Putnam
Income
Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
4-30-00
[SCALE LOGO OMITTED]
FROM THE CHAIRMAN
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[COPYRIGHT] Karsh, Ottawa
Dear Shareholder:
This is the last letter to you and the other shareholders of Putnam
Income Fund that I will be signing. After more than 30 years as Chairman
of the Trustees and President of the Putnam Funds, the time has come for
me to step aside. As of July 1, 2000, John Hill will become Chairman.
John is currently an independent Trustee and has served on the board
for the past 14 years. In addition, my son, George Putnam, III, will
take on the role of President. I am confident that the leadership of the
funds will be in exceptionally strong hands.
I will become Chairman Emeritus, remain a Putnam shareholder, and stay
in close touch with the funds. It has been my privilege to serve you.
In one final piece of news, I am pleased to announce the appointment of
James M. Prusko and the Core Fixed-Income Team as your fund's managers.
Jim has been with Putnam since 1992 and has 9 years of investment
experience.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
June 21, 2000
REPORT FROM THE FUND MANAGERS
James M. Prusko and the
Core Fixed-Income Team
In the past six months, the U.S. bond market has been subject to a
series of events that have made it particularly challenging for bond
investors to attain positive returns. Within the fixed-income universe,
only long-term Treasury bonds performed well, benefiting from a federal
government buyback program in which part of the budget surplus was used
to pay down government debt. Other areas of the market, including
investment-grade corporate bonds, mortgage-backed securities (MBSs),
government agency bonds, and high-yield bonds, all performed poorly as
investors moved into better- performing Treasuries or stayed on the
sidelines. With its emphasis on higher-income producing corporates,
agencies, and MBSs, your fund's performance was negatively affected by
the difficult market environment.
Total return for 6 months ended 4/30/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
----------------------------------------------------------------------
0.15% -4.59% -0.39% -5.23% -0.33% -1.29% -0.11% -3.42%
----------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 7.
* CONTINUED STRONG GROWTH PROMPTS MORE FED RATE INCREASES
The U.S. economy continued its expansion into a record 10th consecutive
year, growing at an annualized rate of 7.3% in the fourth quarter of
1999 and 5.4% in the first calendar quarter of this year. In each of the
past three quarters, the U.S. economy's growth has exceeded 5%, a feat
not seen since the early 1980s. This strength has fueled the stock
market, drawing investment assets away from bonds.
[GRAPHIC OMITTED: worm chart YIELD CURVES AT 10/31/99 AND 4/30/00]
YIELD CURVES AT 10/31/99 AND 4/30/00
10/31/99 4/30/00
3
mo. 5.083% 5.813%
6
mo. 5.266% 6.097%
1
yr. 5.406% 6.153%
2
yr. 5.783% 6.672%
5
yr. 5.937% 6.540%
10
yr. 6.020% 6.216%
30
yr. 6.161% 5.963%
Footnote reads:
Source: Bloomberg, Inc.
Concurrently the growth has spooked bond investors, who have been wary
of the effects that a hot economy can have on inflation. The Federal
Reserve Board has shared this concern, raising interest rates several
times since June 1999 in an attempt to slow the rate of growth. With
little signs of an economic slowdown (at the time this report was being
written), it is likely that the Fed will continue raising rates until
evidence of slower growth comes to pass.
* YIELD CURVE INVERSION WAS SIGNIFICANT EVENT FOR BOND INVESTORS
An important event in the first four months of 2000 was an inversion in
the yield curve, which was caused by increasing short-term interest
rates and a sharp decline in the yield on the 30-year Treasury bond. The
Fed, in an attempt to slow economic growth, raised short-term interest
rates three times during the period -- in November, early February, and
March. Each increase amounted to 25 basis points, bringing the federal
funds rate to 6.00% by April 30. Shortly after the period ended, the Fed
raised rates again by 50 basis points to 6.50%.
The federal funds rate, which determines the rate at which banks can
borrow from one another and which serves as a key benchmark for the
economy, has risen sharply from 4.75% in June 1999. In recent months,
long-term interest rates have declined as a result of the federal
government's buyback of 30-year Treasury bonds. The increase in demand
caused by these purchases pushed long-term prices up, bringing yields
down.
[GRAPHIC OMITTED: horizontal bar chart BOND MARKET PERFORMANCE BY SECTOR]
BOND MARKET PERFORMANCE BY SECTOR*
Comparison of total returns, 10/31/99 - 4/30/00
First Boston
High Yield Index 1.1%
Lehman Brothers
Mortgage-Backed
Securities Index 1.3%
Lehman Brothers
Corporate Bond Index 0.1%
Lehman Brothers
Long-term
Treasury Bond Index 4.9%
Footnote reads:
*Past performance is not indicative of future results. These indexes reflect
the general performance of market sectors in which the fund invests. The
fund's performance will differ. The indexes may include bonds different
from those in the fund. It is not possible to invest directly in an index.
"While the bond market volatility that we experienced in 1999 was difficult,
it has resulted in attractive valuations for corporate bonds and
mortgage-backed securities. With the turmoil in the equity markets this year,
now would seem to be an optimal time for investors seeking stability to
increase their exposure to bonds."
-- James M. Prusko, portfolio manager
Historically an inverted yield curve has been viewed as a predictor of a
slowing economy. Under such a scenario, investors who want to lock in
rates buy longer-term bonds under the assumption that the economy will
slow. As bond prices increase because of higher demand, bond yields,
which move in the opposite direction of prices, fall. In addition, an
inverted yield curve generally has been viewed as a precursor to a stock
market decline because of its historic foreshadowing of slower economic
growth.
For this fund, the yield curve inversion was a negative event. The sharp
decline in long-term interest rates signified an uncoupling of the
traditional tie of corporate yields to long-term Treasury yields. As a
result, the performance of the non-Treasury sectors of the bond market
has lagged that of Treasuries. Since the U.S. government began buying
back long-term Treasuries in January, the market has attached a scarcity
value to these investments, causing them to significantly outperform all
other types of bonds. The yield difference, or spread, between
Treasuries and the other major sectors in which this fund invests --
corporate investment-grade, agency, and mortgage-backed securities --
has widened to levels that approach an all-time high. In addition,
investors have become increasingly concerned about the effects of Fed
tightening on the economy. As expectations about future Fed rate
increases have risen, the risks associated with corporate bonds have
also increased, hurting their performance.
CHECKING YOUR ASSET ALLOCATION
One of the casualties of the great 1990s bull market may have been the
age-old principle of asset allocation. While no one can deny the
importance of stocks in a long-term portfolio, the role of bonds and
cash should never be forgotten. By investing in a mix of stocks, bonds,
and cash, investors reap two important benefits: lower risk and
diversification. In fact, a portfolio that includes all three types of
investments has tended to be less volatile than a portfolio invested
entirely in stocks. For example, an Ibbotson Associates study showed
that while a portfolio invested only in large company stocks returned
roughly 40% more between 1925 and 1999 than one invested in stocks
(55%), bonds (5%), and cash (40%), the all-stock portfolio was nearly
twice as volatile.* Depending on your investment time horizon, this added
volatility may jeopardize your investment goals.
-- William J. Landes, managing director, chief investment officer,
Global Asset Allocation Group
* Stocks, Bonds, Bills, and Inflation Yearbook, 2000.
* VALUE FOUND IN HIGH-YIELD, MORTGAGE-BACKED SECURITIES
The income-oriented strategy of this fund includes holding a significant
weighting of assets in investment-grade corporate bonds. In addition, we
have also sought bonds on the higher-quality end of the high-yield
sector. The latter group exhibits many of the characteristics of
investment-grade bonds and serves as crossover securities, offering
higher yields than investment-grade corporate bonds but less volatility
than typical high-yield issues.
[GRAPHIC OMITTED: horizontal bar chart CHANGES IN PORTFOLIO COMPOSITION]
CHANGES IN PORTFOLIO COMPOSITION
10/31/99 4/30/00
Corporate bonds
and notes 50.6% 54.1%
U.S. government
and agency obligations 33.0% 29.5%
Collateralized
mortgage obligations 11.1% 12.9%
Short-term
investments 5.5% 1.9%
Other 2.8% 2.9%
Footnote reads:
*Based on net assets as of indicated dates. Holdings will vary over time.
During the past six months, we have increased the fund's holdings of
these higher-yielding bonds, which are typically BB-rated. In the first
four months of this year, our strategy has resulted in underperformance
within our peer group. However, we believe that over the long term this
strategy will provide solid returns for two reasons. These bonds
generate a higher level of income and we have been able to acquire them
at attractive valuations.
The fund's holdings in mortgage-backed securities (MBSs), which had
helped boost performance in the latter part of 1999 when interest rates
were rising, have performed poorly thus far in 2000. As long-term
Treasury yields declined, the spread between Treasuries and MBSs
increased, hurting the latter's relative performance. Early in the year
we kept the fund's MBS weighting neutral, or about the same as its peer
group average, but we increased the weighting toward the end of April as
spreads continued to widen. This was a strategic decision to capture
what our analysts believed were excellent values in the MBS sector. With
solid fundamentals, we believe MBSs have the potential to outperform
toward the latter part of the year.
* OUTLOOK OF CAUTIOUS OPTIMISM
In the second half of the fund's fiscal year, we may trim back on the
fund's corporate holdings somewhat in an effort to reduce volatility. As
the impact of the Fed's rate increases on corporate profitability and on
the economy in general becomes clearer, we may again add to the fund's
corporate sector. We expect to continue adding to the fund's MBS
weightings, since the widening of spreads has resulted in such
attractive price levels. In addition, we are employing a barbell
strategy, in which positions are established in bonds of both short-
and long-term maturities, to protect against any further dramatic
changes in the yield curve.
We anticipate that the Fed's efforts should help slow the growth of the
economy and ease inflation fears and believe that it is possible for
the economy to attain a soft landing from the blistering pace it has set
in the past three quarters. As the higher borrowing costs filter down
through the economy and it begins to grow at a slower pace, bond yields
may begin to decline toward the latter part of the year. In addition,
the increasing volatility in the U.S. stock market may cause investors
to seek stability and capital preservation in the bond market.
