<PAGE> 1
PUTNAM
PREMIER
INCOME TRUST
SEMIANNUAL REPORT
January 31, 1995
[LOGO]
BOSTON - LONDON - TOKYO
<PAGE> 2
PERFORMANCE HIGHLIGHTS
-- The fund maintained its four-star rating from Morningstar for
risk-adjusted performance through December 31, 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>
<CAPTION>
--------------------------------------------------------
SEMIANNUAL RESULTS AT A GLANCE
--------------------------------------------------------
MARKET
TOTAL RETURN: NAV PRICE
--------------------------------------------------------
<S> <C> <C> <C>
(change in value during period
plus reinvested distributions)
6 months ended 1/31/95 0.14% -2.05%
--------------------------------------------------------
MARKET
Share value NAV PRICE
--------------------------------------------------------
7/31/94 $8.29 $7.625
--------------------------------------------------------
1/31/95 7.92 7.125
--------------------------------------------------------
Distributions No. Income Total
6 $0.345 $0.345
--------------------------------------------------------
MARKET
Current return: NAV PRICE
--------------------------------------------------------
End of period
Current dividend rate(1) 8.33% 9.26%
--------------------------------------------------------
<FN>
Performance data represent past results. For performance over longer
periods, see page 9.
(1)Income portion of most recent distribution, annualized and divided
by net asset value or market price at end of period.
* Morningstar, Inc., rates a fund in relation to other funds with
similar investment objectives, based on the fund's three- and five-year
average annual returns, adjusted for risk factors and sales charges.
Ratings are updated monthly. The four-star rating for the period
ending 12/31/94, puts the fund in the top 32.5% among all 73
fixed-income funds rated. For the three- and five-year periods ending
12/31/94, there were 73 and 64 funds, respectively, in the fixed-income
category. The fund received four stars for both periods. Past
performance is not indicative of future results.
</TABLE>
2
<PAGE> 3
FROM THE CHAIRMAN
DEAR SHAREHOLDER:
AS PUTNAM PREMIER INCOME TRUST REACHED THE MIDPOINT OF FISCAL 1995, THE
WORLD'S MAJOR ECONOMIES WERE STILL ADDRESSING THE POSSIBILITY THAT
RENEWED INFLATION MIGHT ACCOMPANY THEIR ECONOMIC EXPANSIONS. AMONG THE
REPERCUSSIONS OF THIS CONCERN WAS A GENERAL RISE IN INTEREST RATES,
WHICH RESULTED IN LOWER TOTAL RETURNS FOR VIRTUALLY ALL FIXED-INCOME
INVESTMENTS.
THE EFFECTS OF THIS GLOBAL MARKET ENVIRONMENT ON YOUR FUND'S RESULTS FOR
THE PERIOD WERE AMELIORATED SOMEWHAT BY ITS TRISECTOR STRATEGY: THE U.S.
GOVERNMENT AND CORPORATE HIGH-YIELD SECURITIES IN THE FUND'S PORTFOLIO
PERFORMED SIGNIFICANTLY BETTER THAN ITS GLOBAL FIXED-INCOME SECURITIES.
LEAD MANAGER ROSEMARY THOMSEN AND HER MANAGEMENT TEAM HAD ANTICIPATED
THIS PATTERN OF PERFORMANCE AND BEGAN TAKING DEFENSIVE MEASURES EVEN
BEFORE THE START OF THE NEW FISCAL YEAR. AS THEY MANEUVERED
THROUGH THE MARKET'S CHALLENGES, THEY ALSO POSITIONED THE FUND TO TAKE
ADVANTAGE OF WHAT THEY REGARD AS LONGER-TERM OPPORTUNITIES. THEY PROVIDE
THE DETAILS IN THE REPORT THAT FOLLOWS.
RESPECTFULLY YOURS,
/s/ GEORGE PUTNAM
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
MARCH 15, 1995
3
<PAGE> 4
REPORT FROM THE FUND MANAGERS
ROSEMARY H. THOMSEN, LEAD MANAGER
NEIL POWERS
D. WILLIAM KOHLI
MARK SIEGEL
MICHAEL MARTINO
F. MARK TURNER
Positive returns in Putnam Premier Income Trust's U.S. government
securities and corporate high-yield sectors were dampened somewhat
by disappointing performance in the fund's international component
during the six months ended January 31, 1995. Nevertheless, the fund
posted a 0.14% total return at net asset value for the period.
-- STRONG RETURNS FROM U.S. GOVERNMENT SECURITIES
Performance for the semiannual period was led by the U.S. government
securities sector -- which made up approximately one-third of the
portfolio on January 31 -- as the U.S. Treasury market staged a strong
rally late in the period. Treasuries rebounded on the growing
perception that the Federal Reserve Board may be gaining the upper hand
against inflationary pressures.
In addition, the fund's position in government-agency mortgage-backed
securities continued to benefit from the reduced prepayment activity
resulting from 1994's higher interest rates. Elevated rates for mortgage
loans reduced the incentive for borrowers to refinance. Lower levels of
refinancing activity restored a more predictable cash flow stream to
mortgage-backed bonds, making them much more attractive to investors.
The prices of existing securities rose as the risk of prepayment
declined.
4
<PAGE> 5
-- FOREIGN HOLDINGS, DOLLAR HEDGING PROVE TO BE A MIXED BAG
On the international front, many markets in Europe and elsewhere
performed well, and many foreign currencies strengthened relative to the
U.S. dollar. In general, however, the fund did not participate in these
gains because its European currency exposure was hedged back into U.S.
dollars. Our Canadian bond investments were also disappointing as
investors exited Canada over concerns about ongoing political and
budgetary problems in the country.
The devaluation of the Mexican peso on December 20, 1994, was
responsible for weighing down returns in virtually all of the fund's
international emerging-market holdings. Many foreign investors, faced
with an immediate collapse in the value of their Mexican holdings,
quickly cut their losses and withdrew from that market. The fallout from
Mexico rippled through other developing-country markets and effectively
cast a pall on investor sentiment. Fortunately, less than 2% of the
fund's assets were invested in Mexico and its exposure to the peso was
minimal. Most of the fund's Mexican investments were in securities whose
returns are linked to the U.S. dollar.
TOP 10 HOLDINGS IN THE HIGH YIELD SECTOR
(as of 1/31/95)
-------------------------------------------------------
Gaylord Container Corp.
-------------------------------------------------------
Loehmann's Holdings, Inc.
-------------------------------------------------------
Premium Standard Farms
-------------------------------------------------------
Amphenol Corp.
-------------------------------------------------------
Horsehead Industries, Inc.
-------------------------------------------------------
Foamex (L.P.) Corp.
-------------------------------------------------------
Adelphia Communications Corp.
-------------------------------------------------------
Midland Funding Corp.
-------------------------------------------------------
WCI Steel Inc.
-------------------------------------------------------
Panamsat (L.P.)
-------------------------------------------------------
These holdings represent 7.9% of the fund's net assets.
Portfolio holdings will vary over time.
5
<PAGE> 6
-- HIGH-YIELD SECURITIES POST POSITIVE RESULTS AS PORTFOLIO
REBALANCING CONTINUES
The fund's overweighting in corporate high-yield bonds has been a major
source of its strong performance over the past four years. Positive
returns from many of the fund's high-yield holdings continued to support
the fund during the semiannual period.
Despite the generally constructive results from the fund's high-yield
investments, one position that proved disappointing was Grand Union
Company, a supermarket operator in the Northeast. In November, the
company announced that it would reorganize its capital structure in an
effort to reduce debt, to improve liquidity, and to refurbish its
supermarket base. The announcement caused the prices of the company's
high-yield bonds to drop precipitously. Fortunately, the fund's Grand
Union holdings amount to less than 1% of the portfolio so the impact on
performance, while discernible, was not substantial.
We have begun selectively reducing the fund's exposure to the high-yield
market by selling securities that we believe are fully valued. The
high-yield market has consistently outperformed U.S. Treasuries for over
four years and is unlikely to do so indefinitely. As the markets grow
more concerned about the impact of tight monetary policy on economic
growth and corporate credit quality, we expect Treasuries to
outperform high-yield corporates and are positioning the fund
accordingly.
Reducing the fund's high-yield allocation necessarily results in reduced
portfolio income. Consequently, the fund's Trustees approved a half-cent
reduction in the dividend effective with the December 1, 1994
distribution. Shareholders were notified of the dividend reduction by a
separate letter mailed in November. In our opinion, the reduction is a
reasonable tradeoff for greater flexibility to increase the fund's
diversification and improve the portfolio's balance. We believe this
strategy can help the fund to continue its historical record of strong
long-term performance.
6
<PAGE> 7
-- HEDGING STRATEGY ADJUSTED IN RESPONSE TO
DOLLAR TURBULENCE
We are cautious toward the U.S. dollar over the near term. The
greenback's recent decline against the German mark and the Japanese yen
reflects a confluence of issues and the concerns of global investors and
currency traders. Perhaps foremost among these issues was Congress'
failed attempt to pass the balanced budget amendment in early March.
