Putnam
Income
Fund
SEMIANNUAL REPORT
April 30, 1995
[graphic of scales]
BOSTON (bullet) LONDON (bullet) TOKYO
<PAGE>
Performance highlights
> According to Lipper Analytical Services, the fund's 6.86% total return for
class A shares at net asset value for the 12 months ended April 30, 1995,
surpassed 84% of the total returns posted by A-rated corporate debt funds
over the same period.*
> Morningstar awarded the fund's class A shares its second-highest ranking of
four stars as of April 30, 1995, placing the fund in the top third of all
fixed-income funds rated.+
SEMIANNUAL RESULTS AT A GLANCE
<TABLE>
<CAPTION>
Class A Class B Class M(1)
Total return NAV POP NAV CDSC NAV POP
<S> <C> <C> <C> <C> <C> <C>
...............................................................................................
(change in value during period
plus reinvested
distributions)
6 months ended 4/30/95 6.90% 1.75% 6.53% 1.53% -- --
Life of class M(1) shares -- -- -- -- 6.37% 2.89%
Share value NAV POP NAV NAV POP
...............................................................................................
10/31/94 $6.53 $6.86 $6.50 -- --
12/14/94(1) -- -- -- $6.50 $6.72
4/30/95 6.73 7.07 6.70 6.71 6.94
Current return: NAV POP NAV NAV POP
...............................................................................................
End of period
Current dividend rate(2) 7.13% 6.79% 6.45% 6.97% 6.74%
Current 30-day SEC yield(3) 6.76 6.44 6.02 6.48 6.25
</TABLE>
<TABLE>
<CAPTION>
Distributions: No. Income Capital gains Total
<S> <C> <C> <C> <C>
...............................................................................................
Class A 6 $0.240 -- $0.240
Class B 6 0.216 -- 0.216
Class M 5 0.197 -- 0.197
</TABLE>
Performance data represent past results and will differ for each share class.
For performance over longer periods, see pages 8 and 9. POP assumes 4.75%
maximum sales charge, for class A shares and 3.25% for class M shares. CDSC
assumes 5% maximum contingent deferred sales charge. (1)Class M shares
commenced operations on 12/14/94. (2)Income portion of most recent
distribution, annualized and divided by NAV or POP at end of period. (3)Based
only on investment income, calculated using SEC guidelines.
*Lipper Analytical Services ranks funds according to total-return performance.
Their rankings vary over time, and do not reflect the effects of sales charges.
For periods ended 4/30/95, the fund's class A shares ranked 16 out of 104, 9
out of 48, and 8 out of 24 A-rated corporate debt funds for 1-, 5-, and 10-year
performance, respectively. The fund's class B shares were initially offered on
3/1/93, and ranked 53 out of 104 for 1-year performance.
+Morningstar rates a fund relative to other funds with similar investment
objectives, based on the fund's 1-, 5-, and 10-year performance, adjusted for
risk factors and sales charges. Ratings are updated monthly. For each of these
periods ended 4/30/95, there were 561, 372 and 120 funds in the fixed-income
category and the fund received 3, 4, and 4 stars, respectively out of 5 stars.
Lipper and Morningstar are independent research organizations. Past
performance is not indicative of future results.
<PAGE>
From the Chairman
[photo of George Putnam]
(C) Karsh, Ottawa
Dear Shareholder:
A strong bond market and continued economic growth provided a generally
hospitable investment environment for Putnam Income Fund during the six
months ended April 30, 1995. Business continued to march at a brisk stride,
though the pace since January has slowed considerably from calendar 1994
levels.
Investors took this moderation as a sign that the economy was responding
favorably to the Federal Reserve Board's attempts to rein in growth to a
sustainable rate. The consensus in the markets seems to be that the Fed's
series of interest-rate increases may be near an end.
In the report that follows, fund managers Kenneth Taubes, Rosemary Thomsen,
and William Kohli relate your fund's performance during the first half of
fiscal 1995 to this market and economic setting. They also provide a glimpse
of what they believe may lie in store for the remaining months.
Respectfully yours,
/s/ George Putnam
George Putnam
Chairman of the Trustees
June 21, 1995
<PAGE>
Report from the Fund Managers
Kenneth J. Taubes, lead manager
Rosemary Thomsen
D. William Kohli
Over the first six months of Putnam Income Fund's 1995 fiscal year, the U.S.
economy's growth rate gradually slowed toward the noninflationary pace
targeted by the Federal Reserve Board--a trend illustrated by recent
slowdowns in auto and housing sales--and inflation remained under control. In
response, U.S. fixed income markets rebounded convincingly, with the yield on
the benchmark 30-year Treasury bond steadily declining to 7.33% on April 30,
1995.
The fund's total returns of 6.90% and 6.53% at net asset value for class A
and class B shares, respectively, for the six months ended April 30, 1995,
demonstrate not only the bond market's current strength, but the
effectiveness of the fund's investment strategy. Our current approach is
built on three key components: lengthening portfolio duration to capitalize
on falling long-term interest rates; investing in foreign securities and
benefiting from exposure to the strengthening Japanese yen and German
deutschemark; and maintaining a significant weighting in corporate bonds.
> LONGER DURATION POSITIONS FUND FOR POTENTIAL APPRECIATION
As long-term Treasury rates dropped during the semiannual period, we
lengthened the portfolio's duration. Duration is a measure of the price
sensitivity of a portfolio of bonds to changes in interest rates. Like
maturity, with which it is often confused, duration is measured in years.
Extending duration in an environment of falling interest rates often entails
purchasing bonds with longer-term maturities. Typically, these bonds
appreciate in value as long-term rates decline. While such an approach can
work against the fund if interest rates begin to rise again, over the past
six months it proved an integral contributor to performance.
<PAGE>
> INTERNATIONAL BONDS AND CURRENCY
OPPORTUNITIES BOOST PERFORMANCE
When foreign currencies strengthen, demand for bonds denominated in those
currencies may increase, which in turn may enhance security values and
overall bond-market performance. This is precisely what occurred over the
past six months as the steady decline of the dollar relative to major foreign
currencies presented us with several inviting opportunities overseas.
We kept nearly 8% of the fund's portfolio invested overseas throughout the
period, and took particular advantage of bond-market opportunities in Japan
and Germany, two core markets that advanced as investor demand increased. In
addition, as the dollar continued to weaken against the yen and deutschemark,
we capitalized on favorable exchange rates by removing currency hedges on
foreign holdings. Currency hedges serve to protect total returns when the
dollar is strengthening relative to foreign currencies, but can reduce
returns if the dollar weakens.
> SOLID RETURNS FROM CORPORATE BONDS
Corporate bonds generated superior performance over the period, and the fund
benefited from its allocation to these securities. Although the pace of
economic growth gradually slowed during the period, corporations continued to
report above-average earnings, reduced debt levels, and substantial cash
flows.
CHANGES IN PORTFOLIO COMPOSITION*
10/31/94 4/30/95
[S] [C] [C]
Corporate bonds 41.3% 29.8%
U.S. Government and 42.7 50.6
agency obligations
Foreign bonds and notes 7.8 8.5
Yankee bonds and notes+ 6.4 4.2
Asset-backed securities 2.3 3.4
Short-term investments 1.1 6.3
Collateralized - 2.7
mortgage obligation
Other 0.2 -
* Based on percentage of total net assets. Holdings may vary over time.
+ Yankee bonds are dollar-denominated bonds issued in the U.S. by
foreign banks and corporations.
<PAGE>
We also continued to upgrade the quality of the fund's corporate holdings by
moderately reducing the portfolio's position in high-yield bonds. Although
these bonds actually performed well during the period, our increased
allocation to long-term Treasuries, which have also rallied since November,
delivered much of the return that a larger percentage of high-yield bonds
would have provided, with significantly less credit risk.
> TREASURIES AND MORTGAGE-BACKED SECURITIES
ADD SUPPORT
As investors became more confident that inflation is under control, bonds
became more attractive, boosting bond prices and driving down interest rates.
This explains why the impressive Treasury-market rally since November
prompted a sustained drop in long-term interest rates. For the fund, which
maintained more than one-third of its portfolio in Treasuries throughout the
period, the rally made a significant contribution to fund performance.
In addition, we maintained a weighting of approximately 15% of the portfolio
in mortgage-backed securities, primarily in conservative Government National
Mortgage Association (GNMA) and other government-agency securities. The fund
also held a small weighting in collateralized mortgage obligations (CMOs),
bonds backed by mortgage securities that split the cash flows from pools of
mortgage loans into various time frames and payment structures. While CMOs
can enhance the fund's dividend income, they may be more difficult to sell
than other mortgage-backed securities.
> OUTLOOK: SIGNS OF STABILIZATION
As the fund moves into the second half of its fiscal year, the U.S. economy
continues to show signs of slowing, and investors' fears of inflation are
subsiding. In such an environment, the Fed may conclude that further
increases in short-term interest rates are unnecessary. We believe the dollar
may have reached the bottom of its current decline against major foreign
currencies, and have positioned the portfolio to lock in attractive exchange
rates when converting foreign bonds back into dollars. There can be no
assurances, of course, that current economic conditions will continue.
<PAGE>
[Line chart]
LENGTHENING DURATION AS INTEREST RATES FALL
Portfolio 30-Year
duration Treasury yield (%)
(years) (years)
10/94 5.17 7.970
11/94 5.19 8.000
12/94 5.28 7.876
1/95 5.44 7.696
2/95 5.59 7.441
3/95 5.48 7.430
4/95 5.61 7.343
Graph illustrates that the fund's managers lengthened the portfolio's average
duration as the yield on the benchmark 30-year Treasury bond declined.
Lengthening duration often entails purchasing longer-term bonds, which typically
appreciate as long-term yields fall. Although this strategy was viewed favorably
as of 4/30/95, there is no guarantee that this investment strategy will be
successful or that the fund will respond to each long-term interest-rate shift
in this fashion.
Barring any dramatic changes in the pace of the economy, we anticipate that
the fixed-income markets may remain steady for the balance of the fund's
fiscal year, and that bonds may continue to offer attractive investment
opportunities. We expect long-term interest rates to stay relatively
unchanged or decline moderately. If this occurs, we would likely maintain the
portfolio's current extended duration to capitalize on the potential
benefits. In addition, we are keeping a watchful eye on the level of
prepayments in the mortgage-backed securities market. Prepayments can
accelerate as falling long-term rates diminish the value of mortgage-backed
securities and mortgage holders rush to refinance.
