As of July 31, 2005, there were outstanding 535,274,816 shares of common stock, par value $1.00 per share, of the registrant.

 

 

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

This Form 10-Q contains statements relating to future results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such statements may include, without limitation, discussions concerning the matters raised in the complaint filed by the New York Attorney General’s Office stating a claim for, among other things, fraud and violations of New York State antitrust and securities laws, the complaint filed by the Connecticut Attorney General and numerous other investigations being conducted by other state attorneys general and state superintendents or commissioners of insurance, elimination of market services agreements (“MSA”), the new business model of Marsh Inc., the adverse consequences arising from market-timing issues at Putnam, including fines and restitution, revenues, expenses, earnings and cash flow, capital structure, existing credit facilities, and access to public capital markets including commercial paper markets, pension funding, market and industry conditions, premium rates, financial markets, interest rates, foreign exchange rates, claims, lawsuits and other contingencies, and matters relating to MMC’s operations and income taxes.

Such forward-looking statements are based on management’s expectations concerning current and future events impacting MMC. Forward-looking statements by their very nature involve risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated by forward-looking statements that we make include:

•		the impact of litigation and regulatory proceedings brought by the New York Attorney General’s Office, the Connecticut Attorney General’s office and other federal and state regulators and law enforcement authorities concerning insurance and reinsurance brokerage operations;
•		the impact of class actions, derivative actions and individual suits brought by policyholders and shareholders (including MMC employees) asserting various claims, including claims under U.S. securities laws, ERISA, RICO, unfair business practices and other common law or statutory claims;
•		loss of producers or key managers;
•		inability to negotiate satisfactory compensation arrangements with insurance carriers or clients;
•		inability to reduce expenses to the extent necessary to achieve desired levels of profitability;
•		inability to collect previously accrued MSA revenue;
•		changes in competitive conditions;
•		changes in the availability of and the market conditions and the premiums insurance carriers charge for insurance products;
•		mergers between client organizations;
•		insurance or reinsurance company insolvencies;
•		the impact of litigation and other regulatory matters stemming from market-timing issues at Putnam;
•		changes in worldwide and national equity and fixed income markets;
•		actual and relative investment performance of the Putnam mutual funds;
•		the level of sales and redemptions of Putnam mutual fund shares;
•		Putnam’s ability to maintain investment management and administrative fees at current levels;
•		the ability of MMC to successfully access the public capital markets to meet long-term financing needs;
•		the continued strength of MMC’s relationships with its employees and clients;

•		the ability to successfully integrate acquired businesses and realize expected synergies;
•		changes in general worldwide and national economic conditions;
•		the impact of terrorist attacks;
•		changes in the value of investments made in individual companies and investment funds;
•		fluctuations in foreign currencies;
•		actions of regulators and law enforcement authorities;
•		changes in interest rates or the inability to access financial markets;
•		adverse developments relating to claims, lawsuits and contingencies;
•		prospective and retrospective changes in the tax or accounting treatment of MMC’s operations; and
•		the impact of other legislation and regulation in the jurisdictions in which MMC operates.

Forward-looking statements speak only as of the date on which they are made, and MMC undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of unanticipated events.

MMC and its operating companies use their websites to convey meaningful information about their businesses, including the anticipated release of quarterly financial results and the posting of updates of assets under management at Putnam. Monthly updates of total assets under management at Putnam will be posted to the MMC website the first business day following the end of each month. Putnam posts mutual fund and performance data to its website regularly. Assets for most Putnam retail mutual funds are posted approximately two weeks after each month-end. Mutual fund net asset value (NAV) is posted daily. Historical performance and Lipper rankings are also provided. Investors can link to MMC and its operating company websites through www.mmc.com.

MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		(Unaudited)
		June 30,				December 31,
(In millions of dollars)		2005				2004
ASSETS
Current assets:
Cash and cash equivalents		$	856			$	1,396
Receivables
Commissions and fees			2,618				2,507
Advanced premiums and claims			101				102
Other			347				424
			3,066				3,033
Less-allowance for doubtful accounts and cancellations			(156	)			(143	)
Net receivables			2,910				2,890
Other current assets			260				601
Total current assets			4,026				4,887
Goodwill and intangible assets			8,069				8,139
Fixed assets, net (net of accumulated depreciation and amortization of $1,783 at June 30, 2005 and $1,661 at December 31, 2004)			1,268				1,387
Long-term investments			331				558
Prepaid pension			1,358				1,394
Other assets			2,080				1,972
		$	17,132			$	18,337

The accompanying notes are an integral part of these consolidated statements.

MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		(Unaudited)
		June 30,				December 31,
(In millions of dollars)		2005				2004
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt		$	364			$	636
Accounts payable and accrued liabilities			1,798				1,834
Regulatory settlements — current portion			311				394
Accrued compensation and employee benefits			1,161				1,591
Accrued income taxes			179				280
Dividends payable			92				—
Total current liabilities			3,905				4,735
Fiduciary liabilities			4,283				4,136
Less — cash and investments held in a fiduciary capacity			(4,283	)			(4,136	)
			—				—
Long-term debt			4,689				4,691
Regulatory settlements			340				595
Pension, postretirement and postemployment benefits			1,361				1,333
Other liabilities			1,829				1,927
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $1 par value, authorized 6,000,000 shares, none issued			—				—
Common stock, $1 par value, authorized 1,600,000,000 shares, issued 560,641,640 shares at June 30, 2005 and December 31, 2004			561				561
Additional paid-in capital			1,186				1,316
Retained earnings			5,073				5,044
Accumulated other comprehensive loss			(658	)			(370	)
			6,162				6,551
Less — treasury shares, at cost, 26,902,510 shares at June 30, 2005 and 33,831,782 shares at December 31, 2004			(1,154	)			(1,495	)
Total stockholders’ equity			5,008				5,056
		$	17,132			$	18,337

The accompanying notes are an integral part of these consolidated statements.

MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

For the Six Months Ended June 30,		2005				2004
(In millions of dollars)
Operating cash flows:
Net income		$	300			$	835
Adjustments to reconcile net income to cash (used for) generated from operations:
Depreciation of fixed assets, capitalized software and other intangible assets			261				211
Provision for deferred income taxes			58				148
(Gains) losses on investments			(108	)			(105	)
Changes in assets and liabilities:
Net receivables			(79	)			(165	)
Other current assets			46				46
Other assets			118				140
Accounts payable and accrued liabilities			(195	)			52
Accrued compensation and employee benefits			(430	)			(504	)
Accrued income taxes			(41	)			111
Other liabilities			(253	)			(9	)
Effect of exchange rate changes			(54	)			9
Net cash (used for) generated from operations			(377	)			769
Financing cash flows:
Net increase in commercial paper			216				402
Proceeds from issuance of debt			12				66
Other repayments of debt			(499	)			(609	)
Purchase of treasury shares			—				(522	)
Issuance of common stock			210				223
Dividends paid			(180	)			(325	)
Net cash used for financing activities			(241	)			(765	)
Investing cash flows:
Capital expenditures			(157	)			(168	)
Net sales of long-term investments			250				111
Acquisitions			(65	)			(216	)
Proceeds from sales related to fixed assets and capitalized software			35				5
Other, net			45				6
Net cash provided by (used for) investing activities			108				(262	)
Effect of exchange rate changes on cash and cash equivalents			(30	)			(8	)
Decrease in cash & cash equivalents			(540	)			(266	)
Cash & cash equivalents at beginning of period			1,396				665
Cash & cash equivalents at end of period		$	856			$	399

The accompanying notes are an integral part of these consolidated statements.

MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.		Nature of Operations
		Marsh & McLennan Companies, Inc. (“MMC”), a professional services firm, is organized based on the different services that it offers. Effective January 1, 2005, MMC established a new reportable segment, risk consulting and technology, consisting of Kroll, Inc., which was acquired by MMC in July 2004, and portions of the risk consulting business previously managed by Marsh. Under this organizational structure, MMC now operates in four principal business segments: risk and insurance services, risk consulting and technology, consulting and investment management. Also, effective January 1, 2005, Putnam’s defined contribution administration business was transferred from Putnam (Investment Management) to Mercer Human Resource Consulting (Consulting). In addition, Marsh’s U.S. employee benefits business has been combined with Mercer’s health and benefits business and is now managed by Mercer effective in the second quarter of 2005. The segment data and related disclosures throughout the Notes to MMC’s consolidated financial statements have been amended to reflect these organizational changes.
		The risk and insurance services segment provides risk management and insurance broking, reinsurance broking and insurance program management services for businesses, public entities, insurance companies, associations, professional services organizations, and private clients. Prior to the sale of MMC Capital’s business to Stone Point Capital, LLC (“Stone Point”) on May 31, 2005, the risk and insurance services segment also provided services principally in connection with originating, structuring and managing investments, primarily in the insurance and financial services industries. MMC will not participate in the investment decisions or management of Stone Point or the Trident funds. However, MMC will continue to own investments in the funds managed by Stone Point and directly own investments in certain insurance and financial services entities.
		The risk consulting and technology segment provides various risk consulting and related risk mitigation services to corporate, government, institutional and individual clients. These risk consulting services fall into three main business groups: corporate advisory and restructuring services; consulting services; and technology services.
		The consulting segment provides advice and services to the managements of organizations in the areas of Human Resources Consulting, comprising retirement and investment consulting, HR services and investments, health and benefits and human capital; and Specialty Consulting comprising management consulting, organization change, and economic consulting.
		The investment management segment primarily provides securities investment advisory and management services and administrative services for a group of publicly held investment companies and institutional accounts.

