 144A
company guaranty 7 7/8s, 2022
(Malaysia) 350,000 389,830 -- -- 350,000 389,830
Plains All American Pipeline
LP/Plains All American Finance Corp.
company guaranty 7 3/4s, 2012 525,000 592,582 205,000 231,389 730,000 823,971
Plains Exploration & Production
Co. company guaranty Ser. B, 8
3/4s, 2012 800,000 880,000 310,000 341,000 1,110,000 1,221,000
Plains Exploration & Production
Co. sr. sub. notes 8 3/4s, 2012 420,000 462,000 160,000 176,000 580,000 638,000
Plains Exploration & Production
Co. 144A sr. notes 7 1/8s, 2014 520,000 534,300 200,000 205,500 720,000 739,800
Pogo Producing Co. sr. sub. notes
Ser. B, 8 1/4s, 2011 920,000 1,007,400 350,000 383,250 1,270,000 1,390,650
Pride International, Inc. 144A
sr. notes 7 3/8s, 2014 925,000 953,906 360,000 371,250 1,285,000 1,325,156
Seabulk International, Inc.
company guaranty 9 1/2s, 2013 830,000 859,050 320,000 331,200 1,150,000 1,190,250
Seven Seas Petroleum, Inc. sr.
notes Ser. B, 12 1/2s, 2005
(In default) (NON) 420,000 4 170,000 2 590,000 6
Star Gas Partners LP/Star Gas
Finance Co. sr. notes 10 1/4s,
2013 1,285,000 1,374,950 495,000 529,650 1,780,000 1,904,600
Star Gas Propane 1st Mtge.
8.04s, 2009 465,385 500,288 181,923 195,567 647,308 695,855
Universal Compression, Inc. s
r. notes 7 1/4s, 2010 205,000 213,200 80,000 83,200 285,000 296,400
Vintage Petroleum, Inc. sr.
notes 8 1/4s, 2012 900,000 963,000 170,000 181,900 1,070,000 1,144,900
Vintage Petroleum, Inc. sr.
sub. notes 7 7/8s, 2011 205,000 212,175 80,000 82,800 285,000 294,975
37,559,327 14,705,269 52,264,596
Financial 0.7% 0.7% 0.7%
Crescent Real Estate Equities LP
notes 7 1/2s, 2007 (R) 435,000 441,525 165,000 167,475 600,000 609,000
Crescent Real Estate Equities LP
sr. notes 9 1/4s, 2009 (R) 1,075,000 1,128,750 420,000 441,000 1,495,000 1,569,750
E*Trade Finance Corp. 144A sr.
notes 8s, 2011 1,255,000 1,261,275 485,000 487,425 1,740,000 1,748,700
Finova Group, Inc. notes 7 1/2s,
2009 2,305,466 1,302,588 880,419 497,437 3,185,885 1,800,025
Hilb, Rogal & Hamilton Co. bank
term loan FRN Ser. B, 3 7/8s, 2007
(acquired 6/20/02, cost $326,916,
$108,972, $435,888) (RES) 326,916 331,003 108,972 110,334 435,888 441,337
iStar Financial, Inc. sr. notes
8 3/4s, 2008 (R) 792,000 891,000 305,000 343,125 1,097,000 1,234,125
iStar Financial, Inc. sr. notes
7s, 2008 (R) 180,000 190,800 70,000 74,200 250,000 265,000
iStar Financial, Inc. sr. notes
6s, 2010 (R) 595,000 596,488 230,000 230,575 825,000 827,063
Western Financial Bank sub.
debs. 9 5/8s, 2012 760,000 836,000 290,000 319,000 1,050,000 1,155,000
6,979,429 2,670,571 9,650,000
Government 0.2% 0.2% 0.2%
Aries Vermogensverwaltng 144A
notes 9.6s, 2014 (Germany) 1,750,000 1,850,625 750,000 793,125 2,500,000 2,643,750
Health Care 3.4% 3.4% 3.4%
Alderwoods Group, Inc. bank
term loan FRN 4.17s, 2008 (acquired
9/9/03, cost $116,293, $38,764,
$155,057) (RES) 116,293 117,940 38,764 39,313 155,057 157,253
Alderwoods Group, Inc. company
guaranty 12 1/4s, 2009 1,183,400 1,306,178 460,100 507,835 1,643,500 1,814,013
AmerisourceBergen Corp. company
guaranty 7 1/4s, 2012 805,000 839,213 315,000 328,388 1,120,000 1,167,601
AmerisourceBergen Corp. sr.
notes 8 1/8s, 2008 780,000 846,300 310,000 336,350 1,090,000 1,182,650
Ardent Health Services, Inc. sr.
sub. notes 10s, 2013 1,375,000 1,491,875 535,000 580,475 1,910,000 2,072,350
Beverly Enterprises, Inc.
bank term loan FRN 4.258s, 2008
(acquired 10/20/03, cost $185,629,
$61,876, $247,505) (RES) 186,094 188,575 62,031 62,858 248,125 251,433
Community Health Systems, Inc.
bank term loan FRN Ser. B, 3.6s,
2010 (acquired 7/11/02, cost $442,125,
$147,375, $589,500) (RES) 442,125 442,263 147,375 147,421 589,500 589,684
Concentra bank term loan FRN
.957s, 2009 (acquired 8/12/03, cost
$297,000, $99,000, $396,000) (RES) 297,000 300,836 99,000 100,279 396,000 401,115
Dade Behring, Inc. company guaranty
11.91s, 2010 230,846 263,164 90,501 103,171 321,347 366,335
DaVita, Inc. bank term loan FRN
Ser. B, 3.483s, 2009 (acquired
various dates from 7/17/03 to 1/30/04,
cost $497,997, $199,537, $697,534)
(RES) 495,684 500,110 198,381 200,152 694,065 700,262
Extendicare Health Services, Inc.
company guaranty 9 1/2s, 2010 470,000 523,463 185,000 206,044 655,000 729,507
Extendicare Health Services, Inc.
144A sr. sub. notes 6 7/8s, 2014 745,000 711,475 285,000 272,175 1,030,000 983,650
Fisher Scientific International,
Inc. bank term loan FRN 3.34s, 2010
(acquired 2/13/03, cost $165,993,
$55,331, $221,324) (RES) 165,993 166,685 55,331 55,562 221,324 222,247
Fisher Scientific International,
Inc. bank term loan FRN 2.61s, 2011
(acquired 6/15/04, cost $160,000,
$80,000, $240,000) (RES) 160,000 161,300 80,000 80,650 240,000 241,950
Hanger Orthopedic Group, Inc. bank
term loan FRN 4.34s, 2009 (acquired
9/29/03, cost $148,875, $49,625,
$198,500) (RES) 148,875 149,681 49,625 49,894 198,500 199,575
Hanger Orthopedic Group, Inc.
company guaranty 10 3/8s, 2009 1,070,000 1,075,350 415,000 417,075 1,485,000 1,492,425
HCA, Inc. debs. 7.19s, 2015 920,000 964,816 115,000 120,602 1,035,000 1,085,418
HCA, Inc. notes 8.36s, 2024 350,000 376,507 640,000 688,470 990,000 1,064,977
HCA, Inc. notes 7.69s, 2025 750,000 752,219 150,000 150,444 900,000 902,663
HCA, Inc. notes 7s, 2007 1,385,000 1,477,525 445,000 474,728 1,830,000 1,952,253
HCA, Inc. notes 5 3/4s, 2014 285,000 274,594 110,000 105,984 395,000 380,578
Healthsouth Corp. notes 7 5/8s,
2012 1,365,000 1,279,688 540,000 506,250 1,905,000 1,785,938
Healthsouth Corp. sr. notes 8
1/2s, 2008 705,000 699,713 255,000 253,088 960,000 952,801
Healthsouth Corp. sr. notes 8
3/8s, 2011 340,000 328,100 130,000 125,450 470,000 453,550
Healthsouth Corp. sr. notes 7s,
2008 290,000 281,300 110,000 106,700 400,000 388,000
IASIS Healthcare/IASIS Capital
Corp. 144A sr. sub. notes 8 3/4s,
2014 565,000 587,600 215,000 223,600 780,000 811,200
Insight Health Services Corp.
144A company guaranty 9 7/8s, 2011 515,000 554,913 195,000 210,113 710,000 765,026
Kinetic Concepts, Inc. bank term
loan FRN 3.59s, 2011 (acquired
8/5/03 , cost $186,891, $62,297,
$249,188) (RES) 186,375 188,705 62,125 62,902 248,500 251,607
Magellan Health Services, Inc.
sr. notes Ser. A, 9 3/8s, 2008 340,845 365,556 130,735 140,213 471,580 505,769
MedCath Holdings Corp. 144A sr.
notes 9 7/8s, 2012 200,000 203,500 75,000 76,313 275,000 279,813
Medex, Inc. bank term loan FRN 4.38s, 2009
(acquired various dates from 5/16/03 to
6/16/03, cost $204,090, $80,399,
$284,489) (RES) 204,188 205,655 80,438 81,016 284,626 286,671
Mediq, Inc. debs. 13s, 2009
(In default) (NON) 940,000 94 380,000 38 1,320,000 132
MedQuest, Inc. company guaranty Ser.
B, 11
7/8s, 2012 1,285,000 1,458,475 495,000 561,825 1,780,000 2,020,300
Omega Health Care Investors 144A
sr. notes 7s, 2014 260,000 247,650 100,000 95,250 360,000 342,900
Omnicare, Inc. sr. sub. notes 6 1/8s, 2013 1,045,000 992,750 405,000 384,750 1,450,000 1,377,500
PacifiCare Health Systems, Inc. company
guaranty 10 3/4s, 2009 1,022,000 1,162,525 396,000 450,450 1,418,000 1,612,975
Province Healthcare Co. sr. sub. notes 7
1/2s, 2013 1,055,000 1,033,900 410,000 401,800 1,465,000 1,435,700
Service Corp. International debs. 7 7/8s,
2013 390,000 398,775 70,000 71,575 460,000 470,350
Service Corp. International notes 7.2s,
2006 105,000 109,725 40,000 41,800 145,000 151,525
Service Corp. International notes 6 7/8s,
2007 35,000 36,138 15,000 15,488 50,000 51,626
Service Corp. International notes 6 1/2s,
2008 155,000 158,100 60,000 61,200 215,000 219,300
Service Corp. International notes Ser. *,
7.7s, 2009 370,000 389,425 145,000 152,613 515,000 542,038
Service Corp. International 144A sr.
notes 6 3/4s, 2016 1,085,000 1,023,969 415,000 391,656 1,500,000 1,415,625
Stewart Enterprises, Inc. notes 10 3/4s,
2008 1,010,000 1,122,363 390,000 433,388 1,400,000 1,555,751
Tenet Healthcare Corp. notes 7 3/8s, 2013 530,000 490,250 220,000 203,500 750,000 693,750
Tenet Healthcare Corp. sr. notes 6 1/2s,
2012 25,000 22,125 10,000 8,850 35,000 30,975
Tenet Healthcare Corp. sr. notes 6 3/8s,
2011 645,000 575,663 265,000 236,513 910,000 812,176
Tenet Healthcare Corp. 144A sr. notes 9
7/8s, 2014 1,240,000 1,288,050 475,000 493,406 1,715,000 1,781,456
Triad Hospitals, Inc. sr. notes 7s, 2012 1,150,000 1,175,875 435,000 444,788 1,585,000 1,620,663
Triad Hospitals, Inc. sr. sub. notes 7s,
2013 2,275,000 2,240,875 880,000 866,800 3,155,000 3,107,675
Universal Hospital Services, Inc. sr.
notes 10 1/8s, 2011 740,000 745,550 285,000 287,138 1,025,000 1,032,688
Ventas Realty LP/Capital Corp. company
guaranty 9s, 2012 425,000 471,750 165,000 183,150 590,000 654,900
VWR International Inc. bank term loan
FRN 3.77s, 2011 (acquired 4/5/04,
cost $80,000, $40,000, $120,000) (RES) 80,000 81,460 40,000 40,730 120,000 122,190
VWR International, Inc. 144A sr. notes
6 7/8s, 2012 480,000 484,800 185,000 186,850 665,000 671,650
33,335,086 12,827,073 46,162,159
Technology 1.3% 1.3% 1.3%
AMI Semiconductor, Inc. company
guaranty 10 3/4s, 2013 625,000 728,125 242,000 281,930 867,000 1,010,055
Celestica Inc. sr.sub. notes 7
7/8s, 2011 (Canada) 1,030,000 1,053,175 395,000 403,888 1,425,000 1,457,063
DigitalNet Holdings, Inc. sr.
notes 9s, 2010 705,000 752,588 269,000 287,158 974,000 1,039,746
Freescale Semiconductor, Inc.
144A sr. notes 7 1/8s, 2014 1,000,000 1,015,000 390,000 395,850 1,390,000 1,410,850
Iron Mountain, Inc. company
guaranty 8 5/8s, 2013 305,000 327,875 130,000 139,750 435,000 467,625
Iron Mountain, Inc. sr. sub.
notes 8 1/4s, 2011 770,000 799,838 295,000 306,431 1,065,000 1,106,269
Lucent Technologies, Inc.
debs. 6 1/2s, 2028 100,000 76,000 40,000 30,400 140,000 106,400
Lucent Technologies, Inc.
debs. 6.45s, 2029 1,435,000 1,094,188 555,000 423,188 1,990,000 1,517,376
Lucent Technologies, Inc.
notes 5 1/2s, 2008 75,000 70,875 30,000 28,350 105,000 99,225
Nortel Networks Corp. notes
6 1/8s, 2006 (Canada) 530,000 529,338 205,000 204,744 735,000 734,082
ON Semiconductor Corp.
company guaranty 13s, 2008 711,000 801,653 275,000 310,063 986,000 1,111,716
SCG Holding Corp. 144A notes
zero %, 2011 465,000 646,350 175,000 243,250 640,000 889,600
Seagate Technology Hdd Holdings
company guaranty 8s, 2009 (Cayman
Islands) 855,000 887,063 235,000 243,813 1,090,000 1,130,876
UGS Corp. 144A sr. sub. notes
10s, 2012 850,000 901,000 325,000 344,500 1,175,000 1,245,500
Xerox Capital Trust I company
guaranty 8s, 2027 1,075,000 972,875 420,000 380,100 1,495,000 1,352,975
Xerox Corp. company guaranty
9 3/4s, 2009 255,000 290,700 110,000 125,400 365,000 416,100
Xerox Corp. notes Ser. MTN,
7.2s, 2016 555,000 530,025 215,000 205,325 770,000 735,350
Xerox Corp. sr. notes 7 5/8s,
2013 1,565,000 1,604,125 615,000 630,375 2,180,000 2,234,500
13,080,793 4,984,515 18,065,308
Transportation 0.5% 0.6% 0.6%
Allied Holdings, Inc. company
guaranty Ser. B, 8 5/8s, 2007 65,000 56,550 25,000 21,750 90,000 78,300
American Airlines, Inc. pass-
through certificates Ser. 01-1,
6.817s, 2011 760,000 680,200 295,000 264,025 1,055,000 944,225
Calair, LLC/Calair Capital Corp.
company guaranty 8 1/8s, 2008 1,365,000 1,037,400 530,000 402,800 1,895,000 1,440,200
Delta Air Lines, Inc. pass-
through certificates Ser. 00-1,
7.779s, 2005 445,000 274,888 170,000 105,013 615,000 379,901
Delta Air Lines, Inc. pass-
through certificates Ser. 02-1,
7.779s, 2012 325,588 169,306 125,226 65,118 450,814 234,424
Kansas City Southern Railway
Co. company guaranty 9 1/2s, 2008 1,270,000 1,384,300 500,000 545,000 1,770,000 1,929,300
Kansas City Southern Railway
Co. company guaranty 7 1/2s, 2009 260,000 261,625 100,000 100,625 360,000 362,250
Northwest Airlines, Inc.
company guaranty 7 5/8s, 2005 770,000 746,900 310,000 300,700 1,080,000 1,047,600
NWA Trust sr. notes Ser.
