Putnam
Master
Income
Trust
Semiannual
Report
April 30, 1994
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
<TABLE>
<CAPTION>
<S> <C>
Contents
2 How your fund performed
3 From the Chairman
4 Report from Putnam Management
Semiannual Report
7 Report of Independent Accountants
8 Portfolio of investments owned
19 Financial statements
30 Fund performance supplement
31 Your Trustees
</TABLE>
<PAGE>
How your
fund performed
For periods ended April 30, 1994
<TABLE>
<CAPTION>
Total return* Fund Consumer
Market Price
NAV price Index
<S> <C> <C> <C>
6 months -1.34% -0.38% 1.17%
1 year 5.95 1.14 2.36
3 years 44.85 42.87 9.02
annualized 13.15 12.63 2.92
5 years 72.61 66.16 19.74
annualized 11.54 10.69 3.67
Life-of-fund (since 12/28/87) 98.39 71.70 27.73
annualized 11.41 8.90 3.94
Share data Market
NAV price
October 31, 1993 $ 9.62 $ 8.875
April 30, 1994 8.99 8.375
Distributions Investment Capital
6 months ended Number income gains Total
April 30, 1994 6 $ 0.3750 $ 0.0965 $ 0.4715
Current returns Market
at the end of the period NAV price
Current dividend rate 8.34% 8.96%
</TABLE>
*Performance data represent past results. Investment return, principal value
and market price will fluctuate so that an investor's shares, when sold, may
be worth more or less than their original cost.
Please see the fund performance supplement on page 30 for additional
information about performance comparisons.
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.
<PAGE>
From the
Chairman
(George Putnam photo)
George Putnam
Chairman of the Trustees
(C) Karsh, Ottawa
Dear Shareholder:
While the past months have not been easy ones for the fixed-income markets, I
am pleased to report that Putnam Master Income Trust's tripartite approach to
investing has again yielded competitive returns. For the six months ended
April 30, 1994, the fund's return was -1.34% at net asset value. While this
figure may appear somewhat lackluster in absolute terms, it represents
considerably less of a decline than that experienced by the fixed-income
markets as a whole.
It is also a pleasure to note that Morningstar, an independent mutual fund
research firm, recently upgraded its rating of your fund to its highest
category. The fund earned Morningstar's coveted five-star rating for
performance through April 30, 1994, a designation awarded to only a handful
of funds. Morningstar rates funds relative to funds with similar objectives,
based on risk-adjusted medium- and long-term performance, as applicable.
Ratings are published every two weeks.
Among the three fixed-income sectors in which your fund invests, high-yield
corporate bonds made the greatest contribution to your fund's performance.
Careful selection, intensive credit research, and active management enabled
your fund to make the most of opportunities in this market. U.S. government
and international fixed-income markets declined in value due to rising
interest rates and a volatile U.S. dollar overseas. While it is still too
soon to say when the volatility in these markets will subside, Fund Manager
Rosemary Thomsen anticipates a number of investment opportunities within each
sector and is positioning the fund to take advantage of them.
The past 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 especially enabled it to take advantage of many
opportunities. As a result, we take pride in the fund's record of
consistently minimizing volatility while providing attractive levels of
income. Rosemary and her team remain confident of the fund's ability to
continue to meet its objective in the months to come.
Respectfully yours,
(Signature)
George Putnam
June 15, 1994
<PAGE>
Report from
Putnam Management
Top 10 high-yield
bond holdings
(4/30/94)*
__________________
Gaylord Container
Loehmans Holdings Inc.
Midland Funding Corp.
Epic Holdings
AMC Entertainment
Viking Star Shipping
Horizon Cellular Telephone
Grand Union
Marvel Parent Holdings
Flag Star Corp.
*Based on percentage
of net assets.
The six months ended April 30, 1994, encompassing the first half of Putnam
Master Income Trust's fiscal year, have not been the most reassuring ones for
investors. Nonetheless, the fund continued to provide its shareholders with
its characteristic combination of high current income, low volatility, and a
relatively strong return.
While many investments have suffered recently from extreme market volatility
and the effects of rising interest rates, your fund has stayed its course
admirably well. For the period, the fund produced a total return of -1.34% at
net asset value, or -0.38% for those who purchased shares at the market price
at the beginning of the period.
High-yield bonds hold their lead Your fund's total return over the period was
driven primarily by the strength of the high-yield bond market, as has been
the case over the past three years. Accordingly, we continue to emphasize
investments in lower-rated, higher-yielding bonds, and have modestly
increased the sector allocation.
Disappointing performances in both the U.S. government and international
fixed-income sectors are the direct result of recent interest rate increases.
High-yield bonds, while also affected to some degree, outperformed the fund's
other two sectors, due primarily to improving credit fundamentals.
The fund's portfolio also includes another type of lower-rated, higher-yield
investment: governmental bonds of emerging-market countries such as Mexico
and Argentina. While backed by the full faith and credit of each country's
government, these bonds carry relatively low ratings, due in part to the
credit history of the issuing governments. We believe that these countries,
as well as a number of others, are now well on the way to putting their
financial houses in order.
Cautious approach to government bonds Yields on U.S. government securities
continued their steady climb during the past two calendar quarters. The
average 30-year Treasury bond yield was 5.97% on October 31, 1993, and had
risen to 7.31% by April 30, 1994. Rates on shorter-term securities moved up
as well. After the Federal Reserve Board raised short-term rates in February,
longer-term bond prices declined to a greater degree than those of short-term
Treasuries. We anticipated the market response to the Fed's moves, and
reduced the fund's exposure in this sector to approximately 25% of the
portfolio.
<PAGE>
Mortgage-backed securities results were disappointing over the period.
Uncertainty over prepayments and rising interest rates made the sector a
highly volatile one. We reduced exposure in mortgage-backed holdings
considerably, although when these securities' prices return to a level that
we believe offsets their risk, we expect to build up holdings once again.
International markets follow U.S. Rising U.S. interest rates and currency
volatility led to disappointing returns from the international fixed-income
sector over the period. We maintained your fund's international fixed-income
holdings at approximately 25% of the portfolio.
Although the fundamental prerequisite of a strong economy was in place, the
U.S. dollar remained weak against most major currencies for the past six
months. In late January, international bond prices dropped, starting in Japan
and then moving quickly to European and other markets. After the Fed
tightened monetary policy in February, both Japanese and European bond yields
rose significantly. These yield shifts were characteristic of the turbulent
early months of 1994 as a whole: international markets turned in fair numbers
in January, poor ones in February and March, then posted slightly better
returns for April.
Outlook We believe the Japanese and European bond markets will gradually
detach themselves from U.S. monetary policy, because both areas are at
different stages of the business cycle. This should lead to reduced
volatility in both markets. The yield shifts experienced earlier are now
creating some buying opportunities, since fundamentals suggest that there is
room for interest rates to fall in Japan and Europe. We also expect the U.S.
dollar to appreciate gradually against most foreign currencies.