Overall, the fund's asset allocation strategy proved effective during the
period. Going forward, we will carefully monitor changing market conditions
to identify the best value opportunities as we strive to continue producing
competitive income and total return.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 4/30/95, there is no guarantee the fund will continue to hold
these securities in the future.
<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 on average how the fund might have
grown each year over varying periods.
Performance should always be considered in light of a fund's investment
strategy. Putnam Income Fund is designed for investors seeking high current
income consistent with prudent risk, mainly through fixed-income securities.
TOTAL RETURN FOR PERIODS ENDED 4/30/95
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- --------------------------------------------------------------------------------
6 months 6.90% 1.75% 6.53% 1.53% --% --%
- --------------------------------------------------------------------------------
1 year 6.86 1.76 5.95 1.00 -- --
- --------------------------------------------------------------------------------
5 years 60.88 53.26 -- -- -- --
Annual average 9.78 8.91 -- -- -- --
- --------------------------------------------------------------------------------
10 years 156.54 144.39 -- -- -- --
Annual average 9.88 9.35 -- -- -- --
- --------------------------------------------------------------------------------
Life of class B -- -- 8.50 5.70 -- --
Annual average -- -- 3.83 2.59 -- --
- --------------------------------------------------------------------------------
Life of class M -- -- -- -- 6.37 2.89
- --------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 3/31/95
(most recent calendar quarter)
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- --------------------------------------------------------------------------------
1 year 4.25% -0.64% 3.51% -1.32% -- --
- --------------------------------------------------------------------------------
5 years 56.46 48.98 -- -- -- --
Annual average 9.37 8.30 -- -- -- --
- --------------------------------------------------------------------------------
10 years 157.83 145.50 -- -- -- --
Annual average 9.93 9.40 -- -- -- --
- --------------------------------------------------------------------------------
Life of class B -- -- 7.11 4.34 -- --
Annual average -- -- 3.36 2.06 -- --
- --------------------------------------------------------------------------------
Life of class M -- -- -- -- 4.96% 1.53%
- --------------------------------------------------------------------------------
Fund performance data do not take into account any adjustment for taxes
payable on reinvested distributions. The fund began operations on 11/1/54,
offering shares now known as class A. Class B shares were first offered on
3/1/93 and class M shares commenced operations on 12/14/94. Performance data
represent past results and will differ for each share class. Investment
returns and principal value will fluctuate so an investor's shares, when
sold, may be worth more or less than their original cost. Past performance is
no guarantee of future results.
<PAGE>
Terms and definitions
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee than
class A shares and no sales charge on redemption.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance figures
shown here assume the maximum 4.75% sales charge for class A shares and 3.25%
for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. 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 INDEX RETURNS FOR PERIODS ENDED 4/30/95
Lehman Bros. Aggregate Consumer Price
Bond Index Index
- ----------------------------------------------------------------
6 months 7.01% 1.61%
- ----------------------------------------------------------------
1 year 7.31 3.05
- ----------------------------------------------------------------
5 years 56.73 17.84
Annual average 9.40 3.34
- ----------------------------------------------------------------
10 years 163.84 42.10
Annual average 10.19 3.58
- ----------------------------------------------------------------
Life of class B 9.44 6.15
Annual average 4.25 2.79
- ----------------------------------------------------------------
Life of class M 7.25 1.47
- ----------------------------------------------------------------
The index described below reflects changes in market prices, assumes
reinvestment of all interest payments, and does not take into account
brokerage commissions or other costs. The index may include bonds different
from those in the fund, and may pose different risks than the fund.
Lehman Brothers Aggregate Bond Index is an unmanaged list of investment-grade
bonds.
Consumer Price Index is a commonly used measure of inflation. It does not
represent an investment return.
<PAGE>
A Putnam perspective on risk and reward
You've probably been told how important it is to understand the relationship
between an investment's potential rewards and its accompanying risks. Given
the cautionary nature of such instructions, it may take most investors a
while to realize that risk has a positive side.
Every risk signals a potential reward. Selecting only those investments that
offer the greatest degree of security generally leads to only modest rewards.
Furthermore, even insured or guaranteed investments may be subject to changes
in their rates of return or, in some cases, in their principal values.
Experienced investors know that no investment is truly risk free and are
therefore willing to take on some measure of risk in order to increase their
potential gains.
The greater the risk, the greater the potential reward.
Accepting an appropriate level of investment risk can give you a better
chance of outpacing inflation over time and seeking to maximize your
investment's return. How much risk? Your financial
> A RUNDOWN OF RISK TYPES
MARKET RISK Most important for stock funds, but relevant to all funds, this
is a measure of how sensitive a fund's holdings are to changes in general
market conditions. Remember, though, that securities that lose value quickly
in market declines may also show the strongest gains in more favorable
environments.
INTEREST-RATE RISK Since bond prices fall as interest rates rise, this type
of risk is a particular concern for fixed-income investors. However,
interest-rate increases can also have a substantial negative effect on the
stock market.
INFLATION RISK If your investments cannot keep pace with inflation, your
money will begin to lose its purchasing power. Stock investments are
generally considered among the best ways of addressing inflation risk over
the long term.
<PAGE>
advisor's feedback and your time horizon can make all the difference in
determining how much risk is compatible with your investment goals and your
peace of mind.
> FITTING YOUR FUND SELECTION TO YOUR
RISK TOLERANCE
How do you find the right balance between investment risks and their
potential rewards? It's helpful to understand the types of risks that can
apply to different types of investments, and to look at your own portfolio
with this perspective.
For short-term goals, your first priority may be managing market risk.
Longer-term investors may be more concerned with inflation risk. And all
income-oriented investors should consider interest-rate, credit, and
prepayment risks carefully. Within each of Putnam's four investment
categories, you can select funds with differing levels of risk and reward
potential to customize your portfolio.
CREDIT AND PREPAYMENT RISK Credit risk is the concern that the security's
issuer will not be able to meet its payment, while prepayment risk involves
the premature payoff of a loan, with a resulting loss of interest income.
Professional management and in-depth research are invaluable in managing both
these risks.
LIQUIDITY RISK Not all investments can be readily converted into cash at
their perceived market values. Liquidity risk can affect the price of
securities held in the fund's portfolio and, thus, the fund's share prices.
This list covers only the most general types of risks; however, each
investment will also have its own specific risks. You will find a more
detailed discussion of these risk considerations in each fund's prospectus.
<PAGE>
Relative risk/reward potential of Putnam funds
These illustrations provide a simplified guide to the risk/reward potential
for funds within each category of the Putnam Family of Funds and are not
intended as investment advice. Your investment advisor can help you evaluate
your risk tolerance.
These rankings are relative only to Putnam funds and should not be compared
to other investments. There is no guarantee that one Putnam fund will be less
volatile than another, since each fund has its own investment risks. That's
why it is essential to read the fund's prospectus before investing.
PUTNAM GROWTH FUNDS
[Graphic bar charts -- variable-tone "waves"]
Lower Risk
Lower Reward
Potential
Investors
Diversified Equity(1)
Global Growth(1)
Vista
Natural Resources
Health Sciences
Voyager
Overseas Growth(1)
Europe Growth(1)
New Opportunities(2)
OTC Emerging Growth(2)
Asia Pacific Growth(1)
Higher Risk
Higher Reward
Potential
PUTNAM GROWTH AND INCOME FUNDS
Lower Risk
Lower Reward
Potential
Balanced Retirement
Utilities Growth and Income
George Putnam
Convertible Income-Growth
Equity Income
Fund for Growth and Income
Putnam Growth and Income Fund II
Higher
Risk
Higher Reward
Potential
(1) Foreign investments are subject to certain risks, such as currency
fluctuations and political developments, that are not present with domestic
investments.
(2) This fund invests all or a portion of its assets in small to medium-sized
companies, which increases the risk of price fluctuations.
(3) While U.S. government backing of individual securities does not insure your
principal, which will fluctuate, it does guarantee that the fund's
government-backed holdings will make timely payments of interest and
principal.
<PAGE>
[Graphic bar charts -- variable-tone "waves"]
PUTNAM INCOME FUNDS
Lower Risk
Lower Reward
Potential
Money Market(4)
Adjustable Rate U.S. Gov't.(3)
Intermediate U.S. Gov't.(3)
U.S. Gov't. Income(3)
American Gov't. Income(3)
Federal Income(3)
Diversified Income(1, 3, 5)
Income
Preferred Income
Global Gov't.(1, 5)
High Yield(5)
High Yield Advantage (5)
Higher Risk
Higher Reward
Potential
PUTNAM TAX-FREE FUNDS(6)
Lower Risk
Lower Reward
Potential
Tax Exempt Money Market(4)
Intermediate Tax Exempt
Tax-Free Insured(7)
Tax Exempt Income
Single-state tax-free funds*
Municipal Income
Tax-Free High Yield(5)
Higher Risk
Higher Reward
Potential
*State tax-free funds available for Arizona, California, Florida, Massachusetts,
Michigan, Minnesota, New Jersey, New York, Ohio, and Pennsylvania. Not
available in all states.
LIFESTAGE(SM) FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments. The
three portfolios are:
> Putnam Asset Allocation: Balanced Portfolio
> Putnam Asset Allocation: Conservative Portfolio
> Putnam Asset Allocation: Growth Portfolio
Please call your financial advisor -- or Putnam at 1-800-225-1581 -- to
obtain a prospectus for any Putnam fund. The prospectus contains more
complete information, including risk considerations, charges, and expenses.
Read it carefully before you invest or send money.
(4) The fund is managed to maintain a steady price of $1.00 per share, although
there is no assurance this price can be maintained in the future.
(5) The lower credit ratings of high-yield corporate and municipal bonds reflect
a greater possibility that adverse changes in the economy or their issuers
may affect their ability to pay principal and interest on the bonds.
(6) Income may be subject to state and local taxes. Capital gains, if any, are
taxable for federal and, in most cases, state purposes.
(7) Bond insurance does not guarantee principal or protect against changes in
market price.
