Putnam
Master
Income
Trust
SEMIANNUAL REPORT
April 30, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* Morningstar, an independent rating agency, awarded Putnam Master
Income Trust four out of a possible five stars for overall risk-adjusted
performance (based on both the 3- and 5-year average annual returns) as
of April 30, 1996. This rating is achieved by only 22.5% of the 88 funds
in the fixed-income investment category.*
* "Putnam Master Income Trust is slow, but it's steady. . . . This
consistent, middle-of-the-road performance owes to the fact that, unlike
many of its peers, PMT diversifies its portfolio pretty evenly among the
three traditional multisector-bond asset classes: U.S. government
securities, high-yield bonds, and foreign-government securities. This
allows the fund to perform decently, if not spectacularly, in a variety
of market environments. . . . PMT's ability to limit its losses has
given it risk scores that are among the best in its objective, and a
trailing five-year return that places it in the top quartile of its peer
group. PMT proves that a low-key tortoise is often better than a flashy
hare."
-- Morningstar Mutual Funds, March 8, 1996
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
25 Financial statements
*Morningstar, Inc., a mutual fund research firm, rates a fund relative
to other funds with similar investment objectives based on the fund's 3-
and 5-year average annual returns and adjusted for risk factors and
sales charges. Ratings are updated monthly. For the 3-year period, there
were 88 funds in the fixed-income category and the fund received 4
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.
[GRAPHIC OMITTED: photo of George Putnam]
(copyright) Karsh, Ottawa
From the Chairman
Dear Shareholder:
During the six months ended April 30, 1996, Putnam Master Income Trust
once again exemplified the benefits of investing in a diversified,
globally oriented portfolio of fixed-income securities. For much of the
first half of the period, bond markets enjoyed one of the strongest
advances in recent memory, only to turn abruptly downward part way
through. Interest rates rose dramatically, causing losses in most
sectors of the market.
The U.S. bond market was reacting to concern over a pickup in inflation
resulting from economic overheating. Long-term government securities
were hardest hit. The fund's high-yield sector responded positively to
signs of economic strength, and international bonds, especially those in
peripheral and emerging markets, made solid contributions to
performance.
Your fund's management team believes that the high-yield market should
continue to provide strength and that foreign holdings may outshine many
domestic investment-grade issues in the months ahead. A full discussion
of your fund's performance and outlook is provided in the report that
follows.
Respectfully yours,
/s/George Putnam
George Putnam
Chairman of the Trustees
June 19, 1996
Report from the Fund Managers
Rosemary H. Thomsen, lead manager
Neil H. Powers
D. William Kohli
Mark J. Siegel
Thanks in large part to its diversified trisector investment strategy,
Putnam Master Income Trust wrapped up the first half of fiscal 1996 with
strong returns: 4.71% at net asset value and 1.05% at market price. This
return outpaced the Lehman Brothers Government Bond Index's 0.03% return
for the same period -- the six months ended April 30, 1996. Although the
fund began its fiscal year amid one of the most robust bond market
rallies in recent history, it ended the period buffeted by investor
uncertainty. Confusion concerning the direction of the U.S. economy,
interest rates, and inflation brought the year-long rally to an abrupt
halt.
Because high-yield bonds are influenced by the pace of the economy,
their performance was less affected by this spring's higher interest
rates than other fixed-income investments. This explains why the high-
yield bond portion, or "sleeve," continued to post the strongest returns
for the fund both on a relative and an absolute basis. The international
segment registered outstanding performance for much of the period
relative to the international indexes. By the semiannual mark, however,
the U.S. government sleeve had given back most of the gains it realized
in the first few months of the fiscal year. Full performance details and
comparison to other major indexes can be found on pages 9 and 10 of this
report.
* HIGH-YIELD HOLDINGS CONTINUE TO DRIVE PERFORMANCE
Changing market dynamics, while adversely affecting U.S. Treasury
securities, remained hospitable to the performance of your fund's high-
yield bond holdings, the most heavily weighted area of the portfolio.
Our emphasis on companies in the telecommunications, cable television,
broadcasting, retail, insurance, and gaming industries benefited the
fund substantially.
Fund holdings in several sectors benefited from the long-awaited passage
of the telecommunications deregulation reform bill. The approval of the
bill means that federal restrictions on which companies can enter
specific communications businesses have now been eliminated. For
example, the bill allows any long-distance provider or cable company to
provide telephone service in local markets. For broadcasters, the bill
allows ownership of multiple television and radio stations. It is
expected that these changes will result in increased competition, more
mergers and acquisitions, and more capital commitments to the industry
as a whole, potentially enhancing the value of your fund's high-yield
media holdings. Some of the fund's strongest performers included
competitive access providers such as IntelCom Group as well as Nextel
Communications, cellular communications companies. Continental
Cablevision, which announced its planned acquisition by U.S. West, has
also been a positive performer for the fund in the first quarter of the
period.
Retailing is also an area in which we've increased exposure, purchasing
the attractively priced bonds of companies with niche businesses. One
long-standing holding, discount clothing retailer Loehmann's, Inc.,
appreciated dramatically over the period as the company's management
announced an initial public offering of its stock. In addition, in the
insurance sector, Terra Nova Insurance Holdings has made a strong
contribution to fund performance through its successful initial public
offering and rating upgrade. While these holdings and others discussed
in this report were viewed favorably on April 30, 1996, all holdings are
subject to review and adjustment in accordance with the fund's
investment strategy and will vary in the future.
[GRAPHIC OMITTED: Worm chart MARKET SECTOR PERFORMANCE]
showing
International
U.S. government High-yield government
securities securities securities
4/30/95 0.00 0.00 0.00
5/31/95 4.03 2.82 2.18
6/30/95 4.83 3.50 2.69
7/31/95 4.45 5.10 3.24
8/31/95 5.67 5.40 -2.67
9/30/95 6.69 6.61 0.20
10/31/95 8.32 7.79 0.52
11/30/95 10.00 8.30 1.40
12/31/95 11.56 9.68 2.28
1/31/96 12.25 11.76 0.01
2/29/96 9.96 12.35 0.30
3/31/96 9.04 12.05 0.55
4/30/96 8.35 12.65 0.34
Footnote reads:
Chart shows cumulative monthly performance of the three major sectors in
which your fund invested from 4/30/95 through 4/30/96. Indexes are
unmanaged and their holdings and performance will differ from those of
the fund. Past performance is not indicative of future results. Sources:
International government securities, Salomon Brothers Non-U.S. World
Government Bond Index; high-yield corporate bonds, First Boston High-
Yield Index; U.S. government securities, Lehman Brothers Government Bond
Index.
* CONDITIONS WARRANT STRATEGIC SHIFT IN U.S. GOVERNMENT SLEEVE
The U.S. Treasury market enjoyed a rip-roaring ride through the end of
calendar 1995 and the first month of calendar 1996 -- and the fund was
able to participate. At the outset, the sleeve's composition involved a
light emphasis on mortgage-backed securities and a high concentration in
intermediate- to long-term Treasury securities, which translated into a
relatively long duration. As a measure of sensitivity to interest rate
changes, duration plays an important role in performance potential.
Typically the longer the duration, the greater the likely price
appreciation during periods of declining interest rates. The sleeve's
long duration enabled the fund to benefit from appreciation as rates
fell early in the fiscal year and helped bolster performance.
By early February, however, it seemed that much of the good news had
already been priced into the Treasury market and we decided to change
our focus. Because intermediate-term securities tend to be among those
hardest hit by interest rate increases, we sold these securities in
favor of a combination of short-term and long-term Treasury securities.
