Putnam
Dividend
Income
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
6-30-00
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III]
Dear Shareholder:
It is a pleasure to greet you in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years -- years during
which the global securities markets, the mutual fund industry, and
Putnam itself have experienced tremendous growth and change.
As we look to the future, we are certain that the changes that lie ahead
will be even more breathtaking in their scope. What will not change is
the Trustees' dedication to serving the best interests of our
shareholders.
We welcome the challenges ahead and are confident that Putnam and your
Board will continue to meet those challenges successfully, as they have
for more than 60 years. We look forward to helping you meet your
financial objectives for many years to come.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
August 16, 2000
REPORT FROM FUND MANAGEMENT
Jeanne L. Mockard
The fiscal year that ended June 30, 2000, was a challenging one for
Putnam Dividend Income Fund. Market volatility and generally rising
interest rates affected the fund's preferred stock investments, which
are closely tied to the bond market because they are fixed-income
securities. Between June 30, 1999, and May 16, 2000, the Federal Reserve
Board raised short-term interest rates six times from 4.75% to 6.50% --
three times in the last half of 1999 and three more times in the first
half of 2000. In addition, the stock market was highly volatile during
the period, rising dramatically in the fourth quarter of 1999 and the
first quarter of this year and then tumbling in April and May, as
investors became concerned about higher interest rates and overvalued
technology stocks. Preferred stocks are peripherally affected by the
stock market, as they can gain and lose value based on the performance
of their issuers' common shares. While the fund's absolute performance
reflected the difficult market environment, its relative performance
remains competitive with other funds in its category.
Total return for 12 months ended 6/30/00
NAV Market price
------------------------------------------------------------------
-0.08% 1.14%
------------------------------------------------------------------
Past performance is not indicative of future results. Performance
information for longer periods begins on page 6.
* BOND MARKET VOLATILE THROUGHOUT FISCAL YEAR
In the past year, bond investors faced several challenges. The major
events included the series of six interest-rate increases by the Fed. As
the U.S. economy continued its high rate of growth with corresponding
low unemployment into a record 10th consecutive year, the Fed became
anxious about a possible increase in inflation. Impressive gains in
productivity resulting from massive corporate investments in technology
throughout the 1990s have thus far kept inflation at bay. But with the
stock market reaching extraordinarily high valuations, especially in the
technology and telecommunications sectors, the Fed became concerned that
the market's so-called wealth effect would produce too much demand in
the economy. Higher oil prices in the first quarter, as well as a
corresponding increase in gasoline prices that peaked as the summer
driving season began, added to these concerns.
[GRAPHIC OMITTED: horizontal bar chart COMPARATIVE PORTFOLIO COMPOSITION]
COMPARATIVE PORTFOLIO COMPOSITION*
6/30/99 6/30/00
Perpetual
preferreds 82.2% 76.3%
Adjustable-rate
preferreds 8.9% 10.6%
Sinking-fund
preferreds 4.5% 10.5%
Convertible
preferreds 2.6% 1.2%
Short-term
securities 1.1% 1.2%
Footnote reads:
*Based on net assets as of 6/30/99 and 6/30/00. Holdings will vary over time.
"Putnam Investments has an edge in the preferred markets because of our size
and because of our access to extensive research."
-- Jeanne L. Mockard, manager, Putnam Dividend Income Fund
This year the bond market was also affected by a dramatic inversion of
the U.S. Treasury yield curve. The yield curve, which is simply a
graphic illustration of the yields of Treasury bonds of different
maturities, becomes inverted when short-term interest rates are higher
than long-term interest rates. In the first quarter of 2000, the
inversion was caused by a federal government decision to use part of its
budget surplus to reduce debt levels by buying back long-term Treasury
bonds. This buyback program caused a sharp decline in long-term
Treasury yields to levels well below short-term yields. Corporate bonds
generally did not fare well as a result because investors could put
their money in safer, short-term Treasury bonds rather than take on
extra risk in longer-term corporate issues.
