<PAGE>
Putnam
Managed
Income Trust
[ARTWORK APPEARS HERE]
SEMIANNUAL REPORT
April 30, 1994
[LOGO OF PUTNAM APPEARS HERE]
BOSTON-LONDON-TOKYO
<PAGE>
PERFORMANCE HIGHLIGHTS
"We believe the fund can provide income and opportunities for growth from a
portfolio of both stocks and bonds."
--Edward Bousa, Senior Portfolio Manager
Performance should always be considered in light of a fund's investment
strategy. Putnam Managed Income Trust is for investors seeking high current
return from a diversified portfolio of equity and debt securities.
<TABLE>
<CAPTION>
SEMIANNUAL RESULTS AT A GLANCE
----------------------------------------------------------------------------
TOTAL RETURN: CLASS A CLASS B/1/
<S> <C> <C> <C> <C>
Six months ended 4/30/94 NAV POP NAV CDSC
----------------------------------------------------------------------------
(change in value plus
reinvested distributions) -3.20% -8.80% -- --
CURRENT RETURN: NAV POP NAV
----------------------------------------------------------------------------
(end of period)
Current dividend rate/2/ 6.43% 6.06% 6.42%
Current 30-day SEC yield/3/ 4.54 4.27 3.80
<CAPTION>
SHARE VALUE: NAV POP NAV
----------------------------------------------------------------------------
<S> <C> <C> <C>
10/31/93 $9.28 $9.85 --
2/1/94 -- -- $9.31
4/30/94 $8.71 $9.24 $8.72
<CAPTION>
DISTRIBUTIONS: NUMBER INCOME TOTAL
----------------------------------------------------------------------------
<S> <C> <C> <C>
Class A 2 $0.28 $0.28
Class B 1 $0.14 $0.14
----------------------------------------------------------------------------
</TABLE>
Performance data represent past results. For performance over longer periods,
see page 8. POP assumes 5.75% maximum sales charge. CDSC assumes 5% maximum
contingent deferred sales charge. /1/Effective February 1, 1994, the fund
began offering class B shares. /2/Annualized income portion of most recent
distribution, divided by NAV or POP at end of period. /3/Based only on
investment income, calculated per SEC guidelines.
2
<PAGE>
FROM THE CHAIRMAN
[PHOTOGRAPH OF GEORGE PUTNAM]
(c) Karsh, Ottawa
DEAR SHAREHOLDER:
I AM PLEASED TO REPORT THAT KENNETH J. TAUBES HAS RECENTLY JOINED FUND MANAGER
EDWARD BOUSA IN PUTNAM MANAGED INCOME TRUST'S DAY-TO-DAY MANAGEMENT.
KEN JOINED PUTNAM IN 1991 AS SENIOR VICE PRESIDENT AND SENIOR PORTFOLIO
MANAGER IN PUTNAM'S TAXABLE INVESTMENT-GRADE GROUP. HE HAD PREVIOUSLY SERVED
AS SENIOR VICE PRESIDENT IN THE FINANCE DIVISION OF THE UNITED STATES TRUST
COMPANY OF BOSTON AND AS TREASURER OF THE HOME OWNERS SAVINGS BANK. PRIOR TO
THAT, HE WAS A TREASURY OFFICER AT THE BANK OF NEW ENGLAND. HE HAS 13 YEARS OF
INVESTMENT EXPERIENCE.
IN THE REPORT THAT FOLLOWS, ED AND KEN DISCUSS YOUR FUND'S PERFORMANCE IN THE
CURRENT MARKET ENVIRONMENT.
RESPECTFULLY YOURS,
[Signature of George Putnam]
GEORGE PUTNAM
JUNE 15, 1994
(c) Karsh, Ottawa
3
<PAGE>
REPORT FROM THE FUND MANAGERS
EDWARD P. BOUSA, LEAD MANAGER
KENNETH J. TAUBES
Intensifying volatility in the financial markets over the six months ended
April 30, 1994, presented some challenges for Putnam Managed Income Trust.
Even so, the fund's strategy, which is to combine stocks and bonds within one
portfolio, has helped to reduce the effects of recent market activity.
The fund provided a negative total return for the six months ended April 30,
1994, as did similar investments during the period. However, the fund
outperformed the Lehman Brothers Government/Corporate Bond Index, which
illustrates the protection a well-selected portfolio of stocks and bonds can
provide even when both markets have experienced declines.
BASIC VALUE: STOCKS FOR GROWTH AND INCOME
We continue to emphasize a basic value theme when selecting holdings for the
fund's stock portfolio. Basic value investing means finding bargain-priced
stocks -- those whose prices do not reflect what we believe to be the inherent
value of a company's assets and earnings potential. This strategy demands
diligent research and benefits from our ongoing communication with a company's
management, as well as from regular on-site visits.
This in-depth company and industry analysis helps us identify improvements
well before they become common knowledge and enables your fund to take
advantage of the resulting opportunities.
BOND STRATEGY: SHORTER MATURITIES
During the fund's previous fiscal periods, when interest rates were declining,
we tended to focus on bonds with longer maturities than those in the Lehman
Brothers Index. This allowed shareholders of the fund to benefit from the
higher yields these bonds were providing at that time.
Early in fiscal 1994, however, we recognized that the direction of short-term
interest rates was soon likely to reverse, and the spread between short- and
long-term rates could be expected to narrow. In
4
<PAGE>
anticipation of such a development, we began to shorten the portfolio's
average maturity, while still investing in both short- and long-term bonds. We
believed this shift in strategy would help cushion the volatility likely to
result from a reversal in the direction of interest rates.
Our prediction proved accurate. The Federal Reserve Board has moved to keep
inflation under control by incrementally increasing short-term interest rates,
which it did three times shortly before the period's end. While our focus on
short-term bonds -- which generally have lower coupon levels than longer-term
bonds -- meant a reduced level of income for the fund, it also provided
greater stability. We believe that without this change in emphasis, the fund's
returns would have been affected to a much greater degree by recent market
volatility.
It was this shift in portfolio focus that prompted a recent proposal to reduce
your fund's dividend by $0.01 per share-- a proposal your Trustees approved in
April, effective with the May 31 dividend.
<TABLE>
<CAPTION>
TOP INDUSTRY SECTORS* 10/31/93 4/30/94
<S> <C> <C>
Insurance & finance 19.2% 17.7%
Utilities 13.4 13.0
Oil & gas 11.0 7.5
Consumer services -- 4.8
Chemicals 3.2 4.2
Health care 3.3 3.4
</TABLE>
*Based on net assets.
5
<PAGE>
HIGH-YIELD BONDS: STILL PERFORMING WELL
While they did not escape the widespread unsteadiness of the financial markets
during the last several months, high-yield bonds continued to outperform other
fixed-income investments. We believe several factors continue to make high-
yield bonds an attractive alternative for your fund.
For example, the overall credit quality in the high-yield sector has been
improving over the last several years. Companies have routinely trimmed
operating costs and have increased workplace efficiency. Also, a growing U.S.
economy has helped to improve the earnings of many companies, which in turn
has helped to increase the credit quality of the debt they issue.
OUTLOOK: MANAGING CHANGE IS THE KEY
Over the long term, we expect that U.S.-based multinational companies with
global expansion capabilities will offer opportunities for value. The United
States has recently begun to take back industrial and manufacturing market
share from overseas competitors, providing a positive investment environment
for this broad economic sector.
XEROX CORP., for example, is a company we think will benefit in the current
environment. The firm offers the most advanced digital copiers in the world,
for which demand is expected to increase. Similarly, we are optimistic about
the prospects of AVON PRODUCTS, INC. and DU PONT (E.I.) DE NEMOURS & CO., LTD.
Avon has begun selling cosmetics in emerging markets such as Latin America and
China and DuPont has also initiated global expansion of its
6
<PAGE>
TOP TEN CORPORATE HOLDINGS (4/30/94)
Xerox Corp.
Copying, duplicating machines, office equipment
Pennsylvania Central Corp.
Specialty property and casualty insurance
Home Savings of America
Savings and mortgage banking
Morgan (J.P.) & Co., Inc.
Bank holding company
Tele-Communications, Inc.
Cable TV, cellular phones, telephones
Gulf States Utilities, Co.
Electric, gas and steam utility
Time Warner, Inc.
Media, entertainment, publishing
Occidental Petroleum Corp.
Oil and natural gas production
Owens-Illinois, Inc.
Glass and plastic container production
Hartford National Corp.
Banking
*These holdings represent 10.6% of the fund's net assets as of 4/30/94.
Portfolio holdings are subject to change.
businesses. Our mention of these holdings should not be taken as investment
advice. All stocks still held as of April 30, 1994, were viewed favorably, but
there is no guarantee the fund will hold these securities in the future.
The pace of world change is accelerating, and staying ahead of industry and
market trends is essential to investment success.
We will continue to seek to identify companies that, through significant
restructuring and innovative management, have become low-cost producers
worldwide.
