Putnam
Income
Fund
SEMIANNUAL REPORT
April 30, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* According to Lipper Analytical Services, Putnam Income Fund's class A
share total return at net asset value for the year ended April 30, 1997,
ranked fifth out of 122 corporate debt A-rated funds, placing the fund in
the top 5% in this category.*
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
14 Portfolio holdings
29 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
4/30/97, class A shares ranked 10 out of 51 and 5 out of 27 funds for 5-
and 10-year performance, respectively; class B and class M shares ranked
22 and 9, respectively, out of 122 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.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Managing a portfolio of fixed-income securities has become increasingly
complex in recent years. The variety of available investments has proliferated
and U.S. investors are increasingly looking for opportunities beyond this
country's borders.
As a result, the managers of Putnam Income Fund now find themselves not only
surveying interest rates, maturities, and credit ratings, but concerning
themselves with such strategies as extending or shortening duration, hedging
non-U.S. currencies against the dollar, and readjusting the weightings of
various types of securities in the fund's portfolio.
To help them with this process, your fund's management team is able to call on
Putnam's extensive fixed-income research and analysis capability. In the
following report, the managers discuss your fund's performance during the
first half of fiscal 1997 and look at prospects for the second half.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
June 18, 1997
Report from the Fund Managers
Kenneth J. Taubes, lead manager
Robert M. Paine
D. William Kohli
Rosemary H. Thomsen
The Federal Reserve Board's preemptive strike against
inflation in late March capped off a challenging six months
for shareholders of Putnam Income Fund. Over the fund's semiannual period
ended April 30, 1997, bond investors reacted -- and, in some cases,
overreacted -- to a flood of data that suggested the economy was overheating.
Their fears were far from ungrounded: the economy grew at a 5.6% annual rate
in the first quarter of 1997, while unemployment dropped to its lowest level
since 1973. Your fund steered a successful course through the resulting market
volatility, reaching the midpoint of its 1997 fiscal year with a small but
positive total return at net asset value. Complete performance information for
the fund appears on pages 9 and 10.
* FLEXIBLE STRATEGY AND SECTOR POSITIONING PROVE EFFECTIVE
In its search for income, your fund invests in a variety of bonds, including
U.S. and foreign government bonds, mortgage-backed investments, and bonds
issued by corporations. The amount of assets in each sector of the market is
adjusted depending on the outlook for the economy and interest rates. This
flexibility proved invaluable during the first half of the fund's 1997 fiscal
year as sectors rotated in and out of favor with investors.
The fund began the semiannual period with a relatively heavy weighting in
corporate bonds. Strong economic growth after years of aggressive cost cutting
had put many companies on solid financial footing. As a result, 1996 was a
banner year for corporate profits. According to one survey in The Wall Street
Journal, corporate profits gained a remarkable 61% in the fourth quarter of
1996 over the fourth quarter of 1995. The results of these gains, which
included credit rating upgrades and higher bond prices, proved beneficial to
your fund's net asset value.
Higher-yielding lower-rated bonds turned in some of the strongest performance
early in the period. Upgrades in credit quality and announcements of mergers
involving portfolio holdings helped drive returns. By February 1997, however,
we were concerned that the situation was ripe for correction.
As a prelude to the March increase in the federal funds rate, Federal Reserve
Chairman Greenspan remarked to Congress that the current low level of
inflation at a time of sustained economic growth appeared to be temporary, and
more ominously, that an overly optimistic attitude "has become especially
evident in quality spreads on high-yield corporate bonds." Fearing the impact
of higher rates on the fund's holdings, we altered the portfolio's corporate
bond position, trimming or eliminating the lower-rated bonds we considered
most sensitive to changes in interest rates. Among the bonds sold were those
of Alliant Techsystems, Inc., and Benedek Broadcasting. High-yield corporates
did suffer a downturn shortly thereafter, underperforming U.S. Treasury bonds
by some 60 basis points (100 basis points equals one percentage point) in
March and April.
[GRAPHIC OMITTED: horizontal bar chart BOND MARKET PERFORMANCE BY SECTOR]
BOND MARKET PERFORMANCE BY SECTOR*
Comparison of total returns, 10/31/96 - 4/30/97
First Boston
High Yield Index 6.00%
Lehman Brothers Mortgage-
Backed Securities Index 2.64%
Lehman Brothers Corporate
Bond Index 1.22%
Salomon Brothers World
Government Bond Index -4.50%
J.P. Morgan
Emerging Market Bond Index 11.90%
Lehman Brothers Long-Term
Treasury Bond Index -0.05%
0%
Footnote reads:
* These indexes reflect the general performance of market sectors in which the
fund invests. 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.
Another plus for your fund's performance was the allocation to mortgage-backed
securities. The fund typically holds a number of mortgage-backed bonds to take
advantage of their higher yields relative to U.S. Treasuries (historically, a
difference of roughly one percentage point). These bonds pay more income to
investors to compensate for the risk of prepayment, which often occurs when
interest rates are heading lower. (As lower rates become available, many
homeowners opt to refinance or prepay their mortgages, forcing investors in
those mortgages to reinvest their money at lower prevailing rates.) In
February, when we suspected rates would rise, we increased the fund's share of
mortgage-backed bonds with proceeds from the sale of U.S. Treasuries. The added
income helped boost fund performance at a time when bond prices in general were
falling.
* FOREIGN HOLDINGS FARE WELL
Throughout the period, the U.S. dollar rose sharply against major foreign
currencies, eroding U.S. investors' returns on
non-dollar-based investments. For a U.S. investor in Italian government bonds,
for example, a local return of 1.45% became an almost 7% loss when translated
into U.S. dollars, according to J.P. Morgan. Investments in Denmark, Spain,
and Sweden experienced similar reversals. Since the fund began the period with
a large number of holdings hedged back to the dollar, the impact of the rising
U.S. currency was minimal.
The fund's emerging-market holdings helped boost performance during the
period. Yield-hungry investors have begun to turn away from the traditionally
high-yielding European markets, where yields have declined as countries prune
their deficits and align their currencies to prepare for European Monetary
Union. Increasingly, the emerging markets -- including Mexico, Argentina, and
Russia -- have attracted investor attention, boasting double-digit yields and
dollar-denominated bonds. The fund's holdings in these markets performed
exceptionally well in December and January, and were later trimmed to lock in
those gains.
[GRAPHIC OMITTED: vertical bar chart CHANGES IN PORTFOLIO COMPOSITION]
CHANGES IN PORTFOLIO COMPOSITION*
[black bar: 10/31/96] [gray bar: 4/30/97]
U.S. government
and agency
obligations 48.2% 51.1%
Corporate bonds 33.5% 37.6%
Foreign bonds
and notes 7.8% 3.8%
Collateralized
mortgage
obligations 4.3% 3.4%
Short-term
investments 1.2% 6.8%
Others 3.3% 2.2%
Footnote reads:
* Based on total net assets as of indicated dates. Holdings will vary over
time.
* DURATION MANAGEMENT ADDS VALUE
Throughout the period, as investor sentiment swung between optimism and
caution, our management of the portfolio's duration added value. An important
tool for investment professionals, duration measures a portfolio's sensitivity
to changes in interest rates and is expressed in years. The longer the
duration, the greater the change in portfolio value with each change in
interest rates.
At the start of the period, the fund's duration was relatively long. A heavy
weighting of long-term bonds, particularly corporate bonds, spurred
performance in the latter part of 1996 as interest rates fell. In early
February, as our expectations of a rate increase grew, we shortened the fund's
duration. Our timing was good. The events that roiled the bond markets --
including Chairman Greenspan's Congressional testimony and the rise in
short-term interest rates -- came later.
* "HISTORY COUNSELS CAUTION": ADVICE FOR BOND AND EQUITY INVESTORS
Greenspan's warning was directed at U.S. equity investors but may also be
appropriate for those in the bond markets. As this report was being written,
the bond markets had recovered from their late-March selloff, and a host of
crucial economic reports suggested that inflation was less of a threat than
many predicted.
For now, growth is strong and reported profits continue
to exceed expectations. Although interest rates remained unchanged in May, the
Fed still may find sufficient reason to raise interest rates again. It is
interesting to note that historically the Fed has shifted monetary policy by
engineering a series of small rate changes, seldom just one. Going forward,
we intend to keep the fund's duration defensive, making the most of a flexible
investment strategy by seeking income where opportunities arise.
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 4/30/97, there is no guarantee the fund will continue to hold
these securities in the future.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Income Fund is designed for investors seeking high current income
consistent with prudent risk, mainly through fixed-income securities.
TOTAL RETURN FOR PERIODS ENDED 4/30/97
Class A Class B Class M
(inception date) (11/1/54) (3/1/93) (12/14/94)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 2.11% -2.74% 1.76% -3.16% 2.02% -1.23%
- ------------------------------------------------------------------------------
1 year 8.14 3.03 7.40 2.40 7.97 4.45
- ------------------------------------------------------------------------------
5 years 46.84 39.88 -- -- -- --
Annual average 7.99 6.94 -- -- -- --
- ------------------------------------------------------------------------------
10 years 135.34 124.24 -- -- -- --
Annual average 8.94 8.41 -- -- -- --
- ------------------------------------------------------------------------------
Life of class -- -- 26.03 24.11 24.74 20.66
Annual average -- -- 5.70 5.32 9.73 8.21
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/97
Lehman Bros.
