Putnam
Income
Fund
SEMIANNUAL REPORT
April 30, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* According to Lipper Analytical Services, Putnam Income Fund's class A
share total return ranked 7 out of 46 corporate debt A-rated funds for
the five-year period ended April 30, 1996, placing the fund in the top
15% in this category.*
* "[Putnam Income Fund's] diversity, foreign exposure, moderate risk,
and high yield make it attractive to investors seeking a balanced fixed-
income fund."
--The Value Line Mutual Fund Survey, February 6, 1996
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
11 Portfolio holdings
22 Financial statements
*Lipper Analytical Services, an independent research organization, ranks
funds according to total-return performance. Their rankings vary over
time and do not reflect the effects of sales charges. For periods ended
4/30/96: the fund's class A shares ranked 24 out of 116 and 4 out of 26
corporate debt
A-rated funds for 1- and 10-year performance, respectively; class B
shares ranked 47 out of 116 and 31 out of 70 funds for 1- and 3-year
performance, respectively; class M shares ranked 29 out of 116 funds for
1-year performance. Class B and class M shares were not ranked over
longer periods. Past performance is not indicative of future results.
[GRAPHIC OMITTED: photo of George Putnam]
(copyright) Karsh, Ottawa
From the Chairman
Dear Shareholder:
Much as nature abhors a vacuum, bond markets have an aversion to
inflation. The reason is simple: inflation generally means higher
interest rates, and higher rates mean lower bond prices. Rarely has this
principle been demonstrated more clearly than during the first half of
Putnam Income Fund's current fiscal year, the six months ended April 30,
1996.
The period opened in the midst of one of the U.S. bond market's
strongest advances in recent memory. It proved a fragile rally, derailed
in March by hints of a pickup in inflation caused by the economy's
persistent strength. Anticipating such a possibility, your fund's
management team had taken some defensive measures that mitigated, but
did not entirely neutralize, the market's resulting decline.
All in all, the fund performed respectably within its universe, as its
managers explain in the report that follows. They also take a look at
prospects for the second half of fiscal 1996.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
June 19, 1996
Report from the Fund Managers
Kenneth J. Taubes, lead manager
Rosemary H. Thomsen
D. William Kohli
After rallying throughout 1995, U.S. bond markets became unsettled over
the past six months in response to steadily improving economic growth
and renewed concern about inflation. In this environment, Putnam Income
Fund maintained its composure. To help offset generally poor Treasury-
bond performance, we took advantage of lucrative investment
opportunities in corporate and international bonds. As a result, the
fund posted total return figures roughly in line with its benchmark
index, the Lehman Brothers Aggregate Bond Index. Complete performance
information appears on pages 8 and 9.
* HIGH-YIELD AND INVESTMENT-GRADE CORPORATE BONDS BOLSTER
PERFORMANCE
Over the past three months, the fund's asset allocation flexibility
again proved its value, allowing us to capitalize on stable sectors of
the bond market as long-term interest rates generally rose amid a
strengthening U.S. economy. In a struggling bond market, investments in
high-yield and investment-grade corporate bonds were instrumental in
bolstering the fund's value.
As the U.S. economy gained strength in recent months, so did corporate
profitability. This, in turn, helped to improve the creditworthiness of
high-yield bond issuers. High-yield securities lagged most other fixed-
income sectors throughout 1995's bond-market rally, primarily because of
the prevailing slowdown in economic growth. However, economic
revitalization since the beginning of 1996 has boosted demand for high-
yield bonds, making them among the strongest-performing fixed-income
asset classes. We added significantly to your fund's investments in
high-yield bonds at the beginning of the period, at times allocating
more than 15% of the fund's assets to this sector.
Investment-grade corporate bonds also benefited from a rebound in
economic growth during the fiscal period. Among the bonds in this sector
that contributed to performance, one security in the oil and gas
industry stands out. Parker & Parsley Petroleum Company underwent a
change in management several years ago after unsuccessfully attempting
to expand its business outside the energy sector through a series of
aggressive acquisitions. At that time, we purchased this security at a
relatively low price, hoping to capitalize on the apparent value
opportunity. The new management subsequently pared the company back to
its core businesses -- oil and gas -- improving its profits and enabling
the value of its bonds to appreciate substantially. More recently, a
surge in oil prices has also boosted the company's revenues.
* BOND MARKETS OUTSIDE THE U.S. OFFER OPPORTUNITIES
Slower economic growth overseas and in Canada enabled international
fixed-income markets to rally throughout the past six months. Typically,
bond markets respond favorably to slowing economic growth because, in
such an environment, investors' fears of inflation are minimal.
Early in the fiscal period, we concentrated much of the fund's
international holdings in core European countries such as Germany, the
Netherlands, Italy, and the United Kingdom. In these countries, robust
bond markets and improving quality (particularly in Italy) caused the
values of existing bonds to rise. During the final two months of the
fiscal period, these prices approached a level at which we consider them
unlikely to appreciate much more. Consequently, we began to liquidate a
portion of these European holdings to lock in the profits and reallocate
assets elsewhere. Among the bond markets that began to offer the
greatest value potential toward the end of the fiscal period were those
in Canada and Australia. In both countries, fixed-income securities
outperformed U.S. bonds as economic growth remained sluggish.
[GRAPHIC OF HORIZONTAL BAR CHART OMITTED: BOND MARKET PERFORMANCE BY
SECTOR*]
Chart information reads:
Comparison of total returns, 10/31/95 - 4/30/96
First Boston
High Yield 4.51%
Lehman Brothers
Mortgage-Backed 1.66%
Lehman Brothers
Aggregate Bond 0.53%
Lehman Brothers
Corporate Bond 0.08%
Salomon Brothers
World Government
Bond -0.13%
Lehman Brothers
Long-Term Treasury
Bond -3.49%
[VERTICAL LINE THROUGH HORIZONTAL BARS REPRESENTS 0%]
*These indexes reflect the general performance of market sectors in
which the fund may invest. The fund's performance will differ. Past
performance is not indicative of future results. The indexes may include
bonds different from those in the fund. It is not possible to invest in
an index.
* RISING INTEREST RATES AFFECT DURATION MANAGEMENT
Additional efforts to boost your fund's performance centered around
management of 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.
Through the first several months of the semiannual period, we kept the
portfolio's duration relatively long, seeking to enhance the fund's
value as long-term interest rates continued to decline. Because bond
prices rise as interest rates fall, a longer duration gives the fund the
potential to derive greater benefit when long-term rates are in decline.
However, greater rewards always entail greater potential risks; in this
case, such a strategy can expose the fund to the negative effects of a
rate increase.
When 1995's bond-market rally began to slow earlier this year, the U.S.
economy still appeared relatively weak, and the prospects for a
sustained drop in bond prices seemed remote. As a result, we maintained
our aggressive approach, keeping the fund's duration somewhat longer
than that of other funds in its Lipper category. In late February, when
the intensity of the market's decline became evident and interest rates
changed direction, we began to shorten duration substantially. Our goal
was to reduce declines in the portfolio's value, but we were not able to
prevent some loss as interest rates rose.
* CORPORATE BONDS COULD BENEFIT FROM A SUSTAINED ECONOMIC RALLY
Since the beginning of 1996, economic indicators have provided cogent
evidence that the U.S. economy is again growing at an above-average
pace. For the coming six months, all of this suggests an environment in
which inflation is a valid concern and, consequently, certain sectors of
the bond market may continue to struggle. In such a climate, your fund's
inherent flexibility will enable us to reduce the portfolio's allocation
to underperforming sectors of the market and focus on those sectors that
tend to fare better when economic growth is strong. As long as these
conditions persist, we will continue to emphasize corporate bonds, which
generally perform well during times of hardy economic growth as the
issuing corporations benefit from increased profits.
[GRAPHIC OF HORIZONTAL BAR CHART OMITTED: CHANGES IN PORTFOLIO
COMPOSITION*. TOP FIGURE REPRESENTS PERCENTAGE AT 10/31/95. BOTTOM
FIGURE REPRESENTS PERCENTAGE AT 4/30/96]
Chart informationion reads:
U.S. government
and agency obligations 55.4%
50.4%
Corporate bonds 29.4%
34.8%
Foreign government
bonds and notes 8.2%
8.1%
Short-term
investments 2.1%
6.2%
Collateralized
mortgage obligations 5.1%
4.6%
Other 0.0%
0.5%
*Based on net assets as of indicated dates. Holdings will vary over
time.
