Putnam Master Income Trust
ANNUAL REPORT
October 31, 1994
[LOGO]
BOSTON * LONDON * TOKYO
<PAGE>
Performance highlights
Morningstar, an industry research firm, awarded the fund its
highest rating of five stars for risk-adjusted performance
through October 31, 1994.*
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.
FISCAL 1994 RESULTS AT A GLANCE
<TABLE><CAPTION>
<S> <C> <C>
- ---------------------------------------------------------------
- --
Total return NAV Market price
- ---------------------------------------------------------------
- --
(change in value during period
plus reinvested distributions)
12 months ended 10/31/94 -0.84% -1.92%
- ---------------------------------------------------------------
- --
Share value NAV Market price
- ---------------------------------------------------------------
- --
10/31/93 $9.62 $8.875
10/31/94 8.63 7.875
- ---------------------------------------------------------------
- --
<S> <C> <C> <C> <C> <C> <C>
Capital gains Tax
return
Long- Short- of
Distributions No. Income term term capital(+) Total
- ---------------------------------------------------------------
- --
Common shares 12 $0.52 $0.0765 -- $0.25 $0.8465
- ---------------------------------------------------------------
- --
<S> <C> <C>
Current return NAV Market price
- ---------------------------------------------------------------
- --
(end of period)
Current dividend rate(1) 8.69% 9.52%
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- --
<FN>
Performance data represent past results. For performance over
longer periods, see page 8.
(1)Income portion of most recent distribution, annualized and
divided by NAV or market price at end of period. Investments in
non-U.S. securities may be subject to certain risks such as
currency fluctuations and political developments. The lower-
credit ratings of high-yield corporate and municipal bonds
reflect a greater possibility that adverse changes in the
economy or their issuers may affect their ability to pay
principal and interest on the bonds. 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.
* Morningstar Inc., a mutual fund research firm, rates a
fund relative to other funds with similar objectives.
Ratings are based on risk-adjusted 3-, 5-, and 10-year
total return, as applicable, adjusted for sales charges
and updated monthly. A five-star rating put the fund in
the top 10% of rated funds. Past performance is not
indicative of future results.
(+) For more information see page 7.
</TABLE>
<PAGE>
From the Chairman
[PHOTO]
(c) Karsh, Ottawa
Dear Shareholder:
I am pleased to announce that D. William Kohli and Mark Siegel
have joined Putnam Master Income Trust's management team,
headed by Rosemary Thomsen.
Bill, former Senior Vice President and co-director of Global
Bond Management for Franklin Advisors/Templeton Investment
Counsel, is now managing the fund's international fixed-income
holdings. Bill has eight years of investment experience. Mark
has 11 years of investment experience and joined Putnam in 1993
from Salomon Brothers International, Ltd. in London. Mark
manages the fund's holdings in emerging markets.
In November 1994, the Trustees of your fund voted to reduce the
fund's monthly distribution from $0.0625 to $0.0575 per share.
The new dividend will be effective with the payments made on
December 1, 1994, to all shareholders of record on November 21,
1994, and more closely reflects the fund's current earnings.
The Trustees also authorized the fund to repurchase up to
2,650,000 shares in the open market. The number of shares
actually repurchased under the program will depend on market
conditions.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
December 14, 1994
<PAGE>
Report from the fund managers
Rosemary Thomsen, lead manager
D. William Kohli
Neil Powers
Mark Siegel
During a year that challenged most fixed-income investments,
Putnam Master Income Trust's strategy of investing
simultaneously in three distinct fixed-income sectors served
shareholders well. By investing a large portion of the fund's
assets in high-yield corporate bonds, we were able to reduce
the impact of declines in the other two sectors of the
portfolio. We were not able, however, to shield the fund
completely from the turbulence that accompanied this year's
dramatic shift in interest rate trends. Consequently, returns
for the year ended October 31, 1994, were moderately negative:
- -0.84% at net asset value.
HIGH-YIELD BONDS: CONTINUED STRONG PERFORMANCE
During the period, your fund was overweighted in lower-rated
high-yield corporate bonds, enabling us to take advantage of
the strong performance that characterized this sector for much
of the year. This allocation reflected our view that high-yield
bonds offered value relative to investment-grade domestic and
foreign alternatives in an environment of strong economic
growth and rising interest rates. During the last quarter,
however, we made the decision to begin gradually reducing the
fund's high-yield bond exposure. We now consider the sector
nearly fully valued and believe the investment-grade bond
markets are becoming more attractive after underperforming high-
yield bonds for most of the past year.
Our strategy within the high-yield sector is to focus on
companies with prospects for near-term credit improvement.
Events likely to prompt this type of positive change include
strong operating results, initial public stock offerings, asset
sales, and acquisition by investment-grade domestic or foreign
corporations. We are also focusing on cyclical companies that
are generating significant cash flows and are reducing overall
debt levels. Cyclical issuers, particularly those in
linerboard, and certain chemical areas, are achieving price
increases because of rising demand for their products. Another
area of focus is the health care sector, where consolidations
has contributed to attractive opportunities.
In general, as the economy continues to perform well, the
companies that typically issue high-yield securities should
continue to produce favorable results. However, the high-yield
market, like other markets, tends to anticipate future economic
trends. Since we appear to be entering the later stages of this
business cycle, it is appropriate to return the fund's
portfolio to more normal weightings.
EMERGING MARKETS: AN ASTUTE DECISION
Significant improvements in both the political and financial
systems of developing countries make emerging market bonds an
area that offers real value. Our decision to begin adding
emerging market holdings to the portfolio has proved opportune;
although they were only a small percentage of total assets,
these holdings performed extremely well.
Our emphasis in the emerging markets sector is on investments
rated B or higher, excluding the most speculative emerging
markets. We also have emphasized shorter-term dollar-
denominated issues that tend to be relatively stable by
comparison with longer-term emerging market bonds.
MARKET SECOTR PERFORMANCE
[MOUNTAIN CHART]
Plot Points
- ---------------------------------------------------------------
- --
Lehman
Date High Yield Government Bond Governement Bond
10/93 0.00 0.00 0.00
11/93 1.26 -0.46 -1.10
12/93 2.54 0.65 -0.71
1/94 4.37 1.08 0.64
2/94 4.53 1.37 -1.49
3/94 1.45 2.60 -3.70
4/94 0.10 3.27 -4.46
5/94 0.67 1.88 -4.58
6/94 -0.10 4.35 -4.80
7/94 0.46 4.62 -3.05
8/94 1.21 4.01 -3.03
9/94 1.62 6.07 -4.40
10/94 1.69 8.81 -4.47
Chart shows cumulative performance of the three major sectors
of your fundOs portfolio. Sources: international government
securities, Salomon Brothers non-U.S. World Government Bond
Index; high-yield corporate bonds, First Boston High Yield
Index; and U.S. government securities, Lehman Brothers
Government Bond Index.
INTERNATIONAL RISING RATES DAMPEN RETURNS
Foreign bonds declined sharply after the U.S. monetary policy
became restrictive in February. Certain foreign bond markets
were also hurt by internal political and economic developments.
Initially, unsettled investors reacted by withdrawing from the
market altogether, creating a liquidity shortage.
During this period, we used currency hedges tied to the U.S.
dollar in the expectation that the stronger U.S. economy would
translate into a stronger dollar. This conservative strategy
was intended to help preserve the value of portfolio holdings -
- - always a special challenge of investing overseas due to
ongoing currency fluctuations. In this case, the dollar did not
behave as expected, weakening despite the economic recovery.
Thus, our hedging strategies detracted from performance.
In July, however, select European bond markets began to reverse
their downward trend, due in part to easing inflation fears in
the United States. After months of forced selling, we believe
there is now considerable value to be found in many European
markets. We have concentrated assets in the United Kingdom,
Finland, Sweden, and Italy to take advantage of improving
situations and markets which have discounted already
unfavorable news. We also have large investments in Australia,
Canada, and New Zealand, where we expect improvements in both
currency and bond valuations.
U.S. GOVERNMENT: VOLATILITY, HIGHER RATES
The series of increases in interest rates that began in
February ended five years of accommodative U.S. monetary
policy. Investors' initial response was to attempt to cover
mounting portfolio losses by selling their most liquid
investments: U.S. government securities.
After declining sharply from the beginning of February into the
middle of May, the Treasury market began to experience periods
of relative stability. However, it seemed that virtually every
strong economic report would break the short-lived calm,
keeping the overall environment uncertain.
In this cautious investment climate, we favored investments in
intermediate-term Treasuries and mortgage-backed securities.
