<PAGE> 1
PUTNAM
PREMIER INCOME
TRUST
A N N U A L R E P O R T
July 31, 1994
BOSTON - LONDON - TOKYO
<PAGE> 2
PERFORMANCE HIGHLIGHTS
- - Morningstar awarded the fund a four-star rating - out of a possible five
stars - for risk-adjusted performance through July 31, 1994.*
- - "The diversification offered by multi-sector bond funds is an attractive
feature. It permits the portfolio manager to apportion funds among various
types of fixed-income securities....
Characteristically these sectors do not rise and fall in tandem."
- Frank Cappiello's Closed-End Fund Digest, July 1994.
- - Performance should always be considered in light of a fund's investment
strategy. Putnam Premier Income Trust is designed for investors seeking a
high level of current income consistent with preservation of capital.
<TABLE>
FISCAL 1994 RESULTS AT A GLANCE
<CAPTION>
TOTAL RETURN: NAV MARKET PRICE
-------------------------------------------------------------------
<S> <C> <C> <C>
12 months ended 7/31/94 2.09% 0.95%
(change in value during
period plus reinvested
distributions)
-------------------------------------------------------------------
SHARE VALUE: NAV MARKET PRICE
-------------------------------------------------------------------
7/31/93 $8.87 $8.250
7/31/94 8.29 7.625
-------------------------------------------------------------------
DISTRIBUTIONS
IN EXCESS
DISTRIBUTIONS NO. INCOME OF INCOME TOTAL
-------------------------------------------------------------------
12 $0.70 $0.02 $ 0.72
CURRENT RETURN: NAV MARKET PRICE
-------------------------------------------------------------------
(end of period) 8.69% 9.44%
-------------------------------------------------------------------
<FN>
Performance data represent past results. For performance over longer
periods, see page 8.
1 Income portion of the most recent distribution, annualized and divided by
NAV or market price at the end of the period.
* Morningstar is an independent research firm that rates funds relative to
funds with similar objectives, based on risk-adjusted medium- and
long-term total return performance, as applicable, and adjusted for sales
charges. A four-star rating puts the fund in the top 32.5% of rated
funds. Ratings are updated monthly. Past performance is no guarantee of
future results.
</TABLE>
2
<PAGE> 3
FROM THE CHAIRMAN
DEAR SHAREHOLDER:
A BRIEF SURGE OF OPTIMISM LIFTED FINANCIAL MARKETS AS PUTNAM PREMIER
INCOME TRUST REACHED THE CLOSE OF ITS FISCAL YEAR ON JULY 31, 1994.
ALTHOUGH THE RISE WAS SHORT-LIVED, IT REPRESENTED VIRTUALLY THE
ONLY SIGN IN MANY MONTHS THAT THE BOND MARKETS WERE READY TO BEGIN
STABILIZING. HIGH-YIELD CORPORATE BONDS WERE ONE OF THE FEW ASSET
CLASSES TO TURN IN POSITIVE PERFORMANCE DURING THE PERIOD, THOUGH FOR
MOST OF THE YEAR, THE GLOBAL FIXED-INCOME MARKETS ALSO CHARTED A
GENERALLY RISING PATH.
I AM PLEASED TO REPORT THAT MARK TURNER AND NEIL POWERS HAVE JOINED
ROSEMARY THOMSEN IN THE MANAGEMENT OF YOUR FUND. MARK CAME TO PUTNAM
IN 1992 AS MANAGING DIRECTOR AND CHIEF INVESTMENT OFFICER OF THE
GLOBAL FIXED INCOME GROUP. BEFORE THAT HE WAS WITH SCUDDER, STEVENS &
CLARK AND AIG GLOBAL INVESTORS. MARK HAS 16 YEARS OF INVESTMENT
EXPERIENCE.
NEIL HAS BEEN WITH PUTNAM SINCE 1986. HE HAS BEEN A MEMBER OF THE
FIXED-INCOME INVESTMENT TEAM SPECIALIZING IN YIELD CURVE ANALYSIS
SINCE 1988. NEIL HAS NINE YEARS OF INVESTMENT EXPERIENCE.
RESPECTFULLY YOURS,
/S/ GEORGE PUTNAM
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
SEPTEMBER 7, 1994
3
<PAGE> 4
REPORT FROM THE FUND MANAGERS
ROSEMARY THOMSEN, LEAD MANAGER
MARK TURNER
NEIL POWERS
Putnam Premier Income Trust's strategy of investing simultaneously
in three distinct fixed-income sectors served shareholders well
during its most recent fiscal year. By investing a large portion of
assets in high-yield corporate bonds, the fund offset declines in
the U.S. government and foreign bond segments of the portfolio,
providing a positive total return for the period. The fund returned
2.09% at net asset value and 0.95% at market price for the fiscal
year ended July 31, 1994. For details, please turn to the
performance summary on page 8.
- HIGH-YIELD BONDS: CONTINUED OUTPERFORMANCE
Despite a turbulent bond market, high-yield corporate bonds
outperformed most other asset classes during the period. While nearly
all fixed-income investments suffered in reaction to a shift to
tighter U.S. monetary policy and the fear of inflationary economic
growth, high-yield corporate bonds were among the least affected.
This was no surprise; unlike most fixed-income securities, high-yield
bonds benefit from economic growth because the issuing companies
experience improving profits and cash flow and thus improved credit
quality.
Furthermore, early in 1994, anticipating a decline in the
U.S. government securities market, we reduced the fund's exposure
in that sector by shifting assets into high-yield bonds. Thus, in
February, coinciding with a stronger economy, improving corporate
profits, and rising short-term interest rates, the fund's
high-yield corporate bond holdings stood at 45%; up from 40% at the
start of the fiscal year. During the period, our investment
selections were focused primarily on improving credit situations in
the chemical, linerboard, media, and health care industries.
4
<PAGE> 5
Worth mentioning are the bonds of Gaylord Container, a
manufacturer of linerboard boxes and paper grocery bags. With
increased economic activity in recent months, Gaylord's business
has boomed and the company has initiated three separate price
increases this year to keep production in pace with orders. The
fund's holdings of Gaylord bonds appreciated more than 17% during
fiscal '94. (Our discussion of the company should not be taken as
investment advice; there is no assurance that its securities will
be held in the future.)
Despite a flood of approximately $50 billion in new issues over the
past year, demand for high-yield securities has remained strong.
Pension plans and insurance companies continue to allocate assets to
the high-yield sector, attracted by the high income and relatively
low volatility of this market. The size of the average new issue
has been smaller in recent years than it was in the 1980's, while the
number of new deals has increased. These smaller deals have provided
your fund with opportunities to diversify holdings within promising
industries.
[MARKET SECTOR PERFORMANCE CHART]
Chart shows cumulative performance of the three major sectors of
your fund's portfolio. International government securities are
represented by the Salomon Brothers non-U.S. World Government Bond
Index; high-yield corporate bonds, First Boston High Yield Index;
and U.S. government securities, Lehman Brothers Government/Corporate
Bond Index.
5
<PAGE> 6
There is no doubting the current and ongoing appeal of high-yield
corporate bonds. But these securities' lower ratings reflect a
greater possibility that adverse changes in the economy or the
issuing companies may inhibit the ability to make principal and
interest payments. The fund's access to Putnam's extensive credit
analysis capability can significantly reduce, but never entirely
eliminate, the possibility of defaults.
- GOVERNMENT SECURITIES: VOLATILITY AT HOME AND ABROAD
The series of increases in interest rates that began in February
ended five years of accommodative monetary policy in the United
States. In the initial investor response, government securities were
among the hardest hit sectors.
After declining sharply from the beginning of February into the
middle of May, the Treasury market began to stabilize, although the
market remained volatile. The yield curve steepened as the market
declined, but began to flatten in April after the Federal Reserve
Board tightened for the third time. By the end of July, the yield
curve was slightly flatter than when the Fed first tightened in
February, and far flatter than it was at the beginning of the fund's
fiscal year.
In this cautious investment climate, we are favoring investments in
intermediate-term Treasuries and mortgage-backed securities, with
coupons in the 5%-7% range. Mortgage-backed securities have become
more attractive in recent months because of their income advantage
over Treasuries with comparable maturities and what is currently a
relatively benign prepayment environment.
6
<PAGE> 7
<TABLE>
--------------------------------------------------
PORTFOLIO ALLOCATIONS BY SECTOR
--------------------------------------------------
<CAPTION>
1/31/94 7/31/94
<S> <C> <C>
U.S. government
securities 32.0% 30.0%
International
fixed income 27.0% 27.0%
High-yield
corporate bonds 41.0% 43.0%
--------------------------------------------------
<FN>
Based on market value.
</TABLE>
As in domestic markets, foreign bonds declined sharply in
response to the change in U.S. monetary policy. Certain foreign
bond markets were also hurt by internal political and economic
developments. Initially, unsettled investors withdrew from the
market altogether, creating a liquidity shortage. During this
period, the dollar weakened substantially. We had hedged our
currency exposure on the belief that the dollar would benefit from
the rising economy. These ill-timed currency hedges detracted from
the fund's performance.
In July, however, select European bond markets began to reverse their
downward trend, due in part to easing inflation fears in the United
States. After months of forced selling, we believe there is now
considerable value in many European markets, and we have concentrated
investments in the United Kingdom, Finland, Sweden, and France to
take advantage of improving situations. We also have large
investments in Australia, Canada, and New Zealand, where we expect
inprovements in both currency and bond valuations. We have emphasized
the emerging markets of Argentina and Mexico, where political and
economic stability point toward credit improvement. After removing
the fund's currency hedges briefly in July, we reestablished them for
our European holdings.
7
<PAGE> 8
- OUTLOOK: RETURN TO MORE NORMAL ASSET ALLOCATION
We have begun to shift assets gradually from the high-yield sector to
the government sector. We intend to keep the high-yield sector
overweighted for the foreseeable future, since this market continues
to represent good value. The 45% weighting maintained for the past
six months was unusually high in response to extremely volatile
market conditions. This strategy served the fund well; as the markets
calm down and the economy moves into the later stages of the business
cycle, however, it is appropriate to return the fund toward more
normal exposures in order to retain the benefits of diversification.
