Putnam
Premier
Income
Trust
ANNUAL REPORT
July 31, 1995
[Graphic Scales]
B O S T O N (bullet) L O N D O N (bullet) T O K Y O
<PAGE>
Performance highlights
> "Putnam Premier Income Trust made some savvy moves. . . . In its U.S.
government sector, PPT moved into defensive Treasury notes and
mortgage-backeds, helping to limit losses. An overweighting in junk bonds
also helped, as high-yield credits outperformed for the year. PPT thus
limited its losses and landed in the top half of the objective."
- -- Morningstar Mutual Funds, June 2, 1995
> 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.
FISCAL 1995 RESULTS AT A GLANCE
<TABLE>
<CAPTION>
Total return NAV Market price
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(change in value during
period plus reinvested
distributions)
12 months ended 7/31/95 11.80% 6.86%
Share value NAV Market price
- -----------------------------------------------------------------------------------
7/31/94 $8.29 $7.6250
7/31/95 8.46 7.4375
Distributions No. Tax return
Income of capital(1) Total
- -----------------------------------------------------------------------------------
12 $0.5750 $0.1000 $0.6750
Current return NAV Market price
- -----------------------------------------------------------------------------------
End of period
Current dividend rate(2) 7.80% 8.87%
</TABLE>
Performance data represent past results. For performance over longer periods,
see pages 8 and 9. (1)See page 32 for more information. (2)Income portion of
most recent distribution, annualized and divided by net asset value or market
price at end of period. Past performance is not indicative of future results.
<PAGE>
From the Chairman
[Picture of George Putnam]
(c)Karsh, Ottawa
Dear Shareholder:
Putnam Premier Income Trust, with investments strategically positioned in
U.S. government securities, high-yield corporate bonds, and international
fixed-income securities, was among the beneficiaries of the brighter mood
that shone upon the world's fixed-income markets during the second half of
the fund's fiscal year, the six months ended July 31, 1995.
The markets' performance for this period stood in stark contrast to the
volatility that characterized the fiscal year's first half. It was also
reflected in the fund's positive results for the year, as noted in the tables
on page 2. Putnam Management believes the continuing slowdown in global
economic growth suggests more momentum for upward movement in bond prices in
the months ahead.
In the report that follows, your fund's management team discusses performance
and prospects in the context of the three market sectors represented in the
portfolio.
Respectfully yours,
[Signature of George Putnam]
George Putnam
Chairman of the Trustees
September 20, 1995
<PAGE>
Report from the Fund Managers
Rosemary H. Thomsen, lead manager
Neil Powers
D. William Kohli
Mark Siegel
Michael Martino
Putnam Premier Income Trust's fiscal year was marked by two very distinct
economic environments. During the first half, the Federal Reserve Board
continued its tightening of monetary policy and investors witnessed one of
the gloomiest periods on record for fixed-income markets. The second half of
the fund's fiscal year brought one of the most dramatic bond-market rallies
in history, a slowing of economic growth, and the eventual reduction of
short- term interest rates by the Fed. Despite this sometimes turbulent
fiscal year, strategic asset allocation and an effective tri-sector strategy
allowed the fund to post a solid total return of 11.80% at net asset value
for the 12 months ended July 31, 1995.
> HIGH YIELD BONDS: SOLID RETURNS CONTINUE
During the first half of the fiscal year, we began gradually reducing the
portfolio's allocation to the high-yield sector. While this market still
appeared attractive to us, it had outperformed the Treasury sector for over
three years and was no longer undervalued relative to Treasuries. In
addition, we were moving into the later stages of the business cycle and
economic activity was showing signs of slowing -- an environment that would
be beneficial to Treasuries. As a result, as we gradually reduced our
exposure to the high-yield market, we gradually increased our exposure to the
U.S. government sector.
In addition to providing a high level of income, high-yield bonds appreciated
during the fiscal year as issuers continued to experience improving
profitability and credit quality. Overall market performance was also
enhanced by a relatively low level of new issuance for much of the period.
Investors entering the market were forced to compete for bonds in the
secondary market, driving prices up.
<PAGE>
A number of industries performed very well and contributed to the high-yield
sleeve's performance, including health care, paper, telecommunications, and
chemicals. The fund's cable television holdings benefited as the prospect of
favorable regulatory changes enhanced the outlook for that industry.
Although we did reduce the fund's weighting in the high-yield sector from 45%
to 36% of net assets during the year, the fund remains overweighted in this
sector. We remain positive in our outlook for the high-yield market.
> U.S GOVERNMENT: LONG DURATION AND A STRONG MORTGAGE MARKET
The strong performance of the U.S. government sleeve was due to strategic
positioning that took advantage of declining interest rates and a strong
market for mortgage-backed securities.
During the fund's second quarter, the Fed raised interest rates for the sixth
time in 10 months. At that point, the U.S. bond market appeared to have
regained confidence in the Fed's efforts to moderate economic growth. Because
we had become less concerned about further interest-rate increases, we took
the opportunity to increase the portfolio's duration. Duration is a measure
of sensitivity to interest-rate changes. A longer duration generally means a
higher-yielding portfolio with a longer average maturity, but greater
susceptibility to changes in value with each movement in interest rates.
The anticipated slowdown in economic growth did occur, and optimistic
investors bid up bond prices across all U.S. fixed- income sectors, resulting
in significant bond-market rallies. In early July, toward the end of the
fund's fiscal year, the Fed cut short-term interest rates for the first time
in nearly three years. This was a clear indication that the Fed believed
inflationary pressures had receded sufficiently.
We continued to emphasize holdings in mortgage-backed securities, which
provided attractive income opportunities throughout most of fiscal 1995.
While we maintained a relatively high weighting in these securities, we
realized that a declining interest-rate environment might raise prepayment
risk. Historically, declines in interest rates have increased prepayment
activity as the lower rates prompted homeowners to refinance their mortgages.
Therefore, our
<PAGE>
strategy involved concentrating on discount-coupon mortgages -- those with
coupons lower than the current market rate -- which tend to be less sensitive
to prepayment risk.
Early in the fourth fiscal quarter, when it appeared that prepayment risk was
at the point of accelerating, we significantly reduced the fund's exposure to
mortgage-backed securities. This strategy proved to be on target as our
concerns about prepayment risk were confirmed and mortgage-backed securities
began to underperform. Toward the end of the quarter, when the prices of
mortgage-backed securities declined, we again built up the fund's exposure to
them.
> INTERNATIONAL: SOME OPPORTUNITIES HAMPERED BY DOLLAR HEDGING STRATEGIES
In absolute terms, performance of the fund's international sleeve was
favorable. However, when compared with benchmark indexes, it was somewhat
disappointing. This relative underperformance was primarily due to dollar
hedging strategies employed to protect the fund from adverse currency
movements.
At the end of 1994, in anticipation that the U.S. dollar would begin to
strengthen against other currencies, we initiated a series of defensive
currency hedges. A hedge can be considered a sort of currency insurance
policy designed to lock in specific exchange rates. In the early part of
1995, however, the U.S. dollar began to weaken significantly against other
currencies, especially the German deutschemark and the Japanese yen. Because
the fund's assets were hedged into U.S. dollars, our ability to take
advantage of gains in many international markets was hampered. By the fund's
third quarter, we had eliminated all U.S. dollar hedges.
Performance for the international sleeve was outstanding for the final
quarter of the fiscal year due to the strength of holdings in higher-yielding
European markets such as Spain, Italy, and Sweden. The sleeve's performance
was also boosted by bond-market rallies throughout Europe. At fiscal
year-end, the international sleeve was slightly underweighted.
The fund's relatively low weighting in emerging markets -- approximately 2%
of net assets -- proved beneficial in a fiscal year that witnessed a dramatic
devaluation of the Mexican peso.
<PAGE>
TOP TEN ALLOCATIONS BY COUNTRY*
France 6.0%
Germany 4.6%
Italy 3.8%
Spain 1.9%
Canada 1.5%
Sweden 1.3%
Netherlands 1.2%
Denmark 1.1%
United Kingdom 1.1%
Mexico 0.9%
* Based on net assets as of 7/31/95.
Reflects international sleeve holdings only.
While this event dampened performance in virtually all developing-country
markets, the effect on the fund was mitigated due to its limited holdings in
these markets. During the fund's last quarter, performance in emerging
markets had improved significantly, due in part to increasing stability in
the Mexican economy.