Currently, prepayments have declined and the yield spread
between mortgage-backed securities and Treasuries has widened
once again. Consequently, we have built up the fund's position
in mortgage securities, targeting higher-yielding securities
which are less sensitive to interest rate changes. As we enter
1995, we anticipate increasing our investment in bonds with
longer maturities as the yield curve flattens and longer- dated
bonds become more attractive.
RETURN OF CAPITAL
Putnam Management is announcing that 29.53% of the fiscal
year's distribution is being redesignated as a return of
capital and will not be taxable to shareholders. Your Form
1099, which will be mailed in January 1995, will indicate the
exact amount of the distributions not subject to tax. In
addition, you will now need to adjust the cost basis of your
shares when you eventually redeem or exchange them. This will
increase any resulting capital gain or decrease any capital
loss you incur at that time.
A return of capital is determined in accordance with federal
tax law, which requires that certain gains and losses on
foreign currency transactions which would otherwise be
considered capital gains and losses, be reclassified as
ordinary income. Losses on these transactions result in a
reduction of net investment income available for distribution.
These losses can occur unpredictably at a point in the year
after monthly or quarterly distributions have already been
made, necessitating a redesignation.
The views expressed in this report are exclusively those of
Putnam Management, and are not meant as investment advice.
Although the described investment areas were viewed favorably
as of 10/31/94, there is no guarantee the fund will continue to
hold these investments in the future.
<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 10/31/94
<TABLE><CAPTION>
<S> <C> <C>
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- --
NAV Market Price
- ---------------------------------------------------------------
- --
1 year -0.84% -1.92%
- ---------------------------------------------------------------
- --
5 years 68.97 65.58
Annual average 11.06 10.61
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- --
Life of fund
(since 12/28/87) 99.41 69.05
Annual average 10.62 7.98
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- --
COMPARATIVE INDEXES AND BENCHMARKS
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------
- --
Salomon Bros. First
Lehman Bros. Non-U.S. Boston Consumer
Government World Govt. High Yield Price
Bond Index Bond Index Index Index
- ---------------------------------------------------------------
- --
1 year -4.47% 8.81% 1.69% 2.61%
- ---------------------------------------------------------------
- --
5 years 44.76 80.29 84.67 19.03
Annual average 7.68 12.51 13.05 3.55
- ---------------------------------------------------------------
- --
Life of fund
(since 12/28/87) 74.98 72.72 111.26 29.55
Annual average 8.53 8.33 11.57 3.86
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- --
<FN>
Performance data represent past results. Investment returns and
principal value 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.
</TABLE>
TERMS AND DEFINITIONS
Net asset value (NAV) is the value of all your fund's assets,
minus any liabilities, divided by the number of outstanding
fund 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.
Consumer Price Index (CPI) is a commonly used measure of
inflation; it does not represent an investment return.
Securities indexes assume reinvestment of all distributions and
interest payments and do not take into account brokerage fees
or taxes. Securities in the fund do not match those in the
indexes and performance of the fund will differ.
<PAGE>
Report of Independent Accountants
for the year ended October 31, 1994
To the Trustees and Shareholders of
Putnam Master Income Trust
We have audited the accompanying statement of assets and
liabilities of Putnam Master Income Trust, including the
portfolio of investments owned, as of October 31, 1994, and the
related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in
the period then ended, and the "Financial Highlights" for each
of the six years in the period then ended, and for the period
December 28, 1987 (commencement of operations) to October 31,
1988. These financial statements and "Financial Highlights" are
the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial
statements and "Financial Highlights" based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and "Financial Highlights" are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned as of October 31, 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 October 31, 1994, the results of its operations for the
year then ended, the changes in its net assets for each of the
two years in the period then ended, and the "Financial
Highlights" for each of the six years in the period then ended,
and for the period December 28, 1987 (commencement of
operations) to October 31, 1988, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
December 15, 1994
Portfolio of investments owned
October 31, 1994
CORPORATE BONDS AND NOTES (34.5%)(a)
<TABLE><CAPTION>
<C> <S> <C>
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------
- --
Cable Television (2.2%)
- ---------------------------------------------------------------
- --
$2,000,000 Adelphia Communications Corp.
sr. notes 12 1/2s, 2002 $ 1,990,000
1,000,000 Adelphia Communications Corp.
notes Ser. B, 9 7/8s, 2005 835,000
1,000,000 Century Communications Corp.
sr. sub. deb. 11 7/8s, 2003 1,050,000
975,000 Continental Cablevision, Inc.
sr. deb. 9s, 2008 858,000
2,104,730 Falcon Holdings Group Inc.
sr. sub. notes 11s, 2003(c)(d) 1,894,257
1,700,000 Insight Communications Co.
sr. sub. notes stepped- coupon
8 1/4s (11 1/4s, 3/1/96), 2000(e) 1,623,500
950,000 Marcus Cable Co. sr. sub. disc.
note stepped-coupon zero %
(13 1/2s, 8/1/99), 2004(e) 503,500
1,000,000 Summit Communications Group, Inc.
sr. sub. deb. 10 1/2s, 2005 1,057,500
------------
9,811,757
Motion Picture Distribution (2.1%)
- ---------------------------------------------------------------
- --
3,210,000 AMC Entertainment, Inc.
sr. sub. deb. 12 5/8s, 2002 3,498,900
2,000,000 Act III Theatres sr. sub.
notes 11 7/8s, 2003 2,135,000
1,825,000 Cinemark USA sr. notes 12s, 2002
1,957,313
2,000,000 Plitt Theatres, Inc. sr. sub.
notes 10 7/8s, 2004 1,960,000
------------
9,551,213
Retail (1.9%)
- ---------------------------------------------------------------
- --
650,000 Bradlees, Inc. sr. sub. notes 11s, 2002
633,750
1,870,000 Duane Reade Corp. sr. notes 12s, 2002
1,692,350
511,000 Eckerd (Jack) Corp. sub. deb.
11 1/8s, 2001 516,110
50,000 Loehmann's Holdings, Inc. sr.
sub. notes 13 3/4s, 1999 50,250
5,000,000 Loehmann's Holdings, Inc. sr. secd.
notes 10 1/2s, 1997(d) 4,950,000
1,950,000 Pay'n Pak Stores, Inc. sr.
sub. deb. 13 1/2s, 1998(b) 1,219
1,050,000 Specialty Retailers, Inc. sr. sub.
notes 11s, 2003 987,000
------------
8,830,679
Forest Products (1.8%)
- ---------------------------------------------------------------
- --
900,000 Container Corp. of America sr. notes
Ser. A, 11 1/4s, 2004 929,250
6,735,000 Gaylord Container Corp. sr. sub. deb.
stepped-coupon zero % (12 3/4s,
5/15/96), 2005(e) 6,027,825
1,500,000 Williamhouse Regency (Delaware), Inc.
sr. sub. deb. 11 1/2s, 2005 1,455,000
------------
8,412,075
Food (1.5%)
- ---------------------------------------------------------------
- --
1,700,000 Chiquita Brands Intl. Inc. sr.
notes 9 1/8s, 2004 1,530,000
1,458,000Del Monte Corp. sub. deb. notes 12 1/4s,
2002 ($1,295,000 par acquired 3/12/93,
cost $1,334,497, $79,000 par acquired
11/11/93, cost $79,000, $84,000 par
acquired 3/16/94, cost $84,398)(c)(f) 1,458,000
1,675,000 Fresh Del Monte Produce Corp.
sr. notes Ser. B, 10s, 2003(d) 1,448,875
2,400,000 Mafco, Inc. sr. sub. notes
11 7/8s, 2002 $ 2,304,000
190,000 Specialty Foods Acquisition Corp. sr.
secd. disc. deb. stepped-coupon zero %
(13s, 8/15/99), 2005(d)(e) 80,750
------------
6,821,625
Recreation (1.5%)
- ---------------------------------------------------------------
- --
880,000 Arizona Charlie's Inc. sub. deb.
Ser. B, 12s, 2000(d) 729,300
640,000 Capitol Queen & Casino, Inc. sr. sub.
deb. Ser. B, 12s, 2000(d) 517,600
970,000 Casino America Inc. 1st mtge. deb.
notes 11 1/2s, 2001 824,500
1,060,000 Casino Magic Finance Corp. 1st.
mtge. Ser. B, 11 1/2s, 2001 689,000
625,000 GNF Corp. 1st mtge. deb. notes
Ser. B, 10 5/8s, 2003 368,750
1,367,000 Louisiana Casino Cruises Inc. sr.
sub. deb. 11 1/2s, 1998 956,900
480,000 President Riverboat Casinos, Inc.
sr. secd. notes 13s, 2001 432,000
864,000 Trump's Castle Funding Inc. sr.
sub. notes 11 1/2s, 2000 864,000
2,032,536 Trump Taj Mahal Funding Inc. deb.