A, 9 1/4s, 2012 332,615 330,952 127,385 126,748 460,000 457,700
Pacer International, Inc.
bank term loan FRN 4.356s,
2010 (acquired 6/10/03, cost
$208,157, $82,114, $290,271)
(RES) 207,221 209,811 81,632 82,653 288,853 292,464
Travel Centers of America,
Inc. company guaranty
12 3/4s, 2009 260,000 301,600 100,000 116,000 360,000 417,600
5,453,532 2,130,432 7,583,964
Utilities & Power 4.3% 4.3% 4.3%
AES Corp. (The) sr. notes
8 7/8s, 2011 77,000 81,428 30,000 31,725 107,000 113,153
AES Corp. (The) sr. notes
8 3/4s, 2008 43,000 45,150 17,000 17,850 60,000 63,000
AES Corp. (The) 144A sec.
notes 9s, 2015 1,085,000 1,182,650 420,000 457,800 1,505,000 1,640,450
AES Corp. (The) 144A sec.
notes 8 3/4s, 2013 1,530,000 1,671,525 595,000 650,038 2,125,000 2,321,563
Allegheny Energy Supply 144A
bonds 8 1/4s, 2012 740,000 743,700 290,000 291,450 1,030,000 1,035,150
Allegheny Energy Supply
144A sec. notes 10 1/4s, 2007 475,000 517,750 180,000 196,200 655,000 713,950
Allegheny Energy, Inc. bank
term loan FRB 5.622s, 2011
(acquired 3/5/04, cost $299,250,
$149,625, $448,875) (RES) 299,250 304,425 149,625 152,212 448,875 456,637
Calpine Canada Energy Finance
company guaranty 8 1/2s, 2008
(Canada) 800,000 500,000 320,000 200,000 1,120,000 700,000
Calpine Corp. 144A sec. notes
8 3/4s, 2013 225,000 180,000 85,000 68,000 310,000 248,000
Calpine Corp. 144A sec. notes
8 1/2s, 2010 2,315,000 1,863,575 875,000 704,375 3,190,000 2,567,950
CenterPoint Energy Resources
Corp. debs. 6 1/2s, 2008 390,000 415,967 150,000 159,987 540,000 575,954
CenterPoint Energy Resources
Corp. sr. notes Ser. B, 7 7/8s, 2013 335,000 387,039 120,000 138,641 455,000 525,680
CMS Energy Corp. pass-through
certificates 7s, 2005 130,000 130,813 50,000 50,313 180,000 181,126
CMS Energy Corp. sr. notes
8.9s, 2008 1,190,000 1,270,325 500,000 533,750 1,690,000 1,804,075
CMS Energy Corp. sr. notes
8 1/2s, 2011 315,000 330,750 120,000 126,000 435,000 456,750
CMS Energy Corp. 144A sr.
notes 7 3/4s, 2010 250,000 255,625 100,000 102,250 350,000 357,875
DPL, Inc. sr. notes 6 7/8s,
2011 875,000 890,313 340,000 345,950 1,215,000 1,236,263
Dynegy Holdings, Inc. bank
term loan FRN 5.36s, 2010
(acquired 6/8/04, cost $160,000,
$80,000, $240,000) (RES) 160,000 162,800 80,000 81,400 240,000 244,200
Dynegy Holdings, Inc. sr.
notes 6 7/8s, 2011 425,000 382,500 160,000 144,000 585,000 526,500
Dynegy Holdings, Inc. 144A
sec. notes 10 1/8s, 2013 1,990,000 2,193,975 780,000 859,950 2,770,000 3,053,925
Dynegy-Roseton Danskamme
company guaranty Ser. A,
7.27s, 2010 525,000 509,250 200,000 194,000 725,000 703,250
Dynegy-Roseton Danskamme
company guaranty Ser. B,
7.67s, 2016 800,000 704,000 310,000 272,800 1,110,000 976,800
Edison Mission Energy sr.
notes 10s, 2008 370,000 419,950 145,000 164,575 515,000 584,525
Edison Mission Energy sr.
notes 9 7/8s, 2011 15,000 16,800 5,000 5,600 20,000 22,400
El Paso Corp. sr. notes
7 3/8s, 2012 560,000 499,800 210,000 187,425 770,000 687,225
El Paso Corp. sr. notes
Ser. MTN, 7 3/4s, 2032 1,275,000 1,035,938 505,000 410,313 1,780,000 1,446,251
El Paso Natural Gas Co.
debs. 8 5/8s, 2022 265,000 268,313 105,000 106,313 370,000 374,626
El Paso Natural Gas Co.
sr. notes Ser. A, 7 5/8s,
2010 240,000 248,400 90,000 93,150 330,000 341,550
El Paso Production Holding
Co. company guaranty 7 3/4s,
2013 1,390,000 1,323,975 535,000 509,588 1,925,000 1,833,563
Ferrellgas Partners LP/F
errellgas Partners Finance
144A sr. notes 6 3/4s, 2014 910,000 880,425 345,000 333,788 1,255,000 1,214,213
Kansas Gas & Electric debs.
8.29s, 2016 300,000 312,257 115,000 119,698 415,000 431,955
Midwest Generation LLC 144A
sec. notes 8 3/4s, 2034 1,765,000 1,870,900 680,000 720,800 2,445,000 2,591,700
Mission Energy Holding Co.
sec. notes 13 1/2s, 2008 1,180,000 1,463,200 450,000 558,000 1,630,000 2,021,200
Monongahela Power Co. 144A
1st. mtge. 6.7s, 2014 560,000 570,904 215,000 219,186 775,000 790,090
Nevada Power Co. 2nd mtge.
9s, 2013 930,000 1,036,950 360,000 401,400 1,290,000 1,438,350
Northwest Pipeline Corp.
company guaranty 8 1/8s,
2010 1,400,000 1,552,250 545,000 604,269 1,945,000 2,156,519
Northwestern Corp. debs.
6.95s, 2028 (In default)
(NON) 90,000 78,075 35,000 30,363 125,000 108,438
Northwestern Corp. notes
8 3/4s, 2012 (In default)
(NON) 160,000 140,000 60,000 52,500 220,000 192,500
Northwestern Corp. notes
7 7/8s, 2007 (In default)
(NON) 655,000 573,125 255,000 223,125 910,000 796,250
NRG Energy, Inc. 144A sr.
sec. notes 8s, 2013 2,795,000 2,857,888 1,080,000 1,104,300 3,875,000 3,962,188
Orion Power Holdings,
Inc. sr. notes 12s, 2010 805,000 966,000 310,000 372,000 1,115,000 1,338,000
PG&E Corp. sec. notes 6
7/8s, 2008 1,185,000 1,257,581 460,000 488,175 1,645,000 1,745,756
PG&E Gas Transmission Northwest
sr. notes 7.1s, 2005 220,000 224,950 85,000 86,913 305,000 311,863
PSEG Energy Holdings, Inc.
notes 7 3/4s, 2007 850,000 896,750 330,000 348,150 1,180,000 1,244,900
SEMCO Energy, Inc. sr. notes
7 3/4s, 2013 670,000 703,500 260,000 273,000 930,000 976,500
Sierra Pacific Power Co. 144A
general ref. mtge. 6 1/4s, 2012 210,000 205,800 80,000 78,400 290,000 284,200
Sierra Pacific Resources 144A
sr. notes 8 5/8s, 2014 1,285,000 1,329,975 490,000 507,150 1,775,000 1,837,125
Southern California Edison Co.
notes 6 3/8s, 2006 130,000 136,030 50,000 52,319 180,000 188,349
Teco Energy, Inc. notes 10
1/2s, 2007 440,000 503,800 170,000 194,650 610,000 698,450
Teco Energy, Inc. notes 7.2s,
2011 250,000 256,875 100,000 102,750 350,000 359,625
Teco Energy, Inc. notes 7s,
2012 400,000 403,000 150,000 151,125 550,000 554,125
Tennessee Gas Pipeline Co.
debs. 7s, 2028 105,000 93,319 40,000 35,550 145,000 128,869
Teton Power Funding bank term loan
FRN 4.8s, 2011 (acquired 2/4/04,
cost $181,538, $90,769, $272,307)
(RES) 181,538 183,127 90,769 91,563 272,307 274,690
Transcontinental Gas Pipeline Corp.
debs. 7 1/4s, 2026 135,000 135,000 50,000 50,000 185,000 185,000
Unisource Energy bank term loan
FRN 5.652s, 2011 (acquired 3/25/04,
cost $158,400, $79,200, $237,600)
(RES) 160,000 157,800 80,000 78,900 240,000 236,700
Utilicorp Canada Finance Corp.
company guaranty 7 3/4s, 2011
(Canada) 1,460,000 1,361,450 470,000 438,275 1,930,000 1,799,725
Utilicorp United, Inc. sr. notes
9.95s, 2011 510,000 517,650 196,000 198,940 706,000 716,590
Western Resources, Inc. sr. notes
9 3/4s, 2007 547,000 623,165 215,000 244,937 762,000 868,102
Williams Cos., Inc. (The) notes
8 3/4s, 2032 200,000 210,750 80,000 84,300 280,000 295,050
Williams Cos., Inc. (The) notes
8 1/8s, 2012 210,000 229,425 80,000 87,400 290,000 316,825
Williams Cos., Inc. (The) notes
7 5/8s, 2019 755,000 762,550 290,000 292,900 1,045,000 1,055,450
Williams Cos., Inc. (The) sr.
notes 8 5/8s, 2010 975,000 1,094,438 380,000 426,550 1,355,000 1,520,988
Williams Products bank term loan
FRN 3.88s, 2007 (acquired 6/4/03,
cost $163,354, $64,352, $227,706)
(RES) 163,354 165,260 64,352 65,102 227,706 230,362
York Power Funding 144A notes 12s,
2007 (Cayman Islands) (In default)
(NON) 334,976 34 131,272 13 466,248 47
42,290,939 16,372,146 58,663,085
Total Corporate bonds and notes
(cost $401,372,494, 154,409,192, $555,781,686) $406,395,249 $157,155,965 $563,551,214
Foreign government 14.2% 14.4% 14.3%
bonds and notes (a) Principal Value Principal Value Principal Value
amount amount amount
Australia (Government of) bonds 6 1/4s,
2015 AUD $4,500,000 $3,237,550 $1,759,000 $1,265,522 $6,259,000 $4,503,072
Austria (Republic of) 144A notes Ser.
EMTN, 3.8s, 2013 EUR 6,000,000 6,999,908 2,000,000 2,333,303 8,000,000 9,333,211
Brazil (Federal Republic of) bonds
10 1/2s, 2014 USD 980,000 979,020 360,000 359,640 1,340,000 1,338,660
Brazil (Federal Republic of) bonds
10 1/8s, 2027 USD 940,000 871,850 360,000 333,900 1,300,000 1,205,750
Brazil (Federal Republic of) unsub.
notes 11s, 2040 USD 1,360,000 1,334,840 525,000 515,288 1,885,000 1,850,128
Bulgaria (Republic of) 144A bonds
8 1/4s, 2015 USD 1,300,000 1,537,250 496,000 586,520 1,796,000 2,123,770
Canada (Government of) bonds 5 1/2s,
2010 CAD 2,725,000 2,166,793 1,005,000 799,129 3,730,000 2,965,922
Canada (Government of) bonds Ser.
WL43, 5 3/4s, 2029 CAD 930,000 744,882 410,000 328,389 1,340,000 1,073,271
Colombia (Republic of) bonds 10
3/8s, 2033 USD 220,000 224,400 105,000 107,100 325,000 331,500
Colombia (Republic of) bonds Ser.
NOV, 9 3/4s, 2009 USD 1,145,000 1,249,768 425,000 463,888 1,570,000 1,713,656
Colombia (Republic of) notes 10
3/4s, 2013 USD 3,010,000 3,360,665 1,150,000 1,283,975 4,160,000 4,644,640
Colombia (Republic of) unsub.
bonds Ser. 15A, 11 3/8s, 2008 EUR 400,000 551,145 155,000 213,569 555,000 764,714
Dominican (Republic of) notes
9.04s, 2013 USD 460,000 296,700 175,000 112,875 635,000 409,575
Ecuador (Republic of) bonds
stepped-coupon Ser. REGS, 7s (8s,
8/15/04), 2030 (STP) USD 2,085,000 1,546,028 795,000 589,493 2,880,000 2,135,521
El Salvador (Republic of) 144A
bonds 8 1/4s, 2032 USD 380,000 359,100 150,000 141,750 530,000 500,850
France (Government of) bonds
5 3/4s, 2032 EUR 1,845,000 2,529,942 760,000 1,042,144 2,605,000 3,572,086
France (Government of) bonds
5 1/2s, 2010 EUR 4,830,000 6,367,247 1,470,000 1,937,858 6,300,000 8,305,105
France (Government of) bonds
4s, 2013 EUR 9,000,000 10,726,749 3,200,000 3,813,955 12,200,000 14,540,704
France (Government of) deb.
4s, 2009 EUR 1,080,000 1,326,216 440,000 540,310 1,520,000 1,866,526
Germany (Federal Republic of)
bonds Ser. 97, 6s, 2007 EUR 7,250,000 9,448,358 3,310,000 4,313,664 10,560,000 13,762,022
Germany (Federal Republic of)
bonds Ser. 97, 6s, 2007 EUR 6,340,000 8,189,915 2,480,000 3,203,626 8,820,000 11,393,541
Hellenic Greece (Republic of)
bonds 3 1/2s, 2008 EUR 1,875,000 2,272,436 730,000 884,735 2,605,000 3,157,171
Indonesia (Republic of) FRN
2.005s, 2006 USD 260,000 246,350 100,000 94,750 360,000 341,100
Indonesia (Republic of) FRN
2.005s, 2005 USD 645,000 627,263 250,000 243,125 895,000 870,388
Indonosia (Republic of) 144A
sr. notes 6 3/4s, 2014 USD 2,250,000 2,081,250 855,000 790,875 3,105,000 2,872,125
New Zealand (Government of)
bonds Ser. 1106, 8s, 2006 NZD 7,610,000 5,004,131 2,970,000 1,952,992 10,580,000 6,957,123
New Zealand (Government of)
bonds Ser. 709, 7s, 2009 NZD 8,036,000 5,246,076 3,152,000 2,057,694 11,188,000 7,303,770
Peru (Republic of) bonds 8
3/4s, 2033 USD 520,000 466,700 200,000 179,500 720,000 646,200
Philippines (Republic of)
bonds 9 7/8s, 2019 USD 495,000 509,850 190,000 195,700 685,000 705,550
Philippines (Republic of)
sr. notes 8 7/8s, 2015 USD 845,000 840,775 325,000 323,375 1,170,000 1,164,150
Russia (Federation of) 144A
unsub. stepped-coupon 5s
(7 1/2s, 3/31/07), 2030
(STP) USD 5,772,500 5,296,269 2,211,250 2,028,822 7,983,750 7,325,091
Russia (Ministry of Finance)
deb. Ser. V, 3s, 2008 USD 1,335,000 1,174,800 520,000 457,600 1,855,000 1,632,400
South Africa (Republic of)
notes 7 3/8s, 2012 USD 2,705,000 2,956,565 1,030,000 1,125,790 3,735,000 4,082,355
South Africa (Republic of)
notes 6 1/2s, 2014 USD 740,000 760,350 285,000 292,838 1,025,000 1,053,188
Sweden (Government of) bonds
Ser. 1041, 6 3/4s, 2014 SEK 43,075,000 6,569,135 16,800,000 2,562,077 59,875,000 9,131,212
Sweden (Government of) bonds
Ser. 3101, 4s, 2008 SEK 37,600,000 6,058,864 14,640,000 2,359,090 52,240,000 8,417,954
Turkey (Republic of) notes 9s,
2011 USD 935,000 979,413 370,000 387,575 1,305,000 1,366,988
Ukraine (Government of) sr.
notes Ser. REGS, 11s, 2007 USD 470,408 506,159 184,803 198,848 655,211 705,007
Ukraine (Government of) 144A
bonds 7.65s, 2013 USD 1,025,000 984,000 400,000 384,000 1,425,000 1,368,000
Ukraine (Government of) 144A
unsub. notes 6 7/8s, 2011 USD 1,515,000 1,441,144 575,000 546,969 2,090,000 1,988,113
United Kingdom treasury bonds
8 3/4s, 2017 GBP 1,055,000 2,584,776 425,000 1,041,260 1,480,000 3,626,036
United Kingdom treasury bonds
7 1/4s, 2007 GBP 5,000,000 9,691,006 1,900,000 3,682,582 6,900,000 13,373,588
United Kingdom treasury bonds
5s, 2012 GBP 1,100,000 1,985,020 2,090,000 3,771,538 3,190,000 5,756,558
United Kingdom treasury bonds
7 1/2s, 2006 GBP 2,625,000 5,030,505 1,745,000 3,344,088 4,370,000 8,374,593
United Kingdom treasury bonds
4 1/2s, 2007 GBP 5,400,000 9,690,642 -- -- 5,400,000 9,690,642
United Mexican States bonds
Ser. MTN, 8.3s, 2031 USD 1,855,000 2,003,400 725,000 783,000 2,580,000 2,786,400
Venezuela (Republic of) bonds
9 3/8s, 2034 USD 570,000 501,600 215,000 189,200 785,000 690,800
Venezuela (Republic of) notes
10 3/4s, 2013 USD 650,000 674,700 255,000 264,690 905,000 939,390
Venezuela (Republic of) unsub.
bonds 5 3/8s, 2010 USD 1,020,000 844,050 415,000 343,413 1,435,000 1,187,463
Total Foreign government bonds
and notes (cost $132,628,270, $51,394,402,
$184,022,672) $141,075,555 $54,772,024 $195,847,579
Asset-backed securities (a) 6.5% 6.5% 6.5%
Principal Value Principal Value Principal Value
amount amount amount
ABSC NIMS Trust 144A Ser.
