PUTNAM
MASTER
INCOME
TRUST
[GRAPHIC OMITTED:
art work]
ANNUAL REPORT
October 31, 1995
[LOGO:
BOSTON - LONDON - TOKYO]
<PAGE>
FUND HIGHLIGHTS
o "ALTHOUGH IT HAS POSTED SOME TOP QUARTILE RETURNS, CONSISTENCY IS PUTNAM
MASTER INCOME TRUST'S REAL STRENGTH. . . . THE FUND HAS CHALKED UP THIS FINE
LONG-TERM RECORD BY MAKING THE RIGHT SECTOR ALLOCATIONS. . . . PMT HAS BEEN
ONE OF THE LEAST VOLATILE MULTISECTOR-BOND FUNDS. . . . FOR SHEER
RELIABILITY, PMT IS A HARD FUND TO BEAT."
-- MORNINGSTAR MUTUAL FUNDS, SEPTEMBER 8, 1995
o MORNINGSTAR, INC., AN INDUSTRY RESEARCH FIRM, AWARDED THE FUND FOUR STARS
BASED ON RISK-ADJUSTED PERFORMANCE THROUGH OCTOBER 31, 1995.* THE FOUR-STAR
OVERALL RATING PUTS THE FUND IN THE TOP 32.5% AMONG ALL 81 FIXED-INCOME
CLOSED-END FUNDS.
o "IT IS INDEED THE BEST OF ALL POSSIBLE WORLDS FOR BONDS. THE U.S. ECONOMY IS
SLOWING, INFLATION IS MORIBUND, THE U.S. BUDGET IS ABOUT TO BE BALANCED AND
THE FEDERAL RESERVE IS ON THE VERGE OF EASING MONETARY POLICY ANOTHER NOTCH.
WHAT MORE COULD EVEN THE MOST ARDENT BOND BULL WISH FOR?"
-- BARRON'S, NOVEMBER 6, 1995
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
12 Portfolio holdings
23 Financial statements
*Morningstar 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. Rates are updated monthly. For
the 3-year period, there were 81 funds in the fixed-income closed-end
category and the fund received four stars. For the 5-year period, there were
64 funds in the category and the fund received 4 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 closed the books on an eventful 12-month period that
began at the tag end of one of the sharpest U.S. bond-market declines on record
and ended in the midst of one of the market's strongest rallies. As your fund's
management team relates in the report that follows, results for the fiscal year
that ended October 31, 1995, were gratifying, especially in contrast to last
year's challenges.
Moreover, your fund's managers see indications that the current environment at
home, which has been so amenable to fixed-income investments, may continue in
the months ahead. Among the favorable factors are prospects for a moderate pace
of economic growth and continued low inflation.
Fund management also sees reason to believe international financial markets will
take a cue from the U.S. markets and demonstrate increasing strength in the year
ahead. The report that follows reviews fiscal 1995 performance and reviews
prospects for fiscal 1996.
Respectfully yours,
/s/ George Putnam
George Putnam
Chairman of the Trustees
December 20, 1995
<PAGE>
REPORT FROM THE FUND MANAGERS
ROSEMARY THOMSEN, LEAD MANAGER
D. WILLIAM KOHLI
NEIL POWERS
MARK SIEGEL
For a year that began on a bleak note, fiscal 1995 shaped up to be quite a
winner for Putnam Master Income Trust. Conditions for fixed-income investing
grew increasingly favorable as the period progressed: the Federal Reserve
Board succeeded in keeping inflation in check, interest rates declined, and
economic growth moderated -- both at home and abroad.
Without a doubt, the improving environment provided a positive backdrop for
your fund to perform well. However, strategic asset allocation across the
fund's sectors -- U.S. government, high yield, and international -- enhanced
the portfolio's total return. Since last October, we have pared back the
fund's high-yield stake from 43% of total net assets to 35%, rolling the
proceeds into U.S. government obligations that appeared likely to experience
greater gains from the changing environment. At period's end, the fund's U.S.
government positions made up approximately 37% of total net assets, up from
29% last October. Because of our positive outlook for the U.S. dollar, we
kept the international weighting relatively low, at roughly 27%-30% of net
assets throughout the period.
This reallocation enabled the fund to close the fiscal year with a healthy
total return of 14.16% at net asset value. Market price returns and
performance for longer periods can be found on page 9.
o HIGH YIELD: INTENSE CREDIT RESEARCH BOOSTED RETURNS
The high-yield sector has continued to perform extremely well. In general,
corporate profitability has remained strong, which, in turn, has allowed
companies to pay down debt and improve their balance sheets. New issuance
levels have been low relative to those of recent years, while investors'
demand for high-yield bonds has continued unabated. The unrelenting pace of
merger and acquisition activity has created improving credit situations among
many high-
<PAGE>
yield issuers in various industries -- notably, health care, entertainment,
cable television, and finance -- resulting in significant price appreciation
for some fund holdings.
Nevertheless, the high-yield market had its trouble spots and sector
selection and credit research took on even greater importance as the economy
slowed. Our willingness to conduct our own extensive research and to make
investments contrary to current market consensus proved instrumental to
performance. For example, we increased the fund's exposure to the
telecommunications and cable industries before Wall Street began to
appreciate the likelihood of deregulation. As the prospect of deregulation
increased, investor demand for these issues grew, causing many of the fund's
holdings to appreciate significantly.
We also maintained a heavier weighting in higher-quality BB-rated bonds than
many of our competitors. This served the fund well as BBs followed their
historical pattern of performing more in line with Treasury securities than
do lower-rated high-yield bonds. As the Treasury market rallied, the BB
sector moved in tandem with it.
o U.S. GOVERNMENT: LONGER DURATION PLAYED PIVOTAL ROLE
Holdings in the fund's U.S. government sector, or "sleeve," also produced
excellent results. This was due, in large part, to our keeping the duration
of the sleeve fairly long. As a measure of an invest-
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TOP 10 COUNTRY ALLOCATIONS*
(INTERNATIONAL SECTOR)
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10/31/94 10/31/95*
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FRANCE 0.0% 4.9%
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GERMANY 0.0 4.5
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CANADA 3.8 4.3
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UNITED KINGDOM 5.2 4.0
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ITALY 3.6 3.0
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NETHERLANDS 0.0 2.5
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SPAIN 1.2 1.5
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DENMARK 1.8 1.3
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MEXICO 0.1 1.0
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BRAZIL 0.4 1.0
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*Based on total net assets as of 10/31/95. Allocations will vary
over time.
<PAGE>
ment's sensitivity to interest rates, duration plays a key role in
performance. A portfolio with a longer duration has the potential to
appreciate significantly if rates decline, though there is also the potential
to fall as rates rise.
We created a longer-duration position by strategically aligning the fund's
securities along the most optimum portion of the yield curve throughout the
period. Our goal was to maximize the portfolio's ability to participate fully
in the bond market rally. To achieve this end, we concentrated on a
combination of U.S. Treasury notes and bonds, and we traded in and out of
mortgage-backed securities.
Historically, declines in interest rates have increased prepayment activity
as the lower rates prompt homeowners to refinance their mortgages. Because we
realized that declining rates could increase the fund's exposure to
prepayment risk, we emphasized discount-coupon mortgages, i.e., those with
coupons lower than the current market rate. When we perceived prepayment
fears were not justified and prices became too compelling to ignore, we
bought. When prepayment concerns diminished and demand began to increase, we
then, in turn, sold holdings at a profit.
o INTERNATIONAL: BOND SELECTION ON TARGET
In the first half of the year, we concentrated assets in longer-term bonds
within core markets -- Germany, Japan, the Netherlands, the United Kingdom,
and France -- to take advantage of the relatively high real yields available.
By midyear, the U.S. market's rally had pushed nominal yields lower and bond
prices higher worldwide. This created the right conditions for strong
performance from Europe's higher-yielding peripheral countries, like Italy,
Sweden, and Spain, which face high budget deficits and significant funding
needs.
