(SCALES GRAPHIC)
Putnam
Master
Intermediate
Income Trust
Semiannual
Report
March 31, 1994
(COVER GRAPHIC)
For investors seeking
high current income and
relative stability of net
asset value through U.S.
government, high-yield
and international fixed
income securities with
limited maturities
Contents
2 How your fund performed
3 From the Chairman
4 Report from Putnam Management
Semiannual Report
7 Report of Independent Accountants
8 Portfolio of investments owned
18 Financial statements
28 Fund performance supplement
29 Your Trustees
<PAGE>
How your
fund performed
For periods ended March 31, 1994
Total return* Fund
Market Consumer
NAV price Price Index
6 months 1.24% -3.50% 1.45%
1 year 7.69 0.57 2.51
3 years 46.31 42.65 9.04
annualized 13.52 12.57 2.93
5 years 63.55 56.19 20.36
annualized 10.34 9.33 3.78
Life-of-fund 75.58 46.30 25.71
(since 4/29/88)
annualized 9.98 6.64 3.94
Share data Market
NAV price
September 30, 1993 $ 8.91 $ 8.375
March 31, 1994 $ 8.65 $ 7.750
Distributions Investment Capital
6 months ended Number income gains Total
March 31, 1994 6 $0.345 -- $ 0.345
Current returns Market
at the end of the period NAV price
Current dividend rate 7.98% 8.90%
* Performance data represent past results. Investment return, net asset value
and market price will fluctuate so that an investor's shares, when sold, may
be worth more or less than their original cost.
Terms you need to know
Total return is the change in value of an investment from the beginning to
the end of a period, assuming the reinvestment of all distributions. It may
be shown at net asset value or at market price.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not reflecting any
sales charge.
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.
Current dividend rate is calculated by annualizing the income portion of the
fund's most recent distribution and dividing by the NAV or market price on
the last day of the period.
Please see the fund performance supplement on page 28 for additional
information about performance comparisons.
<PAGE>
From the
Chairman
(George Putnam photo)
George Putnam
Chairman of the Trustees
(C) Karsh, Ottawa
Dear Shareholder:
Putnam Master Intermediate Income Trust ended the first six months of its
fiscal 1994 by undergoing six weeks of market turbulence. Although all three
sectors of the portfolio were affected, the fund's diversified strategy once
again proved effective: unlike many other fixed-income investments the fund
turned in a positive performance at net asset value.
Early in February, a sudden boost in short-term interest rates by the United
States Federal Reserve had a negative impact on stock and bond markets around
the world. This first increase, as well as a subsequent one in early March,
caused volatility for the rest of the quarter and dampened performance in all
three sectors of your fund's portfolio. However, because your fund invests
primarily in intermediate bonds, which are less sensitive to interest rate
changes than long-term bonds, its decline was not as severe as that of many
others.
The rate increase was not entirely unexpected. The markets, as well as your
fund managers, had anticipated an eventual rise in interest rates. It was the
extended reaction, the participation of markets throughout the world in the
retreat and the fact that some large heavily-leveraged investors sold off
their most liquid securities to cover losses in other areas that combined to
produce a whole that was greater than the sum of its parts.
We expect volatility to continue until investors realize that the U.S.
economy is fundamentally strong, that inflation is under control and that
interest rates, even after a third boost from the Federal Reserve, remain
relatively low on a historic level. Our overall outlook, therefore, remains
positive despite recent events.
In the report that follows, Jennifer Leichter and her team of investment
managers discuss the performance of your fund in this market environment.
Respectfully yours,
(Signature)
George Putnam
May 18, 1994
<PAGE>
Report from
Putnam Management
"Indeed, Greenspan thinks he has done investors a service: by raising
interest rates now instead of waiting six to nine months, he broke the
speculative fever before it caused a devastating Japanese-style stock market
crash."
Business Week,
April 18, 1994
Top 10 corporate bond holdings
Gaylord Container Corp.
EPIC Holdings, Inc.
Premium Standard Farms
Loehmanns' Holdings, Inc.
Finlay Enterprises, Inc.
Viking Star Shipping
SPI Holdings, Inc.
Southland Corp.
Collins & Aikman
Group, Inc.
Flagstar Corp.
History tells us that markets change; a correction in the bond markets was
long expected. However, during the first months of the semiannual period
ended March 31, 1994, any correction seemed far away. Both the high-yield and
international sectors of Putnam Master Intermediate Income Trust continued to
benefit from rallies in their respective markets much as they had for the
past two years. The high-yield sector again led the fund's total return
performance, followed by the international sector. Performance of the United
States government sector, still affected by the prepayment trend that
dampened performance of mortgage-backed securities, lagged both its siblings.
High-yield emphasis continues In October, the high-yield sector accounted for
about 42% of the fund's portfolio, an increase from 38% earlier in the fall.
By mid-February, we had increased the sector weighting to roughly 45%. This
shift was designed to give the fund more exposure to the fixed-income sector
most likely to benefit from strength in the U.S. economy. It was also
intended as a defensive move that would help insulate the fund from the
impact of rising interest rates.
As the weighting in high-yield bonds increased, the international sector was
reduced to 30% of the portfolio and the U.S. government sector to 25%. The
portion of the U.S. sector in mortgage-backed securities grew from a
smaller-than-normal percentage at the start of the period to over two-thirds
of the sector by mid-January. Purchased at out-of-favor prices, these
securities outperformed Treasuries as interest rates crept upwards but were
severely affected by the rate increases that set the markets spinning in
February.
International market strength diminishes Until mid-January, the international
sector continued in a rallying pattern much like that of the past two years.
During December's upswing, our Japanese bonds gained substantially, a gain
enhanced by hedging strategies favoring the dollar. However, the hedges
limited our participation when the yen rallied in January. In this case, our
hedging strategy, designed to minimize the risks of foreign currency-based
investing, neutralized both gains and losses.
By the time the Federal Reserve raised interest rates in February, the
international bond markets had already begun to unravel. This occurred as the
appreciating yen upset the currency moves of many large, highly leveraged
investors. It also forced the sale of European bonds in markets already made
jittery by the Bundesbank's slowness in reducing interest rates and rumors of
rising interest rates in the U.S.
Markets react to interest rate increases With the first boost in U.S.
interest rates, on February 2, the bond and equity markets worldwide took off
on a volatile course that lasted through the end of the fund's semiannual
period. With this turbulence came losses in each sector. The markets had
overreacted to fears of inflation, but as values slipped and many highly
leveraged investors were forced to sell their most liquid assets, namely U.S.
Treasuries, volatility continued.
Though the fund, like most investments, saw earlier gains substantially
reduced, it fared better than many. This is due to the fact that most of our
bonds are in the intermediate-term range, making them less sensitive to
interest rate shifts than bonds with longer maturities.
Another factor that helped protect the portfolio was our limited exposure to
bonds in emerging markets, a sector that suffered substantial losses. Larry
Daly, manager of the fund's international holdings, had long considered that
emerging market securities were generally overvalued. At the end of the
period, only 5% of the portfolio consisted of emerging-market securities.
Going forward, we expect current volatility will last only until the markets
reestablish their relative value levels. While we see some slight
inflationary pressures in the U.S. and feel that interest rates hikes were
necessary, we also believe that the markets overreacted. Political events
such as unrest in Mexico and trade tensions between the U.S. and Japan may
also have played a role.
Top corporate bond industry sectors
Recreation 3.7%
Forest Products 2.8%
Retail 2.3%
Motion Picture Distribution 1.9%
Conglomerates 1.9%
Health Care 1.8%
"The first quarter of 1994 was one of the most unsettled in years across the
world's biggest bond and equity markets."