Furthermore, we believe our disciplined, well-researched approach to value
investing puts us at the forefront of managing change, and helps to
competitively position Putnam Managed Income Trust for the remainder of fiscal
1994 and beyond.
7
<PAGE>
PERFORMANCE SUMMARY
This section provides, at a glance, information about your fund's performance.
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions back into the fund.
We show total return in two ways: On a CUMULATIVE LONG-TERM BASIS and how the
fund might have grown each year, ON AVERAGE, over varying periods (see the
tables below).
We provide total returns for varying lengths of time ending on April 30, 1994,
the close of the fiscal period covered in this report. To make comparisons
with other investments easier, we also provide data for periods ending on
March 31, 1994, the most recent calendar quarter. Finally, we have provided
terms and definitions as they apply to your fund.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDING 4/30/94*
Lehman Bros.
Class A+ Class B+ S&P Govt./Corp.
NAV POP NAV CDSC 500(R) Index Bond Index
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6 months -3.20% -8.80% -- -- -2.31% -4.60%
----------------------------------------------------------------------------------------------------------------
1 year 4.00 -1.94 -- -- 5.31 1.15
----------------------------------------------------------------------------------------------------------------
5 years 60.11 50.86 -- -- 70.40 59.65
Annual average 9.87 8.57 -- -- 11.25 9.81
----------------------------------------------------------------------------------------------------------------
Life of class A 128.56 115.48 -- -- 237.42 144.05
Annual average 9.59 8.87 -- -- 14.47 10.42
----------------------------------------------------------------------------------------------------------------
Life of class B -- -- -4.89% -9.57% -5.75 -5.36
----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDING 3/31/94*
(most recent calendar quarter)
Class A+ Class B+
NAV POP NAV CDSC
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6 months -2.48% -8.08% -- --
------------------------------------------------------------------------------
1 year 3.65 -2.27 -- --
------------------------------------------------------------------------------
5 years 66.19 56.71 -- --
Annual average 10.69 9.40 -- --
------------------------------------------------------------------------------
Life of class A 128.04 114.99 -- --
Annual average 9.65 8.93 -- --
------------------------------------------------------------------------------
Life of class B -- -- -5.32% -9.98%
------------------------------------------------------------------------------
</TABLE>
+The fund began offering what are now known as class A shares on April 19, 1985.
Effective February 1, 1994, the fund began offering class B shares. Performance
of each share class will differ.
8
<PAGE>
TERMS AND DEFINITIONS
CLASS A fund shares are generally subject to an initial sales charge.
CLASS B fund shares may be subject to a sales charge on redemption.
NET ASSET VALUE (NAV) is the value of all fund assets, minus liabilities,
divided by the number of outstanding shares. It does not include any initial or
contingent deferred sales charges.
PUBLIC OFFERING PRICE (POP) is the price of a fund share plus the maximum sales
charge levied at the time of purchase. POP performance figures shown here assume
the maximum 5.75% sales charge.
CONTINGENT DEFERRED SALES CHARGE (CDSC) is applied on redemption of fund shares.
Your fund's CDSC declines from a 5% maximum during the first year to 1% during
the sixth year. After the sixth year, the CDSC no longer applies.
COMPARATIVE BENCHMARKS
STANDARD & POOR'S 500 INDEX is an unmanaged list of large-capitalization common
stocks and is frequently used as a general gauge of stock market performance.
LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX is an unmanaged list of publicly
issued U.S. Treasury obligations, debt obligations of U.S. government agencies
(excluding mortgage-backed securities), fixed-rate, nonconvertible investment-
grade corporate debt securities and U.S. dollar-denominated SEC-registered
nonconvertible debt issued by foreign governmental entities or international
agencies.
* Performance data shown on page 8 represent past results and assumes
reinvestment of all distributions. Data do not take into account any
adjustment for taxes payable on reinvested distributions or, for the indexes,
brokerage commissions or other costs. The fund's portfolio contains securities
that do not match those in the indexes. Investment returns and net asset value
of the fund will fluctuate so an investor's shares, when sold, may be worth
more or less than their original cost.
9
<PAGE>
LIFE CYCLE INVESTING
As we move through life, our investment needs change. As these needs change, so
does the way we allocate our assets. Here are some basic rules for setting up
and maintaining an investment program and some examples of how assets might be
allocated.
DETERMINE YOUR INVESTMENT OBJECTIVES.
Objectives may include a new home, college education expenses, or retirement.
EVALUATE YOUR RISK TOLERANCE.
Generally, risk tolerance is higher for younger investors with longer timelines
and lower for older investors who may depend on their investment for current
income.
ALLOCATE YOUR INVESTABLE SAVINGS.
Your investment advisor will help you determine how much of your investable
dollars should be allocated to each investment category.
CHOOSE THE APPROPRIATE PUTNAM FUNDS.
Using Putnam's free exchange privilege, you can adjust your own Putnam portfolio
of funds as your financial needs change -- without a service fee.*
Look at the facing page for some ways you can allocate your assets, then turn
the page to see how the Putnam Fund Selector(TM) can help you make your choices.
* Putnam reserves the right to change or terminate the exchange privilege.
In some cases, a sales charge may apply. See prospectus for details.
10
<PAGE>
FOUR WAYS TO ALLOCATE ASSETS
------------------------------------------------------------------------------
SEEKING MAXIMUM GROWTH
Risk tolerance: 30% - 40% Growth and Income [PIE CHART APPEARS
Generally 40% - 50% Growth HERE]
investors with a 5% - 20% Income or
higher risk tax-free income
tolerance
(often in their 20s
and early 30s.)
------------------------------------------------------------------------------
SEEKING GROWTH AND SOME INCOME
Risk tolerance: 40% - 50% Growth and income [PIE CHART APPEARS
Generally 30% - 40% Growth HERE]
investors with a 10% - 30% Income or
high to moderate tax-free income
risk tolerance
(often in their
late 30s and
early 40s.)
------------------------------------------------------------------------------
SEEKING INCOME AND SOME GROWTH WITH PROTECTION AGAINST INFLATION
Risk tolerance: 30% - 40% Growth and income [PIE CHART APPEARS
Generally 10% - 20% Growth HERE]
investors with a 25% - 60% Income or
moderate risk tax-free income
tolerance
(often in their
late 40s and 50s.)
------------------------------------------------------------------------------
SEEKING HIGH CURRENT INCOME AND PROTECTION AGAINST INFLATION
Risk tolerance: 20% - 30% Growth and income [PIE CHART APPEARS
Generally 5% - 10% Growth HERE]
investors with a 40% - 70% Income or
moderate to low tax-free income
risk tolerance
(often over 60
and retired.)
11
<PAGE>
THE PUTNAM FUND SELECTOR(TM)
The Putnam Fund Selector shows the many opportunities for investors within every
investment strategy. All investors should first accumulate a base of
conservative, cash-equivalent investments. Then, with the help of your
investment advisor, diversify your portfolio by investing in the Putnam Family
of Funds.
[PYRAMID GRAPHIC APPEARS HERE]
Risk/Reward
PUTNAM GROWTH FUNDS
PUTNAM GROWTH AND INCOME FUNDS
PUTNAM INCOME OR TAX-FREE INCOME FUNDS
MOST CONSERVATIVE INVESTMENTS
12
<PAGE>
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Diversified Equity Trust
Energy-Resources Trust
Europe Growth Fund
Global Growth Fund
Health Sciences Trust
Investors Fund
New Opportunities Fund
OTC Emerging Growth Fund
Overseas Growth Fund
Vista Fund
Voyager Fund
PUTNAM GROWTH
AND INCOME FUNDS
Convertible Income-Growth Trust
Dividend Growth Fund
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Managed Income Trust
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
Adjustable Rate U.S. Government Fund
American Government Income Fund
Balanced Government Fund
Corporate Asset Trust
Diversified Income Trust
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE INCOME FUNDS
Intermediate Tax Exempt Fund
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds*
Arizona, California, Florida,
Massachusetts, Michigan, Minnesota,
New Jersey, New York, Ohio,
and Pennsylvania
LIFESTAGE(SM) FUNDS
Putnam Asset Allocation Funds -- three
investment portfolios that spread your
money across a variety of stocks, bonds,
and money market investments to help
maximize your return and reduce your risk.
The three portfolios:
Putnam Asset Allocation: Balanced Portfolio
Putnam Asset Allocation: Conservative Portfolio
Putnam Asset Allocation: Growth Portfolio
MOST CONSERVATIVE INVESTMENTS+
Putnam money market funds
Daily Dividend Trust
Tax Exempt Money Market Fund
CDs and savings accounts++
* Not available in all states.
+ Relative to above.
++ Not offered by Putnam Investments. Certificates of deposit offer a fixed
rate of return and may be insured, up to certain limits, by federal/state
agencies. Savings accounts may also be insured up to certain limits.
Please call your financial advisor or Putnam to obtain a prospectus for any
Putnam fund. It contains more complete information, including charges and
expenses. Read it carefully before you invest or send money.