2.		Principles of Consolidation
		The consolidated financial statements included herein have been prepared by MMC pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been omitted pursuant to such rules and regulations, although MMC believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in MMC’s latest Annual Report on Form 10-K and the financial information filed on the Form 8-K dated June 28, 2005, which reflects amended segment classifications that were effective January 1, 2005.
		The financial information contained herein reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations for the three and six-month periods ended June 30, 2005 and 2004. Certain reclassifications have been made to the prior year amounts to conform to the current year presentation, in particular with regard to segment reclassifications resulting from changes in MMC’s organizational structure.
		The caption “Investment income (loss)” in the consolidated statements of income comprises realized and unrealized gains and losses from investments recognized in current earnings. It includes other than temporary declines in the value of available for sale securities, the change in value of trading securities and the change in value of MMC’s holdings in certain private equity funds. MMC’s investments may include seed shares for funds, direct investments in insurance, consulting or investment management companies and investments in private equity funds.
3.		Fiduciary Assets and Liabilities
		In its capacity as an insurance broker or agent, MMC collects premiums from insureds and, after deducting its commissions, remits the premiums to the respective insurance underwriters. MMC also collects claims or refunds from underwriters on behalf of insureds. Unremitted insurance premiums and claims are held in a fiduciary capacity. Interest income on these fiduciary funds, included in service revenue, amounted to $71 million and $59 million for the six-month periods ended June 30, 2005 and 2004, respectively. Since fiduciary assets are not available for corporate use, they are shown in the balance sheet as an offset to fiduciary liabilities.
		Net uncollected premiums and claims and the related payables amounted to $11.8 billion at June 30, 2005 and $11.2 billion at December 31, 2004, respectively. MMC is not a principal to the contracts under which the right to receive premiums or the right to receive reimbursement of insured losses arises. Net uncollected premiums and claims and the related payables are, therefore, not assets and liabilities of MMC and are not included in the accompanying Consolidated Balance Sheets.
4.		Per Share Data
		Basic net income per share is calculated by dividing net income by the weighted average

		number of shares of MMC’s common stock outstanding. Diluted net income per share is calculated by reducing net income for the potential minority interest associated with unvested shares granted under the Putnam Equity Partnership Plan and adding back dividend equivalent expense related to common stock equivalents. This result is then divided by the weighted average common shares outstanding, which have been adjusted for the dilutive effect of potentially issuable common shares.
		The following reconciles net income to net income for diluted earnings per share and basic weighted average common shares outstanding to diluted weighted average common shares outstanding for the three- and six-month periods ended June 30, 2005 and 2004.

5.		Supplemental Disclosure to the Consolidated Statements of Cash Flows
		The following schedule provides additional information concerning interest and income taxes paid for the six-month periods ended June 30, 2005 and 2004.

6.

Comprehensive Income

The components of comprehensive income for the six-month periods ended June 30, 2005 and 2004 are as follows:

7.		Acquisitions and Dispositions
		During the first six months of 2005, MMC made four acquisitions, for total purchase consideration of $76 million. The allocation of purchase consideration resulted in acquired goodwill of $60 million as of June 30, 2005. Estimated fair values of assets acquired and liabilities assumed are subject to adjustment when purchase accounting is finalized.
		In May 2005, MMC sold the assets of MMC Capital, its private equity manager, to Stone Point Capital LLC, a company controlled by the former managers of MMC Capital. Stone Point has assumed responsibility for management of the Trident Funds and other private equity funds previously managed by MMC Capital. MMC will not participate in the investment decisions or management of Stone Point or the private equity funds managed by Stone Point. MMC continues to own direct investments in insurance and financial services companies, including Ace Ltd., XL Capital Ltd and Axis Capital Holdings Ltd., as well as its investments in the Trident Funds and other funds managed by Stone Point.
		In July 2004, MMC acquired Kroll Inc. (“Kroll”), the world’s leading risk mitigation services firm in an all-cash $1.9 billion transaction in which Kroll shareholders received $37 for each outstanding share of Kroll common stock owned. The acquisition of Kroll broadens and deepens the capabilities of MMC’s risk consulting and advisory businesses by adding services which clients need to reduce the impact of an adverse event. It expands MMC’s capacity in several important sectors that complement existing businesses, such as corporate restructuring, business intelligence and investigations, security services, employee screening, and electronic evidence and litigation support. The estimated fair values of assets and liabilities recorded in the financial statements are as follows: net tangible assets of $43 million, identified intangible assets of $336 million, and goodwill of $1.6 billion.
		In addition, MMC acquired Synhrgy HR Technologies, a leading provider of human resource technology and outsourcing services, for a total cost of $115 million in 2004. Substantially all employees of Synhrgy became employees of MMC. Approximately $7 million of the purchase consideration is subject to continued employment of the selling shareholders and is being recorded as compensation expense over three years. MMC also acquired the Australia and New Zealand operations of Heath Lambert for $53 million in March of 2004, Prentis Donegan for $63 million in cash in July of 2004, an additional 30% of the voting stock of PanAgora Asset Management, Inc. (bringing its total to an 80% voting majority) for $3 million in cash in July of 2004, Centerlink for $36 million in September 2004 and Corporate Systems for $72 million in cash in October 2004.

8.		Goodwill and Other Intangibles
		Changes in the carrying amount of goodwill for the six-month period ended June 30, 2005, are as follows:

		Goodwill allocable to each of MMC’s reporting segments is as follows: Risk and Insurance Services $4.0 billion; Risk Consulting & Technology $1.7 billion; Consulting $1.7 billion and Investment Management $125 million.
		The goodwill balance at June 30, 2005 and December 31, 2004 includes approximately $120 million of equity method goodwill.
		Amortized intangible assets consist of the cost of client lists, client relationships and trade names acquired, and the rights to future revenue streams from certain existing private equity funds. MMC has no intangible assets with indefinite lives. The gross cost and accumulated amortization by major intangible asset class is as follows:

Aggregate amortization expense for the six months ended June 30, 2005 and June 30, 2004, was $52 million and $20 million, respectively, and the estimated future aggregate amortization expense is as follows:

9.		Stock Benefit Plans
		MMC has stock-based benefit plans under which employees are awarded grants of restricted stock, stock options and other forms of awards. As provided under SFAS No. 123, “Accounting for Stock-Based Compensation,” (“SFAS 123”) MMC has elected to continue to account for

		stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and has provided the required additional pro forma disclosures. MMC intends to adopt SFAS 123(R) “Share Based Payment” effective July 1, 2005.
		On March 16, 2005, the Compensation Committee of the MMC Board of Directors approved a stock option award that provides for a performance-based triggering event before a vested option can be exercised. The terms and conditions of this new stock option award provide that (i) options will vest at a rate of 25% a year beginning one year from the date of grant and (ii) each vested tranche will only become exercisable if the trading price of the underlying MMC stock appreciates to a level of 15% above the exercise price of the option and maintains that level for at least ten (10) consecutive trading days after the award has vested.
		MMC’s shareholders approved a stock option exchange offer at the May 2005 Annual Meeting. Under the offer, employees could exchange certain deeply underwater options for new options with an estimated fair value equal to 90% of the value of options surrendered in exchange, calculated using the Black-Scholes pricing model. Effective July 1, 2005, employees elected to exchange 42 million options for 16 million new options. The exchange resulted in the retirement of 26 million options.
		Pro Forma Information: In accordance with the intrinsic value method allowed by APB 25, no compensation cost has been recognized in the Consolidated Statements of Income for MMC’s stock option awards and stock purchase plans and the stock options awarded under the Putnam Investments Equity Partnership Plan. In addition, no compensation cost has been recognized in the Consolidated Statements of Income for MMC’s performance-based stock option awards as the quoted market price of MMC’s common stock at June 30, 2005 was less than the exercise price of such options. If compensation cost for MMC’s stock-based compensation plans had been determined consistent with the fair value method prescribed by SFAS No. 123, MMC’s net income and net income per share for the three and six-month periods ended June 30, 2005 and 2004 would have been reduced to the pro forma amounts indicated in the table below.