During an economic rally, mortgage-backed securities typically
outperform Treasury securities. This has been the case over the past
several months and we expect this trend to continue until the bond-
market atmosphere in the U.S. improves. As we have with corporate bonds,
we will maintain the portfolio's above-average allocation to mortgage-
backed securities until the market for Treasuries shows signs of
improvement.
Our primary goal continues to be one of adjusting the fund's allocation
according to where we believe the greatest relative value exists. In the
process, we strive to produce competitive income and total returns in
the midst of constantly changing market conditions.
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 4/30/96, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
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.
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 in the fund.
TOTAL RETURN FOR PERIODS ENDED 4/30/96
(inception Class A Class B Class M
date) (11/1/54) (3/1/93) (12/14/94)
NAV POP NAV CDSC NAV POP
- -----------------------------------------------------------------------
6 months 0.17% -4.56% -0.20% -5.05% 0.08% -3.22%
- -----------------------------------------------------------------------
1 year 8.91 3.68 8.16 3.16 8.61 5.01
- -----------------------------------------------------------------------
5 years 54.12 46.78 -- -- -- --
Annual
average 9.04 7.98 -- -- -- --
- -----------------------------------------------------------------------
10 years 128.94 118.16 -- -- -- --
Annual
average 8.64 8.11 -- -- -- --
- -----------------------------------------------------------------------
Life of
class -- -- 17.35 14.50 15.53 11.75
Annual
average -- -- 5.18 4.36 11.04 8.38
- -----------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/96
Lehman Bros.
Aggregate Consumer
Bond Index Price Index
- ------------------------------------------------------------------
6 months 0.53% 1.69%
- ------------------------------------------------------------------
1 year 8.64 2.90
- ------------------------------------------------------------------
5 years 47.83 15.61
Annual average 8.13 2.94
- ------------------------------------------------------------------
10 years 126.10 43.92
Annual average 8.50 3.71
- ------------------------------------------------------------------
Life of class B 18.90 9.22
Annual average 5.62 2.82
- ------------------------------------------------------------------
Life of class M 16.52 4.41
Annual average 11.41 3.18
- ------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They do not take into
account any adjustment for taxes payable on reinvested distributions or,
for class A shares, distribution fees prior to implementation of the
class A distribution plan in 1990. Investment returns and net asset
value will fluctuate so that an investor's shares, when sold, may be
worth more or less than their original cost. POP assumes 4.75% maximum
sales charge for class A shares and 3.25% for class M shares. CDSC for
class B shares assumes 5% maximum contingent deferred sales charge.
TOTAL RETURN FOR PERIODS ENDED 3/31/96
(most recent calendar quarter)
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- -------------------------------------------------------------
6 months 2.35% -2.53% 1.84% -3.11% 2.12% -1.14%
- -------------------------------------------------------------
1 year 11.21 5.96 10.28 5.28 10.74 7.20
- -------------------------------------------------------------
5 years 56.98 49.48 -- -- -- --
Annual
average 9.44 8.37 -- -- -- --
- -------------------------------------------------------------
10 years 131.72 120.84 -- -- -- --
Annual
average 8.77 8.24 -- -- -- --
- -------------------------------------------------------------
Life of
class -- -- 18.12 15.24 16.24 12.43
Annual
average -- -- 5.54 4.70 12.29 9.44
- -------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment returns
and net asset value will fluctuate so that an investor's shares, when
sold, may be worth more or less than their original cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 4/30/96
Class A Class B Class M
- ---------------------------------------------------------------------
Distributions (number) 6 6 6
- ---------------------------------------------------------------------
Income $0.235 $0.209 $0.229
- ---------------------------------------------------------------------
Total $0.235 $0.209 $0.229
- ---------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ---------------------------------------------------------------------
10/31/95 $7.07 $7.42 $7.04 $7.04 $7.28
- ---------------------------------------------------------------------
4/30/96 $6.85 $7.19 $6.82 $6.82 $7.05
- ---------------------------------------------------------------------
Current return
- ---------------------------------------------------------------------
End of period
- ---------------------------------------------------------------------
Current dividend
rate1 6.83% 6.51% 6.16% 6.69% 6.47%
- ---------------------------------------------------------------------
Current 30-day SEC
yield2 6.19 5.89 5.29 5.94 5.73
- ---------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided
by NAV or POP at end of period.
2 Based on investment income, calculated using SEC guidelines.
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.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
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 BENCHMARKS
Lehman Brothers Aggregate Bond Index is an unmanaged list of investment-
grade bonds.*
First Boston High Yield Index is a market-weighted index including
publicly traded bonds rated below BBB by Standard & Poor's and Moody's.*
Lehman Brothers Corporate Bond Index is an unmanaged list of publicly
issued, fixed-rate non-convertible investment-grade domestic corporate
debt securities frequently used as a general measure of the performance
of fixed-income securities.*
Lehman Brothers Long-Term Treasury Bond Index is composed of all bonds
covered by the Lehman Brothers Treasury Bond Index with maturities of 10
years of greater.*
Lehman Brothers Mortgage-Backed Securities Index is an unmanaged list of
GNMA bonds.*
Salomon Brothers World Government Bond Index is a market-capitalization
weighted benchmark that tracks the performance of government-bond
markets in 14 countries.*
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and
interest payments and do not take into account brokerage fees or taxes.
Securities in the fund do not match those in the indexes and performance
in the fund will differ. It is not possible to invest directly in an
index.
<TABLE>
<CAPTION>
Performance summary
Portfolio of investments owned
April 30, 1996 (Unaudited)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (50.4%) *
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal National Mortgage Association
Pass-Through Certificates
$512,209 11s, with various due dates to October 1, 2015 $573,835
3,591,977 8s, Graduated Payment Mortgages (GPM)
1-Dec-08 3,736,734
17,060,080 7s, with various due dates to February 1, 2025 16,446,961
37,230,000 TBA 7s, May 16, 2026 35,891,954
25,360,872 Dwarf 6s, with various due dates to October 1, 2010 24,013,450
14,100,000 med. term notes 5.94s, December 12, 2005 13,104,117
Government National Mortgage Association
Pass-Through Certificates
569,446 11s, GPM , with various due dates to October 15, 2013 636,797
496,745 9s, with various due dates to May 15, 2009 529,156
56,140,783 7 1/2s, with various due dates to April 15, 2026 55,490,133
44,830,000 TBA 7s, May 16, 2026 43,162,772
11,926,031 Midget 6 1/2s, with various due dates to
15-Nov-09 11,609,176
20,730,000 TBA 6 1/2s, May 16, 2026 19,401,829
12,590,229 Midgets 6s, with various due dates to June 15, 2009 11,988,177
U.S. Treasury Bonds
42,010,000 11 5/8s, November 15, 2004 55,380,943
73,075,000 10 3/4s, August 15, 2005 93,158,933
23,472,000 7 1/2s, November 15, 2024 24,773,992
22,829,000 7 1/8s, February 15, 2023 22,964,604
U.S. Treasury Notes
38,900,000 11 7/8s, November 15, 2003 50,819,349
585,000 7 3/4s, January 31, 2000 612,056
46,581,000 7 1/4s, August 15, 2004 48,262,108
655,000 7 1/8s, September 30, 1999 671,270
13,266,000 6 7/8s, March 31, 2000 13,500,278
13,980,000 6 1/4s, February 15, 2003 13,737,587
2,855,000 6 1/4s, May31, 2000 2,841,610
44,560,000 5 5/8s, February 28, 2001 43,125,614
111,302,000 5 1/4s, July 31, 1998 109,354,215
--------------
Total U.S. Government and Agency Obligations
(cost $738,451,735) $715,787,650
CORPORATE BONDS AND NOTES (34.5%) *
PRINCIPAL AMOUNT VALUE
Advertising (0.1%)
- ---------------------------------------------------------------------------------------------------------------------------
$725,000 Outdoor Systems, Inc. sr. notes 10 3/4s, 2003 $735,875
500,000 Universal Outdoor, Inc. sub. deb. 11s, 2003 512,500
--------------
1,248,375
Aerospace and Defense (1.1%)
- ---------------------------------------------------------------------------------------------------------------------------
$950,000 Alliant Techsystems, Inc. sr. sub. notes 11 3/4s, 2003 $1,042,625
750,000 BE Aerospace sr. notes 9 3/4s, 2003 765,000
750,000 Coltec Industries Inc. sr. notes 9 3/4s, 1999 772,500
1,500,000 Howmet Corp. 144A sr. sub. notes 10s, 2003 1,578,750
643,000 K&F Industries Inc. sub. deb. 13 3/4s, 2001 668,720
9,200,000 Northrop Grumman Corp. 144A notes 7s, 2006 8,889,500
1,000,000 Sequa Corp. sr. notes 9 5/8s, 1999 980,000
750,000 Wyman-Gordon Co. sr. notes 10 3/4s, 2003 795,000
--------------
15,492,095
Agriculture (0.1%)
- ---------------------------------------------------------------------------------------------------------------------------
400,000 Agco Corp. 144A sr. sub. notes 8 1/2s, 2006 404,000
2,000,000 PSF Finance (L.P.) sr. exch. notes 12 1/4s, 2004
(acquired 12/16/95 cost $2,000,000)
(In Default) + ++ 1,400,000
--------------
1,804,000
Automotive (0.5%)
- ---------------------------------------------------------------------------------------------------------------------------
1,375,000 Aftermarket Technology Corp. sr. sub. notes
Ser. D, 12s, 2004 1,467,813
250,000 Aftermarket Technology Corp. sr. sub. notes
12s, 2004 266,875
875,000 Exide Corp. sr. notes 10 3/4s, 2002 912,188
3,430,000 Ford Capital BV deb. 9s, 1998 (Netherlands) 3,606,576
450,000 Hayes Wheels International, Inc. notes 9 1/4s, 2002 477,000
--------------
6,730,452
Basic Industrial Products (0.1%)
- ---------------------------------------------------------------------------------------------------------------------------
1,000,000 Inter-City Products sr. notes 9 3/4s, 2000 895,000
925,000 Owens Illinois, Inc. sr. sub. notes 9 3/4s, 2004 938,875
--------------
1,833,875
Broadcasting (1.4%)
- ---------------------------------------------------------------------------------------------------------------------------
1,750,000 Allbritton Communications Corp. 144A sr.
