MARSH & MCLENNAN COMPANIES INC - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the quarter ended March 31, 2004

Marsh & McLennan Companies, Inc.
1166 Avenue of the Americas
New York, New York 10036
(212) 345-5000

Commission file number 1-5998
State of Incorporation: Delaware
I.R.S. Employer Identification No. 36-2668272

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . NO ___.

As of April 30, 2004, there were outstanding 523,298,916 shares of common
stock, par value $1.00 per share, of the registrant.

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

Marsh & McLennan Companies, Inc. and its subsidiaries ("MMC") and their
representatives may from time to time make verbal or written statements
(including certain statements contained in this report and other MMC filings
with the Securities and Exchange Commission and in our reports to stockholders)
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 revenues, expenses,
earnings, cash flow, capital structure, pension funding, and the adverse
consequences arising from market-timing issues at Putnam, including fines and
restitution, as well as market and industry conditions, premium rates, financial
markets, interest rates, foreign exchange rates, contingencies, and matters
relating to MMC's operations and income taxes. Such forward-looking statements
are based on available current market and industry materials, experts' reports
and opinions, and long-term trends, as well as management's expectations
concerning 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 any forward-looking statements
contained herein include, in the case of MMC's risk and insurance services
business, changes in competitive conditions, movements in premium rate levels,
the continuation of difficult conditions for the transfer of commercial risk and
other changes in the global property and casualty insurance markets, natural
catastrophes, mergers between client organizations, and insurance or reinsurance
company insolvencies. Factors to be considered in the case of MMC's investment
management business include changes in worldwide and national equity and fixed
income markets, actual and relative investment performance, the level of sales
and redemptions, and the ability to maintain investment management and
administrative fees at historic levels; and with respect to all of MMC's
activities, 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 competitors or regulators, changes in interest rates or in the
ability to access financial markets, 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 tax and 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. Please refer to Marsh & McLennan Companies'
2003 Annual Report on Form 10-K for "Information Concerning Forward-Looking
Statements," its reports on Form 8-K, and quarterly reports on Form 10-Q.

MMC is committed to providing timely and materially accurate information to the
investing public, consistent with our legal and regulatory obligations. To that
end, 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.

PART I, FINANCIAL INFORMATION

MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

- --------------------------------------------------------------------------------
For the Three Months Ended March 31,
(In millions, except per share figures) 2004 2003
- --------------------------------------------------------------------------------

Revenue:
Service revenue $3,177 $2,841
Investment income (loss) 33 11
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Operating revenue 3,210 2,852
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Expense:
Compensation and benefits 1,635 1,378
Other operating expenses 802 757
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Operating expenses 2,437 2,135
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Operating income 773 717

Interest income 5 6

Interest expense (50) (43)

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Income before income taxes and minority interest 728 680

Income taxes 281 232

Minority interest, net of tax 1 5

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Net income $446 $443

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Basic net income per share $.85 $.83

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Diluted net income per share $.83 $.81

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Average number of shares outstanding-Basic 525 536
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Average number of shares outstanding-Diluted 540 547

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

3

MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

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(Unaudited)
March 31, December 31,
(In millions of dollars) 2004 2003
- --------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 634 $ 665
- --------------------------------------------------------------------------------

Receivables
Commissions and fees 2,583 2,388
Advanced premiums and claims 91 89
Other 458 342
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3,132 2,819
Less-allowance for doubtful accounts
and cancellations (120) (116)
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Net receivables 3,012 2,703
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Prepaid dealer commissions - current portion 127 150
Other current assets 531 383

Total current assets 4,304 3,901

Goodwill and intangible assets 5,954 5,797

Fixed assets, net 1,377 1,389
(net of accumulated depreciation and
amortization of $1,512 at March 31, 2004
and $1,448 at December 31, 2003)

Long-term investments 624 648
Prepaid dealer commissions 84 114
Prepaid pension 1,259 1,199
Other assets 1,908 2,005
- --------------------------------------------------------------------------------
$15,510 $15,053
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The accompanying notes are an integral part of these consolidated statements.

4

MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

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(Unaudited)
March 31, December 31,
(In millions of dollars) 2004 2003
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 1,045 $ 447
Accounts payable and accrued liabilities 1,774 1,511
Accrued compensation and employee benefits 1,027 1,693
Accrued income taxes 377 272
Dividends payable 163 166
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Total current liabilities 4,386 4,089
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Fiduciary liabilities 4,467 4,228
Less - cash and investments held in
a fiduciary capacity (4,467) (4,228)
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- -
Long-term debt 2,908 2,910
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Other liabilities 2,634 2,603
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Commitments and contingencies
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Stockholders' equity:
Preferred stock, $1 par value, authorized
6,000,000 shares, none issued - -
Common stock, $1 par value, authorized
800,000,000 shares, issued 560,641,640
shares at March 31, 2004 and December 31, 2003 561 561
Additional paid-in capital 1,306 1,301
Retained earnings 5,669 5,386
Accumulated other comprehensive loss (284) (279)
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7,252 6,969
Less - treasury shares, at cost,
37,101,679 shares at March 31, 2004 and
33,905,497 shares at December 31, 2003 (1,670) (1,518)
- --------------------------------------------------------------------------------

Total stockholders' equity 5,582 5,451
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$15,510 $15,053
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The accompanying notes are an integral part of these consolidated statements.

5

MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

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For the Three Months ended March 31, 2004 2003
(In millions of dollars)
- -----------------------------------------------------------------------------
Operating cash flows:
Net income $446 $443
Adjustments to reconcile net income to cash
generated from (used for) operations:
Depreciation of fixed assets, capitalized
software and other intangible assets 108 95
Provision for deferred income taxes 91 45
(Gains) losses on investments (33) (11)
Changes in assets and liabilities:
Net receivables (309) (72)
Prepaid dealer commissions 53 69
Other current assets (141) 7
Other assets (39) (30)
Accounts payable and accrued liabilities 244 97
Accrued compensation and employee benefits (666) (594)
Accrued income taxes 94 88
Other liabilities 30 46
Effect of exchange rate changes 11 (6)
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Net cash (used for) generated from operations (111) 177
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Financing cash flows:
Net increase/(decrease) in commercial paper 535 (236)
Proceeds from issuance of debt 65 501
Other repayments of debt (3) (38)
Purchase of treasury shares (324) (311)
Issuance of common stock 182 164
Dividends paid (163) (151)
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Net cash provided by (used for) financing activities 292 (71)
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Investing cash flows:
Capital expenditures (75) (110)
Proceeds from sales related to fixed assets
and capitalized software 1 6
Acquisitions (156) -
Other, net 20 8
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Net cash used for investing activities (210) (96)
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Effect of exchange rate changes on cash
and cash equivalents (2) 10
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(Decrease)/increase in cash & cash equivalents (31) 20
Cash & cash equivalents at beginning of period 665 546
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Cash & cash equivalents at end of period $634 $566
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The accompanying notes are an integral part of these consolidated statements.

6

MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Nature of Operations
--------------------

MMC, a professional services firm, is organized based on the different services
that it offers. Under this organization structure, MMC operates in three
principal business segments: risk and insurance services, investment management
and consulting. 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. It also provides
services principally in connection with originating, structuring and managing
insurance, financial services and other industry-focused investments. 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. The consulting segment provides
advice and services to the managements of organizations primarily in the areas
of retirement services, human capital, health care and group benefit programs,
management consulting, organizational change and organizational design, economic
consulting and corporate identity.

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.

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-month periods ended March 31, 2004 and 2003. Certain
reclassifications have been made to the prior year amounts to conform to the
current year presentation.

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.

7

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 $29 million and $31 million for the three-month
periods ended March 31, 2004 and 2003, 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 $12.0
billion at March 31, 2004 and $11.5 billion at December 31, 2003, 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-month periods ended March 31, 2004 and
2003.