At home, we believe there is cause for continued optimism in the high-yield
sector. In our view, the market's prospects remain positive: As the companies
that issue high-yield bonds grow more profitable in the rising economy, their
credit pictures improve accordingly. As a result, we expect to maintain the
fund's current emphasis on this sector for the time being. As the economy
cools, we believe the outlook for Treasuries, mortgage-backed securities, and
other U.S. government securities will improve. Mortgage-backed securities, in
particular, have lagged behind Treasuries for a number of months, and are
<PAGE>
likely to stabilize as interest rate volatility diminishes.
The challenge of investing profitably in volatile fixed-income markets at
home and abroad is one your fund is well equipped to meet. Your fund's
ability to invest flexibly in three distinct fixed-income sectors
simultaneously has served it well, as each sector reacts differently to
changing economic indicators. While more uncertainty is expected in some of
these markets, some excellent investment opportunities will also present
themselves. We believe the investment strategies embodied in your fund will
enable
us not only to meet the challenges,
but also to take advantage of the opportunities.
Top high-yield bond industry sectors
(Based on percentage of total market value of corporate bonds and notes as of
4/30/94)
Health care 6.5%
Retail 5.9%
Cable television 5.9%
Food 5.2%
<PAGE>
Putnam
Master
Income
Trust
Semiannual Report
For the period ended April 30, 1994
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 April 30, 1994, and the related statement of operations for the six months
then ended, the statement of changes in net assets for the six months then
ended and for the year ended October 31, 1993, and the "Financial Highlights"
for the six months ended April 30, 1994, for each of the five years in the
period ended October 31, 1993, 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 accepting 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 April 30, 1994, 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 April 30, 1994, the results of its
operations for the six months then ended, the changes in its net assets for
the six months then ended and for the year ended October 31, 1993, and the
"Financial Highlights" for the six months ended April 30, 1994, for each of
the five years in the period ended October 31, 1993, 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
June 15, 1994
<PAGE>
Portfolio of
investments owned
April 30, 1994
Corporate Bonds and Notes (39.9%)(a)
<TABLE>
<CAPTION>
Principal Amount Value
<S> <C> <C>
Health Care (2.6%)
$ 325,000 Abbey Healthcare Group, Inc. sr. sub. notes 9-1/2s, 2002 $ 297,375
1,022,500 EPIC Healthcare Group, Inc. jr. sub. notes 11s, 2003(b) 654,400
4,500,000 EPIC Holdings Inc. sr. sub. notes stepped-coupon zero %
(12s, 3/15/97), 2002(c) 3,701,250
975,000 Healthsouth Rehablitaton 9-1/2s, 2001 948,188
1,088,000 Mediplex Group, Inc. sr. sub. notes 11-3/4s, 2002 1,153,280
1,987,000 Multicare Cos., Inc. sr. sub. notes 12-1/2s, 2002 2,225,440
2,415,000 Paracelsus Healthcare Corp. sr. sub. notes 9-7/8s, 2003 2,306,325
1,000,000 Quorum Health Group, Inc. sr. sub. notes 11-7/8s, 2002 1,100,000
12,386,258
Retail (2.3%)
1,000,000 Bradlees, Inc. sr. sub. notes 11s, 2002 1,010,000
2,100,000 County Seat Stores sr. sub. notes 12s, 2001 1,995,000
1,870,000 Duane Reade Corp. sr. notes 12s, 2002 1,907,400
511,000 Eckerd (Jack) Corp. sub. deb. 11-1/8s, 2001 512,278
50,000 Loehmanns' Holdings Inc. sr. sub. notes13-3/4s, 1999 47,000
5,000,000 Loehmanns' Holdings Inc. sr. sub. notes 10-1/2s, 1997 4,750,000
1,950,000 Pay'n Pak Stores, Inc. sr. sub. deb. 13-1/2s, 1998(d) 9,750
1,050,000 Specialty Retailers, Inc. sr. sub. notes 11s, 2003 1,008,000
11,239,428
Cable Television (2.3%)
$2,000,000 Adelphia Communications Corp. sr. notes 12-1/2s, 2002 $ 2,080,000
1,000,000 Adelphia Communications Corp. notes Ser. B, 9-7/8s, 2005 905,000
1,250,000 Cablevision Industries Corp. sr. notes 10-3/4s, 2002 1,243,750
1,000,000 Century Communications Corp. sr. sub. deb. 11-7/8s, 2003 1,060,000
975,000 Continental Cablevision, Inc. sr. deb. 9s, 2008 887,250
1,995,000 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003(b)(c)(e) 1,885,275
2,300,000 Insight Communications Co. sr. sub. notes stepped-coupon 8-1/4s, (11-1/4s, 3/1/96),
2000(c) 2,173,500
1,000,000 Summit Communications Group, Inc. sr. sub. deb. 10-1/2s, 2005 997,500
11,232,275
Food (2.1%)
1,950,000 Chiquita Brands sr. notes 9-1/8s, 2004 1,794,000
1,458,000 Del Monte Corp. sub. notes 12-1/4s, 2002 (acquired par 79,000 11/11/93, cost
$79,000, acquired par 1,295,000 3/12/93 cost $1,334,497)(b)(f) 1,509,030
2,250,000 Fresh Del Monte Produce N.V Corp deb.10s, 2003 (acquired 4/22/93, cost $2,250,000)
(e)(f) 2,070,000
2,500,000 Mafco, Inc. sr. sub. notes 11-7/8s, 2002 2,525,000
1,000,000 RJR Nabisco Inc. notes 9-1/4s, 2013 912,500
1,000,000 RJR Nabisco, Inc. sr. notes 8-3/4s, 2004 885,000
700,000 Specialty Foods Corp. units. stepped-coupon zero %,
(13-1/2s, 8/15/99), 2005(c)(e) 315,000
10,010,530
<PAGE>
Forest Products (1.8%)
$1,600,000 Container Corp. of America sr. notes 9-3/4s, 2003 $1,504,000
6,735,000 Gaylord Container Corp. sr. sub. notes stepped-coupon zero % (12-3/4s, 5/15/96),
2005(c) 5,455,350
1,500,000 Williamhouse Regency Delaware, Inc. sr. sub. deb. 11-1/2s, 2005 1,500,000