> MODERATE ECONOMIC GROWTH EXPECTED TO CONTINUE
We don't anticipate any substantial changes in asset allocation over the near
term. At fiscal year's end, the U.S. government and high-yield sleeves were
overweighted and the international sleeve was slightly underweighted. We
currently plan to maintain a relatively long duration within the U.S.
government sleeve, with the expectation that economic growth will continue at
a moderate pace and inflation will remain subdued. We also believe the
outlook for mortgage-backed securities will remain favorable, and we
anticipate continued solid performance from high-yield bonds. On the
international front, the global economic slowdown and the stabilizing U.S.
dollar are expected to help international bond markets deliver solid returns
going forward.
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 7/31/95, 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 underlying securities, the value of fund shares is
not guaranteed and will fluctuate.
<PAGE>
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.
TOTAL RETURN FOR PERIODS ENDED 7/31/95
<TABLE>
<CAPTION>
NAV Market price
- --------------------------- ----- -------------
<S> <C> <C>
1 year 11.80% 6.86%
- --------------------------- ------ -----
3 years 30.42 17.25
Annual average 9.26 5.45
- --------------------------- ------ -----
5 years 70.99 84.50
Annual average 11.33 13.03
- --------------------------- ------ -----
Life of fund (since
2/29/88) 104.50 78.31
Annual average 10.12 8.11
- --------------------------- ------ -----
</TABLE>
TOTAL RETURN FOR PERIODS ENDED 6/30/95
(most recent calendar quarter)
<TABLE>
<CAPTION>
NAV Market price
- -------------------------- ----- ------------
<S> <C> <C>
1 year 11.46% 6.94%
- -------------------------- ------ -----
3 years 31.04 25.45
Annual average 9.43 7.85
- -------------------------- ------ -----
5 years 73.97 90.06
Annual average 11.71 13.70
- -------------------------- ------ -----
Life of fund (since
2/29/88) 102.06 78.50
Annual average 10.06 8.21
- -------------------------- ------ -----
</TABLE>
<PAGE>
COMPARATIVE INDEXES AND BENCHMARKS FOR PERIODS ENDED 7/31/95
<TABLE>
<CAPTION>
Salomon
Lehman Bros. First
Bros. Non-U.S. Boston Consumer
Government World Govt. High Yield Price
Bond Index Bond Index Index Index
- ------------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C>
1 year 9.63% 23.05% 13.74% 2.76%
- ------------- ---------- ----------- ---------- --------
3 years 21.31 45.00 37.35 8.54
Annual
average 6.66 13.20 11.17 2.77
- ------------- ---------- ----------- ---------- --------
5 years 53.83 97.48 95.65 16.95
Annual
average 9.00 14.58 14.37 3.18
- ------------- ---------- ----------- ---------- --------
Life of fund
(since
2/29/88) 86.53 110.61 123.07 31.47
Annual
average 8.77 10.56 11.42 3.76
- ------------- ---------- ----------- ---------- --------
</TABLE>
Performance data represent past results. Investment returns, market value 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. Past performance is not indicative of future results.
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.
<PAGE>
Report of Independent Accountants
For the year ended July 31, 1995
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, 1995, 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 investments owned at July 31, 1995 by
correspondence with the custodian 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 20, 1995
<PAGE>
Portfolio of investments owned
July 31, 1995
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (33.2%)*
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
Federal National Mortgage Association
$21,001,731 8s, with various due dates to May 1, 2025 $ 21,343,010
67,741,280 7-1/2s, with various due dates to July 1, 2025 67,593,310
24,495,000 TBA 7s, August 14, 2025+++ 23,897,812
6,690,000 TBA 6.695s, August 14, 2025+++ 6,533,203
79,493 6 1/2, June 1, 2024 75,766
Government National Mortgage Association
1,249,388 9-1/2s, with various due dates to April 15, 2021 1,341,621
22,361,584 8s, with various due dates to February 15, 2025 22,837,197
52,648,890 7-1/2s, with various due dates to July 15, 2025 52,791,735
58,335,015 7s, with various due dates to July 15, 2025 56,930,893
6,815,000 U.S. Treasury Bonds 11-1/4s, Febuary 15, 2015 10,011,644
35,180,000 U.S. Treasury Bonds 10-3/4s, May 15, 2003 44,398,215
1,145,000 U.S. Treasury Bonds 8-7/8s, August 15, 2017 1,395,469
39,470,000 U.S. Treasury Bonds 7-5/8s, February 15, 2025 43,287,538
18,410,000 U.S. Treasury Bonds 7-1/2s, November 15, 2024 19,828,122
2,345,000 U.S. Treasury Notes 7-1/2s, February 15, 2005 2,513,535
14,110,000 U.S. Treasury Bonds 6-1/4s, August 15, 2023 12,950,299
44,720,000 U.S. Treasury Strip zero %, August 15, 2020 7,618,052
- ------------ -------------------------------------------- ------------
Total U.S. Government and Agency Obligations
(cost $390,388,130) $395,347,421
- ------------ -------------------------------------------- ------------
</TABLE>
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES (28.0%)*
PRINCIPAL AMOUNT VALUE
Advertising (1.0%)
- ----------------------------------------------------------------------------------
<S> <C> <C>
$1,115,000 Lamar Advertising Co. sr. secd. notes 11s, 2003 $ 1,126,150
2,100,000 Outdoor Systems, Inc. sr. notes 10-3/4s, 2003 2,026,500
5,000,000 Universal Outdoor, Inc. sub. deb. 11s, 2003 4,825,000
4,600,000 Universal Outdoor, Inc. sr. notes stepped-coupon zero
% (14s, 7/1/99), 2004++ 2,797,904
--------------
10,775,554
Aerospace (0.3%)
- ----------------------------------------------------------------------------------
3,300,000 Sequa Corp. bonds 8-3/4s, 2001 3,102,000
Agriculture (1.1%)
- ----------------------------------------------------------------------------------
4,931,000 PMI Holdings Corp. Ser. B, sub. disc. deb. stepped-coupon
zero % (11-1/2s, 3/1/00), 2005++ 2,551,793
125,000 PSF Finance (L.P.) sr. exch. notes 12-1/4s, 2004 128,969
6,123,698 PSF Finance (L.P.) sr. notes 12s, 2000 6,383,955
4,155,000 PSF Finance (L.P.) sr. disc. note stepped-coupon zero
% (12s, 9/15/96), 2003++ 3,604,463
--------------
12,669,180
Automotive (0.4%)
- ----------------------------------------------------------------------------------
4,900,000 Key Plastics Corp. sr. notes 14s, 1999 5,145,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
Broadcasting (1.3%)
- ----------------------------------------------------------------------------------------
$10,200,000 Panamsat (L.P.) sr. sub. notes stepped-coupon zero
% (11-3/8s, 8/1/98), 2003++ $ 7,497,000
2,316,000 Petracom 144A stepped-coupon zero % (17-1/2, 2003), 2003++ 1,401,180
2,450,000 SFX Boadcasting, Inc. sr. sub. notes 11-3/8s, 2000 2,554,125
3,276,000 Telemedia Broadcasting Corp. 144A deb. stepped-coupon 6.4s
(16s, 6/15/99), 2004++ 3,030,300
-------------
14,482,605
Building and Construction (0.8%)
- ----------------------------------------------------------------------------------------
5,250,000 Presley Co. sr. notes 12-1/2s, 2001 4,357,500
5,000,000 Scotsman Group, Inc. sr. secd. notes 9-1/2s, 2000 4,875,000
-------------
9,232,500
Building Products (0.3%)
- ---------------------------------------------------------------------------------------
2,000,000 American Standard, Inc. deb. 9-1/4s, 2016 2,030,000
