Putnam
Premier
Income
Trust
SEMIANNUAL REPORT
January 31, 1996
[PUTNAM SCALES LOGO]
BOSTON LONDON TOKYO
Fund highlights
* Morningstar, Inc. awarded Putnam Premier Income Trust
four out of a possible five stars for overall risk-adjusted performance
as of January 31, 1996 (based on the average annual returns for the 3-,
5-, and 10- year periods). The four-star rating for the 5-year period
ended January 31, 1996, puts the fund among 22.5% of the 83 funds rated
in the fixed-income category.*
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
12 Portfolio holdings
23 Financial statements
* Ratings by Morningstar, an independent rating agency, are subject to
change every month and are calculated from a fund's 3-, 5-, and 10-year
average annual returns in excess of 90-day Treasury bill returns, with
appropriate sales charge adjustments and a risk factor that reflects
performance compared to 90-day Treasury bill monthly returns. 10% of the
funds in an investment category receive 5 stars; 22.5% receive 4 stars.
For the 3- and 5-year periods ended 1/31/96, there were 62 and 83 funds,
respectively, in the fixed-income category. The fund's common shares
received 4 stars for each of these periods. Past performance is not
indicative of future results.
[GRAPHIC OMITTED:PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
From the Chairman
Dear Shareholder:
During the first half of its current fiscal year, the six months ended
January 31, 1996, Putnam Premier Income Trust continued to benefit from
strengthening fixed-income markets around the world. The fund's high-
yield bond sector clearly retained the lead as the strongest and most
heavily represented portion of the portfolio. At the same time,
challenges brought on by a slowing economy made meticulous investment
selection and thorough credit research all the more important.
Your fund's managers continued to position the U.S. government sector to
seek maximum advantage from the U.S. bond market, while working to keep
mortgage prepayment risk to a minimum. As foreign bond markets began to
show greater strength, portfolio emphasis in the international sector
remained on the securities of core European countries. Fund management
reinstituted some currency hedges to protect assets from adverse moves
against the dollar.
Despite recent market disruptions, Putnam Management believes your fund
is positioned well in all three sectors as it embarks on the second half
of fiscal 1996.
Respectfully yours,
/s/George Putnam
Chairman of the Trustees
March 20, 1996
Report from the Fund Managers
Rosemary H. Thomsen, lead manager
Neil J. Powers
D. William Kohli
Mark Siegel
For the first half of Putnam Premier Income Trust's fiscal year, the
fund benefited from a positive fixed-income market environment in all
three sectors, or sleeves, in which it invests. The strongest
performance was in the fund's high-yield sleeve, which was kept slightly
overweighted throughout the period. During the semiannual period,
holdings in the fund's U.S. government sector were reduced somewhat,
while emphasis on the fund's international sleeve was modestly
increased. Strategic asset allocation, combined with strong security
selection, allowed the fund to post an impressive total return of 8.13%
at net asset value for the six months ended January 31, 1996.
Conditions for fixed-income investing remained very favorable throughout
the period: inflation remained extraordinarily low, interest rates
remained on the decline, and economic growth moderated -- both at home
and abroad. These factors also provided a helpful backdrop for
successful fund performance.
*INTENSIVE CREDIT RESEARCH BOOSTED
HIGH-YIELD BOND RETURNS
Demand for high-yield bonds remained strong during the period. Despite
some signs of slowing, the economy remained healthy. These signs of
slowing, however, along with an increase in defaults, led some investors
to rotate into higher-quality high-yield bonds. As a result, the higher-
quality segment of the market outperformed the lower-quality segment for
much of the period. By the end of the period, investors once again
sought out higher-yielding bonds as the Federal Reserve's moves to lower
interest rates reduced fears of economic weakness.
Strong credit selection enhanced returns significantly. Three holdings
in your portfolio were tendered for at substantial premiums. AMC
Entertainment, Inc., a chain of movie theaters, tendered for its high-
coupon bonds in order to refinance them with lower-cost debt. OSI
Specialties, Inc. was acquired by Witco Corp., a high-quality chemical
producer. As was the case with AMC, Witco tendered for the OSI bonds in
order to lower its interest expense. Comdata Network, Inc. was acquired
by Ceridien, Inc. The strict terms of the Comdata bond indentures were
unattractive to Ceridien, which tendered for the bonds at high prices in
order to be free of Comdata's bond covenants.
In addition to strong returns from these three key holdings, the fund's
large exposure to the telecommunications and cable television sectors
greatly enhanced returns. We had significantly increased your fund's
holdings in these areas in the previous fiscal year based on our strong
belief that Congress would pass legislation deregulating the
telecommunications, cable television, and broadcasting industries. This
strategy proved astute as Wall Street subsequently began to anticipate
this legislation and seek out securities of companies that stood to
benefit.
* LONGER DURATION KEY TO U.S. GOVERNMENT
SECTOR PERFORMANCE
Holdings in the fund's U.S. government sector also produced excellent
results, in terms of both appreciation and income. This was due, in
large part, to our keeping the duration of the sleeve aggressively long.
As a measure of an investment's sensitivity to interest rates, duration
plays a key role in performance. Longer duration can mean a more
volatile portfolio if rates increase -- but also one more likely to
appreciate substantially if rates decline.
[GRAPHIC OMITTED:HORIZONTAL BAR CHART DEPICTING TOP 10 ALLOCATIONS BY
COUNTRY*
Germany 5.5%
United Kingdom 4.8%
Canada 3.7%
Italy 3.4%
Spain 2.6%
France 1.9%
Netherlands 1.6%
Denmark 1.2%
Mexico 1.2%
Argentina 1.0%
Footnote reads:
* Based on net assets as of 1/31/96. Reflects international sleeve
holdings only. Allocations will vary over time.]
We strategically aligned the fund's securities along the most favorable
portion of the yield curve throughout the period. Our goal was to
maximize the portfolio's ability to participate fully during this time
in the bond market rally. To achieve this end, we concentrated on a
combination of intermediate- and long-term U.S. Treasury notes and bonds
and traded in and out of mortgage-backed securities.
However, because we realized that declining interest rates could
increase prepayment risk, we emphasized discount-coupon mortgages, i.e.,
those with coupons lower than the current market rate. When we perceived
prepayment fears were not justified and mortgage-backed securities'
prices became too compelling to ignore, we bought. When prepayment
concerns diminished and demand began to increase, we then, in turn, sold
holdings at a profit.
* EFFECTIVE COUNTRY AND CURRENCY POSITIONING
KEEPs INTERNATIONAL SECTOR ON TARGET
After a weak performance in the last half of the previous fiscal year,
the fund's international sector performance proved extremely strong in
this period. Our country positioning, bond selection, and currency
positioning contributed to strong performance throughout the semiannual
period. Our long-term view of global markets continues to anticipate
slow economic growth and stable inflation around the world, providing a
positive environment for global fixed-income investing. We see
opportunities for lower interest rates, particularly in Europe, given
the significant slowdown in growth there.
The last few months of the period were characterized by an overall
increase in the markets' tolerance of risk. As a result, higher-yielding
European bond markets like Italy and Spain outperformed core European
markets. Also, emerging bond markets significantly outperformed U.S.
Treasuries. This appetite for risk has been sated for the short term and
we have recently trimmed the portfolio's higher-yielding positions to
take profits on the period's stellar performance.
TOP SECTOR HOLDINGS (1/31/96)
TOP THREE HOLDINGS: HIGH-YIELD
Loehmann's Holdings 10 1/2s of 10/1/97
Amphenol Corp. 12 3/4s 12/15/02
Midland Funding Corp. 13 1/4s of 7/23/06
TOP THREE HOLDINGS: U.S. GOVERNMENT
U.S. Treasury Notes 6 1/2 5/15/05
U.S. Treasury Bonds 6 7/8 8/15/25
Government National Mortgage Association Pass Through Certificates 7s,
with various due dates from November 15, 2022 to October 15, 2025
TOP THREE HOLDINGS: INTERNATIONAL
U.K. Treasury 7% 11/01
German Treuhandanstalt 7.125% 1/03
Canada (Government of) 7.5% 3/01
These holdings represent 24.9% of the fund's net assets. Portfolio
holdings will vary over time.