Aggregate Consumer
Bond Index Price Index
- ------------------------------------------------------------------------------
6 months 1.70% 1.20%
- ------------------------------------------------------------------------------
1 year 7.08 2.50
- ------------------------------------------------------------------------------
5 years 42.61 14.84
Annual average 7.36 2.81
- ------------------------------------------------------------------------------
10 years 130.18 42.15
Annual average 8.69 3.58
- ------------------------------------------------------------------------------
Life of class B 27.32 11.95
Annual average 5.97 2.74
- ------------------------------------------------------------------------------
Life of class M 24.77 7.01
Annual average 9.60 2.84
- ------------------------------------------------------------------------------
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 principal 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 the applicable sales charge, with the maximum being 5%.
TOTAL RETURN FOR PERIODS ENDED 3/31/97
(most recent calendar quarter)
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 2.98% -1.86% 2.62% -2.34% 2.89% -0.44%
- ------------------------------------------------------------------------------
1 year 5.99 0.90 5.25 0.31 5.82 2.40
- ------------------------------------------------------------------------------
5 years 45.46 38.58 -- -- -- --
Annual average 7.78 6.74 -- -- -- --
- ------------------------------------------------------------------------------
10 years 121.95 111.46 -- -- -- --
Annual average 8.30 7.78 -- -- -- --
- ------------------------------------------------------------------------------
Life of class -- -- 24.32 22.43 23.00 18.98
Annual average -- -- 5.48 5.08 9.42 7.85
- ------------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment returns and
principal 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 4/30/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 6 6 6
- ------------------------------------------------------------------------------
Income $0.222 $0.197 $0.215
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term 0.035 0.035 0.035
- ------------------------------------------------------------------------------
Short-term -- -- --
- ------------------------------------------------------------------------------
Total $0.257 $0.232 $0.25
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
10/31/96 $7.02 $7.37 $6.99 $6.99 $7.22
- ------------------------------------------------------------------------------
4/30/97 6.91 7.25 6.88 6.88 7.11
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 6.43% 6.12% 5.76% 6.28% 6.08%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 6.43 6.12 5.68 6.16 5.96
- ------------------------------------------------------------------------------
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
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.
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 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.
J.P. Morgan Emerging Market Bond Index* is a total-return index that
tracks the traded market for U.S. dollar-denominated Brady and other
similar sovereign restructured bonds.
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.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund *
Health Sciences Trust
International Growth Fund +
International New Opportunities Fund
Investors Fund
New Opportunities Fund
OTC & Emerging Growth Fund [DBL. DAGGER]
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
Intermediate U.S. Government
Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
LIFESTAGESM FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
MOST CONSERVATIVE
INVESTMENTS **
Putnam money market funds: ++
California Tax Exempt Money Market Fund
Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts [2 DBL. DAGGERS]
* Formerly Natural Resources Fund
+ Formerly Overseas Growth Fund
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** Relative to above.
++ An investment in a money market fund is neither insured nor
guaranteed by the U.S. government. These funds are managed to
maintain a price of $1.00 per share, although there is no
assurance that this price will be maintained in the future.
[2 DBL. DAGGERS] Not offered by Putnam Investments. Certificates of
deposit offer a fixed rate of return and may be insured up to
certain limits by federal/state agencies. Savings accounts
may also be insured up to certain limits. Please call your
financial advisor or Putnam at 1-800-225-1581 to obtain a
prospectus for any Putnam fund. It contains more complete
information, including charges and expenses. Please read it
carefully before you invest or send money.
Portfolio of investments owned
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (51.1%) *
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (30.2%)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal Home Loan Mortgage Corp.
$ 12,765,000 8 1/2s, TBA, June 16, 2027 $ 13,175,778
83,533,881 8 1/2s, with due dates from April 1, 2025 to April 1, 2027 86,222,743
43,758,219 5 1/2s, with due dates from December 1, 2010 to
August 1, 2011 40,749,852
Federal National Mortgage Association
54,650,000 7s, TBA, June 16, 2027 52,942,188
14,100,000 5.94s, med. term notes December 12, 2005 13,145,994
Federal National Mortgage Association
Pass-Through Certificates
405,729 11s, with due dates from August 1, 2013 to October 1, 2015 454,926
2,953,555 8s, December 1, 2008 3,067,977
53,023,611 7s, with due dates from July 1, 2023 to February 1, 2027 51,366,681
6,814,753 6s, Dwarf, October 1, 2009 6,482,534
Government National Mortgage Association
Pass-Through Certificates
433,845 11s, with due dates from December 15, 2009 to
October 15, 2013 478,570
382,292 9s, with due dates from October 15, 2004 to May 15, 2009 405,586
66,249,082 7 1/2s, with due dates from January 15, 2024 to
February 15, 2027 65,669,766
146,539,455 7s, with due dates from January 15, 2024 to April 15, 2027 141,739,002
27,538,552 6 1/2s, with due dates from October 15, 2023 to
February 15, 2027 25,877,833
--------------
501,779,430
U.S. Treasury Obligations (20.9%)
- ------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
50,135,000 11 5/8s, November 15, 2004 64,517,227
72,532,000 10 3/4s, August 15, 2005 # 90,699,090
21,680,000 8 1/8s, August 15, 2019 24,257,969
15,487,000 7 1/2s, November 15, 2024 16,360,622
22,829,000 7 1/8s, February 15, 2023 23,032,406
U.S. Treasury Notes
1,785,000 6 7/8s, May 15, 2006 1,800,065
49,975,000 6 3/8s, April 30, 1999 50,068,453
43,940,000 6 1/4s, February 15, 2007 42,511,950
33,830,000 6 1/4s, October 31, 2001 33,417,612
--------------
346,665,394
--------------
Total U.S. Government and Agency Obligations
(cost $861,111,432) $ 848,444,824
CORPORATE BONDS AND NOTES (37.6%) *
PRINCIPAL AMOUNT VALUE
Advertising ( -- %)
- ------------------------------------------------------------------------------------------------------------
$ 175,000 Adams Outdoor Advertising, Ltd. sr. notes 10 3/4s, 2006 $ 181,563
310,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 309,225
60,000 Outdoor Systems, Inc. sr. sub. notes 9 3/8s, 2006 58,965
225,000 Universal Outdoor, Inc. sr. sub. notes 9 3/4s, 2006 222,750
--------------
772,503
Aerospace and Defense (0.1%)
- ------------------------------------------------------------------------------------------------------------
170,000 BE Aerospace sr. notes 9 3/4s, 2003 175,525
160,000 Howmet Corp. sr. sub. notes 10s, 2003 170,400
75,000 L-3 Communications Corp. 144A sr. sub. notes 10 3/8s, 2007 77,250
125,000 Sequa Corp. bonds 8 3/4s, 2001 124,375
145,000 Sequa Corp. sr. notes 9 5/8s, 1999 147,175
140,000 Tracor, Inc. 144A sr. sub. notes 8 1/2s, 2007 137,200
140,000 Wyman-Gordon Co. sr. notes 10 3/4s, 2003 149,100
--------------
981,025
Agriculture ( -- %)
- ------------------------------------------------------------------------------------------------------------
275,000 AGCO Corp. sr. sub. notes 8 1/2s, 2006 277,750
511,480 Premium Standard Farms, Inc. sr. secd. notes 11s, 2003 [2 DBL. DAGGERS] 544,727
--------------
822,477
Apparel ( -- %)
- ------------------------------------------------------------------------------------------------------------
65,000 GFSI, Inc. 144A sr. sub. notes 9 5/8s, 2007 64,350
Automotive (0.3%)
- ------------------------------------------------------------------------------------------------------------
145,000 A.P.S. Inc. company guaranty 11 7/8s, 2006 145,000
232,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 255,200
165,000 Aftermarket Technology Corp. sr. sub. notes Ser. D, 12s, 2004 181,500
4,360,000 Chrysler Corp. deb. Ser. B, 7.45s, 2097 4,108,951
120,000 CSK Auto, Inc. 144A sr. sub. notes 11s, 2006 123,000
255,000 Harvard Industries Inc. sr. notes 11 1/8s, 2005 114,750
5,000 Hawk Corp. sr. notes 10 1/4s, 2003 5,038
155,000 Key Plastics Corp. 144A sr. sub. notes 10 1/4s, 2007 156,550
--------------
5,089,989
Banks (7.5%)
- ------------------------------------------------------------------------------------------------------------
4,205,000 Abbey National PLC sub. notes 7.35s, 2049 (United Kingdom) 4,153,993