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(In millions of dollars) 2004 2003
- ------------------------------------------------------------------------------
Net income $446 $443
Increase/(decrease) for potential minority interest
associated with the Putnam Class B Common Shares
net of dividend equivalent expense related to
common stock equivalents 1 -
- ------------------------------------------------------------------------------
Net income for diluted earnings per share $447 $443
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Basic weighted average common shares outstanding 525 536
Dilutive effect of potentially issuable common shares 15 11
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Diluted weighted average common shares outstanding 540 547
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Average stock price used to calculate common stock
equivalents $47.65 $43.06
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8

5. Supplemental Disclosure to the Consolidated Statements of Cash Flows
--------------------------------------------------------------------

The following schedule provides additional information concerning interest and
income taxes paid for the three-month periods ended March 31, 2004 and 2003.

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(In millions of dollars) 2004 2003
- --------------------------------------------------------------------------------

Interest paid $ 51 $ 19
Income taxes paid $ 57 $ 57

6. Comprehensive Income
--------------------

The components of comprehensive income for the three-month periods ended March
31, 2004 and 2003 are as follows:

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(In millions of dollars) 2004 2003
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Foreign currency translation adjustments $ 9 $ 18
Unrealized investment holding losses,
net of income taxes (4) (14)
Less: Reclassification adjustment for realized gains
included in net income, net of income taxes (9) (5)
Deferred loss on cash flow hedges,
net of income taxes (1) -
- --------------------------------------------------------------------------------
Other comprehensive loss (5) (1)
Net income 446 443
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Comprehensive income $441 $442
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7. Acquisitions
------------

In January 2004, MMC acquired Synhrgy HR Technologies, a leading provider of
human resource technology and outsourcing services to Fortune 1000 companies,
for a total cost of $115 million. Substantially all former employees of Synhrgy
are now 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. In addition, MMC acquired the
Australia and New Zealand operations of Heath Lambert for $53 million in cash in
March of 2004. The 2004 acquisitions, along with the finalization of purchase
price allocations of 2003 acquisitions, resulted in acquired goodwill of $141
million.

In April 2003, MMC acquired Oliver, Wyman & Company ("OWC") for $265 million
comprising $159 million in cash, which will be paid over 4 years, and $106
million in MMC stock. Substantially all former employees of OWC are now
employees of MMC. Approximately $35 million of the purchase consideration is
subject to continued employment of the selling shareholders and is being
recorded as prepaid compensation. The asset is being amortized as compensation
expense over four years.

9

8. Goodwill and Other Intangibles
------------------------------

Changes in the carrying amount of goodwill for the three-month period ended
March 31, 2004, are as follows:

--------------------------------------------------- --------------
(In millions of dollars) 2004
--------------------------------------------------- --------------
Balance as of January 1, $5,533
Goodwill acquired 141
Other adjustments (primarily foreign exchange) (10)
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Balance as of March 31, $5,664
--------------------------------------------------- --------------

The goodwill balance at March 31, 2004 and December 31, 2003 includes
approximately $121 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:

- -------------------------------------------------------------------------------------------------------------
March 31, 2004 December 31, 2003
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Net Net
Gross Accumulated Carrying Gross Accumulated Carrying
(In millions of dollars) Cost Amortization Amount Cost Amortization Amount
- -------------------------------------------------------------------------------------------------------------

Customer and marketing related $257 $79 $178 $222 $ 74 $148

Future revenue streams related to 199 96 103 199 92 107
existing private equity funds
- -------------------------------------------------------------------------------------------------------------

Total amortized intangibles $456 $175 $281 $421 $166 $255
- -------------------------------------------------------------------------------------------------------------

Aggregate amortization expense for the quarter ended March 31, 2004 and 2003 was
$10 million and $9 million, respectively and the estimated future aggregate
amortization expense is as follows:

- ----------------------------------- ---------- --------------------------------
For the Years
Ending December 31, Estimated
(In millions of dollars) Expense
- ----------------------------------- ---------- --------------------------------
2004 $44
2005 $41
2006 $38
2007 $35
2008 $33
- ----------------------------------- ---------- --------------------------------

10

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.

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 and stock purchase plans and the stock options
awarded under the Putnam Investments Equity Partnership Plan. 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-month periods ended March 31, 2004 and 2003 would
have been reduced to the pro forma amounts indicated in the table below.

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(In millions of dollars, except per share figures) 2004 2003
-----------------------------------------------------------------------

Net Income:
As reported $446 $ 443
Adjustment for fair value method, net of tax (49) (47)
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Pro forma net income $397 $396
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Net Income Per Share:
Basic:
As reported $.85 $.83
Pro forma $.76 $.74

Diluted:
As reported $.83 $.81
Pro forma $.74 $.72
-----------------------------------------------------------------------

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. MMC stock
purchase plans allow eligible employees to purchase MMC shares at prices not
less than 85% of the lesser of the fair market value of the stock at the
beginning or end of the offering period. The stock purchase plans represent
approximately 20% of the adjustment from applying the fair value method in 2004
and 2003.

The majority of option grants under the stock benefit plans are made in the
first quarter of each year. MMC granted 9.1 million and 16.1 million options in
the first quarter of 2004 and 2003, respectively. A total of 17.2 million
options were granted in the year ended December 31, 2003.

The estimated fair value of options granted was calculated using the
Black-Scholes option pricing valuation model. The weighted average assumptions
used in the valuation models are evaluated and revised, as necessary, to reflect
market conditions and experience.

11

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 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
- --------------------------------------------------------------------------------
For the Periods Ended March 31, Pension Benefits Postretirement Benefits
--------------------------------------------
(In millions of dollars) 2004 2003 2004 2003
- ------------------------------------------------------------------------------

Service cost $ 56 $ 46 $ 2 $ 2
Interest cost 105 89 6 5
Expected return on plan assets (155) (134) - -
Amortization of prior service credit (9) (9) - -
Amortization of transition asset (1) (1) - -
Recognized actuarial loss 19 6 1 1
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Net Periodic Benefit Cost (Income) 15 (3) 9 8
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Settlement loss 1 - - -
Special termination benefits 1 1 - -
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Total Expense (Income) $ 17 $ (2) $ 9 $ 8
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U.S. Plans only
- --------------------------------------------------------------------------------
For the Periods Ended March 31, Pension Benefits Postretirement Benefits
--------------------------------------------
(In millions of dollars) 2004 2003 2004 2003
- --------------------------------------------------------------------------------

Service cost $ 18 $ 16 $ 2 $ 2
Interest cost 40 38 5 4
Expected return on plan assets (58) (57) - -
Amortization of prior service credit (9) (9) - -
Amortization of transition asset (1) (1) - -
Recognized actuarial loss 8 4 1 1
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Net Periodic Benefit Cost (Income) $ (2) $ (9) $ 8 $ 7
- --------------------------------------------------------------------------------

12

In December 2003, the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 ("Act") became law. As specific authoritative guidance for the
federal subsidy is pending, MMC has elected to defer the effects of this Act
and, therefore, the measure of the net periodic postretirement benefit cost does
not reflect the effects of the Act. MMC does not expect the impact on net
periodic benefit cost to be material. The issued guidance could require MMC to
change previously reported information.

Significant non-U.S. Plans only
- --------------------------------------------------------------------------------
For the Periods Ended March 31, Pension Benefits Postretirement Benefits
--------------------------------------------
(In millions of dollars) 2004 2003 2004 2003
- --------------------------------------------------------------------------------

Service cost $ 38 $ 30 $ - $ -
Interest cost 65 51 1 1
Expected return on plan assets (97) (77) - -
Recognized actuarial loss 11 2 - -
- --------------------------------------------------------------------------------
Net periodic benefit cost $ 17 $ 6 $ 1 $ 1
- --------------------------------------------------------------------------------
Curtailment gain - - - -
Settlement loss 1 - - -
Special termination benefits 1 1 - -
- --------------------------------------------------------------------------------
Total Expense $ 19 $ 7 $ 1 $ 1
- --------------------------------------------------------------------------------

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
- --------------------------------------------------------------------------------
Pension Benefits Postretirement Benefits
--------------------------------------------
2004 2003 2004 2003
- --------------------------------------------------------------------------------
Weighted average assumptions:
Expected return on plan assets 8.5% 8.5% - -
Discount rate 5.8% 6.1% 6.3% 6.6%
Rate of compensation increase 3.7% 3.8% - -
- --------------------------------------------------------------------------------

13

11. Long-term Debt
--------------

In July 2003, MMC issued $300 million of 5.875% Senior Notes due 2033. In
February 2003, MMC issued $250 million of 3.625% Senior Notes due 2008 and
$250 million of 4.85% Senior Notes due 2013. The net proceeds from these
notes were used to pay down commercial paper borrowings.