13
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
April 30, 1994 (Unaudited)
COMMON STOCKS (42.0%)(a)
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE
UTILITIES(8.3%)
-----------------------------------------------------------------------------------------------------------
<C> <S> <C>
70,000 Allegheny Power Systems, Inc. $ 1,653,750
61,500 American Telephone & Telegraph Co. 3,144,188
33,300 Bell Atlantic Corp. 1,723,275
22,100 BellSouth Corp. 1,345,338
120,000 Cincinnati Gas & Electric Co. 2,745,000
16,000 Consolidated Natural Gas Co. 630,000
24,000 Entergy Corp. 735,000
20,000 FPL Group, Inc. 707,500
39,000 General Public Utilities Corp. 1,189,500
76,000 GTE Corp. 2,403,500
20,000 Houston Industries Inc. 720,000
55,000 Montana Power Co. 1,347,500
114,000 NYNEX Corp. 4,146,750
59,300 Northeast Utilities 1,475,088
88,000 PSI Resources, Inc. 1,969,000
18,000 Public Service Co. of Colorado 533,250
30,000 Sierra Pacific Resources 562,500
42,000 Southwestern Bell Corp. 1,743,000
29,100 Sprint Corp. 1,069,425
30,000 Telefonica de Espana ADR (b) 1,222,500
72,000 Texas Utilities Co. 2,538,000
89,657 US WEST, Inc. 3,653,523
62,000 United Illuminating Co. 2,270,750
35,000 Wicor Inc. 905,625
------------
40,433,962
<CAPTION>
INSURANCE AND FINANCE(7.8%)
-----------------------------------------------------------------------------------------------------------
<C> <S> <C>
36,000 Aetna Life & Casualty Co. 1,872,000
64,000 American Express Co. 1,896,000
84,000 American General Corp. 2,142,000
49,600 Banc One Corp. 1,636,800
24,000 BankAmerica Corp. 1,038,000
44,422 Bankers Trust New York Corp. 2,970,721
92,000 Beneficial Corp. 3,496,000
25,000 CIGNA Corp. 1,462,500
112,000 Comerica Inc. 3,136,000
24,000 First Alabama Bancshares 849,000
64,000 Household International, Inc. 2,008,000
60,000 Lincoln National Corp. 2,287,500
16,000 Mellon Bank Corp. 892,000
85,000 Morgan (J.P.) & Co., Inc. 5,227,500
60,000 National City Corp. 1,605,000
20,000 Nationsbank Corp. 1,045,000
32,000 PNC Bank Corp. 892,000
30,000 Synovus Financial Corp. 513,750
36,000 Unitrin, Inc. 1,404,000
56,000 Wilmington Trust Co. 1,386,000
------------
37,759,771
<CAPTION>
OIL AND GAS(4.7%)
-----------------------------------------------------------------------------------------------------------
<C> <S> <C>
40,000 Amoco Corp. 2,245,000
23,000 Chevron Corp. 2,047,000
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCKS
NUMBER OF SHARES VALUE
OIL AND GAS(continued)
-----------------------------------------------------------------------------------------------------------
<C> <S> <C>
70,000 Exxon Corp. $ 4,401,250
40,000 Imperial Oil Ltd. 1,265,000
43,100 McDermott International, Inc. 915,875
46,400 Mobil Corp. 3,630,800
40,000 Royal Dutch Petroleum Co. ADR (b) 4,360,000
65,000 Texaco Inc. 4,184,375
-----------
23,049,300
<CAPTION>
CHEMICALS(3.4%)
-----------------------------------------------------------------------------------------------------------
<C> <S> <C>
43,000 Dow Chemical Co. 2,698,250
74,000 du Pont (E.I.) de Nemours & Co., Ltd. 4,227,250
30,000 Eastman Chemical Co. 1,335,000
67,000 Grace (W.R.) & Co. 2,730,250
45,000 Olin Corp. 2,300,625
43,000 Union Carbide Corp. 1,134,125
70,000 Witco Chemical Corp. 2,047,500
-----------
16,473,000
<CAPTION>
CONSUMER NON DURABLES(3.2%)
-----------------------------------------------------------------------------------------------------------
<C> <S> <C>
59,400 Avon Products, Inc. 3,526,875
110,000 American Brands, Inc. 3,726,250
60,000 Kimberly-Clark Corp. 3,292,500
84,000 Philip Morris Cos., Inc. 4,578,000
4,900 Tambrands Inc. 180,688
-----------
15,304,313
<CAPTION>
BUSINESS EQUIPMENT AND SERVICES(3.1%)
-----------------------------------------------------------------------------------------------------------
<C> <S> <C>
12,000 Block (H & R), Inc. 510,000
3,414 Computervision Corp. 10,242
1,709 Computervision Corp. 5,127
30,000 Dun & Bradstreet Corp. 1,762,500
24,000 Equity Residential Properties Trust 786,000
60,000 IBM Corp. 3,435,000
43,000 Moore Corp. Ltd. 784,750
220,000 Unisys Corp. 2,392,500
55,500 Xerox Corp. 5,487,563
-----------
15,173,682
<CAPTION>
HEALTH CARE(2.9%)
-----------------------------------------------------------------------------------------------------------
<C> <S> <C>
50,000 American Cyanamid Co. 2,350,000
80,000 American Home Products Corp. 4,620,000
36,000 Baxter International, Inc. 823,500
15,000 Bristol-Myers Squibb Co. 808,125
36,600 Lilly (Eli) & Co. 1,802,550
20,000 Merck & Co., Inc. 592,500
43,000 Warner-Lambert Co. 2,918,625
-----------
13,915,300
<CAPTION>
CONGLOMERATES(1.1%)
-----------------------------------------------------------------------------------------------------------
<C> <S> <C>
36,000 Fleming Cos., Inc. 904,500
16,000 Minnesota Mining & Manufacturing Co. 782,000
31,000 National Service Industries, Inc. 825,375
38,000 Ogden Corp. 807,500
31,000 TRW, Inc. 2,022,750
-----------
5,342,125
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCKS
NUMBER OF SHARES VALUE
REAL ESTATE(1.0%)
-----------------------------------------------------------------------------------------------------------
<C> <S> <C>
100,000 Bradley Real Estate Trust $ 900,000
63,000 Crown American Realty Trust 905,625
60,700 Debartolo Realty Corp. 902,913
40,000 Health Care REIT Inc. 1,000,000
20,000 LTC Properties Inc. 265,000
15,800 Macerich Co. 310,075
60,000 Mid-America Realty Invsmnts 600,000
------------
4,883,613
<CAPTION>
FOOD AND BEVERAGES(1.0%)
-----------------------------------------------------------------------------------------------------------
<C> <S> <C>
32,000 CPC International Inc. 1,544,000
90,000 Flowers Industries, Inc. 1,518,750
28,000 Quaker Oats Co. (The) 1,802,500
------------
4,865,250
<CAPTION>
RETAIL(0.8%)
-----------------------------------------------------------------------------------------------------------
<C> <S> <C>
104,000 K Mart Corp. 1,716,000
20,000 Sears, Roebuck & Co. 940,000
69,000 Woolworth Corp. 1,147,125
------------
3,803,125
<CAPTION>
AEROSPACE AND DEFENSE(0.7%)
-----------------------------------------------------------------------------------------------------------
<C> <S> <C>
82,000 GenCorp Inc. 1,148,000
36,000 Northrop Corp. 1,377,000
21,000 Rockwell International Corp. 819,000
------------
3,344,000
<CAPTION>
FOREST PRODUCTS(0.6%)
-----------------------------------------------------------------------------------------------------------
<C> <S> <C>
20,300 Champion International Corp. 619,150
33,200 Potlatch Corp. 1,352,900
32,000 Westvaco Corp. 992,000
------------
2,964,050
<CAPTION>
TRANSPORTATION(0.5%)
-----------------------------------------------------------------------------------------------------------
<C> <S> <C>
20,000 Consolidated Freightways, Inc. 550,000
33,000 Norfolk Southern Corp. 2,107,875
------------
2,657,875
<CAPTION>
ELECTRONIC COMPONENTS AND EQUIPMENT(0.5%)
-----------------------------------------------------------------------------------------------------------
<C> <S> <C>
19,600 Emerson Electric Co. 1,141,700
30,000 Honeywell, Inc. 1,239,750
------------
2,381,450
<CAPTION>
PHOTOGRAPHY(0.5%)
-----------------------------------------------------------------------------------------------------------
<C> <S> <C>
55,000 Eastman Kodak Co. 2,282,500
<CAPTION>
AUTOMOTIVE(0.5%)
-----------------------------------------------------------------------------------------------------------
<C> <S> <C>
23,000 Daimler Benz AKT-ADR (b) 1,259,250
18,000 General Motors Corp. 1,021,500
------------
2,280,750
<CAPTION>
METALS AND MINING(0.4%)
-----------------------------------------------------------------------------------------------------------
<C> <S> <C>
52,000 Reynolds Metal Co. 2,184,000
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCKS
NUMBER OF SHARES VALUE
CONSUMER SERVICES(0.4%)
-----------------------------------------------------------------------------------------------------------
<C> <S> <C>
68,000 Times Mirror Co. Class A 2,150,500
<CAPTION>
BASIC INDUSTRIAL PRODUCTS(0.3%)
-----------------------------------------------------------------------------------------------------------
<C> <S> <C>
20,000 Ball Corp. 537,500
19,000 Sundstrand Corp. 902,500
------------
1,440,000
<CAPTION>
ENVIRONMENTAL CONTROL(0.2%)
-----------------------------------------------------------------------------------------------------------
<C> <S> <C>
33,000 WMX Technologies, Inc. 862,125
<CAPTION>
ENERGY-RELATED(0.1%)
-----------------------------------------------------------------------------------------------------------
<C> <S> <C>
24,000 Westcoast Energy, Inc. 414,000
-------------
Total Common Stocks (cost $216,931,996) $ 203,964,691
</TABLE>
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES (32.2%) (a)
PRINCIPAL AMOUNT VALUE
INSURANCE AND FINANCE(9.8%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 500,000 AIM Management Group sr. secd. notes 9s, 2003 $ 460,000
4,700,000 Australia New Zealand Bank 6 1/4s, 2004 4,244,688
1,160,000 BAT Capital Corp. 6.19s, 2000 1,091,850
2,000,000 Bank of Scotland sub. notes 8.8s, 2004 (c) 2,115,000
500,000 Bankers Life Holding Corp. sr. sub. notes Ser. A 13s, 2002 577,500
4,200,000 Chemical Banking Corp. sub. deb. 8 5/8s, 2002 4,412,625
1,000,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 940,000
3,000,000 Chrysler Financial Corp. sr. note, 9 1/2s, 1999 3,273,750
3,150,000 Den Danske Bank sub. notes 6.55s, 2003 (c) 2,860,594
500,000 Ford Capital BV deb. 9s, 1998 531,875
2,000,000 Goldman, Sachs & Co. deb., 8s, 2013 (c) 1,942,500
4,500,000 Great Western Finance Corp. notes 6 1/8s, 1998 4,320,000
4,490,000 Hartford National Corp. sub. cap. notes 9.85s, 1999 4,930,581
5,000,000 Home Savings of America, 10 1/2s, 1997 5,365,625
600,000 Keystone Group, Inc. sr. secd. notes 9 3/4s, 2003 573,000
2,100,000 Midlantic Banks, deb. 9 7/8s, 1999 2,302,125
500,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 422,500
750,000 Reliance Group Holdings sr. sub. notes 9 3/4s, 2003 682,500
3,200,000 Star Bank N.A. sub notes 6 3/8s, 2004 2,920,000
4,440,000 Suntrust Banks sub. notes 6 1/8s, 2004 3,951,600
-----------
47,918,313
<CAPTION>
UTILITIES(4.9%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
200,000 BVPS II Funding Corp. secd. lease oblig. bonds 9s, 2017 172,000
5,000,000 Gulf States Utilities Co. 1st mtge. 8.7s, 2024 5,087,500
1,335,000 Long Island Lighting 5 1/4s, 1996 1,314,975
5,000,000 Old Dominion Electric Co. Ser. 93-A, 1st mtge.
Sinking Fund, 7.78s, 2023 4,740,625
4,196,000 System Energy Resources Inc. 1st mtge. 14s, 1994 4,366,463
4,700,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 4,318,125
4,350,000 Toledo Edison Co. med. term notes 7.82s, 2003 3,890,531
-----------
23,890,219
<CAPTION>
CONSUMER SERVICES(4.4%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
750,000 AMC Entertainment, Inc. sr. sub. notes 12 5/8s, 2002 810,000
600,000 Argyle Television Operations sr. sub. notes 9 7/8s, 2003 561,000
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
CONSUMER SERVICES(continued)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 250,000 Arizona Charlies Corp. sub. deb. 12s, 2000 $ 250,000
380,000 Cablevision Systems Corp. sr. sub. deb. 10 3/4s, 2004 383,800
500,000 Casino America Inc. 1st mtge. deb. 11 1/2s, 2001 490,000
500,000 Centennial Cellular Corp. sr. notes 8 7/8s, 2001 455,000
2,000,000 Century Communications Corp. sr. disc. notes zero %, 2003 775,000
1,000,000 Flagstar Corp. sr. sub. deb. 11 1/4s, 2004 955,000
550,000 John Q. Hammons Hotels 1st. Mortgage 8 7/8s, 2004 495,000
300,000 Louisiana Quinta Motor Inns Inc. deb. 9 1/4s, 2003 282,000
550,000 Marvel Holdings, Inc. sr. secd. disc. notes zero %, 1998 338,250
1,000,000 NEXTEL Communications Inc. sr. disc. notes
stepped-coupon zero % (9 3/4s, 2/15/99), 2004 (f) 580,000
4,000,000 News American Hldgs. Inc. sr. notes 8 1/2s, 2005 3,985,000
1,000,000 Panamsat L.P. sr. sub. notes stepped-coupon zero %
(11 3/8s, 8/1/98), 2003 (f) 610,000
5,000,000 Tele-Communications, Inc. sr. deb. 9.8s, 2012 5,187,500
5,200,000 Time Warner Inc. global notes 9 1/8s, 2013 4,979,000
-----------
21,136,550
<CAPTION>
OIL AND GAS(3.6%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
4,000,000 Arkla Inc., 8s, 1997 4,000,000
4,000,000 Coastal Corp. sub. notes, 11 1/8s, 1998 4,140,000
2,000,000 Maxus Energy Corp. global deb. 9 1/2s, 2003 1,850,000
4,400,000 Occidental Petroleum Corp. sr. notes 11 3/4s, 2011 4,950,000
2,700,000 Transcontinental Gas Pipe Line Corp. sr. deb. 9 1/8s, 2017 2,693,250
-----------
17,633,250
<CAPTION>
CONGLOMERATES(1.7%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
500,000 MacAndrews & Forbes Holdings Inc. sub. deb. 13s, 1999 501,250
4,700,000 Pennsylvania Central Corp. sub. notes 10 7/8s, 2011 5,366,813
1,500,000 Tenneco Inc. deb. 10s, 2008 1,707,188
500,000 Westpoint Stevens, Inc. sr. notes 8 3/4s, 2001 455,000
-----------
8,030,251
<CAPTION>
BASIC INDUSTRIAL PRODUCTS(1.1%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
230,000 Anchor Glass Container Corp. sr. sub. deb. 9 7/8s, 2008 212,175
250,000 Ispat Mexicana, deb. 10 3/8s, 2001 (c) 234,375
5,000,000 Owens-Illinois Inc. deb. 9.95s, 2004 4,950,000
-----------
5,396,550
<CAPTION>
METALS AND MINING(1.1%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
4,200,000 ASARCO Inc. notes 7 3/8s, 2003 3,997,875
750,000 Kaiser Aluminum & Chemical Co. sr. notes 9 7/8s, 2002 693,750
500,000 WCI Steel Inc. sr. notes 10 1/2s, 2002 (c) 513,750
-----------
5,205,375
<CAPTION>
AUTOMOTIVE(1.0%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
3,775,000 Chrysler Corp. deb. 10.95s, 2017 4,336,531
365,000 Key Plastics Corp. sr. notes 14s, 1999 421,575
-----------
4,758,106
<CAPTION>
ENERGY-RELATED(0.8%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
750,000 Envirosource, Inc. sr. notes 9 3/4s, 2003 705,000
2,800,000 Tosco Corp. 1st mtge. Ser. B, 9 5/8s, 2002 2,959,250
-----------
3,664,250
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
CHEMICALS(0.8%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 240,000 G-I Holdings Inc. sr. notes zero %, 1998 (e) $ 148,800
1,000,000 Harris Chemical Corp. sr. secd. disc. notes stepped-coupon
zero % (10 1/4s, 1/15/96), 2001 (f) 815,000
750,000 Koppers Industries Inc. sr. notes 8 1/2s, 2004 686,250
750,000 OSI Specialties Inc. sr. sub. notes 9 1/4s, 2003 731,250
750,000 PMI Acquisition Corp. sr. sub. notes 10 1/4s, 2003 750,000
500,000 UCC Investors Holding, Inc. sr. notes 10 1/2s, 2002 515,000
-----------
3,646,300
<CAPTION>
RETAIL(0.7%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
500,000 Penn Traffic Co. sr. sub. notes 9 5/8s, 2003 467,500
3,000,000 Sears Roebuck med. term notes 5.91s, 1999 2,829,375
250,000 Service Merchandise Co., Inc. sr. sub. deb. 8 3/8s, 2001 232,500
-----------
3,529,375
<CAPTION>
HEALTH CARE(0.5%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
945,000 EPIC Holdings Inc. sr. notes stepped-coupon zero %
(12s, 3/15/97), 2002 (f) 777,263
500,000 Healthsouth Rehabilitation 9 1/2s, 2000 486,250
300,000 Kendall Co. (The) deb. 8 1/4s, 2003 285,000
500,000 Mediplex Group, Inc. sr. sub. notes 11 3/4s, 2002 530,000
250,000 Paracelsus Healthcare Corp. sr. sub. notes 9 7/8s, 2003 238,750
-----------
2,317,263
<CAPTION>
FOREST PRODUCTS(0.3%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
1,000,000 Gaylord Container Corp. sr. sub. disc. deb. stepped-coupon
zero % (12 3/4s, 5/15/96), 2005 (f) 810,000
750,000 Stone Container sr. sub. notes 9 7/8s, 2001 695,625
-----------
1,505,625