The Economist,
April 2, 1994
Europe, Japan edge toward recovery Since the European and Japanese economies
are only just beginning their recovery cycles, we expect these markets will
break from the U.S. and move under their own steam. The recent volatility
created values and, with fundamentals suggesting that European and Japanese
interest rates will fall, we plan to emphasize these areas of our
international holdings. As the emerging markets become more reasonable, we
will reexamine these areas for attractive opportunities.
U.S. growth supports high yields We believe most signals in the U.S. point to
continued growth, though at slightly slower rates than in the recent past. We
expect this growth will support the value of holdings in our high-yield
sector, generally the only fixed-income sector to benefit from a thriving
economy. As an example, the First Boston High Yield Index, frequently used
to measure performance of high-yield bonds, gained 3.31% over the last
six months, while the Lehman Treasury Bond Index lost 3.36%.
Unlike 1989's volatility in the high-yield sector, we believe the current
unease does not reflect much in the way of concern about the fundamental
creditworthiness of the market--and is primarily an interest-rate response.
Because high-yield bonds are traditionally relatively resistant to interest
rate shifts, we plan to maintain the overweighting in this sector.
U.S. government sector awaits stability With cash from recent sales of
mortgage-backed securities, our strategy within the U.S. sector will be to
focus on those securities that seem least likely to be affected by interest
rate shifts. When the market appears more stable, we expect to bring
mortgages back to about 70% of the sector.
Our long-term view of recent market conditions is that they created many
undervalued situations and attractive buying opportunities in each sector.
All sectors of the portfolio entered the recent correction with cash from
earlier gains, and in the future, may well be able to benefit from this
spring's downturn.
<PAGE>
Putnam
Master
Intermediate
Income
Trust
Semiannual
Report
For the Six months ended March 31, 1994
Report of Independent Accountants
To the Trustees and Shareholders of
Putnam Master Intermediate Income Trust
We have audited the accompanying statement of assets and liabilities of
Putnam Master Intermediate Income Trust, including the portfolio of
investments owned, as of March 31, 1994, and the related statement of
operations for the six months then ended, the statement of changes in net
assets for the six months then ended and for the year ended September 30,
1993, and the "Financial Highlights" for the six months then ended, for each
of the five years in the period ended September 30, 1993, and for the period
April 29, 1988 (commencement of operations) to September 30, 1988. These
financial statements and "Financial Highlights" are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and "Financial Highlights" based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
"Financial Highlights" are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of March 31, 1994, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and "Financial Highlights" referred
to above present fairly, in all material respects, the financial position of
Putnam Master Intermediate Income Trust as of March 31, 1994, the results of
its operations for the six months then ended, the changes in its net assets
for the six months then ended and for the year ended September 30, 1993, and
the "Financial Highlights" for the six months then ended, for each of the
five years in the period ended September 30, 1993, and for the period April
29, 1988 (commencement of operations) to September 30, 1988, in conformity
with generally accepted accounting principles.
Coopers & Lybrand
Boston, Massachusetts
May 25, 1994
Portfolio of
investments owned
March 31, 1994
<TABLE>
<CAPTION>
Corporate Bonds and Notes (40.1%)(a)
Principal Amount Value
<S> <C> <C>
Recreation (3.7%)
$ 715,000 Arizona Charlies Corp. sub. deb. 12s, 2000 (b) $ 715,000
1,575,000 Bally's Casino Inc. sr. disc. notes zero %, 1998 (b) 984,375
150,000 Belle Casinos Inc. 1st mtge. deb. 12s, 2000 (b) 147,000
520,000 Capitol Queen Corp. sr. sub. deb. 12s, 2000 (b) 462,800
925,000 Casino America Inc. 1st mtge. deb. 11-1/2s, 2001 943,500
1,800,000 Casino Magic Finance Corp. 1st mtge. 11-1/2s, 2001 1,845,000
1,000,000 Fitzgerald Gaming sr. notes 13s, 1996 (b) 940,000
900,000 Golden Nugget Finance Corp. 1st mtge. deb. Ser. B, 10-5/8s, 2003 810,000
1,400,000 Grand Casino Resorts, Inc. notes 12-1/2s, 2000 1,526,000
1,000,000 Graete Bay Property Funding Corp. 1st mtge. deb. 10-7/8s, 2004 910,000
525,000 Lady Luck Gaming 10-1/2s, 2001 (b) 527,625
594,000 Trump Castle Funding Corp. deb. 11-1/2s, 2000 (b) 594,000
2,000,000 Trump Taj Mahal deb. 11.35s, 1999 (c) 1,960,000
12,365,300
Forest Products (2.8%)
500,000 Doman Industry Ltd. sr. notes 8-3/4s, 2004 460,000
4,500,000 Gaylord Container Corp. sr. sub. disc. deb. stepped-coupon zero % (12-3/4s,
5/15/96), 2005 (d) 3,645,000
1,000,000 Repap Wisconsin Inc. sr. secd. notes 9-1/4s, 2002 960,000
250,000 Stone Container Corp. sr. sub. deb. 10-3/4s, 2002 237,500
900,000 Stone Container Corp. sr. sub. notes 10-3/4s, 1997 882,000
1,900,000 Stone Savannah River Pulp & Paper Corp. sr. sub. notes 14-1/8s, 2000 1,805,000
Forest Products (continued)
$1,250,000 Williamhouse Regency Delaware, Inc. sr. sub. deb. 11-1/2s, 2005 $ 1,293,750
9,283,250
Retail (2.3%)