The pro forma information reflected above includes stock options issued under MMC incentive and stock award plans and the Putnam Investments Equity Partnership Plan and stock issued

		under MMC stock purchase plans. The pro forma information reflected above does not give effect to the option exchange described above. MMC stock purchase plans allow eligible employees to purchase MMC shares at a price that is 85% of the average market price on each quarterly purchase date. The stock purchase plans represent approximately 12% of the adjustment from applying the fair value method in 2005 and 20% in 2004.
		The pro forma amounts reflected in the above table recognize the costs of employee stock option awards granted to retirement eligible individuals over the full vesting period of the award. Upon adoption of SFAS 123 (R), MMC will amortize new option grants to such retirement eligible individuals over a shorter period, consistent with the retirement vesting acceleration provisions of these grants. If the pro forma amounts indicated above had been recognized for these individuals under this accelerated method, pro forma net income for the three and six months ended June 30, 2005 would have amounted to $129 million and $228 million, respectively, and pro forma net income for the three and six months ended June 30, 2004 would have amounted to $358 million and $757 million, respectively.
		The majority of option grants under the stock benefit plans are made in the first quarter of each year. MMC granted 16.2 million and 9.1 million options in the six month periods ended June 30, 2005 and 2004, respectively. A total of 9.3 million options were granted in the year ended December 31, 2004.
		The estimated fair value of options granted was calculated using the Black-Scholes option pricing valuation model, except for performance options which require the use of a binomial model. The weighted average assumptions used in the valuation models are evaluated and revised, as necessary, to reflect market conditions and experience. Costs for the employee stock purchase plan are based on the value of the discount.
10.		Retirement Benefits
		MMC maintains qualified and non-qualified defined benefit pension plans for its U.S. and non-U.S. eligible employees. MMC’s policy for funding its tax qualified defined benefit retirement plans is to contribute amounts at least sufficient to meet the funding requirements set forth in the U.S. and international law.
		The target asset allocation for the U.S. Plans is 70% equities and 30% fixed income, and for the U.K. plans, which comprise approximately 85% of non-U.S. plan assets, is 58% equities and 42% fixed income. As of the measurement date, the actual allocation of assets for the U.S. plan was 73% to equities and 27% to fixed income, and for the U.K. plans was 58% to equities and 42% to fixed income.
		Neither the U.S. nor the U.K. plan held any MMC securities.

The components of the net periodic benefit cost (income) for defined benefit and other postretirement plans are as follows:

Combined U.S. and significant non-U.S. Plans

Combined U.S. and significant non-U.S. Plans

In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“Act”) became law. The net periodic benefit cost for 2005 shown above includes the subsidy, which did not have a material impact.

Significant non-U.S. Plans only

Significant non-U.S. Plans only

The weighted average actuarial assumptions utilized to calculate the net periodic benefit costs for the U.S. and significant non-U.S. defined benefit plans are as follows:

Combined U.S. and significant non-U.S. Plans

11.		Debt
		MMC’s outstanding debt is as follows:

		The weighted average interest rates on MMC’s outstanding short-term debt at June 30, 2005 and December 31, 2004 are 3.5% and 3.0%, respectively.
		In December 2004, MMC completed financing with respect to a $1.3 billion Term Loan Facility and the amendment of its existing $1 billion revolving credit facility which expires in June 2007 and $700 million revolving credit facility which expires in June 2009. The Term Loan Facility will

		mature on December 31, 2006 and replaces revolving credit facilities of $700 million and $355 million, which were due to expire in 2005. The proceeds from the Term Loan Facility were used to pay down the outstanding balances on revolving credit facilities. The interest rates on these facilities vary based upon the level of usage of the facility and MMC’s credit ratings. Each of these facilities requires MMC to maintain certain coverage and leverage ratios on the last day of the measurement period specified in the contract and the guarantors identified in the contract must meet certain guaranty minimum coverage percentages. There are no amounts outstanding under the revolving credit facilities at June 30, 2005.
		In July 2004, MMC purchased Kroll, Inc. in an all-cash transaction totaling approximately $1.9 billion. The purchase was initially funded with commercial paper borrowings. To support these borrowings, MMC negotiated a new $1.5 billion, one-year revolving credit facility. Following the acquisition, MMC issued $650 million of 5.375% Senior Notes due 2014 and $500 million of Floating Rate Notes due 2007. The proceeds from these notes were used to repay a portion of MMC’s commercial paper borrowings. Under the terms of the agreement of the above-mentioned credit facility, the amount of the facility was reduced by the proceeds from the issuance of the Senior Notes and Floating Rate Notes of approximately $1.15 billion. The available revolving credit facility totaled $355 million after the issuance of these notes and in December 2004 was replaced by the Term Loan Facility.
		MMC has a fixed rate non-recourse mortgage note agreement due 2009 amounting to $200 million, bearing an interest rate of 9.8%, in connection with its interest in its worldwide headquarters building in New York City. In the event the mortgage is foreclosed following a default, MMC would be entitled to remain in the space and would be obligated to pay rent sufficient to cover interest on the notes or at fair market value if greater.

12.		Restructuring Costs
		2005 Plan
		In March 2005, MMC announced that it would undertake restructuring initiatives involving staff reductions and consolidations of facilities in response to MMC’s business environment (the “2005 Plan”). In connection with this plan, MMC incurred restructuring charges of $195 million in the six months ended June 30, 2005 of which $141 million was recorded in risk and insurance services and $54 million was recorded in corporate. The amounts incurred and paid in 2005 and the liability as of June 30, 2005 are as follows:

Costs of approximately $148 million related to the 2005 restructuring are expected to be incurred after June 30, 2005. The expenses associated with these initiatives are included in Other operating expenses in the Consolidated Statements of Income. Liabilities associated with these initiatives are classified on the Consolidated Balance Sheets as Accounts payable, Other liabilities, or Accrued salaries, depending on the nature of the item.

2004 Plan

In November 2004, MMC announced that it would undertake restructuring initiatives involving staff reductions and consolidations of facilities in response to MMC’s business environment (the “2004 Plan”). In connection with this plan, MMC incurred restructuring charges of $337 million in the year ended December 31, 2004 and $3 million in 2005. The breakdown by segment was $231 million, $62 million, and $26 million in risk and insurance services, consulting and investment management, respectively. An additional $18 million of restructuring expense was recorded in corporate. Utilization of the 2004 charges is summarized as follows:

		The expenses associated with these initiatives are included in Other operating expenses in the Consolidated Statements of Income. Liabilities associated with these initiatives are classified on the Consolidated Balance Sheets as Accounts payable, Other liabilities, or Accrued salaries, depending on the nature of the item.
13.		Common Stock
		MMC currently has no plans to repurchase its stock.
14.		Claims, Lawsuits and Other Contingencies
		MMC and Marsh Inc. Related Matters
		New York State Attorney General Investigation and Related Litigation and Regulatory Matters

New York State Attorney General Investigation and Lawsuit

In or about April 2004, the Office of the New York State Attorney General (“NYAG”) commenced an investigation into broker compensation arrangements generally and compensation under placement or market service agreements specifically. NYAG issued a subpoena to MMC on April 7, 2004 and followed with additional subpoenas in the summer and fall of 2004.

On October 14, 2004, NYAG filed a civil complaint in New York State court (the “NYAG Lawsuit”) against MMC and Marsh Inc. (collectively “Marsh”) asserting claims under New York law for fraudulent business practices, antitrust violations, securities fraud, unjust enrichment, and common law fraud. The complaint alleged that market service agreements between Marsh and various insurance companies (the “Agreements”), created an improper incentive for Marsh to steer business to such insurance companies and to shield them from competition. The complaint further alleged that these Agreements were not adequately disclosed to Marsh’s clients or to Marsh’s investors. In addition, the complaint alleged that Marsh engaged in bid-rigging and solicited fraudulent bids to create the appearance of competitive bidding. The complaint sought relief that included an injunction prohibiting Marsh from engaging in the alleged wrongful conduct, disgorgement of all profits related to such conduct, restitution and unspecified damages, attorneys’ fees, and punitive damages.

On October 21, 2004, the New York State Insurance Department (the “NYSID”) issued a citation, amended on October 24, 2004 (the “Amended Citation”), that ordered MMC and a number of its subsidiaries and affiliates that hold New York insurance licenses to appear at a hearing and show cause why regulatory action should not be taken against them. The amended citation charged the respondents with the use of fraudulent, coercive and dishonest practices; violations of Section 340 of the New York General Business Law relating to contracts or agreements for monopoly or in restraint of trade; and violations of the New York Insurance Law that resulted from unfair methods of competition and unfair or

deceptive acts or practices. The Amended Citation contemplated a number of potential actions the NYSID could take, including the revocation of licenses held by the respondents.

On October 25, 2004, NYAG announced that it would not bring criminal charges against Marsh.

On January 30, 2005, MMC and Marsh entered into an agreement (the “Settlement Agreement”) with NYAG and the NYSID to settle the NYAG Lawsuit and the Amended Citation.

