PUTNAM
MASTER
INCOME
TRUST
[GRAPHIC OMITTED:
art work]
SEMIANNUAL REPORT
April 30, 1995
[LOGO: BOSTON - LONDON - TOKYO]
<PAGE>
PERFORMANCE HIGHLIGHTS
o Morningstar, an industry research firm, awarded the fund its highest rating
of five stars for risk-adjusted performance through April 30, 1995.*
o "Because Putnam Master Income Trust usually allocates its assets wisely, the
fund can overcome its occasional mistakes . . . Although the fund stumbled a
bit in 1994, its 12.1% trailing five-year return is in the category's top
quintile . . . PMT's low-volatility nature makes it a valuable addition to an
income portfolio."
-- Morningstar Mutual Funds, March 10, 1995
o Performance should always be considered in light of a fund's investment
strategy. Putnam Master Income Trust is designed 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.
------------------------------------------------------------------------
SEMIANNUAL RESULTS AT A GLANCE
-------------------------------------------------------------------------
TOTAL RETURN NAV MARKET PRICE
-------------------------------------------------------------------------
(change in value during
period plus reinvested
distributions)
6 months ended 4/30/95 5.74% -0.44%
SHARE VALUE: NAV MARKET PRICE
-------------------------------------------------------------------------
10/31/94 $8.63 $7.875
4/30/95 8.73 7.500
DISTRIBUTIONS: NO. INCOME TOTAL
-------------------------------------------------------------------------
6 $0.345 $0.345
CURRENT RETURN: NAV MARKET PRICE
-------------------------------------------------------------------------
End of period
Current dividend rate(1) 7.90% 9.20%
-------------------------------------------------------------------------
Performance data represent past results. For performance over longer periods,
see pages 8 and 9. (1)Income portion of most recent distribution, annualized
and divided by NAV or market price at end of period.
*Morningstar Inc., a mutual fund research firm, rates a fund relative to
other funds with similar investment objectives based on the fund's 3- and
5-year average annual returns and adjusted for risk factors and sales
charges. Ratings are updated monthly. The five-star overall rating puts the
fund in the top 10% among all 77 fixed-income funds. For the 3-year period,
there were 77 funds in the fixed-income category and the fund received five
stars. For the 5-year period, there were 66 funds in the category and the
fund received five stars. Past performance is not indicative of future
results.
<PAGE>
FROM THE CHAIRMAN
[GRAPHIC OMITTED:
Photo of
George Putnam]
(C) Karsh, Ottawa
Dear Shareholder:
Putnam Master Income Trust, with investments strategically positioned in
U.S. government securities, high-yield corporate bonds, and international
fixed-income securities, was among the beneficiaries of the brighter mood that
emerged in the world's fixed-income markets during the opening months of 1995.
Led by a sharp rally in U.S. Treasury bonds in January and February, bonds in
other key markets had also registered measurable improvement by the time the
fund's current fiscal year had reached its halfway mark on April 30, 1995.
German and Japanese bonds in particular performed extremely well.
Putnam Management believes continued slowdown in global economic growth suggests
more upward momentum in bond prices in the months ahead.
In the report that follows, your fund's management team discusses performance
and prospects in the context of the three market sectors represented in the
portfolio.
Respectfully yours,
/s/ George Putnam
George Putnam
Chairman of the Trustees
June 21, 1995
<PAGE>
REPORT FROM THE FUND MANAGERS
ROSEMARY THOMSEN
D. WILLIAM KOHLI
NEIL POWERS
MARK SIEGEL
Patience can have its rewards. After enduring one of the most challenging
markets in recent fixed-income history, Putnam Master Income Trust posted
solid performance at net asset value for the six months ended April 30, 1995.
By investing in three distinct fixed-income markets, your fund was able to
benefit from each market's improved disposition as the semiannual period
progressed.
o HIGH-YIELD SLEEVE TAKES ON DEFENSIVE TONE
High-yield issuers, in general, reported strong results for 1994, and renewed
hopes for a "soft landing" helped propel the sector higher over the first few
months of calendar 1995. Several market-specific factors also enhanced the
sector's strength. New issuance was at a low level and investors entering the
market were forced to compete for bonds in the secondary market, driving
prices up. Cable television and telecommunications -- which are among the
largest sectors of the high-yield universe -- rallied throughout most of the
period as prospects for favorable regulatory developments improved in
Washington. Both industry sectors were well represented in your fund's
high-yield sleeve.
Maintaining a dual focus was essential to our strategy. We invested both in
bonds at the higher end of the below-investment-grade spectrum, those rated
BB, and in select lower-quality bonds, those rated B. This approach proved
rewarding. As investors anticipated a slowing economy, demand for the more
liquid BB-rated bonds increased while, conversely, the continued health of
the economy buoyed the value of B-rated issues.
Although high-yield bonds have outperformed virtually all other fixed-income
investments over the past four years, high-yield bond prices, in general,
have moved closer to fair value. Believing their prospects for additional
appreciation have diminished, we've pared back the fund's high-yield exposure
in favor of an increased weighting in U.S. government obligations. At
period's end, the high-yield sleeve
<PAGE>
made up 37% of the fund's total net assets, down from 43% on October 31,
1994. We've also redeployed assets into more defensive industries, such as
utilities, cable television, and health care, that historically have
performed well in the later stages of the business cycle. Generally, we have
been seeking investments in companies with prospects for credit improvement.
o U.S. GOVERNMENT BONDS RIDE THE MARKET RALLY
During the period, the Federal Reserve Board continued its tightening
activity, further increasing interest rates in November and February.
Believing these actions would have the desired effect of slower economic
growth with low inflation, optimistic investors bid up bond prices across all
U.S. fixed-income sectors.
Our concentration on intermediate U.S. Treasury securities -- a position
established earlier in the period when the spread between short- and
long-term bond yields had narrowed -- proved rewarding as the market reduced
expectations of further Fed tightening and began to price in a slowing
economy. As the yield curve then steepened, the entire Treasury market staged
a strong rally, with intermediate term notes appreciating significantly.
[GRAPHIC OMITTED: line chart "MARKET SECTOR PERFORMANCE" showing:
Y-axis percentages read (top to bottom) 24% 20 15 10 5 0 -5 -10 and -14.
X-axis dates read (left to right) 4/30/94 and 4/30/95.
Black dots represent Salomon Brothers non-U.S. World Government Bond Index:
Plot points: -1.34 1.04 1.3 0.72 2.71 5.36 3.24 3.3 5.55 8.54 18.21 20.74;
White dots represent First Boston High-Yield Index:
Plot points: 0.57 -0.1 0.37 1.12 1.52 1.59 0.42 1.48 2.55 5.07 6.26 8.61;
A solid black line represents Lehman Brothers Government Bond Index:
Plot points: -0.13 -0.36 1.47 1.49 0.06 -0.01 -0.19 0.41 2.28 4.48 5.14 6.51.
Caption reads: Chart shows cumulative monthly performance of the three major
sectors in which your fund invested from 4/30/94 through 4/30/95. Indexes are
unmanaged and their holdings and performance will differ from that of the
fund. Past performance is not indicative of future results. Sources:
International government securities, Salomon Brothers non-U.S. World
Government Bond Index; high-yield corporate bonds, First Boston High-yield
Index; U.S. government securities, Lehman Brothers Government Bond Index.]
<PAGE>
Ironically, the dollar's weakness also contributed to the strength of
intermediate-term U.S. Treasury securities. As German and Japanese central
banks endeavored to support the currency by buying dollars in the open
market, they, in turn, invested those dollars back into short- and
intermediate-term U.S. Treasuries.
Within the mortgage-backed securities market, we maintained our exposure to
discount coupon mortgages, which tend to be less sensitive to prepayment
risk. We employed this strategy in anticipation of declines in interest
rates, which have historically increased prepayment activity.
o BOND SELECTION KEY FACTOR IN INTERNATIONAL SLEEVE'S PERFORMANCE
For most of the period, the fund's foreign currency hedges detracted from
this sleeve's performance potential. Believing a strong U.S. economy would
lead to a strong dollar, we used currency hedges tied to the U.S. dollar to
help preserve the value of portfolio holdings. However, the dollar did not
behave as anticipated, weakening significantly in March against other
currencies, especially the German deutschemark and the Japanese yen.
Consequently, we removed most of the portfolio's U.S. dollar hedges, allowing
for full exposure to international currencies late in the period.