At the same time, we recognized that prepayment risk, which is an ever-
present consideration in the mortgage-backed securities market, had
begun to recede. Before the market could adjust -- in other words,
before prices began to bounce back -- we made a large allocation to
attractively priced current-coupon mortgage-backed securities, nearly
doubling the fund's weighting. This move enabled us to shorten the
portfolio's duration and also to stay fully invested during a period of
high market volatility. However, this shift into mortgages has since
proved worthwhile; we did not entirely eliminate the fund's Treasury
position. Consequently the fund was still affected by the backup in
interest rates during March and April.
[GRAPHIC OMITTED: horizontal bar chart INTERNATIONAL SECTOR: TOP 5
COUNTRY ALLOCATIONS*
showing
Germany 6.5%
United Kingdom 4.8%
Spain 3.6%
Canada 2.9%
Denmark 2.9%
Footnote reads:
*Based on total net assets as of 4/30/96. Allocations will vary over
time.
* COUNTRY PICKS AND CURRENCY HEDGES ARE KEY FACTORS IN INTERNATIONAL
BOND PERFORMANCE
Your fund's international sleeve made an outstanding contribution to the
portfolio's positive return. Our country selection and currency
strategy, rather than long aggregate duration, drove performance.
European government bonds have been our focus, with substantial emphasis
on some of the higher-yielding markets such as Spain and Italy. Holdings
in these peripheral markets proved most profitable, as investors showed
their willingness to add yield and thus tolerate higher risk in return
for potentially higher income.
In February, we decided to take profits on some of the fund's Italian
and Spanish holdings in order to preserve our gains. We placed these
assets into core European markets, such as Germany and Denmark, where we
believe slow economic growth and the likelihood of further interest rate
cuts continue to provide a positive backdrop for bond performance. We
then decided to purchase the high yielders again (Spain, Italy, and
Sweden), which gave a boost to fund performance in April.
Emerging markets enjoyed robust gains throughout the period and
positively impacted the fund's performance. The U.S. market's recent
selloff caused a temporary setback, but emerging markets had recovered
by the end of the period. The Japanese bond market, beset by low nominal
yields and an improving domestic economy, fared poorly throughout much
of the period but picked up noticeably in the past two months.
Nevertheless, we are not convinced that its recent uptick is sustainable
and plan to continue our policy of underweighting Japanese bonds.
Our successful currency strategy involved overweighting the U.S. dollar
relative to the fund's benchmark index. This helped protect the
portfolio's value as several European currencies declined in value
against the dollar. We underweighted the yen and deutschemark and hedged
several European currencies against each other, capitalizing on the
currency movements in some of the higher-yielding markets as they
struggle to be eligible for inclusion in the European Monetary Union.
Toward the end of the period, we reduced U.S. dollar exposure back
toward neutral.
* LONG-TERM VIEW IS OPTIMISTIC DESPITE RECENT UNCERTAINTY
Combine the recent uncertainty concerning inflation and the direction of
interest rates with the federal budget impasse and election year
politicking and it's easy to see how fixed-income investing may seem
less attractive than it did six months ago. However, despite the recent
volatility, our longer-term view remains quite optimistic. We believe
the current inflation, interest rate, and economic environments -- both
at home and abroad -- are conducive to stronger bond performance when
viewed in a historical context.
That said, we currently plan to stay defensively positioned in mortgage-
backed securities within the U.S. government sleeve. In the fund's high-
yield bond segment, we currently intend to maintain our focus on B-rated
bonds. These lower-rated high-yield bonds dramatically outperformed
their BB-rated brethren in the first quarter of calendar 1996. With
European economic growth a pace behind that of the United States and
interest rates poised to continue their downward trend overseas, we
believe European bonds will likely dominate the fund's international
segment in the months ahead.
Footnote reads:
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 4/30/96, 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.
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.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 4/30/96
Salomon Bros. First
Lehman Bros. Non-U.S. Boston
Market Government World Govt. High-Yield
NAV price Bond Index Bond Index Index
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
6 months 4.71% 1.05% 0.03% -0.18% 4.51%
- -----------------------------------------------------------------------------------------
1 year 13.06 14.13 8.35 0.34 12.65
- -----------------------------------------------------------------------------------------
5 years 74.06 59.82 47.11 78.60 92.88
Annual average 11.72 9.83 8.02 12.29 14.03
- -----------------------------------------------------------------------------------------
Life of fund
(12/28/87) 138.39 92.08 101.96 98.60 154.33
Annual average 10.98 8.14 8.80 8.58 11.86
- -----------------------------------------------------------------------------------------
</TABLE>
Footnote reads:
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.
TOTAL RETURN FOR PERIODS ENDED 3/31/96
(most recent calendar quarter)
Market
NAV price
- ------------------------------------------------------------------------
6 months 5.03% 2.62%
- ------------------------------------------------------------------------
1 year 14.41 14.08
- ------------------------------------------------------------------------
5 years 75.96 68.00
Annual average 11.96 10.93
- ------------------------------------------------------------------------
Life of fund (12/28/87) 136.16 93.73
Annual average 10.96 8.34
- ------------------------------------------------------------------------
PRICE AND DISTRIBUTION INFORMATION
6 months ended 4/30/96
- ------------------------------------------------------------------------
Distributions (number) 6
- ------------------------------------------------------------------------
Income $0.345
- ------------------------------------------------------------------------
Total $0.345
- ------------------------------------------------------------------------
Share value: NAV Market price
- ------------------------------------------------------------------------
10/31/95 $9.04 $8.125
- ------------------------------------------------------------------------
4/30/96 9.08 7.875
- ------------------------------------------------------------------------
Current return NAV Market price
- ------------------------------------------------------------------------
End of period
- ------------------------------------------------------------------------
Current dividend rate1 7.60% 8.76%
- ------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or market price at end of period.
Performance data represent past results, do not reflect future
performance, and do not take into account any adjustment for taxes
payable on reinivested 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.
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 common shares.
Market price is the current trading price of one share of the fund.
Market prices are set by transactions between buyers and sellers on the
New York Stock Exchange.
COMPARATIVE BENCHMARKS
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.
Footnote reads:
* 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. It is not possible to invest directly in an
index.
A Putnam perspective on risk and reward
You've probably been told how important it is to understand the
relationship between an investment's potential rewards and its
accompanying risks. Given the cautionary nature of such
instructions, it may take most investors a while to realize that risk
has a positive side.
Every risk signals a potential reward. Selecting only those investments
that offer the greatest degree of security generally leads to only
modest rewards. Furthermore, even insured or guaranteed investments may
be subject to changes in their rates of return or, in some cases, in
their principal values. Experienced investors know that no investment is
truly risk free and are therefore willing to take on some measure of
risk in order to increase their potential gains.
The greater the risk, the greater the potential reward. Accepting an
appropriate level of investment risk can give you a better chance of
outpacing inflation over time and seeking to maximize your investment's
return. How much risk? Your financial advisor's feedback and your time
horizon can make all the difference in determining how much risk is
compatible with your investment goals and your peace of mind.
* FITTING YOUR FUND SELECTION TO YOUR
RISK TOLERANCE
How do you find the right balance between investment risks and their
potential rewards? It's helpful to understand the types of risks that
can apply to different types of investments, and to look at your own
portfolio with this perspective.
For short-term goals, your first priority may be managing market risk.
Longer-term investors may be more concerned with inflation risk. And all
income-oriented investors should consider interest-rate, credit, and
prepayment risks carefully. Within each of Putnam's four investment
categories, you can select open-end funds with differing levels of risk
and reward potential to customize your portfolio.
This list covers only the most general types of risks; however, each
investment will also have its own specific risks. You will find a more
detailed discussion of these risk considerations in each fund's
prospectus.
* A RUNDOWN OF RISK TYPES
MARKET RISK Most important for stock funds, but relevant to all funds,
this is a measure of how sensitive a fund's holdings are to changes in
general market conditions. Remember, though, that securities that lose
value quickly in market declines may also show the strongest gains in
more favorable environments.