Investor sentiment turned negative toward the dollar following the vote
because the amendment was viewed as a meaningful step in the
direction of reducing the large U.S. budget deficit. Another factor
weighing down the dollar is the uncertainty surrounding the extent of
U.S. involvement in bailing out the Mexican economy.
Given the dollar's significant decline through the first two months of
calender 1995, we responded by removing virtually all of the fund's
currency hedges on European holdings. The principal purpose for currency
hedges is to protect the fund's returns on foreign investments when the
dollar is strengthening against foreign currencies. If foreign
currencies strengthen relative to the dollar, as is currently the case,
the fund's investment returns can potentially benefit from this currency
appreciation if it is not hedged away. Conversely, should major European
currencies weaken relative to the dollar, currency hedges would have to
be reinstituted in order to prevent the fund's returns from
deteriorating.
We will continue to monitor the current situation in the foreign
exchange markets and will adjust our dollar hedging strategy as
conditions warrant.
7
<PAGE> 8
-- OUTLOOK: BONDS COULD REBOUND IN 1995
The actions of the Federal Reserve Board, which are always at the front
of any fixed-income investor's mind, will continue to command our focus
in the weeks and months to come. Its widely anticipated half-percentage
point increase in short-term bank-lending rates on February 1 further
underscored its resolve to slow the economy to a sustainable,
noninflationary rate of growth. Recent economic reports suggest that the
U.S. recovery is beginning to slow, but whether the Fed will succeed by
not restricting growth too much is a topic that investors continue
to debate.
On the international front, we are witnessing improving performance in
many of the dollar bloc and European markets, namely, the United
Kingdom, Australia, New Zealand, and the Netherlands. Real yields --
yields minus the current inflation rate and a key measure of bond-market
value -- are currently at high and attractive levels in many of these
countries.
Overall, we believe that after the global pummeling that bonds suffered
in 1994, they are poised to become a preferred asset class in 1995,
particularly the higher-quality corporate and U.S. government sectors.
We plan, therefore, to continue the process of reallocating the fund's
assets to increase its potential to benefit from these changing market
dynamics.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of January 31, 1995, there is no guarantee the
fund will continue to hold these securities in the future. The lower
credit ratings of high yield corporate bonds reflect a greater
possibility that adverse changes in the economy or their issuers may
affect their ability to pay principal and interest on the bonds.
Investments in non-U.S. securities may be subject to certain risks such
as currency fluctuations and political developments. Although the
U.S. government guarantees the timely payment of principal and interest
on some of the fund's underlying securities, the value of the fund
shares is not guaranteed and will fluctuate.
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 in to the fund. We show
total return in two ways: on a cumulative Long-term basis and on
average how the fund might have grown each year over varying periods.
For comparative purposes, we show how the fund performed relative to
appropriate indexes and benchmarks.
<TABLE>
TOTAL RETURN
<CAPTION>
FOR PERIODS ENDED FOR PERIODS ENDED 12/31/94
1/31/95 (MOST RECENT CALENDAR QUARTER)
NAV MARKET PRICE NAV MARKET PRICE
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6 months 0.14% -2.05% 0.29% -6.23%
--------------------------------------------------------------------------------
1 year -4.73 -3.80 -3.92 -8.61
--------------------------------------------------------------------------------
5 years 62.96 63.98 58.09 58.90
--------------------------------------------------------------------------------
Annual average 10.26 10.40 9.59 9.70
--------------------------------------------------------------------------------
Life of fund 83.18 63.44 81.81 56.52
(since 2/29/88)
--------------------------------------------------------------------------------
Annual average 9.14 7.36 9.13 6.77
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
COMPARATIVE INDEXES AND BENCHMARKS
(as of 1/31/95)
<CAPTION>
SALOMON BROS.
LEHMAN BROS., NON-U.S. FIRST BOSTON CONSUMER
GOVERNMENT WORLD GOVT. HIGH YIELD PRICE
BOND INDEX BOND INDEX INDEX INDEX
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6 months 0.80% 4.19% 2.17% 1.28%
--------------------------------------------------------------------------
1 year -2.91 7.83 -1.66 2.80
--------------------------------------------------------------------------
5 years 48.51 77.18 93.70 17.98
--------------------------------------------------------------------------
Annual average 8.23 12.12 14.14 3.36
--------------------------------------------------------------------------
Life of fund
(since 2/29/88) 71.49 78.33 100.38 29.57
--------------------------------------------------------------------------
Annual average 8.10 8.72 10.56 3.81
--------------------------------------------------------------------------
</TABLE>
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.
9
<PAGE> 10
TERMS AND DEFINITIONS
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus
any liabilities, divided by the number of outstanding shares.
MARKET PRICE is the current trading price of one share of the
fund. Market prices are set by transactions between buyers and sellers
on the New York Stock Exchange.
COMPARATIVE BENCHMARKS
LEHMAN BROS. GOVERNMENT BOND INDEX* is an unmanaged list of U.S.
government and mortgage-backed securities.
SALOMON BROTHERS NON-U.S. WORLD GOVERNMENT BOND INDEX* is an unmanaged
list of bonds issued by 10 countries.
FIRST BOSTON HIGH YIELD INDEX* is an unmanaged list of lower-rated
higher-yielding U.S. corporate bonds.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
* Securities indexes assume reinvestment of all distributions and
interest payments and do not take in account brokerage fees or taxes.
Securities in the fund do not match those in the indexes and performance
of the fund will differ.
10
<PAGE> 11
<TABLE>
PORTFOLIO OF INVESTMENTS OWNED
January 31, 1995 (Unaudited)
<CAPTION>
CORPORATE BONDS AND NOTES (30.2%)*
PRINCIPAL AMOUNT VALUE
<C> <S> <C>
ADVERTISING (0.6%)
- -----------------------------------------------------------------------------------
1,115,000 Lamar Advertising Co. sr. secd. notes 11s, 2003 $ 1,070,400
1,750,000 Outdoor Systems, Inc. sr. notes 103\4s, 2003 1,575,000
5,000,000 Universal Outdoor, Inc. sub. deb. 11s, 2003 4,450,000
-----------
7,095,400
AGRICULTURE (1.1%)
- -----------------------------------------------------------------------------------
4,931,000 PMI Acquisition Corp. sub. disc. deb. stepped-coupon
zero % (111\2s, 3/1/00), 2005++ 2,268,260
125,000 PSF Finance L.P. sr. notes 121\4s, 2004 128,515
6,123,698 Premium Standard Farms 144A sr. secd. notes 12s, 2000 6,399,264
4,155,000 Premium Standard Farms 144A deb. stepped-coupon
zero % (12s, 9/15/96), 2003++ 3,344,775
-----------
12,140,814
APPAREL (0.3%)
- -----------------------------------------------------------------------------------
4,050,000 Guess Jeans, Inc. sr. sub. notes 91\2s, 2003 3,766,500
AUTOMOTIVE (0.5%)
- -----------------------------------------------------------------------------------
4,900,000 Key Plastics Corp. sr. notes 14s, 1999 5,292,000
BANKS (0.3%)
- -----------------------------------------------------------------------------------
2,700,000 Westpac Banking Corp. sub. deb. 91\8s, 2001 2,801,250
BROADCASTING (1.0%)
- -----------------------------------------------------------------------------------
10,200,000 Panamsat (L.P.) sr. sub. notes stepped-coupon
zero % (113\8s, 8/1/98), 2003++ 6,400,500
2,450,000 SFX Broadcasting, Inc. sr. sub. notes 113\8s, 2000 2,425,500
3,276,000 Telemedia Broadcasting 144A deb. 6.4s, 2004 2,850,125
-----------
11,676,125
BUILDING AND CONSTRUCTION (0.8%)
- -----------------------------------------------------------------------------------
5,250,000 Presley Co. sr. notes 121\2s, 2001 4,357,500
5,000,000 Scotsman Group, Inc. sr. notes 91\2s, 2000 4,600,000
-----------
8,957,500
BUILDING PRODUCTS (0.5%)
- -----------------------------------------------------------------------------------
2,000,000 American Standard, Inc. deb. 91\4s, 2016 1,850,000
3,250,000 Southdown, Inc. sr. sub. notes Ser. B, 14s, 2001 3,558,750
-----------
5,408,750
BUSINESS SERVICES (0.4%)
- -----------------------------------------------------------------------------------
4,845,000 Corporate Express, Inc. sr. sub. notes 95\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)+ 4,408,950
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
<C> <S> <C>
CABLE TELEVISION (2.1%)
- -------------------------------------------------------------------------------------------
3,200,000 Adelphia Communications Corp. sr. notes 121\2s, 2002 $ 2,944,000
750,000 Adelphia Communications Corp. sr. deb. 117\8s, 2004 652,500
4,000,000 Adelphia Communications Corp. notes, Ser. B, 97\8s, 2005 3,140,000
1,000,000 Century Communications Corp. sr. disc. notes zero %, 2003 405,000
2,425,000 Continental Cablevision, Inc. sr. deb. 9s, 2008 2,188,562
5,496,117 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003** 4,781,621
4,250,000 Insight Communications Co. sr. sub. notes
stepped-coupon 81\4s (111\4s, 3/1/96), 2000++ 3,995,000
2,700,000 Marcus Cable Co. sr. sub. disc. note stepped-coupon
zero % (131\2s, 8/1/99), 2004++ 1,417,500
2,450,000 Storer Communications, Inc. sub. deb. 10s, 2003 2,290,750
2,500,000 Summit Communications Group, Inc. sr. sub. deb.