Currency strategies notwithstanding, successful international investing also
involves selecting the right markets. This became more evident to investors
as the period drew to a close and the dollar began to stabilize. Fortunately,
we were ahead of the pack on that front and our bond market selections proved
generally positive. At the outset of fiscal 1995, we concentrated assets in
the United Kingdom, Finland, Sweden, and Italy with large investments as well
in Australia, Canada, and New Zealand. With the exception of the United
Kingdom, these markets came through in terms of performance near period's end
and we have begun scaling back our positions to emphasize bonds in some of
Europe's core markets, particularly Germany and France, where we expect
demand to increase. A quick and large-scale foray into the Japanese market in
late February enabled the fund to participate somewhat in that market's
robust rally. However, we have since trimmed back the fund's Japanese
position, believing better values can be found in Europe's
<PAGE>
[GRAPHIC OMITTED: horizontal bar chart
"INTERNATIONAL SECTOR: TOP 5 COUNTRY ALLOCATIONS" showing:
Germany 6.1%; United Kingdom 4.7%; France 3.2%; Italy 3.2% and Japan 2.1%.
Footnote reads: *Based on net assets on 4/30/95. Holdings will vary over time.]
core markets and select higher yielding markets, such as Italy, Finland, and
Sweden.
Our emerging markets holdings peaked at about 5% during the period, and were
reduced to 3% of net assets as of April 30, due to intense volatility in many
areas. Recent rallies in some of these markets proved beneficial to the
fund's international sleeve.
o ATTENTION FOCUSED ON ECONOMIC SLOWDOWN
We believe the fixed-income markets will become more focused on an economic
slowdown as the year progresses. This bodes well for the U.S. Treasury market
as well as the value of the dollar. Therefore, we expect to maintain the
portfolio's heavy weighting in the U.S. government sleeve, particularly in
Treasuries.
Given the dramatic move in the dollar, which has already occurred, we do not
anticipate increasing the portfolio's international allocation at this time.
In the high-yield market, we will continue to structure a well-diversified
sleeve with yields that are attractive relative to their risk level and to
focus on improving credit situations.
The views expressed throughout the report are exclusively those of Putnam
Management. They are not meant as investment advice. Although the described
holdings were viewed favorably as of 4/30/95, there is no guarantee the fund
will continue to hold these securities in the future.
Investments in non-U.S. securities may be subject to certain risks such as
currency fluctuations and political developments. The lower ratings of
high-yield debt securities reflect a greater possibility that adverse changes
in an issuer's business or financial condition, or in general economic
conditions, may impair the issuer's ability to pay principal and interest on
the securities. Although the U.S. government guarantees the timely payment of
principal and interest on the U.S. government and agency obligations, the
value of the fund shares is not guaranteed and will fluctuate.
<PAGE>
PERFORMANCE SUMMARY
This section provides, at a glance, information about your fund's performance.
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions back into the fund. We show total return in two ways: on a
cumulative long-term basis and on average how the fund might have grown each
year over varying periods. For comparative purposes, we show how the fund
performed relative to appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDED 4/30/95
SALOMON
BROS. FIRST
NON-U.S. BOSTON
LEHMAN BROS. WORLD HIGH
MARKET GOVERNMENT GOV'T. YIELD
NAV PRICE BOND INDEX BOND INDEX INDEX
- ------------------------------------------------------------------------------
6 months 5.74% -0.44% 6.53% 14.60% 6.91%
1 year 6.29 -1.99 6.51 20.74 8.61
- ------------------------------------------------------------------------------
5 years 83.26 78.32 55.76 112.94 102.33
Annual average 12.88 12.26 9.27 16.32 15.14
- ------------------------------------------------------------------------------
Life of fund (12/28/87) 110.86 68.29 86.40 97.93 125.85
Annual average 10.70 7.35 8.87 9.76 11.76
- ------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 3/31/95
(most current calendar quarter)
NAV MARKET PRICE
- -------------------------------------------------
6 months 3.87% 4.59%
1 year 2.77 4.32
- -------------------------------------------------
5 years 78.67 78.74
Annual average 12.31 12.32
- -------------------------------------------------
Life of fund (12/28/87) 106.42 69.83
Annual average 10.51 7.58
- -------------------------------------------------
Performance data represent past results. Investment returns, 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. Fund performance data do not take into
account any adjustment for taxes payable on reinvested distributions. Past
performance is not indicative of future results.
<PAGE>
TERMS AND DEFINITIONS
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus any
liabilities, the liquidation preference and cumulative undeclared dividends paid
on the remarketed preferred shares, divided by the number of outstanding common
shares.
MARKET PRICE is the current trading price of one share of the fund. Market
prices are set by transactions between buyers and sellers on the New York Stock
Exchange.
COMPARATIVE BENCHMARKS
THE FIRST BOSTON HIGH YIELD INDEX* is an unmanaged list of lower-rated
higher-yielding U.S. corporate bonds.
SALOMON BROTHERS NON-U.S. WORLD GOVERNMENT BOND INDEX* is an unmanaged list of
bonds issued by 10 countries.
LEHMAN BROTHERS GOVERNMENT BOND INDEX* is an unmanaged list of publicly issued
U.S. Treasury obligations.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in the
fund do not match those in the indexes and performance of the fund will differ.
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS OWNED
April 30, 1995 (Unaudited)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (37.8%)<F1>
PRINCIPAL AMOUNT VALUE
<C> <S> <C>
$ 646,688 Federal Home Loan Mortgage Corporation
7 1/2s, July 1, 2016 $ 637,594
Federal National Mortgage Association
14,555,558 8 1/2s, with various due dates to April 1, 2025 14,782,989
1,645,000 TBA 8 1/2s, May 14, 2025 <F4> 1,670,703
25,000,000 TBA 8s, May 14, 2025 <F4> 24,937,500
Government National Mortgage Association
6,858,507 8 1/2s, September 15, 2024 6,993,534
23,573,351 8s, with various due dates to January 1, 2025 23,582,732
32,597,688 7 1/2s, with various due dates to August 15, 2024 31,846,166
138,539 7s, with various due dates to November 15, 2022 131,136
23,470,000 TBA 7s, May 14, 2025 <F4> 22,215,812
7,745,000 U.S. Treasury Bonds 10 3/4s, May 15, 2003 9,473,103
460,000 U.S. Treasury Bonds 8 7/8s, August 15, 2017 529,144
5,000,000 U.S. Treasury Bonds 7 5/8s, February 15, 2025 5,170,313
5,980,000 U.S. Treasury Bonds 7 1/2s, November 15, 2024 6,060,356
5,520,000 U.S. Treasury Bonds 6 1/4s, August 15, 2023 4,766,175
5,000,000 U.S. Treasury Notes 9 1/4s, August 15, 1998 5,357,813
7,100,000 U.S. Treasury Notes 9 1/4s, January 15, 1996 7,242,000
5,000,000 U.S. Treasury Notes 8 7/8s, November 15, 1998 5,321,875
35,295,000 U.S. Treasury Strip zero %, August 15, 2020 5,272,191
------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(cost $169,461,992) $175,991,136
CORPORATE BONDS AND NOTES (29.9%)<F1>
PRINCIPAL AMOUNT VALUE
ADVERTISING (1.1%)
- --------------------------------------------------------------------------------------------
$ 2,000,000 Lamar Advertising Co. sr. secd. notes 11s, 2003 $ 1,967,500
1,850,000 Universal Outdoor, Inc. sr. note stepped-coupon
zero % (14s, 7/1/99), 2004 <F2> 1,073,000
2,000,000 Universal Outdoor, Inc. sub. deb. 11s, 2003 1,895,000
------------
4,935,500
AEROSPACE (0.3%)
- --------------------------------------------------------------------------------------------
1,500,000 Sequa Corp. bonds 8 3/4s, 2001 1,410,000
AGRICULTURE (1.1%)
- --------------------------------------------------------------------------------------------
1,994,000 PMI Acquisition Corp. sub. disc. deb. stepped-coupon
zero % (11 1/2s, 3/1/00), 2005 <F2> 987,030
1,731,000 PSF Finance (L.P.) sr. disc. note stepped-coupon zero
% (12s, 9/15/96), 2003 <F2> 1,423,748
2,449,280 PSF Finance (L.P.) sr. secd. notes 12s, 2000 2,553,374
------------
4,964,152
ALUMINUM (0.2%)
- --------------------------------------------------------------------------------------------
900,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes
12 3/4s, 2003 956,250
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
AUTOMOTIVE PARTS (0.3%)
- --------------------------------------------------------------------------------------------
$ 1,350,000 Key Plastics Corp. sr. notes 14s, 1999 $ 1,444,500
BANKS (0.2%)
- --------------------------------------------------------------------------------------------
1,000,000 Westpac Banking Corp. sub. deb. 9 1/8s, 2001 1,068,750
BROADCASTING (1.2%)
- --------------------------------------------------------------------------------------------
600,000 Granite Broadcasting Corp. sr. sub. deb. 12 3/4s, 2002 630,000
4,200,000 Panamsat (L.P.) sr. sub. notes stepped-coupon zero %
(11 3/8s, 8/1/98), 2003 <F2> 2,908,500
1,000,000 SFX Broadcasting, Inc. sr. sub. notes 11 3/8s, 2000 1,020,000
1,318,000 Telemedia Broadcasting Corp. 144A deb. 6.4s, 2004 <F2> 1,146,660
------------
5,705,160
BUILDING AND CONSTRUCTION (1.2%)
- --------------------------------------------------------------------------------------------
750,000 American Standard sr. deb. 11 3/8s, 2004 819,375
1,100,000 American Standard, Inc. deb. 9 1/4s, 2016 1,069,750
2,000,000 Presley Co. sr. notes 12 1/2s, 2001 1,700,000
2,000,000 Scotsman Group, Inc. sr. notes 9 1/2s, 2000 1,910,000
------------
5,499,125
BUSINESS SERVICES (0.4%)
- --------------------------------------------------------------------------------------------
2,000,000 Corporate Express, Inc. sr. sub. notes 9 1/8s, 2004 1,910,000
CABLE TELEVISION (2.5%)
- --------------------------------------------------------------------------------------------
2,000,000 Adelphia Communications Corp. sr. notes 12 1/2s, 2002 1,950,000
1,000,000 Adelphia Communications Corp. notes, Ser. B, 9 7/8s, 2005 862,500
1,525,000 Cablevision Systems Corp. sr. sub. reset deb. 10 3/4s, 2004 1,586,000
1,000,000 Century Communications Corp. sr. sub. deb. 11 7/8s, 2003 1,058,750
975,000 Continental Cablevision, Inc. sr. deb. 9s, 2008 967,688
2,220,490 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003 <F3> 1,998,441
1,700,000 Insight Communications Co. sr. sub. notes stepped-coupon
8 1/4s (11 1/4s, 3/1/96), 2000 <F2> 1,676,625
950,000 Marcus Cable Co. (L.P.) sr. sub. disc. note stepped-coupon
zero % (13 1/2s, 8/1/99), 2004 <F2> 565,250
1,000,000 Summit Communications Group, Inc. sr. sub. deb.