* FUND RETAINED ITS DIVERSE CHARACTER
The fund invests in several different types of preferred stocks, a
strategy that has served its shareholders well for the past several
years. The majority of the portfolio is invested in perpetual preferred
stocks. These securities offer the best opportunity when interest rates
are trending down because they offer a fixed rate of return with no
maturity date. During the period, when rates were rising, we lowered the
fund's weighting in perpetual preferreds from 82.2% to 76.3%.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
El Paso Tennessee Pipeline Co.
Series A, $4.125 cumulative preferred
Natural gas utilities
Merrill Lynch & Co.
Series A, $2.25 deposit-shares
cumulative preferred
Investment banking/brokerage
Duke Energy Corp.
Series W, $7.00 cumulative preferred
Electric utilities
General Motors Corp.
Series G, $2.28 cumulative preferred
Automotive
Baltimore Gas & Electric
Series 95, $6.99 cumulative preferred
Electric utilities
Chase Manhattan Corp.
Series L, $1.00 cumulative
adjustable-rate preferred
Banking
Citigroup, Inc.
Series F, $3.18 cumulative preferred
Financial
Peco Energy Co.
$7.48 cumulative preferred
Electric utilities
Alabama Power Co.
$1.30 cumulative preferred
Electric utilities
Rochester Gas and Electric
Series V, sinking fund $6.60 cumulative
preferred
Electric utilities
Footnote reads:
These holdings represent 34.3% of the fund's assets as of 6/30/00.
Portfolio holdings will vary over time.
A second type of preferred stocks are adjustable-rate preferreds (ARPs),
which are advantageous to own when interest rates rise. The prices of
ARPs tend to be relatively stable because the rates they pay are
adjusted at specific intervals (usually six months). During the fiscal
period, we raised the fund's weighting in ARPs from 8.9% to 10.6%.
The third type of preferred stocks in which we typically invest are
sinking-fund preferreds, commonly known as sinkers. These securities
also have fixed rates but are retired on a predetermined schedule. They
behave somewhat like intermediate-maturity bonds and are appropriate for
maintaining a neutral duration strategy. The fund's weighting in sinkers
increased during the period from 4.5% to 10.5%.
While we seek to position the portfolio to optimize performance as
conditions in the market change, we have not typically made dramatic
changes in this fund. The reason is that preferred stocks trade in a
relatively small market, and it is hard to find securities that meet our
standards. We have conducted extensive research to select the best
possible securities for this fund, and we believe the holdings are
currently well positioned. As a result, our adjustments tend to be minor
in nature, although they may become more significant if market
conditions warrant.
* FUND'S STRATEGY MAINTAINED RELATIVE STABILITY
The fund seeks to provide a high level of income that qualifies for the
70% corporate dividends-received deduction, consistent with capital
preservation. We have been successful in achieving these goals for
several reasons. First, Putnam Investments has an edge in the preferred
markets because of our size and because of our access to extensive
research. As a result, we can identify and capture some of the best
opportunities in a market that is much less liquid than the larger
common stock and bond markets.
Many investment firms operate on the promise that they will do their
best to seek qualified dividends in the limited market for preferred
stocks. During the period, our experience and expertise helped meet your
fund's goal of 100% dividends-received-deduction (DRD) status for
federal income tax purposes. We are able to hold securities for the
required period or longer and most of the fund's holdings are domestic.
Our goal is to keep the fund's foreign securities to a minimum so that
their income does not exceed the fund's expenses. By following these
guidelines, we have enabled all of the fund's dividend income to qualify
for DRD status.
* NON-LEVERAGED STATUS HELPED FUND'S RELATIVE PERFORMANCE
A few years ago we made the decision to eliminate the fund's leverage,
which is a tool that can be used to enhance yield when the yield curve
is steep. Essentially the ability to leverage the portfolio allows the
fund to borrow money at short-term rates and to invest the proceeds in
long-term bonds. When long-term rates are higher than short-term rates,
this results in a premium that we pass along to shareholders in the form
of additional income.