Ser. A, 11.35s, 1999(c) 1,305,904
------------
6,687,954
Building Products (1.5%)
- ---------------------------------------------------------------
- --
750,000 American Standard, Inc. sr.
deb. 11 3/8s, 2004 802,500
1,100,000 American Standard, Inc.
deb. 9 1/4s, 2016 1,025,750
3,000,000 American Standard, Inc. sr. sub. deb.
stepped-coupon zero % (10 1/2s,
6/1/98), 2005(e) 2,010,000
875,000 Axia, Inc. sr. sub. notes Ser.
B, 11s, 2001 857,500
1,750,000 Southdown, Inc. sr. sub. notes
Ser. B, 14s, 2001 1,977,500
------------
6,673,250
Cellular Communications (1.4%)
- ---------------------------------------------------------------
- --
1,600,000 Cellular, Inc. sr. sub. disc. notes
stepped-coupon zero % (11 3/4s,
9/1/98), 2003(e) 1,072,000
1,500,000 Centennial Cellular Corp. sr. notes
8 7/8s, 2001 1,365,000
1,985,000Dial Call Communication sr. disc. notes
Ser. B stepped-coupon zero %
(10 1/4s, 12/15/98), 2005(e) 813,850
4,670,000Horizon Cellular Telephone Co. sr. sub.
disc. notes Ser. B stepped-coupon
zero % (11 3/8s, 10/1/97), 2000(e) 3,409,100
------------
6,659,950
Health Care (1.4%)
- ---------------------------------------------------------------
- --
1,930,000 McGaw, Inc. sr. notes 10 3/8s, 1999
1,987,900
1,088,000 Mediplex Group, Inc. sr. sub. notes
11 3/4s, 2002 1,218,560
2,415,000 Paracelsus Healthcare Corp. sr. sub.
notes 9 7/8s, 2003 2,300,288
1,000,000 Quorum Health Group, Inc. sr. sub.
notes 11 7/8s, 2002 1,065,000
------------
6,571,748
Conglomerates (1.2%)
- ---------------------------------------------------------------
- --
250,000 ADT Ltd. sr. sub. notes 9 1/4s, 2003
233,750
2,900,000 Haynes International, Inc. sr. sub.
notes 13 1/2s, 1999 1,769,000
750,000 Jordan Industries, Inc. sr.
notes 10 3/8s, 2003 675,000
1,000,000 MacAndrews & Forbes Holdings Inc.
sub. deb. notes 13s, 1999 980,000
2,050,000 MacAndrews & Forbes Group Inc. deb.
12 1/4s, 1996 2,050,000
------------
5,707,750
Broadcasting (1.2%)
- ---------------------------------------------------------------
- --
600,000 Granite Broadcasting Corp. sr. sub.
deb. 12 3/4s, 2002 621,000
4,200,000 Panamsat L.P. sr. sub. notes stepped-
coupon zero % (11 3/8s, 8/1/98), 2003(e)2,835,000
1,000,000 SFX Broadcasting Inc. sr. sub.
notes 11 3/8s, 2000 1,010,000
1,318,000 Telemedia Broadcasting Corp.
deb. 6.4s, 2004(d) 1,067,580
------------
5,533,580
Chemicals (1.1%)
- ---------------------------------------------------------------
- --
3,750,000G-I Holdings Inc. sr. notes zero %, 1998
2,306,250
1,050,000 Harris Chemical Corp. sr. secd. disc.
notes stepped-coupon zero %
(10 1/4s, 1/15/96), 2001(e) 845,250
1,000,000 UCC Investors Holding, Inc. sr.
sub. notes 11s, 2003 1,002,500
1,000,000 UCC Investors Holding, Inc. sr.
notes 10 1/2s, 2002 1,000,000
------------
5,154,000
Publishing (1.1%)
- ---------------------------------------------------------------
- --
1,250,000 Enquirer/Star Inc. sr. sub. notes
zero %, 1997 1,006,250
1,000,000 General Media sr. secd. notes 10 5/8s,
2000 (acquired 12/15/93,
cost $1,015,000)(f) 935,000
500,000 Marvel Holdings, Inc. sr. secd. notes
zero %, 1998 315,000
4,600,000 Marvel Parent Holdings, Inc. sr. secd.
disc. notes zero %, 1998 2,852,000
------------
5,108,250
Food Chains (1.0%)
- ---------------------------------------------------------------
- --
2,000,000 Grand Union Capital Corp. sr. notes
Ser. A stepped-coupon zero %
(15s, 7/15/99), 2004(e) 195,000
3,250,000 Grand Union Co. sr. sub. notes
12 1/4s, 2002 2,275,000
2,225,000 Stater Brothers sr. notes 11s, 2001
2,102,625
------------
4,572,625
Oil and Gas (1.0%)
- ---------------------------------------------------------------
- --
2,400,000 Oryx Energy Co. deb. 9 3/4s, 1998
2,368,500
2,250,000 TransTexas Gas Corp. sr. secd. notes
10 1/2s, 2000 2,165,625
------------
4,534,125
Electronics (1.0%)
- ---------------------------------------------------------------
- --
2,250,000 Ampex Group, Inc. sr. sub. deb.
13 1/4s, 1996(b) 123,750
2,700,000 Amphenol Corp. sr. sub. notes
12 3/4s, 2002 3,051,000
2,500,000International Semi-Tech. sr. secd. disc.
notes stepped-coupon zero %
(11 1/2s, 8/15/00), 2003(e) 1,150,000
------------
4,324,750
Containers (0.9%)
- ---------------------------------------------------------------
- --
1,850,000 Anchor Glass Container Corp. sr.
sub. deb. 9 7/8s, 2008 1,683,500
2,500,000 Ivex Packaging Corp. sr. sub. notes
12 1/2s, 2002 2,587,500
------------
4,271,000
Electric Utilities (0.9%)
- ---------------------------------------------------------------
- --
4,000,000 Midland Funding Corp. II deb.
Ser. B, 13 1/4s, 2006 4,090,000
------------
Agriculture (0.9%)
- ---------------------------------------------------------------
- --
2,449,280 Premium Standard Farms sr.
secd. notes 12s, 2000(d) $ 2,632,976
1,731,000 Premium Standard Farms deb.
zero %, 2003(d) 1,371,818
------------
4,004,794
Advertising (0.8%)
- ---------------------------------------------------------------
- --
2,000,000 Lamar Advertising Co. sr.
secd. notes 11s, 2003 1,960,000
2,000,000 Universal Outdoor Inc. sub.
deb. 11s, 2003 1,855,000
------------
3,815,000
Building and Construction (0.8%)
- ---------------------------------------------------------------
- --
2,000,000 Presley Co. sr. notes 12 1/2s, 2001
1,900,000
2,000,000 Scotsman Group Inc. sr.
notes 9 1/2s, 2000 1,880,000
------------
3,780,000
Specialty Consumer Products (0.7%)
- ---------------------------------------------------------------
- --
2,000,000 Equitable Bag Co. sr.
notes 12 3/8s, 2002(b) 1,180,000
2,000,000 Playtex Family Products Corp. sr.
sub. notes 9s, 2003 1,730,000
------------
2,910,000
Steel (0.6%)
- ---------------------------------------------------------------
- --
2,900,000 WCI Steel Inc. sr. secd. notes
10 1/2s, 2002 2,842,000
Metals and Mining (0.6%)
- ---------------------------------------------------------------
- --
528,000 Horsehead Industries, Inc. sr. sub.
ext. reset notes 15 3/4s, 1995 543,840
2,000,000 Horsehead Industries, Inc. sub.
notes 14s, 1999 2,000,000
------------
2,543,840
Insurance (0.5%)
- ---------------------------------------------------------------
- --
975,000 American Annuity Group, Inc. sr.
notes 9 1/2s, 2001 936,000
1,250,000 Reliance Group Holdings sr.
sub. deb. 9 3/4s, 2003 1,112,500
300,000 Reliance Group Holdings sr.
notes 9s, 2000 273,000
------------
2,321,500
Nursing Homes (0.5%)
- ---------------------------------------------------------------
- --
1,987,000 Multicare Cos., Inc. sr. sub.
notes 12 1/2s, 2002 2,205,570
Textiles (0.4%)
- ---------------------------------------------------------------
- --
2,000,000 Foamex (L.P.) Capital Corp. sr.
sub. deb. 11 7/8s, 2004 2,040,000
91,000 Foamex (L.P.) Capital Corp. sr.
secd. notes 9 1/2s, 2000 85,085
------------
2,125,085
Restaurants (0.4%)
- ---------------------------------------------------------------
- --
350,000 American Restaurant Group, Inc.
sr. secd. notes Ser. A, 12s, 1998 332,500
2,000,000 Flagstar Corp. sr. sub.
deb. 11 1/4s, 2004 1,700,000
------------
2,032,500
School Buses (0.4%)
- ---------------------------------------------------------------
- --
2,000,000 Blue Bird Body Co. sub. deb.