1,277,000 Duane Reade Corp. sr. notes 12s, 2002 1,366,390
3,350,000 Finlay Enterprises Inc. sr. disc. deb. stepped-coupon zero % (12s, 5/1/98), 2005 (d) 2,077,000
30,000 Loehmanns' Holdings Inc. sr. sub. notes 13-3/4s, 1999 29,100
2,200,000 Loehmanns' Holdings Inc. sr. sub. notes 10-1/2s, 1997 (b) 2,145,000
1,250,000 Parisian Inc. sr. sub. notes 9-7/8s, 2003 1,143,750
1,750,000 Pay'n Pak Stores, Inc. sr. sub. deb. 13-1/2s, 1998 (e) 8,750
840,000 Specialty Retailers, Inc. sr. sub. notes 11s, 2003 840,000
7,609,990
Motion Picture Distribution (1.9%)
1,500,000 AMC Entertainment, Inc. sr. sub. notes 12-5/8s, 2002 1,695,000
1,100,000 Act III Theatres sr. sub. notes 11-7/8s, 2003 1,232,000
465,000 Cinemark Mexico notes 12s, 2003 (b) 451,050
1,000,000 Cinemark USA sr. notes 12s, 2002 1,110,000
2,191,000 SPI Holdings Inc. sr. sub. ext. reset notes 11.65s, 2002 1,993,810
6,481,860
Conglomerates (1.9%)
1,995,000 Collins & Aikman Group, Inc. sr. sub. deb. 11-7/8s, 2001 1,985,025
1,650,000 Haynes International, Inc. sr. sub. notes 13-1/2s, 1999 1,666,500
500,000 Jordan Industries, Inc. sr. notes 10-3/8s, 2003 495,000
Conglomerates (continued)
$1,500,000 MacAndrews & Forbes Group Inc. deb. 12-1/4s, 1996 $1,515,000
750,000 MacAndrews & Forbes Holdings Inc. sub. deb. 13s, 1999 751,875
6,413,400
Health Care (1.8%)
215,000 Abbey Healthcare Group, Inc. sr. sub. notes 9-1/2s, 2002 205,325
706,300 EPIC Healthcare Group, Inc. jr. sub. bonds 11s, 2003 (c) 443,203
3,675,000 EPIC Holdings Inc. sr. notes stepped-coupon zero % (12s, 3/15/97), 2002 (d) 2,953,781
440,000 Mediplex Group, Inc. sr. sub. notes 11-3/4s, 2002 475,200
1,125,000 Multicare Cos., Inc. sr. sub. notes 12-1/2s, 2002 1,316,250
650,000 Quorum Health Group, Inc. sr. sub. notes 11-7/8s, 2002 721,500
6,115,259
Food Chains (1.8%)
3,000,000 Grand Union Capital Corp. sr. notes stepped-coupon zero % (15s, 7/15/99), 2004 (d) 1,260,000
800,000 Grand Union Co. sr. sub. notes 12-1/4s, 2002 792,000
280,000 Megafoods Stores Inc. sr. notes 10-1/4s, 2000 257,600
1,800,000 Southland Corp. 1st priority sr. sub. deb. 5s, 2003 1,242,000
1,250,000 Southland Corp. deb. 4s, 2004 750,000
1,750,000 Stater Brothers sr. notes 11s, 2001 (b) 1,728,125
6,029,725
Chemicals (1.6%)
1,100,000 Agricultural Minerals & Chemicals Corp. sr. notes 10-3/4s, 2003 1,108,250
Chemicals (continued)
$ 400,000 Arcadian Partners L.P. sr. notes
Ser. B, 10-3/4s, 2005 $ 400,000
1,250,000 G-I Holdings Inc. sr. notes zero %, 1998 (b) 803,125
750,000 Harris Chemical Corp. sr. sub. notes 10-3/4s, 2003 765,000
1,200,000 OSI Specialties Inc. sr. sub. notes 9-1/4s, 2003 1,200,000
1,200,000 UCC Investors Holding, Inc. sr. notes 10-1/2s, 2002 1,272,000
5,548,375
Cable Television (1.6%)
950,000 Adelphia Communications Corp. notes Ser. B, 9-7/8s, 2005 912,000
250,000 Adelphia Communications Corp. sr. deb. 11-7/8s, 2004 266,250
1,400,000 Cablevision Systems Corp. sr. sub. deb. 10-3/4s, 2004 1,456,000
831,000 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003 (c) 806,070
1,300,000 Insight Communications Co. sr. sub. notes 8-1/4s, 2000 1,300,000
700,000 Summit Communications Group, Inc. sr. sub. deb. 10-1/2s, 2005 735,000
5,475,320
Cellular Communications (1.6%)
690,000 Cencall Communications Corp. sr. disc. notes stepped-coupon zero % (10-1/8s,
1/15/99), 2004 (d) 400,200
1,200,000 Centennial Cellular Corp. sr. notes 8-7/8s, 2001 1,104,000
2,500,000 Horizon Cellular Telephone sr. sub. disc. notes stepped-coupon zero % (11-3/8s,
10/1/97), 2000 (b)(d) 1,775,000
3,300,000 NEXTEL Communications Inc. sr. disc. notes stepped-coupon zero % (9-3/4s, 2/15/99),
2004 (d) 1,963,500
5,242,700
Food (1.5%)
$ 950,000 Chiquita Brands International Inc. sub. deb. 11-1/2s, 2001 $ 992,750
931,000 Del Monte Corp. sub. notes 12-1/4s, 2002 ($800,000 par acquired 3/12/93, cost
$824,400; $49,000 par acquired 10/15/93, cost $49,000; $82,000 par acquired
3/15/94, cost $82,000) (c)(f) 932,535
1,500,000 Fresh Del Monte Produce Corp. sr. notes 10s, 2003 (b) 1,440,000
1,000,000 Mafco, Inc. sr. sub. notes 11-7/8s, 2002 1,040,000
480,000 Specialty Foods Acquisition Corp. sr. secd. disc. deb. stepped-coupon zero%, (13s,
8/15/99), 2005 (d) 237,600
425,000 Specialty Foods Corp. sr. sub. notes 11-1/4s, 2003 435,625
5,078,510
Restaurants (1.4%)
900,000 American Restaurant Group, Inc. sr. notes 12s, 1998 (b) 873,000
225,000 American Restaurant Group, Inc. sr. secd. notes 12s, 1998 (b) 218,250
1,750,000 American Restaurant Group, Inc. sr. notes stepped-coupon zero%, (14s, 12/15/98),
2005 (b)(d) 857,500
1,000,000 Family Restaurants Inc. sr. notes 9-3/4s, 2002 925,000
1,750,000 Flagstar Corp. sr. sub. notes 11-3/8s, 2003 1,723,750
250,000 Flagstar Corp. sr. sub. deb. 11-1/4s, 2004 246,250
4,843,750
Steel (1.3%)
1,000,000 AK Steel Corp. sr. notes 10-3/4s, 2004 995,000
500,000 Armco Inc. sr. notes 11-3/8s, 1999 535,000
500,000 Armco Inc. sr. notes 9-3/8s, 2000 466,250
Steel (continued)
$ 550,000 Earle M. Jorgensen Co. sr. notes 10-3/4s, 2000 $ 556,875
800,000 WCI Steel Inc. sr. notes 10-1/2s, 2002 (b) 858,000
1,000,000 Wheeling-Pittsburgh Corp. sr. notes 9-3/8s, 2003 945,000
4,356,125
Agriculture (1.1%)
700,000 PMI Acquisition Corp. sr. sub. notes 10-1/4s, 2003 714,000
1,380,000 PMI Holdings Corp. sub. disc. deb. stepped-coupon zero % (11-1/2s, 9/1/00), 2005
(b)(d) 738,300
275,200 Premium Standard Farms exch. pfd. notes 12-1/2s, 2000 (b) 299,968
1,225,140 Premium Standard Farms sr. secd. notes 12s, 2000 (b) 1,335,403
831,000 Premium Standard Farms deb. zero %, 2003 (b) 628,444
3,716,115