<PAGE>
Portfolio of investments owned
April 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (50.6%)*
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------
<C> <S> <C>
Federal National Mortgage Association
$ 622,212 11s, with various due dates to October 1, 2015 $ 674,710
38,180,000 TBA 8-1/2s, May 14, 2025++++ 38,776,562
4,294,384 Graduated Payment Mortgages, GPM 8s,
December 1, 2008 4,386,981
24,497,709 7-1/2s, June 1, 2023 23,917,141
24,497,000 TBA 7-1/2s, June 14, 2025++++ 23,922,851
19,530,000 TBA 7-1/2s, May 14, 2025++++ 19,072,265
17,689,357 7s, with various due dates to December 1, 2024 16,821,265
460,000 TBA 7s, May 14, 2025++++ 437,431
Government National Mortgage Association, GPM
757,484 11s, with various due dates to October 15, 2013 827,543
587,008 9s, with various due dates to May 15, 2009 617,457
17,576,588 Midgets 8s, with various due dates to May 15, 2008 17,845,706
24,988,958 7-1/2s, with various due dates to July 15, 2024 24,403,236
20,500,000 TBA 7-1/2s, May 14, 2025++++ 19,993,906
18,152,854 7s, with various due dates to July 15, 2024 17,182,780
50,000,000 U.S. Treasury Notes 9-3/8s, April 15, 1996 51,406,250
28,945,000 U.S. Treasury Notes 9-1/4s, January 15, 1996 29,523,900
74,590,000 U.S. Treasury Notes 7-3/4s, January 31, 2000 77,130,721
53,000,000 U.S. Treasury Bonds 8-7/8s, August 15, 2017 60,966,562
28,840,000 U.S. Treasury Bonds 8-1/8s, August 15, 2019 30,876,825
14,230,000 U.S. Treasury Notes 7-7/8s, November 15, 2004 15,008,203
78,765,000 U.S. Treasury Bonds 7-1/2s, November 15, 2024 79,823,404
20,879,000 U.S. Treasury Bonds 7-1/8s, February 15, 2023 20,161,284
- ----------------------------------------------------------------------------------------
Total U.S. Government and Agency Obligations
(cost $566,592,870) $573,776,983
- ----------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES (29.6%)*
PRINCIPAL AMOUNT VALUE
Aerospace and Defense (0.2%)
- ----------------------------------------------------------------------------------------
$ 1,000,000 Sequa Corp. sr. notes 9-5/8s, 1999 $ 990,000
750,000 Coltec Industries Inc. sr. notes 9-3/4s, 1999 761,250
-----------
1,751,250
Automotive (1.1%)
- ----------------------------------------------------------------------------------------
11,320,000 Chrysler Corp. deb. 10.95s, 2017 12,480,300
450,000 Hayes Wheels International Inc. notes 9-1/4s, 2002 456,750
-----------
12,937,050
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------
Broadcasting (0.7%)
- ----------------------------------------------------------------------------------------
$ 750,000 Cablevision Systems Corp. sr. sub. reset deb. 10-3/4s, 2004 $ 780,000
750,000 Century Communications Corp. sr. notes 9-1/2s, 2005 729,375
575,000 Insight Communications Co. sr. sub, notes stepped-
coupon 8-1/4s (11-1/4s, 3/1/96), 2000 567,094
950,000 Outlet Broadcasting, Inc. sr. sub. notes 10-7/8s, 2003 966,625
5,000,000 Tele-Communications, Inc. sr. deb. 9.8s, 2012 5,171,875
-----------
8,214,969
Building and Construction (0.2%)
- ----------------------------------------------------------------------------------------
1,355,000 American Standard, Inc. deb. 9-1/4s, 2016 1,317,738
725,000 Scotsman Group, Inc. sr. notes 9-1/2s, 2000 692,375
500,000 Walter Industries Inc. sr. note Ser. B, 12.19s, 2000 510,000
-----------
2,520,113
Chemicals (0.5%)
- ----------------------------------------------------------------------------------------
1,000,000 G-I Holdings, Inc. sr. notes zero %, 1998 680,000
3,335,000 Lyondell Petrochemical Co. global notes 9-1/8s, 2002 3,528,847
2,000,000 OSI Specialty Corp. sr. sub. notes 9-1/4s, 2003 1,980,000
-----------
6,188,847
Communications (1.2%)
- ----------------------------------------------------------------------------------------
8,000,000 Bell Telephone Co. of Canada deb. ser. DJ 13.375s, 2010 8,640,000
625,000 Cellular, Inc. sr. sub. disc. notes stepped-coupon zero %
(11-3/4s, 9/1/98), 2003+++ 443,750
1,000,000 Centennial Cellular Corp. sr. notes 8.875s, 2001 935,000
2,310,000 Dial Call Communication sr. disc. notes Ser. B, stepped-
coupon zero % (10-1/4s, 12/15/98), 2005+++ 1,039,500
1,500,000 Comcast Cellular Corp. sr. participating notes Ser. A,
zero %, 2000 1,072,500
1,000,000 Panamsat (L.P.) sr. sub. notes stepped-coupon zero %
(11-3/8s, 8/1/98), 2003+++ 692,500
500,000 Rogers Cantel Mobile Inc. deb. 10-3/4s, 2001 518,750
500,000 Universal Outdoor, Inc. sub. deb. 11s, 2003 473,750
-----------
13,815,750
Computer Equipment (0.1%)
- ----------------------------------------------------------------------------------------
750,000 Unisys Corp. deb. 13-1/2s, 1997 825,000
Conglomerates (0.9%)
- ----------------------------------------------------------------------------------------
1,000,000 ADT Ltd. sr. sub. notes 9-1/4s, 2003 1,000,000
750,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes 13s,
1999 751,875
7,000,000 Pennsylvania Central Corp. sub. notes 10-7/8s, 2011 8,023,750
-----------
9,775,625
Consumer Non Durables (0.2%)
- ----------------------------------------------------------------------------------------
925,000 Owens Illinois, Inc. sr. sub. notes 9-3/4s, 2004 913,438
1,000,000 Playtex Family Products Corp. sr. sub. notes 9s, 2003 940,000
-----------
1,853,438
Consumer Services (0.2%)
- ----------------------------------------------------------------------------------------
1,000,000 Embassy Suites Inc. sr. sub. notes 10-7/8s, 2002 1,075,000
750,000 John Q. Hammons Hotels 1st. mtge. notes 8-7/8s, 2004 705,000
-----------
1,780,000
Electronics and Electrical Equipment (0.2%)
- ----------------------------------------------------------------------------------------
2,500,000 Amphenol Corp. sr. notes 10.45s, 2001 2,618,750
<PAGE>
Entertainment (2.2%)
- ----------------------------------------------------------------------------------------
$ 500,000 Arizona Charlies Corp. 1st mtge. Ser. B, 12s, 2000 $ 400,000
1,000,000 Casino America Inc. 1st mtge. deb. 11-1/2s, 2001 992,500
200,000 Lady Luck Gaming Corp. 1st mtge. 101/2/s, 2001 126,000
9,700,000 News America Hldgs, Inc. sr. notes 12s, 2001 10,791,250
1,700,000 PRT Funding Corp. sr. notes 115/8/s, 2004 1,428,000
1,000,000 Time Warner Inc. notes zero %, 2002 970,000
10,170,000 Time Warner Inc. Global notes 91/8/s, 2013 9,928,463
900,000 Viacom International, Inc. sub. deb. 8s, 2006 832,500
-----------
25,468,713
Food and Beverages (0.9%)
- ----------------------------------------------------------------------------------------
450,000 Canandaigua Wine sr. sub. notes 8-3/4s, 2003 436,500
2,000,000 Fresh Del Monte Produce Corp. sr. notes, Ser. B 1,660,000
2,000,000 PSF Finance (L.P.) sr. exch. note 121/4/s, 2004 2,063,750
5,396,002 Secured Restaurants Trust deb. 10-1/4s, 2000 5,841,172
------------
10,001,422
Forest Products (0.2%)
- ----------------------------------------------------------------------------------------
900,000 Gaylord Container Corp. sr. sub. disc. deb. stepped-coupon
zero % (12-3/4s, 5/15/96), 2005+++ 865,125
500,000 Riverwood International Corp. Sr. note 10-3/4s, 2000 527,500
375,000 Riverwood International Corp. sr. sub. notes 10-3/8s, 2004 390,000
1,000,000 Stone Container Corp. sr. sub. notes 9-7/8s, 2001 995,000
------------
2,777,625
Health Care (1.1%)
- ----------------------------------------------------------------------------------------
4,660,000 Columbia Healthcare Corp. deb. 8.36s, 2024 4,738,638
900,000 Continental Medical Systems Inc. sr. sub. notes 10-7/8s,
2002 927,000
600,000 Health Trust, Inc. sub. deb. 8-3/4s, 2005 630,750
1,000,000 Healthsouth Rehabilitation sr. sub. notes 9-1/2s, 2001 1,020,000
1,150,000 Integrated Health Services sr. sub. notes 10-3/4s, 2004 1,210,375
1,500,000 McGaw, Inc. sr. notes 10-3/8s, 1999 1,545,000
2,200,000 Paracelsus Healthcare Corp. sr. sub. notes 9-7/8s, 2003 2,178,000
------------
12,249,763
Insurance and Finance (8.7%)
- ----------------------------------------------------------------------------------------
750,000 AIM Management Group sr. secd. notes 9s, 2003 720,000
3,500,000 AMBAC Inc. deb. 9-3/8s, 2011 3,880,625
1,420,000 American Annuity Group, Inc. sr. sub. notes 11-1/8s, 2003 1,476,800
3,515,000 BAT Capital Corp. 144A med. term notes 6.19s, 2000 3,306,297
6,500,000 Bank of Scotland med. term sub. notes 8.85s, 2006 6,906,250
750,000 Chevy Chase Savings Bank Inc. sub. deb. 9-1/4s, 2005 708,750
1,000,000 Comdata Network, Inc. sr. notes 12-1/2s, 1999 1,080,000
9,000,000 Crestar Financial Corp. sub. notes 8-3/4s, 2004 9,506,250
750,000 Delaware Management Holdings, Inc. sr. notes Ser. B,
10-1/4s, 2004 836,250