101\2s, 2005 2,537,500
-----------
24,352,433
CELLULAR COMMUNICATIONS (1.8%)
- -------------------------------------------------------------------------------------------
3,800,000 Cellular, Inc. sr. sub. disc. notes stepped-coupon
zero % (113\4s, 9/1/98), 2003++ 2,527,000
2,150,000 Cencall Communications Corp. sr. disc. notes
stepped-coupon zero % (101\8s, 1/15/99), 2004++ 720,250
4,000,000 Centennial Cellular Corp. sr. notes 87/8s, 2001 3,580,000
3,500,000 Dial Call Communication sr. disc. notes Ser. B,
stepped-coupon zero % (101\4s, 12/15/98), 2005++ 927,500
7,390,000 Horizon Cellular Telephone Co. sr. sub. disc. notes Ser. B,
stepped-coupon zero % (113\8s, 10/1/97), 2000++ 5,320,800
7,500,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (111\2s, 9/1/98), 2003++ 2,775,000
2,800,000 Pagemart, Inc. sr. disc. notes stepped-coupon
zero % (121\4s, 11/1/98), 2003++ 1,694,000
5,980,000 Pricellular Wire 144A sr. disc. notes stepped-coupon
zero % (14s, 11/15/97), 2001++ 4,006,600
-----------
21,551,150
CHEMICALS (0.8%)
- -------------------------------------------------------------------------------------------
9,000,000 G-I Holdings, Inc. sr. notes zero %, 1998 5,625,000
2,675,000 Harris Chemical sr. secd. disc. notes stepped-coupon
zero % (101\4s, 1/15/96), 2001++ 2,240,312
-----------
7,865,312
CONGLOMERATES (0.4%)
- -------------------------------------------------------------------------------------------
900,000 ADT Ltd. sr. sub. notes 91\4s, 2003 839,250
2,970,000 MacAndrews & Forbes Group, Inc. deb. 121\4s, 1996 2,940,300
225,000 MacAndrews & Forbes Holdings, Inc. sub. deb.
notes 13s, 1999 221,625
-----------
4,001,175
CONSUMER SERVICES (0.5%)
- -------------------------------------------------------------------------------------------
3,000,000 Solon Automated Services, Inc. sr. sub. deb. 133\4s, 2002 2,880,000
2,300,000 Solon Automated Services, Inc. notes 123\4s, 2001 2,185,000
-----------
5,065,000
CONTAINERS (0.5%)
- -------------------------------------------------------------------------------------------
6,000,000 Ivex Packaging Corp. sr. sub. notes 121\2s, 2002 6,000,000
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
<C> <S> <C>
ELECTRIC UTILITIES (0.6%)
- -------------------------------------------------------------------------------------------
6,550,000 Midland Funding Corp. II deb. Ser. B, 131\4s, 2006 $ 6,615,500
ELECTRONICS (1.0%)
- -------------------------------------------------------------------------------------------
5,500,000 Ampex Group, Inc. sr. sub. deb. 131\4s, 1996+ 330,000
7,536,000 Amphenol Corp. 144A sr. sub. notes 123\4s, 2002 8,364,960
5,175,000 International Semi-Tech. sr. secd. disc. notes
stepped-coupon zero % (111\2s, 8/15/00), 2003++ 2,225,250
-----------
10,920,210
ENTERTAINMENT (0.3%)
- -------------------------------------------------------------------------------------------
4,200,000 Viacom International, Inc. sub. deb. 8s, 2006 3,654,000
FINANCE (0.4%)
- -------------------------------------------------------------------------------------------
3,365,000 American General Finance notes 7.15s, 1997 3,316,628
775,000 First Federal Financial Corp. notes 113\4s, 2004 771,125
-----------
4,087,753
FINANCIAL SERVICES (0.8%)
- -------------------------------------------------------------------------------------------
2,995,000 Comdata Network, Inc. sr. notes 121\2s, 1999 3,174,700
5,000,000 Delaware Management Holdings, Inc. sr. notes
Ser. B, 101\4s, 2004 5,287,500
-----------
8,462,200
FOOD (0.7%)
- -------------------------------------------------------------------------------------------
4,450,000 Chiquita Brands Intl. Inc. sr. notes 91\8s, 2004 3,893,750
3,978,000 Del Monte Corp. sub. deb. notes 121\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; 11/14/94, par $229,000 cost
$229,495)** + 3,580,200
-----------
7,473,950
FOOD CHAINS (0.4%)
- -------------------------------------------------------------------------------------------
1,000,000 Grand Union Capital Corp. sr. notes Ser. A,
stepped-coupon zero % (15s, 7/15/99), 2004 (in default)+ ++ 20,000
7,750,000 Grand Union Co. sr. sub. notes 121\4s, 2002 (in default)+ 2,596,250
1,700,000 Stater Brothers 144A sr. notes 11s, 2001 1,615,000
-----------
4,231,250
FOREST PRODUCTS (1.7%)
- -------------------------------------------------------------------------------------------
15,490,000 Gaylord Container Corp. sr. sub. disc. stepped-coupon
zero %, (123\4s, 5/15/96), 2005 13,786,100
5,000,000 Stone Container Corp. deb. sr. sub. notes 111\2s, 1999 5,025,000
-----------
18,811,100
HEALTH CARE (1.2%)
- -------------------------------------------------------------------------------------------
635,000 Abbey Healthcare Group, Inc. sr. sub. notes 91\2s, 2002 587,375
4,800,000 McGaw, Inc. sr. notes 103\8s, 1999 4,908,000
6,000,000 Paracelsus Healthcare Corp. sr. sub. notes 97\8s, 2003 5,715,000
2,240,000 Quorum Health Group, Inc. sr. sub. notes 117\8s, 2002 2,396,800
-----------
13,607,175
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
<C> <S> <C>
HOME FURNISHINGS (0.1%)
- -------------------------------------------------------------------------------------------
1,082,083 Simmons Mattress Corp. 144A deb. 8s, 2003** $ 1,055,031
INSURANCE (0.5%)
- -------------------------------------------------------------------------------------------
1,000,000 American Annuity Group, Inc. sr. notes 91\2s, 2001 945,000
1,200,000 Bankers Life Holdings sr. sub. deb. Ser. A, 13s, 2002 1,332,000
3,200,000 Reliance Group Holdings, Inc. sr. sub. deb. 93\4s, 2003 2,832,000
800,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 736,000
-----------
5,845,000
LODGING (0.6%)
- -------------------------------------------------------------------------------------------
5,750,000 John Q. Hammons Hotels 1st. mtge. notes 87\8s, 2004 5,088,750
2,000,000 Red Roof Inns sr. notes 95\8s, 2003 1,840,000
-----------
6,928,750
MEDICAL SUPPLIES (0.1%)
- -------------------------------------------------------------------------------------------
1,000,000 Wright Medical Technology, Inc. sr. secd. notes
Ser. B, 103\4s, 2000 960,000
METALS AND MINING (1.2%)
- -------------------------------------------------------------------------------------------
4,075,000 Haynes International, Inc. sr. sub. notes 131\2s, 1999 2,567,250
1,250,000 Horsehead Industries, Inc. sr. sub. ext. reset
notes 153\4s, 1995 1,287,500
6,750,000 Horsehead Industries, Inc. sub. notes 14s, 1999 6,750,000
2,250,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes
123\4s, 2003 2,311,875
-----------
12,916,625
MOTION PICTURE DISTRIBUTION (1.7%)
- -------------------------------------------------------------------------------------------
5,000,000 AMC Entertainment, Inc. sr. sub. deb. 125\8s, 2002 5,300,000
4,750,000 Act III Theatres, Inc. sr. sub. notes 117\8s, 2003 4,940,000
4,500,000 Cinemark USA, Inc. sr. notes 12s, 2002 4,680,000
5,000,000 Plitt Theatres, Inc. sr. sub. notes 107\8s, 2004 4,600,000
-----------
19,520,000
NURSING HOMES (0.5%)
- -------------------------------------------------------------------------------------------
4,973,000 Multicare Cos., Inc. sr. sub. notes 121\2s, 2002 5,743,815
OIL AND GAS (0.6%)
- -------------------------------------------------------------------------------------------
2,135,000 Chesapeake Energy Corp. sr. exch. notes 12s, 2001 2,167,025
5,000,000 Oryx Energy Co. deb. 93\4s, 1998 4,909,375
-----------
7,076,400
PUBLISHING (0.4%)
- -------------------------------------------------------------------------------------------
500,000 Marvel Holdings, Inc. sr. secd. notes zero %, 1998 310,000
