(logo)
Putnam
Master
Income
Trust
Annual
Report
October 31, 1993
(artwork)
For investors seeking
high current income
consistent with
preservation of capital
through a portfolio
diversified among U.S.
government, high-yield
and international
fixed-income securities
Contents
2 How your fund performed
3 From the Chairman
4 Report from Putnam Management
Annual Report
6 Report of Independent Accountants
7 Portfolio of investments owned
18 Financial statements
30 Dividend Policy
33 Federal tax information
34 Fund performance supplement
35 Your Trustees
A member
of the Putnam
Family of Funds
<PAGE>
How your
fund performed
For periods ended October 31, 1993
Total return* Consumer
Fund Price
NAV Market price Index
1 year 15.74% 13.27% 2.75%
3 years 64.99 77.35 9.14
annualized 18.16 21.04 2.96
5 years 80.21 66.26 21.21
annualized 12.50 10.70 3.92
Life-of-fund
(since 12/28/87) 101.09 72.35 26.26
annualized 12.71 9.77 4.07
Share data
NAV Market price
October 31, 1992 $9.15 $8.625
October 31, 1993 9.62 8.875
In excess of
Distributions Investment investment
12 months ended Number income income Total
October 31, 1993 12 $0.7269 $0.1416 $0.8685
Current returns
at the end of the period NAV Market price
Current dividend rate 7.80% 8.45%
*Performance data represent past results. Investment return, net
asset value and market price will fluctuate so an investor's
shares, when sold, may be worth more or less than their original
cost.
<PAGE>
Terms you need to know
Total return is the change in value of an investment from the
beginning to the end of a period, assuming the reinvestment of
all distributions. It may be shown at net asset value or at
market price.
Net asset value (NAV) is the value of all your fund's assets,
minus any liabilities, divided by the number of outstanding
shares, not reflecting any sales charge.
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.
Current dividend rate is calculated by annualizing the income
portion of the fund s most recent distribution and dividing by
the NAV or market price on the last day of the period.
Please see the fund performance supplement on page 34 for
additional information about performance comparisons.
<PAGE>
From the
Chairman
(photograph of George Putnam)
c. Karsh, Ottawa
George Putnam
Chairman
of the Trustees
Dear Shareholder:
I am pleased to report that Putnam Master Income Trust has had
another successful year. Falling interest rates remained an
ongoing trend through most of your fund's fiscal year and they
appear likely to remain low well into 1994. These lower rates
have brought higher bond prices and have allowed the fund to reap
substantial capital gains.
These returns have not gone unnoticed. Morningstar, Inc., an
industry research firm, gave the fund its four-star rating
(above-average) for risk-adjusted return through October 31,
1993.
Reviewing the year's results for each of the three fixed income
sectors in which your fund invests, it s clear that the
lower-rated, higher-yielding corporate bonds made the greatest
contribution. Careful bond selection, intensive credit research
and active management enabled the fund to make the most of
opportunities in the high-yield bond market. Meanwhile, the U.S.
government and international fixed income securities jockeyed for
second-place performance, with the leader shifting back and forth
from quarter to quarter.
The past three years have included periods of significant
strength for all three sectors of your fund's portfolio. The
fund's flexibility to shift assets between sectors enabled it to
take advantage of many investment opportunities. Although we may
not experience such fortuitous market conditions in the coming
year, Rosemary Thomsen and her investment team remain confident
of the fund's ability to produce attractive current income while
minimizing volatility.
Respectfully yours,
George Putnam
December 15, 1993
<PAGE>
Report from
Putnam Management
Putnam Master Income Trust continues to reward its shareholders
with attractive distributions, relatively low volatility and
strong total return. In the 12 months ended October 31, 1993, the
fund produced a total return of 15.74% at net asset value, or
13.27% for those who purchased shares at the market price at the
beginning of the period.
High-yield bonds lead returns For the second consecutive year,
your fund's total return was driven by the strength of the
high-yield bond market. We have emphasized investments in this
area and had approximately 40% of total net assets invested in
these securities throughout the period. While the prices of our
bond holdings in all three sectors have risen, ongoing interest
rate declines have affected the income streams available from
U.S. government and international fixed income securities.
High-yield bonds, while also affected, have benefited from an
ongoing supply of new issues, which has helped keep coupon rates
attractive versus Treasury bonds.
Early in the year, performance in the high-yield bond sector was
led by cyclical companies, like manufacturers of automobiles and
heavy machinery, firms that typically do well at the start of an
economic recovery. As the year progressed, however,
growth-oriented investments, issued by fast-developing companies
in such industries as gaming and telecommunications, outperformed
other sectors.
Shifting strategies for U.S. government securities During the
year, long-term rates declined, with 30-year Treasury bonds
falling from 7.63% to 5.97% and 10-year bonds moving from 6.97%
to 5.43%. Short-term rates remained relatively stable. These
moves provided us with opportunities for capital appreciation,
since bond prices rise as rates decline. Early in the year, we
began concentrating assets in both short-term securities and
30-year Treasuries. As rates declined, our long-term holdings
grew in value.
Mortgage-backed securities have, historically, made up a large
part of the fund's U.S. government securities portfolio. However,
interest rate declines have prompted record levels of
prepayments, putting the income stream from these investments at
risk. In anticipation of these developments, we reduced our
mortgage-backed holdings and concentrated our investments on
those with relatively low coupons. When mortgage-backed
securities prices fall to a level that we believe offsets their
risk, we expect to build up the fund s holdings.
Changing currencies limit potential return Performance of our
overseas holdings this year exemplified the special risks
associated with international investing. Although the bond
markets of certain countries provided substantial gains, currency
exchange-rate shifts reduced our profits when translated back
into U.S. dollars.
This year, in anticipation of a stronger dollar, which would
decrease the effective return from foreign investments, we relied
on hedging strategies to protect our investments. By employing
these hedges, we gave up a portion of our current return in
exchange for a greater measure of capital protection against
changing currency values. Historically, the fund's ability to use
hedges has helped us produce better long-term returns than funds
that lack this flexibility. This year, however, their use proved
less advantageous, particularly when the dollar weakened instead
of strengthening.
Outlook With interest rates at unrealistically high levels in the
upper-tier European countries, we expect muted growth, low
inflation, excess capacity and high unemployment through the end
of calendar 1993 and into 1994. We suspect that the European bond
market rally may be largely over, and we will look to expand our
investment horizons into other parts of the world. We have, in
fact, already begun to invest in the bond markets of such
emerging economies as Argentina, Mexico and Brazil.
At home, we expect lower rates to prevail and the economy to gain
momentum, however slowly. This should translate into an overall
improvement in the credit quality of many issuers and, in turn,
even greater stability in the domestic high-yield portion of your
fund's portfolio. We believe the investment strategies embodied
in Putnam Master Income Trust will enable us to take advantage of
many opportunities in the fixed income markets, both at home and
abroad.
Top 10 high-yield
bond holdings (10/31/93)
Midland Funding Corp. II
Playtex Family Products Corp.
Loehmanns' Holdings Inc.
Pathmark stores, Inc.
Premium Standard Farms
Gaylord Container Corp.
Collins & Aikman Group, Inc.
Comcast Cellular Corp.
Grand Union Co.
AMC Entertainment, Inc.
*Reflects a % of the total portfolio based on net assets.
<PAGE>
Top high-yield bond industry sectors (Based on a percentage of
total market value of corporate bonds & notes as of 10/31/93)
Retail ..............................8.9%
Recreation .............................8.8%
Conglomerates ...........................7.7%
<PAGE>
Putnam
Master
Income
Trust
Annual
Report
For the Year Ended October 31, 1993
Report of Independent Accountants
To the Trustees and Shareholders of
Putnam Master Income Trust
We have audited the accompanying statement of assets and
liabilities of Putnam Master Income Trust, including the
portfolio of investments owned, as of October 31, 1993, and the
related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in
the period then ended, and the "Financial Highlights" for each of
the five years in the period then ended, and for the period
December 28, 1987 (commencement of operations) to October 31,
1988. These financial statements and "Financial Highlights" are
the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and
"Financial Highlights" based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and "Financial Highlights" are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned as of October 31, 1993 by correspondence with
the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and "Financial
Highlights" referred to above present fairly, in all material
respects, the financial position of Putnam Master Income Trust as
of October 31, 1993, the results of its operations for the year
then ended, the changes in its net assets for each of the two
years in the period then ended, and the "Financial Highlights"
for each of the five years in the period then ended and for the
period December 28, 1987 (commencement of operations) to October
31, 1988, in conformity with generally accepted accounting
principles.
