Putnam
Master
Income
Trust
ANNUAL REPORT
October 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* Morningstar Inc., an independent rating agency, awarded Putnam Master
Income Trust a 4-star rating for overall performance, based on the fund's
3- and 5-year average annual returns, as of October 31, 1997. Only 22.5%
of the 146 funds in Morningstar's fixed-income category received 4 stars.*
* Through careful research and in-depth analysis of bond market
dynamics at home and abroad, we believed that the best opportunities were
in both non-investment-grade and mortgage-backed securities, and we set
our allocations accordingly. Both sectors proved to be strong performers.
-- Kenneth J. Taubes, fund manager
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
12 Portfolio holdings
30 Financial statements
41 Results of October 9, 1997 shareholder meeting
*Morningstar rates a fund relative to other funds with similar investment
objectives based on the fund's 3-, 5-, and 10-year performance, adjusted
for risk factors and sales charges. Ratings are updated monthly: 10% of
funds receive 5 stars and 22.5% receive 4 stars. For the 3- and 5-year
periods ended October 31, 1997, there were 146 and 102 funds in the
fixed-income category; the fund received 3 and 4 stars for the respective
periods. Past performance is not indicative of future results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Putnam Master Income Trust ended fiscal 1997 with gratifyingly positive
results derived from its globally diverse portfolio of fixed-income
securities. It is this diversification across a broad band of the risk/return
spectrum that gives your fund's investment strategy much of its appeal.
I am pleased to announce the addition of Robert M. Paine to your fund's
management team. Bob joined Putnam's High-Yield Bond Group in 1989 and has 7
years of investment experience.
Your fund's management team, with expertise as varied as the securities in
which the fund invests, closely monitors the world's fixed-income markets,
continually fine-tuning the portfolio and seeking attractive investment
opportunities. In the following report, your fund's managers review
performance in the fiscal year just ended and discusses prospects for fiscal
1998.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
December 17, 1997
Report from the Fund Managers
Kenneth J. Taubes, lead manager
Robert M. Paine
D. William Kohli
Gail S. Attridge
The near ideal conditions of the domestic economy and many overseas economies
lulled many investors into complacency for much of this year. However, the
recently broadened currency and economic crisis in Asia -- and its effect on
stock and bond markets around the world -- provided a rude awakening and
served to remind us all that risk and return are two sides of the same coin.
October's sobering market events, however, proved to be just one of several
challenges faced by Putnam Master Income Trust over the 12 months ended
October 31, 1997. Each of your fund's three investment sectors -- U.S.
high-grade, foreign, and high-yield bonds -- experienced its own share of
pressure at some point during fiscal 1997 as inflation concerns, currency
fluctuations, and rising interest-rate fears caused brief periods of
volatility. Your fund's multisector strategy and worldwide diversification
helped us weather the downturns successfully and close fiscal 1997 on a
positive note. Beginning on page 9 of this report, you'll find full
performance details.
* HIGH-YIELD BONDS PROVE MOST RESILIENT, STRONGEST CONTRIBUTORS TO PERFORMANCE
The high-yield market of today is nothing like its 1980s predecessor.
Healthier corporate balance sheets, heavy industry consolidation, robust
equity markets, and moderate economic growth have resulted in extremely low
default rates and numerous credit upgrades, positively affecting institutional
and individual investors' perceptions about high-yield bonds. These factors
have fueled the demand for high-yield issues and helped buoy the asset class
when other fixed-income securities came under pressure. Consequently, your
fund's high-yield bond sleeve proved to be the fund's star performer over the
course of the fiscal year.
Deregulation has clearly been the catalyst for change, consolidation, and
profit in many sectors -- telecommunications, broadcasting, and cable, in
particular. Holdings in these three industries made up the bulk of your fund's
high-yield assets and have performed exceptionally well. Leading the charge
were telecommunications bonds. Positive operating results and high equity
valuations helped drive their performance. Thus, although many of our holdings
in this sector fell out of favor in March because of rising interest rates and
investors' flight to higher quality bonds, the period's second half brought a
recovery. In fact, we bolstered several bond positions during the sector's
weakness -- a move that proved both timely and profitable as the period
progressed.
Paper-company bonds are also experiencing a global rally and we've added
holdings from Indonesia and the Philippines. Many of these holdings are
foreign, dollar-based corporate bonds whose issuing companies derive their
revenues from U.S. dollars. This can help insulate their profits from adverse
currency exchange movements.
* FOCUS ON MORTGAGE-BACKED SECURITIES PROVED KEY STRATEGY
Despite a slight uptick in interest rates in some regions of the world at one
point or another during the period, the fund operated in a global environment
of generally stable-to-declining interest rates. Maximizing yield potential
thus was the name of the game. In your fund's high-grade sector, we primarily
emphasized mortgage-backed securities. These securities, which offered higher
yields and tightening spreads to U.S. Treasury notes, proved the most
profitable course throughout the fiscal year. Relatively stable interest rates
typically mean less prepayment risk for mortgage issues and therefore can
enhance their attractiveness and performance potential. While it is true that
prepayment fears rose near period's end as rates declined somewhat and that
the performance of the fund's mortgage-backed holdings was slightly dampened
as a result, over the 12-month period these holdings produced handsome gains
and outperformed Treasury notes.
[GRAPHIC OMITTED: horizontal bar chart TOP FIVE COUNTRY ALLOCATIONS*]
TOP FIVE COUNTRY ALLOCATIONS*
[INTERNATIONAL SECTOR]
Germany 4.9%
United Kingdom 4.1%
Mexico 3.8%
France 3.2%
Canada 2.3%
Footnote reads:
*Based on net assets as of 10/31/97. Holdings will vary over time.
Your fund's Treasury holdings, however, also contributed to performance,
particularly as the summer wore on. In the spring, we made a strategic
decision to extend duration as the yield curve noticeably began to flatten --
that is, as long-term bond rates fell more than short-term rates. Duration is
a measure of a bond's sensitivity to interest-rate changes. By extending
duration, we were able to capture the appreciation potential that long-term
Treasury securities experienced as rates declined.
* CORE EUROPEAN BONDS EMPHASIZED; JAPANESE BONDS BECKONED
Since the fiscal year's midpoint, core European markets have been our main
area of concentration. Long-term bonds in Germany, Denmark, and France were a
key focus. While these holdings performed well, the surge in value of the U.S.
dollar relative to European currencies caused many European holdings to
provide low-to-flat dollar-adjusted returns.
We had exited the higher-yielding peripheral markets of Spain, Italy, and
Sweden quite early in the fiscal year when their prices had reached our target
levels. In hindsight, it was a move that may have been a bit premature. After
a brief period of decline in early spring, these markets staged a dramatic
comeback in response to budget improvements and the probability of a broader
Economic and Monetary Union (EMU) in Europe. United Kingdom bonds dramatically
outperformed core European securities during this calendar year and our heavy
weighting in these issues helped boost performance. We reversed our negative
view on Japanese bonds and entered that market after a long period of
avoidance -- a move that proved profitable as these bonds posted handsome
gains.
TOP THREE HOLDINGS PER SECTOR*
HIGH-YIELD BONDS
Midland Funding II Corp. 13.25%, 2006
Transamerican Energy 144A zero% (1999, 13%), 2002
Millicom International Cellular zero% (2001, 13.5%), 2006
FOREIGN BONDS
France (Government of) 4 3/4s, 2002
Germany (Federal Republic of) bonds Series 97, 6 1/2s, 2027
United Kingdom Treasury bonds 7 1/2s, 2006
TAXABLE INVESTMENT-GRADE BONDS
Government National Mortgage Association 7.5%, 2022-2027
Government National Mortgage Association 8.5%, 2026-2027
Footnote reads:
*Based on net assets as of 10/31/97. Holdings will vary over time.
Currency management proved the most challenging aspect of our job this year,
particularly in light of the U.S. dollar's exceptional strength and the recent
turmoil in Southeast Asian currencies. The hedging strategies we employed,
along with shifts in and out of foreign currencies, were generally effective
in protecting the dollar value of the fund's foreign assets. Our dollar/yen
currency hedges provided mixed results, as the yen unexpectedly soared in
value against the dollar in the spring and later declined. By period's end, we
had begun to remove our hedges against the yen.
Your fund's emerging-markets holdings, in which we had increased our weighting
through the spring and summer, proved to be stellar performers until the Asian
crisis caused investors worldwide to panic. When all was said and done, these
holdings did provide positive returns for the fiscal year, although not to the
degree they would have had the crisis never occurred.
* UNDERLYING FUNDAMENTALS BRING CAUTIOUS OPTIMISM
Much is being made of recent events in Southeast Asia and Hong Kong and
deservedly so. In today's global economy, all markets are becoming
increasingly interdependent and movements of any kind need to be seriously
evaluated when purchasing investments. However, our research reveals that the
underlying fundamentals of the many economies in which we invest are presently
quite sound. Increased fiscal responsibility on the part of many governments,
low global inflation, and a relatively benign interest-rate environment in the
developed countries give us cause to be reasonably optimistic about the
prospects for fixed-income investing. We will keep a close eye on unfolding
events and take full advantage of your fund's multisector strategy to pursue
the best opportunities around the globe.