03-HE5, Class A, 7s, 2033 $380,732 $382,636 $148,531 $149,273 $529,263 $531,909
Aegis Asset Backed
Securities Trust 144A
Ser. 04-1N, Class NOTE,
5s, 2034 193,449 193,237 74,101 74,020 267,550 267,257
Ser. 04-2N, Class N1,
4 1/2s, 2034 421,202 419,622 160,959 160,355 582,161 579,977
Amortizing Residential
Collateral Trust Ser.
02-BC1, Class A, Interest
Only (IO), 6s, 2005 8,983,636 170,653 3,503,636 66,555 12,487,272 237,208
AQ Finance NIM Trust
144A
Ser. 03-N2, Class NOTE,
9.3s, 2033 152,366 153,318 59,354 59,725 211,720 213,043
Ser. 03-N9A, Class NOTE,
7.385s, 2033 121,104 121,861 47,141 47,436 168,245 169,297
Arc Net Interest Margin
Trust 144A Ser. 02-8A,
Class A1, 7 3/4s, 2032 20,625 20,455 8,036 7,970 28,661 28,425
Arcap REIT, Inc. 144A
Ser. 03-1A, Class E,
7.11s, 2038 535,000 555,564 208,000 215,995 743,000 771,559
Ser. 04-1A, Class E,
6.42s, 2039 304,000 301,767 116,000 115,148 420,000 416,915
Argent NIM Trust 144A
Ser. 03-N6, Class A,
6.4s, 2034 241,883 241,883 96,753 96,753 338,636 338,636
Ser. 04-WN2, Class A,
4.55s, 2034 126,516 126,042 48,720 48,538 175,236 174,580
Asset Backed Funding
Corp. NIM Trust 144A
Ser. 03-WF1, Class N1,
8.35s, 2032 63,077 63,077 -- -- 63,077 63,077
Ser. 04-0PT1, Class N2,
6.9s, 2033 220,000 220,000 84,000 84,000 304,000 304,000
Aviation Capital Group
Trust 144A FRB Ser. 03-2A, Class
G1, 2.12s, 2033 444,757 446,425 173,632 174,283 618,389 620,708
Bank One Issuance Trust
FRB Ser. 03-C4, Class C4, 2.41s, 2011 480,000 488,121 260,000 264,399 740,000 752,520
Bayview Financial
Acquisition Trust
Ser. 02-CA, Class A, IO,
5.1s, 2004 694,990 8,144 269,996 3,164 964,986 11,308
Ser. 03-X, Class A, IO,
0.89s, 2006 30,816,172 520,023 12,011,224 202,689 42,827,396 722,712
Bear Stearns Asset Backed
Securities NIM Trust 144A
Ser. 04-HE6, Class A1, 5
1/4s, 2034 (Cayman Islands) 594,000 594,000 265,000 265,000 859,000 859,000
CARSSX Finance, Ltd. 144A
FRB Ser. 04-AA, Class B3,
4.73s, 2011 (Cayman Islands) 170,000 170,000 100,000 100,000 270,000 270,000
FRB Ser. 04-AA, Class B4,
6.88s, 2011 (Cayman Islands) 220,000 220,000 100,000 100,000 320,000 320,000
Chase Credit Card Master
Trust FRB Ser. 03-3, Class
C, 2.46s, 2010 490,000 499,972 370,000 377,530 860,000 877,502
Chase Funding Net Interest
Margin 144A
Ser. 03-2A, Class NOTE,
8 3/4s, 2035 58,649 58,649 22,820 22,820 81,469 81,469
Ser. 03-4A, Class NOTE,
6 3/4s, 2036 323,268 323,268 125,814 125,814 449,082 449,082
Conseco Finance
Securitizations Corp.
Ser. 00-2, Class A4,
8.48s, 2021 524,000 536,383 203,000 207,797 727,000 744,180
Ser. 00-4, Class A6,
8.31s, 2032 4,469,000 3,823,000 1,673,000 1,431,165 6,142,000 5,254,165
Ser. 00-6, Class M2,
8.2s, 2032 1,535,000 207,225 600,000 81,000 2,135,000 288,225
Ser. 01-04, Class A4,
7.36s, 2033 32,000 31,271 12,000 11,727 44,000 42,998
Ser. 01-1, Class A5,
6.99s, 2032 697,000 634,806 220,000 200,369 917,000 835,175
Ser. 01-3, Class A3,
5.79s, 2033 18,000 17,756 9,000 8,878 27,000 26,634
Ser. 01-3, Class A4,
6.91s, 2033 1,594,000 1,471,872 610,000 563,264 2,204,000 2,035,136
Ser. 01-3, Class M2,
7.44s, 2033 400,000 76,000 200,000 38,000 600,000 114,000
Ser. 01-4, Class B1,
9.4s, 2010 1,436,000 215,400 561,000 84,150 1,997,000 299,550
Ser. 02-1, Class A,
6.681s, 2033 3,325,679 3,411,180 1,298,260 1,331,637 4,623,939 4,742,817
FRB Ser. 01-4, Class
M1, 3.11s, 2033 414,000 170,775 159,000 65,588 573,000 236,363
Consumer Credit Reference
IDX Securities FRB Ser.
02-1A, Class A, 3.55s, 2007 1,100,000 1,113,970 394,000 399,004 1,494,000 1,512,974
Countrywide Asset Backed
Certificates 144A Ser.
04-BC1N, Class NOTE,
5 1/2s, 2035 419,396 418,085 160,602 160,100 579,998 578,185
Crest, Ltd. 144A Ser.
03-2A, Class E2, 8s, 2038 603,000 552,122 235,000 215,172 838,000 767,294
First Franklin NIM Trust
144A Ser. 03-FF3A, Class A,
6 3/4s, 2033 371,490 370,048 144,730 144,168 516,220 514,216
Fremont NIM Trust 144A
Ser. 03-B, Class NOTE, 5.65s, 2033 89,375 89,152 52,361 52,230 141,736 141,382
Ser. 04-A, Class NOTE, 4 3/4s, 2034 700,457 698,356 267,360 266,558 967,817 964,914
Granite Mortgages PLC
FRB Ser. 03-2, Class 3C, 6.38s,
2043 (United Kingdom) GBP 1,505,000 2,813,831 585,000 1,093,750 2,090,000 3,907,581
FRN Ser. 03-2, Class 2C1, 5.2s,
2043 (United Kingdom) EUR 2,005,000 2,445,199 780,000 951,250 2,785,000 3,396,449
FRB Ser. 02-1, Class 1C, 2.93s,
2042 (United Kingdom) 490,000 498,345 190,000 193,236 680,000 691,581
Green Tree Financial Corp.
Ser. 95-F, Class B2, 7.1s, 2021 248,473 223,470 96,808 87,066 345,281 310,536
Ser. 99-3, Class A5, 6.16s, 2031 162,816 164,851 63,355 64,147 226,171 228,998
Ser. 99-5, Class A5, 7.86s, 2030 1,739,000 1,523,684 678,000 594,053 2,417,000 2,117,737
Greenpoint Manufactured Housing
Ser. 00-3, Class IA, 8.45s, 2031 2,616,493 2,376,406 1,020,927 927,247 3,637,420 3,303,653
Ser. 99-5, Class A4, 7.59s, 2028 50,000 52,767 -- -- 50,000 52,767
GS Auto Loan Trust 144A Ser.
04-1, Class D, 5s, 2011 1,663,000 1,635,647 635,000 624,556 2,298,000 2,260,203
GSAMP Trust 144A
Ser. 03-HE1N, Class NOTE, 7 1/4s,
2033 160,693 160,308 62,586 62,436 223,279 222,744
Ser. 04, Class NOTE, 5 1/2s, 2032 537,128 536,323 207,527 207,216 744,655 743,539
Ser. 04-FM1N, Class NOTE, 5 1/4s,
2033 332,856 332,510 156,239 156,076 489,095 488,586
Ser. 04-HE1N, Class N1, 5s, 2034 300,000 299,640 110,000 109,868 410,000 409,508
Holmes Financing PLC FRB Ser. 8,
Class 2C, 2.32s, 2040 (United
Kingdom) 331,000 331,104 127,000 127,040 458,000 458,144
Holmes Financing PLC FRB
Ser. 4, Class 3C, 2.9s, 2040
(United Kingdom) 300,000 304,294 110,000 111,575 410,000 415,869
Ser. 5, Class 2C, 3.05s, 2040
(United Kingdom) 690,000 694,960 190,000 191,366 880,000 886,326
Home Equity Asset Trust 144A
Ser. 02-5N, Class A, 8s, 2033 312,535 314,879 121,828 122,742 434,363 437,621
Ser. 03-4N, Class A, 8s, 2033 135,226 136,240 52,627 53,021 187,853 189,261
Ser. 03-7N, Class A, 5 1/4s,
2034 340,751 340,751 130,411 130,411 471,162 471,162
Ser. 04-1N, Class A, 5s, 2034 188,432 187,961 75,373 75,184 263,805 263,145
LNR CDO, Ltd. FRB Ser. 02-1A,
Class FFL, 4.2s, 2037 (Cayman
Islands) 1,755,000 1,685,502 685,000 657,874 2,440,000 2,343,376
LNR CDO, Ltd. 144A FRB Ser.
03-1A, Class EFL, 4.433s, 2036
(Cayman Islands) 1,070,000 1,126,817 415,000 437,037 1,485,000 1,563,854
Long Beach Asset Holdings Corp.
144A
Ser. 04-2, Class N1, 4.94s,
2034 433,870 433,870 168,235 168,235 602,105 602,105
Ser. 03-2, Class N1, 7.627s,
2033 201,387 201,387 78,534 78,534 279,921 279,921
Long Beach Asset Holdings Corp.
NIM Trust 144A Ser. 03-4, Class
N1, 6.535s, 2033 131,516 131,680 54,798 54,867 186,314 186,547
Long Beach Mortgage Loan Trust
Ser. 04-3, Class S1, IO, 4 1/2s, 2006 2,800,000 196,980 1,070,000 75,275 3,870,000 272,255
Lothian Mortgages PLC 144A Ser. 3A,
Class D, 5.458s, 2039 (United
Kingdom) GBP 1,200,000 2,181,840 500,000 909,100 1,700,000 3,090,940
Madison Avenue Manufactured
Housing Contract FRB Ser. 02-A,
Class B1, 4.7s, 2032 1,457,253 801,489 568,528 312,690 2,025,781 1,114,179
MBNA Credit Card Master Note
Trust FRN Ser. 03-C5, Class
C5, 2.56s, 2010 490,000 499,953 370,000 377,516 860,000 877,469
Merrill Lynch Mortgage
Investors, Inc. Ser. 03-WM3N,
Class N1, 8s, 2005 194,554 196,257 75,836 76,500 270,390 272,757
Mid-State Trust Ser. 11, Class
B, 8.221s, 2038 252,149 249,903 98,630 97,751 350,779 347,654
Morgan Stanley ABS Capital
I 144A
Ser. 03-NC9N, Class NOTE,
7.6s, 2033 92,423 92,827 27,994 28,117 120,417 120,944
Ser. 04-NC2N, Class NOTE,
6 1/4s, 2033 117,297 117,553 -- -- 117,297 117,553
Morgan Stanley Dean Witter
Capital I
FRN Ser. 01-NC3, Class B1,
3.9s, 2031 545,000 539,136 210,000 207,741 755,000 746,877
FRN Ser. 01-NC4, Class B1,
3.95s, 2032 499,000 491,282 195,000 191,984 694,000 683,266
New Century Mortgage Corp.
NIM Trust 144A Ser. 03-B,
Class NOTE, 6 1/2s, 2033 196,925 198,094 76,582 77,037 273,507 275,131
Novastar NIM Trust 144A Ser.
04-N1, Class NOTE, 4.458s, 2034 304,064 304,064 -- -- 304,064 304,064
Oakwood Mortgage Investors, Inc.
Ser. 01-C, Class A2, 5.92s,
2017 2,111,934 1,357,762 807,699 519,270 2,919,633 1,877,032
Ser. 02-C, Class A1, 5.41s, 2032 2,897,455 2,557,004 1,106,220 976,240 4,003,675 3,533,244
Ser. 99-B, Class A4, 6.99s, 2026 1,098,362 986,604 419,818 377,102 1,518,180 1,363,706
Option One Mortgage Securities
Corp. NIM Trust 144A
Ser. 03-5, Class NOTE, 6.9s,
2033 114,311 114,883 44,696 44,919 159,007 159,802
Ser. 03-2B, Class N1, 7.63s,
2033 (Cayman Islands) 71,538 71,538 27,788 27,788 99,326 99,326
Pass-Through Amortizing Credit
Card Trust Ser. 02-1A, Class
A4FL, 6.91s, 2012 578,892 580,529 226,376 227,016 805,268 807,545
Permanent Financing PLC FRB
Ser. 1, Class 3C, 2.61s, 2042
(United Kingdom) 380,000 384,216 150,000 151,664 530,000 535,880
Ser. 3, Class 3C, 2.56s, 2042
(United Kingdom) 490,000 498,422 190,000 193,266 680,000 691,688
Providian Gateway Master Trust
Ser. 02, Class B, zero %, 2006 1,848,000 1,552,181 -- -- 1,848,000 1,552,181
Residential Asset Mortgage
Products, Inc. Ser. 03-RZ1,
Class A, IO, 5 3/4s, 2005 4,003,279 161,382 1,568,852 63,244 5,572,131 224,626
Rural Housing Trust Ser. 87-1,
Class D, 6.33s, 2026 413,647 427,995 166,965 172,757 580,612 600,752
SAIL Net Interest Margin Notes
Ser. 03-4, Class A, 7 1/2s,
2033 (Cayman Islands) 101,462 101,350 39,521 39,477 140,983 140,827
SAIL Net Interest Margin Notes
144A
Ser. 03-10A, Class A, 7 1/2s,
2033 (Cayman Islands) 594,349 594,317 231,136 231,123 825,485 825,440
Ser. 03-12A, Class A, 7.35s,
2033 (Cayman Islands) 247,112 247,038 96,237 96,208 343,349 343,246
Ser. 03-6A, Class A, 7s, 2033
(Cayman Islands) 150,509 149,390 58,605 58,170 209,114 207,560
Ser. 03-7A, Class A, 7s, 2033
(Cayman Islands) 317,515 315,159 123,634 122,717 441,149 437,876
Ser. 03-8A, Class A, 7s, 2033
(Cayman Islands) 87,215 86,776 33,892 33,721 121,107 120,497
Ser. 03-9A, Class A, 7s, 2033
(Cayman Islands) 231,165 229,963 86,687 86,236 317,852 316,199
Ser. 03-BC2A, Class A, 7 3/4s,
2033 417,270 416,057 162,584 162,111 579,854 578,168
Ser. 04-2A, Class A, 5 1/2s,
2034 (Cayman Islands) 596,519 596,519 228,081 228,081 824,600 824,600
Ser. 04-4A, Class A, 5s, 2034
(Cayman Islands) 1,136,159 1,134,455 406,363 405,754 1,542,522 1,540,209
Sasco Arc Net Interest Margin
Notes Ser. 02-BC10, Class A,
7 3/4s, 2033 42,898 42,508 16,731 16,579 59,629 59,087
Sasco Arc Net Interest Margin
Notes 144A
Ser. 03-3, Class A, 7 3/4s,
2033 244,880 243,651 95,371 94,892 340,251 338,543
Ser. 03-5, Class A, 7.35s,
2033 (Cayman Islands) 507,188 507,040 197,774 197,716 704,962 704,756
Ser. 03-AM1, Class A, 7 3/4s,
2033 367,911 366,118 143,409 142,710 511,320 508,828
Sasco Arc Net Interest Margin
Trust 144A Ser. 03-BC1, Class
B, zero %, 2033 381,740 273,362 148,926 106,645 530,666 380,007
Saxon Net Interest Margin
Trust 144A Ser. 03-A, Class
A, 6.656s, 2033 226,947 226,947 88,463 88,463 315,410 315,410
Sharp SP I, LLC Net Interest
Margin Trust Ser. 03-NC1N,
Class N, 7 1/4s, 2033 291,196 292,826 113,221 113,855 404,417 406,681
Sharp SP I, LLC Net Interest
Margin Trust 144A
Ser. 03-0P1N, Class NA, 4.45s,
2033 152,403 152,387 83,855 83,846 236,258 236,233
Ser. 03-HS1N, Class N, 7.48s,
2033 159,868 160,268 62,236 62,391 222,104 222,659
Ser. 03-TC1N, Class N, 7.45s,
2033 75,774 75,774 29,594 29,594 105,368 105,368
Ser. 04-FM1N, Class N, 6.16s,
2033 0 0 46,751 46,985 46,751 46,985
Ser. 04-HS1N, Class NOTE,
5.92s, 2034 72,633 72,633 35,604 35,604 108,237 108,237
South Coast Funding FRB Ser.