Coopers & Lybrand
Boston, Massachusetts
December 15, 1993
<PAGE>
Portfolio of
investments owned
October 31, 1993
Corporate Bonds and Notes (37.1%)(a)
Principal Amount Value
Retail (3.3%)
$ 1,600,000 Bradlees, Inc. sr. sub.
notes 11s, 2002 $ 1,732,000
2,100,000 County Seat Stores units
12s, 2001 2,047,500
1,870,000 Duane Reade Corp. sr.
notes 12s, 2002 2,000,900
1,000,000 Eckerd (Jack) Corp. sub.
deb. 11 1/8s, 2001 1,010,000
5,000,000 Loehmanns' Holdings Inc.
sr. sub. notes 10 1/2s,
1997(b) 4,656,250
50,000 Loehmanns' Holdings Inc.
sr. sub. notes 13 3/4s, 1999 50,875
4,000,000 Pathmark Stores, Inc. sub.
notes 11 5/8s, 2002 4,440,000
1,950,000 Pay'n Pak Stores, Inc. sr.
sub. deb. 13 1/2s, 1998(c) 9,750
1,050,000 Specialty Retailers, Inc. sr.
sub. notes 11s, 2003(b) 1,044,750
16,992,025
Recreation (3.3%)
3,000,000 AMC Entertainment, Inc. sr.
sub. deb. 12 5/8s, 2002 3,375,000
2,000,000 Act III Theatres sr. sub.
notes 11 7/8s, 2003 2,210,000
334,000 Belle Casinos bonds 12s,
2000(b) 339,010
1,800,000 Casino Magic Finance
1st mtge. deb. 11 1/2s,
2001(b) 1,818,000
675,000 Cinemark Mexico notes
12s, 2003(b) 629,438
1,825,000 Cinemark USA sr. notes
12s, 2002 2,002,956
625,000 Golden Nugget Finance
Corp. 1st mtge deb.
10 5/8s, 2003 606,250
$480,000 Presidential Riverboat
Casinos sr. sub. notes
11 3/4s, 2001(b) $ 470,400
2,912,000 Trump Castle Funding
units 9 1/2s, 1998(d) 2,329,600
1,000,000 Trump Plaza Funding, Inc.
1st mtge. notes 10 7/8s,
2001 990,000
2,000,000 Trump Taj Mahal sub. deb.
Ser. A, 11.35s, 1999(d) 1,980,000
16,750,654
Conglomerates (2.9%)
250,000 ADT Ltd. sr. sub. notes
9 1/4s, 2003 258,750
4,082,000 Collins & Aikman Group,
Inc. sub notes 15s, 1995 4,102,410
2,900,000 Haynes International Inc.
sr. sub. notes 13 1/2s,
1999 2,929,000
879,142 IFINT Diversified Holdings
sub. deb. 12.5135s,
1998 (acquired 3/29/93,
cost $879,143)(e) 901,121
2,000,000 Jordan Industries, Inc. sr.
notes 10 3/8s, 2003 1,995,000
2,050,000 MacAndrews & Forbes
Group Inc. deb. 12 1/4s,
1996 2,101,250
498,000 MacAndrews & Forbes
Group Inc. sub. notes
13 1/4s, 1994 499,245
1,000,000 MacAndrews & Forbes
Holdings Inc. sub. deb.
13s, 1999 1,005,000
1,650,000 Talley Industries, Inc. sr.
disc. deb. stepped-coupon
zero % (12 1/4s, 10/15/98),
2005(f) 919,875
14,711,651
Cable Television (2.4%)
$ 1,000,000 Adelphia Communications
Corp. notes 9 7/8s, 2005 $ 1,030,000
2,000,000 Adelphia Communications
Corp. sr. notes 12 1/2s,
2002 2,240,000
1,250,000 Cablevision Industries
Corp. sr. notes 10 3/4s,
2002 1,334,375
1,000,000 Century Communications
Corp. sr. sub. deb.
11 7/8s, 2003 1,150,000
975,000 Continental Cablevision,
Inc. sr. deb. 9s, 2008 1,072,500
1,891,000 Falcon Holdings Group,
Inc. sr. sub. notes 11s,
2003(b)(d) 1,966,640
2,300,000 Insight Communications
Co. sr. sub. notes
stepped-coupon 8 1/4s
(11 1/4s, 3/1/96), 2000(f) 2,242,500<PAGE>
1,000,000 Summit Communications
Group, Inc. sr. sub. deb.
10 1/2s, 2005 1,070,000
12,106,015
Cellular Communications (2.1%)
1,500,000 Cellular, Inc. sr. sub. disc.
notes stepped-coupon
zero % (11 3/4s, 9/1/98),
2003(f) 975,000
6,650,000 Comcast Cellular Corp.
sr. par. Ser. A, zero %,
2000 4,089,750
4,670,000 Horizon Cellular Telephone
Co. sr. sub. disc. notes
stepped-coupon zero %
(11 3/8s, 10/1/97),
2000(b)(f) 3,245,650
$ 3,500,000 NEXTEL Communications
Inc. sr. disc. notes
stepped-coupon zero %
(11 1/2s, 9/1/98), 2003(f) $ 2,450,000
10,760,400
Forest Products (1.8%)
1,600,000 Container Corp. of America
sr. notes 9 3/4s, 2003 1,622,000
5,735,000 Gaylord Container Corp.
sr. sub. notes stepped-
coupon zero % (12 3/4s,
5/15/96), 2005(f) 4,129,200
2,150,000 Stone Savannah River
Pulp & Paper Corp. sr.
sub. notes 14 1/8s, 2000 1,763,000
1,500,000 Williamhouse Regency
Delaware, Inc. sr. sub.
deb. 11 1/2s, 2005 1,545,000
9,059,200
Specialty Consumer Products (1.7%)
2,000,000 Equitable Bag Co. sub.
deb. 12 3/8s, 2002 1,700,000
4,425,000 Playtex Family Products
Corp. sr. sub. disc.
notes stepped-coupon
zero % (14 3/4s,
12/15/93), 1997(f) 4,590,938
600,000 Playtex Family Products
Corp. sr. sub. notes
13 1/2s, 1998 639,000
2,000,000 Revlon Consumer Products
Corp. sr. sub. notes
10 1/2s, 2003 1,920,000
8,849,938
<PAGE>
Food (1.6%)
$ 2,085,000 Del Monte Corp. sub.
notes 12 1/4s, 2002
(acquired 3/12/93,
$1,413,498)(d)(e) $ 1,433,253
2,250,000 Fresh Del Monte Produce
N.V. Corp. deb. 10s,
2003(b) 2,160,000
2,500,000 Mafco, Inc. sr. sub. notes
11 7/8s, 2002 2,662,500
1,100,000 Specialty Foods Corp. sr.
sub. notes 11 3/4s,
2003(b) 1,127,500
1,700,000 Specialty Foods Corp.
units stepped-coupon
zero % (13 1/2s, 8/15/99),
2005(b)(f) 807,500
8,190,753
Electric Utilities (1.2%)
1,500,000 Midland Funding Corp. II
sub. secd. lease oblig.
bonds Ser. A, 11 3/4s,
2005 1,653,750
4,000,000 Midland Funding Corp. II
sub. secd. lease oblig.
bonds Ser. B, 13 1/4s,
2006 4,720,000
6,373,750
Food Chains (1.1%)
2,000,000 Grand Union Capital Corp.
sr. notes stepped-
coupon zero %
(15s, 6/15/99), 2004(f) 890,000
3,250,000 Grand Union Co. sub.
deb. 12 1/4s, 2002 3,420,625
$ 410,000 Megafoods Stores Inc. sr.