To pursue these opportunities, we took profits by selectively selling core
European positions and virtually eliminating the fund's Japanese holdings.
The subsequent strength of these peripheral markets and midsummer rallies
across Europe further boosted performance. We have since moved some assets
back into core European markets, pulling in duration and emphasizing
inter-mediate-term securities in the belief that longer-term bonds no longer
offer an attractive risk premium over the near term.
<PAGE>
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TOP 3 HOLDINGS PER SECTOR
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U.S. GOVERNMENT SECURITIES
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US Treasury Notes 6 1/2s, May 15, 2005 8.9%
Government National Mortgage
Association 7s, with various dates to October 15, 2025 5.6
US Treasury Bonds 6 7/8s, August 15, 2005 5.1
INTERNATIONAL FIXED-INCOME SECURITIES
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France (Government of) OAT deb. 8 1/2s, 2002 2.6%
Germany (Republic of) bonds 7 3/8s, 2005 2.5
United Kingdom Treasury notes 7s, 2001 2.2
HIGH-YIELD BONDS
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Loehmanns' Holdings, Inc sr. notes 10 1/2s, 1997 1.0%
Midland Funding Corp. II Ser. B, deb. 13 1/4s, 2006 0.9
Panamsat (L.P.) sr. sub. notes stepped-coupon zero %, 2003 0.7
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*Based on total net assets as of 10/31/95. Portfolio holdings will vary
over time.
As U.S. economic conditions changed and the dollar's value fluctuated, we
rotated in and out of dollar-bloc countries, such as Australia and Canada. By
fiscal year's-end, we had a substantial position in Canada, which has since
benefited handsomely from the vote against Quebec sovereignty on October 31,
1995.
Currency hedges also impacted the fund's international sector throughout the
fiscal year. During the first half, when the U.S. dollar was progressively
weakening, a series of currency hedges hampered our ability to take advantage
of gains in many international markets. During the latter half of the fiscal
year, specifically within the past few months, the U.S. dollar rallied
against the yen and deutschemark, and we cautiously reintroduced hedges
against several European and Asian currencies. This was a positive
contributor to the sleeve's performance, which had registered measurable
improvement by fiscal year-end. The fund's emerging market holdings, which
made up roughly 3% of net assets for much of the period, also turned in
respectable performance of late.
o POSITIVE ENVIRONMENT APPEARS LIKELY TO CONTINUE
As the fund enters fiscal 1996, we anticipate no big moves in terms of asset
allocation and believe that market and economic conditions will remain
favorable, with low inflation and slow economic growth providing a positive
backdrop for attractive performance in each of the fund's three sectors. We
also anticipate some strength in the U.S. dollar.
<PAGE>
We currently plan to maintain a relatively long duration in the U.S.
government sector and focus our high-yield research on uncovering companies
that can generate good cash flow and are positioned to perform well in the
later stages of the business cycle. Overseas, our primary emphasis remains
core Europe, although we may consider reentering certain peripheral European
markets if valuations become more reasonable. We will also be monitoring the
outflow of Japanese capital into foreign markets, which could help produce
further price appreciation opportunities in U.S. and core European bond
markets.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 10/31/95, 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, economic
instability, 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
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.
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 in the fund.
TOTAL RETURN FOR PERIODS ENDED 10/31/95
NAV MARKET PRICE
- --------------------------------------------------------------------------------
1 year 14.16% 12.45%
- --------------------------------------------------------------------------------
5 years 86.79 95.61
Annual average 13.31 14.36
- --------------------------------------------------------------------------------
Life of fund (12/28/87) 127.66 90.09
Annual average 11.06 8.54
- --------------------------------------------------------------------------------
COMPARATIVE INDEXES AND BENCHMARKS FOR PERIOD ENDED 10/31/95
SALOMON BROS. FIRST
LEHMAN BROS. NON-U.S. BOSTON CONSUMER
GOVERNMENT WORLD GOVT. HIGH YIELD PRICE
BOND INDEX BOND INDEX INDEX INDEX
- --------------------------------------------------------------------------------
1 year 15.38% 15.19% 15.24% 2.81%
- --------------------------------------------------------------------------------
5 years 57.67 77.50 133.51 15.13
Annual average 9.54 12.16 18.49 2.86
- --------------------------------------------------------------------------------
Life of fund 101.90 98.96 143.35 33.19
Annual average 9.38 9.18 12.02 3.72
- --------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 9/30/95
(most recent calendar quarter)
NAV MARKET PRICE
- --------------------------------------------------------------------------------
1 year 13.14% 16.27%
- --------------------------------------------------------------------------------
5 years 86.99 107.73
Annual average 13.33 15.74
- --------------------------------------------------------------------------------
Life of fund (12/28/87) 124.85 88.79
Annual average 11.01 8.53
- --------------------------------------------------------------------------------
Performance data represent past results, do not reflect future performance, and
do not take into account any adjustment for taxes payable on reinvested
distributions. Investment returns, net asset value and market price will
fluctuate so that an investor's shares, when sold, may be worth more or less
than their original cost.
<PAGE>
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PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------------
12 months ended 10/31/95
DISTRIBUTIONS:
- --------------------------------------------------------------------------------
Number 12
Income $0.64
Return of capital(1) 0.05
Total 0.69
SHARE VALUE NAV MARKET PRICE
- --------------------------------------------------------------------------------
10/31/94 $8.63 $7.875
10/31/95 9.04 8.125
CURRENT RETURN
- --------------------------------------------------------------------------------
End of period
Current dividend rate(2) 7.63% 8.49%
- --------------------------------------------------------------------------------
(1)See Federal tax information on page 32.
(2)Income portion of most recent distribution, annualized and divided by NAV or
POP at end of period.
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 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
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 BROS. 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.
Security 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. It is
not possible to invest directly in an index.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
For the year ended October 31, 1995
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, 1995, 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 periods indicated therein.
These financial statements and financial highlights are the responsibility of
the fund'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 our audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free from 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, 1995, 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, 1995, the results of its operations for
the year then ended, and 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 periods
indicated therein, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
December 15, 1995
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS OWNED
October 31, 1995
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (34.7%)<F1>
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 9,108,370 Federal National Mortgage Association Pass
Through 7s, with various due dates to August 1, 2025 $ 9,031,495
Government National Mortgage Association
Pass Throughs
8,665,911 7 1/2s, with various due dates to October 15, 2025 8,780,393
26,946,063 7s, with various due dates to October 15, 2025 26,760,670
18,498,000 zero %, TBA, November 14, 2025<F4> 17,989,353
6,895,000 U.S. Treasury Bonds 10 3/4s, May 15, 2003 8,870,831
360,000 U.S. Treasury Bonds 8 1/8s, August 15, 2019 433,350
22,870,000 U.S. Treasury Bonds 6 7/8, August 15, 2005 24,545,914
41,500,000 U.S. Treasury Notes 6 1/2s, May 15, 2005 42,952,500
17,900,000 U.S. Treasury Notes 6 1/8s, September 30, 2000 18,120,886
8,160,000 U.S. Treasury Notes 5 3/4s, October 31, 2000 8,140,906
3,525,000 U.S. Treasury Principal Only Strip zero %,
August 15, 2022 628,754
3,435,000 U.S. Treasury Principal Only Strip zero %,
February 15, 2019 752,059
------------
TOTAL U.S. GOVERNMENT AND AGENCY
Obligations (cost $164,133,786) $167,007,111
CORPORATE BONDS AND NOTES (29.4%)<F1>
PRINCIPAL AMOUNT VALUE
ADVERTISING (1.2%)
- -------------------------------------------------------------------------------------------------
$ 2,000,000 Lamar Advertising Co. sr. secd. notes 11s, 2003 $ 2,040,000
525,000 Outdoor Systems, Inc. sr. notes 10 3/4s, 2003 501,375
2,000,000 Universal Outdoor, Inc. sub. deb. 11s, 2003 1,940,000
1,850,000 Universal Outdoor, Inc. sr. notes stepped-coupon
zero % (14s, 7/1/99), 2004<F3> 1,166,240
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5,647,615
AEROSPACE (0.3%)
- -------------------------------------------------------------------------------------------------
1,750,000 Sequa Corp. bonds 8 3/4s, 2001 1,601,250
AGRICULTURE (1.1%)
- -------------------------------------------------------------------------------------------------
1,994,000 PMI Holdings Corp. Ser. B, sub. disc. deb. stepped-
coupon zero % (11 1/2s, 9/1/00), 2005<F3> 1,036,880
2,449,280 PSF Finance (L.P.) sr. notes 12s, 2000 2,553,374
1,731,000 PSF Finance (L.P.) sr. disc. notes stepped-
coupon zero % (12s, 9/15/96), 2003<F3> 1,516,789
------------
5,107,043
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
AUTOMOTIVE (0.3%)
- -------------------------------------------------------------------------------------------------
$ 1,350,000 Key Plastics Corp. sr. notes 14s, 1999 $ 1,390,500
224,000 P.T. Astra International bonds 9 3/4s, 2001(Indonesia) 231,000
------------
1,621,500
BROADCASTING (1.7%)
- -------------------------------------------------------------------------------------------------
250,000 New City Broadcasting Corp. sr. sub. notes 11 3/8s, 2003 235,000
4,200,000 Panamsat (L.P.) sr. sub. notes stepped-coupon
zero % (11 3/8s, 8/1/98), 2003<F3> 3,360,000
1,730,000 Paxson Communications Corp. 144A
sr. sub. notes 11 5/8s, 2002 1,712,700
827,000 Petracom Hldgs. 144A notes stepped-coupon zero %
(17 1/2s, 8/1/98), 2003<F3> 560,293
1,000,000 SFX Broadcasting, Inc. sr. sub. notes 11 3/8s, 2000 1,057,500
1,367,000 Telemedia Broadcasting Corp. 144A notes.