3A, Class A2, 2.38s, 2038 200,000 202,500 -- -- 200,000 202,500
Structured Asset Investment
Loan Trust
Ser. 03-BC1A, Class A,
7 3/4s, 2033 389,075 387,184 151,534 150,798 540,609 537,982
Ser. 03-BC2, Class A,
IO, 6s, 2005 9,912,019 258,221 3,863,371 100,646 13,775,390 358,867
Ser. 03-BC8, Class A,
IO, 6s, 2005 3,360,837 133,076 1,310,001 51,871 4,670,838 184,947
Ser. 04-1, Class A, IO,
6s, 2005 20,615,000 1,099,763 7,873,000 420,006 28,488,000 1,519,769
TIAA Commercial Real
Estate Securitization
Ser. 02-1A, Class IV,
6.84s, 2037 544,000 422,553 212,000 164,671 756,000 587,224
TIAA Commercial Real
Estate Securitization
144A Ser. 03-1A, Class
E, 8s, 2038 650,000 583,146 254,000 227,876 904,000 811,022
Washington Mutual Ser.
03-S1, Class A11, IO,
5 1/2s, 2033 4,068,400 301,316 1,594,413 118,086 5,662,813 419,402
Whole Auto Loan Trust
144A Ser. 03-1, Class D,
6s, 2010 1,180,243 1,180,981 459,762 460,049 1,640,005 1,641,030
Total Asset-backed
securities (cost $67,969,803,
$26,457,465, $94,427,268) $64,503,716 $24,584,919 $89,088,635
Collateralized mortgage obligations (a) 5.4% 5.4% 5.4%
Principal Value Principal Value Principal Value
amount amount amount
Bear Stearns Commercial Mortgage
Securitization Corp. 144A Ser.
04-ESA, Class K, 3.88s, 2016 $490,000 $490,000 $190,000 $190,000 $680,000 $680,000
Commercial Mortgage Acceptance
Corp. Ser. 97-ML1, IO, 0.84s,
2017 6,084,854 135,958 2,511,942 56,126 8,596,796 192,084
Commercial Mortgage Pass-
Through Certificates 144A FRB
Ser. 01-FL4A, Class E, 2.68s,
2013 402,000 357,780 154,000 137,060 556,000 494,840
Criimi Mae Commercial
Mortgage Trust Ser. 98-C1,
Class A2, 7s, 2011 1,858,000 1,982,254 757,000 807,624 2,615,000 2,789,878
Criimi Mae Commercial
Mortgage Trust 144A Ser.
98-C1, Class B, 7s, 2033 2,814,000 2,917,881 1,143,000 1,185,195 3,957,000 4,103,076
CS First Boston Mortgage
Securities Corp. 144A FRB
Ser. 03-TF2A, Class L, 5.38s,
2014 501,000 497,471 192,000 190,648 693,000 688,119
Deutsche Mortgage & Asset
Receiving Corp. Ser. 98-C1,
Class X, IO, 1.104s, 2023 55,274,206 1,500,093 21,772,852 590,896 77,047,058 2,090,989
DLJ Commercial Mortgage Corp.
Ser. 98-CF2, Class B4,
6.04s, 2031 399,789 326,015 152,919 124,701 552,708 450,716
Ser. 98-CF2, Class B5,
5.95s, 2031 1,281,541 786,195 489,824 300,496 1,771,365 1,086,691
Fannie Mae
Ser. 02-36, Class SJ,
16 1/2s, 2029 816,744 895,053 319,182 349,785 1,135,926 1,244,838
Ser. 329, Class 2, IO,
5.5s, 2033 3,119,157 780,765 1,175,854 294,332 4,295,011 1,075,097
Ser. 03-W3, Class 1A3,
7 1/2s, 2042 712,461 768,380 274,214 295,736 986,675 1,064,116
Ser. 03-W2, Class 1A3,
7 1/2s, 2042 13,870 14,959 5,928 6,394 19,798 21,353
Ser. 02-W1, Class 2A,
7 1/2s, 2042 1,554 1,676 642 692 2,196 2,368
Ser. 02-14, Class A2,
7 1/2s, 2042 5,972 6,441 2,547 2,747 8,519 9,188
Ser. 01-T10, Class A2,
7 1/2s, 2041 851,806 918,662 332,279 358,358 1,184,085 1,277,020
Ser. 02-T4, Class A3,
7 1/2s, 2041 3,839 4,140 1,485 1,602 5,324 5,742
Ser. 01-T8, Class A1,
7 1/2s, 2041 9,567 10,318 3,951 4,261 13,518 14,579
Ser. 01-T7, Class A1,
7 1/2s, 2041 3,304,268 3,563,612 1,288,604 1,389,744 4,592,872 4,953,356
Ser. 01-T3, Class A1,
7 1/2s, 2040 499,183 538,363 194,524 209,792 693,707 748,155
Ser. 01-T1, Class A1,
7 1/2s, 2040 1,487,683 1,604,448 580,146 625,680 2,067,829 2,230,128
Ser. 99-T2, Class A1,
7 1/2s, 2039 607,881 655,592 237,126 255,737 845,007 911,329
Ser. 00-T6, Class A1,
7 1/2s, 2030 314,313 338,982 122,329 131,930 436,642 470,912
Ser. 01-T4, Class A1,
7 1/2s, 2028 1,473,190 1,588,817 574,294 619,369 2,047,484 2,208,186
Ser. 02-W3, Class A5,
7 1/2s, 2028 3,071 3,312 1,268 1,368 4,339 4,680
Ser. 338, Class 2, IO,
5.5s, 2033 6,878,864 1,792,804 2,646,290 689,689 9,525,154 2,482,493
Ser. 03-24, Class IC,
IO, 5s, 2015 2,663,700 517,249 1,043,600 202,651 3,707,300 719,900
Ser. 03-34, Class SG,
IO, 5.55s, 2033 4,382,360 392,358 1,719,384 153,939 6,101,744 546,297
Ser. 01-74, Class MI, IO, 6s, 2015 532,189 39,899 193,521 14,509 725,710 54,408
Ser. 03-49, Class TS, IO, 6 1/4s,
2018 5,052,618 605,525 1,982,389 237,577 7,035,007 843,102
Ser. 03-26, Class IG, IO, 6s,
2033 1,721,632 323,075 674,463 126,567 2,396,095 449,642
Ser. 02-36, Class QH, IO, 6.6s,
2029 1,769,611 110,949 691,567 43,359 2,461,178 154,308
Ser. 02-T18, IO, 0.519s, 2042 23,630,034 341,641 9,035,318 130,632 32,665,352 472,273
Ser. 345, Class 1, IO, 5s, 2033 1,741,291 477,767 661,900 181,609 2,403,191 659,376
Ser. 345, Class 3, IO, 5s, 2033 7,691,395 2,076,677 2,941,436 794,188 10,632,831 2,870,865
Ser. 03-34, Class SP, IO, 5.65s,
2032 13,114,305 1,124,961 5,137,720 440,720 18,252,025 1,565,681
Ser. 03-6, Class IB, IO, 5 1/2s,
2022 640,000 41,990 243,000 15,943 883,000 57,933
Ser. 92-15, Class L, IO, 10.38s,
2022 1,232 15,136 487 5,982 1,719 21,118
Ser. 03-41, Class SP, IO, 5
3/4s, 2015 4,413,638 294,473 1,729,095 115,363 6,142,733 409,836
Ser. 318, Class 2, IO, 6s,
2032 1,537,421 357,030 587,100 136,340 2,124,521 493,370
Ser. 03-118, Class SF, IO,
6.65s, 2033 2,136,717 312,849 812,787 119,005 2,949,504 431,854
Ser. 03-W17, Class 12, IO,
1.162s, 2033 8,135,205 270,380 3,107,095 103,267 11,242,300 373,647
Ser. 03-118, Class S, IO,
6.65s, 2033 1,915,048 277,682 751,067 108,905 2,666,115 386,587
Ser. 03-45, Class PI, IO,
5.5s, 2029 3,122,429 368,025 1,223,390 144,195 4,345,819 512,220
Ser. 03-37, Class IC, IO,
5.5s, 2027 4,146,072 447,001 1,624,259 175,116 5,770,331 622,117
Ser. 98-51, Class SG, IO,
23.72s, 2022 200,829 90,100 78,894 35,395 279,723 125,495
Ser. 322, Class 2, IO, 6s,
2032 1,206,657 279,417 472,700 109,460 1,679,357 388,877
Ser. 03-W10, Class 3A, IO,
1.913s, 2043 14,845,384 491,753 5,786,368 191,673 20,631,752 683,426
Ser. 00-T6, IO, 0.74s, 2030 13,315,531 239,263 5,209,140 93,602 18,524,671 332,865
Ser. 03-W10, Class 1A, IO,
1.922s, 2043 12,485,363 401,873 4,866,218 156,631 17,351,581 558,504
Ser. 03-7, Class SM, IO,
6.3s, 2023 168,328 973 65,946 381 234,274 1,354
Ser. 03-23, Class AI, IO,
5s, 2017 6,402,748 809,216 2,512,059 317,488 8,914,807 1,126,704
Ser. 03-23, Class SC, IO,
6.1s, 2033 391,480 5,872 153,600 2,304 545,080 8,176
Ser. 03-58, Class ID, IO,
6s, 2033 1,528,271 350,308 598,747 137,244 2,127,018 487,552
Ser. 03-14, Class KS, IO,
6.15s, 2017 2,014,030 150,108 788,921 58,799 2,802,951 208,907
Ser. 03-34, Class ES, IO,
5.55s, 2033 10,745,022 956,978 4,215,647 375,456 14,960,669 1,332,434
Ser. 99-51, Class N, PO,
zero %, 2029 254,384 213,166 99,086 83,031 353,470 296,197
Ser. 99-52, Class MO, PO,
zero %, 2026 133,908 128,960 52,515 50,574 186,423 179,534
Federal Home Loan Mortgage
Corp. Structured Pass-Through
Securities
Ser. T-58, Class 4A, 7 1/2s,
2043 18,484 19,935 7,896 8,515 26,380 28,450
Ser. T-57, Class 1AX, IO,
0.439s, 2043 7,725,698 83,896 2,897,137 31,461 10,622,835 115,357
FFCA Secured Lending Corp.
Ser. 00-1, Class X, IO, 1.603s,
2020 19,819,760 1,266,515 7,751,708 495,347 27,571,468 1,761,862
First Chicago Lennar Trust
144A Ser. 97-CHL1, Class E,
7.922s, 2039 589,733 550,848 229,896 214,737 819,629 765,585
Freddie Mac
Ser. 2763, Class SC, 23.08s,
2032 776,442 925,877 295,010 351,787 1,071,452 1,277,664
Ser. 2448, Class SM, IO,
6.4s, 2032 3,003,531 315,371 1,175,704 123,449 4,179,235 438,820
Ser. 2579, Class GS, IO,
6.05s, 2017 3,296,003 306,224 1,293,175 120,146 4,589,178 426,370
Ser. 2590, Class IH, IO,
5 1/2s, 2028 1,033,400 266,101 404,800 104,236 1,438,200 370,337
Ser. 216, Class IO, IO,
6s, 2032 4,756,941 1,080,903 1,863,555 423,449 6,620,496 1,504,352
Ser. 2596, Class IQ, IO,
5 1/2s, 2026 2,619,000 277,197 1,048,000 110,921 3,667,000 388,118
Ser. 2515, Class IG, IO,
5 1/2s, 2032 2,008,400 662,584 786,800 259,570 2,795,200 922,154
Ser. 2478, Class SY, IO,
6.55s, 2021 352,770 19,805 138,186 7,758 490,956 27,563
Ser. 215, Class PO, Principal
Only (PO), zero %, 2031 561,982 502,316 220,500 197,089 782,482 699,405
Ser. 2235, PO, zero %, 2030 515,000 415,299 201,747 162,690 716,747 577,989
Ser. 2078, Class KC, PO,
zero %, 2023 5 5 2 2 7 7
GMAC Commercial Mortgage
Securities, Inc. 144A Ser.
99-C3, Class G, 6.974s, 2036 739,550 544,185 282,877 208,150 1,022,427 752,335
Government National Mortgage
Association
Ser. 02-51, Class SA, IO,
6.68s, 2032 244,234 2,858 95,741 1,120 339,975 3,978
Ser. 03-83, Class SI, IO,
4.9s, 2032 6,327,802 435,036 2,478,715 170,412 8,806,517 605,448
Ser. 02-63, Class ST, IO,
4.03s, 2024 945,932 9,641 -- -- 945,932 9,641
Ser. 02-47, Class SM, IO,
4.55s, 2032 2,297,323 117,379 900,710 46,021 3,198,033 163,400
Ser. 01-19, Class S, IO,
5.9s, 2031 3,001,517 281,392 1,175,803 110,231 4,177,320 391,623
Ser. 01-43, Class SJ, IO,
6.18s, 2029 953,445 23,687 373,154 9,271 1,326,599 32,958
Ser. 98-2, Class EA, PO,
zero %, 2028 252,907 209,439 100,466 83,198 353,373 292,637
GS Mortgage Securities
Corp. II 144A FRB Ser.