10 1/2s, 2005 1,045,000
------------
11,710,254
CELLULAR COMMUNICATIONS (2.1%)
- --------------------------------------------------------------------------------------------
1,600,000 Cellular, Inc. sr. sub. disc. notes stepped-coupon zero %
(11 3/4s, 9/1/98), 2003 <F2> 1,136,000
1,500,000 Centennial Cellular Corp. sr. notes 8 7/8s, 2001 1,402,500
1,985,000 Dial Call Communication sr. disc. notes Ser. B, stepped-
coupon zero % (10 1/4s, 12/15/98), 2005 <F2> 893,250
3,000,000 Horizon Cellular Telephone Co. sr. sub. disc. notes Ser. B,
stepped-coupon zero % (11 3/8s, 10/1/97), 2000 <F2> 2,310,000
3,350,000 NEXTEL Communications, Inc. sr. disc. notes stepped-
coupon zero % (11 1/2s, 9/1/98), 2003 <F2> 1,850,875
2,545,000 Pricecellular Wire sr. disc. notes zero % (14s, 11/15/97),
2001 <F2> 1,959,650
------------
9,552,275
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
CHEMICALS (0.8%)
- --------------------------------------------------------------------------------------------
$ 2,750,000 G-I Holdings, Inc. sr. notes zero % 1998 $ 1,870,000
2,520,000 OSI Specialties Corp. sr. secd. disc. deb. stepped-
coupon zero % (11 1/2s, 4/15/99), 2004 <F2> 1,738,800
------------
3,608,800
CONGLOMERATES (1.1%)
- --------------------------------------------------------------------------------------------
250,000 ADT Ltd. sr. sub. notes 9 1/4s, 2003 250,000
875,000 Axia, Inc. sr. sub. notes Ser. B, 11s, 2001 805,000
1,650,000 Haynes International, Inc. sr. sub. notes 13 1/2s, 1999 1,072,500
1,000,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes
13s, 19991,002,500
2,050,000 MacAndrews & Forbes Group, Inc. deb. 12 1/4s, 1996 2,050,000
------------
5,180,000
CONSUMER SERVICES (0.4%)
- --------------------------------------------------------------------------------------------
1,000,000 Solon Automated Services, Inc. notes 12 3/4s, 2001 980,000
1,000,000 Solon Automated Services, Inc. sr. sub. deb. 13 3/4s, 2002 995,000
------------
1,975,000
CONTAINERS (0.6%)
- --------------------------------------------------------------------------------------------
2,500,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 2,662,500
ELECTRIC UTILITIES (0.9%)
- --------------------------------------------------------------------------------------------
4,000,000 Midland Funding Corp. II deb. Ser. B, 13 1/4s, 2006 4,160,000
ELECTRONICS (0.9%)
- --------------------------------------------------------------------------------------------
2,700,000 Amphenol Corp. sr. sub. notes 12 3/4s, 2002 3,044,250
2,500,000 International Semi-Tech. Corp. sr. disc. notes stepped-
coupon zero % (11 1/2s, 8/15/00), 2003 <F2> 1,200,000
------------
4,244,250
ENTERTAINMENT (0.3%)
- --------------------------------------------------------------------------------------------
1,650,000 Time Warner Inc. notes zero %, 2002 1,600,500
FINANCIAL SERVICES (0.8%)
- --------------------------------------------------------------------------------------------
1,125,000 Comdata Network, Inc. sr. notes 12 1/2s, 1999 1,215,000
2,000,000 Delaware Management Holdings, Inc. sr. notes Ser. B,
10 1/4s, 2004 2,230,000
250,000 Keystone Group, Inc. sr. secd. notes 9 3/4s, 2003 248,125
------------
3,693,125
FOOD (1.2%)
- --------------------------------------------------------------------------------------------
1,700,000 Chiquita Brands Intl., Inc. sr. notes 9 1/8s, 2004 1,564,000
1,641,000 Del Monte Corp. sub. deb. notes 12 1/4s, 2002 1,419,465
2,000,000 Fresh Del Monte Produce Corp. sr. notes, Ser. B 10s, 2003 1,660,000
780,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 781,950
------------
5,425,415
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
FOOD CHAINS (0.4%)
- --------------------------------------------------------------------------------------------
$ 2,000,000 Grand Union Capital Corp. sr. notes Ser. A, stepped-
coupon zero % (15s, 7/15/99), 2004 <F1> (In Default) <F2> $ 30,000
3,250,000 Grand Union Co. sr. sub. notes 12 1/4s, 2002 <F2> 1,088,750
780,000 Stater Brothers sr. notes 11s, 2001 762,450
------------
1,881,200
FOREST PRODUCTS (1.1%)
- --------------------------------------------------------------------------------------------
2,000,000 Gaylord Container Corp. sr. sub. deb. stepped-coupon
zero % (12 3/4s, 5/15/96), 2005 <F2> 1,922,500
450,000 Riverwood International Corp. sr. notes 10 3/4s, 2000 474,750
700,000 Riverwood International Corp. sr. sub. notes 10 3/8s, 2004 728,000
2,000,000 Stone Container Corp. deb. sr. sub. notes 11 1/2s, 1999 2,080,000
------------
5,205,250
HEALTH CARE (1.5%)
- --------------------------------------------------------------------------------------------
1,500,000 Health Trust, Inc. sub. deb. 8 3/4s, 2005 1,576,875
1,930,000 McGaw, Inc. sr. notes 10 3/8s, 1999 1,987,900
2,415,000 Paracelsus Healthcare Corp. sr. sub. notes 9 7/8s, 2003 2,390,850
1,000,000 Quorum Health Group, Inc. sr. sub. notes 11 7/8s, 2002 1,090,000
------------
7,045,625
INSURANCE (0.5%)
- --------------------------------------------------------------------------------------------
975,000 American Annuity Group, Inc. sr. notes 9 1/2s, 2001 960,375
1,250,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 2003 1,162,500
300,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 285,000
------------
2,407,875
LODGING (0.4%)
- --------------------------------------------------------------------------------------------
1,850,000 John Q. Hammons Hotels 1st. mtge. notes 8 7/8s, 2004 1,739,000
MEDICAL SUPPLIES (0.1%)
- --------------------------------------------------------------------------------------------
500,000 Wright Medical Technology, Inc. sr. secd. notes Ser. B,
10 3/4s, 2000 495,000
MOTION PICTURE DISTRIBUTION (1.8%)
- --------------------------------------------------------------------------------------------
2,000,000 AMC Entertainment, Inc. sr. sub. deb. 12 5/8s, 2002 2,180,000
2,000,000 Act III Theatres, Inc. sr. sub. notes 11 7/8s, 2003 2,140,000
1,825,000 Cinemark USA sr. notes 12s, 2002 1,925,375
2,000,000 Plitt Theatres, Inc. sr. sub. notes 10 7/8s, 2004 1,980,000
------------
8,225,375
NURSING HOMES (0.5%)
- --------------------------------------------------------------------------------------------
1,987,000 Multicare Cos., Inc. sr. sub. notes 12 1/2s, 2002 2,245,310
OIL AND GAS (0.9%)
- --------------------------------------------------------------------------------------------
1,275,000 Arkla, Inc. deb. 8.9s, 2006 1,287,750
830,000 Chesapeake Energy Corp. sr. exch. notes 12s, 2001 867,350
2,000,000 Oryx Energy Co. deb. 9 3/4s, 1998 2,010,000
------------
4,165,100