8,325,000 Den Danske Bank sub. notes 6.55s, 2003 7,560,141
3,430,000 Ford Capital BV deb. 9s, 1998 3,597,213
11,907,000 General Motors Acceptance Corp. med. term notes 6.7s, 1997 11,810,256
13,400,000 Great Western Financial Corp. notes 6-1/8s, 1998 12,998,000
750,000 Keystone Group, Inc. sr. secd. notes 9-3/4s, 2003 744,375
6,300,000 Midlantic Banks deb., 9-7/8s, 1999 6,796,125
5,000,000 Orion Capital Corp. sr. notes 9-1/8s, 2002 5,218,750
7,700,000 Paine Webber Group Inc. notes 6-1/2s, 2005 6,569,063
<PAGE>
- ----------------------------------------------------------------------------------------
Insurance and Finance (Continued)
- ----------------------------------------------------------------------------------------
$ 750,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 $ 712,500
8,500,000 Riggs National Corp. sub. deb. 8-1/2s, 2006 8,160,000
5,000,000 Society Bank & Trust Toledo 12-1/2s, 1999 5,893,750
-----------
98,481,395
Metals and Mining (0.1%)
- ----------------------------------------------------------------------------------------
575,000 Inland Steel Co. 1st mtge. 12s, 1998 619,563
Motion Picture Distribution (0.2%)
- ----------------------------------------------------------------------------------------
750,000 AMC Entertainment, Inc. sr. sub. deb. 12.625s, 2002 817,500
1,420,000 Cinemark USA sr. notes 12s, 2002 1,498,100
-----------
2,315,600
Oil and Gas (2.7%)
- ----------------------------------------------------------------------------------------
6,600,000 ONEOK Inc. deb. 9.7s, 2019 7,111,500
8,500,000 Occidental Petroleum Corp. sr. notes 11-3/4s, 2011 9,211,875
500,000 Oryx Energy Co. deb. 9-3/4s, 1998 502,500
5,855,000 Parker & Parsley Petro Co. sr. notes 8-7/8s, 2005 5,924,528
500,000 Transcontinental Gas Pipe Line Corp. deb. 9s, 1996 513,750
7,745,000 Union Texas Petroleum sr. note 8-3/8s, 2005 7,885,378
-----------
31,149,531
Publishing (0.3%)
- ----------------------------------------------------------------------------------------
2,000,000 General Media Corp. sr. secd. notes 105/8/s, 2000 1,660,000
1,100,000 Marval Parent Holdings, Inc. Inc. sr. secd. disc. notes
zero %, 1998 737,000
250,000 U.S. Banknote Corp. Sr. notes 10.375s, 2002 191,250
1,000,000 World Color Press sr. sub. notes 9-1/8s, 2003 950,000
-----------
3,538,250
Retail (2.0%)
- ----------------------------------------------------------------------------------------
1,650,000 County Seat Stores Inc. sr. sub. notes 12s, 2001 1,641,750
600,000 Dominick's Finer Foods sr. sub. notes 107/8/s, 2005 606,000
1,400,000 Loehmanns' Holdings, Inc. sr. sub. notes 13-3/4s, 1999 1,365,000
5,000,000 May Department Stores Co. notes 9-1/2s, 2021 5,606,250
500,000 Penn Traffic Co. sr. sub. notes 9-5/8s, 2005 470,000
850,000 Revco D.S., Inc. sr. notes 9-1/8s, 2000 875,500
1,275,000 Sears, Roebuck & Co. med. term notes 5.91s, 1999 1,213,641
8,000,000 Sears, Roebuck & Co. med. term notes 9.1s, 2012 8,660,000
1,000,000 Service Merchandise Co., Inc. sr. sub. deb. 8-3/8s, 2001 880,000
500,000 Stater Brothers sr. notes 11s, 2001 488,750
750,000 Waban, Inc. sr. sub. notes 11s, 2004 770,625
------------
22,577,516
Textiles (0.1%)
- ----------------------------------------------------------------------------------------
1,000,000 Reeves Industries Inc. bonds 11s, 2002 1,047,500
Transportation (1.7%)
- ----------------------------------------------------------------------------------------
12,350,000 AMR Corp. deb. 9.73s, 2014 12,705,063
300,000 Blue Bird Body Co. sub. deb. Ser. B 307,500
5,465,000 Southwest Airlines Co. deb. 7-7/8s, 2007 5,444,506
1,000,000 Viking Star Shipping sr. secd. notes 9-5/8s, 2003 960,000
-----------
19,417,069
Utilities (3.9%)
- ----------------------------------------------------------------------------------------
8,690,000 Arkla, Inc. notes 8-7/8s, 1999 8,950,700
4,175,000 Gulf States Utilities Co. 1st mtge. bonds 8.7s, 2024 4,203,703
4,325,000 Long Island Lighting Co. Ser. P, 51/4/s, 1996 4,276,344
<PAGE>
- ----------------------------------------------------------------------------------------
Utilities (Continued)
- ----------------------------------------------------------------------------------------
$1,082,056 Midland Cogeneration Ventures deb. 10.33s, 2002 $ 1,092,877
7,680,000 Public Service Co. of New Hampshire deb. 15.23s, 2000 8,947,200
10,800,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 9,423,000
7,500,000 Toledo Edison med. term. notes 1st mtge. Ser. A, 7.82s,
2003 6,773,438
------------
$ 43,667,262
- ----------------------------------------------------------------------------------------
Total Corporate Bonds and Notes
(cost $341,608,745) $335,592,001
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
FOREIGN BONDS AND NOTES (8.5%)*
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------
<C> <C> <S> <C>
AUD 8,600,000 Australia (Government of) bonds 9s, 2004 $ 5,993,125
CAD 2,110,000 Canada (Government of) deb. 9s, 2004 1,619,425
CAD 4,075,000 Canada (Government of) deb. 7-1/2s, 1997 2,987,484
DKK 6,950,000 Denmark (Government of) bonds 9s, 2000 1,316,156
DKK 9,140,000 Denmark (Government of) bonds 8s, 2006 1,593,788
DKK 22,100,000 Denmark (Government of) bonds 7s, 2024 3,190,688
FRF 42,628,000 France (Government of) OAT deb. 8-1/2s, 2002 9,031,808
FRF 13,000,000 France (Government of) deb. 7s, 1999 2,600,000
FRF 29,110,000 France (Government of) strip zero %, 2019 764,138
FRF 28,220,000 France (Government of) strip zero %, 2023 582,038
DEM 17,655,000 Germany (Republic of) bonds 7-3/8s, 2005 13,009,528
DEM 4,705,000 Treuhandanstalt (Government of) bonds 7-1/8s,
2003 3,417,006
DEM 6,100,000 Germany (Republic of) bonds 6-1/4s, 2024 3,690,500
ITL 8,430,000,000 Italy (Government of) bonds 12s, 2003 4,899,938
ITL 9,550,000,000 Italy (Government of) bonds 8-1/2s, 2004 4,434,781
ITL 1,840,000,000 Italy (Government of) notes 8-1/2s, 1999 969,450
JPY 502,500,000 Japan (Government of) bonds 4.4s, 2004 6,366,047
CAD 8,600,000 Quebec (Province of) Canada deb. 13s, 2013 10,341,500
SEK 15,300,000 Sweden (Kingdom of) bonds 10.2s, 2000 2,065,500
GBP 1,800,000 United Kingdom Treasury bonds 10s, 2001 3,102,750
GBP 5,000,000 United Kingdom Treasury bonds 9-3/4s, 2002 8,581,250
GBP 43,000 United Kingdom Treasury bonds 8-1/2s, 2007 69,579
GBP 3,900,000 United Kingdom Treasury notes 8s, 2013 6,066,938
- ----------------------------------------------------------------------------------------
Total Foreign Bonds and Notes
(cost $95,706,096) $96,693,417
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
COLLATERALIZED MORTGAGE OBLIGATIONS (4.4%)*
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------
<C> <S> <C>
Housing Securities Inc. Ser.
$ 694,042 93-J, Class J4, 6.66s, 2009 $ 535,714
330,496 93-J, Class J5, 6.66s, 2009 219,470
550,729 94-1, Class AB1, 6-1/2s, 2009 425,610
17,370,000 Nationsbank of Texas N.A. 144A secd. notes,
Ser. 95-1, 7.7s, August 25, 1999 17,359,144
2,324,264 Prudential Home Loan Corp. Ser. 92-25, Class B3, 8s,
2022 1,778,788
Prudential Home Mortgage Securities
726,547 Ser. 94-31, Class B3, sub. bond 8s, 2009 594,860
6,981,218 Ser. 1993-B, Class 5B, 7.8366s, 2023 4,199,639
2,711,592 Ser. 92-13, Class B3, 7-1/2s, 2007 2,327,732
3,988,737 Ser. 93-E, Class-5B, 7.3935s, 2023 2,247,404
3,276,834 Ser. 93-36, Class-M, 7-1/4s, 2023 2,953,247
<PAGE>
COLLATERALIZED MORTGAGE OBLIGATIONS
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------
$ 7,987,752 Ser. 93-D, Class 2B, 7.1082s, 2023 $ 6,874,459
7,698,851 Ser. 94-A, Class 4B, 6.8025s, 2024 6,452,599
2,737,478 Ser. 92-25, Class B4, 6.312s, 2022 2,170,307
2,299,991 Ser. 94-D, Class 3B, 6.318s, 2009 2,011,055
- ----------------------------------------------------------------------------------------
Total Collateralized Mortgage Obligations
(cost $51,521,101) $50,150,028
- ----------------------------------------------------------------------------------------
YANKEE BONDS AND NOTES (3.4%)*
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------
$ 1,000,000 Banco Rio De La Plata notes, 8-3/4s, 2003 $ 690,000
9,000,000 British Columbia Hydro & Power Auth. deb. 15s, 2011 10,091,250
6,100,000 British Columbia Hydro & Power Auth. deb. Ser. FH
15-1/2s, 2011 7,060,750
6,465,000 Noranda, Inc. deb. 8-1/8s, 2004 6,537,731
12,500,000 Petro Canada deb. 9-1/4s, 2021 13,671,875
100,000 Repap New Brunswick sr. notes 9-1/2s, 2000 101,250
Total Yankee Bonds and Notes
(cost $40,261,707) $38,152,856
- ----------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES (2.9%)*
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------
$2,002,667 Travelers Mortgage Security Corp. coll. oblig. Ser.