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 4/30/00, 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 4/30/00
Class A Class B Class C Class M
(inception dates) (11/1/54) (3/1/93) (7/26/99) (12/14/94)
NAV POP NAV CDSC NAV CDSC NAV POP
------------------------------------------------------------------------------
6 months 0.15% -4.59% -0.39% -5.23% -0.33% -1.29% -0.11% -3.42%
------------------------------------------------------------------------------
1 year -1.47 -6.19 -2.36 -6.97 -2.30 -3.22 -1.81 -5.06
------------------------------------------------------------------------------
5 years 29.16 22.94 24.48 22.62 24.30 24.30 27.75 23.52
Annual average 5.25 4.22 4.48 4.16 4.45 4.45 5.02 4.31
------------------------------------------------------------------------------
10 years 107.79 97.94 92.02 92.02 92.56 92.56 102.12 95.54
Annual average 7.59 7.07 6.74 6.74 6.77 6.77 7.29 6.94
------------------------------------------------------------------------------
Annual average
(life of fund) 8.26 8.15 7.23 7.23 7.45 7.45 7.77 7.70
------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/00
Lehman Brothers
Aggregate Consumer
Bond Index* price index
-----------------------------------------------------
6 months 1.42% 1.84%
-----------------------------------------------------
1 year 1.26 3.01
-----------------------------------------------------
5 years 38.86 12.71
Annual average 6.78 2.42
-----------------------------------------------------
10 years 117.63 32.82
Annual average 8.09 2.88
-----------------------------------------------------
Annual average
(life of fund) -- 4.16
-----------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A and class M
shares reflect the current maximum initial sales charges of 4.75% and
3.25%, respectively. Class B share returns for the 1-, 5-, and 10-year
(where available) and life-of-fund periods reflect the applicable
contingent deferred sales charge (CDSC), which is 5% in the first year,
declines to 1% in the sixth year, and is eliminated thereafter. Returns
shown for class B and class M shares for periods prior to their
inception are derived from the historical performance of class A shares,
adjusted to reflect both the initial sales charge or CDSC, if any,
currently applicable to each class and in the case of class B and class
M shares the higher operating expenses applicable to such shares. For
class C shares, returns for periods prior to their inception are derived
from the historical performance of class A shares, adjusted to reflect
both the CDSC currently applicable to class C shares, which is 1% for
the first year and is eliminated thereafter, and the higher operating
expenses applicable to class C shares. All returns assume reinvestment
of distributions at NAV. Investment return and principal value will
fluctuate so that an investor's shares when redeemed may be worth more
or less than their original cost.
*The Lehman Brothers Aggregate Bond Index was introduced on 12/31/75.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 4/30/00
Class A Class B Class C Class M
-------------------------------------------------------------------------
Distributions (number) 6 6 6 6
-------------------------------------------------------------------------
Income $0.210 $0.186 $0.190 $0.204
-------------------------------------------------------------------------
Capital gains -- -- -- --
-------------------------------------------------------------------------
Total $0.210 $0.186 $0.190 $0.204
-------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
-------------------------------------------------------------------------
10/31/99 $6.44 $6.76 $6.41 $6.43 $6.41 $6.63
-------------------------------------------------------------------------
4/30/00 6.24 6.55 6.20 6.22 6.20 6.41
-------------------------------------------------------------------------
Current return (end of period)
-------------------------------------------------------------------------
Current dividend rate1 6.73% 6.41% 6.00% 5.98% 6.58% 6.37%
-------------------------------------------------------------------------
Current 30-day SEC yield2 7.55 7.19 6.79 6.80 7.30 7.06
-------------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2Based on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 3/31/00 (most recent calendar quarter)
Class A Class B Class C Class M
(inception dates) (11/1/54) (3/1/93) (7/26/99) (12/14/94)
NAV POP NAV CDSC NAV CDSC NAV POP
-------------------------------------------------------------------------------
6 months 1.43% -3.35% 0.90% -4.00% 1.01% 0.03% 1.19% -2.15%
-------------------------------------------------------------------------------
1 year 0.08 -4.71 -0.68 -5.37 -0.69 -1.62 -0.11 -3.41
-------------------------------------------------------------------------------
5 years 32.67 26.41 27.69 25.80 27.75 27.75 31.05 26.86
Annual average 5.82 4.80 5.01 4.70 5.02 5.02 5.56 4.87
-------------------------------------------------------------------------------
10 years 107.57 97.64 91.94 91.94 92.49 92.49 101.77 95.35
Annual average 7.58 7.05 6.74 6.74 6.77 6.77 7.27 6.93
-------------------------------------------------------------------------------
Annual average
(life of fund) 8.31 8.19 7.27 7.27 7.49 7.49 7.82 7.74
-------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. 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. See first
page of performance section for performance calculation method.
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 C shares are not subject to an initial sales charge and are
subject to a contingent deferred sales charge only if the shares are
redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 4.75% maximum 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 or C shares and assumes redemption at the
end of the period. Your fund's class B 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. The CDSC for class C shares is 1% for one
year after purchase.
COMPARATIVE BENCHMARKS
The Lehman Brothers Aggregate Bond Index* is composed of securities from
Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed
Securities Index, and the Asset-Backed Securities Index. Total return
comprises price appreciation/depreciation and income as a percentage of
the original investment. Indexes are rebalanced monthly by market
capitalization.
First Boston High Yield Index* is a market-weighted index including
publicly traded bonds having a rating below BBB by Standard & Poor's and
Baa by Moody's.
The Lehman Brothers Corporate Bond Index* is an index 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 U.S. Treasury Index with maturities of 10
or more years.
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 in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund will
differ. It is not possible to invest directly in an index.
WELCOME TO WWW.PUTNAMINV.COM
Now you can use your PC to get up-to-date information about your funds,
learn more about investing and retirement planning, and access market
news and economic outlooks from Putnam.
VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR:
* the benefits of investing with Putnam
* Putnam's money management philosophy
* complete fund information, daily pricing and long-term performance
* your current account value, portfolio value and transaction history
* the latest on new funds and other Putnam news
You can also read Putnam economist Dr. Robert Goodman's commentary and
Putnam's Capital Markets outlook, search for a particular fund by name
or objective, use our glossary to decode investment terms . . . and much
more.
The site can be accessed through any of the major online services
(America Online, CompuServe, Prodigy) that offer web access. Of course,
you can also access it via Netscape or Microsoft Internet Explorer,
using an independent Internet service provider.
New features will be added to the site regularly. So be sure to bookmark us at
http://www.putnaminv.com
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss
for the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that
remain in the portfolio -- any change in unrealized gains or losses over
the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment income
ratios and portfolio turnover in one summary table, reflecting the five
most recent reporting periods. In a semiannual report, the highlight
table also includes the current reporting period. For open-end funds, a
separate table is provided for each share class.
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
April 30, 2000 (Unaudited)
CORPORATE BONDS AND NOTES (54.1%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
Advertising and Marketing Services (--%)
-------------------------------------------------------------------------------------------------------------------
$ 470,000 Lamar Media Corp. sr. sub. notes 9 1/4s, 2007 $ 464,125
Aerospace and Defense (2.2%)
-------------------------------------------------------------------------------------------------------------------
18,425,000 Boeing Co. deb. 6 5/8s, 2038 15,549,963
13,805,000 Litton Industries, Inc. sr. notes 8s, 2009 12,953,370
10,010,000 Lockheed Martin Corp. bonds 8 1/2s, 2029 9,791,181
13,210,000 Norsk Hydro ASA notes 6.36s, 2009 (Norway) 11,890,585
9,835,000 Raytheon Co. deb. 6.4s, 2018 8,029,982
4,710,000 Sequa Corp. sr. notes 9s, 2009 4,380,300
----------------
62,595,381
Agriculture (--%)
-------------------------------------------------------------------------------------------------------------------
569,289 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 518,053
Airlines (2.7%)
-------------------------------------------------------------------------------------------------------------------
4,855,000 Airbus Industries 144A notes 8.027s, 2020 4,805,188
14,399,591 Atlas Air, Inc. pass-through certificates Ser. 991A, 7.2s, 2019 12,720,887
130,000 Calair LLC 144A company guaranty 8 1/8s, 2008 112,613
2,885,137 Continental Airlines, Inc. pass-through certificates
Ser. 97CI, 7.42s, 2007 2,800,949
1,988,807 Continental Airlines, Inc. pass-through certificates
Ser. 974C, 6.8s, 2009 1,878,965
11,732,764 Continental Airlines, Inc. pass-through certificates
Ser. 981C, 6.541s, 2009 11,004,863
13,605,000 Delta Air Lines, Inc. notes 8.3s, 2029 12,142,463
9,574,259 Northwest Airlines, Inc. pass-through certificates
Ser. 99-1A, 6.81s, 2020 8,293,798
430,000 Northwest Airlines, Inc. company guaranty 8.7s, 2007 403,168
3,640,000 Northwest Airlines, Inc. company guaranty 8.52s, 2004 3,348,800
1,100,000 Northwest Airlines, Inc. company guaranty 7 7/8s, 2008 936,100
19,490,000 United Air Lines Corp. deb. 9 3/4s, 2021 19,731,286
----------------
78,179,080
Automotive (1.3%)