PAGING (0.2%)
- --------------------------------------------------------------------------------------------
1,150,000 Pagemart, Inc. sr. disc. notes stepped-coupon zero %
(12 1/4s, 11/1/98), 2003 <F2> 718,750
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
PUBLISHING (0.5%)
- --------------------------------------------------------------------------------------------
$ 1,000,000 General Media Corp. sr. secd. notes 10 5/8s, 2000 $ 830,000
2,500,000 Marvel Parent Holdings, Inc. sr. secd. disc. notes
zero %, 1998 1,675,000
------------
2,505,000
REAL ESTATE (0.2%)
- --------------------------------------------------------------------------------------------
55,000 Chelsea Piers 144A Ser. B, stepped-coupon zero %
(11s, 6/15/99), 2009 <F2> 46,888
1,000,000 Chelsea Piers Ser. B stepped-coupon zero %
(12 1/2s, 6/15/99), 2004 <F2> 863,750
------------
910,638
RECREATION (1.1%)
- --------------------------------------------------------------------------------------------
880,000 Arizona Charlies Corp. 1st mtge. Ser. B, 12s, 2000 704,000
320,000 Capitol Queen Corp. 1st mtge note Ser. B, 12s, 2000 288,000
970,000 Casino America Inc. 1st mtge. deb. 11 1/2s, 2001 962,725
1,367,000 Louisiana Casino Cruises Corp. 1st mtge. 11 1/2s, 1998 1,216,630
1,000,000 Stratosphere Corp. 1st mtge 14 1/4s, 2002 1,017,500
864,000 Trump Castle Funding Corp. sr. notes 11 1/2s, 2000 864,000
------------
5,052,855
RESTAURANTS (0.1%)
- --------------------------------------------------------------------------------------------
350,000 American Restaurant Group, Inc. sr. secd. notes,
Ser. A, 12s, 1998 315,000
RETAIL (2.1%)
- --------------------------------------------------------------------------------------------
2,100,000 County Seat Stores Inc. sr. sub. notes 12s, 2001 2,089,500
1,870,000 Duane Reade Corp. sr. notes 12s, 2002 1,617,550
335,000 Eckerd (Jack) Corp. sub. deb. 11 1/8s, 2001 336,675
50,000 Loehmanns' Holdings, Inc. sr. sub. notes 13 3/4s, 1999 48,750
5,000,000 Loehmanns' Holdings, Inc. sr. notes 10 1/2s, 1997 4,950,000
1,950,000 Pay'n Pak Stores, Inc. sr. sub. deb. 13 1/2s, 1998
(In Default) <F5> 1,219
1,050,000 Specialty Retailers, Inc. sr. sub. notes 11s, 2003 987,000
------------
10,030,694
SCHOOL BUSES (0.4%)
- --------------------------------------------------------------------------------------------
2,000,000 Blue Bird Body Co. sub. deb. Ser. B, 11 3/4s, 2002 2,050,000
SPECIALTY CONSUMER PRODUCTS (0.4%)
- --------------------------------------------------------------------------------------------
2,000,000 Playtex Family Products Corp. sr. sub. notes 9s, 2003 1,880,000
TEXTILES (0.1%)
- --------------------------------------------------------------------------------------------
700,000 Foamex (L.P.) Capital Corp. sr. sub. deb. 11 7/8s, 2004 682,500
- --------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (cost $136,312,415) $139,260,728
<PAGE>
<CAPTION>
FOREIGN BONDS AND NOTES (24.8%)<F1>
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
<C> <C> <S> <C>
AUD 12,330,000 Australia (Government of) bonds 9s, 2004 $ 8,592,469
USD 1,000,000 Brazil (Government of) bonds 4.25s, 2024 397,500
USD 518,000 Bulgaria FRB 6.063s, 2011 203,963
CAD 3,030,000 Canada (Government of) deb. 9s, 2004 2,325,525
CAD 2,000,000 Canada (Government of) deb. 7 1/2s, 1997 1,466,250
DKK 11,785,000 Denmark (Government of) bonds 8s, 2006 2,055,009
DKK 31,735,000 Denmark (Government of) bonds 7s, 2024 4,581,741
USD 1,235,000 Ecuador (Government of) FRN 7 1/4s, 2025 612,869
FRF 47,428,000 France (Government of) OAT deb. 8 1/2s, 2002 10,048,808
FRF 16,480,000 France (Government of) deb. 7s, 1999 3,296,000
FRF 33,460,000 France (Government of) strip zero %, 2023 690,113
FRF 40,740,000 France (Government of) strip zero %, 2019 1,069,425
DEM 22,580,000 Germany (Republic of) bonds 7 3/8s, 2005 16,638,638
DEM 10,000,000 Germany (Republic of) bonds 6 1/4s, 2024 6,050,000
IDR 224,000 Indonesia (Government of) bonds 9 3/4s, 2001 200,760
ITL 10,825,000 Italy (Government of) bonds 12s, 2003 6,292,031
ITL 15,790,000 Italy (Government of) bonds 8 1/2s, 2004 7,332,481
ITL 2,640,000 Italy (Government of) notes 8 1/2s, 1999 1,390,950
JPY 7,802,000 Japan (Government of) bonds 4.4s, 2004 9,884,159
MAD 825,000 Morocco (Government of) notes 4 1/2s, 1999 505,313
USD 100,000 Petroleos Mexicanos 144A med. term notes 6 1/8s, 1996 93,000
USD 1,315,000 Poland (Government of) 144A FRN 6.8125s, 2024 912,281
USD 368,000 Poland (Government of) deb. 3 1/4s, 2014 172,040
USD 387,000 South Africa (Government of) deb. 9 5/8s, 1999 383,614
SEK 19,500,000 Sweden (Government of) bonds 10 1/4s, 2000 2,632,500
THB 7,700,000 Thailand (IFC of) bonds 8s, 1996 308,000
DEM 7,610,000 Treuhandanstalt (Government of) bonds 7 1/8s, 2003 5,526,763
GBP 990,000 United Kingdom Treasury bonds 10s, 2001 1,706,513
GBP 4,595,000 United Kingdom Treasury bonds 9 3/4s, 2002 7,886,169
GBP 3,000,000 United Kingdom Treasury bonds 9s, 2012 5,090,625
GBP 877,000 United Kingdom Treasury bonds 8 1/2s, 2007 1,419,096
GBP 3,540,000 United Kingdom Treasury notes 8s, 2013 5,506,913
GBP 655,000 United Kingdom Treasury war bonds 3 1/2s, 2049 443,353
------------
TOTAL FOREIGN BONDS AND NOTES
(cost $129,295,885) $115,714,871
<CAPTION>
UNITS (2.3%)
NUMBER OF UNITS VALUE
- --------------------------------------------------------------------------------------------
<C> <S> <C>
150,000 Celcaribe S.A. 144A units stepped-coupon zero %
(13 1/2s, 3/15/98), 2004 <F2> $ 1,276,125
4,300,000 Echostar Communication Corp. units stepped-coupon
zero % (12 7/8s, 12/1/99), 2004 <F2> 2,236,000
1,660,000 Foamex (L.P.) Capital Corp. sr. secd. disc. deb. stepped-
coupon zero % (14s, 7/1/99), 2004 <F2> 929,600
725,000 Hollywood Casino 144A units 13 1/2s, 1998 775,750
2,815,000 ICF Kaiser International, Inc. sr. sub. units 12s, 2003 2,632,025
449,440 New Street Acquisition Corp. 144A units 12s, 1998 <F3> 449,440
550,500 Premium Standard Farms 144A exch. pfd. units 12 1/2s, 2000 605,550
1,195,000 Total Renal Care units stepped-coupon zero %
(12s, 8/15/99), 2004 <F2> 1,051,600
900,000 WRT Energy Corp. units 13 7/8s, 2002 913,500
------------
TOTAL UNITS (cost $10,641,372) $ 10,869,590
<PAGE>
ASSET-BACKED SECURITIES (1.4%)<F1>
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
$ 1,280,000 First Chicago Master Trust II Ser. 1994-L Class A,
7.15s, 2001 $ 1,277,600
1,575,000 First Deposit Master Trust Ser. 93-2A, 5 3/4s, 2001 1,517,906
2,070,000 Standard Credit Card Master Trust 7.85s, 2002 2,121,750
1,650,000 Standard Credit Card Trust Ser. 94-1A 4.65s, 1999 1,588,125