8
<PAGE> 9
PERFORMANCE SUMMARY
This section provides, at a glance, information about your fund's
performance. TOTAL RETURN shows how the value of the fund's shares
changed over time, assuming you held the shares through the entire
period and reinvested all distributions back into the fund. We show
total return in two ways: on a CUMULATIVE LONG-TERM BASIS and on
AVERAGE how the fund might have grown each year over varying periods.
<TABLE>
TOTAL RETURN FOR PERIODS ENDED 7/31/94
<CAPTION>
NAV Market price CPI
----------------------------------------------------------------------------
<S> <C> <C> <C>
1 year 2.09% 0.95% 2.77%
----------------------------------------------------------------------------
5 years 60.06 48.41 19.29
Annual average 9.86 8.22 3.59
----------------------------------------------------------------------------
Life of fund 82.92 66.86 27.93
(since 2/29/88)
Annual average 9.86 8.30 3.91
----------------------------------------------------------------------------
</TABLE>
<TABLE>
TOTAL RETURN FOR PERIODS ENDED 6/30/94
(most recent calendar quarter)
<CAPTION>
NAV Market price
----------------------------------------------------------------------------
<S> <C> <C>
1 year 1.92% 1.74%
----------------------------------------------------------------------------
5 years 59.95 52.03
Annual average 9.85 8.74
----------------------------------------------------------------------------
Life of fund
(since 2/29/88) 81.28 66.93
Annual average 9.84 8.42
----------------------------------------------------------------------------
<FN>
Performance data represent past results. Investment returns and net
asset value will fluctuate so an investor's shares, when sold, may be
worth more or less than their original cost. Fund performance data do
not take into account any adjustment for taxes payable on reinvested
distributions.
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus
any liabilities, divided by the number of outstanding fund shares.
MARKET PRICE is the current trading price of one share of the fund.
Market prices are set by transactions between buyers and sellers on
the New York Stock Exchange.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation;
it does not represent an investment return.
</TABLE>
9
<PAGE> 10
PUTNAM PREMIER INCOME TRUST ANNUAL REPORT
For the Year Ended July 31, 1994
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of Putnam Premier Income Trust
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Putnam Premier
Income Trust (the "fund") at July 31, 1994, and the results of its
operations, the changes in its net assets, and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards, which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits,
which included confirmation of portfolio positions at July 31, 1994 by
correspondence with the custodians and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
September 19, 1994
10
<PAGE> 11
<TABLE>
PORTFOLIO OF INVESTMENTS OWNED
July 31, 1994
<CAPTION>
CORPORATE BONDS AND NOTES (36.4%)(a)
PRINCIPAL AMOUNT VALUE
<S> <C>
RECREATION (2.3%)
--------------------------------------------------------------------------------------------------------
$ 2,090,000 Arizona Charlies' Inc. 1st mtge. Ser. B, 12s, 2000 (b) $ 2,079,550
1,520,000 Capitol Queen Corp. 1st mtge. Ser. B, 12s, 2000 (b) 1,249,250
2,520,000 Casino America Inc. 1st mtge. deb. 11 1/2s, 2001 2,318,400
4,600,000 Casino Magic Finance Corp. 1st mtge., deb. 11 1/2s, 2001 4,094,000
1,975,000 Golden Nugget Finance Corp. 1st mtge. deb. Ser. B,
10 5/8s, 20031,323,250
3,584,000 Louisiana Casino Cruises Corp. 1st mtge. 11 1/2s, 1998 2,938,880
5,270,000 President Riverboat Casinos sr. sub. notes 11 3/4s, 2001 5,032,850
2,106,000 Trump Castle Funding Corp. sr. sub. sec. 11 1/2s, 2000 (b) 2,106,000
6,760,214 Trump Taj Mahal mtge. bds. 11.35s, 1999 (e) 5,340,569
------------
26,482,749
MOTION PICTURE DISTRIBUTION (2.2%)
--------------------------------------------------------------------------------------------------------
7,900,000 AMC Entertainment, Inc. sr. sub. notes 12 5/8s, 2002 8,808,500
4,750,000 Act III Theatres sr. sub. notes 11 7/8s, 2003 5,082,500
1,670,000 Cinemark Mexico notes 12s, 2003 (b) 1,619,900
4,500,000 Cinemark USA sr. notes 12s, 2002 4,905,000
5,000,000 Plitt Theatres, Inc. sr. sub. notes 10 7/8s, 2004 5,025,000
------------
25,440,900
CABLE TELEVISION (2.2%)
--------------------------------------------------------------------------------------------------------
3,200,000 Adelphia Communications Corp. sr. notes 12 1/2s, 2002 3,200,000
750,000 Adelphia Communications Corp. sr. deb. 11 7/8s, 2004 735,000
4,000,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2005 3,520,000
1,000,000 Century Communications Corp. sr. disc. notes zero %, 2003 385,000
2,425,000 Continental Cablevision, Inc. sr. deb. 9s, 2008 2,146,125
5,209,590 Falcon Holdings Group Inc. sr. sub. notes 11s, 2003 (e) 4,897,015
4,250,000 Insight Communications Co. sr. sub. notes stepped
coupon 8 1/4s (11 1/4s, 3/1/96), 2000 (c) 4,111,875
2,700,000 Marcus Cable sr. sub. disc. notes 13 1/2s, 2004 1,417,500
2,450,000 Storer Communications, Inc. sub. deb. 10s, 2003 2,352,000
2,500,000 Summit Communications Group, Inc. sr. sub. deb. 10 1/2s, 2005 2,550,000
------------
25,314,515
RETAIL (2.1%)
--------------------------------------------------------------------------------------------------------
1,650,000 Bradlees, Inc. sr. sub. notes 11s, 2002 1,621,125
2,430,000 Brylane L.P. sr. sub. notes 10s, 2003 2,320,650
4,600,000 Duane Reade Corp. sr. notes Ser. B, 12s, 2002 4,646,000
1,000,000 Eckerd (Jack) Corp. sub. deb. 11 1/8s, 2001 1,005,000
175,000 Loehmanns' Holdings Inc. sr. sub. notes 13 3/4s, 1999 168,000
12,500,000 Loehmanns' Holdings Inc. sr. sub. notes 10 1/2s, 1997 11,750,000
3,595,000 Specialty Retailers, Inc. sr. sub. notes 11s, 2003 3,523,100
------------
25,033,875
FOREST PRODUCTS (2.1%)
--------------------------------------------------------------------------------------------------------
2,200,000 Container Corp. of America sr. notes Ser. A, 11 1/4s, 2004 2,277,000
4,200,000 Container Corp. of America sr. notes 9 3/4s, 2003 3,990,000
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
<S> <C>
FOREST PRODUCTS (continued)
---------------------------------------------------------------------------------------------------------------
$ 15,490,000 Gaylord Container Corp. sr. sub. disc. deb.
stepped-coupon zero % (12 3/4s, 5/15/96), 2005 (c) $ 12,779,250
1,550,000 Stone Savannah River Pulp & Paper Corp.
sr. sub. notes 14 1/8s, 2000 1,635,250
3,900,000 Williamhouse Regency Delaware, Inc. sr. sub. deb. 11 1/2s, 2005 3,919,500
--------------
24,601,000
HEALTH CARE (2.0%)
---------------------------------------------------------------------------------------------------------------
800,000 Abbey Healthcare Group, Inc. sr. sub. notes 9 1/2s, 2002 732,000
4,800,000 McGaw, Inc. sr. notes 10 3/8s, 1999 4,920,000
2,775,000 Mediplex Group, Inc. sr. sub. notes 11 3/4s, 2002 2,941,500
4,973,000 Multicare Cos., Inc. sr. sub. notes 12 1/2s, 2002 5,569,760
6,000,000 Paracelsus Healthcare Corp. sr. sub. notes 9 7/8s, 2003 5,790,000
2,240,000 Quorum Health Group, Inc. sr. sub. notes 11 7/8s, 2002 2,391,200
1,000,000 Wright Medical Technology Inc. sr. secd. notes
Ser. B, 10 3/4s, 2000 960,000
--------------
23,304,460
FOOD (1.5%)
---------------------------------------------------------------------------------------------------------------
4,950,000 Chiquita Brands sr. notes 9 1/8s, 2004 4,554,000
3,749,000 Del Monte Corp. sub. deb. notes 12 1/4s, 2002
(acquired 3/12/93, par 3,330,000 cost $3,431,565,
10/15/93, par 203,000 cost $203,000, 3/1/94, par 216,000
cost $216,000) (d) (e) 3,908,333
4,275,000 Fresh Del Monte Produce Corp. sr. notes Ser. B 10s, 2003 (b) 3,890,250
5,675,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 5,589,875
475,000 Specialty Foods Acquisition Corp. sr. secd. disc.
deb. stepped-coupon zero %, (13s, 8/15/99), 2005 (c) 180,500
--------------
18,122,958
CELLULAR COMMUNICATIONS (1.4%)
---------------------------------------------------------------------------------------------------------------
3,500,000 Cellular, Inc. sr. sub. disc. notes stepped-coupon
zero % (11 3/4s, 9/1/98), 2003 (c) 2,100,000
2,150,000 Cencall Communications Corp. sr. disc. notes
stepped-coupon zero % (10 1/8s, 1/15/99), 2004 (c) 1,220,125
4,000,000 Centennial Cellular Corp. sr. notes 8 7/8s, 2001 3,620,000
3,500,000 Dial Call Communication sr. disc. notes Ser. B
stepped coupon zero %, (10 1/4s,12/15/98) 2005 (c) 1,820,000
11,285,000 Horizon Cellular Telephone Co. sr. sub. disc.