11,105,000 Advanta National Bank sr. notes 7.02s, 2001 10,798,058
6,475,000 Bangkok Bank Public Co. 144A sub. notes 8 3/8s, 2027
(Thailand) 6,301,923
6,320,000 Bangkok Bank Public Co. 144A sub. notes 8 1/4s, 2016
(Thailand) 6,147,085
7,805,000 BankAmerica Corp. sub. notes 7 1/8s, 2009 7,572,021
180,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 177,300
10,500,000 Citicorp sub. notes 7 1/8s, 2005 10,424,925
8,325,000 Den Danske Bank sub. notes 6.55s, 2003 (Denmark) 8,052,856
50,000 Dime Capital Trust sub. notes 9.33s, 2027 50,000
2,340,000 First National Bank of Omaha sub. notes 7.32s, 2010 2,226,861
220,000 First Nationwide Holdings 144A sr. sub. notes 10 5/8s, 2003 233,200
1,520,000 Merita Bank Ltd. sub. notes 6 1/2s, 2006 (Finland) 1,428,922
175,000 North Fork Bancorp, Inc. 144A bonds 8.7s, 2026 169,678
5,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 5,413
9,865,000 Peoples Bank- Bridgeport sub. notes 7.2s, 2006 9,509,465
115,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 115,000
8,500,000 Riggs National Corp. sub. deb. 8 1/2s, 2006 8,585,000
7,010,000 Societe Generale FRN 7.85s, 2002 (France) 7,045,050
6,500,000 Scotland International Finance 144A sub. notes 8.85s, 2006
(Netherlands) 7,130,435
5,000,000 Society Bank & Trust notes 12 1/2s, 1999 5,590,000
6,935,000 Sparbanken Sverige AB (Swedbank) 144A sub. 7 1/2s, 2006
(Sweden) 6,824,456
6,065,000 St. Paul Bancorp sr. notes 7 1/8s, 2004 5,913,072
4,050,000 State Development Bank of China notes 7 3/8s, 2007 (China) 4,012,457
3,745,000 State Street Institution 144A company guaranty 7.94s, 2026 3,638,904
8,445,000 Webster Financial Corp. sr. notes 8 3/4s, 2000 8,478,358
--------------
124,584,432
Basic Industrial Products ( -- %)
- ------------------------------------------------------------------------------------------------------------
125,000 Astor Corp. 144A sr. sub. notes 10 1/2s, 2006 127,500
290,000 Clark-Schwebel sr. notes 10 1/2s, 2006 307,400
5,000 Inter-City Products sr. notes 9 3/4s, 2000 5,000
10,000 Owens Illinois, Inc. deb. 11s, 2003 11,113
5,000 Owens Illinois, Inc. sr. sub. notes 9 3/4s, 2004 5,288
45,000 Titan Wheel International Inc. sr. sub. notes 8 3/4s, 2007 45,000
--------------
501,301
Broadcasting (0.2%)
- ------------------------------------------------------------------------------------------------------------
100,000 Adelphia Communications Corp. sr. notes Ser. B, 10 1/4s, 2000 94,750
280,000 Argyle Television Corp. sr. sub. notes 9 3/4s, 2005 287,000
185,000 Bell Cablemedia PLC sr. disc. notes stepped-coupon zero %
(11.95s, 7/15/99), 2004 (United Kingdom) ++ 162,800
260,000 Capstar Broadcasting 144A sr. disc. notes stepped-coupon
zero % (12 3/4s, 2/1/02), 2009 ++ 144,950
230,000 Chancellor Radio Broadcasting Corp. sr. sub. notes 9 3/8s, 2004 227,700
140,000 Comcast Corp. sr. sub. notes 9 1/2s, 2008 142,100
315,000 Commodore Media, Inc. sr. sub. notes stepped-coupon 7 1/2s,
(13 1/4s, 5/1/98), 2003 ++ 335,475
65,000 Gray Communications Systems, Inc. sr. sub. notes 10 5/8s, 2006 66,300
255,000 Heartland Wireless Communications, Inc. sr. notes Ser. B,
14s, 2004 122,400
120,000 Heritage Media Corp. sr. sub. notes 8 3/4s, 2006 124,800
125,000 Jacor Communications, Inc. company guaranty 9 3/4s, 2006 127,813
275,000 Jacor Communications, Inc. sr. sub. notes 10 1/8s, 2006 284,625
220,000 Paxson Communications Corp. 144A sr. sub. notes
11 5/8s, 2002 233,750
200,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 214,000
95,000 RBS Participacoes S.A. 144A company guaranty 11s, 2007
(Brazil) 95,931
225,000 SFX Broadcasting, Inc. sr. sub. notes Ser. B, 10 3/4s, 2006 235,688
225,000 Sinclair Broadcasting Group sr. sub. notes 10s, 2005 228,938
155,000 Spanish Broadcasting Systems 144A sr. notes 11s, 2004 155,775
285,000 Sullivan Broadcasting sr. sub. notes 10 1/4s, 2005 285,000
170,000 TCI Satellite Entertainment 144A sr. sub. notes 10 7/8s, 2007 161,500
100,000 TV Azteca Sa De Cv 144A sr. notes 10 1/2s, 2007 (Mexico) 98,375
--------------
3,829,670
Building and Construction (0.1%)
- ------------------------------------------------------------------------------------------------------------
235,000 Atrium Companies Inc. 144A sr. sub. notes 10 1/2s, 2006 235,000
80,000 Building Materials Corp. sr. notes Ser. B, 8 5/8s, 2006 77,200
115,000 Continental Homes Holding Corp. sr. notes 10s, 2006 113,275
250,000 Schuller International Corp. sr. notes 10 7/8s, 2004 272,500
375,000 Scotsman Group, Inc. sr. secd. notes 9 1/2s, 2000 393,750
260,000 Terex Corp. sr. notes Ser. B, 13 1/4s, 2002 285,675
10,000 Webb (Del E.) Corp. sr. sub. notes 9 3/4s, 2008 9,550
--------------
1,386,950
Business Equipment and Services (0.2%)
- ------------------------------------------------------------------------------------------------------------
3,035,000 Boise Cascade Corp. deb. 7.35s, 2016 2,805,706
305,000 Corporate Express, Inc. sr. sub. notes Ser. B, 9 1/8s, 2004 295,850
200,000 Intertek Finance PLC 144A sr. sub. notes 10 1/4s, 2006
(United Kingdom) 206,000
90,000 Iron Mountain, Inc. med. term. notes company guaranty
10 1/8s, 2006 91,463
55,000 Loomis Fargo & Co. 144A sr. sub. notes 10s, 2004 55,550
275,000 Pierce Leahy Corp. 144A sr. sub. notes 11 1/8s, 2006 297,000
240,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 266,400
--------------
4,017,969
Cable Television (0.6%)
- ------------------------------------------------------------------------------------------------------------
5,000 Cablevision Systems Corp. sr. sub. deb. 9 7/8s, 2023 4,700
8,400,000 Continental Cablevision, Inc. sr. deb. 9 1/2s, 2013 9,403,128
15,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (13 1/2s, 9/30/99), 2004
(United Kingdom) ++ 12,300
430,000 Diamond Cable Communications Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) ++ 297,775
15,000 Diamond Cable Communications Co. 144A sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) ++ 8,925
235,000 Lenfest Communications, Inc. sr. notes 8 3/8s, 2005 224,719
205,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes stepped-coupon
zero % (13 1/2s, 8/1/99), 2004 ++ 169,638
5,000 Rogers Cablesystems Ltd. deb. 10 1/8s, 2012 (Canada) 5,113
120,000 TV Filme, Inc. 144A sr. notes 12 7/8s, 2004 (Brazil) 121,800
--------------
10,248,098
Chemicals (0.8%)
- ------------------------------------------------------------------------------------------------------------
110,000 Freedom Chemicals, Inc. sr. sub. notes 10 5/8s, 2006 114,125
275,000 Great Lakes Carbon Corp. sr. notes 10s, 2006 286,000
45,000 Harris Chemical Corp. sr. sub. notes 10 3/4s, 2003 44,550
3,335,000 Lyondell Petrochemical Co. notes 9 1/8s, 2002 3,605,935
5,700,000 Millennium America Inc. company guaranty 7 5/8s, 2026 5,311,146
250,000 NL Industries, Inc. sr. notes stepped-coupon zero %
(13s, 10/15/98), 2005 ++ 230,938
2,635,000 Sociedad Quimica Y Minera de Chile S.A. 144A bonds 7.7s,
2006 (Chile) 2,638,294
240,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 ++ 151,800
100,000 Union Carbide Global Enterprises sr. sub. notes Ser. B,
12s, 2005 112,000
--------------
12,494,788
Computer Services and Software ( -- %)
- ------------------------------------------------------------------------------------------------------------
250,000 Computervision Corp. sr. sub. notes 11 3/8s, 1999 247,188
255,000 Unisys Corp. sr. notes 11 3/4s, 2004 268,388
--------------
515,576
Conglomerates ( -- %)
- ------------------------------------------------------------------------------------------------------------
100,000 Aramark Corp. sub. notes 8 1/2s, 2003 101,250
140,000 Congoleum Corp. sr. notes 9s, 2001 140,000
289,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes 13s, 1999 289,723
--------------
530,973
Consumer Durable Goods ( -- %)
- ------------------------------------------------------------------------------------------------------------
125,000 Remington Products Co. sr. sub. notes Ser. B, 11s, 2006 105,625
200,000 Selmer Co., Inc. sr. sub. notes 11s, 2005 214,000
--------------
319,625
Consumer Non Durables ( -- %)
- ------------------------------------------------------------------------------------------------------------
190,000 Foamex (L.P.) Capital Corp. sr. sub. deb. 11 7/8s, 2004 203,775
390,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 393,900
355,000 Revlon Worldwide Corp. 144A sr. disc. notes zero %, 2001 232,525
--------------
830,200
Consumer Services (0.1%)
- ------------------------------------------------------------------------------------------------------------
275,000 Act III Theatres, Inc. sr. sub. notes 11 7/8s, 2003 298,375
280,000 Affinity Group Holdings 144A sr. notes 11s, 2007 287,000
260,000 AMC Entertainment, Inc. 144A sr. sub. notes 9 1/2s, 2009 257,400
95,000 AmeriKing, Inc. sr. notes 10 3/4s, 2006 98,325
95,000 Century Communications Corp. sr. notes 9 1/2s, 2005 93,813
255,000 Coinmach Corp. sr. notes Ser. B, 11 3/4s, 2005 280,500
80,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 82,800
100,000 Hollinger International Publishing, Inc. company guaranty
9 1/4s, 2007 98,750
100,000 Hollinger International Publishing, Inc. company guaranty