------------
TOTAL ASSET-BACKED SECURITIES (cost $6,499,773) $ 6,505,381
PREFERRED STOCKS (1.3%)<F1>
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------
25,300 California Federal Bank Ser. B, $10.625 exch. pfd. $ 2,637,525
19,500 First Nationwide Bank $11.50 exch. pfd. 2,042,625
48,132 Pyramid Communications, Inc. Ser. C, $3.125 exch. pfd. 1,131,092
1,935 Supermarkets General Holdings Corp. $3.52 exch. pfd. 49,343
------------
TOTAL PREFERRED STOCKS (cost $5,199,153) $ 5,860,585
YANKEE BONDS AND NOTES (1.2%)<F1>
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
$ 2,750,000 Argentina (Government of) bonds 4s, 2023 $ 1,196,250
1,656,000 Argentina (Government of) bonds 4.313s, 2023 956,340
2,525,880 Brazil (Government of) bonds 7.8125s, 2001 1,913,354
675,000 Cinemark Mexico 144A notes 12s, 2003 627,750
1,150,000 Eletson Holdings, Inc. mtge. notes 9 1/4s, 2003 1,089,625
------------
TOTAL YANKEE BONDS AND NOTES (cost $5,317,422) $ 5,783,319
COMMON STOCKS (0.7%)<F1><F5>
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------
124,292 Ampex Corp. Class A $ 233,048
570 Applause Enterprises, Inc. (acquired 10/4/95 cost $64,125) <F6> 1,425
2,625 Axia Holding Corp. 144A 73,500
17,016 Chesapeake Energy Corp. 399,876
136,154 Computervision Corp. 748,847
6,820 Computervision Corp. (acquired 8/24/92 cost $61,380) <F6> 30,690
15,261 Grand Casinos, Inc. 423,493
4,148 IFINT Diversified Holdings 144A 293,471
266,753 Loehmanns' Holdings, Inc. 144A 533,506
671 PMI Holdings Corp. 134,200
480 Premium Holdings L.P. 144A 47,979
1,491 Pyramid Communications, Inc. New Class B 144A 35,789
1 Southland Corp. 4
15,000 Specialty Foods Corp. 41,250
5,054 Taj Mahal Holding Corp. Class A 50,540
10,000 Triangle Pacific Corp. 140,000
------------
TOTAL COMMON STOCKS (cost $2,078,220) $ 3,187,618
EUROBONDS (0.6%)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
$ 750,000 Banco Del Sud S.A. sr. unsub. med. term notes
10 1/8s, 1997 $ 600,000
408,000 Essar Gujarat Ltd. 144A deb. FRN 8.025s, 1999 405,960
1,500,000 Ispat Mexicana, SA 144A deb. 10 3/8s, 2001 1,260,000
387,000 Petroleo Brasileiro S.A. FRN 9.275s, 1998 363,780
------------
TOTAL EUROBONDS (cost $1,725,186) $ 2,629,740
<PAGE>
BRADY BONDS (0.5%)<F1>
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
$ 1,118,000 Bulgaria (Government of) disc. 7.563s, 2024 $ 526,858
3,230,000 Mexican (Government of) bonds 6 1/4s, 2019 1,691,713
------------
TOTAL BRADY BONDS (cost $2,123,845) $ 2,218,571
<CAPTION>
WARRANTS (0.4%)<F1><F5>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C>
40,000 Becker Gaming Corp. 144A 11/15/00 $ 40,000
3,165 Casino America, Inc. 11/15/96 791
7,860 Casino Magic Finance Corp. 10/14/96 491
7,499 Cinemark Mexico USA, Inc. 8/1/03 69,366
2,100 County Seat Holdings, Inc. 10/15/98 42,000
1,660 Foamex (L.P.) Capital Corp.144A 7/1/99 24,900
96,050 Gaylord Container Corp. 144A 7/31/96 870,453
1,000 General Media Corp. 144A 12/31/00 10,000
75,000 Insight Communications Co. 144A 3/30/98 112,500
4,101 Louisiana Casino Cruises, Inc. 144A 12/1/98 61,515
2,520 OSI Specialties Corp. 144A 4/15/99 50,400
5,290 Pagemart, Inc. 144A 12/31/03 47,610
2,880 President Riverboat Casinos, Inc. 9/23/96 180
4,238 President Riverboat Casinos, Inc. 144A 9/30/99 16,952
20,000 Southdown, Inc. 10/31/96 70,000
2,054 Southland Corp. 3/5/96 5,135
31 Telemedia Broadcasting Corp. 144A 4/1/04 23,295
9,660 UCC Investor Holding, Inc. 10/30/99 108,675
1,850 Universal Outdoor, Inc. 144A 7/1/04 74,000
36 Wright Medical Technology, Inc. 144A 6/30/03 5,871
------------
TOTAL WARRANTS (cost $1,126,244) $ 1,634,134
<CAPTION>
CONVERTIBLE PREFERRED STOCKS (0.3%)<F1>
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------
<C> <S> <C>
8,000 Chiquita Brands Intl. Inc. Ser. A $5.75 cv. pfd. $ 343,000
28,000 Conseco, Inc. Ser. D, $3.25 cv. pfd. 1,183,000
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (cost $1,800,000) $ 1,526,000
CONVERTIBLE BONDS AND NOTES (0.3%)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
$ 375,000 Sahara Mission 144A cv. sub. notes 12s, 1995 $ 375,000
750,000 Riverwood International Corp. sub. notes 6 3/4s, 2003 1,016,250
------------
TOTAL CONVERTIBLE BONDS AND NOTES (cost $1,162,500) $ 1,391,250
PUT OPTIONS PURCHASED (cost $354,613) (0.2%)
<CAPTION>
EXPIRATION DATE/
CURRENCY STRIKE PRICE VALUE
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C>
JPY 706,300 Japanese 10YR Future May 95/104 $ 1,039,391
<PAGE>
<CAPTION>
SHORT-TERM INVESTMENTS (9.3%)<F1>
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
<C> <S> <C>
$20,000,000 Federal National Mortgage Assn. 5.86s, May 23, 1995 $ 19,941,400
10,000,000 General Electric Capital Corp. 5.95s, August 23, 1995 9,960,334
500,000 Mexican Tesobono bonds zero %, October 19, 1995 435,313
250,000 Mexican Tesobono bonds zero %, August 3, 1995 232,031
450,000 Mexico Tesobono bonds zero %, June 1, 1995 437,906
282,575 Poland Zloty Certificate of Deposit zero %
October 20, 1995 248,313
12,087,000 Interest in $485,809,000 joint repurchase agreement
dated April 28, 1995 with Morgan (J.P.) & Co. Inc., due
May 1, 1995 with respect to various U.S Treasury Bonds --
maturity value of $ 6,129,022 for an effective yield of 5.9% 12,092,943
- --------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (cost $43,364,623) $ 43,348,240
- --------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $516,463,243)<F7> $516,960,554
- --------------------------------------------------------------------------------------------
<FN>
<F1> Percentages indicated are based on net assets of $465,632,997, which correspond to a
net asset value per share of $8.73.
<F2> The interest rate and date shown parenthetically represent the new interest rate to be
paid and the date the fund will begin receiving interest at this rate.
<F3> Income may be received in cash or additional securities at the discretion of the
issuer.
<F4> TBA's are mortgage backed securities traded under delayed delivery commitments,
settling after April 30, 1995. 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% from the principal amount. Income on the
securities will not be earned until settlement date. The cost of TBA purchases held at
April 30, 1995 was $48,765,198.
<F5> Non-income-producing security.
<F6> 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, 1995 was $32,115 or less than 0.1% of net assets.
<F7> The aggregate identified cost on a tax cost basis is $516,799,864, resulting in gross
unrealized appreciation and depreciation of $1,998,770 and $1,838,080, respectively, or
net unrealized appreciation of $160,690.