1,735,000 Walter Industries Inc. sr. notes Ser. B, 12.19s, 2000 1,761,025
-------------
3,791,025
Business Services (0.2%)
- ---------------------------------------------------------------------------------------
2,345,000 Corporate Express, Inc. Ser. B, sr. sub. notes 9-1/8s, 2004 2,280,513
Cable Television (3.0%)
- ---------------------------------------------------------------------------------------
3,200,000 Adelphia Communications Corp. sr. notes 12-1/2s, 2002 3,296,000
750,000 Adelphia Communications Corp. sr. deb. 11-7/8s, 2004 731,250
4,000,000 Adelphia Communications Corp. notes, Ser. B, 9-7/8s, 2005 3,660,000
1,350,000 Cablevision Systems Corp. sr. sub. deb. 9-7/8s, 2023 1,458,000
5,700,000 Cablevision Systems Corp. sr. sub. reset deb. 10-3/4s, 2004 6,127,500
4,000,000 Century Communications Corp. sr. notes 9-1/2s, 2005 4,050,000
2,425,000 Continental Cablevision, Inc. sr. deb. 9s, 2008 2,534,125
5,798,403 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003+++++ 5,508,483
4,250,000 Insight Communications Co. sr. sub. notes stepped-coupon
8-1/4s (11-1/4s, 3/1/97), 2000++ 4,292,500
2,700,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes stepped- coupon
zero % (13-1/2s, 8/1/99), 2004++ 1,825,875
2,500,000 Summit Communications Group, Inc. sr. sub. deb. 10-1/2s,
2005 2,750,000
-------------
36,233,733
Chemicals (0.8%)
- ---------------------------------------------------------------------------------------
6,575,000 G-I Holdings, Inc. sr. disc. notes zero %, 1998 4,668,250
6,255,000 OSI Specialties Inc. sr. secd. disc. deb. stepped-coupon
zero % (11-1/2s, 4/15/99), 2004++ 4,628,700
-------------
9,296,950
Conglomerates (0.6%)
- ---------------------------------------------------------------------------------------
900,000 ADT Ltd. sr. sub. notes 9-1/4s, 2003 922,500
4,075,000 Haynes International, Inc. sr. sub. notes 13-1/2s, 1999 2,852,500
2,970,000 MacAndrews & Forbes Group, Inc. deb. 12-1/4s, 1996 2,999,700
225,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes 13s, 1999 225,281
-------------
6,999,981
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
Consumer Services (0.4%)
- ---------------------------------------------------------------------------------------
$3,000,000 Solon Automated Services, Inc. sr. sub. deb. 13-3/4s, 2002 $ 2,985,000
2,300,000 Solon Automated Services, Inc. notes 12-3/4s, 2001 2,288,500
-------------
5,273,500
Containers (0.5%)
- ---------------------------------------------------------------------------------------
6,000,000 Ivex Packaging Corp. sr. sub. notes 12-1/2s, 2002 6,390,000
Electric Utilities (0.9%)
- ---------------------------------------------------------------------------------------
6,550,000 Midland Funding Corp. II deb. Ser. B, 13-1/4s, 2006 6,910,250
3,114,000 Public Service Co. of New Hampshire deb. 15.23s, 2000 3,600,563
-------------
10,510,813
Electronics (0.7%)
- ---------------------------------------------------------------------------------------
7,536,000 Amphenol Corp. sr. sub. notes 12-3/4s, 2002 8,553,360
Entertainment (0.5%)
- ---------------------------------------------------------------------------------------
4,000,000 Time Warner Inc. notes zero %, 2002 (exchangeable for various
notes on 8/15/95) 3,945,000
2,000,000 Viacom International, Inc. sub. deb. 8s, 2006 1,970,000
-------------
5,915,000
Financial Services (0.5%)
- ---------------------------------------------------------------------------------------
2,995,000 Comdata Network, Inc. sr. notes 12-1/2s, 1999 3,268,294
775,000 First Federal Financial Corp. notes 11-3/4s, 2004 769,188
2,000,000 Keystone Group, Inc. sr. secd. notes 9-3/4s, 2003 2,020,000
-------------
6,057,482
Food (0.3%)
- ---------------------------------------------------------------------------------------
4,221,000 Del Monte Corp. 144A sub. deb. notes 12-1/4s, 2002+++++ 3,798,900
Food Chains (0.1%)
- ---------------------------------------------------------------------------------------
1,700,000 Stater Brothers sr. notes 11s, 2001 1,683,000
Forest Products (0.5%)
- ---------------------------------------------------------------------------------------
2,950,000 Gaylord Container Corp. sr. sub. disc. deb. stepped-coupon
zero % (12-3/4s, 5/15/96), 2005++ 2,986,875
1,000,000 Riverwood International Corp. sr. notes 10-3/4s, 2000 1,077,500
2,100,000 Riverwood International Corp. sr. sub. notes 10-3/8s, 2004 2,299,500
-------------
6,363,875
Health Care (2.4%)
- ---------------------------------------------------------------------------------------
4,480,000 Columbia/HCA Healthcare Corp. notes 6.91s, 2005 4,401,600
4,845,000 Continental Medical Systems Inc. sr. sub. notes 10-7/8s,
2002 5,184,150
155,000 Continental Medical Systems Inc. sr. sub. notes, Ser. B,
10-3/8s, 2003 164,300
4,800,000 McGaw, Inc. sr. notes 10-3/8s, 1999 4,980,000
4,973,000 Multicare Cos., Inc. sr. sub. notes 12-1/2s, 2002 5,619,490
6,000,000 Paracelsus Healthcare Corp. sr. sub. notes 9-7/8s, 2003 6,060,000
2,240,000 Quorum Health Group, Inc. sr. sub. notes 11-7/8s, 2002 2,464,000
-------------
28,873,540
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
Home Furnishings (0.1%)
- ---------------------------------------------------------------------------------------
$1,148,515 Simmons Mattress Corp. 144A deb. 8s, 2003+++++ $ 1,142,771
Insurance (0.5%)
- ---------------------------------------------------------------------------------------
1,000,000 American Annuity Group, Inc. sr. notes 9-1/2s, 2001 1,000,000
1,200,000 Bankers Life Holdings 144A sr. sub. deb. Ser. A, 13s, 2002 1,395,000
3,150,000 Reliance Group Holdings, Inc. sr. sub. deb. 9-3/4s, 2003 3,087,000
800,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 792,000
-------------
6,274,000
Lodging (0.9%)
- ---------------------------------------------------------------------------------------
4,000,000 HMH Properties Inc. 144A sr. notes 9-1/2s, 2005 3,920,000
4,500,000 John Q. Hammons Hotels 1st mtge. notes 8-7/8s, 2004 4,297,500
2,800,000 Red Roof Inns sr. notes 9-5/8s, 2003 2,688,000
-------------
10,905,500
Medical Supplies (0.1%)
- ---------------------------------------------------------------------------------------
1,000,000 Wright Medical Technology, Inc. sr. secd. notes Ser. B,
10-3/4s, 2000 1,005,000
Motion Picture Distribution (1.3%)
- ---------------------------------------------------------------------------------------
5,000,000 AMC Entertainment, Inc. sr. sub. deb. 12-5/8s, 2002 5,575,000
4,750,000 Act III Theatres, Inc. sr. sub. notes 11-7/8s, 2003 5,153,750
4,500,000 Cinemark USA sr. notes 12s, 2002 4,905,000
-------------
15,633,750
Oil and Gas (1.0%)
- ---------------------------------------------------------------------------------------
5,075,000 Arkla, Inc. deb. 8.9s, 2006 5,379,500
2,135,000 Chesapeake Energy Corp. sr. exch. notes 12s, 2001 2,241,750
4,150,000 Trans Texas Gas Corp. sr. secd. notes 11-1/2s, 2002 4,316,000
-------------
11,937,250
Paging (0.2%)
- ---------------------------------------------------------------------------------------
2,800,000 Pagemart, Inc. sr. disc. notes stepped-coupon zero % (12-1/4s,
11/1/98), 2003++ 1,848,000
Publishing (0.4%)
- ---------------------------------------------------------------------------------------
500,000 Marvel Holdings, Inc. sr. notes, Ser. B, zero %, 1998 352,500