INTEREST-RATE RISK Since bond prices fall as interest rates rise, this
type of risk is a particular concern for fixed-income inves-
tors. However, interest-rate increases can also have a substantial
negative effect on the stock market.
INFLATION RISK If your investments cannot keep pace with inflation, your
money will begin to lose its purchasing power. Stock investments are
generally considered among the best ways of addressing inflation risk
over the long term.
CREDIT AND PREPAYMENT RISK Credit risk is the concern that the
security's issuer will not be able to meet its payment, while prepayment
risk involves the premature payoff of a loan, with a resulting loss of
interest income. Professional management and in-depth research are
invaluable in managing both these risks.
LIQUIDITY RISK Not all investments can be readily converted into cash at
their perceived market values. Liquidity risk can affect the price of
securities held in the fund's portfolio and, thus, the fund's share
prices.
<TABLE>
<CAPTION>
Portfolio of investments owned
April 30, 1996 (Unaudited)
CORPORATE BONDS AND NOTES (30.2%) *
PRINCIPAL AMOUNT VALUE
Advertising (1.2%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 2,000,000 Lamar Advertising Co. sr. secd. notes 11s, 2003 $ 2,100,000
525,000 Outdoor Systems, Inc. sr. notes 10 3/4s, 2003 532,875
1,850,000 Universal Outdoor, Inc. sr. notes stepped-coupon zero %
(14s, 7/1/99), 2004 ++ 1,359,750
2,000,000 Universal Outdoor, Inc. sub. deb. 11s, 2003 2,050,000
--------------
6,042,625
Aerospace and Defense (0.4%)
- -------------------------------------------------------------------------------------------------------------------------
275,000 Howmet Corp. 144A sr. sub. notes 10s, 2003 289,438
1,750,000 Sequa Corp. bonds 8 3/4s, 2001 1,688,750
--------------
1,978,188
Agriculture (0.8%)
- -------------------------------------------------------------------------------------------------------------------------
1,994,000 PMI Holdings Corp. Ser. B, sub. disc. deb. stepped-coupon,
zero % (11 1/2s, 9/1/00), 2005 ++ 1,136,580
1,731,000 PSF Finance (L.P.) sr. disc. notes stepped-coupon zero %
(12s, 9/15/96), 2003 (acquired 3/16/95 cost $1,249,784)
(In Default)+++++ 1,211,700
2,449,280 PSF Finance (L.P.) sr. notes 12s, 2000 (acquired 3/15/95
cost $2,449,280) (In Default)+++ 1,714,496
--------------
4,062,776
Automotive Parts (0.4%)
- -------------------------------------------------------------------------------------------------------------------------
420,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 448,350
1,350,000 Key Plastics Corp. sr. notes 14s, 1999 1,400,625
--------------
1,848,975
Broadcasting (1.7%)
- -------------------------------------------------------------------------------------------------------------------------
1,000,000 Allbritton Communications Corp. 144A sr. sub. notes
9 3/4s, 2007 945,000
1,250,000 Argyle Television Corp. sr. sub. notes 9 3/4s, 2005 1,212,500
280,000 Commodore Media, Inc. sr. sub. notes stepped-coupon
7 1/2s, (13 1/4s, 5/1/98), 2003 ++ 285,600
250,000 New City Broadcasting Corp. sr. sub. notes 11 3/8s, 2003 251,250
1,730,000 Paxson Communications Corp. sr. sub. notes 11 5/8s, 2002 1,833,800
1,327,000 Petracom Holdings notes stepped-coupon zero %
(17 1/2s, 8/1/98), 2003 ++ 968,710
1,000,000 SFX Broadcasting, Inc. sr. sub. notes 11 3/8s, 2000 1,070,000
1,743,000 Telemedia Broadcasting Corp. 144A deb. stepped-coupon
6.4s, (16s, 6/15/99), 2004 ++ 1,575,236
--------------
8,142,096
Building and Construction (0.8%)
- -------------------------------------------------------------------------------------------------------------------------
2,000,000 Presley Cos. sr. notes 12 1/2s, 2001 1,895,000
2,000,000 Scotsman Group, Inc. sr. secd. notes 9 1/2s, 2000 2,040,000
--------------
3,935,000
Building Products (0.3%)
- -------------------------------------------------------------------------------------------------------------------------
1,250,000 Inter-City Products sr. notes 9 3/4s, 2000 1,118,750
500,000 Triangle Pacific Corp. sr. notes 10 1/2s, 2003 518,750
--------------
1,637,500
Business Services (0.2%)
- -------------------------------------------------------------------------------------------------------------------------
1,000,000 Corporate Express, Inc. sr. sub notes Ser. B, 9 1/8s, 2004 1,007,500
Cable Television (3.2%)
- -------------------------------------------------------------------------------------------------------------------------
1,000,000 Adelphia Communications Corp. notes Ser. B, 9 7/8s, 2005 940,000
2,000,000 Adelphia Communications Corp. sr. notes 12 1/2s, 2002 2,030,000
1,865,000 American Telecasting, Inc. Ser. B, sr. disc. notes stepped-coupon
zero % (14 1/2s, 8/15/00), 2005 ++ 1,202,925
540,000 Cablevision Systems Corp. sr. sub. deb. 9 7/8s, 2023 529,200
1,000,000 Century Communications Corp. sr. notes 9 1/2s, 2005 990,000
930,000 Charter Communications Holdings 144A sr. disc. notes
stepped-coupon zero % (14s, 3/15/01), 2007 ++ 492,900
475,000 Charter Communications International, Inc. 144A sr. notes
11 1/4s, 2006 476,781
500,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom)++ 301,250
800,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (13 1/4s, 9/30/99), 2004
(United Kingdom)++ 574,000
2,471,459 Falcon Holdings Group, Inc. sr. sub notes 11s, 2003 ++++ 2,378,779
265,000 Heartland Wireless Communication Inc.144A
Ser. C, sr. notes 13s, 2003 289,513
2,360,000 International Cabletel, Inc. sr. notes stepped-coupon
zero % (11 1/2s, 2/1/01), 2006 (United Kingdom)++ 1,380,600
1,815,000 Lenfest Communications, Inc. sr. notes 8 3/8s, 2005 1,708,369
1,000,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes
stepped-coupon zero % (13 1/2s, 8/1/99), 2004 ++ 720,000
50,000 Videotron Holdings. sr. disc. notes stepped coupon zero %
(11 1/8s, 7/1/99), 2004 (United Kingdom) ++ 37,000
2,500,000 Videotron Holdings. sr. disc. notes stepped-coupon
zero % (11s, 8/15/2005), 2005 (United Kingdom) ++ 1,656,250
--------------
15,707,567
Cellular Communications (1.6%)
- -------------------------------------------------------------------------------------------------------------------------
1,600,000 Cellular, Inc. sr. sub. disc. notes stepped-coupon zero %
(11 3/4s, 9/1/98), 2003 ++ 1,320,000
1,985,000 Dial Call Communication, Inc. Ser. B, sr. disc. notes
stepped-coupon, zero % (10 1/4s, 12/15/98), 2005 ++ 1,136,413
1,110,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 5/1/01), 2006 ++ 621,600
3,350,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (11 1/2s, 9/1/98), 2003 ++ 2,236,125
2,545,000 Pricellular Wireless Ser. B, sr. disc. notes stepped-coupon
zero % (14s, 11/15/97), 2001 ++ 2,265,050
--------------
7,579,188
Conglomerates (0.7%)
- -------------------------------------------------------------------------------------------------------------------------
175,000 ADT Ltd. sr. sub notes 9 1/4s, 2003 182,000
875,000 Axia, Inc. Ser. B, sr. sub. notes 11s, 2001 857,500
1,000,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes
13s, 1999 1,001,250
1,450,000 MacAndrews & Forbes Group, Inc. deb. 12 1/4s, 1996 1,450,000
--------------
3,490,750
Consumer Services (0.4%)
- -------------------------------------------------------------------------------------------------------------------------
1,860,000 Coinmach Corp. Ser. B, sr. notes 11 3/4s, 2005 1,897,200
Containers (0.5%)
- -------------------------------------------------------------------------------------------------------------------------
2,500,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 2,625,000
Electric Utilities (0.9%)