Pursuant to the Settlement Agreement, Marsh will establish a fund of $850 million (the “Fund”), payable over four years, for Marsh policyholder clients. A copy of the Settlement Agreement was previously disclosed as an exhibit to MMC’s Current Report on Form 8-K dated January 31, 2005. As a general matter, U.S. policyholder clients who retained Marsh to place insurance between 2001 and 2004 that resulted in Marsh receiving market service revenue will be eligible to receive a pro rata distribution. No showing of fault, harm or wrongdoing is required in order to receive a distribution. No portion of the Fund represents a fine or penalty against Marsh and no portion of the Fund will revert to Marsh. Clients who voluntarily elect to participate in the Fund will tender a release relating to the matters alleged in the NYAG Lawsuit or the Amended Citation, except for claims which are based upon, arise out of or relate to the purchase or sale of Marsh securities. The Settlement Agreement further provides that Marsh will not seek or accept indemnification pursuant to any insurance policy for amounts payable pursuant to the Settlement Agreement.

In 2004, MMC recorded a charge of $850 million for the amount to be paid into the Fund in accordance with the Settlement Agreement. In addition, in the fourth quarter of 2004 and the first quarter of 2005, MMC recorded charges totaling $16 million for the expected cost to calculate and administer payments out of the Fund.

Marsh also agreed to undertake, among other things, the following business reforms within 60 days of the date of the Settlement Agreement:

	a.		Marsh will accept compensation for its services in placing, renewing, consulting on or servicing any insurance policy only by a specific fee paid by the client; or by a specific percentage commission on premium to be paid by the insurer; or a combination of both. The amount of such compensation must be fully disclosed to, and consented to in writing, by the client prior to the binding of any policy;
	b.		Marsh must give clients prior notification before retaining interest earned on premiums collected on behalf of insurers;
	c.		In placing, renewing, consulting on or servicing any insurance policy, Marsh will not accept from or request of any insurer any form of contingent compensation;
	d.		In placing, renewing, consulting on or servicing any insurance policy, Marsh will not knowingly use wholesalers for the placement, renewal, consultation on or servicing of insurance without the agreement of its client;
	e.		Prior to the binding of an insurance policy, Marsh will disclose to clients all quotes

			and indications sought or received from insurers, including the compensation to be received by Marsh in connection with each quote. Marsh also will disclose to clients at year-end Marsh’s compensation in connection with the client’s policy; and
	f.		Marsh will implement company-wide written standards of conduct relating to compensation and will train relevant employees in a number of subject matters, including business ethics, professional obligations, conflicts of interest, anti-trust and trade practices compliance, and record keeping.

The MMC Board of Directors has established a committee of the Board to monitor compliance with the standards of conduct regarding compensation from insurers. The committee will make quarterly reports to the Board of the results of its monitoring activity for a period of five years.

The Settlement Agreement further provides that Marsh reserves the right to request that NYAG and the NYSID modify the Settlement Agreement if compliance with any portion thereof proves impracticable. On April 28, 2005, the parties entered into Amendment No. 1 to the Settlement Agreement, which modifies the scope of the application of the business reforms provisions with respect to MMC operations outside the United States. This amendment was included as an exhibit to MMC’s Quarterly Report on Form 10-Q dated March 31, 2005. On or about May 20, 2005, Marsh distributed notices to eligible policyholders entitled to receive a distribution of at least $10 from the settlement fund.

Though Mercer Inc. (“Mercer”) was not a defendant in the NYAG Lawsuit, U.S. policyholder clients that retained Mercer to place, renew, consult on or service insurance between 2001 and 2004 that related to Mercer receiving contingent commissions or overrides are eligible to participate in the Fund.

The Settlement Agreement does not resolve any investigation, proceeding or action commenced by NYAG or NYSID against any former or current employees of Marsh. As part of the Settlement Agreement, Marsh apologized for the improper conduct of certain employees. Marsh also agreed to continue to cooperate with NYAG and NYSID in connection with their ongoing investigations of the insurance industry, and in any related proceedings or actions. Since the filing of the NYAG Lawsuit, eight former Marsh employees have pled guilty to criminal charges relating to the matters under investigation. NYAG has publicly stated that additional charges and/or guilty pleas involving Marsh personnel and others are highly likely.

Related Litigations

As of August 3, 2005, numerous lawsuits have been commenced against MMC, one or more of its subsidiaries, and its current and former directors and officers, relating to matters alleged in the NYAG Lawsuit, including the following:

•

Approximately twenty-one putative class actions purportedly brought on behalf of policyholders are now pending in various federal courts. On February 17, 2005, the Judicial Panel on Multidistrict Litigation transferred a number of these federal cases to the District of New Jersey for coordination or consolidated pretrial proceedings (the “MDL Cases”) and a number of additional cases have since been transferred to that court. It is expected that

			nearly all federal putative class actions by policyholders either now pending or filed hereafter will be transferred there as well. On August 1, 2005, two consolidated amended complaints were filed in the MDL Cases (one on behalf of a purported class of “commercial” policyholders and the second on behalf of a purported class of “employee benefit” policyholders), which as against MMC include statutory claims for violations of the Racketeering Influenced and Corrupt Organizations Act, federal and state antitrust laws, state unfair business practice laws, and common law claims for, among other things, breach of fiduciary duty, breach of duty of loyalty, and unjust enrichment. The complaints seek a variety of remedies including unspecified monetary damages, treble damages, disgorgement, restitution, punitive damages, declaratory and injunctive relief, and attorneys’ fees and costs. The class periods alleged in the MDL Cases begin on August 26, 1994 and purport to continue to the date of any class certification.
			Six class or representative actions on behalf of policyholders are pending in state courts. Two putative class actions are pending in Canada. There are also several actions brought by individual policyholders and others and additional suits may be filed.
	•		On January 21, 2005, the State of Connecticut commenced a lawsuit against Marsh challenging Marsh’s conduct in connection with the placement of a loss portfolio transfer of workers’ compensation claims for the State of Connecticut’s Department of Administrative Services. The complaint alleges that Marsh violated Connecticut’s Unfair Trade Practices Act by, among other things, failing to disclose a $50,000 payment Marsh received from the insurer in connection with the transfer. The complaint seeks remedies that include an accounting, actual and punitive damages, and the costs of investigation and conduct of the lawsuit. The State of Connecticut may amend its civil complaint against Marsh.
	•		Four purported class actions on behalf of individuals and entities who purchased or acquired MMC’s publicly-traded securities during the purported class periods are pending in the United States District Court for the Southern District of New York. On January 26, 2005, the Court issued an order consolidating these complaints into a single proceeding and appointing co-lead plaintiffs and co-lead counsel to represent the purported class. On April 19, 2005, the co-lead plaintiffs filed a lengthy consolidated complaint. The consolidated complaint names MMC, Marsh, Inc., MMC’s independent registered public accounting firm and twenty present and former directors and officers of MMC and certain affiliates, as defendants. The purported class period in the consolidated complaint extends from October 14, 1999 to October 13, 2004.
			The consolidated complaint alleges, among other things, that MMC inflated its earnings during the class period by engaging in unsustainable business practices based on contingent commissions. The consolidated complaint further alleges, among other things, that defendants deceived the investing public regarding MMC’s business, operations, management, and the intrinsic value of MMC’s stock, and caused the plaintiffs and other members of the purported class to purchase MMC’s securities at artificially inflated prices. The consolidated complaint further alleges that MMC failed to disclose that the revenue derived from MSA agreements with insurers was part of an unlawful scheme, which could not be sustained and which exposed the Company to significant regulatory sanctions, and that MMC failed to disclose certain alleged anti-competitive and illegal practices, such as “bid rigging” and soliciting fictitious quotes, at MMC’s subsidiaries. The consolidated complaint further alleges that MMC’s revenues and earnings would have been significantly lower had MMC’s subsidiaries not engaged in these allegedly unlawful business practices,