sub. notes 9 3/4s, 2007 1,653,750
1,000,000 Argyle Television Corp. sr. sub. notes 9 3/4s, 2005 970,000
200,000 Cablevision Systems Corp. sr. sub. deb. 9 7/8s, 2023 196,000
750,000 Cablevision Systems Corp. sr. sub. reset deb.
10 3/4s, 2004 783,750
750,000 Century Communications Corp. sr. notes
9 1/2s, 2005 742,500
950,000 CF Cable TV sr. notes 9 1/8s, 2007 (Canada) 950,000
1,150,000 Chancellor Broadcasting Co. sr. sub. notes 9 3/8s, 2004 1,106,875
1,000,000 Commodore Media, Inc. sr. sub. notes stepped-coupon
7 1/2s, (13 1/4s, 5/1/98), 2003 ++ 1,020,000
1,000,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00),
2005 (United Kingdom)++ 602,500
1,450,000 Jones Intercable, Inc. sr. sub. deb. 10 1/2s, 2008 1,544,250
1,000,000 Jones Intercable Inc. sr. notes 9 5/8s, 2002 1,022,500
1,000,000 Lenfest Communications, Inc. sr. notes 8 3/8s, 2005 941,250
$1,000,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes
stepped-coupon zero % (13 1/2s, 8/1/99), 2004 ++ 720,000
1,625,000 Paxson Communications Corp. 144A sr. sub. notes
11 5/8s, 2002 1,722,500
200,000 Rogers Cablesystem Ltd. deb. 10 1/8s, 2012 (Canada) 203,000
475,000 Rogers Cablesystem Ltd. notes 9 5/8s, 2002 (Canada) 475,000
600,000 SFX Broadcasting, Inc. sr. sub. notes 11 3/8s, 2000 642,000
1,000,000 Sullivan Broadcasting sr. sub. notes 10 1/4s, 2005 970,000
1,285,000 Telewest Communications PLC deb. stepped-coupon
zero % (11s, 10/1/00), 2007 (United Kingdom) ++
1,250,000 Videotron Holdings. sr. disc. notes stepped-coupon 790,275
zero % (11s, 8/15/2005), 2005 (United Kingdom) ++ 828,125
1,500,000 Young Broadcasting, Inc. 144A sr. sub. notes 9s, 2006 1,387,500
--------------
19,271,775
Building and Construction (0.5%)
- ---------------------------------------------------------------------------------------------------------------------------
1,355,000 American Standard, Inc. deb. 9 1/4s, 2016 1,355,000
1,350,000 Congoleum Corp. sr. notes 9s, 2001 1,296,000
1,000,000 Schuller International Corp. sr. notes 10 7/8s, 2004 1,080,000
975,000 Scotsman Group, Inc. sr. secd. notes 9 1/2s, 2000 994,500
1,745,000 Triangle Pacific Corp. sr. notes 10 1/2s, 2003 1,810,438
--------------
6,535,938
Business Equipment and Services (0.2%)
- ---------------------------------------------------------------------------------------------------------------------------
1,750,000 Corporate Express, Inc. sr. sub notes
Ser. B, 9 1/8s, 2004 1,763,125
750,000 United Stationer Supply, Inc. sr. sub.
notes 12 3/4s, 2005 824,063
--------------
2,587,188
Chemicals (0.5%)
- ---------------------------------------------------------------------------------------------------------------------------
750,000 Acetex Corp. sr. notes 9 3/4s, 2003 (Canada) 753,750
1,250,000 Arcadian Partner sr. notes 10 3/4s, 2005 1,343,750
1,200,000 Great Lakes Carbon Corp. sr. notes 10s, 2006 1,230,000
3,335,000 Lyondell Petrochemical Co. notes 9 1/8s, 2002 3,613,939
--------------
6,941,439
Communications (0.1%)
- ---------------------------------------------------------------------------------------------------------------------------
1,335,000 Panamsat (L.P.) sr. sub. notes stepped-coupon zero %
(11 3/8s, 8/1/98), 2003 ++ 1,138,088
Conglomerates (0.1%)
- ---------------------------------------------------------------------------------------------------------------------------
1,000,000 ADT Ltd. sr. sub notes 9 1/4s, 2003 1,040,000
750,000 MacAndrews & Forbes Holdings, Inc. sub. deb.