-------------------------------------------------------------------------------------------------------------------
120,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 120,600
9,855,000 Chrysler Corp. deb. Ser. B, 7.45s, 2097 8,941,244
11,990,000 Delphi Automotive Systems Corp. deb. 7 1/8s, 2029 10,156,849
8,500,000 Federal Mogul Corp. notes 7 1/2s, 2009 6,477,085
2,590,000 Federal Mogul Corp. notes 7 3/8s, 2006 2,103,728
1,340,000 Lear Corp. sub. notes 9 1/2s, 2006 1,291,532
890,000 Talon Automotive Group sr. sub. notes Ser. B, 9 5/8s, 2008 382,700
8,560,000 TRW, Inc. deb. 7 3/4s, 2029 7,613,093
----------------
37,086,831
Banking (7.9%)
-------------------------------------------------------------------------------------------------------------------
10,500,000 Abbey National Capital Trust I company guaranty
8.963s, 2049 10,185,000
2,522,000 Bank United Corp. sub. notes 8 7/8s, 2007 2,372,925
16,685,000 Bank United Corp. med. term notes Ser. A, 8s, 2009 14,335,919
12,700,000 Bayer Hypo Vereinsbank 144A bonds 8.741s, 2031
(Denmark) 11,730,736
16,885,000 Citicorp sub. notes 6 3/8s, 2008 15,443,528
11,930,000 Colonial Bank sub. notes 8s, 2009 11,057,440
6,225,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 5,648,005
12,020,000 First Citizens Bank Capital Trust I company guaranty
8.05s, 2028 9,691,125
4,270,000 First Financial Caribbean Corp. sr. notes 7.84s, 2006 4,058,977
15,924,000 First Union Capital II company guaranty Ser. A, 7.95s, 2029 14,650,558
2,360,000 First Union Institute Capital I bonds 8.04s, 2026 2,119,233
2,025,000 Firstar Bank Milwaukee sr. bank notes 6 1/4s, 2002 1,962,326
9,500,000 Fleet Boston Corp. sub. notes 7 3/8s, 2009 9,118,670
10,915,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 9,732,796
10,620,000 Imperial Bank sub. notes 8 1/2s, 2009 9,652,518
14,305,000 NB Capital Trust IV company guaranty 8 1/4s, 2027 13,345,278
9,560,000 Newcourt Credit Group, Inc. company guaranty
Ser. A, 7 1/8s, 2003 9,412,394
4,115,000 Newcourt Credit Group, Inc. company guaranty
Ser. B, 6 7/8s, 2005 3,958,054
21,315,000 Peoples Bank-Bridgeport sub. notes 7.2s, 2006 19,435,017
9,215,000 Royal Bank of Scotland Group Plc bonds Ser. 2, 8.817s,
2049 (United Kingdom) 9,332,215
6,500,000 Scotland International Finance 144A sub. notes 8.85s,
2006 (Netherlands) 6,804,395
8,635,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 8,527,063
7,190,000 Sovereign Bancorp, Inc. sr. notes 6 5/8s, 2001 6,973,607
8,515,000 St. Paul Bancorp sr. notes 7 1/8s, 2004 8,191,515
3,745,000 State Street Institution 144A company guaranty 7.94s, 2026 3,395,067
1,380,000 Webster Capital Trust I 144A bonds 9.36s, 2027 1,330,127
1,555,000 Wilmington Trust Corp. sub. notes 6 5/8s, 2008 1,428,547
----------------
223,893,035
Broadcasting (1.0%)
-------------------------------------------------------------------------------------------------------------------
590,000 Allbritton Communications Co. sr. sub. notes Ser. B,
8 7/8s, 2008 526,575
118,400 AMFM Operating, Inc. deb. 12 5/8s, 2006 (PIK) 135,124
82,200 Capstar Broadcasting sub. deb. 12s, 2009 (PIK) 92,886
1,320,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 1,323,300
875,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 842,188
830,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 715,875
27,250,000 News America Holdings, Inc. deb. 7 3/4s, 2045 23,248,883
----------------
26,884,831
Building Materials (0.1%)
-------------------------------------------------------------------------------------------------------------------
1,335,000 American Standard Companies, Inc. sr. notes 7 3/8s, 2008 1,221,525
840,000 American Standard Companies, Inc. company guaranty
7 1/8s, 2003 793,800
----------------
2,015,325
Cable Television (0.5%)
-------------------------------------------------------------------------------------------------------------------
755,000 Adelphia Communications Corp. sr. notes Ser. B,
8 3/8s, 2008 671,950
1,000,000 Adelphia Communications Corp. sr. notes Ser. B, 7 3/4s, 2009 850,000
1,085,000 Century Communications Corp. sr. notes 9 1/2s, 2005 1,033,463
1,100,000 CSC Holdings, Inc. sr. sub. deb. 10 1/2s, 2016 1,190,750
3,958,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2013 4,017,370
340,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 306,119
4,795,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 3,740,100
1,280,000 NTL Communications Corp. sr. notes Ser. B, 11 1/2s, 2008 1,296,000
75,000 Rogers Cablesystems, Ltd. notes 11s, 2015 (Canada) 84,000
1,080,000 TeleWest Communications Plc sr. disc. notes stepped-coupon
zero % (9 1/4s, 4/15/04), 2009 (United Kingdom) (STP) 637,200
----------------
13,826,952
Chemicals (0.5%)
-------------------------------------------------------------------------------------------------------------------
1,420,000 Equistar Chemicals LP notes 9 1/8s, 2002 1,407,774
9,830,000 Lyondell Petrochemical Co. sec. notes Ser. B, 9 7/8s, 2007 9,657,975
2,370,000 Lyondell Petrochemical Co. notes Ser. A, 9 5/8s, 2007 2,328,525
----------------
13,394,274
Coal (--%)
-------------------------------------------------------------------------------------------------------------------
1,590,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 318,000
Commercial and Consumer Services (--%)
-------------------------------------------------------------------------------------------------------------------
344,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 319,920
Conglomerates (0.9%)
-------------------------------------------------------------------------------------------------------------------
11,810,000 Tyco International, Ltd. company guaranty 6 3/8s, 2005 10,985,780
15,130,000 Tyco International, Ltd. company guaranty 6 1/4s, 2003 14,371,987
----------------
25,357,767
Consumer Finance (2.4%)
-------------------------------------------------------------------------------------------------------------------
5,135,000 Associates Corp. deb. 6.95s, 2018 4,639,678
5,285,000 Associates First Capital Corp. sub. deb. 8.15s, 2009 5,362,478
1,385,000 Capital One Financial Corp. notes 7 1/4s, 2006 1,264,734
8,120,000 Capital One Financial Corp. notes 7 1/4s, 2003 7,830,522
3,000,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 300,000
370,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 37,000
1,480,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 148,000
10,825,000 Finova Capital Corp. notes 6 1/4s, 2002 10,043,760
7,920,000 Ford Motor Credit Corp. notes 7 3/8s, 2009 7,655,630
1,600,000 Ford Motor Credit Corp. notes 6.55s, 2002 1,560,416
8,450,000 Ford Motor Credit Corp. sr. notes 5.8s, 2009 7,371,020
5,985,000 Household Finance Corp. notes 6 1/2s, 2008 5,394,520
5,455,000 Household Finance Corp. sr. unsub. 5 7/8s, 2009 4,717,375
13,015,000 Providian National Bank sr. notes 6 3/4s, 2002 12,656,176
----------------
68,981,309
Consumer Services (--%)
-------------------------------------------------------------------------------------------------------------------
175,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 155,313
619,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 636,023
----------------
791,336
Containers (0.1%)
-------------------------------------------------------------------------------------------------------------------
1,750,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 1,654,170
2,000,000 Consumers International 144A sr. notes 10 1/4s, 2005 1,300,000
----------------
2,954,170
Distribution (0.2%)
-------------------------------------------------------------------------------------------------------------------
7,665,000 Pepsi Bottling Group, Inc. sr. notes Ser. B, 7s, 2029 6,759,074
Electric Utilities (3.0%)
-------------------------------------------------------------------------------------------------------------------
5,760,000 Arizona Public Service Co. sr. notes 6 3/4s, 2006 5,296,608
9,240,000 CILCORP, Inc. sr. notes 8.7s, 2009 9,165,197
5,975,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 5,646,375
14,370,000 DPL, Inc. 144A sr. notes 8 1/4s, 2007 14,357,067
380 Midland Funding Corp. I deb. Ser. C-94, 10.33s, 2002 388
5,144,000 Niagara Mohawk Power Corp. sr. notes Ser. G, 7 3/4s, 2008 4,905,678
199,499 Northeast Utilities System notes Ser. A, 8.58s, 2006 199,078
2,391,846 Northeast Utilities System notes Ser. B, 8.38s, 2005 2,371,946
7,257,000 Public Service Co. of New Mexico deb. 10 1/4s, 2012 7,801,420
8,125,000 Texas New-Mexico Power Utilities 1st mtge. 9 1/4s, 2000 8,185,613
11,280,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 10,647,869
15,866,000 TXU Electrical Capital company guaranty 8.175s, 2037 14,372,375
1,180,000 York Power Funding 144A company guaranty 12s, 2007
(Cayman Islands) 1,156,400
----------------
84,106,014
Energy (1.3%)
-------------------------------------------------------------------------------------------------------------------
3,240,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 3,288,600
1,150,000 Petro Geo-Services ADR notes 7 1/2s, 2007 (Norway) 1,088,924
14,825,000 Petro Geo-Services sr. notes 7 1/8s, 2028 (Norway) 12,311,125
11,920,000 Petro-Canada deb. 9 1/4s, 2021 (Canada) 12,659,755
2,790,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 2,734,200
280,000 RBF Finance Co. company guaranty 11 3/8s, 2009 299,600
3,870,000 RBF Finance Co. company guaranty 11s, 2006 4,102,200
----------------
36,484,404
Entertainment (0.3%)
-------------------------------------------------------------------------------------------------------------------
800,000 SFX Entertainment, Inc. company guaranty 9 1/8s, 2008 804,000
1,110,000 SFX Entertainment, Inc. 144A company guaranty Ser. B,
9 1/8s, 2008 1,110,000
100,000 United Artists Theatre sr. sub. notes Ser. B, 9 3/4s,
2008 (In default) (NON) 2,000
7,855,000 Walt Disney Co. med. term notes 5.62s, 2008 6,872,889
----------------
8,788,889
Financial (6.9%)
-------------------------------------------------------------------------------------------------------------------
3,490,000 Advanta Corp. notes Ser. C, 7.47s, 2001 3,356,263
195,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 184,068
2,400,000 Advanta Corp. notes Ser. C, 6.94s, 2001 2,307,600
945,000 Advanta Corp. notes Ser. D, 6.925s, 2002 880,334
1,660,000 Advanta Corp. med. term notes Ser. D, 6.92s, 2002 1,546,273
11,995,000 AFLAC, Inc. sr. notes 6 1/2s, 2009 10,697,261
3,500,000 AMBAC Indemnity Corp. deb. 9 3/8s, 2011 3,843,280
24,700,000 American General Institute 144A company guaranty
8 1/8s, 2046 23,078,198
14,220,000 AT&T Capital Corp. med. term notes 6.6s, 2005 13,569,151
2,600,000 Conseco Financial Corp. sr. sub. notes 10 1/4s, 2002 1,560,000
15,825,000 Conseco Financing Trust II company guaranty 8.7s, 2026 5,538,750