notes stepped-coupon zero %, (11 3/8s, 10/1/97), 2000 (c) 7,786,650
--------------
16,546,775
CHEMICALS (1.2%)
---------------------------------------------------------------------------------------------------------------
1,150,000 Arcadian Partners L.P. sr. notes, Ser. B, 10 3/4s, 2005 1,150,000
9,000,000 G-I Holdings Inc. sr. notes zero %, 1998 5,445,000
2,600,000 Harris Chemical sr. secd. disc. notes stepped-coupon zero %,
(10 1/4s, 1/15/96), 2001 (c) 2,041,000
2,500,000 UCC Investors Holding, Inc. sr. sub. notes 11s, 2003 2,537,500
2,500,000 UCC Investors Holding, Inc. sr. notes 10 1/2s, 2002 2,537,500
--------------
13,711,000
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
<S> <C>
FOOD CHAINS (1.1%)
----------------------------------------------------------------------------------------------------------------
$ 1,000,000 Grand Union Capital Corp. sr. notes stepped-coupon zero %,
(15s, 7/15/99), 2004 (c) $ 260,000
7,750,000 Grand Union Co. sr. sub. notes 12 1/4s, 2002 6,820,000
1,020,000 Megafoods Stores Inc. sr. notes 10 1/4s, 2000 805,800
5,700,000 Stater Brothers sr. notes 11s, 2001 (b) 5,600,250
-------------
13,486,050
CONGLOMERATES (1.1%)
----------------------------------------------------------------------------------------------------------------
900,000 ADT Ltd. sr. sub. notes 9 1/4s, 2003 850,500
7,825,000 Haynes International, Inc. sr. sub. notes 13 1/2s, 1999 6,886,000
1,750,000 Jordan Industries, Inc. sr. notes 10 3/8s, 2003 1,701,875
2,970,000 MacAndrews & Forbes Group Inc. deb. 12 1/4s, 1996 2,984,850
225,000 MacAndrews & Forbes Holdings Inc. sub. deb. 13s, 1999 223,875
-------------
12,647,100
ADVERTISING (1.0%)
----------------------------------------------------------------------------------------------------------------
4,000,000 Katz Corp. sr. sub. notes 12 3/4s, 2002 4,240,000
1,115,000 Lamar Advertising Co. sr. secd. notes 11s, 2003 1,092,700
1,750,000 Outdoor Systems, Inc. deb. 10 3/4s, 2003 1,697,500
5,000,000 Universal Outdoor Inc. sub. deb. 11s, 2003 4,975,000
-------------
12,005,200
OIL AND GAS (1.0%)
----------------------------------------------------------------------------------------------------------------
6,200,000 Maxus Energy Corp. notes 9 3/8s, 2003 5,828,000
5,325,000 TransTexas Gas Corp. sr. secd. notes 10 1/2s, 2000 5,325,000
-------------
11,153,000
ELECTRONICS (0.9%)
----------------------------------------------------------------------------------------------------------------
5,500,000 Ampex Group, Inc. sr. sub. deb. 13 1/4s, 1996 (f) 385,000
7,075,000 Amphenol Corp. sr. sub. notes 12 3/4s, 2002 (b) 8,030,125
5,175,000 International Semi-Tech. corp. sr. secd. disc. notes
stepped-coupon zero % (11 1/2s, 8/15/00), 2003 (c) 2,639,250
-------------
11,054,375
BUILDING AND CONSTRUCTION (0.9%)
----------------------------------------------------------------------------------------------------------------
5,250,000 Presley Co. sr. notes 12 1/2s, 2001 5,171,250
5,800,000 Scotsman Group Inc. sr. notes 9 1/2s, 2000 5,423,000
-------------
10,594,250
CONTAINERS (0.9%)
----------------------------------------------------------------------------------------------------------------
4,600,000 Anchor Glass Container Corp. sr. sub. deb. 9 7/8s, 2008 4,278,000
6,000,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 6,300,000
-------------
10,578,000
METALS AND MINING (0.9%)
----------------------------------------------------------------------------------------------------------------
6,750,000 Horsehead Industries, Inc. sub. notes 14s, 1999 6,547,500
1,250,000 Horsehead Industries, Inc. sr. sub. ext. reset notes
15 3/4s, 1997 1,287,500
2,250,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes
12 3/4s, 2003 2,295,000
-------------
10,130,000
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
CORPORATE BONDS ANDNOTES
PRINCIPAL AMOUNT VALUE
<S> <C>
PUBLISHING (0.9%)
----------------------------------------------------------------------------------------------------------------
$ 3,200,000 Enquirer/Star sr. sub. notes zero %, 1997 $ 2,400,000
2,000,000 Marvel Holdings, Inc. sr. secd. notes zero %, 1998 1,210,000
10,695,000 Marvel Parent Holdings, Inc. sr. secd. disc.
notes zero %, 1998 6,417,000
-------------
10,027,000
AGRICULTURE (0.9%)
----------------------------------------------------------------------------------------------------------------
6,123,698 Premium Standard Farms sr. secd. notes 12s, 2000 (b) 6,705,449
4,155,000 Premium Standard Farms deb.
stepped-coupon zero % (12s, 9/15/96), 2003 (b) (c) 3,230,513
-------------
9,935,962
BUILDING PRODUCTS (0.8%)
----------------------------------------------------------------------------------------------------------------
750,000 American Standard, Inc. jr. sub. deb. 12 3/4s, 2003 750,000
7,500,000 American Standard, Inc. sr. sub. deb.
stepped-coupon zero % (10 1/2s, 6/1/98), 2005 (c) 4,706,250
3,250,000 Southdown, Inc. sr. sub. notes Ser. B, 14s, 2001 3,656,250
-------------
9,112,500
BUSINESS EQUIPMENT AND SERVICES (0.7%)
----------------------------------------------------------------------------------------------------------------
4,845,000 Corporate Express, Inc. sr. notes 9 5/8s, 2004
(acquired 2/22/94, par 2,045,000 cost $2,045,000,
acquired 2/25/94, par 2,800,000 cost $2,772,000) (d) 4,433,175
6,575,000 Equitable Bag Co. sr. notes 12 3/8s, 2002 (f) 4,273,750
-------------
8,706,925
RESTAURANTS (0.6%)
----------------------------------------------------------------------------------------------------------------
800,000 American Restaurant Group, Inc. sr. secd. notes
Ser. A 12s, 1998 760,000
7,875,000 Flagstar Corp. sr. sub. deb. 11 1/4s, 2004 6,733,125
-------------
7,493,125
LODGING (0.6%)
----------------------------------------------------------------------------------------------------------------
5,750,000 John Q. Hammons Hotels 1st mtge. 8 7/8s, 2004 5,131,875
2,500,000 Red Roof Inns sr. notes 9 5/8s, 2003 2,312,500
-------------
7,444,375
STEEL (0.6%)
----------------------------------------------------------------------------------------------------------------
6,925,000 WCI Steel Inc. sr. secd. notes 10 1/2s, 2002 7,098,125
----------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES (0.6%)
6,550,000 Midland Funding Corp. II sub. secd. lease oblig.
bonds Ser. B, 13 1/4s, 2006 6,697,375
COMMUNICATIONS (0.6%)
----------------------------------------------------------------------------------------------------------------
10,200,000 Panamsat L.P. sr. sub. notes stepped-coupon zero %,
(11 3/8s, 8/1/98), 2003 (c) 6,630,000
INSURANCE (0.5%)
----------------------------------------------------------------------------------------------------------------
1,000,000 American Annuity Group, Inc. sr. notes 9 1/2s, 2001 970,000
1,200,000 Bankers Life Holdings sr. sub. deb. Ser. A, 13s, 2002 1,368,000
3,200,000 Reliance Group Holdings sr. sub. deb. 9 3/4s, 2003 2,832,000
800,000 Reliance Group Holdings sr. notes 9s, 2000 724,000
-------------
5,894,000
AUTOMOTIVE PARTS P(0.5%)
----------------------------------------------------------------------------------------------------------------
4,900,000 Key Plastics Corp. sr. notes 14s, 1999 5,512,500
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
<S> <C>
CONSUMER SERVICES (0.5%)
----------------------------------------------------------------------------------------------------------------
$ 3,000,000 Solon Automated Services, Inc. sr. sub. deb. 13 3/4s, 2002 $ 3,045,000
2,300,000 Solon Automated Services, Inc. notes 12 3/4s, 2001 2,334,500
-------------
5,379,500
TEXTILES (0.5%)
----------------------------------------------------------------------------------------------------------------
5,000,000 Foamex (L.P.) Capital Corp. sr. sub. deb. 11 7/8s, 2004 5,150,000
237,000 Foamex (L.P.) Capital Corp. sr. secd. notes 9 1/2s, 2000 225,150
-------------
5,375,150
SCHOOL BUSES (0.5%)
----------------------------------------------------------------------------------------------------------------
5,250,000 Blue Bird Acquisition Corp. sub. deb. Ser. B 11 3/4s, 2002 5,355,000
SHIPPING (0.4%)
----------------------------------------------------------------------------------------------------------------