03-FL6A, Class L, 4.63s, 2015 300,000 300,375 117,000 117,146 417,000 417,521
Hermione (European Loan
Conduit No. 14) 144A FRB
Class A, 5.33s, 2011 (Ireland)
GBP 1,837,845 3,361,620 713,631 1,305,310 2,551,476 4,666,930
LB Commercial Conduit Mortgage
Trust 144A Ser. 99-C1, Class G,
6.41s, 2031 355,850 273,570 136,232 104,732 492,082 378,302
Mach One Commercial Mortgage
Trust 144A
Ser. 04-1A, Class J, 5.45s,
2040 594,000 476,291 226,000 181,215 820,000 657,506
Ser. 04-1A, Class K, 5.45s,
2040 297,000 239,955 114,000 92,104 411,000 332,059
Ser. 04-1A, Class L, 5.45s,
2040 135,000 95,644 52,000 36,841 187,000 132,485
Merrill Lynch Mortgage
Investors, Inc. Ser. 96-C2,
Class JS, IO, 3.459s, 2028 9,514,193 549,654 3,743,778 216,286 13,257,971 765,940
Mezz Cap Commercial Mortgage
Trust 144A Ser. 04-C1, Class
X, IO, 7.85s, 2037 1,440,985 667,581 -- -- 1,440,985 667,581
Morgan Stanley Capital I
144A Ser. 04-RR, Class F7, 6s, 2039 2,430,000 1,722,008 930,000 659,040 3,360,000 2,381,048
Mortgage Capital Funding,
Inc. Ser. 97-MC2, Class X,
IO, 1.282s, 2012 7,700,770 227,918 3,037,952 89,914 10,738,722 317,832
Mortgage Capital Funding,
Inc. FRB Ser. 98-MC2, Class
E, 7.139s, 2030 459,501 496,852 -- -- 459,501 496,852
Starwood Asset Receivables
Trust 144A
FRB Ser. 03-1A, Class F,
2.55s, 2022 245,003 245,395 95,279 95,431 340,282 340,826
FRB Ser. 03-1A, Class E,
2 1/2s, 2022 308,522 309,016 122,502 122,698 431,024 431,714
STRIPS 144A
Ser. 03-1A, Class M, 5s,
2018 (Cayman Islands) 229,000 187,872 87,000 71,375 316,000 259,247
Ser. 03-1A, Class N, 5s,
2018 272,000 200,709 104,000 76,742 376,000 277,451
Ser. 04-1A, Class M, 5s,
2018 245,000 201,782 100,000 82,360 345,000 284,142
Ser. 04-1A, Class N, 5s,
2018 235,000 174,605 90,000 66,870 325,000 241,475
Trizechahn Office Properties
Trust 144A Ser. 01-TZHA,
Class D3, 6.943s, 2013 271,000 287,767 100,000 106,187 371,000 393,954
Total Collateralized
mortgage obligations
(cost $57,350,223, $21,579,206,
$78,929,429) $53,327,732 $20,345,678 $73,673,410
Common stocks (a) 0.7% 0.7% 0.7%
Number of Value Number of Value Number of Value
shares shares shares
AboveNet, Inc. (NON) 2,767 $85,749 1,083 $33,562 3,850 $119,311
Alderwoods Group, Inc.
(NON) 3,074 27,312 1,153 10,244 4,227 37,556
AMRESCO Creditor Trust
(acquired 6/17/99, cost
$174,438, $62,787, $237,225)
(RES)(NON)(R) 1,005,000 1,005 350,000 350 1,355,000 1,355
Arch Wireless, Inc.
Class A (NON) 19 536 8 226 27 762
Archibald Candy Corp.
(NON) 2,452 123 958 48 3,410 171
Birch Telecom, Inc.
(NON) 1,522 15 605 6 2,127 21
Comdisco Holding Co.,
Inc. (S) 643 15,464 244 5,868 887 21,332
Contifinancial Corp.
Liquidating Trust Units 3,390,037 67,801 1,883,299 37,666 5,273,336 105,467
Covad Communications
Group, Inc. (NON) (S) 21,241 40,358 8,378 15,918 29,619 56,276
Crown Castle
International Corp.
(NON) (S) 2,407 33,987 932 13,160 3,339 47,147
Genesis HealthCare
Corp. (NON) (S) 1,529 41,054 614 16,486 2,143 57,540
Globix Corp. (NON)
(S) 64,253 205,610 25,179 80,573 89,432 286,183
iPCS, Inc. (NON) 21,372 461,251 8,406 181,418 29,778 642,669
iPCS Escrow, Inc.
(NON) 750,000 750 295,000 295 1,045,000 1,045
Knology, Inc. (NON) 282 1,230 99 432 381 1,662
Leucadia National
Corp. (S) 147 7,569 58 2,986 205 10,555
Lodgian, Inc. (NON) 9,031 88,504 3,473 34,035 12,504 122,539
Loewen Group
International, Inc.
(NON) 160,000 16 60,000 6 220,000 22
Polymer Group, Inc.
Class A (NON) 1,112 14,678 431 5,689 1,543 20,367
PSF Group Holdings,
Inc. 144A Class A (NON) 2,502 3,753,720 1,004 1,505,790 3,506 5,259,510
Regal Entertainment
Group (acquired 5/9/02,
cost $74,020, $228,845,
$302,965) (RES) 74,020 1,393,797 28,727 540,929 102,747 1,934,726
Sterling Chemicals, Inc.
(NON) 368 8,832 129 3,096 497 11,928
Sun Healthcare Group,
Inc. (NON) 1,195 8,257 467 3,227 1,662 11,484
VFB LLC (acquired various
dates from 1/20/00 to
12/8/03, cost $955,585,
$355,888, $1,311,473)
(RES)(NON) 1,292,251 245,528 503,131 95,595 1,795,382 341,123
Washington Group
International, Inc.
(NON) 6,378 213,153 2,398 80,141 8,776 293,294
Total Common stocks
(cost $18,814,084,
$7,439,677, $26,253,761) $6,716,299 $2,667,746 $9,384,045
Preferred stocks (a) 0.5% 0.5% 0.5%
Number of Value Number of Value Number of Value
shares shares shares
Avecia Group PLC
$4.00 pfd. (United
Kingdom)(PIK) 41,533 $539,929 16,152 $209,976 57,685 $749,905
Doane Pet Care Co.
$7.125 pfd. 15,119 634,998 5,858 246,036 20,977 881,034
Dobson Communications
Corp. 13.00% pfd. (PIK) 38 24,738 14 9,114 52 33,852
First Republic
Capital Corp. 144A
10.50% pfd. 540 558,900 210 217,350 750 776,250
iStar Financial,
Inc. $1.95 cum. pfd. 17,777 444,425 6,895 172,375 24,672 616,800
Paxson Communications
Corp. 13.25% cum. pfd.
(PIK) (S) 132 1,151,700 50 436,250 182 1,587,950
Rural Cellular Corp.
Ser. B, 11.375% cum. pfd. 277 232,680 106 89,040 383 321,720
Rural Cellular Corp.
12.25% pfd. (PIK) 1,901 1,197,630 738 464,940 2,639 1,662,570
Total Preferred
stocks (cost $5,399,667,
$2,089,902, $7,489,569) $4,785,000 $1,845,081 $6,630,081
Brady bonds (a) 0.4% 0.4% 0.4%
Principal Value Principal Value Principal Value
amount amount amount
Brazil (Federal Republic
of) FRB 2 1/8s, 2012 $1,181,181 $1,026,210 $367,060 $318,902 $1,548,241 $1,345,112
Brazil (Federal Republic
of) govt. guaranty FRB
Ser. RG, 2 1/8s, 2012 1,515,300 1,316,492 588,238 511,061 2,103,538 1,827,553
Peru (Republic of) coll.
FLIRB Ser. 20YR, 4 1/2s, 2017 985,000 815,088 375,000 310,313 1,360,000 1,125,401
Peru (Republic of) FRB
Ser. PDI, 5s, 2017 882,700 767,949 336,700 292,929 1,219,400 1,060,878
Total Brady bonds
(cost $3,273,044,
$1,186,663, $4,459,707) $3,925,739 $1,433,205 $5,358,944
Convertible preferred stocks (a) 0.2% 0.2% 0.2%
Number of Value Number of Value Number of Value
shares shares shares
Crown Castle
International
Corp. $3.125 cv.
pfd. 12,672 $574,992 4,915 $223,018 17,587 $798,010
Omnicare, Inc.
$2.00 cv. pfd. 7,495 359,760 2,910 139,680 10,405 499,440
Paxson Communications
Corp. 144A 9.75% cv.
pfd. (PIK) 89 631,900 35 248,500 124 880,400
Williams Cos., Inc.
(The) 144A $2.75 cv.
pfd. 9,530 681,395 3,690 263,835 13,220 945,230
Total Convertible
preferred stocks
(cost $2,107,187, $750,917,
$2,858,104) $2,248,047 $875,033 $3,123,080
Convertible bonds and
notes (a) 0.1% 0.1% 0.1%
Principal Value Principal Value Principal Value
amount amount amount
AES Corp. (The) cv.
sub. notes 4 1/2s, 2005 $155,000 $153,450 $60,000 $59,400 $215,000 $212,850
Amkor Technologies,
Inc. cv. notes 5 3/4s,
2006 725,000 664,281 280,000 256,550 1,005,000 920,831
Cybernet Internet
Services International,
Inc. 144A cv. sr. disc.
notes stepped-coupon
zero % (13s, 8/15/04)
2009
(Denmark) (In default)
(NON)(STP) 3,080,000 31 1,210,000 12 4,290,000 43
WCI Communities, Inc.
cv. sr. sub. notes 4s,
2023 380,000 408,975 145,000 156,056 525,000 565,031
Total Convertible
bonds and notes
(cost $3,803,181,
$1,493,551, $5,296,732) $1,226,737 $472,018 $1,698,755
Units (a) % % %
Number of Value Number of Value Number of Value
units units units
Morrison Knudsen
Corp., 2032 1,250,000 $65,625 470,000 $24,675 1,720,000 $90,300
XCL Equity Units 951 422,079 376 167,075 1,327 589,154
Total Units
(cost $2,515,898,
$1,198,601,
$3,714,499) $487,704 $191,750 $679,454
Warrants (a) (NON) % % %
Number of Value Number of Value Number of Value
warrants warrants warrants
AboveNet, Inc. 9/8/08 1,001 $5,005 391 $1,955 1,392 $6,960
AboveNet, Inc. 9/10/10 1,178 1,178 460 460 1,638 1,638
Dayton Superior
Corp. 144A 6/15/09 1,420 1 560 1 1,980 2
Doe Run Resources
Corp. 144A 12/31/12 4 1 2 1 6 2
Huntsman Co., LLC
144A 5/15/11 1,654 314,260 641 121,790 2,295 436,050
MDP Acquisitions
PLC 144A (Ireland) 10/1/13 694 19,259 266 7,382 960 26,641
Mikohn Gaming Corp.
144A 8/15/08 550 165 210 63 760 228
ONO Finance PLC
144A (United Kingdom) 2/15/11 560 6 220 2 780 8
Pliant Corp. 144A 6/1/10 570 6 230 2 800 8
Solutia, Inc. 144A 7/15/09 682 7 261 3 943 10
Travel Centers of
America, Inc. 144A 5/1/09 690 3,450 570 2,850 1,260 6,300
Ubiquitel, Inc.
144A 4/15/10 2,310 1 900 1 3,210 2
Washington Group
International, Inc. Ser. A 1/25/06 3,937 28,543 1,479 10,723 5,416 39,266
Washington Group
International, Inc. Ser. B 1/25/06 4,500 25,650 1,691 9,639 6,191 35,289
Washington Group
International, Inc. Ser. C 1/25/06 2,432 11,430 914 4,296 3,346 15,726
XM Satellite Radio
Holdings, Inc. 144A 3/15/10 800 42,800 320 17,120 1,120 59,920
Total Warrants
(cost $1,029,372,
$394,274, $1,423,646) $451,762 $176,288 $628,050
U.S. Government and Agency
Mortgage Obligations (a) 12.4% 10.9% 12.0%
Principal Value Principal Value Principal Value
amount amount amount
Federal Home Loan
Mortgage Corporation
7 1/2s, March 1, 2026 $19,116 $20,637 $-- $-- $19,116 $20,637
Federal Home Loan
Mortgage Corporation
7 1/2s, May 1, 2027 -- -- 20,515 22,146 20,515 22,146
Federal National
Mortgage Association
Pass-Through Certificates
8s, July 1, 2024 -- -- 5,867 6,347 5,867 6,347
7 1/2s, with due dates
from January 1, 2030 to
1-Aug-30 -- -- 85,337 91,643 85,337 91,643
7 1/2s, with due dates
from October 1, 2022 to
1-Jan-30 149,784 160,989 -- -- 149,784 160,989
6 1/2s, with due dates
from June 1, 2028 to
1-May-33 -- -- 7,373,569 7,723,646 7,373,569 7,723,646
6 1/2s, with due dates
from April 1, 2024 to
1-Nov-33 18,995,667 19,873,362 -- -- 18,995,667 19,873,362
6 1/2s, TBA,
15-Aug-34 47,100,000 49,149,585 18,000,000 18,783,281 65,100,000 67,932,866
5s, June 1, 2019 212,176 214,049 -- -- 212,176 214,049
5s, June 1, 2019 -- -- 463,819 467,914 463,819 467,914
5s, TBA, August 15,
2019 49,000,000 49,340,702 12,400,000 12,486,218 61,400,000 61,826,920
4 1/2s, with due dates
from August 1, 2033
to June 1, 2034 5,047,024 4,771,655 2,045,169 1,933,570 7,092,193 6,705,225
Total U.S. Government
and Agency Mortgage
Obligations
(cost $123,173,947,
$41,369,991,
$164,543,938) $123,530,979 $41,514,765 $165,045,744
U.S. Treasury Obligations (a) 13.8% 13.6% 13.8%
Principal Value Principal Value Principal Value
amount amount amount
U.S. Treasury Bonds
7 1/2s, November 15, 2016 $21,600,000 $26,929,126 $5,440,000 $6,782,150 $27,040,000 $33,711,276
6 1/4s, May 15, 2030 33,514,000 38,048,863 12,789,000 14,519,512 46,303,000 52,568,375
6 1/4s, August 15, 2023 12,260,000 13,752,272 5,965,000 6,691,053 18,225,000 20,443,325
4 1/4s, August 15, 2013 22,594,000 22,293,925 7,289,000 7,192,193 29,883,000 29,486,118
4s, November 15, 2012 -- -- 3,000 2,936 3,000 2,936
U.S. Treasury Notes
3 1/4s, August 15, 2008 23,410,000 23,238,082 8,046,000 7,986,912 31,456,000 31,224,994
1 1/8s, June 30, 2005 6,273,000 6,223,012 6,087,000 6,038,494 12,360,000 12,261,506
U.S. Treasury Strip
zero %, November 15, 2024 20,460,000 6,686,146 7,990,000 2,611,061 28,450,000 9,297,207
Total U.S. Treasury
Obligations
(cost $137,236,894,
$51,768,263, $189,005,157) $137,171,426 $51,824,311 $188,995,737
Short-term
investments (a) 17.6% 16.6% 17.3%
Principal Value Principal Value Principal Value
amount amount amount
Putnam Prime Money
Market Fund (e) 171,516,532 $171,516,532 $62,277,762 $62,277,762 $233,794,294 $233,794,294
Short-term investments
held as collateral
for loaned securities
with yields ranging
from 1.28% to 1.52%
and due dates ranging
from August 2, 2004 to
23-Aug-04 1,317,039 1,316,566 -- -- 1,317,039 1,316,566
U.S. Treasury Bill
zero %, August 5,
2004 (SEG) 1,900,000 1,899,766 700,000 699,914 2,600,000 2,599,680
Total
Short-term
investments
(cost $174,732,864,
$62,977,676,
$267,710,540) $174,732,864 $62,977,676 $237,710,540
Total
Investments
(cost $1,131,406,928,
$424,509,780,
$1,555,916,708) $1,120,578,809 $420,836,459 $1,541,415,268
Because the Funds are actively managed, their portfolio holdings as of
July 31, 2004 are unlikely to reflect what their portfolio holdings will
be as of the date the merger is completed. Accordingly, no adjustments
have been made to indicate holdings that would be sold in anticipation
of the merger to accommodate the investment strategies of Putnam Premier
Income Trust.
(a) Percentages indicated are based on net assets as follows:
Putnam Premier Income Trust: $ 992,675,806
Putnam Master Income Trust: $ 380,022,510
Proforma Combined: $1,372,376,422
(DEF) Security is in default of principal and interest.