Our strategy for this sleeve continues to place a greater emphasis on
country allocation and currency exposure than on duration exposure.
However, we are holding long durations primarily in Europe and North
America, but not in Japan. The portfolio retains long European bonds
on expectations of slowing growth in Europe. Because of low nominal
yieelds and the reflating of the Japanese economy, we continue to expect
inferior performance in Japan.Thus, your fund remains underweighted in
this market.
The fund's allocation to emerging markets remained near the top of our
permitted range, allowing the portfolio to participate in the superior
returns of these markets. We are looking to reduce this exposure after
such performance.
Our outlook for the U.S. dollar remains positive and is supported by
Japan's declining current-account surplus and, recently, by G-7 central
banks' restating their commitment to a stronger dollar. Throughout the
period, we overweighted the dollar relative to the benchmark index,
while underweighting the yen and deutschemark -- a successful strategy,
given the dollar's rise in January.
*POSITIVE ENVIRONMENT APPEARS LIKELY TO CONTINUE
The fund enters the second half of fiscal 1996 with a somewhat
conservatively positioned portfolio. We currently anticipate no major
moves in terms of asset allocation and look for market and economic
conditions to remain favorable. Low inflation and slow economic growth
are expected to provide a positive backdrop for attractive fixed-income
performance in each of the fund's three sectors.
The current U.S. economic slow-growth environment, partially the result
of temporary factors including the federal government shutdown and
severe winter weather, may begin to reverse in the months ahead.
Overall, we are positive about the prospect for solid bond performance
in the second half of your fund's fiscal year.
We currently plan to maintain a long duration in the U.S. government
sleeve and focus our high-yield research on uncovering companies that
can generate good cash flow and demonstrate potential for credit
improvement. Overseas, our primary emphasis remains on core Europe,
although we also consider certain peripheral European markets when
valuations warrant. 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 1/31/96, there is no guarantee the fund will
continue to hold these securities in the future.
The lower credit ratings of high-yield corporate bonds reflect a greater
possibility that adverse changes in the economy or their issuers may
affect their ability to pay principal and interest on the bonds.
Investments in non-U.S. securities may be subject to certain risks such
as currency fluctuations, economic instability, and political
developments.
Although the U.S. government guarantees the timely payment of principal
and interest on some of the underlying securities, the value of the fund
shares is not guaranteed and will fluctuate.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam Premier Income Trust is designed for investors seeking
a high level of current income consistent with preservation of capital.
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 1/31/96
NAV Market price
- ------------------------------------------------------------------------
6 months 8.13% 10.45%
- ------------------------------------------------------------------------
1 year 20.72 20.50
- ------------------------------------------------------------------------
5 years 78.23 87.39
Annual average 12.25 13.38
- ------------------------------------------------------------------------
Life of fund
(since 2/29/88) 121.14 96.93
Annual average 10.54 8.93
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 1/31/96
Salomon Bros.
Lehman Bros. Non-U.S. First Boston Consumer
Government World Govt. High Yield Price
Bond Index Bond Index Index Index
- ------------------------------------------------------------------------
6 months 7.47% -3.12% 6.33% 1.25%
- ------------------------------------------------------------------------
1 year 16.89 14.41 18.37 2.73
- ------------------------------------------------------------------------
5 years 55.75 67.24 129.91 14.71
Annual average 9.27 10.83 18.12 2.78
- ------------------------------------------------------------------------
Life of fund
(since 2/29/88) 100.46 104.03 137.10 33.10
Annual average 9.18 9.42 11.52 3.68
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and do not take into account any adjustment for taxes
payable on reinvested distributions. Investment returns, market value
and net asset value will fluctuate so that an investor's shares, when
sold, may be worth more or less than their original cost.
TOTAL RETURN FOR PERIODS ENDED 12/31/95
(most recent calendar quarter)
NAV Market price
- ------------------------------------------------------------------------
6 months 7.95% 6.10%
- ------------------------------------------------------------------------
1 year 19.98 21.00
- ------------------------------------------------------------------------
5 years 78.54 85.28
Annual average 12.29 13.13
- ------------------------------------------------------------------------
Life of fund
(since 2/29/88) 118.13 89.38
Annual average 10.46 8.49
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and do not take into account any adjustment for taxes
payable on reinvested distributions. Investment returns, market value
and net asset value will fluctuate so that an investor's shares, when
sold, may be worth more or less than their original cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 1/31/96
- ------------------------------------------------------------------------
Distributions (number) 6
- ------------------------------------------------------------------------
Income $0.33
- ------------------------------------------------------------------------
Total
- ------------------------------------------------------------------------
Share value: NAV Market price
- ------------------------------------------------------------------------
7/31/95 $8.46 $7.438
- ------------------------------------------------------------------------
1/31/96 8.77 7.875
- ------------------------------------------------------------------------
Current return
- ------------------------------------------------------------------------
End of period
- ------------------------------------------------------------------------
Current dividend rate1 7.53% 8.38%
- ------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided
by net asset value or market price at end of the period.
TERMS AND DEFINITIONS
Net asset value (NAV) is the value of the fund's assets, minus any
liabilities, divided by the number of outstanding common shares.
Market price is the current trading price of one share of the fund.
Market prices are set by transactions between buyers and sellers on the
New York Stock Exchange.
COMPARATIVE BENCHMARKS
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 into account brokerage fees or taxes.
Securities in the fund do not match those in the indexes and performance
of the fund will differ.
<TABLE>
<CAPTION>
Portfolio of investments owned
January 31, 1996 (Unaudited)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (34.0%)*
PRINCIPAL AMOUNT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Federal National Mortgage Association Pass Through
Certificates
$21,400,000 TBA, 7s, February 15, 2026 +++ $21,593,884
22,718,009 7s, with various due dates from July 1, 2025 to
1-Aug-25 22,923,835
77,296 6 1/2s, with various due dates from June 1, 2023
to February 1, 2024 76,474
Government National Mortgage Association Pass
Through Certificates
502,945 8s, September 15, 2025 517,716
51,370,122 7 1/2s, with various due dates from
September 15, 2022 to December 15, 2025 52,941,708
66,107,357 7s, with various due dates from
November 15, 2022 to October 15, 2025 66,964,159
20,361,920 6 1/2s, with various due dates from
October 15, 2023 to December 15, 2025 20,234,655
18,940,000 U.S. Treasury Bonds 10 3/4s, May 15, 2003 24,820,302
56,740,000 U.S. Treasury Bonds 6 7/8s, August 15, 2025 63,326,947
60,915,000 U.S. Treasury Notes 6 1/2s, May 15, 2005 64,759,955
13,115,000 U.S. Treasury Notes 8s, August 15, 1999 14,303,481