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 10/31/97, there is no guarantee the fund will continue to hold
these securities in the future. The lower credit ratings of high-yield
corporate bonds reflect a greater possibility that adverse changes in the
economy or their issuers may affect their ability to pay principal and
interest on the bonds. Investments in non-U.S. securities may be subject to
certain risks such as currency fluctuations, economic instability, and
political developments. Although the U.S. government guarantees the timely
payment of principal and interest on some of the underlying securities, 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 and high-grade corporate,
high-yield, and international fixed-income securities.
TOTAL RETURN FOR PERIODS ENDED 10/31/97
Salomon Bros. First
Lehman Bros. Non-U.S. Boston
Market Government World Govt. High-Yield
NAV price Bond Index Bond Index Index
- ---------------------------------------------------------------------
1 year 9.71% 11.34% 8.66% -0.31% 14.75%
- ---------------------------------------------------------------------
5 years 61.34 55.92 42.43 46.50 76.76
Annual average 10.04 9.29 7.33 7.94 12.07
- ---------------------------------------------------------------------
Life of fund
(12/28/87) 180.31 137.37 130.61 109.14 208.48
Annual average 11.04 9.18 8.87 7.79 12.14
- ---------------------------------------------------------------------
Performance data represent past results and do not reflect future
performance. They 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.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 10/31/97
- ------------------------------------------------------------------------------
Distributions (number) 12
- ------------------------------------------------------------------------------
Income $0.515
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long term 0.187
- ------------------------------------------------------------------------------
Short term 0.145
- ------------------------------------------------------------------------------
Return of capital1 0.008
- ------------------------------------------------------------------------------
Total $0.855
- ------------------------------------------------------------------------------
Share value NAV Market price
- ------------------------------------------------------------------------------
10/31/96 $9.33 $8.375
- ------------------------------------------------------------------------------
10/31/97 9.26 8.50
- ------------------------------------------------------------------------------
Current return NAV Market price
- ------------------------------------------------------------------------------
Current dividend rate2 7.90% 8.61%
- ------------------------------------------------------------------------------
1 See page 40.
2 Income portion of most recent distribution, annualized and divided by
NAV or market price at end of period.
TOTAL RETURN FOR PERIODS ENDED 9/30/97
(most recent calendar quarter)
Market
NAV price
- ------------------------------------------------------------------------------
1 year 11.83% 18.94%
- ------------------------------------------------------------------------------
5 years 60.73 51.06
Annual average 9.96 8.60
- ------------------------------------------------------------------------------
Life of fund
(12/28/87) 181.36 144.36
Annual average 11.18 9.59
- ------------------------------------------------------------------------------
Performance data represent past results and do not reflect future
performance. They 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.
TERMS AND DEFINITIONS
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.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities and the net assets allocated to remarketed preferred shares,
divided by the number of outstanding common shares.
Market price is the current trading price of one share of the fund. Market
prices are set by transactions between buyers and sellers on the New York
Stock Exchange.
COMPARATIVE BENCHMARKS
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.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
Report of independent accountants
For the fiscal year ended October 31, 1997
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, 1997, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the 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 the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of October 31, 1997, 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, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each
of the periods indicated therein, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
December 12, 1997
<TABLE>
<CAPTION>
Portfolio of investments owned
October 31, 1997
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (33.7%) *
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
U.S. Government Agency Mortgage Obligations (24.7%)
- --------------------------------------------------------------------------------------------
$ 778,041 Federal Home Loan Mortgage Association 7s,
February 15, 2027 $ 737,350
4,566,184 Federal Home Loan Mortgage Corp. 6 1/2s, with
due dates from February 1, 2012 to June 1, 2012 4,564,727
Federal National Mortgage Association
Pass-Through Certificates
6,376,216 7s, with due dates from October 1, 2025 to April 15, 2027 6,396,111
1,840,000 6 3/8s, August 15, 2007 1,301,320
13,927,157 6 1/2s, with due dates from March 1, 2026 to
September 1, 2027 13,692,072
Government National Mortgage Association
3,445,000 7 1/2s, TBA, November 16, 2027 3,522,513
1,000,000 7s, TBA, November 16, 2027 1,002,190
6,760,000 7s, TBA, November 15, 2027 6,797,991
4,915,000 6s, TBA, November 16, 2027 4,958,006
2,895,000 5 1/2s, TBA, December 16, 2027 2,889,123
Government National Mortgage Association
Pass-Through Certificates
24,651,272 8 1/2s, with due dates from February 15, 2026 to
October 15, 2027 25,845,150
7,227,688 8s, with due dates from September 15, 2025 to
February 15, 2027 7,494,044
41,042,028 7 1/2s, with due dates from September 15, 2022 to
October 15, 2027 41,984,312
23,646 7 1/2s, Midget, February 15, 2009 24,302
------------
121,209,211
U.S. Treasury Obligations (9.0%)
- --------------------------------------------------------------------------------------------
U.S. Treasury Bonds
3,710,000 8 1/8s, August 15, 2019 4,543,600
5,910,000 6 5/8s, February 15, 2027 6,266,432
13,230,000 6 1/2s, November 15, 2026# 13,790,158
255,000 6 3/8s, August 15, 2027 262,808
U.S. Treasury Notes
8,432,000 6 1/2s, October 15, 2006 8,770,629
295,000 6 3/8s, April 30, 1999 298,180
1,400,000 6 1/4s, March 31, 1999 1,411,816
8,210,000 6s, July 31, 2002 8,288,241
600,000 5 7/8s, July 31, 1999 602,154
------------
44,234,018
------------
Total U.S. Government and Agency Obligations
(cost $161,071,629) $165,443,229
CORPORATE BONDS AND NOTES (32.5%) *
PRINCIPAL AMOUNT VALUE
Advertising (0.2%)
- --------------------------------------------------------------------------------------------
$ 75,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 81,750
610,000 Lamar Advertising Co. 144A sr. sub. notes 8 5/8s, 2007 615,338
115,000 Outdoor Comunications Inc. sr. sub. notes 9 1/4s, 2007 113,850
330,000 Universal Outdoor, Inc. sr. sub. notes 9 3/4s, 2006 366,300
------------
1,177,238
Aerospace and Defense (0.8%)
- --------------------------------------------------------------------------------------------
1,000,000 BE Aerospace sr. sub. notes Ser. B, 9 7/8s, 2006 1,060,000
275,000 Howmet Corp. sr. sub. notes 10s, 2003 294,250
210,000 K & F Industries, Inc.144A sr. sub. notes 9 1/4s, 2007 211,575
425,000 L-3 Communications Corp. 144A sr. sub. notes 10 3/8s, 2007 456,875
185,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 196,100
1,250,000 Sequa Corp. bonds 8 3/4s, 2001 1,262,500
275,000 Tracor, Inc. sr. sub. notes 8 1/2s, 2007 277,750
225,000 United Defense Industries Inc. 144A sr. sub. notes 8 3/4s, 2007 225,000
------------
3,984,050
Agriculture (0.6%)
- --------------------------------------------------------------------------------------------
1,994,000 PMI Holdings Corp. sub. disc. deb., Ser. B, stepped-coupon
zero % (11 1/2s, 9/1/00), 2005 ++ 1,535,380
1,165,595 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 ++++ 1,282,155
------------
2,817,535
Apparel (0.3%)
- --------------------------------------------------------------------------------------------
130,000 GFSI, Inc. sr. sub. notes Ser. B, 9 5/8s, 2007 131,950
450,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 459,000
575,000 Sassco Fashions Ltd. sr. notes 12 3/4s, 2004 609,500
250,000 William Carter Holdings Co. 144A sr. sub. notes 12s, 2008 267,500
------------
1,467,950
Automotive (--%)
- --------------------------------------------------------------------------------------------
135,000 Hawk Corp. sr. notes 10 1/4s, 2003 140,400
Automotive Parts (0.5%)
- --------------------------------------------------------------------------------------------
383,000 Aftermarket Technology Corp. sr. sub. notes Ser. D, 12s, 2004 425,130
450,000 Harvard Industries Inc. sr. notes 11 1/8s, 2005 (In default) + 153,000
850,000 Hayes Wheels International, Inc. company guaranty Ser. B,
9 1/8s, 2007 874,500
500,000 Lear Corp. sub. notes 9 1/2s, 2006 545,000
290,000 Safety Components International, Inc. sr. sub. notes Ser. B,
10 1/8s, 2007 300,150
------------
2,297,780
Banks (0.7%)
- --------------------------------------------------------------------------------------------
215,000 Albank Capital Trust 144A company guaranty 9.27s, 2027 233,380
250,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 247,500
145,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 163,836