notes 10 1/4s, 2000 $ 407,950
1,250,000 Southland Corp. 1st
priority sr. sub. deb. 5s,
2003 928,125
5,646,700
Agriculture (1.0%)
1,994,000 PMI Acquisition Corp.
units stepped-coupon
zero%, (11 1/2, 3/1/00)
2005(b)(f) 967,090
1,173,000 Premium Standard Farms
deb. zero %, 2003(b)(g) 856,290
558,000 Premium Standard Farms
deb. zero %, 2003(b) 417,105
550,500 Premium Standard Farms
exch. pfd. units 12 1/2s,
2000(b) 576,649<PAGE>
2,449,280 Premium Standard Farms
sr. secd. notes 12s,
2000(b) 2,565,621
5,382,755
Publishing (1.0%)
1,950,000 Affinity Group sr. sub.
notes 11 1/2s, 2003 2,032,875
5,100,000 Marvel Parent Holdings,
Inc. sr. secd. disc.
notes zero %, 1998 3,136,500
5,169,375
Building Products (0.9%)
750,000 American Standard, Inc.
sr. deb., 11 3/8s, 2004 828,750
1,000,000 Nortek Inc. sr. notes
9 3/4, 1997 965,000
$1,750,000 Southdown, Inc. sr. sub.
notes Ser. B, 14s, 2001 $ 1,995,000
1,000,000 Triangle Pacific Corp. sr.
notes 10 1/2s, 2003 1,035,000
4,823,750
Electronics (0.9%)
2,250,000 Ampex Group Inc. sr. sub.
deb. 13 1/4s, 1996(c) 472,500
2,700,000 Amphenol Corp. sr. sub.
notes 12 3/4s, 2002 2,983,500
2,500,000 International Semi-Tech sr.
secd. disc. notes
stepped-coupon zero %
(111/2s, 8/15/00),
2003(f) 1,300,000
4,756,000
Health Care (0.9%)
1,350,000 American Medical
International Inc. sr.
sub. notes 13 1/2s,
2001 1,579,500
1,022,500 EPIC Healthcare Group,
Inc. jr. sub. notes 11s,
2003(d) 601,358
2,000,000 EPIC Holdings Inc. sr. sub.
notes stepped-coupon
zero% (12s, 3/15/97),
2002(f) 1,427,500
1,000,000 Quorum Health Group,
Inc. sr. sub. notes
11 7/8s, 2002 1,105,000
4,713,358
Advertising (0.8%)
$1,935,000 Katz Corp. sr. sub. notes
12 3/4s, 2002 $ 2,147,850
2,000,000 Lamar Advertising Co.
notes 11s, 2003 2,105,000
4,252,850
Chemicals (0.8%)
500,000 Arcadian Partners L.P.
sr. notes 10 3/4s, 2005 520,000
1,800,000 G-I Holdings Inc. sr.
notes zero %, 1998(b) 1,093,500
700,000 Harris Chemical Corp.
sr. sub. notes 10 3/4s, 2003 721,000
1,750,000 UCC Investors Holding,
Inc. sr. notes 10 1/2s,
2002 1,890,000
4,224,500
Restaurants (0.7%)
350,000 American Restaurant
Group, Inc. sr. secd.
notes 12s, 1998 351,750
3,200,000 Flagstar Corp. sr. sub.
deb. sinking fund 11.25s,
2004 3,256,000
3,607,750
Nursing Homes (0.7%)
1,150,000 Beverly Enterprises Inc.
sr. secd. notes 14 1/4s,
1997 1,334,000
1,987,000 Multicare Cos., Inc. sr.
sub. notes 12 1/2s, 2002 2,245,310
3,579,310
Computers (0.7%)
$3,000,000 Computervision Corp.
sub. deb. 11 3/8s, 1999 $ 2,040,000
3,598,000 DR Holdings Inc. sr.
sub. deb. 15 1/2s,
2002(c) 377,790
1,000,000 Unisys Corp. sr. notes
10 5/8s, 1999 1,090,000
3,507,790
Communications (0.7%)
115,000 Page Mart Inc. sr. disc.
notes stepped-coupon
zero % (12 1/4s, 11/1/98),
2003(b)(f) 672,750
4,200,000 Panamsat L.P. sr. sub.
notes stepped-coupon
zero % (11 3/8s, 8/1/98),
2003(f) 2,709,000
3,381,750
Insurance (0.6%)
975,000 American Annuity Group,
Inc. sr. notes 9 1/2s, 2001 987,188
1,950,000 Bankers Life Holding Corp.
sr. sub. deb. 13s, 2002 2,320,500
3,307,688<PAGE>
Containers (0.5%)
2,500,000 Ivex Packaging Corp. sr.
sub. notes 12 1/2s, 2002 2,675,000
Medical Supplies (0.5%)
2,515,000 Wright Medical Technology
sr. secd. notes 10 3/4s,
2000(b) 2,533,863
Automotive Parts (0.5%)
$750,000 Exide Corp. sr. notes
10 3/4s, 2002 $ 810,938
1,350,000 Key Plastics Corp. sr.
notes 14s, 1999 1,582,875
2,393,813
Oil and Gas (0.5%)
2,350,000 Maxus Energy Corp. notes
9 3/8s, 2003 2,391,125
Metals and Mining (0.5%)
528,000 Horsehead Industries, Inc.
sr. sub. ext. reset notes
13 1/2s, 1994 520,080
2,000,000 Horsehead Industries, Inc.
sub. notes 14s, 1999 1,820,000
2,340,080
Aluminum (0.4%)
2,350,000 Kaiser Aluminum &
Chemical Corp. sr. sub.
notes 12 3/4s, 2003 2,303,000
Textiles (0.4%)
2,000,000 Foamex (L.P.) Capital
Corp. sr. sub. deb. 11 7/8s,
2004 2,115,000
125,000 Foamex (L.P.) sr. secd. notes
9 1/2s, 2000 129,375
2,244,375
Consumer Services (0.4%)
1,000,000 Solon Automated Services,
Inc. sr. notes 12 3/4s,
2001 1,100,000
$1,000,000 Solon Automated Services,
Inc. sr. sub. deb. 13 3/4s,
2002 $ 1,100,000
2,200,000
School Busses (0.4%)
2,000,000 Blue Bird Acquisition
Corp. sub. deb.
11 3/4s, 2002 2,120,000
Environmental Services (0.4%)
2,000,000 Envirosource, Inc. sr.
notes 9 3/4s, 2003 1,960,000
Airlines (0.4%)
1,800,000 USAir, Inc. pass-thru
certificates 10 3/8s,
2013(g) 1,815,750
Shipping (0.3%)
1,250,000 Viking Star Shipping sr.
secd. notes 9 5/8s,
2003(b) 1,287,500
Apparel (0.3%)
1,250,000 Guess?, Inc. sr. sub.
notes 10s, 2003(b) 1,275,000
Financial Services (0.2%)
1,125,000 Comdata Network, Inc.
sr. notes 12 1/2s, 1999 1,220,622
Gas (0.2%)
1,000,000 TransTexas Gas Corp.
sr. secd. notes 10 1/2s,
2000 1,070,000
Broadcasting (0.1%)
$ 500,000 SFX Broadcasting deb.