stepped-coupon 6.4s (16s, 6/15/99), 2004<F3> 1,230,300
------------
8,155,793
BUILDING AND CONSTRUCTION (0.8%)
- -------------------------------------------------------------------------------------------------
2,000,000 Presley Co. sr. notes 12 1/2s, 2001 1,645,000
2,000,000 Scotsman Group, Inc. sr. notes 9 1/2s, 2000 2,010,000
------------
3,655,000
BUILDING PRODUCTS (0.6%)
- -------------------------------------------------------------------------------------------------
1,750,000 American Standard, Inc. deb. 9 1/4s, 2016 1,811,250
1,250,000 Inter-City Products sr. notes 9 3/4s, 2000 912,500
------------
2,723,750
BUSINESS SERVICES (0.2%)
- -------------------------------------------------------------------------------------------------
1,000,000 Corporate Express, Inc. Ser. B, sr. sub. notes 9 1/8s, 2004 995,000
CABLE TELEVISION (2.3%)
- -------------------------------------------------------------------------------------------------
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 890,000
540,000 Cablevision Systems Corp. sr. sub. deb. 9 7/8s, 2023 558,900
1,000,000 Century Communications Corp. sr. notes 9 1/2s, 2005 1,007,500
1,000,000 Continental Cablevision, Inc. sr. deb. 9 1/2s, 2013 1,047,500
975,000 Continental Cablevision, Inc. sr. deb. 9s, 2008 1,009,125
2,342,616 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003<F6> 2,237,198
225,000 Insight Communications Co. sr. sub. notes
stepped-coupon 8 1/4s (11 1/4s, 3/1/96), 2000<F3> 226,125
1,000,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes
stepped-coupon zero % (13 1/2s, 8/1/99), 2004<F3> 693,750
1,000,000 Summit Communications Group, Inc.
sr. sub. deb. 10 1/2s, 2005 1,100,000
600,000 Telewest Communications PLC deb. stepped-coupon
zero %, (11s, 10/1/00), 2007 (United Kingdom)<F3> 354,750
------------
11,074,848
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
CELLULAR COMMUNICATIONS (2.3%)
- -------------------------------------------------------------------------------------------------
$ 1,600,000 Cellular, Inc. sr. sub. disc. notes stepped-coupon
zero % (11 3/4s, 9/1/98), 2003<F3> $ 1,224,000
1,500,000 Centennial Cellular Corp. sr. notes 8
7/8s, 2001 1,458,750
600,000 Commnet Cellular Inc. bonds 11 1/4s, 2005 624,000
1,985,000 Dial Call Communication, Inc. Ser. B, sr. disc. notes
stepped-coupon zero % (10 1/4s, 12/15/98), 2005<F3> 942,875
3,000,000 Horizon Cellular Telephone Co. Ser. B,
sr. sub. disc. notes stepped-coupon zero %
(11 3/8s, 10/1/97), 2000<F3> 2,565,000
3,350,000 NEXTEL Communications, Inc. sr. disc.
notes stepped-coupon zero % (11 1/2s, 9/1/98), 2003<F3> 1,943,000
2,545,000 Pricellular Wireless Ser. B, sr. disc. notes stepped-
coupon zero % (14s, 11/15/97), 2001<F3> 2,163,250
------------
10,920,875
CHEMICALS (0.9%)
- -------------------------------------------------------------------------------------------------
2,750,000 G-I Holdings, Inc. Ser. B, sr. disc. notes zero %, 1998 2,048,750
2,520,000 OSI Specialties Corp. Ser. B, sr. secd. disc. deb.
stepped-coupon zero % (11 1/2s, 4/15/99), 2004<F3> 2,142,000
------------
4,190,750
CONGLOMERATES (1.1%)
- -------------------------------------------------------------------------------------------------
250,000 ADT Ltd. sr. sub. notes 9 1/4s, 2003 264,375
875,000 Axia, Inc. sr. sub. notes Ser. B, 11s, 2001 857,500
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, 1999 1,001,250
2,050,000 MacAndrews & Forbes Group, Inc. deb. 12 1/4s, 1996 2,065,375
------------
5,261,000
CONSUMER PRODUCTS (0.3%)
- -------------------------------------------------------------------------------------------------
2,500,000 International Semi-Tech. Corp. sr. secd. disc. notes
stepped-coupon zero % (11 1/2s, 8/15/00),
2003 (Canada)<F3> 1,287,500
CONSUMER SERVICES (0.4%)
- -------------------------------------------------------------------------------------------------
1,000,000 Solon 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 1,015,000
------------
2,035,000
ELECTRIC UTILITIES (0.9%)
- -------------------------------------------------------------------------------------------------
4,000,000 Midland Funding Corp. II Ser. B, deb. 13 1/4s, 2006 4,380,000
ELECTRONICS (0.6%)
- -------------------------------------------------------------------------------------------------
2,700,000 Amphenol Corp. sr. sub. notes 12 3/4s, 2002 3,091,500
ENTERTAINMENT (0.5%)
- -------------------------------------------------------------------------------------------------
495,000 Time Warner, Inc. notes 8.18s, 2007 510,711
495,000 Time Warner, Inc. notes 8.11s, 2006 509,172
247,000 Time Warner, Inc. notes 7.975s, 2004 253,741
925,000 Viacom International, Inc. sub. deb. 8s, 2006 915,750
------------
2,189,374
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
FINANCIAL SERVICES (0.3%)
- -------------------------------------------------------------------------------------------------
$ 1,125,000 Comdata Network, Inc. sr. notes 12 1/2s, 1999 $ 1,257,188
250,000 Keystone Group, Inc. sr. secd. notes 9 3/4s, 2003 242,500
------------
1,499,688
FOOD (0.8%)
- -------------------------------------------------------------------------------------------------
1,741,000 Del Monte Corp. sub. notes 12 1/4s, 2002<F6> 1,532,080
2,000,000 Fresh Del Monte Produce Corp. NV Ser. B, 144A
sr. notes, 10s, 2003 (Netherlands) 1,680,000
780,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 803,400
------------
4,015,480
FOOD CHAINS (0.2%)
- -------------------------------------------------------------------------------------------------
780,000 Stater Brothers sr. notes 11s, 2001 791,700
FOREST PRODUCTS (0.8%)
- -------------------------------------------------------------------------------------------------
1,000,000 APP International Finance Co. company guaranty
11 3/4s, 2005 (Netherlands) 1,025,000
1,500,000 Gaylord Container Corp. sr. sub. deb.