750,000 First Nationwide Holdings sr. sub. notes 9 1/8s, 2003 776,250
350,000 Greenpoint Capital Trust I company guaranty 9.1s, 2027 368,550
250,000 North Fork Capital Trust I company guaranty 8.7s, 2026 267,348
135,000 Onbank & Trust Co. company guaranty 9 1/4s, 2027 154,744
290,000 Peoples Heritage Capital Trust company guaranty Ser. B,
9.06s, 2027 318,275
145,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 143,550
285,000 Provident Capital Trust company guaranty 8.6s, 2026 297,460
165,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 174,106
230,000 Sovereign Capital Trust 144A company guaranty 9s, 2027 244,663
220,000 Webster Capital Trust I 144A bonds 9.36s, 2027 244,908
------------
3,634,570
Broadcasting (1.9%)
- --------------------------------------------------------------------------------------------
355,000 Acme Television/Finance 144A sr. disc. notes stepped-coupon
zero % (10 7/8s, 9/30/00), 2004 ++ 261,813
555,000 Affinity Group Holdings sr. notes 11s, 2007 588,300
200,000 Argyle Television Corp. sr. sub. notes 9 3/4s, 2005 219,000
175,000 Azteca Holdings 144A sr. notes 11s, 2002 175,875
160,000 Benedek Communications Corp. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2006 ++ 112,000
765,000 Capstar Broadcasting sr. disc. notes stepped-coupon zero %
(12 3/4s, 2/1/02), 2009 ++ 527,850
315,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 316,575
170,000 Central European Media Enterprises Ltd. sr. notes 9 3/8s, 2004 168,300
37,990 Citadel Broadcasting Co. 144A sr. notes 10 1/4s, 2007 40,459
290,000 Citadel Broadcasting Co. 144A sr. sub. notes 10 1/4s, 2007 308,850
1,300,000 Comcast UK Cable, Ltd. deb. stepped-coupon zero %
(11.2s, 11/15/00), 2007 (Bermuda) ++ 1,020,500
600,000 Commodore Media, Inc. sr. sub. notes stepped-coupon 7 1/2s,
(13 1/4s, 5/1/98), 2003 ++ 663,000
400,000 Echostar Satellite Broadcast Corp. sr. disc. notes stepped-coupon
zero % (13 1/8s, 3/15/00), 2004 ++ 322,000
480,000 Fox/Liberty Networks LLC 144A sr. notes 8 7/8s, 2007 480,000
2,040,000 Grupo Televisa S.A. sr. disc. notes stepped-coupon zero %
(13 1/4s, 5/15/01), 2008 (Mexico) ++ 1,479,000
1,327,000 Petracom Holdings, Inc. notes stepped-coupon zero %
(17 1/2s, 8/1/98), 2003 ++ 1,273,920
405,000 Radio One Inc. 144A sr. sub. notes stepped-coupon 7s,
(12s, 5/1/00), 2004 ++ 388,800
505,000 Spanish Broadcasting sr. notes Ser. B, 11s, 2004 555,500
325,000 TCI Satellite Entertainment 144A sr. sub. notes 10 7/8s, 2007 338,000
140,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 140,700
------------
9,380,442
Building Products (0.2%)
- --------------------------------------------------------------------------------------------
500,000 Nortek, Inc. sr. sub. notes 9 7/8s, 2004 512,500
205,000 Roller Bearing Co. 144A sr. sub. notes 9 5/8s, 2007 206,538
175,000 Waxman Industries Inc. sr. notes stepped-coupon Ser. B,
zero % (12 3/4s, 6/1/99), 2004 ++ 151,375
------------
870,413
Building and Construction (0.7%)
- --------------------------------------------------------------------------------------------
910,000 Atrium Companies, Inc. 144A sr. sub. notes 10 1/2s, 2006 955,500
600,000 GS Superhighway Holdings 144A sr. notes 10 1/4s, 2007 583,500
270,000 Presley Cos. sr. notes 12 1/2s, 2001 255,150
1,559,000 Terex Corp. sr. notes Ser. B, 13 1/4s, 2002 1,738,285
------------
3,532,435
Buses (0.4%)
- --------------------------------------------------------------------------------------------
95,000 Atlantic Express, Transportation Corp.144A company guaranty
10 3/4s, 2004 99,750
765,000 Blue Bird Body Co. sr. sub. notes Ser. B, 10 3/4s, 2006 803,250
1,250,000 Consorcio/MCII Holdings sec. notes stepped-coupon zero %
(12s, 11/15/98), 2002 ++ 1,134,375
------------
2,037,375
Business Equipment and Services (0.4%)
- --------------------------------------------------------------------------------------------
135,000 Axiohm Transactions Solutions 144A sr. sub. notes 9 3/4s, 2007 137,025
150,000 Coleman Escrow Corp. 144A 2nd Priority sr. disc. notes
12 7/8s, zero % 2001 88,500
1,000,000 Corporate Express, Inc. sr. sub. notes Ser. B, 9 1/8s, 2004 1,030,000
405,000 Iron Mountain, Inc. 144A sr. sub. notes 8 3/4s, 2009 409,050
190,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 209,950
185,000 Williams Scotsman, Inc. 144A sr. notes 9 7/8s, 2007 191,475
------------
2,066,000
Cable Television (1.8%)
- --------------------------------------------------------------------------------------------
835,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2005 839,175
700,000 American Telecasting, Inc. sr. disc. notes stepped-coupon zero %
(14 1/2s, 8/15/00), 2005 ++ 259,000
475,000 Charter Communications International sr. notes 11 1/4s, 2006 513,000
420,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) ++ 268,800
1,000,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 1/4s, 12/15/00), 2005
(United Kingdom) ++ 735,000
800,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (13 1/2s, 9/30/99), 2004
(United Kingdom) ++ 672,000
637,267 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003 ++++ 669,130
890,000 Fox Kids Worldwide Inc. 144A sr. discount notes
stepped-coupon zero % (10 1/4s, 11/1/02), 2007 ++ 507,300
1,150,000 Fox Kids Worldwide Inc. 144A sr. notes 9 1/4s, 2007 1,104,000
160,000 FrontierVision Holdings LP 144A sr. discount notes
stepped-coupon zero % (11 7/8s, 9/15/01), 2007 ++ 108,800
625,000 Grupo Televisa S.A. 144A sr. notes 11 7/8s, 2006 (Mexico) 681,250
440,000 Heartland Wireless Communications, Inc. sr. notes Ser. B,
14s, 2004 189,200
265,000 Heartland Wireless Communications, Inc. 144A sr. notes
Ser. D, 13s, 2003 113,950
500,000 Marcus Cable Co. (L.P.) sr. disc. notes stepped-coupon zero %
(14 1/4s, 6/15/00), 2005 ++ 420,000
95,000 Pegasus Communications Corp. 144A sr. notes 9 5/8s, 2005 95,238
2,285,000 UIH Australia/Pacific, Inc. sr. disc. notes stepped-coupon Ser. B,
zero % (14s, 5/15/01), 2006 (Australia) ++ 1,622,350
------------
8,798,193
Cellular Communications (1.9%)
- --------------------------------------------------------------------------------------------
1,550,000 Cencall Communications Corp. sr. disc. notes stepped-coupon
zero % (10 1/8s, 1/15/99), 2004 ++ 1,356,250
590,000 Comcast Cellular 144A sr. notes 9 1/2s, 2007 610,650
1,985,000 Dial Call Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (10 1/4s, 12/15/98), 2005 ++ 1,726,950
760,000 Interact Systems, Inc. 144A stepped-coupon zero %
(14s, 8/1/99), 2003 ++ 304,000
1,410,000 Intercel, Inc. sr. disc. notes stepped-coupon zero % (12s, 5/1/01),
2006 ++ 1,001,100
1,530,000 McCaw International Ltd sr. discount notes stepped coupon
zero % (13s, 4/15/02), 2007 ++ 887,400
3,085,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) ++ 2,313,750
1,875,000 NEXTEL Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (10.65s, 9/15/02), 2007 ++ 1,087,500
195,000 Sygnet Wireless, Inc. sr. notes 11 1/2s, 2006 204,750
------------
9,492,350
Chemicals (0.5%)
- --------------------------------------------------------------------------------------------
105,000 Chemical Leaman Corp. 144A sr. notes 10 3/8s, 2005 108,150
500,000 Huntsman Corp. 144A sr. sub. notes FRN 9.187s, 2007 517,500
425,000 NL Industries, Inc. sr. notes stepped-coupon zero %
(13s, 10/15/98), 2005 ++ 418,625
370,000 Sovereign Specialty Chemical 144A sr. sub. notes 9 1/2s, 2007 380,175
490,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 ++ 355,250
360,000 Sterling Chemicals, Inc. sr. sub. notes Ser. A, 11 1/4s, 2007 399,600
115,000 Texas Petrochemical Corp. sr. sub. notes 11 1/8s, 2006 126,500
305,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 283,650
------------
2,589,450
Computer Services (--%)
- --------------------------------------------------------------------------------------------
170,000 DecisionOne Corp. sr. sub. notes 9 3/4s, 2007 173,825
Conglomerates (0.3%)
- --------------------------------------------------------------------------------------------
460,000 Axia, Inc. sr. sub. notes Ser. B, 11s, 2001 478,400
800,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes 13s, 1999 803,000
------------
1,281,400
Consumer Durable Goods (--%)
- --------------------------------------------------------------------------------------------
225,000 Remington Products Co. sr. sub. notes Ser. B, 11s, 2006 166,500
Consumer Products (--%)
- --------------------------------------------------------------------------------------------
145,000 Hedstrom Corp. 144A sr. sub. notes 10s, 2007 146,450
Consumer Services (0.3%)
- --------------------------------------------------------------------------------------------
1,360,000 Coinmach Corp. sr. notes Ser. B, 11 3/4s, 2005 1,489,200
Containers (0.1%)
- --------------------------------------------------------------------------------------------
105,000 Printpack, Inc. sr. sub. notes Ser. B, 10 5/8s, 2006 109,725
240,000 Radnor Holdings Corp. 144A sr. notes Ser. B, 10s, 2003 248,400
170,000 Radnor Holdings Corp. sr. notes 10s, 2003 175,950
------------
534,075
Cosmetics (0.1%)
- --------------------------------------------------------------------------------------------
135,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 141,750
640,000 Revlon Worldwide Corp. sr. disc. notes Ser. B, zero %, 2001 438,400
------------
580,150
Electric Utilities (1.6%)
- --------------------------------------------------------------------------------------------
1,800,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 1,876,500
850,000 Calpine Corp. sr. notes 10 1/2s, 2006 926,500
355,000 Espirto Santo Centrais 144A sr. notes 10s, 2007 (Brazil) 340,800
3,500,000 Midland Funding II Corp. deb. Ser. B, 13 1/4s, 2006 4,486,020
480,662 Northeast Utilities System notes Ser. A, 8.58s, 2006 477,385