5,350,000 Viking Star Shipping sr. secd. notes 9 5/8s, 2003 5,176,125
APPAREL (0.4%)
----------------------------------------------------------------------------------------------------------------
5,250,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 4,935,000
BROADCASTING (0.4%)
----------------------------------------------------------------------------------------------------------------
2,450,000 SFX Broadcasting sr. sub. notes 11 3/8s, 2000 2,511,250
3,276,000 Telemedia Broadcasting deb. 6.4s, 2004 (b) 1,965,600
-------------
4,476,850
SPECIALTY CONSUMER PRODUCTS (0.4%)
----------------------------------------------------------------------------------------------------------------
5,000,000 Playtex Family Products Corp. sr. sub. notes 9s, 2003 4,450,000
AIRLINES (0.3%)
----------------------------------------------------------------------------------------------------------------
4,320,000 USAir, Inc. sr. notes 10 3/8s, 2013 3,909,600
ENVIRONMENTAL CONTROL (0.3%)
----------------------------------------------------------------------------------------------------------------
3,800,000 Envirosource, Inc. sr. notes 9 3/4s, 2003 3,458,000
FINANCE (0.3%)
----------------------------------------------------------------------------------------------------------------
2,995,000 Comdata Network, Inc. sr. notes 12 1/2s, 1999 3,219,625
BANKS (0.2%)
----------------------------------------------------------------------------------------------------------------
2,700,000 Westpac Banking Corp. sub. deb. 9 1/8s, 2001 2,907,563
HOME FURNISHINGS (0.1%)
----------------------------------------------------------------------------------------------------------------
1,082,000 Simmons Mattress Corp. deb. 8s, 2003 (b) (e) 1,014,375
----------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (cost $441,001,905) $ 424,414,882
----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (25.5%)(A)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
Federal National Mortgage Association
$ 47,417,336 7s, with various due dates to May 1, 2004 $ 45,016,832
81,933 6 1/2s, with various due dates to June 1, 2023 75,429
Government National Mortgage Association
1,437,411 9 1/2s, with various due dates to April 15, 2021 1,528,989
241,584 8s, with various due dates to December 15, 2003 242,640
45,770,625 7 1/2s, with various due dates to June 15, 2024 44,454,718
36,806,671 7s, with various due dates to June 15, 2024 34,587,779
8,960,000 U.S. Treasury Notes 7 3/8s, May 15, 1996 9,178,400
25,430,000 U.S. Treasury Notes 7 1/2s, November 15, 2001 26,208,794
21,270,000 U.S. Treasury Notes 6s, November 30, 1997 20,997,478
14,400,000 U.S. Treasury Notes 5.75s, October 31, 1997 14,121,000
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS
PRINCIPAL AMOUNT VALUE
<S> <C>
$ 10,455,000 U.S. Treasury Notes 5 1/4s, July 31, 1998 $ 9,974,723
28,000,000 U.S. Treasury Notes 5 1/8s, December 31, 1998 26,398,750
16,230,000 U.S. Treasury Notes 5 1/8s, November 30, 1998 15,317,063
4,000,000 U.S. Treasury Notes 5s, January 31, 1999 3,745,000
9,715,000 U.S. Treasury Notes 4s, January 31, 1996 9,478,197
30,900,000 U.S. Treasury Notes 3 7/8s, October 31, 1995 30,272,344
6,170,000 U.S. Treasury Notes 3 7/8s, August 31, 1995 6,069,738
--------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(cost $307,508,561) $ 297,667,874
--------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FOREIGN BONDS AND NOTES (23.8%)(A)(G)
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
ARP 2,120,000 Argentina (Government of) bonds 13 3/8s, 2001 $ 2,151,800
AUD 2,495,000 Australia (Government of) bonds 13s, 1996 1,999,119
AUD 21,875,000 Australia (Government of) bonds 7s, 2000 14,628,906
AUD 20,910,000 Australia (Government of) bonds 6 3/4s, 2006 12,206,213
ECU 800,000 Australia New Zealand Bank sub. notes 6 1/4s, 2004 715,500
ECU 2,000,000 Banco Nacional bonds 8s, 2003 1,717,500
CAD 74,830,000 Canada (Government of) bonds 5 3/4s, 1999 47,937,969
ECU 1,500,000 Essar Gujart Ltd. unsub. notes zero %, 1999 1,501,875
FIM 27,000,000 Finland (Republic of) notes 11s, 1999 5,484,375
FIM 32,000,000 Finland (Republic of) notes 10 3/4s, 2002 6,440,000
FIM 8,000,000 Finland (Government of) bonds 9 1/2s, 2004 1,485,000
FRF 16,800,000 France (Government of) BTAN 8 1/2s, 1997 3,276,000
ECU 8,973,000 France Treasury bonds 8 1/4s, 2022 10,778,816
ECU 1,115,000 France (Government of) BTAN 7 1/4s, 1998 1,343,575
FRF 3,310,000 France (Government of) Balladurs 6s, 1997 602,006
FRF 108,670,000 France (Government of) OAT 5 1/2s, 2004 17,658,875
FRF 11,600,000 France (Government of) BTAN 4 3/4s, 1999 1,972,000
DEM 9,900,000 Germany (Government of) bonds 8 1/2s, 1996 6,583,500
DEM 2,655,000 Germany (Government of) bonds 6 3/4s, 2004 1,656,056
IDR 750,000 Indonesia (Government of) bonds 9 3/4s, 2001 737,813
ITL 530,000,000 Italy (Government of) notes 9 1/4s, 2011 655,213
MXP 4,250,000 Mexico (Government of) bonds 6 1/4s, 2019 2,799,688
USD 6,000,000 Mexico (Government of) disc. bonds, Ser. C, 4.313s, 2019 5,070,000
USD 3,000,000 Mexico (Government of) disc. bonds, Ser. D, 4.313s, 2019 2,535,000
MAD 2,500,000 Morocco (Government of) loan participation notes
4 1/2s, 1999 (f) 1,771,875
USD 8,347,000 Myra Ecuador loan participation notes zero %, 1999 (f) 3,380,535
NLG 1,665,000 Netherlands (Government of) bonds 8 1/4s, 2007 1,016,691
NLG 4,075,000 Netherlands (Government of) bonds 7 1/2s, 2023 2,312,563
NLG 2,000,000 Netherlands (Government of) bonds 5 3/4s, 1/15/04 1,037,500
NZD 24,990,000 New Zealand (Government of) notes 8s, 1995 15,103,331
PHP 1,000,000 Philippines (Government of) notes 10 5/8s, 2004 1,006,250
PHP 2,000,000 Philippines (Government of) bonds 5 1/4s, 2017 1,302,500
ESP 779,200,000 Spain (Government of) bonds 10.55s, 1996 6,102,110
ESP 842,300,000 Spain (Government of) bonds 10 1/4s, 1998 6,485,710
SEK 18,600,000 Statens Bostadsfinansier inverse Floating Rate Notes 11s, 1999 2,383,125
SEK 18,200,000 Sweden (Government of) bonds 11s, 1999 2,400,125
SEK 39,400,000 Sweden (Government of) bonds 10 1/4s, 2003 4,949,625
SEK 82,700,000 Sweden (Government of) bonds 6s, 2005 7,443,000
ARP 750,000 Tele-Argen bonds 8 3/8s, 2000 687,188
THB 20,000,000 Thailand (IFC of) bonds 8s, 1996 800,000
TRL 1,500,000 Turkey (Republic of) bonds 9s, 1999 1,267,500
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
FOREIGN BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
GBP 6,375,000 United Kingdom Exchequer notes 9 3/4s, 1998 $ 10,275,703
GBP 8,005,000 United Kingdom Treasury bonds 9 1/2s, 2004 13,038,144
ECU 7,005,000 United Kingdom Treasury bonds 9 1/8s, 2001 9,014,559
GBP 2,555,000 United Kingdom Treasury bonds 9s, 2000 4,019,334
GBP 6,545,000 United Kingdom Treasury bonds 8s, 2003 9,702,963
GBP 13,775,000 United Kingdom Treasury bonds 6 3/4s, 2004 18,708,172
GBP 655,000 United Kingdom Treasury war bonds 3 1/2s, 2049 421,247
----------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS AND NOTES (cost $285,562,333) $ 276,566,549
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
UNITS (3.6%)(A)
NUMBER OF UNITS VALUE
<C> <S> <C>
315 Celcaribe S.A. units stepped coupon zero %
(13 1/2s, 3/15/98), 2004 (b) (c) $ 2,598,750
2,135 Chesapeake Energy Corp. deb. units 12s, 2001 2,156,350
5,375 County Seat Stores units 12s, 2001 5,321,250
10,725 Echostar Communication Corp. units stepped coupon
zero % (12 7/8s, 12/1/99), 2004 (c) 5,362,500
4,125 Foamex (L.P.) Capital Corp. units stepped-coupon zero %
(13 1/2s, 1999), 2004 (c) 2,145,000
1,925 Hollywood Casino units 13 1/2s, 1998 (b) 1,867,250
7,815 ICF Kaiser International Inc. sr. sub. units 12s, 2003 7,111,650
1,000 New Street Acquisition units 12s, 1998 1,000,000
6,255 OSI Specialty Inc. sr. sub. units stepped-coupon
zero %, (11 1/2s, 4/15/99), 2004 (acquired 4/12/94,
cost $3,580,675) (c) (d) 3,753,000
4,931 PMI Acquisition Corp. unit stepped-coupon zero %,
(11 1/2s, 9/1/00), 2005 (c) 2,514,810
280 Page Mart Inc. sr. disc. units stepped-coupon zero %,
(12 1/4s, 11/1/98), 2003 (b) (c) 1,750,000
13,760 Premium Standard Farms exch. pfd. units 12 1/2s, 2000 (b) 1,506,720
110 Pyramid Communications units $3.125 pfd. (e) 2,640,000