Ser. B, 11 3/4s, 2002 2,020,000
Lodging (0.4%)
- ---------------------------------------------------------------
- --
2,250,000 John Q. Hammons Hotels 1st. mtge.
notes 8 7/8s, 2004 2,002,500
Consumer Services (0.4%)
- ---------------------------------------------------------------
- --
1,000,000Solon Automated Services, Inc. sr. sub.
deb. 13 3/4s, 2002 1,020,000
1,000,000 Solon Automated Services, Inc. notes
12 3/4s, 2001 980,000
------------
2,000,000
Apparel (0.4%)
- ---------------------------------------------------------------
- --
2,000,000 Guess Jeans, Inc. sr. sub. notes
9 1/2s, 2003 1,870,000
Business Services (0.4%)
- ---------------------------------------------------------------
- --
2,000,000 Corporate Express, Inc. sr. sub.
notes 9 5/8s, 2004(d) 1,820,000
Automotive Parts (0.3%)
- ---------------------------------------------------------------
- --
1,350,000 Key Plastics Corp. sr. notes 14s, 1999
1,503,563
Entertainment (0.3%)
- ---------------------------------------------------------------
- --
1,700,000 Viacom International sub. deb. 8s, 2006
1,474,750
Financial Services (0.3%)
- ---------------------------------------------------------------
- --
1,125,000 Comdata Network, Inc. sr. notes
12 1/2s, 1999 1,206,563
Banks (0.2%)
- ---------------------------------------------------------------
- --
1,000,000 Westpac Banking Corp. sub. deb.
9 1/8s, 2001 1,036,875
Aluminum (0.2%)
- ---------------------------------------------------------------
- --
900,000 Kaiser Aluminum & Chemical Corp.
sr. sub. notes 12 3/4s, 2003 895,500
Communications (0.2%)
- ---------------------------------------------------------------
- --
1,150,000 Pagemart Inc. sr. disc. notes
stepped-coupon zero %
(12 1/4s, 11/1/96), 2003(e) 730,250
Medical Supplies (0.1%)
- ---------------------------------------------------------------
- --
500,000 Wright Medical Technology Inc. sr.
secd. notes Ser. B, 10 3/4s, 2000(d) 495,000
- ---------------------------------------------------------------
- --
Total Corporate Bonds and Notes
(cost $162,824,805) $158,951,621
- ---------------------------------------------------------------
- --
</TABLE>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (26.9%)(a)
<TABLE><CAPTION>
<C> <S> <C>
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------
- --
$658,648 Federal Home Loan Mortgage Corporation
7 1/2s, July 1, 2016 $ 642,799
Government National Mortgage Association
21,806,000 8 1/2s, with various due dates to
September 15, 2024 21,559,547
4,000,000 8s, TBA, November 14, 2024(h)
3,836,250
22,739,000 8s, with various due dates to
October 15, 2024 17,997,784
4,000,000 7 1/2s, TBA, November 14, 2004(h)
3,713,750
17,415,000 7 1/2s, with various due dates to
June 15, 2024 16,180,221
14,934,000 7s, with various due dates to
May 24, 2024 13,395,238
5,910,000 U.S. Treasury Bonds 7 1/2s,
November 15, 2024 5,596,031
5,000,000 U.S. Treasury Notes 9 1/4s,
August 15, 1998 5,312,500
5,000,000 U.S. Treasury Notes 8 7/8s,
November 15, 1998 5,260,938
12,000,000 U.S. Treasury Notes 8 3/4s,
October 15, 1997 12,506,250
12,585,000 U.S. Treasury Notes 7 3/8s,
May 15, 1996 12,722,648
5,340,000 U.S. Treasury Notes 6 1/2s,
September 30, 1996 5,314,969
- ---------------------------------------------------------------
- --
Total U.S. Government and Agency
Obligations (cost $127,553,818) $124,038,925
- ---------------------------------------------------------------
- --
</TABLE>
FOREIGN BONDS AND NOTES (23.4%)(a)(g)
<TABLE><CAPTION>
<C> <S> <C>
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------
- --
ARA 1,000,000 Argentina (Republic of)
Floating Rate Notes (FRN),
8s, 2001(c) $ 667,500
AUD 1,440,000 Australia (Government of)
bonds 13s, 2006 1,137,600
AUD 18,305,000 Australia (Government of)
bonds 6 3/4s, 2006 10,021,988
CAD 1,900,000 Canada (Government of)
deb. 9s, 2004 1,394,125
CAD 24,260,000 Canada (Government of)
bonds 5 3/4s, 1999 16,193,550
DKK 15,300,000 Denmark (Government of)
bonds 9s, 2000 2,620,125
DKK 4,000,000 Denmark (Government of)
bonds 8s, 2003 640,000
DKK 34,600,000 Denmark (Government of)
bonds 6s, 1999 5,233,250
FIM 11,000,000 Finland (Republic of)
notes 11s, 1999 2,523,125
FIM 3,000,000 Finland (Republic of)
notes 10 3/4s, 2002 678,750
ECU 2,142,000 France (Government of)
OAT 8 1/4s, 2022 2,483,381
THB 10,000,000 International Finance Corp.
(of Thailand) bonds FRN 9s, 1996 400,000
ITL 10,825,000,000 Italy (Government of)
bonds 12s, 2003 7,070,078
ECU 4,000,000 Italy (Government of)
notes 9 1/4s, 2011 4,867,500
ITL 10,160,000,000 Italy (Government of)
bonds 8 1/2s, 2004 5,505,450
ITL 7,380,000,000 Italy (Government of)
notes 8 1/2s, 1999 4,303,463
NZD 7,645,000 New Zealand (Government of)
notes 8s, 1995 4,682,563
USD 750,000 Russia (Government of) non
performing loan zero %, 1999(b) 244,688
ESP 3,156,000 Spain (Government of)
bonds 10.55s, 1996 2,534,663
ESP 3,551,000 Spain (Government of) bonds
10 1/4s, 1998 2,765,341
SEK 7,800,000 Statens Bostadsfinansier
deb. 11s, 1999 1,087,125
SEK 7,600,000 Sweden (Government of)
bonds 11s, 1999 1,083,000
SEK 20,200,000 Sweden (Government of)
bonds 10 1/4s, 2003 2,739,625
SEK 29,300,000 Sweden (Government of)
bonds 6s, 2005 2,875,063
GBP 3,175,000 United Kingdom Treasury
bonds 9 1/2s, 2005 5,431,234
GBP 990,000 United Kingdom Treasury
bonds 9s, 2000 1,637,213
GBP 2,950,000 United Kingdom Treasury
bonds 8 3/4s, 2017 4,924,656
GBP 990,000 United Kingdom Treasury
notes 7 3/4s, 2006 1,504,181
GBP 6,425,000 United Kingdom Treasury
bonds 7 1/4s, 1998 10,119,375
GBP 655,000 United Kingdom Treasury
war bonds 3 1/2s, 2049 439,259
- ---------------------------------------------------------------
- --
Total Foreign Bonds and Notes
(cost $116,832,969) $107,807,871
- ---------------------------------------------------------------
- --
UNITS (3.3%)(a)
- ---------------------------------------------------------------
- --
NUMBER OF UNITS VALUE
- ---------------------------------------------------------------
- --
125,000 Celcaribe S.A. units stepped-coupon
zero % (13 1/2s, 3/15/98), 2004(e) $ 1,075,000
830,000 Chesapeake Energy Corp. deb. units
12s, 2001 1,037,500
2,100,000 County Seat Stores units 12s, 2001
2,089,500
4,300,000 Echostar Communication Corp. units
stepped-coupon zero % (12 7/8s,
6/1/99), 2004(e) 2,064,000
1,660,000 Foamex (L.P.) Capital Corp. units
stepped-coupon zero % (14s, 1/1/95),
2004(d)(e) 896,400
725,000 Hollywood Casino units 13 1/2s, 1998(d)
580,000
2,815,000 ICF Kaiser International Inc. sr.
sub. units 12s, 2003 2,477,200
424,000 New Street Acquisition units 12s, 1998(c)
424,000
2,520,000 OSI Specialties sr. secd. disc.
deb. units stepped-coupon zero %
(11 1/2s, 4/15/99), 2004(e) 1,537,200
1,994,000 PMI Acquisition Corp. units sub.
disc. deb. stepped-coupon zero %
(11 1/2s, 3/1/00), 2005(e) 997,000
550,500 Premium Standard Farms exch. pfd.