In January 2003, MMC terminated and settled interest rate swaps that had
hedged the fair value of senior notes issued in 2002. The cumulative amount
of previously recognized adjustments of the fair value of the hedged notes
is being amortized over the remaining life of those notes in accordance
with SFAS No. 133. As a result, the effective interest rate over the
remaining life of the notes, including the amortization of the fair value
adjustments, is 4.0% for the $500 million Senior Notes due in 2007 (5.375%
coupon rate) and 5.1% for the $250 million Senior Notes due in 2012 (6.25%
coupon rate).

Based on MMC's intent and ability to maintain or refinance the obligations
on a long-term basis, approximately $600 million of 6.625% Senior Notes due
in 2004 have been classified as long-term debt at March 31, 2004 and
December 31, 2003.

12. Common Stock
------------

In 2004, MMC repurchased shares of its common stock for treasury as well as
to meet requirements for issuance of shares for its various stock
compensation and benefit programs. During the first three months of 2004,
MMC repurchased 7.0 million shares for total consideration of $330 million.
Share repurchases are recorded on a trade date basis.

MMC repurchases shares subject to market conditions, including from time to
time pursuant to the terms of a 10b5-1 plan. A 10b5-1 plan allows a company
to purchase shares during a blackout period, provided the company
communicates its share purchase instructions to the broker prior to the
blackout period, pursuant to a written plan that may not be changed.
Approximately 1.2 million of the shares repurchased in 2004 were made under
the 10b5-1 plan. MMC currently plans to continue to repurchase shares in
2004, subject to market conditions.

14

13. Claims, Lawsuits and Other Contingencies
----------------------------------------

Putnam Matters
--------------

Regulatory Matters. On October 28, 2003, the SEC commenced a civil
administrative and cease and desist proceeding against Putnam under the
Investment Advisors Act of 1940 and the Investment Company Act of 1940. On
November 13, 2003, pursuant to an agreement with Putnam, the SEC entered an
order that made findings of certain facts, which Putnam neither admitted
nor denied, and concluded that Putnam violated the Investment Advisors Act
of 1940 and the Investment Company Act of 1940. The order imposed partial
relief, including final censure, remedial undertakings, and a cease and
desist order. The SEC's order found that since 1998 at least six Putnam
investment management professionals engaged in excessive short-term trading
of Putnam mutual funds in their personal accounts. The order also found
that four of these employees engaged in trading in funds over which they
had investment decision making responsibilities and access to non-public
information regarding their funds' portfolios. The SEC further found that
Putnam failed to disclose this potentially self-dealing securities trading
to the boards or shareholders of the mutual funds it manages, failed to
take adequate steps to detect and deter such trading activity through
internal controls and failed in its supervision of these investment
management professionals. Under the terms of the order, Putnam has agreed
to a number of remedial actions, including new employee trading
restrictions, enhanced employee trading compliance, determination by an
independent assessment consultant of the amount of restitution to be made
by Putnam for losses attributable to excessive short-term trading by Putnam
employees, the retention of an independent compliance consultant, the
undertaking of periodic compliance reviews, and certification of compliance
with the SEC. On April 8, 2004, Putnam entered into a final settlement of
those charges under which Putnam is required to pay $5 million in
disgorgement plus a civil monetary penalty of $50 million, with any excess
amount of restitution required to be set off against the civil monetary
penalty (up to an additional $5 million). These amounts are to be
distributed in accordance with the process established under the November
13, 2003 and April 8, 2004 SEC orders. In the event that the independent
assessment consultant determines that the amount of restitution required by
the November 13, 2003 order is more than $10 million, Putnam will also be
responsible for paying any such excess amount.

On October 28, 2003, the Massachusetts Secretary of the Commonwealth
("Massachusetts Securities Division") commenced a civil administrative
proceeding against Putnam and two of its employees alleging violations of
the state's securities law anti-fraud provisions. On April 8, 2004,
simultaneously and in conjunction with the settlement of the
above-referenced SEC proceeding, the Massachusetts Securities Division
entered a Consent Order in final settlement of those charges. That Consent
Order included a cease and desist order, and requires Putnam to pay $5
million in restitution and an administrative fine of $50 million, with any
excess amount of restitution required to be set off against the
administrative fine (up to an additional $10 million, with Putnam
responsible for paying any further excess amount). The restitution called
for by the Consent Order will be determined and distributed by the same
independent assessment consultant appointed pursuant to the November 13,
2003 and April 8, 2004 SEC orders. The Trustees may separately seek
additional amounts to assure that full restitution is made to Putnam fund
shareholders.

15

In a separate action, the SEC is seeking an injunction against two of the
six investment management employees. All six are no longer employed by
Putnam.

Additionally, Putnam has received document subpoenas and/or requests for
information from the United States Attorney in Boston, the Florida
Department of Financial Services, the Office of the Attorney General for
the State of New York, Offices of the Secretary of State and the State
Auditor for the State of West Virginia, the Vermont Securities Division,
the NASD and the Boston office of the U.S. Department of Labor inquiring
into, among other things, matters that are the subject of the SEC and
Massachusetts actions.

Putnam has also received document subpoenas from the Massachusetts
Securities Division and the Office of the Attorney General for the State of
New York relating to plan expense reimbursement agreements between Putnam
and certain multiemployer deferred compensation plans which are Putnam
clients, and also relating to Putnam's relationships with consultants
retained by multiemployer deferred compensation plans. The Massachusetts
Securities Division has taken testimony from a number of Putnam employees
relating to the same matters.

Putnam has also received subpoenas from the SEC's Philadelphia office,
seeking documents and information relating to Putnam's directed brokerage
practices and trading practices and the SEC has interviewed, and taken
testimony from, a number of Putnam employees relating to revenue sharing
practices and trading practices. In addition, Putnam has received a request
for information from the SEC's Chicago office and the NASD regarding
revenue sharing arrangements.

Putnam is fully cooperating with the regulatory authorities.

16

"Market-Timing" Securities Litigation. As of May 6, 2004, MMC and Putnam
have received complaints in over 70 civil actions based on allegations of
"market-timing" activities. These actions have been filed in courts in New
York, Massachusetts, California, Illinois, Connecticut, Delaware, Vermont,
Kansas, and North Carolina. Most of the actions have been transferred,
along with others against other mutual fund complexes, to the United States
District Court for the District of Maryland for coordinated or consolidated
pretrial proceedings. In most of the federal cases, either by agreement of
the parties or order of the court, MMC and Putnam are not required to
respond to the complaints until after plaintiffs have filed amended
complaints in the consolidated actions.