notes 13s, 1999 750,938
--------------
1,790,938
Consumer Durable Goods (0.1%)
- ---------------------------------------------------------------------------------------------------------------------------
$1,500,000 Selmer Co., Inc. sr. sub. notes 11s, 2005 $1,582,500
Consumer Services (0.1%)
- ---------------------------------------------------------------------------------------------------------------------------
1,000,000 Coinmach Corp. sr. notes Ser. B, 11 3/4s, 2005 1,020,000
Electronics and Electrical Equipment (0.2%)
- ---------------------------------------------------------------------------------------------------------------------------
1,500,000 Amphenol Corp. sr. notes 10.45s, 2001 1,620,000
2,900,000 International Semi-Tech. Corp. sr. secd. disc. notes
stepped-coupon zero % (11 1/2s, 8/15/00),
2003 (Canada) ++ 1,740,000
--------------
3,360,000
Entertainment (2.7%)
- ---------------------------------------------------------------------------------------------------------------------------
250,000 Alliance Entertainment Corp. sr. sub. notes
Ser. B, 11 1/4s, 2005 242,500
500,000 Arizona Charlies Corp. 1st mtge. Ser. B, 12s, 2000 325,000
1,500,000 Bally Park Place Funding 1st mtge. 9 1/4s, 2004 1,541,250
1,500,000 Casino America, Inc. 1st mtge. 11 1/2s, 2001 1,593,750
750,000 Cinemark USA sr. notes 12s, 2002 815,625
500,000 Coast Hotels & Casinos, Inc. 1st. mtge. 13s, 2002 527,500
1,750,000 Empress River Casino sr. notes 10 3/4s, 2002 1,824,375
2,000,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 2,090,000
1,000,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 980,000
1,000,000 Players International Inc. sr. notes 10 7/8s, 2005 1,022,500
1,000,000 Premier Parks, Inc. sr. notes Ser. A, 12s, 2003 1,075,000
1,750,000 Six Flags Corp. sr. sub. notes stepped-coupon zero %
(12 1/4s, 6/15/98), 2005 ++ 1,474,375
1,500,000 Time Warner, Inc. deb. 9.15s, 2023 1,554,765
300,000 Time Warner, Inc. notes 8.18s, 2007 297,300
300,000 Time Warner, Inc. notes 8.11s, 2006 300,321
11,560,000 Time Warner, Inc. deb. 7 1/4s, 2008 10,850,678
1,750,000 Trump A.C. 1st. mtge. 11 1/4s, 2006 1,776,250
1,000,000 Trump Holdings & Funding Corp. sr. notes
15 1/2s, 2005 1,167,500
7,890,000 Viacom International, Inc. sr. notes 7 3/4s, 2005 7,725,099
950,000 Viacom International, Inc. sub. deb. 8s, 2006 888,250
--------------
38,072,038
Environmental Control (-%)
- ---------------------------------------------------------------------------------------------------------------------------
550,000 Allied Waste Industries sr. sub. notes 12s, 2004 595,375
Food and Beverages (0.1%)
- ---------------------------------------------------------------------------------------------------------------------------
525,000 Canandaigua Wine sr. sub. notes 8 3/4s, 2003 517,125
1,000,000 Stater Brothers sr. notes 11s, 2001 1,037,500
--------------
1,554,625
Health Care (1.3%)
- ---------------------------------------------------------------------------------------------------------------------------
$1,600,000 Abbey Healthcare Group Inc. sr. sub. deb. 9 1/2s, 2002 $1,648,000
4,660,000 Columbia Healthcare Corp. deb. 8.36s, 2024 4,898,685
1,000,000 Healthsouth Rehablitaton sr. sub. notes 9 1/2s, 2001 1,040,000
1,150,000 Integrated Health Services sr. sub. notes
10 3/4s, 2004 1,196,000
2,060,000 Ivac Corp. sr. notes 9 1/4s, 2002 2,121,800
900,000 McGaw, Inc. sr. notes 10 3/8s, 1999 911,250
1,475,000 Merit Behavorial Care sr. sub. notes 11 1/2s, 2005 1,570,875
2,200,000 Paracelsus Healthcare Corp. sr. sub. notes
9 7/8s, 2003 2,200,000
975,000 Tenet Healthcare Corp. sr. sub. notes 10 1/8s, 2005 1,043,250
350,000 Tenet Healthcare Corp. sr. notes 8 5/8s, 2003 357,000
487,000 Total Renal Care Holdings, Inc. sr. disc. notes
stepped-coupon zero % (12s, 8/15/97), 2004 ++ 480,913
615,000 Universal Health Services sr. notes 8 3/4s, 2005 613,463
--------------
18,081,236
Insurance and Finance (7.9%)
- ---------------------------------------------------------------------------------------------------------------------------
750,000 AIM Management Group sr. secd. notes 9s, 2003 765,000
3,500,000 AMBAC Indemnity Corp. deb. 9 3/8s, 2011 4,079,040
11,105,000 Advanta National Bank sr. notes 7.02s, 2001 11,091,119
1,420,000 American Annuity Group, Inc. sr. sub. notes
11 1/8s, 2003 1,519,400
7,000,000 American Premier Underwritters, Inc. sub. notes
10 7/8s, 2011 7,700,770
10,900,000 BHP Finance (USA), Inc. company guaranty
6.42s, 2026 10,541,499
6,320,000 Bangkok Bank Public Co. 144A sub. notes
8 1/4s, 2016 (Thailand) 6,189,808
450,000 Centerbank sub. notes 8 3/8s, 2002 446,625
1,750,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 1,732,500
10,500,000 Citicorp sub. notes 7 1/8s, 2005 10,390,170
6,015,000 Conseco, Inc. sr. notes 10 1/2s, 2004 6,757,251
8,325,000 Den Danske Bank sub. notes 6.55s, 2003 (Denmark) 7,977,015
2,340,000 First National Bank of Omaha sub. notes 7.32s, 2010 2,205,450
1,900,000 First Nationwide Holdings 144A sr. sub. notes
9 1/8s, 2003 1,843,000
750,000 Keystone Group, Inc. sr. secd. notes 9 3/4s, 2003 746,250
5,000,000 Orion Capital Corp. sr. notes 9 1/8s, 2002 5,462,950
7,700,000 Paine Webber Group Inc. notes 6 1/2s, 2005 7,095,627
475,000 Reliance Group Holdings, Inc. sr. sub. deb.
9 3/4s, 2003 475,000
750,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 750,000
8,500,000 Riggs National Corp. sub. deb. 8 1/2s, 2006 8,585,000
6,500,000 Scotland International Finance 144A sub. notes
8.85s, 2006 (Netherlands) 7,117,500
5,000,000 Society Bank & Trust notes 12 1/2s, 1999 5,825,000
2,475,000 Terra Nova Insurance Holdings. sr. notes
10 3/4s, 2005 (United Kingdom) 2,772,000
--------------
112,067,974
Medical Supplies and Devices (0.1%)
- ---------------------------------------------------------------------------------------------------------------------------
$900,000 Graphic Controls Corp. sr. sub. notes
Ser. A, 12s, 2005 $951,750
Metals and Mining (1.0%)
- ---------------------------------------------------------------------------------------------------------------------------
575,000 Inland Steel Co. 1st mtge. 12s, 1998 618,125
1,000,000 Ispat Mexicana, SA 144A deb. 10 3/8s, 2001 (Mexico) 947,500
6,770,000 Noranda Inc. notes 7s, 2005 (Canada) 6,516,802
6,100,000 PT Alatief Freeport sr. notes 9 3/4s, 2001
(Netherlands) 6,509,005
--------------
14,591,432
Oil and Gas (4.0%)
- ---------------------------------------------------------------------------------------------------------------------------
500,000 Benton Oil & Gas 144A sr. notes 11 5/8s, 2003 508,750
900,000 Chesapeake Energy Corp. sr. notes 12s, 2001 978,750
160,000 Chesapeake Energy Corp. sr. notes 10 1/2s, 2002 169,000
500,000 Chesapeake Energy Corp. sr. notes 9 1/8s, 2006 500,000
750,000 Gulf Canada Resources Ltd. sr. sub. notes 9 5/8s,
2005 (Canada) 761,250
250,000 Maxus Energy Corp. notes 9 7/8s, 2002 247,500
250,000 Maxus Energy Corp. notes 9 3/8s, 2003 241,875
1,002,000 Maxus Energy Corp. notes 9 1/2s, 2003 981,960
6,600,000 ONEOK Inc. deb. 9.7s, 2019 7,013,226
9,832,000 Parker & Parsley Petro Co. sr. notes 8 7/8s, 2005 10,536,266
12,500,000 Petro Canada deb. 9 1/4s, 2021(Canada) 14,078,875
8,245,000 Petroliam Nasional Berhad 144A notes
7 1/8s, 2005 (Malaysia) 8,121,325
500,000 Transcontinental Gas Pipe Line Corp. deb. 9s, 1996 507,550
1,500,000 Transtexas Gas Corp. sr. secd. notes 11 1/2s, 2002 1,500,000
750,000 Triton Energy sr. sub. disc. notes stepped-coupon
zero % (9 3/4s, 12/15/96), 2000 ++ 720,000
9,670,000 Union Texas Petroleum sr. notes Ser. A, 6.51s, 2002 9,311,823
--------------
56,178,150
Paper and Forest products (0.7%)
- ---------------------------------------------------------------------------------------------------------------------------
500,000 APP International Finance Co. notes
11 3/4s, 2005 (Netherlands) 486,250
1,500,000 Doman Industries Ltd. sr. notes 8 3/4s, 2004 1,357,500
750,000 Domtar, Inc. notes 12s, 2001 (Canada) 855,000
1,000,000 Domtar, Inc. deb 11 1/4s, 2017 (Canada) 1,050,000
1,500,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 1,575,000
1,425,000 Repap New Brunswick sr. notes
10 5/8s, 2005 (Canada) 1,364,438
100,000 Repap New Brunswick sr. notes
9 1/2s, 2000 (Canada) 99,250
1,750,000 Stone Consolidated Corp. sr. notes 10 1/4s, 2000 1,828,750
1,000,000 Stone Container Corp. sr. sub. notes 9 7/8s, 2001 956,250
--------------
9,572,438
Publishing (1.0%)
- ---------------------------------------------------------------------------------------------------------------------------
$1,500,000 American Media Operation, Inc. sr. sub.
notes 11 5/8s, 2004 $1,496,250
1,600,000 Marvel Parent Holdings, Inc. sr. secd. disc.
notes zero %, 1998 1,212,000
11,600,000 News America Holdings, Inc. deb. 7.7s, 2025 10,530,364
1,000,000 World Color Press sr. sub. notes 9 1/8s, 2003 980,000
--------------
14,218,614
REIT'S (Real Estate Investment Trust) (1.5%)
- ---------------------------------------------------------------------------------------------------------------------------
750,000 John Q. Hammons Hotels, Inc. 1st mtge.