</FN>
<CAPTION>
FORWARD CURRENCY CONTRACTS OUTSTANDING at April 30, 1995
UNREALIZED
MARKET AGGREGATE DELIVERY APPRECIATION/
VALUE FACE VALUE DATE (DEPRECIATION)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian Dollars (Buy) 2,248,430 2,268,270 6/21/95 (19,840)
Australian Dollars (Sell) 1,233,180 1,261,740 6/19/95 28,560
Australian Dollars (Sell) 2,865,330 2,930,031 6/19/95 64,701
Australian Dollars (Sell) 1,596,320 1,588,510 6/14/95 (7,810)
Australian Dollars (Sell) 2,467,040 2,459,050 6/14/95 (7,990)
British Pounds (Buy) 4,509,680 4,385,220 5/15/95 124,460
British Pounds (Buy) 160,970 161,530 6/13/95 (560)
British Pounds (Sell) 9,020,480 9,093,000 5/9/95 72,520
British Pounds (Sell) 241,620 238,533 5/9/95 (3,087)
British Pounds (Sell) 5,472,640 5,482,500 6/14/95 9,860
Canadian Dollars (Buy) 2,352,640 2,273,777 6/14/95 78,863
Danish Krona (Buy) 3,706,700 3,711,189 6/14/95 (4,489)
Danish Krona (Sell) 5,229,750 5,221,310 6/19/95 (8,440)
<PAGE>
FORWARD CURRENCY CONTRACTS
UNREALIZED
MARKET AGGREGATE DELIVERY APPRECIATION/
VALUE FACE VALUE DATE (DEPRECIATION)
- --------------------------------------------------------------------------------------------
Danish Krona (Sell) 1,578,100 1,578,387 6/20/95 287
Deutschemarks (Buy) 2,163,300 2,082,130 5/8/95 81,170
Deutschemarks (Buy) 3,703,920 3,638,600 5/22/95 65,320
Deutschemarks (Buy) 1,228,250 1,209,844 6/19/95 18,406
Deutschemarks (Sell) 822,050 750,247 5/8/95 (71,803)
Deutschemarks (Sell) 866,040 813,008 5/23/95 (53,032)
Deutschemarks (Sell) 504,980 495,254 5/15/95 (9,726)
Deutschemarks (Sell) 6,204,040 6,115,338 5/15/95 (88,702)
Deutschemarks (Sell) 6,139,550 6,047,799 6/14/95 (91,751)
Deutschemarks (Sell) 10,617,810 10,458,539 6/14/95 (159,271)
Deutschemarks (Sell) 1,773,800 1,774,077 5/22/95 277
Deutschemarks (Sell) 3,338,099 3,339,600 6/16/95 1,501
Deutschemarks (Sell) 650,070 651,853 6/14/95 1,783
Duetschemrarks (Sell) 5,778,400 5,821,993 6/14/95 43,593
French Francs (Sell) 3,380,080 3,400,858 6/21/95 20,778
French Francs (Buy) 1,581,840 1,565,479 5/15/95 16,361
French Francs (Buy) 6,793,800 6,727,686 5/15/95 66,114
French Francs (Buy) 2,901,470 2,874,314 5/9/95 27,156
French Francs (Sell) 608,700 602,051 5/9/95 (6,649)
French Francs (Sell) 2,470,500 2,457,374 6/8/95 (13,126)
French Francs (Sell) 1,115,400 1,101,697 5/16/95 (13,703)
French Francs (Sell) 667,920 673,298 6/21/95 5,378
French Francs (Sell) 5,829,120 5,930,685 6/21/95 101,565
Italian Lira (Sell) 148,450 143,479 5/14/95 (4,971)
Japanese Yen (Buy) 242,869 244,078 6/21/95 (1,209)
Japanese Yen (Buy) 1,828,733 1,924,165 6/14/95 (95,432)
Japanese Yen (Buy) 5,946,500 5,275,166 5/8/95 671,334
Japanese Yen (Buy) 478,100 467,853 6/14/95 10,247
Japanese Yen (Buy) 7,058,760 6,971,523 6/21/95 87,237
Japanese Yen (Sell) 5,352,570 5,054,337 5/9/95 (298,233)
Japanese Yen (Sell) 1,673,350 1,637,810 6/14/95 (35,540)
Japanese Yen (Sell) 6,645,620 6,697,932 6/1/95 52,312
Netherlands Guilder (Buy) 4,063,500 4,104,235 6/14/95 (40,735)
Spanish Pesetas (Buy) 5,895,553 5,722,797 6/21/95 172,756
Spanish Pesetas (Buy) 242,424 235,793 6/14/95 6,631
Swedish Krona (Sell) 2,879,100 2,851,130 6/21/95 (27,970)
Swiss Franc (Buy) 5,799,648 5,802,018 6/21/95 (2,370)
------------
762,731
<CAPTION>
FORWARD CROSS CURRENCY CONTRACTS OUTSTANDING at April 30, 1995
(Aggregate Face Value $59,923,259)
IN UNREALIZED
MARKET EXCHANGE MARKET DELIVERY APPRECIATION/
CONTRACTS VALUE FOR VALUE DATE (DEPRECIATION)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
British Pounds (Buy) 6,428,400 Deutschemarks 6,449,603 6/12/1995 (21,203)
British Pounds (Buy) 5,623,800 Deutschemarks 5,653,244 6/14/1995 (29,444)
British Pounds (Sell) 9,481,890 Deutschemarks 9,296,509 6/14/1995 (185,381)
Deutschemarks (Sell) 4,698,850 French Francs 4,604,510 6/1/1995 (94,340)
<PAGE>
FORWARD CROSS CURRENCY CONTRACTS
IN UNREALIZED
MARKET EXCHANGE MARKET DELIVERY APPRECIATION/
CONTRACTS VALUE FOR VALUE DATE (DEPRECIATION)
- --------------------------------------------------------------------------------------------
Deutschemarks (Buy) 5,978,490 Swiss Francs 6,142,798 6/1/1995 (164,308)
Deutschemarks (Buy) 5,922,860 French Francs 5,996,956 5/22/1995 (74,096)
Deutschemarks (Buy) 3,326,260 Italian Lira 3,529,916 5/22/1995 (203,656)
Deutschemarks (Buy) 6,167,600 Spanish Peseta 6,208,171 6/21/1995 (40,571)
Deutschemarks (Sell) 2,823,600 Swedish Krona 2,866,207 6/12/1995 42,607
Deutschemarks (Sell) 3,259,288 French Francs 3,259,298 6/21/1995 10
Deutschemarks (Buy) 5,918,306 Swiss Francs 5,916,047 6/21/1995 2,259
------------
(768,123)
<CAPTION>
WRITTEN CALL OPTIONS ON FOREIGN CURRENCIES
(premium received $208,168)
NUMBER OF EXPIRATION DATE/
CONTRACTS STRIKE PRICE VALUE
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C>
11,132 In exchange for Deutschemarks May 95/1.404 $ 241,560
<CAPTION>
TBA SALE COMMITMENTS OUTSTANDING at April 30, 1995
(proceeds receivable $18,620,551)
PRINCIPAL DELIVERY COUPON MARKET
AGENCY AMOUNT MONTH RATE VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GNMA $ 2,295,000 May 95 7s $ 2,164,113
GNMA 16,200,000 May 95 8.5s 16,453,125
- --------------------------------------------------------------------------------------------
<CAPTION>
DIVERSIFICATION OF FOREIGN BONDS AND NOTES AND SHORT-TERM INVESTMENTS
at April 30, 1995 (as a percentage of net assets):
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Germany 6.1% Sweden 0.6%
- ---------------------------------------------------------------------
United Kingdom 4.7 Mexico 0.3
- ---------------------------------------------------------------------
France 3.2 Poland 0.3
- ---------------------------------------------------------------------
Italy 3.2 Brazil 0.1
- ---------------------------------------------------------------------
Japan 2.1 Ecuador 0.1
- ---------------------------------------------------------------------
Australia 1.8 Morocco 0.1
- ---------------------------------------------------------------------
Denmark 1.4 South Africa 0.1
- ---------------------------------------------------------------------
Canada 0.8 Thailand 0.1
- ---------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1995 (Unaudited)
ASSETS
- -------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $516,463,243) (Note 1) $516,960,554
- -------------------------------------------------------------------------------
Cash 277
- -------------------------------------------------------------------------------
Interest and other receivables 8,257,020
- -------------------------------------------------------------------------------
Receivable for securities sold 28,530,794
- -------------------------------------------------------------------------------
Receivable for open forward currency contracts 1,874,046
- -------------------------------------------------------------------------------
Receivable for closed forward currency 1,666,300
- -------------------------------------------------------------------------------
TOTAL ASSETS 557,288,991
LIABILITIES
- -------------------------------------------------------------------------------
Payable for securities purchased 64,567,090
- -------------------------------------------------------------------------------
Distributions payable to shareholders 3,053,863
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 4) 827,004
- -------------------------------------------------------------------------------
Payable for administrative services (Note 4) 876
- -------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 182
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 4) 47,264
- -------------------------------------------------------------------------------
Payable for open forward currency contracts 1,879,438
- -------------------------------------------------------------------------------
Written options outstanding, at value (premium received $208,168) 241,560
- -------------------------------------------------------------------------------
Payable for closed forward currency contracts 2,376,262
- -------------------------------------------------------------------------------
TBA sale commitments, at value (proceeds receivable $18,620,551)
(Note 1) 18,617,238
- -------------------------------------------------------------------------------
Other accrued expenses 45,217
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 91,655,994
- -------------------------------------------------------------------------------
NET ASSETS $465,632,997
REPRESENTED BY
- -------------------------------------------------------------------------------
Paid-in capital (Note 4) $489,039,910
- -------------------------------------------------------------------------------
Distributions in excess of net investment income (5,137,029)
- -------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (18,757,938)
- -------------------------------------------------------------------------------
Net unrealized foreign currency translation gain 20,825
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments, options and
forward currency contracts 467,229
- -------------------------------------------------------------------------------
TOTAL--REPRESENTING NET ASSETS APPLICABLE TO CAPITAL
SHARES OUTSTANDING $465,632,997
COMPUTATION OF NET ASSET VALUE
- -------------------------------------------------------------------------------
Net asset value per share ($465,632,997 divided by 53,356,949 shares) $8.73
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF OPERATIONS
For the six months ended April 30, 1995 (Unaudited)
INVESTMENT INCOME:
- -------------------------------------------------------------------------------
Interest (net of foreign tax of $115,711) $20,204,350
- -------------------------------------------------------------------------------
Dividends 580,457
- -------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME $20,784,807
EXPENSES:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,680,401
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 170,290
- -------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 8,538