			and that MMC’s earnings were allegedly overstated because MMC failed to establish a reserve for contingent losses associated with its allegedly improper activities. The consolidated complaint further alleges that MMC misled its clients and the investing public concerning, among other things, its business ethics, its loyalty to its clients’ interests, the magnitude of its contingent commissions, and the nature of any services provided to insurers in exchange for contingent commissions. The consolidated complaint includes, among other things, factual allegations similar to those asserted in the NYAG Lawsuit. It also includes, among other things, factual allegations concerning alleged misconduct at Mercer and Putnam and alleged conflicts of interests associated with MMC Capital. The consolidated complaint includes claims for violations of Sections 10(b), 18 and 20(a) of the Securities Exchange Act of 1934 and Sections 11 and 15 of the Securities Act of 1933, based on the company’s allegedly false or incomplete disclosures. In addition, the consolidated complaint includes claims for common law fraud and deceit, negligent misrepresentation, and violations of state securities laws, which are being asserted on behalf of a subclass of municipal and state pension funds. The consolidated complaint seeks unspecified compensatory damages and attorneys’ fees. Following the announcement of the NYAG Lawsuit and related actions taken by the Company, the MMC stock price dropped from approximately $45 per share to a low of approximately $22.75 per share.
	•		Fourteen shareholder derivative actions have been filed against MMC’s current and former directors and officers in the Court of Chancery of the State of Delaware, the United States District Court for the Southern District of New York and the New York Supreme Court for New York County. These actions allege, among other things, that current and former directors and officers of MMC breached their fiduciary duties with respect to the alleged misconduct described in the NYAG Lawsuit, are liable to MMC for damages arising from their breaches of fiduciary duty, and must contribute to or indemnify MMC for any damages MMC has suffered. Three of the shareholder derivative actions filed in the Southern District of New York have been voluntarily dismissed. The remaining five actions pending in the Southern District of New York have been consolidated under the caption In re Marsh & McLennan Derivative Litigation, No. 04-Civ.-8516 (RMB) (the “Federal Derivative Action”). The five actions pending in the Court of Chancery have been consolidated under the caption In re Marsh & McLennan Derivative Litigation, C.A No. 753 (the “Delaware Derivative Action”). On April 4, 2005, the plaintiffs in the Delaware Derivative Action filed an amended and consolidated complaint that named American International Group, Inc. (“AIG”), Maurice R. Greenberg, and ACE Limited as additional defendants. The derivative action pending in the New York Supreme Court has been stayed pending resolution of the Federal Derivative Action. MMC has also received six demand letters from stockholders asking the MMC Board of Directors to take appropriate legal action against those directors and officers who are alleged to have caused damages to MMC based on the facts alleged in the NYAG Lawsuit. MMC has advised the stockholders making demands that their demands are under consideration by the MMC Board of Directors.
	•		Twenty purported class actions alleging violations of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) have been filed in the United States District Court for the Southern District of New York on behalf of participants and beneficiaries of the Marsh & McLennan Companies Stock Investment Plan (the “Plan”). On February 9, 2005, the Court issued an order consolidating these complaints into a single proceeding and appointing co-lead plaintiffs and lead counsel to represent the purported class. Plaintiffs

			filed the Consolidated Class Action Complaint on June 15, 2005, naming MMC and various current and former employees, officers and directors as defendants. The Consolidated Complaint alleges, among other things that, in view of the purportedly fraudulent bids and the receipt of contingent commissions pursuant to the Agreements, the defendants knew or should have known that the investment of the Plan’s assets in MMC stock was imprudent. The Consolidated Complaint also asserts that certain defendants failed to provide the Plan’s participants with complete and accurate information about MMC stock, that certain defendants responsible for selecting, removing and monitoring other fiduciaries did not comply with ERISA, and that MMC knowingly participated in other defendants’ breaches of fiduciary duties. The Consolidated Complaint seeks, among other things, unspecified compensatory damages, injunctive relief and attorneys’ fees and costs. The amount of Plan assets invested in MMC stock at October 13, 2004 (immediately prior to the announcement of the NYAG Lawsuit) was approximately $1.2 billion. The Consolidated Complaint alleges that during the purported class period, which extends from July 1, 2000 until January 31, 2005, MMC stock fell from $52.22 to $32.50.
	•		On February 23, 2005, the plaintiffs in a shareholders derivative suit pending in the Delaware Court of Chancery against the directors and officers of American International Group, Inc. (“AIG”) filed a consolidated complaint that named MMC, Marsh, Inc., Marsh USA Inc., Marsh Global Broking Inc. (collectively, the “MMC Defendants”) and Jeffrey W. Greenberg as additional defendants. This action alleges, among other things, that the MMC Defendants and Greenberg aided and abetted the current and former directors and officers of AIG in breaching their fiduciary duties to AIG with respect to AIG’s participation in the alleged misconduct described in the NYAG Lawsuit, including, but not limited to, illegal bid rigging and kickback schemes. The consolidated complaint also asserts a claim for unjust enrichment against the MMC Defendants. The consolidated complaint asserts that the MMC Defendants and Greenberg are liable to AIG for damages arising from allegedly aiding and abetting the AIG directors and officers’ breaches of their fiduciary duties, and also seeks the return of all contingent commission payments made by AIG to the MMC Defendants. In addition, on May 6, 2005, the plaintiffs in a shareholder derivative suit pending in the United States District Court for the Southern District of New York (the “AIG Federal Suit”) against the directors and officers of AIG filed a consolidated complaint that names MMC and Jeffrey W. Greenberg as additional defendants and asserts claims against MMC and Greenberg for allegedly aiding and abetting breaches of fiduciary duties by AIG’s directors and officers and for unjust enrichment. On July 18, 2005, the plaintiffs in the AIG Federal Suit filed an amended shareholder derivative complaint containing substantially identical allegations against MMC, Marsh USA, Inc., Marsh Global Broking, Inc. and Jeffrey Greenberg.
	•		On May 13, 2005, the plaintiffs in a purported securities fraud class action suit pending in the United States District Court for the Southern District of New York against Axis Capital Holdings Limited (“Axis”), and certain of its officers, filed a consolidated complaint that named MMC, among others, as an additional defendant. MMC was served with process in this suit on June 6, 2005. This purported class action is on behalf of all persons and entities that purchased or acquired Axis’s publicly traded common stock during a purported class period from August 6, 2003 to October 14, 2004. The complaint alleges violations of federal securities laws in connection with defendants’ alleged failure to disclose alleged improper business practices concerning incentive commission payments by Axis to (among others) Marsh Inc. With regard to MMC, the complaint also alleges that various entities and partnerships managed by or associated with MMC Capital Inc. sold Axis common stock to

			members of the purported class knowing of the alleged inflated valuation of such stock, and seeks damages for alleged violations of federal securities laws.
			Related Regulatory Matters
	•		Following the filing of the NYAG Lawsuit, MMC and certain of its subsidiaries received notices of investigations and inquiries, together with requests for documents and information, from attorneys general, departments of insurance and other governmental entities in a number of jurisdictions (other than New York) that relate to the allegations in the NYAG Lawsuit. As of August 3, 2005, offices of attorneys general in 21 jurisdictions have issued one or more requests for information or subpoenas calling for the production of documents or for witnesses to provide testimony. Subpoenas, letters of inquiry and other information requests have been received from departments of insurance or other state agencies in 31 jurisdictions. MMC and its subsidiaries are cooperating with these requests from regulators. It is possible that MMC or its subsidiaries could face administrative proceedings or other regulatory actions, fines or penalties, including, without limitation, actions to revoke or suspend their insurance broking licenses.
	•		In Australia, the Australian Securities and Investments Commission (ASIC) requested information and documents from insurers and brokers, including Marsh, as part of an examination of brokers’ remuneration practices. ASIC released its report on insurance broker remuneration arrangements on June 30, 2005. The report concluded that ASIC did not find evidence of systemic misconduct, but it did identify deficiencies in certain Australian brokers' management of conflicts of interest and disclosure of remuneration. The report did not identify any brokers by name, but indicated ASIC will be in contact with individual entities to seek to remedy any potential breaches identified. Subject to satisfactory resolution of such breaches, ASIC said it is unlikely any enforcement action would be required. Marsh has not been contacted further by ASIC and has had no indication from the regulator of deficiencies in its practices and procedures in this area.

Putnam-Related Matters

			Regulatory Matters
	•		On November 13, 2003, the Securities and Exchange Commission (the “SEC”) issued an order accepting Putnam’s offer of settlement with respect to excessive short-term trading by certain Putnam employees in shares of the Putnam mutual funds. The SEC’s order contained findings of fact, which Putnam neither admitted nor denied, that Putnam had violated the Investment Advisers Act of 1940 and the Investment Company Act of 1940. The order included a final censure, remedial undertakings, and a requirement that Putnam cease and desist from engaging in certain practices. The SEC found that certain former Putnam investment management employees had engaged in excessive short-term trading of Putnam mutual funds in their personal accounts and that Putnam had failed (a) to disclose this trading activity to the Putnam mutual funds’ Trustees or shareholders, (b) to take adequate steps to detect and deter such trading activity and (c) to adequately supervise these former employees. Under the terms of the order, Putnam agreed to a number of remedial compliance actions and agreed that an independent assessment consultant would be engaged to determine the amount of restitution that Putnam would be required to pay in order to make mutual fund investors whole for losses attributable to such excessive short-term trading. On April 8, 2004, the SEC issued a supplemental order pursuant to which Putnam was required to pay $5 million in restitution and a civil monetary penalty of $50 million. The supplemental order also provided that if the amount of restitution calculated by the independent assessment consultant under the SEC order exceeded $10 million, Putnam would be responsible for paying the excess.
			On April 8, 2004, the Commonwealth of Massachusetts (the “Massachusetts Securities Division”) entered a Consent Order in final settlement of charges filed against Putnam and two of its employees alleging violations of the state’s securities law anti-fraud provisions. The