The civil actions include:

o Purported securities class actions (the "MMC Class Action Complaints")
have been filed in United States District Court for the Southern District
of New York on behalf of a class of purchasers of MMC stock during the
period from January 2000 to November 2003. The MMC Class Action Complaints
allege, among other things, that MMC failed to disclose certain
market-timing activities at Putnam which, when disclosed, resulted in a
drop in the market price of MMC's shares. The MMC Class Action Complaints
also name as defendants certain current or former officers and directors of
MMC. The MMC Class Action Complaints assert claims under Sections 10(b) and
20(a) of the Exchange Act.

o Purported shareholder derivative actions have been filed against members
of MMC's Board of Directors, and MMC as a nominal defendant in courts in
state and federal courts in New York City. In these actions, the plaintiffs
purport to state common law claims based on, among other things, the
Board's alleged failure to prevent the alleged market timing from
occurring.

o MMC and/or Putnam have been named in over fifty additional actions
brought by investors in Putnam funds claiming damages to themselves or the
Putnam funds as a result of various market-timing activities. These actions
have been brought either individually (the "Individual Complaints"),
derivatively (the "Putnam Derivative Complaints"), or on behalf of a
putative class (the "Putnam Class Action Complaints"). The Individual
Complaints, the Putnam Class Action Complaints (which also name as
defendants certain Putnam funds and certain Putnam employees) and the
Putnam Derivative Action Complaints (which also name as defendants certain
Putnam officers and employees and certain trustees of the Putnam funds),
allege violations of the federal securities and investment advisory laws
and state law. At this time, several of these cases are pending in various
state courts. Putnam has also been named as a defendant in one suit in its
capacity as a sub-advisor to a non-Putnam fund.

o MMC, Putnam, and various of their officers, directors and employees have
been named as defendants in three purported class actions asserting 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 (collectively, the "Plans"), 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's stock and Putnam's
mutual fund shares was imprudent and that the defendants breached their
fiduciary duties to the Plans' participants in making these investments.
The three ERISA Actions were filed in federal court for the Southern
District of New York.

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

17

Other Putnam Litigation. As of May 6, two actions have been filed in courts
in Illinois (one in state court and one in federal court) against Putnam
Investment Management, LLC and Putnam Retail Management Limited
Partnership. The state case, which purports to be a class action, alleges
that defendants breached duties purportedly owed to plaintiffs pursuant to
unidentified contracts through the receipt of "excessive" fees paid by the
mutual funds defendants managed. In the suit, plaintiffs seek to recover,
among other things, compensation received by defendants in violation of the
purported contracts, along with interest and costs, as well as a future
reduction in fees paid by the funds.

The federal action alleges that defendants violated Section 36(b) of the
Investment Company Act of 1940 through the receipt of purportedly excessive
fees paid by the mutual funds defendants managed. In the federal action,
plaintiffs seek, among other things, to recover the compensation paid to
defendants by the funds for one year prior to the filing of the complaint,
and rescission of the management and distribution agreements between
defendants and the funds.

The complaints in the above-referenced Putnam matters seek monetary damages
and other forms of relief. At the present time, MMC's management is unable
to estimate the impact that the outcome of the foregoing proceedings may
have on MMC's consolidated results of operations or financial position or
cash flows.

Employment Dispute
------------------

Lawrence J. Lasser, former President and CEO of Putnam, has initiated an
arbitration proceeding against MMC. The arbitration will determine whether
and to what extent Mr. Lasser is owed any money under his employment
arrangements with Putnam.

18

Other Matters
-------------

MMC and its subsidiaries are subject to various other claims, lawsuits and
proceedings consisting 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. Insurance coverage applicable to such matters includes
elements of both risk retention and risk transfer.

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 was sold in 2001.
Sedgwick guaranteed payment of claims on certain policies underwritten
through the Institute of London Underwriters by River Thames ("ILU
Guarantee"). The policies covered by the ILU Guarantee are reinsured up to
40 million GBP 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 March 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
their obligations under those policies, a claimant may seek to recover from
MMC under the guarantee.

Although the ultimate outcome of these other matters and the employment
dispute cannot be ascertained and liabilities in indeterminate amounts may
be imposed on MMC and its subsidiaries, on the basis of present
information, it is the opinion of MMC's management that the disposition or
ultimate determination of these claims, lawsuits or proceedings should not
have a material adverse effect on MMC's consolidated financial position or
cash flows, but may be material to MMC's operating results in any
particular period.

Other Industry Inquiries
------------------------

The New York Attorney General has issued subpoenas to numerous insurance
brokers related to an inquiry into market service agreements and other
similar agreements which compensate brokers for distribution and other
services provided to insurance carriers. The Company has received such a
subpoena and is cooperating fully in the investigation.

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. Mercer Investment Consulting, Inc. has received
requests for information from the SEC in connection with this examination
and is fully cooperating.

19

14. Variable Interest Entities
--------------------------

MMC through Putnam, manages $3.5 billion in the form of Collateralized Debt
Obligations ("CDO") and Collateralized Bond Obligations ("CBO"). 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 and CBOs.
The maximum loss exposure related to the CDOs and CBOs is limited to
Putnam's investment totaling $5.4 million, reflected in Long-term
investments in the Consolidated Balance Sheets at March 31, 2004. MMC has
concluded it is not the primary beneficiary of these structures under FIN
46 "Consolidation of Variable Interest Entities."

15. Segment Information
-------------------

MMC operates in three principal business segments based on the services
provided. Segment performance is evaluated based on operating income, which
is after deductions for directly related expenses and minority interest but
before special charges. 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 three-month
periods ended March 31, 2004 and 2003 follow:

- -----------------------------------------------------------------------------
Segment Operating
(In millions of dollars) Revenue Income
- -----------------------------------------------------------------------------
2004
Risk and Insurance Services $ 1,994 (a) $ 637
Investment Management 461 (26)
Consulting 755 89
- -----------------------------------------------------------------------------
$ 3,210 $ 700
- -----------------------------------------------------------------------------
2003
Risk and Insurance Services $1,773 (a) $ 560
Investment Management 445 103
Consulting 634 83
- -----------------------------------------------------------------------------
$2,852 $ 746
- -----------------------------------------------------------------------------
(a) Includes interest income on fiduciary funds ($29 million in 2004 and
$31 million in 2003).

20

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

- --------------------------------------------------------------------------------
(In millions of dollars) 2004 2003
- --------------------------------------------------------------------------------
Total segment operating income $700 $746
Corporate income/(expense) 72 (34)
Reclassification of minority interest 1 5
- --------------------------------------------------------------------------------
Operating income 773 717
Interest income 5 6
Interest expense (50) (43)
- --------------------------------------------------------------------------------
Total income before income taxes and
minority interest $728 $680
- --------------------------------------------------------------------------------

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 three-month periods ended March 31,
2004 and 2003 is as follows:

- ---------------------------------------------------------- ---------------------
(In millions of dollars) 2004 2003
- ---------------------------------------------------------- ---------------------

Risk & Insurance Services
Risk Management and Insurance Broking $1,486 $1,320
Reinsurance Broking and Services 275 243
Related Insurance Services 233 210
- ---------------------------------------------------------- ---------------------
Total Risk & Insurance Services 1,994 1,773
- ---------------------------------------------------------- ---------------------
Investment Management 461 445
- ---------------------------------------------------------- ---------------------
Consulting
Retirement Services 350 300
Management and Organizational Change 134 81
Health Care & Group Benefits 100 98
Human Capital 94 86
Economic 42 37
- ---------------------------------------------------------- ---------------------
720 602
Reimbursed Expenses 35 32
- ---------------------------------------------------------- ---------------------
Total Consulting 755 634
- ---------------------------------------------------------- ---------------------
Total $3,210 $ 2,852
- ---------------------------------------------------------- ---------------------

21

Marsh & McLennan Companies, Inc. and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
First Quarter Ended March 31, 2004

General

Marsh & McLennan Companies, Inc. and Subsidiaries ("MMC") is a professional
services firm. MMC subsidiaries include Marsh Inc, ("Marsh"), the world's
largest risk and insurance services firm; Putnam Investments ("Putnam"), one of
the largest investment management companies in the United States; and Mercer
Inc. ("Mercer"), a major global provider of consulting services. Over 60,000
employees worldwide provide analysis, advice and transactional capabilities to
clients in over 100 countries.

MMC operates in three principal business segments based on the services
provided. Segment performance is evaluated based on operating income, which is
after deductions for directly related expenses and minority interest but before
corporate expenses, charges or credits related to September 11, 2001, and
charges or credits related to integration and restructuring reserves.

For a description of critical accounting policies, including those which involve
significant management judgment, see Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note 1 to the consolidated
financial statements in MMC's Annual Report on Form 10-K ("2003 10-K") for the
year ended December 31, 2003.

This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains certain statements relating to future results which are
forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. See "Information Concerning Forward-Looking
Statements" on page one of this filing. This Form 10-Q should be read in
conjunction with the 2003 Form 10-K.