- -------------------------------------------------------------------------------
Reports to shareholders 23,476
- -------------------------------------------------------------------------------
Exchange listing fees 24,205
- -------------------------------------------------------------------------------
Auditing 29,879
- -------------------------------------------------------------------------------
Legal 10,666
- -------------------------------------------------------------------------------
Postage 31,036
- -------------------------------------------------------------------------------
Administrative services (Note 2) 4,841
- -------------------------------------------------------------------------------
Registration fees 384
- -------------------------------------------------------------------------------
Other 9,154
- -------------------------------------------------------------------------------
TOTAL EXPENSES 1,992,870
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME 18,791,937
- -------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (8,155,964)
- -------------------------------------------------------------------------------
Net realized loss on written options (Notes 1 and 3) (197,827)
- -------------------------------------------------------------------------------
Net realized gain on futures contracts (Notes 1 and 3) 622
- -------------------------------------------------------------------------------
Net realized loss on forward currency contracts and
foreign currency translation (Notes 1 and 3) (2,765,300)
- -------------------------------------------------------------------------------
Net unrealized foreign currency translation loss
during the period (167,702)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments, options, futures
and forward currency contracts during the period 15,919,003
- -------------------------------------------------------------------------------
NET GAIN ON INVESTMENT TRANSACTIONS 4,632,832
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $23,424,769
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30 OCTOBER 31
1995* 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
- ----------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------
Net investment income $ 18,791,937 $ 35,639,762
- ----------------------------------------------------------------------------------------
Net realized gain (loss) on investments, forward
currency contracts and foreign currency (11,118,469) (13,032,306)
- ----------------------------------------------------------------------------------------
Net unrealized foreign currency translation gain (loss) (167,702) 63,188
- ----------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments, options, futures, and forward
currency contracts 15,919,003 (30,044,746)
- ----------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS 23,424,769 (7,374,102)
- ----------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
- ----------------------------------------------------------------------------------------
Net investment income (18,411,164) (27,920,055)
- ----------------------------------------------------------------------------------------
Tax return of capital -- (13,261,553)
- ----------------------------------------------------------------------------------------
Net realized gain on investments -- (4,000,525)
- ----------------------------------------------------------------------------------------
Decrease in capital shares transactions (140,250) --
- ----------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 4,873,355 (52,556,235)
- ----------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------
Beginning of period 460,759,642 513,315,877
- ----------------------------------------------------------------------------------------
END OF PERIOD (including distributions in excess of
net investment income of $5,137,029 and $5,517,802,
respectively) $465,632,997 $460,759,642
- ----------------------------------------------------------------------------------------
FUND SHARES
- ----------------------------------------------------------------------------------------
Shares outstanding at beginning of period 53,375,649 53,375,649
- ----------------------------------------------------------------------------------------
Shares liquidated (18,700) --
- ----------------------------------------------------------------------------------------
SHARES OUTSTANDING AT END OF PERIOD 53,356,949 53,375,649
- ----------------------------------------------------------------------------------------
* Unaudited
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
FOR THE PERIOD
DECEMBER 28, 1987
(COMMENCEMENT OF
SIX MONTHS OPERATIONS) TO
ENDED APRIL 30 YEAR ENDED OCTOBER 31 YEAR ENDED OCTOBER 31 OCTOBER 31
- -------------------------------------------------------------------------------------------------------------------------------
1995<F1> 1994 1993 1992 1991 1990 1989 1988
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $8.63 $9.62 $9.15 $8.80 $8.01 $8.86 $9.50 $9.35
- -------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income .35 .74 .73 .77 .82 .84 .95 .81
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments .10 (.88) .61 .51 .90 (.69) (.44) .17
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .45 (.14) 1.34 1.28 1.72 .15 .51 .98
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (.35) (.52) (.73) (.77) (.82) (.84) (.96) (.80)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (.14) -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments -- (.08) -- (.10) -- (.01) (.19) (.03)
- -------------------------------------------------------------------------------------------------------------------------------
Tax return of capital <F2> -- (.25) -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Paid-in capital <F3> -- -- -- (.06) (.11) (.15) -- --
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.35) (.85) (.87) (.93) (.93) (1.00) (1.15) (.83)
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $8.73 $8.63 $9.62 $9.15 $8.80 $8.01 $8.86 $9.50
- -------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $7.50 $7.88 $8.88 $8.63 $8.38 $6.88 $8.25 $9.50
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
MARKET VALUE (%) <F4> (.44)<F5> (1.92) 13.27 14.34 36.93 (4.80) (1.52) 3.66<F5>
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(in thousands) $465,633 $460,760 $513,316 $488,266 $468,234 $428,862 $482,494 $515,253
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) .44<F5> .95 .92 .95 1.08 1.08 1.06 .85<F5>
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.14<F5> 7.33 7.76 8.59 9.74 10.07 10.21 8.53<F5>
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 98.22 201.95 132.24 221.30 323.27 125.33 323.44 117.10<F4>
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Unaudited
<F2> Distributions from capital for the year ended 10/31/94 has been calculated in accordance with Statement of Position
93-2, "Determination, Disclosure and Financial Statement Presentation of Income, Capital Gains and Return of Capital
Distributions by Investment Companies" (See Notes 1 and 4).
<F3> See Note 1 to financial statements.
<F4> Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
<F5> Not annualized.
</FN>
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
April 30, 1995 (Unaudited)
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 the
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 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 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 G 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 unit price at a future
date beyond customary settlement time. Although the unit price has been
established, the principal value has not been finalized. However, the amount of
the 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
<PAGE>
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.
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 cash or
additional securities; interest on such securities is recorded on the accrual
basis at the lower of the coupon rate or market value of the securities to be
received, and is allocated to the cost of the securities received on the payment
date.
F FOREIGN CURRENCY TRANSLATION The accounting records of the fund are maintained
in U.S. dollars. The market values of foreign securities, currency holdings,
other assets and liabilities are recorded in the books and records of the trust
after translation to U.S. dollars based on the exchange rate on that day. The
cost of each security is determined using historical exchange rates. Income and
withholding taxes are translated at prevailing exchange rates when accrued or
incurred. The fund does not isolate that portion of realized and unrealized
gains or losses resulting from changes in the foreign exchange rate on
investments from fluctuation arising from changes in the market prices of the
securities. Such fluctuations are included with the net realized and unrealized
gain or loss on investments. Net realized gains and losses on foreign currency
transactions represent net exchange gains or losses on closed forward currency
contracts, disposition of foreign currencies and the difference between the
amount of investment income and foreign withholdings taxes recorded on the
fund's books and the U.S. dollar equivalent amounts actually received or paid.
G OPTION ACCOUNTING PRINCIPLES The fund may, to the extent consistent with its
investment objectives and policies, seek to increase its current returns by
writing covered call and put options on securities it owns or in which it may
invest. When the fund writes a call or put option, an amount equal to the pre-
<PAGE>
mium 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 the 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. 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 amount of the premium originally received reduces the cost of
the security that the fund purchases upon exercise of the option.