			Consent Order included a cease and desist order and required Putnam to pay $5 million in restitution and an administrative fine of $50 million. The Consent Order provided for an independent assessment consultant to be engaged to calculate the appropriate amount of restitution to shareholders, and that if the amount of restitution calculated by the independent assessment consultant under the Massachusetts order exceeded $15 million, Putnam would be responsible for paying the excess.
			On March 3, 2005, the independent assessment consultant issued his assessment reports under the SEC and the Massachusetts orders. He concluded that $108.5 million was the total amount of restitution payable by Putnam to fund shareholders. Putnam will pay $25 million of this amount from the amounts previously made available for restitution under the SEC and Massachusetts orders, and recorded a charge for the additional $83.5 million in the 4 th quarter of 2004. In addition to the $108.5 million in restitution, Putnam fund shareholders will receive a distribution of $45 million from the civil penalty Putnam previously paid to the SEC. The independent assessment consultant appointed under the SEC and Massachusetts Orders was also appointed as the independent distribution consultant under both Orders, and is developing a plan that will provide for the distribution of these restitution amounts to Putnam fund shareholders. Putnam will incur additional costs in connection with implementing the distribution plan.
			In a separate action, the SEC is seeking an injunction against two of the former investment management employees referenced above.
			In late 2003 and continuing through the Spring of 2005, Putnam received document subpoenas and/or requests for information from the United States Attorney for the District of Massachusetts, the National Association of Securities Dealers, the U.S. Department of Labor (the “Department of Labor”), the Florida Department of Financial Services, the Offices of the Secretary of State and the State Auditor for the State of West Virginia, the Connecticut Department of Banking, and certain other state regulatory and enforcement authorities inquiring into, among other things, the matters that were the subject of the proceedings by the SEC and the Massachusetts Securities Division as described above.
	•		In the Spring of 2004, Putnam received document requests and subpoenas from the Massachusetts Securities Division, the Office of the New York State Attorney General, the SEC, and the Department of Labor relating to plan expense reimbursement agreements between Putnam and certain multi-employer deferred compensation plans that are Putnam clients, and also relating to Putnam’s relationships with consultants retained by multi-employer deferred compensation plans. At that time, the Massachusetts Securities Division took testimony from a number of Putnam employees relating to these matters.
	•		The Enforcement Staff of the SEC’s Boston Office is investigating certain matters that arose in the defined contribution plan administration business formerly conducted by Putnam Fiduciary Trust Company (“PFTC”). Putnam also has received requests for information about certain of these matters from the Massachusetts Securities Division, the Department of Labor and the Federal Deposit Insurance Corporation (the “FDIC”). One of the matters relates to the manner in which certain operational errors were corrected in connection with a January 2001 transfer and investment of assets on behalf of a 401(k) defined contribution plan. The manner in which these errors were corrected affected the plan and five of the Putnam mutual funds in which certain plan assets were invested. Putnam has made

			restitution to the plan and the affected funds. Putnam also has made a number of personnel changes, including replacing senior managers, and has implemented changes in procedures. A second matter relates to the source and use of funds paid to a third-party vendor by PFTC in exchange for information consulting services. Putnam has re-processed the payment of these consulting expenses in accordance with Putnam’s corporate expense payment procedures.
			On or about September 9, 2004, the SEC issued a Formal Order directing an investigation into the two matters described above and designating officers to take testimony in furtherance of this investigation. In addition, on or about September 29, 2004, the Examination Staff of the SEC’s Boston District Office communicated to Putnam and to the Board of Trustees of the Putnam mutual funds the Examination Staff’s belief that Putnam and certain of its employees may have violated certain provisions of federal law in connection with these two matters. The Examination Staff has requested that Putnam provide additional information regarding these matters and a description of the steps Putnam has taken or intends to take with respect to these matters, and Putnam has undertaken to do so in connection with the Enforcement Staff’s ongoing investigation. It is possible that the Enforcement Staff may take enforcement action with respect to these matters.
			During the course of the SEC’s investigation of these matters, issues have arisen relating to the calculation of certain amounts paid by the Putnam mutual funds in previous years. The previous payments were cost reimbursements by the Putnam mutual funds to Putnam for transfer agent services relating to defined contribution operations. These issues are being reviewed by Putnam and the Trustees of the Putnam mutual funds, and, pending the completion of this review, Putnam has recorded a charge of $30 million for the estimated cost that it believes will be necessary to address these issues. Putnam has briefed the SEC and the FDIC on these matters.
	•		On October 6, 2004 the Department of Labor indicated its preliminary belief that Putnam may have violated certain provisions of ERISA related to investments by the Putnam Profit Sharing Retirement Plan and certain discretionary ERISA accounts in Putnam mutual funds that pay 12b-1 fees. Putnam has made a written submission to the Department of Labor addressing these issues. Putnam has also responded to requests for information from the Department of Labor regarding PFTC’s treatment of gains generated by transaction processing errors made by PFTC in connection with its administration of defined contribution plans. New procedures for handling such gains have been implemented and Putnam has made restitution to certain plans pursuant to a methodology that has been disclosed to the Department of Labor. The amount of this restitution was substantially covered by the reserves set aside in prior periods.
	•		Since December 2003, Putnam has received various requests for information from the Department of Labor regarding the Putnam Profit Sharing Retirement Plan, including requests for information relating to (i) Plan governance, (ii) Plan investments, including investments in MMC stock, (iii) the purported ERISA class actions relating to MMC’s receipt of contingent commissions and other matters, which are discussed above, (iv) the market timing-related “ERISA Actions,” which are discussed below; and (v) the suspensions of trading in MMC stock imposed by Putnam on its employees in October and November 2004.

	•		Commencing on March 5, 2002, PFTC received a number of document requests, subpoenas for the production of documents or testimony and requests for interviews from the Department of Labor relating to PFTC’s role as the directed trustee of certain Global Crossing retirement accounts.
	•		The Fort Worth office of the SEC has stated that it does not believe that the previous structure of the Putnam Research Fund’s investment management fee, which included a performance component in addition to a base fee, fully complied with SEC regulations concerning performance fees. Putnam is currently engaged in discussions with the enforcement staff of the SEC’s Fort Worth office regarding, among other things, adjustments to the fee structure. Retroactive application of such adjustments over the period since April 1, 1997 (the period during which the performance fee has been in effect) would result in a reduction in aggregate management fees for that period. In the fourth quarter of 2004 Putnam recorded a reserve of approximately $2 million for this matter.
	•		Starting in May 2004, Putnam received and responded to requests for information from the Washington staff of the SEC’s Office of Compliance Inspections and Examinations as part of an SEC sweep concerning closed-end fund distributions. In April and July, 2005, Putnam received follow-up requests from the Division of Enforcement concerning the same subject matter and Putnam is currently responding.
	•		Starting in January 2004, the NASD has made several requests for information relating to reimbursement of expenses to participants at certain sales meetings. Putnam has fully responded to these requests and is cooperating with the NASD’s investigation.

Putnam is fully cooperating with the regulatory authorities in connection with these matters.

“Market-Timing” Related Litigation

As of August 3, 2005, MMC and Putnam had received complaints in over 70 civil actions based on allegations of “market-timing” and in some cases “late trading” activities. These actions were filed in courts in various states. All of the actions filed in federal court have been transferred, along with actions against other mutual fund complexes, to the United States District Court for the District of Maryland for coordinated or consolidated pretrial proceedings. The lead plaintiffs in those cases filed consolidated amended complaints on September 29, 2004. MMC and Putnam have moved to dismiss the various complaints pending in federal court in Maryland, which are described below:

•

MMC and Putnam, along with certain of their former officers and directors, have been named in a consolidated amended class action complaint (the “MMC Class Action”) purportedly brought on behalf of all purchasers of the publicly-traded securities of MMC between January 3, 2000 and November 3, 2003 (the “Class Period”). In general, the MMC Class Action alleges that the defendants, including MMC, allowed certain mutual fund investors and fund managers to engage in market-timing in the Putnam family of funds. The complaint further alleges that this conduct was not disclosed until late 2003, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The complaint alleges that, as a result of defendants’ purportedly