4,600 Universal Outdoor Inc. sub. deb. units 14s, 2004 2,346,000
----------------------------------------------------------------------------------------
TOTAL UNITS (cost $42,049,545) $ 42,073,280
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
BRADY BONDS (1.8%)(A)(G)
PRINCIPAL AMOUNT VALUE
<C> <S> <C>
$8,750,000 Argentina (Government of) Floating Rate Notes (FRN)
5.31s, 2023 $ 6,125,000
9,750,000 Argentina (Republic of) FRN 5s, 2005 7,129,688
12,250,000 Argentina (Government of) FRN 4 1/4s, 2023 6,278,125
2,940,000 Brazil (Government of) FRN 8 3/4s, 2001 2,157,225
----------------------------------------------------------------------------------------
TOTAL BRADY BONDS (cost $23,278,887) $ 21,690,038
----------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
PREFERRED STOCKS (1.4%)(A)
NUMBER OF SHARES VALUE
<C> <S> <C>
63,750 Calfed Inc. Ser. B, $10.625 pfd. $ 6,685,781
50,000 First Madison Bank Ltd. $11.50 pfd. 5,037,500
3,437 Pyramid Communications Corp. Ser A, $3.125 exch. pfd. (b) 85,925
39,959 Stone Savannah River Pulp & Paper Corp. $3.84 exch. pfd. (e) 3,995,900
--------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS (cost $14,850,402) $ 15,805,106
--------------------------------------------------------------------------------------------
EUROBONDS (0.6%)(A)(G)
PRINCIPAL AMOUNT VALUE
$ 2,750,000 Banco de Galicia Inc. global notes 9s, 2003 $ 2,323,750
1,000,000 Hungary National Bank bonds 7.95s, 2003 845,000
3,750,000 Ispat Mexicana, deb. 10 3/8s, 2001 (acquired 3/1/94,
cost $3,727,166) (d) 3,393,750
--------------------------------------------------------------------------------------------
TOTAL EUROBONDS (cost $7,500,481) $ 6,562,500
--------------------------------------------------------------------------------------------
COMMON STOCKS (0.4%)(A)(F)
NUMBER OF SHARES VALUE
368 CDK Holding Corp. rights (acquired 10/31/88,
cost $20,643) (d) $ 13,846
26,050 Computervision Corp. (acquired 8/24/92, cost
$234,450) (d) 51,285
520,099 Computervision Corp. (acquired 6/9/94, shares 506,078,
cost $1,518,234, acquired 6/9/94, shares 14,021,
cost $42,063) (d) 1,365,260
37,304 Grand Casinos, Inc. 568,886
10,934 Ifint Diversified Holdings 448,294
14,481 Kendall International, Inc. 758,442
666,882 Loehmanns' Holdings, Inc. 666,882
1,658 PMI Holdings Corp. (acquired 9/20/93, cost $22,535) (d) 331,600
776 Premium Holdings L.P. (acquired 1/4/94, cost $46,560) (d) 77,600
324,788 Solon Automated Services, Inc. (acquired 6/18/92,
cost $193,950) (d) 202,993
46 Southland Corp. 247 247
43,875 Specialty Foods Corp. 32,906
78,643 Spectra Vision Inc. 157,286
12,509 Taj Mahal Holding Corp. Class A 200,144
20,000 Triangle Pacific Corp. 275,000
--------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (cost $5,291,859) $ 5,150,671
--------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS (0.4%)(A)
NUMBER OF SHARES VALUE
23,000 Chiquita Brands International Inc. $5.75 cv. pfd. $ 925,750
66,330 Conseco, Inc. Ser. D, $3.25 cv. pfd. 3,208,714
--------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCKS (cost $4,466,500) $ 4,134,464
--------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
ASSET-BACKED SECURITIES (0.3%)(A)(COST $3,871,512)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
$ 3,880,000 First Deposit Master Trust Ser. 93-2A, 5 3/4s, 2001 $ 3,739,350
</TABLE>
<TABLE>
<CAPTION>
WARRANTS (0.2%)(A)(F) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
<S> <C> <C> <C>
95,000 Becker Gaming Corp. (b) 11/15/00 $ 225,625
609 CDK Holding Corp. Class A
(acquired 10/31/88, cost $34,165) (d) 7/7/99 22,914
652 CDK Holding Corp. Class B
(acquired 10/31/88, cost $18,269) (d) 7/7/99 23,228
8,223 Casino America Inc. 11/15/96 2,056
27,600 Casino Magic Finance Corp. 10/14/96 13,800
18,558 Cinemark Mexico 8/1/03 171,662
5,375 County Seat Holdings, Inc. 10/15/98 161,250
237,130 Gaylord Container Corp. 7/31/96 1,096,726
187,200 Insight Communications 3/30/98 280,800
10,752 Louisiana Casino Cruises, Inc. (b) 12/1/98 161,280
31,620 President Riverboat Casinos 9/15/96 15,810
60,000 Southdown, Inc. 11/1/96 307,500
77 Telemedia Broadcasting 4/1/04 57,942
24,000 UCC Investor Holding, Inc. 10/30/99 312,000
455 Wright Medical 6/30/03 56,860
--------------------------------------------------------------------------------------------
TOTAL WARRANTS (cost $2,632,398) $ 2,909,453
--------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YANKEE BONDS AND NOTES (0.2%)(A)(G)(COST $2,960,438)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
$ 2,850,000 Eletson Holdings, Inc. mtge. notes 9 1/4s, 2003 $ 2,679,000
COLLATERALIZED MORTGAGE OBLIGATIONS (0.1%)(A)
PRINCIPAL AMOUNT VALUE
$ 2,496,136 Federal National Mortgage Association
Interest Only Strips 7 1/2s, September 25, 2007 (h) $ 645,875
610,888 Prudential Home Mortgage Securities Co. Ser. 92-39
A1, 5.15s, 2007 609,361
--------------------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(cost $1,185,162) $ 1,255,236
--------------------------------------------------------------------------------------------
CONVERTIBLE BONDS AND NOTES (0.1%)(A)(COST $950,000)
PRINCIPAL AMOUNT VALUE
$ 950,000 Sahara Mission cv. sub. notes 12s, 1995 (b) $ 950,000
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
PUT OPTIONS (-%)(A)(G) EXPIRATION DATE/
CURRENCY STRIKE PRICE VALUE
<S> <C> <C> <C>
JPY 7,192,000 Japanese Yen 8/24/94 98.9 $ 74,078
JPY 7,192,000 Japanese Yen 8/26/94 98.1 53,940
--------------------------------------------------------------------------------------------------
TOTAL PUT OPTIONS (cost $218,636) $ 128,018
--------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (4.4%)(A)
PRINCIPAL AMOUNT VALUE
$10,000,000 Metropolitan Life Funding, 4.33s, August 8, 1994 $ 9,991,580
MXP 1,110,910 Mexican Treasury Bills zero %, August 18, 1994 (g) 326,330
MXP 1,200,000 Mexican Treasury Bills zero %, April 27, 1995 (g) 315,000
MXP 2,200,000 Mexican Treasury Bills zero %, October 27, 1994 (g) 618,750
USD 4,650,000 Mexican Treasury Bills zero %, September 29, 1994 (g) 4,527,938
USD 1,000,000 Mexican Treasury Bills zero %, October 13, 1994 (g) 966,250
$35,040,000 Interest in $530,000,000 joint repurchase agreement
dated July 29, 1994 with Bankers Trust Co.
due August 1, 1994 with respect to various
U.S. Treasury obligations-maturity value of $35,052,264
for an effective yield of 4.2% 35,052,264
--------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (cost $51,922,944) $ 51,798,112
--------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $1,195,251,563) (i) $1,157,524,533
--------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
NOTES
- --------------------------------------------------------------------------------
(a) Percentages indicated are based on total net assets of $1,166,725,877,
which correspond to a net asset value per share of $8.29.
(b) Security 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. As of July 31,
1994, these securities amounted to $46,636,812 or 4.0% of net assets.
(c) 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.
(d) Restricted, excluding 144A securities, as to public resale. At the date
of acquisition, these securities were valued at cost. There were no
outstanding unrestricted securities of the same class as those held.
Total market value of restricted securities owned at July 31, 1994 was
$17,576,984 or 1.5% of net assets.
(e) Income may be received in cash or additional securities at the discretion
of the issuer.
(f) Non-income-producing security.
(g) Foreign currency-denominated. Market value is translated at the current
exchange rate.
(h) Interest Only (IO) Strips represent the right to receive the monthly
interest payments on an underlying pool of mortgage loans. Payments of
principal on the pool reduce the nominal value of the IO holding.
(i) The aggregate indentified cost for federal income tax purposes is
$1,196,101,274, resulting in gross unrealized appreciation and
depreciation of $11,052,601 and $49,629,342, respectively, or net
unrealized depreciation of $38,576,741. The rate shown on Inverse Rate
Floater Notes (IRFN) and Floating Rate Notes (FRN) are current interest
rates at July 31, 1994, which are subject to change based on the terms of
the security.