9,730,000 U. S. Treasury Notes 6 1/2s, February 15, 2003 10,176,996
53,905,000 U.S. Treasury Notes 6 1/4s, February 15, 2003 56,381,396
--------------
Total U.S. Government and Agency Obligations
(cost $431,957,186) $419,021,508
CORPORATE BONDS AND NOTES (30.0%)*
PRINCIPAL AMOUNT VALUE
Advertising (0.9%)
- ---------------------------------------------------------------------------------------------------------------------
$1,115,000 Lamar Advertising Co. sr. secd. notes, 11s, 2003 $1,148,450
2,100,000 Outdoor Systems, Inc. sr. notes, 10 3/4s, 2003 2,121,000
5,000,000 Universal Outdoor, Inc. sub. deb., 11s, 2003 5,075,000
4,600,000 Universal Outdoor, Inc. sr. notes stepped-coupon,
zero% (14s, 7/1/99), 2004 ++ 3,283,250
--------------
11,627,700
Aerospace and Defense (0.3%)
- ---------------------------------------------------------------------------------------------------------------------
1,000,000 Howmet Corp. 144A sr. sub. notes, 10s, 2003 1,066,250
3,300,000 Sequa Corp. sr. notes, 8 3/4s, 2001 3,201,000
--------------
4,267,250
Agriculture (1.0%)
- ---------------------------------------------------------------------------------------------------------------------
$4,931,000 PMI Holdings Corp. Ser. B, sub. disc. deb. stepped-coupon,
zero% (11 1/2s, 9/1/00), 2005 ++ $2,687,395
125,000 PSF Finance (L.P.) sr. exch. notes, 12 1/4s, 2004 125,000
6,123,698 PSF Finance (L.P.) sr. exch. notes, 12s, 2000 6,123,698
4,155,000 PSF Finance (L.P.) 144A sr. disc. notes stepped-coupon,
zero% (12s, 9/15/96), 2003 ++ 3,640,819
--------------
12,576,912
Aluminum (0.1%)
- ---------------------------------------------------------------------------------------------------------------------
620,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes,
12 3/4s, 2003 688,200
Automotive (0.4%)
- ---------------------------------------------------------------------------------------------------------------------
4,900,000 Key Plastics Corp. sr. notes, 14s, 1999 5,047,000
Broadcasting (1.7%)
- ---------------------------------------------------------------------------------------------------------------------
2,800,000 American Telecasting, Inc. Ser.B, sr. dics. notes
stepped-coupon zero % (14 1/2s, 8/15/00), 2005 ++ 1,848,000
3,225,000 Argyle Television Corp. sr. sub. notes, 9 3/4s, 2005 3,241,125
5,200,000 Panamsat (L.P.) sr. sub. notes stepped-coupon,
zero % (11 3/8s, 8/1/98), 2003 ++ 4,433,000
4,495,000 Paxson Communications Corp. 144A sr. sub. notes,
11 5/8s, 2002 4,719,750
2,316,000 Petracom Hldgs. 144A notes stepped-coupon,
zero% (17 1/2s, 8/1/98), 2003 ++ 1,574,880
2,450,000 SFX Broadcasting, Inc. sr. sub. notes, 11 3/8s, 2000 2,646,000
3,400,000 Telemedia Broadcasting Corp. 144A deb. stepped-coupon,
3.8s (11 3/8, 8/1/98), 2004 ++ 3,060,000
--------------
21,522,755
Building and Construction (0.8%)
- ---------------------------------------------------------------------------------------------------------------------
5,250,000 Presley Cos. sr. notes, 12 1/2s, 2001 4,567,500
5,000,000 Scotsman Group, Inc. sr. secd. notes, 9 1/2s, 2000 5,100,000
--------------
9,667,500
Building Products (0.2%)
- ---------------------------------------------------------------------------------------------------------------------
2,450,000 American Standard, Inc. deb., 9 1/4s, 2016 2,578,625
Business Services (0.5%)
- ---------------------------------------------------------------------------------------------------------------------
5,770,000 Corporate Express, Inc. Ser. B, sr. sub notes, 9 1/8s, 2004 6,058,500
Cable Television (3.2%)
- ---------------------------------------------------------------------------------------------------------------------
3,200,000 Adelphia Communications Corp. sr. notes, 12 1/2s, 2002 3,224,000
750,000 Adelphia Communications Corp. sr. deb., 11 7/8s, 2004 735,000
4,000,000 Adelphia Communications Corp. notes, Ser. B, 9 7/8s, 2005 3,720,000
1,250,000 Cablevision Systems Corp. sr. sub. deb., 10 3/4s, 2004 1,328,125
1,350,000 Cablevision Systems Corp. sr. sub. deb., 9 7/8s, 2023 1,434,375
$4,000,000 Century Communications Corp. sr. notes, 9 1/2s, 2005 $4,160,000
2,425,000 Continental Cablevision, Inc. sr. deb, 9s, 2008 2,570,500
2,000,000 Continental Cablevision, Inc. 144A sr. notes, 8.3s, 2006 2,012,500
6,117,315 Falcon Holdings Group, Inc. sr. sub notes, 11s, 2003 ++++ 5,964,382
6,125,000 International Cabletel, Inc. Ser.A, sr. notes stepped-coupon
zero %, (11 1/2s, 2/1/01) 2006(United Kingdom) ++ 3,567,813
4,685,000 Lenfest Communications, Inc. sr. notes 8 3/8s, 2005 4,708,425
2,700,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes stepped-coupon,
zero % (13 1/2s, 8/1/99), 2004 ++ 2,031,750
5,230,000 Telewest Communications PLC deb. stepped-coupon,
zero% (11s, 10/1/00), 2007 (United Kingdom)++ 3,203,375
--------------
38,660,245
Cellular Communications (2.0%)
- ---------------------------------------------------------------------------------------------------------------------
3,800,000 Cellular, Inc. sr. sub. disc. notes stepped-coupon,
zero % (11 3/4s, 9/1/98), 2003 ++ 3,078,000
1,250,000 Commnet Cellular Inc. bonds, 11 1/4s, 2005 1,343,750
3,500,000 Dial Call Communication, Inc. sr. disc. notes Ser. B,
stepped-coupon, zero % (10 1/4s 12/15/98), 2005 ++ 1,820,000
7,390,000 Horizon Cellular Telephone Co. sr. sub. disc. notes Ser. B,
stepped-coupon, zero % (10 3/8s, 10/1/97), 2000 ++ 6,614,050
7,500,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon,
zero % (11 1/2s, 9/1/98), 2003 ++ 4,650,000
2,150,000 One Comm Corp. sr. disc. notes stepped-coupon,
zero % (10 1/8s, 1/15/99), 2004 ++ 1,187,875
5,980,000 Pricellular Wireless sr. disc. notes Ser. B, stepped-coupon,
zero % (14s, 11/15/97), 2001 ++ 5,382,000
--------------
24,075,675
Conglomerates (0.4%)
- ---------------------------------------------------------------------------------------------------------------------
900,000 ADT Ltd. sr. sub notes, 9 1/4s, 2003 967,500
2,970,000 MacAndrews & Forbes Group, Inc. deb., 12 1/4s, 1996 2,984,850
225,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes, 13s, 1999 225,000
--------------
4,177,350
Consumer Services (0.4%)
- ---------------------------------------------------------------------------------------------------------------------
4,791,000 Coinmach Corp. 144A sr. notes, 11 3/4s, 2005 4,910,775
Containers (0.5%)
- ---------------------------------------------------------------------------------------------------------------------
6,000,000 Ivex Packaging Corp. sr. sub. notes, 12 1/2s, 2002 6,375,000
Electric Utilities (0.6%)
- ---------------------------------------------------------------------------------------------------------------------
6,550,000 Midland Funding Corp. II deb., Ser. B, 13 1/4s, 2006 7,336,000
Electronics (1.0%)
- ---------------------------------------------------------------------------------------------------------------------
7,536,000 Amphenol Corp. sr. sub. notes, 12 3/4s, 2002 8,553,360
5,175,000 International Semi-Tech. Corp. sr. secd. disc. notes
stepped-coupon, zero% (11 1/2s, 8/15/00),
2003 (Canada)++ 3,027,375
--------------
11,580,735
Entertainment (0.6%)
- ---------------------------------------------------------------------------------------------------------------------
$1,315,000 Alliance Entertainment Corp. sr. sub. notes, Ser. B,
11 1/4s, 2005 $1,315,000
1,200,000 Time Warner, Inc. notes, 8.18s, 2007 1,287,036
1,200,000 Time Warner, Inc. notes, 8.11s, 2006 1,277,688
600,000 Time Warner, Inc. notes, 7.975s, 2004 634,674
2,000,000 Viacom International, Inc. sub. deb., 8s, 2006 2,030,000
--------------
6,544,398
Financial Services (0.2%)
- ---------------------------------------------------------------------------------------------------------------------
775,000 First Federal Financial Corp. notes, 11 3/4s, 2004 751,750
2,000,000 Keystone Group, Inc. sr. secd. notes, 9 3/4s, 2003 1,950,000
--------------
2,701,750
Food (1.1%)
- ---------------------------------------------------------------------------------------------------------------------
4,480,000 Del Monte Corp. sub. notes, 12 1/4s, 2002 ++++ 4,300,800
5,000,000 Fresh Del Monte Produce Corp. NV 144A Ser. B.