11,310,000 Conseco, Inc. med. term notes 6 1/2s, 2002 7,012,200
17,040,000 Executive Risk Capital Trust company guaranty Ser. B,
8.675s, 2027 15,901,558
1,405,000 Fremont General Corp. sr. notes Ser. B, 7.7s, 2004 1,219,512
8,070,000 Goldman Sachs Group, Inc. (The) notes Ser. B, 7.35s, 2009 7,710,966
5,055,000 Hartford Life, Inc. deb. 7.65s, 2027 4,748,414
10,120,000 Liberty Mutual Insurance 144A notes 7.697s, 2097 7,520,172
8,495,000 Markel Capital Trust I company guaranty Ser. B, 8.71s, 2046 6,384,757
8,005,000 Presidential Life Corp. sr. notes 7 7/8s, 2009 6,964,350
13,975,000 Principal Financial Group 144A notes 7.95s, 2004 (Australia) 13,862,222
22,355,000 Provident Companies, Inc. bonds 7.405s, 2038 17,016,402
5,470,000 Riggs Capital Trust company guaranty Ser. A, 8 5/8s, 2026 4,923,000
18,991,000 Sun Life Canada Capital Trust 144A company guaranty
8.526s, 2049 16,875,403
12,495,000 Tig Capital Trust I 144A bonds 8.597s, 2027 11,565,622
10,580,000 Trenwick Capital Trust I company guaranty 8.82s, 2037 8,076,560
----------------
196,342,316
Gaming & Lottery (0.9%)
-------------------------------------------------------------------------------------------------------------------
1,020,000 Hollywood Park, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 1,020,000
470,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 470,000
3,155,000 International Game Technology 144A sr. notes 8 3/8s, 2009 2,894,713
1,590,000 International Game Technology sr. notes 7 7/8s, 2004 1,502,550
11,540,000 Mashantucket Pequot Tribe 144A bonds Ser. A, FSA, 6.57s, 2013 9,979,792
2,160,000 Mohegan Tribal Gaming, Auth. sr. sub. notes 8 3/4s, 2009 2,052,000
1,375,000 Mohegan Tribal Gaming, Auth. sr. notes 8 1/8s, 2006 1,292,500
5,400,000 Park Place Entertainment 144A sr. sub. notes 9 3/8s, 2007 5,346,000
1,180,000 Park Place Entertainment sr. notes 8 1/2s, 2006 1,145,945
----------------
25,703,500
Health Care (0.8%)
-------------------------------------------------------------------------------------------------------------------
350,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 280,000
1,430,000 Columbia/HCA Healthcare Corp. med. term notes 9s, 2014 1,376,375
25,000 Columbia/HCA Healthcare Corp. med. term notes 8.85s, 2007 24,188
3,280,000 Columbia/HCA Healthcare Corp. med. term notes 8.7s, 2010 3,132,400
70,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 62,300
480,000 Hudson Respiratory Care, Inc. sr. sub. notes 9 1/8s, 2008 373,800
905,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 656,125
3,305,000 Omega Healthcare Investors, Inc. notes 6.95s, 2007 (R) 1,983,000
8,465,000 Omega Healthcare Investors, Inc. notes 6.95s, 2002 (R) 5,925,500
6,985,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 6,670,675
1,890,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 1,757,700
1,930,000 Tenet Healthcare Corp. sr. notes 8s, 2005 1,843,150
----------------
24,085,213
Homebuilding (0.2%)
-------------------------------------------------------------------------------------------------------------------
4,135,000 D.R. Horton, Inc. company guaranty 8s, 2009 3,525,088
1,660,000 Lennar Corp. 144A sr. notes 9.95s, 2010 1,581,150
----------------
5,106,238
Household Furniture & Appliances (--%)
-------------------------------------------------------------------------------------------------------------------
880,000 Albecca, Inc. company guaranty 10 3/4s, 2008 697,400
Industrial (1.1%)
-------------------------------------------------------------------------------------------------------------------
11,505,000 Ford Motor Co. bonds 6 5/8s, 2028 9,843,333
6,000,000 Ford Motor Co. deb. 7.4s, 2046 5,507,640
19,020,000 Union Oil Company of California company guaranty
7 1/2s, 2029 17,344,148
----------------
32,695,121
Investment Banking/Brokerage (1.9%)
-------------------------------------------------------------------------------------------------------------------
6,570,000 Bear Stearns & Co., Inc. sr. unsecd. notes 7 5/8s, 2009 6,271,328
9,465,000 Countrywide Home Loan Corp. company guaranty
6.935s, 2007 8,811,726
205,000 Countrywide Home Loan Corp. company guaranty
Ser. E, 7.26s, 2004 201,519
12,220,000 Countrywide Home Loan Corp. company guaranty
6 1/4s, 2009 10,637,143
17,240,000 Paine Webber Group, Inc. sr. med. term notes 6.52s, 2005 16,033,200
9,140,000 Salomon, Inc. sr. notes 7.3s, 2002 9,091,832
1,620,000 Salomon, Inc. sr. notes 6 3/4s, 2003 1,582,189
----------------
52,628,937
Lodging/Tourism (0.3%)
-------------------------------------------------------------------------------------------------------------------
10,325,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 8,931,125
Manufacturing (0.1%)
-------------------------------------------------------------------------------------------------------------------
810,000 Continental Global Group sr. notes Ser. B, 11s, 2007 234,900
515,000 Day International Group, Inc. company guaranty 9 1/2s, 2008 442,900
1,030,000 Flextronics International, Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 978,500
----------------
1,656,300
Media (1.5%)
-------------------------------------------------------------------------------------------------------------------
26,180,000 TCI Communications, Inc deb. 8 3/4s, 2015 28,345,610
360,000 TCI Communications, Inc. sr. notes 8.65s, 2004 374,148
14,025,000 Time Warner Entertainment sr. notes 8 3/8s, 2033 14,284,463
----------------
43,004,221
Medical Services (--%)
-------------------------------------------------------------------------------------------------------------------
585,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/2s, 2007 (In default) (NON) 11,700
600,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/4s, 2008 (In default) (NON) 12,000
550,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
stepped-coupon zero % (10 1/2s, 11/1/02), 2007
(In default) (STP) (NON) 2,750
1,275,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 (In default) (NON) 6,375
120,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 6,000
----------------
38,825
Metals (0.5%)
-------------------------------------------------------------------------------------------------------------------
9,435,000 AK Steel Corp. company guaranty 7 7/8s, 2009 8,585,850
1,405,000 AK Steel Corp. sr. notes 9 1/8s, 2006 1,376,900
160,000 Anker Coal Group, Inc. company guaranty Ser. B,
14 1/4s, 2007 (PIK) 72,000
2,760,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 2,760,000
----------------
12,794,750
Oil & Gas (3.4%)
-------------------------------------------------------------------------------------------------------------------
9,155,000 Amerada Hess Corp. bonds 7 7/8s, 2029 8,577,960
16,085,000 Coastal Corp. bonds 6.95s, 2028 13,651,340
6,794,112 Express Pipeline, Ltd. 144A sub. notes Ser. B, 7.39s,
2019 (Canada) 5,705,423
130,000 Gulf Canada Resources, Ltd. sr. sub. deb. 9 1/4s,
2004 (Canada) 129,580
520,000 Gulf Canada Resources, Ltd. sr. notes 8 3/8s,
2005 (Canada) 505,700
15,275,000 KN Capital Trust III company guaranty 7.63s, 2028 11,780,080
22,335,000 Louis Dreyfus Natural Gas notes 6 7/8s, 2007 19,629,115
8,725,000 Maritime & NE Pipeline 144A sec. notes 7.7s,
2019 (Canada) 8,117,740
1,010,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 994,850
840,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 804,300
7,940,000 Osprey Trust 144A sec. notes 8.31s, 2003 7,873,304
700,000 Parker and Parsley, Inc. sr. notes 8 1/4s, 2007 664,307
630,000 Pioneer Natural Resources Co. company guaranty
9 5/8s, 2010 637,088
4,902,000 Port Arthur Finance Corp. 144A sec. notes 12 1/2s, 2009 4,730,430
750,000 Seagull Energy sr. sub notes 8 5/8s, 2005 721,875
8,655,000 Sonat, Inc. notes 7 5/8s, 2011 7,977,919
3,530,000 Union Pacific Resources Group, Inc. notes 7.3s, 2009 3,282,371
----------------
95,783,382
Paper & Forest Products (1.1%)
-------------------------------------------------------------------------------------------------------------------
16,195,000 Abitibi-Consolidated, Inc. deb. 8 1/2s, 2029 15,189,776
90,000 Boise Cascade Co. med. term notes Ser. A, 7.43s, 2005 85,353
9,125,000 Georgia Pacific Corp. bonds 7 3/4s, 2029 8,291,431
4,490,000 Norampac, Inc. sr. notes 9 1/2s, 2008 (Canada) 4,411,425
580,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 566,950
3,670,000 Tembec Industries, Inc. company guaranty 8 5/8s,
2009 (Canada) 3,614,950
----------------
32,159,885
Pharmaceuticals (0.2%)
-------------------------------------------------------------------------------------------------------------------
1,625,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 1,547,813
2,800,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 2,590,000
650,000 MedPartners, Inc. sr. sub. notes 6 7/8s, 2000 637,000
----------------
4,774,813
Power Producers (0.1%)
-------------------------------------------------------------------------------------------------------------------
700,000 Calpine Corp. sr. notes 8 3/4s, 2007 689,969
1,660,000 Calpine Corp. sr. notes 7 7/8s, 2008 1,568,700
250,000 Midland Funding II Corp. deb. Ser. B, 13 1/4s, 2006 291,765
----------------
2,550,434
Publishing (--%)
-------------------------------------------------------------------------------------------------------------------
1,510,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B,
8 3/4s, 2009 1,332,575
Railroads (0.7%)
-------------------------------------------------------------------------------------------------------------------
4,725,000 Burlington Northern Santa Fe notes 6 3/8s, 2005 4,381,682
16,839,000 CSX Corp. deb. 7.95s, 2027 16,010,353
----------------
20,392,035
Real Estate (1.0%)
-------------------------------------------------------------------------------------------------------------------
2,110,000 Avalon Properties, Inc. notes 7 3/8s, 2002 (R) 2,071,725
8,730,000 Avalon Properties, Inc. notes 6 7/8s, 2007 (R) 8,026,449
9,075,000 EOP Operating L.P. notes 6.8s, 2009 8,071,214
6,050,000 EOP Operating L.P. notes 6 3/8s, 2002 5,895,604
4,145,000 Tanger Properties, Ltd. partnership gtd. notes
8 3/4s, 2001 (R) 4,093,395
----------------
28,158,387
Restaurants (--%)
-------------------------------------------------------------------------------------------------------------------
180,000 Tricon Global Restaurants, Inc. sr. notes 7.65s, 2008 168,025
Retail (1.3%)
-------------------------------------------------------------------------------------------------------------------
7,039,000 K mart Corp. notes 8 3/8s, 2004 6,734,493
680,000 K mart Corp. notes 8 1/8s, 2006 641,206
1,320,000 K mart Corp. deb. 7.95s, 2023 1,174,140
660,000 K mart Corp. med. term notes 7.55s, 2004 617,892
5,000,000 May Department Stores Co. notes 9 1/2s, 2021 5,617,150