5,955,000 Marvel Parent Holdings, Inc. sr. secd. disc. notes zero %,
1998 4,198,275
-------------
4,550,775
Real Estate (0.2%)
- ---------------------------------------------------------------------------------------
140,000 Chelsea Piers 144A Ser. B, stepped-coupon zero % (11s,
6/15/99), 2009++ 130,200
2,500,000 Chelsea Piers Ser. B, 1st mtge. disc. notes stepped-coupon
zero % (12-1/2s, 6/15/96), 2004++ 2,306,250
-------------
2,436,450
Recreation (1.5%)
- ---------------------------------------------------------------------------------------
2,090,000 Arizona Charlies Corp. 1st mtge. Ser. B, 12s, 2000 1,630,200
760,000 Capitol Queen Corp. 1st mtge. notes Ser. B, 12s, 2000 668,800
2,520,000 Casino America, Inc. 1st mtge. deb. 11-1/2s, 2001 2,633,400
1,800,000 Lady Luck Gaming Corp. 1st mtge. Ser. B 10-1/2s, 2001 1,269,000
3,484,000 Louisiana Casino Cruises Corp. 1st mtge. 11-1/2s, 1998 3,205,280
2,106,000 Trump Castle Funding Corp. sr. sub. notes 11-1/2s, 2000 2,106,000
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
Recreation (continued)
- ---------------------------------------------------------------------------------------
$ 2,500,000 Trump Holdings & Funding Corp. sr. notes 15-1/2s, 2005 $ 2,525,000
4,600,000 Trump Plaza Funding, Inc. 1st mtge. notes 10-7/8s, 2001 4,370,000
-------------
18,407,680
Restaurants (-%)
- ---------------------------------------------------------------------------------------
300,000 American Restaurant Group, Inc. sr. secd. notes, Ser. A,
12s, 1998 249,000
Retail (2.0%)
- ---------------------------------------------------------------------------------------
2,430,000 Brylane L.P. sr. sub. notes 10s, 2003 2,247,750
5,375,000 County Seat Stores Inc. sr. sub. notes 12s, 2002 5,321,250
4,600,000 Duane Reade Corp. sr. notes Ser. B 12s, 2002 3,772,000
543,000 Eckerd (Jack) Corp. sub. deb. 11-1/8s, 2001 545,715
175,000 Loehmanns' Holdings, Inc. sr. sub. notes 13-3/4s, 1999 171,500
12,500,000 Loehmanns' Holdings, Inc. sr. notes 10-1/2s, 1997 12,312,500
-------------
24,370,715
School Buses (0.5%)
- ---------------------------------------------------------------------------------------
5,250,000 Blue Bird Body Co. sub. deb. Ser. B, 11-3/4s, 2002 5,394,375
Tobacco (0.4%)
- ---------------------------------------------------------------------------------------
5,095,000 Mafco, Inc. sr. sub. notes 11-7/8s, 2002 5,196,900
Wireless Communications (2.3%)
- ---------------------------------------------------------------------------------------
3,800,000 Cellular, Inc. sr. sub. disc. notes stepped-coupon zero %
(11-3/4s, 9/1/98), 2003++ 2,812,000
2,150,000 One Comm Corp. sr. disc. notes stepped-coupon zero % (10-1/8s,
1/15/99), 2004++ 1,150,250
4,000,000 Centennial Cellular Corp. sr. notes 8-7/8s, 2001 3,800,000
2,000,000 Commnet Cellular Inc. bonds 11-1/4s, 2005 2,060,000
3,500,000 Dial Call Communication sr. disc. notes Ser. B, stepped-
coupon zero % (10-1/4s, 12/15/98), 2005++ 1,697,500
7,390,000 Horizon Cellular Telephone Co. sr. sub. disc. notes Ser.
B, stepped-coupon zero % (11-3/8s, 10/1/97), 2000++ 5,912,000
7,500,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (11-1/2s, 9/1/98), 2003++ 4,537,500
5,980,000 Pricellular Wire 144A sr. disc. notes stepped-coupon zero
% (14s, 11/15/97), 2001++ 4,903,600
-------------
26,872,850
- ------------ ------------------------------------------------------- -------------
Total Corporate Bonds and Notes
(cost $326,001,669) $333,653,527
- ------------ ------------------------------------------------------- -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOREIGN BONDS AND NOTES (21.7%)*
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
CAD 7,540,000 Canada (Government of) deb. 9s, 2004 $ 5,710,283
DKK 73,025,000 Denmark (Government of) bonds 8s, 2006 13,196,782
FRF 136,460,000 France (Government of) deb. 8-1/2s, 2002 30,698,216
FRF 118,920,000 France (Government of) 7-3/4s, 2000 25,794,287
FRF 70,590,000 France (Government of) deb. 7s, 1999 14,919,830
DEM 36,030,000 Germany (Republic of) bonds 6-1/4s, 2024 22,461,782
DEM 4,410,000 Germany (Republic of) bonds 6-7/8s, 2005 3,209,881
DEM 39,410,000 Germany (Republic of) bonds 7-3/8s, 2005 29,539,697
ITL 20,490,000,000 Italy (Government of) bonds 12s, 2003 13,049,149
ITL 46,580,000,000 Italy (Government of) bonds 8-1/2s, 2004 24,139,541
ITL 13,925,000,000 Italy (Government of) notes 8-1/2s, 1999 7,994,166
USD 1,200,000 Morocco (Government of) loan participation notes
4-1/2s, 1999 693,000
NLG 20,175,000 Netherlands (Government of) bonds 9s, 2000 14,604,097
USD 2,100,000 Russia (Government of) loan participation notes,
zero %, 1999 601,125
USD 933,000 South Africa (Government of) notes 9-5/8s, 1999 964,489
ESP 1,590,000,000 Spain (Government of) bonds 11.45s, 1998 13,522,696
ESP 1,005,000,000 Spain (Government of) bonds 10.833s, 2000 8,777,369
SEK 105,900,000 Sweden (Government of) bonds 10-1/4s, 2000 15,083,773
THB 20,000,000 Thailand (IFC of) bonds 8s, 1996 807,918
GBP 8,250,000 United Kingdom Treasury notes 7-3/4s, 2006 12,705,708
- ---- ----------- ------------------------------------------- ------------
Total Foreign Bonds and Notes
(cost $249,590,450) $258,473,789
- ---- ----------- ------------------------------------------- ------------
</TABLE>
<TABLE>
<CAPTION>
UNITS (2.0%)*
NUMBER OF UNITS VALUE
<S> <C> <C>
385 Celcaribe S.A. 144A units stepped-coupon zero % (13-1/2s,
3/15/98), 2004++ $ 3,320,625
4,360 Cellnet Data Systems Inc. 144A units zero %, 2005 2,338,050
1,000 Decorative Home Accents 144A units 13s, 2002 1,002,500
1,925 Hollywood Casino 144A units 13-1/2s, 1998 2,233,000
7,115 ICF Kaiser International, Inc. sr. sub. units 12s, 2003 6,741,463
1,123 New Street Acquisition Corp. 144A units 12s, 1998+++++ 1,292,140
13,760 Premium Standard Farms 144A exch. pfd. units 12-1/2s, 2000 1,513,600
7,445 SDW Holdings Corp. 144A units 15s, 2006 2,047,375
3,465 Total Renal Care, Inc. units stepped-coupon zero % (12s,
8/15/99), 2004++ 3,187,800
- ----------- ----------------------------------------------------- ------------
Total Units (cost $22,946,345) $23,676,553
- ----------- ----------------------------------------------------- ------------
YANKEE BONDS AND NOTES (2.0%)*
PRINCIPAL AMOUNT VALUE
$1,670,000 Cinemark Mexico 144A notes 12s, 2003 $ 1,553,100
2,850,000 Eletson Holdings, Inc. mtge. notes 9-1/4s, 2003 2,736,000
5,000,000 Fresh Del Monte Produce Corp. sr. notes, Ser. B, 10s, 2003 4,150,000
4,000,000 Gulf Canada Resources Ltd. sr. sub. notes 9-5/8s, 2005 4,040,000
5,175,000 International Semi-Tech. Corp. sr. secd. disc. notes
stepped-coupon zero % (11-1/2s, 8/15/00), 2003++ 2,755,688
240,000 Petroleos Mexicanos 144A med. term notes 6-1/8s, 1996 231,600
5,000,000 Plitt Theatres, Inc. sr. sub. notes 10-7/8s, 2004 5,012,500
2,700,000 Westpac Banking Corp. sub. deb. 9-1/8s, 2001 2,977,803
- ----------- ----------------------------------------------------- ------------
Total Yankee Bonds and Notes (cost $24,486,265) $23,456,691
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BRADY BONDS (1.9%)*
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
$7,187,000 Argentina (Government of) bonds 4s, 2023 $ 3,332,971
3,234,000 Argentina (Government of) disc. Floating Rate Bond (FRB)
6-7/8s, 2023 1,843,380
4,800,000 Argentina (Republic of) notes 4-1/4s, 2005 2,958,000