The consolidated results of operations follow:

- ---------------------------------------------------------------------
(In millions of dollars) 2004 2003
- ---------------------------------------------------------------------
Revenue:
Service Revenue $3,177 $2,841
Investment Income (Loss) 33 11
- ---------------------------------------------------------------------
Operating Revenue 3,210 2,852
- ---------------------------------------------------------------------
Expense:
Compensation and Benefits 1,635 1,378
Other Operating Expenses 802 757
- ---------------------------------------------------------------------
Operating Expenses 2,437 2,135
- ---------------------------------------------------------------------
Operating Income $ 773 $ 717
- ---------------------------------------------------------------------
Operating Income Margin 24.1% 25.1%
- ---------------------------------------------------------------------

22

Revenue, derived mainly from commissions and fees, increased 13% from the first
quarter of 2003. The increase in revenue primarily was due to continued growth
in the risk and insurance services segment as well as the impact of foreign
exchange and acquisitions. Revenue increased 5% on an underlying basis, which
measures the change in revenue before the impact of acquisitions and
dispositions and using constant currency exchange rates.

The impact of foreign currency translation, acquisitions, and dispositions on
MMC's operating revenues by segment for the quarter ended March 31, 2004
compared to the quarter ended March 31, 2003 is as follows:

- --------------------------------------------------------------------------------------------------------------
Components of Revenue Change
----------------------------------

Three Months Ended % Change Acquisitions/
March 31, GAAP Underlying Dispositions Currency
2004 2003 Revenue Revenue(b) Impact Impact
------ ----- ------- --------- ------------ ---------

Risk and Insurance Services
Risk Management and Insurance Broking $1,486 $1,320 13% 6% - 7%
Reinsurance Broking and Services 275 243 13% 9% - 4%
Related Insurance Services (a) 233 210 11% 11% - -
- -------------------------------------------------------------------------------------------------------------
Total Risk and Insurance Services (c) 1,994 1,773 12% 7% - 5%
- -------------------------------------------------------------------------------------------------------------

Investment Management 461 445 4% 4% - -
- -------------------------------------------------------------------------------------------------------------

Consulting
Retirement Services 350 300 16% 1% 6% 9%
Management and Organizational Change 134 81 66% 4% 56% 6%
Health Care and Group Benefits 100 98 2% (3)% - 5%
Human Capital 94 86 10% (1)% - 11%
Economic 42 37 12% 8% - 4%
- -------------------------------------------------------------------------------------------------------------
720 602 19% 1% 10% 8%
Reimbursed Expenses 35 32
- ------------------------------------------------------------------------------------------------------------
Total Consulting 755 634 19% 2% 10% 7%
- ------------------------------------------------------------------------------------------------------------
Total Revenue $3,210 $2,852 13% 5% 3% 5%
- ------------------------------------------------------------------------------------------------------------

(a) Includes U.S. affinity, claims management, wholesale broking, underwriting
management and MMC Capital businesses.
(b) Underlying basis measures the change in revenue before the impact of
acquisitions and dispositions using constant currency exchange rates.
(c) Certain reclassifications have been made to prior year amounts to conform
with current presentation.

Revenue growth on an underlying basis in the risk and insurance services segment
was 7%, reflecting growth in insurance broking, reinsurance broking and related
insurance services. Consulting revenue on an underlying basis grew 2% resulting
from increases in the Retirement Services, Management and Organizational Change,
and Economic Consulting practices. Revenue increased 4% in the investment
management segment due to modest investment gains in the current year compared
to a loss in 2003, as well as increased revenues from the equity investment in
Thomas H. Lee.

Operating expenses increased 14% in the first quarter of 2004, 6% on an
underlying basis. The increase in underlying expenses reflects higher
compensation and benefits costs which includes severance and increased pension
costs and also higher facility expenses and costs related to regulatory issues.
These increases were partially offset by a decrease in amortization expense for
prepaid dealer commissions. Expenses in the first quarter 2004 also include
regulatory fines of $100 million related to Putnam's settlement agreements with
the Securities and Exchange Commission ("SEC") and the Office of the Secretary
of the Commonwealth of Massachusetts, which are not deductible for tax purposes.
MMC also reached final settlement with its insurers for claims related to the
September 11, 2001 attack on the World Trade Center ("WTC"). The replacement
value of assets exceeded the book value by $105 million, which was recorded as a
reduction of Corporate operating expenses in the first quarter of 2004.

23

Risk and Insurance Services
- --------------------------------------------------- ------------------------
(In millions of dollars) 2004 2003
- --------------------------------------------------- ------------------------
Revenue $1,994 $1,773
Expense 1,357 1,213
- --------------------------------------------------- ------------------------
Operating Income $ 637 $ 560
- --------------------------------------------------- ------------------------
Operating Income Margin 31.9% 31.6%
- --------------------------------------------------- ------------------------

Revenue

Revenue for the risk and insurance services segment grew 12% over the first
quarter of 2003, 7% on an underlying basis, reflecting a higher volume of
business. In the first quarter, underlying revenues grew 6% in risk management
and insurance broking, which accounts for approximately three quarters of the
risk and insurance services segment. Within risk management and insurance
broking, underlying revenue grew 5% in the United States, 7% in Europe, and 4%
in other geographies. Reinsurance broking and services grew 9% on an underlying
basis primarily as a result of higher new business and renewals. Related
insurance services grew 11%, primarily due to increases in the claims management
business.

Expense
Risk and insurance services expenses increased 12% over the first quarter of
2003, 5% on an underlying basis. The increase in underlying expense is primarily
due to higher compensation reflecting increased headcount, higher pension
expense, and increased facility costs.

Investment Management
- ------------------------------------------------------ ------------------------
(In millions of dollars) 2004 2003
- ------------------------------------------------------ ------------------------
Revenue $461 $445
Expense 487 342
- ------------------------------------------------------ ------------------------
Operating Income $(26) $103
- ------------------------------------------------------ ------------------------
Operating Income Margin (5.6)% 23.1%
- ------------------------------------------------------ ------------------------

Revenue
Putnam's revenue increased 4% in the first quarter of 2004 reflecting modest
investment gains in the current year compared to a loss in 2003, as well as
increased revenues from its equity investment in Thomas H. Lee. These increases
were partially offset by a decrease in fees due to a decline in assets under
management. Assets under management averaged $234 billion in the first quarter
of 2004, a 4% decline from the $244 billion managed in the first quarter of
2003. Assets under management aggregated $227 billion at March 31, 2004 compared
with $241 billion at March 31, 2003 and $240 billion at December 31, 2003. The
change from December 31, 2003 results primarily from net redemptions of $17.6
billion partially offset by an increase in equity market levels.

24

Expense
Putnam's expenses increased 42% in the first quarter of 2004 from the same
period of 2003. Expenses in 2004 include the impact of Putnam's regulatory
settlements. On April 8, 2004, Putnam reached settlement agreements with the SEC
and the Secretary of the Commonwealth of the State of Massachusetts on market
timing issues for $110 million of penalties and restitution. Putnam had provided
$10 million of this amount in the fourth quarter of 2003. A $100 million charge,
which is not tax deductible, was recorded in the first quarter 2004 reducing net
operating income by $95 million after the effect of minority interest. Other
significant items recorded in the first quarter were severance of $25 million
and $15 million of incremental costs related to regulatory issues. These
increases were partially offset by a decrease in amortization expense for
prepaid dealer commissions.

Putnam provides individual and institutional investors with a broad range of
both equity and fixed income investment products and services, invested
domestically and globally, designed to meet varying investment objectives and
which afford its clients the opportunity to allocate their investment resources
among various investment products as changing worldwide economic and market
conditions warrant.

At the end of the first quarter, assets held in equity securities represented
71% of assets under management, compared with 72% at March 31, 2003, while
investments in fixed income products represented 29%, compared with 28% at March
31, 2003.