<CAPTION>
TRANSPORTATION(0.3%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
700,000 Delta Air Lines Equipment Trust 10s, 2013 (c) 686,438
650,000 Viking Star Shipping sr. secd. notes 9 5/8s, 2003 650,000
-----------
1,336,438
<CAPTION>
FOOD(0.2%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
750,000 Chiquita Brands Senior Notes 9 1/8s, 2004 690,000
500,000 Stater Brothers sr. notes 11s, 2001 (c) 487,500
-----------
1,177,500
<CAPTION>
CONSUMER NON DURABLES(0.2%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
750,000 ADT Ltd. sr. sub. notes 9 1/4s, 2003 705,000
460,000 Playtex Family Products Corp. sr. sub. notes 9s, 2003 414,000
-----------
1,119,000
<CAPTION>
BUILDING AND CONSTRUCTION(0.2%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
1,000,000 American Standard, Inc. sr. sub. deb. stepped-coupon
zero % (10 1/2s, 6/1/98), 2005 (f) 575,000
450,000 Snydergeneral Corp. sr. sub. deb. 14 1/4s, 2000 472,500
-----------
1,047,500
<CAPTION>
REAL ESTATE(0.2%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
710,000 Kearny Street Real Estate sec. notes 9.56s, 2003 724,200
250,000 Scotsman Group Inc. sr. secd. notes 9 1/2s, 2000 236,250
-----------
960,450
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
MOTION PICTURE DISTRIBUTION(0.1%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 500,000 United Artists 11 1/2s, 2002 $ 535,000
<CAPTION>
BUSINESS SERVICES(0.1%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
500,000 Corporate Express, Inc. sr. notes 9 5/8s, 2004 (c) 465,000
<CAPTION>
FOOD AND BEVERAGES(0.1%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
500,000 Fresh Del Monte Produce Corp. sr. notes 10s, 2003 (c) (e) 460,000
<CAPTION>
COMMUNICATIONS(0.1%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
400,000 Paging Network, Inc. sr. sub. notes 8 7/8s, 2006 356,000
<CAPTION>
TELECOMMUNICATIONS(0.1%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
250,000 McGaw, Inc. sr. notes 10 3/8s, 1999 258,750
----------------------------------------------------------------------------------------------------------
Total Corporate Bonds and Notes (cost $163,877,313) $156,347,065
<CAPTION>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS(19.8%)(a)
----------------------------------------------------------------------------------------------------------
Government National Mortgage Association
<C> <S> <C>
$ 9,076,034 7s, Midgets, with various due dates to January 15, 2009 8,863,309
18,924,157 6.5s, with various due dates to February 15, 2024 17,126,341
6,369,356 6s, Midgets, with various due dates to January 15, 2009 5,899,605
9,243,000 U.S. Treasury Bonds 7 1/8s, February 15, 2023 8,936,826
3,660,000 U.S. Treasury Notes 7 3/4s, February 15, 2001 3,834,994
3,000,000 U.S. Treasury Notes 5 7/8s, February 15, 2004 2,752,500
18,600,000 U.S. Treasury Notes 5 1/8s, March 31, 1998 17,736,844
5,700,000 U.S. Treasury Notes 5s, January 31, 1999 5,331,281
8,165,000 U.S. Treasury Notes 4 1/4s, November 30, 1995 8,034,089
18,164,000 U.S. Treasury Notes 3 7/8s, March 31, 1995 17,812,845
----------------------------------------------------------------------------------------------------------
Total U.S. Government and Agency Obligations
(cost $101,114,751) $ 96,328,634
<CAPTION>
CONVERTIBLE BONDS (1.9%)(a)
PRINCIPAL AMOUNT
VALUE
INSURANCE AND FINANCE(0.4%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 1,600,000 Old Republic International Corp. cv. sub. deb. 5 3/4s, 2002 $ 1,652,000
500,000 Trenwick Group, Inc. cv. deb. 6s, 1999 492,500
------------
2,144,500
<CAPTION>
METALS AND MINING(0.4%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
5,600,000 Freeport-McMoran, Inc. cv. deb. zero %, 2006 1,883,000
<CAPTION>
CONSUMER NON DURABLES(0.4%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
600,000 Guilford Mills Inc. cv. sub. deb. 6s, 2012 559,500
1,300,000 Interface Inc. Sinking Fund cv. deb. 8s, 2013 1,300,000
------------
1,859,500
<CAPTION>
FOOD AND BEVERAGES(0.3%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
2,200,000 Seagram Co. Ltd. liquid yield option notes (LYON), zero %, 2006 1,196,250
<CAPTION>
TRANSPORTATION(0.2%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
1,100,000 Delta Air Lines, Inc. cv. sub. notes 3.23s, 2003 798,875
<CAPTION>
CELLULAR BROADCASTING(0.1%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
1,600,000 Comcast Corp. cv. 1 1/8s, 2007 648,000
<CAPTION>
CONSUMER SERVICES(0.1%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
1,800,000 Hollinger, Inc., LYON zero %, 2013 603,000
----------------------------------------------------------------------------------------------------------
Total Convertible Bonds (cost $9,224,365) $ 9,133,125
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCKS (1.8%) (a)
NUMBER OF SHARES
VALUE
INSURANCE AND FINANCE(0.5%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
45,000 Republic New York Corp. $3.375, cv. pfd. $ 2,491,875
<CAPTION>
TRANSPORTATION(0.5%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
20,000 AMR Corp. Ser. A, $3.00, cv. pfd. 920,000
30,000 Delta Air Lines, Inc. Ser. C, $3.50, cv. pfd. 1,470,000
------------
2,390,000
<CAPTION>
AUTOMOTIVE(0.3%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
15,000 Ford Motor Co. Ser. A, $4.20, cv. pfd. 1,447,500
<CAPTION>
METALS AND MINING(0.3%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
25,000 Freeport-McMoRan Copper Co., Inc. stepped-coupon $1.25 cv. pfd. 593,750
20,000 Pittston Corp. $6.25, cv. pfd. 815,000
------------
1,408,750
<CAPTION>
ELECTRONICS AND ELECTRICAL EQUIPMENT(0.2%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
63,700 Westinghouse Electric Senior C $1.30 cv. pfd. 788,288
<CAPTION>
CONSUMER NON-DURABLES(0.1%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
9,000 Fieldcrest Cannon, Inc. Ser. A, $3.00, cv. pfd. 576,000
----------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks (cost $9,491,149) $ 9,102,413
</TABLE>
<TABLE>
<CAPTION>
PREFERRED STOCKS(0.2%)(a) (cost $929,600)
NUMBER OF SHARES
VALUE
FOREST PRODUCTS(0.2%)
----------------------------------------------------------------------------------------------------------
<C> <S> <C>
35,000 Boise Cascade Corp. Ser. F, $2.35, dep. shs. pfd. $ 901,250
----------------------------------------------------------------------------------------------------------
UNITS(0.2%)(a)
NUMBER OF UNITS
VALUE
<C> <S> <C>
475,000 ICF Kaiser International Inc. sr. sub. units 12s, 2003 $ 470,250
400,000 Louisiana Casino Cruises Corp. sr. sub. deb. 11 1/2s, 1998 (c) 340,000
----------------------------------------------------------------------------------------------------------
Total Units (cost $920,250) $ 810,250
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS(5.8%)(a)
PRINCIPAL AMOUNT
VALUE
<C> <S> <C>
$ 10,000,000 Federal National Mortgage Assn. 3.78s, June 1, 1994 $ 9,967,450
17,998,000 Interest in $504,971,000 repurchase agreement dated
April 29, 1994 with Kidder, Peabody & Co., Inc. due May 2,
1994 with respect to various U.S. Treasury obligations--
maturity value of $18,003,324 for an effective yield of 3.55% $ 18,001,550
------------
Total Short-Term Investments (cost $27,969,000) $ 27,969,000
------------
Total Investments (cost $530,458,424)(g) $504,556,428
============
</TABLE>
21
<PAGE>
NOTES
-------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $485,426,040, which
correspond to a net asset value per share for class A and class B
shareholders of $8.71 and $8.72 respectively.
(b) Securities whose values are determined or significantly influenced by
trading on exchanges not in the United States or Canada. ADR after the name
of a foreign holding stands for American Depository Receipt representing
shares on deposit with a domestic custodian bank.