8 5/8s, 2005 98,750
165,000 Host Marriott Corp. sr. notes Ser. B, 9 1/2s, 2005 167,888
145,000 John Q Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 142,100
245,000 Jones Intercable, Inc. sr. sub. deb. 10 1/2s, 2008 259,700
135,000 Specialty Retailers, Inc. sr. sub. notes 11s, 2003 142,088
--------------
2,307,489
Electronics and Electrical Equipment (0.1%)
- ------------------------------------------------------------------------------------------------------------
150,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s,
2006 (Canada) 158,625
180,297 Cirent Semiconductor sr. sub. notes 10.22s, 2002 180,298
181,037 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 181,038
170,000 Fairchild Semiconductor Corp. 144A sr. sub. notes
11.74s, 2008 150,165
160,000 Fairchild Semiconductor Corp. 144A sr. sub. notes
10 1/8s, 2007 161,600
130,000 Health O Meter Products, Inc. sr. sub. notes 13s, 2002 142,350
330,000 International Semi-Tech. Corp. sr. secd. disc. notes
stepped-coupon zero %, (11 1/2s, 8/15/00), 2003
(Canada) ++ 182,325
255,000 Motors and Gears Inc. 144A sr. notes Ser. A, 10 3/4s, 2006 255,638
--------------
1,412,039
Energy-Related ( -- %)
- ------------------------------------------------------------------------------------------------------------
250,000 Panda Global Energy Co. 144A sr. notes 12 1/2s, 2004 237,500
Entertainment (0.9%)
- ------------------------------------------------------------------------------------------------------------
140,000 Cobb Theatres LLC company guaranty 10 5/8s, 2003 144,900
180,000 Premier Parks, Inc. sr. notes Ser. A, 12s, 2003 198,000
205,000 Six Flags Corp. sr. sub. notes stepped-coupon zero %
(12 1/4s, 6/15/98), 2005 ++ 202,438
11,560,000 Time Warner Entertainment Inc. deb. 7 1/4s, 2008 11,186,034
3,450,000 Time Warner Entertainment Inc. notes 8 7/8s, 2012 3,727,449
75,000 Trump A.C. 1st mtge. 11 1/4s, 2006 72,938
120,000 United Artists notes 11 1/2s, 2002 124,800
15,000 Viacom International, Inc. sub. deb. 8s, 2006 14,006
--------------
15,670,565
Environmental Control ( -- %)
- ------------------------------------------------------------------------------------------------------------
35,000 Allied Waste Industries, Inc. 144A sr. sub. notes 10 1/4s, 2006 36,488
Food and Beverages (0.1%)
- ------------------------------------------------------------------------------------------------------------
90,000 Canandaigua Wine Co. sr. sub. notes Ser. C, 8 3/4s, 2003 89,550
235,000 Chiquita Brands sr. notes 9 5/8s, 2004 239,700
60,000 Del Monte Corp. 144A sr. sub. notes 12 1/4s, 2007 61,800
445,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 472,813
70,000 MBW Foods, Inc. 144A sr. sub. notes 9 7/8s, 2007 70,000
205,000 Stater Brothers sr. notes 11s, 2001 218,325
--------------
1,152,188
Health Care (0.8%)
- ------------------------------------------------------------------------------------------------------------
4,660,000 Columbia Healthcare Corp. deb. 8.36s, 2024 4,997,617
115,000 Genesis Health Ventures, Inc. sr. sub. notes 9 1/4s, 2006 115,575
350,000 IMED Corp. sr. sub. notes 9 3/4s, 2006 350,000
215,000 Integrated Health Services sr. sub. notes 10 3/4s, 2004 230,050
120,000 Integrated Health Services sr. sub. notes 9 5/8s, 2002 122,400
205,000 Magellan Health Services, Inc. sr. sub. deb. Ser. A, 11 1/4s, 2004 226,525
210,000 Merit Behavioral Care sr. sub. notes 11 1/2s, 2005 225,750
390,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 368,550
6,465,000 Tenet Healthcare Corp. sr. notes 8s, 2005 6,335,700
145,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 144,275
--------------
13,116,442
Insurance and Finance (7.7%)
- ------------------------------------------------------------------------------------------------------------
125,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 116,250
5,000 AIM Management Group sr. secd. notes 9s, 2003 5,275
3,245,000 Allstate Financing II company guaranty 7.83s, 2045 3,048,515
3,500,000 AMBAC Indemnity Corp. deb. 9 3/8s, 2011 4,096,225
115,000 Colonial Capital I 144A company guaranty 8.92s, 2027 111,748
6,420,000 Conseco Inc. sr. notes 10 1/2s, 2004 7,441,550
20,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 20,150
1,090,000 Discover Credit Corp. med. term notes 9.07s, 2012 1,233,902
120,000 Dollar Financial Group Inc. sr. notes Ser. A, 10 7/8s, 2006 121,800
12,055,000 Executive Risk Capital Trust 144A company guaranty
8.675s, 2027 11,901,902
3,595,000 First Financial Caribbean Corp. sr. notes 7.84s, 2006 3,554,556
6,840,000 Firstar Capital Trust I 144A bonds 8.32s, 2026 6,821,122
10,810,000 Ford Motor Credit Corp. notes 8.2s, 2002 11,323,907
245,000 Investors Capital Trust I 144A company guaranty 9.77s, 2027 244,388
9,705,000 Lehman Bros Holdings, Inc. med. term notes 6.4s, 1999 9,601,933
6,460,000 Markel Capital Trust I 144A company guaranty 8.71s, 2046 6,398,178
7,630,000 Money Store, Inc. (The) notes 8.05s, 2002 7,630,000
2,950,000 Orange Cogen Funding 144A company guaranty 8.175s, 2022 2,965,812
5,000,000 Orion Capital Corp. sr. notes 9 1/8s, 2002 5,403,150
135,000 Outsourcing Solutions, Inc. 144A sr. sub. notes 11s, 2006 143,438
7,600,000 Phoenix Home Life Mutual Insurance Co. 144A notes
6.95s, 2006 7,304,360
105,000 Phoenix Re Corp. sr. notes 9 3/4s, 2003 112,481
95,000 Provident Capital Trust company guaranty 8.6s, 2026 91,675
10,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 2003 10,275
205,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 208,075
6,255,000 Salton Sea Funding Corp. company guaranty Ser. E, 8.3s, 2011 6,402,305
9,055,000 Sampoerna International Finance Co. 144A company
guaranty 8 3/8s, 2006 (Indonesia) 9,149,081
5,055,000 Southern Investments Service Co. sr. notes 6.8s, 2006
(United Kingdom) 4,866,347
115,000 Sovereign Capital Trust 144A company guaranty 9s, 2027 112,125
8,715,000 Tig Capital Trust I 144A bonds 8.597s, 2027 8,725,719
7,845,000 Trenwick Capital Trust 144A bonds 8.82s, 2037 7,865,475
155,000 Webster Capital Trust I 144A bonds 9.36s, 2027 158,193
--------------
127,189,912
Medical Supplies and Devices ( -- %)
- ------------------------------------------------------------------------------------------------------------
175,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 191,188
210,000 Graphic Controls Corp. sr. sub. notes Ser. A, 12s, 2005 228,375
220,000 Wright Medical Technology, Inc. sr. secd. notes Ser. B,
10 3/4s, 2000 222,200
--------------
641,763
Metals and Mining (0.9%)
- ------------------------------------------------------------------------------------------------------------
230,000 AK Steel Corp. sr. notes 9 1/8s, 2006 227,125
50,000 Altos Hornos De Mexico 144A bonds 11 7/8s, 2004 (Mexico) 50,625
155,000 Continental Global Group 144A sr. notes Ser. A, 11s, 2007 159,650
105,000 Echo Bay Mines jr. sub. deb. 11s, 2027 (Canada) 103,425
5,000 Ispat Mexicana, S.A. 144A bonds 10 3/8s, 2001 (Mexico) 5,106
145,000 Maxxam Group Holdings Inc. sr. notes Ser. B, 12s, 2003 146,450
6,770,000 Noranda Inc. notes 7s, 2005 (Canada) 6,561,078
6,100,000 PT Alatief Freeport sr. notes 9 3/4s, 2001 (Netherlands) 6,599,163
190,000 Royal Oak Mines, Inc. company guaranty Ser. B, 11s, 2006
(Canada) 190,950
--------------
14,043,572
Oil and Gas (3.1%)
- ------------------------------------------------------------------------------------------------------------
195,000 Abraxas Petroleum Corp. 144A sr. notes Ser. B, 11 1/2s, 2004 206,700
200,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 214,000
140,000 Chesapeake Energy Corp. sr. notes 10 1/2s, 2002 151,984
10,000 Chesapeake Energy Corp. sr. notes 9 1/8s, 2006 9,975
120,000 CIA Naviera Perez Companc S.A. 144A bonds 9s, 2004
(Argentina) 120,225
5,000 Costilla Energy, Inc. sr. notes 10 1/4s, 2006 5,025
3,860,000 El Paso Natural Gas Co. deb. 7 1/2s, 2026 3,746,748
5,000 Flores & Rucks, Inc. sr. notes 13 1/2s, 2004 5,813
10,000 Forcenergy, Inc. 144A sr. sub. notes 8 1/2s, 2007 9,500
5,565,000 Gulf Canada Resources, Ltd. sr. notes 8.35s, 2006 (Canada) 5,718,038
3,930,000 Husky Oil Ltd. deb. 7.55s, 2016 (Canada) 3,811,511
105,000 Kelley Oil & Gas Corp. sr. sub. notes Ser. B, 10 3/8s, 2006 105,000
10,000 Maxus Energy Corp. company guaranty 9 7/8s, 2002 10,325
177,000 Maxus Energy Corp. notes 9 1/2s, 2003 182,310
5,000 Maxus Energy Corp. notes 9 3/8s, 2003 5,263
6,600,000 ONEOK Inc. deb. 9.7s, 2019 7,226,802
210,000 Parker Drilling Corp. sr. notes Ser. B, 9 3/4s, 2006 215,775
4,055,000 Petro Geo-Services AS notes 7 1/2s, 2007 (Norway) 4,029,656
12,500,000 Petro-Canada deb. 9 1/4s, 2021 (Canada) 14,584,250
1,745,000 Petroliam Nasional Berhad 144A notes 7 5/8s, 2026
(Malaysia) 1,715,492
8,245,000 Petroliam Nasional Berhad 144A notes 7 1/8s, 2005
(Malaysia) 8,176,072
5,000 Texas Petrochemical Corp. sr. sub. notes 11 1/8s, 2006 5,200
884,000 TransTexas Gas Corp. sr. disc. notes stepped-coupon zero %
(13 1/4s, 12/16/01), 2003 ++ 556,920
--------------
50,812,584
Packaging and Containers ( -- %)
- ------------------------------------------------------------------------------------------------------------
200,000 Innova S De R.L. 144A sr. notes 12 7/8s, 2007 (Mexico) 197,000