8 7/8s, 2004 720,000
3,290,000 Health Care Property Investors, Inc. sr. notes
6 1/2s, 2006 3,036,637
750,000 HMH Properties, Inc. sr. notes 9 1/2s, 2005 727,500
8,525,000 Meditrust med. term notes 7.3s, 2006 8,351,602
1,500,000 Prime Hospitality Corp. 1st mtge. 9 1/4s, 2006 1,434,375
5,705,000 Sun Communities, Inc. dr. notes 7 5/8s, 2003 5,676,475
1,000,000 Tanger Properities Ltd. Partnership Gtd. notes
8 3/4s, 2001 979,050
--------------
20,925,639
Retail (2.0%)
- ---------------------------------------------------------------------------------------------------------------------------
1,470,000 Brylane (L.P.) sr. sub. notes 10s, 2003 1,396,500
1,650,000 County Seat Stores Inc. sr. sub notes 12s, 2002 1,402,500
1,750,000 Federated Department Stores Inc. sr. notes 8 1/8s, 2002 1,719,375
1,750,000 Finlay Enterprises, Inc. sr. notes 10 5/8s, 2003 1,715,000
1,000,000 Loehmanns' Holdings, Inc. sr. notes 10 1/2s, 1997 1,000,000
5,000,000 May Department Stores Co. notes 9 1/2s, 2021 5,831,050
1,200,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 1,284,000
850,000 Revco D.S., Inc. sr. notes 9 1/8s, 2000 902,114
8,000,000 Sears, Roebuck & Co. med. term notes 9.1s, 2012 9,211,040
1,275,000 Sears, Roebuck & Co. med. term notes 5.91s, 1999 1,254,409
1,500,000 Southland Corp. 1st priority sr. sub. deb. 5s, 2003 1,185,000
500,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 365,000
200,000 Specialty Retailers, Inc. sr. sub. notes 11s, 2003 197,500
750,000 Waban, Inc. sr. sub. notes 11s, 2004 780,000
--------------
28,243,488
Specialty Consumer Products (0.2%)
- ---------------------------------------------------------------------------------------------------------------------------
1,750,000 Coty Inc. Gtd. sr. sub. notes 10 1/4s, 2005 1,855,000
1,575,000 Herff Jones, Inc. sr. sub. notes 11s, 2005 1,669,500
--------------
3,524,500
Telecommunications (1.5%)
- ---------------------------------------------------------------------------------------------------------------------------
9,225,000 360 Communications Co. sr. notes 7 1/2s, 2006 8,781,923
1,750,000 Call-Net Enterprises sr. disc. notes stepped-coupon
zero % (13 1/4s, 12/1/99), 2004 ++ 1,295,000
1,000,000 Centennial Cellular Corp. sr. notes 8 7/8s, 2001 940,000
2,310,000 Dial Call Communication, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (10 1/4s, 12/15/98), 2005 ++ 1,322,475
$500,000 Fonorola, Inc. sr. notes 12 1/2s, 2002 (Canada) 540,000
2,250,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 5/1/01), 2006 ++ 1,260,000
400,000 Intermedia Communications of Florida sr. notes Ser. B,
13 1/2s, 2005 446,000
3,060,000 International Cabletel, Inc. sr. notes stepped-coupon zero %
(11 1/2s, 2/1/01), 2006 ++ 1,790,100
750,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 750,000
935,000 MFS Communications sr. disc. notes stepped-coupon zero %
(9 3/8s, 1/15/99), 2004 ++ 717,613
4,100,000 MFS Communications sr. disc. notes stepped-coupon zero %
(8 7/8s, 1/1/01), 2006 ++ 2,572,750
1,000,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 1,050,000
500,000 Rogers Cantel Mobile Inc. deb. 10 3/4s, 2001 525,000
--------------
21,990,861
Textiles (0.1%)
- ---------------------------------------------------------------------------------------------------------------------------
750,000 Day International Group, Inc. sr. sub. notes
11 1/8s, 2005 765,000
1,000,000 Reeves Industries Inc. bonds 11s, 2002 952,500
--------------
1,717,500
Transportation (2.2%)
- ---------------------------------------------------------------------------------------------------------------------------
12,350,000 AMR Corp. deb. 9.73s, 2014 13,946,485
200,000 Blue Bird Body Co. sub. deb. Ser. B, 11 3/4s, 2002 206,000
8,705,000 Burlington Northern Santa Fe, notes 6 3/8s, 2005 8,103,833
975,000 Eletson Holdings, Inc. 1st. pfd. mtge. notes
9 1/4s, 2003 (Greece) 955,500
920,000 International Shipholding Corp. sr. notes 9s, 2003 908,500
5,465,000 Southwest Airlines Co. deb. 7 7/8s, 2007 5,556,429
1,000,000 Viking Star Shipping sr. secd. notes 9 5/8s, 2003 1,012,500
--------------
30,689,247
Utilities (3.1%)
- ---------------------------------------------------------------------------------------------------------------------------
8,690,000 Arkla, Inc. notes 8 7/8s, 1999 9,035,167
5,541,000 Citizens Utilities Co. bonds 7.68s, 2034 5,868,695
500,000 Cleveland Electric Illuminating Co. 1st mtge.
Ser. B, 9 1/2s, 2005 486,775
1,100,000 El Paso Electric Co. 1st. mtge. Ser. D, 8.9s, 2006 1,086,250
600,000 El Paso Electric Co. 1st. mtge. Ser. E, 9.4s, 2011 600,000
1,250,000 First PV Funding deb. 10.15s, 2016 1,312,500
475,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 499,938
5,239,526 Midland Cogeneration Ventures deb. 10.33s, 2002 5,514,602
1,300,000 Niagra Mohawk Power Corp. med. term notes 9.95s, 2000 1,170,000
100,000 Texas New Mexico Pwr. deb. 12 1/2s, 1999 108,957
8,120,000 Texas New-Mexico Power Utilities 1st mtge. 9 1/4s, 2000 8,314,636
10,800,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 10,601,603
--------------
44,599,123
--------------
Total Corporate Bonds and Notes (cost $488,907,847) $488,910,653
FOREIGN GOVERNMENT BONDS AND NOTES (8.1%) *
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
AUD 24,285,000 Australia (Government of) bonds 10s, 2006 $20,625,542
CAD 15,950,000 Canada (Government of) deb. 8 3/4s, 2005 12,459,839
DKK 30,850,000 Denmark (Government of) bonds 8s, 2003 5,579,644
DKK 121,030,000 Denmark (Government of) bonds 9s, 2000 22,914,741
ITL 8,735,000,000 Italy (Government of) bonds 10 1/2s, 2005 5,889,903
ITL 12,695,000,000 Italy (Government of) deb. 10 1/2s, 2000 8,533,253
USD 7,010,000 Italy (Government of) global deb. 6 7/8s, 2023 6,184,923
USD 8,600,000 Quebec (Province of) Canada deb. 13s, 2013 10,098,292
ESP 1,512,500,000 Spain (Government of) bonds 12 1/4s, 2000 13,381,178
ESP 464,900,000 Spain (Government of) bonds 10.15s, 2006 3,877,331
ESP 661,300,000 Spain (Government of) bonds 8.4s, 2001 5,181,669
--------------
Total Foreign Government Bonds and Notes
(cost $117,239,992) 114,726,315
COLLATERALIZED MORTGAGE OBLIGATIONS (4.6%) *
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
$3,967,239 Chase Mortgage Finance Corp. Ser. 93-3,
Class B13, 7.461s, 2024 $2,443,571
Housing Securities, Inc.