11 3/8s, 2000 $ 515,000
Total Corporate Bonds
and Notes
(cost $186,207,689) $190,493,090
U.S. Government and Agency Obligations (26.4%)(a)
Principal Amount Value
$1,452,678 Federal Home Loan
Mortgage Corporation
7 1/2s, July 1, 2016 $ 1,492,627
Federal National Mortgage
Association
3,671,037 Interest Only PAC (IO)
Strips 1,071s, April 25,
2008(h) 330,393
6,270,000 TBA, 6s, January 14, 2009(i) 6,254,325
9,000,000 TBA, 5 1/2s, January 14,
2009(i) 8,808,750
Government National
Mortgage Association
167 9s, May 15, 2021 178
3,480,000 TBA, 6 1/2s, January 15,
2024(i) 3,490,875
10,200,000 TBA, 6 1/2s, December 15,
2023(i) 10,257,375
12,870,000 U.S. Treasury Bonds 8 7/8s,
August 15, 2017 17,032,641
6,740,000 U.S. Treasury Bonds 8 1/8s,
August 15, 2021 8,382,875
880,000 U.S. Treasury Bonds 8s,
November 15, 2021 1,082,400
2,980,000 U.S. Treasury Notes 6 7/8s,
August 15, 1994 3,057,294
22,600,000 U.S. Treasury Notes 5 1/4s,
July 31, 1998 23,016,688
$ 20,827,000 U.S. Treasury Notes 5 1/8s,
June 30, 1998 $ 21,119,880<PAGE>
10,690,000 U.S. Treasury Notes 4 1/4s,
July 31, 1995 10,750,131
2,980,000 U.S. Treasury Notes 4 1/4s,
August 31, 1994 2,999,556
11,250,000 U.S. Treasury Notes 4 1/8s,
June 30, 1995 11,295,703
14,220,000 U.S. Treasury Stripped
Principal Payment Coupon
Securities zero %,
November 15, 2021 2,332,968
12,015,000 U.S. Treasury Stripped
Principal Payment
Coupon Securities
zero %, May 15, 2021 2,016,267
11,680,000 U.S. Treasury Stripped
Principal Payment
Coupon Securities
zero %, August 15, 2020 2,036,700
Total U.S. Government
and Agency Obligations
(Cost $132,999,416) $135,757,626
Foreign Bonds and Notes (25.3%)(a)
Principal Amount Value
U.S. 3,500,000 Argentina (Government of)
bonds 4s, 2023 $ 2,716,875
U.S. 8,350,000 Argentina (Government of)
bonds 4s, 2023 5,521,438
U.S. 250,000 Argentina (Government of)
bonds 4s, 2023 165,625
A 5,215,000 Australia (Government of)
bonds 7 1/2s, 2005(j) 3,722,206
U.S. 3,000,000 Brazil (Government of)
bonds 8 3/4s, 2001 2,388,750
DKK 35,000,000 Denmark (Government of)
bonds 9s, 1998(j) 5,796,875
FIM 5,000,000 Finland (Government of)
10 3/4s, 2002(j) 1,034,375
FF 17,400,000 France (Government of)
Balladurs 6s, 1997(j) $ 3,001,500
ECU 1,130,000 France Treasury bonds
8 1/4s, 2022(j) 1,470,413
ITL 5,850,000,000 Italy (Government of)
BTPS 12s, 1995(j) 3,747,656
ITL 4,460,000,000 Italy (Government of)
BTPS 11 1/2s, 1996(j) 2,862,763
ITL 3,600,000,000 Italy (Government of)
bonds 11 1/2s, 2003(j) 2,511,000
ITL 960,000,000 Italy (Government of)
bonds 10s, 2003(j) 624,000
ECU 4,000,000 Italy (Government of)
notes 9 1/4s, 2011(j) 5,205,000
<PAGE>
JPY 998,000,000 Japan (Government of)
BTPS 5 1/2s, 2013(j) 10,266,925
JPY 500,000,000 Japan (Government of)
BTPS 5.3s, 2013(j) 5,018,750
JPY 824,000,000 Japan (Government of)
BTPS 4.9s, 2009(j) 7,931,000
JPY 335,500,000 Japan (Government of)
BTPS 4.8s, 2002(j) 3,317,256
U.S. 5,500,000 Mexican Aztec bonds 5s,
2008(j) 5,273,125
NLG 25,550,000 Netherlands
(Government of)
bonds 7 1/2s, 2023(j) 15,585,500
ZAL 7,600,000 South Africa bonds 11s,
2008(j) 1,567,500
SP 305,000,000 Spain (Government of)
notes 12 1/4s, 2000(j) 2,680,188
SP 121,650,000 Spain (Government of)
notes 11s, 1997(j) 978,522
SEK 20,200,000 Sweden (Government of)
bonds 10 1/4s, 2003(j) 2,929,000
SEK 29,300,000 Sweden (Government of)
bonds 6s, 2005(j) 3,149,750
GBP 2,530,000 United Kingdom Treasury
bonds 9s, 2008(j) 4,362,669
GBP 925,000 United Kingdom Treasury
bonds 8 3/4s, 2017(j) 1,610,656
GBP 1,970,000 United Kingdom Treasury
bonds 8 1/2s, 2007(j) 3,252,963
GBP 3,100,000 United Kingdom Treasury
bonds 7 1/4s, 1998(j) $ 4,779,813
GBP 1,250,000 United Kingdom Treasury
war bonds 3 1/2s, 2049(j) 899,219
$2,500,000 Venezuela (Government of)
bonds 6 3/4s, 2020 1,868,750
$3,750,000 Venezuela (Government of)
bonds 6s, 2007 2,981,250
$3,500,000 Venezuela (Government of)
bonds 4.3521s, 2007 2,581,250
JPY 854,000,000 World Bank notes 4 1/2s,
2003(j) 8,289,135
Total Foreign Bonds
and Notes
(cost $126,656,154) $130,091,697
Asset-Backed Securities (1.1%)(a)
Principal Amount Value
$ 1,575,000 First Deposit Master Trust
Ser. 93-2, 5 3/4s, 2001 $ 1,610,438
3,117,298 Security Pacific Acceptance
Corp. Ser. A1, 7.65s, 2012 3,249,783
905,000 Standard Credit Card
Trust Ser. 91-5B,
6 1/2s, 1994 909,525
Total Asset-Backed
Securities
(cost $5,592,517) $ 5,769,746
Common Stocks (0.9%)(a)
Number of Shares Value
5,700 Applause Enterprises
Inc. (acquired 10/4/90,
cost $64,125)(c)(e) $ 1,425
246 CDK Holding Corp.
rights (acquired 10/31/88,
cost $13,762)(c)(e) 5,566
116,043 Charter Medical Corp.(c) $ 2,915,580
10,234 Computervision Corp.
(acquired 8/24/92,
cost $92,106)(e) 21,107
15,261 Grand Casinos, Inc.(c) 381,525
9,653 Kendall International, Inc.(c) 424,732
30,773 SPI Holdings Inc. Class B(c) 376,969
108,263 Solon Automated Services,
Inc. (acquired 6/18/92
cost $64,650)(c)(e) 67,664
1 Southland Corp.(c) 6
25,500 Specialty Foods Corp.
(acquired 8/10/93,
cost $18,533)(c) 28,688
11,231 Taj Mahal Holding Corp.
Class A(c) 235,851
10,000 Triangle Pacific Corp.(c) 133,750
Total Common Stocks
(cost $1,974,180) $ 4,592,863
Preferred Stocks (0.9%)(a)
Number of Shares Value
1,709,000 Playtex Family Products
Corp. $0.14, jr. pfd.
(acquired 2/6/92, cost
$2,623,144)(e) $ 3,204,375
16,319 Stone Savannah River
Pulp & Paper Corp.
$3.84 exch. pfd.(d) 1,174,968
1,935 Supermarkets General
Holdings Corp. $3.52
exch. pfd. 54,180
Total Preferred Stocks
(cost $4,253,068) $ 4,433,523
Convertible Preferred Stocks (0.3%)(a) (cost $1,400,000)
Number of Shares Value
28,000 Conseco, Inc. Ser. D,
$3.25 cv. pfd. $ 1,673,000
<PAGE>
Call Options On Foreign Bonds (0.3%)(a)(j)
Expiration Date/
Number of Contracts Strike Price Value
8,600 Brazil (Government
of) bonds
Dec/U.S.$77.625 $ 172,000
30 France Treasury
bonds Apr/FF107.18 38,440
315 France Treasury
bonds Dec/FF16.07 1,130,316
871 Japanese (Government
of) bonds Jan/JPY110.754 135,717
3,900 Morocco (Government
of) bonds
Jan/U.S.$76.875 167,310
Total Call Options On
Foreign Bonds
(cost $841,826) $ 1,643,783
Yankee Bonds and Notes (0.3%)(a) (cost $1,567,787)
Principal Amount Value
$ 1,575,000 Banco De Galicia notes
9s, 2003(g) $ 1,567,787
Collateralized Mortgage Obligations (0.2%)(a)
(cost $938,935)
Principal Amount Value
$ 936,294 Prudential Home Mortgage
Securities Co. Ser. 92-39
P1, 5.15s, 2007 $ 936,879
Warrants (0.1%)(a)(c)
Number of Expiration
Warrants Date Value
334 Belle Casinos 10/15/03 $ 6,680
406 CDK Holding Corp.
Class A (acquired
10/31/88, cost
$22,777)(e) 7/7/99 9,186
434 CDK Holding Corp.
Class B (acquired
10/31/88, cost
$12,180)(e) 7/7/99 8,951
7,499 Cinemark Mexico 8/1/03 72,178
2,880 Presidential Riverboat
Casinos 9/15/96 34,560
20,000 Southdown, Inc.