sr. notes, 10s, 2003 (Netherlands) 4,500,000
5,095,000 Mafco, Inc. sr. sub. notes, 11 7/8s, 2002 5,324,275
--------------
14,125,075
Food Chains (0.1%)
- ---------------------------------------------------------------------------------------------------------------------
1,700,000 Stater Brothers sr. notes, 11s, 2001 1,708,500
Health Care (1.3%)
- ---------------------------------------------------------------------------------------------------------------------
4,480,000 Columbia/HCA Healthcare med. term notes, 7.58s, 2025 4,758,118
1,490,000 Merit Behavioral Care 144A sr. sub. notes, 11 1/2s, 2005 1,601,750
6,000,000 Paracelsus Healthcare Corp. sr. sub. notes, 9 7/8s, 2003 6,135,000
2,240,000 Quorum Health Group, Inc. sr. sub. notes, 11 7/8s, 2002 2,531,200
--------------
15,026,068
Home Furnishings (0.1%)
- ---------------------------------------------------------------------------------------------------------------------
1,148,514 Simmons Mattress Corp. 144A deb., 8s, 2003 ++++ 1,159,999
Insurance (1.0%)
- ---------------------------------------------------------------------------------------------------------------------
1,000,000 American Annuity Group, Inc. sr. notes, 9 1/2s, 2001 1,065,000
1,200,000 Bankers Life Holdings. 144A sr. sub. deb., Ser. A, 13s, 2002 1,396,500
3,150,000 Reliance Group Holdings, Inc. sr. sub. deb., 9 3/4s, 2003 3,260,250
800,000 Reliance Group Holdings, Inc. sr. notes, 9s, 2000 828,000
4,410,000 Terra Nova Insurance Holdings. sr. notes, 10 3/4s,
2005 (United Kingdom) 4,851,000
--------------
11,400,750
Lodging (0.9%)
- ---------------------------------------------------------------------------------------------------------------------
4,000,000 HMH Properties, Inc. sr. notes, 9 1/2s, 2005 4,125,000
4,500,000 John Q. Hammons Hotels, Inc. 1st mtge., 8 7/8s, 2004 4,500,000
2,800,000 Red Roof Inns sr. notes, 9 5/8s, 2003 2,800,000
--------------
11,425,000
Medical Supplies and Devices (0.4%)
- ---------------------------------------------------------------------------------------------------------------------
$4,315,000 Ivac Corp. sr. notes, 9 1/4s, 2002 $4,519,963
1,000,000 Wright Medical Technology, Inc. sr. secd. notes,
Ser. B, 10 3/4s, 2000 1,030,000
--------------
5,549,963
Metals (0.2%)
- ---------------------------------------------------------------------------------------------------------------------
2,675,000 Great Lake Carbon Corp. sr. notes 10s, 2006 2,808,750
Motion Picture Distribution (0.9%)
- ---------------------------------------------------------------------------------------------------------------------
4,750,000 Act III Theatres, Inc. sr. sub. notes, 11 7/8s, 2003 5,153,750
1,670,000 Cinemark Mexico notes, 12s, 2003 1,553,100
4,500,000 Cinemark USA sr. notes, 12s, 2002 4,905,000
--------------
11,611,850
Oil & Gas (1.4%)
- ---------------------------------------------------------------------------------------------------------------------
5,075,000 Arkla, Inc. deb., 8.9s, 2006 5,661,112
2,135,000 Chesapeake Energy Corp. sr. exch. notes, 12s, 2001 2,321,813
4,000,000 Gulf Canada Resources Ltd. sr. sub. notes, 9 5/8s, 2005(Canada) 4,270,000
800,000 Maxus Energy Corp. notes, 9 3/8s, 2003 808,000
4,150,000 Trans Texas Gas Corp. sr. secd. notes, 11 1/2s, 2002 4,253,750
--------------
17,314,675
Paging (0.3%)
- ---------------------------------------------------------------------------------------------------------------------
3,000,000 Pagemart Nationwide, Inc. sr. disc. notes stepped-coupon
zero % (15s, 2/1/00), 2005 ++ 2,010,000
2,800,000 Pagemart, Inc. sr. disc. notes stepped-coupon,
zero % (12 1/4s, 11/1/98), 2003 ++ 2,142,000
--------------
4,152,000
Paper and Forest Products (0.8%)
- ---------------------------------------------------------------------------------------------------------------------
1,975,000 APP International Finance Co. notes, 11 3/4s, 2005 (Netherlands) 1,955,250
1,500,000 Domtar, Inc. notes, 12s, 2001 (Canada) 1,773,750
2,950,000 Gaylord Container Corp. sr. sub. deb. stepped-coupon,
zero% (12 3/4s, 5/15/96), 2005 ++ 2,920,500
1,000,000 Riverwood International Corp. sr. notes, 10 3/4s, 2000 1,085,000
2,100,000 Riverwood International Corp. sr. sub. notes, 10 3/8s, 2004 2,425,500
--------------
10,160,000
Publishing (0.7%)
- ---------------------------------------------------------------------------------------------------------------------
4,250,000 American Media Operation, Inc. sr. sub. notes, 11 5/8s, 2004 4,409,375
500,000 Marvel Holdings, Inc. sr. notes, Ser. B, zero %, 1998 372,500
5,955,000 Marvel Parent Holdings, Inc. sr. secd. disc. notes, zero %, 1998 4,376,925
--------------
9,158,800
Real Estate (0.2%)
- ---------------------------------------------------------------------------------------------------------------------
$2,500,000 Chelsea Piers Ser. B, 1st mtge. disc. notes stepped-coupon,
zero % (12 1/2s, 6/15/96), 2004 ++ $2,381,250
140,000 Chelsea Piers 144A stepped-coupon, Ser. B,
zero% (11s, 6/15/99), 2009 ++ 134,225
--------------
2,515,475
Recreation (2.7%)
- ---------------------------------------------------------------------------------------------------------------------
2,090,000 Arizona Charlies Corp. 1st mtge., Ser. B, 12s, 2000 + 1,358,500
760,000 Capitol Queen Corp. 1st mtge. notes, Ser. B, 12s, 2000 + 532,000
2,520,000 Casino America, Inc. 1st mtge., 11 1/2s, 2001 + 2,482,200
1,320,000 Coast Hotel & Casinos, Inc. 144A 1st. mtge. 13s, 2002 1,290,300
4,250,000 Grand Casinos, Inc. 1st mtge., 10 1/8s, 2003 4,600,625
3,625,000 Lady Luck Gaming Corp. 1st mtge., Ser. B, 10 1/2s, 2001 3,008,750
3,484,000 Louisiana Casino Cruises Corp. 1st mtge., 11 1/2s, 1998 3,414,320
1,625,000 Mohegan Tribal Gaming 144A sr. notes, 13 1/2s, 2002 1,925,625
1,000,000 Players International Inc. sr. notes, 10 7/8s, 2005 955,000
2,300,000 Premier Parks, Inc. sr. notes, Ser. A, 12s, 2003 2,426,500
1,000,000 Six Flags Corp. sr. sub. notes stepped-coupon
zero % (12 1/4s, 6/15/98), 2005 ++ 850,000
2,106,000 Trump Castle Funding Corp. sr. sub. notes, 11 1/2s, 2000 2,106,000
3,400,000 Trump Holdings & Funding Corp. sr. notes, 15 1/2s, 2005 3,757,000
950,000 Trump Plaza Funding, Inc. 1st mtge. notes, 10 7/8s, 2001 1,007,000
3,850,000 Trump Taj Mahal Funding, Inc. deb., Ser. A, 11.35s, 1999 ++++ 3,830,750
--------------
33,544,570
Retail (1.8%)
- ---------------------------------------------------------------------------------------------------------------------
