Putnam
Dividend
Income
Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
12-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Putnam Dividend Income Fund enjoyed a successful first half to its 2000
fiscal year. During the six months ended December 31, 1999, the fund's
portfolio of preferred stocks performed well, maintaining stability of
principal while providing an attractive level of current income, 100% of
which qualifies for DRD (dividends-received-deduction) status for federal
income tax purposes.
Bond prices fell during the period, as the Federal Reserve Board raised
interest rates by 25 basis points in August and again in November.
Meanwhile, a narrow band of high-tech stocks caused the stock market
averages to finish 1999 near their peaks for the year. Although preferred
stocks are technically equity securities, they tend to perform in line
with the bond market, which generally provided negative returns in 1999.
Because your fund's mix of preferred stocks was less volatile, the
corporations for which this fund was designed benefited from relatively
stable prices and will be able to take advantage of the tax deduction on
the dividends they received during the tax year.
Total return for 6 months ended 12/31/99
NAV Market price
- --------------------------------------------------------------------
0.60% -2.39%
- --------------------------------------------------------------------
Past performance is not indicative of future results. Performance
information for longer periods begins on page 6.
* PORTFOLIO UNDERGOES FEW CHANGES
Perpetual preferreds (which offer a fixed return with no maturity date)
continue to account for more than three quarters of the fund's total
assets. Adjustable-rate preferreds (ARPs) and sinking-fund preferreds
(sinkers) accounted for most of the rest of the fund's investments. Of
these instruments, perpetuals are the most sensitive to changes in
interest rates because they have the longest duration. Sinkers are next in
terms of sensitivity because they generally have a five-year call
protected period, after which the issuer can buy back (or sink) portions
of the issue over a predetermined time frame. ARPs offer the most price
stability because the rate they pay is adjusted as interest rates change.
However, in the low-rate environment of the past several years, most
issuers opted for low, fixed-rate methods of financing. As a result, ARPs
that meet your fund's quality standards are hard to find.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
El Paso Tennessee Pipeline Co.
Series A, $4.125 cumulative preferred
Oil and gas
Merrill Lynch & Co., Inc.
Series A, $2.25 dep. cumulative preferred
Financial services
Duke Power Co.
Series W, $7.00 cumulative preferred
Electric utilities
General Motors Corp.
Series G, $2.28 preferred
Automobiles
Baltimore Gas & Electric Co.
Series 95, $6.99 cumulative preferred
Combined utilities
Chase Manhattan Corp.
Series L, $4.50 cumulative ARP
Banks
Citigroup, Inc.
Series R, $3.182 preferred
Financial services
Peco Energy
$7.48 cumulative preferred
Electric utilities
Lehman Brothers Holding, Inc.
$5.00 convertible preferred
Financial services
Alabama Power Co.
$1.30 cumulative preferred
Electric utilities
Footnote reads:
These holdings represent 34.9% of the fund's net assets as of 12/31/99.
Portfolio holdings will vary over time.
Reflecting on these facts, fund manager Jeanne Mockard made relatively few
portfolio changes during the past six months. In fact, she describes the
majority of portfolio holdings in the current market as "coveted pieces"
- -- coveted by virtue of the underlying financial strength of many issuers
and their high rates. The fund's industry focus remains on utilities
largely because so many of these companies are benefiting from
deregulation, which, in turn, is allowing them to securitize old debt and
generate cash for future growth. Jeanne is confident that the issues in
the portfolio combine the financial strength needed to secure payment
obligations on preferreds and other debt instruments with equity appeal
for conservative investors.
Jeanne also pays close attention to the staggering of call dates. Trades
that occurred during the past six months include Fleet Financial Group
perpetual preferreds with a $9.35 coupon, which were sold in advance of
the December call date. The fund's IBM perpetual preferreds with a $7.00
coupon were sold on strength in advance of a 2001 call date. Purchases
during the period included a new issue from SLM Holding (formerly Sallie
Mae) -- perpetuals with a $3.49 coupon. This issue is typical of what
Jeanne is looking for because it provides diversification while offering
good value and high quality.