9,260,000 Saks, Inc. company guaranty 8 1/4s, 2008 8,357,150
7,810,000 Sears Roebuck Acceptance Corp. notes 6 7/8s, 2017 6,727,768
5,970,000 Sears Roebuck Acceptance Corp. notes 6 1/2s, 2028 4,690,987
2,760,000 Southland Corp. sr. sub. deb. 5s, 2003 2,415,000
1,000,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 831,250
----------------
37,807,036
Semiconductor (0.1%)
-------------------------------------------------------------------------------------------------------------------
2,970,000 Amkor Technology, Inc. sr. notes 9 1/4s, 2006 2,910,600
Shipping (0.1%)
-------------------------------------------------------------------------------------------------------------------
2,830,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 2,433,800
1,500,000 Pegasus Shipping company guaranty Ser. A, 11 7/8s,
2004 (In default) (NON) 570,000
----------------
3,003,800
Software (--%)
-------------------------------------------------------------------------------------------------------------------
390,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 19,500
Technology (0.8%)
-------------------------------------------------------------------------------------------------------------------
23,875,000 IBM Corp. deb. 7 1/8s, 2096 21,820,318
Technology Services (--%)
-------------------------------------------------------------------------------------------------------------------
190,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 191,900
570,000 Verio, Inc. sr. notes 11 1/4s, 2008 568,575
----------------
760,475
Telecommunications (2.7%)
-------------------------------------------------------------------------------------------------------------------
200,000 Exodus Communications, Inc. sr. notes 11 1/4s, 2008 202,500
1,625,000 Flag, Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 1,446,250
10,276,000 Global Crossing Holdings Ltd. 144A sr. notes 9 1/2s, 2009 10,019,100
4,860,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 4,762,800
2,330,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 2,230,975
11,600,000 Nextel Communications, Inc. sr. notes 9 3/8s, 2009 10,991,000
7,900,000 Price Communications Wireless, Inc. 144A sr. notes
9 1/8s, 2006 7,801,250
3,315,000 Sprint Capital Corp. company guaranty 6.9s, 2019 2,970,770
4,090,000 Sprint Capital Corp. company guaranty 6 7/8s, 2028 3,571,920
9,965,000 Sprint Capital Corp. company guaranty 6 1/8s, 2008 8,835,667
9,405,000 Sprint Capital Corp. company guaranty 5.7s, 2003 8,835,621
5,065,000 U S West, Inc. notes 5 5/8s, 2008 4,336,400
1,276,000 Viatel, Inc. sr. notes 11 1/2s, 2009 1,122,880
10,200,000 Williams Communications Group Inc. sr. notes 10 7/8s, 2009 10,276,500
----------------
77,403,633
Telephone (0.6%)
-------------------------------------------------------------------------------------------------------------------
1,360,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 1,071,000
7,875,000 GTE Corp. deb. 6.46s, 2008 7,222,714
3,570,000 Hyperion Telecommunications Corp., Inc. sr. notes
Ser. B, 12 1/4s, 2004 3,721,725
4,160,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 2,100,800
970,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 407,400
1,270,000 Microcell Telecommunications sr. disc. notes Ser. B,
stepped-coupon zero % (14s, 12/1/01), 2006 (Canada) (STP) 1,143,000
----------------
15,666,639
Textiles (0.1%)
-------------------------------------------------------------------------------------------------------------------
935,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 402,050
1,280,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 1,286,400
320,000 Kasper A.S.L., Ltd. sr. notes 12 3/4s, 2004 160,000
----------------
1,848,450
Tobacco (1.0%)
-------------------------------------------------------------------------------------------------------------------
16,335,000 Imperial Tobacco BV company guaranty 7 1/8s,
2009 (Netherlands) 14,273,850
11,028,000 Philip Morris Cos., Inc. notes 7 1/4s, 2003 10,766,195
4,530,000 Philip Morris Cos., Inc. notes 7 1/8s, 2004 4,163,840
----------------
29,203,885
Transportation (0.5%)
-------------------------------------------------------------------------------------------------------------------
14,750,562 Federal Express Corp. pass-through certificates
Ser. 98-1A, 6.72s, 2022 13,469,918
Transportation Services (0.7%)
-------------------------------------------------------------------------------------------------------------------
5,670,000 Canadian Pacific, Ltd. deb. 9.45s, 2021 (Canada) 6,129,497
1,070,000 Hertz Corp. sr. notes 7s, 2028 937,748
14,265,000 Hertz Corp. sr. notes 6 1/2s, 2006 13,235,352
----------------
20,302,597
Utilities (0.2%)
-------------------------------------------------------------------------------------------------------------------
5,617,874 Salton Sea Funding Corp. company guaranty Ser. E,
8.3s, 2011 5,549,336
Waste Management (0.7%)
-------------------------------------------------------------------------------------------------------------------
3,340,000 Allied Waste Industries, Inc. company guaranty Ser. B,
7 7/8s, 2009 2,505,000
9,370,000 Browning-Ferris Industries, Inc. deb. 7.4s, 2035 5,809,400
640,000 Waste Management, Inc. company guaranty 6 7/8s, 2009 520,141
4,250,000 Waste Management, Inc. notes 6 5/8s, 2002 3,959,470
8,610,000 WMX Technologies, Inc. notes 7.7s, 2002 8,163,830
----------------
20,957,841
Water Utilities (0.2%)
-------------------------------------------------------------------------------------------------------------------
5,880,000 Azurix Corp. 144A notes 10 3/8s, 2007 5,909,400
----------------
Total Corporate Bonds and Notes (cost $1,702,831,311) $ 1,539,355,680
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (29.5%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (25.9%)
-------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation
$ 4,325,077 7 1/2s, with due dates from December 1, 2029 to
February 1, 2030 $ 4,235,852
3,880,265 7s, July 1, 2012 3,796,568
28,516,583 6s, with due dates from January 1, 2029 to May 1, 2029 25,834,028
28,652,559 5 1/2s, with due dates from December 1, 2010 to
August 1, 2011 26,336,615
2,444,000 5s, January 15, 2004 2,267,959
1,436,995 Federal National Mortgage Association Graduated
Payment Mortgages 8s, December 1, 2008 1,457,142
Federal National Mortgage Association Pass-Through
Certificates
167,630 11s, with due dates from August 1, 2013 to
October 1, 2015 182,718
42,581,485 8s, with due dates from June 1, 2024 to
November 1, 2029 42,514,631
99,324,030 7 1/2s, with due dates from November 1, 2027 to
May 1, 2030 97,188,414
55,105,483 7s, with due dates from November 1, 2010 to
February 1, 2030 52,823,745
506,984 6 1/2s, with due dates from September 1, 2010 to
October 1, 2010 485,118
219,310,196 6s, with due dates from January 1, 2029 to
February 1, 2030 198,484,569
2,026,610 5 1/2s, August 15, 2014 1,854,976
Government National Mortgage Association Pass-Through
Certificates
173,936 11s, with due dates from January 15, 2010 to
July 15, 2013 186,321
14,046,853 9 1/2s, November 15, 2028 14,804,066
1,447,522 9s, with due dates from October 15, 2004 to
December 15, 2021 1,506,398
13,567,731 8 1/2s, with due dates from October 15, 2017 to
November 15, 2017 13,842,469
124,110,488 8s, with due dates from November 15, 2016 to
November 15, 2028 124,349,114
84,505,809 7s, with due dates from January 15, 2023 to May 15, 2028 81,437,346
45,862,584 6 1/2s, with due dates from September 15, 2024 to
June 15, 2029 42,959,216
----------------
736,547,265
U.S. Treasury Obligations (3.6%)
-------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
10,460,000 6 1/2s, November 15, 2026 10,840,849
78,210,000 6 1/8s, November 15, 2027 (SEG) 77,378,628
14,150,000 U.S. Treasury Notes 6 1/2s, February 15, 2010 14,430,736
----------------
102,650,213
----------------
Total U.S. Government and Agency Obligations
(cost $854,670,787) $ 839,197,478
COLLATERALIZED MORTGAGE OBLIGATIONS (12.9%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$13,082,316 Blackstone Hotel Acquisition Co. sr. mtge. loan FRN
3.449s, 2003 $ 20,227,616
158,402,148 Commercial Mortgage Asset Trust Ser. 99-C1, Class X,
Interest Only (IO), 1.16s, 2020 9,856,821
6,994,010 Countrywide Home Loan Ser. 98-3, Class A5, 6 3/4s, 2028 6,362,363
9,610,000 Countrywide Mortgage Backed Securities, Inc. Ser. 93-C,
Class A8, 6 1/2s, 2024 8,717,615
Criimi Mae Commercial Mortgage Trust
26,965,000 Ser. 98-C1, Class A2, 7s, 2011 23,029,795
10,100,000 Ser. 98-C1, Class B, 7s, 2011 7,784,891
2,255,000 CS First Boston Mortgage Securities Corp. Ser. 99-C1,
Class F, 8.18s, 2009 2,108,425
9,274,711 DLJ Commercial Mortgage Corp. Ser. 98-CG1, Class A1A,
6.11s, 2007 8,799,382
Fannie Mae Strip
2,451,660 Ser. 281, IO, Class 2, 9s, 2026 685,316
15,804,461 Ser. 279, IO, Class 2, 9s, 2026 4,417,841
19,615,439 Ser. 251, IO, Class 2, 8s, 2023 5,948,970
17,349,215 Ser. 203, IO, Class 2, 8s, 2023 5,261,670
9,072,880 Ser. 217, IO, Class 2, 8s, 2023 2,687,841
3,277,694 Ser. 176, IO, Class 2, 8s, 2022 971,017
19,334,090 Ser. 252, IO, Class 2, 7.5s, 2023 5,993,568
51,361,888 Ser. 215, IO, Class 2, 7s, 2023 15,601,174
534,681 Ser. 276, IO,Class 2, 6.5s, 2024 160,572
834,366 Ser. 302, IO, Class 2, 6s, 2029 268,822
7,993,106 Ser. 304, IO, Class 2, 6s, 2028 2,313,005
26,856,083 Ser. 97-91, IO, Class FB, 3.9s, 2023 5,941,908
Freddie Mac
20,041,235 Ser. 147, IO, 8s, 2023 6,062,474
419,000 Ser. 2028, IO, Class SG, 7.99s, 2023 191,693
12,071,000 Ser. 2183, Class SG, 4.94s, 2014 8,887,274
64,097,295 Ser. 2191, IO, Class MS, 2.27s, 2027 3,365,108
18,762,226 Ser. 180, Principal Only (PO), zero %, 2026 12,643,981
5,084,987 Ser. 2182, PO, Class EC, zero %, 2025 3,747,635
7,870,000 GE Capital Mortgage Services, Inc. Ser. 98-11, Class 2A4,
6 3/4s, 2028 7,224,030
General Growth Properties-Homart
1,825,000 Ser. 99-C1, Class G, 8.089s, 2003 1,829,563
2,162,000 Ser. 99-C1, Class F, 7.858s, 2003 2,167,405
9,611,000 General Growth Properties-Ivanhoe Ser. 99-C1, Class F,
FRB 8.63s, 2004 9,635,028
Government National Mortgage Association
4,447,400 Ser. 99-38, Class SL, 15.13s, 2026 3,908,153
28,174,362 Ser. 00-17, Class SB, 13.2s, 2026 26,526,162
11,126,702 Ser. 99-34, Class S, 8.112s, 2025 8,706,645
114,849,023 Ser. 98-2, IO, Class SA 2.37s, 2028 6,532,038
1,482,075 Ser. 99-46, IO, Class SQ, 2.32s, 2027 76,883
3,540,732 Headlands Mortgage Securities, Inc. Ser. 98-1, IO,
Class X2, 6.5s, 2028 721,424
Housing Securities Inc.
857,613 Ser. 91-B, Class B6, 9s, 2006 852,789
2,158,992 Ser. 93-F, Class F9M2, 7s, 2023 2,026,079
383,920 Ser. 94-1, Class AB1, 6 1/2s, 2009 305,696
5,118,000 LB Commercial Conduit Mortgage Trust Ser.99-C2,
Class B, 7.43s, 2009 4,970,058
Merrill Lynch Mortgage Investors, Inc.