stepped-coupon zero % (12 3/4s 5/15/96), 2005<F3> 1,462,500
450,000 Riverwood International Corp.
sr. notes 10 3/4s, 2000 475,875
700,000 Riverwood International Corp. sr. sub. notes 10 3/8s, 2004 745,500
------------
3,708,875
HEALTH CARE (1.1%)
- -------------------------------------------------------------------------------------------------
1,790,000 Columbia/HCA Healthcare med. term notes 7.58s, 2025 1,841,463
2,415,000 Paracelsus Healthcare Corp. sr. sub. notes 9 7/8s, 2003 2,439,150
1,000,000 Quorum Health Group, Inc. sr. sub. notes 11 7/8s, 2002 1,111,250
------------
5,391,863
INSURANCE (0.9%)
- -------------------------------------------------------------------------------------------------
975,000 American Annuity Group, Inc. sr. notes 9 1/2s, 2001 1,004,250
1,250,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 2003 1,271,875
300,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 303,750
1,750,000 Terra Nova Insurance Holdings sr. notes 10 3/4s,
2005 (United Kingdom) 1,890,000
------------
4,469,875
LODGING (0.8%)
- -------------------------------------------------------------------------------------------------
1,590,000 HMH Properties Inc. 144A sr. notes 9 1/2s, 2005 1,597,950
1,850,000 John Q. Hammons Hotels 1st mtge. notes 8 7/8s, 2004 1,803,750
475,000 Red Roof Inns sr. notes 9 5/8s, 2003 475,000
------------
3,876,700
MEDICAL SUPPLIES AND DEVICES (0.5%)
- -------------------------------------------------------------------------------------------------
1,930,000 McGaw, Inc. sr. notes 10 3/8s, 1999 2,002,375
500,000 Wright Medical Technology, Inc. Ser. B,
sr. secd. notes 10 3/4s, 2000 510,000
------------
2,512,375
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
METALS AND MINING (0.1%)
- -------------------------------------------------------------------------------------------------
$ 408,000 Essar Gujarat Ltd. 144A deb. FRN 8.4s, 1999 (India) $ 404,940
250,000 Kaiser Aluminum & Chemical Corp.
sr. sub. notes 12 3/4s, 2003 275,625
------------
680,565
MOTION PICTURE DISTRIBUTION (1.4%)
- -------------------------------------------------------------------------------------------------
2,000,000 AMC Entertainment, Inc. sr. sub. deb. 12 5/8s, 2002 2,220,000
2,000,000 Act III Theatres, Inc. sr. sub. notes 11 7/8s, 2003 2,140,000
675,000 Cinemark Mexico notes 12s, 2003 627,750
1,825,000 Cinemark USA sr. notes 12s, 2002 1,971,000
------------
6,958,750
OIL AND GAS (1.2%)
- -------------------------------------------------------------------------------------------------
1,885,000 Arkla, Inc. deb. 8.9s, 2006 1,999,608
830,000 Chesapeake Energy Corp. sr. notes 12s, 2001 869,425
1,250,000 Gulf Canada Resources Ltd. sr. sub.
notes 9 5/8s, 2005 (Canada) 1,278,125
1,600,000 Trans Texas Gas Corp. sr. secd. notes 11 1/2s, 2002 1,672,000
------------
5,819,158
PAGING (0.2%)
- -------------------------------------------------------------------------------------------------
1,150,000 Pagemart, Inc. sr. disc. notes stepped-coupon zero %
(12 1/4s, 11/1/98), 2003<F3> 833,750
PACKAGING & CONTAINER (0.6%)
- -------------------------------------------------------------------------------------------------
2,500,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 2,687,500
PUBLISHING (0.5%)
- -------------------------------------------------------------------------------------------------
850,000 General Media Corp. sr. secd. notes 10 5/8s, 2000 654,500
2,500,000 Marvel Parent Holdings, Inc. sr. secd.
disc. notes zero %, 1998 1,800,000
------------
2,454,500
RAIL EQUIPMENT (0.2%)
- -------------------------------------------------------------------------------------------------
925,000 Westinghouse Air Brake sr. notes 9 3/8s, 2005 966,625
REAL ESTATE (0.2%)
- -------------------------------------------------------------------------------------------------
55,000 Chelsea Piers 144A Ser. B,
stepped-coupon zero % (11s, 6/15/99), 2009<F3> 51,906
1,000,000 Chelsea Piers Ser. B, 1st mtge. disc. notes
stepped-coupon zero % (12 1/2s, 6/15/96), 2004<F3> 936,250
------------
988,156
RECREATION (1.8%)
- -------------------------------------------------------------------------------------------------
880,000 Arizona Charlies Corp. Ser. B, 1st mtge.
12s, 2000<F2> 712,800
320,000 Capitol Queen Corp. Ser. B, 1st mtge.
notes 12s, 2000<F2> 281,600
970,000 Casino America, Inc. 1st mtge. deb. 11 1/2s, 2001 940,900
1,425,000 Lady Luck Gaming Corp. Ser. B, 1st mtge. 10 1/2s, 2001 1,097,250
1,367,000 Louisiana Casino Cruises Corp. 1st mtge. 11 1/2s, 1998 1,339,660
200,000 Mohegan Tribal Gaming 144A sr. notes 13 1/2s, 2002 209,500
864,000 Trump Castle Funding Corp. sr. sub. notes 11 1/2s, 2000 864,000
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
RECREATION (continued)
- -------------------------------------------------------------------------------------------------
$ 2,500,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 $ 2,468,750
975,000 Trump Plaza Funding, Inc. 1st mtge. notes 10 7/8s, 2001 918,938
------------
8,833,398
RETAIL (1.4%)
- -------------------------------------------------------------------------------------------------
2,100,000 County Seat Stores Inc. sr. sub. notes 12s, 2002 1,890,000
50,000 Loehmanns' Holdings, Inc. sr. sub. notes 13 3/4s, 1999 48,000
5,000,000 Loehmanns' Holdings, Inc. sr. notes 10 1/2s, 1997 5,000,000
------------
6,938,000
SCHOOL BUSES (0.4%)
- -------------------------------------------------------------------------------------------------
2,000,000 Blue Bird Body Co. Ser. B, sub. deb. 11 3/4s, 2002 2,050,000
SHIPPING (0.2%)
- -------------------------------------------------------------------------------------------------
1,150,000 Eletson Holdings, Inc. 1st. pfd. mtge.