2,430,000 Brylane (L.P.) sr. sub. notes, 10s, 2003 2,150,550
5,375,000 County Seat Stores Inc. sr. sub notes, 12s, 2002 3,762,500
4,350,000 Finlay Enterprises, Inc. sr. notes, 10 5/8s, 2003 4,197,750
2,175,000 Loehmanns' Holdings, Inc. sr. sub. notes, 13 3/4s, 1999 1,957,500
10,500,000 Loehmanns' Holdings, Inc. sr. notes, 10 1/2s, 1997 10,395,000
--------------
22,463,300
School Buses (0.1%)
- ---------------------------------------------------------------------------------------------------------------------
800,000 Blue Bird Body Co. sub. deb., Ser. B, 11 3/4s, 2002 832,000
Shipping (0.2%)
- ---------------------------------------------------------------------------------------------------------------------
2,850,000 Eletson Holdings, Inc. mtge. notes, 9 1/4s, 2003 (Greece) 2,864,250
Steel (0.3%)
- ---------------------------------------------------------------------------------------------------------------------
3,750,000 Ispat Mexicana, SA 144A deb., 10 3/8s, 2001 (Mexico) 3,468,750
Telephone Services (0.6%)
- ---------------------------------------------------------------------------------------------------------------------
7,720,000 Intelcom Group, Inc. sr. disc. notes stepped-coupon
zero %, (13 1/2s, 9/15/00), 2005 ++ 4,825,000
3,175,000 MFS Communications sr. disc. notes stepped-coupon,
zero% (9 3/8s, 1/15/99), 2004 ++ 2,516,188
--------------
7,341,188
Textiles (0.1%)
- ---------------------------------------------------------------------------------------------------------------------
$804,000 Reeves Industries, Inc. sub. deb 13 3/4s, 2001 $711,540
--------------
Total Corporate Bonds and Notes
(cost $338,562,343) $369,738,873
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOREIGN GOVERNMENT BONDS AND NOTES (24.1%)*
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AUD 6,420,000 Australia (Government of) bonds, 12s, 2001 $5,713,755
CAD 4,060,000 Canada (Government of) deb., 9s, 2004 3,340,712
CAD 5,570,000 Canada (Government of) deb., 8 3/4s, 2005 4,538,579
CAD 37,695,000 Canada (Government of) deb., 7 1/2s, 2001 28,793,457
DKK 48,985,000 Denmark (Government of) bonds, 8s, 2003 9,139,449
DKK 35,725,000 Denmark (Government of) bonds, 7s, 2004 6,228,021
FRF 110,070,000 France Treasury bill 7 3/4s, 2000 23,489,498
DEM 22,010,000 Germany (Republic of) bonds, 7 3/8s, 2005 16,273,335
DEM 11,305,000 Germany (Republic of) bonds, 6 7/8s, 2005 8,104,269
DEM 27,430,000 Germany (Republic of) bonds, 6 1/4s, 2024 17,343,979
ITL 20,490,000,000 Italy (Government of) bonds, 12s, 2003 14,302,507
ITL 18,735,000,000 Italy (Government of) bonds, 10 1/2s, 2005 12,217,473
ITL 9,800,000,000 Italy (Government of) deb., 10 1/2s, 2000 6,426,049
ITL 13,925,000,000 Italy (Government of) notes, 8 1/2s, 1999 8,635,001
USD 3,310,000 Morocco (Government of) bonds, 6.594s, 2009 2,358,375
USD 730,000 Morocco (Government of) notes, 6.594s, 2004 585,825
NLG 18,890,000 Netherlands (Government of) bonds, 9s, 2000 13,134,718
USD 1,595,000 Panama (Republic of) FRN, 6 3/4s, 2002 1,389,644
USD 5,519,000 Russia (Government of) non performing loan,
zero %, + 1,807,473
ESP 1,939,000,000 Spain (Government of) bonds, 12 1/4s, 2000 17,137,638
ESP 1,856,000,000 Spain (Government of) bonds, 10.15s, 2006 15,353,463
USD 2,040,000 U.S. Dollar Certificate of Deposit (Issued by
CSFP-Credit Suisse Financial Products. The principal
at redemption is linked to the bid price for the
Russian Ministry of Finance U.S. Dollar
denominated local bond.) 2 1/2s, 1999 1,290,300
THB 20,000,000 Thailand (IFC of) bonds FRN, 11 1/4s, 1996 791,601
DEM 35,775,000 Treuhandanstalt (Germany Government of)
7 1/8s, 2003 26,114,454
USD 402,000 Turkey (Government of) bonds 8 3/4s, 1998 403,005
GBP 5,725,000 United Kingdom Treasury bonds, 9 1/2s, 1999 9,346,737
GBP 8,535,000 United Kingdom Treasury bonds, 7 1/2s, 2006 12,913,455
GBP 20,280,000 United Kingdom Treasury notes, 7s, 2001 30,693,152
--------------
Total Foreign Government Bonds and Notes
(cost $289,361,642) $297,865,924
<CAPTION>
Brady Bonds (3.5%)*
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$3,082,000 Argentina (Republic of) FRN, 6.813s, 2005 $2,380,845
8,449,000 Argentina (Republic of) bonds, 6.563s, 2023 5,850,933
6,949,000 Argentina (Republic of) bonds, 5s, 2023 4,186,773
6,680,000 Brazil (Federative Republic of) bonds, 4 1/4s, 2024 3,799,250
2,655,145 Brazil (Federative Republic of) bonds, 4s, 2014 1,788,904
2,604,000 Brazil (Government of) notes, 6.812s, 2024 1,731,660
2,309,190 Brazil (Republic of) FRN, 6.375s, 2001 2,049,406
3,095,000 Brazil (Republic of) FRN 6.813s, 2006 2,305,775
2,100,000 Bulgaria FRB, 6 1/4s, 2011 1,099,875
1,990,000 Ecuador (Government of) FRN, 6.813s, 2025 1,129,325
3,501,000 Mexico (Government of) disc. notes, Ser. B, 6.766s, 2019 2,656,384
734,000 Philippines (Central Bank of) bonds, 5s, 2008 620,230
2,256,000 Philippines (Central Bank of) bonds, 6 1/4s, 2017 1,821,720
1,160,000 Poland (Government of) bonds stepped-coupon,
Ser. RSTA, 2 3/4s (3 1/4s, 10/27/96), 2024++ 655,400
3,411,000 Poland (Government of) 144A FRN, 6 7/8s, 2024 2,971,834
663,000 United Mexican States FRB, Ser. A, 6.766s, 2019 503,051
3,570,000 United Mexican States FRN, 7.609s, 2008 3,382,575
5,835,000 United Mexican States deb., Ser. A, 6 1/4s, 2019 4,018,856
80,000 United Mexican States deb., Ser. B, 6 1/4s, 2019 55,100
434,000 United Mexican States disc. FRN, Ser. C, 6.609s, 2019 329,298
1,750,000 Venezuela (Government of) disc. bonds 6.563s, 2007 1,058,750
--------------
Total Brady Bonds (cost $40,384,298) $44,395,944
UNITS (2.2%)*
NUMBER OF UNITS VALUE
- ---------------------------------------------------------------------------------------------------------------------
385 Celcaribe S.A. 144A units stepped-coupon, zero %
(13 1/2s, 3/15/98), 2004 ++ $3,580,500
5,360 Cellnet Data Systems Inc. 144A units stepped-coupon zero %
(13s, 6/15/00), 2005++ 3,175,800
2,000 Fitzgerald Gaming Co. units 13s, 2002 1,870,160
582 GST Telecommunications, Inc. 144A units stepped-coupon
zero % (13 7/8s, 6/15/96), 2005 (Canada)++ 3,084,600
6,515 ICF Kaiser International, Inc. sr. sub units 12s, 2003 6,189,250
3,025,000 Intermedia Communications of Florida units, Ser. B,
13 1/2s, 2005 3,539,250
13,760 Premium Standard Farms 144A exch. pfd. units,
12 1/2s, 2000 1,238,400
7,445 SDW Holdings Corp. 144A exch. pfd. units 15s, 2006 2,084,600
675 Terex Corp. 144A units 13 3/4s, 2002 624,375