- -------------------------------------------------------------------------------------------------------------------------
4,000,000 Midland Funding Corp. II deb. Ser. B, 13 1/4s, 2006 4,465,000
Electronics (0.9%)
- -------------------------------------------------------------------------------------------------------------------------
2,650,000 Amphenol Corp. sr. sub. notes 12 3/4s, 2002 2,915,000
2,500,000 International Semi-Tech. Corp. sr. secd. disc. notes
stepped-coupon zero % (11 1/2s, 8/15/00),
2003 (Canada) ++ 1,500,000
--------------
4,415,000
Entertainment (0.6%)
- -------------------------------------------------------------------------------------------------------------------------
2,000,000 Six Flags Corp. sr. sub. notes stepped-coupon zero %
(12 1/4s, 6/15/98), 2005 ++ 1,685,000
495,000 Time Warner, Inc. notes 8.18s, 2007 490,545
495,000 Time Warner, Inc. notes 8.11s, 2006 495,530
--------------
2,671,075
Financial Services (--%)
- -------------------------------------------------------------------------------------------------------------------------
250,000 Keystone Group, Inc. sr. secd. notes 9 3/4s, 2003 248,750
Food (0.5%)
- -------------------------------------------------------------------------------------------------------------------------
1,741,000 Del Monte Corp. sub. deb. notes 12 1/4s, 2002 ++++ 1,653,950
830,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 900,550
--------------
2,554,500
Food Chains (0.2%)
- -------------------------------------------------------------------------------------------------------------------------
780,000 Stater Brothers sr. notes 11s, 2001 809,250
Health Care (1.2%)
- -------------------------------------------------------------------------------------------------------------------------
1,790,000 Columbia/HCA Healthcare med. term
notes 7.58s, 2025 1,715,590
675,000 Merit Behavioral Care sr. sub. notes 11 1/2s, 2005 718,875
2,415,000 Paracelsus Healthcare Corp. sr. sub.
notes 9 7/8s, 2003 2,415,000
777,000 Total Renal Care Holdings, Inc. sr. disc. notes
stepped-coupon zero % (12s, 8/15/97), 2004 ++ 767,288
--------------
5,616,753
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 1,250,000
300,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 300,000
1,750,000 Terra Nova Insurance Holdings. sr. notes 10 3/4s, 2005
(United Kingdom) 1,960,000
--------------
4,514,250
Lodging (0.7%)
- -------------------------------------------------------------------------------------------------------------------------
1,590,000 HMH Properties, Inc. sr. notes 9 1/2s, 2005 1,542,300
1,850,000 John Q. Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 1,776,000
--------------
3,318,300
Medical Supplies and Devices (0.6%)
- -------------------------------------------------------------------------------------------------------------------------
515,000 Dade International, Inc. sr. sub. notes 11 1/8s, 2006## 515,000
1,885,000 Ivac Corp. sr. notes 9 1/4s, 2002 1,941,550
500,000 Wright Medical Technology, Inc. sr. secd. notes Ser. B,
10 3/4s, 2000 512,500
--------------
2,969,050
Metals and Mining (0.2%)
- -------------------------------------------------------------------------------------------------------------------------
1,025,000 Great Lakes Carbon Corp. sr. notes 10s, 2006 1,050,625
Motion Picture Distribution (1.0%)
- -------------------------------------------------------------------------------------------------------------------------
2,000,000 Act III Theatres, Inc. sr. sub. notes 11 7/8s, 2003 2,195,000
675,000 Cinemark Mexico notes 12s, 2003 627,750
1,825,000 Cinemark USA sr. notes 12s, 2002 1,984,688
--------------
4,807,438
Oil and Gas (1.0%)
- -------------------------------------------------------------------------------------------------------------------------
750,000 Benton Oil & Gas Corp. 144A sr. notes 11 5/8, 2003 763,125
830,000 Chesapeake Energy Corp. sr. notes 12s, 2001 902,625
1,250,000 Gulf Canada Resources Ltd. sr. sub. notes 9 5/8s, 2005
(Canada) 1,268,750
300,000 Maxus Energy Corp. notes 9 3/8s, 2003 290,250
1,600,000 TransTexas Gas Corp. sr. secd. notes 11 1/2s, 2002 1,600,000
--------------
4,824,750
Paging (0.4%)
- -------------------------------------------------------------------------------------------------------------------------
1,250,000 Pagemart Nationwide, Inc. sr. disc. notes
stepped-coupon zero % (15s, 2/1/00), 2005 ++ 839,063
1,150,000 Pagemart, Inc. sr. disc. notes stepped-coupon zero %
(12 1/4s, 11/1/98), 2003 ++ 858,188
--------------
1,697,251
Paper and Forest Products (0.5%)
- -------------------------------------------------------------------------------------------------------------------------
1,000,000 APP International Finance Co. notes 11 3/4s, 2005
(Netherlands) 972,500
1,500,000 Gaylord Container Corp. sr. sub. deb. stepped-coupon
zero % (12 3/4s 5/15/96), 2005 ++ 1,560,000
--------------
2,532,500
Publishing (0.8%)
- -------------------------------------------------------------------------------------------------------------------------
1,800,000 American Media Operation, Inc. sr. sub. notes 11 5/8s, 2004 1,795,500
2,500,000 Marvel Parent Holdings, Inc. sr. secd. disc. notes zero %, 1998 1,893,750
--------------
3,689,250
Real Estate (0.2%)
- -------------------------------------------------------------------------------------------------------------------------
1,000,000 Chelsea Piers Ser. B, 1st mtge. stepped-coupon, zero %
(12 1/2s, 6/15/96), 2004 ++ 950,000
55,000 Chelsea Piers Ser. B, 1st. mtge. stepped-coupon, zero %
(11s, 6/15/99), 2009 ++ 52,594
--------------
1,002,594
Recreation (2.7%)
- -------------------------------------------------------------------------------------------------------------------------
880,000 Arizona Charlies Corp. Ser. B, 1st mtge., 12s, 2000 + 572,000
320,000 Capitol Queen Corp. Ser. B, 1st mtge. notes, 12s, 2000
(In Default)+ 224,000
1,195,000 Casino America, Inc. 1st mtge. 11 1/2s, 2001 1,269,688
525,000 Coast Hotels & Casinos, Inc. 144A 1st. mtge. 13s, 2002 553,875
1,750,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 1,828,750
1,425,000 Lady Luck Gaming Corp. 1st mtge., 11 7/8s, 2001 1,407,188
1,242,000 Louisiana Casino Cruises Corp. 1st mtge. 11 1/2s, 1998 1,179,900
200,000 Mohegan Tribal Gaming 144A sr. notes 13 1/2s, 2002 248,000
1,750,000 Trump Atlantic City 1st mtge. 11 1/4s, 2006 1,776,250
864,000 Trump Castle Funding Corp. sr. notes 11 1/2s, 2000 864,000
2,500,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 2,918,750
--------------
12,842,401
Retail (2.1%)
- -------------------------------------------------------------------------------------------------------------------------
1,000,000 Brylane (L.P.) sr. sub. notes 10s, 2003 950,000
2,100,000 County Seat Stores Inc. sr. sub notes 12s, 2002 1,785,000
1,650,000 Finlay Enterprises, Inc. sr. notes 10 5/8s, 2003 1,617,000
50,000 Loehmanns' Holdings, Inc. sr. sub. notes 13 3/4s, 1999 50,000
5,000,000 Loehmanns' Holdings, Inc. sr. notes 10 1/2s, 1997 5,000,000
625,000 Mother's Work, Inc. sr. notes 12 5/8s, 2002 666,406
--------------
10,068,406
School Buses (0.1%)
- -------------------------------------------------------------------------------------------------------------------------
320,000 Blue Bird Body Co. sub. deb. Ser. B, 11 3/4s, 2002 329,600
Steel (0.3%)
- -------------------------------------------------------------------------------------------------------------------------
1,500,000 Ispat Mexicana, SA 144A deb. 10 3/8s, 2001 (Mexico) 1,421,250
Telecommunications (1.6%)
- -------------------------------------------------------------------------------------------------------------------------
745,000 America Communication Services, Inc. 144A sr. disc.