7,495,000 Marvel Parent Holdings, Inc. sr. secd. disc. notes
zero %, 1998 4,571,950
-----------
4,881,950
RECREATION (0.9%)
- -------------------------------------------------------------------------------------------
2,090,000 Arizona Charlies' Inc. 144A 1st mtge. Ser. B, 12s, 2000 1,732,087
760,000 Capitol Queen Corp. 144A 1st mtge. Ser. B, 12s, 2000 706,800
2,520,000 Casino America, Inc. 1st mtge. deb. 111\2s, 2001 2,312,100
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
<C> <S> <C>
RECREATION (continued)
- -------------------------------------------------------------------------------------------
3,484,000 Louisiana Casino Cruises Corp. 1st mtge. 111\2s, 1998 $ 2,961,400
2,106,000 Trump Castle Funding Corp. 144A sr. sub. notes
111\2s, 2000 2,106,000
------------
9,818,387
RESTAURANTS (0.1%)
- -------------------------------------------------------------------------------------------
800,000 American Restaurant Group, Inc. sr. secd. notes,
Ser. A, 12s, 1998 752,000
RETAIL (2.0%)
- -------------------------------------------------------------------------------------------
2,430,000 Brylane L.P. sr. sub. notes 10s, 2003 2,332,800
4,600,000 Duane Reade Corp. sr. notes 12s, 2002 3,404,000
657,000 Eckerd (Jack) Corp. sub. deb. 111\8s, 2001 660,285
175,000 Loehmanns' Holdings, Inc. sr. sub. notes 133\4s, 1999 169,750
12,500,000 Loehmanns' Holdings, Inc. sr. notes 101\2s, 1997 12,062,500
3,590,000 Specialty Retailers, Inc. sr. sub. notes 11s, 2003 3,159,200
------------
21,788,535
SCHOOL BUSSES (0.5%)
- -------------------------------------------------------------------------------------------
5,250,000 Blue Bird Body Co. sub. deb. Ser. B, 113\4s, 2002 5,302,500
SPECIALTY CONSUMER PRODUCTS (0.6%)
- -------------------------------------------------------------------------------------------
3,130,000 Equitable Bag Co. sr. notes 11s, 2004 2,504,000
5,000,000 Playtex Family Products Corp. sr. sub. notes 9s, 2003 4,387,500
------------
6,891,500
STEEL (0.6%)
- -------------------------------------------------------------------------------------------
6,925,000 WCI Steel Inc. sr. secd. notes 101\2s, 2002 6,578,750
TEXTILES (0.6%)
- -------------------------------------------------------------------------------------------
5,000,000 Foamex (L.P.) Capital Corp. sr. sub. deb. 117\8s, 2004 4,725,000
237,000 Foamex (L.P.) Capital Corp. sr. secd. notes 91\2s, 2000 219,225
4,125,000 Foamex (L.P.) Capital Corp. sr. secd. disc. deb.
zero %, 2004 2,103,750
------------
7,047,975
TOBACCO (0.5%)
- -------------------------------------------------------------------------------------------
5,675,000 Mafco, Inc. sr. sub. notes 117\8s, 2002 5,348,687
------------
TOTAL CORPORATE BONDS AND NOTES
(cost $363,721,932) $336,701,402
------------
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (28.3%)*
PRINCIPAL AMOUNT VALUE
<C> <S> <C>
Federal National Mortgage Association
$33,219,665 8s, with various due dates to December 1, 2024 $ 32,347,652
80,873 61\2s, with various due dates February 1, 2024 72,308
Government National Mortgage Association
1,308,551 91\2s, with various due dates to April 15, 2021 1,373,168
55,029,213 81\2s, with various due dates to September 15, 2024 54,891,638
63,597,781 8s, with various due dates to December 15, 2003 61,820,348
25,000,000 8s, TBA, February 14, 2025+++ 24,296,875
52,069,569 71\2s, with various due dates to July 15, 2024 49,140,659
19,998,000 71\2s, TBA, February 14, 2025+++ 18,991,851
44,350 7s, January 15, 2024 40,510
19,780,000 U.S. Treasury Bonds 103\4s, May 15, 2003 23,507,294
1,145,000 U.S. Treasury Bonds 87\8s, August 15, 2017 1,273,097
8,140,000 U.S. Treasury Bonds 71\2s, November 15, 2024 7,944,131
10,000,000 U.S. Treasury Notes 91\4s, August 15, 1998 10,540,625
10,000,000 U.S. Treasury Notes 87\8s, November 15, 1998 10,456,250
52,585,000 U.S. Treasury Strip zero %, August 15, 2020 7,361,900
62,425,000 U.S. Treasury Strip zero %, May 15, 2017 11,119,453
------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(cost $316,659,946) $315,177,759
------------
</TABLE>
<TABLE>
<CAPTION>
FOREIGN BONDS AND NOTES (25.1%)*
PRINCIPAL AMOUNT VALUE
<C> <C> <S> <C>
ARP 2,382,000 Argentina (Government of) bonds zero %, 2000 $ 1,488,928
AUD 16,375,000 Australia (Government of) bonds 10s, 2002 12,127,734
AUD 10,375,000 Australia (Government of) bonds 12s, 2001 8,455,625
AUD 6,883,000 Australia (Government of) bonds 61\4s, 1999 4,508,365
AUD 10,810,000 Australia (Government of) bonds 63\4s, 2006 6,168,456
AUD 9,040,000 Australia (Government of) bonds 9s, 2004 6,260,200
BRC 2,700,000 Brazil (Republic of) Floating Rate Notes (FRN)
6.75s, 2009 1,505,250
BRC 714,000 Brazil (Republic of) bonds 4s, 2014 317,730
BRC 1,159,000 Brazil (Republic of) bonds 6.668s, 2006 686,708
BUL 5,250,000 Bulgaria Floating Rate Bond (FRB) 2s, 2012 997,500
BUL 1,160,000 Bulgaria FRB 7.563s, 2011 435,000
CAD 16,300,000 Canada (Government of) bonds 8s, 2023 10,095,812
CAD 10,500,000 Canada (Government of) deb. 9s, 2004 7,343,437
CAD 32,750,000 Canada (Government of) deb. Ser. A-76, 9s, 2025 22,597,500
DKK 88,800,000 Denmark (Government of) bonds 8s, 2003 13,930,500
DKK 37,600,000 Denmark (Government of) bonds 9s, 2000 6,298,000
DEM 20,800,000 Germany (Government of) bonds 7.375, 2005 13,598,872
IDR 2,000,000 Indonesia (Government of) bonds 93\4s, 2001 1,830,000
ITL 20,490,000,000 Italy (Government of) bonds 12s, 2003 12,742,218
ITL 46,580,000,000 Italy (Government of) bonds 81\2s, 2004 23,435,562
ITL 6,525,000,000 Italy (Government of) notes 81\2s, 1999 3,625,453
USD 2,910,000 Mexico (Government of) bonds 61\4s, 2019 1,527,750
USD 4,495,000 Mexico (Government of) disc. bonds, Ser. C,
4.313s, 2019 3,124,025
USD 500,000 Mexico (Government of) disc. bonds,
Ser. D, 4.313s, 2019 337,500
USD 2,000,000 Mexico (Government of) notes, 4.563s, 1999 1,800,000
MAD 3,375,000 Morocco (Government of) notes 41\2s, 1999 2,176,875
NLG 9,710,000 Netherlands (Government of) deb. 71\2s, 2023 5,401,187
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
FOREIGN BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
<C> <C> <S> <C>
NZD 2,230,000 New Zealand (Government of) bonds 9s, 1996 $ 1,413,262
NZD 18,990,000 New Zealand (Government of) notes 8s, 1995 11,975,568
PHP 4,250,000 Philippines (Central Bank of) bonds 51\4s, 2017 2,592,500
USD 5,221,000 Poland (Government of) 144A FRN 6.8125s, 2024 3,537,227
USD 5,905,000 Russia (Government of) non performing,
zero %, 1999 1,299,100
USD 1,400,000 South Africa (Government of) 95\8s, 1999 1,356,250
ESP 842,300,000 Spain (Government of) bonds 101\4s, 1998 6,090,881
ESP 779,200,000 Spain (Government of) bonds 10.55s, 1996 5,858,610
SEK 18,200,000 Sweden (Government of) bonds 11s, 1999 2,479,750
SEK 58,600,000 Sweden (Government of) bonds 6s, 2005 5,530,375
SEK 18,600,000 Sweden (Government of) deb. 11s, 1999 2,487,750
ARP 750,000 Tele-Argen deb. 83\8s, 2000 555,000
THB 20,000,000 Thailand (IFC of) bonds 8s, 1996 800,000
GBP 8,800,000 United Kingdom Treasury bonds 10s, 2001 14,740,000
GBP 17,245,000 United Kingdom Treasury bonds 91\2s, 2005 28,809,928
GBP 2,925,000 United Kingdom Treasury bonds 81\2s, 2007 4,599,562
GBP 1,495,000 United Kingdom Treasury bonds 71\4s, 1998 2,287,350
USD 2,150,000 United Kingdom Treasury bonds 61\4s, 2010 2,754,687
GBP 4,745,000 United Kingdom Treasury notes 8s, 2013 7,167,915
GBP 655,000 United Kingdom Treasury war bonds 31\2s, 2049 429,843
------------
TOTAL FOREIGN BONDS AND NOTES
(cost $288,181,632) $279,581,745
------------
</TABLE>
<TABLE>
<CAPTION>
UNITS(3.0%)*