8,459,350
Motion Picture Distribution (1.7%)
3,210,000 AMC Entertainment, Inc. sr. sub. notes 12-5/8s, 2002 3,466,800
2,000,000 Act III Theatres sr. sub. notes 11-7/8s, 2003 2,140,000
675,000 Cinemark Mexico notes 12s, 2003 654,750
1,825,000 Cinemark USA sr. notes 12s, 2002 1,971,000
8,232,550
Cellular Communications (1.7%)
1,500,000 Cellular, Inc. sr. sub. disc. notes stepped-coupon zero % (11-3/4s, 9/1/98, 2003)(c) 922,500
1,015,000 Cencall Communications Corp. sr. disc. notes stepped-coupon zero % (10-1/8s,
1/15/99), 2004(c) 558,250
1,500,000 Centennial Cellular Corp. sr. notes 8-7/8s, 2001 1,365,000
4,670,000 Horizon Cellular Telephone sr. sub. disc. notes stepped-coupon zero % (11-3/8s,
10/1/97), 2000(c) 3,222,300
3,500,000 NEXTEL Communications Inc. sr. disc. notes stepped-coupon zero % (9-3/4s, 2/15/99),
2004(c) 2,030,000
8,098,050
Recreation (1.6%)
$ 880,000 Arizona Charlies Corp. sub. deb. 12s, 2000 (acquired 11/10/93, cost $880,000)(e) $ 880,000
640,000 Capitol Queen Corp. sr. sub. deb. 12s, 2000 (acquired 11/10/93, cost $520,000)(f) 544,000
970,000 Casino America Inc. 1st mtge. deb. 11-1/2s, 2001 950,600
1,800,000 Casino Magic Finance 1st. mtge. deb. 11-1/2s, 2001(e) 1,638,000
625,000 Golden Nugget Finance Corp. 1st mtge. deb. Ser. B, 10-5/8s, 2003 518,750
480,000 Presidental Riverboat Casinos sr. sub. notes 11-3/4s, 2001 448,800
864,000 Trump Castle Funding Corp. deb. 11-1/2s, 2000 (acquired 12/18/93, cost
$864,000)(e)(f) 864,000
2,000,000 Trump Taj Mahal sub. deb. ser. A, 11.35s, 1999(b) 1,800,000
7,644,150
Chemicals (1.5%)
500,000 Arcadian Partners L.P. sr. notes Ser. B, 10-3/4s, 2005 486,250
3,750,000 G-I Holdings Inc. sr. notes
zero %, 1998 2,325,000
1,050,000 Harris Chemical Corp. sr. secd. disc. notes stepped-coupon zero % (10-1/4s,
1/15/96), 2001(c) 855,750
2,520,000 OSI Specialty Inc. sr. sub. notes stepped-coupon zero %, (11-1/2s, 4/15/99)
(acquired 4/12/94 , cost $1,442,574)
2004(c)(f) 1,461,600
1,000,000 UCC Investors Holding, Inc. sr. sub. notes 11s, 2003 1,010,000
1,000,000 UCC Investors Holding, Inc. sr. notes 10-1/2s, 2002 1,030,000
7,168,600
<PAGE>
Conglomerates (1.4%)
$ 250,000 ADT Ltd. sr. sub. notes 9-1/4s, 2003 $ 235,000
2,900,000 Haynes International, Inc. sr. sub. notes 13-1/2s, 1999 2,842,000
750,000 Jordan Industries, Inc. sr. notes 10-3/8s, 2003 720,000
2,050,000 MacAndrews & Forbes Group Inc. deb. 12-1/4s, 1996 2,060,250
1,000,000 MacAndrews & Forbes Holdings Inc. sub. deb. 13s, 1999 1,002,500
6,859,750
Food Chains (1.4%)
3,250,000 Grand Union Co. sr. sub. notes 12-1/4s, 2002 3,201,250
2,000,000 Grand Union Capital Corp. sr. notes stepped-coupon zero % (15s, 6/15/99), 2004(c) 840,000
410,000 Megafoods Stores Inc. sr. notes 10-1/4s, 2000 344,400
2,225,000 Stater Brothers sr. notes 11s, 2001 (acquired 3/2/94, cost $2,225,000)(e)(f) 2,169,375
6,555,025
Advertising (1.3%)
1,935,000 Katz Corp. sr. sub. notes 12-3/4s, 2002 2,089,800
2,000,000 Lamar Advertising Co. sr. secd. notes 11s, 2003 1,980,000
2,000,000 Universal Outdoor Inc. sr. notes 11s, 2003 1,980,000
6,049,800
Publishing (1.2%)
1,775,000 Affinity Group Inc. sr. sub. notes 11-1/2s, 2003 1,775,000
1,000,000 General Media sr. secd. notes 10-5/8s, 2000 (acquired
12/15/93, cost $1,015,000)(e)(f) 965,000
Publishing (continued)
$5,100,000 Marvel Parent Holdings, Inc. sr. secd. disc. notes zero %, 1998 (acquired 10/13/93,
cost $2,991,762)(e)(f) $3,136,500
5,876,500
Agriculture (1.2%)
1,994,000 PMI Acquisition Corp. units stepped-coupon zero %, (11-1/2s, 3/1/00) 2005(c) 967,090
1,731,000 Premium Standard Farms deb. zero %, 2003 1,322,051
550,500 Premium Standard Farms exch. pfd. units 12-1/2s, 2000 (acquired 2/8/93 par $151,055,
cost $151,055, and 9/15/93 par $399,475, cost $399,475)(e)(f) 600,045
2,449,280 Premium Standard Farms sr. secd. notes 12s, 2000 (acquired 2/8/93 par $676,620, cost
$676,620, acquired 9/15/93 par $1,772,660, cost $1,772,660)(e)(f) 2,669,715
5,558,901
Building Products (1.2%)
750,000 American Standard, Inc. sr. deb. 11-3/8s, 2004 768,750
3,000,000 American Standard, Inc. sr. sub. deb. stepped-coupon zero % (10-1/2s, 6/1/98),
2005(c) 1,725,000
1,750,000 Southdown, Inc. sr. sub. notes Ser. B, 14s, 2001 1,977,500
1,000,000 Triangle Pacific Corp. sr. notes 10-1/2s, 2003 990,000
5,461,250
Containers (1.0%)
2,400,000 Anchor Glass Container Corp. sr. sub. deb. 9-7/8s, 2008 2,214,000
<PAGE>
Containers (continued)
$2,500,000 Ivex Packaging Corp. sr. sub. notes 12-1/2s, 2002 $2,681,250
4,895,250
Oil and Gas (0.9%)
2,350,000 Maxus Energy Corp. notes 9-3/8s, 2003 2,138,500
2,250,000 TransTexas Gas Corp. sr. secd. notes 10-1/2s, 2000 2,250,000
4,388,500
Electric Utilities (0.9%)
4,000,000 Midland Funding Corp. II sub., secd. lease oblig. bonds Ser. B, 13-1/4s, 2006 4,340,000
Specialty Consumer Products (0.9%)
2,500,000 International Semi-Tech. Micro-Electric sr. disc. notes stepped-coupon zero %
(11-1/2s, 8/15/00), 2003(c) 1,225,000
3,210,000 Playtex Family Products Corp. sr. sub. notes 9s, 2003 2,889,000
4,114,000
Insurance (0.7%)
975,000 American Annuity Group, Inc. sr. notes 9-1/2s, 2001 965,250
1,250,000 Reliance Group Holdings sr. sub. notes 9-3/4s, 2003 1,137,500
1,500,000 Reliance Group Holdings sr. notes 9s, 2000 1,365,000
3,467,750
Shipping (0.7%)
3,450,000 Viking Star Shipping sr. secd. notes 9-5/8s, 2003 3,450,000
Restaurants (0.7%)
350,000 American Restaurant Group, Inc. sr. secd. notes 12s, 1998 327,250