(c) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration normally to qualified institutional buyers. At April 30, 1994,
these securities amounted to $9,765,157 or 2.0% of net assets.
(d) Non-income-producing security.
(e) Restricted, excluding 144A securities, as to public resale. At the date of
acquisition, this security was valued at cost. There were no outstanding
unrestricted securities of the same class as that held. Total market value
of restricted securities owned at April 30, 1994 was $608,800 or 0.1% of
net assets.
(f) The interest rate and date shown parenthetically represent the new
interest rate to be paid and the date the fund will begin receiving
interest at this rate.
(g) The aggregate identified cost on a tax basis is $530,805,006 resulting in
gross unrealized appreciation and depreciation of $11,989,024 and
$38,237,602, respectively, or net unrealized depreciation of $26,248,578.
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1994 (Unaudited)
<TABLE>
<CAPTION>
ASSETS
-------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value
(identified cost $530,458,424) (Note 1) $ 504,556,428
-------------------------------------------------------------------------------
Cash 466
-------------------------------------------------------------------------------
Dividends, interest and other receivables 5,573,490
-------------------------------------------------------------------------------
Receivable for shares of the Fund sold 181,683
-------------------------------------------------------------------------------
Receivable for securities sold 4,235,332
-------------------------------------------------------------------------------
TOTAL ASSETS $ 514,547,399
-------------------------------------------------------------------------------
LIABILITIES
-------------------------------------------------------------------------------
Payable for securities purchased $ 27,464,040
-------------------------------------------------------------------------------
Payable for shares of the Fund repurchased 532,559
-------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 798,835
-------------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,448
-------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 194
-------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 143,792
-------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 102,089
-------------------------------------------------------------------------------
Other accrued expenses 74,402
-------------------------------------------------------------------------------
TOTAL LIABILITIES 29,121,359
-------------------------------------------------------------------------------
NET ASSETS $ 485,426,040
-------------------------------------------------------------------------------
REPRESENTED BY
Paid-in capital (Notes 1, 4 and 5) $ 505,526,352
Distributions in excess of net investment income (4,036,747)
Accumulated net realized gain on investment
and option transactions 9,838,431
Net unrealized depreciation of investments and options (25,901,996)
-------------------------------------------------------------------------------
TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO
CAPITAL SHARES OUTSTANDING $ 485,426,040
-------------------------------------------------------------------------------
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
Net asset value and redemption price per class A
share ($483,319,661 divided by 55,514,892 class A shares) $ 8.71
-----------
Offering price per class A share (100/94.25 of $8.71)* $ 9.24
Net asset value and offering price per class B share
($1,622,340 divided by 186,141 class B shares)** $ 8.72
-------------------------------------------------------------------------------
</TABLE>
* On single retail sales of less than $50,000.
On sales of $50,000 or more and in other instances described in the
prospectus, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
STATEMENT OF OPERATIONS
Six months ended April 30, 1994 (Unaudited)
<TABLE>
<CAPTION>
INVESTMENT INCOME:
===============================================================================
<S> <C>
Interest $ 10,170,855
-------------------------------------------------------------------------------
Dividends (net of foreign tax of $24,252) 4,723,557
===============================================================================
Total investment income 14,894,412
EXPENSES:
===============================================================================
Compensation of Manager (Note 2) $ 1,665,412
-------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 307,304
-------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 11,317
-------------------------------------------------------------------------------
Reports to shareholders 36,710
-------------------------------------------------------------------------------
Auditing 25,667
-------------------------------------------------------------------------------
Legal 5,567
-------------------------------------------------------------------------------
Postage 18,609
-------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 645,505
-------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,995
-------------------------------------------------------------------------------
Administrative services (Note 2) 7,991
-------------------------------------------------------------------------------
Other 87,420
===============================================================================
Total expenses 2,813,497
===============================================================================
Net investment income 12,080,915
===============================================================================
Net realized gain on investments (Notes 1 and 3) 10,042,165
-------------------------------------------------------------------------------
Net unrealized depreciation of investments and options
during the period (38,515,192)
===============================================================================
Net loss on investments and options (28,473,027)
===============================================================================
Net decrease in net assets resulting from operations (16,392,112)
===============================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six months ended Year ended
April 30 October 31
===========================================================================
1994* 1993
<S> <C> <C>
DECREASE IN NET ASSETS
===========================================================================
Operations:
---------------------------------------------------------------------------
Net investment income $ 12,080,915 $ 30,101,856
---------------------------------------------------------------------------
Net realized gain on investments 10,042,165 14,464,868
---------------------------------------------------------------------------
Net realized loss on options -- (3,131,875)
---------------------------------------------------------------------------
Net unrealized depreciation
of investments and options (38,515,192) (57,208,336)
---------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (16,392,112) 98,643,185
---------------------------------------------------------------------------
Undistributed net investment income
included in price of shares sold and
repurchased, net -- (225,742)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
===========================================================================
Net investment income -- Class A (16,189,358) (29,766,067)
---------------------------------------------------------------------------
Net investment income -- Class B (7,760) --
---------------------------------------------------------------------------
In excess of net investment
income -- Class A -- (193,287)
---------------------------------------------------------------------------
Net realized gain on investments -- Class A -- (15,555,868)
---------------------------------------------------------------------------
Decrease from capital share
transactions (Note 4) (33,375,688) (134,692,175)
---------------------------------------------------------------------------
Total decrease in net assets (65,964,918) (81,789,954)
NET ASSETS:
===========================================================================
Beginning of period 551,390,958 633,180,912
---------------------------------------------------------------------------
End of period (including distributions in
excess of net investment income of
$4,036,747 and $193,287 respectively) $485,426,040 $ 551,390,958
===========================================================================
</TABLE>
*Unaudited.
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS*
(For a share outstanding throughout the period)
February 1, 1994
(commencement Six
of operations) to months ended
April 30 April 30
---------------------------------------------------------- ----------------------------------------------------------------------
1994+ 1994+ 1993 1992 1991 1990
---------------------------------------------------------- ----------------------------------------------------------------------
Class B Class A
---------------------------------------------------------- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $9.31 $9.28 $8.50 $8.56 $7.47 $9.34
---------------------------------------------------------- ----------------------------------------------------------------------
Investment Operations
Net Investment Income .14 .21 .45 .16 .21 .31
---------------------------------------------------------- ----------------------------------------------------------------------
Net Realized and Unrealized
Gain (Loss) on Investments (.59) (.50) .99 .74 1.87 (1.03)
---------------------------------------------------------- ----------------------------------------------------------------------
Total from Investment Operations (.45) (.29) 1.44 .90 2.08 (.72)
---------------------------------------------------------- ----------------------------------------------------------------------
Less Distributions from:
Net Investment Income (.14) (.28) (.45) (.16) (.21) (.31)
---------------------------------------------------------- ----------------------------------------------------------------------
Net Realized Gain on Investments and Options (a) -- -- (.21) (.80) (.75) --
---------------------------------------------------------- ----------------------------------------------------------------------
Paid-in Capital (b) -- -- -- -- (.03) (.84)
---------------------------------------------------------- ----------------------------------------------------------------------
Total Distributions (.14) (.28) (.66) (.96) (.99) (1.15)
---------------------------------------------------------- ----------------------------------------------------------------------
Net Asset Value, End of Period $8.72 $8.71 $9.28 $8.50 $8.56 $7.47
---------------------------------------------------------- ----------------------------------------------------------------------
Total Investment Return at
Net Asset Value (%) (b) (19.56)(c) (6.40)(c) 17.68 11.15 29.29 (8.64)
---------------------------------------------------------- ----------------------------------------------------------------------
Net Assets, End of Period (in thousands) $1,622 $483,320 $551,391 $633,181 $699,858 $724,871
========================================================== ======================================================================
Ratio of Expenses to Average
Net Assets (%) .81(c) 1.09(c) 1.02 1.11 1.09 1.03
---------------------------------------------------------- ----------------------------------------------------------------------
Ratio of Net Investment Income
to Average Net Assets (%) 1.92(c) 4.68(c) 5.06 1.87 2.56 3.65
---------------------------------------------------------- ----------------------------------------------------------------------
Portfolio Turnover (%) 64.02(d) 64.02(d) 224.28 118.43 135.18 152.06
---------------------------------------------------------- ----------------------------------------------------------------------
</TABLE>
See page 27 for notes to financial highlights.