4,805,000 Ser. 96-C2, Class E, 6.96s, 2028 4,072,988
6,889,968 Ser. 98-C2, Class A1, 6.22s, 2030 6,606,833
13,184,133 Ser. 96-C2, IO, 1.607s, 2028 861,075
78,817,554 Ser. 98-C2, IO, 1.076s, 2030 5,431,022
3,915,977 Morgan Stanley Capital I Ser. 98-HF1, Class A1, 6.19s, 2007 3,742,818
Morgan Stanley Dean Witter Capital I
2,300,000 Ser. 2000-Life, Class B, 7.57s, 2010 2,273,047
32,450,000 Ser. 2000-Life, Class A2, 7.57s, 2009 32,120,430
Mortgage Capital Funding, Inc.
27,469,265 Ser. 97-MC2, Class X, IO, 0.817s, 2012 1,802,671
7,811,794 Ser. 98-MC1, Class A1, 6.417s, 2007 7,500,543
Prudential Home Mortgage Securities 144A
1,561,938 Ser. 92-25, Class B3, 8s, 2022 1,477,008
533,561 Ser. 94-31, Class B3, 8s, 2009 509,968
341,768 Ser. 94-31, Class B4, 8s, 2009 313,412
3,265,027 Ser. 93-31, Class B2, 6s, 2000 3,240,539
8,905,000 Residential Asset Securitization Trust Ser. 98-A12,
Class A14, 8s, 2028 8,888,303
7,580,000 Residential Funding Mortgage Sec. I Ser. 98-S13,
Class A21, 6 3/4s, 2028 7,044,625
4,100,134 Sears Mortgage Securities Ser. 93-7, Class T7, 7s, 2007 4,059,665
Structured Asset Security Corp.
8,410,308 Ser. 98-RF2, 8.58s, 2028 8,432,680
33,248,240 Ser. 98-RF3, IO 6.1s, 2028 6,217,421
16,366,809 TIAA Retail Commercial Mortgage Trust Ser. 99-1,
Class A, 7.17s, 2008 15,985,769
----------------
Total Collateralized Mortgage Obligations
(cost $374,178,253) $ 368,099,547
PREFERRED STOCKS (1.1%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
9,073 AmeriKing, Inc. $3.25 cum. pfd. (PIK) $ 99,803
14,090 Centaur Funding Corp 144A 9.08% pfd. (Cayman Islands) 14,539,894
24,956 CGA Group Ltd. 144A Ser. A, $13.75 pfd. (PIK) 673,812
2,855 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. 151,315
15,524 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 1,664,949
480 Fresenius Medical Capital Trust I company guaranty Ser. D,
9.00% pfd. (Germany) 460,800
2,490 Fresenius Medical Capital Trust II company guaranty 7.875%
pfd. (Germany) 2,265,900
199 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 2,029,800
10,470 Webster Financial Ser. A, 7.375% cum. pfd. 10,103,550
----------------
Total Preferred Stocks (cost $32,200,518) $ 31,989,823
ASSET-BACKED SECURITIES (0.9%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 5,000,000 Delta Funding Home Equity Loan Trust Ser. 00-1, Class B,
8.09s, 2030 $ 4,232,813
9,328,766 First Plus Ser. 98-A, Class A, 8 1/2s, 2023 6,900,372
8,100,000 Greenpoint Manufactured Housing Ser. 99-5, Class B,
9.9s, 2029 8,069,631
65,355,000 Lehman Manufactured Housing Ser. 98-1, Class 1 IO,
0.82s, 2028 1,960,650
4,513,105 Structured Asset Security Corp. 8.712s, 2027 4,537,792
----------------
Total Asset-Backed Securities (cost $29,087,816) $ 25,701,258
FOREIGN GOVERNMENT BONDS AND NOTES (0.7%) (cost $20,877,073) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
USD 20,975,000 Quebec (Province of) sr. unsub. 5 3/4s, 2009 $ 18,583,640
CONVERTIBLE BONDS AND NOTES (0.1%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$780,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 $ 612,300
1,000,000 Micron Technology, Inc cv. notes 6 1/2s, 2005 820,000
----------------
Total Convertible Bonds and Notes (cost $1,386,289) $ 1,432,300
COMMON STOCKS (0.1%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
150 AmeriKing, Inc. (NON) $ 1,500
11,000 AMFM, Inc. (NON) 730,125
3,544 Fitzgerald Gaming Corp. (NON) 886
73 Mothers Work, Inc. (NON) 876
44,051 PSF Holdings LLC Class A (NON) 440,510
----------------
Total Common Stocks (cost $2,128,514) $ 1,173,897
CONVERTIBLE PREFERRED STOCKS (--%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
2,695 Chesapeake Energy Corp. $3.50 cum. cv. pfd. $ 134,076
120 World Access, Inc. Ser. D, zero% cv. pfd. 121,800
----------------
Total Convertible Preferred Stocks (cost $304,350) $ 255,876
WARRANTS (--%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
-------------------------------------------------------------------------------------------------------------------
4 Anker Coal Group, Inc. 144A 10/28/09 $ 1
24,000 CGA Group, Ltd. 144A 2/11/07 239
1,285 Club Regina, Inc. 144A 12/1/04 13
10 E. Spire Communications, Inc. 11/1/05 230
315 McCaw International, Ltd. 4/15/07 1,260
390 Telehub Communications Corp. 7/31/05 195
835 UIH Australia/Pacific, Inc. 144A 5/15/06 25,050
----------------
Total Warrants (cost $184,472) $ 26,988
PURCHASED OPTIONS OUTSTANDING (--%) (a) EXPIRATION DATE/
CONTRACT AMOUNT STRIKE PRICE VALUE
-------------------------------------------------------------------------------------------------------------------
$ 49,000,000 U.S. Treasury Bonds Twenty Year Futures
Contract (put) May 00/88 $ 7,659
27,200,000 U.S. Treasury Bonds Twenty Year Futures
Contract (put) May 00/90 4,251
16,600,000 U.S. Treasury Bonds Twenty Year Futures
Contract (put) May 00/92 7,782
----------------
Total Purchased Options Outstanding
(cost $780,601) $ 19,692
SHORT-TERM INVESTMENTS (1.9%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 20,000,000 Citi Group, Inc. effective yield of 6.04%, May 1, 2000 $ 19,996,644
34,473,000 Interest in $662,705,000 joint repurchase agreement
dated April 28, 2000 with S.B.C. Warburg, Inc. due
May 1, 2000 with respect to various U.S. Treasury
obligations -- maturity value of $34,489,403 for an
effective yield of 5.71% 34,473,000
----------------
Total Short-Term Investments (cost $54,462,933) $ 54,469,644
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $3,073,092,917) (b) $ 2,880,305,823
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $2,843,938,228.
(b) The aggregate identified cost on a tax basis is $3,076,628,309,
resulting in gross unrealized appreciation and depreciation of
$9,742,926 and $206,065,412, respectively, or net unrealized
depreciation of $196,322,486.
(NON) Non-income-producing security.
(STP) The interest or dividend rate and date shown parenthetically
represent the new interest or dividend rate to be paid and the date the
fund will begin receiving interest or dividend income at this rate.
(PIK) Income may be received in cash or additional securities at the
discretion of the issuer.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at April
30, 2000.
(R) Real Estate Investment Trust.
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.
ADR after the name of a foreign holding stands for American
Depositary Receipts representing ownership of foreign securities on
deposit with a domestic custodian bank.
TBA after the name of a security represents to be announced securities (Note 1).
The rates shown on Floating Rate Bonds (FRB) and Floating Rate
Notes (FRN) are the current interest rates shown at April 30, 2000,
which are subject to change based on the terms of the security.
-------------------------------------------------------------------------------
Forward Currency Contracts to Sell at April 30, 2000 (Unaudited)
Aggregate Face Delivery Unrealized
Market Value Value Date Appreciation
-------------------------------------------------------------------------------
British Pound $19,656,321 $20,895,990 6/21/00 $1,239,669
-------------------------------------------------------------------------------
Futures Contracts Outstanding at April 30, 2000 (Unaudited)
Aggregate Face Expiration Unrealized
Total Value Value Date Appreciation
-------------------------------------------------------------------------------
U.S. Treasury Bond
10yr (Short) $ 58,947,500 $60,316,506 Jun-00 $1,369,006
U.S. Treasury Bond
5yr (Short) 307,078,359 309,772,367 Jun-00 2,694,008
U.S. Treasury Bond
(Short) 12,649,688 12,815,992 Jun-00 166,304
-------------------------------------------------------------------------------
$4,229,318
-------------------------------------------------------------------------------
------------------------------------------------------------------------
TBA Sale Commitments at April 30, 2000 (Unaudited)
(Proceeds receivable $94,021,361)
Principal Settlement Market
Agency Amount Date Value
------------------------------------------------------------------------
FNMA 8s, May 2030 $16,990,245 5/15/00 $16,963,740
FNMA 7s, May 2030 49,503,185 5/15/00 47,360,687
FNMA 6s, May 2030 2,300,000 5/15/00 2,081,868
GNMA 7s, May 2030 21,404,348 5/22/00 20,581,565
GNMA 6.5s, May 2030 6,553,718 5/22/00 6,138,998
------------------------------------------------------------------------
$93,126,858
------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2000 (Unaudited)
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $3,073,092,917) (Note 1) $2,880,305,823
-------------------------------------------------------------------------------------------
Cash 1,449,442
-------------------------------------------------------------------------------------------
Foreign currency (cost $12,274) 12,027
-------------------------------------------------------------------------------------------
Dividends, interest and other receivables 46,831,976
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 5,981,416
-------------------------------------------------------------------------------------------
Receivable for securities sold 129,918,521
-------------------------------------------------------------------------------------------
Receivable for variation margin 227,266
-------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 1,239,669
-------------------------------------------------------------------------------------------
Total assets 3,065,966,140
Liabilities
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 9,832
-------------------------------------------------------------------------------------------
Payable for securities purchased 104,654,399
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 18,323,209
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 3,838,617
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 720,403
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 96,524
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,345
-------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,081,587
-------------------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable $94,021,361) 93,126,858
-------------------------------------------------------------------------------------------
Other accrued expenses 174,138
-------------------------------------------------------------------------------------------
Total liabilities 222,027,912
-------------------------------------------------------------------------------------------
Net assets $2,843,938,228
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $3,237,204,673
-------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 677,531
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Note 1) (207,510,735)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (186,433,241)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $2,843,938,228
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($966,049,622 divided by 154,906,113 shares) $6.24
-------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $6.24)* $6.55
-------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($389,100,112 divided by 62,728,878 shares)** $6.20
-------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($5,086,534 divided by 817,475 shares)** $6.22
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($1,266,275,177 divided by 204,226,882 shares) $6.20
-------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $6.20)* $6.41
-------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($217,426,783 divided by 34,767,565 shares) $6.25
-------------------------------------------------------------------------------------------
* 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, 2000 (Unaudited)
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Interest $ 121,399,186
-------------------------------------------------------------------------------------------
Dividends 1,309,066
-------------------------------------------------------------------------------------------
Total investment income 122,708,252
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 8,118,228
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,581,558
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 42,903
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 13,799
-------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,318,299
-------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 2,137,258
-------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 18,180
-------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 3,729,167
-------------------------------------------------------------------------------------------
Reports to shareholders 147,358
-------------------------------------------------------------------------------------------
Registration fees 1,716
-------------------------------------------------------------------------------------------
Auditing 20,202
-------------------------------------------------------------------------------------------
Legal 22,157
-------------------------------------------------------------------------------------------
Postage 111,913
-------------------------------------------------------------------------------------------
Other 221,384
-------------------------------------------------------------------------------------------
Total expenses 18,484,122
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (432,877)
-------------------------------------------------------------------------------------------
Net expenses 18,051,245
-------------------------------------------------------------------------------------------
Net investment income 104,657,007
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (61,228,427)
-------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (504,406)
-------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (549,326)
-------------------------------------------------------------------------------------------
Net realized loss on swap contracts (Note 1) (130,547)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 1,660,149
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments, futures and
TBA sale commitments during the period (42,822,157)
-------------------------------------------------------------------------------------------
Net loss on investments (103,574,714)
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 1,082,293
-------------------------------------------------------------------------------------------
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
2000* 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 104,657,007 $ 210,524,741
--------------------------------------------------------------------------------------------------
Net realized loss on investments and
foreign currency transactions (62,412,706) (113,385,885)
--------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments
and assets and liabilities in foreign currencies (41,162,008) (110,959,050)
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 1,082,293 (13,820,194)