[GRAPHIC OMITTED: horizontal bar chart COMPARATIVE PORTFOLIO COMPOSITION]
COMPARATIVE PORTFOLIO COMPOSITION*
12/31/99 6/30/99
Perpetual
preferreds 82.8% 82.2%
Adjustable-rate
preferreds 8.8% 8.9%
Sinking-fund
preferreds 4.7% 4.5%
Convertible
preferreds 2.6% 2.6%
Short-term
investments 1.3% 1.1%
Footnote reads:
*Based on net assets of 12/31/99 and 6/30/99. Holdings will vary over time.
* OUTLOOK UNCHANGED UNTIL FED SEES MODERATING GROWTH
Looking ahead, Jeanne expects the yield curve to remain relatively flat
with the differential in yield between 2-year Treasury notes and 30-year
Treasury bonds ranging between 15 and 25 basis points. She believes it is
possible that the Fed will raise interest rates in March, which would
extend the current climate for bonds at least through the second half of
the fund's fiscal year. Any future increases will depend on whether the
Fed sees more concrete evidence of a moderation in growth and becomes
satisfied that a benign inflation outlook is secure going forward.
Over the long term, Putnam's macroeconomic research team's forecast calls
for slowing growth trend and a contained inflation rate. In such a
scenario, the excitement exhibited by prices of many high-tech growth
stocks may gradually give way to a more conservative environment. Such a
trend will be favorable to the bond market as well as to fund
shareholders.
* UPCOMING TRANSITION
This is my last letter to you and other Putnam Dividend Income Fund
shareholders. 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. In
June, 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 shareholder, and stay in
close touch with the funds.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
February 16, 2000
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 12/31/99, 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 12/31/99
Merrill Lynch
Market Perpetual Preferred Consumer
NAV price Index price index
- ------------------------------------------------------------------------
6 months 0.60% -2.39% -5.84% 1.56%
- ------------------------------------------------------------------------
1 year 0.82 -9.03 -4.43 2.80
- ------------------------------------------------------------------------
5 years 56.87 51.98 45.13 12.76
Annual average 9.42 8.73 7.74 2.43
- ------------------------------------------------------------------------
10 years 140.83 90.10 116.61 33.86
Annual average 9.19 6.63 8.04 2.96
- ------------------------------------------------------------------------
Life of fund
(since 9/28/89) 151.74 92.02 126.65 35.04
Annual average 9.42 6.57 8.31 2.97
- ------------------------------------------------------------------------
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 sold may be worth more or less than their original
cost.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 12/31/99
- ---------------------------------------------------------------------------
Distributions
- ---------------------------------------------------------------------------
Number 6
- ---------------------------------------------------------------------------
Income $0.336
- ---------------------------------------------------------------------------
Capital gains1 --
- ---------------------------------------------------------------------------
Total $0.336
- ---------------------------------------------------------------------------
Share value (common shares) NAV Market price
- ---------------------------------------------------------------------------
6/30/99 $11.23 $9.688
- ---------------------------------------------------------------------------
12/31/99 10.96 9.125
- ---------------------------------------------------------------------------
Current return (end of period)
- ---------------------------------------------------------------------------
Current dividend rate2 6.13% 7.36%
- ---------------------------------------------------------------------------
Taxable equivalent3 8.44 10.13
- ---------------------------------------------------------------------------
1 Capital gains, if any, are taxable for federal and, in most cases, state
tax purposes. For some investors, investment income may also be subject to
the federal alternative minimum tax. Investment income may be subject to
state and local taxes.
2 Income portion of most recent distribution, annualized and divided by
NAV or market price at end of period.
3 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 does not take into account brokerage commissions or
other costs. The securities that make up the fund's portfolio do not match
those in the index. 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.