(NON) Non-income-producing security.
(S) Securities on loan, in part or in entirety, at July 31, 2004 for
Putnam Premier Income Trust.
(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 income at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at July 31, 2004
was as follows:
Putnam Premier Income Trust: $20,966,002 or 2.1% of net assets
Putnam Master Income Trust: $8,394,950 or 2.1% of net assets
(PIK) Income may be received in cash or additional securities at the
discretion of the issuer.
(SEG) This security was pledged and segregated with the custodian to
cover margin requirements for futures contracts at July 31, 2004.
(R) Real Estate Investment Trust.
(e) The fund invests in the Putnam Prime Money Market Fund, an
open-end management investment company managed by Putnam Management.
Management fees paid by the fund are reduced by an amount equal to the
management fees paid by Putnam Prime Money Market Fund with respect to
assets invested by the fund in Putnam Prime Money Market Fund. Income
distributions earned by Putnam Premier Income Trust and Putnam Master
Income Trust totaled $304,266 and $68,777, respectively, for the period
ended July 31, 2004.
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 July 31, 2004.
Putnam Premier Income Trust
---------------------------
Forward currency contracts to buy at July 31, 2004 (unaudited)
(aggregate face value $55,156,865)
Unrealized
Aggregate Delivery appreciation/
Value face value date (depreciation)
---------------------------------------------------------------------
Australian Dollar $10,703,542 $10,767,426 9/15/04 $ (63,884)
British Pound 4,934,461 4,954,404 9/15/04 (19,943)
Danish Krone 1,625,806 1,649,315 9/15/04 (23,509)
Euro 6,999,341 7,134,813 9/15/04 (135,472)
Japanese Yen 29,023,373 28,898,333 9/15/04 125,040
Norwegian Krone 467,789 490,647 9/15/04 (22,858)
Polish Zloty 634,031 604,876 9/15/04 29,155
Swiss Franc 642,067 657,051 9/15/04 (14,984)
---------------------------------------------------------------------
$(126,455)
Forward currency contracts to sell at July 31, 2004 (unaudited)
(aggregate face value $104,172,131)
Unrealized
Aggregate Delivery appreciation/
Value face value date (depreciation)
---------------------------------------------------------------------
Australian Dollar $ 5,414,359 $ 5,515,410 9/15/04 $ 101,051
British Pound 24,315,776 24,400,083 9/15/04 84,307
Canadian Dollar 1,320,801 1,288,907 9/15/04 (31,894)
Euro 49,069,847 49,332,699 9/15/04 262,852
Japanese Yen 1,212,436 1,245,830 9/15/04 33,394
New Zealand Dollar 9,972,087 9,783,991 9/15/04 (188,096)
Swedish Kronor 12,238,784 12,605,211 9/15/04 366,427
---------------------------------------------------------------------
$ 628,041
Futures contracts outstanding at July 31, 2004 (unaudited)
Unrealized
Aggregate Expiration appreciation/
Value face value date (depreciation)
-----------------------------------------------------------------------------------
Euro-Bobl 5 yr (Long) $18,705,230 $18,532,054 Sep-04 $ 173,176
Euro-Bund 10 yr (Long) 19,944,103 19,757,008 Sep-04 187,095
Interest
Rate Swap 10 yr (Long) 2,474,656 2,393,312 Sep-04 81,344
Japenese Government Bond
10 yr-TSE (Long) 7,259,758 7,260,419 Sep-04 (661)
Japenese Government Bond
10 yr (Long) 8,951,709 8,971,230 Sep-04 (19,521)
U.K. Gilt (Long) 29,660,669 29,586,470 Sep-04 74,199
U.S. Treasury Bond (Long) 19,046,500 18,376,437 Sep-04 670,063
U.S. Treasury Note 10 yr (Long) 35,651,438 34,738,384 Sep-04 913,054
U.S. Treasury Note 10 yr (Short) 25,908,188 25,760,108 Sep-04 (148,080)
U.S. Treasury Note 5 yr (Short) 94,717,500 3,321,258 Sep-04 (1,396,242)
-----------------------------------------------------------------------------------
$ 534,427
Interest rate swap contracts outstanding at July 31, 2004 (unaudited)
Unrealized
Notional Termination appreciation
Amount date (depreciation)
----------------------------------------------------------------------------------------------
Agreement with Bank of America, N.A.
dated March 25, 2004 to pay
semi-annually the notional amount
multiplied by 3.075% and receive
quarterly the notional amount multiplied
by the three month USD-LIBOR. $23,700,000 3/30/09 $800,053
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. 17,400,000 1/26/06 194,054
Agreement with Bank of America, N.A.
dated December 2, 2003 to pay
semi-annually the notional amount
multiplied by 2.444% and receive
quarterly the notional amount multiplied
by the three month USD LIBOR. 8,912,000 12/4/05 5,964
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. 5,500,000 1/27/14 232,389
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. 8,099,800 7/9/14 (15,354)
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. 7,174,500 7/9/06 (6,988)
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. 17,400,000 1/26/06 198,449
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 three month USD-LIBOR-BBA. 12,964,000 12/15/13 (195,451)
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. 5,500,000 1/26/14 240,208
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 3,417,000,000 10/1/07 129,707
Agreement with Merrill Lynch Capital
Services, Inc. dated November 17, 2000
to pay semi-annually the notional
amount multiplied by the three month
USD-LIBOR-BBA and receive the notional
amount multiplied by 6.68%. 9,000,000 11/21/05 556,735
Agreement with UBS, AG dated April 23,
2004 to receive annually the notional
amount multiplied by 3.49% and pay
quarterly the notional amount multiplied
by the three month SEK-STIBOR-SIDE. SEK 555,000,000 4/27/06 79,576
----------------------------------------------------------------------------------------------
$2,219,342
Putnam Master Income Trust
Forward currency contracts to buy at July 31, 2004 (unaudited)
(aggregate face value $24,562,436)
Unrealized
Aggregate Delivery appreciation/
Value face value date (depreciation)
---------------------------------------------------------------------
Australian Dollar $ 4,062,396 $ 4,087,007 Sep-04 $(24,612)
British Pound 4,919,250 4,932,060 Sep-04 (12,810)
Danish Krone 629,301 638,401 Sep-04 (9,100)
Euro 3,162,686 3,211,678 Sep-04 (48,992)
Japanese Yen 11,066,285 11,018,505 Sep-04 47,780
Norwegian Krone 178,642 187,371 Sep-04 (8,729)
Polish Zloty 242,138 231,004 Sep-04 11,134
Swedish Krona 250,563 256,410 Sep-04 (5,847)
---------------------------------------------------------------------
$(51,176)
Forward currency contracts to sell at July 31, 2004 (unaudited)
(aggregate face value $43,802,498)
Unrealized
Aggregate Delivery appreciation/
Value face value date (depreciation)
---------------------------------------------------------------------
Australian Dollars $ 2,071,304 $2,109,971 Sep-04 $ 38,667
British Pound 13,320,456 13,354,801 Sep-04 34,345
Canadian Dollars 447,825 437,011 Sep-04 (10,814)
Euro 18,573,055 18,679,191 Sep-04 106,136
Japanese Yen 463,817 476,591 Sep-04 12,774
New Zealand Dollars 3,902,994 3,829,375 Sep-04 (73,619)
Swedish Krona 4,772,665 4,915,558 Sep-04 $142,893
---------------------------------------------------------------------
$250,382
Futures contracts outstanding at July 31, 2004 (unaudited)
Unrealized
Aggregate Expiration appreciation/
Value face value date (depreciation)
-----------------------------------------------------------------------------------
Euro-Bobl 5 yr (Long) $ 7,214,874 $ 7,199,924 Sep-04 $ 14,950
Euro-Bund 10 yr (Long) 7,702,550 7,672,888 Sep-04 29,662
Interest Rate Swap 10 yr (Long) 860,750 832,456 Sep-04 28,294
Japenese Government Bond
10 yr (Long) 3,871,009 3,880,197 Sep-04 (9,188)
Japenese Government Bond
10 yr-TSE (Long) 2,419,919 2,424,226 Sep-04 (4,307)
U.K. Gilt (Long) 10,015,291 10,012,116 Sep-04 3,175
U.S. Treasury Bond (Long) 7,467,094 7,204,400 Sep-04 262,694
U.S. Treasury Note 10 yr (Long) 9,964,688 9,937,285 Sep-04 27,403
U.S. Treasury Note 5 yr (Short) 37,449,000 36,898,242 Sep-04 (550,758)
-----------------------------------------------------------------------------------
$(198,075)
Interest rate swap contracts outstanding at July 31, 2004 (unaudited)
Unrealized
Notional Termination appreciation
Amount date (depreciation)
----------------------------------------------------------------------------------------------
Agreement with Bank of America, N.A.
dated March 25, 2004 to pay
semi-annually the notional amount
multiplied by 3.075% and receive
quarterly the notional amount multiplied
by the three month USD-LIBOR. $9,000,000 3/30/09 $303,818
Agreement with Bank of America, N.A.
dated January 22, 2004 to pay
semi-annually the notional amount
multiplied by 1.97375% and receive
quarterly the notional amount multiplied
by the three month USD-LIBOR. 4,500,000 1/26/06 50,186
Agreement with Bank of America, N.A.
dated December 2, 2003 to pay
semi-annually the notional amount
multiplied by 2.44% and receive
quarterly the notional amount multiplied
by the three month USD LIBOR. 3,496,000 12/4/05 2,339
Agreement with Bank of America, N.A.
dated January 22, 2004 to pay
semi-annually the notional amount
multiplied by 4.35% and receive
quarterly the notional amount multiplied
by the three month USD-LIBOR. 1,400,000 1/27/14 59,154
Agreement with Credit Suisse First
Boston International dated July 7, 2004
to pay semi-annually the notional amount
multiptied by 4.945% and receive
quarterly the notional amount multiplied
by the three month USD LIBOR. 3,157,800 7/9/14 (6,353)
Agreement with Credit Suisse First
Boston International dated July 7, 2004
to receive semi-annually the notional
amount multiptied by 2.931% and pay
quarterly the notional amount multiplied
by the three month USD LIBOR. 2,798,800 7/9/06 (2,726)
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 three month USD-LIBOR-BBA. 5,068,000 12/15/13 (76,407)
Agreement with Lehman Brothers Special
Financing, Inc. dated January 22, 2004
to pay semi-annually the notional amount
multiplied by 1.955% and receive
quarterly the notional amount multiplied
by the three month USD-LIBOR-BBA. 4,500,000 1/26/06 51,323
Agreement with Lehman Brothers Special
Financing, Inc. dated January 22, 2004
to pay semi-annually the notional amount
multiplied by 4.3375% and receive
quarterly the notional amount multiplied
by the three month USD-LIBOR-BBA. 1,400,000 1/26/14 61,144
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 10,846,411 10/1/07 50,854
Agreement with Merrill Lynch Capital
Services, Inc. dated November 17, 2000
to pay semi-annually the notional
amount multiplied by the three month
USD-LIBOR-BBA and receive the notional
amount multiplied by 6.68%. 3,500,000 11/21/05 216,508
Agreement with UBS, AG dated April 23,
2004 to receive annually the notional
amount multiplied by 3.49% and pay
quarterly the notional amount multiplied
by the three month SEK-STIBOR-SIDE. SEK 27,450,473 4/27/06 30,396
----------------------------------------------------------------------------------------------
$740,236
Putnam Premier Income Trust
Notes to Proforma Combining Statements
(Unaudited)
July 31, 2004
Use of Estimates
The preparation of these 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.
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,
each fund will fair value foreign securities taking into account
multiple factors, including movements in the U.S. securities markets.
The number of days on which fair value prices will be used will depend
on market activity and it is possible that fair value prices will be
used by the fund to a significant extent. Securities quoted in foreign
currencies are translated into U.S. dollars at the current exchange
rate. Short-term investments having remaining maturities of 60 days or
less are valued at amortized cost, which approximates fair value. Other
investments, including restricted securities, are valued at fair value
following procedures approved by the Trustees. Such valuations and
procedures are reviewed periodically by the Trustees.
Federal Taxes
It is the policy of each 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
Proforma Adjustments
(A) Elimination and reduction of duplicative expenses as a result of the
merger.
(B) $283,243 relates to estimated proxy costs, which will be borne by
Putnam Premier Income Trust and Putnam Master Income Trust. $48,149
relates to SEC registration fees that will be borne by Putnam Premier
Income Trust. The remaining $96,500 consists of $75,000 of estimated
legal costs and $21,500 of estimated accounting costs. These are
related merger costs which will be allocated ratably between the two
funds prior to consummation of the merger. As set forth in the
Agreement, Putnam Mangement will bear merger-related costs to the
extent that they exceed certain limits specified for each fund. As of
July 31, 2004, the costs that Putnam Management is expected to bear
based on this Agreement are estimated to be $105,998.
(C) Issuance of common shares of Putnam Premier Income Trust to the
holders of common shares of Putnam Master Income Trust.
SECURITIES RATINGS
The ratings of securities in which each fund may invest will be measured
at the time of purchase and, to the extent a security is assigned a
different rating by one or more of the various rating agencies, Putnam
Management will use the highest rating assigned by any agency. Putnam
Management will not necessarily sell an investment if its rating is
reduced. The following rating services describe rated securities as
follows:
Moody's Investors Service, Inc.
Bonds
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risk appear
somewhat larger than the Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations.
Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection
of interest and principal payments may be very moderate, and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Notes
MIG 1/VMIG 1 -- This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2 -- This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
Commercial Paper
Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by the following
characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
-- Well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Standard & Poor's
Bonds
AAA -- An obligation rated AAA has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
AA -- An obligation rated AA differs from the highest-rated obligations
only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A -- An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity
to meet its financial commitment on the obligation is still strong.
BBB -- An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
Obligations rated BB, B, CCC, CC and C are regarded as having
significant speculative characteristics. BB indicates the lowest degree
of speculation and C the highest. While such obligations will likely
have some quality and protective characteristics, these are outweighed
by large uncertainties or major exposures to adverse conditions.
BB -- An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
B -- An obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to meet
its financial commitment on the obligations. Adverse business,
financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitment on the
obligation.
CCC -- An obligation rated CCC is currently vulnerable to nonpayment,
and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the
obligation. In the event of adverse business, financial, or economic
conditions, the obligor is not likely to have the capacity to meet its
financial commitment on the obligation.
CC -- An obligation rated CC is currently highly vulnerable to
nonpayment.
C -- The C rating may be used to cover a situation where a bankruptcy
petition has been filed, or similar action has been taken, but payments
on this obligation are being continued.
D -- An obligation rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the
date due even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a
bankruptcy petition, or the taking of a similar action if payments on an
obligation are jeopardized.
Notes
SP-1 -- Strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are given a
plus (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
SP-3 -- Speculative capacity to pay principal and interest.
Commercial Paper
A-1 -- This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated `A-1'.
A-3 -- Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
Duff & Phelps Corporation
Long-Term Debt
AAA -- Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA- -- High credit quality. Protection factors are strong. Risk
is modest but may vary slightly from time to time because of economic
conditions.
A+, A, A- -- Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB+, BBB, BBB- -- Below-average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk
during economic cycles.
BB+, BB, BB- -- Below investment grade but deemed likely to meet
obligations when due. Present or prospective financial protection
factors fluctuate according to industry conditions or company fortunes.
Overall quality may move up or down frequently within this category.
B+, B, B- -- Below investment grade and possessing risk that obligations
will not be met when due. Financial protection factors will fluctuate
widely according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
CCC -- Well below investment-grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be substantial
with unfavorable economic/industry conditions, and/or with unfavorable
company developments.
DD -- Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
Fitch Investors Service, Inc.
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse
impact on these bonds, and therefore impair timely payment. The
likelihood that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
BB -- Bonds considered to be speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.
B -- Bonds are considered highly speculative. Bonds in this class are
lightly protected as to the obligor's ability to pay interest over the
life of the issue and repay principal when due.
CCC -- Bonds have certain characteristics which, with passing of time,
could lead to the possibility of default on either principal or interest
payments.
CC -- Bonds are minimally protected. Default in payment of interest
and/or principal seems probable.