3,200,000 Flagstar Corp. sr. sub. deb. sinking fund 11.25s, 2004 3,056,000
3,383,250
Business Services (0.7%)
$2,000,000 Corporate Express, Inc. sr. notes 9-5/8s, 2004(e) $1,860,000
2,000,000 Equitable Bag Co. sr. notes
12 3/8s, 2002(d) 1,520,000
3,380,000
Metals and Mining (0.7%)
2,000,000 Horsehead Industries, Inc. sub. notes 14s, 1999 1,930,000
528,000 Horsehead Industries, Inc. sr. sub. ext. reset notes 13-1/2s, 1994 528,000
900,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12-3/4s, 2003 913,500
3,371,500
Electronics (0.7%)
2,250,000 Ampex Group, Inc. sr. sub. deb. 13-1/4s, 1996(d) 315,000
2,700,000 Amphenol Corp. sr. sub. notes 12-3/4s, 2002 3,024,000
3,339,000
Steel (0.6%)
2,900,000 WCI Steel Inc. sr. notes 10-1/2s, 2002 (acquired par $1,400,000 12/7/93, cost
$1,400,000, acquired par $1,500,000 2/25/94, cost $1,642,500)(e)(f) 2,979,750
Communications (0.5%)
4,200,000 Panamsat L.P. sr. sub. notes stepped-coupon zero % (11-3/8s, 8/1/98), 2003(c) 2,562,000
Textiles (0.5%)
2,000,000 Foamex (L.P.) Capital Corp. sr. sub. deb. 11-7/8s, 2004 2,060,000
91,000 Foamex (L.P.) sr. secd. notes 9-1/2s, 2000 87,360
400,000 New Street Acquisition 12s, 1998 400,000
2,547,360
<PAGE>
Broadcasting (0.5%)
$ 1,500,000 Argyle Television Operations sr. sub. notes 9-7/8s, 2003 $ 1,402,500
1,000,000 SFX Broadcasting sr. sub. notes 11-3/8s, 2000 1,010,000
2,412,500
Environmental Control (0.5%)
2,400,000 Envirosource, Inc. sr. notes 9-3/4s, 2003 2,256,000
Lodging (0.5%)
2,250,000 John Q. Hammons Hotels 1st. Mtge. 8-7/8s, 2004 2,025,000
500,000 Red Roof Inns sr. notes 9-5/8s, 2003 (acquired 12/8/93, cost $500,000)(e)(f) 457,500
2,482,500
Consumer Services (0.4%)
1,000,000 Solon Automated Services, Inc. sr. sub. deb. 13-3/4s, 2002 1,050,000
1,000,000 Solon Automated Services, Inc. sr. notes 12-3/4s, 2001 1,060,000
2,110,000
School Busses (0.4%)
2,000,000 Blue Bird Acquisition Corp. sub. deb. 11-3/4s, 2002 2,080,000
Banks (0.4%)
1,125,000 Chevy Chase Savings Bank Inc. sub. deb. 9-1/4s, 2005 1,057,500
1,000,000 Riggs National Corp. sub. deb. 8-1/2s, 2006 950,000
2,007,500
Medical Supplies (0.5%)
1,930,000 McGaw, Inc. sr. notes 10-3/8s, 1999 1,997,550
500,000 Wright Medical Technology Inc. sr. secd. notes Ser. B, 10-3/4s, 2000 485,000
2,482,550
Apparel (0.4%)
$ 2,000,000 Guess Inc. sr. sub. notes 9-1/2s, 2003(b) $ 1,940,000
Real Estate (0.4%)
2,000,000 Scotsman Group Inc. sr. secd. notes 9-1/2s, 2000 1,890,000
Automotive Parts (0.3%)
1,350,000 Key Plastics Corp. sr. notes 14s, 1999 1,559,250
Airlines (0.3%)
1,800,000 USAir, Inc. pass thru certif. 10-3/8s, 2013 1,535,625
Finance (0.3%)
1,125,000 Comdata Network, Inc. sr. notes 12-1/2s, 1999 1,215,000
Computers (0.1%)
3,598,000 DR Holdings Inc. sr. sub. deb. 15-1/2s, 2002(b) 539,700
Total Corporate Bonds and Notes (cost $197,816,993) $191,561,402
U.S. Government and Agency Obligations (23.1%)(a)
Principal Amount Value
$ 948,087 Federal Home Loan Mortgage Corporation 7-1/2s, July 1, 2016 $ 948,383
Federal National Mortgage Association
7,190,000 7s, TBA, May 14, 2024(g) 6,792,303
11,565,253 7s, with various due dates to
February 1, 2024 10,925,546
Government National Mortgage Association
526,599 7-1/2s, due June 15, 2023 510,143
6,384,431 7-1/2s, TBA, May 14, 2024 6,184,918
9,079,811 7s, with various due dates to
March 15, 2024 8,520,829
<PAGE>
$ 3,585,000 U.S. Treasury Notes 7-3/8s, May 15, 1996 $ 3,691,430
9,055,000 U.S. Treasury Notes 6s, November 30, 1997 8,947,472
16,570,000 U.S. Treasury Notes 5-3/4s, with various due dates to August 15, 2003 15,492,560
4,400,000 U.S. Treasury Notes 5-1/4s, July 31, 1998 4,191,000
19,642,000 U.S. Treasury Notes 5-1/8s, with various due dates to December 31, 1998 18,534,949
3,890,000 U.S. Treasury Notes 4s, January 31, 1996 3,786,672
17,840,000 U.S. Treasury Notes 3-7/8s, with various due dates to October 31, 1995 17,468,794
24,360,000 U.S. Treasury Stripped Principal Payment Coupon Securities zero %, with various due
dates to February 15, 2020 4,984,744
Total U.S. Government and Agency Obligations
(cost $115,925,977) $110,979,743
</TABLE>
<TABLE>
<CAPTION>
Foreign Bonds and Notes (24.4%) (a)(h)
Principal Amount Value
<S> <C> <C> <C>
A$ 3,750,000 Australia (Government of) bonds 7-1/2s, 2005 $ 2,486,719
A$ 4,670,000 Australia (Government of) bonds 6-3/4s, 2006 2,874,969
ECU 1,000,000 Banco Nacional bonds 7-1/4s, 2004 792,500
C$ 30,075,000 Canada (Government of) bonds 5.75s, 3/1/99 20,056,266
FM 11,000,000 Finland (Government of) notes 11s, 1999 2,303,125
FM 3,000,000 Finland (Government of) bonds 9-1/2s, 2004 600,000
ECU 2,142,000 France Treasury bonds 8-1/4s, 2022 2,621,273
ECU 430,000 France (Government of) BTAN 7-1/4s, 1998 $ 512,506
FRF 1,520,000 France (Government of) Balladurs 6s, 1997 267,900
MXP 1,500,000 Ispat Mexicana, deb. 10-3/8s, 2001(e) 1,406,250
ITL 4,460,000,000 Italy (Government of) BTPS 11-1/2s, 1996 2,926,875
ECU 4,000,000 Italy (Government of) notes 9-1/4s, 2011 5,075,000
ITL 4,865,000,000 Italy (Government of) bonds 9s, 1998 3,071,031
|SY 221,000,000 Italy (Government of) bonds 3-1/2s, 2001 2,073,256
|SY 517,200,000 Japan (Government of) BTPS 5.3s, 2013 5,362,718
|SY 422,400,000 Japan (Government of) bonds 5-1/2s, 2002 4,588,320
|SY 120,800,000 Japan (Government of) bonds 5-1/2s, 2002 1,309,925
|SY 53,700,000 Japan (Government of) bonds 5s, 2002 564,521
|SY 316,100,000 Japan (Government of) bonds 4.9s, 2008 3,192,610
|SY 56,400,000 Japan (Government of) BTPS 4.8s, 2002 585,503