84-1, 12s, 2014 $ 2,220,457
1,250,000 United Air Lines, Inc. Equipment Trust Ser. 91A,
deb. 10-1/8s, 2015 1,264,063
10,250,000 United Air Lines, Inc. Equipment Trust Ser. C,
10.36s, 2012 10,865,000
18,637,000 Chase Manhattan Credit Card Master Trust, Ser. 91-1,
8-3/4s, 1999 18,974,796
- ----------------------------------------------------------------------------------------
Total Asset-Backed Securities
(cost $33,205,589) $33,324,316
- ----------------------------------------------------------------------------------------
EUROBONDS (COST $993,991) (0.1%)*
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------
$ 1,000,000 Ispat Mexicana, SA 144A deb. 10-3/8s, 2001 $ 840,000
- ----------------------------------------------------------------------------------------
UNITS (0.1%)*
NUMBER OF UNITS VALUE
- ----------------------------------------------------------------------------------------
40 Celcaribe S.A. 144A units stepped-coupon zero %
(13-1/2s, 3/15/98), 2004+++ $ 340,300
500 ICF Kaiser International, Inc. sr. sub. units 12s,
2003 467,500
- ----------------------------------------------------------------------------------------
Total Units (cost $888,188) $ 807,800
- ----------------------------------------------------------------------------------------
PUT OPTIONS PURCHASED ON FOREIGN CURRENCIES (cost $251,186) (0.1%)*
Expiration Date/
Contract Amount Strike Price Value
- ----------------------------------------------------------------------------------------
JPY
500,300,000 Japanese 10YR FutureMAY95/JPY104 $ 736,241
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WARRANTS (COST $10,000) (--%)*+ EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- -----------------------------------------------------------------------------
<C> <S> <C>
1,000 General Media Corp. 144A 12/31/00 $ 10,000
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS (7.3%)*
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------
<C> <S> <C>
$ 4,000,000 Canada (Government of) Treasury
Bills zero%, July 20, 1995 $ 2,895,000
50,000,000 Federal Home Loan Mortgage Corp.
5.94s, May 3, 1995 49,975,250
10,000,000 Morgan (J.P.) & Co., Inc. 5.92s,
May 5, 1995 9,993,422
19,598,000 Interest in $485,809,000 joint
repurchase agreement dated April
28, 1995 with Morgan (J.P.) & Co.,
due May 1, 1995 with respect to
various U.S Treasury
Bonds--maturity value of
$19,607,638 for an effective yield
of 5.9% 19,607,638
- -----------------------------------------------------------------------------
Total Short-Term Investments
(cost $82,451,263) $ 82,471,310
- -----------------------------------------------------------------------------
Total Investments (cost
$1,213,490,736)*** $1,212,554,952
- -----------------------------------------------------------------------------
</TABLE>
* Percentages indicated are based on net assets of $1,133,626,910, which
correspond to a net asset value per share of $6.73, $6.70, $6.71 and
$6.72 for class A, B, M, and Y shares, respectively.
*** The aggregate identified cost on a tax cost basis is $1,213,858,310,
resulting in gross unrealized appreciation and depreciation of
$22,296,740 and $23,600,098, respectively, or net unrealized
depreciation of $1,303,358.
+++ 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.
++++ TBA's are mortgage backed securities traded under delayed delivery
commitments, settling after April 30, 1995. Although the unit price for
the trades has been established, the principal value has not been
finalized. However, the amount of the commitments will not fluctuate
more than 2% from the principal amount. Income on the securities will
not be earned until settlement date. The cost of TBA purchases held at
April 30, 1995 was $102,176,558.
+ Non-income-producing security.
<PAGE>
<TABLE>
<CAPTION>
Forward Currency Contracts Outstanding at April 30, 1995
Unrealized
Market Aggregate Delivery Appreciation/
Value Face Value Date (Depreciation)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian Dollars (Buy) $ 1,668,190 $1,682,910 6/21/95 $ (14,720)
- ---------------------------------------------------------------------------------------------
Australian Dollars (Sell) 1,160,640 1,187,520 6/19/95 26,880
- ---------------------------------------------------------------------------------------------
Australian Dollars (Sell) 1,704,690 1,743,183 6/19/95 38,493
- ---------------------------------------------------------------------------------------------
Australian Dollars (Sell) 1,088,400 1,083,075 6/14/95 (5,325)
- ---------------------------------------------------------------------------------------------
Australian Dollars (Sell) 1,814,000 1,808,125 6/14/95 (5,875)
- ---------------------------------------------------------------------------------------------
British Pounds (Buy) 3,060,140 2,975,685 5/15/95 84,455
- ---------------------------------------------------------------------------------------------
British Pounds (Buy) 321,940 323,060 6/13/95 (1,120)
- ---------------------------------------------------------------------------------------------
British Pounds (Sell) 4,345,920 4,353,750 6/14/95 7,830
- ---------------------------------------------------------------------------------------------
British Pounds (Sell) 4,832,400 4,871,250 5/9/95 38,850
- ---------------------------------------------------------------------------------------------
Canadian Dollars (Sell) 2,292,880 2,257,679 6/21/95 (35,201)
- ---------------------------------------------------------------------------------------------
Canadian Dollars (Sell) 882,240 875,912 6/14/95 (6,328)
- ---------------------------------------------------------------------------------------------
Danish Krona (Buy) 2,770,850 2,774,205 6/14/95 (3,355)
- ---------------------------------------------------------------------------------------------
Danish Krona (Sell) 1,357,900 1,364,146 6/21/95 6,246
- ---------------------------------------------------------------------------------------------
Danish Krona (Sell) 4,110,400 4,103,767 6/19/95 (6,633)
- ---------------------------------------------------------------------------------------------
Danish Krona (Sell) 825,750 825,900 6/20/95 150
- ---------------------------------------------------------------------------------------------
Deutschemarks (Buy) 1,406,145 1,353,384 5/8/95 52,761
- ---------------------------------------------------------------------------------------------
Deutschemarks (Buy) 966,240 949,200 5/22/95 17,040
- ---------------------------------------------------------------------------------------------
Deutschemarks (Buy) 1,156,000 1,138,677 6/19/95 17,323
- ---------------------------------------------------------------------------------------------
Deutschemarks (Sell) 4,400,540 4,337,624 5/15/95 (62,916)
- ---------------------------------------------------------------------------------------------
Deutschemarks (Sell) 4,333,800 4,269,035 6/14/95 (64,765)
- ---------------------------------------------------------------------------------------------
Deutschemarks (Sell) 5,345,020 5,264,843 6/14/95 (80,177)
- ---------------------------------------------------------------------------------------------
Deutschemarks (Sell) 216,690 217,284 6/14/95 594
- ---------------------------------------------------------------------------------------------
Deutschemarks (Sell) 4,934,581 4,934,581 6/16/95 --
- ---------------------------------------------------------------------------------------------
Deutschemarks (Sell) 4,117,110 4,148,170 6/14/95 31,060
- ---------------------------------------------------------------------------------------------
French Francs (Sell) 1,315,600 1,354,562 6/21/95 38,962
- ---------------------------------------------------------------------------------------------
French Francs (Sell) 2,671,680 2,688,104 6/21/95 16,424
- ---------------------------------------------------------------------------------------------
French Francs (Buy) 689,520 682,388 5/15/95 7,132
- ---------------------------------------------------------------------------------------------
French Francs (Buy) 4,867,200 4,819,835 5/15/95 47,365
- ---------------------------------------------------------------------------------------------
French Francs (Buy) 2,049,290 2,030,110 5/9/95 19,180
- ---------------------------------------------------------------------------------------------
French Francs (Sell) 426,090 421,436 5/9/95 (4,654)
- ---------------------------------------------------------------------------------------------
French Francs (Sell) 1,802,250 1,792,674 6/8/95 (9,576)
- ---------------------------------------------------------------------------------------------
French Francs (Sell) 790,920 781,203 5/16/95 (9,717)
- ---------------------------------------------------------------------------------------------
French Francs (Sell) 566,720 571,283 6/21/95 4,563
- ---------------------------------------------------------------------------------------------
French Francs (Sell) 4,392,080 4,468,607 6/21/95 76,527
- ---------------------------------------------------------------------------------------------
Italian Lira (Buy) 77,207 74,618 6/13/95 2,589
- ---------------------------------------------------------------------------------------------
Italian Lira (Buy) 950,080 924,694 6/14/95 25,386
- ---------------------------------------------------------------------------------------------
Japanese Yen (Buy) 329,010 330,648 6/21/95 (1,638)
- ---------------------------------------------------------------------------------------------
Japanese Yen (Buy) 1,506,015 1,584,607 6/14/95 (78,592)
- ---------------------------------------------------------------------------------------------
Japanese Yen (Buy) 3,567,900 3,165,100 5/8/95 402,800
- ---------------------------------------------------------------------------------------------
Japanese Yen (Buy) 1,314,775 1,286,595 6/14/95 28,180
- ---------------------------------------------------------------------------------------------
Japanese Yen (Buy) 4,905,240 4,844,618 6/21/95 60,622
- ---------------------------------------------------------------------------------------------
Japanese Yen (Sell) 1,903,130 1,797,692 5/9/95 (105,438)
- ---------------------------------------------------------------------------------------------
Japanese Yen (Sell) 1,314,770 1,286,851 6/14/95 (27,919)
- ---------------------------------------------------------------------------------------------
Japanese Yen (Sell) 5,297,408 5,339,105 6/1/95 41,697
- ---------------------------------------------------------------------------------------------
Netherlands Guilder (Buy) 2,902,500 2,931,596 6/14/95 (29,096)
- ---------------------------------------------------------------------------------------------
Spanish Pesetas (Buy) 4,038,205 3,919,724 6/21/95 118,481
- ---------------------------------------------------------------------------------------------
Spanish Pesetas (Buy) 161,616 157,196 6/14/95 4,420
- ---------------------------------------------------------------------------------------------
Swedish Krona (Sell) 2,262,150 2,240,174 6/21/95 (21,976)
- ---------------------------------------------------------------------------------------------
Swiss Francs (Buy) 4,042,179 4,042,179 6/21/95 --
- ---------------------------------------------------------------------------------------------
$ 640,989
- ---------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Forward Cross Currency Contracts Outstanding at April 30, 1995
(Aggregate Face Value $42,557,876)
In Unrealized
Market Exchange Market Delivery Appreciation/
Contracts Value For Value Date (Depreciation)
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
British Pounds (Buy) $4,339,170 Deutschemarks $4,353,482 6/12/1995 $ (14,312)
- --------------------------------------------------------------------------------------------------------
British Pounds (Buy) 4,017,000 Deutschemarks 4,038,032 6/14/1995 (21,032)
- --------------------------------------------------------------------------------------------------------
British Pounds (Sell) 6,428,400 Deutschemarks 6,302,725 6/14/1995 (125,675)
- --------------------------------------------------------------------------------------------------------
Deutschemarks (Sell) 4,481,980 French Francs 4,391,994 6/1/1995 (89,986)
- --------------------------------------------------------------------------------------------------------
Deutschemarks (Buy) 4,249,770 Swiss Francs 4,366,568 6/1/1995 (116,798)
- --------------------------------------------------------------------------------------------------------
Deutschemarks (Buy) 4,117,110 French Francs 4,168,615 5/22/1995 (51,505)