notes stepped-coupon zero % (12 3/4s, 4/1/01), 2006 ++ 383,675
500,000 Brooks Fiber Properties 144A sr. disc. notes
stepped-coupon zero % (10 7/8s, 3/1/01), 2006 ++ 275,000
3,130,000 Intelcom Group, Inc. sr. disc. notes stepped-coupon
zero % (13 1/2s, 9/15/00), 2005 ++ 1,893,650
1,325,000 Intermedia Communications of Florida sr. notes
Ser. B, 13 1/2s, 2005 1,477,375
1,655,000 MFS Communications sr. disc. notes stepped-coupon
zero % (9 3/8s, 1/15/99), 2004 ++ 1,270,213
2,875,000 MFS Communications sr. disc. notes stepped-coupon
zero % (8 7/8s, 1/1/01), 2006 ++ 1,804,063
550,000 Nextlink Communications 144A sr. notes 12 1/2s,
2006## 555,500
--------------
7,659,476
Telephone Services (0.5%)
- -------------------------------------------------------------------------------------------------------------------------
2,300,000 Call-Net Enterprises sr. disc. notes stepped-coupon
zero % (13 1/4s, 12/1/99), 2004 (Canada)++ 1,702,000
545,000 Fonorola, Inc. sr. notes 12 1/2s, 2002 (Canada) 588,600
--------------
2,290,600
Textiles (0.1%)
- -------------------------------------------------------------------------------------------------------------------------
145,000 PT Polysindo Eka sr. notes 13s, 2001 (Indonesia) 153,700
310,000 Reeves Industries, Inc. sub. deb. 13 3/4s, 2001 283,650
--------------
437,350
--------------
Total Corporate Bonds and Notes (cost $140,554,737) $ 146,189,784
FOREIGN GOVERNMENT BONDS AND NOTES (28.2%) *
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
AUD $3,920,000 Australia (Government of) bonds 9s, 2004 $ 3,138,176
AUD 11,035,000 Australia (Government of) notes 8 3/4s, 2001 8,790,737
DEM 12,020,000 Bundesobl (Germany Republic of) bonds
5 7/8s, 2000 8,116,109
DEM 6,745,000 Bundesobl (Germany Republic of) bonds
5 3/4s, 2000 4,532,327
CAD 1,900,000 Canada (Government of) deb. 9s, 2004 1,505,178
CAD 1,770,000 Canada (Government of) deb. 8 3/4s, 2005 1,382,691
CAD 6,315,000 Canada (Government of) deb. 7 1/2s, 2001 4,715,144
DKK 43,160,000 Denmark (Government of) bonds 9s, 2000 8,171,529
DKK 19,690,000 Denmark (Government of) bonds 8s, 2003 3,561,206
DKK 14,340,000 Denmark (Government of) bonds 7s, 2004 2,426,022
FRF 44,325,000 France Treasury bill 7 3/4s, 2000 9,335,412
FRF 20,080,000 France Treasury bill 5 3/4s, 1998 3,974,854
DEM 8,940,000 Germany (Government of) bonds 7 3/8s, 2005 6,249,422
DEM 5,480,000 Germany (Government of) bonds 6 7/8s, 2005 3,709,131
ITL 11,260,000,000 Italy (Government of) bonds 10 1/2s, 2005 7,592,479
ITL 5,690,000,000 Italy (Government of) deb. 10 1/2s, 2000 3,824,672
USD 1,392,000 Morocco (Government of) bonds 6.594s, 2009 998,760
USD 517,000 Panama (Republic of) FRN 6.629s, 2002 477,579
USD 3,596,000 Russia (Government of) non performing
loans, zero % + 1,438,400
ESP 822,600,000 Spain (Government of) deb. 12 1/4s, 2000 7,277,592
ESP 447,700,000 Spain (Government of) bonds 10.15s, 2006 3,733,881
ESP 814,500,000 Spain (Government of) bonds 8.4s, 2001 6,382,080
SEK 55,200,000 Sweden (Government of) bonds 10 1/4s, 2000 8,947,637
DEM 12,824,000 Treuhandanstalt (Germany Republic of)
7 1/8s, 2003 8,931,015
GBP 3,360,000 United Kingdom Treasury bonds 9 3/4s, 2002 5,559,573
GBP 1,660,000 United Kingdom Treasury bonds 8s, 2000 2,557,710
GBP 3,355,000 United Kingdom Treasury bonds 7 1/2s, 2006 4,858,410
GBP 2,705,000 United Kingdom Treasury bonds 7 1/4s, 1998 4,110,576
--------------
Total Foreign Government Bonds and Notes
(cost $137,756,651) $ 136,298,302
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (28.1%) *
PRINCIPAL AMOUNT VALUE
U.S. Agency Mortgage Pass-Through Certificates (22.1%)
- -------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association
$ 7,210,000 8s, TBA, May 16, 2026 $ 7,279,793
16,075,151 7 1/2s, with various due dates from September 1, 2025
to April 1, 2026 15,889,160
15,715,200 7s, with various due dates from July 1, 2025 to
February 1, 2026 15,150,396
Government National Mortgage Association
5,815,000 8s, TBA, May 16, 2026 5,879,510
31,295,889 7 1/2s, with various due dates from June 15, 2025
to March 15, 2026 30,933,793
28,180 7 1/2s, Midgets, February 15, 2009 27,854
32,824,606 7s, with various due dates from December 15, 2023
to April 15, 2026 31,603,847
--------------
106,764,353
U.S. Treasury Obligations (6.0%)
- -------------------------------------------------------------------------------------------------------------------------
5,210,000 U.S. Treasury Bonds 7 7/8s, February 15, 2021 5,679,734
U.S. Treasury Notes
15,210,000 6 3/8s, March 31, 2001 15,181,405
4,415,000 6 1/4s, February 15, 2003 4,338,444
3,960,000 6 1/4s, April 30, 2001 3,935,250
--------------
29,134,833
--------------
Total U.S. Government and Agency Obligations
(cost $142,169,410) $ 135,899,186
BRADY BONDS (3.3%) *
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
$3,808,000 Argentina (Republic of) bonds 6.563s, 2023 $ 2,627,520
3,187,000 Argentina (Republic of) bonds 5 1/4s, 2023 1,736,915
685,561 Brazil (Republic of) bonds 4 1/2s, 2014 412,194
1,307,576 Brazil (Republic of) FRN 6 3/8s, 2001 1,198,067
3,792,000 Brazil (Republic of) 6 1/2s, 2006 2,881,920
1,150,000 Ecuador (Government of) FRN 6.063s, 2025 645,438
485,000 Philippines (Central Bank of) bonds 6 1/4s, 2017 382,544
871,000 Poland (Government of) FRN 6.438s, 2024 808,941
3,192,000 United Mexican States deb. Ser. B, 6 1/4s, 2019 2,110,710
2,958,000 United Mexican States FRB Ser. A, 6.398s, 2019 2,381,190
1,250,000 Venezuela (Government of) FRN 6.563s, 2007 815,625
--------------
Total Brady Bonds (cost $15,234,493) $ 16,001,064
PREFERRED STOCKS (2.9%) *
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
26,798 Cablevision System Corp. 144A Ser. G, $11.75
exch. pfd. $ 2,706,598
10,649 Cablevision Systems Corp. 144A Ser. L, $11.125 pfd. 1,059,576
25,300 California Federal Bank Ser. B, $10.625 exch. pfd. 2,732,400