26
<PAGE>
<TABLE>
<CAPTION>
Three
Year ended months ended
October 31 October 31 Year ended July 31
-------------------------------------------------------- -------------------------------------------------------------
1989 1988 1987 1987 1986
-------------------------------------------------------- -------------------------------------------------------------
Class A
-------------------------------------------------------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $9.15 $9.05 $11.76 $11.40 $11.95
-------------------------------------------------------- -------------------------------------------------------------
Investment Operations
Net Investment Income .39 .23 .05 .20 .27
-------------------------------------------------------- -------------------------------------------------------------
Net Realized and Unrealized
Gain (Loss) on Investments 1.00 1.37 (2.34) 1.90 1.03
-------------------------------------------------------- -------------------------------------------------------------
Total from Investment Operations 1.39 1.60 (2.29) 2.10 1.30
-------------------------------------------------------- -------------------------------------------------------------
Less Distributions from:
Net Investment Income (.39) (.27) (.02) (.37) (.40)
-------------------------------------------------------- -------------------------------------------------------------
Net Realized Gain on Investments and Option
(a) (.31) (.23) (.40) (1.37) (1.45)
-------------------------------------------------------- -------------------------------------------------------------
Paid-in Capital (b) (.50) (1.00) -- -- --
-------------------------------------------------------- -------------------------------------------------------------
Total Distributions (1.20) (1.50) (.42) (1.74) (1.85)
-------------------------------------------------------- -------------------------------------------------------------
Net Asset Value, End of Period $9.34 $9.15 $9.05 $11.76 $11.40
-------------------------------------------------------- -------------------------------------------------------------
Total Investment Return at
Net Asset Value (%) (b) 16.30 19.81 (80.80)(c) 20.39 11.87
-------------------------------------------------------- -------------------------------------------------------------
Net Assets, End of Period (in thousands) $1,138,983 $1,391,983 $1,497,312 $1,868,298 $1,026,462
======================================================== =============================================================
Ratio of Expenses to Average
Net Assets (%) .82 .81 .75(c) .78 .82
-------------------------------------------------------- -------------------------------------------------------------
Ratio of Net Investment Income
to Average Net Assets (%) 4.20 2.57 1.79(c) 1.78 2.24
-------------------------------------------------------- -------------------------------------------------------------
Portfolio Turnover (%) 117.59 31.21 49.66(d) 214.89 197.96
-------------------------------------------------------- -------------------------------------------------------------
</TABLE>
* Financial highlights for periods ended through October 31, 1992 have been
restated to conform with requirements issued by the SEC in April, 1993. As
of November 1, 1993, the fund discontinued the use of equalization
accounting (see Note 1 to financial statements).
** During fiscal 1992, the fund expanded its investment flexibility to
include corporate bonds, foreign securities, warrants and restricted
securities. Accordingly, results of operations prior to fiscal 1992, as
presented above may not reflect those that would have been achieved under
the fund's current investment policies (Note 1).
+ Unaudited.
(a) See Note 1 to financial statements. For federal income tax purposes, $0.02
per share of net investment income distributions were redesignated as
distributions from paid-in capital for the year ended October 31, 1991,
$0.02 per share of paid-in-capital distributions were redesignated as
distributions from net realized capital gains for the year ended October
31, 1990, and $0.02 per share of paid-in capital were redesignated as
distributions from net realized gains for the year ended October 31, 1989.
For the year ended October 31, 1988, $0.148 per share of net investment
income distributions represented return of capital for federal income tax
purposes.
(b) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(c) Annualized.
(d) Not annualized.
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS
April 30, 1994 (Unaudited)
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The fund is registered under the Investment Company Act of 1940, as amended,
as a diversified, open-end management investment company. The fund seeks high
current return by investing in a diversified portfolio of equity and debt
securities.
The fund offers both class A and class B shares. The fund commenced its
public offering of class B shares on February 1, 1994. Class A shares are
sold with a maximum front-end sales charge of 5.75%. Class B shares do not
pay a front-end sales charge, but pay a higher ongoing distribution fee than
class A shares, and may be subject to a contingent deferred sales charge, if
those shares are redeemed within six years of purchase. Expenses of the fund
are borne pro-rata by the holders of both classes of shares, except that each
class bears expenses unique to that class (including the distribution fees
applicable to such class), and votes as a class only with respect to its own
distribution plan or other matters on which a class vote is required by law or
determined by the Trustees. Shares of each class would receive their
pro-rata share of the net assets of the fund, if the fund were liquidated.
In addition, the Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A SECURITY VALUATION Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported -- as in the case of some
securities traded over-the-counter -- the last reported bid price, except that
certain U.S. government obligations are stated at the mean between the bid and
asked prices. Short-term investments having remaining maturities of 60 days or
less are stated at amortized cost, which approximates market value, and other
investments are stated at fair value following procedures approved by the
Trustees.
B JOINT TRADING ACCOUNT Pursuant to an exemptive order issued by the Securities
and Exchange Commission, the fund may transfer uninvested cash balances into a
joint trading account along with the cash of other registered investment
companies managed by Putnam Investment Management, Inc., (Putnam Management),
the fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc., and
certain other accounts. These balances may be invested in one or more repurchase
agreements and/or short-term money market instruments.
C REPURCHASE AGREEMENTS The fund, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value of
which at the time of purchase is required to be in an amount at least equal to
the resale price, including accrued interest. The fund's Manager is responsible
for determining that the value of these underlying securities is at all times at
least equal to the resale price, including accrued interest.
28
<PAGE>
D SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME Security transactions are
accounted for on the trade date (date the order to buy or sell is executed).
Interest income is recorded on the accrual basis and dividend income is recorded
on the ex-dividend date, except that certain dividends from foreign securities
are recorded as soon as the fund is informed of the ex-dividend date.
E OPTION ACCOUNTING PRINCIPLES When the fund writes a call or put option, an
amount equal to the premium received by the fund is included in the fund's
"Statement of assets and liabilities" as an asset and an equivalent liability.
The amount of the liability is subsequently "marked-to-market" to reflect the
current market value of the option written. The current market value of a
written option is the last sale price or, in the absence of a sale, the last
offering price. If an option expires on its stipulated expiration date, or if
the fund enters into a closing purchase transaction, the fund realizes a gain
(or loss if the cost of a closing purchase transaction exceeds the premium
received when the option was written) without regard to any unrealized gain or
loss on the underlying security, and the liability related to such option is
extinguished. If a written call option is exercised, the fund realizes a gain or
loss from the sale of the underlying security and the proceeds of the sale are
increased by the premium originally received. If a written put option is
exercised, the amount of the premium originally received reduces the cost of the
security which the fund purchases upon exercise of the option.
The fund writes covered call options; that is, options for which it holds the
underlying security or its equivalent. Accordingly, the risk in writing a
call option is that the fund relinquishes the opportunity to profit if the
market price of the underlying security increases and the option is
exercised. In writing a put option, the fund assumes the risk of incurring a
loss if the market price of the underlying security decreases and the option
is exercised.
The premium paid by the fund for the purchase of an option is included in the
fund's "Statement of assets and liabilities" as an investment and is
subsequently "marked-to-market" to reflect the current market value of the
option. If an option the fund has purchased expires on the stipulated
expiration date, the fund realizes a loss in the amount of the cost of the
option. If the fund enters into a closing sale transaction, the fund realizes
a gain or loss, depending on whether the proceeds from the closing sale
transaction are greater or less than the cost of the option. If the fund
exercises a call option, the cost of the securities acquired by exercising
the call is increased by the premium paid to buy the call. If the fund
exercises a put option, it realizes a gain or loss from the sale of the
underlying security and the proceeds from such sale are decreased by the
premium originally paid.
Stock index options are similar to options on individual securities in that
the purchaser of an index option acquires the right to buy, and the writer
undertakes the obligation to sell, an index at a stated exercise price during
29
<PAGE>
the term of the option. Instead of giving the right to take or make actual
delivery of securities, the holder of a stock index option has the right to
receive a cash "exercise settlement amount." This amount is equal to the
amount by which the fixed exercise price of the option exceeds (in the case
of a put) or is less than (in the case of a call) the closing value of the
underlying index on the date of the exercise, multiplied by a fixed "index
multiplier." The fund writes options on stock indices only to the extent
that it holds in its portfolio underlying securities, which, in the judgment
of Putnam Management, correlate closely with the stock index.
F FEDERAL TAXES It is the policy of the fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies. It is also
the intention of the fund to distribute an amount sufficient to avoid imposition
of any excise tax under Section 4982 of the Internal Revenue Code of 1986.
Therefore, no provision has been made for federal taxes on income, capital gains
or unrealized appreciation on securities held and excise tax on income and
capital gains.
G DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders are recorded by
the fund on the ex-dividend date. Distributions are declared from projected net
investment income and net realized short-term capital gains that the fund is
likely to earn over the longer term.
H EQUALIZATION Prior to November 1, 1993, the fund used the accounting practice
known as equalization to keep continuing shareholder's per share interest in
undistributed net investment income unaffected by sales or repurchases of fund
shares. This was accomplished by allocating a per share portion of the proceeds
from sales and the costs of repurchases of shares to undistributed net
investment income.
As of November 1, 1993, the fund discontinued using equalization. This change
has no effect on the fund's total net assets, net asset value per share, or its
net increase (decrease) in net assets from operations and did not have a
material effect on the per share amounts shown in the financial highlights. In
management's opinion, discontinuing the use of equalization will result in less
distortion of undistributed net investment income as compared to income
available for distribution for federal income tax purposes. The cumulative
effect of this change, net of distributions, was to decrease undistributed net
investment income and increase paid-in-capital previously reported through
October 31, 1993, by $21,244,668.