C -- Bonds are in actual or imminent default in payment of interest or
principal.
DDD -- Bonds are in default and in arrears in interest and/or principal
payments. Such bonds are extremely speculative and should be valued only
on the basis of their value in liquidation or reorganization of the
obligor.
APPENDIX A
Proxy voting guidelines of the Putnam funds
The proxy voting guidelines below summarize the funds' positions on
various issues of concern to investors, and give a general indication of
how fund portfolio securities will be voted on proposals dealing with
particular issues. The funds' proxy voting service is instructed to
vote all proxies relating to fund portfolio securities in accordance
with these guidelines, except as otherwise instructed by the Proxy
Coordinator, a member of the Office of the Trustees who is appointed to
assist in the coordination and voting of the funds' proxies.
The proxy voting guidelines are just that - guidelines. The guidelines
are not exhaustive and do not include all potential voting issues.
Because proxy issues and the circumstances of individual companies are
so varied, there may be instances when the funds may not vote in strict
adherence to these guidelines. For example, the proxy voting service is
expected to bring to the Proxy Coordinator's attention proxy questions
that are company-specific and of a non-routine nature and that, even if
covered by the guidelines, may be more appropriately handled on a
case-by-case basis.
Similarly, Putnam Management's investment professionals, as part of
their ongoing review and analysis of all fund portfolio holdings, are
responsible for monitoring significant corporate developments, including
proxy proposals submitted to shareholders, and notifying the Proxy
Coordinator of circumstances where the interests of fund shareholders
may warrant a vote contrary to these guidelines. In such instances, the
investment professionals will submit a written recommendation to the
Proxy Coordinator and the person or persons designated by Putnam
Management's Legal and Compliance Department to assist in processing
referral items pursuant to the funds' "Proxy Voting Procedures." The
Proxy Coordinator, in consultation with the funds' Senior Vice
President, Executive Vice President, and/or the Chair of the Board
Policy and Nominating Committee, as appropriate, will determine how the
funds' proxies will be voted. When indicated, the Chair of the Board
Policy and Nominating Committee may consult with other members of the
Committee or the full Board of Trustees.
The following guidelines are grouped according to the types of proposals
generally presented to shareholders. Part I deals with proposals that
have been put forth by management and approved and recommended by a
company's board of directors. Part II deals with proposals submitted by
shareholders for inclusion in proxy statements. Part III addresses
unique considerations pertaining to non-U.S. issuers.
The Putnam funds will disclose their proxy votes in accordance with the
timetable established by SEC rules (i.e., not later than August 31 of
each year for the most recent 12-month period ended June 30).
I. BOARD-APPROVED PROPOSALS
The vast majority of matters presented to shareholders for a vote
involve proposals made by a company itself (sometimes referred to as
"management proposals"), which have been approved and recommended by its
board of directors. In view of the enhanced corporate governance
practices currently being implemented in public companies and of the
funds' intent to hold corporate boards accountable for their actions in
promoting shareholder interests, the funds' proxies generally will be
voted for the decisions reached by majority independent boards of
directors, except as otherwise indicated in these guidelines.
Accordingly, the funds' proxies will be voted for board-approved
proposals, except as follows:
Matters relating to the Board of Directors
Uncontested Election of Directors
The funds' proxies will be voted for the election of a company's
nominees for the board of directors, except as follows:
-- The funds will withhold votes for the entire board of directors if
* the board does not have a majority of independent directors,
* the board has not established independent nominating, audit, and
compensation committees, or
* the board has more than 19 members or fewer than five members, absent
special circumstances.
-- The funds will withhold votes for any nominee for director who:
* is considered an independent director by the company and who has
received compensation from the company other than for service as a
director (e.g., investment banking, consulting, legal, or financial
advisory fees),
* attends less than 75% of board and committee meetings without valid
reasons for the absences (e.g., illness, personal emergency, etc.), or
* as a director of a public company (Company A), is employed as a senior
executive of another public company (Company B) if a director of Company
B serves as a senior executive of Company A (commonly referred to as an
"interlocking directorate").
Commentary:
Board independence: Unless otherwise indicated, for the purposes of
determining whether a board has a majority of independent directors and
independent nominating, audit, and compensation committees, an
"independent director" is a director who (1) meets all requirements to
serve as an independent director of a company under the final NYSE
Corporate Governance Rules (e.g., no material business relationships
with the company and no present or recent employment relationship with
the company (including employment of an immediate family member as an
executive officer)), and (2) has not accepted directly or indirectly any
consulting, advisory, or other compensatory fee from the company other
than in his or her capacity as a member of the board of directors or any
board committee. The funds' Trustees believe that the receipt of
compensation for services other than service as a director raises
significant independence issues.
Board size: The funds' Trustees believe that the size of the board of
directors can have a direct impact on the ability of the board to govern
effectively. Boards that have too many members can be unwieldy and
ultimately inhibit their ability to oversee management performance.
Boards that have too few members can stifle innovation and lead to
excessive influence by management.
Time commitment: Being a director of a company requires a significant
time commitment to adequately prepare for and attend the company's board
and committee meetings. Directors must be able to commit the time and
attention necessary to perform their fiduciary duties in proper fashion,
particularly in times of crisis. The funds' Trustees are concerned
about over-committed directors. In some cases, directors may serve on
too many boards to make a meaningful contribution. This may be
particularly true for senior executives of public companies (or other
directors with substantially full-time employment) who serve on more
than a few outside boards. The funds may withhold votes from such
directors on a case-by-case basis where it appears that they may be
unable to discharge their duties properly because of excessive
commitments.
Interlocking directorships: The funds' Trustees believe that
interlocking directorships are inconsistent with the degree of
independence required for outside directors of public companies.
Corporate governance practices: Board independence depends not only on
its members' individual relationships, but also on the board's overall
attitude toward management. Independent boards are committed to good
corporate governance practices and, by providing objective independent
judgment, enhancing shareholder value. The funds may withhold votes on
a case-by-case basis from some or all directors who, through their lack
of independence, have failed to observe good corporate governance
practices or, through specific corporate action, have demonstrated a
disregard for the interest of shareholders.
Contested Elections of Directors
-- The funds will vote on a case-by-case basis in contested elections of
directors.
Classified Boards
-- The funds will vote against proposals to classify a board, absent
special circumstances indicating that shareholder interests would be
better served by this structure.
Commentary: Under a typical classified board structure, the directors
are divided into three classes, with each class serving a three-year
term. The classified board structure results in directors serving
staggered terms, with usually only a third of the directors up for
re-election at any given annual meeting. The funds' Trustees generally
believe that it is appropriate for directors to stand for election each
year, but recognize that, in special circumstances, shareholder
interests may be better served under a classified board structure.
Other Board-Related Proposals
The funds will generally vote for board-approved proposals that have
been approved by a majority independent board, and on a case-by-case
basis on board-approved proposals where the board fails to meet the
guidelines' basic independence standards (i.e., majority of independent
directors and independent nominating, audit, and compensation
committees).
Executive Compensation
The funds generally favor compensation programs that relate executive
compensation to a company's long-term performance. The funds will vote
on a case-by-case basis on board-approved proposals relating to
executive compensation, except as follows:
-- Except where the funds are otherwise withholding votes for the entire
board of directors, the funds will vote for stock option plans that will
result in an average annual dilution of 1.67% or less (based on a
10-year plan and including all equity-based plans).
-- The funds will vote against stock option plans that permit the
replacing or repricing of underwater options (and against any proposal
to authorize such replacement or repricing of underwater options).
-- The funds will vote against stock option plans that permit issuance
of options with an exercise price below the stock's current market
price.
-- Except where the funds are otherwise withholding votes for the entire
board of directors, the funds will vote for an employee stock purchase
plan that has the following features: (1) the shares purchased under
the plan are acquired for no less than 85% of their market value; (2)
the offering period under the plan is 27 months or less; and (3)
dilution is 10% or less.
Commentary: Companies should have compensation programs that are
reasonable and that align shareholder and management interests over the
longer term. Further, disclosure of compensation programs should
provide absolute transparency to shareholders regarding the sources and
amounts of, and the factors influencing, executive compensation.
Appropriately designed equity-based compensation plans can be an
effective way to align the interests of long-term shareholders with the
interests of management. The funds may vote against executive
compensation proposals on a case-by-case basis where compensation is
excessive by reasonable corporate standards, or where a company fails to
provide transparent disclosure of executive compensation. In voting on
a proposal relating to executive compensation, the funds will consider
whether the proposal has been approved by an independent compensation
committee of the board.
Capitalization
Many proxy proposals involve changes in a company's capitalization,
including the authorization of additional stock, the issuance of stock,
the repurchase of outstanding stock, or the approval of a stock split.
The management of a company's capital structure involves a number of
important issues, including cash flow, financing needs, and market
conditions that are unique to the circumstances of the company. As a
result, the funds will vote on a case-by-case basis on board-approved
proposals involving changes to a company's capitalization, except that
where the funds are not otherwise withholding votes from the entire
board of directors:
-- The funds will vote for proposals relating to the authorization and
issuance of additional common stock (except where such proposals relate
to a specific transaction).
-- The funds will vote for proposals to effect stock splits (excluding
reverse stock splits).
-- The funds will vote for proposals authorizing share repurchase
programs.
Commentary: A company may decide to authorize additional shares of
common stock for reasons relating to executive compensation or for
routine business purposes. For the most part, these decisions are best
left to the board of directors and senior management. The funds will
vote on a case-by-case basis, however, on other proposals to change a
company's capitalization, including the authorization of common stock
with special voting rights, the authorization or issuance of common
stock in connection with a specific transaction (e.g., an acquisition,
merger or reorganization), or the authorization or issuance of preferred
stock. Actions such as these involve a number of considerations that
may affect a shareholder's investment and that warrant a case-by-case
determination.
Acquisitions, Mergers, Reincorporations, Reorganizations and Other
Transactions
Shareholders may be confronted with a number of different types of
transactions, including acquisitions, mergers, reorganizations involving
business combinations, liquidations, and the sale of all or
substantially all of a company's assets, which may require their
consent. Voting on such proposals involves considerations unique to
each transaction. As a result, the funds will vote on a case-by-case
basis on board-approved proposals to effect these types of transactions,
except as follows:
-- The funds will vote for mergers and reorganizations involving
business combinations designed solely to reincorporate a company in
Delaware.
Commentary: A company may reincorporate into another state through a
merger or reorganization by setting up a "shell" company in a different
state and then merging the company into the new company. While
reincorporation into states with extensive and established corporate
laws - notably Delaware - provides companies and shareholders with a
more well-defined legal framework, shareholders must carefully consider
the reasons for a reincorporation into another jurisdiction, including
especially an offshore jurisdiction.
Anti-Takeover Measures
Some proxy proposals involve efforts by management to make it more
difficult for an outside party to take control of the company without
the approval of the company's board of directors. These include the
adoption of a shareholder rights plan, requiring supermajority voting on
particular issues, the adoption of fair price provisions, the issuance
of blank check preferred stock, and the creation of a separate class of
stock with disparate voting rights. Such proposals may adversely affect
shareholder rights, lead to management entrenchment, or create conflicts
of interest. As a result, the funds will vote against board-approved
proposals to adopt such anti-takeover measures, except as follows:
-- The funds will vote on a case-by-case basis on proposals to ratify or
approve shareholder rights plans (commonly referred to as "poison
pills"); and
-- The funds will vote on a case-by-case basis on proposals to adopt
fair price provisions.
Commentary: The funds' Trustees recognize that poison pills and fair
price provisions may enhance shareholder value under certain
circumstances. As a result, the funds will consider proposals to
approve such matters on a case-by-case basis.
Other Business Matters
Many proxies involve approval of routine business matters, such as
changing a company's name, ratifying the appointment of auditors, and
procedural matters relating to the shareholder meeting. For the most
part, these routine matters do not materially affect shareholder
interests and are best left to the board of directors and senior
management of the company. The funds will vote for board-approved
proposals approving such matters, except as follows:
-- The funds will vote on a case-by-case basis on proposals to amend a
company's charter or bylaws (except for charter amendments necessary or
to effect stock splits to change a company's name or to authorize
additional shares of common stock).
-- The funds will vote against authorization to transact other
unidentified, substantive business at the meeting.
-- The funds will vote on a case-by-case basis on other business matters
where the funds are otherwise withholding votes for the entire board of
directors.
Commentary: Charter and bylaw amendments and the transaction of other
unidentified, substantive business at a shareholder meeting may directly
affect shareholder rights and have a significant impact on shareholder
value. As a result, the funds do not view such items as routine
business matters. Putnam Management's investment professionals and the
funds' proxy voting service may also bring to the Proxy Coordinator's
attention company-specific items that they believe to be non-routine and
warranting special consideration. Under these circumstances, the funds
will vote on a case-by-case basis.
II. SHAREHOLDER PROPOSALS
SEC regulations permit shareholders to submit proposals for inclusion in
a company's proxy statement. These proposals generally seek to change
some aspect of the company's corporate governance structure or to change
some aspect of its business operations. The funds generally will vote
in accordance with the recommendation of the company's board of
directors on all shareholder proposals, except as follows:
-- The funds will vote for shareholder proposals to declassify a board,
absent special circumstances which would indicate that shareholder
interests are better served by a classified board structure.
-- The funds will vote for shareholder proposals to require shareholder
approval of shareholder rights plans.
-- The funds will vote for shareholder proposals that are consistent
with the funds' proxy voting guidelines for board-approved proposals.
-- The funds will vote on a case-by-case basis on other shareholder
proposals where the funds are otherwise withholding votes for the entire
board of directors.
Commentary: In light of the substantial reforms in corporate governance
that are currently underway, the funds' Trustees believe that effective
corporate reforms should be promoted by holding boards of directors -
and in particular their independent directors - accountable for their
actions, rather than imposing additional legal restrictions on board
governance through piecemeal proposals. Generally speaking, shareholder
proposals relating to business operations are often motivated primarily
by political or social concerns, rather than the interests of
shareholders as investors in an economic enterprise. As stated above,
the funds' Trustees believe that boards of directors and management are
responsible for ensuring that their businesses are operating in
accordance with high legal and ethical standards and should be held
accountable for resulting corporate behavior. Accordingly, the funds
will generally support the recommendations of boards that meet the basic
independence and governance standards established in these guidelines.
Where boards fail to meet these standards, the funds will generally
evaluate shareholder proposals on a case-by-case basis.
III. VOTING SHARES OF NON-U.S. ISSUERS
Many of the Putnam funds invest on a global basis, and, as a result,
they may be required to vote shares held in non-U.S. issuers - i.e.,
issuers that are incorporated under the laws of foreign jurisdictions
and that are not listed on a U.S. securities exchange or the NASDAQ
stock market. Because non-U.S. issuers are incorporated under the laws
of countries and jurisdictions outside the U.S., protection for
shareholders may vary significantly from jurisdiction to jurisdiction.
Laws governing non-U.S. issuers may, in some cases, provide
substantially less protection for shareholders. As a result, the
foregoing guidelines, which are premised on the existence of a sound
corporate governance and disclosure framework, may not be appropriate
under some circumstances for non-U.S. issuers.
In many non-U.S. markets, shareholders who vote proxies of a non-U.S.
issuer are not able to trade in that company's stock on or around the
shareholder meeting date. This practice is known as "share blocking."
In countries where share blocking is practiced, the funds will vote
proxies only with direction from Putnam Management's investment
professionals.
In addition, some non-U.S. markets require that a company's shares be
re-registered out of the name of the local custodian or nominee into the
name of the shareholder for the meeting. This practice is known as
"share re-registration." As a result, shareholders, including the
funds, are not able to trade in that company's stock until the shares
are re-registered back in the name of the local custodian or nominee. In
countries where share re-registration is practiced, the funds will
generally not vote proxies.
The funds will vote proxies of non-U.S. issuers in accordance with the
foregoing guidelines where applicable, except as follows:
Uncontested Election of Directors
Japan
-- For companies that have established a U.S.-style corporate structure,
the funds will withhold votes for the entire board of directors if
* the board does not have a majority of outside directors,
* the board has not established nominating and compensation committees
composed of a majority of outside directors, or
* the board has not established an audit committee composed of a
majority of independent directors.