------------
8,107,205
Electronics and Electrical Equipment (0.9%)
- --------------------------------------------------------------------------------------------
190,000 Argo-Tech Corp. 144A sr. sub. notes 8 5/8s, 2007 189,050
460,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s,
2006 (India) 493,350
238,250 Cirent Semiconductor sr. sub. notes 10.22s, 2002 243,314
252,848 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 258,854
280,000 DII Group, Inc. 144A sr. sub. notes 8 1/2s, 2007 277,200
1,015,000 Dobson Communications Corp. 11 3/4s, 2007 1,040,375
300,000 Flextronics Internationsl Ltd. 144A sr. sub. notes 8 3/4s, 2007 297,750
180,000 HCC Industries, Inc. 144A sr. sub. notes 10 3/4s, 2007 189,450
535,000 Motors and Gears, Inc. sr. notes Ser. B, 10 3/4s, 2006 567,100
250,000 Teherma-Wave Inc. sr. notes Ser. B, 10 5/8s, 2004 265,000
400,000 Wavetek Corp. 144A sr. sub. notes 10 1/8s, 2007 412,000
------------
4,233,443
Energy-Related (0.2%)
- --------------------------------------------------------------------------------------------
975,000 Panda Global Energy Co. company guaranty 12 1/2s, 2004 906,750
Entertainment (0.3%)
- --------------------------------------------------------------------------------------------
510,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 522,750
650,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 754,000
------------
1,276,750
Environmental Control (0.2%)
- --------------------------------------------------------------------------------------------
370,000 Allied Waste Industries, Inc. company guaranty 10 1/4s, 2006 399,600
920,000 Allied Waste Industries, Inc. 144A sr. disc. notes
stepped-coupon zero % (11.3s, 6/1/02), 2007 ++ 621,000
------------
1,020,600
Financial Services (0.7%)
- --------------------------------------------------------------------------------------------
750,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 690,000
500,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 488,580
165,000 Colonial Capital II company guaranty 8.92s, 2027 173,766
200,000 Dine S.A. de C.V. company guaranty 8 3/4s, 2007 (Mexico) 186,000
480,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 475,200
285,000 Intertek Finance PLC 144A sr. sub. notes 10 1/4s, 2006
(United Kingdom) 299,250
90,000 Netia Holdings B.V. 144A company guaranty stepped-coupon
zero % (11 1/4s, 11/1/02), 2007 (Poland) ++ 51,750
150,000 Netia Holdings B.V. 144A company guaranty
10 1/4s, 2007 (Poland) 144,000
140,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 148,400
290,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 319,000
395,000 Resource America Inc. 144A bonds 12s, 2004 410,800
------------
3,386,746
Food Chains (0.3%)
- --------------------------------------------------------------------------------------------
400,000 Ameriserve Food Co. 144A sr. notes 8 7/8s, 2006 400,000
415,000 Fleming Companies, Inc. 144A sr. sub. notes 10 1/2s, 2004 432,638
780,000 Stater Brothers sr. notes 11s, 2001 858,000
------------
1,690,638
Food and Beverages (0.1%)
- --------------------------------------------------------------------------------------------
230,000 Canandaigua Wine Co. sr. sub. notes Ser. C, 8 3/4s, 2003 230,000
75,000 Windy Hill Pet Food Co. sr. sub. notes 9 3/4s, 2007 76,125
------------
306,125
Gaming (0.9%)
- --------------------------------------------------------------------------------------------
100,000 Argosy Gaming Co. 1st mtge. 13 1/4s, 2004 102,000
500,000 Autotote Corp. company guaranty Ser. B, 10 7/8s, 2004 525,000
840,000 Coast Hotels & Casinos, Inc. 1st mtge. company guaranty
Ser. B, 13s, 2002 936,600
1,175,000 Lady Luck Gaming Corp. 1st mtge. 11 7/8s, 2001 1,186,750
850,000 Mohegan Tribal Gaming Auth. sr. notes Ser. B, 13 1/2s, 2002 1,096,500
600,000 Sun International Hotels Ltd. company guaranty 9s, 2007 615,000
------------
4,461,850
Health Care (0.8%)
- --------------------------------------------------------------------------------------------
440,000 Genesis Eldercare 144A sr. sub. notes 9s, 2007 426,800
700,000 Integrated Health Services, Inc. 144A sr. sub. notes 9 1/4s, 2008 700,000
675,000 Merit Behavioral Care sr. sub. notes 11 1/2s, 2005 796,500
810,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 834,300
720,000 Paragon Health sr. sub. notes 9 1/2s, 2007 1,043,352
------------
3,800,952
Hospital Management (--%)
- --------------------------------------------------------------------------------------------
155,000 Genesis Health Ventures, Inc. sr. sub. notes 9 1/4s, 2006 157,325
Infrastructure (0.1%)
- --------------------------------------------------------------------------------------------
370,000 Cia Latino Americana 144A company guaranty 11 1/8s, 2004
(Argentina) 373,700
Insurance and Finance (0.9%)
- --------------------------------------------------------------------------------------------
1,220,000 Idah Kiat Financial Mauritius 144A 10s, 2007 (Indonesia) 1,110,200
470,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 467,650
345,000 Investors Capital Trust I company guaranty Ser. B, 9.77s, 2027 368,288
1,695,000 Polytama International notes 11 1/4s, 2007 1,567,875
650,000 Vicap SA. 144A company guaranty 11 3/8s, 2007 666,250
------------
4,180,263
Medical Supplies and Devices (0.4%)
- --------------------------------------------------------------------------------------------
455,000 ALARIS Medical Inc. company guaranty 9 3/4s, 2006 480,025
515,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 578,088
220,000 Imagyn Medical Technologies 12 1/2s, 2004 213,400
210,000 Kinetic Concepts, Inc. 144A sr. sub. notes 9 5/8s, 2007 210,525
500,000 Wright Medical Technology, Inc. 144A 11 3/4s, 2000 512,500
------------
1,994,538
Metals and Mining (0.5%)
- --------------------------------------------------------------------------------------------
135,000 Acindar Industria Argentina de Aceros S.A. bonds 11 1/4s,
2004 (Argentina) 135,000
290,000 Anker Coal Group, Inc. 144A sr. notes 9 3/4s, 2007 294,350
305,000 Continental Global Group sr. notes Ser. B, 11s, 2007 323,300
1,025,000 Great Lakes Carbon Corp. sr. notes 10s, 2006 1,086,500
465,000 Maxxam Group Holdings, Inc. sr. notes Ser. B, 12s, 2003 496,388
------------
2,335,538
Motion Picture Distribution (0.3%)
- --------------------------------------------------------------------------------------------
815,800 Cinemark Mexico USA notes Ser. B, 13s, 2003 (Mexico) ++++ 815,800
55,000 Cinemark Mexico USA notes Ser. D, 13s, 2003 (Mexico) ++++ 55,000
605,000 Cinemark USA, Inc. notes 9 5/8s, 2008 617,100
------------
1,487,900
Natural Gas (--%)
- --------------------------------------------------------------------------------------------
180,000 Panaco, Inc. 144A sr. notes 10 5/8s, 2004 180,000
Nursing Homes (0.1%)
- --------------------------------------------------------------------------------------------
540,000 Sun Healthcare Group Inc. 144A sr. sub. notes 9 1/2s, 2007 548,100
Office Equipment (0.2%)
- --------------------------------------------------------------------------------------------
666,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 759,240
Oil and Gas (2.0%)
- --------------------------------------------------------------------------------------------
1,000,000 Abraxas Petroleum Corp. 144A sr. notes Ser. B, 11 1/2s, 2004 1,095,000
50,000 Benton Oil & Gas Co. 144A sr. notes 9 3/8s, 2007 49,875
200,000 Cliffs Drilling Co. company guaranty Ser. B, 10 1/4s, 2003 216,000
270,000 Coho Energy, Inc. sr. sub. notes 8 7/8s, 2007 269,325
585,000 Costilla Energy, Inc. sr. notes 10 1/4s, 2006 621,563
120,000 Dailey Petroleum Services Corp. 144A company guaranty
9 3/4s, 2007 124,800
215,000 DI Industries Inc. sr. notes 8 7/8s, 2007 220,375
300,000 Maxus Energy Corp. notes 9 3/8s, 2003 345,558
290,000 Parker Drilling Corp. sr. notes Ser. B, 9 3/4s, 2006 305,950
220,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 234,300
170,000 Southwest Royalties, Inc. 144A company guaranty 10 1/2s, 2004 168,300
4,035,000 Transamerican Energy 144A sr. disc. notes stepped-coupon
zero % (13s 6/15/99), 2002 ++ 3,369,225
1,600,000 Transamerican Energy 144A sr. notes 11 1/2s, 2002 1,640,000
774,000 TransTexas Gas Corp. sr. sub. notes Ser. D, 13 3/4s, 2001 878,490
150,000 Wiser Oil Co. company guaranty 9 1/2s, 2007 148,500
------------
9,687,261
Packaging and Containers (0.2%)
- --------------------------------------------------------------------------------------------
330,000 Huntsman Packaging Corp. 144A sr. sub. notes 9 1/8s, 2007 336,600
395,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 405,863
------------
742,463
Paging (0.6%)
- --------------------------------------------------------------------------------------------
1,150,000 Arch Communications Group sr. disc. notes stepped-coupon
zero % (10 7/8s, 3/15/01), 2008 ++ 759,000
320,000 Metrocall, Inc. 144A sr. sub. notes 9 3/4s, 2007 316,800
895,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 1,013,588
1,250,000 Pagemart Nationwide, Inc. sr. disc. notes stepped-coupon
zero % (15s, 2/1/00), 2005 ++ 1,018,750
------------
3,108,138
Paper and Forest Products (1.4%)
- --------------------------------------------------------------------------------------------
1,000,000 APP International Finance Co. notes 11 3/4s, 2005
(Netherlands) 1,005,000
835,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 2003 908,063
550,000 Pindo Deli Finance Mauritius Ltd. 144A company guaranty
11 3/4s, 2017 (India) 495,000
1,050,000 Pindo Deli Finance Mauritius Ltd. 144A company guaranty
10 3/4s, 2007 (India) 945,000
1,885,000 PT Pabrik Kertas Tjiwi Kimia 144A company guaranty 10s,
2004 (Indonesia) 1,705,925
1,040,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 1,024,400