The risk in writing a call option is that a fund relinquishes the opportunity to
profit if the market price of the underlying security increases the option is
exercised. In writing a put option, a fund assumes the risk of incurring a loss
if the market price of the underlying security decreases and the option is
exercised. In addition, there is the risk a fund may not be able to enter into a
closing transaction because of an illiquid secondary market.
The fund may also, to the extent consistent with its investment objectives and
policies, buy put options to protect its portfolio holdings in an underlying
security against a decline in market value. The fund may buy call options to
hedge against an increase in the price of the securities that the fund
ultimately wants to buy. These funds may also buy and sell combinations of put
and call options on the same underlying security to earn additional income. The
premium paid by the fund for the purchase of a put or call 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 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. The risk associated with purchasing
options is limited to the premium originally paid.
OPTIONS ON FOREIGN CURRENCIES The fund, to the extent consistent with its
investment objectives and policies, may write and purchase put and call options
on foreign currencies. The investment objectives, 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 or received,
converted at the spot price, less the value of the 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
<PAGE>
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. The writing of an option on a futures contract involves risk similar
to those described below relating to the sale of such contracts.
FUTURES The fund may purchase and sell financial futures contracts to hedge
against changes in the values of securities the fund owns or expects to
purchase. 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 futures
contracts primarily corresponds with the value of the underlying investments may
not correspond to the change in value of the hedged investments. In addition,
there is a risk that the fund may not be able to close out its futures positions
due to an illiquid secondary market.
FORWARD CURRENCY CONTRACTS The fund may engage in forward currency contracts, an
agreement between two parties to buy and sell currencies at a set price on a
future date, to protect against a decline in value relative to the U.S. dollar
of the currencies in which its portfolio securities are denominated or quoted
(or an increase in the value of a currency in which securities the fund intends
to buy are denominated, when the fund holds cash reserves and short-term
investments. The market value of the contract will fluctuate with changes in
currency exchange rates. The contract is "marked-to-market" daily and the change
in market value is recorded as an unrealized gain or loss. When the contract is
closed, the fund records a realized gain or loss equal to the difference between
the value of the contract at the time it was opened and the value at the time it
was closed. The fund could be exposed to risk if the value of the currency
changes unfavorably. In addition, the fund could be exposed to risks if the
counterparties to the contracts are unable to meet the terms of their contracts
or if the fund is unable to enter a closing position. The maximum potential loss
from such 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.
H 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.
At October 31, 1994, the fund had a capital loss carryover of approximately
$7,488,000 which will expire October 31, 2002. In order to provide more level
monthly distributions, the fund may at times pay taxable distributions from net
realized short-term gains that could have been retained by the fund and offset
by the capital loss carryover. In such
<PAGE>
circumstances, the fund would lose the benefit of the carryover.
I 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 the market conditions
or investment decisions, the fund may not achieve projected investment results
for a given period.
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. The differences include treatment of losses on wash sales
transactions and post-October losses. Reclassifications are made to the fund's
capital accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Management for management and investment advisory
services is paid quarterly based on the average weekly 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.
Trustees of the Fund receive an annual Trustee's fee of $980 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 to the fund 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. Investor servicing and custodian fees reported in the
Statement of operations for the six months ended April 30, 1995 have been
reduced by credits allowed by PFTC.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the six months ended April 30, 1995, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $456,129,983 and $431,470,142, respectively. Purchases and sales of
U.S. government obligations aggregated $1,601,424,758 and $1,528,691,781,
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 period are
summarized as follows:
PREMIUMS
RECIEVED
- ---------------------------------------------
Options written $ 617,976
Options expired (17,205)
Options closed (392,603)
Written options outstanding
at end of period 208,168
- ---------------------------------------------
NOTE 4
SHARE REPURCHASE PROGRAM
In November, 1994, the Trustees authorized the fund to repurchase up to
2,650,000 of its shares in the open market. Repurchases will only be made when
the fund's shares are trading at less than net asset value and at such times and
amounts as is believed to be in the best interests of the fund's shareholders.
Any repurchases of shares will have
<PAGE>
the effect of increasing the net asset value per share of remaining shares
outstanding.
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 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>
<TABLE>
<CAPTION>
SELECTED QUARTERLY DATA
(Unaudited)
THREE MONTHS ENDED
- ----------------------------------------------------------------------------------------------
APRIL 30 JANUARY 31 OCTOBER 31 JULY 31
- ----------------------------------------------------------------------------------------------
1995 1995 1994 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Investment income
Total $ 10,096,984 $ 10,687,823 $ 10,578,336 $ 10,298,482
Per Share $ .19 $ .20 $ .20 $ .20
- ----------------------------------------------------------------------------------------------
Net investment income
Total $ 9,222,274 $ 9,569,663 $ 9,542,965 $ 9,028,639
Per Share $ .17 $ .18 $ .18 $ .17
- ----------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments, futures
and written options
Total $ 17,110,946 $(12,478,114) $ (8,495,287) $ (9,336,132)
Per Share $ .33 $ (.23) $ (.16) $ (.17)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations
Total $ 26,333,220 $ (2,908,451) $ 1,047,678 $ (307,493)
Per Share $ .50 $ (.05) $ .02 $ --
- ----------------------------------------------------------------------------------------------
Net assets at end of period
Total $465,632,997 $448,578,738 $460,759,642 $469,624,287
Per Share $ 8.73 $ 8.41 $ 8.63 $ 8.80
- ----------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
SELECTED QUARTERLY DATA [continued]
(Unaudited) [continued]
THREE MONTHS ENDED
- ------------------------------------------------------------------------------------------------------------------------------
APRIL 30 JANUARY 31 OCTOBER 31 JULY 31 APRIL 30 JANUARY 31
- ------------------------------------------------------------------------------------------------------------------------------
1994 1994 1993 1993 1993 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Investment income
Total $ 7,826,067 $ 11,579,308 $ 10,173,560 $ 10,397,435 $ 11,266,547 $ 11,579,308
Per Share $ .14 $ .22 $ .20 $ .19 $ .21 $ .22
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income
Total $ 6,549,762 $ 10,518,430 $ 8,974,985 $ 9,272,392 $ 10,035,513 $ 10,518,430
Per Share $ .12 $ .20 $ .17 $ .17 $ .19 $ .20
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments, futures
and written options
Total $(33,123,417) $ 7,940,972 $ 9,445,115 $ 7,212,780 $ 8,097,450 $ 7,940,972
Per Share $ (.63) $ .15 $ .18 $ .14 $ .14 $ .15
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations
Total $(26,573,691) $ 18,459,402 $ 18,420,100 $ 16,394,172 $ 18,132,963 $ 18,459,402
Per Share $ (.51) $ .35 $ .35 $ .31 $ .33 $ .35
- ------------------------------------------------------------------------------------------------------------------------------
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
Per Share $ 8.99 $ 9.22 $ 9.62 $ 9.46 $ 9.35 $ 9.22
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
FUND INFORMATION
INVESTMENT MANAGER OFFICERS
Putnam Investment George Putnam
Management, Inc. President
One Post Office Square
Boston, MA 02109 Charles E. Porter
Executive Vice President
MARKETING SERVICES
Putnam Mutual Funds Corp. Patricia C. Flaherty
One Post Office Square Senior Vice President
Boston, MA 02109
Lawrence J. Lasser
CUSTODIAN Vice President
Putnam Fiduciary Trust Company
Gordon H. Silver
LEGAL COUNSEL Vice President
Ropes & Gray
Gary N. Coburn
TRUSTEES Vice President
George Putnam, Chairman
Rosemary Thomsen
William F. Pounds, Vice Chairman Vice President and Fund Manager
Jameson Adkins Baxter D. William Kohli
Vice President and Fund Manager
Hans H. Estin
Neil Powers
John A. Hill Vice President and Fund Manager
Elizabeth T. Kennan Mark J. Siegel
Vice President and Fund Manager
Lawrence J. Lasser
William N. Shiebler
Robert E. Patterson Vice President
Donald S. Perkins John R. Verani
Vice President
George Putnam, III
Paul M. O'Neil
Eli Shapiro Vice President
A.J.C. Smith John D. Hughes
Vice President and Treasurer
W. Nicholas Thorndike
Beverly Marcus
Clerk and Assistant Treasurer
<PAGE>
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.
<PAGE>
[LOGO: PUTNAM INVESTMENTS] ------------
Bulk Rate
THE PUTNAM FUNDS U.S. Postage
One Post Office Square PAID
Boston, Massachusetts 02109 Putnam
Investments
------------
18341-072