units 12 1/2s, 2000(d) 591,788
435,000 Total Renal Care units stepped-coupon
zero % (12s, 8/15/99), 2004(e) 319,725
1,850,000 Universal Outdoor Inc. sub. deb. units
stepped-coupon zero %
(14s, 7/1/99), 2004(e) 970,094
- ---------------------------------------------------------------
- --
Total Units (cost $14,162,226)
$15,059,407
- ---------------------------------------------------------------
- --
BRADY BONDS (2.8%)(a)
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------
- --
$3,500,000 Argentina (Government of)
bonds 5.813s, 2023 $ 2,388,750
3,000,000 Argentina (Republic of)
notes 4 1/4s, 2005 2,167,500
147,000 Brazil (Government of)
note 6.06s, 2001 120,356
3,000,000 Brazil (Republic of) FRN 6.69s, 2006
2,021,250
650,000 Brazil (Republic of) FRN 6 3/4s, 2009
411,125
2,000,000 Bulgaria Floating Rate Bond
(FRB), 2s, 2012 455,000
1,500,000 Philippines (Government of)
bonds 5 1/4s, 2017 924,375
750,000 Philippines (Government of)
FRN 6 1/8s, 2005 654,375
2,250,000 Mexico (Government of) FRN,
Ser. D, 6.69s, 2019 1,915,313
250,000 Mexico (Government of)
bonds 6 1/4s, 2019 157,813
2,000,000 Morocco (Government of)
notes FRN 5.81s, 1999 1,417,500
250,000 Venezuela (Government of)
bonds Ser. A, 7s, 2007 123,438
750,000 Venezuela (Government of)
bonds Ser. B, 7s, 2007 370,313
- ---------------------------------------------------------------
- --
Total Brady Bonds (cost $13,323,217)
$13,127,108
- ---------------------------------------------------------------
- --
PREFERRED STOCKS (1.7%)(a)
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------
- --
25,300 California Federal Bank Ser. B,
$10.625 exch. pfd. $ 2,567,950
20,000 First Nationwide Bank $11.50
exch. pfd. 2,050,000
43,931 Pyramid Communications Inc. Ser. C,
$3.125 exch. pfd. 1,026,887
15,937 Stone Savannah Corp. Ser. A,
$15.375 pfd. 1,960,251
1,935 Supermarkets General Holdings Corp.
$3.52 exch. pfd. 38,942
- ---------------------------------------------------------------
- --
Total Preferred Stocks
(cost $7,281,054) $ 7,644,030
- ---------------------------------------------------------------
- --
YANKEE BONDS AND NOTES (1.0%)(a)
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------
- --
$536,000 Aegon N.V. sub. notes 8s, 2006
$ 512,215
350,000 Australia New Zealand Banking
Group Ltd. sub. notes 6 1/4s, 2004 299,031
500,000 Banco Nacional bonds 7 1/4s, 2004
403,750
675,000 Cinemark Mexico notes 12s, 2003
654,750
1,150,000 Eletson Holdings, Inc. mtge.
notes 9 1/4s, 2003 1,043,625
1,600,000 Methanex Corp. sr. notes 8 7/8s, 2001
1,548,000
- ---------------------------------------------------------------
- --
Total Yankee Bonds and Notes
(cost $4,242,851) $ 4,461,371
- ---------------------------------------------------------------
- --
COMMON STOCKS (0.5%)(a)
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------
- --
5,700 Applause Enterprises Inc.
(acquired 10/4/90, cost $64,125)(b)(f)$ 1,425
2,625 Axia Holding Corp.(b)
164
246 CDK Holding Corp. rights (acquired
10/31/88, cost $13,762)(b)(f) 9,840
136,154 Computervision Corp.(b)
476,539
6,820 Computervision Corp. (acquired 8/24/92,
cost $61,380)(b)(f) 17,903
15,261 Grand Casinos, Inc.(b)
206,024
4,148 IFINT Diversified Holdings(b)
290,360
266,753 Loehmanns' Holdings, Inc.(b)(d)
266,753
671 PMI Holdings Corp.(b)
134,200
480 Premium Holdings L.P.(b)
47,979
1,491 Pyramid Communications Inc. New Class B(b)
37,839
108,263 Solon Automated Services, Inc.(b)
67,664
1 Southland Corp.(b)
5
17,850 Specialty Foods Corp. (acquired 8/10/93,
cost $18,533)(b)(f) 13,388
30,773 Spectra Vision, Inc.(b)(d)
32,696
5,054 Taj Mahal Holding Corp. Class A(b)
50,540
10,000 Triangle Pacific Corp.(b)
136,250
12,499 Tyco International Ltd.
603,077
- ---------------------------------------------------------------
- --
Total Common Stocks (cost $2,210,588)
$ 2,392,646
- ---------------------------------------------------------------
- --
EUROBONDS (0.6%)(a)
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------
- --
$ 250,000 Banco del Sud sr. notes 10 1/8s, 1997
$ 250,000
500,000 Essar Gujart Ltd. sub. deb.
FRN 8.025s, 1999 500,000
1,500,000 Ispat Mexicana sr. notes. 10 3/8s, 2001
1,398,750
500,000 P.T. Astra bonds 9 3/4s, 2001
475,000
250,000 Petroleo Brasileiro S.A. FRN 9.275s, 1998
255,781
- ---------------------------------------------------------------
- --
Total Eurobonds (cost $3,239,696)
$ 2,879,531
- ---------------------------------------------------------------
- --
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 $ 1,484,438
- ---------------------------------------------------------------
- --
CONVERTIBLE PREFERRED STOCKS (0.3%)(a)
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------
- --
8,000 Chiquita Brands Intl. Inc.
Ser. A $5.75 cv. pfd. $ 327,000
28,000 Conseco, Inc. Ser. D, $3.25 cv. pfd.
1,106,000
- ---------------------------------------------------------------
- --
Total Convertible Preferred Stocks
(cost $1,800,000) $ 1,433,000
- ---------------------------------------------------------------
- --
COLLATERALIZED MORTGAGE OBLIGATIONS (0.3%)(a)
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------
- --
$1,280,000 First Chicago Master Trust II
Ser. 1994-L Class A, 7.15s, 2001 $ 1,245,600
107,654 Prudential Home Mortgage Securities Co.
Ser. 92-39 A1, 5.15s, 2007 106,981
- ---------------------------------------------------------------
- --
Total Collateralized Mortgage
Obligations (cost $1,384,558) $ 1,352,581
- ---------------------------------------------------------------
- --
WARRANTS (0.3%)(a)(b)
<C> <S> <C> <C>
NUMBER OF WARRANTS EXPIRATION DATE VALUE
- ---------------------------------------------------------------
- --
40,000 Becker Gaming Corp.(d) 11/15/00
$42,500
406 CDK Holding Corp. Class A
(acquired 10/31/88,
cost $22,777)(f) 7/7/99 16,240
434 CDK Holding Corp. Class B
(acquired 10/31/88,
cost $12,180)(f) 7/7/99 16,492
3,165 Casino America Inc. 11/15/99
3,165
7,860 Casino Magic Finance Corp. 10/14/96
491
7,499 Cinemark Mexico 8/1/03
69,366
2,100 County Seat Holdings, Inc. 10/15/98
42,000
96,050 Gaylord Container Corp.(d) 7/31/96
672,350
1,000 General Media Corp.(d) 12/31/00
10,000
75,000 Insight Communications(d) 3/30/98
112,500
4,101 Louisiana Casino
Cruises, Inc.(d) 12/01/98 61,515
2,520 OSI Specialties Corp.(d) 4/15/99
25,200
5,290 Pagemart, Inc.(d) 12/31/03
26,450
2,880 President Riverboat Casinos 9/15/96
1,440
4,238 President Riverboat
Casinos, Inc.(d) 4/15/99 14,833
20,000 Southdown, Inc.
(acquired 10/31/91,
cost $60,000)(f) 10/31/96 30,000
2,054 Southland Corp. 3/15/96
6,932
31 Telemedia Broadcasting
Corp.(d) 4/1/04 23,324
9,660 UCC Investor Holding, Inc.
(acquired 3/16/94,
cost $125,580)(f) 10/30/09 125,580
36 Wright Medical Technology
Inc.(d) 06/30/03 4,323
- ---------------------------------------------------------------
- --
Total Warrants (cost $1,092,439)
$1,304,701
- ---------------------------------------------------------------
- --
CONVERTIBLE BONDS (0.1%)(a) (cost $375,000)
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------
- --
$375,000 Sahara Mission cv. sub.
notes 12s, 1995 $375,000
- ---------------------------------------------------------------
- --
PUT OPTIONS ON FOREIGN CURRENCIES (0.1%)(a)(g) (cost $238,620)
EXPIRATION DATE/
CURRENCY STRIKE PRICE
VALUE
- ---------------------------------------------------------------
--
DM 9,700,000 Deutschemarks Dec94/1.55
$318,160
- ---------------------------------------------------------------
- --
SHORT-TERM INVESTMENTS (4.5%)(a)
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------
- --
$100,000 Federal Home Loan Mortgage Corp.