			misleading statements or omissions, MMC’s stock traded at inflated levels during the Class Period. The suit seeks unspecified damages and equitable relief.
	•		MMC and Putnam have also been named as defendants in a consolidated amended complaint filed on behalf of a putative class of investors in certain Putnam Funds, and in another consolidated amended complaint in which certain fund investors purport to assert derivative claims on behalf of all Putnam Funds. These suits seek to recover unspecified damages allegedly suffered by the funds and their shareholders as a result of purported market-timing and late-trading activity that allegedly occurred in certain Putnam Funds. The derivative suit seeks additional relief, including termination of the investment advisory contracts between Putnam and the funds, cancellation of the funds’ 12b-1 plans and the return of all advisory and 12b-1 fees paid by the funds over a certain period of time. In addition to MMC and Putnam, various Putnam affiliates, certain trustees of Putnam Funds, certain present and former Putnam officers and employees, and persons and entities that allegedly engaged in or facilitated market-timing or late trading activities in Putnam Funds are named as defendants. The complaints allege violations of Sections 11, 12(a), and 15 of the Securities Act of 1933, Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, Sections 36(a) and (b), 47 and 48(a) of the Investment Company Act of 1940, and Sections 206 and 215 of the Investment Advisers Act, as well as state law claims for breach of fiduciary duty, breach of contract, unjust enrichment and civil conspiracy. Putnam has also been named as a defendant in its capacity as a sub-advisor to a non-Putnam fund in a class action suit pending in the District of Maryland against another mutual fund complex.
	•		A consolidated amended complaint asserting shareholder derivative claims has been filed, purportedly on behalf of MMC, against current and former members of MMC’s Board of Directors, two of Putnam’s former officers, and MMC as a nominal defendant (the “MMC Derivative Action”). The MMC Derivative Action generally alleges that the members of MMC’s Board of Directors violated the fiduciary duties they owed to MMC and its shareholders as a result of a failure of oversight of market-timing in Putnam mutual funds. The MMC Derivative Action alleges that, as a result of the alleged violation of defendants’ fiduciary duties, MMC suffered damages. The suit seeks unspecified damages and equitable relief. MMC has also received two demand letters from stockholders asking the MMC Board of Directors to take action to remedy alleged breaches of duty by certain officers, directors, trustees or employees of MMC or Putnam, based on allegations of market timing in the Putnam Funds. The first letter asked to have the Board of Trustees of the Putnam Funds, as well as the MMC Board, take action to remedy those alleged breaches of fiduciary duty. The second letter demanded that the Company commence legal proceedings against the MMC directors, the senior management of Putnam, the Putnam Trustees and MMC’s auditor to remedy those alleged breaches of fiduciary duty.
	•		MMC, Putnam, and various of their current and former officers, directors and employees have been named as defendants in two consolidated amended complaints that purportedly assert class action claims under ERISA (the “ERISA Actions”). The ERISA Actions, which have been brought by participants in MMC’s Stock Investment Plan and Putnam’s Profit Sharing Retirement Plan, allege, among other things, that, in view of the market-timing trading activity that was allegedly allowed to occur at Putnam, the defendants knew or should have known that the investment of the plans’ funds in MMC stock and Putnam’s

mutual fund shares was imprudent and that the defendants breached their fiduciary duties to the plan participants in making these investments. The ERISA actions seek unspecified damages, as well as equitable relief including the restoration to the plans of all profits the defendants allegedly made through the use of the plans’ assets, an order compelling the defendants to make good to the plans all losses to the plans allegedly resulting from defendants’ alleged breaches of their fiduciary duties, and the imposition of a constructive trust on any amounts by which any defendant allegedly was unjustly enriched at the expense of the plans.

Putnam has agreed to indemnify the Putnam Funds for any liabilities arising from market-timing activities, including those that could arise in the above securities litigations, and MMC has agreed to guarantee Putnam’s obligations in that regard.

Other Putnam Litigation

	•		Putnam Investment Management, LLC and Putnam Retail Management Limited Partnership have been sued in the United States District Court for the District of Massachusetts for alleged violations of Section 36(b) of the Investment Company Act of 1940 in connection with the receipt of purportedly excessive advisory and distribution fees paid by the nine mutual funds in which plaintiffs purportedly owned shares. Plaintiffs seek, among other things, to recover the advisory and distribution fees paid to defendants by those funds beginning one year prior to the filing of the complaint, rescission of the management and distribution agreements between defendants and the funds, and a prospective reduction in fees. On August 13, 2004, defendants filed a motion to dismiss the complaint for failure to state a claim for relief, which, by order dated March 28, 2005, the Court granted in part and denied in part. Plaintiffs served an amended complaint on April 4, 2005.
	•		Putnam has also been notified by certain former institutional clients that they are considering possible claims relating to certain alleged disclosure failures, misrepresentations and purported breaches of investment management agreements. Putnam believes these claims are without merit, and is engaged in a process to seek third party resolution of certain of these claims.
	•		Putnam may be subject to employment-related claims by former employees who left Putnam in connection with various regulatory inquiries, including claims relating to deferred compensation. A former Putnam senior executive has notified Putnam of his intention to initiate an arbitration proceeding against Putnam arising from the circumstances of his separation from Putnam. To date, no such action has been commenced.
	•		Commencing on July 9, 2004, PFTC, as well as Cardinal Health and a number of other Cardinal-related fiduciaries, were named as defendants in a litigation pending in the United States District Court for the Southern District of Ohio relating to the allegedly imprudent investment of retirement plan assets in Cardinal stock in the Cardinal Health Profit Sharing, Retirement and Savings Plan and its predecessor plans. PFTC was a directed trustee of this plan. Plan participants have sued, alleging that plan assets were imprudently invested in Cardinal stock when the market price of Cardinal stock was artificially inflated and the plan fiduciaries failed to disclose material information

			necessary for participants to make informed decisions concerning investments in such stock. A consolidated and amended complaint was filed April 29, 2005.
	•		A number of Putnam mutual funds have been named as defendants in a purported class action brought on behalf of certain holders of the funds’ Class B shares who either (i) held such shares and were subject to certain contingent deferred sales charges (“CDSC’s”) as of October 28, 2003, or (ii) were assessed a CDSC for redeeming such shares on or after October 28, 2003. Plaintiff alleges that Putnam engaged in misconduct constituting a breach of contract and breach of the covenant of good faith and fair dealing with purported class members by allowing market timing. Plaintiff seeks, among other things, actual damages or statutory damages of $25 for each class member (whichever is greater) and relief from paying a CDSC for redeeming Class B shares.

Other Governmental Inquiries Relating to MMC and its Subsidiaries

On June 13, 2005, the European Commission announced its intention to commence an investigation (a so-called sector inquiry) into competition in the financial services sector. In announcing the investigation, the Commission stated, among other things: “The Commission is concerned that in some areas of business insurance (the provision of insurance products and services to businesses) competition may not be functioning as well as it could... . Insurance and reinsurance intermediation will also be part of the inquiry.”

On May 19, 2005, the SEC issued a subpoena to MMC relating to certain loss mitigation insurance and reinsurance products. The SEC had previously issued a subpoena to MMC in early 2003 relating to loss mitigation products. MMC and its subsidiaries have received similar inquiries from regulators and other authorities in several states. On April 18, 2005, the Office of Insurance Regulation in the State of Florida issued a subpoena to Guy Carpenter & Company, Inc. concerning certain reinsurance products. On May 4, 2005, the Office of Insurance and Safety Fire Commissioner in the State of Georgia issued a subpoena to MMC that requested, among other things, information relating to finite insurance placements. On May 23, 2005, the Office of the Attorney General in the State of Connecticut issued a subpoena to MMC concerning finite insurance. MMC and its subsidiaries are cooperating with these and other informal inquiries.

Separately, the SEC is examining the practices, compensation arrangements and disclosures of consultants that provide services to sponsors of pension plans or other market participants, including among other things, practices with respect to advice regarding the selection of investment advisors to manage plan assets. On March 22, 2005, Mercer Investment Consulting, Inc. (Mercer IC) received a letter from the SEC outlining its findings and requesting that Mercer IC improve certain disclosures and procedures. On April 22, 2005, Mercer IC responded to that letter, indicating that it had made or will make the improvements requested by the SEC. On March 31, 2005, Mercer IC received a separate letter from the Boston office of the Enforcement Division of the SEC requesting additional information. Mercer IC has responded to this request and continues to cooperate fully with the SEC.

MMC, Putnam and Mercer have been advised by the Boston Office of the SEC that it is conducting an informal investigation of a former program pursuant to which companies within the MMC group referred business to one another and received compensation for such referrals. In connection with this investigation, MMC, Putnam and Mercer have received requests for information from the SEC

and are fully cooperating.

On February 10, 2005, Mercer IC received a letter from the West Virginia Securities Commission seeking documents relating to services provided by Mercer IC to the State of West Virginia and its Public Retirement System. Mercer has cooperated fully with this request.

On February 8, 2005 the Department of Labor served a subpoena on MMC seeking documents pertaining to services provided by MMC subsidiaries to employee benefit plans, including but not limited to documents relating to how such subsidiaries have been compensated for such services. The request also seeks information concerning market service agreements and the solicitation of bids from insurance companies in connection with such services. MMC is fully cooperating with the Department of Labor.

On January 6, 2005, MMC received a request for information from the Pension Benefit Guaranty Corporation (the "PBGC"). The PBGC requested information regarding the funded status of the Marsh & McLennan Companies, Inc. Retirement Plan and certain financial and business developments at MMC since the filing of the complaint by the NYAG. MMC responded to the PBGC's request in a January 24, 2005 letter.

On or about March 25, 2004, and January 6, 2005, Mercer received requests for documents and testimony from the U.S. Department of Justice in connection with an industry-wide investigation of potential anti-competitive agreements or understandings among providers of actuarial consulting services relating to limitations of liability and other contractual terms or conditions of engagement. Mercer has cooperated fully with this investigation and believes the matter is concluded.