Quarter-end and average assets under management
- ---------------------------------------------------------------- ---------------
(In billions of dollars) 2004 2003
- ---------------------------------------------------------------- ---------------
Mutual Funds:
Growth Equity $ 45 $ 43
Value Equity 42 36
Blend Equity 30 30
Fixed Income 40 46
- ---------------------------------------------------------------- ---------------
157 155
- ---------------------------------------------------------------- ---------------
Institutional:
Equity 44 64
Fixed Income 26 22
- ---------------------------------------------------------------- ---------------
70 86
- ---------------------------------------------------------------- ---------------
Quarter-end Assets $227 $241
- ---------------------------------------------------------------- ---------------
Assets from Non-US Investors $ 38 $ 33
- ---------------------------------------------------------------- ---------------
Average Assets $234 $244
- ---------------------------------------------------------------- ---------------

Components of quarter-to-date change in ending assets under management
- --------------------------------------------------------------- ----------------
Net New Sales/Redemptions including Dividends Reinvested $(17.6) $ (1.3)
- --------------------------------------------------------------------------------
Impact of Market/Performance $ 4.5 $ (8.9)
- --------------------------------------------------------------------------------

25

The categories of mutual fund assets reflect style designations aligned with
each fund's prospectus. All prior year amounts have been reclassified to conform
with the current investment mandate for each product.

Assets under management and revenue levels are particularly affected by
fluctuations in domestic and international stock and bond market prices, the
composition of assets under management and by the level of investments and
withdrawals for current and new fund shareholders and clients. Items affecting
revenue also include, but are not limited to, actual and relative investment
performance, service to clients, the development and marketing of new investment
products, the relative attractiveness of the investment style under prevailing
market conditions, changes in the investment patterns of clients and the ability
to maintain investment management and administrative fees at historic levels.
Future revenue may be adversely affected by continued net redemptions and by
limits on fund expense ratios and front end sales charges. Revenue levels are
sensitive to all of the factors above, but in particular, to significant changes
in stock and bond market valuations and net flows into or out of Putnam's funds.

Consulting
- --------------------------------------------------------------------------------
(In millions of dollars) 2004 2003
- --------------------------------------------------------------------------------
Revenue $755 $634
Expense 666 551
- --------------------------------------------------------------------------------
Operating Income $ 89 $ 83
- --------------------------------------------------------------------------------
Operating Income Margin 11.8% 13.1%
- --------------------------------------------------------------------------------

26

Revenue
Consulting revenue increased 19% over 2003 primarily due to the impact of
acquisitions and foreign exchange. Significant acquisitions affecting the first
quarter 2004 results include Oliver, Wyman & Company which closed on April 1,
2003 and Synhrgy HR Technologies which closed in January. On an underlying
basis, revenue increased 2%. In Mercer's largest practice, Retirement Services,
underlying revenue increased 1%. Economic Consulting grew 8% and Management and
Organizational Change grew 4% on an underlying basis. These increases were
partially offset by declines of 3% in the Health Care & Group Benefits and 1% in
the Human Capital practices.

Expense
Consulting expenses increased 21% in the first quarter of 2004 compared to 2003
primarily due to the impact of foreign exchange and acquisitions, which includes
compensation costs for acquired personnel, amortization of contingent purchase
consideration linked to future employment, and amortization of intangible
assets. On an underlying basis, expenses increased 2%.

Corporate Expenses
In the first quarter of 2004, MMC reached final settlement for insured losses
totaling $278 million related to the WTC. The replacement value of the assets
exceeded their book value by $105 million which was recorded as a reduction of
other operating expenses. As a result, Corporate had a net credit of $72 million
in the first quarter of 2004 compared with an expense of $34 million in first
quarter 2003. Approximately $160 million of cash was collected from insurers in
2002 and 2003 in advance of final settlement. The remaining $118 million was
collected in April, 2004.

Interest
Interest income earned on corporate funds amounted to $5 million in the first
quarter of 2004, a decrease of $1 million from the first quarter of 2003.
Interest expense of $50 million in 2004 increased from $43 million in the first
quarter of 2003 due to an increase in the average outstanding debt and in the
average interest rates on outstanding debt in the first quarter of 2004. The
increase in the average interest rate results from the conversion of
approximately $800 million of the company's debt from floating to fixed rates in
2003.

Income Taxes
MMC's consolidated effective tax rate was 38.6% of income before income taxes
and minority interest in the first quarter of 2004 compared with 34% in the
first quarter of 2003. The effective tax rate of 38.6% includes the impact of
Putnam's non-deductible settlement payments of $100 million and a 40% tax rate
on the WTC settlement gain of $105 million. The effective tax rate applicable to
ongoing operating income was 33%, which is expected to continue.

27

Liquidity and Capital Resources
MMC anticipates that funds generated from operations will be sufficient to meet
its foreseeable recurring operating cash requirements as well as to fund
dividends and capital expenditures. MMC's ability to generate cash flow from
operations is subject to the business risks inherent in each operating segment.
Cash and cash equivalents reported in the Consolidated Balance Sheets include
amounts held to satisfy global working capital, capital adequacy and regulatory
requirements. MMC continually monitors its expected and actual cash flows to
determine the most advantageous use of its near term cash flows among
alternatives including dividends, investments, acquisitions, funding
alternatives for its pension plans and share repurchases.

Operating Cash Flows
MMC used $111 million of cash for operations for the period ended March 31, 2004
compared with cash generated of $177 million for the same period in 2003. MMC's
cash flow from operations is typically a use of cash in the first quarter of
each year, resulting from the payment of accrued incentive compensation. These
amounts reflect the net income earned by MMC during those periods adjusted for
non-cash charges and changes in working capital which relate, primarily, to the
timing of payments or receipts of accrued liabilities and assets. Significant
items impacting working capital in 2004 include the effect of higher commissions
and fees receivable, resulting from increased revenues, a $118 million
receivable for the WTC insurance recovery which was collected in April, as well
as the accrual of the regulatory settlements at Putnam.

Financing Cash Flows
Net cash provided by financing activities was $292 million in the first quarter
2004 compared to a use of $71 million in the same period last year. Financing
cash flows reflect an increase in commercial paper borrowings used to fund
several acquisitions as well as for seasonal demands related to incentive
compensation payments.

In the first quarter of 2004, MMC repurchased shares of its common stock for
treasury as well as to meet requirements for issuance of shares for its various
stock compensation and benefit programs. During the first quarter of 2004, MMC
repurchased 7 million shares of its common stock at a cost of $330 million.
Share repurchases are recorded on a trade date basis. MMC currently plans to
continue to repurchase shares during 2004, subject to market conditions.

MMC paid dividends in the amount of $163 million ($0.31 per share) in the first
quarter 2004.

In July 2003, MMC issued $300 million of 5.875% Senior Notes due in 2033. In
February 2003, MMC issued $250 million of 3.625% Senior Notes due in 2008 and
$250 million of 4.85% Senior Notes due in 2013 (the "2003 Notes"). The net
proceeds from the 2003 Notes were used to pay down commercial paper borrowings.

In January 2003, MMC terminated and settled interest rate swaps that had hedged
the fair value of senior notes issued in 2002. The cumulative amount of
previously recognized adjustments of the fair value of the hedged notes is being
amortized over the remaining life of those notes in accordance with SFAS No.
133. As a result, the effective interest rate over the remaining life of the
notes, including the amortization of the fair value adjustments, is 4.0% for the
$500 million Senior Notes due in 2007 (5.375% coupon rate) and 5.1% for the $250
million Senior Notes due in 2012 (6.25% coupon rate).

28

Investing Cash Flows
Cash used for investing activities amounted to $210 million in the first three
months of 2004 and $96 million for the same period in the prior year. The
primary use of cash in the first quarter was for the acquisition of Synhrgy HR
Technologies and the Australia and New Zealand operations of Heath Lambert.
Remaining cash payments of approximately $125 million related to acquisitions
completed in 2004 and 2003 are recorded in Other liabilities in the consolidated
balance sheets at March 31, 2004.