5.35s, January 26, 1994 $98,722
MXP 2,000,000Mexican Cetes zero %, April 27, 1995(g)
55,000
$250,000 Mexican Tesobono bonds zero %,
August 3, 1995 235,000
MXP 2,511,832 Nafinsa Pagare zero %,
December 22, 1994(g) 714,302
MXP 3,523,973 Nafinsa Pagare zero %,
December 29, 1994(g) 999,927
MXP 10,366,500 Nafinsa Pagare zero %,
November 8, 1994(g) 3,006,285
$15,568,000 Interest in $497,257,000 joint
repurchase agreement dated October 31,
1994 with Lehman Brothers, Inc. due
November 1, 1994 with respect to various
U.S. Treasury obligations -- maturity
value of $15,570,054 for an effective
yield of 4.75% 15,570,054
- ---------------------------------------------------------------
--
Total Short-Term Investments
(cost $20,669,795) $20,679,290
- ---------------------------------------------------------------
--
Total Investments
(cost $478,803,191)(i) $463,309,680
- ---------------------------------------------------------------
- --
<FN>
(a) Percentages indicated are based on total net assets of
$460,759,642, which corresponds to a net asset value per
share of $8.63.
(b) Non-income-producing security.
(c) Income may be received in cash or additional securities at
the discretion of the issuer.
(d) Securities exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to
qualified institutional buyers. At October 31, 1994 these
securities were valued at $19,301,208 or 4.2% of net
assets.
(e) 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.
(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 October 31, 1994
was $2,622,607 or 0.5% of net assets.
(g) Foreign-currency denominated. Market value is translated
at the current exchange rate.
(h) TBAs are mortgage-backed securities traded under delayed
delivery commitments settling after October 31, 1994.
Although the unit price for the trades has been
established, the principal value has not been finalized.
However, the amount of the commitments will not fluctuate
more than 2.0% from the principal amount. The cost of the
TBA purchases at October 31,1994 was $7,551,250.
(i) The aggregate identified cost for federal income tax
purposes is $478,913,210, resulting in gross unrealized
appreciation and depreciation of $44,808,225 and
$60,411,755, respectively, or net unrealized depreciation
of $15,603,530.
</TABLE>
<PAGE>
Forward Currency Contracts Outstanding
at October 31, 1994
<TABLE><CAPTION>
- ---------------------------------------------------------------
- --
<S> <C> <C> <C> <C>
Aggregate Unrealized
Market Face Delivery Appreciation/
Value Value Date (Depreciation)
- ---------------------------------------------------------------
- --
Australian
Dollars (Sell) $4,149,600 $4,140,976 12/05/94 $(8,624)
Canadian
Dollars (Buy) 887,160 887,573 11/28/94 (413)
Deutschemarks
(Sell) 8,252,200 8,213,933 02/01/95 (38,267)
Deutschemarks
(Sell) 5,989,500 5,939,222 02/01/95 (50,278)
Deutschemarks
(Sell) 17,436,100 17,433,543 02/01/95 (2,557)
Japanese Yen
(Buy) 29,320,616 29,156,607 11/21/94 164,009
- ---------------------------------------------------------------
- --
$63,870
- ---------------------------------------------------------------
- --
</TABLE>
Forward Cross Currency Contracts Outstanding
at October 31, 1994 (aggregate face value $21,467,114)
<TABLE><CAPTION>
- ---------------------------------------------------------------
- --
<S> <C> <C> <C> <C> <C>
In Unrealized
Market Exchange Market Delivery Appreciation/
Contracts Value For Value Date (Depreciation)
- ----------------------------------------------------------------------
- --
British
Pounds
(Buy) $10,286,640Deutschemarks $10,161,020 12/20/94 $125,620
Deutschmark
(Sell) 5,748,090 Japanese Yen 5,744,670 1/20/95 (3,420)
Swiss Francs
(Buy) 5,500,680French Francs 5,561,424 12/21/94 (60,744)
- ----------------------------------------------------------------------
- --
$61,456
- ----------------------------------------------------------------------
- --
</TABLE>
Futures Contracts Outstanding
at October 31, 1994
<TABLE><CAPTION>
- ---------------------------------------------------------------
- --
<S> <C> <C> <C> <C>
Number of Total Aggregate Expiration Unrealized
Contracts Value Face Value Date Appreciation
- ---------------------------------------------------------------
- --
40 U.S. Treasury Bond
Futures (Sell)
$3,933,750 $3,975,500 Dec. 94 $41,750
- ---------------------------------------------------------------
- --
</TABLE>
Diversification of Foreign Bonds
and Notes and Short Term Investments
at October 31, 1994 (as a percentage of net assets):
United Kingdom 5.2%
Canada 3.8
Italy 3.6
Australia 2.4
Denmark 1.8
Sweden 1.7
Spain 1.2
Multinational 1.1
New Zealand 1.0
Finland 0.7
Brazil 0.4
Argentina 0.1
Mexico 0.1
Thailand 0.1
<PAGE>
Statement of assets and liabilities
October 31, 1994
<TABLE><CAPTION>
<S> <C>
Assets
- ---------------------------------------------------------------
- --
Investments in securities, at value
(identified cost $478,803,191) (Note 1) $463,309,680
- ---------------------------------------------------------------
- --
Cash 409,373
- ---------------------------------------------------------------
- --
Interest and other receivables 9,945,403
- ---------------------------------------------------------------
- --
Receivable for securities sold 1,340,642
- ---------------------------------------------------------------
- --
Receivable for open forward currency contracts 289,629
- ---------------------------------------------------------------
- --
Receivable for closed forward currency contracts 368,489
- ---------------------------------------------------------------
- --
Total assets $475,663,216
- ---------------------------------------------------------------
- --
Liabilities
- ---------------------------------------------------------------
- --
Payable for securities purchased $8,288,504
- ---------------------------------------------------------------
- --
Distributions payable to shareholders 3,321,841
- ---------------------------------------------------------------
- --
Payable for compensation of Manager (Note 2) 878,392
- ---------------------------------------------------------------
- --
Payable for administrative services (Note 2) 3,357
- ---------------------------------------------------------------
- --
Payable for compensation of Trustees (Note 2) 126
- ---------------------------------------------------------------
- --
Payable for investor servicing and
custodian fees (Note 2) 33,089
- ---------------------------------------------------------------
- --
Payable for open forward currency contracts 164,303
- ---------------------------------------------------------------
- --
Payable for closed forward currency contracts 2,075,987
- ---------------------------------------------------------------
- --
Other accrued expenses 137,975
- ---------------------------------------------------------------
- --
Total liabilities 14,903,574
- ---------------------------------------------------------------
- --
Net assets $460,759,642
- ---------------------------------------------------------------
- --
Represented by
- ---------------------------------------------------------------
- --
Paid-in capital (Note 4) $489,180,160
- ---------------------------------------------------------------
- --
Distributions in excess of net investment income (5,517,802)
- ---------------------------------------------------------------
- --
Accumulated net realized loss on
investment transactions (7,639,469)
- ---------------------------------------------------------------
- --
Net unrealized foreign currency translation gain 63,188
- ---------------------------------------------------------------
- --
Net unrealized depreciation of investments,
options and forward currency contracts (15,326,435)
- ---------------------------------------------------------------
- --
Total -- Representing net assets applicable
to capital shares outstanding $460,759,642
- ---------------------------------------------------------------
- --
Computation of net asset value
- ---------------------------------------------------------------
- --
Net asset value per share ($460,759,642 divided
by 53,375,649 shares) $8.63
- ---------------------------------------------------------------
- --
</TABLE>
<PAGE>
Statement of operations
Year ended October 31, 1994
<TABLE><CAPTION>
<S> <C>
Investment income:
- ---------------------------------------------------------------
- --
Interest (net of foreign tax of $113,257) $39,795,499
- ---------------------------------------------------------------
- --
Dividends 353,437
- ---------------------------------------------------------------
- --
Total investment income $40,148,936
- ---------------------------------------------------------------
- --
Expenses:
- ---------------------------------------------------------------
- --
Compensation of Manager (Note 2) $3,634,191
- ---------------------------------------------------------------
- --
Investor servicing and custodian fees (Note 2) 379,640
- ---------------------------------------------------------------
- --
Compensation of Trustees (Note 2) 18,592
- ---------------------------------------------------------------
- --
Reports to shareholders 116,053
- ---------------------------------------------------------------
- --
Exchange listing fees 56,341
- ---------------------------------------------------------------
- --
Auditing 62,343
- ---------------------------------------------------------------
- --
Legal 33,570
- ---------------------------------------------------------------
- --
Postage 183,464
- ---------------------------------------------------------------
- --
Administrative services (Note 2) 11,853
- ---------------------------------------------------------------
- --
Registration fees 2,201
- ---------------------------------------------------------------
- --
Other 10,926
- ---------------------------------------------------------------
- --
Total expenses 4,509,174
- ---------------------------------------------------------------
- --
Net investment income 35,639,762
- ---------------------------------------------------------------
- --
Net realized loss on investments (Notes 1 and 3) (4,688,111)
- ---------------------------------------------------------------
- --
Net realized loss on options (Notes 1 and 3) (860,197)