5,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 5,431
115,000 Radnor Holdings Corp. 144A sr. notes 10s, 2003 116,725
40,000 Riverwood International Corp. company guranty 10 7/8s, 2008 33,200
125,000 US Can Corp. company guaranty Ser. B, 10 1/8s, 2006 130,625
--------------
482,981
Paper and Forest Products (0.1%)
- ------------------------------------------------------------------------------------------------------------
115,000 APP International Finance Co. notes 11 3/4s, 2005
(Netherlands) 119,888
230,000 Domtar, Inc. deb. 9 1/2s, 2016 (Canada) 225,400
275,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 2003 264,000
350,000 Rainy River Forest Products, Inc. sr. notes 10 3/4s, 2001
(Canada) 383,250
360,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 338,400
90,000 Repap New Brunswick FRN 9.066s, 2000 (Canada) 88,200
265,000 Stone Consolidated Corp. sr. notes 10 1/4s, 2000 282,225
--------------
1,701,363
Publishing (1.1%)
- ------------------------------------------------------------------------------------------------------------
210,000 American Media Operation, Inc. sr. sub. notes 11 5/8s, 2004 224,700
7,265,000 News America Holdings, Inc. deb. 7 3/4s, 2045 6,563,710
11,600,000 News America Holdings, Inc. deb. 7.7s, 2025 10,641,376
50,000 Sun Media Corp. 144A sr. sub. notes 9 1/2s, 2007 (Canada) 48,250
--------------
17,478,036
REITs (Real Estate Investment Trust) (1.3%)
- ------------------------------------------------------------------------------------------------------------
1,720,000 American Health Properties, Inc. notes 7 1/2s, 2007 1,698,982
1,295,000 American Health Properties, Inc. notes 7.05s, 2002 1,280,936
3,290,000 Health Care Property Investors, Inc. sr. notes 6 1/2s, 2006 3,069,438
8,525,000 Meditrust med. term notes 7.3s, 2006 8,298,491
230,000 Prime Hospitality Corp. 144A sr. sub. notes 9 3/4s, 2007 234,600
10,000 Prime Hospitality Corp. 1st mtge. 9 1/4s, 2006 10,175
5,705,000 Sun Communities, Inc. sr. notes 7 5/8s, 2003 5,774,544
400,000 Tanger Properities Ltd. Partnership Gtd. notes 8 3/4s, 2001 408,148
--------------
20,775,314
Recreation (0.2%)
- ------------------------------------------------------------------------------------------------------------
130,000 Alliance Gaming Corp. sr. notes 12 7/8s, 2003 140,238
245,000 Argosy Gaming Co. 1st mtge. 13 1/4s, 2004 219,275
500,000 Arizona Charlies Corp. 1st mtge. Ser. B, 12s, 2000 285,000
170,000 Casino America, Inc. sr. notes 12 1/2s, 2003 171,275
100,000 Casino Magic Corp. 144A 1st mtge. 13s, 2003 83,000
425,000 Coast Hotels & Casinos, Inc. company guaranty Ser. B,
13s, 2002 465,375
220,000 Empress River Casino sr. notes 10 3/4s, 2002 232,100
190,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 192,850
300,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 307,500
290,000 Lady Luck Gaming 1st mtge. 11 7/8s, 2001 290,000
220,000 Mohegan Tribal Gaming sr. secd. notes Ser. B, 13 1/2s, 2002 288,200
275,000 Players International Inc. sr. notes 10 7/8s, 2005 285,313
--------------
2,960,126
Retail (1.4%)
- ------------------------------------------------------------------------------------------------------------
300,000 Brylane (L.P.) sr. sub. notes 10s, 2003 310,500
5,585,000 Federated Department Stores sr. notes 8 1/2s, 2003 5,807,227
240,000 Loehmanns, Inc. sr. notes 11 7/8s, 2003 249,600
5,000,000 May Department Stores Co. notes 9 1/2s, 2021 5,824,450
250,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 256,250
230,000 Phar-Mor, Inc. sr. notes 11.72s, 2002 231,725
110,000 Quality Food Centers, Inc. 144A sr. sub. notes 8.7s, 2007 108,350
110,000 Ralphs Grocery Co. 144A sr. sub. notes 11s, 2005 116,600
8,000,000 Sears, Roebuck & Co. med. term notes 9.1s, 2012 9,133,840
735,000 Southland Corp. 1st priority sr. sub. deb. 5s, 2003 610,050
15,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 11,400
145,000 Supermercados Norte 144A bonds 10 7/8s, 2004 (Argentina) 145,000
200,000 Waban, Inc. sr. sub. notes 11s, 2004 223,000
125,000 William Carter Co. 144A sr. sub. notes 12s, 2008 127,500
10,000 William Carter Co. 144A sr. sub. notes 10 3/8s, 2006 10,125
--------------
23,165,617
Specialty Consumer Products (0.1%)
- ------------------------------------------------------------------------------------------------------------
270,000 Coty Inc. Gtd. sr. sub. notes 10 1/4s, 2005 286,200
175,000 Genesco, Inc. sr. notes 10 3/8s, 2003 179,813
265,000 Herff Jones, Inc. sr. sub. notes 11s, 2005 280,900
400,000 Sassco Fashions Ltd. 144A notes 12 3/4s, 1999 414,000
--------------
1,160,913
Telecommunications (1.0%)
- ------------------------------------------------------------------------------------------------------------
250,000 Arch Communications Group sr. disc. notes stepped-coupon
zero % (10 7/8s, 3/15/01), 2008 ++ 113,750
295,000 Call-Net Enterprises sr. disc. notes stepped-coupon zero %
(13 1/4s, 12/1/99), 2004 ++ 247,800
305,000 Centennial Cellular Corp. sr. notes 8 7/8s, 2001 295,850
50,000 Consorcio Ecuatoriano 144A notes 14s, 2002 (Ecuador) 50,500
560,000 Dial Call Communication, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (10 1/4s, 12/15/98), 2005 ++ 415,800
210,000 Dobson Communications Corp. 144A sr. notes 11 3/4s, 2007 201,600
130,000 Fonorola, Inc. sr. notes 12 1/2s, 2002 (Canada) 140,400
150,000 Frontiervision Operating Partners L.P. sr. sub. notes 11s, 2006 150,375
230,000 Globo Communicacoes 144A company guaranty
10 1/2s, 2006 (Brazil) 235,175
500,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 5/1/01), 2006 ++ 279,375
225,000 Intermedia Communications, Inc. sr. disc. notes stepped-coupon
zero % (12 1/2s, 5/15/01), 2006 ++ 145,125
200,000 Intermedia Communications, Inc. sr. notes Ser. B, 13 1/2s, 2005 223,000
450,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B,
zero % (11 1/2s, 2/01/01), 2006 ++ 294,750
15,000 International Cabletel, Inc. 144A sr. notes 10s, 2007 14,663
340,000 McLeod, Inc. 144A sr. disc. notes stepped-coupon zero %
(10 1/2s, 3/1/02), 2007 ++ 194,650
200,000 MFS Communications sr. disc. notes stepped-coupon zero %
(8 7/8s, 1/1/01), 2006 ++ 151,706
335,000 MFS Communications sr. disc. notes stepped-coupon zero %
(9 3/8s, 1/15/99), 2004 ++ 304,565
485,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) ++ 339,500
150,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 148,500
350,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (9 3/4s, 2/15/99), 2004 ++ 254,625
500,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (11 1/2s, 9/1/98), 2003 ++ 412,500
490,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 382,200
330,000 Orbcomm Global Capital Corp. sr. notes Ser. B, 14s, 2004 336,600
200,000 Paging Network, Inc. sr. sub. notes 10s, 2008 178,000
265,000 Pricellular Wireless Corp. 144A sr. notes 10 3/4s, 2004 272,950
395,000 Teleport Communications Group Inc. sr. disc. notes
stepped-coupon zero % (11 1/8s, 7/1/01), 2007 ++ 271,563
85,000 Wireless One, Inc. sr. notes 13s, 2003 55,250
11,360,000 WorldCom, Inc. notes 7 3/4s, 2007 11,189,600
--------------
17,300,372
Textiles (0.1%)
- ------------------------------------------------------------------------------------------------------------
40,000 Anvil Knitwear Inc. 144A sr. notes 10 7/8s, 2007 39,000
75,000 Glenoit Corp. 144A sr. sub. notes 11s, 2007 75,750
410,000 Polysindo International Finance company guaranty
11 3/8s, 2006 (Indonesia) 430,500
250,000 Tultex Corp. sr. notes 10 5/8s, 2005 270,938
--------------
816,188
Tobacco (0.3%)
- ------------------------------------------------------------------------------------------------------------
1,895,000 Philip Morris Cos., Inc. deb. 7 3/4s, 2027 1,785,962
2,420,000 RJR Nabisco, Inc. notes 8 3/4s, 2005 2,349,336
--------------
4,135,298
Transportation (1.1%)
- ------------------------------------------------------------------------------------------------------------
65,000 Atlantic Express, Inc. 144A company guaranty 10 3/4s, 2004 66,625
100,000 Blue Bird Body Co. sr. sub. notes Ser. B, 10 3/4s, 2006 104,500
8,705,000 Burlington Northern Santa Fe notes 6 3/8s, 2005 8,171,558
165,000 Consorcio/MCII Holdings secd. notes stepped-coupon
zero % (12s, 11/15/98), 2002 ++ 139,838
3,245,000 Continental Airlines, Inc. 144A bonds 7.42s, 2008 3,238,510
250,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s, 2003
(Greece) 245,000
240,000 International Shipholding Corp. sr. notes 9s, 2003 244,800
5,465,000 Southwest Airlines Co. deb. 7 7/8s, 2007 5,665,784
240,000 Viking Star Shipping sr. secd. notes 9 5/8s, 2003 246,000
--------------
18,122,615
Utilities (7.4%)
- ------------------------------------------------------------------------------------------------------------
200,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 205,250
4,275,000 Arizona Public Service Co. sr. notes 6 3/4s, 2006 4,113,020
6,565,000 California Energy Corp. disc. notes 10 1/4s, 2005 6,991,725
5,541,000 Citizens Utilities Co. bonds 7.68s, 2034 5,972,090
6,980,000 Connecticut Light & Power Co. 1st mtge. Ser. A, 7 7/8s, 2001 6,984,816
1,970,000 Edison Mission Energy 144A company guaranty 7.33s, 2008 1,940,746
7,791,000 EIP Funding-Public Service Co. of New Mexico deb.