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New features will be added to the site regularly. So be sure to bookmark us at
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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
December 31, 1999 (Unaudited)
PREFERRED STOCKS (96.3%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Automobiles (5.3%)
- --------------------------------------------------------------------------------------------------------------------------
67,600 Ford Motor Co. Ser. B, $2.063 dep. shs. cum. preferred (pfd) $ 1,909,700
159,178 General Motors Corp. Ser. G, $2.28 pfd. 4,417,190
--------------
6,326,890
Banks (6.4%)
- --------------------------------------------------------------------------------------------------------------------------
45,600 Bankers Trust New York Corp. Ser. Q, $1.269 cum.
Adjustable Rate Preferred (ARP) (CUS) 1,071,600
9,800 Bankers Trust New York Corp. Ser. R, $1.269 cum. pfd. (CUS) 230,300
40,000 Chase Manhattan Corp. Ser. L, $4.50 cum. ARP 3,770,000
62,300 Chase Manhattan Corp. Ser. C, $2.71 cum. pfd. 1,705,463
16,500 Wells Fargo Co. Ser. B, $6.954 cum. pfd. ARP 779,625
--------------
7,556,988
Broadcasting (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
26,000 Newscorp Overseas Corp. Ser. A, $2.156 cum. pfd. 624,000
Chemicals (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
14,250 du Pont (E.I.) de Nemours & Co., Ltd. Ser. B, $4.50 cum. pfd. 1,022,438
6,800 du Pont (E.I.) de Nemours & Co., Ltd. Ser. A, $3.50 cum. pfd. 474,300
7,500 Praxair, Inc. Ser. B, $6.75 cum. pfd. 790,313
--------------
2,287,051
Combined Utilities (18.6%)
- --------------------------------------------------------------------------------------------------------------------------
23,900 Baltimore Gas & Electric Co. Ser. 93, $7.125 cum. pfd. 2,539,375
40,000 Baltimore Gas & Electric Co. Ser. 95, $6.99 cum. pfd. 4,300,000
20,000 Florida Power & Light Co. Ser. S, $6.98 cum. pfd. 2,125,000
13,823 Florida Power & Light Co. Ser. U, $6.75 cum. pfd. 1,465,238
3,000 Monongahela Power Co. Ser. L, $7.73 cum. pfd. 327,000
72,700 Pacific Gas & Electric Co. Ser. U, $1.76 cum. pfd. 1,926,550
30,000 Pacific Gas & Electric Co. $1.643 cum. pfd. 768,750
12,500 Pacificorp $7.70 cum. pfd. 1,301,563
16,000 Pacificorp sinking-fund, $7.48 cum. pfd. 1,752,000
6,750 Public Service Electric & Gas Co. $6.92 cum. pfd. 712,125
26,250 Rochester Gas and Electric Ser. V, $6.60 pfd. 2,720,150
14,000 San Diego Gas & Electric Co. $1.763 cum. pfd. 350,000
67,000 San Diego Gas & Electric Co. $1.70 cum. pfd. 1,725,250
--------------
22,013,001
Consumer Services (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 Western Resources, Inc. $4.25 cum. pfd. 420,000
Electric Utilities (28.0%)
- --------------------------------------------------------------------------------------------------------------------------
130,800 Alabama Power Co. $1.30 cum. pfd. 2,828,550
5,000 Atlantic City Electric Co. $7.80 pfd. 527,500
10,000 Baltimore Gas & Electric Co. Ser. 93, $6.70 pfd. 1,055,000
46,386 Connecticut Light & Power sinking-fund, Ser. 92, $3.62 pfd. 2,110,563
18,000 Duke Power Co. Ser. S, $7.85 cum. pfd. 1,953,000
50,825 Duke Power Co. Ser. W, $7.00 cum. pfd. 5,438,275
8,916 Entergy Gulf States, Inc. $7.56 cum. pfd. 878,226
2,900 Entergy Mississippi, Inc. $4.92 cum. pfd. 261,000
5,000 Indianapolis Power & Light $5.65 cum. pfd. 487,500
3,000 Kentucky Utilities Co. $6.53 cum. pfd. 310,125
15,200 Niagara Mohawk Power Corp. Ser. A, $1.625 cum. ARP 380,000
20,000 Northern Indiana Public Services Ser. A, $3.00 cum. ARP 952,500