- ---------------------------------------------------------------
- --
Net realized gain on futures contracts
(Notes 1 and 3) 94,538
- ---------------------------------------------------------------
- --
Net realized loss on forward currency contracts
(Notes 1 and 3) (6,919,659)
- ---------------------------------------------------------------
- --
Net realized loss on foreign currency (Note 1) (658,877)
- ---------------------------------------------------------------
- --
Net unrealized foreign currency translation
gain during the year 63,188
- ---------------------------------------------------------------
- --
Net unrealized depreciation of investments,
options, futures and forward currency contracts
during the year (30,044,746)
- ---------------------------------------------------------------
- --
Net loss on investment transactions (43,013,864)
- ---------------------------------------------------------------
- --
Net decrease in net assets resulting
from operations $(7,374,102)
- ---------------------------------------------------------------
- --
</TABLE>
<PAGE>
Statement of changes in net assets
<TABLE><CAPTION>
<S> <C> <C>
Year ended October 31
- ---------------------------------------------------------------
- --
1994 1993
- ---------------------------------------------------------------
- --
Increase (decrease) in net assets
- ---------------------------------------------------------------
- --
Operations:
- ---------------------------------------------------------------
- --
Net investment income $35,639,762 $38,801,320
- ---------------------------------------------------------------
- --
Net realized gain (loss)
on investments (4,688,111) 19,534,051
- ---------------------------------------------------------------
- --
Net realized gain (loss) on options (860,197) 538,864
- ---------------------------------------------------------------
- --
Net realized gain on future contracts 94,538 6,615
- ---------------------------------------------------------------
- --
Net realized gain (loss) on
forward currency contracts (6,919,659) 4,586,142
- ---------------------------------------------------------------
- --
Net realized loss on foreign currency (658,877) (36,529)
- ---------------------------------------------------------------
- --
Net unrealized foreign currency
translation gain 63,188 --
- ---------------------------------------------------------------
- --
Net unrealized appreciation
(depreciation) of investments,
options, futures, and forward
currency contracts (30,044,746) 7,976,174
- ---------------------------------------------------------------
- --
Net increase (decrease) in net
assets resulting from operations (7,374,102) 71,406,637
- ---------------------------------------------------------------
- --
Distributions to shareholders from:
- ---------------------------------------------------------------
- --
Net investment income (27,920,055) (38,801,320)
- ---------------------------------------------------------------
- --
In excess of net investment income -- (7,555,392)
- ---------------------------------------------------------------
- --
Tax return of capital (13,261,553) --
- ---------------------------------------------------------------
- --
Net realized gain on investments (4,000,525) --
- ---------------------------------------------------------------
- --
Total increase (decrease)
in net assets (52,556,235) 25,049,925
- ---------------------------------------------------------------
- --
Net assets
- ---------------------------------------------------------------
- --
Beginning of year 513,315,877 488,265,952
- ---------------------------------------------------------------
- --
End of year (including distributions
in excess of net investment income
of $8,397,128 and $7,555,392,
respectively) $460,759,642 $513,315,877
- ---------------------------------------------------------------
- --
Fund shares
- ---------------------------------------------------------------
- --
Shares outstanding at
beginning of year 53,375,649 53,375,649
- ---------------------------------------------------------------
- --
Shares outstanding at end of year 53,375,649 53,375,649
- ---------------------------------------------------------------
- --
</TABLE>
Financial Highlights
(For a share outstanding throughout the period)
<TABLE><CAPTION>
<S> <C> <C>
Year ended October 31
---------------------
1994 1993
- ---------------------------------------------------------------
- --
Net asset value, beginning of period $9.62 $9.15
- ---------------------------------------------------------------
- --
Investment operations
Net investment income .74 .73
Net realized and unrealized gain
(loss) on investments (.88) .61
- ---------------------------------------------------------------
- --
Total from investment operations (.14) 1.34
- ---------------------------------------------------------------
- --
Distributions to shareholders from:
Net investment income (.52) (.73)
In excess of net investment income -- (.14)
Net realized gain on investments (.08) --
Tax return of capital(a) (.25) --
Paid-in capital(b) -- --
- ---------------------------------------------------------------
- --
Total distributions (.85) (.87)
- ---------------------------------------------------------------
- --
Net asset value, end of period $8.63 $9.62
- ---------------------------------------------------------------
- --
Market value, end of period $7.88 $8.88
- ---------------------------------------------------------------
- --
Total investment return at
market value (%)(c) (1.92) 13.27
- ---------------------------------------------------------------
- --
Net assets at end of period
(in thousands) $460,760 $513,316
- ---------------------------------------------------------------
- --
Ratio of expenses to average net assets (%) .95 .92
- ---------------------------------------------------------------
- --
Ratio of net investment income
to average net assets (%) 7.33 7.76
- ---------------------------------------------------------------
- --
Portfolio turnover (%) 201.95 132.24
- ---------------------------------------------------------------
- --
Financial Highlights (continued)
<C> <C> <C> <C> <C>
For the period
December 28, 1987
(commencement of
operations) to
Year ended October 31 October 31
- ---------------------------------------------------------------
- --
1992 1991 1990 1989 1988
- ---------------------------------------------------------------
- --
$8.80 $8.01 $8.86 $9.50 $9.35
- ---------------------------------------------------------------
- --
.77 .82 .84 .95 .81
.51 .90 (.69) (.44) .17
1.28 1.72 .15 .51 .98
- ---------------------------------------------------------------
- --
(.77) (.82) (.84) (.96) (.80)
-- -- -- -- --
(.10) -- (.01) (.19) (.03)
-- -- -- -- --
(.06) (.11) (.15) -- --
- ---------------------------------------------------------------
- --
(.93) (.93) (1.00) (1.15) (.83)
- ---------------------------------------------------------------
- --
$9.15 $8.80 $8.01 $8.86 $9.50
- ---------------------------------------------------------------
- --
$8.63 $8.38 $6.88 $8.25 $9.50
- ---------------------------------------------------------------
- --
14.34 36.93 (4.80) (1.52) 3.66(d)
- ---------------------------------------------------------------
- --
$488,266 $468,234 $428,862 $482,494 $515,253
- ---------------------------------------------------------------
- --
.95 1.08 1.08 1.06 .85(d)
- ---------------------------------------------------------------
- --
8.59 9.74 10.07 10.21 8.53(d)
- ---------------------------------------------------------------
- --
221.30 323.27 125.33 323.44 117.10(d)
- ---------------------------------------------------------------
- --
<FN>
(a) 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 Gain and Return of Capital
Distributions by Investment Companies" (See Notes 1 and
4).
(b) See Note 1 to financial statements.
(c) Total investment return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(d) Not annualized.
</TABLE>
<PAGE>
Notes to financial statements
October 31, 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 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 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 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 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's 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.
Foreign currency-denominated receivables and payables are
"marked-to-market" using the current exchange rate. The
fluctuation between the original exchange rate and the current
exchange rate is recorded daily as an 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 or 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 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 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 that the
fund purchases upon exercise of the option.
The fund writes covered call options; that is, options for
which it holds the underlying security or its equivalent.
Accordingly, the risk in writing a call option is that the fund
relinquishes the opportunity to profit if the market price of
the underlying security increases and the option is exercised.
In writing a put option, the fund assumes the risk of incurring
a loss if the market price of the underlying security decreases
and the option is exercised.
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 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 the 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 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 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 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 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 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.
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 circumstances, the fund
would lose the benefit of the carryover.
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 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. For the year ended
October 31, 1994, the fund reclassified $8,304,331 to increase
distributions in excess of net investment income $5,642,985 to
decrease accumulated net realized loss on investment
transactions and $2,661,346 to increase paid-in capital.