10 1/4s, 2012 8,549,921
140,000 El Paso Electric Co. 1st mtge. Ser. D, 8.9s, 2006 145,502
10,850,000 El Paso Electric Co. 1st mtge. Ser. B, 7 3/4s, 2001 10,891,013
4,430,000 Enersis S.A. notes 7.4s, 2016 (Chile) 4,171,377
4,680,000 Enersis S.A. notes 6.6s, 2026 (Chile) 4,515,264
264,000 First PV Funding deb. 10.15s, 2016 281,160
90,000 Hidroelectric Piedra Aguila 144A bonds 10 5/8s, 2001
(Argentina) 93,938
2,740,000 Illinova Corp. sr. notes 7 1/8s, 2004 2,692,790
6,440,000 Israel Electric Corp., Ltd. 144A sr. notes 7 1/4s, 2006 (Israel) 6,301,926
65,000 Long Island Lighting Co. deb. 9s, 2022 70,439
3,768,618 Midland Cogeneration Ventures deb. 10.33s, 2002 4,032,422
200,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 228,014
500,000 Niagara Mohawk Power Corp. med. term notes 9.95s, 2000 499,375
1,888,377 Northeast Utilities System notes Ser. A, 8.58s, 2006 1,799,624
6,617,701 Northeast Utilities System notes Ser. B, 8.38s, 2005 6,369,670
2,995,000 Ras Laffan Natural Gas 144A sec. notes 8.294s, 2014 (Qatar) 3,118,544
5,895,000 Ras Laffan Natural Gas 144A sec. notes 7.628s, 2006 (Qatar) 6,035,006
8,120,000 Texas New Mexico Power Utilities 1st mtge. 9 1/4s, 2000 8,536,394
10,800,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 10,721,376
8,625,000 Texas Utilities Electric Capital Trust V company guaranty
8.175s, 2037 8,516,756
2,335,000 Thermochemical Funding 144A sr. secd. notes 10 1/8s, 2014 2,425,481
7,205,000 US West Capital Funding, Inc. company guaranty 6.95s, 2037 7,097,790
--------------
123,301,429
--------------
Total Corporate Bonds and Notes
(cost $623,969,735) $ 625,010,720
FOREIGN GOVERNMENT BONDS AND NOTES (3.8%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
CAD 10,880,000 Canada (Government of) deb. Ser. A55, 8s, 2023 $ 8,557,916
USD 8,600,000 Quebec (Province of) bonds 13s, 2013 9,728,148
USD 17,490,000 Quebec (Province of) deb. Ser. NN, 7 1/8s, 2024 16,002,476
ZAR 26,245,000 South Africa (Republic of) bonds Ser. 153, 13s, 2010 5,238,376
GBP 1,465,000 United Kingdom Treasury bonds 7s, 2002 2,362,989
GBP 13,415,000 United Kingdom Treasury bonds 7 1/2s, 2006 21,862,519
--------------
Total Foreign Government Bonds and Notes
(cost $66,164,320) $ 63,752,424
COLLATERALIZED MORTGAGE OBLIGATIONS (3.4%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 3,890,587 Chase Mortgage Finance Corp. Ser. 93-3, Class B13,
7.455s, 2024 $ 2,418,244
Housing Securities Inc.
3,067,767 Ser. 91-B, Class B6, 9s, 2006 3,025,585
2,586,779 Ser. 93-F, Class F9M2, 7s, 2023 2,439,656
623,334 Ser. 93-J, Class J4, 6.66s, 2009 533,146
296,826 Ser. 93-J, Class J5, 6.66s, 2009 213,065
496,253 Ser. 94-1, Class AB1, 6 1/2s, 2009 418,404
Prudential Home Mortgage Securities
2,441,301 Ser. 92-13, Class B3, 7 1/2s, 2007 2,171,232
2,324,265 Ser. 92-25, Class B3, 8s, 2022 + 2,253,084
3,346,825 Ser. 93-31, Class B2, 6s, 2000 2,654,450
7,806,925 Ser. 93-D, Class 2B, 7.108s, 2023 7,464,152
3,970,212 Ser. 93-E, Class 5B, 7.393s, 2023 2,872,821
665,045 Ser. 94-31, Class B3, 8s, 2009 600,618
Prudential Home Mortgage Securities 144A
425,988 Ser. 94-31, Class B4, 8s, 2009 344,451
7,552,536 Ser. 94-A, Class 4B, 6.802s, 2024 6,971,934
2,077,947 Ser. 94-D, Class 3B, 6.311s, 2009 1,929,244
2,473,199 Ser. 94-D, Class 4B, 6.312s, 2009 2,126,565
9,059,534 Ser. 95-C, Class 1B1, 7.56s, 2001 8,997,249
8,653,045 Securitized Asset Sales, Inc. Ser. 93-J, Class 2B, 6.807s, 2023 8,078,429
1,245,658 Travelers Mortgage Securities Corp. coll. oblig. Ser. 1,
Class Z2, 12s, 2014 1,396,694
--------------
Total Collateralized Mortgage Obligations
(cost $53,509,182) $ 56,909,023
ASSET-BACKED SECURITIES (1.0%) * (cost $16,003,107)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
16,115,157 Railcar Leasing L.L.C. 144A Ser. 1, Class A1, 6 3/4s, 2006 $ 15,812,999
BRADY BONDS (0.8%)* [DIAMOND]
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 7,246,870 Argentina (Republic of) deb. 6 3/4s, 2005 $ 6,649,003
7,305,000 United Mexican States bonds Ser. D, 6.352s, 2019 6,469,491
--------------
Total Brady Bonds (cost $12,886,991) $ 13,118,494
PREFERRED STOCKS (0.2%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
120 American Radio Systems Corp. 144A $11.375 pfd. [2 DBL. DAGGERS] $ 11,850
6,000 AmeriKing, Inc. $3.25 pfd. [2 DBL. DAGGERS] 159,000
2,488 Cablevision Systems Corp. Ser. M, $11.125 dep. shs. pfd. [2 DBL. DAGGERS] 228,896
3,000 California Federal Bank Ser. B, $10.625 exch. pfd. 322,500
2,715 Chancellor Radio Broadcasting Co. 144A $12.00 pfd. 268,785
8,855 Chevy Chase Capital Corp. Ser. A $5.188 pfd. 429,468
9,278 El Paso Electric Co. $11.40 pfd [2 DBL. DAGGERS] 1,011,302
350 Fresenius Medical Care AG pfd. Ser. D, zero %, (Germany) 346,500
30 NTL Inc. 144A $130.00 pfd. [2 DBL. DAGGERS] 29,100
1,855 SFX Broadcasting, Inc. Ser. E, $12.625 pfd. [2 DBL. DAGGERS] 184,109
--------------
Total Preferred Stocks (cost $3,018,550) $ 2,991,510
UNITS (0.1%) *
NUMBER OF UNITS VALUE
- ------------------------------------------------------------------------------------------------------------
40 Anvil Holdings Inc. 144A pfd. units 13s, 2009 [2 DBL. DAGGERS] $ 39,400
40 Celcaribe S.A. 144A units stepped-coupon zero %
(13 1/2s, 3/15/98), 2004 ++ 524,000
270 Colt Telecommunications Group PLC units stepped-coupon
zero % (12s, 12/15/01), 2006 (United Kingdom) ++ 157,950
260 Esat Holdings Ltd. 144A units stepped-coupon zero %
(12 1/2s, 2/1/02), 2007 (Ireland) ++ 145,600
450 Fitzgerald Gaming Co. units 13s, 2002 292,500
250 Globalstar L.P. Capital units 11 3/8s, 2004 247,500
315 McCaw International Ltd. 144A units stepped-coupon
zero % (13s, 4/15/02), 2007 ++ 154,350
7,390 Nextlink Communications 144A pfd. units 14s, 2009 [2 DBL. DAGGERS] 347,330
105 Wireless One Inc. units stepped-coupon zero %
(13 1/2s, 8/1/01), 2006 ++ 28,350
--------------
Total Units (cost $1,928,012) $ 1,936,980
COMMON STOCKS (0.1%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
150 AmeriKing, Inc. + $ 7,500
44,051 PSF Holdings LLC Class A + 1,167,352
--------------
Total Common Stocks (cost $1,534,199) $ 1,174,852
PURCHASED OPTIONS OUTSTANDING ( -- %) *
EXPIRATION DATE/
CONTRACT AMOUNT STRIKE PRICE VALUE
- ------------------------------------------------------------------------------------------------------------
DEM 36,250,000 German Government Bond July 97/
Futures Contracts (Put) DEM 96.75 $ 20,963
ITL 24,200,000,000 Italian Government Bond May 97/
Futures Contracts (Put) ITL 122 2,830
USD 32,600,000 U.S. Dollars in exchange for May 97/
Deutschemarks (Call) DEM 1.692 740,020
--------------
Total Purchased Options Outstanding
(cost $1,000,353) $ 763,813
CONVERTIBLE BONDS AND NOTES ( -- %) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 250,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 $ 142,188
105,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 88,594
75,000 National Semiconductor Corp. cv. deb. 6 1/2s, 2002 73,125
--------------
Total Convertible Bonds and Notes (cost $317,575) $ 303,907
CONVERTIBLE PREFERRED STOCKS ( -- %) * (cost $300,625)
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
5,000 Granite Broadcasting $1.938 cv. pfd. $ 216,875
WARRANTS ( -- %) * (cost $4,000)
NUMBER OF WARRANTS DATE VALUE
- ------------------------------------------------------------------------------------------------------------
400 Intermedia Communications, Inc. 144A + 6/1/01 $ 8,000
SHORT-TERM INVESTMENTS (6.8%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 20,000,000 Asset Securities Cooperative Corp. effective yield
of 5.52%, May 28, 1997 $ 19,917,200
15,000,000 Federal National Mortgage Association effective yield
of 5.36%, May 6, 1997 14,988,833
25,000,000 Federal National Mortgage Association effective yield
of 5.35%, May 21, 1997 24,925,695
25,000,000 IBM Credit Corp. effective yield of 5.47%, May 6, 1997 24,981,007
27,428,000 Interest in $492,645,000 joint repurchase agreement
dated April 30, 1997 with Morgan (J.P.) & Co., Inc.
due May 1, 1997 with respect to various U.S. Treasury
obligations -- maturity value of $27,432,137 for an
effective yield of 5.43% 27,432,137
--------------
Total Short-Term Investments (cost $112,244,872) $ 112,244,872
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,753,992,953) *** $1,742,689,293
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of
$1,661,217,391.
*** The aggregate identified cost on a tax basis is
$1,754,407,715, resulting in gross unrealized appreciation
and depreciation of $18,833,791 and $30,552,213, respectively,
or net unrealized depreciation of $11,718,422.
+ 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.
[2 DBL. DAGGERS] Income may be received in cash or additional securities at
the discretion of the issuer.
[DIAMOND] Brady Bonds are foreign bonds collateralized by the U.S.
Government. The rates are floating and are the current rates
at April 30, 1997.
# A portion of this security was pledged and segregated with
the custodian to cover margin requirements for futures
contracts at April 30, 1997.
144A after the name of a security represents those 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 (Note 1).
The rate shown on Floating Rate Notes are the current interest
rates shown at April 30, 1997, which are subject to change
based on the terms of the security.
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Forward Currency Contracts to Buy at April 30, 1997
(aggregate face value $134,507,740)
Aggregate Face Delivery Unrealized
Market Value Value Date Depreciation
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Australian Dollars $33,630,349 $33,779,703 6/18/97 $ (149,354)
Deutschemarks 91,344,901 93,778,900 6/18/97 (2,433,999)
Japanese Yen 4,617,314 4,675,630 6/18/97 (58,316)
Thai Baht 2,272,036 2,273,507 6/18/97 (1,471)
- ----------------------------------------------------------------------------------------
$(2,643,140)