Since the environment has not been favorable for using leverage, we have
opted not to do so. This is a good example of active management, in
which not pursuing a certain strategy can be just as beneficial for
shareholders as pursuing one. As always, we will continue to monitor the
capital markets and the changes in the yield curve. Should it become
apparent that using leverage would benefit shareholders, we would
proceed cautiously to implement the strategy once again.
* MARKET SENTIMENT SHIFT MAY PROVE BENEFICIAL FOR FIXED-INCOME INVESTORS
We believe that the Fed is in the process of successfully engineering a
soft landing for the economy through its tight monetary policy. The
market appears to have changed its sentiment from one of concern about
higher interest rates to one of relief about the removal of an inflation
threat. However, the slower economic growth that will probably result
from higher interest rates could translate into reduced corporate
profitability, which could negatively affect the bond market. Over the
longer term, we believe that a slower economy should produce declining
interest rates, which would be favorable. No matter what happens,
shareholders should continue to benefit from the fund's solid track
record of active management in the relatively obscure market for
preferred stocks.
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 6/30/00, 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
Dividend Income Fund is designed for investors seeking a high level of
current income eligible for the dividends-received deduction,
consistent with preservation of capital.
TOTAL RETURN FOR PERIODS ENDED 6/30/00
Merrill Lynch
Market Perpetual Preferred Consumer
Since (9/28/89) NAV price Index price index
--------------------------------------------------------------------------
1 year -0.08% 1.14% -3.25% 3.67%
--------------------------------------------------------------------------
5 years 41.30 41.00 30.82 12.98
Annual average 7.16 7.11 5.52 2.47
--------------------------------------------------------------------------
10 years 155.07 110.15 124.18 32.64
Annual average 9.82 7.71 8.41 2.86
--------------------------------------------------------------------------
Life of fund 151.27 98.89 132.88 37.84
Annual average 8.95 6.61 8.18 3.03
--------------------------------------------------------------------------
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, net asset value, and market price will fluctuate so that an
investor's shares when redeemed may be worth more or less than their
original cost.
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 6/30/00
-----------------------------------------------------------------------
Distributions
-----------------------------------------------------------------------
Number 12
-----------------------------------------------------------------------
Income $0.664
-----------------------------------------------------------------------
Capital gains $0.008
-----------------------------------------------------------------------
Total $0.672
-----------------------------------------------------------------------
Share value: NAV Market price
-----------------------------------------------------------------------
6/30/99 $11.23 $9.688
-----------------------------------------------------------------------
6/30/00 10.45 9.125
-----------------------------------------------------------------------
Current return (end of period)
-----------------------------------------------------------------------
Current dividend rate1 6.43% 7.36%
-----------------------------------------------------------------------
Taxable equivalent2 7.18 8.22
-----------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or market price at end of period.
2 Assumes a corporation taxed at the 35% federal tax rate and that 100%
of the fund's distributions qualify for the 70% corporate
dividends-received deduction for corporations. Investment income may
also be subject to the federal alternative minimum tax.
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.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding common shares.
Market price is the current trading price of one share of the fund.
Market prices are set by transactions between buyers and sellers on the
New York Stock Exchange.
COMPARATIVE BENCHMARKS
Merrill Lynch Perpetual Preferred Index is an unmanaged list of
perpetual preferred stocks that is commonly used as a general measure of
performance for the preferred-stock market. The index assumes
reinvestment of all distributions and interest payments and does not
take into account brokerage fees or taxes. Securities in the fund do not
match those in the index and performance of the fund will differ. It is
not possible to invest directly in an index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report, preceded by the Report of independent
accountants, 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.