notes 9 1/4s, 2003 (Greece) 1,115,500
STEEL (0.3%)
- -------------------------------------------------------------------------------------------------
1,500,000 Ispat Mexicana, SA 144A notes 10 3/8s, 2001 (Mexico) 1,320,000
- -------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (cost $138,119,408) $141,850,256
<CAPTION>
FOREIGN GOVERNMENT BONDS AND NOTES (23.2%)<F1>
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
AUD 2,830,000 Australia (Government of) notes 8 3/4s, 2001 $ 2,186,293
CAD 6,700,000 Canada (Government of) deb. 9s, 2004 5,467,759
CAD 7,840,000 Canada (Government of) deb. 8 3/4s, 2005 6,336,798
CAD 6,515,000 Canada (Government of) bonds, 6 1/2 2004 4,545,462
DKK 28,730,000 Denmark (Kingdom of) bonds 9s, 2000 5,692,908
FRF 55,318,000 France (Government of) OAT deb. 8 1/2s, 2002 12,292,889
FRF 45,290,000 France Treasury bill 7 3/4s, 2000 9,698,043
DEM 15,940,000 Germany (Republic of) bonds 7 3/8s, 2005 11,996,024
DEM 1,550,000 Germany (Republic of) bonds 6 7/8s, 2005 1,131,825
DEM 11,050,000 Germany (Republic of) bonds 6 1/4s, 2024 6,939,102
ITL 10,825,000,000 Italy (Government of) bonds 12s, 2003 6,977,446
ITL 5,215,000,000 Italy (Government of) bonds 10 1/2s, 2005 3,080,838
TL 5,630,000,000 Italy (Government of) notes 8 1/2s, 1999 3,289,203
USD 475,000 Morocco (Government of) bonds 6.6875s, 2009 282,625
USD 190,000 Morocco (Government of) notes 6.6875s, 2004 132,050
NLG 11,820,000 Netherlands (Government of) bonds 9s, 2000 8,519,324
USD 330,000 Panama (Republic of) FRN 7 1/4s, 2002 267,300
USD 450,000 Quebec (Province of) deb. Ser. NN, 7 1/8s, 2024 426,236
ESP 769,400,000 Spain (Government of) bonds 10.833s, 2000 6,673,052
THB 7,700,000 Thailand (IFC of) bonds FRN 11s, 1996 306,806
GBP 3,355,000 United Kingdom Treasury bonds 7 1/2s, 2006 5,137,171
GBP 6,750,000 United Kingdom Treasury notes 7s, 2001 10,368,245
------------
TOTAL FOREIGN GOVERNMENT BONDS AND NOTES
(cost $108,511,511) $111,747,399
<CAPTION>
BRADY BONDS (3.0%)<F1>
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 3,376,000 Argentina (Republic of) bonds 5s, 2023 $ 1,607,820
3,835,000 Argentina (Republic of) bonds 6.563s, 2023 2,157,188
878,000 Argentina (Republic of) FRN 6.813s, 2005 521,313
<PAGE>
BRADY BONDS (continued)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------
$ 350,000 Brazil (Republic of) FRN 6 7/8s, 2012 $ 191,625
3,128,000 Brazil (Republic of) FRN 6.813s, 2006 2,072,300
1,232,146 Brazil (Republic of) FRN 6.688s, 2001 1,053,485
2,760,000 Brazil (Republic of) bonds 4s, 2024 1,335,150
1,109,000 Bulgaria (Republic of) disc. FRN 6 3/4s, 2024 558,659
1,235,000 Ecuador (Government of) FRN 6.813s, 2025 611,325
1,697,000 Mexico (Government of) Ser. B, disc.
notes 6.766s, 2019 1,134,869
400,000 Philippines (Central Bank of) bonds 6 1/4s, 2017 292,500
752,000 Poland (Government of) 144A FRN 6 7/8s, 2024 575,280
480,000 Poland (Government of) Ser. RSTA, bonds
stepped-coupon 2 3/4s (with various rates from
3 1/4s to 5s, and dates from 10/96 to 10/14), 2024 222,600
1,000,000 United Mexican States FRN 7.609s, 2008 857,500
840,000 United Mexican States Ser. A, deb. 6 1/4s, 2019 491,400
1,644,000 United Mexican States Ser. B, deb. 6 1/4s, 2019 961,740
------------
TOTAL BRADY BONDS (cost $16,103,524) $ 14,644,754
PREFERRED STOCKS (2.2%)<F1>
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------
25,250 Cablevision System Corp 144A Ser. G, $11.75 exch. Pfd. $ 2,607,063
25,300 California Federal Bank Ser. B, $10.625 exch. pfd. 2,751,375
19,500 First Nationwide Bank $11.50 pfd. 2,223,000
49,636 Pyramid Communications, Inc. Ser. C, $3.125 exch. pfd.<F2> 1,197,461
33,000 SD Warren Co. Ser. B, $3.50 pfd. 1,056,000
2,940 SDW Holdings Corp. 144A units $15.00 pfd. 823,200
1,935 Supermarkets General Holdings Corp. $3.52 exch. pfd.<F6> 52,729
------------
TOTAL PREFERRED STOCKS (cost $10,053,158) $ 10,710,828
UNITS (1.9%)<F1>
NUMBER OF UNITS VALUE
- -------------------------------------------------------------------------------------------------
150 Celcaribe S.A. 144A units stepped-coupon zero %
(13 1/2s, 3/15/98), 2004<F3> $ 1,342,500
1,785 Cellnet Data Systems Inc. units stepped-coupon zero %
(13s, 6/15/2005), 2005<F3> 1,041,994
725,000 Hollywood Casino units 13 1/2s, 1998 884,500
2,815 ICF Kaiser International, Inc. sr. sub. units 12s, 2003 2,646,100
158 Intelcom Group (USA) Inc., 144A units stepped-coupon
zero %,(13 1/2s, 9/15/00), 2005<F3> 900,600
550,500 Premium Standard Farms 144A units 12 1/2s, 2000 605,550
300 Terex Corp. 144A units 13 3/4s, 2002 254,250
1,195 Total Renal Care, Inc. units stepped-coupon zero %
(12s, 8/15/97), 2004<F3> 1,224,875
------------
TOTAL UNITS (cost $8,153,752) $ 8,900,369
COMMON STOCKS (1.0%)<F1>
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------
124,292 Ampex Corp. Class A<F2> $ 372,876
570 Applause Enterprises, Inc.<F2> 1,995
2,625 Axia Holding Corp. 144A<F2> 73,500
17,016 Chesapeake Energy Corp.<F2> 497,718
142,974 Computervision Corp.<F2> 1,679,945
42,022 Gaylord Container Corp. A<F2> 320,418
<PAGE>
COMMON STOCKS (continued)
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------
57,441 Grand Union Co. (acquired 7/15/92, cost $3,250,000)<F2><F5> $ 617,491
4,148 IFINT Diversified Holdings 144A<F2> 207,400
266,753 Loehmanns' Holdings, Inc. 144A<F2> 466,818
671 PMI Holdings Corp.<F2> 134,200
480 Premium Holdings L.P. 144A<F2> 47,979
1,491 Pyramid Communications, Inc. New Class B 144A<F2> 35,789
1 Southland Corp.<F2> 4
15,000 Specialty Foods Corp.<F2> 15,000
5,054 Taj Mahal Holding Corp. Class A<F2> 75,810
36,000 Total Renal Care, Inc. 144A<F2> 261,000
------------
TOTAL COMMON STOCKS (cost $5,760,782) $ 4,807,943
CONVERTIBLE BONDS AND NOTES (0.4%)<F1>
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------
$ 1,486,000 Pricellular Wireless 144A cv. sub. notes stepped-coupon
zero %, (10 3/4s, 8/15/00), 2004<F3> $ 899,030
1,075,000 Riverwood International Corp. sub. notes 6 3/4s, 2003 1,182,500
------------
TOTAL CONVERTIBLE BONDS AND NOTES (cost $2,107,177) $ 2,081,530
CONVERTIBLE PREFERRED STOCKS (0.4%)<F1>
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------
8,000 Chiquita Brands Intl. Inc. Ser. A $5.75, cv. pfd. $ 402,000
28,000 Conseco, Inc. Ser. D, $3.25 cv. pfd. 1,344,000
5,450 Granite Broadcasting $1.938 cv. pfd. 280,675
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (cost $2,127,681) $ 2,026,675
WARRANTS (0.3%)<F1><F2>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- -------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
40,000 Becker Gaming Corp. 144A 11/15/00 $ 20,000
3,165 Casino America, Inc. 11/15/96 317
7,860 Casino Magic Finance Corp. 10/14/96 393
13,214 Cinemark Mexico USA, Inc. 8/1/03 122,428
2,100 County Seat Holdings, Inc. 10/15/98 21,000
54,028 Gaylord Container Corp. 144A 7/31/96 388,326
375 General Media Corp. 144A 12/31/00 3,750
1,399 Grand Union Co. Ser. 1 6/16/00 1,399
2,799 Grand Union Co. Ser. 2 6/16/00 560
75,000 Insight Communications Co. 144A 3/30/98 150,000
4,101 Louisiana Casino Cruises, Inc. 144A 12/1/98 61,515
2,520 OSI Specialties Inc. 144A 4/15/99 151,200
5,290 Pagemart, Inc. 144A 12/31/03 47,610
2,000 Petracom Holdings, Inc. 8/1/05 14,250
4,238 President Riverboat Casinos, Inc. 9/30/99 16,952
2,880 President Riverboat Casinos, Inc. 144A 9/23/96 144
20,000 Southdown, Inc. 144A 10/31/96 10,000
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 91,770
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 $1,032,913) $ 1,209,915
<PAGE>
<CAPTION>
PURCHASED OPTIONS OUTSTANDING (0.1%)<F1>
EXPIRATION DATE/
CURRENCY STRIKE PRICE VALUE
- -------------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
ITL 14,833,800,000 Italy (Government of)
bonds 10 1/2s, 2005 Jan 96/ITL 94.25 $ 140,787
USD 11,100,000 U.S. Dollars In Exchange for
Deutschemarks Dec 95/DEM 1.565 31,080
USD 9,100,000 U.S. Dollars In Exchange for
Japanese Yen Dec 95/JPY 102.5 135,590
------------
TOTAL PURCHASED OPTIONS
(cost $450,369) $ 307,457
<CAPTION>
SHORT-TERM INVESTMENTS (6.6%)<F1>
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
IDR 1,000,000,000 Bank Tabungan Negara certificate of
deposit zero %, February 12, 1996 $ 418,504
$ 14,000,000 Federal Home Loan Bank 5.6s,
January 22, 1996 13,816,305
925,000 Federal National Mortgage Assn. 5.85s,
November 1, 1995 925,000
15,000,000 Ford Motor Credit Co. 5.64s,
November 20, 1995 14,955,350
TRL 36,300,000,000 Turkey (Republic of) T-Bill zero %, December 14, 1995 648,391
U.S. Dollar Certificate of Deposit (Issued by
J.P. Morgan Securities, Inc. The principal at