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at April 30, 1997
(aggregate face value $141,394,628)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- ----------------------------------------------------------------------------------------
British Pounds $24,304,518 $23,757,381 6/18/97 $ (547,137)
Canadian Dollars 7,867,196 8,098,032 6/18/97 230,836
Deutschemarks 68,533,675 69,846,583 6/18/97 1,312,908
Japanese Yen 38,957,462 39,692,632 6/18/97 735,170
- ----------------------------------------------------------------------------------------
$ 1,731,777
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Futures Contracts Outstanding at April 30, 1997
Unrealized
Aggregate Face Delivery Appreciation/
Total Value Value Date Depreciation
- ----------------------------------------------------------------------------------------
U.S. Treasury Notes
10 year (Short) $26,742,188 $26,890,625 Jun-97 $ 148,437
U.S. Treasury Bonds
20 year (Short) 23,714,031 23,442,566 Jun-97 (271,465)
U.S. Treasury Notes
5 year (Short) 82,856,343 82,918,078 Jun-97 61,735
- ----------------------------------------------------------------------------------------
$ (61,293)
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
April 30, 1997 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $1,753,992,953) (Note 1) $1,742,689,293
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 24,533,439
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 5,582,286
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 113,524,479
- ---------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 2,309,614
- ---------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 1,204,171
- ---------------------------------------------------------------------------------------------------
Total assets 1,889,843,282
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 386,255
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 320,349
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 215,319,189
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 3,222,074
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,224,404
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 739,273
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 22,722
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,792
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 531,878
- ---------------------------------------------------------------------------------------------------
Payable for variation margin 390,244
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 3,220,977
- ---------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 2,000,306
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 246,428
- ---------------------------------------------------------------------------------------------------
Total liabilities 228,625,891
- ---------------------------------------------------------------------------------------------------
Net assets $1,661,217,391
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,661,990,779
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 4,114,207
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 7,394,676
- ---------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (12,282,271)
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $1,661,217,391
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,130,836,659 divided by 163,563,889 shares) $6.91
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $6.91)* $7.25
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($363,527,312 divided by 52,827,119 shares)** $6.88
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($24,655,857 divided by 3,583,123 shares) $6.88
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $6.88)* $7.11
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($142,197,563 divided by 20,549,565 shares) $6.92
- ---------------------------------------------------------------------------------------------------
* 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, 1997 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Interest $ 60,476,729
- --------------------------------------------------------------------------------------------------
Dividends 234,390
- --------------------------------------------------------------------------------------------------
Total investment income 60,711,119
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,442,239
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,495,922
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 37,026
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 10,324
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,349,178
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,752,708
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 54,198
- --------------------------------------------------------------------------------------------------
Reports to shareholders 57,055
- --------------------------------------------------------------------------------------------------
Registration fees 119,127
- --------------------------------------------------------------------------------------------------
Auditing 25,773
- --------------------------------------------------------------------------------------------------
Legal 9,923
- --------------------------------------------------------------------------------------------------
Postage 17,281
- --------------------------------------------------------------------------------------------------
Other 40,438
- --------------------------------------------------------------------------------------------------
Total expenses 10,411,192
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (294,799)
- --------------------------------------------------------------------------------------------------
Net expenses 10,116,393
- --------------------------------------------------------------------------------------------------
Net investment income 50,594,726
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 5,393,646
- --------------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Notes 1 and 3) 3,657,796
- --------------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 1,177,238
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the period (416,892)
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures during the period (27,477,403)
- --------------------------------------------------------------------------------------------------
Net loss on investments (17,665,615)
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 32,929,111
- --------------------------------------------------------------------------------------------------
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
1997* 1996
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 50,594,726 $ 90,570,026
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 10,228,680 16,180,313
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (27,894,295) (23,733,680)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 32,929,111 83,016,659
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (34,582,307) (64,589,263)
- ----------------------------------------------------------------------------------------------------------------------
Class B (9,998,543) (17,694,764)
- ----------------------------------------------------------------------------------------------------------------------
Class M (677,914) (870,674)
- ----------------------------------------------------------------------------------------------------------------------
Class Y (4,450,373) (8,614,367)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (5,178,160) --
- ----------------------------------------------------------------------------------------------------------------------
Class B (1,738,693) --
- ----------------------------------------------------------------------------------------------------------------------
Class M (103,201) --
- ----------------------------------------------------------------------------------------------------------------------
Class Y (668,295) --
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 154,740,689 234,847,259
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 130,272,314 226,094,850
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 1,530,945,077 1,304,850,227
- ----------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $4,114,207 and $3,228,618, respectively) $1,661,217,391 $1,530,945,077
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share April 30
operating performance (Unaudited) Year ended October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $7.02 $7.07 $6.53 $7.36 $6.97 $6.80
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .23 .45 .47 .54 .56 .60
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.08) (.04) .55 (.84) .40 .18
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .15 .41 1.02 (.30) .96 .78
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.46) (.48) (.41) (.56) (.61)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- -- (.01) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.04) -- -- (.04) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- (.08) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.26) (.46) (.48) (.53) (.57) (.61)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.91 $7.02 $7.07 $6.53 $7.36 $6.97
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 2.11 * 6.08 16.23 (4.16) 14.36 11.86
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,130,837 $1,037,718 $928,995 $781,784 $814,289 $633,135
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .58 * 1.17 1.05 .83 .77 .97
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.23 * 6.50 6.91 7.10 7.71 8.62
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 137.32 * 213.46 169.29 128.82 129.95 146.66
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charge.