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net investment income
Class A (34,875,395) (78,558,769)
--------------------------------------------------------------------------------------------------
Class B (12,611,863) (25,718,093)
--------------------------------------------------------------------------------------------------
Class C (109,069) (9,492)
--------------------------------------------------------------------------------------------------
Class M (48,397,861) (91,242,779)
--------------------------------------------------------------------------------------------------
Class Y (8,070,750) (14,995,609)
--------------------------------------------------------------------------------------------------
In excess of net investment income
Class A -- (3,839,887)
--------------------------------------------------------------------------------------------------
Class B -- (1,257,079)
--------------------------------------------------------------------------------------------------
Class C -- (464)
--------------------------------------------------------------------------------------------------
Class M -- (4,459,871)
--------------------------------------------------------------------------------------------------
Class Y -- (732,973)
--------------------------------------------------------------------------------------------------
From return of capital
Class A -- (2,501,477)
--------------------------------------------------------------------------------------------------
Class B -- (818,918)
--------------------------------------------------------------------------------------------------
Class C -- (302)
--------------------------------------------------------------------------------------------------
Class M -- (2,905,362)
--------------------------------------------------------------------------------------------------
Class Y -- (477,492)
--------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) (552,769,821) 384,718,493
--------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (655,752,466) 143,379,732
Net assets
--------------------------------------------------------------------------------------------------
Beginning of period 3,499,690,694 3,356,310,962
--------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $677,531 and $85,462, respectively) $2,843,938,228 $3,499,690,694
--------------------------------------------------------------------------------------------------
* 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
---------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $6.44 $6.87 $7.14 $7.02 $7.07 $6.53
---------------------------------------------------------------------------------------------------------------
Investment operations
---------------------------------------------------------------------------------------------------------------
Net investment income .21(c) .40(c) .48(c) .45 .45 .47
---------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.20) (.40) (.28) .15 (.04) .55
---------------------------------------------------------------------------------------------------------------
Total from
investment operations .01 -- .20 .60 .41 1.02
---------------------------------------------------------------------------------------------------------------
Less distributions:
---------------------------------------------------------------------------------------------------------------
From net
investment income (.21) (.40) (.40) (.44) (.46) (.48)
---------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.02) -- -- -- --
---------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (.04) (.04) -- --
---------------------------------------------------------------------------------------------------------------
From return of capital -- (.01) (.03) -- -- --
---------------------------------------------------------------------------------------------------------------
Total distributions (.21) (.43) (.47) (.48) (.46) (.48)
---------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.24 $6.44 $6.87 $7.14 $7.02 $7.07
---------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
---------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) .15* (.09) 2.78 8.88 6.08 16.23
---------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $966,050 $1,160,121 $1,426,583 $1,296,600 $1,037,718 $928,995
---------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .47* .96 1.02 1.17 1.17 1.05
---------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.33* 5.95 6.69 6.39 6.50 6.91
---------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 123.74* 209.02 257.12 265.71 213.46 169.29
---------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charge.
(b) The ratio of expenses to average net assets includes amounts paid
through expense offset arrangements (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.
(d) Per share distributions were less than $.01 per share.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS B
---------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share April 30
operating performance (Unaudited) Year ended October 31
---------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $6.41 $6.83 $7.11 $6.99 $7.04 $6.50
---------------------------------------------------------------------------------------------------------------
Investment operations
---------------------------------------------------------------------------------------------------------------
Net investment income .19(c) .35(c) .42(c) .39 .40 .42
---------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.21) (.39) (.28) .16 (.04) .55
---------------------------------------------------------------------------------------------------------------
Total from
investment operations (.02) (.04) .14 .55 .36 .97
---------------------------------------------------------------------------------------------------------------
Less distributions:
---------------------------------------------------------------------------------------------------------------
From net
investment income (.19) (.35) (.36) (.39) (.41) (.43)
---------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.02) -- -- -- --
---------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (.04) (.04) -- --
---------------------------------------------------------------------------------------------------------------
From return of capital -- (.01) (.02) -- -- --
---------------------------------------------------------------------------------------------------------------
Total distributions (.19) (.38) (.42) (.43) (.41) (.43)
---------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.20 $6.41 $6.83 $7.11 $6.99 $7.04
---------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
---------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (.39)* (.69) 1.92 8.15 5.32 15.46
---------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $389,100 $458,766 $494,703 $403,704 $340,775 $260,769
---------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .85* 1.71 1.77 1.92 1.92 1.80
---------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.96* 5.20 5.92 5.64 5.76 6.14
---------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 123.74* 209.02 257.12 265.71 213.46 169.29
---------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charge.
(b) The ratio of expenses to average net assets includes amounts paid
through expense offset arrangements (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.
(d) Per share distributions were less than $.01 per share.
</TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS C
-------------------------------------------------------------------------
Six months
ended For the period
Per-share April 30 July 26, 1999+
operating performance (Unaudited) to October 31
-------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------
Net asset value,
beginning of period $6.43 $6.54
-------------------------------------------------------------------------
Investment operations
-------------------------------------------------------------------------
Net investment income (c) .19 .10
-------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.21) (.11)
-------------------------------------------------------------------------
Total from
investment operations (.02) (.01)
-------------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------------
From net
investment income (.19) (.10)
-------------------------------------------------------------------------
In excess of net
investment income -- --(d)
-------------------------------------------------------------------------
From net realized gain
on investments -- --
-------------------------------------------------------------------------
From return of capital -- --(d)
-------------------------------------------------------------------------
Total distributions (.19) (.10)
-------------------------------------------------------------------------
Net asset value,
end of period $6.22 $6.43
-------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------
Total return at
net asset value (%)(a) (.33)* (.13)*
-------------------------------------------------------------------------
Net assets, end of period
(in thousands) $5,086 $1,869
-------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .85* .46*
-------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.02* 1.36*
-------------------------------------------------------------------------
Portfolio turnover (%) 123.74* 209.02
-------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charge.
(b) The ratio of expenses to average net assets includes amounts paid
through expense offset arrangements (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.
(d) Per share distributions were less than $.01 per share.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS M
---------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share April 30 Dec. 14, 1994+
operating performance (Unaudited) Year ended October 31 to October 31
---------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $6.41 $6.84 $7.11 $6.99 $7.04 $6.50
---------------------------------------------------------------------------------------------------------------
Investment operations
---------------------------------------------------------------------------------------------------------------
Net investment income .20(c) .38(c) .47(c) .43 .44 .43
---------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.21) (.40) (.28) .16 (.04) .54
---------------------------------------------------------------------------------------------------------------
Total from
investment operations (.01) (.02) .19 .59 .40 .97
---------------------------------------------------------------------------------------------------------------
Less distributions:
---------------------------------------------------------------------------------------------------------------
From net
investment income (.20) (.38) (.39) (.43) (.45) (.43)
---------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.02) -- -- -- --
---------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (.04) (.04) -- --
---------------------------------------------------------------------------------------------------------------
From return of capital -- (.01) (.03) -- -- --
---------------------------------------------------------------------------------------------------------------
Total distributions (.20) (.41) (.46) (.47) (.45) (.43)
---------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.20 $6.41 $6.84 $7.11 $6.99 $7.04
---------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
---------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (.11)* (.26) 2.58 8.74 5.92 15.43*
---------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,266,275 $1,623,061 $1,188,620 $368,297 $18,937 $7,673
---------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .60* 1.21 1.27 1.42 1.42 1.19*
---------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.21* 5.68 6.53 5.76 6.28 5.17*
---------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 123.74* 209.02 257.12 265.71 213.46 169.29
---------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charge.
(b) The ratio of expenses to average net assets includes amounts paid
through expense offset arrangements (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.
(d) Per share distributions were less than $.01 per share.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS Y
---------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share April 30
operating performance (Unaudited) Year ended October 31
---------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $6.46 $6.88 $7.15 $7.02 $7.07 $6.52
---------------------------------------------------------------------------------------------------------------
Investment operations
---------------------------------------------------------------------------------------------------------------
Net investment income .22(c) .41(c) .50(c) .47 .47 .47
---------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.21) (.39) (.28) .16 (.04) .57
---------------------------------------------------------------------------------------------------------------
Total from
investment operations .01 .02 .22 .63 .43 1.04
---------------------------------------------------------------------------------------------------------------
Less distributions:
---------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.41) (.42) (.46) (.48) (.49)
---------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.02) -- -- -- --
---------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (.04) (.04) -- --
---------------------------------------------------------------------------------------------------------------
From return of capital -- (.01) (.03) -- -- --
---------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.44) (.49) (.50) (.48) (.49)
---------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.25 $6.46 $6.88 $7.15 $7.02 $7.07
---------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
---------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) .08* .27 3.02 9.23 6.31 16.65
---------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $217,427 $255,873 $246,405 $170,902 $133,516 $107,414
---------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .35* .71 .77 .92 .92 .86
---------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.46* 6.19 6.92 6.64 6.76 7.14
---------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 123.74* 209.02 257.12 265.71 213.46 169.29
---------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charge.
(b) The ratio of expenses to average net assets includes amounts paid
through expense offset arrangements (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.
(d) Per share distributions were less than $.01 per share.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
April 30, 2000 (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, and may invest in
preferred stocks and dividend-paying common stocks.