redemption is linked to the bid price for the
Polish Treasury Bill, at maturity, and the change
in the spot rate of the Polish Zloty from issue
date to maturity date)
$ 445,321 zero %, January 25,1996 406,756
726,708 zero %, April 17, 1996 650,912
- -------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (cost $31,800,954) $ 31,821,218
- -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $488,355,015)<F7> $497,115,455
- -------------------------------------------------------------------------------------------------
<PAGE>
<FN>
<F1> Percentages indicated are based on net assets of $481,913,774.
<F2> Non-income-producing security.
<F3> 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.
<F4> TBA's are mortgage backed securities traded under delayed delivery commitments, settling
after October 31, 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 2.0% from the principal amount. Income on the securities will not be
earned until settlement date. The cost of TBA purchases held at October 31, 1995 was
$17,966,183.
<F5> 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, 1995
was $619,486 or 0.1% of net assets.
<F6> Income may be received in cash or additional securities at the discretion of the issuer.
<F7> The aggregate identified cost for federal income tax purposes is $488,838,380, resulting in
gross unrealized appreciation and depreciation of $16,061,218 and $7,784,143, respectively,
or net unrealized appreciation of $8,277,075.
144A after the name of a security represents those 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.
</FN>
<CAPTION>
DIVERSIFICATION OF FOREIGN ASSETS at October 31, 1995
(as a percentage of net assets)
<S> <C> <C> <C>
France 4.9% Australia 0.5%
Germany 4.5 Bulgaria 0.5
Canada 4.3 Poland 0.4
United Kingdom 4.0 Greece 0.3
Italy 3.0 Turkey 0.2
Netherlands 2.5 Ecuador 0.1
Spain 1.5 India 0.1
Denmark 1.3 Morocco 0.1
Mexico 1.0 Thailand 0.1
Brazil 1.0 Philippines 0.1
Argentina 1.0 Panama 0.1
<CAPTION>
FORWARD CROSS CURRENCY CONTRACTS at October 31, 1995
(aggregate face value $21,052,610)
IN UNREALIZED
MARKET EXCHANGE MARKET DELIVERY APPRECIATION/
CONTRACTS VALUE FOR VALUE DATE (DEPRECIATION)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
British Pounds
(Buy) $ 5,470,796 Deutschemarks $ 5,586,170 12/13/95 $(115,374)
British Pounds
(Buy) 3,799,045 Deutschemarks 3,779,260 12/13/95 19,785
Deutschemarks
(Sell) 3,555,548 Danish Krona 3,553,508 12/13/95 (2,040)
Deutschemarks
(Sell) 3,068,468 Swedish Krona 3,102,937 12/13/95 34,469
Deutschemarks
(Sell) 5,123,996 French Francs 5,123,996 12/13/95 --
-------------------------------------------------------------------------------------------
$ (63,160)
<PAGE>
<CAPTION>
FORWARD CURRENCY CONTRACTS To Buy at October 31, 1995
UNREALIZED
MARKET AGGREGATE DELIVERY APPRECIATION/
VALUE FACE VALUE DATE (DEPRECIATION)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian Dollar $ 6,878,235 $ 6,840,573 12/13/95 $ 37,662
Canadian Dollars 8,896,546 8,886,633 12/13/95 9,913
Deutschemarks 29,532,022 28,691,506 12/13/95 840,516
Japanese Yen 21,619,543 22,126,501 12/14/95 (506,958)
Japanese Yen 1,624,362 1,642,674 12/13/95 (18,312)
New Zealand Dollars 2,341,438 2,336,236 12/13/95 5,202
Spanish Peseta 3,664,661 3,535,545 12/13/95 129,116
Swedish Krona 3,560,697 3,278,169 12/13/95 282,528
--------------------------------------------------------------------------------------------
$78,117,504 $77,337,837 $779,667
FORWARD CURRENCY CONTRACTS To Sell at October 31, 1995
UNREALIZED
MARKET AGGREGATE DELIVERY APPRECIATION/
VALUE FACE VALUE DATE (DEPRECIATION)
--------------------------------------------------------------------------------------------
British Pounds $ 4,580,623 $ 4,580,550 12/13/95 $ (73)
Canadian Dollars 7,973,390 7,876,290 12/13/95 (97,100)
Danish Krona 2,031,836 2,005,058 12/13/95 (26,778)
Deutschemarks 29,389,731 28,399,116 12/13/95 (990,615)
Deutschemarks 329,964 316,726 4/17/96 (13,238)
Deutschemarks 213,913 213,913 1/25/96 --
French Francs 8,287,566 7,986,656 12/13/95 (300,910)
Italian Lira 5,097,042 4,979,354 12/13/95 (117,688)
Japanese Yen 13,532,710 13,739,322 12/13/95 206,612
Netherlands Guilders 8,709,706 8,299,451 12/13/95 (410,255)
Spanish Peseta 5,713,280 5,484,389 12/13/95 (228,891)
Swiss Francs 6,278,868 6,197,244 12/13/95 (81,624)
--------------------------------------------------------------------------------------------
$92,138,629 $90,078,069 $(2,060,560)
<CAPTION>
WRITTEN OPTIONS OUTSTANDING at October 31, 1995 (Premium received $47,730)
CONTRACT EXPIRATION DATE/
AMOUNT STRIKE PRICE VALUE
--------------------------------------------------------------------------------------------
<C> <S> <C> <C>
$ 11,100,000 U.S. Dollars In Exchange
For Deutschemarks Dec 95/DEM 1.49 $ 4,995
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1995
ASSETS
- -------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $488,355,015) (Note 1) $497,115,455
- -------------------------------------------------------------------------------
Cash (Note 1) 33,815,520
- -------------------------------------------------------------------------------
Interest, dividends and other receivables 10,456,405
- -------------------------------------------------------------------------------
Receivable for open forward currency contracts 1,589,974
- -------------------------------------------------------------------------------
Receivable for closed forward currency contracts 982,392
- -------------------------------------------------------------------------------
TOTAL ASSETS 543,959,746
LIABILITIES
- -------------------------------------------------------------------------------
Payable for securities purchased 52,714,437
- -------------------------------------------------------------------------------
Distributions payable to shareholders 3,051,221
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 921,052
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 802
- -------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 119
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 133,631
- -------------------------------------------------------------------------------
Payable for open forward currency contracts 2,934,027
- -------------------------------------------------------------------------------
Payable for closed forward currency contracts 2,121,568
- -------------------------------------------------------------------------------
Written options outstanding, at value (premiums received $47,730) 4,995
- -------------------------------------------------------------------------------
Other accrued expenses 164,120
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 62,045,972
- -------------------------------------------------------------------------------
NET ASSETS $481,913,774
REPRESENTED BY
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $486,704,584
- -------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (2,654,955)
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (9,629,636)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 7,493,781
- -------------------------------------------------------------------------------
TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO CAPITAL
SHARES OUTSTANDING $481,913,774
COMPUTATION OF NET ASSET VALUE
- -------------------------------------------------------------------------------
Net asset value per share ($481,913,774 divided by
53,311,249 shares) $9.04
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF OPERATIONS
Year ended October 31, 1995
INVESTMENT INCOME:
- -------------------------------------------------------------------------------
Interest (net of foreign tax of $219,359) $40,785,704
- -------------------------------------------------------------------------------
Dividends 955,580
- -------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 41,741,284
EXPENSES:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 3,507,075
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 671,396
- -------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 16,978
- -------------------------------------------------------------------------------
Reports to shareholders 94,136
- -------------------------------------------------------------------------------
Exchange listing fees 40,342
- -------------------------------------------------------------------------------
Auditing 110,307
- -------------------------------------------------------------------------------
Legal 15,689
- -------------------------------------------------------------------------------