- --------------------------------------------------------------------------------------------------------
Deutschemarks (Buy) 2,169,300 Italian Lira 2,302,119 5/22/1995 (132,819)
- --------------------------------------------------------------------------------------------------------
Deutschemarks (Buy) 4,281,040 Spanish Peseta 4,309,201 6/21/1995 (28,161)
- --------------------------------------------------------------------------------------------------------
Deutschemarks (Buy) 4,186,119 Swiss Francs 4,186,119 6/21/95 --
- --------------------------------------------------------------------------------------------------------
Deutschemarks (Sell) 2,244,400 Swedish Krona 2,278,268 6/12/1995 33,868
- --------------------------------------------------------------------------------------------------------
Deutschemarks (Sell) 2,317,515 French Francs 2,317,515 6/21/95 --
- --------------------------------------------------------------------------------------------------------
$(546,420)
- --------------------------------------------------------------------------------------------------------
</TABLE>
Written Call Options On Foreign Currencies (Premium received $147,412)
- -------------------------------------------------------------------------------
CONTRACT EXPIRATION DATE/
AMOUNT STRIKE/PRICE VALUE
- -------------------------------------------------------------------------------
$78,830,000 U.S. Dollar in exchange for Deutschemarks MAY95/1.04 $171,061
- -------------------------------------------------------------------------------
TBA Sale Commitments at April 30, 1995 (proceeds receivable $23,991,749)
Agency Principal Amount Delivery Month Coupon Rate Market Value
- -------------------------------------------------------------------------------
GNMA $24,497,000 May 7-1/2s $23,922,851
- -------------------------------------------------------------------------------
Diversification of Foreign Bonds and Notes
at April 30, 1995 as a percentage of net assets
- ----------------------------------------------------
Canada 3.1% Australia 0.5%
United Kingdom 3.1 Denmark 0.5
Germany 1.8 Sweden 0.2
France 1.1 Agentina 0.1
Italy 0.9 Mexico 0.1
Japan 0.6
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of assets and liabilities
April 30, 1995 (Unaudited)
<TABLE>
<S> <C>
Assets
- --------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $1,213,490,736) (Note 1) $1,212,554,952
- --------------------------------------------------------------------------------------------------
Cash 995
- --------------------------------------------------------------------------------------------------
Interest and other receivables 20,275,076
- --------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 3,505,551
- --------------------------------------------------------------------------------------------------
Receivable for securities sold 41,588,883
- --------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 1,249,878
- --------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 1,253,518
- --------------------------------------------------------------------------------------------------
Total assets 1,280,428,853
- --------------------------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------------------------
Distributions payable to shareholders 348,651
- --------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 8,902,356
- --------------------------------------------------------------------------------------------------
Payable for securities purchased 108,381,779
- --------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,115,000
- --------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 423,373
- --------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,296
- --------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 280
- --------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 337,312
- --------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 1,732,340
- --------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 1,155,309
- --------------------------------------------------------------------------------------------------
Payable for written options outstanding at value (premium received $147,412) 171,061
- --------------------------------------------------------------------------------------------------
Other accrued expenses 309,335
- --------------------------------------------------------------------------------------------------
TBA sale commitments at value (proceeds receivable $23,991,749) 23,922,851
- --------------------------------------------------------------------------------------------------
Total liabilities 146,801,943
- --------------------------------------------------------------------------------------------------
Net assets $1,133,626,910
- --------------------------------------------------------------------------------------------------
Represented by
- --------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) 1,167,199,413
- --------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (613,816)
- --------------------------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (Note 1) (32,179,313)
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments, options, forward currency
contracts, foreign currency translation and TBA sale commitments (779,374)
- --------------------------------------------------------------------------------------------------
Total--Representing net assets applicable to capital shares outstanding 1,133,626,910
- --------------------------------------------------------------------------------------------------
Computation of net asset value and offering price
- --------------------------------------------------------------------------------------------------
Net asset value and redemption price of class A shares
($837,400,536 divided by 124,512,368 shares) $6.73
- --------------------------------------------------------------------------------------------------
Offering price per share (100/95.25 of $6.73)* $7.07
- --------------------------------------------------------------------------------------------------
Net asset value and offering price of class B shares
($202,989,904 divided by 30,288,156 shares)+ $6.70
- --------------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price of class M shares
($825,820 divided by 123,025) $6.71
- --------------------------------------------------------------------------------------------------
Offering price per share (100/96.75 of $6.71)* $6.94
- --------------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price of class Y shares
($92,410,650 divided by 13,748,411) $6.72
- --------------------------------------------------------------------------------------------------
</TABLE>
* On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
+ Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of operations
Six months ended April 30, 1995 (Unaudited)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Interest income (net foreign tax of $107,629) $ 40,719,038
- --------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------
Compensation of Manager (Note 2) $ 2,007,240
- --------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 916,929
- --------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 13,592
- --------------------------------------------------------------------------------
Reports to shareholders 86,472
- --------------------------------------------------------------------------------
Auditing 21,144
- --------------------------------------------------------------------------------
Legal 3,853
- --------------------------------------------------------------------------------
Postage 218,958
- --------------------------------------------------------------------------------
Administrative services (Note 2) 12,008
- --------------------------------------------------------------------------------
Distribution fees--Class A (Note 2) 985,739
- --------------------------------------------------------------------------------
Distribution fees--Class B (Note 2) 905,388
- --------------------------------------------------------------------------------
Distribution fees--Class M (Note 2) 632
- --------------------------------------------------------------------------------
Other 75,401
- --------------------------------------------------------------------------------
Total expenses 5,247,356
- --------------------------------------------------------------------------------
Net investment income 35,471,682
- --------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (14,413,795)
- --------------------------------------------------------------------------------
Net realized loss on options written (Notes 1 and 3) (140,433)
- --------------------------------------------------------------------------------
Net realized loss on forward currency contracts and foreign
currency translation (Notes 1 and 3) (1,137,308)
- --------------------------------------------------------------------------------
Net unrealized depreciation on forward currency contracts and
foreign currency translation during the period (3,021)
- --------------------------------------------------------------------------------
Net unrealized appreciation of investments, written options and
TBA sale commitments during the period 47,088,409
- --------------------------------------------------------------------------------
Net gain on investments 31,393,852
- --------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 66,865,534
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of changes in net assets
<TABLE>
<CAPTION>
Six months
ended Year ended
April 30 October 31
1995* 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ---------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------
Net investment income $ 35,471,682 $ 66,072,568
- ---------------------------------------------------------------------------------------
Net realized loss on investments, written options,
forward currency contracts and foreign currency
translation (15,691,536) (25,806,780)
- ---------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments, written options, forward currency
contracts, foreign currency translation and TBA
sale commitments 47,085,388 (82,289,716)
- ---------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 66,865,534 (42,023,928)
- ---------------------------------------------------------------------------------------
Distributions to shareholders from:
- ---------------------------------------------------------------------------------------
Net investment income:
- ---------------------------------------------------------------------------------------
Class A (29,057,818) (47,375,900)
- ---------------------------------------------------------------------------------------
Class B (6,007,650) (7,956,796)
- ---------------------------------------------------------------------------------------
Class M (9,035) --
- ---------------------------------------------------------------------------------------
Class Y (857,675) (102,586)
- ---------------------------------------------------------------------------------------
Net realized gain on investments
- ---------------------------------------------------------------------------------------
Class A -- (4,676,705)
- ---------------------------------------------------------------------------------------
Class B -- (769,008)
- ---------------------------------------------------------------------------------------
Class Y -- (9,159)
- ---------------------------------------------------------------------------------------
Tax return of capital
- ---------------------------------------------------------------------------------------
Class A -- (9,350,410)
- ---------------------------------------------------------------------------------------
Class B -- (1,570,072)
- ---------------------------------------------------------------------------------------
Class Y -- (20,789)
- ---------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 143,890,451 165,536,853
- ---------------------------------------------------------------------------------------
Total increase in net assets 174,823,807 51,681,500
Net assets
- ---------------------------------------------------------------------------------------
Beginning of period 958,803,103 907,121,603
End of period (including distributions in excess of
net investment income of $613,816 and $153,320,
respectively) $1,133,626,910 $958,803,103
- ---------------------------------------------------------------------------------------
</TABLE>
*Unaudited.
The accompanying notes are an integral part of these financial statements.