NUMBER OF UNITS VALUE
<C> <S> <C>
385 Celcaribe S.A. 144A units stepped-coupon zero %
(131\2s, 3/15/98), 2004++ $ 3,272,500
5,375 County Seat Stores sr. sub. notes units 12s, 2001 5,321,250
10,725 Echostar Communication Corp. units stepped-coupon
zero % (127\8s, 6/1/99), 2004++ 5,255,250
1,925,000 Hollywood Casino 144A units 131\2s, 1998 1,886,500
7,115 ICF Kaiser International, Inc. sr. sub. units 12s, 2003 6,278,987
1,060,000 New Street Acquisition Corp. 144A units 12s, 1998 1,057,350
6,255 OSI Specialties Corp. sr. sub. units stepped-coupon
zero % (111\2s, 4/15/99), 2004 (acquired 4/12/94,
cost $3,580,675)++ + 3,878,100
13,760 Premium Standard Farms 144A exch. pfd. units 121\2s, 2000 1,437,920
4,600 Total Renal Care units zero%, 2004 2,806,650
46,000 Universal Outdoor Inc. sub. deb. units 14s, 2004 2,498,375
-----------
TOTAL UNITS
(cost $33,698,596) $33,692,882
-----------
</TABLE>
<TABLE>
<CAPTION>
WARRANTS(0.3%)*+
NUMBER OF WARRANTS EXPIRATION DATE VALUE
<C> <S> <C> <C>
95,000 Becker Gaming Corp. 144A 11/15/00 $201,875
610 CDK Holding Corp. Class A
(acquired 10/31/88, cost $34,165) 7/7/99 25,010
652 CDK Holding Corp. Class B
(acquired 10/31/88, cost $18,269) 7/7/99 25,428
8,222 Casino America, Inc. 11/15/96 8,222
16,560 Casino Magic Finance Corp. 10/14/96 1,035
18,558 Cinemark Mexico USA, Inc. 8/1/03 171,661
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
WARRANTS
NUMBER OF WARRANTS EXPIRATION DATE VALUE
<C> <S> <C> <C>
5,375 County Seat Holdings, Inc. 10/15/98 $ 107,500
4,125 Foamex (L.P.) Capital Corp. 144A 7/1/99 41,250
237,130 Gaylord Container Corp. 7/31/96 1,630,268
187,200 Insight Communications Co. 144A 3/30/98 280,800
10,452 Louisiana Casino Cruises, Inc. 144A 12/1/98 156,780
6,255 OSI Specialties Corp. 144A 4/15/99 125,100
12,880 Pagemart, Inc. 144A 12/31/03 90,160
46,534 President Riverboat Casinos, Inc. 144A 9/30/99 186,136
31,620 President Riverboat Casinos, Inc. 144A 9/23/96 15,810
60,000 Southdown, Inc. 144A 10/31/96 30,000
77 Telemedia Broadcasting Corp. 144A 4/1/04 57,870
24,000 UCC Investor Holding, Inc. 144A 10/30/99 312,000
4,600 Universal Outdoor, Inc. 144A 7/1/04 184,000
454 Wright Medical Technology, Inc. 144A 6/30/03 69,028
----------
TOTAL WARRANTS
(cost $2,995,869) $3,719,933
----------
</TABLE>
<TABLE>
<CAPTION>
PREFERRED STOCKS(1.2%)*
NUMBER OF SHARES VALUE
<C> <S> <C>
63,750 California Federal Bank Ser. B, $10.625, exch. pfd. $ 6,327,187
49,000 First Nationwide Bank $11.50, exch. pfd. 4,704,000
116,981 Pyramid Communications, Inc. Ser. C, $3.125, exch. pfd. 2,639,404
-----------
TOTAL PREFERRED STOCKS
(cost $14,154,658) $13,670,591
-----------
</TABLE>
<TABLE>
<CAPTION>
YANKEE BONDS AND NOTES(1.0%)*
PRINCIPAL AMOUNT VALUE
<C> <S> <C>
$3,332,920 Brazil (Government of) bonds 83\4s, 2001 $ 2,641,339
1,670,000 Cinemark Mexico notes 12s, 2003 1,553,100
2,850,000 Eletson Holdings, Inc. mtge. notes 91\4s, 2003 2,536,500
4,275,000 Fresh Del Monte Produce Corp. 144A sr. notes,
Ser. B, 10s, 2003 2,671,875
1,100,000 Methanex Corp. sr. notes 87\8s, 2001 1,091,750
1,100,000 United Mexican States notes 81\2s, 2002 781,000
-----------
TOTAL YANKEE BONDS AND NOTES
(cost $13,364,421) $11,275,564
-----------
</TABLE>
<TABLE>
<CAPTION>
EUROBONDS(1.0%)*
PRINCIPAL AMOUNT VALUE
<C> <S> <C>
$2,000,000 Banco de Galicia, Inc. global notes 9s, 2003 $ 1,126,250
1,950,000 Banco Nacional bonds 71\4s, 2004 1,228,500
2,420,000 Essar Gujart Ltd. 144A sub. deb. FRN 8.025s, 1999 2,389,750
3,750,000 Ispat Mexicana deb. 103\8s, 2001 (acquired 3/1/94,
cost $3,727,166) 2,925,000
2,600,000 Petroleo Brasileiro S.A. FRN 9.275s, 1998 2,548,000
-----------
TOTAL EUROBONDS
(cost $12,188,491) $10,217,500
-----------
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
COMMON STOCKS(0.6%)*
NUMBER OF SHARES VALUE
<C> <S> <C>
368 CDK Holding Corp. Rights (acquired 10/31/88,
cost $20,643) $ 15,088
43,767 Chesapeake Energy Corp. 536,151
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) 2,535,482
26,050 Computervision Corp. (acquired 8/24/92, cost $234,450) 94,431
297,439 Equitable Bag Co. Class A 446,158
37,304 Grand Casinos, Inc. 559,560
10,934 IFINT Diversified Holdings 144A 765,380
666,882 Loehmanns' Holdings, Inc. 144A 666,882
1,658 PMI Holdings Corp. (acquired 9/20/93, cost $22,535) 331,600
1,185 Premium Holdings L.P. (acquired 1/4/94, shares 776 cost
$46,560, acquired; 9/29/94, shares 409, cost $30,729) 118,572
3,850 Pyramid Communications, Inc. New Class B 144A 94,819
324,788 Solon Automated Services, Inc. (acquired 6/18/92,
cost $193,950) 202,992
46 Southland Corp. 172
36,750 Specialty Foods Corp. 73,500
78,643 Spectra Vision, Inc. 34,406
12,509 Taj Mahal Holding Corp. Class A 125,090
20,000 Triangle Pacific Corp. 240,000
----------
TOTAL COMMON STOCKS
(cost $5,764,466) $6,840,283
----------
</TABLE>
<TABLE>
<CAPTION>
ASSET-BACKED SECURITIES(0.6%)*
PRINCIPAL AMOUNT VALUE
<C> <S> <C>
$3,195,000 First Chicago Master Trust II Ser. 1994-L
Class A, 7.15s, 2001 $3,105,140
3,880,000 First Deposit Master Trust Ser. 93-2A, 53\4s, 2001 3,652,050
----------
TOTAL ASSET-BACKED SECURITIES
(cost $7,058,026) $6,757,190
----------
</TABLE>
<TABLE>
<CAPTION>
BRADY BONDS(0.4%)*(COST $5,118,750)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
$7,000,000 Argentina (Government of) bonds 4s, 2023 $4,130,000
</TABLE>
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCKS(0.3%)*
NUMBER OF SHARES VALUE
<S> <C>
23,000 Chiquita Brands Intl. Inc. Ser. A $5.75, cv. pfd. $ 925,750
66,330 Conseco, Inc. Ser. D, $3.25, cv. pfd. 2,802,443
----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(cost $4,466,500) $3,728,193
----------
</TABLE>
<TABLE>
<CAPTION>
CONVERTIBLE BONDS AND NOTES(0.1%)*(COST $950,000)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
$950,000 Sahara Mission 144A cv. sub. notes 12s, 1995 $950,000
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
CALL OPTIONS ON FOREIGN CURRENCIES (--%)
EXPIRATION DATE/
CURRENCY STRIKE PRICE VALUE
<C> <C> <S> <C> <C>
JPY 18,186,000 Japanese Yen in exchange
for Deutschemark April 95/JPY 65 $152,763
AUD 13,763,000 Australian Dollars in
exchange for U.S. Dollars Feb. 95/USD 1.755 108,040
--------
TOTAL CALL OPTIONS (cost $264,243) $260,803
--------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS(9.6%)*
PRINCIPAL AMOUNT VALUE
<C> <C> <S> <C>
USD 2,285,000 Argentina Treasury Bill zero %,
February 24, 1995 2,270,718
USD 26,000,000 Federal Home Loan Mortgage Assn. 5.55s,
February 13,1995 25,951,900
USD 10,820,000 Federal Home Loan Mortgage Assn. 5.5s,
February 7, 1995 10,769,010
USD 30,000,000 Federal National Mortgage Assn. 5.6s,
February 21,1995 29,959,125
USD 10,000,000 General Electric Capital Corp. 5.45s,
February 23,1995 9,964,433
MXP 12,000,000 Mexican Cetes zero %,
April 29, 1995 195,000
USD 1,709,000 Mexican Tesobono bonds zero %,
February 23, 1995 1,687,637
USD 2,895,000 Mexican Tesobono bonds zero %,
March 16, 1995 2,808,150
USD 1,000,000 Mexican Tesobono bonds zero %,
October 9, 1995 845,000
USD 22,605,000 Interest in $605,000,000 joint repurchase
agreement dated January 31, 1995 with
Goldman Sachs & Co., due February 1, 1995
with respect to various U.S. Treasury obligations
-- maturity value of $22,608,592 for an effective
yield of 5.72% 22,608,592
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $107,207,154) $ 107,059,565
--------------
TOTAL INVESTMENTS
(cost $1,175,794,684)*** $1,133,763,410
--------------
</TABLE>
20
<PAGE> 21
NOTES
- ------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $1,114,995,899,
which correspond to a net asset value per share of $7.92.