REPORT OF INDEPENDENT ACCOUNTANTS
For the fiscal year ended June 30, 2000
To the Trustees and Shareholders of
Putnam Dividend Income Fund
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Putnam
Dividend Income Fund (the "fund") at June 30, 2000, and the results of
its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with accounting
principles generally accepted in the United States. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the fund's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in
the United States, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of investments owned at June 30, 2000, by correspondence
with the custodian, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 9, 2000
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
June 30, 2000
PREFERRED STOCKS (97.4%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Automotive (5.1%)
-------------------------------------------------------------------------------------------------------------------
67,600 Ford Motor Co. Ser. B, $2.063 dep. shs. cum.
preferred (pfd) $ 1,791,400
159,178 General Motors Corp. Ser. G, $2.28 cum. pfd. 4,019,245
----------------
5,810,645
Banking (13.0%)
-------------------------------------------------------------------------------------------------------------------
45,600 Bankers Trust Corp. Ser. Q, $1.269 cum. Adjustable
Rate Preferred ARP (CUS) 997,500
9,800 Bankers Trust Corp. Ser. R, $1.29 cum. ARP (CUS) 208,250
62,300 Chase Manhattan Corp. Ltd. Ser. C, $2.71 cum. pfd. 1,612,013
40,000 Chase Manhattan Corp. Ser. L, $1.00 cum. ARP 3,570,000
15,000 FleetBoston Finl Corp. Ser. VI, $3.38 cum. pfd. 731,250
20,000 FleetBoston Finl Corp. Ser. VII, $3.30 cum. pfd. 965,000
11,000 MBNA Corporation Ser. B, $25.00 cum. ARP 254,375
36,400 MBNA Corporation Ser. A, $1.875 cum. pfd. 864,500
30,000 J.P. Morgan & Co., Inc. Ser. A, $1.00 cum. ARP 2,208,750
52,000 J.P. Morgan & Co., Inc. Ser. H, $3.31cum. pfd. 2,509,000
16,500 Wells Fargo Co. $2.75 cum. ARP 742,500
----------------
14,663,138
Chemicals (1.9%)
-------------------------------------------------------------------------------------------------------------------
14,250 du Pont (E.I.) de Nemours & Co., Ltd. Ser. A, $4.50 cum. pfd. 448,800
6,800 du Pont (E.I.) de Nemours & Co., Ltd. Ser. A, $3.50 cum. pfd. 940,500
7,500 Praxair, Inc. Ser. B, $6.75 cum. pfd. 789,375
----------------
2,178,675
Electric Utilities (48.7%)
-------------------------------------------------------------------------------------------------------------------
130,800 Alabama Power Co. $1.30 cum. pfd. 2,730,450
5,000 Atlantic City Electric sinking fund $7.80 cum. pfd. 515,625
2,500 Avista Corp. Ser. K, sinking fund $6.95 pfd. 252,500
23,900 Baltimore Gas & Electric Ser. 93, $7.125 cum. pfd. 2,425,850
40,000 Baltimore Gas & Electric Ser. 95, $6.99 cum. pfd. 3,960,000
10,000 Baltimore Gas & Electric Ser. 93, $6.99 cum. pfd. 1,002,500
18,000 Duke Energy Corp. Ser. S, $7.85 cum. pfd. 1,852,875
50,825 Duke Energy Corp. Ser. W, $7.00 cum. pfd. 5,177,797
8,916 Entergy Gulf States Inc. $7.56 cum. pfd. 851,478
2,900 Entergy Mississippi Inc. $4.92 cum. pfd. 251,575
10,000 Florida Power & Light Ser. T, $7.05 cum. pfd. 1,027,400
20,000 Florida Power & Light Ser. S, $6.98 cum. pfd. 2,015,000
13,823 Florida Power & Light Ser. U, $6.75 cum. pfd. 1,392,667
5,000 Indianapolis Power & Light $5.65 cum. pfd. 468,575
3,000 Kentucky Utilities Corp. $6.53 cum. pfd. 291,750
3,000 Monongahela Power Co. Ser. L, $7.73 cum. pfd. 312,750
15,200 Niagara Mohawk Power Corp. Ser. A, $1.625 cum. ARP 361,000
20,000 Northern Indiana Public Services Ser. A, $3.00 cum. ARP 927,500
30,000 Pacific Gas and Electric Co. sinking fund $7.04 cum. pfd. 697,500
84,700 Pacific Gas and Electric Co. $6.57 cum. pfd. 2,096,325
16,000 Pacificorp sinking fund $7.48 cum. pfd. 1,640,000
12,500 Pacificorp $7.70 cum. pfd. 1,248,438
29,150 Peco Energy Co. $7.48 cum. pfd. 3,126,338
6,000 Potomac Electric Power Co. sinking fund $3.40 cum. pfd. 306,000
6,750 Public Service Electric and Gas $6.92 cum. pfd. 675,000
5,000 Public Service Electric and Gas Ser. E, $5.28 cum. pfd. 375,000
16,500 Puget Sound Energy, Inc. $1.86 cum. pfd. 408,375
26,250 Rochester Gas and Electric Ser. V, sinking fund $6.60 cum. pfd. 2,615,156
14,000 San Diego Gas and Electric Co. sinking fund $0.44 cum. pfd. 323,750