(acquired 10/31/91,
cost $60,000)(e) 11/1/96 180,000
2,054 Southland Corp. 3/5/96 10,784
1,036 Wright Medical
Technology Inc. 6/30/03 88,025
Total Warrants
(cost $258,812) $ 410,364
<PAGE>
Call Options On Cross Forward Currency
Contracts (0.1%)(a)
Expiration Date/
Number of Contracts Strike Price Value
2,650 British Sterling In
Exchange For
Deutschemarks
Dec/2.48 $ 57,240
13,000 Deutschemarks In
Exchange For
Japanese Yen
Dec/65.7 63,700
26,000 Deutschemarks In
Exchange For
Japanese Yen
Dec/66.25 78,000
19,000 U.S. Dollars In
Exchange For
Deutschemarks
Nov/1.69 $ 17,100
7,800 U.S. Dollars In
Exchange for
Japanese Yen
Jan/109 137,280
Total Call Options
On Cross Forward
Currency Contracts
(cost $760,048) $ 353,320
Short-Term Investments (9.9%)(a)
Principal Amount Value
GRD 535,000,000 Greece Treasury Bills
zero %, May 31,
1994(j) $ 1,966,125
GRD 300,000,000 Greece Treasury bills zero %,
May 17, 1994(g)(j) 1,111,875
$ 15,000,000 Shearson Lehman
Brothers Holdings Inc.
3.13s, November 1,
1993 14,928,696
32,880,000 Interest in $356,683,000
joint repurchase
agreement dated
October 29, 1993 with
Kidder, Peabody & Co.
Inc. due November 1,
1993 with respect to
various U.S. Treasury
obligations--maturity value
of $32,885,389 for an
effective yield of 2.95% 32,885,389
Total Short-Term
Investments
(cost $51,333,066) $ 50,892,085
Total Investments
(cost $514,783,498)(k) $528,615,763
Notes
(a) Percentages indicated are based on total net assets of
$513,315,877, which corresponds to a net asset value per share of
9.62.
(b) Securities exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers. At October 31, 1993 these securities were
valued at $30,510,506 or 5.9% of net assets.
(c) Non-income-producing security.
(d) Income may be received in cash or additional securities at
the discretion of the issuer.
(e) Restricted, excluding 144A securities, as to public resale.
At the date of acquisition these securities were valued at cost.
There were no outstanding unrestricted securities of the same
class as those held. Total market value of restricted securities
owned at October 31, 1993 was $5,861,336 or 1.1% of net assets.
(f) The interest rate and date shown parenthetically represent
the new interest rate to be paid and the date the Fund will begin
accruing this rate.
(g) A portion of these securities, having a value of $3,798,090
or 0.7% of net assets, have been purchased on a "forward
commitment basis"--that is, the Fund has agreed to take delivery
of and make payment for such securities beyond the settlement
time of five business days after the trade date and subsequent to
the the date of this report. The purchase price and interest rate
of these securities are fixed at the trade date, although the
Fund does not earn any interest on such securities until the
settlement date.
(h) Interest Only (IO) Strips represent the right to receive the
monthly interest payments on an underlying pool of mortgage
loans. No payments of principal on the pool are passed through to
the IO holders.
(i) TBA's are mortgage- backed securities traded under delayed
delivery commitments settling after October 31, 1993. Although
the unit price for the trades has been established, the principal
value has not been finalized. However, the amount of the
commitments will not fluctuate more than 2.0% from the principal
amount. The cost of TBA purchases at October 31, 1993 was
$28,781,691.
<PAGE>
(j) Foreign-currency denominated. Market value is translated at
the current exchange rate.
(k) The aggregate identified cost for federal income tax purposes
is $515,033,644 resulting in gross unrealized appreciation and
depreciation of $25,086,553 and $11,504,434, respectively, or net
unrealized appreciation of $13,582,119.
U.S. Treasury Bond Futures Contracts Outstanding
at October 31, 1993 (Aggregate face value $12,841,875)
Expiration Month/ Unrealized
Number of Contracts Strike Price Appreciation
108 U.S. Treasury
Bond Futures
(Sell) Dec/93 $ 16,875
Forward Currency Contracts Outstanding
at October 31, 1993
Market Aggregate Delivery Unrealized
Value Face Value Date Appreciation
Deutschemarks
(Sell) $3,380,100 $3,500,476 11/12/93 $ 120,376
French Francs
(Sell) 6,587,100 6,605,467 11/30/93 18,367
French Francs
(Sell) 1,381,700 1,439,480 12/21/93 57,780
Japanese Yen
(Sell) 5,540,820 5,602,868 12/24/93 62,048
Japanese Yen
(Sell) 92,256 94,507 11/29/93 2,251
Japanese Yen
(Sell) 923,950 951,701 1/7/94 27,751
Japanese Yen
(Sell) 12,314,974 12,693,854 11/24/93 378,880
Japanese Yen
(Sell) 11,902,185 12,240,018 12/3/93 337,833
Japanese Yen
(Sell) 4,618,350 4,719,608 12/29/93 101,258
$1,106,544
<PAGE>
Cross Forward Currency Contracts Outstanding
at October 31, 1993 (aggregate face value $16,820,387)
In Unrealized
Market Exchange Market Delivery Appreciation/
Contracts Value For Value Date(Depreciation)
Deutschemarks Greek
(Buy) $1,211,200 Drachma $1,286,013 12/14/93 $ (74,813)
Deutschemarks Greek
(Buy) 1,806,120 Drachma 1,932,405 12/15/94 (126,285)
Deutschemarks French
(Buy) 3,206,520 Francs 3,206,322 1/12/94 198
Deutschemarks Danish
(Buy) 3,991,190 Krone 4,035,401 1/18/94 (44,211)
Deutschemarks French
(Buy) 1,365,970 Francs 1,374,619 1/18/94 (8,649)
Deutschemarks French
(Buy) 1,395,665 Francs 1,412,200 1/18/94 (16,535)
Deutschemarks Finnish
(Sell) 2,968,500 Markka 3,004,798 1/20/94 36,298
$(233,997)
Diversification of Foreign Bonds and Notes
at October 31, 1993 (as a percentage of net assets):
Japan 6.9% Mexico 1.0%
Netherlands 3.0 France 0.9
Italy 2.9 Australia 0.7
United Kingdom 2.9 Spain 0.7
Argentina 1.6 Greece 0.6
Venezuela 1.4 Brazil 0.5
Sweden 1.2 South Africa 0.3
Denmark 1.1 Finland 0.2
<PAGE>
<TABLE>
<CAPTION>
Statement of
assets and liabilities
October 31, 1993
<S> <C> <C>
Assets
Investments in securities, at value (identified cost
$514,783,498) (Note 1) $528,615,763
Cash 257,277
Interest and other receivables 9,758,865
Receivable for securities sold 38,990,904
Receivable for open forward currency contracts 1,143,040
Receivable for closed forward currency contracts 272,070
Receivable for variation margin 23,625
Total assets 579,061,544
Liabilities
Payable for securities purchased $59,773,779
Distributions payable to shareholders 3,321,879
Payable for compensation of Manager (Note 2) 966,397
Payable for administrative services (Note 2) 1,259
Payable for compensation of Trustees (Note 2) 1,103
Payable for investor servicing and custodian
fees (Note 2) 58,740
Payable for open forward currency contracts 270,493
Payable for closed forward currency contracts 1,224,492
Other accrued expenses 127,525
Total liabilities 65,745,667
Net assets 513,315,877
Represented by
Paid-in capital $481,523,815
Distributions in excess of net investment income (7,555,392)
Accumulated net realized gain on investment
transactions 24,629,143
Net unrealized appreciation of investments, options, futures,
and forward currency contracts 14,718,311
Total -- Representing net assets applicable to capital
shares outstanding $513,315,877
Computation of net asset value (and offering price)
Net asset value per share ($513,315,877 divided by
53,375,649 shares) $9.62
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of
operations
Year ended October 31, 1993
<S> <C> <C>
Investment income:
Interest (net of foreign tax $129,433) $42,653,732
Dividends 763,118
Total investment income 43,416,850
Expenses:
Compensation of Manager (Note 2) $3,742,268
Investor servicing and custodian fees (Note 2) 385,850