+ Non-income-producing security.
++ The interest rate and date shown parenthetically represent the
new interest rate to be paid and the date the fund will begin receiving
interest at this rate.
+++ TBA's are mortgage-backed securities traded under delayed delivery
commitments settling after January 31, 1995. Although the unit price
for the trades has been established, the principal amount of the
commitments will not fluctuate more than 2% from the principal amount.
Income on the securities will not be earned until settlement date. The
cost of TBA purchases at January 31, 1995 was $42,797,977.
21
<PAGE> 22
<TABLE>
TBA SALE COMMITMENTS OUTSTANDING
AT JANUARY 31, 1995 (PROCEEDS RECEIVABLE $58,770,572)
<CAPTION>
PRINCIPAL DELIVERY COUPON MARKET
AGENCY AMOUNT MONTH RATE VALUE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FNMA $27,000,000 Feb./95 8% $26,291,250
GNMA 14,800,000 Feb./95 8 14,383,750
GNMA 19,990,000 Feb./95 7 1\2 18,873,112
<FN>
+ 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 January 31, 1995 was $18,140,853
or 1.6% of net assets.
# Income may be received in cash or additional securities at the
discretion of the issuer.
*** The aggregate identified cost on a tax basis is $1,177,812,637,
resulting in gross unrealized appreciation and depreciation of $11,186,914
and $55,236,141, respectively, or net unrealized depreciation of $44,049,227.
The rate shown on Floating Rate Notes (FRN) and Floating Rate
Bonds (FRB) are the current interest rates shown at January 31, 1995, which
are subject to change based on the terms of
the security.
144A after the name of a security represents those exempt from registration
under Rule 144A of the Securities Act of 1933. These securities may be
resold in transactions exempt from registration, normally to qualified
institutional buyers.
</TABLE>
22
<PAGE> 23
<TABLE>
WRITTEN OPTIONS OUTSTANDING AT JANUARY 31, 1995
(PREMIUM RECEIVED $42,665)
<CAPTION>
EXPIRATION DATE/
CURRENCY STRIKE PRICE VALUE
<C> <S> <C> <C>
AUD 1,376,300 Australian Dollars Feb. 95/AUD .78 $8,258
in exchange for U.S. Dollars
</TABLE>
<TABLE>
FORWARD CURRENCY CONTRACTS OUTSTANDING
AT JANUARY 31, 1995
<CAPTION>
UNREALIZED
MARKET AGGREGATE DELIVERY APPRECIATION/
VALUE FACE VALUE DATE (DEPRECIATION)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Australian Dollars (Sell) $ 3,320,680 $ 3,362,242 3/30/95 $ 41,562
- --------------------------------------------------------------------------------
Australian Dollars (Sell) 2,792,390 2,805,340 3/30/95 12,950
- --------------------------------------------------------------------------------
Danish Krona (Sell) 8,841,840 8,785,692 4/18/95 (56,148)
- --------------------------------------------------------------------------------
Danish Krona (Sell) 12,531,480 12,446,557 4/18/95 (84,923)
- --------------------------------------------------------------------------------
Deutschemarks (Sell) 7,793,745 7,900,000 5/2/95 106,255
- --------------------------------------------------------------------------------
Deutschemarks (Sell) 2,432,750 2,418,775 4/24/95 (13,975)
- --------------------------------------------------------------------------------
Deutschemarks (Sell) 9,659,370 9,455,018 4/6/95 (204,352)
- --------------------------------------------------------------------------------
Deutschemarks (Sell) 4,756,725 4,777,752 2/22/95 21,027
- --------------------------------------------------------------------------------
Deutschemarks (Sell) 7,083,720 7,066,907 2/13/95 (16,813)
- --------------------------------------------------------------------------------
Deutschemarks (Sell) 6,921,855 6,808,209 2/22/95 (113,646)
- --------------------------------------------------------------------------------
Deutschemarks (Sell) 5,377,560 5,201,956 2/6/95 (175,604)
- --------------------------------------------------------------------------------
Deutschemarks (Sell) 1,706,640 1,656,389 3/7/95 (50,251)
- --------------------------------------------------------------------------------
Deutschemarks (Buy) 6,680,292 6,680,292 2/13/95 -
- --------------------------------------------------------------------------------
Deutschemarks (Buy) 27,852,382 7,852,382 3/2/95 -
- --------------------------------------------------------------------------------
New Zealand Dollars (Sell) 5,116,400 5,116,400 3/2/95 -
- --------------------------------------------------------------------------------
Swedish Krona (Sell) 11,756,800 11,628,061 3/13/95 (128,739)
- --------------------------------------------------------------------------------
$(662,657)
- --------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 24
<TABLE>
FORWARD CROSS CURRENCY CONTRACTS OUTSTANDING
AT JANUARY 31, 1995 (AGGREGATE FACE VALUE $82,463,578)
<CAPTION>
IN UNREALIZED
MARKET EXCHANGE MARKET DELIVERY APPRECIATION/
CONTRACTS VALUE FOR VALUE DATE DEPRECIATION
- ----------------------------------------------------------------------------------------
<S> <C> <S> <C> <C> <C>
Deutschemarks
(Buy) $27,476,400 Swiss Francs $27,376,266 4/19/95 $100,134
- ----------------------------------------------------------------------------------------
Deutschemarks
(Buy) 12,548,700 Spanish Peseta 12,596,042 2/21/95 (47,342)
- ----------------------------------------------------------------------------------------
Deutschemarks
(Buy) 14,239,540 Belgian Francs 14,252,473 4/20/95 (12,933)
- ----------------------------------------------------------------------------------------
Deutschemarks
(Buy) 5,001,560 Swedish Krona 5,010,263 3/23/95 (8,703)
- ----------------------------------------------------------------------------------------
Deutschemarks
(Buy) 2,896,080 Swedish Krona 2,900,443 3/24/95 (4,363)
- ----------------------------------------------------------------------------------------
Deutschemarks
(Buy) 13,530,080 French Francs 13,555,494 4/28/95 (25,414)
- ----------------------------------------------------------------------------------------
Deutschemarks
(Buy) 6,772,597 French Francs 6,772,597 4/27/95 --
- ----------------------------------------------------------------------------------------
$ 1,379
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
DIVERSIFICATION OF FOREIGN BONDS, NOTES AND SHORT-TERM INVESTMENTS AT
JANUARY 31, 1995 (AS A PERCENTAGE OF NET ASSETS):
<S> <C> <S> <C>
United Kingdom 5.4% Netherlands 0.5%
Canada 3.7 Poland 0.3
Italy 3.6 Philippines 0.2
Australia 3.4 Greece 0.2
Denmark 1.8 India 0.2
Germany 1.2 Morocco 0.2
New Zealand 1.2 Indonesia 0.2
Mexico 1.1 Bulgaria 0.1
Spain 1.1 South Africa 0.1
Sweden 0.9 Russia 0.1
Argentina 0.8 Thailand 0.1
Brazil 0.7
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE> 25
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1995 (Unaudited)
ASSETS
<S> <C>
- ------------------------------------------------------------------------------------------------------------
Investments in securities at value (identified cost $1,175,794,684) (Note 1) $1,133,763,410
- ------------------------------------------------------------------------------------------------------------
Cash 242
- ------------------------------------------------------------------------------------------------------------
Interest and other receivables 19,266,809
- ------------------------------------------------------------------------------------------------------------
Receivable for securities sold 130,175,226
- ------------------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 281,928
- ------------------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 2,400,413
- ------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 1,285,888,028
LIABILITIES
- ------------------------------------------------------------------------------------------------------------
Payable for securities purchased 97,174,023
- ------------------------------------------------------------------------------------------------------------
Distributions payable to shareholders 7,892,146
- ------------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,924,165
- ------------------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 15,524
- ------------------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 359
- ------------------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 126,119
- ------------------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 943,206
- ------------------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 2,757,627
- ------------------------------------------------------------------------------------------------------------
Other accrued expenses 502,590
-----------------------------------------------------------------------------------------------------------
TBA sale commitment at value (proceeds receivable $58,770,572) 59,548,112
- ------------------------------------------------------------------------------------------------------------
Written options outstanding at value (premium received $42,665) 8,258
- ------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 170,892,129
- ------------------------------------------------------------------------------------------------------------
NET ASSETS $1,114,995,899
- ------------------------------------------------------------------------------------------------------------
REPRESENTED BY
- ------------------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) 1,248,531,930
Distributions in excess of net investment income (Notes 1 and 4) (19,914,916)
Accumulated net realized loss on investment transactions (Notes 1 and 4) (70,185,430)
Net unrealized depreciation of investments, options, foreign currency,
forward currency contracts, and TBA sale commitments (43,435,685)
- ------------------------------------------------------------------------------------------------------------
TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO CAPITAL SHARES OUTSTANDING $1,114,995,899
- ------------------------------------------------------------------------------------------------------------
COMPUTATION OF NET ASSET VALUE
- ------------------------------------------------------------------------------------------------------------
Net asset value per share ($1,114,995,899 divided by 140,709,960 shares) $7.92
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE> 26
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Six months ended January 31, 1995 (Unaudited)
<S> <C>
INVESTMENT INCOME:
--------------------------------------------------------------------
Interest (net of foreign tax of $356,714) $ 52,011,547
--------------------------------------------------------------------
Dividends 1,325,337
--------------------------------------------------------------------
TOTAL INVESTMENT INCOME 53,336,884
EXPENSES:
--------------------------------------------------------------------
Compensation of Manager (Note 2) 3,958,071
--------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 108,252
--------------------------------------------------------------------
Compensation of Trustees (Note 2) 19,379
--------------------------------------------------------------------
Reports to shareholders 100,767
--------------------------------------------------------------------
Auditing 104,028
--------------------------------------------------------------------
Legal 18,617
--------------------------------------------------------------------
Postage 257,954
--------------------------------------------------------------------
Administrative services (Note 2) 13,037
--------------------------------------------------------------------
Registration fees 1,048
--------------------------------------------------------------------
Other 32,075
--------------------------------------------------------------------
TOTAL EXPENSES 4,613,228
--------------------------------------------------------------------
NET INVESTMENT INCOME 48,723,656
--------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (34,473,812)
--------------------------------------------------------------------
Net realized loss on options (Notes 1 and 3) (9,200)
--------------------------------------------------------------------
Net realized gain on forward currency contracts and
translation of foreign currency (Notes 1 and 3) (10,346,371)
--------------------------------------------------------------------
Net realized gain on futures contracts (Notes 1 and 3) 234,396
--------------------------------------------------------------------
Net unrealized depreciation of investments, options,
and TBA sale commitments during the period (5,047,376)
--------------------------------------------------------------------
Net unrealized depreciation of forward currency
contracts during the period (1,892,072)
--------------------------------------------------------------------
NET LOSS ON INVESTMENT TRANSACTION (51,534,435)
--------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (2,810,779)
--------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE> 27
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
Six months Year
ended ended
January 31 July 31
---------------------------------
1995* 1994
<S> <C> <C>
INCREASE IN NET ASSETS
- -------------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------------
Net investment income $ 48,723,656 $ 90,104,666
- -------------------------------------------------------------------------------------------
Net realized loss on investments, foward
contracts, options, forward currency contracts
and foreign currency (44,594,987) (3,043,248)
- -------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments, options, futures, foreign currency,
forward currency contracts, and TBA sale commitments (6,939,448) (68,007,807)
- -------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS (2,810,779) 19,053,611
- -------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
- -------------------------------------------------------------------------------------------
Net investment income (48,561,949) (98,104,251)
- -------------------------------------------------------------------------------------------
Excess of net investment income (Note 1) -- (3,416,241)
- -------------------------------------------------------------------------------------------
Shares repurchased (Note 4) (357,250) --
- -------------------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (51,729,978) (82,466,881)
NET ASSETS
- -------------------------------------------------------------------------------------------
Beginning of period 1,166,725,877 1,249,192,758
- -------------------------------------------------------------------------------------------
End of period (including distributions
in excess of net investment income of
$19,914,916 and $20,076,623, respectively) $1,114,995,899 $1,166,725,877
- -------------------------------------------------------------------------------------------
NUMBER OF FUND SHARES
- -------------------------------------------------------------------------------------------
Shares outstanding at beginning of period 140,759,960 140,759,960
- -------------------------------------------------------------------------------------------
Shares repurchased (50,000) --
- -------------------------------------------------------------------------------------------
Shares outstanding at end of period 140,709,960 140,759,960
- -------------------------------------------------------------------------------------------
<FN>
* Unaudited.
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE> 28
<TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<CAPTION>
SIX MONTHS
ENDING
JANUARY 31 YEAR ENDED JULY 31
- -------------------------------------------------------------------------------------------------------------------
1995* 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.29 $ 8.87 $ 8.51
- -------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------
Net investment income .35 .64 .71
- -------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.37) (.50) .42
- -------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (.02) .14 1.13
- -------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
- -------------------------------------------------------------------------------------------------------------------
Net investment income (.35) (.70) (.71)
- -------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- (.02) (.06)
- -------------------------------------------------------------------------------------------------------------------
Net realized gain on investments -- -- --
- -------------------------------------------------------------------------------------------------------------------
From tax return of capital -- -- --
- -------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.35) (.72) (.77)
- -------------------------------------------------------------------------------------------------------------------
Increase in net asset value from shares repurchased (a) -- -- --
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 7.92 $ 8.29 $ 8.87
- -------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT MARKET VALUE (%)(b) (2.05)(c) .95 8.69
- -------------------------------------------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $ 7.125 $ 7.625 $ 8.25
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (IN THOUSANDS) $1,114,996 $1,166,726 $1,249,193
- -------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) .41(c) .86 .84
- -------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 4.28(c) 7.30 8.14
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 74.49(c) 242.29 250.65
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 29
<TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<CAPTION>
FOR THE PERIOD
FEBRUARY 29, 1988
(COMMENCEMENT OF
OPERATIONS) TO
YEAR ENDED JULY 31 JULY 31
- ----------------------------------------------------------------------------------------------------------------------------
1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.90 $ 8.20 $ 8.98 $ 8.95 $ 9.35
- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income .75 .75 .75 .85 .35
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .73 (.14) (.46) .33 (.37)
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.48 .61 .29 1.18 (.02)
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (.75) (.75) (.75) (.88) (.33)
- ----------------------------------------------------------------------------------------------------------------------------
In excess of net investment income (.12) (.13) (.09) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments -- -- (.02) (.27) (.05)
- ----------------------------------------------------------------------------------------------------------------------------
From tax return of capital -- (.05) (.21) -- --
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.87) (.93) (1.07) (1.15) (.38)
- ----------------------------------------------------------------------------------------------------------------------------
Increase in net asset value from shares repurchased (a) -- .02 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 8.51 $ 7.90 $ 8.20 $ 8.98 $ 8.95
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT MARKET VALUE (%)(b) 27.42 23.50 (14.04) 12.14 .26(c)
- ----------------------------------------------------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $ 8.88 $ 7.75 $ 7.13 $ 9.50 $ 9.63
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (in thousands) $1,194,958 $1,106,772 $1,169,007 $1,278,922 $1,255,520
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) .88 1.06 1.02 .99 .17(c)
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 9.05 9.41 9.03 9.54 1.60(c)
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 203.27 350.45 165.97 249.07 41.74(c)
- ----------------------------------------------------------------------------------------------------------------------------
<FN>
* Unaudited.
(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>
28
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS
January 31, 1995 (Unaudited)
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 remai
ning maturities of 60 days or less are stated at amortized cost, which
approximates market value, and other investments, including restricted
securities, are stated at fair value following procedures approved by the
Trustees. Market quotations are not considered to be readily available for
long-term corporate bonds and notes; such investments are stated at fair
value on the basis of valuations furnished by a pricing service, approved by
the Trustees, which determines valuations for normal, institutional-size
trading units of such securities using methods based on market transactions
for comparable securities and various relationships between securities which
are generally recognized by institutional traders.