4,169,477 Ser. 91-B, Class B6, 9s, 2006 4,124,525
2,623,143 Ser. 93-F, Class F9M2, 7s, 2022 2,388,700
314,357 Ser. 93-J, Class J5, 6.66s, 2009 217,397
660,149 Ser. 93-J, Class J4, 6.66s, 2009 538,640
522,306 Ser. 94-1, Class AB1, 6 1/2s, 2009 420,456
Prudential Home Mortgages Securities
2,324,265 Ser. 92-25, Class B3, 8s, 2023 (In Default)+ 1,719,956
446,885 144A Ser. 94-31, Class B4, 8s, 2009 328,321
697,668 Ser. 94-31, Class B3, 8s, 2009 611,114
10,861,890 144A Ser. 95-C, Class B1, 7.84s, 2001 10,800,792
6,978,455 Ser. 93-B, Class 5B, 7.8366s, 2023 4,067,131
2,592,596 Ser. 92-13, Class B3, 7 1/2s, 2007 2,233,278
3,970,212 Ser. 93-E, Class 5B, 7.3935s, 2023 2,199,125
3,241,763 Ser. 93-36, Class M, 7 1/4s, 2023 3,017,372
7,900,015 Ser. 93-D, Class 2B, 7.1082s, 2023 7,013,732
7,618,434 144A Ser. 94-A, Class 4B, 6.8s, 2024 6,676,843
2,185,467 144A Ser. 94-D, Class 3B, 6.31s, 2009 2,002,434
2,601,171 144A Ser. 94-D, Class B4, 6.312s, 2009 2,173,603
3,361,295 Ser. 93-31, Class B2, 6s, 2000 2,600,802
8,698,831 Securitized Asset Sales, Inc. Ser. 93-J,
Class 2B, 6.81s, 2023 7,740,601
1,590,443 Travelers Mortgage Securities Corp. Ser. 1,
Class, Z2, 12s, 2014 1,753,461
--------------
Total Collateralized Mortgage Obligations
(cost $64,576,059) $65,071,854
UNITS (0.1%) *
NUMBER OF UNITS VALUE
- ---------------------------------------------------------------------------------------------------------------------------
40 Celcaribe S.A. 144A units stepped-coupon zero %
(13 1/2s, 3/15/98), 2004 ++ $385,850
500 Fitzgerald Gaming Co. units 13s, 2002 460,000
500 ICF Kaiser International, Inc. units 13s, 2003 472,500
--------------
Total Units (cost $1,327,540) $1,318,350
PREFERRED STOCK (0.4%)*
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
10,446 Cablevision Systems Corp. 144A Ser. L, $11.125 pfd.++++ $1,039,377
11,500 California Federal Bank Ser. B, $10.625 exch. pfd. 1,242,000
16,750 K-III Communications Ser. B, $11.625 pfd. ++++ 1,725,250
1,450 Time Warner, Inc. Ser. K, $10.25 pfd. 1,464,500
--------------
Total Preferred Stocks (cost $5,501,110) $5,471,127
BRADY BONDS (0.2%)(cost $3,165,488)*
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
$3,890,000 United Mexican States FRB Ser. A, 4.188s, 2019 $3,131,450
CONVERTIBLE BONDS AND NOTES (0.1%)(cost $841, 750)*
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
$1,300,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 $786,500
WARRANTS (--%)(cost $4,000)*+
NUMBER OF WARRANTS EXPIRATION VALUE
- ---------------------------------------------------------------------------------------------------------------------------
400 Intermedia Communications 144A 6/1/01 $12,000
CONVERTIBLE PREFERRED STOCKS (--%)(cost $300,625)*
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
5,000 Granite Broadcasting $.4845 cv. pfd. $335,000
PURCHASED CALL OPTIONS OUTSTANDING (--%)(cost $83,000)*
EXPIRATION DATE/
CONTRACT AMOUNT STRIKE PRICE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
$10,000,000 Swiss Francs In Exchange For U.S. Dolllars May 96/$1.23 $126,000
SHORT-TERM INVESTMENTS (6.2%)*
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
$5,000,000 Federal National Mortgage Association effective
yield of 5.21%, May 10, 1996 $4,993,487
16,000,000 Federal National Mortgage Association effective
yield of 5.00%, May 3, 1996 15,995,555
40,000,000 General Electric Capital Services effective yield
of 5.37%, May 1, 1996 40,000,000
25,000,000 Morgan (J.P.) & Co., Inc. effective yield of 5.26%, July 1, 1996 24,777,181
2,608,000 Interest in $500,000,000 joint repurchase agreement
dated April 30, 1996 with Lehman Brothers, Inc. due
May 1, 1996 with respect to various U.S. Treasury
obligations-maturity value $2,608,388 for an effective
yield of 5.35% 2,608,388
--------------
Total Short-Term Investments (cost $88,374,611) 88,374,611
- ---------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,508,773,757)*** $1,484,051,510
- ---------------------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $1,418,985,840.
+ Non-income producing security.
++ 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.
++ Restricted, excluding 144A as to public resale. The total market value of restricted securities held at April 30,
1996 was $1,400,000 or less than 1% of net asssets.
++++ Income may be received in cash or additional securities at the discretion of the issuer.
*** The aggregate identified cost on a tax basis is $1,508,773,757, resulting in gross unrealized appreciation and
depreciation of $15,564,741, and $40,286,988, respectively, or net unrealized depreciation of $24,722,247.
144A after the name of a security represents those securities exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to
qualified institutional buyers.
TBA after the name of a security represents to be announced securities (See Note 1).
The rate shown on Floating Rate Bonds (FRB) are the current interest rates shown at April 30, 1996, which are
subject to change based on the terms of the security.
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
Forward Cross Currency Contracts Outstanding at April 30, 1996
(aggregate face value $10,561,089)
Delivery Unrealized
Currency Purchased Market Value Currency Sold Market Value Date Appreciation
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Canadian Dollar $2,754,517 Deutschemarks $2,646,123 6/14/96 $108,394
Italian Lira 5,270,382 Deutschemarks 5,123,222 6/12/96 147,160
Spanish Peseta 2,494,093 Deutschemarks 2,445,705 6/12/96 48,388
- -----------------------------------------------------------------------------------------------------------
$303,942
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
Forward Currency Contracts to Buy at April 30, 1996
(aggregate face value $39,891,751)
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Canadian Dollars $ 6,476,070 $ 6,412,498 6/12/96 $ 63,572
Deutschemarks 23,747,863 24,586,115 6/12/96 (838,252)
French Francs 35,007 36,391 6/12/96 (1,384)
Italian Lira 1,883,836 1,874,159 6/12/96 9,677
Japanese Yen 6,899,481 6,982,588 6/12/96 (83,107)
- -----------------------------------------------------------------------------------------------------------
$ (849,494)
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at April 30, 1996
(aggregate face value $133,798,159)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- -----------------------------------------------------------------------------------------------------------
Australian Dollars $ 18,456,579 $ 17,883,226 6/12/96 $ (573,353)
Canadian Dollars 11,437,871 11,302,390 6/12/96 (135,481)
Danish Krona 19,378,408 19,974,256 6/12/96 595,848
Deutschemarks 37,331,158 38,969,675 6/12/96 1,638,517
Italian Lira 16,191,190 16,064,367 6/12/96 (126,823)
Japanese Yen 7,047,104 7,114,428 6/12/96 67,324
Spanish Peseta 22,213,739 22,489,817 6/12/96 276,078
- -----------------------------------------------------------------------------------------------------------
$ 1,742,110
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
April 30,1996 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $1,508,773,757) (Note 1) $1,484,051,510
- ---------------------------------------------------------------------------------------------------
Cash 1,057,795
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 24,636,695
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 20,963,706
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 19,055,247
- ---------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 2,954,958
- ---------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 1,130,391
- ---------------------------------------------------------------------------------------------------
Total assets 1,553,850,302
Liabilities
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 329,861
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 126,175,296
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 2,774,585
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,981,659
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 3,302
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,981
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 446,867
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 872,141
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 1,758,400
- ---------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 392,453
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 127,917
- ---------------------------------------------------------------------------------------------------
Total liabilities 134,864,462
- ---------------------------------------------------------------------------------------------------
Net assets $1,418,985,840
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in-capital (Notes 1 and 4) $1,435,006,113
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (1,947,818)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 9,500,496
- ---------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (23,572,951)
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $1,418,985,840
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price of class A shares
($978,075,050 divided by 142,827,029 shares) $6.85
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $6.85)* $7.19
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price of class B shares
($299,080,743 divided by 43,842,323 shares)** $6.82
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price of class M shares
($13,621,130 divided by 1,996,873 shares) $6.82
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $6.82)* $7.05
- ---------------------------------------------------------------------------------------------------
Net asset value offering and redemption price of class Y shares
($128,208,917 divided by 18,716,153 shares) $6.85
- ---------------------------------------------------------------------------------------------------
* 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.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended April 30, 1996 (Unaudited)
<S> <C>
Investment Income
- ---------------------------------------------------------------------------------------------------
Interest (net of foreign tax of $121,777) $50,951,085
- ---------------------------------------------------------------------------------------------------
Dividends 130,231
- ---------------------------------------------------------------------------------------------------
Total investment income 51,081,316
Expenses:
- ---------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 3,944,565
- ---------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,884,682
- ---------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 19,339
- ---------------------------------------------------------------------------------------------------
Administrative services (Note 2) 11,884
- ---------------------------------------------------------------------------------------------------
Reports to shareholders 3,647
- ---------------------------------------------------------------------------------------------------
Auditing 22,359
- ---------------------------------------------------------------------------------------------------
Legal 11,525
- ---------------------------------------------------------------------------------------------------
Postage 106,694
- ---------------------------------------------------------------------------------------------------
Registration fees 120,351
- ---------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,197,617
- ---------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,428,938
- ---------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 27,488
- ---------------------------------------------------------------------------------------------------
Other expenses 28,294
- ---------------------------------------------------------------------------------------------------