67,000 San Diego Gas and Electric Co. $0.425 cum. pfd. 1,666,625
10,000 South Carolina Electric and Gas Co. $6.52 cum. pfd. 1,002,500
25,000 Southern California Edison Co. sinking fund $6.05 cum. pfd. 2,371,875
32,875 Southern California Edison Co. $1.20 cum. pfd. 665,719
10,000 TXU Electric Co. $7.98 cum. pfd. 1,052,500
10,000 TXU Electric Co. sinking fund $6.375 cum. pfd. 956,250
75,580 TXU Electric Co. Ser. A, $0.47 cum. pfd. 1,747,788
33,300 TXU Electric Co. Ser. B, $0.45 cum. pfd. 740,925
8,000 UGI Utilities sinking fund $7.75 cum. pfd. 876,000
21,200 Union Electric Co. $7.64 cum. pfd. 2,183,600
20,000 Virginia Electric and Power Co. $6.90 cum. ARP 2,035,000
5,000 Western Resources, Inc. $4.25 cum. pfd. 350,000
----------------
54,977,956
Financial (6.5%)
-------------------------------------------------------------------------------------------------------------------
69,000 Citigroup, Inc. Ser. F, $3.18 cum. pfd. 3,130,875
820 Citigroup, Inc. Ser. G, $3.11 cum. pfd. 36,695
7,145 Citigroup, Inc. Ser. M, $2.93 cum. pfd. 290,266
25,000 Citigroup, Inc. Ser. K, $2.10 cum. pfd. 596,875
63,850 Household International, Inc. . Ser. 92-A, $2.063
dep. shs. cum. pfd. 1,571,668
37,500 SLM Holding Corp. $3.48 pfd. 1,734,375
----------------
7,360,754
Investment Banking/Brokerage (11.3%)
-------------------------------------------------------------------------------------------------------------------
20,900 Bear Stearns Companies, Inc. Ser. E, $3.075 cum. pfd. 864,319
21,250 Bear Stearns Companies, Inc. Ser. F, $2.865 cum. pfd. 773,819
37,200 Bear Stearns Companies, Inc. Ser. G, $2.75 cum. pfd. 1,355,750
14,000 Bear Stearns Companies, Inc.Ser. A, $2.75 cum. ARP 635,250
6,230 Lehman Brothers Holdings Ser. C, $2.97 pfd 250,758
43,000 Lehman Brothers Holdings Ser. D, $2.835 pfd. 1,623,250
188,639 Merrill Lynch & Co. Ser. A, $2.25 dep. shs. cum. pfd. 5,187,573
45,000 Morgan Stanley $3.875 dep. shs. cum. pfd. 2,126,250
----------------
12,816,969
Metals (0.4%)
-------------------------------------------------------------------------------------------------------------------
8,450 Alcoa, Inc. $3.75 cum. pfd. 494,325
Natural Gas Utilities (7.2%)
-------------------------------------------------------------------------------------------------------------------
53,100 Boston Gas Ser. A, sinking fund $1.61 cum. pfd. 1,354,050
107,500 El Paso Tennessee Pipeline Co. Ser. A, $4.125 cum. pfd. 5,240,625
15,000 Enron Corp. $7.75 cum. pfd. 1,610,625
----------------
8,205,300
Oil and Gas (2.7%)
-------------------------------------------------------------------------------------------------------------------
20,000 Anadarko Petroleum Corp. $5.46 dep. shs. pfd. 1,472,500
10,000 Apache Corp. Ser. B, $5.68 cum. pfd. 771,250
8,500 Devon Energy Corporation Ser. A, $6.49 cum. pfd. 783,063
----------------
3,026,813
Technology (0.6%)
-------------------------------------------------------------------------------------------------------------------
5,500 IBM Corp. Ser. A, $0.47 cum. pfd. 137,500
26,000 Newscorp. Overseas Ltd. Ser. A, $2.16 cum. pfd. 583,375
----------------
720,875
----------------
Total Preferred Stocks (cost $119,685,537) $ 110,255,450
CONVERTIBLE PREFERRED STOCKS (1.2%) (a) (cost $974,365)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
39,770 Lehman Brothers Holdings, Inc. $5.00 cv. pfd. $ 1,352,180
SHORT-TERM INVESTMENTS (1.2%) (a) (cost $1,321,000)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 1,321,000 Interest in $500,000,000 joint tri-party repurchase
agreement dated June 30, 2000 with S.B.C. Warburg,
Inc. due July 3, 2000 with respect to various U.S.
Treasury obligations -- maturity value of $1,321,727
for an effective yield of 6.60% $ 1,321,000
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $121,980,902) (b) $ 112,928,630
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $113,136,856
(b) The aggregate identified cost on a tax basis is $121,988,445
resulting in gross unrealized appreciation and depreciation of $787,645
and $9,847,460, respectively, or net unrealized depreciation of
$9,059,815.
(CUS) This entity provides subcustodian services to the fund.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $121,980,902) (Note 1) $112,928,630
-------------------------------------------------------------------------------------------