2,494,700 Brazil (Government of) bonds 8-3/4s, 2001 2,017,589
3,300,000 Brazil (Federal Republic of) reset bonds 7-1/4s, 2024 1,439,625
1,995,000 Brazil (Republic of) Floating Rate Note (FRN) 7-1/4s, 2006 1,206,975
2,441,000 Bulgaria (Government of) disc. notes 7.563s, 2024 1,171,680
1,184,000 Bulgaria (Government of) FRB 7.5625s, 2011 494,320
3,130,000 Ecuador (Government of) FRN 7.25s, 2025 1,588,475
4,525,000 Mexico (Government of) bonds 6-1/4s, 2019 2,720,656
3,106,000 Poland (Government of) 144A FRN 6.8125s, 2024 2,350,838
1,750,000 United Mexican States (Government Guaranty) FRN 8.125s,
2008 1,561,875
- ----------- ----------------------------------------------------- ------------
Total Brady Bonds (cost $21,741,661) $22,686,384
- ----------- ----------------------------------------------------- ------------
PREFERRED STOCKS (1.5%)*
NUMBER OF SHARES VALUE
63,750 California Federal Bank Ser. B, $10.625 exch. pfd. $ 6,757,500
49,000 First Nationwide Bank $11.50 exch. pfd. 5,316,500
128,167 Pyramid Communications, Inc. Ser. C, $3.125 exch. pfd. 3,204,184
79,700 SD Warren Co. 144A Ser. A, $3.50 pfd. 2,391,000
- ----------- ----------------------------------------------------- -----------
Total Preferred Stocks (cost $16,825,058) $17,669,184
- ----------- ----------------------------------------------------- -----------
ASSET-BACKED SECURITIES (1.4%)*
PRINCIPAL AMOUNT VALUE
$3,195,000 First Chicago Master Trust II Ser. 1994-L Class A, 7.15s,
2001 $ 3,264,875
3,880,000 First Deposit Master Trust Ser. 93-2A, 5-3/4s, 2001 3,821,800
5,300,000 Standard Credit Card Master Trust Ser. A, 7.85s, 2002 5,546,768
4,220,000 Standard Credit Card Master Trust 94-1A, 4.65s, 1999 4,130,325
- ----------- ----------------------------------------------------- -----------
Total Asset-Backed Securities (cost $16,403,125) $16,763,768
- ----------- ----------------------------------------------------- -----------
COMMON STOCKS (1.4%)*+
NUMBER OF SHARES VALUE
303,825 Ampex Corp. Class A $ 1,329,234
43,768 Chesapeake Energy Corp. 1,001,193
520,099 Computervision Corp. 5,461,040
26,050 Computervision Corp. (acquired 8/24/92, cost $234,450)++++ 208,400
59,282 Gaylord Container Corp. A 689,153
37,304 Grand Casinos, Inc. 1,454,856
136,975 Grand Union Co. (acquired 6/20/95, cost $7,750,000)++++ 2,054,625
10,934 IFINT Diversified Holdings 144A 773,581
666,882 Loehmanns' Holdings, Inc. 144A 1,333,764
1,658 PMI Holdings Corp. 144A 331,600
1,186 Premium Holdings L.P. 144A 118,573
3,851 Pyramid Communications, Inc. New Class B 144A 92,413
46 Southland Corp. 164
36,750 Specialty Foods Corp. 73,500
12,509 Taj Mahal Holding Corp. Class A 125,090
88,000 Total Renal Care, Inc. 144A 638,000
- ----------- ----------------------------------------------------- -----------
Total Common Stocks (cost $14,961,472) $15,685,186
<PAGE>
EUROBONDS (0.5%)*
PRINCIPAL AMOUNT VALUE
$ 907,000 Essar Gujarat Ltd. 144A deb. FRN 8.4s, 1999 $ 902,465
3,750,000 Ispat Mexicana, SA 144A notes 10-3/8s, 2001 3,281,250
923,000 Petroleo Brasileiro S.A. FRN 10.2125s, 1998 906,848
523,000 PT Astra bonds 9-3/4s, 2001 538,952
- ----------- ----------------------------------------------------- -----------
Total Eurobonds (cost $6,039,590) $5,629,515
- ----------- ----------------------------------------------------- -----------
CONVERTIBLE PREFERRED STOCKS (0.3%)*
NUMBER OF SHARES VALUE
23,000 Chiquita Brands Intl. Inc. Ser. A, $5.75 cv. pfd. $1,043,625
66,330 Conseco, Inc. Ser. D, $3.25 cv. pfd. 3,067,763
- ----------- ----------------------------------------------------- -----------
Total Convertible Preferred Stocks
(cost $4,466,500) $4,111,388
- ----------- ----------------------------------------------------- -----------
</TABLE>
<TABLE>
<CAPTION>
WARRANTS (0.3%)*+
NUMBER OF WARRANTS EXPIRATION DATE VALUE
<S> <C> <C> <C>
95,000 Becker Gaming Corp. 144A 11/15/00 $ 47,500
8,223 Casino America, Inc. 144A 11/15/96 8,223
16,560 Casino Magic Finance Corp. 144A 10/14/96 828
18,558 Cinemark Mexico USA, Inc. 144A 8/1/03 171,940
5,375 County Seat Holdings, Inc. 144A 10/15/98 107,500
177,848 Gaylord Container Corp. 144A 7/31/96 1,822,942
700 Grand Union Co. Ser. 1 6/16/00 788
1,399 Grand Union Co. Ser. 2 6/16/00 350
187,200 Insight Communications Co. 144A 3/30/98 327,600
10,452 Louisiana Casino Cruises, Inc. 144A 12/1/98 156,780
6,255 OSI Specialties Inc. 144A 4/15/99 125,100
12,880 Pagemart, Inc. 144A 12/31/03 115,920
5,600 Petracom Holdings, Inc. Warrants 144A 8/1/05 56
31,620 President Riverboat Casinos, Inc. 9/23/96 1,581
46,534 President Riverboat Casinos, Inc. 144A 9/30/99 186,136
60,000 Southdown, Inc. (acquired
10/31/91, cost $180,000)++++ 10/31/96 255,000
77 Telemedia Broadcasting Corp. 144A 4/1/04 57,870
24,000 UCC Investor Holding, Inc. 144A 10/30/99 276,000
4,600 Universal Outdoor, Inc. 144A 7/1/04 184,000
455 Wright Medical Technology, Inc. 144A 6/30/03 75,055
- ----------- --------------------------------------- -------------- -------
Total Warrants (cost $2,720,838) $3,921,169
- ----------- --------------------------------------- -------------- -------
</TABLE>
<TABLE>
<CAPTION>
CALL OPTIONS OUTSTANDINGS (0.2%)*
EXPIRATION DATE/
CURRENCY STRIKE PRICE VALUE
<S> <C> <C> <C> <C>
JPY 1,716,500,000 Japanese 10YR Future Aug 95/JPY 113 $1,360,549
JPY 58,940,000 Japanese Yen in
exchange for U.S.
Dollars Oct 95/JPY 87.5 1,252,475
---- ------------ -------------------- --------------------- ----------
Total Call Options (cost $1,936,099) $2,613,024
---- ------------ --------------------------------------------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONVERTIBLE BONDS AND NOTES (0.1%)*
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
$ 250,000 Riverwood International Corp. sub. notes 6-3/4s, 2003 $ 350,000
950,000 Sahara Mission 144A cv. sub. notes 12s, 1995 950,000
- ------------ --------------------------------------------------- --------------
Total Convertible Bonds and Notes
(cost $1,212,500) $ 1,300,000
- ------------ --------------------------------------------------- --------------
SHORT-TERM INVESTMENTS (7.6%)*
PRINCIPAL AMOUNT VALUE
$30,000,000 Chemical Bank Corp 5.72s, August 21, 1995 $ 29,904,667
11,500,000 Federal Home Loan Mortgage Corp. 5.6s, October 27, 1995 11,344,367
10,000,000 Federal National Mortgage Assn. 5.6s, October 2, 1995 9,903,556
1,000,000 Mexican Tesobono bonds zero %, October 19, 1995 974,640
1,071,025 Poland Zloty Certificate of Deposit zero %, January 25,
1996 953,749
678,180 Poland Zloty Certificate of Deposit zero %, October 20,
1995 639,146
36,458,000 Interest in $672,198,000 joint repurchase agreement
dated July 31, 1995 with Morgan (J.P.) & Co., Inc. due
August 1, 1995 with respect to various U.S. Treasury
obligations--maturity value of $36,463,874 for an
effective yield of 5.8% 36,463,874
- ------------ --------------------------------------------------- --------------
Total Short-Term Investments (cost $90,195,276) $ 90,183,999
- ------------ --------------------------------------------------- --------------
Total Investments (cost $1,189,914,978)*** $1,215,171,598
- ------------ --------------------------------------------------- --------------
</TABLE>
* Percentages indicated are based on net assets of $1,190,374,811, which
correspond to a net asset value per share of $8.46.