|SY 424,500,000 Japan (Government of) bonds 4.6s, 2003 4,348,472
MXP 1,500,000 Mexico (Government of) bonds 6-1/4s, 2019 960,000
MXP 4,500,000 Mexican (Government of) disc. bonds, Ser. D, 4.313s, 2019 3,757,500
NLG 21,990,000 Netherlands (Government of) bonds 7-1/2s, 2023 12,259,425
NZD 10,145,000 New Zealand (Government of) notes 8s, 1995 5,947,506
ECU 1,000,000 Philippines (Government of) bonds 5-1/4s, 2017 635,000
ECU 2,000,000 Poland (Government of) bonds zero %, 1999 640,000
<PAGE>
SEK 7,600,000 Sweden (Government of) bonds 11s, 1999 $ 1,106,750
SEK 7,800,000 Sweden (Government of) bonds 11s, 1999 1,096,875
SEK 20,200,000 Sweden (Government of) bonds 10-1/4s, 2003 2,929,000
SEK 29,300,000 Sweden (Government of) bonds 6s, 2005 3,131,438
(pound) 925,000 United Kingdom Treasury bonds 10-1/4s, 1999 1,555,156
(pound) 2,640,000 United Kingdom Treasury bonds 9-1/2s, 2004 4,436,850
(pound) 930,000 United Kingdom Treasury notes 9s, 2000 1,493,231
(pound) 1,360,000 United Kingdom Treasury bonds 8-1/2s, 2007 2,159,850
(pound) 3,100,000 United Kingdom Treasury bonds 7-1/4s, 1998 4,688,750
(pound) 655,000 United Kingdom Treasury war bonds 3-1/2s, 2049 443,353
|SY 300,000,000 World Bank bonds 4-1/2s, 2003 3,039,375
Total Foreign Bonds and Notes (cost $118,374,759) $117,299,798
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Yankee Bonds and Notes (2.8%)(a)
Principal Amount Value
$2,000,000 Argentina (Government of) bonds 4s, 2023 $ 1,055,000
1,300,000 Argentina (Government of) bonds zero %, 2002 867,750
7,500,000 Argentina (Republic of) notes 4-1/4s, 2005 5,437,500
3,500,000 Argentina (Government of) bonds 4s, 2023 2,476,250
300,000 Banco de Galicia Inc. global notes 9s, 2003 258,188
1,980,000 Brazil (Government of) 1,435,500
2,000,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9-1/4s, 2003 1,950,000
Total Yankee Bonds and Notes (cost $14,315,976) $13,480,188
Units (1.4%)(a)
Number of Units Value
875,000 Axia, Inc. units 11s, 2001 (acquired 3/9/94, cost $875,000)(e)(f) $ 866,250
830,000 Chesapeake Energy Corp. units 12s, 2001 830,000
3,165,000 ICF Kaiser International Inc. units 12s, 2003 3,133,350
102,527 IFINT Diversified Holdings units 12.5135s, 1998 105,090
1,367,000 Louisiana Casino Cruises Corp. units 11-1/2s, 1998 1,161,950
115,000 Page Mart Inc. units stepped-coupon zero % (12-1/4s,11/1/98), 2003(c)(e) 715,875
Total Units (cost $6,901,925) $ 6,812,515
Preferred Stocks (1.0%)(a)
Number of Shares Value
25,300 Calfed Inc. Ser. B, $10.625 pfd. $ 2,517,350
42,600 Pyramid Commerce units $3.125 pfd.(b) 979,800
15,347 Stone Savannah River Pulp & Paper Corp. $3.84 exch. pfd. 1,304,495
1,935 Supermarkets General Holdings Corp. $3.52 exch. pfd.(b) 56,115
Total Preferred Stocks
(cost $5,245,524) $ 4,857,760
Asset-Backed Securities (0.3%)(a) (cost $1,571,555)
Principal Amount Value
$1,575,000 First Deposit Master Trust Ser. 93-2A, 5-3/4s, 2001 $ 1,516,922
Convertible Preferred Stocks (0.4%)(a)
Number of Shares Value
8,000 Chiquita Brands International $5.75 cv. pfd. $ 366,000
28,000 Conseco, Inc. Ser. D, $3.25 cv. pfd. 1,456,000
Total Convertible Preferred Stocks (cost $1,800,000) $ 1,822,000
<PAGE>
Common Stocks (0.3%)(a)
Number of Shares Value
5,700 Applause Enterprises Inc. (acquired10/4/90, cost $64,125)(d)(f) $ 1,425
246 CDK Holding Corp. rights (acquired10/31/88, cost $13,762)(d)(f) 7,441
10,234 Computervision Corp. rights (acquired 8/24/92, (cost $64,125)(f) 30,702
15,261 Grand Casinos, Inc.(d) 330,019
9,653 Kendall International, Inc.(d) 447,658
266,750 Loehmanns Holdings, Inc.(d) 266,750
671 PMI Holdings Corp.(d) 46,970
314 Premium Holdings L.P. (acquired 1/4/94, cost $18,840)(f) 31,400
30,773 SPI Holdings Inc. Class B 184,640
108,263 Solon Automated Services, Inc. (acquired 6/18/92 cost $64,650)(d)(f) 67,664
1 Southland Corp. 4
25,500 Specialty Foods Corp. (acquired 8/10/93, cost $18,533)(d) 25,500
5,054 Taj Mahal Holding Corp. Class A(d) 101,080
10,000 Triangle Pacific Corp.(d) 117,500
Total Common Stocks
(cost $1,547,818) $1,658,753
</TABLE>
<TABLE>
<CAPTION>
Warrants (0.2%)(a)(d)
- -
Number Expiration
of Warrants Date Value
<S> <C> <C> <C>
- -
40,000 Becker Gaming Corp. (acquired 10/10/93, cost $120,000)(b)(f) 11/15/00 $100,000
406 CDK Holding Corp. Class A (acquired 10/31/88, cost $22,777)(f) 7/7/99 12,281
434 CDK Holding Corp. Class B (acquired10/31/88, cost $18,269)(f) 7/7/99 12,260
3,165 Casino America Inc. 11/15/96 7,912
10,800 Casino Magic Finance Corp. 10/14/96 5,400
7,499 Cinemark Mexico 8/1/03 69,366
2,100 County Seat Stores 10/1/98 $ 42,000
96,050 Gaylord Container Corp. ($77,890 par amount acquired 12/2/93, cost 360,187
$265,994, $18,160 par amount acquired 1/20/94, cost $91,436)(f) 7/31/96
1,000 General Media (acquired 12/15/93, cost $10,000)(d)(f) 12/31/00 15,000
2,880 President Riverboat Casinos 9/15/96 2,880
20,000 Southdown, Inc. (acquired 10/31/91, cost $180,000)(f) 11/1/96 185,000
2,054 Southland Corp. 3/5/96 5,136
9,660 UCC Investor Holding, Inc. 1/1/99 125,580
36 Wright Medical Technology Inc. 6/30/03 2,669
- -
Total Warrants (cost $855,004) $945,671
- -
<C>
Collateralized Mortgage Obligations (0.2%)(a)
Principal Amount Value
$1,065,136 Federal National Mortgage Association IO Strips 7-1/2s, September 25, 2007 $288,252
462,700 Prudential Home Mortgage Securities Co. Ser. 92-39 A1, 5.15s, 2007 460,097
Total Collateralized Mortgage Obligations (cost $708,322) $748,349