<PAGE>
Financial Highlights*
(For a share outstanding throughout the year)
<TABLE>
<CAPTION>
Six months
ended
April 30 Year ended October 31
------------------------------------------------------
1995+ 1994 1993 1992
----------- ---------- ---------- ------------
Class A
-------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 6.53 $ 7.36 $ 6.97 $ 6.80
- ----------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------
Net investment income .23 .54 .56 .60
- ----------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments .21 (.84) .40 .18
- ----------------------------------------------------------------------------------------------
Total from investment operations .44 (.30) .96 .78
- ----------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------
From net investment income (.24) (.41) (.56) (.61)
- ----------------------------------------------------------------------------------------------
In excess of net investment income -- -- (.01) --
- ----------------------------------------------------------------------------------------------
From net realized gain on
investments -- (.04) -- --
- ----------------------------------------------------------------------------------------------
From tax return of capital (c) -- (.08) -- --
- ----------------------------------------------------------------------------------------------
Total distributions (.24) (.53) (.57) (.61)
- ----------------------------------------------------------------------------------------------
Net asset value, end of year $ 6.73 $ 6.53 $ 7.36 $ 6.97
- ----------------------------------------------------------------------------------------------
Total investment return at net
asset value (%) (a) 6.90(b) (4.16) 14.36 11.86
- ----------------------------------------------------------------------------------------------
Net assets, end of period (in
thousands) $837,400 $781,784 $814,289 $633,135
- ----------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets (%) .47 .83 .77 .97
- ----------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) 3.69 7.10 7.71 8.62
- ----------------------------------------------------------------------------------------------
Portfolio turnover (%) 90.62(b) 128.82 129.95 146.66
- ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year ended October 31
--------------------------------------------------------------------
1991 1990 1989 1988 1987
- ------------ ----------- ---------- ---------- ------------
<C> <C> <C> <C> <C>
Class A
- ---------------------------------------------------------------------
$ 6.35 $ 6.90 $ 6.88 $ 6.63 $ 7.36
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
.64 .65 .66 .67 .62
- ---------------------------------------------------------------------
.45 (.52) .03 .28 (.56)
- ---------------------------------------------------------------------
1.09 .13 .69 .95 .06
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
(.64) (.67) (.67) (.70) (.79)
- ---------------------------------------------------------------------
-- -- -- -- --
- ---------------------------------------------------------------------
-- (.01) -- -- --
- ---------------------------------------------------------------------
-- -- -- -- --
- ---------------------------------------------------------------------
(.64) (.68) (.67) (.70) (.79)
- ---------------------------------------------------------------------
$6.80 $ 6.35 $ 6.90 $ 6.88 $ 6.63
- ---------------------------------------------------------------------
18.05 2.05 10.69 15.06 .69
- ---------------------------------------------------------------------
$504,708 $429,336 $416,103 $62,345 $321,425
- ---------------------------------------------------------------------
.91 .80 .80 .76 .78
- ---------------------------------------------------------------------
9.66 9.87 9.67 9.86 8.72
- ---------------------------------------------------------------------
84.39 68.23 96.81 201.15 203.30
- ---------------------------------------------------------------------
</TABLE>
<PAGE>
Financial Highlights
(continued)
Year ended October 31
--------------------------
1986 1985
---------- ------------
Class A
--------------------------
Net asset value, beginning of year $ 7.14 $ 6.73
- --------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------
Net investment income .74 .81
- --------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .27 .39
- --------------------------------------------------------------------------
Total from investment operations 1.01 1.20
- --------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------
From net investment income (.79) (.79)
- --------------------------------------------------------------------------
In excess of net investment income -- --
- --------------------------------------------------------------------------
From net realized gain on investments -- --
- --------------------------------------------------------------------------
From tax return of capital (c) -- --
- --------------------------------------------------------------------------
Total distributions (.79) (.79)
- --------------------------------------------------------------------------
Net asset value, end of year $ 7.36 $ 7.14
- --------------------------------------------------------------------------
Total investment return at net asset
value (%)(a) 14.79 18.90
- --------------------------------------------------------------------------
Net assets, end of period (in thousands) $221,524 $168,530
- --------------------------------------------------------------------------
Ratio of expenses to average net assets (%) .73 .73
- --------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) 10.06 11.72
- --------------------------------------------------------------------------
Portfolio turnover (%) 201.55 312.32
- --------------------------------------------------------------------------
+ Unaudited.
* Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.
(a) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(b) Not annualized.
(c) Distribution from capital for the year ended 10/30/94 has been calculated
in accordance with Statement of Position 93-2, "Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain
and Return of Capital Distributions by Investment Companies."
<PAGE>
<TABLE>
<CAPTION>
March 1, 1993 December 14,
(commencement 1994 June 16, 1994
Six months of operations) (commencement of (commencement
ended Year ended to operations) to Six months of operations) to
April 30 October 31 October 31 April 30 ended April 30 October 31
- ------------- ------------ ---------------- ---------------- -------------- ------------------
1995+ 1994 1993+ 1995+ 1995+ 1994+
- ------------- ------------ ---------------- ---------------- -------------- ------------------
Class B Class M Class Y
- -------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
$ 6.50 $ 7.34 $ 7.19 $ 6.50 $ 6.52 $ 6.72
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
.21 .48 .28 .19 .24 .19
- -------------------------------------------------------------------------------------------------------------
.21 (.83) .22 .22 .21 (.21)
- -------------------------------------------------------------------------------------------------------------
.42 (.35) .50 .41 .45 (.02)
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
(.22) (.38) (.35) (.20) (.25) (.16)
- -------------------------------------------------------------------------------------------------------------
-- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------
-- (.04) -- -- -- (.02)
- -------------------------------------------------------------------------------------------------------------
-- (.07) -- -- -- --
- -------------------------------------------------------------------------------------------------------------
(.22) (.49) (.35) (.20) (.25) (.18)
- -------------------------------------------------------------------------------------------------------------
$ 6.70 $ 6.50 $ 7.34 $ 6.71 $ 6.72 $ 6.52
- -------------------------------------------------------------------------------------------------------------
6.53(b) (4.98) 7.18(b) 6.37(b) 7.00(b) (.35)(b)
- -------------------------------------------------------------------------------------------------------------
$202,990 $169,501 $92,832 $ 826 $92,411 $ 7,517
- -------------------------------------------------------------------------------------------------------------
.83(b) 1.59 1.03(b) .50(b) .39(b) .24
- -------------------------------------------------------------------------------------------------------------
3.25(b) 6.40 4.37(b) 2.87(b) 3.70(b) 2.91
- -------------------------------------------------------------------------------------------------------------
90.62(b) 128.82 129.95(b) 90.62(b) 90.62(b) 128.82
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Notes to financial statements
April 30, 1995 (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. Putnam Income Fund
seeks high current income consistent with what Putnam Management Putnam
Investment Management Inc., ("Putnam Management") a wholly owned subsidiary
of Putnam Investments, Inc., believes to be prudent risk. The fund invests in
a portfolio of debt securities, both government and corporate obligations,
preferred stocks and dividend-paying common stocks.
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.
The fund offers class A, class B, class M and class Y shares. The fund
commenced operations of its class M shares on December 14, 1994. Class A
shares are sold with a maximum front-end sales charge of 4.75%. 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. Class M shares are sold with a maximum front-end sales charge of
3.25%, and an ongoing distribution fee that is higher than class A shares and
lower than class B shares. Class Y shares, which do not pay a front-end or
contingent deferred sales charge, are generally subject to the same expenses
as class A, class B, and class M shares, but do not bear a distribution fee.
Class Y shares are sold only to defined contribution plans with an initial
investment of $250 million in a combination of Putnam funds and other
investments managed by Putnam. Expenses of the fund are borne pro-rata by the
holders of each class of shares, except that each class bears expenses unique
to that class (including 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.
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 last
reported bid and asked prices. Securities quoted in foreign currencies are
translated into U.S. dollars at the current exchange rate. Short-term
investments having remaining maturities of 60 days or less are stated at
amortized cost, which approximates market value, and other investments are
stated at fair market value following procedures approved by the Trustees.
Market quotations are not considered to be readily available for long-term
corporate bonds and notes; such investments are stated at fair value on the
basis of valuations
<PAGE>
furnished by a pricing service, approved by the Trustees, which determines
valuations for normal, institutional-size trading units of such securities
using methods based on market transactions for comparable securities and
various relationships between securities which are generally recognized by
institutional traders.
B) TBA purchase commitments The fund may enter into "TBA" (to be announced)
purchase commitments to purchase securities for a fixed price at a future
date beyond customary settlement time. Although the unit price has been
established, the principal value has not been finalized. However, the amount
of the commitment will not fluctuate more than 2% from the principal amount.
The fund holds and maintains until the settlement date, cash or high-grade
debt obligations in an amount sufficient to meet the purchase price, or the
fund enters into offsetting contracts for the forward sale of other
securities it owns. TBA purchase commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in the value of the fund's other assets. Unsettled TBA
purchase commitments are valued at the current market value of the underlying
securities, generally according to the procedures described under "Security
valuation" above.
Although the fund will generally enter into TBA purchase commitments with the
intention of acquiring securities for its portfolio or for delivery pursuant
to options contracts it has entered into, the fund may dispose of a
commitment prior to settlement if Putnam Management deems it appropriate to
do so.
C) TBA sale commitments The fund may enter into TBA sale commitments to hedge
its portfolio positions or to sell mortgage-backed securities it owns under
delayed delivery arrangements. Proceeds of TBA sale commitments are not
received until the contractual settlement date. During the time a TBA sale
commitment is outstanding equivalent deliverable securities, or an offsetting
TBA purchase commitment deliverable on or before the sale commitment date,
are held as "cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of the
underlying securities, generally according to the procedures described under
"Security valuation" above. The contract is "marked to market" daily and the
change in market value is recorded by the fund as an unrealized gain or loss.
If the TBA sale commitment is closed through the acquisition of an offsetting
purchase commitment, the fund realizes a gain or loss on the commitment,
without regard to any unrealized gain or loss from the sale of securities
based upon the unit price established at the date the commitment was entered
into.
D) 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.
E) Repurchase agreements The fund, 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
<PAGE>
underlying securities is at all times at least equal to the resale price,
including accrued interest.
F) 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. Discount on
zero-coupon and stepped-coupon bonds is accreted according to the effective
yield method.
Foreign currency-denominated receivables and payables are "marked-to-market"
using the current exchange rate. The fluctuation between the original
exchange rate and the current exchange rate is recorded as unrealized
translation gain or loss. Upon receipt or payment, the fund realizes a gain
or loss on foreign currency amounting to the difference between the original
value and the ending value of the receivable or payable. Foreign currency
gains and losses related to interest receivable are reported as part of
interest income.
G) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market values of foreign securities, currency
holdings, other assets and liabilities are recorded in the books and records
of the fund after translation to U.S. dollars based on the exchange rates on
that day. The cost of each security is determined using historical exchange
rates. Income and withholding taxes are translated at prevailing exchange
rates when accrued or incurred. The fund does not isolate that portion of
realized or unrealized gains or losses resulting from changes in the foreign
exchange rate on investments from fluctuations arising from changes in the
market price of the securities. Such fluctuations are included with the net
realized and unrealized gain or loss on investments. Net realized gains and
losses on foreign currency transactions represent net exchange gains or
losses on closed forward currency contracts, disposition of foreign
currencies and the difference between the amount of investment income and
foreign withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid.
H) Option accounting principles The fund may, to the extent consistent with
its investment objectives and policies, seek to increase its current returns
by writing covered call and put options on securities it owns or which it may
invest. 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 an 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 or currency 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 or currency 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
<PAGE>
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. In
addition, the Fund may not be able to enter into a closing transaction
because of an illiquid secondary market.