MMC's additions to fixed assets and capitalized software, which amounted to $75
million in the first three months of 2004 and $110 million in the first quarter
of 2003, primarily relate to computer equipment purchases and the refurbishing
and modernizing of office facilities and software development costs.

MMC has committed to potential future investments of approximately $672 million
in connection with various MMC Capital funds and other MMC investments.
Approximately $3 million was invested in the first quarter of 2004. MMC expects
to fund future commitments, in part, with sales proceeds from existing
investments including approximately $30 million from the disposal in April of
its interest in Fineco Gestioni to the Fineco Group.

Market Risk
Certain of MMC's revenues, expenses, assets and liabilities are exposed to the
impact of interest rate changes and fluctuations in foreign currency exchange
rates and equity markets.

Interest Rate Risk
MMC manages its net exposure to interest rate changes by utilizing a mixture of
variable and fixed rate borrowings to finance MMC's asset base. Interest rate
swaps are used on a limited basis to manage MMC's exposure to interest rate
movements on its cash and investments, as well as interest expense on
borrowings, and are only executed with counterparties of high creditworthiness.

Foreign Currency Risk
The translated values of revenue and expense from MMC's international risk and
insurance services and consulting operations are subject to fluctuations due to
changes in currency exchange rates. Forward contracts and options are
periodically utilized by MMC to limit foreign currency exchange rate exposure on
net income and cash flows for specific, clearly defined transactions arising in
the ordinary course of its business.

Equity Price Risk
MMC holds investments in both public and private companies as well as certain
private equity funds managed by MMC Capital, including Trident II. Publicly
traded investments of $448 million are classified as available for sale under
SFAS No. 115. Non-publicly traded investments of $98 million and $394 million
are accounted for under APB Opinion No. 18, "The Equity Method of Accounting for
Investments in Common Stock", using the cost method and the equity method,
respectively. Changes in value of trading securities are recognized in income
when they occur. The investments that are classified as available for sale or
that are not publicly traded are subject to risk of changes in market value,
which if determined to be other than temporary, could result in realized
impairment losses. MMC periodically reviews the carrying value of such
investments to determine if any valuation adjustments are appropriate under the
applicable accounting pronouncements.

In 2001, MMC entered into a series of option contracts to hedge the variability
of cash flows from forecasted sales of certain available for sale investments.
The remaining sales are forecasted to occur over the next three quarters. The
hedge is achieved through the use of European style put and call options, which
mature on the dates of the forecasted sales. Gains or losses on the Option
contracts are deferred in other comprehensive loss until the related forecasted
sales occur. At March 31, 2004, the net increase in fair value of the option
contracts of $1 million was recorded as an asset and a reduction of Accumulated
other comprehensive loss in the Consolidated Balance Sheets.

29

Other
As further discussed in Note 13 to the Consolidated Financial Statements,
administrative proceedings and a number of lawsuits have commenced against
Putnam and MMC.

The insurance coverage, for potential liability resulting from alleged errors
and omissions in the professional services provided by MMC, includes elements of
both risk retention and risk transfer. MMC believes it has adequately reserved
for the self-insurance portion of the contingencies. Payments related to the
respective self-insured layers are made as legal fees are incurred and claims
are resolved and generally extend over a considerable number of years. The
amounts paid in that regard vary in relation to the severity of the claims and
the number of claims active in any particular year. The long-term portion of
this liability is included in Other liabilities in the Consolidated Balance
Sheets.

30

Part I - Item 4. Controls & Procedures

a. Evaluation of Disclosure Controls and Procedures
Based on their evaluation, as of a date within 90 days of the filing of this
Form 10-Q, the Company's Chief Executive Officer and Chief Financial Officer
have concluded the Company's disclosure controls and procedures (as defined in
Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934) are effective
in timely alerting them to material information relating to the Company required
to be included in our reports filed under the Exchange Act.

b. Changes in Internal Controls
There have been no significant changes in internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.

31

PART II. OTHER INFORMATION

MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES

INFORMATION REQUIRED FOR FORM 10-Q QUARTERLY REPORT

March 31, 2004

Item 1. Legal Proceedings.

Putnam Matters
--------------

Regulatory Matters. On October 28, 2003, the SEC commenced a civil
administrative and cease and desist proceeding against Putnam under the
Investment Advisors Act of 1940 and the Investment Company Act of 1940. On
November 13, 2003, pursuant to an agreement with Putnam, the SEC entered an
order that made findings of certain facts, which Putnam neither admitted nor
denied, and concluded that Putnam violated the Investment Advisors Act of 1940
and the Investment Company Act of 1940. The order imposed partial relief,
including final censure, remedial undertakings, and a cease and desist order.
The SEC's order found that since 1998 at least six Putnam investment management
professionals engaged in excessive short-term trading of Putnam mutual funds in
their personal accounts. The order also found that four of these employees
engaged in trading in funds over which they had investment decision making
responsibilities and access to non-public information regarding their funds'
portfolios. The SEC further found that Putnam failed to disclose this
potentially self-dealing securities trading to the boards or shareholders of the
mutual funds it manages, failed to take adequate steps to detect and deter such
trading activity through internal controls and failed in its supervision of
these investment management professionals. Under the terms of the order, Putnam
has agreed to a number of remedial actions, including new employee trading
restrictions, enhanced employee trading compliance, determination by an
independent assessment consultant of the amount of restitution to be made by
Putnam for losses attributable to excessive short-term trading by Putnam
employees, the retention of an independent compliance consultant, the
undertaking of periodic compliance reviews, and certification of compliance with
the SEC. On April 8, 2004, Putnam entered into a final settlement of those
charges under which Putnam is required to pay $5 million in disgorgement plus a
civil monetary penalty of $50 million, with any excess amount of restitution
required to be set off against the civil monetary penalty (up to an additional
$5 million). These amounts are to be distributed in accordance with the process
established under the November 13, 2003 and April 8, 2004 SEC orders. In the
event that the independent assessment consultant determines that the amount of
restitution required by the November 13, 2003 order is more than $10 million,
Putnam will also be responsible for paying any such excess amount.

On October 28, 2003, the Massachusetts Secretary of the Commonwealth
("Massachusetts Securities Division ") commenced a civil administrative
proceeding against Putnam and two of its employees alleging violations of the
state's securities law anti-fraud provisions. On April 8, 2004, simultaneously
and in conjunction with the settlement of the above-referenced SEC proceeding,
the Massachusetts Securities Division entered a Consent Order in final
settlement of those charges. That Consent Order included a cease and desist
order, and requires Putnam to pay $5 million in restitution and an
administrative fine of $50 million, with any excess amount of restitution
required to be set off against the administrative fine (up to an additional $10
million, with Putnam responsible for paying any further excess amount). The
restitution called for by the Consent Order will be determined and distributed
by the same independent assessment consultant appointed pursuant to the November
13, 2003 and April 8, 2004 SEC orders. The Trustees may separately seek
additional amounts to assure that full restitution is made to Putnam fund
shareholders.

32

In a separate action, the SEC is seeking an injunction against two of the
six investment management employees. All six are no longer employed by Putnam.

Additionally, Putnam has received document subpoenas and/or requests for
information from the United States Attorney in Boston, the Florida Department of
Financial Services, the Office of the Attorney General for the State of New
York, Offices of the Secretary of State and the State Auditor for the State of
West Virginia, the Vermont Securities Division, the NASD and the Boston office
of the U.S. Department of Labor inquiring into, among other things, matters that
are the subject of the SEC and Massachusetts actions.

Putnam has also received document subpoenas from the Massachusetts
Securities Division and the Office of the Attorney General for the State of New
York relating to plan expense reimbursement agreements between Putnam and
certain multiemployer deferred compensation plans which are Putnam clients, and
also relating to Putnam's relationships with consultants retained by
multiemployer deferred compensation plans. The Massachusetts Securities Division
has taken testimony from a number of Putnam employees relating to the same
matters.

Putnam has also received subpoenas from the SEC's Philadelphia office,
seeking documents and information relating to Putnam's directed brokerage
practices and trading practices and the SEC has interviewed, and taken testimony
from, a number of Putnam employees relating to revenue sharing practices and
trading practices. In addition, Putnam has received a request for information
from the SEC's Chicago office and the NASD regarding revenue sharing
arrangements.