2,252,000 Total Renal Care, Inc. units stepped-coupon zero %
(12s, 8/15/99), 2004 (acquired various dates from
8/9/94 to 1/25/95, cost $1,752,779)++ ++ 2,235,110
--------------
Total Units (cost $25,872,568) $27,622,045
PREFERRED STOCKS (1.8%)*
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
45,879 Cablevision System Corp Ser. G, $11.75, exch. pfd. $4,897,583
63,750 California Federal Bank Ser. B, $10.625, exch. pfd. 6,980,625
49,000 First Nationwide Bank $11.50, exch. pfd. 5,671,750
20,000 K-III Communications Corp. Ser. B, $11.625, exch. pfd. ++++ 2,118,475
79,700 SD Warren Co. Ser. B, $14.00, exch. pfd. 2,709,800
--------------
Total Preferred Stocks (cost $22,299,553) $22,378,233
COMMON STOCKS (1.0%)*
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
303,825 Ampex Corp. Class A, + $1,139,344
65,652 Chesapeake Energy Corp. + 3,036,405
86,149 Computervision Corp.+ 1,066,094
60,000 Exide Corp. 1,710,000
136,975 Grand Union Co. (acquired 6/20/95, cost $7,750,000)+++ 993,069
10,934 IFINT Diversified Holdings 144A + 546,700
666,882 Loehmanns' Holdings, Inc. 144A + 979,483
1,658 PMI Holdings Corp. 144A+ 331,600
1,186 Premium Holdings L.P. 144A + 106,716
46 Southland Corp. + 150
36,750 Specialty Foods Corp. + 27,563
12,509 Taj Mahal Holding Corp. Class A, + 275,198
58,667 Total Renal Care (acquired 6/27/95, cost $638,000)+++ 1,325,874
20,790 Total Renal Care Holdings, Inc. (acquired various dates
from 8/4/95 to 1/25/95, cost $33,330)+++ 567,923
--------------
Total Common Stocks (cost $14,381,863) $12,106,119
CONVERTIBLE PREFERRED STOCKS (0.4%)*
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
66,330 Conseco, Inc. Ser. D, $3.25 cv. pfd. $3,623,276
18,000 Granite Broadcasting, $1.938 cv. pfd. 877,500
--------------
Total Convertible Preferred Stocks (cost $4,398,750) $4,500,776
CONVERTIBLE BONDS AND NOTES (0.3%)*
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
$3,483,000 Pricellular Wireless 144A cv. sub. notes stepped-coupon,
zero%, (10 3/4s, 8/15/00), 2004++ $2,668,849
1,250,000 Riverwood International Corp. cv. sub. notes, 6 3/4s, 2003 1,409,375
--------------
Total Convertible Bonds and Notes (cost $3,837,779) $4,078,224
Collateralized Mortgage Obligations (0.7%)* (cost $8,219,400)
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
$8,240,000 Sears Credit Account Master Trust Ser. 95-5, Class A,
6.05s, 2004 $8,332,700
<CAPTION>
WARRANTS (0.3%)*+ EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
95,000 Becker Gaming Corp. 144A 11/15/00 $23,750
8,223 Casino America, Inc. 144A 11/15/96 822
16,560 Casino Magic Finance Corp. 144A 10/14/96 828
32,700 Cinemark Mexico USA, Inc. 144A 8/1/03 302,966
5,375 County Seat Holdings, Inc. 144A 10/15/98 53,750
133,386 Gaylord Container Corp. 144A 7/31/96 1,367,207
700 Grand Union Co. Ser. 1 (acquired 6/20/95,
cost $280)++ 6/16/00 315
1,399 Grand Union Co. Ser. 2 (acquired 6/20/95,
cost $140)++ 6/16/00 84
187,200 Insight Communications Co. 144A 3/30/98 421,200
20,856 Intelcom Group 9/15/05 104,280
3,025 Intermedia Communications 144A 6/1/00 60,500
10,452 Louisiana Casino Cruises, Inc. 144A 12/1/98 156,780
12,880 Pagemart, Inc. 144A 12/31/03 115,920
5,600 Petracom Holdings, Inc. 144A 8/1/05 39,900
46,534 President Riverboat Casinos, Inc. 144A 9/30/99 186,136
31,620 President Riverboat Casinos, Inc. 144A 9/23/96 1,581
60,000 Southdown, Inc. (acquired 10/31/91,
cost $180,000)++ 10/31/96 360,000
77 Telemedia Broadcasting 144A 4/1/04 57,870
24,000 UCC Investor Holding, Inc. 144A 10/30/99 228,000
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 $2,825,521) $3,740,944
<CAPTION> EXPIRATION DATE/
PURCHASED OPTIONS OUTSTANDING (0.1%)* STRIKE
CURRENCY PRICE VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
USD 60,400,000 U.S. Dollars in exchange for
Deutschemarks (Call) Feb 96/DEM 1.49 $169,120
USD 3,252,800 U.S. Dollars in exchange for
Japanese Yen (Call) Apr 96/JPY 110.7 231,375
CHF 55,300,000 Swiss Francs in exchange for
Japanese Yen (Put) Mar 96/JPY 86.9 508,112
--------------
Total Purchased Options Outstanding (cost $1,213,194) $908,607
SHORT-TERM INVESTMENTS (7.6%)*
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
IDR 3,000,000,0000 Bank Tabunga Negara certificate of deposit zero %,
12-Feb-96 $1,301,614
USD 3,000,000 Ford Motor Company effective yield of 5.44s,
9-Feb-96 2,996,373
THB 16,000,000 Thai Oil zero %, February 9, 1996 631,316
USD 30,000,000 USAA Capital Corp. effective yield of 5.64s,
14-Feb-96 29,938,900
U.S. Dollar Certificate of Deposit (Issued by J.P. Morgan
Securities, Inc. The principal at redemption is linked
to the bid price for the Polish Treasury Bill,
multiplied by the change in the spot rate of the
Polish Zloty from issue date to maturity date)
USD 1,064,948 zero %, May 8, 1996 971,659
USD 217,940 zero %, December 18, 1996 179,190
USD 1,824,936 zero %, April 17, 1996 1,675,291
USD 56,106,000 Interest in $437,132,000 joint repurchase agreement
dated January 31, 1996 with Morgan (J.P.) &
Co., Inc. , due February 1, 1996 with respect to
various U.S. Treasury obligations-maturity value
$56,115,117 for an effective yield of 5.85% 56,115,117
--------------
Total Short-Term Investments (cost $93,942,851) $93,809,460
- ---------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,277,256,948)*** $1,308,499,357
- ---------------------------------------------------------------------------------------------------------------------
* Percentages based on net assets of $ 1,234,003,249.
+ 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,
1996. Although the unit price for the trades has been established, the principal amount has not been
finalized. However, the amount of of the commitment will not fluctuate more than 2.0% from the principal
amount. Income on the securities will not be earned on settlement date. The cost of TBA purchases at January
31, 1996 was $20,195,567.
++ 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 January 31, 1996 was $5,482,375 or
0.4% 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 $1,278,367,267, resulting in gross unrealized appreciation
and depreciation of $59,545,029 and $29,412,939, respectively, or net unrealized apppreciation of
$30,132,090. 144A after the name of a security represent 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 institutional buyers.
The rates shown on FRNs and FRBs are the current interest rates at January 31, 1996, which are subject to
change based on the terms of the security.