Cash 407
-------------------------------------------------------------------------------------------
Dividends and interest receivable 730,126
-------------------------------------------------------------------------------------------
Receivable for securities sold 341,989
-------------------------------------------------------------------------------------------
Total assets 114,001,152
Liabilities
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 606,139
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 212,722
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 19,784
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 16,472
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,560
-------------------------------------------------------------------------------------------
Other accrued expenses 7,619
-------------------------------------------------------------------------------------------
Total liabilities 864,296
-------------------------------------------------------------------------------------------
Net assets $113,136,856
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital -- common shares (Unlimited shares authorized) (Note 1) $122,206,560
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (399,837)
-------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 382,405
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (9,052,272)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $113,136,856
Computation of net asset value
-------------------------------------------------------------------------------------------
Net asset value per share ($113,136,856 divided by 10,824,907 shares) $10.45
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year ended June 30, 2000
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Dividends $ 8,306,445
-------------------------------------------------------------------------------------------
Interest 69,370
-------------------------------------------------------------------------------------------
Total investment income 8,375,815
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 884,021
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 129,654
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 14,716
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,332
-------------------------------------------------------------------------------------------
Other 77,727
-------------------------------------------------------------------------------------------
Total expenses 1,112,450
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (16)
-------------------------------------------------------------------------------------------
Net expenses 1,112,434
-------------------------------------------------------------------------------------------
Net investment income 7,263,381
-------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 405,061
-------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (15,113)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the year (8,763,238)
-------------------------------------------------------------------------------------------
Net loss on investments (8,373,290)
-------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(1,109,909)
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Year ended June 30
-------------------------------
2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 7,263,381 $ 7,205,078
--------------------------------------------------------------------------------------------------
Net realized gain on investments 389,948 733,749
--------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (8,763,238) (7,688,280)
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (1,109,909) 250,547
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net investment income (7,192,963) (7,373,033)
--------------------------------------------------------------------------------------------------
From net realized gain on investments (80,831) --
--------------------------------------------------------------------------------------------------
Issuance of common shares with reinvestment of distributions -- 42,436
--------------------------------------------------------------------------------------------------
Total decrease in net assets (8,383,703) (7,080,050)
Net assets