Compensation of Trustees (Note 2) 21,902
Reports to shareholders 93,634
Exchange listing fee 47,496
Auditing 69,556
Legal 23,635
Postage 203,244
Administrative services (Note 2) 15,859
Amortization of organization expenses (Note 1) 1,134
Registration fees 1,088
Other 9,864
Total expenses 4,615,530
Net investment income 38,801,320
Net realized gain on investments (Notes 1 and 3) 19,534,051
Net realized gain on options (Notes 1 and 3) 538,864
Net realized gain on futures contracts (Notes 1 and 3) 6,615
Net realized gain on forward currency contracts
(Notes 1 and 3) 4,586,142
Net realized loss on foreign currency (Note 1) (36,529)
Net unrealized appreciation of investments, futures, and
forward currency contracts during the year 7,976,174
Net gain on investment transactions 32,605,317
Net increase in net assets resulting from operations $71,406,637
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of
changes in net assets
Year ended October 31
1993 1992
<S> <C> <C>
Increase in net assets
Operations:
Net investment income $ 38,801,320 $ 41,273,369
Net realized gain on investments 19,534,051 32,235,783
Net realized gain (loss) on options 538,864 (1,628,393)
Net realized gain on futures contracts 6,615 586,832
Net realized gain of forward currency contracts 4,586,142 4,731,149
Net realized loss on foreign currency (36,529) (79,502)
Net unrealized appreciation (depreciation) of
investments, options, futures and forward
currency contracts 7,976,174 (9,097,376)
Net increase in net assets resulting
from operations 71,406,637 68,021,862
Distributions to shareholders from:
Net investment income (38,801,320) (41,028,325)
In excess of net investment income (7,555,392) --
Net realized gain on investments -- (5,542,096)
Paid-in capital (Note 1) -- (2,957,248)
Increase from capital share transactions -- 1,537,539
Total increase in net assets 25,049,925 20,031,732
Net assets
Beginning of year 488,265,952 468,234,220
End of year (including distributions in excess
of net investment income of $7,555,392 and
$0, respectively) $513,315,877 $488,265,952
Fund shares
Shares outstanding at beginning of year 53,375,649 53,207,901
53,375,649 53,207,901<PAGE>
Shares issued in connection with the reinvestment
of distributions -- 167,748
Shares outstanding at end of year 53,375,649 53,375,649
/TABLE
<PAGE>
<TABLE>
<CAPTION>
Financial highlights*
(For a share outstanding throughout the period)
<S> <C> <C> <C> <C> <C> <C>
For the period
December 28, 1987
(commencement
of operations) to
Year ended October 31 October 31
1993 1992 1991 1990 1989 1988
Net Asset Value,
Beginning of Period $9.15 $8.80 $8.01 $8.86 $9.50 $9.35
Investment Operations
Net Investment Income .73 .77 .82 .84 .95 .81
Net Realized and Unrealized Gain
(Loss) on Investments .61 .51 .90 (.69) (.44) .17
Total from Investment Operations 1.34 1.28 1.72 .15 .51 .98
Distributions to Shareholders From:
Net Investment Income (.73) (.77) (.82) (.84) (.96) (.80)
In Excess of Net Investment Income (.14) -- -- -- -- --
Net Realized Gain on Investments -- (.10) -- (.01) (.19) (.03)
Paid-in Capital (a) -- (.06) (.11) (.15) -- --
Total Distributions (.87) (.93) (.93) (1.00) (1.15) (.83)
Net Asset Value,
End of Period $9.62 $9.15 $8.80 $8.01 $8.86 $9.50
Market Value,
End of Period 8.88 8.63 8.38 6.88 8.25 9.50
Total Investment Return at
Market Value (%) 13.27 14.34 36.93 (4.80) (1.52) 4.36(b)
Net Assets, End of Period
(in thousands) $513,316 $488,266 $468,234 $428,862 $482,494 $515,253
Ratio of Expenses to Average Net Assets (%) .92 .95 1.08 1.08 1.06 1.01(b)
Ratio of Net Investment Income to
Average Net Assets (%) 7.76 8.59 9.74 10.07 10.21 10.15(b)
Portfolio Turnover (%) 132.24 221.30 323.27 125.33 323.44117.10(c)
*Financial highlights for periods ended through October 31, 1992 have been restated to conform with requirements issued
by the SEC in December 1992.
(a)See Note 1 to the Financial Statements.
(b)Annualized.
(c)Not annualized.
/TABLE
<PAGE>
Notes to
financial statements
October 31, 1993
Note 1
Significant
accounting
policies
The Fund is registered under the Investment Company Act of 1940,
as amended, as a diversified, closed-end management investment
company. The investment objective of the Fund is to seek high
current income consistent with preservation of capital. The Fund
intends to diversify its investments among the following three
sectors of the fixed income securities market: a U.S. government
sector, consisting of debt obligations of the U.S. government and
its agencies and instrumentalities and related options, futures
and repurchase agreements; a high yield sector, consisting of
high yielding, lower-rated U.S. corporate fixed income
securities; and an international sector, consisting of
obligations of foreign governments, their agencies and
instrumentalities and other fixed income securities denominated
in foreign currencies.
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its
financial statements. The policies are in conformity with
generally accepted accounting principles.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined
using the last reported sale price, or, if no sales are reported
- -- as in the case of some securities traded over-the-counter --
the last reported bid price, except that certain U.S. government
obligations are stated at the mean between the last reported bid
and asked prices. 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, and
other investments, including restricted securities, are stated at
fair value following procedures approved by the Trustees. Market
quotations are not considered to be readily available for
long-term corporate bonds and notes; such investments are stated
at fair value on the basis of valuations furnished by a pricing
service, approved by the Trustees, which determines valuations
for normal, institutional-size trading units of such securities
using methods based on market transactions for comparable
securities and various relationships between securities which are
generally recognized by institutional traders. (See Section F of
Note 1 with respect to valuations of options, forward currency
contracts and futures outstanding.)
<PAGE>
B) TBA purchase commitments The Fund may enter into "TBA" (to be
announced) purchase commitments to purchase securities for a
fixed price at a future date beyond customary settlement time.
Although the unit price has been established, the principal value
has not been finalized. However, the amount of the commitment
will not fluctuate more than 2.0% from the principal amount. The
Fund holds, and maintains until the settlement date, cash or
high-grade debt obligations in an amount sufficient to meet the
purchase price, or the Fund enters into offsetting contracts for
the forward sale of other securities it owns. TBA purchase
commitments may be considered securities in themselves, and
involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in
addition to the risk of decline in the value of the Fund's other
assets. Unsettled TBA purchase commitments are valued at the
current market value of the underlying securities, generally
according to the procedures described under "Security valuation"
above.
Although the Fund will generally enter into TBA purchase
commitments with the intention of acquiring securities for its
portfolio or for delivery pursuant to options contracts it has
entered into, the Fund may dispose of a commitment prior to
settlement if the Fund Manager deems it appropriate to do so.