<CAPTION>
Forward Currency Contracts to Buy at January 31, 1996
(aggregate face value $165,353,118)
Unrealized
Market Aggregate Delivery Appreciation/
Value Face Value Date Depreciation
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian Dollars $9,195,716 $9,118,470 3/13/96 $77,246
Deutschemarks 75,814,091 78,250,840 3/13/96 (2,436,749)
French Francs 13,584,723 13,992,406 3/13/96 (407,683)
Japanese Yen 40,406,310 42,743,017 3/13/96 (2,336,707)
Spanish Pesetas 9,116,878 9,243,460 3/13/96 (126,582)
Swedish Krona 11,375,185 12,004,925 3/13/96 (629,740)
- ------------------------------------------------------------------------------
$(5,860,215)
Forward Currency Contracts to Sell at January 31, 1996
(aggregate face value $284,521,274)
Unrealized
Market Aggregate Delivery Appreciation/
Value Face Value Date Depreciation
- ------------------------------------------------------------------------------
BritishPounds $24,182,672 $24,489,285 3/13/96 $306,613
CanadianDollars 18,272,562 18,350,827 3/13/96 78,265
DanishKrone 5,069,738 5,232,694 3/13/96 162,956
Deutschemarks 112,367,373 116,143,902 3/13/96 3,776,529
Deutschemarks 781,758 821,704 4/17/96 39,946
Deutschemarks 472,294 477,791 5/8/96 5,497
Deutschemarks 84,196 87,459 12/18/96 3,263
ItalianLira 19,147,065 18,847,054 3/13/96 (300,011)
JapaneseYen 21,613,852 22,708,475 2/26/96 1,094,623
JapaneseYen 19,083,249 19,464,030 3/13/96 380,781
NetherlandGuilders 12,890,437 13,400,281 3/13/96 509,844
SpanishPesetas 28,557,643 29,147,877 3/13/96 590,234
SwissFrancs 15,307,385 15,349,895 3/13/96 42,510
- ------------------------------------------------------------------------------
$6,691,050
<CAPTION>
Forward Cross Currency Contracts at January 31, 1996
(aggregate face value $8,248,661)
Market In Exchange Market Delivery Unrealized
Value For Value Date Appreciation
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Deutschemarks $7,995,904 Danish Krone $8,011,747 3/13/96 $15,843
<CAPTION>
TBA Sale Commitment Outstanding at January 31, 1996 (proceeds receivable $22,058,718)
Principal Delivery Coupon Market
Agency Amount Month Rate Value
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GNMA $21,400,000 Feb-96 7.50% $22,028,518
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
January 31,1996 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,277,256,948) (Note 1) $1,308,499,357
- ---------------------------------------------------------------------------------------------------
Cash 1,387,259
- ---------------------------------------------------------------------------------------------------
Interest, dividends and other receivables 22,599,864
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 51,585,359
- ---------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 7,215,830
- ---------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 1,889,481
- ---------------------------------------------------------------------------------------------------
Total assets 1,393,177,150
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased $ 119,172,618
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 7,735,879
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,059,857
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 1,558
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,004
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 221,454
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 6,369,152
- ---------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 1,349,579
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 233,282
- ---------------------------------------------------------------------------------------------------
TBA sale commitment at value (proceeds receivable $22,058,718) 22,028,518
- ---------------------------------------------------------------------------------------------------
Total liabilities 159,173,901
- ---------------------------------------------------------------------------------------------------
Net assets $1,234,003,249
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in-capital (Notes 1 and 4) $1,239,093,847
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (8,832,988)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Note 1) (28,243,379)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 31,985,769
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,234,003,249
Computation of net asset value
- ---------------------------------------------------------------------------------------------------
Net asset value per share ($1,234,003,249 divided by 140,709,960 shares) $8.77
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended January 31,1996 (Unaudited)
<S> <C>
Investment Income
- ---------------------------------------------------------------------------------------------------
Interest (net of foreign tax of $224,151) $49,539,564
- ---------------------------------------------------------------------------------------------------
Dividends 762,203
- ---------------------------------------------------------------------------------------------------
Total investment income 50,301,767
Expenses:
- ---------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) $ 4,145,198
- ---------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 654,392
- ---------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 20,516
- ---------------------------------------------------------------------------------------------------
Auditing 41,744
- ---------------------------------------------------------------------------------------------------
Legal 34,713
- ---------------------------------------------------------------------------------------------------
Registration Fees 753
- ---------------------------------------------------------------------------------------------------
Exchange listing fees 59,235
- ---------------------------------------------------------------------------------------------------
Administrative services (Note 2) 12,109
- ---------------------------------------------------------------------------------------------------
Other 75,783
- ---------------------------------------------------------------------------------------------------
Total expenses 5,044,443
- ---------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (81,158)
- ---------------------------------------------------------------------------------------------------
Net expenses 4,963,285
- ---------------------------------------------------------------------------------------------------
Net investment income 45,338,482
- ---------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 44,874,346
- ---------------------------------------------------------------------------------------------------
Net realized loss on forward currency contracts and
foreign currency translation (Notes 1 and 3) (10,912,008)
- ---------------------------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 120,658
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, written options
and TBA sale commitment during the period 6,015,989
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of forward currency contracts
and foreign currency translation during the period 4,473,293
- ---------------------------------------------------------------------------------------------------
Net gain on investments 44,572,278
- ---------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $89,910,760
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months
ended Year ended
January 31 July 31
<S> <C> <C>
1996* 1995
- --------------------------------------------------------------------------------------------------- -------------------
Increase in net assets
- --------------------------------------------------------------------------------------------------- -------------------
Operations:
- --------------------------------------------------------------------------------------------------- -------------------
Net investment income $ 45,338,482 $ 95,235,357
- --------------------------------------------------------------------------------------------------- -------------------
Net realized gain (loss) on investments and
foreign currency transactions 34,082,996 (34,225,964)
- --------------------------------------------------------------------------------------------------- -------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 10,489,282 57,992,724
- --------------------------------------------------------------------------------------------------- -------------------
Net increase in net assets resulting from operations 89,910,760 119,002,117
- --------------------------------------------------------------------------------------------------- -------------------
Distributions to shareholders:
- --------------------------------------------------------------------------------------------------- -------------------
From net investment income (46,282,322) (80,928,763)
Return of capital - (14,067,170)
Shares repurchased (Note 4) - (357,250)
- --------------------------------------------------------------------------------------------------- -------------------
Total increase in net assets 43,628,438 23,648,934
- --------------------------------------------------------------------------------------------------- -------------------
Net Assets
- --------------------------------------------------------------------------------------------------- -------------------
Beginning of period 1,190,374,811 1,166,725,877
- --------------------------------------------------------------------------------------------------- -------------------
End of period (including distributions in excess of
net investment income of $8,832,988 and
$7,889,148, respectively) $1,234,003,249 $1,190,374,811
- --------------------------------------------------------------------------------------------------- -------------------
Number of fund shares
- --------------------------------------------------------------------------------------------------- -------------------
Shares outstanding at beginning of period 140,709,960 140,759,960
- --------------------------------------------------------------------------------------------------- -------------------
Shares repurchased - (50,000)
- --------------------------------------------------------------------------------------------------- -------------------
Shares outstanding at end of period 140,709,960 140,709,960
- --------------------------------------------------------------------------------------------------- -------------------
* Unaudited.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------------------------
- ---------
Six months
ended
January 31 Year Ended July 31
- ------------------------------------------------------------------------------------------------------------------------
- ---------
1996* 1995 1994 1993 1992
1991
- ------------------------------------------------------------------------------------------------------------------------
- ---------
<S> <C> <C> <C> <C> <C>
<C>
Net asset value, beginning of period $8.46 $8.29 $8.87 $8.51 $7.90
$8.20
- ------------------------------------------------------------------------------------------------------------------------
- ---------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------
- ---------
Net investment income .32 .68 .64 .71 .75
.75
- ------------------------------------------------------------------------------------------------------------------------
- ---------
Net realized and unrealized gain (loss)
on investments .32 .17 (.50) .42 .73
(.14)
- ------------------------------------------------------------------------------------------------------------------------
- ---------
Total from investment operations .64 .85 .14 1.13 1.48
.61
- ------------------------------------------------------------------------------------------------------------------------
- ---------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------
- ---------
From net investment income (.33) (.58) (.70) (.71) (.75)
(.75)
- ------------------------------------------------------------------------------------------------------------------------
- ---------
In excess of net investment income -- -- (.02) (.06) (.12)
(.13)
- ------------------------------------------------------------------------------------------------------------------------
- ---------
Return of capital -- (.10) -- -- --
(.05)
- ------------------------------------------------------------------------------------------------------------------------
- ---------
Total distributions (.33) (.68) (.72) (.77) (.87)
(.93)
- ------------------------------------------------------------------------------------------------------------------------
- ---------
Increase in net asset value from shares
repurchased (a) -- -- -- -- --
.02
- ------------------------------------------------------------------------------------------------------------------------
- ---------
Net asset value, end of period $8.77 $8.46 $8.29 $8.87 $8.51
$7.90
- ------------------------------------------------------------------------------------------------------------------------
- ---------
Total investment return at market value (%) (b) 10.45(c) 6.86 .95 8.69 27.42
23.50
- ------------------------------------------------------------------------------------------------------------------------
- ---------
Market value, end of period $7.88 $7.44 $7.63 $8.25 $8.88
$7.75
- ------------------------------------------------------------------------------------------------------------------------
- ---------
Net assets, end of period (in thousands) $1,234,003 $1,190,375 $1,166,726 $1,249,193 $1,194,958
$1,106,772
- ------------------------------------------------------------------------------------------------------------------------
- ---------
Ratio of expenses to average net assets (%) (d) .42(c) .82 .86 .84 .88
1.06
- ------------------------------------------------------------------------------------------------------------------------
- ---------
Ratio of net investment income to
average net assets (%) 3.77(c) 8.29 7.30 8.14 9.05
9.41
- ------------------------------------------------------------------------------------------------------------------------
- ---------
Portfolio turnover (%) 180.12(c) 196.83 242.29 250.65 203.27
350.45
- ------------------------------------------------------------------------------------------------------------------------
- ---------
* 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
(d) The ratio of expenses to average net assets for the period ended January 31, 1996 includes amounts paid through
expense offset arrangements. Prior period ratios exclude these amounts. (Note 2)
</TABLE>
Notes to financial statements
January 31, 1996 (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
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 preparation of financial statements are in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined using
the last reported sale price, or, if no sales are reported--as in the
case of some securities traded over-the-counter -- the last reported bid
price, 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) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances into a joint trading account along with the cash of other
registered investment companies managed by Putnam Investment Management,
Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc. and certain other accounts. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to 102% of the resale price, including accrued
interest. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to
102% of the resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Interest income is recorded on the accrual basis.