Convertible Bonds (0.1%)(a) (cost $375,000)
Principal Amount Value
$ 375,000 Sahara Mission Cv. sub. notes 12s, 1995 $375,000
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
Currency Expiration date/Strike price Value
DM 24,900,000 Deutschemarks 5/27/94
DM 1.68 $ 440,730
DM 8,300,000 Deutschemarks 6/21/94 DM 1.725 136,950
YEN18,000,000 Yen 4/27/94 Y 100 180
Total Put Options On Foreign Currencies
(cost $617,780) $ 577,860
Call Options On Forward Currencies (--)(a)(h)
Currency Expiration date/Strike price Value
DM 14,300,000 Deutschemarks 6/21/94 DM 1.725 $ 38,610
DM 24,600,000 Deutschemarks 6/21/94 DM 1.725 86,100
DM 12,300,000 Deutschemarks 7/6/94 DM 1.7415 39,360
Total Call Options On Foreign Currencies
(cost $872,975) $ 164,070
Short-Term Investments (8.8%)(a)
Principal Amount Value
GRD 535,000,000 Greece Treasury Bills zero%, May 31, 1994(h) $ 2,166,750
GRD 300,000,000 Greece Treasury Bills zero%, May 17, 1994(h) 1,226,250
MXP 18,040,000 Mexican Treasury Bills zero%. October 27, 1994(h) 112,500
MXP 10,020,000 Mexican Treasury Bills zero%. April 27, 1994(h) 53,750
MXP 8,815,000 Mexican Treasury Bills zero%. July 28, 1994(h) 44,062
$ 38,396,000 Interest in $504,971,000 joint repurchase agreement dated April 29, 1994 with
Kidder, Peabody & Co. Inc., due May 2, 1994, with respect to various U.S. Treasury
obligations--maturity value of $38,407,358 for and effective yield of 3.55% $ 38,403,570
Total Short-Term Investments (cost $42,811,628) $ 42,006,882
Total Investments
(cost $509,741,236)(i) $494,806,913
</TABLE>
<PAGE>
Notes
(a) Percentages indicated are based on total net assets of $480,035,161,
which corresponds to a net asset value per share of $8.99.
(b) Income may be received in cash or additional securities at the discretion
of the issuer.
(c) The interest rate and date shown parenthetically represent the new
interest rate to be paid and the date the Fund will begin accruing at this
rate.
(d) Non-income-producing security.
(e) 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 April 30, 1994
these securities were valued at $25,478,535 or 5.3% of net assets.
(f) 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 April 30, 1994 was $21,116,125
or 4.4% of net assets.
(g) TBA's are mortgage-backed securities traded under delayed delivery
commitments settling after April 30, 1994. Although the unit price for the
trades has been established, the principal amount of the commitments will not
fluctuate more than 2.0% from the principal amount. The cost of TBA purchases
at April 30, 1994 was $6,247,515.
(h) Foreign-currency denominated. Market value is translated at the current
exchange rate.
(i) The aggregate identified cost on a tax cost basis is $510,092,479
resulting in gross unrealized appreciation and depreciation of $7,374,858 and
$22,660,424, respectively, or net unrealized depreciation of $15,285,566.
US Treasury Bond Futures Contracts Outstanding
at April 30, 1994 (Aggregate Face Value $2,114,375)Forward Cross Currency
Contracts Outstanding
at April 30, 1994 (Aggregate Face Value $5,973,400)
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
Expiration
Month/ Unrealized
Number of Contracts Strike Price Appreciation
-
<S> <C> <C>
20 U.S. Treasury Bonds
Futures (Sell) June/94 $24,375
-
</TABLE>
Forward Currency Contracts Outstanding
at April 30, 1994
<TABLE>
<CAPTION>
Aggregate Unrealized
Market Face Delivery Appreciation
Value Value Date (Depreciation)
<S> <C> <C> <C> <C>
Australian
Dollars (Buy) $ 1,069,800 $ 1,076,550 6/20/94 $ 6,750
Australian
Dollars (Buy) 1,212,440 1,213,928 6/21/94 1,488
Australia
Dollars
(Sell) 2,140,500 2,110,044 5/31/94 (30,456)
Deutschemarks
(Sell) 5,016,520 4,941,006 6/30/94 (75,514)
Deutschemarks
(Sell) 13,657,180 13,147,178 11/6/94 (510,002)
Japanese
Yen
(Sell) 2,269,157 2,198,432 5/11/94 (70,725)
Japanese
Yen
(Sell) 3,454,115 3,303,133 5/17/94 (150,982)
Japanese
Yen
(Sell) 6,024,299 5,745,773 5/31/94 (278,526)
New Zealand NZD
(Sell) 806,540 799,575 5/16/94 (6,965)
New Zealand NZD
(Sell) 2,702,030 2,645,160 6/20/94 (56,870)
$(1,171,802)
</TABLE>
<TABLE>
<CAPTION>
In Unrealized
Market Exchange Market Delivery Appreciation
Contracts Value For Value Date (Depreciation)
<S> <C> <C> <C> <C> <C>
Deutschemarks Swedish
(Sell) $3,100,290 Krona $3,111,534 7/8/94 $11,244
Deutschemarks Swedish
(Sell) 3,100,800 Krona 3,097,986 7/11/94 (2,814)
$ 8,430
</TABLE>
Diversification of Foreign Bonds and Notes
at April 30, 1994 (as a percentage of net assets):
<TABLE>
<CAPTION>
<S> <C> <C>
Canada 4.2% Mexico 1.0%
Japan 4.2 France 0.7
United Kingdom 3.1 Finland 0.6
Italy 2.7 Mexico 0.3
Netherland 2.6 Brazil 0.2
Sweden 1.7 Phillipines 0.1
New Zealand 1.2 Poland 0.1
Australia 1.1
</TABLE>
<PAGE>
Statement of
assets and liabilities
April 30, 1994
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
<S> <C> <C>
Assets Investments in securities, at value (identified cost
$509,741,236) (Note 1) $494,806,913
Cash 19,819
Interest and other receivables 8,778,990
Receivable for securities sold 14,459,774
Receivable for open forward currency contracts 19,482
Receivable for closed forward currency contracts 168,023
Receivable for variation margin 5,000
Total assets 518,258,001
Liabilities Payable for securities purchased $31,818,174
Distributions payable to shareholders 3,321,838
Payable for compensation of Manager (Note 2) 907,713
Payable for administrative services (Note 2) 4,702