Putnam is fully cooperating with the regulatory authorities.

"Market-Timing" Securities Litigation. As of May 6, 2004, MMC and Putnam
have received complaints in over 70 civil actions based on allegations of
"market-timing" activities. These actions have been filed in courts in New York,
Massachusetts, California, Illinois, Connecticut, Delaware, Vermont, Kansas, and
North Carolina. Most of the actions have been transferred, along with others
against other mutual fund complexes, to the United States District Court for the
District of Maryland for coordinated or consolidated pretrial proceedings. In
most of the federal cases, either by agreement of the parties or order of the
court, MMC and Putnam are not required to respond to the complaints until after
plaintiffs have filed amended complaints in the consolidated actions.

33

The civil actions include:

o Purported securities class actions (the "MMC Class Action Complaints")
have been filed in United States District Court for the Southern District of New
York on behalf of a class of purchasers of MMC stock during the period from
January, 2000 to November, 2003. The MMC Class Action Complaints allege, among
other things, that MMC failed to disclose certain market-timing activities at
Putnam which, when disclosed, resulted in a drop in the market price of MMC's
shares. The MMC Class Action Complaints also name as defendants certain current
or former officers and directors of MMC. The MMC Class Action Complaints assert
claims under Sections 10(b) and 20(a) of the Exchange Act.

o Purported shareholder derivative actions have been filed against members
of MMC's Board of Directors, and MMC as a nominal defendant in state and federal
courts in New York City. In these actions, the plaintiffs purport to state
common law claims based on, among other things, the Board's alleged failure to
prevent the alleged market timing from occurring.

o MMC and/or Putnam have been named in over fifty additional actions
brought by investors in Putnam funds claiming damages to themselves or the
Putnam funds as a result of various market-timing activities. These actions have
been brought either individually (the "Individual Complaints"), derivatively
(the "Putnam Derivative Complaints"), or on behalf of a putative class (the
"Putnam Class Action Complaints"). The Individual Complaints, the Putnam Class
Action Complaints (which also name as defendants certain Putnam funds and
certain Putnam employees) and the Putnam Derivative Action Complaints (which
also name as defendants certain Putnam officers and employees and certain
trustees of the Putnam funds), allege violations of the federal securities and
investment advisory laws and state law. At this time, several of these cases are
pending in various state courts. Putnam has also been named as a defendant in
one suit in its capacity as a sub-advisor to a non-Putnam fund.

o MMC, Putnam, and various of their officers, directors and employees have
been named as defendants in three purported class actions asserting 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 (collectively, the "Plans"), 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's stock and Putnam's mutual fund shares was imprudent
and that the defendants breached their fiduciary duties to the Plans'
participants in making these investments. The three ERISA Actions were filed in
federal court for the Southern District of New York.

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

Other Putnam Litigation. As of May 6, 2004, two actions have been filed in
courts in Illinois (one in state court and one in federal court) against Putnam
Investment Management, LLC and Putnam Retail Management Limited Partnership. The
state case, which purports to be a class action, alleges that defendants
breached duties purportedly owed to plaintiffs pursuant to unidentified
contracts through the receipt of "excessive" fees paid by the mutual funds
defendants managed. In the suit, plaintiffs seek to recover, among other things,
compensation received by defendants in violation of the purported contracts,
along with interest and costs, as well as a future reduction in fees paid by the
funds.

The federal action alleges that defendants violated Section 36(b) of the
Investment Company Act of 1940 through the receipt of purportedly excessive fees
paid by the mutual funds defendants managed. In the federal action, plaintiffs
seek, among other things, to recover the compensation paid to defendants by the
funds for one year prior to the filing of the complaint, and rescission of the
management and distribution agreements between defendants and the funds.

The complaints in the above-referenced Putnam matters seek monetary damages
and other forms of relief. At the present time, MMC's management is unable to
estimate the impact that the outcome of the foregoing proceedings may have on
MMC's consolidated results of operations or financial position or cash flows.

Employment Dispute
------------------

Lawrence J. Lasser, former President and CEO of Putnam, has initiated an
arbitration proceeding against MMC. The arbitration will determine whether and
to what extent Mr. Lasser is owed any money under his employment arrangements
with Putnam.

34

Other Litigation
----------------

MMC and its subsidiaries are subject to various other claims, lawsuits and
proceedings consisting 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. Insurance coverage
applicable to such matters includes elements of both risk retention and risk
transfer.

Although the ultimate outcome of these other matters and the employment
dispute cannot be ascertained and liabilities in indeterminate amounts may be
imposed on MMC and its subsidiaries, on the basis of present information, it is
the opinion of MMC's management that the disposition or ultimate determination
of these claims, lawsuit or proceedings should not have a material adverse
effect on MMC's consolidated financial position or cash flows, but may be
material to MMC's operating results in any particular period.

Other Industry Inquiries
------------------------

The New York Attorney General has issued subpoenas to numerous insurance
brokers primarily related to an inquiry into market service agreements and other
similar agreements which compensate brokers for distribution and other services
provided to insurance carriers. MMC has received such a subpoena and is
cooperating fully in the investigation.

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.
Mercer Investment Consulting, Inc. has received requests for information from
the SEC in connection with this examination and is fully cooperating.

35

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities

(e) The following table sets forth information regarding MMC's purchases of
its common stock on a monthly basis during the first quarter of 2004.

Issuer Repurchases of Equity Securities

- -------------------------------------------------------------------------------------------------

(a) b) (c) (d)
Total Number of Maximum Number of
Total Number of Average Price Shares Purchased as Shares that May Yet
Shares Purchased Paid per Share Part of Publicly Be Purchased Under
Announced Plans or the Plans or
Period Programs (1) Programs
- -------------------------------------------------------------------------------------------------
Jan. 1, 2004 - 1,630,800 $ 47.76 1,630,800 59,703,736
Jan. 31, 2004
- -------------------------------------------------------------------------------------------------
Feb. 2, 2004 - 2,271,500 47.89 2,271,500 57,432,236
Feb. 29,2004
- -------------------------------------------------------------------------------------------------
Mar. 1, 2004 - 3,057,200 47.02 3,057,200 54,375,036
Mar. 31, 2004
- -------------------------------------------------------------------------------------------------
Total 6,959,500 $ 47.48 6,959,500 54,375,036
- -------------------------------------------------------------------------------------------------

(1) As set forth in its public filings, MMC has engaged in an ongoing share
repurchase program. On March 18, 1999, MMC's board of directors authorized the
repurchase of up to 40 million shares of MMC's common stock and on May 18, 2000
the board further authorized the repurchase of up to an additional 88 million
shares. There is no expiration date specified under either of these
authorizations and MMC intends to repurchase its shares under each of these
authorizations in the future. MMC purchases shares of its common stock from time
to time, in the open market or otherwise, subject to market conditions, for
treasury as well as to meet requirements for issuance of shares for its various
stock compensation and benefit programs.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

12. Statement Re: Computation of Ratio of Earnings to Fixed Charges.

31. Rule 13a-14(a)/15d-14(a) Certifications.

32. Section 1350 Certifications.

(b) Reports on Form 8-K

The following reports on Form 8-K were filed by MMC in the fiscal quarter
ended March 31, 2004:

o Current Report on Form 8-K dated January 26, 2004 reporting the
initiation of an arbitration proceeding between the registrant and Lawrence J.
Lasser.

o Current Report on Form 8-K dated January 28, 2004 reporting MMC's
issuance of a press release announcing its unaudited fourth quarter and year-end
financial results for the quarter and year ended December 31, 2003.

36

MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, MMC has
duly caused this report to be signed this 10th day of May, 2004 on its behalf by
the undersigned, thereunto duly authorized and in the capacity indicated.

MARSH & McLENNAN COMPANIES, INC.

/s/ Sandra S. Wijnberg
-------------------------
Senior Vice President and
Chief Financial Officer