<TABLE>
DIVERSIFICATION OF FOREIGN BONDS, NOTES AND SHORT TERM
INVESTMENTS AT JULY 31, 1994 (AS A PERCENTAGE OF NET ASSETS):
<S> <C> <C> <C>
United Kingdom 5.6% Netherlands 0.4%
Canada 4.1 Ecuador 0.3
France 3.1 Greece 0.2
Australia 2.5 Philippines 0.2
Argentina 1.9 Morocco 0.2
Mexico 1.7 India 0.1
Sweden 1.5 Turkey 0.1
New Zealand 1.3 Hungary 0.1
Finland 1.2 Thailand 0.1
Spain 1.1 Indonesia 0.1
Germany 0.7 Italy 0.1
Brazil 0.5
</TABLE>
21
<PAGE> 22
<TABLE>
FORWARD CROSS CURRENCY CONTRACTS OUTSTANDING AT
JULY 31, 1994 (AGGREGATE FACE VALUE $23,277,071)
<CAPTION>
IN
MARKET EXCHANGE MARKET DELIVERY UNREALIZED
CONTRACTS VALUE FOR VALUE DATE APPRECIATION
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
British Pounds
(Buy) $22,932,623 Deutschemarks $22,839,141 10/19/94 $93,482
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
FORWARD CURRENCY CONTRACTS OUTSTANDING AT
JULY 31, 1994
<CAPTION>
AGGREGATE UNREALIZED
FACE DELIVERY APPRECIATION/
MARKET VALUE VALUE DATE (DEPRECIATION)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian Dollar (Sell) $12,702,200 $12,672,960 11/02/94 $ (29,240)
- -----------------------------------------------------------------------------------------------
Deustchemarks (Sell) 28,138,140 28,172,573 10/04/94 34,433
- -----------------------------------------------------------------------------------------------
Deutschemarks (Sell) 15,646,320 15,674,377 9/23/94 28,057
- -----------------------------------------------------------------------------------------------
Deutschemarks (Buy) 15,646,320 15,583,028 9/23/94 63,292
- -----------------------------------------------------------------------------------------------
Deutschemarks (Sell) 15,648,800 16,292,958 9/14/94 644,158
- -----------------------------------------------------------------------------------------------
Deutschemarks (Sell) 1,072,530 1,096,562 10/18/94 24,032
- -----------------------------------------------------------------------------------------------
Deutschemarks (Sell) 28,138,140 28,263,625 11/01/94 125,485
- -----------------------------------------------------------------------------------------------
Deutschemarks (Sell) 14,069,070 14,219,898 11/01/94 150,828
- -----------------------------------------------------------------------------------------------
Deutschemarks (Sell) 13,960,360 13,960,360 10/05/94 -
- -----------------------------------------------------------------------------------------------
Deutschemarks (Sell) 13,954,507 13,954,507 11/02/94 -
- -----------------------------------------------------------------------------------------------
New Zealand Dollar (Sell) 3,238,920 3,226,554 10/03/94 (12,366)
- -----------------------------------------------------------------------------------------------
New Zealand Dollar (Sell) 6,118,980 6,106,128 9/30/94 (12,852)
- -----------------------------------------------------------------------------------------------
Swiss Franc (Sell) 13,808,400 13,929,884 10/25/94 121,484
- -----------------------------------------------------------------------------------------------
$1,137,311
- -----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE> 23
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1994
<S> <C>
ASSETS
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,195,251,563) (Note 1) $1,157,524,533
-------------------------------------------------------------------------------------------
Interest and other receivables 22,060,580
-------------------------------------------------------------------------------------------
Receivable for securities sold 22,652,850
-------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 1,285,251
-------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 2,713,775
-------------------------------------------------------------------------------------------
TOTAL ASSETS 1,206,236,989
-------------------------------------------------------------------------------------------
LIABILITIES
-------------------------------------------------------------------------------------------
Payable to subcustodian bank (Note 2) 109,043
-------------------------------------------------------------------------------------------
Payable for securities purchased 22,298,413
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 8,596,836
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,001,786
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 9,141
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 345
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 442,451
-------------------------------------------------------------------------------------------
Payable for open forward currency contracts 54,458
-------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 5,447,684
-------------------------------------------------------------------------------------------
Other accrued expenses 367,187
-------------------------------------------------------------------------------------------
Payable for variation margin 183,768
-------------------------------------------------------------------------------------------
TOTAL LIABILITIES 39,511,112
-------------------------------------------------------------------------------------------
NET ASSETS $1,166,725,877
-------------------------------------------------------------------------------------------
REPRESENTED BY
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1,4 and 5) $1,248,889,180
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Notes 1 and 5) (20,076,623)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (Notes 1 and 5) (25,590,443)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments, options, foreign currency and
forward currency contracts (36,496,237)
-------------------------------------------------------------------------------------------
TOTAL - REPRESENTING NET ASSETS APPLICABLE TO CAPITAL
SHARES OUTSTANDING $1,166,725,877
-------------------------------------------------------------------------------------------
COMPUTATION OF NET ASSET VALUE
-------------------------------------------------------------------------------------------
Net asset value per share
($1,166,725,877 divided by 140,759,960 shares) $8.29
-------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE> 24
<TABLE>
STATEMENT OF OPERATIONS
Year ended July 31, 1994
<S> <C>
-----------------------------------------------------------------------------------------
INVESTMENT INCOME:
-----------------------------------------------------------------------------------------
Interest (net of foreign tax of $303,935) $100,218,004
-----------------------------------------------------------------------------------------
Dividends 510,038
-----------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 100,728,042
-----------------------------------------------------------------------------------------
EXPENSES:
-----------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 8,405,135
-----------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,303,614
-----------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 39,254
-----------------------------------------------------------------------------------------
Reports to shareholders 249,479
-----------------------------------------------------------------------------------------
Auditing 57,470
-----------------------------------------------------------------------------------------
Legal 42,989
-----------------------------------------------------------------------------------------
Postage 326,286
-----------------------------------------------------------------------------------------
Exchange listing fees 167,246
-----------------------------------------------------------------------------------------
Administrative services (Note 2) 12,056
-----------------------------------------------------------------------------------------
Registration fees 1,237
-----------------------------------------------------------------------------------------
Other 18,610
-----------------------------------------------------------------------------------------
TOTAL EXPENSES 10,623,376
-----------------------------------------------------------------------------------------
NET INVESTMENT INCOME 90,104,666
-----------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 19,522,551
-----------------------------------------------------------------------------------------
Net realized loss on options (Notes 1 and 3) (958,899)
-----------------------------------------------------------------------------------------
Net realized loss on forward currency contracts (Notes 1 and 3) (20,140,521)
-----------------------------------------------------------------------------------------
Net realized loss on foreign currency (Note 1) (1,946,211)
-----------------------------------------------------------------------------------------
Net realized gain on futures contracts (Notes 1 and 3) 479,832
-----------------------------------------------------------------------------------------
Net unrealized depreciation of investments, options, futures,
foreign currency, forward currency contracts and TBA sale
commitments during the year (68,007,807)
-----------------------------------------------------------------------------------------
NET LOSS ON INVESTMENT TRANSACTIONS (71,051,055)
-----------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 19,053,611
-----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE> 25
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS
-----------------------------------------------------------------------------------------------
YEAR ENDED JULY 31
-------------------------------
1994 1993
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
-----------------------------------------------------------------------------------------------
Net investment income $ 90,104,666 $ 99,314,124
-----------------------------------------------------------------------------------------------
Net realized gain on investments 19,522,551 50,869,464
-----------------------------------------------------------------------------------------------
Net realized loss on options (958,899) (1,125,653)
-----------------------------------------------------------------------------------------------
Net realized gain on futures contracts 479,832 -
-----------------------------------------------------------------------------------------------
Net realized gain (loss) on forward currency contracts (20,140,521) 48,082,868
-----------------------------------------------------------------------------------------------
Net realized loss on foreign currency (1,946,211) (287,099)
-----------------------------------------------------------------------------------------------
Net unrealized foreign currency translation gain - 3,283
-----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments, options,
futures, foreign currency, forward currency contracts, and TBA
sale commitments (68,007,807) (36,667,997)
-----------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 19,053,611 160,188,990
-----------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
-----------------------------------------------------------------------------------------------
Net investment income (98,104,251) (99,314,124)
-----------------------------------------------------------------------------------------------
Excess of net investment income (Note I) (3,416,241) (9,060,214)
-----------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment of distributions - 2,420,552
-----------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (82,466,881) 54,235,204
NET ASSETS
-----------------------------------------------------------------------------------------------
Beginning of year 1,249,192,758 1,194,957,554
-----------------------------------------------------------------------------------------------
End of year (including distributions in excess of
net investment income of $20,076,623
and $9,060,214, respectively.) $1,166,725,877 $1,249,192,758
-----------------------------------------------------------------------------------------------
NUMBER OF FUND SHARES
-----------------------------------------------------------------------------------------------
Shares outstanding at beginning of year 140,759,960 140,475,959
-----------------------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions - 284,001
-----------------------------------------------------------------------------------------------
Shares outstanding at end of year 140,759,960 140,759,960
-----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE> 26
<TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<CAPTION>
1994 1993 1992 1991
----------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 8.87 $ 8.51 $ 7.90 $ 8.20
- -------------------------------------------------------------------------------------
INVESTMENT OPERATIONS:
- -------------------------------------------------------------------------------------
Net Investment Income .64 .71 .75 .75
- -------------------------------------------------------------------------------------
Net Realized and Unrealized
Gain (Loss) on Investments (.50) .42 .73 (.14)
- -------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .14 1.13 1.48 .61
- -------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
- -------------------------------------------------------------------------------------
From Net Investment Income (.70) (.71) (.75) (.75)
- -------------------------------------------------------------------------------------
In Excess of Net
Investment Income (.02) (.06) (.12) (.13)
- -------------------------------------------------------------------------------------
From Net Realized Gain
on Investments - - - -
- -------------------------------------------------------------------------------------
From Tax Returns of Capital - - - (.05)
- -------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.72) (.77) (.87) (.93)
- -------------------------------------------------------------------------------------
INCREASE IN NET ASSET VALUE FROM
SHARES REPURCHASED (A) - - - .02
- -------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 8.29 $ 8.87 $ 8.51 $ 7.90
- -------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
MARKET VALUE (%) (B) .95 8.69 27.42 23.50
- -------------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $ 7.625 $ 8.25 $ 8.88 $ 7.75
- -------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(IN THOUSANDS) $1,166,726 $1,249,193 $1,194,958 $1,106,772
- -------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets (%) .86 .84 .88 1.06
- -------------------------------------------------------------------------------------
Ratio of Net Investment Income
to Average Net Assets (%) 7.30 8.14 9.05 9.41
- -------------------------------------------------------------------------------------
Portfolio Turnover (%) 242.29 250.65 203.27 350.45
- -------------------------------------------------------------------------------------
<FN>
(a) See Note 4 to Financial Statements.
(b) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Not annualized.
</TABLE>
26
<PAGE> 27
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the
period
February 29, 1988
(commencement
Year ended of operations) to
July 31 July 31
----------------------- -----------------
1990 1989 1988
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 8.98 $ 8.95 $ 9.35
- -------------------------------------------------------------------------------------
INVESTMENT OPERATIONS:
- -------------------------------------------------------------------------------------
Net Investment Income .75 .85 .35
- -------------------------------------------------------------------------------------
Net Realized and Unrealized
Gain (Loss) on Investments (.46) .33 (.37)
- -------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .29 1.18 (.02)
- -------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
- -------------------------------------------------------------------------------------
From Net Investment Income (.75) (.88) (.33)
- -------------------------------------------------------------------------------------
In Excess of Net
Investment Income (.09) - -
- -------------------------------------------------------------------------------------
From Net Realized Gain
on Investments (.02) (.27) (.05)
- -------------------------------------------------------------------------------------
From Tax Returns of Capital (.21) - -
- -------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1.07) (1.15) (.38)
- -------------------------------------------------------------------------------------
INCREASE IN NET ASSET VALUE FROM
SHARES REPURCHASED (A) - - -
- -------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 8.20 $ 8.98 $ 8.95
- -------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
MARKET VALUE (%) (B) (14.04) 12.14 .26(c)
- -------------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $ 7.13 $ 9.50 $ 9.63
- -------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(IN THOUSANDS) $1,169,007 $1,278,922 $1,255,520
- -------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets (%) 1.02 .99 .17(c)
- -------------------------------------------------------------------------------------
Ratio of Net Investment Income
to Average Net Assets (%) 9.03 9.54 1.60(c)
- -------------------------------------------------------------------------------------
Portfolio Turnover (%) 165.97 249.07 41.74(c)
- -------------------------------------------------------------------------------------
<FN>
(a) See Note 4 to Financial Statements.