Payable for compensation of Trustees (Note 2) 174
Payable for investor servicing and custodian fees (Note
2) 109,025
Payable for open forward currency contracts 1,182,854
Payable for closed forward currency contracts 794,959
Other accrued expenses 83,401
Total liabilities 38,222,840
Net assets $480,035,161
Represented by Paid-in capital (Note 4) $499,780,367
Distributions in excess of net investment income (7,880,726)
Accumulated net realized gain on investment transactions 4,208,841
Net unrealized depreciation of investments, options,
futures, and forward currency contracts (16,073,321)
Total--Representing net assets applicable to capital
shares outstanding $480,035,161
Computation of Net asset value per share
net asset value ($480,035,161 divided by 53,375,649 shares) $8.99
</TABLE>
<PAGE>
Statement of
operations
Six months ended April 30, 1994
<TABLE>
<CAPTION>
<S> <C> <C>
Investment income:
Interest (net of foreign tax $14,653) $ 19,240,759
Dividends 144,616
Total investment income 19,385,375
Expenses:
Compensation of Manager (Note 2) $1,875,645
Investor servicing and custodian fees (Note 2) 257,459
Compensation of Trustees (Note 2) 9,580
Reports to shareholders 22,478
Exchange listing fee 56,341
Auditing 28,096
Legal 9,494
Postage 47,539
Administrative services (Note 2) 6,970
Registration fees 125
Other 3,492
Total expenses 2,317,219
Net investment income 17,068,156
Net realized gain on investments (Notes 1 and 3) 6,299,319
Net realized gain on options (Notes 1 and 3) 318,468
Net realized gain on futures contracts (Notes 1 and 3) 104,418
Net realized loss on forward currency contracts (Notes 1 and
3) (1,035,976)
Net realized loss on foreign currency (Note 1) (77,042)
Net unrealized depreciation of investments,
options, futures, forward currency contracts
during the period (30,791,632)
Net loss on investment transactions (25,182,445)
Net decrease in net assets resulting from operations $ (8,114,289)
</TABLE>
<PAGE>
Statement of
changes in net assets
<TABLE>
<CAPTION>
Six months
ended Year ended
April 30 October 31
1994 1993
<S> <C> <C> <C>
Increase (decrease) in net Operations:
assets Net investment income $ 17,068,156 $ 38,801,320
Net realized gain on investments 6,299,319 19,534,051
Net realized gain on options 318,468 538,864
Net realized gain on futures contracts 104,418 6,615
Net realized gain (loss) on forward currency contracts (1,035,976) 4,586,142
Net realized loss on foreign currency (77,042) (36,529)
Net unrealized (depreciation) appreciation of
investments, options, futures, forward and cross forward
currency contracts (30,791,632) 7,976,174
Net increase (decrease) in net assets resulting from
operations (8,114,289) 71,406,637
Distributions to shareholders from:
Net investment income (20,015,704) (38,801,320)
In excess of net investment income -- (7,555,392)
Net realized gain on investments (5,150,723) --
Total increase (decrease) in net assets (33,280,716) 25,049,925
Net assets Beginning of period 513,315,877 488,265,952
End of period (including distributions in excess of net
investment income $(7,880,726) and $(7,555,392),
respectively) $480,035,161 $513,315,877
Number of fund shares
Shares outstanding at beginning of period 53,375,649 53,375,649
Shares outstanding at end of period 53,375,649 53,375,649
</TABLE>
<PAGE>
Financial Highlights*
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the period
Six December 28, 1987
months (commencement
ended of operations) to
April 30 Year ended October 31 October 31
--- - -----
1994 1993 1992 1991 1990 1989 1988
- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $9.62 $9.15 $8.80 $8.01 $8.86 $9.50 $9.35
- ---
Investment Operations
Net Investment Income .32 .73 .77 .82 .84 .95 .81
Net Realized and
Unrealized Gain (Loss)
on Investments (.48) .61 .51 .90 (.69) (.44) .17
- ---
Total from Investment
Operations (.16) 1.34 1.28 1.72 .15 .51 .98
- ---
Distributions to
Shareholders From:
Net Investment Income (.37) (.73) (.77) (.82) (.84) (.96) (.80)
In Excess of Net
Investment Income -- (.14) -- -- -- -- --
Net Realized Gain on
Investments (.10) -- (.10) -- (.01) (.19) (.03)
Paid-in Capital (a) -- -- (.06) (.11) (.15) -- --
- ---
Total Distributions (.47) (.87) (.93) (.93) (1.00) (1.15) (.83)
- ---
Net Asset Value, End of
Period $8.99 $9.62 $9.15 $8.80 $8.01 $8.86 $9.50
- ---
Market Value End of
Period $8.38 $8.88 $8.63 $8.38 $6.88 $8.25 $9.50
- ---
Total Investment Return
at Market Value (%) (b) (.38)(c) 13.27 14.34 36.93 (4.80) (1.52) 4.36(c)
- ---
Net Assets, End of Period
(in thousands) $480,035 $513,316 $488,266 $468,234 $428,862 $482,494 $515,253
- ---
Ratio of Expenses to
Average Net Assets (%) .93(c) .92 .95 1.08 1.08 1.06 1.01(c)
Ratio of Net Investment
Income to Average Net
Assets (%) 6.82(c) 7.76 8.59 9.74 10.07 10.21 10.15(c)
Portfolio Turnover (%) 152.45(d) 132.24 221.30 323.27 125.33 323.44 117.10(d)
</TABLE>
*Financial highlights for periods ended through October 31, 1992 have been
restated to conform with requirements issued by the SEC December 31, 1992.
(a) See Note 1 to Financial Statements.
(b) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(c) Annualized.
(d) Not annualized.
<PAGE>
Notes to
financial statements
April 30, 1994 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 value, 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.)
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 Putnam management 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.