Postage 255,967
- -------------------------------------------------------------------------------
Administrative services (Note 2) 9,726
- -------------------------------------------------------------------------------
Registration fees 799
- -------------------------------------------------------------------------------
Other 16,921
- -------------------------------------------------------------------------------
TOTAL EXPENSES 4,739,336
- -------------------------------------------------------------------------------
EXPENSE REDUCTION (Note 2) (216,617)
- -------------------------------------------------------------------------------
NET EXPENSES 4,522,719
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME 37,218,565
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 5,091,541
- -------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 10,341
- -------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 622
- -------------------------------------------------------------------------------
Net realized loss on forward currency contracts and foreign
currency translation (Note 1) (6,600,342)
- -------------------------------------------------------------------------------
Net unrealized depreciation of forward currency contracts
and foreign currency translation during the period (1,497,921)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments, options and
futures during the period 24,254,949
- -------------------------------------------------------------------------------
NET GAIN ON INVESTMENT TRANSACTIONS 21,259,190
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $58,477,755
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31
1995 1994
- -------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $ 37,218,565 $ 35,639,762
- -------------------------------------------------------------------------------
Net realized loss on investments and foreign
currency transactions (1,497,838) (13,032,306)
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments and assets and liabilities
in foreign currencies 22,757,028 (29,981,558)
- -------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS 58,477,755 (7,374,102)
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
- -------------------------------------------------------------------------------
From net investment income (34,122,774) (27,920,055)
- -------------------------------------------------------------------------------
From return of capital (Note 1) (2,693,488) (13,261,553)
- -------------------------------------------------------------------------------
From net realized gain on investments -- (4,000,525)
- -------------------------------------------------------------------------------
Decrease in capital shares transactions (Note 4) (507,361) --
- -------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 21,154,132 (52,556,235)
- -------------------------------------------------------------------------------
Beginning of period 460,759,642 513,315,877
- -------------------------------------------------------------------------------
END OF PERIOD (including distributions in excess of
net investment income of $2,654,955 and
$5,517,802, respectively) $481,913,774 $460,759,642
- -------------------------------------------------------------------------------
FUND SHARES
- -------------------------------------------------------------------------------
Shares outstanding at beginning of year 53,375,649 53,375,649
- -------------------------------------------------------------------------------
Shares liquidated (64,400) --
- -------------------------------------------------------------------------------
SHARES OUTSTANDING AT END OF YEAR 53,311,249 53,375,649
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the year)
YEAR ENDED
OCTOBER 31 YEAR ENDED OCTOBER 31
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $8.63 $9.62 $9.15 $8.80 $8.01
- ------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------
Net investment income .68 .74 .73 .77 .82
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments .42 (.88) .61 .51 .90
- ------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.10 (.14) 1.34 1.28 1.72
- ------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
- ------------------------------------------------------------------------------------------------------------------
From net investment income (.64) (.52) (.73) (.77) (.82)
- ------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (.14) -- --
- ------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- (.08) -- (.10) --
- ------------------------------------------------------------------------------------------------------------------
From return of capital (.05) (.25) -- (.06) (.11)
- ------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.69) (.85) (.87) (.93) (.93)
- ------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $9.04 $8.63 $9.62 $9.15 $8.80
- ------------------------------------------------------------------------------------------------------------------
MARKET VALUE, END OF YEAR $8.125 $7.88 $8.88 $8.63 $8.38
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE (%)(a) 14.16 (1.92) 13.27 14.34 36.93
- ------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (in thousands) $481,914 $460,760 $513,316 $488,266 $468,234
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.02 .95 .92 .95 1.08
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 7.98 7.33 7.76 8.59 9.74
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 290.44 201.95 132.24 221.30 323.27
- ------------------------------------------------------------------------------------------------------------------
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended October 31, 1995 includes amounts paid through
expense offset arrangements. Prior period ratios exclude these amounts. (See Note 2).
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
October 31, 1995
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, it's 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 outstanding
options, outstanding futures and forward currency contracts.)
B JOINT TRADING ACCOUNT Pursuant to an exemptive order issued by the Securities
and Exchange Commission, the fund may transfer uninvested cash balances into a
joint trading account, along with the cash of other registered investment
companies managed by Putnam Investment Management Inc., ("Putnam Management")
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.
As of October 31, 1995, $33,548,488 of the total cash available was used to
settle certain security trades on November 1, 1995.
<PAGE>
C REPURCHASE AGREEMENTS The fund, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value of
which at the time of purchase is required to be in an amount at least equal to
the resale price, including accrued interest. Putnam Management is responsible
for determining that the value of these underlying securities is at all times at
least equal to the resale price, including accrued interest.
D SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME Security transactions are
accounted for on the trade date (date the order to buy or sell is executed).
Interest income is recorded on the accrual basis and dividend income is recorded
on the ex-dividend date.
Discounts on zero coupon bonds, original issue discount bonds, stepped-coupon
bonds and payment-in-kind bonds are 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.
E FOREIGN CURRENCY TRANSLATION The accounting records of the fund are maintained
in U.S. dollars. The market values of foreign securities, currency holdings and
other assets and liabilities are recorded in the books and records of the trust
after translation to U.S. dollars based on the exchange rates 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 fluctuations 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.
Net unrealized gains and losses on foreign currency transactions arise from
changes in the value of open forward currency contracts and assets and
liabilities other than investments at the period end, resulting from changes in
the exchange rate.
F FUTURES AND OPTIONS CONTRACTS The fund may use futures and options contracts
to hedge against changes in the value of securities the fund owns or expects to
purchase. The fund may also write options on securities it owns or in which it
may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of the
underlying instruments, if there is an illiquid secondary market for the
contracts, or if the counterparty to the contract is unable to perform.