Total expenses 8,807,383
- ---------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (287,616)
- ---------------------------------------------------------------------------------------------------
Net expenses 8,519,767
- ---------------------------------------------------------------------------------------------------
Net investment income 42,561,549
- ---------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 16,052,017
- ---------------------------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 40,592
- ---------------------------------------------------------------------------------------------------
Net realized gain on forward currency contracts and
foreign currency translation (Note 1) 3,181,876
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation on forward currency contracts and
foreign currency translation during the period 2,383,582
- ---------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments and
written options during the period (65,302,237)
- ---------------------------------------------------------------------------------------------------
Net loss on investments (43,644,170)
- ---------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations ($1,082,621)
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
April 30 October 31
1996* 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $42,561,549 $75,201,308
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 19,274,485 4,684,416
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments and assets and liabilities in foreign currencies (62,918,655) 87,210,466
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (1,082,621) 167,096,190
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders
- ----------------------------------------------------------------------------------------------------------------------
From net investment income:
Class A (31,879,293) (59,477,655)
- ----------------------------------------------------------------------------------------------------------------------
Class B (8,448,065) (13,155,239)
- ----------------------------------------------------------------------------------------------------------------------
Class M (358,402) (154,150)
- ----------------------------------------------------------------------------------------------------------------------
Class Y (4,304,430) (4,389,552)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 160,208,424 256,127,530
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 114,135,613 346,047,124
- ----------------------------------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 1,304,850,227 958,803,103
- ----------------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess
of net investment income of $1,947,818 and
undistributed net investment income
of $480,823, respectively) $1,418,985,840 $1,304,850,227
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
June 16, 1994 December 14, 1994
Six months (commencement Six months (commencement
ended Year ended of operations) ended of operations) to
April 30 October 31 October 31 April 30 October 31
- -------------------------------------------------------------------------------------------------------------
1996* 1995 1994 1996* 1995
- -------------------------------------------------------------------------------------------------------------
Class Y Class M
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $7.07 $6.52 $6.72 $7.04 $6.50
- -------------------------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------------------------
Net investment income .23 .47 .19 .22 .43
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.21) .57 (.21) (.21) .54
- -------------------------------------------------------------------------------------------------------------
Total from investment operations .02 1.04 (.02) .01 .97
- -------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------
From net investment income (.24) (.49) (.16) (.23) (.43)
- -------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (.02) -- --
- -------------------------------------------------------------------------------------------------------------
From paid-in capital -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------
Total distributions (.24) (.49) (.18) (.23) (.43)
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.85 $7.07 $6.52 $6.82 $7.04
- -------------------------------------------------------------------------------------------------------------
Total investment return at
net asset value (%) (a) 0.28(b) 16.65 (0.35)(b) 0.08(b) 15.43(b)
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $128,209 $107,414 $7,517 $13,621 $7,673
- -------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(c) .45(b) 0.86 .24(b) .69(b) 1.19(b)
- -------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.26(b) 7.14 2.91(b) 3.02(b) 5.17(b)
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 121.44(b) 169.29 128.82 121.44(b) 169.29
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (Continued)
(For a share outstanding throughout the period)
March 1, 1993
Six months (commencement Six months
ended of operations) ended
April 30 Year ended October 31 October 31 April 30
- ---------------------------------------------------------------------------------------------------------
1996* 1995 1994 1993 1996*
- ---------------------------------------------------------------------------------------------------------
Class B
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $7.04 $6.50 $7.34 $7.19 $7.07
- ---------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------
Net investment income .20 .42 .48 .28(d) .22
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.21) .55 (.83) .22 (.20)
- ---------------------------------------------------------------------------------------------------------
Total from investment operations (.01) .97 (.35) .50 .02
- ---------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------
From net investment income (.21) (.43) (.38) (.35) (.24)
- ---------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------
From net realized
gain on investments -- -- (.04) -- --
- ---------------------------------------------------------------------------------------------------------
From paid-in capital -- -- (.07) -- --
- ---------------------------------------------------------------------------------------------------------
Total distributions (.21) (.43) (.49) (.35) (.24)
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.82 $7.04 $6.50 $7.34 $6.85
- ---------------------------------------------------------------------------------------------------------
Total investment return at
net asset value (%) (a) (0.20)(b) 15.46 (4.98) 7.18(b) 0.17(b)
- ---------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $299,081 $260,769 $169,501 $92,832 $978,075
- ---------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(c) .94(b) 1.80 1.59 1.03(b) .57(b)
- ---------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.76(b) 6.14 6.40 4.37(b) 3.13(b)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 121.44(b) 169.29 128.82 129.95 121.44(b)
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (Continued)
(For a share outstanding throughout the period)
Year ended October 31
- ---------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------
Class A
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $6.53 $7.36 $6.97 $6.80 $6.35
- ---------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------
Net investment income .47 .54 .56 .60 .64
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .55 (.84) .40 .18 .45
- ---------------------------------------------------------------------------------------------------------
Total from investment operations 1.02 (.30) .96 .78 1.09
- ---------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------
From net investment income (.48) (.41) (.56) (.61) (.64)
- ---------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (.01) -- --
- ---------------------------------------------------------------------------------------------------------
From net realized
gain on investments -- (.04) -- -- --
- ---------------------------------------------------------------------------------------------------------
From paid-in capital -- (.08) -- -- --
- ---------------------------------------------------------------------------------------------------------
Total distributions (.48) (.53) (.57) (.61) (.64)
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.07 $6.53 $7.36 $6.97 $6.80
- ---------------------------------------------------------------------------------------------------------
Total investment return at
net asset value (%) (a) 16.23 (4.16) 14.36 11.86 18.05
- ---------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $928,995 $781,784 $814,289 $633,135 $504,708
- ---------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(c) 1.05 .83 .77 .97 .91
- ---------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 6.91 7.10 7.71 8.62 9.66
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 169.29 128.82 129.95 146.66 84.39
- ---------------------------------------------------------------------------------------------------------
* Unaudited
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Not annualized.
(c) The ratio of expenses to average net assets for the year ended October 31, 1995 and thereafter
includes amounts paid through expense offset arrangements. Prior period ratios exclude these amounts
(See Note 2).
(d) Per share net investment income has been determined on the basis of the weighted average number of
shares outstanding during the period.
</TABLE>
Notes to financial statements
April 30, 1996 (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 believes to be prudent risk. The fund may invest in a
portfolio of debt securities, both government and corporate obligations,
preferred stocks and dividend-paying common stocks.
The fund offers class A, class B, class M and class Y shares. Class A
shares are sold with a maximum front-end sales charge of 4.75%. Class B
shares, which convert to class A shares after approximately eight years,
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 pay an ongoing distribution fee that is higher than class A
shares but lower than class B shares. Class Y shares, which are sold at
net asset value, are generally subject to the same expenses as class A
shares and class B shares, but do not bear a distribution fee. Class Y
shares are sold to defined contribution plans that initially invest at
least $250 million in a combination of Putnam Funds.
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 the distribution fees applicable to such class). Each class
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 that fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies followed
by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally
accepted accounting principles and requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities. Actual results could differ from those estimates.
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. 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 certain long-
term corporate bonds and notes; such investments are stated at fair
value on the basis of valuations 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) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances into a joint trading account along with the cash of other
registered investment companies managed by Putnam Investment Management,
Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc. and certain other accounts. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Putnam Management is responsible for determining that the value of these
underlying securities is at all times at least equal to the resale
price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed).