29,150 Peco Energy $7.48 cum. pfd. 3,170,063
15,000 Portland General Electric sinking-fund, $7.75 cum. pfd. 1,696,875
6,000 Potomac Electric Power Co. Ser. 92, $1.70 pfd. 312,750
10,000 South Carolina Electric & Gas Co. $6.52 cum. pfd. 1,046,250
25,000 Southern California Edison Co. $6.05 cum. pfd. 2,453,125
32,875 Southern California Edison Co. $1.20 cum. pfd. 719,141
10,000 Texas Utilities Electric Co. $7.98 cum. pfd. 1,088,750
10,000 Texas Utilities Electric Co. $6.375 cum. pfd. 983,750
75,580 Texas Utilities Electric Co. Ser. A, $1.875 pfd. 1,842,263
25,000 Texas Utilities Electric Co. Ser. B, $1.805 pfd. 600,000
20,000 Virginia Electric & Power Co. $6.98 cum. pfd. 2,130,000
--------------
33,225,206
Electronics and Electrical Equipment (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,500 Avista Corp. Ser. K, $6.95 pfd. 261,250
Financial Services (23.2%)
- --------------------------------------------------------------------------------------------------------------------------
20,900 Bear Stearns Companies Inc. Ser. E, $3.075 cum. pfd. 916,988
21,250 Bear Stearns Companies Inc. Ser. F, $2.86 cum. pfd. 865,938
14,000 Bear Stearns Companies Inc. Ser. A, $2.75 cum. ARP 654,500
37,200 Bear Stearns Companies Inc. Ser. G, $2.745 cum. pfd. 1,469,400
69,000 Citigroup, Inc. Ser. R, $3.182 pfd. 3,294,750
820 Citigroup Inc. Ser. G, $3.11 pfd. 38,335
7,145 Citigroup, Inc. Ser. M, $2.93 cum. pfd. 316,166
25,000 Citigroup, Inc. Ser. K, $2.10 cum. pfd. 646,875
63,850 Household International, Inc. Ser. 92-A, $2.063 dep. shs. cum. pfd. 1,644,138
52,000 J.P. Morgan & Co. Inc. Ser. H, $3.313 dep. shs. cum. pfd. 2,704,000
6,230 Lehman Brothers Holding, Inc. Ser. C, $2.97 pfd. 256,988
43,000 Lehman Brothers Holding, Inc. Ser. D, $2.835 pfd. 1,730,750
36,400 MBNA Corp. Ser. A, $1.875 cum. pfd. 887,250
11,000 MBNA Corp. Ser. B, $1.745 ARP 268,125
188,639 Merrill Lynch & Co., Inc. Ser. A, $2.25 dep. shs. cum. pfd. 5,470,531
45,000 Morgan Stanley $3.875 dep. shs. cum. pfd. 2,283,750
30,000 Morgan (J.P.) & Co., Inc. Ser. A, $5.00 cum. ARP 2,568,750
30,000 SLM Holding Corp. $3.49 pfd. 1,481,250
--------------
27,498,484
Gas Utilities (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
53,100 Boston Gas Ser. A, $1.61 pfd. 1,407,150
Metals and Mining (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
8,450 Alcoa, Inc. $3.75 cum. pfd. 621,075
Oil and Gas (10.1%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 Anadarko Petroleum Corp. $5.46 dep. shs. pfd. 1,630,000
10,000 Apache Corp. Ser. B, $5.68 cum. pfd. 846,250
8,500 Devon Energy Corp. Ser. A, $6.49 pfd. 833,000
107,500 El Paso Tennessee Pipeline Co. Ser. A, $4.125 cum. pfd. 5,603,438
111,000 LASMO PLC ADS Ser. A, $2.50 cum. pfd. (United Kingdom) 2,677,875
16,500 Washington Natural Gas Ser. II, $1.862 cum. pfd. 422,813
--------------
12,013,376
--------------
Total Preferred Stocks (cost $117,529,072) $ 114,254,471
CONVERTIBLE PREFERRED STOCKS (2.6%) (a) (cost $2,677,115)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
109,270 Lehman Brothers Holding, Inc. $5.00 cv. pfd. $ 3,059,560
SHORT-TERM INVESTMENTS (1.3%) (a) (cost $1,518,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$1,518,000 Interest in $624,736,000 joint repurchase agreement dated
December 31, 1999 with S.B.C. Warburg Inc. due
January 3, 2000 with respect to various U.S. Treasury
obligations -- maturity value of $1,518,348 for an
effective yield of 2.75% $ 1,518,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $121,724,187) (b) $ 118,832,031
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $118,657,092.