35,000 Chevy Chase Savings Bank $3.25 pfd. 1,102,500
19,500 First Nationwide Bank $11.50 pfd. 2,145,000
7,750 K-III Communications Ser. B, $11.625 pfd. ++++ 798,250
29,400 SD Warren Co. Ser. A, $3.50 exch. pfd. 867,300
33,000 SD Warren Co. Ser. B, $3.50 pfd. 1,122,000
1,475 Time Warner Inc. 144A Ser. K, $10.25 pfd. 1,489,750
--------------
Total Preferred Stocks (cost $13,196,530) $ 14,023,374
UNITS (1.7%) *
NUMBER OF UNITS VALUE
- -------------------------------------------------------------------------------------------------------------------------
150 Celcaribe S.A. 144A units stepped-coupon zero %
(13 1/2s, 3/15/98), 2004 ++ $ 1,446,938
1,785 Cellnet Data Systems Inc. units stepped-coupon
zero % (13s, 6/15/00), 2005 ++ 1,222,725
850 Fitzgerald Gaming Co. units 13s, 2002 782,000
234 GST Telecommunications, Inc. 144A stepped-coupon
zero % (13 7/8s, 12/15/00), 2005 (Canada) ++ 1,350,473
940 Hyperion Communications 144A units stepped-coupon
zero % (13s, 4/15/01), 2003 ++ 502,900
2,515 ICF Kaiser International, Inc. units 12s, 2003 2,376,675
5,505 PSF exch. pfd. units 12 1/2s, 2000 (acquired various
dates from 2/8/93 to 9/15/93 cost $550,500)
(In Default)+++ 289,013
300 Terex Corp. 144A units 13 3/4s, 2002 301,500
--------------
Total Units (cost $7,779,912) $ 8,272,224
COMMON STOCKS (1.2%) *
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
124,292 Ampex Corp. Class A + $ 1,040,946
570 Applause Enterprises, Inc. (acquired 10/4/90
cost $64,125) +++ 1,710
2,625 Axia Holding Corp. 144A + 78,750
25,524 Chesapeake Energy Corp. + 1,805,823
29,974 Computervision Corp. + 363,435
25,000 Exide Corp. 703,125
57,441 Grand Union Co. (acquired 7/15/92 cost $3,250,000)+++ 359,006
4,148 IFINT Diversified Holdings 144A + 205,845
266,753 Loehmanns' Holdings, Inc. (acquired 9/27/93
cost $146,126)+++ 391,793
671 PMI Holdings Corp. + 134,200
480 PSF Finance (L.P.) (acquired various dates from
1/4/94 to 9/29/94 cost $31,274)+++ 11,995
2,055 Southland Corp. + 7,193
15,000 Specialty Foods Corp. + 11,250
7,170 Total Renal Care Holdings, Inc. (acquired various
dates from 8/4/94 to 1/25/95 cost $11,613)+++ 274,253
11,787 Total Renal Care Holdings, Inc. 144A + 331,509
--------------
Total Common Stocks (cost $5,853,057) $ 5,720,833
ASSET-BACKED SECURITIES (1.0%)*
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
$1,611,000 Chemical Master Credit Card Trust Ser. 95-2, Class A,
6.23s, 2003 $ 1,584,821
3,315,000 Sears Credit Account Master Trust Ser. 95-5, Class A,
6.05s, 2004 3,166,853
--------------
Total Asset-Backed Securities (cost $4,963,274) $ 4,751,674
CONVERTIBLE PREFERRED STOCKS (0.4%) *
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
28,000 Conseco, Inc. Ser. D, $3.25 cv. pfd. $ 1,610,000
5,450 Granite Broadcasting $1.938 cv. pfd. 365,150
--------------
Total Convertible Preferred Stocks
(cost $1,727,681) $ 1,975,150
WARRANTS (0.3%)*+ EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------
40,000 Becker Gaming Corp. 144A 11/15/00 $ 10,000
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
48,625 Gaylord Container Corp. 7/31/96 486,250
1,399 Grand Union Co. Ser. 1 (acquired
10/6/93 cost $560)++ 6/16/00 560
2,799 Grand Union Co. Ser. 2 (acquired
10/6/93 cost $280)++ 6/16/00 168
75,000 Insight Communications Co. 3/31/98 168,750
8,514 Intelcom Group 144A 10/15/05 93,654
1,325 Intermedia Communications 144A 6/1/00 39,750
4,101 Louisiana Casino Cruises, Inc. 144A 12/1/98 61,515
5,290 Pagemart, Inc. 144A 12/31/03 45,626
2,000 Petracom Holdings, Inc. 144A 8/1/05 14,250
4,238 President Riverboat Casinos, Inc. 9/30/99 4,238
2,880 President Riverboat Casinos, Inc. 144A 9/23/96 144
2,940 SDW Holdings Corp. 144A Ser. B 12/15/06 38,220
20,000 Southdown, Inc. 10/31/96 160,000
31 Telemedia Broadcasting Corp. 4/1/04 23,295
9,660 UCC Investor Holding, Inc. 10/31/99 97,808
1,850 Universal Outdoor, Inc. 144A 7/1/04 138,750
36 Wright Medical Technology, Inc. 144A 6/30/03 4,625
--------------
Total Warrants (cost $1,108,661) $ 1,531,741
CONVERTIBLE BONDS AND NOTES (0.3%)*(COST $884,177)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
$1,486,000 Pricellular Wireless cv. sub. notes stepped-coupon
zero % (10 3/4s, 8/15/00) ++ $ 1,263,100
PURCHASED OPTIONS OUTSTANDING (--%)*(COST $101,260)
EXPIRATION DATE/
CONTRACT AMOUNT STRIKE PRICE VALUE
- -------------------------------------------------------------------------------------------------------------------------
USD 12,200,000 U.S. Dollar in Exchange for Swiss Francs May 96/
CHF $1.23 $ 153,720
SHORT-TERM INVESTMENTS (2.6%) *
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
U.S. Dollar Certificates 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)
$ 442,794 zero %, May 9, 1996 $ 407,946
77,876 zero %, December 19, 1996 64,871
636,643 zero %, April 16, 1997 521,729
11,500,000 Interest in $648,384,000 joint repurchase agreement dated
April 30, 1996 with Morgan (J.P.) & Co., Inc. due May 1, 1996
with respect to various U.S. Treasury obligations -- maturity
value of $11,501,696 for an effective yield of 5.31% 11,501,696
--------------
Total Short-Term Investments (cost $12,510,029) $ 12,496,242
- -------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $483,839,872)*** $ 484,576,394
- -------------------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $483,605,612.
*** The aggregate identified cost on a tax basis is $483,839,872, resulting in gross
unrealized appreciation and depreciation of $11,527,526 and $10,791,004, respectively, or net
unrealized appreciation of $736,522.
+ Non-income-producing security.
++ 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.
++ Restricted, excluding 144A securities, as to public resale. The total market
value of restricted securities held at April 30, 1996 was $4,254,694 or 0.9% of
net assets.
++++ Income may be received in cash or additional securities at the discretion of the issuer.