(b) 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. (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share April 30 March 1, 1993+
operating performance (Unaudited) Year ended October 31 to October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $6.99 $7.04 $6.50 $7.34 $7.19
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .20 .40 .42 .48 .28 (c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.08) (.04) .55 (.83) .22
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .12 .36 .97 (.35) .50
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.19) (.41) (.43) (.38) (.35)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.04) -- -- (.04) --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- (.07) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.23) (.41) (.43) (.49) (.35)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.88 $6.99 $7.04 $6.50 $7.34
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 1.76 * 5.32 15.46 (4.98) 7.18 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $363,527 $340,775 $260,769 $169,501 $92,832
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .95 * 1.92 1.80 1.59 1.03 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.85 * 5.76 6.14 6.40 4.37 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 137.32 * 213.46 169.29 128.82 129.95
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charge.
(b) 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. (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share April 30 Year ended Dec. 14, 1994+
operating performance (Unaudited) October 31 to October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $6.99 $7.04 $6.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .22 .44 .43
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.08) (.04) .54
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .14 .40 .97
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.21) (.45) (.43)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.04) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.25) (.45) (.43)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.88 $6.99 $7.04
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 2.02 * 5.92 15.43 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $24,656 $18,937 $7,673
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .70 * 1.42 1.19 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.10 * 6.28 5.17 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 137.32 * 213.46 169.29
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charge.
(b) 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. (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS Y
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share April 30 June 16, 1994+
operating performance (Unaudited) Year ended October 31 to October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $7.02 $7.07 $6.52 $6.72
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .23 .47 .47 .19
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.07) (.04) .57 (.21)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .16 .43 1.04 (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.48) (.49) (.16)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.04) -- -- (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.26) (.48) (.49) (.18)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.92 $7.02 $7.07 $6.52
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 2.36 * 6.31 16.65 (0.35)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $142,198 $133,516 $107,414 $7,517
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .45 * .92 .86 .24 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.35 * 6.76 7.14 2.91 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 137.32 * 213.46 169.29 128.82
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charge.
(b) 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. (Note 2).
(c) 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, 1997 (Unaudited)
Note 1
Significant accounting policies
Putnam Income Fund (the "fund") is registered under the Investment Company Act
of 1940, as amended, as a diversified, open-end management investment company.
The fund seeks high current income consistent with what Putnam Investment
Management, Inc. ("Putnam Management"), the fund's manager, a wholly-owned
subsidiary of Putnam Investments, Inc., believes to be prudent risk. The fund
invests in a portfolio of debt securities, both government and corporate
obligations, preferred stocks and dividend-paying common stocks.
The 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, class B and class M shares, but do not bear a
distribution fee. Class Y shares are sold to defined contribution plans that
invest at least $250 million in a combination of Putnam Funds and other
accounts managed by affiliates of Putnam Management.
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 consistently
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 and certain other accounts managed by Putnam Management.
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. Dividend income is recorded
on the ex-dividend date except that certain dividends from foreign securities
are recorded as soon as the fund is informed of the ex-dividend date.
Discounts on zero coupon bonds, original issue discounts, 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 appreciation and depreciation of
assets and liabilities in foreign currencies 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 in which it may invest 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 1.0% 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, 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 deems 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, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
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 at
least 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, 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.
As part of the custodian contract between the subcustodian bank and PFTC, the
subcustodian bank has a lien on the securities of the fund to the extent
permitted by the fund's investment restrictions to cover any advances made by
the subcustodian bank for the settlement of securities purchased by the fund.
At April 30, 1997, the payable to the subcustodian bank represents the amount
due for cash advance for the settlement of a security purchased.
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.
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 six months ended April 30, 1997, fund expenses were reduced by
$294,799 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 the assets utilized in connection
with the expense offset arrangements in an income producing asset if it had
not entered into such arrangements.
Trustees of the fund receive an annual Trustees fee of $1,480 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 certain Putnam funds until distribution in accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
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 providedit 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 six months ended April 30, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $184,852 and $4,917 from the sale of
class A and class M shares, respectively and $374,349 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 six
months ended April 30, 1997, Putnam Mutual Funds Corp., acting as underwriter
received $6,355 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended April 30, 1997, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $852,252,395 and $804,297,534, respectively. Purchases and sales of
U.S. government obligations aggregated $1,496,107,108 and $1,382,720,646,
respectively. In determining the net gain or loss on securities sold, the cost
of securities has been determined on the identified cost basis.
Note 4
Capital shares
At April 30, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
April 30, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 36,111,677 $252,114,650
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,219,501 29,437,213
- ------------------------------------------------------------
40,331,178 281,551,863
Shares
repurchased (24,609,728) (171,864,581)
- ------------------------------------------------------------
Net increase 15,721,450 $109,687,282
- ------------------------------------------------------------
Year ended
October 31, 1996
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 51,499,246 $358,192,745
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,891,807 47,867,344
- ------------------------------------------------------------
58,391,053 406,060,089
Shares
repurchased (41,990,050) (291,589,053)
- ------------------------------------------------------------
Net increase 16,401,003 $114,471,036
- ------------------------------------------------------------
Six months ended
April 30, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 10,382,360 $72,277,752
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,194,144 8,298,272
- ------------------------------------------------------------
11,576,504 80,576,024
Shares
repurchased (7,511,325) (52,269,553)
- ------------------------------------------------------------
Net increase 4,065,179 $28,306,471
- ------------------------------------------------------------
Year ended
October 31, 1996
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 26,294,130 $182,625,950
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,699,732 11,736,562
- ------------------------------------------------------------
27,993,862 194,362,512
Shares
repurchased (16,265,239) (112,753,976)
- ------------------------------------------------------------
Net increase 11,728,623 $81,608,536
- ------------------------------------------------------------
Six months ended
April 30, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 1,295,069 $9,010,693
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 91,145 632,678
- ------------------------------------------------------------
1,386,214 9,643,371
Shares
repurchased (512,959) (3,564,337)
- ------------------------------------------------------------
Net increase 873,255 $6,079,034
- ------------------------------------------------------------
Year ended
October 31, 1996
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 2,331,089 $16,185,461
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 104,715 721,051
- ------------------------------------------------------------
2,435,804 16,906,512
Shares
repurchased (816,055) (5,631,015)
- ------------------------------------------------------------
Net increase 1,619,749 $11,275,497
- ------------------------------------------------------------
Six months ended
April 30, 1997
- ------------------------------------------------------------
Class Y Shares Amount
- ------------------------------------------------------------
Shares sold 4,661,578 $32,503,755
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 733,267 5,118,668
- ------------------------------------------------------------
5,394,845 37,622,423
Shares
repurchased (3,855,544) (26,954,521)
- ------------------------------------------------------------
Net increase 1,539,301 $10,667,902
- ------------------------------------------------------------
Year ended
October 31, 1996
- ------------------------------------------------------------
Class Y Shares Amount
- ------------------------------------------------------------
Shares sold 9,748,399 $68,812,178
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,242,297 8,614,367
- ------------------------------------------------------------
10,990,696 77,426,545
Shares
repurchased (7,183,980) (49,934,355)
- ------------------------------------------------------------
Net increase 3,806,716 $27,492,190
- ------------------------------------------------------------
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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
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
William J. Curtin
Vice President
Kenneth J. Taubes
Vice President and Fund Manager
Robert M. Paine
Vice President and Fund Manager
D. William Kohli
Vice President and Fund Manager
Rosemary H. Thomsen
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. You can also learn more at Putnam
Investments' website: http://www.putnaminv.com.
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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
33894-004/312/510/514 6/97
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- -----------------------------------------------------------------------------
Putnam Income Fund
Supplement to Semiannual Report dated April 30, 1997
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 annual report.
ANNUAL RESULTS AT A GLANCE
- -----------------------------------------------------------------------------
Total return: NAV
Six months ended 4/30/97 2.36%
One year ended 4/30/97 8.51
Life of class (since 6/16/94) 26.49
Annual average 8.53
- -----------------------------------------------------------------------------
Share value: NAV
10/31/96 $7.02
4/30/97 6.92
- -----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
Short-term Long-term
6 $0.229 -- $0.035 $0.264
- -----------------------------------------------------------------------------
Current return (end of period) Total
Current dividend rate1 6.59%
Current 30-day SEC yield2 6.68%
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.