Dividend income is recorded on the ex-dividend date except that certain
dividends from foreign securities are recorded as soon as the fund is
informed of the ex-dividend date. Discounts on zero coupon bonds,
original issue, stepped-coupon bonds and payment in kind bonds are
accreted according to the effective yield method.
E) TBA purchase commitments The fund, may enter into "TBA" (to be
announced) purchase commitments to purchase securities for a fixed unit
price at a future date beyond customary settlement time. Although the
unit price has been established, the principal value has not been
finalized. However, the amount of the commitments will not fluctuate
more than 2.0% from the principal amount. The fund holds, and maintains
until settlement date, cash or high-grade debt obligations in an amount
sufficient to meet the purchase price, or the fund may enter into
offsetting contracts for the forward sale of other securities it owns.
Income on the securities will not be earned until settlement date. TBA
purchase commitments may be considered securities in themselves, and
involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to the
risk of decline in the value of the fund's other assets. Unsettled TBA
purchase commitments are valued at the current market value of the
underlying securities, generally according to the procedures described
under "Security valuation" above.
Although the fund will generally enter into TBA purchase commitments
with the intention of acquiring securities for their portfolio or for
delivery pursuant to options contracts it has entered into, the fund may
dispose of a commitment prior to settlement if Putnam Management deem it
appropriate to do so.
F) 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 underlying security. If the fund delivers
securities under the commitment, the fund realizes a gain or a loss from
the sale of the securities based upon the unit price established at the
date the commitment was entered into.
G) Options contracts The fund may use options contracts to hedge against
changes in the values of securities the fund owns or expects to
purchase. The fund may also write options on securities it owns or which
it invests to increase its current returns.
The potential risk to the fund is that the change in value of options
contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of
the underlying instruments, if there is an illiquid secondary market for
the contracts, or if the counterparty to the contract is unable to
perform.
Exchange traded options are valued at the last sale price, or if no
sales are reported, the last bid price for purchased options and the
last ask price for written options. Options traded over-the-counter are
valued using prices supplied by dealers.
H) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a decline
in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of a currency in which securities a fund intends to buy are
denominated, when a fund holds cash reserves and short-term
investments). The U.S. dollar value of forward currency contracts is
determined using forward currency exchange rates supplied by a quotation
service. The market value of the contract will fluctuate with changes in
currency exchange rates. The contract is "marked to market" daily and
the change in market value is recorded as an unrealized gain or loss.
When the contract is closed, the fund records a realized gain or loss
equal to the difference between the value of the contract at the time it
was opened and the value at the time it was closed. The fund could be
exposed to risk if the value of the currency changes unfavorably, if the
counterparties to the contracts are unable to meet the terms of their
contracts or if the fund is unable to enter into a closing position.
I) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such fluctuations are included with the net realized
and unrealized gain or loss on investments. Net realized gains and
losses on foreign currency transactions represent net exchange gains or
losses on closed forward currency contracts, disposition of foreign
currencies and the difference between the amount of investment income
and foreign withholding taxes recorded on the fund's books and the U.S.
dollar equivalent amounts actually received or paid. Net unrealized
gains and losses on foreign currency transactions arise from changes in
the value of open forward currency contracts and assets and liabilities
other than investments at the period end, resulting from changes in the
exchange rate.
J) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held and for excise tax on income and capital
gains.
At July 31, 1995, the fund had a capital loss carryover of approximately
$52,832,000 available to offset future net capital gain, if any.
The amount of the carryover and expiration dates are:
Loss Carryover Expiration
-------------------------------
$9,522,000 July 31, 1999
$43,310,000 July 31, 2003
K) Distributions to shareholders Distributions to shareholders are
recorded by the fund on the ex-dividend date. At certain times, the fund
may pay distributions at a level rate even though, as a result of market
conditions or investment decisions, the fund may not achieve projected
investment results for a given period. The amount and character of
income and gains to be distributed are determined in accordance with
income tax regulations which may differ from generally accepted
accounting principles.
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 reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Trustees of the fund receive an annual Trustees fee of $2,270 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows
the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund
and are invested in the fund or in other Putnam funds until distribution
in accordance with the Plan.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly owned subsidiary of Putnam
Investments, Inc.. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the six months ended January 31, 1996, fund expenses were reduced by
$81,158 under expense offset arrangements with PFTC. Investor servicing
and custodian fees reported in the Statement of operations exclude these
credits. The fund could have invested the assets utilized in connection
with the expense offset arrangements in an income producing asset if it
had not entered into such arrangements.
Note 3
Purchases and sales of securities
During the six months ended January 31, 1996, purchases and sales of
investment securities other than short-term investments aggregated
$2,118,518,516 and $2,102,732,000, respectively. In determining the net
gain or loss on securities sold, the cost of securities has been
determined on the identified cost basis.
Written option transactions during the period are summarized as follows:
Contract Premiums
Amounts Received
- ----------------------------------------------------
Contracts
outstanding at
beginning of period -- $--
- ----------------------------------------------------
Options opened 28,060,000 120,658
- ----------------------------------------------------
Options expired (28,060,000) (120,658)
- ----------------------------------------------------
Written options
outstanding
at end of period -- $--
- ----------------------------------------------------
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.
There were no repurchased shares for the six months ended January 31,
1996.
<TABLE>
<CAPTION>
Selected quarterly data
(Unaudited)
Net realized Net increase
and unrealized (decrease) in net
Investment Net investment gain (loss) assets from
income income on 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
10-31-95 25,389,718 .18 23,038,560 .16 9,464,195 .07 32,502,755 .23
1-31-96 24,912,049 .18 22,299,922 .16 35,108,083 .25 57,408,005 .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.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Rosemary H. Thomsen
Vice President and Fund Manager
Neil Powers
Vice President and Fund Manager
D. William Kohli
Vice President and Fund Manager
Mark J. Siegel
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time for up-
to-date information about the fund's NAV or to request Putnam's
quarterly Closed-End Fund Commentary.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution; are not insured by the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board
or any other agency; and involve risk, including the possible loss of
the principal amount invested.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
23296-073 2/96
Bulk Rate
U.S. Postage
PAID
Putnam
Investments