## When-issued securities (See Note 1).
TBA after the name of a security represents to be announced securities (See Note 1).
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current
interest rates shown at April 30, 1996, which are subject to change based on the terms of the
security.
144A after the name of a security represents those 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.
- -------------------------------------------------------------------------------------------------------
Forward Cross Currency Contracts Outstanding at April 30, 1996
(aggregate face value $7,534,381)
Unrealized
Currency Market Currency Market Delivery Appreciation/
Purchased Value Sold Value Date (Depreciation)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
British Pounds $4,067,700 Deutschemarks $4,072,809 6/12/96 $(5,109)
Danish Krona 3,284,124 Deutschemarks 3,264,341 6/12/96 19,783
- -------------------------------------------------------------------------------------------------------
$14,674
- -------------------------------------------------------------------------------------------------------
Forward Currency Contracts to Buy at April 30, 1996
(aggregate face value $83,343,780)
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Canadian Dollars $ 2,322,858 $ 2,332,103 6/12/96 $ (9,245)
Deutschemarks 19,833,919 20,455,363 6/12/96 (621,444)
French Francs 4,018,440 4,100,451 6/12/96 (82,011)
Italian Lira 3,533,212 3,515,064 6/12/96 18,148
Japanese Yen 49,826,472 49,019,542 6/12/96 806,930
Spanish Peseta 251,910 260,371 6/12/96 (8,461)
Swedish Krona 3,633,936 3,660,886 6/12/96 (26,950)
- ---------------------------------------------------------------------------------------
$ 76,967
- ---------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at April 30, 1996
(aggregate face value $74,402,329)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian Dollars $ 9,096,104 $ 8,918,712 6/12/96 $(177,392)
British Pounds 4,436,487 4,460,256 6/12/96 23,769
Canadian Dollars 3,820,955 3,806,851 6/12/96 (14,104)
Danish Krona 4,284,121 4,443,104 6/12/96 158,983
Deutschemarks 195,879 204,768 5/8/96 8,889
Deutschemarks 21,659,664 22,151,876 6/12/96 492,212
Deutschemarks 29,261 31,270 12/18/96 2,009
Deutschemarks 266,834 269,932 4/16/97 3,098
Italian Lira 4,279,859 4,258,130 6/12/96 (21,729)
Japanese Yen 5,041,170 5,063,504 6/12/96 22,334
Spanish Peseta 11,342,194 11,526,731 6/12/96 184,537
Swedish Krona 9,150,164 9,267,195 6/12/96 117,031
- -------------------------------------------------------------------------------------------------
$ 799,637
- -------------------------------------------------------------------------------------------------
TBA Sale Commitments Outstanding at April 30, 1996
(proceeds receivable $10,032,384)
Principal Delivery Coupon Market
Agency Amount Month Rate Value
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
GNMA $8,456,000 May 96 7% $ 8,141,521
GNMA 1,898,000 May 96 7 1/2% 1,876,040
- ------------------------------------------------------------------
$10,017,561
- ------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
April 30, 1996 (Unaudited)
<S> <C>
Assets
- --------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $483,839,872) (Note 1) $484,576,394
- --------------------------------------------------------------------------------------------------
Cash 211,367
- --------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 8,683,002
- --------------------------------------------------------------------------------------------------
Receivable for securities sold 21,795,556
- --------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 1,863,052
- --------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 1,765,837
- --------------------------------------------------------------------------------------------------
Other assets 32,273
- --------------------------------------------------------------------------------------------------
Total assets 518,927,481
Liabilities
- --------------------------------------------------------------------------------------------------
Distributions payable to shareholders 3,057,289
- --------------------------------------------------------------------------------------------------
Payable for securities purchased 18,557,817
- --------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 898,573
- --------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 167,067
- --------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 205
- --------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 740
- --------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 971,774
- --------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 1,444,672
- --------------------------------------------------------------------------------------------------
TBA sale commitments, at value (proceeds receivable $10,032,384) 10,017,561
- --------------------------------------------------------------------------------------------------
Other accrued expenses 206,171
- --------------------------------------------------------------------------------------------------
Total liabilities 35,321,869
- --------------------------------------------------------------------------------------------------
Net assets $483,605,612
Represented by
- --------------------------------------------------------------------------------------------------
Paid-in-capital (Notes 1 and 4) $486,387,533
- --------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (3,510,760)
- --------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments
and foreign currency transactions (Note 1) (824,594)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and liabilities
in foreign currencies 1,553,433
- --------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $483,605,612
Computation of net asset value
- --------------------------------------------------------------------------------------------------
Net asset value per share ($483,605,612 divided by 53,271,249 shares) $9.08
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended April 30, 1996 (Unaudited)
<S> <C>
Investment Income
- --------------------------------------------------------------------------------------------------
Interest (net of foreign tax of $87,386) $19,435,488
- --------------------------------------------------------------------------------------------------
Dividends 401,514
- --------------------------------------------------------------------------------------------------
Total investment income 19,837,002
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,809,671
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 348,455
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 8,701
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 4,431
- --------------------------------------------------------------------------------------------------
Reports to shareholders 40,415
- --------------------------------------------------------------------------------------------------
Registration fees 125
- --------------------------------------------------------------------------------------------------
Auditing 34,889
- --------------------------------------------------------------------------------------------------
Legal 15,923
- --------------------------------------------------------------------------------------------------
Postage 62,599
- --------------------------------------------------------------------------------------------------
Exchange listing fees 24,205
- --------------------------------------------------------------------------------------------------
Other expenses 4,610
- --------------------------------------------------------------------------------------------------
Total expenses 2,354,024
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (52,410)
- --------------------------------------------------------------------------------------------------
Net expenses 2,301,614
- --------------------------------------------------------------------------------------------------
Net investment income 17,535,388
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 8,036,175
- --------------------------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 47,730
- --------------------------------------------------------------------------------------------------
Net realized gain on forward currency contracts and foreign
currency translation (Note 1) 721,137
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation on forward currency contracts
and foreign currency translation during the period 2,111,480
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments, written options and TBA
sale commitments during the period (8,051,828)
- --------------------------------------------------------------------------------------------------
Net gain on investments 2,864,694
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $20,400,082
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
April 30 October 31
1996* 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- --------------------------------------------------------------------------------------------------
Operations:
- --------------------------------------------------------------------------------------------------
Net investment income $17,535,388 $37,218,565
- --------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 8,805,042 (1,497,838)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
transactions and assets and liabilities in foreign currencies (5,940,348) 22,757,028
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 20,400,082 58,477,755
- --------------------------------------------------------------------------------------------------
Distributions to shareholders:
- --------------------------------------------------------------------------------------------------
From net investment income (18,391,193) (34,122,774)
- --------------------------------------------------------------------------------------------------
From return of capital (Note 1) -- (2,693,488)
- --------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (317,051) (507,361)
- --------------------------------------------------------------------------------------------------
Total increase in net assets 1,691,838 21,154,132
- --------------------------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------------------------
Beginning of period 481,913,774 460,759,642
- --------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income of $3,510,760 and
$2,654,955, respectively) $483,605,612 $481,913,774
- --------------------------------------------------------------------------------------------------
Fund shares
- --------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period 53,311,249 53,375,649
- --------------------------------------------------------------------------------------------------
Shares liquidated (40,000) (64,400)
- --------------------------------------------------------------------------------------------------
Shares outstanding at end of period 53,271,249 53,311,249
- --------------------------------------------------------------------------------------------------
* Unaudited.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
Six months
ended
April 30 Year ended October 31
- ----------------------------------------------------------------------------------------------------------------------------
1996* 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $9.04 $8.63 $9.62 $9.15 $8.80 $8.01
- ----------------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income .33 .68 .74 .73 .77 .82
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments .06 .42 (.88) .61 .51 .90
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .39 1.10 (.14) 1.34 1.28 1.72
- ----------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------------
From net investment income (.35) (.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 (.35) (.69) (.85) (.87) (.93) (.93)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $9.08 $9.04 $8.63 $9.62 $9.15 $8.80
- ----------------------------------------------------------------------------------------------------------------------------
Market value, end of year $7.875 $8.125 $7.88 $8.88 $8.63 $8.38
- ----------------------------------------------------------------------------------------------------------------------------
Total investment return at market value (%)(a) 1.05 (c) 12.45 (1.92) 13.27 14.34 36.93
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $483,606 $481,914 $460,760 $513,316 $488,266 $468,234
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .48 (c) 1.02 .95 .92 .95 1.08
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) 3.59 (c) 7.98 7.33 7.76 8.59 9.74
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 156.69 (c) 290.44 201.95 132.24 221.30 323.27
- ----------------------------------------------------------------------------------------------------------------------------
* Unaudited.