I) Unamortized organization expenses Expenses incurred by the
fund in connection with its organization aggregated $36,523.
These expenses were amortized on a straight-line basis over a
five-year period, which concluded during the year ended October
31, 1994.
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. For the year ended October
31, 1994, the fund incurred $11,853 for these services.
Trustees of the Fund receive an annual Trustee's fee of $1,000
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 being 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.
Fees paid for these investor servicing and custodial functions
for the year ended October 31, 1994, amounted to $379,640.
Investor servicing and custodian fees reported in the Statement
of operations for the year ended October 31, 1994 have been
reduced by credits allowed by PFTC. Such credits amounted to
$284,646.
Note 3
Purchases and sales of securities
During the year ended October 31, 1994, purchases and sales of
investment securities other than U.S. government obligations
and short-term investments aggregated $482,281,312 and
$474,008,562, respectively. Purchases and sales of U.S.
government obligations aggregated $444,639,073 and
$453,309,538, 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>
<S> <C> <C>
Principal Subject Premiums
to Option Received
- ---------------------------------------------------------------
- --
Options written 58,595 $122,871
Options expired (13,930) (34,825)
Options closed (44,665) (88,046)
- ---------------------------------------------------------------
- --
Written options outstanding
at end of year -- $ --
- ---------------------------------------------------------------
- --
</TABLE>
Purchased option transactions on foreign bonds and currencies
during the year are summarized as follows:
Cost
- ---------------------------------------------------------------
- --
Contracts outstanding at begininng of year $1,601,874
Options purchased 4,734,700
- ---------------------------------------------------------------
- --
6,336,574
- ---------------------------------------------------------------
- --
Options exercised (129,000)
- ---------------------------------------------------------------
- --
Options expired (1,806,377)
- ---------------------------------------------------------------
- --
Options sold (4,162,577)
- ---------------------------------------------------------------
- --
(6,097,954)
- ---------------------------------------------------------------
- --
Purchased options outstanding at end of year $238,620
- ---------------------------------------------------------------
- --
[/TABLE]
Transactions in U.S. Treasury Bond futures contracts during the
year are summarized as follows:
<TABLE><CAPTION>
<S> <C> <C>
Sales of Futures Contracts
- ---------------------------------------------------------------
- --
Number of Aggregate
Contracts Face Value
- ---------------------------------------------------------------
- --
Contracts outstanding
at beginning of year 108 $ 12,841,875
Contracts opened 1,029 112,354,875
- ---------------------------------------------------------------
- --
1,137 125,196,750
- ---------------------------------------------------------------
- --
Contracts closed (1,097) (121,221,250)
- ---------------------------------------------------------------
- --
Open at end of year 40 $3,975,500
- ---------------------------------------------------------------
- --
</TABLE>
Transactions in forward and cross forward currency contracts
during the year are summarized as follows:
<TABLE><CAPTION>
<S> <C>
Purchases of Forward
Currency Contracts
- ---------------------------------------------------------------
- --
Aggregate
Face Value
- ---------------------------------------------------------------
- --
Contracts outstanding at beginning of year $13,757,407
Contracts opened 377,517,765
- ---------------------------------------------------------------
- --
391,275,172
- ---------------------------------------------------------------
- --
Contracts closed (345,508,548)
- ---------------------------------------------------------------
- --
Open at end of year $45,766,624
- ---------------------------------------------------------------
- --
Sales of Forward
Currency Contracts
- ---------------------------------------------------------------
- --
Aggregate
Face Value
- ---------------------------------------------------------------
- --
Contracts outstanding at beginning of year $50,910,959
Contracts opened 763,758,562
- ---------------------------------------------------------------
- --
814,669,521
- ---------------------------------------------------------------
- --
Contracts closed (773,197,177)
- ---------------------------------------------------------------
- --
Open at end of year $41,472,344
- ---------------------------------------------------------------
- --
</TABLE>
Note 4
Reclassification of capital accounts
Effective November 1, 1993, Putnam Master Income Trust 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 distribution 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.
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.
Note 5
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 the
effect of increasing the net asset value per share of remaining
shares outstanding.
<PAGE>
Dividend policy
It is the fund's dividend policy to pay monthly distributions
from net investment income and any net realized short-term
gains (including gains from options and futures transactions).
Long-term capital gains are distributed at least annually. In
an effort to maintain a more stable level of distributions, the
fund's monthly distribution rate will be based on Putnam
Management's projections of 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>
<S> <C>
- ---------------------------------------------------------------
- --
October 31 1994
- ---------------------------------------------------------------
- --
Total investment income
Total $10,578,336
Per share $.20
- ---------------------------------------------------------------
- --
Net investment income
Total $9,542,965
Per share $.18
- ---------------------------------------------------------------
- --
Net realized and unrealized gain (loss) on investments
Total $(8,495,287)
Per share $(.16)
- ---------------------------------------------------------------
- --
Net increase (decrease) in net assets resulting from operations
Total $(1,047,678)
Per share $.02
- ---------------------------------------------------------------
- --
Net assets at end of period
Total $460,759,642
Per share $8.63
- ---------------------------------------------------------------
- --
October 31 1993
- ---------------------------------------------------------------
- --
Total investment income
Total $10,173,560
Per share $.20
- ---------------------------------------------------------------
- --
Net investment income
Total $8,974,985
Per share $.17
- ---------------------------------------------------------------
- --
Net realized and unrealized gain on investments
Total $9,445,115
Per share $.18
- ---------------------------------------------------------------
- --
Net increase in net assets resulting from operations
Total $18,420,100
Per share $.35
- ---------------------------------------------------------------
- --
Net assets at end of period
Total $513,315,877
Per share $9.62
- ---------------------------------------------------------------
- --
Selected quarterly data (continued)
<C> <C> <C.
Three months ended
July 31 April 30 January 31
1994 1994 1994
- ---------------------------------------------------------------
- --
$10,298,482 $7,826,067 $11,579,308
$.20 $.14 $.22
- ---------------------------------------------------------------
- --
$9,028,639 $6,549,762 $10,518,430
$.17 $.12 $.20
- ---------------------------------------------------------------
- --
$(9,336,132) $(33,123,417) $7,940,972
$(.17) $(.63) $.15
- ---------------------------------------------------------------
- --
$(307,493) $(26,573,691) $18,459,402
$ -- $(.51) $.35
- ---------------------------------------------------------------
- --
$469,624,287 $480,035,161 $491,993,766
$8.80 $8.99 $9.22
- ---------------------------------------------------------------
- --
Three months ended
- ---------------------------------------------------------------
- --
July 31 April 30 January 31
1993 1993 1993
- ---------------------------------------------------------------
- --
$10,397,435 $11,266,547 $11,579,308
$.19 $.21 $.22
- ---------------------------------------------------------------
- --
$9,272,392 $10,035,513 $10,518,430
$.17 $.19 $.20
- ---------------------------------------------------------------
- --
$7,212,780 $8,097,450 $7,940,972
$.14 $.14 $.15
- ---------------------------------------------------------------
- --
$16,394,172 $18,132,963 $18,459,402
$.31 $.33 $.35
- ---------------------------------------------------------------
- --
$504,903,823 $499,318,157 $491,933,716
$9.46 $9.35 $9.22
- ---------------------------------------------------------------
- --
</TABLE>
<PAGE>
Federal tax information
For federal income tax purposes, distributions of $0.52 from
net investment income constitutes "dividend income," $0.08 from
long-term capital gain dividends and $0.25 (29.53%) from return
of capital, totaling $0.85 per share for the fiscal year ended
October 31, 1994. The fund has designated 1.27% of the
distributions as qualifying for the dividends-received
deductions for corporations.
The Form 1099 you will receive in January 1995 will show the
tax status of all distributions paid to your account in
calendar 1994.
As required by law, your fund reports to the Internal Revenue
Service on a calendar year basis the amount of distributions
paid to each shareholder.
<PAGE>
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
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary Coburn
Vice President
Rosemary Thomsen
Vice President and Fund Manager
D. William Kohli
Vice President and Fund Manager
Neil Powers
Vice President and Fund Manager
Mark J. Siegel
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
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.
<PAGE>
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
072-15440
<PAGE>
APPENDIX TO FORM N30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN
PRINTED AND EDGAR-FILED TEXTS.
(1) Rule lines for tables are omitted.
(2) Boldface and italic typefaces are displayed in normal
type.
(3) Headers (e.g. the names of the fund) and footers (e.g.
page numbers and OThe accompanying notes are an integral
part of these financial statementsO) are omitted.
(4) Because the printed page breaks are not reflected, certain
tabular and columnar headings and symbols are displayed
differently in this filing.
(5) Bullet points and similar graphic symbols are omitted.
(6) Page Numbering is different.