(b) The aggregate identified cost on a tax basis is $121,731,730, resulting in gross unrealized appreciation and
depreciation of $2,431,833 and $5,331,532, respectively, or net unrealized depreciation of $2,899,699.
(CUS) This entity provides subcustodian services to the fund.
ADS after the name of a foreign holding stands for American Depositary Shares representing ownership of foreign
securities on deposit with a domestic custodian bank.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
December 31, 1999 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $121,724,187) (Note 1) $118,832,031
- -----------------------------------------------------------------------------------------------
Cash 212
- -----------------------------------------------------------------------------------------------
Dividends and interest receivable 712,697
- -----------------------------------------------------------------------------------------------
Total assets 119,544,940
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 607,232
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 226,560
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 16,335
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 14,916
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,699
- -----------------------------------------------------------------------------------------------
Other accrued expenses 21,106
- -----------------------------------------------------------------------------------------------
Total liabilities 887,848
- -----------------------------------------------------------------------------------------------
Net assets $118,657,092
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital -- common shares (Unlimited shares authorized) (Note 1) $122,206,532
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (529,564)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (127,720)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (2,892,156)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $118,657,092
Computation of net asset value
- -----------------------------------------------------------------------------------------------
Net asset value per share ($118,657,092 divided by 10,824,907 shares) $10.96
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended December 31, 1999 (Unaudited)
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends $4,120,096
- -----------------------------------------------------------------------------------------------
Interest 27,906
- -----------------------------------------------------------------------------------------------
Total investment income 4,148,002
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 455,613
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 66,735
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 6,760
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 3,351
- -----------------------------------------------------------------------------------------------
Reports to shareholders 3,028
- -----------------------------------------------------------------------------------------------
Auditing 13,522
- -----------------------------------------------------------------------------------------------
Legal 1,527
- -----------------------------------------------------------------------------------------------
Postage 175
- -----------------------------------------------------------------------------------------------
Other 19,653
- -----------------------------------------------------------------------------------------------
Total expenses 570,364
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (8)
- -----------------------------------------------------------------------------------------------
Net expenses 570,356
- -----------------------------------------------------------------------------------------------
Net investment income 3,577,646
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (201,036)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (2,603,122)
- -----------------------------------------------------------------------------------------------
Net loss on investments (2,804,158)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 773,488
- -----------------------------------------------------------------------------------------------
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
December 31 June 30
1999* 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 3,577,646 $ 7,205,078
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (201,036) 733,749
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (2,603,122) (7,688,280)
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 773,488 250,547
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (3,636,955) (7,373,033)
- ---------------------------------------------------------------------------------------------------------------
Issuance of common shares with reinvestment of distributions -- 42,436
- ---------------------------------------------------------------------------------------------------------------
Total decrease in net assets (2,863,467) (7,080,050)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 121,520,559 128,600,609
- ---------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income of $529,564 and
$470,255, respectively) $118,657,092 $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
- ---------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share December 31
operating performance (Unaudited) Year ended June 30
- --------------------------------------------------------------------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year (common shares) $11.23 $11.88 $11.23 $10.54 $10.57 $10.84
- --------------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income .33 .67 .69 1.05 .80 .78
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.26) (.64) .68 .65 .03 .01
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .07 .03 1.37 1.70 .83 .79
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------------