<PAGE>
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, along with the cash of other
registered investment companies managed by Putnam Investment Management,
Inc., the Fund's Manager, a wholly-owned subsidiary of Putnam Investments,
Inc., and certain other accounts. These balances may be invested in one or
more repurchase agreements and/or short-term money market instruments.
D) 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. 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 stepped
coupon 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.
<PAGE>
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, 1991, and 1990, $0.06, $0.11 and $0.15 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 were
being amortized on a straight-line basis over a five-year period of which
concluded during the six months ended April 30, 1994.
Note 2 Management fee, administrative services, and other transactions
<PAGE>
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 six months
ended April 30, 1994, the Fund incurred $6,970 for these services.
Trustees of the Fund receive an annual Trustee's fee of $1,340 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 six
months ended April 30, 1994 amounted to $257,459.
Investor servicing and custodian fees reported in the Statement of operations
for the six months ended April 30, 1994 have been reduced by credits allowed
by PFTC.
<PAGE>
Note 3 Purchases and sales of securities
During the six months ended April 30, 1994, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $280,895,699 and $268,446,750 respectively. Purchases and sales of
U.S. government obligations aggregated $427,502,831 and $444,451,991,
respectively. In determining the net gain or loss on securities sold, the
cost of securities has been determined on the identified cost basis.
Written option transactions on foreign currencies during the year are
summarized as follows:
<TABLE>
<CAPTION>
Principal
Subject Premiums
to Option Received
<S> <C> <C>
Options written 58,595 $ 122,871
Options closed (58,595) (122,871)
Written options outstanding at
period $-- $ --
</TABLE>
Purchased option transactions on foreign bonds and currencies during the
period are summarized as follows:
<TABLE>
<CAPTION>
Cost
<S> <C>
Contracts outstanding beginning of period $ 1,601,874
Options purchased 3,828,173
Options sold (3,939,292)
Purchased options outstanding at end of period $ 1,490,755
</TABLE>
Transactions in U.S. Treasury Bond futures contracts during the period are
summarized as follows:
<TABLE>
<CAPTION>
Sales of Futures Contracts
---
Number of Aggregate
Contracts Face Value
<S> <C> <C>
Contracts outstanding beginning of period 108 $ 12,841,875
Contracts opened 624 70,855,562
Contracts closed (712) (81,583,062)
Open at end of period 20 $ 2,114,375
</TABLE>
Transactions in forward and cross forward currency contracts during the
period are summarized as follows:
<TABLE>
<CAPTION>
Purchase of
Forward Currency
Contracts
Aggregate
Face Value
<S> <C>
Contracts outstanding beginning of period $ 13,757,407
Contracts opened 150,895,978
Contracts closed (164,653,385)
Open at end of period $--
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sales of
Forward Currency Contracts
Aggregate
Face Value
<S> <C>
Contracts outstanding at beginning of period $ 50,910,959
Contracts opened 334,350,801
Contracts closed (342,107,581)
Open at end of period $ 43,154,179
</TABLE>
Note 4 Reclassification of Capital Accounts
Dividend Policy
Effective November 1, 1993, Putnam Master Income Trust has adopted the
provisions of Statement of Position 93-2 (SOP) "Determination, Disclosure and
Financial Statement Presentation of Income, Capital Gain and Return of
Capital distributions by Investment Companies". The purpose of this SOP is to
report the accumulated net investment income (loss) and accumulated net
realized gain (loss) accounts in such a manner as to approximate amounts
available for future distributions (or to offset future realized capital
gains) and to achieve uniformity in the presentation of distributions by
investment companies.
As a result of the SOP, the Fund has reclassified $2,622,214 to decrease
distributions in excess of net investment income, $20,878,766 to decrease
accumulated net realized gain and $18,256,552 to increase additional paid-in
capital.
Dividend Policy
These adjustments represent the cumulative amounts necessary to report these
balances through October 31, 1993, the close of the Fund's last fiscal year
end for financial reporting and tax purposes.
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 nontaxable 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>
Selected
Quarterly
Data
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
April January October July April January October July April January
30 31 31 31 30 31 31 31 30 31
1994 1994 1993 1993 1993 1993 1992 1992 1992 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total
investment
income
Total $7,826,067 $11,559,308 $10,173,560 $10,397,435 $11,266,547 $11,579,308 $10,686,030 $12,026,006 $10,932,613 $12,202,807
Per share $ .14 $ .22 $ .20 $ .19 $ .21 $ .22 $ 0.20 $ 0.23 $ 0.21 $ 0.22
Net
investment
income
Total $6,549,726 $10,518,430 $8,974,985 $9,272,392 $10,035,513 $10,518,430 $9,519,163 $10,861,523 $9,771,583 $11,121,100
Per share $ .12 $ .20 $ .17 $ .17 $ .19 $ .20 $ 0.17 $ 0.21 $ 0.19 $ 0.20
Net realized
and
unrealized
gain on
investments
Total $(33,123,417)$ 7,940,972 $9,445,115 $7,121,780 $8,097,450 $7,940.972 $4,170,992 $13,285,602 $ 198,122 $ 9,093,777
Per share $ (.63)$ .15 $ .17 $ .14 $ .14 $ .15 $ 0.08 $ 0.25 -- $ 0.18
Net increase
in assets
resulting
from
operations
Total $(26,573,691)$18,459,402 $18,420,100 $16,394,172 $18,132,963 $18,459,402 $13,690,155 $24,147,125 $9,969,705 $20,214,877
Per share $ (.51)$ .35 $ .34 $ .31 $ .33 $ .35 $ 0.25 $ 0.46 $ 0.19 $ 0.38
Net assets at
end of
period
Total $480,035,161$491,993,766$513,315,877$504,903,823$499,318,157$491,933,716$488,265,952$486,206,042$473,677,649$476,078,525
Per share $ 8.99 $ 9.22 $ 9.62 $ 9.46 $ 9.35 $ 9.22 $ 9.15 $ 9.12 $ 8.90 $ 8.95
</TABLE>
<PAGE>
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-rated 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.
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
Jameson Adkins Baxter
President,
Baxter Associates, Inc.
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.
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.
<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
John R. Verani
Vice President
Gary N. Coburn
Vice President
Rosemary Thomsen
Vice President
and Fund Manager
William N. Shiebler
Vice President
John D. Hughes
Vice President
and Treasurer
Paul O'Neil
Vice President
Beverly Marcus
Clerk and
Assistant Treasurer
Call 1-800-225-1581 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.
MIT-12451
PUTNAMINVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
Paid
Boston, MA
Permit No. 53749
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED
AND EDGAR-FILED TEXTS:
(1) Bold and italic typefaces are displayed in normal type.
(2) Headers (e.g., the name of the fund) are omitted.
(3) Certain tabular and columnar headings and symbols are displayed
differently in this filing.
(4) Bullet points and similar graphic signals are omitted.
(5) Page numbering is omitted.
(6) Pound sterling symbol replaced with (pound); Japanese yen replaced
with (yen).