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE
SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Management for management and investment advisory
services is paid quarterly based on the average net assets of the fund for
the quarter. Such fee is based on the following annual rates: 0.65% of the
first $500 million of average net assets, 0.55% of the next $500 million,
0.50% of the next $500 million and 0.45% of any amount over $1.5 billion.
This fee is subject, under current law, to reduction in any year to the
extent that expenses (exclusive of distribution fees,
30
<PAGE>
brokerage, interest and taxes) of the fund exceed 2.5% of the first $30
million of average net assets, 2.0% of the next $70 million and 1.5% of any
amount over $100 million, and by the amount of certain brokerage commissions
and fees (less expenses) received by affiliates of the Manager on the fund's
portfolio transactions.
The fund also reimburses the Manager for the compensation and related expenses
of certain officers of the fund and their staff who provide administrative
services to the fund. The aggregate amount of all such reimbursements is
determined annually by the Trustees. For six months ended April 30, 1994, the
fund paid $7,991 for these services.
Trustees of the fund receive an annual Trustee's fee of $1,410, and an
additional fee for each Trustees' meeting attended. Trustees who are not
interested persons of the Manager and who serve on committees of the Trustees
receive additional fees for attendance at certain committee meetings.
Custodial functions for the fund are provided by the Putnam Fiduciary Trust
Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor servicing
agent functions are provided by Putnam Investor Services, a division of PFTC.
Fees paid for these investor servicing and custodial functions for six months
ended April 30, 1994, amounted to $307,304. Investor servicing and
custodian fees reported in the Statement of operations for the six months
ended April 30, 1994, have been reduced by credits allowed by PFTC.
The fund has adopted a distribution plan with respect to its class A shares
(the "Class A Plan") pursuant to Rule 12b-1 under the Investment Company Act
of 1940. The purpose of the Class A Plan is to compensate Putnam Mutual
Funds Corp., a wholly-owned subsidiary of Putnam Investments, Inc., for
services provided and expenses incurred by it in distributing class A shares.
The Trustees have approved payment by the fund to Putnam Mutual Funds Corp.
at an annual rate of .25% of the fund's average net assets attributable to
class A shares. For the six months ended April 30, 1994, the fund paid
$645,505 in distribution fees for class A shares.
During the six months ended April 30, 1994, Putnam Mutual Funds Corp., acting
as an underwriter, received net commissions of $23,371 from the sale of class
A shares of the fund.
A deferred sales charge of up to 1.00% is assessed on certain redemptions of
class A shares purchased as part of an investment of $1 million or more. For
the six months ended April 30, 1994. Putnam Mutual Funds Corp., acting as an
underwriter, received $50 on class A redemptions.
The fund has adopted a distribution plan with respect to its class B shares
(the "Class B Plan") pursuant to Rule 12b-1 under the Investment Company Act
of 1940. The purpose of the Class B Plan is to compensate Putnam Mutual
Funds Corp. for services provided and expenses incurred by it in distributing
Class B shares. The Class B Plan provides for payments by the fund to
31
<PAGE>
Putnam Mutual Funds Corp. at an annual rate of 1.00% of the fund's average
net assets attributable to class B shares. For the six months ended April
30, 1994, the fund paid Putnam Mutual Funds Corp. distribution fees of $1,995
for class B shares.
Putnam Mutual Funds Corp. also receives the proceeds on the contingent deferred
sales charges on its class B share redemptions within six years of purchase.
The charge is based on declining rates, which begin at 5.00% of the net asset
value of the redeemed shares. Putnam Mutual Funds Corp. received contingent
deferred sales charges of $392 from redemptions during the six months ended
April 30, 1994.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During six months ended April 30, 1994, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $305,178,782 and $350,422,639, respectively. There were no
purchases of U.S. government obligations. In determining the net gain or loss
on securities sold, the cost of securities has been determined on the
identified cost basis.
NOTE 4
CAPITAL SHARES
At April 30, 1994, there was an unlimited number of shares of beneficial
interest authorized divided into two classes, designated class A and class B
capital stock. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
Six months ended April 30, 1994
Class A Shares Amount
--------------------------------------------------------------------------------
<S> <C> <C>
Shares sold 1,053,775 $ 9,499,288
--------------------------------------------------------------------------------
Shares issued in connection with reinvestment
of distributions 991,944 $ 8,931,931
--------------------------------------------------------------------------------
2,045,719 $ 18,431,219
--------------------------------------------------------------------------------
Shares repurchased (5,920,751) $(53,471,193)
--------------------------------------------------------------------------------
Portion represented by undistributed net
investment income -- --
--------------------------------------------------------------------------------
Net decrease (3,875,032) $(35,039,974)
--------------------------------------------------------------------------------
Year ended October 31, 1993
Class A Shares Amount
--------------------------------------------------------------------------------
Shares sold 2,314,999 $ 20,453,900
--------------------------------------------------------------------------------
Shares issued in connection with reinvestment
of distributions 2,676,939 $ 23,302,220
--------------------------------------------------------------------------------
4,991,938 $ 43,756,120
--------------------------------------------------------------------------------
Shares repurchased (20,087,445) $(178,674,037)
--------------------------------------------------------------------------------
Portion represented by undistributed net
investment income -- $ 225,742
--------------------------------------------------------------------------------
Net decrease (15,095,507) $(134,692,175)
--------------------------------------------------------------------------------
February 1, 1994 (commencement of
operations) to April 30, 1994
Class B Shares Amount
--------------------------------------------------------------------------------
Shares sold 193,261 $ 1,727,696
--------------------------------------------------------------------------------
Shares issued in connection with reinvestment
of distributions 589 $ 5,320
--------------------------------------------------------------------------------
193,850 $ 1,733,016
Shares repurchased (7,710) (68,730)
--------------------------------------------------------------------------------
Net increase 186,140 $ 1,664,286
--------------------------------------------------------------------------------
</TABLE>
NOTE 5
RECLASSIFICATION OF CAPITAL ACCOUNTS
Effective November 1, 1993, Putnam Managed Income Trust has adopted the
provisions of Statement of Position 93-2 "Determination, Disclosure and
Financial Statement Presentation of Income, Capital Gain and Return of Capital
distributions
32
<PAGE>
by Investment Companies (SOP). The SOP requires the fund to report the
undistributed net investment income (accumulated loss) and accumulated net
realized gain (loss) accounts in such a manner as to approximate amounts
available for future tax distributions (or to offset future realized capital
gains). In implementing the SOP the fund has reclassified $59,833,036 to
increase accumulated net realized gain, $21,517,411, to decrease distributions
in excess of net investment income, with a decrease of $81,350,447 to
additional paid-in-capital. These adjustments represent the cumulative amounts
necessary to report these balances on a tax basis though October 31, 1993. These
reclassifications which have no impact on the total net asset value of the fund
are primarily attributable to tax equalization which is treated differently in
the computation of distributable income and capital gains under federal income
tax rules and regulations versus generally accepted accounting principles.
33
<PAGE>
OUR COMMITMENT TO QUALITY SERVICE
CHOOSE AWARD-WINNING SERVICE.
Putnam Investor Services has won the DALBAR Quality Tested Service Seal every
year since the award's 1990 inception. DALBAR, an independent research firm, ran
more than 10,000 tests of 38 shareholder service components. In every category,
Putnam outperformed the industry standard.
HELP YOUR INVESTMENT GROW.
You can set up a regular program for investing with as little as $25 a month
from a Putnam money market fund or your own bank account.*
SWITCH FUNDS EASILY.
You can move money from one account to another with the same class of shares
without a service charge. (This privilege is subject to change or termination.)
ACCESS YOUR MONEY EASILY.
You can get checks sent regularly or redeem shares any business day at the then-
current net asset value, which may be more or less than their original cost.
Ask a helpful Putnam representative or your financial advisor for details about
any of these or other services, or see your prospectus.
To make an additional investment in this or any other Putnam fund, contact your
financial advisor or call our toll-free number: 1-800-225-1581.
* Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market. Investors should consider their ability to
continue purchasing shares during periods of low price levels.
34
<PAGE>
INVESTMENT
MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Donald S. Perkins
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Peter Carman
Vice President
Thomas V. Reilly
Vice President
Edward P. Bousa
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Managed Income
Trust. It may also be used as sales literature when preceded or accompanied
by the current prospectus, which gives details of sales charges, investment
objectives, and operating policies of the fund.
35
<PAGE>
PUTNAM INVESTMENTS ================
Bulk Rate
THE PUTNAM FUNDS U.S. Postage
ONE POST OFFICE SQUARE Boston, MA
BOSTON, MASSACHUSETTS 02109 Permit No. 53749
================
034-12450
<PAGE>
GRAPHICS APPENDIX LIST
----------------------
Page Where Description of Graphic or Cross -
Graphic Appears Reference
--------------- ---------------------------------
pg 11 4 Pie charts with slices corresponding to
listed percentages.
pg 12 Pyramid image listing categories of Funds
Risk vs Reward with most conservative at
Base.