The premium paid by the fund for the purchase of a call or put option is
included in the fund's "Statement of assets and liabilities" as an investment
and subsequently "marked-to-market" to reflect the current market value of
the option. If an option which 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 or currencies
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.
Options on foreign currencies The fund writes and purchases put and call
options on foreign currencies. The accounting principles and risks involved
are similar to those described above relating to options on securities. The
amount of potential loss to the fund upon exercise of a written call option
is the value (in U.S. dollars) of the currency sold, converted at the spot
price, less the value of U.S. dollars received in exchange. The amount of
potential loss to the fund upon exercise of a written put option is the value
(in U.S. dollars) of the currency received converted at the spot price, less
the value of the U.S. dollars paid in exchange.
Forward currency contracts A forward currency contract is an agreement
between two parties to buy and sell a currency at a set price on a future
date. The market value of the contract will fluctuate with changes in
currency exchange rates. The contract is "marked-to-market" daily and the
change in market value is recorded by the fund as an unrealized gain or loss.
When the contract is closed, the fund records a realized gain or loss equal
to the difference between the value of the contract at the time it was opened
and the value at the time it was closed. The maximum potential loss from
forward currency contracts is the aggregate face value in U.S. dollars at the
time the contract was opened; however, management believes the likelihood of
such loss to be remote.
I) 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 of securities held and excise tax on
income and capital gains.
At October 31, 1994, the fund had capital loss carryovers totaling
approximately $16,466,463, available to offset future realized capital gains,
if any. Of this amount $16,466,463 will expire October 31, 2002. To the
extent that the capital loss carryovers are used to offset realized gains, it
is unlikely that the gains so offset will be distributed
<PAGE>
to shareholders, since any distribution might be taxable as ordinary income.
J) Distributions to shareholders Distributions to shareholders are recorded
by the fund on the ex-dividend date.
The character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences include treatment of
certain gains and losses on foreign currency transactions. Reclassifications
are made to the fund's capital accounts to reflect income and gains available
for distribution (or available capital loss carryovers under income tax
regulations.
Note 2
Management fee, administrative services, and other transactions
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. Up until April 6, 1995 the fund accrued its expenses at the
following rate, 0.50% of the first $100 million of average net assets, 0.40%
of the next $100 million, and 0.35% of any amount over $200 million, subject
under current law, to reduction in any year to the extent that expenses
(exclusive of brokerage, interest and taxes) of the fund exceed 2.5% of the
first $30 million of average net assets, 2% of the next $70 million and 1.5%
of any over $100 million and by the amount of certain brokerage commissions
and fees (less expenses) received by affiliates of the Manager on the funds
portfolio transactions.
Effective April 6, 1995, the trustees of the fund approved the new rate as
follows: 0.65% of the first $500 million of average net assets, 0.55% of the
next $500 million, and 0.50% of the next $500 million, 0.45% of the next $5
billion, 0.425% of the next $5 billion, 0.405% of the next $5 billion, 0.39%
of the next $5 billion, 0.38% of any excess thereafter.
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.
Trustees of the fund receive an annual Trustee's fee of $1,540, 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 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.
Investor servicing and custodian fees reported in the Statement of operations
for the six months ended April 30, 1995 have been reduced by credits allowed
by PFTC.
The fund has adopted distribution plans (the "Plans") with respect to its
class A shares, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans 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
shares of the fund. The Plans provide for payment by the fund to Putnam
Mutual Funds Corp. at an annual rate up to 0.35%, 1.00% and 1.00% of the
average net assets attributable to class A, class B and class M shares,
respectively. The Trustees have approved payment by the fund at an annual
rate of 0.25%, 1.00% and
<PAGE>
0.50% of the average net assets attributable to class A, class B and class M
shares, respectively.
For the six months ended April 30, 1995, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $81,451 from the sale of class A
shares, $276,655 in contingent deferred sales charges from redemptions of
class B shares, and net commissions of $1,186 from the sale of class M
shares. A deferred sales charge of up to 1% 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, 1995, Putnam Mutual Funds
Corp., acting as underwriter received $26,117 on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended April 30, 1995, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $1,963,462,209 and $243,156,613, respectively. Purchases and sales
of U.S. government obligations aggregated $758,717,493 and $610,340,290,
respectively. In determining the net gain or loss on securities sold, the
cost of securities has been determined on the identified cost basis.
Written option transactions on foreign currencies during the year are
summarized as follows:
Contract
Amount Premiums Received
--------------- -------------------
Options written 326,430,000 $ 435,934
- --------------------------------------------------------------
Options expired (37,920,000) (11,755)
- --------------------------------------------------------------
Options closed (209,680,000) (276,767)
- --------------------------------------------------------------
Open at end of year 78,830,000 $ 147,412
- --------------------------------------------------------------
Note 4
Capital shares
At April 30, 1995, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
Six months Year ended
ended April 30 October 31
--------------------------------- -----------------------------------
1995 1994
--------------------------------- -----------------------------------
Class A Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 18,283,120 $ 120,308,852 31,071,956 $ 214,853,509
- ------------------------------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,715,340 17,808,660 5,167,159 35,507,760
- ------------------------------------------------------------------------------------------------
20,998,460 138,117,512 36,239,115 250,361,269
Shares repurchased (16,288,305) (106,942,666) (27,111,480) (186,902,217)
- ------------------------------------------------------------------------------------------------
Net increase 4,710,155 $ 31,174,846 9,127,635 $ 63,459,052
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six months Year ended
ended April 30 October 31
------------------------------- ---------------------------------
1995 1994
------------------------------- ---------------------------------
Class B Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 7,045,964 $ 46,073,973 18,515,636 $129,108,330
- --------------------------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 567,093 3,709,357 933,338 6,364,405
- --------------------------------------------------------------------------------------------
7,613,057 49,783,330 19,448,974 135,472,735
Shares repurchased (3,385,200) (22,087,468) (6,037,739) (41,087,937)
- --------------------------------------------------------------------------------------------
Net increase 4,227,857 $ 27,695,862 13,411,235 $ 94,384,798
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 14, 1994
(commencement of
operations) to
April 30
-------------------------
1995
-------------------------
Class M Shares Amount
- -------------------------------------------------
<S> <C> <C>
Shares sold 122,275 $808,300
- -------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,223 8,082
- -------------------------------------------------
123,498 816,382
Shares repurchased (473) (3,134)
- -------------------------------------------------
Net increase 123,025 $813,248
- -------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
June 16, 1994
(commencement of
Six months operations) to
ended April 30, October 31
------------------------------ -----------------------------
1995 1994
------------------------------ -----------------------------
Class Y Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 13,703,971 $91,641,629 1,200,448 $8,010,460
- ---------------------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 128,918 857,827 20,094 132,534
- ---------------------------------------------------------------------------------------
13,832,889 92,499,456 1,220,542 8,142,994
Shares repurchased (1,236,918) (8,292,961) (68,102) (449,991)
- ---------------------------------------------------------------------------------------
Net increase 12,595,971 $84,206,495 1,152,440 $7,693,003
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Results of April 6, 1995 shareholder meeting
A special meeting of the shareholders of the fund was held on April 6, 1995.
At the meeting, each of the nominees for Trustees was elected as follows:
Votes for Votes withheld
- ------------------------------------------------------------
Jameson Adkins Baxter 101,162,802 2,664,766
- ------------------------------------------------------------
Hans H. Estin 101,155,801 2,674,767
- ------------------------------------------------------------
John A. Hill 101,233,650 2,593,919
- ------------------------------------------------------------
Elizabeth T. Kennan 101,171,796 2,655,772
- ------------------------------------------------------------
Lawrence J. Lasser 101,155,810 2,671,758
- ------------------------------------------------------------
Robert E. Patterson 101,239,767 2,587,801
- ------------------------------------------------------------
Donald S. Perkins 101,132,489 2,695,079
- ------------------------------------------------------------
William F. Pounds 101,125,919 2,701,649
- ------------------------------------------------------------
George Putnam 101,127,577 2,699,991
- ------------------------------------------------------------
George Putnam, III 101,187,018 2,640,550
- ------------------------------------------------------------
A.J.C. Smith 101,136,925 2,690,643
- ------------------------------------------------------------
W. Nicholas Thorndike 101,093,911 2,733,658
- ------------------------------------------------------------
A proposal to ratify the selection of Coopers & Lybrand L.L.P. as auditors
for the fund was approved as follows: 98,970,588 votes for, and 1,455,463
votes against, with 3,401,517 abstentions and broker non-votes. A proposal to
approve a new management contract between the fund and Putnam Management was
approved as follows: 70,161,588 votes for, and 27,673,487 votes against, with
5,902,492 abstentions and broker non-votes.
All tabulations have been rounded to the nearest whole number.
<PAGE>
Our commitment to quality service
> CHOOSE AWARD-WINNING SERVICE.
Putnam Investor Services has won the DALBAR Quality Tested Service Seal for
the past five years. The award is presented annually by DALBAR Inc., an
independent firm that monitors and evaluates the quality of service provided
by mutual fund companies throughout the United States. During 1994, DALBAR
ranked firms by conducting 80,000 anonymous performance evaluations based on
55 service components.
> HELP YOUR INVESTMENT GROW.
Set up a systematic program for investing with as little as $25 a month from
a Putnam fund or from your checking or savings 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 QUICKLY.
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 of the shares.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a helpful
Putnam representative.
> 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.
<PAGE>
Fund information
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 F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
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
Gary N. Coburn
Vice President
Alan J. Bankart
Vice President
Kenneth J. Taubes
Vice President and
Fund Manager
Rosemary H. Thomsen
Vice President and
Fund Manager
D. William Kohli
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 Income Fund. 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, and the most recent copy of
Putnam's Quarterly Performance Summary. For more information, or to request a
prospectus, call toll free: 1-800-225-1581.
Shares of mutual funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution, are not insured by the Federal
Deposit Insurance Corporation (FDIC), the Federal Reserve Board or any other
agency, and involve risk, including the possible loss of principal amount
invested.
<PAGE>
(logo) PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- ------------
18299-004/312/514
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED
AND EDGAR-FILED TEXTS:
(1) Bold and italic typefaces are displayed in normal type.
(2) Headers (e.g., the name of the fund) are omitted.
(3) Certain tabular and columnar headings and symbols are displayed
differently in this filing.
(4) Bullet points and similar graphic signals are omitted.
(5) Page numbering is omitted.
(6) Trademark symbol replaced with (TM)