425,000 Riverwood International Corp. company guaranty 10 1/4s, 2006 434,563
250,000 Stone Container Corp. sr. notes 11 7/8s, 2016 273,750
------------
6,791,701
Pharmaceuticals and Biotechnology (0.1%)
- --------------------------------------------------------------------------------------------
415,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 436,788
Publishing (0.5%)
- --------------------------------------------------------------------------------------------
1,800,000 American Media Operation, Inc. sr. sub. notes 11 5/8s, 2004 1,975,500
340,000 Garden State Newspapers 144A sr. sub. notes 8 3/4s, 2009 339,150
200,000 Hollinger International Publishing, Inc. company guaranty
8 5/8s, 2005 203,500
150,000 Von Hoffman Press Inc. 144A sr. sub. notes 10 3/8s, 2007 159,750
------------
2,677,900
Railroads (0.2%)
- --------------------------------------------------------------------------------------------
290,000 Hermes Europe Railtel 144A sr. notes 11 1/2s, 2007
(Netherlands) 313,200
510,000 TFM S.A. de C.V. 144A company guaranty 10 1/4s, 2007
(Mexico) 527,850
565,000 TFM S.A. de C.V. 144A company guaranty zero %
(11 3/4s, 6/15/02), 2009 (Mexico) ++ 372,900
------------
1,213,950
Real Estate (0.1%)
- --------------------------------------------------------------------------------------------
460,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 487,600
Recreation (0.5%)
- --------------------------------------------------------------------------------------------
215,000 Isle of Capri Black Hawk LLC 144A 1st mortgage 13s, 2004 217,150
904,000 Louisiana Casino Cruises Corp. 1st mtge. 11 1/2s, 1998 913,040
500,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 395,000
250,000 Trump A.C. 1st mtge. 11 1/4s, 2006 246,250
864,000 Trump Castle Funding notes 11 1/2s, 2000 872,640
------------
2,644,080
Restaurants (0.1%)
- --------------------------------------------------------------------------------------------
700,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 735,000
Retail (0.3%)
- --------------------------------------------------------------------------------------------
100,000 J Crew Operating Corp. 144A sr. sub. notes 10 3/8s, 2007 99,000
625,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 668,750
170,000 NBTY, Inc. 144A sr. sub. notes 8 5/8s, 2007 166,600
500,000 Shoppers Food Warehouse 144A sr. notes 9 3/4s, 2004 500,000
------------
1,434,350
Satellite Services (0.6%)
- --------------------------------------------------------------------------------------------
370,000 Esat Holdings Ltd. 144A sr. notes stepped-coupon zero %
(12 1/2s, 2/01/02), 2007 (Ireland) ++ 255,300
380,000 Globalstar L.P. Capital 144A sr. notes 11 3/8s, 2004 378,100
500,000 Globalstar L.P. Capital sr. notes 11 1/4s, 2004 492,500
1,150,000 Iridium LLC/Capital Corp. company guaranty Ser. B, 14s, 2005 1,207,500
130,000 Iridium LLC/Capital Corp. 144A sr. notes 11 1/4s, 2005 120,900
300,000 Pratama Datakom Asia BV 144A company guaranty
12 3/4s, 2005 255,000
------------
2,709,300
Semiconductors (0.3%)
- --------------------------------------------------------------------------------------------
325,000 Fairchild Semiconductor Corp. 144A sr. sub. notes 11.74s, 2008 332,313
720,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 761,400
365,000 Viasystems Inc. 144A sr. sub. notes 9 3/4s, 2007 376,863
------------
1,470,576
Shipping (0.1%)
- --------------------------------------------------------------------------------------------
340,000 Johnstown America Industries, Inc. 144A sr. sub. notes
11 3/4s, 2005 370,600
Steel (0.3%)
- --------------------------------------------------------------------------------------------
160,000 Altos Hornos De Mexico bonds Ser. B, 11 7/8s, 2004 (Mexico) 165,600
210,000 Armco, Inc. 144A sr. notes 9s, 2007 209,475
620,000 Hylsa S.A. de C.V. 144A bonds 9 1/4s, 2007 (Mexico) 604,500
550,000 Ispat Mexicana, S.A. 144A bonds 10 3/8s, 2001 (Mexico) 550,000
------------
1,529,575
Supermarkets (0.1%)
- --------------------------------------------------------------------------------------------
90,000 Ameriserve Food Co. 144A sr. sub. notes 10 1/8s, 2007 94,050
340,000 Jitney-Jungle Stores 144A sr. sub. notes 10 3/8s, 2007 351,900
25,000 Nebco Evans Holding Co. 144A sr. disc. notes stepped-coupon
zero % (12 3/8s, 7/15/02), 2007 ++ 16,000
------------
461,950
Telecommunications (2.4%)
- --------------------------------------------------------------------------------------------
245,000 Antenna TV S.A. 144A sr. notes 9s, 2007 (Greece) 238,875
280,000 America Communication Services, Inc. 144A sr. notes
13 3/4s, 2007 322,000
695,000 American Communications Services, Inc. sr. disc. notes
stepped-coupon zero % (12 3/4s, 4/1/01), 2006 ++ 458,700
155,000 Consorcio Ecuatoriano 144A notes 14s, 2002 (Ecuador) 155,000
500,000 Echostar DBS Corp. 144A company guaranty 12 1/2s, 2002 525,000
805,000 Frontiervision Operating Partners L.P. sr. sub. notes 11s, 2006 869,400
400,000 GST Equipment Funding 144A sr. notes 13 1/4s, 2007 456,000
747,000 GST Telecommunications, Inc. company guaranty
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 ++ 549,045
595,000 Hyperion Telecommunication Corp. sr. disc. notes
stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 ++ 404,600
1,150,000 Hyperion Telecommunications Corp. 144A sr. notes 12 1/4s, 2004 1,247,750
2,655,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 ++ 2,163,825
1,200,000 Intermedia Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 1/4s, 7/15/02), 2007 ++ 789,000
585,000 ITC Deltacom, Inc. 144A sr. notes 11s, 2007 628,875
500,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 507,500
210,000 Metronet Communications 144A sr. disc. notes zero %
(10 3/4s, 11/1/02), 2007 ++ 123,900
225,000 Nextlink Communications sr. notes 12 1/2s, 2006 254,250
535,000 Nextlink Communications sr. notes 9 5/8s, 2007 536,338
845,000 Qwest Communications International, Inc. 144A sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 ++ 540,800
545,000 Winstar Communications. Inc. 144A sr. sub. notes 15s, 2007 588,600
310,000 Winstar Equipment Corp. company guaranty 12 1/2s, 2004 322,400
------------
11,681,858
Telephone Services (1.4%)
- --------------------------------------------------------------------------------------------
490,000 BTI Telecom Corp. 144A sr. notes 10 1/2s, 2007 490,000
545,000 Fonorola, Inc. sr. notes 12 1/2s, 2002 (Canada) 615,850
420,000 Globo Communicacoes 144A company guaranty 10 1/2s,
2006 (Brazil) 378,000
675,000 McLeodUSA, Inc. sr. disc. notes stepped-coupon zero %
(10 1/2s, 3/1/02), 2007 ++ 465,750
1,620,000 NTL Inc. sr. notes Ser. B, 10s, 2007 (United Kingdom) 1,652,400
950,000 RCN Corp. 144A sr. notes stepped-coupon zero %
(11 1/8s, 10/15/02), 2007 ++ 551,000
130,000 RCN Corp. 144A sr. notes 10s, 2007 128,375
1,450,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 1,616,750
350,000 Sprint Spectrum L.P. sr. notes 11s, 2006 388,500
175,000 Transtel S.A. 144A 12 1/2s, 2007 (Colombia) 164,500
500,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(15s, 1/15/00), 2005 ++ 380,000
------------
6,831,125
Textiles (0.3%)
- --------------------------------------------------------------------------------------------
360,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 356,400
145,000 Polysindo Inernational Eka company guaranty 13s, 2001
(Indonesia) 153,700
800,000 Polysindo International Finance company guaranty 11 3/8s,
2006 (Indonesia) 822,000
------------
1,332,100
Transportation (0.2%)
- --------------------------------------------------------------------------------------------
200,000 Coach USA, Inc. company guaranty 9 3/8s, 2007 197,000
1,000,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s,
2003 (Greece) 1,010,000
------------
1,207,000
Wireless Communications (0.5%)
- --------------------------------------------------------------------------------------------
565,000 Advanced Radio Telecom Corp. sr. notes 14s, 2007 508,500
450,000 International Wireless Communications, Inc. sr. disc. notes
14s, 2001 234,000
585,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 611,325
620,000 Paging Network, Inc. sr. sub. notes 10s, 2008 620,000
230,000 Powertel, Inc. sr. notes 11 1/8s, 2007 243,800
200,000 Telesystem International Wireless Inc. 144A sr. disc. notes
stepped-coupon zero % (10 1/2s, 11/1/02), 2007 (Canada) ++ 106,000
150,000 Western Wireless Corp. sr. sub. notes 10 1/2s, 2007 160,125
------------
2,483,750
------------
Total Corporate Bonds and Notes (cost $156,246,908) $159,902,509
FOREIGN GOVERNMENT BONDS AND NOTES (16.6%) *
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
ARP 505,000 Argentina (Republic of bonds Ser. PRE1, FRB)
3.239s, 2001 $ 490,144
USD 5,615,000 Bank of Foreign Economic Affairs of Russia
(Vnesheconombank) non performing loan
1999 + ## 4,772,750
USD 2,818,000 Bank of Foreign Economic Affairs of Russia
(Vnesheconombank) principal loan FRN,
Libor plus 13/16s, 2020 +##+++ 1,662,620
CAD 1,600,000 Canada (Government of) 8s, 2027 1,444,564
CAD 9,055,000 Canada (Government of) bonds Ser. WB60,
7 1/4s, 2007 7,251,325
DKK 23,335,000 Denmark (Government of) 6s, 2026 3,286,244
FRF 91,525,000 France (Government of) 4 3/4s, 2002 15,705,726
DEM 11,165,000 Germany (Federal Republic of) bonds Ser. 97, 6s, 2007 6,669,874
DEM 21,365,000 Germany (Federal Republic of) bonds Ser. 97,
6 1/2s, 2027 12,893,313
DEM 6,860,000 Germany (Federal Republic of) Unity Fund bonds
8s, 2002 4,434,145
FRF 3,420,000 Ivory Coast - FLIRB collaterized FRB 2s, 2049 ## 177,303
FRF 3,420,000 Ivory Coast - PDI bonds FRB 1.9s, 2049 ## 212,764
NZD 10,235,000 New Zealand (Government of) bonds 8s, 2004 6,797,777
USD 1,720,000 Peru (Government of) 144A Ser. US, 4s, 2017 963,200