TBA sale commitments The Fund may enter into TBA sale commitments
to hedge its portfolio positions or to sell mortgage-backed
securities it owns under delayed delivery arrangements. Proceeds
of TBA sale commitments are not received until the contractual
settlement date. During the time a TBA sale commitment is
outstanding, equivalent deliverable securities, or an offsetting
TBA purchase commitment deliverable on or before the sale
commitment date, are held as "cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market
value of the underlying securities, generally according to the
procedures described under "Security valuation" above. The
contract is "marked-to-market" daily and the change in market
value is recorded by the Fund as an unrealized gain or loss. If
the TBA sale commitment is closed through the acquisition of an
offsetting purchase commitment, the Fund realizes a gain or loss
on the commitment without regard to any unrealized gain or loss
on the underlying security. If the Fund delivers securities under
the commitment, the Fund realizes a gain or loss from the sale of
the securities based upon the unit price established at the date
the commitment was entered into.
C) 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. The order
permits the Fund's cash balance to be deposited into a single
joint account along with the cash of other registered investment
companies managed by Putnam Investment Management, Inc. (formerly
known as The Putnam Management Company, Inc.), the Fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc.
(formerly known as The Putnam Companies, Inc.), and certain
accounts. These balances may be invested in one or more
repurchase agreements and/or short-term money market instruments.
D) Repurchase agreements The Fund 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. The Fund s
Manager 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.
E) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order
to buy or sell is executed). Interest income is recorded on the
accrual basis and dividend income is recorded on the ex-dividend
date.
Discount on zero coupon bonds, original issue discount bonds and
step-up bonds is accreted according to the effective yield
method. Certain securities held by the Fund pay interest in the
form of additional securities; interest on such securities is
recorded on the accrual basis at the lower of the coupon rate or
the market value of the securities to be received, and is
allocated to the cost of the securities received on the payment
date.
Foreign currency-denominated receivables and payables are
"marked-to-market" daily using the current exchange rate. The
fluctuation between the original exchange rate and the current
exchange rate is recorded daily as unrealized translation gain or
loss. Upon receipt or payment, the Fund realizes a gain or loss
on foreign currency amounting to the difference between the
original value and the ending value of the receivable or payable.
Foreign currency gains and losses related to interest receivable
are reported as part of interest income.
F) Option accounting principles When the Fund writes a call or
put option, an amount equal to the premium received by the Fund
is included in the Fund's "statement of assets and liabilities"
as an asset and an equivalent liability. The amount of the
liability is subsequently "marked-to-market" to reflect the
current market value of an option written. The current market
value of an option is the last sale price or, in the absence of a
sale, the last offering price, except that certain options on
U.S. government obligations are stated at fair value on the basis
of valuations furnished by a pricing service approved by the
Trustees. If an option expires on its stipulated expiration date,
or if the Fund enters into a closing purchase transaction, the
Fund realizes a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was
written) without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is
extinguished. If a written call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security
and the proceeds of the sale are increased by the premium
originally received. If a written put option is exercised, the
amount of the premium originally received reduces the cost of the
security which the Fund purchases upon exercise of the option.
The premium paid by the Fund for the purchase of a call or put
option is included in the Fund's "statement of assets and
liabilities" as an investment and is subsequently
"marked-to-market" to reflect the current market value of the
option. If an option which the Fund has purchased expires on the
stipulated expiration date, the Fund realizes a loss in the
amount of the cost of the option. If the Fund enters into a
closing sale transaction, the Fund realizes a gain or loss,
depending on whether proceeds from the closing sale transaction
are greater or less than the cost of the option. If the Fund
exercises a call option, the cost of securities acquired by
exercising the call is increased by the premium paid to buy the
call. If the Fund exercises a put option, it realizes a gain or
loss from the sale of the underlying security and the proceeds
from such sale are decreased by the premium originally paid.
Options on foreign currencies The Fund writes and purchases put
and call options on foreign currencies. The accounting principles
and risks involved are similar to those described above relating
to options on securities. The amount of potential loss to the
Fund upon exercise of a written call option is the value (in U.S.
dollars) of the currency sold, converted at the spot price, less
the value of U.S. dollars received in exchange. The amount of
potential loss to the Fund upon exercise of a written put option
is the value (in U.S. dollars) of the currency received converted
at the spot price, less the value of the U.S. dollars paid in
exchange.
Options on futures Options on futures generally operate in the
same manner as options purchased or written directly on the
underlying debt securities. The Fund is required to deposit in a
manner similar to futures contracts as described below, "initial
margin" and "variation margin" with respect to put and call
options written on futures contracts. In addition, upon exercise,
net premiums will decrease the unrealized loss or increase the
unrealized gain on the future.
Futures A futures contract is an agreement between two parties to
buy and sell a security at a set price on a future date. Upon
entering into such a contract the Fund is required to pledge to
the broker an amount of cash or U.S. government securities equal
to the minimum "initial margin" requirements of the exchange.
Pursuant to the contract, the Fund agrees to receive from or pay
to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as
"variation margin," and are recorded by the Fund as unrealized
gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value
of the contract at the time it was opened and the value at the
time it was closed. The potential risk to the Fund is that the
change in value of the underlying securities may not correspond
to the change in value of the futures contracts.
Forward currency contracts A forward currency contract is an
agreement between two parties to buy and sell a currency at a set
price on a future date. The market value of the contract will
fluctuate with changes in currency exchange rates. The contract
is "marked-to-market" daily and the change in market value is
recorded by the Fund as an unrealized gain or loss. When the
contract is closed, the Fund records a realized gain or loss
equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed. The
maximum potential loss from forward currency contracts is the
aggregate face value in U.S. dollars at the time the contract was
opened; however, management believes the likelihood of such a
loss to be remote.
G) Federal taxes It is the policy of the Fund to distribute all
of its income within the prescribed time and otherwise comply
with the provisions of the Internal Revenue Code applicable to
regulated investment companies. It is also the intention of the
Fund to distribute an amount sufficient to avoid imposition of
any excise tax under Section 4982 of the Internal Revenue Code of
1986. Therefore, no provision has been made for federal taxes on
income, capital gains or unrealized appreciation of securities
held and excise tax on income and capital gains.
H) Distributions to shareholders Distributions to shareholders
are recorded by the Fund on the ex-dividend date. At certain
times, the Fund may pay distributions at a level rate even
though, as a result of market conditions or investment decisions,
the Fund may not achieve projected investment results for a given
period. Based on investment results for the years ended October
31, 1992, and 1991, $0.06 and $0.11 of per share distributions
has been designated as a distribution from paid-in capital for
financial presentation purposes.
I) Unamortized organization expenses Expenses incurred by the
Fund in connection with its organization aggregated $36,523.
These expenses are being amortized on a straight-line basis over
a five-year period.
<PAGE>
Note 2
Management fee,
administrative
services, and
other transactions
Compensation of Putnam Investment Management, Inc., 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 weekly net assets, 0.65% of the next $500 million, 0.60%
of the next $500 million and 0.55% of any amount over $1.5
billion.
The Fund also reimburses the Manager 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. For the year ended October 31, 1993, the Fund incurred
$15,859 for these services.
Trustees of the Fund receive an annual Trustee's fee of $1,380
and an additional fee for each Trustees' meeting attended.
Trustees who are not interested persons of the Manager and who
serve on committees of the Trustees receive additional fees for
attendance at certain committee meetings.
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.
Fees paid for these investor servicing and custodial functions
for the year ended October 31, 1993 amounted to $385,850.
Investor servicing and custodian fees reported in the Statement
of operations for the year ended October 31, 1993 have been
reduced by credits allowed by PFTC.
Note 3
Purchases
and sales of
securities
During the year ended October 31, 1993, purchases and sales of
investment securities other than U.S. government obligations and
short-term investments aggregated $733,415,427 and $752,936,874,
respectively. Purchases and sales of U.S. government obligations
aggregated $416,330,463 and $417,100,454, respectively. In
determining the net gain or loss on securities sold, the cost of
securities has been determined on the identified cost basis.