Futures contracts are valued at the quoted daily settlement prices established
by the exchange on which they trade. Exchange traded options are valued at the
last sale price, or if no sales are reported, the last bid price for purchased
options and the last ask price for written options. Options traded
over-the-counter are valued using prices supplied by dealers.
<PAGE>
FORWARD CURRENCY CONTRACTS The fund may engage in forward currency contracts,
which are agreements 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 a fund
intends to buy are denominated, when a 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 maximum potential loss from forward currency contracts is the
aggregate face value in U.S. dollars at the time the contract was opened. The
fund could be exposed to risk if the value of the currency changes unfavorably,
if the counterparties to the contracts are unable to meet the terms of their
contracts or if the fund is unable to enter into a closing position.
G 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 Management deems it appropriate to do so.
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 on securities held and for excise tax on income and
capital gains.
At October 31, 1995 the fund had a capital loss carryover of approximately
$9,654,000 available to offset realized gains, if any. The amount of the
carryover and the expiration dates are:
LOSS CARRYOVER EXPIRATION DATE
- --------------------------------------
$7,488,000 October 31, 2002
2,166,000 October 31, 2003
<PAGE>
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 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. These differences include treatment of
realized and unrealized gains and losses on forward foreign currency contracts
and certain futures contracts, paydown gains and losses on mortgage-backed
securities, market discount and losses on wash sales transactions.
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, 1995, the fund reclassified $232,944 to increase
distributions in excess of net investment income and $725,273 to increase
paid-in-capital, with an increase to accumulated net realized losses of
$492,329. The calculation of net investment income per share in the financial
highlights table excludes these adjustments.
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 Putnam Management 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 Putnam Management and who serve on committees of the Trustees receive
additional fees for attendance at certain committee meetings.
During the year ended October 31, 1995, the fund adopted a Trustee Fee Deferral
Plan (the "Plan") which allows the Trustees to defer the receipt of all or a
portion of Trustees fees payable on or after July 1, 1995. The deferred fees
remain in the fund and are invested in the fund or in other Putnam funds until
distribution in accordance with the Plan.
Custodial functions for the fund's assets are provided by Putnam Fiduciary Trust
Company (PFTC), a wholly owned subsidiary of Putnam Investments, Inc.
For the year ended October 31, 1995, fund expenses were reduced by $216,617
under expense offset arrangements with PFTC. Investor servicing and custodian
fees reported in the Statement of operations exclude these credits. The fund
could have invested a portion of the assets utilized in connection with the
offset arrangements in an income-producing asset if it had not entered into such
arrangements.
<PAGE>
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the year ended October 31, 1995, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $403,728,664 and $445,096,129, respectively. Purchases and sales of
U.S. government obligations aggregated $779,877,559 and $750,531,147,
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:
CONTRACT PREMIUMS
AMOUNT RECEIVED
- -----------------------------------------------
Options written $ 57,781,000 $665,705
Options expired (11,132,000) (208,168)
Options closed (35,549,000) (409,807)
- -----------------------------------------------
Written options
outstanding at
end or period $ 11,100,000 $ 47,730
- -----------------------------------------------
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 the effect of increasing the net asset value
per share of remaining shares outstanding.
For the year ended October 31, 1995, the fund repurchased 64,400 shares for
$507,361, which reflects a discount from net asset value of $52,865 or 9.44%.
FEDERAL TAX INFORMATION
(Unaudited)
For the year ended October 31, 1995, a portion of the fund's distribution
represents a return of capital and is therefore not taxable to shareholders.
This is the result of losses on foreign currency transactions incurred in the
fiscal year ended October 31, 1994. Federal tax law allows certain losses
sustained in a fund's fiscal year to be deferred into the following year. These
losses must be reclassified as ordinary losses for tax purposes, reducing the
amount of net investment income the fund has available for distribution.
The Form 1099 you receive in January 1996 will show the tax status of all
distributions paid to your account in calendar 1995, including the amount of the
distribution not subject to tax. You will need to adjust the cost basis of your
shares by the amount that is not subject to tax when you eventually redeem or
exchange them. This will increase any resulting capital gain or decrease any
capital loss you incur at that time.
<PAGE>
<TABLE>
<CAPTION>
SELECTED QUARTERLY DATA
(Unaudited)
NET REALIZED NET INCREASE
AND UNREALIZED (DECREASE)
INVESTMENT NET INVESTMENT GAIN (LOSS) ON IN NET ASSETS
INCOME INCOME INVESTMENTS FROM OPERATIONS
QUARTER PER PER PER PER
ENDED TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
- ------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
10/31/95 $10,254,581 $.19 $ 8,912,873 $.15 $ 3,417,303 $.08 $12,330,176 $.23
7/31/95 10,701,896 .20 9,513,755 .18 13,209,055 .24 22,722,810 .42
4/30/95 10,096,984 .19 9,222,274 .17 17,110,946 .33 26,333,220 .50
1/31/95 10,687,823 .20 9,569,663 .18 (12,478,114) (.23) (2,908,451) (.05)
10/31/94 10,578,336 .20 9,542,965 .18 (8,495,287) (.16) 1,047,678 .02
7/31/94 10,298,482 .20 9,028,639 .17 (9,336,132) (.17) (307,493) --
4/30/94 7,826,067 .14 6,549,762 .12 (33,123,417) (.63) (26,573,691) (.51)
1/31/94 11,579,308 .22 10,518,430 .20 7,940,972 .15 18,459,402 .35
</TABLE>
<PAGE>
RESULTS OF OCTOBER 5, 1995 SHAREHOLDER MEETING
An annual meeting of shareholders of the fund was held on October 5, 1995. At
the meeting, each of the nominees for Trustees was elected, as follows:
VOTES FOR VOTES WITHHELD
- ------------------------------------------------------------------------------
Jameson Adkins Baxter 48,191,912 773,748
Hans H. Estin 48,192,904 772,757
John A. Hill 48,235,801 729,860
Elizabeth T. Kennan 48,194,315 771,346
Lawrence J. Lasser 48,207,070 758,590
Robert E. Patterson 48,224,023 741,636
Donald S. Perkins 48,190,595 775,065
William F. Pounds 48,192,039 773,621
George Putnam 48,202,478 763,182
George Putnam, III 48,192,805 772,855
E. Shapiro 48,119,415 846,245
A.J.C. Smith 48,209,140 756,521
W. Nicholas Thorndike 48,218,976 746,684
- ------------------------------------------------------------------------------
A proposal to ratify the selection of Coopers & Lybrand L.L.P. as auditors for
the fund was approved as follows: 47,909,978 votes for, and 334,967 votes
against, with 720,716 abstentions and broker non-votes. A proposal to fix the
number of Trustees at 13 was approved as follows: 34,351,246 for, and 773,771
against. All tabulations have been rounded to the nearest whole number.
<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 Coburn
INDEPENDENT ACCOUNTANTS Vice President
Coopers & Lybrand L.L.P.
Rosemary H. Thomsen
TRUSTEES Vice President and Fund Manager
George Putnam, Chairman
D. William Kohli
William F. Pounds, Vice Chairman Vice President and Fund Manager
Jameson Adkins Baxter Neil Powers
Vice President and Fund Manager
Hans H. Estin
Mark J. Siegel
John A. Hill Vice President and Fund Manager
Elizabeth T. Kennan William N. Shiebler
Vice President
Lawrence J. Lasser
John R. Verani
Robert E. Patterson Vice President
Donald S. Perkins Paul M. O'Neil
Vice President
George Putnam, III
John D. Hughes
Eli Shapiro Vice President and Treasurer
A.J.C. Smith Beverly Marcus
Clerk and Assistant Treasurer
W. Nicholas Thorndike
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.
SHARES OF MUTUAL FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION (FDIC), THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY,
AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
<PAGE>
[LOGO: PUTNAM INVESTMENTS] ------------
Bulk Rate
THE PUTNAM FUNDS U.S. Postage
One Post Office Square PAID
Boston, Massachusetts 02109 Putnam
Investments
------------
21720-072 12/95