ZAR 5,324,000 South Africa (Republic of) bonds Ser. 153, 13s, 2010 1,004,931
GBP 3,405,000 United Kingdom Treasury bonds 8s, 2021 6,754,560
GBP 4,105,000 United Kingdom Treasury bonds 7 1/2s, 2006 7,307,312
------------
Total Foreign Government Bonds and Notes
(cost $80,673,127) $ 81,828,552
BRADY BONDS (5.3%) *
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
$ 5,865,600 Argentina (Republic of) deb. FRB 6.688s, 2005 $ 5,000,424
8,865,521 Brazil (Government of) FRB 8s, 2014 +++ 6,117,210
2,749,000 Philippines (Government of) Ser. B, FRB 6 1/4s, 2017 2,274,798
12,732,000 United Mexican States Ser. B 6 1/4s, 2019 9,994,620
2,995,000 United Mexican States Ser. D FRB 6.813s, 2019 2,665,550
------------
Total Brady Bonds (cost $26,778,942) $ 26,052,602
UNITS (2.1%) *
NUMBER OF UNITS VALUE
- --------------------------------------------------------------------------------------------
150 Celcaribe S.A. 144A units stepped-coupon zero %
(13 1/2s, 3/15/98), 2004 ++ $ 3,000,000
2,498 Cellnet Data Systems, Inc. 144A units stepped-coupon zero %
(14s, 10/01/02), 2007 ++ 1,268,909
1,635 Colt Telecommunications Group PLC units stepped-coupon
zero % (12s, 12/15/01), 2006 (United Kingdom) ++ 1,226,250
375 Conecel Holdings 144A units 14s, 2000 375,000
150 DecisionOne Corp. units stepped-coupon zero %
(11 1/2s, 8/01/02), 2008 ++ 94,500
690 Diva Systems Corp. 144A units stepped-coupon zero %
(13s, 5/15/01), 2006 ++ 596,850
1,050 Econophone Inc. units 13 1/2s, 2007 1,165,500
70 Hedstrom Holdings, Inc. units stepped-coupon zero %
(12s, 6/01/02), 2009 ++ 43,750
875 Knology Holdings Inc. units stepped-coupon zero %
(11 7/8s, 4/15/98), 2007 ++ 481,250
140 MGC communications, Inc. 144A units 13s, 2004 138,600
295 Stone Container Corp. units sr. sub. 12 1/4s, 2002 306,063
730 Wireless One, Inc. units stepped-coupon zero %
(13 1/2s, 8/1/01), 2006 ++ 189,800
380 XCL Ltd. units sr. sec. notes 13 1/2s, 2004 494,000
4,732 XCL Ltd. units cum. pfd. 9.5% 875,420
------------
Total Units (cost $7,079,979) $ 10,255,892
PREFERRED STOCKS (2.8%) *
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------
140 America Communication Services, Inc. 144A $12.75 pfd. ++++ $ 131,600
8,774 AmeriKing, Inc. $3.25 pfd. ++++ 236,898
105 Anvil Holdings 144A Ser. B, $3.25 pfd. ++++ 2,625
7,798 Cablevision Systems Corp. Ser. M, $11.125 dep. shs. pfd. ++++ 855,831
4,200 Capstar Broadcasting 12.00% pfd. 459,900
11,925 Chevy Chase Capital Corp. Ser. A, $5.19 pfd. 608,175
4,145 Citadel Broadcasting Inc. 144A $13.25 pfd. ++++ 464,240
13,965 Diva Systems Corp. Ser. C, $6.00 pfd. 148,378
265 Echostar Communications Corp. 144A 12.125% pfd. 271,625
100 Fresenius Medical Care AG Ser. D, $9.00 (Germany) 104,000
1,026 Granite Broadcasting 144A $12.75 pfd. ++++ 1,077,300
120 Hyperion Telecommunications, Inc. 144A $12.875 pfd. ++++ 116,400
739 ICG Holdings, Inc. $14.25 pfd. (Canada) ++++ 853,545
320 ICG Holdings, Inc. $14.00 pfd. ++++ 384,000
1,078 Intermedia Communication Ser. B, $13.50 pfd. 1,239,700
500 IXC Communications, Inc. 144A 12.50% pfd. ++++ 575,000
1,700 Nextel Communications Inc. 144A $13.00 pfd. ++++ 1,946,500
20,273 Nextlink Communications, Inc. 144A $7.00 pfd. 1,196,107
864 NTL Inc. 144A $13.00 pfd. ++++ 950,400
5,760 SFX Broadcasting, Inc. Ser. E, $12.625 pfd. ++++ 665,280
5,000 Sinclair Capital $11.625 cum. pfd. 535,000
629 Spanish Broadcasting Systems 144A 14.25% cum. pfd. ++++ 666,740
3,540 Von Hoffman Corp. 144 $13.50 pfd. 101,244
------------
Total Preferred Stocks (cost $12,400,312) $ 13,590,488
ASSET-BACKED SECURITIES (1.1%) *
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
$1,611,000 Chemical Master Credit Card Trust Ser. 95-2, Class A,
6.23s, 2003 $ 1,618,539
505,000 Contimortgage Home Equity Loan Trust Ser. 97-1, Class M2,
7.67s, 2025 516,363
3,315,000 Sears Credit Account Master Trust Ser. 95-5, Class A,
6.05s, 2004 3,282,878
------------
Total Asset-Backed Securities (cost $5,468,195) $ 5,417,780
COMMON STOCKS (0.8%) *
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------
11,433 Advanced Radio Telecom Corp. + $ 88,604
200 AmeriKing, Inc. + 10,000
2,625 Axia Holding Inc. 144A + 131,250
14,280 CellNet Data Systems Inc. + 139,230
57,441 Grand Union Co. (acquired 7/15/92, cost $3,250,000) +++ 129,242
4,148 IFINT Diversified Holdings + 41,480
5,979 NEXTEL Communications, Inc. (acquired 9/12/97,
cost $96,480) ++ 149,101
671 PMI Holdings Corp. 144A + 214,720
480 Premium Holdings L.P. + 1,919
100,386 PSF Holdings LLC Class A 3,011,580
15,000 Specialty Foods Aquisition Corp. + 3,750
4,000 Terex Corp. Rights 144A + 80,000
------------
Total Common Stocks (cost $7,206,928) $ 4,000,876
CONVERTIBLE BONDS AND NOTES (0.8%) *
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
$1,260,000 APP Global Finance (V) Ltd. 144A cv. sec. 2s, 2000
(United Kingdom) $ 1,184,400
500,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 435,000
234,000 GST Telecommunications, Inc. 144A cv. sr. disc. notes
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 ++ 318,240
280,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 238,000
185,000 National Semiconductor Corp. 144A cv. deb. 6 1/2s, 2002 200,956
1,486,000 Pricellular Wireless Corp. 144A cv. sub. notes stepped-coupon
zero % (10 3/4s, 8/15/00), 2004 ++ 1,274,245
280,000 VLSI Technology, Inc. cv. sub. notes 8 1/4s, 2005 284,900
------------
Total Convertible Bonds and Notes (cost $3,413,036) $ 3,935,741
CONVERTIBLE PREFERRED STOCKS (0.2%) *
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------
8,224 Cablevision Systems Corp. Ser. H, $11.75 cv. pfd. ++++ $ 929,312
5,450 Granite Broadcasting $1.938 cv. pfd. 270,456
------------
Total Convertible Preferred Stocks (cost $1,109,541) $ 1,199,768
WARRANTS (0.2%) *+ EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------
40,000 Becker Gaming Corp. 144A 11/15/00 $ 400
2,100 County Seat Holdings, Inc. 10/15/98 42
370 Esat Holdings, Inc. 144A (Ireland) 2/1/07 7,400
380 Globalstar Telecom 144A 2/15/04 38,000
1,399 Grand Union Co. Ser. 1
(acquired 10/6/93, cost $560) ++ 6/16/00 14
2,799 Grand Union Co. Ser. 2
(acquired 10/6/93, cost $280) ++ 6/16/00 28
940 Hyperion Telecommunications 4/15/01 70,500
75,000 Insight Communications Co. 144A 3/31/98 187,500
8,514 Intelcom Group 10/15/05 114,939
760 Interact Systems Inc. 8/1/03 190
1,325 Intermedia Communications 6/1/00 92,750
450 International Wireless Communications Holdings 8/15/01 29,250
4,101 Louisiana Casino Cruises, Inc. 144A 12/1/98 205,050
1,530 McCaw International Ltd. 4/15/07 459
12,320 Nextlink Communications, Inc. 144A 2/1/09 123
525 Orion Network Systems 1/15/07 7,350
5,290 Pagemart, Inc. 144A 12/31/03 39,675
2,000 Petracom Holdings, Inc. 9/30/99 14,250
4,238 President Riverboat Casinos, Inc. 9/30/99 2,119
800 RSL Communications Ltd. 11/15/06 48,000
390 Spanish Broadcasting Systems 144A 6/30/99 91,650
275 Sterling Chemicals Holdings 8/15/08 10,450
9,660 UCC Investor Holding, Inc. 10/30/99 120,750
220 Urohealth Systems Inc. 4/10/04 1,100
36 Wright Medical Technology, Inc. 6/30/03 3,558
------------
Total Warrants (cost $919,621) $ 1,085,547
COLLATERALIZED MORTGAGE OBLIGATIONS (0.2%) *(cost $1,059,422)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
$1,073,511 Rural Housing Trust Ser. 87-1, Class D, 6.33s, April 1, 2026 $ 1,074,317
PURCHASED OPTIONS OUTSTANDING (0.2%) * EXPIRATION DATE
PRINCIPAL AMOUNT STRIKE PRICE VALUE
- --------------------------------------------------------------------------------------------
USD 4,295,000 U.S. Dollars in exchange for Nov. 97/
Deutschemarks German (put) 1.73 DEM $ 5,583
4,000,000 Japenese Government Bond Nov. 97/
Future Contracts (call) 128.0 JPY 865,585
------------
Total Purchased Options Outstanding (cost $727,431) $ 871,168
SHORT-TERM INVESTMENTS (3.3%) *
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
TRL 36,625,000,000 Turkey Treasury bill zero%, 1998 $ 984,505
$15,016,000 Interest in $561,889,000 joint repurchase agreement
dated October 31, 1997 with Morgan (J.P.) &
Co., Inc. due November 3, 1997 with respect to
various U.S. Treasury obligations -- maturity value
of $15,023,070 for an effective yield of 5.65% 15,018,357
------------
Total Short-term investments (cost $15,957,035) $ 16,002,862
- --------------------------------------------------------------------------------------------
Total Investments (cost $480,112,106) *** $490,661,331
- --------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $491,651,512.
*** The aggregate identified cost on a tax basis is $481,221,672, resulting in gross
unrealized appreciation and depreciation of $26,726,667 and $17,287,008, respectively,
or net unrealized appreciation of $9,439,659.
+ 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.
+++ A portion of the income will be received in additional securities.
++ Restricted, excluding 144A securities, as to public resale. The total market value of
restricted securities held at October 31, 1997 was $278,385 or less than 0.1% of net assets.
++++ Income may be received in cash or additional securities at the discretion of the issuer.
# A portion of this security was pledged and segregated with the custodian to cover margin
requirements for futures contracts, at October 31, 1997.
## When-issued securities (Note 1).
TBA after the name of a security represents to be announced securities (Note 1).
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.
The rate shown on Floating Rate Bonds and Floating Rate Notes are the current interest rates
shown at October 31, 1997, which are subject to change based on the terms of the security.
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Forward Currency Contracts to Buy at October 31, 1997
(aggregate face value $111,497,278)