Insurance (1.0%)
1,000,000 American Annuity Group, Inc. sr. notes 9-1/2s, 2001 1,010,000
1,000,000 Penn Corp. Financial Group sr. sub. notes 9-1/4s, 2003 960,000
500,000 Reliance Group Holdings sr. sub. notes 9-3/4s, 2003 465,000
1,000,000 Reliance Group Holdings sr. notes 9s, 2000 930,000
3,365,000
Metals and Mining (1.0%)
1,500,000 Horsehead Industries, Inc. sub. notes 14s, 1999 1,485,000
1,800,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12-3/4s, 2003 1,836,000
3,321,000
Specialty Consumer Products (1.0%)
$1,500,000 Coleman Holdings Inc. sr. secd. disc. notes zero %, 1998 $ 945,000
3,000,000 International Semi-Tech. Micro-Electric sr. disc. notes stepped-coupon zero %
(11-1/2s, 8/15/00), 2003 (d) 1,500,000
590,000 Playtex Family Products Corp. sr. sub. notes 9s, 2003 536,900
550,000 Revlon Worldwide Corp. sr. secd. disc. notes zero %, 1998 246,125
3,228,025
Broadcasting (0.8%)
1,250,000 Act III Broadcasting Inc. sr. sub. notes 9-5/8s, 2003 1,193,750
250,000 New City Broadcasting Corp. sr. sub. notes 11-3/8s, 2003 262,500
1,250,000 SFX Broadcasting sr. sub. notes 11-3/8s, 2000 1,281,250
2,737,500
Textiles (0.8%)
1,000,000 Foamex (L.P.) Capital Corp. sr. sub. deb. 11-7/8s, 2004 1,060,000
1,400,000 JPS Textile Group deb. sub. notes 9-1/4s, 1999 1,372,000
200,000 Westpoint Stevens, Inc. sr. sub. deb. 9-3/8s, 2005 187,000
2,619,000
Advertising (0.7%)
1,250,000 Katz Corp. sr. sub. notes 12-3/4s, 2002 1,350,000
1,100,000 Universal Outdoor Inc. sr. notes 11s, 2003 (b) 1,111,000
2,461,000
Publishing (0.6%)
$ 750,000 Marvel III Holdings, Inc. sr. notes 9-1/8s, 1998 (b) $ 690,000
2,350,000 Marvel Holdings, Inc. sr. secd. disc. notes zero %, 1998 1,457,000
2,147,000
Shipping (0.6%)
2,000,000 Viking Star Shipping sr. secd. notes 9-5/8s, 2003 2,060,000
Business Services (0.5%)
500,000 Corporate Express, Inc. sr. notes 9-5/8s, 2004 (acquired 2/22/94, cost $500,000) (f) 467,500
1,675,000 Equitable Bag Co. sr. notes 12-3/8s, 2002 (e) 1,273,000
1,740,500
Automotive Parts (0.5%)
1,450,000 Key Plastics Corp. sr. notes 14s, 1999 1,740,000
Containers (0.5%)
1,500,000 Ivex Packaging Corp. sr. sub. notes 12-1/2s, 2002 1,668,750
Electronics (0.5%)
1,500,000 Ampex Group, Inc. sr. notes 13-1/4s, 1996 (e) 225,000
1,300,000 Amphenol Corp. sr. sub. notes 12-3/4s, 2002 1,443,000
1,668,000
Finance (0.5%)
1,000,000 Comdata Network, Inc. sr. sub. deb. 13-1/4s, 2002 1,100,000
500,000 Comdata Network, Inc. sr. notes 12-1/2s, 1999 540,000
1,640,000
Basic Industrial Products (0.5%)
$1,000,000 Joy Technologies sr. notes 10-1/4s, 2003 $ 995,000
1,125,000 Talley Industries, Inc. sr. disc. deb. stepped-coupon zero % (12-1/4s, 10/15/98),
2005 (d) 644,063
1,639,063
Consumer Services (0.5%)
750,000 Solon Automated Services, Inc. sr. sub. deb. 13-3/4s, 2002 817,500
750,000 Solon Automated Services, Inc. notes 12-3/4s, 2001 806,250
1,623,750
School Busses (0.5%)
1,500,000 Blue Bird Acquisition Corp. sub. deb. 11-3/4s, 2002 1,605,000
Communications (0.4%)
2,450,000 Panamsat L.P. sr. sub. notes stepped-coupon zero % (11-3/8s, 8/1/98), 2003 (d) 1,494,500
Real Estate (0.4%)
700,000 Kearny Street Real Estate sec. notes 9.56s, 2003 717,500
800,000 Scotsman Group Inc. sr. secd. notes 9-1/2s, 2000 768,000
1,485,500
Electric Utilities (0.4%)
1,383,268 Midland Cogeneration Venture L.P. sr. deb. 10.33s, 2002 1,424,766
Lodging (0.4%)
500,000 John Q. Hammons Hotels 1st mtge. 8-7/8s, 2004 462,500
1,000,000 Red Roof Inns sr. notes 9-5/8s, 2003 (b) 960,000
1,422,500
Environmental Control (0.3%)
$1,250,000 Envirosource, Inc. sr. notes 9-3/4s, 2003 $ 1,175,000
Machinery (0.3%)
1,000,000 Specialty Equipment Co. sr. sub. notes 11-3/8s, 2003 1,020,000
Telephone Services (0.3%)
1,500,000 MFS Communications sr. disc. notes stepped-coupon zero%
(9-3/8s, 1/15/99), 2004 (d) 892,500
Apparel (0.2%)
750,000 Guess Jeans, Inc. sr. sub. notes 9-1/2s, 2003 753,750
Building Products (0.2%)
16,000 American Standard, Inc. sub. disc. deb. 14-1/4s, 2003 16,480
500,000 Triangle Pacific Corp. sr. notes 10-1/2s, 2003 510,000
526,480
Gas (0.2%)
500,000 TransTexas Gas Corp. sr. secd. notes 10-1/2s, 2000 510,000
Computers (0.1%)
2,884,000 DR Holdings Inc. sr. sub. deb. 15-1/2s, 2002 (e) 490,280
Medical Supplies (0.1%)
350,000 Wright Medical Technology Inc. sr. secd. notes Ser. B, 10-3/4s, 2000 (b) 353,500
Total Corporate Bonds and Notes
(cost $135,644,405) $135,372,043
</TABLE>
Foreign Bonds and Notes (23.2%)(a)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Principal Amount Value
ARA 4,000,000 Argentina (Government of) bonds zero %, 2002 (g) $ 2,617,500
A$ 5,970,000 Australia (Government of) bonds 7-1/2s, 2005 (g) 4,033,481
US$ 1,000,000 Czechoslovakia National Bank bonds 7s, 1996 1,006,250
KRN 30,600,000 Denmark (Government of) bonds 9s, 2000 (g) 5,221,125
KRN 11,300,000 Denmark (Government of) bonds 8s, 2003 (g) 1,850,375
FM 7,000,000 Finland (Republic of) notes 11s, 1999 (g) 1,474,375
FM 2,000,000 Finland (Government of) bonds 9-1/2s, 2004 (g) 407,500
ECU 10,300,000 France (Government of) Oat 6s, 2004 (g) 11,130,438
FR 13,000,000 France (Government of) Balladurs 6s, 1997 (g) 2,283,125
DM 3,000,000 Germany (Republic of) bonds 7-1/8s, 2003 (g) 1,861,875
CHF 3,000,000 Hungary National Bank bonds 7-1/4s, 2000 (g) 2,176,875
US$ 1,500,000 Ispat Mexicana, deb. 10-3/8s, 2001 (b) 1,445,625
ITL 800,000,000 Italy (Government of) bonds 11-1/2s, 2003 (g) 553,000
ITL 11,345,000,000 Italy (Government of) bonds 9s, 1998 (g) 7,062,263
(yen) 287,000,000 Japan (Government of) bonds 4.9s, 2003 (g) 2,965,069