+ 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 July 31, 1995. Although the unit price for the
trades has been established, the principal amount has not been finalized.
However, the amount of the commitments will not fluctuate more than 2.0% from
the principal amount. Income on the securities will not be earned until
settlement date. The cost of TBA purchases at July 31, 1995 was $30,601,908.
++++ Restricted, excluding 144A securities, as to public resale. At the date of
acquisition these securities were valued at cost. Total market value of
restricted securities owned at July 31,1995 was $2,518,025 or 0.2% of net
assets.
+++++ Income may be received in cash or additional securities at the
discretion of the issuer.
*** The aggregate identified cost for federal income tax purposes is
$1,190,487,208, resulting in gross unrealized appreciation and depreciation
of $58,509,015 and $33,824,625, respectively, or net unrealized appreciation
of $24,684,390.
144A after the name of a security represents those exempt from registration
under Rule 144A of the Securities Act of 1933. These securities may be resold
in transactions exempt from registration, normally to qualified institutional
buyers.
The rates shown on FRNs and FRBs are the current interest rates at July
31,1995, which are subject to change based on the terms of the security.
<PAGE>
Forward Cross Currency Contracts Outstanding at July 31, 1995
(aggregate face value $7,577,161)
<TABLE>
<CAPTION>
In
Market Exchange Market Delivery Unrealized
Value For Value Date Depreciation
- -------------- ----------- ------------ --------- ------ -------------
<S> <C> <C> <C> <C> <C>
British Pounds
(Buy) $3,189,218 Deutschemarks $3,194,333 9/1/95 $ (5,115)
Canadian
Dollars
(Sell) 4,347,701 Japanese Yen 4,342,504 9/26/95 (5,197)
- ----------------------------------------------------------------------------------
$7,536,919 $7,536,837 $(10,312)
- ----------------------------------------------------------------------------------
</TABLE>
Forward Currency Contracts to Buy Outstanding at July 31, 1995
<TABLE>
<CAPTION>
Unrealized
Market Aggregate Delivery Appreciation/
Value Face Value Date Depreciation
- ----------------- ----------- ----------- ------ -------------
<S> <C> <C> <C> <C>
Australian Dollar $ 11,515,689 $ 11,146,435 9/13/95 $ 369,254
British Pounds 4,467,848 4,457,600 9/13/95 10,248
British Pounds 12,478,061 12,421,679 9/13/95 56,382
British Pounds 1,515,209 1,520,337 10/2/95 (5,128)
Canadian Dollars 3,141,644 3,137,312 9/13/95 4,332
Canadian Dollars 3,210,507 3,210,507 9/13/95 --
Deutschemarks 12,648,055 12,422,228 9/13/95 225,827
Deutschemarks 3,257,942 3,206,384 9/13/95 51,558
Deutschemarks 8,398,251 8,345,324 9/13/95 52,927
Deutschemarks 828,965 825,731 9/13/95 3,234
Deutschemarks 3,920,390 3,905,306 9/13/95 15,084
Deutschemarks 1,230,778 1,228,466 9/13/95 2,312
Deutschemarks 8,325,852 8,301,811 9/13/95 24,041
Japanese Yen 6,701,978 6,958,915 9/13/95 (256,937)
Japanese Yen 3,261,192 3,404,762 9/13/95 (143,570)
Japanese Yen 13,455,269 14,057,326 9/13/95 (602,057)
Japanese Yen 17,218,183 18,164,977 9/13/95 (946,794)
Japanese Yen 16,156,585 16,160,821 9/13/95 (4,236)
Japanese Yen 20,524,986 20,472,692 9/13/95 52,294
Japanese Yen 1,513,714 1,519,408 9/28/95 (5,694)
Japanese Yen 30,786,339 30,784,755 9/13/95 1,584
Spanish Peseta 3,349,684 3,281,513 9/13/95 68,171
Spanish Peseta 301,472 300,388 9/13/95 1,084
- ----------------- ----------- ----------- ------ -------------
$188,208,593 $189,234,677 $(1,026,084)
- -------------------------------------------------------------------------
</TABLE>
<PAGE>
Forward Currency Contracts to Sell Outstanding at July 31,1995
<TABLE>
<CAPTION>
Unrealized
Market Aggregate Delivery Appreciation/
Value Face Value Date Depreciation
- ----------------- ----------- ----------- ------ -------------
<S> <C> <C> <C> <C>
Australian
Dollars $ 3,686,200 $ 3,581,750 9/13/95 $ (104,450)
Danish Krona 3,196,955 3,030,303 9/13/95 (166,652)
Deutschemarks 4,271,524 4,212,480 9/13/95 (59,044)
Deutschemarks 6,754,800 6,629,245 9/13/95 (125,555)
French Francs 12,048,142 11,601,910 9/13/95 (446,232)
French Francs 11,546,137 11,203,572 9/13/95 (342,565)
French Francs 305,282 303,942 9/13/95 (1,340)
French Francs 14,662,757 14,573,956 9/13/95 (88,801)
Italian Lira 4,251,972 3,950,800 9/13/95 (301,172)
Italian Lira 8,253,828 7,950,228 9/13/95 (303,600)
Italian Lira 12,818,445 12,382,816 9/13/95 (435,629)
Italian Lira 303,266 301,037 9/13/95 (2,229)
Netherland
Guilders 14,902,311 14,861,403 9/13/95 (40,908)
Spanish Peseta 14,822,350 14,756,146 9/13/95 (66,204)
Swedish Krona 8,609,059 8,199,228 9/13/95 (409,831)
- ----------------- ----------- ----------- ------ -------------
$120,433,028 $117,538,816 $(2,894,212)
- ----------------- ----------- ----------- ------ -------------
</TABLE>
Diversification by Country
- -------------------------------------------------------------------------
Percentage of net assets invested in foreign countries at July 31, 1995:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Argentina 0.7% Italy 3.8%
Australia 0.3 Mexico 0.9
Brazil 0.5 Morocco 0.1
Bulgaria 0.1 Netherlands 1.2
Canada 1.5 Poland 0.3
Denmark 1.1 Russia 0.1
Ecuador 0.1 South Africa 0.1
France 6.0 Spain 1.9
Germany 4.6 Sweden 1.3
Greece 0.2 Thailand 0.1
India 0.1 United Kingdom 1.1
Indonesia --
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of assets and liabilities
July 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Assets
- ----------------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$1,189,914,978) (Note 1) $1,215,171,598
- ----------------------------------------------------------------------------------------
Cash 1,255
- ----------------------------------------------------------------------------------------
Interest and other receivables 23,179,742
- ----------------------------------------------------------------------------------------
Receivable for securities sold 15,897,556
- ----------------------------------------------------------------------------------------
Receivable for open forward currency contracts 938,332
- ----------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 768,620
- ----------------------------------------------------------------------------------------
Total Assets 1,255,957,103
- ----------------------------------------------------------------------------------------
Liabilities
- ----------------------------------------------------------------------------------------
Payable for securities purchased 46,713,388
- ----------------------------------------------------------------------------------------
Distributions payable to shareholders 7,889,148
- ----------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,051,433
- ----------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,256
- ----------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 703
- ----------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 296,139
- ----------------------------------------------------------------------------------------
Payable for open forward currency contracts 4,868,940
- ----------------------------------------------------------------------------------------
Payable for closed forward currency contracts 3,370,156
- ----------------------------------------------------------------------------------------
Other accrued expenses 390,129
- ----------------------------------------------------------------------------------------
Total liabilities 65,582,292
- ----------------------------------------------------------------------------------------
Net assets $1,190,374,811
- ----------------------------------------------------------------------------------------
Represented by
- ----------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,239,093,847
- ----------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (7,889,148)
- ----------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency
transactions (Note 1) (62,326,375)
- ----------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and liabilities
in foreign currencies 21,496,487
- ----------------------------------------------------------------------------------------
Total--Representing net assets applicable to capital shares
outstanding $1,190,374,811
- ----------------------------------------------------------------------------------------
Computation of net asset value
- ----------------------------------------------------------------------------------------
Net asset value per share ($1,190,374,811 divided by 140,709,960
shares) $8.46
- ----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of operations
Year ended July 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Investment income:
- ----------------------------------------------------------------------------------------------
Interest (net of foreign tax of $497,113) $102,432,973
- ----------------------------------------------------------------------------------------------
Dividends 2,275,897
- ----------------------------------------------------------------------------------------------
Total investment income 104,708,870
Expenses:
- ----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 7,895,998
- ----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 538,143
- ----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 38,708
- ----------------------------------------------------------------------------------------------
Reports to shareholders 269,408
- ----------------------------------------------------------------------------------------------
Auditing 118,006
- ----------------------------------------------------------------------------------------------
Legal 30,264
- ----------------------------------------------------------------------------------------------
Postage 456,939
- ----------------------------------------------------------------------------------------------
Administrative services (Note 2) 27,081
- ----------------------------------------------------------------------------------------------
Exchange listing fees 69,108
- ----------------------------------------------------------------------------------------------
Registration fees 2,148
- ----------------------------------------------------------------------------------------------
Other 27,710
- ----------------------------------------------------------------------------------------------