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian Dollars $ 1,224,502 $ 1,310,747 12/17/97 $ (86,245)
Deutschemarks 28,074,722 27,287,703 12/17/97 787,019
Indonesian Rupiah 3,067,115 3,586,175 2/23/98 (519,060)
Indonesian Rupiah 1,699,089 1,329,813 6/23/98 369,276
Italian Lira 16,115,257 15,520,625 12/17/97 594,632
Japanese Yen 40,726,247 40,726,038 12/17/97 209
Philippines Peso 1,311,330 1,355,742 3/25/98 (44,412)
Polish Zloty 680,258 718,189 6/5/98 (37,931)
Spanish Peseta 4,464,143 4,290,587 12/17/97 173,556
Swedish Krona 6,801,978 6,637,570 12/17/97 164,408
Swiss Franc 6,964,837 6,594,034 12/17/97 370,803
Venezuelan Bolivar 2,184,156 2,140,055 6/5/98 44,101
- --------------------------------------------------------------------------------------------
$1,816,356
- --------------------------------------------------------------------------------------------
<CAPTION>
Forward Currency Contracts to Sell at October 31, 1997
(aggregate face value $106,890,218)
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian Dollars $ 804,834 $ 824,357 12/17/97 $ 19,523
British Pounds 1,930,647 1,829,282 12/17/97 (101,365)
Canadian Dollar 4,317,535 4,386,522 12/17/97 68,987
Danish Krone 699,665 668,461 12/17/97 (31,204)
Deutschemarks 257,064 262,457 6/5/98 5,393
Deutschemarks 49,652,818 47,602,674 12/17/97 (2,050,144)
French Franc 16,556,241 16,091,075 12/17/97 (465,166)
Italian Lira 8,429,995 8,115,445 12/17/97 (314,550)
Japanese Yen 10,981,519 10,946,066 12/17/97 (35,453)
New Zealand Dollar 8,486,139 8,678,545 12/17/97 192,406
South African Rand 866,615 877,096 12/17/97 10,481
Swiss Franc 6,970,960 6,608,238 12/17/97 (362,722)
- --------------------------------------------------------------------------------------------
$(3,063,814)
- --------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------
Forward Contracts Outstanding at October 31, 1997
Unrealized
Aggregate Face Expiration Appreciation/
Total Value Value Date (Depreciation)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Notes
10 yr. (Long) $16,427,250 $15,917,344 Dec-97 $509,906
U.S. Treasury Bonds
20 yr. (Long) 20,495,094 20,139,065 Dec-97 356,029
U.K. Government Gilt
(Short) 10,439,207 10,384,265 Dec-97 (54,942)
U.K. Government Gilt
(Long) 10,156,960 10,081,050 Mar-98 75,910
Japanese Government
Bonds 10 yr. (Long) 10,869,747 10,879,677 Dec-97 (9,930)
Japanese Government
Bonds 10 yr. (Short) 10,793,176 10,804,767 Mar-98 11,591
Spanish Government
Bonds 10 yr. (Short) 637,526 637,101 Dec 97 (425)
German (Repubic of)
Bonds 10 yr. (Long) 596,050 595,644 Dec 97 406
- --------------------------------------------------------------------------------------------
$888,545
<CAPTION>
- --------------------------------------------------------------------------------------------
TBA Sales Commitments at October 31, 1997
(proceeds receivable $15,350,648)
Principal Settlement Market
Description Amount Date Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FNMA, 7s,
November 1999 $6,375,000 11/19/97 $ 6,394,890
GNMA, 8s,
November 1999 6,774,000 11/16/97 7,030,125
GNMA, 8.5s,
November 1999 1,875,000 11/19/97 1,965,806
- --------------------------------------------------------------------------------------------
$15,390,821
<CAPTION>
- --------------------------------------------------------------------------------------------
Written Options Outstanding at September 30, 1997
(premium received $53,473)
Contract Expiration Date/ Market
Amount Strike Price Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$4,295,000 U.S. Dollars in exchange
for Deutschemarks Nov.97/ 1.73 DM $54,547
- --------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
October 31, 1997
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $480,112,106) (Note 1) $490,661,331
- ---------------------------------------------------------------------------------------------------
Cash 3,240,340
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 7,392,310
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 57,516,892
- ---------------------------------------------------------------------------------------------------
Receivable for variation margin 88,668
- ---------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 2,694,105
- ---------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 809,469
- ---------------------------------------------------------------------------------------------------
Total assets 562,403,115
Liabilities
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 3,237,048
- ---------------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 2,804
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 45,728,820
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 951,784
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 67,506
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 10,344
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 620
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 3,941,563
- ---------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 1,287,051
- ---------------------------------------------------------------------------------------------------
Written options outstanding, at value (premiums received $53,473) (Note 3) 54,547
- ---------------------------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable $15,350,648) 15,390,821
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 78,695
- ---------------------------------------------------------------------------------------------------
Total liabilities 70,751,603
- ---------------------------------------------------------------------------------------------------
Net assets $491,651,512
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) 484,579,427
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (1,159,237)
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net realized gain on investments
and foreign currency transactions (Note 1) (1,975,075)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 10,206,397
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $491,651,512
Computation of net asset value
- ---------------------------------------------------------------------------------------------------
Net asset value per share ($491,651,512 divided by
53,095,749 shares) $9.26
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended October 31, 1997
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Interest income: (net of foreign tax of $22,099) $38,645,321
- --------------------------------------------------------------------------------------------------
Dividends 1,044,257
- --------------------------------------------------------------------------------------------------
Total investment income 39,689,578
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 3,668,090
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 656,785
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 25,441
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 7,560
- --------------------------------------------------------------------------------------------------
Reports to shareholders 57,325
- --------------------------------------------------------------------------------------------------
Registration fees 75
- --------------------------------------------------------------------------------------------------
Auditing 73,387
- --------------------------------------------------------------------------------------------------
Legal 23,714
- --------------------------------------------------------------------------------------------------
Postage 81,528
- --------------------------------------------------------------------------------------------------
Exchange listing fees 48,718
- --------------------------------------------------------------------------------------------------
Other 39,199
- --------------------------------------------------------------------------------------------------
Total expenses 4,681,822
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (114,082)
- --------------------------------------------------------------------------------------------------
Net expenses 4,567,740
- --------------------------------------------------------------------------------------------------
Net investment income 35,121,838
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 3,089,533
- --------------------------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 199,558
- --------------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (89,638)
- --------------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (1,745,493)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year 6,657
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures,
written options and TBA sale commitments during the year 5,171,834
- --------------------------------------------------------------------------------------------------
Net gain on investments 6,632,451
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $41,754,289
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended October 31
--------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 35,121,838 $ 36,138,999
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 1,453,960 18,198,111
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments
and assets and liabilities in foreign currencies 5,178,491 (2,465,875)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 41,754,289 51,871,235
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (27,336,768) (36,742,441)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments (8,980,918) --
- ----------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on investments (8,653,969) --
- ----------------------------------------------------------------------------------------------------------------------
Return of capital (437,427) --