(yen) 996,000,000 Japan (Government of) BTPS 4.8s, 2002 (g) 10,196,550
US$ 2,000,000 Mexico (Government of) notes 10s, 1999 2,075,000
US$ 1,000,000 Mexico (Government of) notes, 4.563s, 1999 (b) 995,000
SEK 11,900,000 Sweden (Government of) bonds 11s, 1999 (g) 1,718,063
SEK Statens Bostads 11s,
12,100,000 1999 (g) 1,701,563
SEK 4,300,000 Sweden (Government of) bonds 10-1/4s, 2003 (g) 626,188
US$ 1,000,000 Tele-Argen bonds 8-3/8s, 2000 (b) $ 943,750
US$ 1,000,000 Tele-Argen bonds 8-3/8s, 2000 967,500
(pound) 4,720,000 United Kingdom Treasury bonds 9-1/2s, 2004 (g) 7,908,950
(pound) 1,305,000 United Kingdom Treasury notes 9s, 2000 (g) 2,081,475
(yen) 300,000,000 World Bank bonds 4-1/2s, 2003 (g) 3,015,000
Total Foreign Bonds and Notes (cost $79,426,307) $78,317,915
</TABLE>
U.S. Government and Agency Obligations (22.9%)(a)
<TABLE>
<CAPTION>
<S> <C> <C>
Principal Amount Value
$ 20,358 Federal National Mortgage Association 8-1/2s, dwarfs, March 1, 2006 $ 21,121
5,050,000 Federal National Mortgage Association TBA, 7s, April 14, 2024 (h) 4,841,687
8,210,979 Federal National Mortgage Association 7s, with various due dates to February 1, 2024 7,872,271
265,858 Federal National Mortgage Association 4-3/4s, March 15, 2000 265,360
5,891,169 Government National Mortgage Association 9s, with various due dates to February 15,
2024 6,250,149
4,824,206 Government National Mortgage Association 7-1/2s, with various due dates to February
15, 2024 4,741,289
12,462,055 Government National Mortgage Association 7s, with various due dates to March 15,
2024 11,881,780
4,418,314 Government National Mortgage Association 6-1/2s, with various due dates to February
15, 2024 4,063,468
1,420,000 U.S. Treasury Notes 7-7/8s, April 15, 1998 1,511,856
2,075,000 U.S. Treasury Notes 7-3/8s, May 15, 1996 2,159,297
$ 6,210,000 U.S. Treasury Notes 6s, November 30, 1997 $ 6,221,644
4,400,000 U.S. Treasury Notes 5-3/4s, August 15, 2003 4,066,563
12,090,000 U.S. Treasury Notes 5-3/4s, October 31, 1997 12,025,772
4,855,000 U.S. Treasury Notes 5-1/8s, December 31, 1998 4,639,559
4,450,000 U.S. Treasury Notes 4-1/8s, June 30, 1995 4,416,625
2,250,000 U.S. Treasury Notes 4s, January 31, 1996 2,206,406
Total U.S. Government and Agency Obligations (cost $79,967,637) $77,184,847
</TABLE>
Units (1.9%)(a)
<TABLE>
<CAPTION>
<S> <C> <C>
Number of Units Value
735,000 Axia, Inc. units 11.00s, 2001 (b) $ 727,650
300,000 Capital Gaming Inc. sr. secd. units 11-1/2s, 2001 (b) 354,000
500,000 Chesapeake Energy Corp. deb. units 12s, 2001 (b) 500,000
1,200,000 County Seat Stores sr. sub. units 12s, 2001 1,176,000
800,000 Elsinore Corp. 1st mtge. units 12-1/2s, 2000 (b) 736,000
1,350,000 ICF Kaiser International Inc. sr. sub. units 12s, 2003 1,363,500
93,212 IFINT Diversified Holdings sub. deb. units 12.5135s, 1998 (acquired 3/29/93, cost
$93,212)(f) 95,542
215,000 Louisiana Casino Cruises Corp. sr. sub. deb. units 11-1/2s, 1998 (b) 219,300
500,000 Miles Homes units 12s, 2001 500,000
40,000 Page Mart Inc. sr. disc. units stepped-coupon zero % (12-1/4s, 11/1/98), 2003 (b)(d) 248,800
21,000 Pyramid Commerce units $3.125 pfd. (b) 535,500
$2,000,000 Santa Fe Hotel, Inc. units 11s, 2000 $ 202,500
Total Units (cost $6,594,537) $6,658,792
</TABLE>
Common Stocks (1.1%)(a)
<TABLE>
<CAPTION>
<S> <C> <C>
Number of Shares Value
8,759 American Restaurant Group, Inc. (b) $ 35,037
127,300 Applause Enterprises Inc. (13,300 shares acquired 1/17/89, cost $340,795; 114,000
shares acquired 6/7/89, cost $3,000,000)(e)(f) 31,825
122 CDK Holding Corp. rights (acquired 10/31/88, cost $6,881)(e)(f) 3,752
58,021 Charter Medical Corp.(e) 1,443,272
8,204 Computervision Corp. (acquired 8/24/92, cost $73,836)(f) 26,919
33,334 Federated Department Stores Inc.(e) 733,348
10,175 Grand Casinos, Inc.(e) 279,813
4,827 Kendall International, Inc.(e) 191,873
35,327 Lady Luck Gaming Corp.(e) 254,354
117,370 Loehmanns' Holdings, Inc.(b)(e) 117,370
464 PMI Holdings Corp. 32,480
214 Premium Holdings L.P.(b) 21,400
53,619 SPI Holdings Inc. Class B(e) 281,500
81,197 Solon Automated Services, Inc. (acquired 6/18/92, cost $48,488)(e)(f) 50,748
17,250 Specialty Foods Corp. (e) 30,188
3,499 Taj Mahal Holding Corp. Class A(e) 76,978
15,000 Triangle Pacific Corp.(e) 196,875
Total Common Stocks
(cost $6,162,342) $3,807,732
</TABLE>
Yankee Bonds and Notes (1.1%)(a)
<TABLE>
<CAPTION>
<S> <C> <C>
Principal Amount Value
$2,000,000 Banco de Galicia Inc. global notes 9s, 2003 $1,808,750
2,000,000 Hungary National Bank bonds 7.95s, 2003 1,780,000
Total Yankee Bonds and Notes (cost $4,044,360) $3,588,750
</TABLE>
Asset-Backed Securities (0.3%)(a) (cost $1,072,648)
<TABLE>
<CAPTION>
<S> <C> <C>
Principal Amount Value
$1,075,000 First Deposit Master Trust Ser. 93-2A, 5-3/4s, 2001 $1,050,141
</TABLE>
Preferred Stocks (0.3%)(a) (cost $903,125)
<TABLE>
<CAPTION>
<S> <C> <C>
Number of Shares Value
25,000 National Intergroup Corp. Ser. A, $4.2 exch. pfd. (c) $912,500
</TABLE>
Warrants (0.2%)(a)(e)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Number Expiration
of Warrants Date Value
32,500 Becker Gaming Corp. (b) 11/15/00 $113,750
150 Belle Casinos Inc. 10/15/03 6,000
203 CDK Holding Corp. Class A
(acquired 10/31/88, cost $11,388)(f) 7/7/99 6,242
217 CDK Holding Corp. Class B
(acquired 10/31/88, cost $6,090)(f) 7/7/99 6,239
750 Capital Gaming 2/1/99 1,500
1,387 Casino America Inc. 11/15/96 4,854
10,800 Casino Magic Finance Corp. 10/14/96 21,600
5,159 Cinemark Mexico 8/1/03 47,721
1,000 Fitzgerald Gaming 3/15/99 60,000
65,655 Gaylord Container Corp.