The fund offers class A, class B, class C, 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 are subject to a
contingent deferred sales charge, if those shares are redeemed within
six years of purchase. Class C shares are subject to the same fees and
expenses as class B shares, except that class C shares have a one-year
1.00% contingent deferred sales charge and do not convert to class A
shares. 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 and class C shares. Class Y shares, which
are sold at net asset value, are generally subject to the same expenses
as class A, class B, class C and class M shares, but do not bear a
distribution fee. Class Y shares are sold to defined contribution plans
that invest at least $150 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 the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The 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 of the financial statements and the reported
amounts of increases and decreases in net assets from operations during
the reporting period. 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 sales price on its principal exchange, or if no sales
are reported -- as in the case of some securities traded
over-the-counter -- the last reported bid price. Short-term investments
having remaining maturities of 60 days or less are stated at amortized
cost, which approximates market value. Other investments, including
restricted securities, are stated at fair value following procedures
approved by the Trustees. Market quotations are not considered to be
readily available for certain debt obligations; such investments are
stated at fair value on the basis of valuations furnished by a pricing
service or dealers, approved by the Trustees, which determine valuations
for normal institutional-size trading units of such securities using
methods based on market transactions for comparable securities and
variable relationships between securities that 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.
Collateral for certain tri-party repurchase agreements is held at the
counterparty's custodian in a segregated account for the benefit of the
fund and the counterparty. 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). Gains or losses on securities sold are determined
on the identified cost basis.
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
discount bonds, stepped-coupon bonds and payment in kind bonds are
accreted according to the yield-to-maturity basis. Any premium resulting
from the purchase of stepped-coupon is amortized on a yield-to-maturity
basis.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and 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 gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
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. Investments in foreign securities involve certain risks, including
those related to economic instability, unfavorable political
developments, and currency fluctuations, not present with domestic
investments.
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 current 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. 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. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities.
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 .01% 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) TBA sale commitments The fund may enter into TBA sale commitments to
hedge its portfolio positions or to sell mortgage-backed securities it
owns under delayed delivery arrangements. Proceeds of TBA sale
commitments are not received until the contractual settlement date.
During the time a TBA sale commitment is outstanding, equivalent
deliverable securities, or an offsetting TBA purchase commitment
deliverable on or before the sale commitment date, are held as "cover"
for the transaction.
Unsettled TBA sale commitments are valued at the current market value of
the underlying securities, generally according to the procedures
described under "Security valuation" above. The contract is
"marked-to-market" daily and the change in market value is recorded by
the fund as an unrealized gain or loss. If the TBA sale commitment is
closed through the acquisition of an offsetting purchase commitment, the
fund realizes a gain or loss. If the fund delivers securities under the
commitment, the fund realizes a gain or a loss from the sale of the
securities based upon the unit price established at the date the
commitment was entered into.
J) Swap contracts The fund may engage in swap agreements, which are
agreements to exchange the return generated by one instrument for the
return generated by another instrument. The fund may enter into equity
swap agreements, to manage its exposure to equity markets, which involve
a commitment by one party to pay interest in exchange for a
market-linked return based on a notional amount. To the extent that the
total return of the security or index underlying the transaction exceeds
or falls short of the offsetting interest rate obligation, the fund will
receive a payment from or make a payment to the counterparty,
respectively. Equity swaps are marked to market daily based upon
quotations from market makers and the change, if any, is recorded as
unrealized gain or loss. Payments received or made at the end of the
measurement period are recorded as realized gains or losses. The fund
could be exposed to credit or market risk due to unfavorable changes in
the fluctuation of interest rates or in the price of the underlying
security or index, the possibility that there is no liquid market for
these agreements or that the counterparty may default on its obligation
to perform.
K) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the six months
ended April 30, 2000, the fund had no borrowings against the line of
credit.
L) 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. At October 31, 1999, the fund had a capital loss
carryover of approximately $141,714,000 available to offset future
capital gains, if any. The amount of the carryover and the expiration
dates are:
Loss Carryover Expiration
-------------- ------------------
$21,203,000 October 31, 2006
120,511,000 October 31, 2007
M) 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% thereafter.
The fund reimburses Putnam Management an allocated amount 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 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, 2000, fund expenses were reduced by
$432,877 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.
Each Trustee of the fund receives an annual Trustee fee, of which $2,719
has been allocated to the fund, and an additional fee for each Trustees
meeting attended. Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral 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
invested in certain Putnam funds until distribution in accordance with
the Deferral 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 a 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, class C and class M shares pursuant to Rule 12b-1
under the Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Plans provide for payments by
the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%,
1.00%, 1.00% and 1.00% of the average net assets attributable to class
A, class B, class C and class M shares, respectively. The Trustees have
approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%
and 0.50% of the average net assets attributable to class A, class B,
class C and class M shares respectively.
For the six months ended April 30, 2000, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $125,935 and $65,776
from the sale of class A and class M shares, respectively, and received
$628,713 and $1,248 in contingent deferred sales charges from
redemptions of class B and class C shares, respectively. A deferred
sales charge of up to 1% is assessed on certain redemptions of class A
shares. For the six months ended April 30, 2000, Putnam Mutual Funds
Corp., acting as underwriter received $16,113 on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended April , 2000, cost of purchases and proceeds
from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $2,647,564,137 and
$2,610,307,230, respectively. Purchases and sales of U.S. government
obligations aggregated $1,201,083,490 and $1,717,561,951, respectively.
Note 4
Capital shares
At April 30, 2000, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended April 30, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 26,422,083 $ 167,992,821
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,340,359 27,525,991
---------------------------------------------------------------------------
30,762,442 195,518,812
Shares
repurchased (55,932,237) (355,468,310)
---------------------------------------------------------------------------
Net decrease (25,169,795) $(159,949,498)
---------------------------------------------------------------------------
Year ended October 31, 1999
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 85,980,837 $ 581,237,616
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 10,082,232 67,300,640
---------------------------------------------------------------------------
96,063,069 648,538,256
Shares
repurchased (123,574,707) (830,101,980)
---------------------------------------------------------------------------
Net decrease (27,511,638) $(181,563,724)
---------------------------------------------------------------------------
Six months ended April 30, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 8,775,179 $ 55,435,374
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,461,336 9,348,625
---------------------------------------------------------------------------
10,236,515 64,783,999
Shares
repurchased (19,089,939) (120,624,412)
---------------------------------------------------------------------------
Net decrease (8,853,424) $(55,840,413)
---------------------------------------------------------------------------
Year ended October 31, 1999
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 22,318,917 $149,461,315
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,059,313 20,291,028
---------------------------------------------------------------------------
25,378,230 169,752,343
Shares
repurchased (26,184,970) (173,951,299)
---------------------------------------------------------------------------
Net decrease (806,740) $ (4,198,956)
---------------------------------------------------------------------------
Six months ended April 30, 2000
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 854,782 $5,416,399
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 15,343 96,953
---------------------------------------------------------------------------
870,125 5,513,352
Shares
repurchased (343,200) (2,176,983)
---------------------------------------------------------------------------
Net increase 526,925 $3,336,369
---------------------------------------------------------------------------
For the period July 26, 1999
(commencement of operations) to
October 31, 1999
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 295,519 $1,899,822
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,464 9,367
---------------------------------------------------------------------------
296,983 1,909,189
Shares
repurchased (6,433) (41,469)
---------------------------------------------------------------------------
Net increase 290,550 $1,867,720
---------------------------------------------------------------------------
Six months ended April 30, 2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 5,266,017 $ 33,320,332
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 178,286 1,124,339
---------------------------------------------------------------------------
5,444,303 34,444,671
Shares
repurchased (54,520,169) (344,011,744)
---------------------------------------------------------------------------
Net decrease (49,075,866) $(309,567,073)
---------------------------------------------------------------------------
Year ended October 31, 1999
---------------------------------------------------------------------------
Class M Amount Shares
---------------------------------------------------------------------------
Shares sold 109,475,894 $740,922,579
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 342,020 2,265,651
---------------------------------------------------------------------------
109,817,914 743,188,230
Shares
repurchased (30,394,471) (199,897,904)
---------------------------------------------------------------------------
Net increase 79,423,443 $543,290,326
---------------------------------------------------------------------------
Six months ended April 30, 2000
---------------------------------------------------------------------------
Class Y Shares Amount
---------------------------------------------------------------------------
Shares sold 9,147,773 $ 58,303,102
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,268,538 8,070,750
---------------------------------------------------------------------------
10,416,311 66,373,852
Shares
repurchased (15,267,488) (97,123,058)
---------------------------------------------------------------------------
Net decrease (4,851,177) $(30,749,206)
---------------------------------------------------------------------------
Year ended October 31, 1999
---------------------------------------------------------------------------
Class Y Shares Amount
---------------------------------------------------------------------------
Shares sold 26,162,845 $175,327,648
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,424,462 16,206,074
---------------------------------------------------------------------------
28,587,307 191,533,722
Shares
repurchased (24,778,519) (166,210,595)
---------------------------------------------------------------------------
Net increase 3,808,788 $ 25,323,127
---------------------------------------------------------------------------
THE PUTNAM FAMILY OF FUNDS
The following is a complete list of Putnam's open-end mutual funds.
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.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Capital Opportunities Fund
Europe Growth Fund
Global Equity Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Century Growth Fund
New Opportunities Fund
OTC & Emerging Growth Fund
Research Fund
Tax Smart Equity Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Small Cap Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
TAX-FREE INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market 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
State tax-free money market funds [SECTION MARK] **
California, New York
ASSET ALLOCATION 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
* Formerly Putnam Diversified Income Trust II
[DBL. DAGGER] Closed to new investors. Some exceptions may apply.
Contact Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
FUND INFORMATION
WEB SITE
www.putnaminv.com
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
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Kevin M. Cronin
Vice President
James M. Prusko
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
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' Web site: 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
the 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
---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
SA035 61444 004/312/510/514 6/00
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
---------------------------------------------------------------------------
Putnam Income Fund
Supplement to Semiannual Report dated April 30, 2000
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 $150 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, C, and M shares, which are discussed more extensively in the semiannual
report.
SEMIANNUAL RESULTS AT A GLANCE
---------------------------------------------------------------------------
Total return: NAV
Six months ended 4/30/00 0.08%
One year ended 4/30/00 -1.29
Five years ended 4/30/00 5.53
10 years ended 4/30/00 7.73
Annual average (since class A inception, 11/1/54) 8.29
---------------------------------------------------------------------------
Share value: NAV
10/31/99 $6.46
4/30/00 6.25
---------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
6 $0.216 -- $0.216
---------------------------------------------------------------------------
Current return (end of period) Total
Current dividend rate1 3.46%
Current 30-day SEC yield2 7.82
1Income portion of most recent distribution, annualized and divided by NAV
at end of period.
2Based only on investment income, calculated using SEC guidelines.
Past performance is no assurance of future results. Class Y shares are
offered without an initial sales charge or CDSC. The class Y share returns
shown for periods before their inception (6/16/94) are derived from the
historical performance of class A shares for such periods, but have not
been adjusted to reflect differences in expenses, which are lower for class
Y shares than for class A shares. All returns assume reinvestment of
distributions at net asset value. Investment return will fluctuate and may
involve the loss of principal. Performance of other share classes will
vary. 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.