-- The funds will withhold votes for the appointment of members of a
company's board of statutory auditors if a majority of the members of
the board of statutory auditors is not independent.
Commentary:
Board structure: Recent amendments to the Japanese Commercial Code give
companies the option to adopt a U.S.-style corporate structure (i.e., a
board of directors and audit, nominating, and compensation committees).
The funds will vote for proposals to amend a company's articles of
incorporation to adopt the U.S.-style corporate structure.
Definition of outside director and independent director: Corporate
governance principles in Japan focus on the distinction between outside
directors and independent directors. Under these principles, an outside
director is a director who is not and has never been a director,
executive, or employee of the company or its parent company,
subsidiaries or affiliates. An outside director is "independent" if
that person can make decisions completely independent from the managers
of the company, its parent, subsidiaries, or affiliates and does not
have a material relationship with the company (i.e., major client,
trading partner, or other business relationship; familial relationship
with current director or executive; etc.). The guidelines have
incorporated these definitions in applying the board independence
standards above.
Korea
-- The funds will withhold votes for the entire board of directors if
* the board does not have a majority of outside directors,
* the board has not established a nominating committee composed of at
least a majority of outside directors, or
* the board has not established an audit committee composed of at least
three members and in which at least two-thirds of its members are
outside directors.
Commentary: For purposes of these guidelines, an "outside director" is
a director that is independent from the management or controlling
shareholders of the company, and holds no interests that might impair
performing his or her duties impartially from the company, management or
controlling shareholder. In determining whether a director is an
outside director, the funds will also apply the standards included in
Article 415-2(2) of the Korean Commercial Code (i.e., no employment
relationship with the company for a period of two years before serving
on the committee, no director or employment relationship with the
company's largest shareholder, etc.) and may consider other business
relationships that would affect the independence of an outside director.
United Kingdom
-- The funds will withhold votes for the entire board of directors if
* the board does not have at least a majority of independent
non-executive directors,
* the board has not established nomination committees composed of a
majority of independent non-executive directors, or
* the board has not established compensation and audit committees
composed of (1) at least three directors (in the case of smaller
companies, two directors) and (2) solely of independent non-executive
directors.
-- The funds will withhold votes for any nominee for director who is
considered an independent director by the company and who has received
compensation from the company other than for service as a director
(e.g., investment banking, consulting, legal, or financial advisory
fees).
Commentary:
Application of guidelines: Although the U.K.'s Combined Code on
Corporate Governance ("Combined Code") has adopted the "comply and
explain" approach to corporate governance, the funds' Trustees believe
that the guidelines discussed above with respect to board independence
standards are integral to the protection of investors in U.K. companies.
As a result, these guidelines will be applied in a prescriptive manner.
Definition of independence: For the purposes of these guidelines, a
non-executive director shall be considered independent if the director
meets the independence standards in section A.3.1 of the Combined Code
(i.e., no material business or employment relationships with the
company, no remuneration from the company for non-board services, no
close family ties with senior employees or directors of the company,
etc.), except that the funds do not view service on the board for more
than nine years as affecting a director's independence.
Smaller companies: A smaller company is one that is below the FTSE 350
throughout the year immediately prior to the reporting year.
Canada
In January 2004, Canadian securities regulators issued proposed policies
that would impose new corporate governance requirements on Canadian
public companies. The recommended practices contained in these new
corporate governance requirements mirror corporate governance reforms
that have been adopted by the NYSE and other U.S. national securities
exchanges and stock markets. As a result, the funds will vote on
matters relating to the board of directors of Canadian issuers in
accordance with the guidelines applicable to U.S. issuers.
Commentary: Like the U.K.'s Combined Code, the proposed policies on
corporate governance issued by Canadian securities regulators embody the
"comply and explain" approach to corporate governance. Because the
funds' Trustees believe that the board independence standards contained
in the proxy voting guidelines are integral to the protection of
investors in Canadian companies, these standards will be applied in a
prescriptive manner.
Other Matters
-- The funds will vote for shareholder proposals calling for a majority
of a company's directors to be independent of management.
-- The funds will vote for shareholder proposals seeking to increase the
independence of board nominating, audit, and compensation committees.
-- The funds will vote for shareholder proposals that implement
corporate governance standards similar to those established under U.S.
federal law and the listing requirements of U.S. stock exchanges, and
that do not otherwise violate the laws of the jurisdiction under which
the company is incorporated.
-- The funds will vote on a case-by-case basis on proposals relating to
(1) the issuance of common stock in excess of 20% of the company's
outstanding common stock where shareholders do not have preemptive
rights, or (2) the issuance of common stock in excess of 100% of the
company's outstanding common stock where shareholders have preemptive
rights.
As adopted May 14, 2004
Proxy voting procedures of the Putnam funds
The proxy voting procedures below explain the role of the funds'
Trustees, the proxy voting service and the Proxy Coordinator, as well as
how the process will work when a proxy question needs to be handled on a
case by case basis, or when there may be a conflict of interest.
The role of the funds' Trustees
The Trustees of the Putnam funds exercise control of the voting of
proxies through their Board Policy and Nominating Committee, which is
composed entirely of independent Trustees. The Board Policy and
Nominating Committee oversees the proxy voting process and participates,
as needed, in the resolution of issues that need to be handled on a
case-by-case basis. The Committee annually reviews and recommends, for
Trustee approval, guidelines governing the funds' proxy votes, including
how the funds vote on specific proposals and which matters are to be
considered on a case-by-case basis. The Trustees are assisted in this
process by their independent administrative staff ("Fund
Administration"), independent legal counsel, and an independent proxy
voting service. The Trustees also receive assistance from Putnam
Investment Management, LLC ("Putnam Management"), the funds' investment
advisor, on matters involving investment judgments. In all cases, the
ultimate decision on voting proxies rests with the Trustees, acting as
fiduciaries on behalf of the shareholders of the funds.
The role of the proxy voting service
The funds have engaged an independent proxy voting service to assist in
the voting of proxies. The proxy voting service is responsible for
coordinating with the funds' custodians to ensure that all proxy
materials received by the custodians relating to the funds' portfolio
securities are processed in a timely fashion. To the extent applicable,
the proxy voting service votes all proxies in accordance with the proxy
voting guidelines established by the Trustees. The proxy voting service
will refer proxy questions to the Proxy Coordinator (described below)
for instructions under circumstances where: (1) the application of the
proxy voting guidelines is unclear; (2) a particular proxy question is
not covered by the guidelines; or (3) the guidelines call for specific
instructions on a case-by-case basis. The proxy voting service is also
requested to call to the Proxy Coordinator's attention specific proxy
questions that, while governed by a guideline, appear to involve unusual
or controversial issues. The funds also utilize research services
relating to proxy questions provided by the proxy voting service and by
other firms.
The role of the Proxy Coordinator
Each year, a member of Fund Administration is appointed Proxy
Coordinator to assist in the coordination and voting of the funds'
proxies. The Proxy Coordinator will deal directly with the proxy voting
service and, in the case of proxy questions referred by the proxy voting
service, will solicit voting recommendations and instructions from Fund
Administration, the Chair of the Board Policy and Nominating Committee,
and Putnam Management's investment professionals, as appropriate. The
Proxy Coordinator is responsible for ensuring that these questions and
referrals are responded to in a timely fashion and for transmitting
appropriate voting instructions to the proxy voting service.
Voting procedures for referral items
As discussed above, the proxy voting service will refer proxy questions
to the Proxy Coordinator under certain circumstances. When the
application of the proxy voting guidelines is unclear or a particular
proxy question is not covered by the guidelines (and does not involve
investment considerations), the Proxy Coordinator will assist in
interpreting the guidelines and, as appropriate, consult with the Senior
Vice President of Fund Administration, the Executive Vice President of
Fund Administration, and the Chair of the Board Policy and Nominating
Committee on how the funds' shares will be voted.
For proxy questions that require a case-by-case analysis pursuant to the
guidelines or that are not covered by the guidelines but involve
investment considerations, the Proxy Coordinator will refer such
questions, through a written request, to Putnam Management's investment
professionals for a voting recommendation. Such referrals will be made
in cooperation with the person or persons designated by Putnam
Management's Legal and Compliance Department to assist in processing
such referral items. In connection with each such referral item, the
Legal and Compliance Department will conduct a conflicts of interest
review, as described below under "Conflicts of Interest," and provide a
conflicts of interest report (the "Conflicts Report") to the Proxy
Coordinator describing the results of such review. After receiving a
referral item from the Proxy Coordinator, Putnam Management's investment
professionals will provide a written recommendation to the Proxy
Coordinator and the person or persons designated by the Legal and
Compliance Department to assist in processing referral items. Such
recommendation will set forth (1) how the proxies should be voted; (2)
the basis and rationale for such recommendation; and (3) any contacts
the investment professionals have had with respect to the referral item
with non-investment personnel of Putnam Management or with outside
parties (except for routine communications from proxy solicitors). The
Proxy Coordinator will then review the investment professionals'
recommendation and the Conflicts Report with the Senior Vice President
and/or Executive Vice President in determining how to vote the funds'
proxies. The Proxy Coordinator will maintain a record of all proxy
questions that have been referred to Putnam Management's investment
professionals, the voting recommendation, and the Conflicts Report.
In some situations, the Proxy Coordinator, the Senior Vice President,
and/or the Executive Vice President may determine that a particular
proxy question raises policy issues requiring consultation with the
Chair of the Board Policy and Nominating Committee, who, in turn, may
decide to bring the particular proxy question to the Committee or the
full Board of Trustees for consideration.
Conflicts of interest
Occasions may arise where a person or organization involved in the proxy
voting process may have a conflict of interest. A conflict of interest
may exist, for example, if Putnam Management has a business relationship
with (or is actively soliciting business from) either the company
soliciting the proxy or a third party that has a material interest in
the outcome of a proxy vote or that is actively lobbying for a
particular outcome of a proxy vote. Any individual with knowledge of a
personal conflict of interest (e.g., familial relationship with company
management) relating to a particular referral item shall disclose that
conflict to the Proxy Coordinator and the Legal and Compliance
Department and otherwise remove himself or herself from the proxy voting
process. The Legal and Compliance Department will review each item
referred to Putnam Management's investment professionals to determine if
a conflict of interest exists and will provide the Proxy Coordinator
with a Conflicts Report for each referral item that (1) describes any
conflict of interest; (2) discusses the procedures used to address such
conflict of interest; and (3) discloses any contacts from parties
outside Putnam Management (other than routine communications from proxy
solicitors) with respect to the referral item not otherwise reported in
an investment professional's recommendation. The Conflicts Report will
also include written confirmation that any recommendation from an
investment professional provided under circumstances where a conflict of
interest exists was made solely on the investment merits and without
regard to any other consideration.
As adopted March 14, 2003
PUTNAM PREMIER INCOME TRUST
FORM N-14
PART C
OTHER INFORMATION
Item 15. Indemnification
Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement on form N-14 (333-119287), filed with
the SEC on November 10, 2004 ("Pre-Effective Amendment No. 1).
Item 16. Exhibits
(1)(a) Agreement and Declaration of Trust dated January 14, 1988 --
Incorporated by reference to the Registrant's Registration Statement on
Form N-14 (333-119287) filed with the SEC on September 27, 2004.
(1)(b) Amendment No. 1 to Agreement and Declaration of Trust --
Incorporated by reference to the Registrant's Registration Statement on
Form N-14 (333-119287) filed with the SEC on September 27, 2004.
(1)(c) Amendment No. 2 to Agreement and Declaration of Trust --
Incorporated by reference to the Registrant's Registration Statement on
Form N-14 (333-119287) filed with the SEC on September 27, 2004.
(2)(a) Bylaws, as amended through June 7, 1991 -- Incorporated by reference
to the Registrant's Registration Statement on Form N-14 (333-119287)
filed with the SEC on September 27, 2004.
(2)(b) Amendment to Bylaws dated March 9, 2001 -- Incorporated by
reference to the Registrant's Registration Statement on Form N-14
(333-119287) filed with the SEC on September 27, 2004.
(3) Not applicable.
(4) Agreement and Plan of Reorganization -- Constitutes Exhibit A to Part
A hereof.
(5)(a) Portions of Agreement and Declaration of Trust, as amended,
Relating to Shareholders' Rights -- Incorporated by reference to the
Registrant's Registration Statement on Form N-14 (333-119287) filed with
the SEC on September 27, 2004.
(5)(b) Portions of Bylaws, as amended, Relating to Shareholders' Rights
-- Incorporated by reference to the Registrant's Registration Statement on
Form N-14 (333-119287) filed with the SEC on September 27, 2004.
(6) Management Contract dated as of July 11, 1991 -- Incorporated by
reference to the Registrant's Registration Statement on Form N-14
(333-119287) filed with the SEC on September 27, 2004.
(7) Not applicable.
(8) Trustee Retirement Plan as adopted October 4, 1996 and amended July 21,
2000 -- Incorporated by reference to the Registrant's Pre-Effective
Amendment No. 1.
(9) Custodian Agreement with Putnam Fiduciary Trust Company, as amended and
restated June 1, 2001 -- Incorporated by reference to the Registrant's
Registration Statement on Form N-14 (333-119287) filed with the SEC on
September 27, 2004.
(10) Not applicable.
(11) Opinion of Ropes & Gray LLP, including consent -- Incorporated by
reference to the Registrant's Pre-Effective Amendment No. 1.
(12) Opinion of Ropes & Gray LLP as to Tax Matters -- Filed herewith.
(13) Not applicable.
(14) Consent of KPMG LLP, Independent Registered Public Accounting Firm to
Putnam Premier Income Trust and Putnam Master Income Trust -- Incorporated
by reference to the Registrant's Pre-Effective Amendment No. 1.
(15) Not applicable.
(16) Power of Attorney -- Incorporated by reference to the Registrant's
Pre-Effective Amendment No. 1.
(17) Not applicable.
Item 17. Undertakings
(a) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus
which is a part of this Registration Statement by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c)
under the Securities Act of 1933, as amended, the reoffering prospectus
will contain the information called for by the applicable registration
form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the
applicable form.
(b) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (a) above will be filed as a part of an amendment
to this Registration Statement and will not be used until the amendment
is effective, and that, in determining any liability under the Act, each
post-effective amendment shall be deemed to be a new Registration
Statement for the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide
offering of them.
NOTICE
A copy of the Agreement and Declaration of Trust, as amended, of the
Registrant is on file with the Secretary of The Commonwealth of
Massachusetts, and notice is hereby given that this Registration
Statement has been executed on behalf of the Registrant by an officer of
the Registrant as an officer and not individually, and the obligations
of or arising out of this Registration Statement are not binding upon
any of the Trustees, officers, or shareholders of the Registrant
individually, but are binding only upon the assets and property of the
Registrant.
SIGNATURES
As required by the Securities Act of 1933, as amended, this Registration
Statement has been signed on behalf of the Registrant, in the City of
Boston and The Commonwealth of Massachusetts on the 10th day of
March, 2005.
PUTNAM PREMIER INCOME TRUST
By: /s/ Charles E. Porter
---------------------
Executive Vice President,
Associate Treasurer and Principal Executive Officer
As required by the Securities Act of 1933, as amended, this Registration
Statement has been signed by the following persons in the capacities and
on the dates indicated.
Signature Title
John A. Hill Chairman of the Trustees
George Putnam, III President; Trustee
Charles E. Porter Executive Vice President, Associate Treasurer
and Principal Executive Officer
Steven D. Krichmar Vice President; Principal Financial Officer
Michael T. Healy Principal Accounting Officer; Assistant
Treasurer
Jameson A. Baxter Trustee
Charles B. Curtis Trustee
Myra R. Drucker Trustee
Charles E.
Haldeman, Jr. Trustee
Ronald J. Jackson Trustee
Paul L. Joskow Trustee
Robert E. Patterson Trustee
W. Thomas Stephens Trustee
Richard B. Worley Trustee
By: Charles E. Porter,
as Attorney-in-Fact
March 10, 2005
EXHIBIT INDEX
(11) Opinion of Ropes & Gray LLP as to Tax Matters -- Exhibit 1.