Total expenses 9,473,513
- ----------------------------------------------------------------------------------------------
Net investment income 95,235,357
- ----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (19,208,432)
- ----------------------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 25,622
- ----------------------------------------------------------------------------------------------
Net realized loss on forward currency contracts and foreign currency
translation (Notes 1 and 3) (15,113,318)
- ----------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Notes 1 and 3) 70,164
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, written options and TBA sale
commitments during the year 57,846,369
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation of forward currency contracts and foreign currency
translation during the year 146,355
- ----------------------------------------------------------------------------------------------
Net gain on investment transactions 23,766,760
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $119,002,117
- ----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of changes in net assets
<TABLE>
<CAPTION>
Year ended July 31
----------------------------
1995 1994
- --------------------------------------------------- ----------- -------------
<S> <C> <C>
Increase (decrease) in net assets
- -----------------------------------------------------------------------------------
Operations:
- -----------------------------------------------------------------------------------
Net investment income $ 95,235,357 $ 90,104,666
- -----------------------------------------------------------------------------------
Net realized loss on investments and foreign
currency transactions (34,225,964) (3,043,248)
- -----------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments and assets and liabilities in foreign
currencies 57,992,724 (68,007,807)
- -----------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 119,002,117 19,053,611
- -----------------------------------------------------------------------------------
Distributions to shareholders:
- -----------------------------------------------------------------------------------
From net investment income (80,928,763) (98,104,251)
- -----------------------------------------------------------------------------------
In excess of net investment income (Note 1) -- (3,416,241)
- -----------------------------------------------------------------------------------
From tax return of capital (14,067,170) --
- -----------------------------------------------------------------------------------
Shares repurchased (Note 4) (357,250) --
- -----------------------------------------------------------------------------------
Total increase (decrease) in net assets 23,648,934 (82,466,881)
Net assets
- -----------------------------------------------------------------------------------
Beginning of year 1,166,725,877 1,249,192,758
- -----------------------------------------------------------------------------------
End of year (including distributions in excess of
net investment income of $7,889,148 and
$20,076,623, respectively) $1,190,374,811 $1,166,725,877
- -----------------------------------------------------------------------------------
Number of fund shares
- -----------------------------------------------------------------------------------
Shares outstanding at beginning of year 140,759,960 140,759,960
- -----------------------------------------------------------------------------------
Shares repurchased (50,000) --
- -----------------------------------------------------------------------------------
Shares outstanding at end of year 140,709,960 140,759,960
- -----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Financial highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Year ended July 31
---------------------------------------------------------------
1995 1994 1993 1992 1991
- ------------------------------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 8.29 $ 8.87 $ 8.51 $ 7.90 $ 8.20
- -------------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------------
Net investment income .68 .64 .71 .75 .75
- -------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .17 (.50) .42 .73 (.14)
- -------------------------------------------------------------------------------------------------
Total from investment
operations .85 .14 1.13 1.48 .61
- -------------------------------------------------------------------------------------------------
Less distributions
- -------------------------------------------------------------------------------------------------
From net investment income: (.58) (.70) (.71) (.75) (.75)
- -------------------------------------------------------------------------------------------------
In excess of net investment
income -- (.02) (.06) (.12) (.13)
- -------------------------------------------------------------------------------------------------
From tax return of capital (.10) -- -- -- (.05)
- -------------------------------------------------------------------------------------------------
Total distributions (.68) (.72) (.77) (.87) (.93)
- -------------------------------------------------------------------------------------------------
Increase in net asset value
from shares repurchased (a) -- -- -- -- .02
- -------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.46 $ 8.29 $ 8.87 $ 8.51 $ 7.90
- -------------------------------------------------------------------------------------------------
Total investment return at
market value (%) (b) 6.86 .95 8.69 27.42 23.50
- -------------------------------------------------------------------------------------------------
Market value, end of period $ 7.44 $ 7.63 $ 8.25 $ 8.88 $ 7.75
- -------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,190,375 $1,166,726 $1,249,193 $1,194,958 $1,106,772
- -------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) .82 .86 .84 .88 1.06
- -------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 8.29 7.30 8.14 9.05 9.41
- -------------------------------------------------------------------------------------------------
Portfolio turnover (%) 196.83 242.29 250.65 203.27 350.45
- -------------------------------------------------------------------------------------------------
</TABLE>
(a) See Note 4 to Financial Statements.
(b) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
<PAGE>
Notes to financial statements
July 31, 1995
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 consistent with the
preservation of capital 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 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 2.0% from the principal
amount. The fund holds, and maintains until the settlement date, cash or
high- grade debt obligations in an amount sufficient to meet the purchase
price, or the fund enters into offsetting contracts for the forward sale of
other securities it owns. TBA purchase commitments may be considered
securities in themselves, and involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date, which risk is
in addition to the risk of decline in the value of the fund's other assets.
Unsettled TBA purchase commitments are valued at the current market value of
the underlying securities, generally according to the procedures described
under "Security valuation" above.
Although the fund will generally enter into TBA purchase commitments with the
intention of acquiring securities for its portfolio or for delivery pursuant
to options contracts it has entered into, the fund may dispose of a
commitment prior to settlement if the fund Manager deems it appropriate to do
so.
<PAGE>
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, or any joint trading account,
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 The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities, currency
holdings and other assets and liabilities are recorded in the books and
records of the fund after translation to U.S. dollars based on the exchange
rates on that day. The cost of each security is determined using historical
exchange rates. Income and withholding taxes are translated at prevailing
exchange rates when accrued or incurred. The fund does not isolate that
portion of realized or unrealized gains or losses resulting from changes in
the foreign exchange rate on investments from fluctuations arising from
changes in the market prices of the securities. Such fluctuations are
included with the net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent net
exchange gains or losses on closed forward currency contracts, disposition
<PAGE>
of foreign currencies and the difference between the amount of investment
income and foreign withholding taxes recorded on the fund's books and the
U.S. dollar equivalent amounts actually received or paid. Net unrealized
gains and losses on foreign currency transactions arise from changes in the
value of open forward currency contracts and assets and liabilities other
than investments at the period end, resulting from changes in the exchange
rate.
G) Futures A futures contract is an agreement between two parties to buy or
sell units of a particular index or a certain amount of a U.S. Government
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 securities equal to the minimum "initial margin"
requirements of the futures. 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 it was closed.
The potential risk to the fund is that the change in value of futures
contracts primarily corresponds with the value of underlying instruments
which may not correspond to the change in value of the hedged instruments. In
addition, there is a risk that the fund may not be able to close out its
futures positions due to an illiquid secondary market.
H) Option accounting principles The fund may, to the extent consistent 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 a 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 an 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
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
that the fund purchases upon exercise of the option.
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. In addition, there is the
risk the fund may not be able to enter into a closing transaction because of
an illiquid secondary market.