- ----------------------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (417,980) (1,318,283)
- ----------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (4,072,773) 13,810,511
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 495,724,285 481,913,774
- ----------------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of
net investment income of $1,159,237 and
$1,034,382, respectively) $491,651,512 $495,724,285
- ----------------------------------------------------------------------------------------------------------------------
Number of fund shares
- ----------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of year 53,147,249 53,311,249
- ----------------------------------------------------------------------------------------------------------------------
Shares liquidated (Note 4) (51,500) (164,000)
- ----------------------------------------------------------------------------------------------------------------------
Shares outstanding at end of year 53,095,749 53,147,249
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended October 31
- --------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $9.33 $9.04 $8.63 $9.62 $9.15
- --------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------
Net investment income .66 .68 .68 .74 .73
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .13 .30 .42 (.88) .61
- --------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .79 .98 1.10 (.14) 1.34
- --------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------
From net
investment income (.52) (.69) (.64) (.52) (.73)
- --------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- -- (.14)
- --------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.17) -- -- (.08) --
- --------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments (.16) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Return of capital (.01) -- (.05) (.25) --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (.86) (.69) (.69) (.85) (.87)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.26 $9.33 $9.04 $8.63 $9.62
- --------------------------------------------------------------------------------------------------------------------------
Market value,
end of period $8.500 $8.375 $8.125 $7.88 $8.88
- --------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------
Total investment return
at market value (%)(a) 11.34 12.08 14.16 (1.92) 13.27
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $491,652 $495,724 $481,914 $460,760 $513,316
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .96 .95 1.02 .95 .92
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 7.18 7.43 7.98 7.33 7.76
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 246.84 280.38 290.44 201.95 132.24
- --------------------------------------------------------------------------------------------------------------------------
(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. (Note 2).
</TABLE>
Notes to financial statements
October 31, 1997
Note 1
Significant accounting policies
Putnam Master Income Trust (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 and high-grade sector
(formerly the U.S. government sector), consisting of debt obligations of the
U.S. government and domestic corporations; 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 and certain other accounts managed by Putnam Investment
Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc. 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 except that certain dividends from foreign
securities are recorded as soon as the fund is informed of 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
yield-to-maturity method. Any premium resulting from the purchase of a
stepped-coupon security is amortized on a yield-to-maturity basis.
Securities purchased or sold on a when-issued basis may be settled a month or
more after the trade date; interest income is accrued based on the terms of
the security. 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 gains and losses 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 appreciation and
depreciation of assets and liabilities in foreign currencies 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 current 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 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. 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. Realized gains and losses on purchased
options are included in realized gains and losses on investment securities.
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 1.0% 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, 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 the fund as an unrealized gain or loss.
If the TBA sale commitment is closed through the acquisition of an offsetting
purchase commitment, the fund realizes a gain or loss. 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, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
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. These differences
include temporary and permanent differences of losses on wash sale
transactions, foreign currency gains and losses, and market discount.
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, 1997, the fund
reclassified $7,909,925 to increase distributions in excess of net investment
income and $89,164 to decrease paid-in-capital, with an increase to net
realized gains on investments of $7,999,089. 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 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 excess over $1.5 billion.
The fund reimburses Putnam Management an allocated amount 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.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the year ended October 31, 1997, fund expenses were reduced by $114,082
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
expense offset arrangements in an income producing asset if it had not entered
into such arrangements.
Trustees of the funds receive an annual Trustees fee of which $834 has been
allocated to the fund 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 has adopted a Trustee Fee Deferral Plan (the "Deferral 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 certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
Note 3
Purchase and sales of securities
During the year ended October 31, 1997, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $778,376,002 and $794,087,614, respectively. Purchases and sales of
U.S. government obligations aggregated $400,205,189 and $409,321,408,
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 year are summarized as follows:
Contract Premiums
Amounts Received
- ------------------------------------------------------------
Written options
outstanding at
beginning of year $-- $--
Options opened 26,458,600 314,682
Options expired -- --
Options closed (22,163,600) (261,209)
- ------------------------------------------------------------
Written options
outstanding at
end of year $4,295,000 $53,473
- ------------------------------------------------------------
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 interest 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, 1997, the fund repurchased 51,500 shares for
$417,980, which reflects a discount from net asset value of $55,821 or 11.78%.
As of October 31, 1997, 279,900 shares had been repurchased since the
inception of the program.
Federal tax information
(Unaudited)
Pursuant to section 852 of the Internal Revenue Code, the fund hereby
designates $9,937,473 as capital gain for its taxable year ended October
31, 1997.
For the year ended October 31, 1997, a portion of the fund's distribution
represents a return of capital and is therefore not taxable to shareholders.
The fund has designated 3.10% of the distributions from net investment
income as qualifying for the dividends received deduction for corporations.
The Form 1099 you receive in January 1998 will show the tax status of all
distributions paid to your account in calender 1997.
Results of October 9, 1997 shareholder meeting
(Unaudited)
An annual meeting of shareholders of the fund was held on October 9, 1997. At
the meeting, each of the nominees for Trustees was elected, as follows:
Votes for Votes withheld
Jameson Adkins Baxter 47,721,966 1,004,168
Hans H. Estin 47,731,294 994,840
John A. Hill 47,759,533 966,601
R.J. Jackson 47,741,893 984,241
Elizabeth T. Kennan 47,686,257 1,039,877
Lawrence J. Lasser 47,725,844 1,000,290
Robert E. Patterson 47,735,919 990,215
Donald S. Perkins 47,703,618 1,022,516
William F. Pounds 47,717,356 1,008,778
George Putnam 47,677,292 1,048,842
George Putnam, III 47,716,196 1,009,938
A.J.C. Smith 47,732,378 993,756
W. Nicholas Thorndike 47,713,358 1,012,776
A proposal to ratify the selection of Coopers & Lybrand L.L.P. as auditors for
the fund was approved as follows: 47,688,330 votes for, and 327,472 votes
against, with 710,332 abstentions and broker non-votes.
A proposal to convert your fund from closed-end to open-end status and
authorize certain related amendments to the Agreement and Declaration of Trust
was not approved as follows: 5,394,318 votes for, 22,867,351 votes against,
with 20,464,465 abstentions and broker non-votes.
All tabulations are rounded to nearest whole number.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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
William J. Curtin
Vice President
Kenneth J. Taubes
Vice President and Fund Manager
Robert M. Paine
Vice President and Fund Manager
D. William Kohli
Vice President and Fund Manager
Gail S. Attridge
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 NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
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38087-072 12/97