--------------------------------------------------------------------------------------------------
Beginning of year 121,520,559 128,600,609
--------------------------------------------------------------------------------------------------
End of year (including distributions in excess of net
investment income of $399,837 and $470,255, respectively) $113,136,856 $121,520,559
--------------------------------------------------------------------------------------------------
Number of fund shares
--------------------------------------------------------------------------------------------------
Common shares outstanding at beginning of period 10,824,907 10,821,255
--------------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment of distributions -- 3,652
--------------------------------------------------------------------------------------------------
Common shares outstanding at end of period 10,824,907 10,824,907
--------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
-----------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended June 30
-----------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year (common shares) $11.23 $11.88 $11.23 $10.54 $10.57
-----------------------------------------------------------------------------------------------------
Investment operations
-----------------------------------------------------------------------------------------------------
Net investment income .67 .67 .69 1.05 .80
-----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.78) (.64) .68 .65 .03
-----------------------------------------------------------------------------------------------------
Total from investment operations (.11) .03 1.37 1.70 .83
-----------------------------------------------------------------------------------------------------
Less distributions:
-----------------------------------------------------------------------------------------------------
From net investment income
-----------------------------------------------------------------------------------------------------
To preferred shareholders (d) -- -- (.01) (.23) (.07)
-----------------------------------------------------------------------------------------------------
To common shareholders (.66) (.68) (.71) (.78) (.72)
-----------------------------------------------------------------------------------------------------
From net realized gains
-----------------------------------------------------------------------------------------------------
To common shareholders (.01) -- -- -- --
-----------------------------------------------------------------------------------------------------
Total distributions (.67) (.68) (.72) (1.01) (.79)
-----------------------------------------------------------------------------------------------------
Auction preferred
share offering cost -- -- -- -- (.07)
-----------------------------------------------------------------------------------------------------
Net asset value, end of year
(common shares) $10.45 $11.23 $11.88 $11.23 $10.54
-----------------------------------------------------------------------------------------------------
Market value, end of year
(common shares) $9.125 $9.688 $10.625 $10.500 $8.875
-----------------------------------------------------------------------------------------------------
Ratios and supplemental data
-----------------------------------------------------------------------------------------------------
Total return at market value
(common shares)(%)(a) 1.14 (2.70) 8.22 27.88 3.51
-----------------------------------------------------------------------------------------------------
Net assets, end of year
(total fund)(in thousands) $113,137 $121,521 $128,601 $181,757 $174,064
-----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) .95 .95 1.02 1.51 1.23
-----------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(b) 6.17 5.76 5.77 7.57 6.88
-----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 13.20 28.40 30.63 19.27 35.13
-----------------------------------------------------------------------------------------------------
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Ratios reflect net assets available to common shares only; net
investment income ratio also reflects reduction for dividend payments to
preferred shareholders.
(c) Includes amounts paid through expense offset arrangements.