(acquired 12/2/93,
cost $179,949)(f) 7/31/95 221,586
1,750 Payless Cashways, Inc. 11/1/96 33,250
1,500 President Riverboat Casinos 9/15/96 4,500
12,500 Southdown, Inc. (acquired 10/31/91, cost $37,500)(f) 11/1/96 115,625
4,901 Southland Corp. 3/5/96 12,253
100 Wright Medical Technology Inc. 6/30/03 10,024
Total Warrants (cost $570,994) $665,144
</TABLE>
Call Options On Foreign Currency (0.1%)(a)
Expiration Strike
Currency Date Price Value
DM 16,600,000 Deutschemarks Jun/94 DM/1.725 $170,980
DM 9,700,000 Deutschemarks Jun/94 DM/1.725 91,180
DM 4,000,000 Deutschemarks Jul/94 DM/1.685 96,400
Total Call Options On Foreign
Currency (cost $574,536) $358,560
Collateralized Mortgage Obligations (0.1%)(a)(i)
(cost $171,452)
<TABLE>
<CAPTION>
<S> <C>
Principal Amount Value
$743,979 Federal National Mortgage Association Interest Only Strips SMBS Trust Ser. 5-2,
7-1/2s, 2007 $194,365
</TABLE>
Put Options On Foreign Currency (--%)(a) (cost $88,330)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Currency Expiration Date/
Strike Price Value
(yen) 12,100,000 Japanese Yen Apr 94/100 $67,760
</TABLE>
Call Options On Cross Forward Currency Contracts(--%)(a) (cost $24,808)
Expiration
Number In Exchange Date/
of Contracts for Strike Price Value
8,500 Deutschemarks French Francs Jun 94/3.4125 $24,650
Call Options On Foreign Bonds (--%)(a)(g)
(cost $46,260)
<TABLE>
<CAPTION>
Expiration
Number Date/
of Contracts Strike Price Value
<S> <C> <C> <C>
22,000 France Treasury Bonds 6-3/4s Apr 94/107.18 $--
</TABLE>
Short-Term Investments (10.7%)(a)
Principal Amount Value
GRD 199,000,000 Greece Treasury bills
zero%, February 14,
1995(g) $ 685,306
GRD 100,000,000 Greece Treasury bills
zero%, May 17, 1994(g) 395,625
GRD 270,000,000 Greece Treasury bills
zero%, May 31, 1994(g) 1,059,750
US$ 33,827,000 Interest in
$388,043,000 repurchase
agreement dated March
31, 1994 with Bankers
Trust due April 4, 1994
with respect to various
U.S. Treasury
obligations--maturity
value of $33,840,343
for an effective yield
of 3.55% 33,830,336
Total Short-Term
Investments (cost
$36,165,794) $ 35,971,017
Total Investments
(cost $351,457,535)(j) $344,174,216
Notes
(a) Percentages indicated are based on net assets of $337,362,841, which
correspond to a net asset value per share of $8.65.
(b) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. As of March 31,
1994 these securities amounted to $28,629,647 or 8.5% of net assets.
(c) Income may be received in cash or additional securities at the discretion
of the issuer.
(d) The interest rate and date shown parenthetically represent the new
interest rate to be paid and the date the fund will begin accruing this rate.
(e) Non-income-producing security.
(f) Restricted, excluding 144A securities, as to public resale. At the date
of acquisition, these securities were valued at cost. There were no
outstanding unrestricted securities of the same class as those held. Total
market value of restricted securities owned at March 31, 1994 was $1,958,513
or 0.6% of net assets.
(g) Foreign currency-denominated. Market value is translated at the current
exchange rate.
TBA Sale Commitments at March 31, 1994
(proceeds receivable $4,046,612)
Principal Delivery Coupon Market
Agency Amount Month Rate Value
GNMA $4,046,612 Apr/94 6-1/2 $4,046,612
(h) TBA's are mortgage backed securities traded under delayed delivery
commitments settling after March 31, 1994. 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 March 31, 1994 was $4,841,687.
(i) Interest Only (IO) Strips represent the right to receive the monthly
interest payments on an underlying pool of mortgage loans. Nominal payments
of principal on the pool are passed through to IO holders.
(j) The aggregate identified cost on a tax basis is $351,606,435, resulting
in gross unrealized appreciation and depreciation of $8,889,367 and
$16,321,586, respectively, or net unrealized depreciation of $7,432,219.
The accompanying notes are an integral part of these financial statements.
Cross Forward Currency Contracts Outstanding
at March 31, 1994 (aggregate face value $4,082,442)
In
Market Exchange Market Delivery Unrealized
Contracts Value For Value Date Depreciation
Deutschemarks French
(Buy) $4,065,040 Francs $4,107,789 5/31/94 $(42,749)
Forward Currency Contracts Outstanding
at March 31, 1994 (aggregate face value $43,226,432)
Aggregate Unrealized
Market Face Delivery Appreciation/
Value Value Date (Depreciation)
Australian
Dollars
(Sell) $1,610,690 $1,623,685 5/25/94 $ 12,995
Australian
Dollars
(Sell) 1,610,230 1,617,700 5/31/94 7,470
Deutschemarks
(Sell) 3,570,000 3,571,811 6/30/94 1,811
Deutschemarks
(Sell) 8,158,350 8,129,599 6/6/94 (28,751)
Deutschemarks
(Sell) 4,466,250 4,449,982 6/6/94 (16,268)
Deutschemarks
(Sell) 8,158,350 8,119,361 6/6/94 (38,989)
Japanese Yen
(Sell) 2,632,365 2,566,967 5/16/94 (65,398)
Japanese Yen
(Sell) 4,198,563 4,076,216 6/16/94 (122,347)
Japanese Yen
(Sell) 3,510,000 3,397,509 5/17/94 (112,491)
Japanese Yen
(Sell) 4,292,728 4,144,258 5/31/94 (148,470)
Japanese Yen
(Sell) 1,559,568 1,529,344 5/11/94 (30,224)
$(540,662)
Diversification of Foreign Bonds And Notes at March 31, 1994 (as a percentage
of net assets):
Japan 4.8%
Multi-National 3.3
United Kingdom 3.0
Italy 2.3
Denmark 2.1
Australia 1.2
Sweden 1.2
Argentina 0.8
France 0.7
Germany 0.6
Finland 0.6
Hungary 0.6
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of
assets and liabilities
March 31, 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Assets Investments in securities, at value (identified cost
$351,457,535) (Note 1) $344,174,216
Interest and other receivables 6,310,841
Receivable for securities sold 13,944,450
Receivable for open forward currency contracts 22,276
Receivable for closed forward currency contracts 461,250
Total assets 364,913,033
Liabilities Payable to subcustodian bank (Note 2) $ 134,655
Payable for securities purchased 18,971,799
Distributions payable to shareholders 2,157,836
Payable for compensation of Manager (Note 2) 647,047
Payable for administrative services (Note 2) 2,857
Payable for compensation of Trustees (Note 2) 619
Payable for investor servicing and custodian fees (Note 2) 37,478
Payable for open forward currency contracts 605,687
Payable for closed forward currency contracts 873,550
Other accrued expenses 72,052
TBA sale commitment, at value (proceeds receivable $4,046,612) 4,046,612
Total liabilities 27,550,192
Net assets $337,362,841
Represented by Paid-in capital (Notes 1, 4 and 5) $367,492,085
Distributions in excess of net investment income (9,226,976)
Accumulated net realized loss on investment transactions (13,035,537)
Net unrealized foreign currency translation gains 4,642
Net unrealized depreciation of investments, options and forward
currency contracts (7,871,373)
Total--Representing net assets applicable to capital
shares outstanding $337,362,841
Computation of Net asset value per share
net asset value ($337,362,841 divided by 39,005,338 shares) $8.65
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of
operations
Six months ended March 31, 1994
<TABLE>
<CAPTION>
<S> <C> <C>
Investment income:
Interest (net of foreign tax of $73,204) $ 13,341,581
Dividends 23,297
Total investment income 13,364,878
Expenses:
Compensation of Manager (Note 2) $1,305,820
Investor servicing and custodian fees (Note 2) 68,244
Compensation of Trustees (Note 2) 8,236
Auditing 46,836
Legal 8,844
Administrative services (Note 2) 2,968
Exchange listing fees 16,898
Other 29,871
Total expenses 1,487,717
Net investment income 11,877,161
Net realized gain on investments (Notes 1 and 3) 5,143,253
Net realized loss on options (Notes 1 and 3) (157,705)
Net realized loss on forward currency contracts
(Notes 1 and 3) (1,172,053)
Net realized loss on foreign currency (Note 1) (77,522)
Net unrealized foreign currency translation losses (50,852)
Net unrealized depreciation of investments, options and
forward currency contracts during the period (12,363,015)
Net loss on investment transactions (8,677,894)
Net increase in net assets resulting from operations $ 3,199,267