(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 periods ended October 31,1995 and
thereafter, includes amounts paid through expense offset arrangements. Prior period ratios
exclude these amounts. (See Note 2).
(c) Not annualized.
</TABLE>
Notes to financial statements
April 30, 1996 (Unaudited)
Note 1
Significant accounting policies
The fund is registered under the Investment Company Act of 1940, as
amended, as a diversified, closed-end management investment company. The
investment objective of the fund is to seek high current income
consistent with the preservation of capital. The fund intends to
diversify its investments among the following three sectors of the
fixed-income securities market: a U.S. government sector, consisting of
debt obligations of the U.S. government, its agencies and
instrumentalities and related options, futures and repurchase
agreements; a high-yield sector, consisting of high yielding, lower-
rated U.S. corporate fixed income securities; and an international
sector, consisting of obligations of foreign governments, their agencies
and instrumentalities and other fixed-income securities denominated in
foreign currencies.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.
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. 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.
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.
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.
Dividend income is recorded on the ex-dividend date. Discounts on zero
coupon bonds, original issue, stepped-coupon bonds and payment in kind
bonds are accreted according to the effective yield method. Securities
purchased or sold on a when-issued or delay delivery basis may be
settled a month or more after the trade date; interest income is not
accrued until settlement date. The fund instructs the custodian to
segregate assets in a separate account with a current value at least
equal to the amount of its when-issued purchase commitment. Losses may
arise due to changes in the market value of the underlying securities or
if the counterparty does not perform under the contract.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, other assets and liabilities are recorded in the
books and records of the fund 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 or 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 withholding 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) 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 U.S. dollar value of forward currency contracts is
determined using forward currency exchange rates supplied by a quotation
service. The market value of the contract will fluctuate with changes in
currency exchange rates. The contract is "marked to market" daily and
the change in market value is recorded as an unrealized gain or loss.
When the contract is closed, the fund records a realized gain or loss
equal to the difference between the value of the contract at the time it
was opened and the value at the time it was closed. The fund could be
exposed to risk if the value of the currency changes unfavorably, 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) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or which it invests 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.
H) 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 commitments will not fluctuate
more than 2.0% from the principal amount. The fund holds, and maintains
until settlement date, cash or high-grade debt obligations in an amount
sufficient to meet the purchase price, or the fund may enter into
offsetting contracts for the forward sale of other securities it owns.
Income on the securities will not be earned until settlement date. 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 their 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.
I) TBA sale commitments The fund may enter into TBA sale commitments to
hedge its portfolio positions or to sell mortgage-backed securities it
owns under delayed delivery arrangements. Proceeds of TBA sale
commitments are not received until the contractual settlement date.
During the time a TBA sale commitment is outstanding, equivalent
deliverable securities, or an offsetting TBA purchase commitment
deliverable on or before the sale commitment date, are held as "cover"
for the transaction.
Unsettled TBA sale commitments are valued at the current market value of
the underlying securities, generally according to the procedures
described under "Security valuation" above. The contract is "marked-to-
market" daily and the change in market value is recorded by a fund as an
unrealized gain or loss. If the TBA sale commitment is closed through
the acquisition of an offsetting purchase commitment, the fund realizes
a gain or loss on the underlying security. If the fund delivers
securities under the commitment, the fund realizes a gain or a loss from
the sale of the securities based upon the unit price established at the
date the commitment was entered into.
J) Federal taxes It is the policy of the fund to distribute all of its
taxable 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 future capital gains, if
any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
- --------------------------------------------
$7,488,000 October 31, 2002
2,166,000 October 31, 2003
K) 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. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
Note 2
Management fees, administrative services, and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.75% of the
first $500 million of average weekly net assets, 0.65% of the next $500
million, 0.60% of the next $500 million, and 0.55% of any amount over
$1.5 billion subject, under current law, to reduction in any year by the
amount of certain brokerage commissions and fees (less expenses)
received by affiliates of Putnam Management on the fund's portfolio
transactions.
The fund 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 Trustees fee of $960 and an
additional fee for each Trustee's 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.
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. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the six months ended April 30, 1996, fund expenses were reduced by
$52,410 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 these assets utilized
in connection with the expense offset arrangements in an income
producing asset if it had not entered into such arrangements.
Note 3
Purchases and sales of securities
During the six months ended April 30, 1996, purchases and sales of
investment securities other than U.S. government obligations and short-
term investments aggregated $257,831,879 and $227,971,000, respectively.
Purchases and sales of U.S. government obligations aggregated
$474,720,262 and $509,777,274, 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 during the period are summarized as follows:
Contract Premiums
Amounts Received
- ------------------------------------------------
Contracts
outstanding at
beginning
of period $16,650,000 $47,730
- ------------------------------------------------
Options expired (16,650,000) (47,730)
- ------------------------------------------------
Written options
outstanding at
end of period $ -- $ --
- ------------------------------------------------
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 six months ended April 30, 1996, the fund repurchased 40,000
shares for $317,051, which reflects a discount from net asset value of
$45,349 or 12.51%.
<TABLE>
<CAPTION>
Selected Quarterly Data
(Unaudited)
Net realized and Net increase (decrease)
Investment Net investment unrealized gain in net assets
income income (loss) on investments from operations
- ------------------------------------------------------------------------------------------------------------------
Quarter Per Per Per Per
Ended Total Share Total Share Total Share Total Share
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1-31-94 $11,579,308 $.22 $10,518,430 $.20 $ 7,940,972 $ .15 $ 18,459,402 $.35
4-30-94 7,826,067 .14 6,549,762 .12 (33,123,417) (.63) (26,573,691) (.51)
7-31-94 10,298,482 .20 9,028,639 .17 (9,336,132) (.17) (307,493) --
10-31-94 10,578,336 .20 9,542,965 .18 (8,495,287) (.16) 1,047,678 .02
1-31-95 10,687,823 .20 9,569,663 .18 (12,478,114) (.23) (2,908,451) (.05)
4-30-95 10,096,984 .19 9,222,274 .17 17,110,946 .33 26,333,220 .50
7-31-95 10,701,896 .20 9,513,755 .18 13,209,055 .24 22,722,810 .42
10-31-95 10,254,581 .19 8,912,873 .15 3,417,303 .08 12,330,176 .23
1-31-96 10,115,298 .19 8,975,391 .17 14,088,591 .26 23,063,982 .43
4-30-96 9,721,704 .18 8,559,997 .16 (11,223,897) (.20) (2,663,900) (.04)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
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
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
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
Rosemary H. Thomsen
Vice President and Fund Manager
D. William Kohli
Vice President and Fund Manager
Neil H. 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
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 net asset value.
[PUTNAM INVESTMENTS LOGO GOES HERE]
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- -------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- -------------
25115-072 6/96