B 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% from the principal amount.
The fund holds, and maintains until the settlement date, cash or high-grade
debt obligations in an amount sufficient to meet the purchase price, or the
fund enters into offsetting contracts for the forward sale of other securities
it owns. TBA purchase commitments may be considered securities in themselves,
and involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to the risk of
decline in the value of the fund's other assets. Unsettled TBA purchase
commitments are valued at the current market value of the underlying
securities, generally according to the procedures described under "Security
valuation" above.
Although the fund will generally enter into TBA purchase commitments with the
intention of acquiring securities for its portfolio or for delivery pursuant
to options contracts it has entered into, the fund may dispose of a
commitment prior to settlement if
30
<PAGE> 31
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, through its custodian, receives delivery of
the underlying securities, the market value of which at the time of purchase
is required to be in an amount at least equal to the resale price, including
accrued interest. The fund's Manager is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
E SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME Security transactions are
accounted for on the trade date (date the order to buy or sell is executed).
Interest income is recorded on the accrual basis and dividend income is
recorded on the ex-dividend date. Discount on zero coupon bonds, original issue
discount bonds, payment-in-kind bonds and stepped-coupon bonds is accreted
according to the effective yield method.
F FOREIGN CURRENCY TRANSLATION Securities quoted in foreign currencies are
translated into U.S. dollars at the current exchange rate. The fund does not
isolate that portion of the results of operations resulting from changes in
foreign exchange rates on investments from the fluctuations arising from
changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investment.
Foreign currency-denominated receivables and payables are "marked-to-market"
using the current exchange rate. The fluctuation between the original exchange
rate and the current exchange rate is recorded as unrealized translation
gain or loss. Upon receipt of payment, the fund realizes a gain or loss on
foreign currency amounting to the difference between the original value and the
ending value of the receivable or payable.
G OPTION ACCOUNTING PRINCIPLES The fund may, to the extent consistent
31
<PAGE> 32
with its investment objectives and policies, seek to increase its current
returns by writing covered call and put options on securities it owns or in
which it may invest. 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
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, to the extent consistent with its
investment objectives and policies, may write and purchase put and call options
on foreign currencies. The investment objectives, 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.
FORWARD CURRENCY CONTRACTS The fund may engage in forward currency contracts,
which are agreements between two parties to buy or sell a currency at a set
price on a future date, to protect against a decline in value relative to the
U.S. dollar of the currencies in
32
<PAGE> 33
which its portfolio securities are denominated or quoted (or an increase in
the value of a currency in which securities the fund intends to buy are
denominated, when a fund holds cash reserves and short-term investments). The
market value of the contract will fluctuate with changes in currency exchange
rates. The contract is "marked-to-market" daily and the change in market value
is recorded 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 fund could be exposed to risk if the value of the
currency changes unfavorably. In addition, the fund could be exposed to risks
if the counterparties to the contracts are unable to meet the terms of their
contracts or if the fund is unable to enter a closing position. 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.
H FEDERAL TAXES It is the policy of the fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986. Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation 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, which
will expire 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.
I DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders are recorded by
the fund on the ex-dividend date. At certain times, the fund may pay
distributions at a level rate even though, as a result of market conditions
or investment decisions, the fund may not achieve projected investment results
for a given period.
The 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 transaction, post-October losses, payment in kind income, market
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.
33
<PAGE> 34
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.
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 Putnam
Investments, Inc. Investor servicing agent functions are provided by Putnam
Investor Services, a division of PFTC.
Investor servicing and custodian fees reported in the Statement of
operations for the six months ended January 31, 1995 have been reduced by
credits allowed by PFTC.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the six months ended January 31, 1995, purchases and sales of
investment securities other than U.S. government obligations and short-term
investments aggregated $401,861,028 and $477,517,305, respectively. Purchases
and sales of U.S. government obligations aggregated $395,713,653 and $425,683,
107, respectively. In determining the net gain or loss on securities sold, the
cost of securities has been determined on the identified cost basis.
Written option transactions on foreign currencies during the period are
summarized as follows:
<TABLE>
<CAPTION>
PREMIUMS RECEIVED
- -------------------------------------------------
<S> <C>
Options written $167,536
Options closed (124,817)
- -------------------------------------------------
Written options outstanding
at end of year $ 42,665
- -------------------------------------------------
</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 the best interests of the fund's shareholders. Any
repurchases of shares will have the effect of increasing the net asset value
per share of remaining shares outstanding.
For the six months ended January 31, 1995, the fund repurchased 50,000
shares for $357,250 which reflects a discount from net asset value of $38,300
or 10.60%.
34
<PAGE> 35
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 nontaxable
return of capital to shareholders.
Final information regarding distributions is furnished to shareholders in the
fund's annual reports and in tax information provided following the end of
each calendar year.
35
<PAGE> 36
<TABLE>
<CAPTION>
SELECTED QUARTERLY DATA
(Unaudited)
THREE MONTHS ENDED
JANUARY 31 OCTOBER 31 JULY 31 APRIL 30 JANUARY 31
- ----------------------------------------------------------------------------------------------------------------------------
1995 1994 1994 1994 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL INVESTMENT INCOME
Total $ 27,023,424 $ 26,313,460 $ 26,372,070 $ 23,962,104 $ 24,250,083
Per Share $ .19 $ .19 $ .19 $ .17 $ .13
- ----------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
Total $ 24,775,669 $ 23,947,987 $ 23,389,745 $ 21,413,096 $ 21,661,183
Per Share $ .18 $ .17 $ .17 $ .15 $ .11
- ----------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Total $ (31,843,818) $ (19,690,617) $ (23,641,097) $ (87,846,707) $ 21,610,985
Per Share $ (.23) $ (.14) $ (.17) $ (.62) $ .19
- ----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS
Total $ (7,068,149) $ 4,257,370 $ (251,352) $ (66,433,611) $ 43,272,168
Per Share $ (.05) $ .03 $ -- $ (.47) $ .30
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD
Total $1,114,995,899 $1,145,646,559 $1,166,725,559 $1,192,498,457 $1,284,257,808
Per Share $ 7.92 $ 8.14 $ 8.29 $ 8.47 $ 9.12
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE> 37
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31 JULY 31 APRIL 30 JANUARY 31 OCTOBER 31
- ----------------------------------------------------------------------------------------------------------------------------
1993 1993 1993 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL INVESTMENT INCOME
Total $ 26,143,785 $ 25,981,131 $ 27,987,768 $ 28,792,611 $ 26,784,842
Per Share $ .23 $ .19 $ .20 $ .20 $ .19
- ----------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
Total $ 23,640,642 $ 23,324,165 $ 25,145,261 $ 26,600,505 $ 24,244,193
Per Share $ .21 $ .17 $ .18 $ .19 $ .17
- ----------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Total $ 18,825,764 $ 17,225,488 $ 21,188,007 $ 18,080,924 $ 4,380,447
Per Share $ .10 $ .11 $ .15 $ .13 $ .03
- ----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS
Total $ 42,466,406 $ 40,549,653 $ 46,333,268 $ 44,681,429 $ 28,624,640
Per Share $ .31 $ .28 $ .33 $ .32 $ .20
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD
Total $1,266,322,899 $1,249,192,758 $1,235,035,237 $1,215,094,378 $1,196,805,389
Per Share $ 9.00 $ 8.87 $ 8.77 $ 8.63 $ 8.50
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 38
FUND INFORMATION
INVESTMENT MANAGER OFFICERS
Putnam Investment Management, Inc. George Putnam
One Post Office Square President
Boston, MA 02109 Charles E. Porter
Executive Vice President
MARKETING SERVICES Patricia C. Flaherty
Putnam Mutual Funds Corp. Senior Vice President
One Post Office Square Lawrence J. Lasser
Boston, MA 02109 Vice President
Gordon H. Silver
CUSTODIAN Vice President
Putnam Fiduciary Trust Company Gary N. Coburn
Vice President
LEGAL COUNSEL Rosemary Thomsen
Ropes & Gray Vice President and Fund Manager
Neil Powers
TRUSTEES Vice President and Fund Manager
George Putnam, Chairman Michael Martino
William F. Pounds, Vice Chairman Vice President and Fund Manager
Jameson Adkins Baxter F. Mark Turner
Hans H. Estin Vice President and Fund Manager
John A. Hill D. William Kohli
Elizabeth T. Kennan Vice President and Fund Manager
Lawrence J. Lasser Mark Siegel
Robert E. Patterson Vice President and Fund Manager
Donald S. Perkins William N. Shiebler
George Putnam, III Vice President
A.J.C. Smith John R. Verani
W. Nicholas Thorndike Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
38
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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.
37
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PUTNAM INVESTMENTS
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The Putnam Funds Bulk Rate
One Post Office Square U.S. Postage
Boston, Massachusetts 02109 PAID
Putnam
Investments
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073-16925