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of
changes in net assets
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Six months
ended Year ended
March 31 September 30
1994 1993
Increase in net assets Operations:
Net investment income $ 11,877,161 $ 26,691,182
Net realized gain on investments 5,143,253 4,761,624
Net realized gain (loss) on options (157,705) 9,035
Net realized gain (loss) on forward currency contracts (1,172,053) 10,507,915
Net realized loss on foreign currency (77,522) (46,653)
Net unrealized foreign currency translation gains
(losses) (50,852) 60,976
Net unrealized depreciation of investments, options and
forward currency contracts (12,363,015) (4,314,035)
Net increase in net assets resulting from operations 3,199,267 37,670,044
Distributions to shareholders from:
Net investment income (13,456,805) (26,691,182)
In excess of net investment income -- (3,229,465)
Total increase (decrease) in net assets (10,257,538) 7,749,397
Net assets Beginning of period 347,620,379 339,870,982
End of period (including distributions in excess of net
investment income of $9,226,976 and $3,229,465,
respectively) $337,362,841 $347,620,379
Number of fund shares Shares outstanding at beginning of period 39,005,338 39,005,338
Shares outstanding at end of period 39,005,338 39,005,338
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Financial Highlights*
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the period
April 29, 1988
Six (commencement
months of operations)
ended to
March 31 Year ended September 30 September 30
1994 1993 1992 1991 1990 1989 1988**
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $ 8.91 $ 8.71 $ 8.16 $ 7.60 $ 8.62 $ 9.27 $ 9.29
Investment Operations
Net Investment Income .30 .68 .74 .76 .84 .97 .38
Net Realized and Unrealized Gain
(Loss) on Investments (.22) .29 .63 .67 (.91) (.55) (.06)
Total from Investment Operations .08 .97 1.37 1.43 (.07) .42 .32
Less Distributions from (a):
Net Investment Income (.34) (.68) (.74) (.76) (.85) (.99) (.34)
Excess of Net Investment Income -- (.09) -- -- -- -- --
Net Realized Gain on Investments -- -- -- -- (.08) (.08) --
Paid-in Capital -- -- (.08) (.11) (.02) -- --
Total Distributions (.34) (.77) (.82) (.87) (.95) (1.07) (.34)
Net Asset Value, End of Period $ 8.65 $ 8.91 $ 8.71 $ 8.16 $ 7.60 $ 8.62 $ 9.27
Market Value, End of Period $ 7.750 $ 8.375 $ 8.500 $ 7.750 $ 6.375 $ 8.375 $ 9.250
Total Investment Return at
Market Value (%) (b) (7.00)(c) 7.89 21.13 36.82 (13.29) 1.92 (9.64)(c)
Net Assets at End of Period (in
thousands) $337,363 $347,620 $339,871 $317,747 $301,613 $345,931 $371,282
Ratio of Expenses to Average Net
Assets (%) .86(c) .96 .98 1.08 1.04 1.04 .92(c)
Ratio of Net Investment Income
to Average Net Assets (%) 6.84(c) 7.83 8.76 9.65 10.40 10.61 9.79(c)
Portfolio Turnover (%) 141.92(d) 237.63 134.43 204.31 211.22 202.47 33.18(d)
</TABLE>
*Financial highlights for periods ended through September 30, 1992 have been
restated to conform with requirements issued by the SEC in December, 1992.
**Activity for the period from March 10, 1988 to April 28, 1988 is not
included.
(a) See Note 1 to Financial Statements.
(b) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(c) Annualized.
(d) Not annualized.
The accompanying notes are an integral part of these financial statements.
<PAGE>
Notes to
financial statements
March 31, 1994
Note 1 Significant accounting policies
The Fund is registered under the Investment Company Act of 1940, as amended,
as a diversified, closed-end management investment company. The Fund's
investment objective is to seek, with equal emphasis, high current income and
relative stability of net asset value, by allocating its investments among
the U.S. government sector, high-yield sector and international sector.
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.
TBA sale commitments The Fund may enter into TBA sale commitments to hedge
its portfolio positions or to sell mortgage-backed securities it owns under
delayed delivery arrangements. Proceeds of TBA sale commitments are not
received until the contractual settlement date. During the time a TBA sale
commitment is outstanding, equivalent deliverable securities, or an
offsetting TBA purchase commitment deliverable on or before the sale
commitment date, are held as "cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of the
underlying securities, generally according to the procedures described under
"Security valuation" above. The contract is "marked-to-market" daily and the
change in market value is recorded by the Fund as an unrealized gain or loss.
If the TBA sale commitment is closed through the acquisition of an offsetting
purchase commitment, the Fund realizes a gain or loss on the commitment
without regard to any unrealized gain or loss on the underlying security. If
the Fund delivers securities under the commitment, the Fund realizes a gain
or loss from the sale of the securities based upon the unit price established
at the date the commitment was entered into.
C) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund may transfer uninvested cash
balances into a joint trading account, along with the cash of other
registered investment companies managed by Putnam Investment Management Inc.
"Putnam Management", the Fund's Manager, a wholly-owned subsidiary of Putnam
Investments, Inc. and certain other accounts. These balances may be
invested in one or more repurchase agreements and/or short-term money market
instruments.
D) Repurchase agreements The Fund, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value
of which at the time of purchase is required to be in an amount at least
equal to the resale price, including accrued interest. The Fund's Manager is
responsible for determining that the value of these underlying securities is
at all times at least equal to the resale price, including accrued interest.
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 and
stepped-coupon bonds is accreted according to the effective yield method.
Certain securities held by the Fund pay interest in the form of additional
securities; interest on such securities is recorded on the accrual basis at
the lower of the coupon rate or market value of the securities to be
received, and is allocated to the cost of the securities received on the
payment date.
Foreign currency-denominated receivables and payables are "marked-to-market"
using the current exchange rate. The fluctuation between the original
exchange rate and the current exchange rate is recorded as an unrealized
translation gain or loss. Upon receipt or payment, the Fund realizes a gain
or loss on foreign currency amounting to the difference between the original
value and the ending value of the receivable or payable. Foreign currency
gains or losses related to interest receivable are reported as part of
interest income.
F) Option accounting principles When the Fund writes a call or put option, an
amount equal to the premium received by the Fund is included in the Fund's
"Statement of assets and liabilities" as an asset and an equivalent
liability. The amount of the liability is subsequently "marked-to-market" to
reflect the current market value of the option written. The current market
value of an option is the last sale price or, in the absence of a sale, the
last offering price. If an option expires on its stipulated expiration date,
or if the Fund enters into a closing purchase transaction, the Fund realizes
a gain or loss if the cost of a closing purchase transaction exceeds the
premium received when the option was written without regard to any unrealized
gain or loss on the underlying security, and the liability related to such
option is extinguished. If a written call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security and the
proceeds of the sale are increased by the premium originally received. If a
written put option is exercised, the amount of the premium originally
received reduces the cost of the security that the Fund purchases upon
exercise of the option.