(b) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Not annualized.
</TABLE>
27
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS
July 31, 1994
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The fund is registered under the Investment Company Act of 1940, as amended,
as a non-diversified, closed-end management investment company. The fund's
investment objective is to seek high current income by allocating its
investments among the U.S. government sector, high yield sector and
international sector of the fixed income securities market.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A) SECURITY VALUATION Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported-as in the case of some
securities traded over-the-counter-the last reported bid price, except that
certain U.S. government obligations are stated at the mean between the bid and
asked prices. Securities quoted in foreign currencies are translated into U.S.
dollars at the current exchange rate. Short-term investments having remaining
maturities of 60 days or less are stated at amortized cost which approximates
market value, and other investments, including restricted securities, are
stated at fair value following procedures approved by the Trustees. Market
quotations are not considered to be readily available for long-term corporate
bonds and notes; such investments are stated at fair value on the basis of
valuations furnished by a pricing service, approved by the Trustees, which
determines valuations for normal, institutional-size trading units of such
securities using methods based on market transactions for comparable securities
which are generally recognized by institutional traders. See section F of Note
1 with respect to valuation of options, futures and forward currency contracts.
B) TBA PURCHASE COMMITMENTS The fund may enter into "TBA" (to be announced)
purchase commitments to purchase securities for a fixed unit price at a
future date beyond customary settlement time. Although the unit price has
been established, the principal value has not been finalized. However, the
amount of the commitment will not fluctuate more than 2.0% from the principal
amount. The fund holds, and maintains until the settlement date, cash or
high-grade debt obligations in an amount sufficient to meet the
purchase price, or the fund enters into offsetting contracts for the forward
sale of other securities it owns. TBA purchase commitments may be considered
securities in themselves, and involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date, which risk is
in
28
<PAGE> 29
addition to the risk of decline in the value of the fund's other assets.
Unsettled TBA purchase commitments are valued at the current market value of
the underlying securities, generally according to the procedures described
under "Security valuation" above.
Although the fund will generally enter into TBA purchase commitments with the
intention of acquiring securities for its portfolio or for delivery pursuant to
options contracts it has entered into, the fund may dispose of a commitment
prior to settlement if the fund Manager deems it appropriate to do so.
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 on the commitment
without regard to any unrealized gain or loss on the underlying security. If
the fund delivers securities under the commitment, the fund realizes a gain
or loss from the sale of the securities based upon the unit price established
at the date the commitment was entered into.
C) JOINT TRADING ACCOUNT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account, along with the cash of other registered
investment companies managed by Putnam Investment Management, Inc., ("Putnam
Management"), the fund's Manager, a wholly-owned subsidiary of Putnam
Investments, Inc., and certain other accounts. These balances may be invested
in one or more repurchase agreements and/or short-term money market
instruments.
D) REPURCHASE AGREEMENTS The fund, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value
of which at the time of purchase is required to be in an amount at least
equal to the resale price, including accrued interest. The fund's Manager is
responsible for determining that the value of these underlying securities is
at all times at least equal to the resale price, including accrued interest.
29
<PAGE> 30
E) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis and dividend
income is recorded on the ex-dividend date.
Discount on zero coupon bonds, original issue discount bonds, payment-in-kind
bonds and step-up bonds is accreted according to the effective yield method.
Foreign currency amounts are translated into U.S. dollars at the current
exchange rate. The fund does not isolate that portion of realized or
unrealized gains or losses resulting from changes in the foreign exchange
rate from fluctuations arising from changes in the market prices of the
securities. Net realized gains and losses on foreign currency transactions
represent net exchange gains 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.
F) OPTION ACCOUNTING PRINCIPLES When the fund writes a call or put option, an
amount equal to the premium received by the fund is included in the fund's
"Statement of Assets and Liabilities" as an asset and an equivalent
liability. The amount of the liability is subsequently "marked-to-market" to
reflect the current market value of the option written. The current market
value of an option is the last sale price or, in the absence of a sale, the
last offering price. If an option expires on its stipulated expiration date,
or if the fund enters into a closing purchase transaction, the fund realizes
a gain or loss if the cost of a closing purchase transaction exceeds the
premium received when the option was written without regard to any unrealized
gain or loss on the underlying security, and the liability related to such
option is extinguished. If a written call option is exercised, the fund
realizes a gain or loss from the sale of the underlying security and the
proceeds of the sale are increased by the premium originally received. If a
written put option is exercised, the amount of the premium originally
received reduces the cost of the security which the fund purchases upon
exercise of the option.
The fund writes covered call options; that is, options for which it holds the
underlying security or its equivalent. Accordingly, the risk in writing a
call option is that the fund relinquishes the opportunity to profit if the
market price of the underlying security increases and the option is
exercised. In writing a put option, the fund assumes the risk of incurring a
loss if the market price of the underlying security decreases and the option
is exercised.
The premium paid by the fund for the purchase of a call or put option is
30
<PAGE> 31
included in the fund's "Statement of Assets and Liabilities" as an investment
and subsequently "marked-to-market" to reflect the current market value of the
option. If an option which the fund has purchased expires on the stipulated
expiration date, the fund realizes a loss in the amount of the cost of the
option. If the fund enters into a closing sale transaction, the fund realizes a
gain or loss, depending on whether the proceeds from the closing sale
transaction are greater or less than the cost of the option. If the fund
exercises a call option, the cost of the security acquired by exercising the
call is increased by the premium paid to buy the call. If the fund exercises a
put option, it realizes a gain or loss from the sale of the underlying security
and the proceeds from such sale are decreased by the premium originally paid.
OPTIONS ON FOREIGN CURRENCIES
The fund writes and purchases put and call options on foreign currencies. The
accounting principles and risks involved are similar to those described above
relating to options on securities. The amount of potential loss to the fund
upon exercise of a written call option is the value (in U.S. dollars) of the
currency sold, converted at the spot price, less the value of the U.S.
dollars received in exchange. The amount of potential loss to the fund upon
exercise of a written put option is the value (in U.S. dollars) of the
currency received converted at the spot price, less the value of the U.S.
dollars paid in exchange.
OPTIONS ON FUTURES Options on futures generally operate in the same manner as
options purchased or written directly on the underlying debt securities. The
fund is required to deposit, in a manner similar to futures contracts as
described below, "initial margin" and "variation margin" with respect to put
and call options written on futures contracts. In addition, upon exercise,
net premiums received will decrease the unrealized loss or increase the
unrealized gain on the future. The writing of an option on a futures contract
involves risks similar to those described below relating to the sale of such
contracts.
FUTURES A futures contract is an agreement between two parties to buy or sell
a security at a set price on a future date. Upon entering into such a
contract the fund is required to pledge to the broker an amount of cash or
U.S. government securities equal to the minimum "initial margin" requirements
of the exchange. Pursuant to the contract, the fund agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation in value
of the contract. Such receipts or payments are known as "variation margin,"
and are recorded by the fund as unrealized gains or losses. When the contract
is closed, the fund records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at
the time
31
<PAGE> 32
it was closed. The potential risk to the fund is that the change in value of
the underlying securities may not correspond to the change in value of the
futures contracts.
FORWARD CURRENCY CONTRACTS
A forward currency contract is an agreement between two parties to buy or
sell a currency at a set price on a future date. The market value of the
contract will fluctuate with changes in currency exchange rates. The contract
is "market-to-market" daily and the change in market value is recorded by the
fund as an unrealized gain or loss. When the contract is closed, the fund
records a realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the value at the time it was
closed. The maximum potential loss from forward currency contracts is the
aggregate face value in U.S. dollars at the time the contract was opened;
however, management believes the likelihood of such a loss to be remote.
G) FEDERAL TAXES It is the policy of the fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies. It is also
the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code of
1986. Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation of securities held and excise tax on
income and capital gains.
At July 31, 1994, the fund had a capital loss carryover of approximately
$9,041,644 which may be available to offset realized capital gains and which
expires July 31, 1999. In order to provide more level distributions, the fund
may at times pay distributions from net realized short-term gains that could
have been retained by the fund and offset by the capital loss carryover. In
such circumstances the fund would lose the benefit of the carryover.
H) DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders are recorded by
the fund on the ex-dividend date. At certain times, the fund may pay
distributions at a level rate even though, as a result of market conditions or
investment decisions, the fund may not achieve projected investment results for
a given period.
The amount and character of income and gains to be distributed are determined
in accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences include treatment of losses
on wash sales transactions, realized and unrealized gains and losses on
futures, options and forward currency contracts, realized gains and losses on
foreign exchange transactions, post-October losses, payment in kind income,
market
32
<PAGE> 33
discount and defaulted interest income. 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 July 31, 1994, the fund reclassified $16,660,655 to increase distribution
in excess of net investment income, $12,305,990 to decrease accumulated net
realized loss on investments and $4,354,665 to increase paid-in capital.
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE
SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Management for management and investment advisory
services is paid quarterly based on the average weekly net assets of the
fund. Such fee is based on the following annual rates: 0.75% of the first $500
million of average weekly net assets, 0.65% of the next $500 million, 0.60% of
the next $500 million and 0.55% of any amount over $1.5 billion.
The fund also reimburses the Manager for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees. For the year ended
July 31, 1994, the fund paid $12,056 for these services.
Trustees of the fund receive an annual Trustee's fee of $2,360 and
an additional fee for each Trustees' meeting attended. Trustees who are not
interested persons of the Manager and who serve on committees of the Trustees
receive additional fees for attendance at certain committee meetings.
Custodial functions for the fund's assets are being provided to the fund by
Putnam Fiduciary Trust Company (PFTC), a subsidiary of The Putnam
Investments, Inc. Investor servicing agent functions are provided by Putnam
Investor Services, a division of PFTC. Fees paid for these investor servicing
and custodial functions for the year ended July 31, 1994, amounted to
$1,303,614.
Investor servicing and custodian fees reported in the Statement of operations
for the year ended July 31, 1994 have been reduced by credits allowed by PFTC.