From net investment income
- --------------------------------------------------------------------------------------------------------------------------------
To preferred shareholders -- -- (.01) (.23) (.07) (.01)
- --------------------------------------------------------------------------------------------------------------------------------
To common shareholders (.34) (.68) (.71) (.78) (.72) (.78)
- --------------------------------------------------------------------------------------------------------------------------------
From net realized gains
- --------------------------------------------------------------------------------------------------------------------------------
To preferred shareholders -- -- -- -- -- (.06)
- --------------------------------------------------------------------------------------------------------------------------------
To common shareholders -- -- -- -- -- (.24)
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (.34) (.68) (.72) (1.01) (.79) (1.09)
- --------------------------------------------------------------------------------------------------------------------------------
Auction preferred
share offering cost -- -- -- -- (.07) --
- --------------------------------------------------------------------------------------------------------------------------------
Change in cumulative undeclared
dividends on auction preferred shares -- -- -- -- -- .03
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year
(common shares) $10.96 $11.23 $11.88 $11.23 $10.54 $10.57
- --------------------------------------------------------------------------------------------------------------------------------
Market value, end of year
(common shares) $9.125 $9.688 $10.625 $10.500 $8.875 $9.250
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Ratios and supplemental data
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Total return at market value
(common shares) (%)(a) (2.39)* (2.70) 8.22 27.88 3.51 5.82
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Net assets, end of year
(total fund) (in thousands) $118,657 $121,521 $128,601 $181,757 $174,064 $114,357
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Ratio of expenses to
average net assets (%)(b)(c) .48* .95 1.02 1.51 1.23 1.07
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Ratio of net investment income
to average net assets (%)(b) 2.98* 5.76 5.77 7.57 6.88 7.39
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Portfolio turnover (%) 6.55* 28.40 30.63 19.27 35.13 27.39
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(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) The ratio of expenses to average net assets for the year ended June 30, 1996 and thereafter, includes amounts paid through
expense offset arrangements. Prior period ratios exclude these amounts (Note 2).
</TABLE>
Notes to financial statements
December 31, 1999 (Unaudited)
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 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. Certain preferred stocks for which reliable
market quotations are not readily available are stated at fair value on
the basis of valuations furnished by pricing services approved by the
Trustees, which determines valuations for normal, institutional-size
trading units of such securities using methods based on market
transactions for comparable securities and various relationships between
securities that are generally recognized by institutional traders.
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, Inc. 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 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 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 six months ended December 31, 1999, fund expenses were reduced by
$8 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 $632 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 six months ended December 31, 1999, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $8,560,076 and $7,784,594, respectively. There were
no purchases and sales of U.S. government obligations.
Our commitment to quality service
* CHOOSE AWARD-WINNING SERVICE
Putnam Investments has won the DALBAR Service Award 8 times in the past 9
years. In 1997 and 1998, Putnam was the only company to win all three
DALBAR awards: for service to investors, to financial advisors, and to
variable annuity contract holders.*
* HELP YOUR INVESTMENTS GROW
Set up a systematic program for investing with as little as $25 a month
from a Putnam money market fund or from your checking or savings account.+
* SWITCH FUNDS EASILY
Within the same class of shares, you can move money from one account to
another without a service charge. (This privilege is subject to change or
termination.)
* ACCESS YOUR MONEY QUICKLY
You can get checks sent regularly or redeem shares any business day at the
then-current net asset value, which may be more or less than the original
cost of the shares.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a helpful
Putnam representative. To learn more about Putnam, visit our Web site.
www.putnaminv.com
To make an additional investment in this or any other Putnam fund, contact
your financial advisor or call our toll-free number.
1-800-225-1581
* DALBAR, Inc., an independent research firm, presents the awards to financial
services firms that provide consistently excellent service.
+ Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market.
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 [DBL. DAGGER]
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 [DBL. DAGGER]
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
Jeanne L. Mockard
Vice President and Fund Manager
Richard A. Monaghan
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.putnaminv.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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BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
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