Interest income is recorded on the accrual basis. Discounts on zero
coupon bonds, original issue, stepped-coupon bonds and payment in kind
bonds are accreted according to the effective yield method.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value 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 prices
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. Net unrealized
gains and losses on foreign currency transactions arise from changes in
the value of open forward currency contracts and assets and liabilities
other than investments at the period end, resulting from changes in the
exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a decline
in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of a currency in which securities a fund intends to buy are
denominated, when a fund holds cash reserves and short-term
investments). The U.S. dollar value of forward currency contracts is
determined using forward currency exchange rates supplied by a quotation
service. 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 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 fund could be
exposed to risk if the value of the currency changes unfavorably, if the
counterparties to the contracts are unable to meet the terms of their
contracts or if the fund is unable to enter into a closing position.
G) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or which it invests to increase its current returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices
supplied by dealers.
H) TBA purchase commitments The fund, may enter into "TBA" (to be
announced) purchase commitments to purchase securities for a fixed unit
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 commitments will not fluctuate
more than 2.0% from the principal amount. The fund holds, and maintains
until settlement date, cash or high-grade debt obligations in an amount
sufficient to meet the purchase price, or the fund may enter into
offsetting contracts for the forward sale of other securities it owns.
Income on the securities will not be earned until settlement date. 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 their 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 deem it
appropriate to do so.
I) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held and for excise tax on income and capital
gains.
At October 31, 1995, the fund had a capital loss carryover of
approximately $9,954,000 available to offset future net capital gain, if
any, which will expire on October 31, 2002.
J) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid annually. The amount and character of income and gains to be
distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
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 fees, 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. Such fee is based on the following annual rates: 0.65% of the
first $500 million, 0.55% of the next $500 million, 0.50% of the next
$500 million, and 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,
and 0.38% of any amount thereafter subject, under current law, to
reduction in any year by the amount of certain brokerage commissions and
fees (less expenses) received by affiliates of Putnam Management on the
fund's portfolio transactions.
The fund reimburses Putnam Management 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 Trustees fee of $2,300 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows
the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund
and are invested in the fund or in other Putnam funds until distribution
in accordance with the Plan.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the period ended April 30, 1996, fund expenses were reduced by
$287,616 under expense offset arrangements with PFTC. Investor servicing
and custodian fees reported in the Statement of operations exclude these
credits. The fund could have invested a portion of these assets utilized
in connection with the expense offset arrangements in an income
producing asset if it had not entered into such arrangements.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, 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 payments 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 0.50% of the average
net assets attributable to class A, class B and class M shares,
respectively.
For the period ended April 30, 1996, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $217,055 and $6,535 from the
sale of class A and class M shares, respectively and received $299,103
in contingent deferred sales charges from redemptions of class B shares.
A deferred sales charge of up to 1% is assessed on certain redemptions
of class A shares. For the period ended April 30, 1996, Putnam Mutual
Funds Corp., acting as underwriter received $493 on class A redemptions.
Note 3
Purchase and sales of securities
During the period ended April 30, 1996, purchases and sales of
investment securities other than U.S. government obligations and short-
term investments aggregated $613,782,385 and $473,692,651, respectively.
Purchases and sales of U.S. government obligations aggregated
$1,149,221,607 and $1,126,511,261, 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 during the period are summarized as follows:
Contract Premiums
Amounts Received
- -------------------------------------------------
Contracts
outstanding at
beginning of year $ 9,440,000 $ 40,592
- -------------------------------------------------
Options opened -- --
- -------------------------------------------------
Options expired (9,440,000) (40,952)
- -------------------------------------------------
Options closed -- --
- -------------------------------------------------
Written options
outstanding at
end of year $ -- $ --
- -------------------------------------------------
Note 4
Capital shares
At April 30, 1996, there was an unlimited number of
shares of beneficial interest authorized. Transactions
in capital shares were as follows:
Six months ended
April 30, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 26,203,412 $185,121,751
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,575,782 25,208,480
- ----------------------------------------------------
29,779,194 210,330,231
Shares
repurchased (18,393,601) (130,193,285)
- ----------------------------------------------------
Net increase 11,385,593 $ 80,136,946
- ----------------------------------------------------
Year ended
October 31, 1995
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 39,283,827 $266,565,707
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 5,503,114 37,189,815
- ----------------------------------------------------
44,786,941 303,755,522
Shares
repurchased (33,147,718) (224,093,082)
- ----------------------------------------------------
Net increase 11,639,223 $ 79,662,440
- ----------------------------------------------------
Six months ended
April 30, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 14,346,528 $101,246,514
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 790,176 5,543,656
- ----------------------------------------------------
15,136,704 106,790,170
Shares
repurchased (8,327,698) (58,609,115)
- ----------------------------------------------------
Net increase 6,809,006 $ 48,181,055
- ----------------------------------------------------
Year ended
October 31, 1995
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 16,956,756 $114,910,859
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,224,911 8,266,102
- ----------------------------------------------------
18,181,667 123,176,961
Shares
repurchased (7,208,649) (48,605,023)
- ----------------------------------------------------
Net increase 10,973,018 $74,571,938
- ----------------------------------------------------
Six months ended
April 30, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 1,208,907 $8,534,539
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 42,349 296,404
- ----------------------------------------------------
1,251,256 8,830,943
Shares
repurchased (344,502) (2,416,412)
- ----------------------------------------------------
Net increase 906,754 $6,414,531
- ----------------------------------------------------
December 14, 1994
(commencement of operations)
to October 31, 1995
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 1,145,112 $7,921,807
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 18,171 125,903
- ----------------------------------------------------
1,163,283 8,047,710
Shares
repurchased (73,164) (509,587)
- ----------------------------------------------------
Net increase 1,090,119 $7,538,123
- ----------------------------------------------------
Six months ended
April 30, 1996
- ----------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------
Shares sold 6,558,198 $46,937,653
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 612,093 4,307,377
- ----------------------------------------------------
7,170,291 51,245,030
Shares
repurchased (3,657,686) (25,769,138)
- ----------------------------------------------------
Net increase 3,512,605 $25,475,892
- ----------------------------------------------------
Year ended
October 31, 1995
- ----------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------
Shares sold 16,554,420 $111,509,264
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 637,485 4,389,491
- ----------------------------------------------------
17,191,905 115,898,755
Shares
repurchased (3,140,797) (21,543,726)
- ----------------------------------------------------
Net increase 14,051,108 $94,355,029
- ----------------------------------------------------
Our commitment to quality service
* CHOOSE AWARD-WINNING SERVICE
Putnam Investor Services has won the DALBAR Quality Tested Service Seal
for the past six years. In 1995, over 146,000 tests of 56 shareholder
service components demonstrated that Putnam outperformed the industry
standard in every category.
* HELP YOUR INVESTMENT GROW
Set up a systematic program for investing with as little as $25 a month
from a Putnam money market 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 the
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.
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
John D. Hughes
Senior Vice President and Treasurer
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
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.
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Bulk Rate
U.S. Postage
PAID
Putnam
Investments
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Putnam Investments
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
25123-004/312/510 6/96
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
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Putnam Income Fund
Supplement to Semiannual Report dated 4/30/96
The following information has been prepared to provide class Y
shareholders with a performance overview specific to their holdings.
Class Y shares are offered exclusively to defined contribution plans
investing $250 million or more in one or more of Putnam's funds or
private accounts. Performance of class Y shares, which incur neither a
front-end load, distribution fee, nor contingent deferred sales charge,
will differ from performance of class A, B, and M shares, which are
discussed more extensively in the semiannual report.
SEMIANNUAL RESULTS AT A GLANCE
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Total return: NAV
Six months ended 4/30/96 0.28%
One Year ended 4/30/96 9.33
Life of class (since 5/16/94) 16.74
Annual average 8.22
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Share value: NAV
10/31/95 $7.07
4/30/96 6.85
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Distributions: No. Income Capital gains Total
6 $0.243 $0.000 $0.243
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Current return (end of period) Total
Current dividend rate(1) 7.01%
Current 30-day SEC yield(2) 6.46
(1) Income portion of most recent distribution, annualized and divided
by NAV at end of period.
(2) Based only on investment income, calculated using SEC guidelines.
Please note that past performance does not indicate future results.
Investment return and principal value will fluctuate so your shares,
when redeemed, may be worth more or less than their original cost. See
full report for information on comparative benchmarks. If you have
questions, please consult your fund prospectus or call Putnam toll free
at 1-800-752-9894.