As a part of the custodian contract between the subcustodian bank and PFTC,
the subcustodian bank has a lien on the securities of the fund to the extent
permitted by the fund's investment restrictions to cover any advances made by
the subcustodian bank for the settlement of securities purchased by the fund.
At July 31, 1994, the payable to subcustodian bank represents the amount due
for cash advanced for the settlement of a security purchased.
33
<PAGE> 34
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the year ended July 31, 1994, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $1,407,824,351 and $1,447,156,967, respectively. Purchases and
sales of U.S. government obligations aggregated $1,409,799,398 and
$1,418,921,586, respectively. In determining the net gain or loss on
securities sold, the cost of securities has been determined on the identified
cost basis.
<TABLE>
Written option transactions on foreign currencies during the year are
summarized as follows:
<CAPTION>
PREMIUMS RECEIVED
- -----------------------------------------------
<S> <C>
Options written $ 314,375
- -----------------------------------------------
Options expired (89,500)
- -----------------------------------------------
Options closed (224,875)
- -----------------------------------------------
WRITTEN OPTIONS
OUTSTANDING AT END OF YEAR $ -
- -----------------------------------------------
</TABLE>
<TABLE>
Purchased option transactions on investments and foreign currencies during
the period are summarized as follows:
<CAPTION>
NUMBER OF
CONTRACTS
(000) COST
- ------------------------------------------------------
<S> <C> <C>
Options outstanding
at beginning of period 19,591 $ 1,466,179
- ------------------------------------------------------
Options purchased 18,540,938 14,298,653
- ------------------------------------------------------
Options exercised (21,400) (321,000)
- ------------------------------------------------------
Options sold (18,363,363) (8,290,965)
- ------------------------------------------------------
Options expired (161,382) (6,934,231)
- ------------------------------------------------------
PURCHASED OPTIONS
OUTSTANDING AT END OF YEAR 14,384 $ 218,636
- ------------------------------------------------------
</TABLE>
<TABLE>
Transactions in forward currency contracts during the year are summarized as
follows:
<CAPTION>
SALES OF FORWARD
CURRENCY CONTRACTS
- -------------------------------------------------------------
AGGREGATE FACE VALUE
- -------------------------------------------------------------
<S> <C>
Contracts outstanding
at beginning of year $ 225,670,904
- -------------------------------------------------------------
Contracts opened 1,898,140,362
- -------------------------------------------------------------
Contracts closed (1,956,240,880)
- -------------------------------------------------------------
OPEN AT END OF YEAR $ 167,570,386
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PURCHASES OF FORWARD
CURRENCY CONTRACTS
- -------------------------------------------------------------
AGGREGATE FACE VALUE
- -------------------------------------------------------------
<S> <C>
Contracts outstanding
at beginning of year $ 136,726,160
- -------------------------------------------------------------
Contracts opened 950,523,363
- -------------------------------------------------------------
Contracts closed (1,048,389,441)
- -------------------------------------------------------------
OPEN AT END OF YEAR $ 38,860,082
- -------------------------------------------------------------
</TABLE>
<TABLE>
Transactions in U.S. Treasury Bond futures contracts during the year are
summarized as follows:
<CAPTION>
PURCHASES OF FUTURES
CONTRACTS
- -------------------------------------------------------------
NUMBER OF AGGREGATE
CONTRACTS FACE VALUE
- -------------------------------------------------------------
<S> <C> <C>
Contracts opened 2,599 $ 290,308,813
- -------------------------------------------------------------
Contracts closed (2,599) (290,308,813)
- -------------------------------------------------------------
OPEN AT END OF YEAR - $ -
- -------------------------------------------------------------
</TABLE>
NOTE 4
SHARE REPURCHASE PROGRAM
The Trustees have authorized the fund to repurchase up to 7,000,000
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 are believed to be in
34
<PAGE> 35
the best interests of the fund's shareholders. Any repurchases of shares will
have the effect of increasing the net asset value per share of remaining
shares outstanding.
There were no repurchased shares for the years ended July 31, 1993 or July 31,
1994.
NOTE 5
RECLASSIFICATION OF CAPITAL ACCOUNTS
Effective August 1, 1993, Putnam Premier Income Trust adopted the provisions of
Statement of Position 93-2 "Determination, Disclosure and Financial Statement
Presentation of Income, Capital Gain and Return of Capital Distributions by
Investment Companies (SOP)". The purpose of this SOP is to report the
accumulated net investment income (loss) and accumulated net realized gain
(loss) accounts in such a manner as to approximate amounts available for
future tax distribution (or to offset future realized capital gains), and to
achieve uniformity in the presentation of distributions by investment
companies.
As a result of the SOP, the fund has reclassified $17,060,072, to decrease
distribution in excess of net investment income $34,323,322 to increase
accumulated net realized loss on investments and $17,263,250 to increase
paid-in capital. These reclassifications represent the cumulative amounts
necessary to report these balances through July 31, 1993.
These reclassifications, which have no impact on the total net asset value of
the fund, are primarily attributable to market discounts, paydowns on realized
gains and losses on paydowns on mortgage-backed securities, payment in kind
income and realized gains and losses on foreign exchange transactions which
are treated differently in the computation of distributable income and capital
gains under federal income tax rules and regulations versus generally accepted
accounting principles.
FEDERAL TAX INFORMATION
(UNAUDITED)
For federal income tax purposes, distributions totaling $0.72 per share for the
year ended July 31, 1994 constitutes "dividend income." The fund has designated
none of the dividend income as qualifying for the dividends-received deduction
for corporations. You may wish to consult your tax advisor on treatment of the
return of capital.
The Form 1099 you receive in January 1995 will show you the tax status of all
distributions paid to your account in calendar 1994. As required by law, your
fund reports to the Internal Revenue Service on a calendar year basis the
amount of distributions paid to each shareholder.
35
<PAGE> 36
<TABLE>
SELECTED QUARTERLY DATA
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED
JULY 31 APRIL 30 JANUARY 31 OCTOBER 31
1994 1994 1994 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Investment Income
Total $ 26,372,070 $ 23,962,104 $ 24,250,083 $ 26,143,785
- -------------------------------------------------------------------------------------------
Per Share $ .19 $ .17 $ .13 $ .23
- -------------------------------------------------------------------------------------------
Net Investment Income
Total $ 23,389,745 $ 21,413,096 $ 21,661,183 $ 23,640,642
- -------------------------------------------------------------------------------------------
Per Share $ .17 $ .15 $ .11 $ .21
- -------------------------------------------------------------------------------------------
Net Realized and
Unrealized Gain
(Loss) on
Investments
Total $ (23,641,097) $ (87,846,707) $ 21,610,985 $ 18,825,764
- -------------------------------------------------------------------------------------------
Per Share $ (.17) $ (.62) $ .19 $ .10
- -------------------------------------------------------------------------------------------
Net Increase
(Decrease) in Net
Assets Resulting from
Operations
Total $ (251,352) $ (66,433,611) $ 43,272,168 $ 42,466,406
- -------------------------------------------------------------------------------------------
Per Share $ - $ (.47) $ .30 $ .31
- -------------------------------------------------------------------------------------------
Net Assets at End
of Period
Total $1,166,725,877 $1,192,487,457 $1,284,257,808 $1,266,322,899
- -------------------------------------------------------------------------------------------
Per share $ 8.29 $ 8.47 $ 9.12 $ 9.00
- -------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE> 37
<TABLE>
SELECTED QUARTERLY DATA
(UNAUDITED)
<CAPTION>
JULY 31 APRIL 30 JANUARY 31 OCTOBER 31
1993 1993 1993 1992
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<S> <C> <C> <C> <C>
Total Investment Income
Total $ 25,981,131 $ 27,987,768 $ 28,792,611 $ 26,784,842
- --------------------------------------------------------------------------------------------------
Per Share $ .19 $ .20 $ .20 $ .19
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Net Investment Income
Total $ 23,324,165 $ 25,145,261 $ 26,600,505 $ 24,244,193
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Per Share $ .17 $ .18 $ .19 $ .17
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Net Realized and
Unrealized Gain
(Loss) on
Investments
Total $ 17,225,488 $ 21,188,007 $ 18,080,924 $ 4,380,447
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Per Share .11 $ .15 $ .13 $ .03
- --------------------------------------------------------------------------------------------------
Net Increase
(Decrease) in Net
Assets Resulting from
Operations
Total $ 40,549,653 $ 46,333,268 $ 44,681,429 $ 28,624,640
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Per Share .28 $ .33 $ .32 $ .20
- --------------------------------------------------------------------------------------------------
Net Assets at End
of Period
Total $1,249,192,758 $1,235,035,237 $1,215,094,378 $1,196,805,389
- --------------------------------------------------------------------------------------------------
Per share $ 8.87 $ 8.77 $ 8.63 $ 8.50
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37
<PAGE> 38
DIVIDEND POLICY
It is the fund's dividend policy to pay monthly distributions from net
investment income and any net realized short-term gains (including gains from
options and futures transactions). Long-term capital gains are distributed at
least annually. In an effort to maintain a more stable level of distributions,
the fund's monthly distribution rate will be based on Putnam Management's
projections of the net investment income and net realized short-term capital
gains that the fund is likely to earn over the long term. Such distributions at
times may exceed the current earnings of the fund, resulting in a return of
capital to shareholders.
At the time of each distribution, shareholders are furnished Putnam
Management's current estimate of the sources of such distribution. These
estimates are subject to adjustment depending on investment results for the
fund's entire fiscal year. Final information regarding such matters is
furnished to shareholders in the fund's annual reports and in tax information
provided following the end of each calendar year.
38
<PAGE> 39
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
Price Waterhouse LLP
TRUSTEES
George Putnam, Chairman
William Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Donald S. Perkins
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
Rosemary Thomsen
Vice President
and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time for up-to-date
information about the fund's NAV or to request Putnam's quarterly Closed-End
Fund Commentary.
39
<PAGE> 40
<TABLE>
<S> <C>
-------------------
PUTNAM INVESTMENTS Bulk Rate
U.S. Postage
THE PUTNAM FUNDS PAID
One Post Office Square Putnam
Boston, Massachusetts 02109 Investments
-------------------
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073-13752