(d) On July 21, 1997 preferred shares were redeemed by the fund.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
Note 1
Significant accounting policies
Putnam Dividend Income Fund ("the fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. The fund's objective is to seek high
current income eligible for the dividends received deduction allowed to
corporations under Section 243 of the Internal Revenue Code, consistent
with preservation of capital by investing in a portfolio of preferred
and common equity securities. The fund will invest at least 65% of its
total assets in dividend-paying securities. Preferred stocks will be
rated "investment grade" at the time of investment or, if not rated,
will be of comparable quality as determined by Putnam Investment
Management, Inc. ("Putnam Management"), the fund's manager, a
wholly-owned subsidiary of Putnam Investments, Inc. The fund may also
use leverage by issuing preferred shares in an effort to increase the
income to the common 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 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. Preferred stocks for
which reliable market quotations are not readily available, 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 various
relationships between securities that are generally recognized by
institutional traders. Securities quoted in foreign currencies are
translated into U.S. dollars at the current exchange rate. Short-term
investments having remaining maturities of 60 days or less are stated at
amortized cost, which approximates market value. Other investments,
including restricted securities, are stated at fair value following
procedures approved by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances into a joint trading account along with the cash of other
registered investment companies 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.
E) 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.
F) Distributions to shareholders Distributions to common shareholders
from net investment income are recorded by the fund on the ex-dividend
date. Capital gains, 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. These
differences include temporary and permanent differences of losses on
wash sale transactions and dividends payable. 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. For the year ended June 30, 2000, the fund reclassified $28
to increase paid-in-capital, with a decrease to accumulated net realized
gains of $28. The calculation of net investment income per share in the
financial highlights table excludes these adjustments.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.75% of the
first $500 million of average net assets, 0.65% of the next $500
million, 0.60% of the next $500 million, and 0.55% 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 year ended June 30, 2000, fund expenses were reduced by $16
under expense offset arrangements with PFTC and brokerage service
arrangements. 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 $652
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.
Note 3
Purchases and sales of securities
During the year ended June 30, 2000, cost of purchases and proceeds from
sales of investment securities other than short-term investments
aggregated $15,994,816 and $15,367,846, respectively. There were no
purchases or sales of U.S. government obligations.
FEDERAL TAX INFORMATION
(Unaudited)
The fund has designated 100% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
Pursuant to Section 852 of the Internal Revenue Code, as amended, the
Fund hereby designates $389,948 as capital gain, for its taxable year
ended June 30, 2000.
The Form 1099 you receive in January 2001 will show the tax status of
all distributions paid to your account in calendar 2000.
Results of June 1, 2000 shareholder meeting
(Unaudited)
A meeting of shareholders of the fund was held on June 1, 2000. At the
meeting, each of the nominees for Trustees was elected, as follows:
Common Shares
Votes
Votes for withheld
Jameson Adkins Baxter 5,493,038 94,494
Hans H. Estin 5,492,284 95,248
John A. Hill 5,489,890 97,642
Ronald J. Jackson 5,490,679 96,853
Paul L. Joskow 5,494,782 92,750
Elizabeth T. Kennan 5,487,624 99,908
Lawrence J. Lasser 5,494,951 92,581
John H. Mullin III 5,490,801 96,731
Robert E. Patterson 5,492,433 95,099
George Putnam, III 5,487,552 99,980
A.J.C. Smith 5,491,495 96,037
W. Thomas Stephens 5,487,465 100,067
W. Nicholas Thorndike 5,491,334 96,198
A proposal to ratify the selection of PricewaterhouseCoopers LLP as
independent accountants for the fund was approved as follows: 5,488,007
votes for, and 36,505 votes against, with 63,020 abstentions and
non-broker votes.
FUND INFORMATION
WEB SITE
www.putnaminvestments.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
John A. Hill, 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, III
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
Jeanne L. Mockard
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
Vice President
John R. Verani
Vice President
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or
visit our Web site (www.putnaminvestments.com) any time for up-to-date
information about the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
---------------------
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PUTNAM
INVESTMENTS
---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
63294-056 8/00