<PAGE>
Written option transactions on foreign currencies during the year
are summarized as follows:
Principal Subject Premiums
to Option Received
Options written $ 15,600 $ 364,317
Options closed (15,600) (364,317)
Written options outstanding at end of year$ -- $ --
Purchased option transactions on foreign bonds and currencies
during the year are summarized as follows:
Cost
Options purchased $ 2,880,921
Options sold (1,279,047)
Purchased options outstanding at end of year $ 1,601,874<PAGE>
<TABLE>
<CAPTION>
Transactions in U.S. Treasury Bond futures contracts during the year are summarized as
follows:
<S> <C> <C>
Sales of Futures Contracts
Number of Aggregate
Contracts Face Value
Contracts opened 128 $ 15,220,000
Contracts closed (20) (2,378,125)
Open at end of year 108 $ 12,841,875
Transactions in forward and cross forward currency contracts during the year are
summarized as follows:
Purchase of
Forward Currency Contracts
Aggregate
Face Value
Contracts opened $ 557,158,280
Contracts closed (543,400,873)
Open at end of year $ 13,757,407
Sales of
Forward Currency Contracts
Aggregate
Face Value
Contracts outstanding at beginning of year $ 121,294,731
Contracts opened 1,265,062,598
1,386,357,329
Contracts closed (1,335,446,370)
Open at end of year $ 50,910,959
/TABLE
<PAGE>
Dividend Policy
It is the Fund's dividend policy to pay monthly distributions
from net investment income and any net realized short-term gains
(including gains from options and futures transactions).
Long-term capital gains are distributed at least annually. In an
effort to maintain a more stable level of distributions, the
Fund's monthly distribution rate will be based on Putnam
Management's projections of the net investment income and net
realized short-term capital gains that the Fund is likely to earn
over the long term. Such distributions at times may exceed the
current earnings of the Fund resulting in a return of capital to
shareholders.
At the time of each distribution, shareholders are furnished
Putnam Management's current estimate of the sources of such
distribution. These estimates are subject to adjustment depending
on investment results for the Fund's entire fiscal year. Final
information regarding such matters is furnished to shareholders
in the Fund's annual reports and in tax information provided
following the end of each calendar year.
<PAGE>
<TABLE>
<CAPTION>
Selected Quarterly Data
(Unaudited)
Three months ended
October 31 July 31 April 30 January 31
1993 1993 1993 1993
<S> <C> <C> <C> <C>
Total investment
income
Total $ 10,173,560 $ 10,397,435 $ 11,266,547 $ 11,579,308
Per share $ .20 $ .19 $ .21 $ .22
Net investment income
Total $ 8,974,985 $ 9,272,392 $ 10,035,513 $ 10,518,430
Per share $ .17 $ .17 $ .19 $ .20
Net realized
and unrealized
gain on
investments
Total $ 9,445,115 $ 7,121,780 $ 8,097,450 $ 7,940,972
Per share $ .18 $ .14 $ .14 $ .15
Net increase
in assets resulting
from operations
Total $ 18,420,100 $ 16,394,172 $ 18,132,963 $ 18,459,402
Per share $ .35 $ .31 $ .33 $ .35
Net assets at
end of period
Total $513,315,877 $504,903,823 $499,318,157 $491,933,716
Per share $ 9.62 $ 9.46 $ 9.35 $ 9.22
<PAGE>
Three months ended
October 31 July 31 April 30 January 31
1992 1992 1992 1992
Total investment
income
Total $ 10,686,030 $ 12,026,006 $ 10,932,613 $ 12,202,807
Per share $ 0.20 $ 0.23 $ 0.21 $ 0.22
Net investment income
Total $ 9,519,163 $ 10,861,523 $ 9,771,583 $ 11,121,100
Per share $ 0.17 $ 0.21 $ 0.19 $ 0.20
Net realized
and unrealized
gain on
investments
Total $ 4,170,992 $ 13,285,602 $ 198,122 $ 9,093,777
Per share $ 0.08 $ 0.25 $ -- $ 0.18
Net increase
in assets resulting
from operations
Total $ 13,690,155 $ 24,147,125 $ 9,969,705 $ 20,214,877
Per share $ 0.25 $ 0.46 $ 0.19 $ 0.38
Net assets at
end of period
Total $488,265,952 $486,206,042 $473,677,649 $476,078,525
Per share $ 9.15 $ 9.12 $ 8.90 $ 8.95
/TABLE
<PAGE>
Federal tax
information
For federal income tax purposes, $0.869 per share for the year
ended October 31, 1993 constitutes "dividend income". The Fund
has designated 2.24% of the dividend income as qualifying for the
dividends received deduction for corporations.
In addition, the Fund has designated $0.269 per share as
long-term capital gains.
The Form 1099 you receive in January 1994 will show the tax
status of all distributions paid to your account in calendar
1993.
As required by law, your Fund reports to the Internal Revenue
Service on a calendar year basis the amount of distributions paid
to each shareholder.
Fund
performance
supplement
Putnam Master Income Trust is a portfolio managed for high
current income consistent with preservation of capital through a
portfolio diversified among U.S. government, high-yield and
international fixed income securities. The fund invests in
lower-rated, higher yielding securities, which may pose a greater
risk to principal than higher-rated securities. High-yield
securities are rated lower than investment-grade securities
because there is a greater possibility that negative changes in
the issuer's financial condition, or in general economic
conditions, may hinder the issuer s ability to pay principal and
interest on securities.
The Consumer Price Index is a commonly used measure of inflation;
it does not represent an investment return.
Morningstar rates a fund in relation to similar funds, based on
risk-adjusted 3-, 5- and 10-year total return, as applicable,
adjusted for sales charges. Ratings are updated biweekly.
The fund performance supplement has been prepared by Putnam
Management to provide additional information about the fund and
the indexes used for performance comparisons. The information is
not part of the portfolio of investments owned or the financial
statements.
<PAGE>
Your
Trustees
George Putnam
Chairman
Chairman and President,
The Putnam Funds
William F. Pounds
Vice Chairman
Professor of Management,
Alfred P. Sloan
School of Management,
Massachusetts Institute of
Technology
Hans H. Estin
Vice Chairman,
North American
Management Corporation
John A. Hill
Principal and
Managing Director,
First Reserve Corp.
Elizabeth T. Kennan
President,
Mount Holyoke College
Lawrence J. Lasser
President and
Chief Executive Officer,
Putnam Investments, Inc.
Robert E. Patterson
Executive Vice President,
Cabot Partners
Limited Partnership
Donald S. Perkins
Director of various
corporations
George Putnam, III
President, New Generation
Research, Inc.
A.J.C. Smith
Chairman of the Board
and Chief Executive Officer
Marsh & McLennan
Companies, Inc.
<PAGE>
W. Nicholas Thorndike
Director of various
corporations
<PAGE>
Putnam
Master
Income
Trust
Fund information
Investment manager
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
Marketing services
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
Investor servicing agent
Putnam Investor Services
Mailing address:
P.O. Box 41203
Providence, RI 02940-1203
1-800-225-1581
Custodian
Putnam Fiduciary
Trust Company
Legal counsel
Ropes & Gray
Independent accountants
Coopers & Lybrand
(DALBAR logo)
Putnam Investor Services
has received the DALBAR
award each year since the
award's 1990 inception.
In more than 10,000 tests
of 38 shareholder
service components,
Putnam outperformed
the industry standard
in every category.
9687 12/93
<PAGE>
Officers
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
Paul O'Neil
Vice President
Rosemary H. Thomsen
Vice President
and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
John D. Hughes
Vice President
and Treasurer
Beverly Marcus
Vice President
and Clerk
Call 1-800-634-1587 weekdays from 9 a.m. to 5 p.m. Eastern time
for up-to-date information about the fund's NAV or to request
Putnam's quarterly Closed-End Fund Commentary.
<PAGE>
- ---------------------
Bulk Rate
U.S. Postage
Paid
Boston, MA
Permit No. 53749
- ---------------------
PUTNAMINVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
<PAGE>
APPENDIX TO FORM N30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN
PRINTED AND EDGAR-FILED TEXTS:
(1) Rule lines for tables are omitted.
(2) Boldface and italic typefaces are displayed in normal type.
(3) Headers (e.g, the name of the fund) and footers (e.g., page
numbers and "The accompanying notes are an integral part of these
financial statements") are omitted.
(4) Because the printed page breaks are not reflected, certain
tabular and columnar headings and symbols are displayed
differently in this filing.
(5) Bullet points and similar graphic signals are omitted.
(6) Page numbering is different.
(7) "GBP" has replaced the sign for the British Pound, "JPY" has
replace the sign for the Japanese Yen.