On December 21, 2004, MMC received a request for information pursuant to a formal investigation commenced by the SEC. The request for information seeks documents concerning related-party transactions of MMC or MMC subsidiaries in which transactions a director, executive officer or 5% stockholder of MMC had a direct or indirect material interest. On April 29, 2005, MMC received a subpoena from the SEC broadening the scope of the original request. MMC is fully cooperating in the investigation.

Other Matters Relating to MMC and its Subsidiaries

	•		MMC and its subsidiaries are subject to numerous other claims, lawsuits and proceedings in the ordinary course of business. Such claims and lawsuits consist principally of alleged errors and omissions in connection with the placement of insurance or reinsurance and in rendering investment and consulting services. Some of these matters seek damages, including punitive damages, in amounts that could, if assessed, be significant. To the extent insurance coverage is available, the terms of any applicable coverage vary by policy year, but the Company’s self insured retention has increased substantially over the past several years. MMC utilizes actuarial estimates and case level reviews to set loss reserves on the self-insured portion of its potential exposure in these cases. To the extent that expected losses exceed MMC’s self-insured retention, an asset is recorded for the estimated amount recoverable, if any, under its insurance programs.
	•		On February 7, 2005, Olwyco LLC (“Olwyco”) commenced a lawsuit in the United States District Court for the Southern District of New York, against MMC, Mercer Management Consulting, Inc. (“Mercer Management”), and four former directors (the “Federal Lawsuit”). These claims arose from a February 21, 2003 agreement in which Mercer agreed to purchase substantially all of Olwyco’s assets and, as part of the consideration, to transfer to Olwyco — in April of 2005, 2006 and 2007 — shares of MMC stock. Olwyco alleged that the price of MMC stock at the time of the agreement was inflated artificially as a result of a failure to disclose alleged violations of law that later became the subject of the NYAG Lawsuit and the Putnam “Market-Timing” litigation. Olwyco alleged that it would receive

			substantially less than the agreed-upon purchase price and that it has been damaged in an amount not less than $70 million, exclusive of attorneys’ fees and costs. Olwyco voluntarily dismissed the Federal Lawsuit without prejudice on March 22, 2005, and filed a new complaint in New York State Supreme Court, County of New York, the same day (the “State Lawsuit”). The State Lawsuit, which names MMC, Mercer Management and Mercer Inc. as defendants, asserts claims for breach of representations and warranties, breach of contract, breach of guarantee, fraud, and unjust enrichment, which are predicated on the same underlying conduct alleged in the Federal Lawsuit. Defendants’ motion to dismiss is pending in the State Lawsuit.
	•		As part of the combination with Sedgwick, MMC acquired several insurance underwriting businesses that were already in run-off, including River Thames Insurance Company Limited (“River Thames”), which MMC sold in 2001. Sedgwick guaranteed payment of claims on certain policies underwritten through the Institute of London Underwriters (the “ILU”) by River Thames (such guarantee being hereinafter referred to as the “ILU Guarantee”). The policies covered by the ILU Guarantee are reinsured up to £40 million by a related party of River Thames. Payment of claims under the reinsurance agreement is collateralized by segregated assets held in a trust. As of December 31, 2004, the reinsurance coverage exceeded the best estimate of the projected liability of the policies covered by the ILU Guarantee. To the extent River Thames or the reinsurer is unable to meet its obligations under those policies, a claimant may seek to recover from MMC under the guarantee.
	•		From 1980 to 1983, MMC owned indirectly the English & American Insurance Company (“E&A”), which was a member of the ILU. The ILU required MMC to guarantee a portion of E&A’s obligations. After E&A became insolvent in 1993, the ILU agreed to discharge the guaranty in exchange for MMC’s agreement to post an evergreen letter of credit that is available to pay claims on E&A policies issued through the ILU and incepting between July 3, 1980 and October 6, 1983. A representative of the ILU has indicated that potentially significant claims could be made in the coming months against the letter of credit.

The proceedings described in this Note 14 on Claims, Lawsuits and Other Contingencies seek significant monetary damages and other forms of relief. Where a loss is both probable and reasonably estimable, MMC has established reserves in accordance with SFAS No. 5, “Accounting for Contingencies”. Except as specifically set forth above, MMC’s management is unable, at the present time, to provide a reasonable estimate of the range of possible loss attributable to the foregoing proceedings or the impact they may have on MMC’s consolidated results of operations or financial position (over and above MMC’s existing loss reserves) or MMC’s cash flows (to the extent not covered by insurance). The principal reasons for this are that many of these cases, particularly the matters related to “market service revenue” and “market-timing”, are in their early stages, the sufficiency of the complaints has not yet been tested in most of the cases, and, in many of the cases, only limited discovery, if any, has taken place. Thus, at this time, it is not possible to reasonably estimate the possible loss or range of loss on these matters. Adverse determinations in one or more of the matters discussed above could have a material impact on the Company’s financial condition or the results of the Company’s operations in a future period.

15.		Variable Interest Entities
		MMC through Putnam, manages $3.6 billion in the form of Collateralized Debt Obligations (“CDO”) Collateralized Bond Obligations (“CBO”) and Collateralized Loan Obligations (“CLO”).

		Separate limited liability companies were established to issue the notes and to hold the underlying collateral, which consists of high-yield bonds and other securities. Putnam serves as the collateral manager for the CDOs, CBOs and CLOs. The maximum loss exposure related to the CDOs, CBOs and CLOs is limited to Putnam’s investment totaling $7.4 million, reflected in Long-term investments in the Consolidated Balance Sheets at June 30, 2005. MMC has concluded it is not the primary beneficiary of these structures under FIN 46(R) “Consolidation of Variable Interest Entities.”
16.		Segment Information
		MMC operates in four principal business segments based on the services provided. Segment performance is evaluated based on segment operating income, which includes investment income and losses attributable to each segment, directly related expenses, minority interest, and charges or credits related to integration and restructuring but excludes corporate expenses. The accounting policies of the segments are the same as those used for the consolidated financial statements.
		Selected information about MMC’s operating segments for the six-month periods ended June 30, 2005 and 2004 follow:

A reconciliation of the total segment operating income to income before income taxes and minority interest in the consolidated financial statements is as follows:

During the first quarter of 2004, MMC reached final settlement for insured losses totaling $278 million related to the World Trade Center. The replacement value of assets exceeded the book value by $105 million, which was recorded as a reduction of Corporate operating expenses.

Operating segment revenue by product for the six-month periods ended June 30, 2005 and 2004 is as follows:

Segment Reclassification

Results are reported in four segments:

•		Risk and Insurance Services , comprising risk management and insurance broking (Marsh), reinsurance broking and services (Guy Carpenter), and related insurance services;
•		Risk Consulting and Technology (Kroll);

•		Consulting , including Mercer Human Resource Consulting and Mercer’s specialty consulting businesses; and
•		Investment Management (Putnam).

MMC has reclassified prior period amounts to reflect organizational changes that affected MMC’s reportable segments. The following changes are reflected in the segment data presented below:

Risk Consulting and Technology, a new reportable segment effective January 1, 2005, includes Kroll, Inc., which was acquired by MMC in July 2004 and portions of the risk consulting business previously managed by Marsh.

Putnam’s defined contribution administration business was transferred from Investment Management to Human Resource Consulting. Approximately 75% of the revenues earned by Mercer HR from this transferred business are paid by Putnam. Putnam receives fees for investment management and administrative services, which are recorded as revenue. A fee related to administrative services is recorded as an expense by Putnam and as revenue by Mercer HR. The inter-company revenue and expense are eliminated in consolidation.

Management of Marsh’s U.S. employee benefits business was transferred from Risk Management and Insurance Broking to Human Resource Consulting.

The table below reflects the impact on previously reported segment revenue and corporate eliminations resulting from changes in business segments.

																						Year
		Three Months Ended																				Ended
		March 31,				March 31,				June 30,				Sept. 30,				Dec. 31,				Dec. 31,
		2005				2004				2004				2004				2004				2004
Risk and Insurance Services
As Previously Reported		$	1,748			$	1,967			$	1,789			$	1,555			$	1,570			$	6,881
Employee Benefits Business (a)			(81	)			(89	)			(89	)			(83	)			(81	)			(342	)
		$	1,667			$	1,878			$	1,700			$	1,472			$	1,489			$	6,539
Consulting
Human Resource Consulting, As Previously Reported		$	586			$	589			$	595			$	583			$	559			$	2,326
Employee Benefits Business (a)			81				89				89				83				81				342
			667				678				684				666				640				2,668
Specialty Consulting, As Previously Reported			210				180				187				192				215				774
			877				858				871				858				855				3,442
Reimbursed Expenses			38				35				40				39				45				159
		$	915			$	893			$	911			$	897			$	900			$	3,601
(a) The Employee Benefits revenue includes the following amounts of market services revenue:
		$	1			$	5			$	9			$	3			$	3			$	20