The fund may also, to the extent consistent with its investment objectives
and policies, buy put options to protect its portfolio holdings in an
underlying security against a decline in market value. The fund may buy call
options to hedge against an increase in the price of the securities that the
fund ultimately wants
<PAGE>
to buy. The fund may also buy and sell combinations of put and call options
on the same underlying security to earn additional income. The premium paid
by the fund for the purchase of a put or call option is included in the
fund's "Statement of assets and liabilities" as an investment and is
subsequently "marked-to-market" to reflect the current market value of the
option. If an option 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 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 securities 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. The risk associated with purchasing options is limited to
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 and potential loss to the funds of a
written call or put option is the value (in U.S. dollars) of the currency
sold or received, converted at the spot price, less the value of U.S. dollars
received or 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 above, "initial manner" and "variation margin" with respect to put
and call options written on futures contracts. In addition, upon exercise,
net premiums will decrease the unrealized loss or increase the unrealized
gain on the future. The writing of an option on a futures contract involve
risk similar to those described below relating to the sale of such contracts.
I) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a decline in
value relative to the U.S. dollar of the currencies in which its portfolio
securities are denominated or quoted (or an increase in the value of a
currency in which securities a fund intends to buy are denominated, when a
fund holds cash reserves and short-term investments). The market value of the
contract will fluctuate with changes in currency exchange rates. The contract
is "marked to market" daily and the change in market value is recorded as an
unrealized gain or loss. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
The 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 into 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.
<PAGE>
J) 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, 1995, the fund had a capital loss carryover of approximately
$52,832,000 which may be available to offset realized capital gains, if any.
The amount of the carryover and the expiration dates are:
<TABLE>
<CAPTION>
Loss Carryover Expiration
- ----------------- ---------------
<S> <C>
$ 9,522,000 July 31, 1999
$43,310,000 July 31, 2003
</TABLE>
K) Distributions to shareholders Distributions to shareholders are recorded
by the fund on the ex-dividend date. At certain times, the fund may pay
distributions at a level rate even though, as a result of market conditions
or investment decisions, the fund may not achieve projected investment
results for a given period.
The amount and character of income and gains to be distributed are determined
in accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences include 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 and post- October loss deferrals.
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, 1995 the fund
reclassified $2,119,119 to increase distributions in excess of net investment
income, and $2,509,968 to increase accumulated net realized loss on
investments, and $4,629,087 to increase paid-in capital. The calculation of
net investment income per share in the financial highlights table excludes
these adjustments.
Note 2
Management fee, administrative services, and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average weekly net assets of the
fund. Such fee is based on the following annual rates: 0.75% of the first
$500 million of average weekly net assets, 0.65% of the next $500 million,
0.60% of the next $500 million and 0.55% of any amount over $1.5 billion.
The fund also reimburses 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 $2,320 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.
During the year ended July 31, 1995, the fund adopted a Trustee Fee Deferral
Plan (the "Plan") which allows the Trustees to defer the receipt of all or a
portion of Trustees fees payable on or after July 1, 1995. The deferred fees
remain in the fund and are invested in the fund or in other Putnam funds
until distribution in accordance with the Plan.
<PAGE>
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 year ended July 31, 1995 have been reduced by credits allowed by
PFTC.
Note 3
Purchases and sales of securities
During the year ended July 31, 1995, purchases and sales of investment secu-
rities other than U.S. government obligations and short-term investments
aggregated $1,020,956,300 and $1,140,739,347, respectively. Purchases and
sales of U.S. government obligations aggregated $1,118,758,752 and
$1,034,040,367, 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 year are
summarized as follows:
<TABLE>
<CAPTION>
Contract Premiums
Amounts Received
- -----------------------------------------------------------
<S> <C> <C>
Beginning balance $ -- $ --
Options written 115,663,000 1,530,681
Options expired (41,332,000) (558,206)
Options closed (74,331,000) (972,475)
- ------------------------- ------------ -----------
Written options
outstanding 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 the best interests of the fund's shareholders. Any
repurchases of shares will have the effect of increasing the net asset value
per share of remaining shares outstanding.
For the year ended July 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%.
<PAGE>
Federal income tax information (Unaudited)
For the year ended July 31, 1995, 14.70% of the fund's distribution
represents a return of capital and is therefore not taxable to shareholders.
Federal tax law allows certain losses sustained in a fund's fiscal year to be
deferred into the following year. The fund's return of capital for fiscal
1995 is the result of losses on foreign currency transactions incurred in the
fiscal year ended July 31, 1994. These losses must be reclassified as
ordinary losses for tax purposes, reducing the amount of net investment
income the fund has available for distribution.
The Form 1099 you receive in January 1996 will show the tax status of all
distributions paid to your account in calendar 1995, including the amount of
the distribution not subject to tax. You will need to adjust the cost basis
of your shares by the amount that is not subject to tax when you eventually
redeem or exchange them. This will increase any resulting capital gain or
decrease any capital loss you incur at that time.
<PAGE>
Selected quarterly data
(unaudited)
<TABLE>
<CAPTION>
Net increase
Net realized (decrease)
and unrealized in net assets
Investment Net invest- gain (loss) on resulting from
income ment income investments operations
------------------ ------------------ ------------------- ---------------------
Quarter Per Per Per Per
ended Total Share Total Share Total Share Total Share
- --------- ---------- ---- ---------- ---- ----------- ---- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10/31/93 $26,143,785 $.23 $23,640,642 $.21 $ 18,825,764 $ .10 $ 42,466,406 $ .31
1/31/94 24,250,083 .13 21,661,183 .11 21,610,985 .19 43,272,168 .30
4/30/94 23,962,104 .17 21,413,096 .15 (87,846,707) (.62) (66,433,611) (.47)
7/31/94 26,372,070 .19 23,389,745 .17 (23,641,097) (.17) (251,352) --
10/31/94 26,313,460 .19 23,947,987 .17 (19,690,617) (.14) 4,257,370 .03
1/31/95 27,023,424 .19 24,775,669 .18 (31,843,818) (.23) (7,068,149) (.05)
4/30/95 24,980,495 .18 22,825,142 .16 41,610,760 .30 64,435,902 .46
7/31/95 26,391,491 .18 23,686,559 .17 33,690,435 .24 57,376,994 .41
</TABLE>
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.
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.
<PAGE>
Results of July 13, 1995 shareholder meeting
An annual meeting of shareholders of the fund was held on July 13, 1995. At
the meeting, each of the nominees for Trustees was elected, as follows:
<TABLE>
<CAPTION>
Votes
Votes for withheld
---------- -------------
<S> <C> <C>
Jameson Adkins
Baxter 120,975,651 2,557,972
Hans H. Estin 121,027,247 2,506,376
John A. Hill 121,051,660 2,481,963
Elizabeth T. Kennan 121,007,911 2,525,712
Lawrence J. Lasser 121,033,872 2,499,751
Robert E. Patterson 121,038,758 2,494,865
Donald S. Perkins 121,033,656 2,499,967
William F. Pounds 121,054,359 2,479,554
George Putnam 121,040,057 2,493,566
George Putnam, III 121,036,997 2,496,626
E. Shapiro 120,960,782 2,572,842
A.J.C. Smith 121,037,247 2,496,376
W. Nicholas
Thorndike 121,037,738 2,495,885
</TABLE>
A proposal to ratify the selection of Price Waterhouse LLP as auditors for
the fund was approved as follows: 120,935,190 votes for, and 1,021,404 votes
against, with 1,577,029 abstentions and broker non-votes. A proposal to fix
the number of Trustees at 13 was approved as follows: 120,960,782 for, and
2,572,842 against. All tabulations have been rounded to the nearest whole
number.
<PAGE>
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 F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
Rosemary H. Thomsen
Vice President and Fund Manager
Neil Powers
Vice President and Fund Manager
D. William Kohli
Vice President and Fund Manager
Mark Siegel
Vice President and Fund Manager
Michael Martino
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.
<PAGE>
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
19853-073
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED
AND EDGAR-FILED TEXTS:
(1) Bold and italic typefaces are displaced in normal type.
(2) Headers (e.g., the name of the fund) are omitted.
(3) Certain tabular and columar headings and symbols are displayed
differently in this filings.
(4) Bullet points and similar graphic signals are omitted.
(5) Page numbering is omitted.
(6) Trademark symbol replaced ith (TM)