The Fund writes covered call options; that is, options for which it holds the
underlying security or its equivalent. Accordingly, the risk in writing a
call option is that the Fund relinquishes the opportunity to profit if the
market price of the underlying security increases and the option is
exercised. In writing a put option, the Fund assumes the risk of incurring a
loss if the market price of the underlying security decreases and the option
is exercised.
The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's "Statement of assets and liabilities" as an investment
and subsequently "marked-to-market" to reflect the current market value of
the option. If an option 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 the 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.
Options on foreign currencies The Fund writes and purchases put and call
options on foreign currencies. The accounting principles and risks involved
are similar to those described above relating to options on securities. The
amount of potential loss to the Fund upon exercise of a written call option
is the value (in U.S. dollars) of the currency sold, converted at the spot
price, less the value of the U.S. dollars received in exchange. The amount of
potential loss to the Fund upon exercise of a written put option is the value
(in U.S. dollars) of the currency received converted at the spot price, less
the value of the U.S. dollars paid in exchange.
Options on futures Options on futures generally operate in the same manner as
options purchased or written directly on the underlying debt securities. The
Fund is required to deposit, in a manner similar to futures contracts as
described below, "initial margin" and "variation margin" with respect to put
and call options written on futures contracts. In addition, upon exercise,
net premiums will decrease the unrealized loss or increase the unrealized
gain on the future. The writing of an option on a futures contract involves
risk similar to those described below relating to the sale of such contracts.
Futures A futures contract is an agreement between two parties to buy and
sell a security at a set price on a future date. Upon entering into such a
contract the Fund is required to pledge to the broker an amount of cash or
U.S. government securities equal to the minimum "initial margin" requirements
of the exchange. Pursuant to the contract, the Fund agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation in value
of the contract. Such receipts or payments are known as "variation margin,"
and are recorded by the Fund as unrealized gains or losses. When the contract
is closed, the Fund records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at
the time it was closed. The potential risk to the Fund is that the change in
value of the underlying securities may not correspond to the change in value
of the futures contracts.
Forward currency contracts A forward currency contract is an agreement
between two parties to buy and sell a currency at a set price on a future
date. The market value of the contract will fluctuate with changes in
currency exchange rates. The contract is "marked-to-market" daily and the
change in market value is recorded by the Fund as an unrealized gain or loss.
When the contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it was opened
and the value at the time it was closed. The maximum potential loss from such
contracts is the aggregate face value in U.S. dollars at the time the
contract was opened; however, management believes the likelihood of such loss
to be remote.
G) Federal taxes It is the policy of the Fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the Fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986. Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation of securities held and excise tax on
income and capital gains.
At September 30, 1993, the Fund had approximately $16,592,918 in capital loss
carryovers available to offset future realized capital gains, if any. This
amount will expire on September 30, 1999. In order to provide more level
monthly distributions, the Fund may at times pay distributions from net
realized short-term gains that could have been retained by the Fund and
offset by the capital loss carryover. In such circumstances, the Fund would
lose the benefit of the carryover.
H) Distributions to shareholders Distributions to shareholders are recorded
by the Fund on the ex-dividend date. At certain times, the Fund may pay
distributions at a level rate even though, as a result of the market
conditions or investment decisions, the Fund may not achieve projected
investment results for a given period. Based on investment results for the
year ended September 30, 1993, $0.09 of per share distributions has been
designated as distributions in excess of net investment income. Also, based
on investment results for the year ended September 30, 1992 and the year
ended September 30, 1991, $0.08 and $0.11, respectively of per share
distributions has been designated as distributions from paid in capital for
financial reporting purposes.
Note 2 Management fee, administrative services, and other transactions
Compensation of Putnam Management for management and investment advisory
services is paid quarterly based on the average weekly net assets of the
Fund. Such fee is based on the following annual rates: 0.75% of the first
$500 million of average weekly net assets, 0.65% of the next $500 million,
0.60% of the next $500 million and 0.55% of any amount over $1.5 billion.
The Fund also reimburses the Manager for the compensation and related
expenses of certain officers of the Fund and their staff who provide
administrative services to the Fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees. For the six months
ended March 31, 1994, the Fund incurred $2,968 for these services.
Trustees of the Fund receive an annual Trustee's fee of $930 and an
additional fee for each Trustees' meeting attended. Trustees who are not
interested persons of the Manager and who serve on committees of the Trustees
receive additional fees for attendance at certain committee meetings.
Custodial functions for the Fund's assets are being provided to the Fund by
Putnam Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments,
Inc. Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC. Fees paid for these investor servicing and
custodial functions for the six months ended March 31, 1994, amounted to
$68,244.
Investor servicing and custodian fees reported in the Statement of operations
for the six months ended March 31, 1994 have been reduced by credits allowed
by PFTC.
As part of the Custodial Contract between the subcustodian bank and PFTC, the
subcustodian bank has a lien on the securities of the Fund to the extent
permitted by the Fund's investment restrictions to cover any advances made by
the subcustodian bank for the settlement of securities purchased by the Fund.
At March 31, 1994, the payable to subcustodian bank represents the amount due
for cash advanced for the settlement of a security purchased.
Note 3 Purchases and sales of securities
During the six months ended March 31, 1994, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $222,857,378 and $217,142,886, respectively. Purchases and sales
of U.S. government obligations aggregated $246,967,394 and $266,437,185,
respectively. In determining the net gain or loss on securities sold, the
cost of securities has been determined on the identified cost basis.
Written option transactions on foreign currencies during the period are
summarized as follows:
Premiums
Received
Outstanding at beginning of period --
Options written $ 89,827
Options closed (89,827)
Written options outstanding at end of
period --
Purchased option transactions on foreign currencies during the period are
summarized as follows:
Cost
Outstanding at beginning of period $ 566,128
Options purchased 1,893,848
Options sold (1,726,042)
Purchased options outstanding at end of
period $ 733,934
Transactions in forward currency contracts during the period are summarized
as follows:
Sales of Forward Currency
Contracts
Aggregate
Face Value
Contracts outstanding at beginning of
period $ 53,203,789
Contracts opened 273,979,258
Contracts closed (283,956,615)
Open at end of period $ 43,226,432
<TABLE>
<CAPTION>
Purchases of Forward Currency
Contracts
Aggregate
Face Value
<S> <C>
Contracts outstanding at beginning of
period $ 11,114,051
Contracts opened 120,145,347
Contracts closed (127,176,956)
Open at end of period $ 4,082,442
</TABLE>
Note 4 Reclassification of Capital Accounts
Effective October 1, 1993, Putnam Master Intermediate Income Trust has
adopted the provisions of Statement of Position 93-2 "Determination,
Disclosure and Financial Statement Presentation of Income, Capital Gain and
Return of Capital Distributions, by Investment Companies (SOP)." The purpose
of this SOP is to report the accumulated net investment income (loss) and
accumulated net realized gain (loss) accounts in such a manner as to
approximate amounts available for future distributions (or to offset future
realized capital gains) and to achieve uniformity in the presentation of
distributions by investment companies.
As a result of the SOP, the Fund has reclassified $4,417,867 to increase
distributions in excess of net investment income and $6,166,061 to increase
accumulated net realized loss with an increase of $10,583,928 to additional
paid in capital.
These adjustments represent the cumulative amounts necessary to report these
balances through September 30, 1993, the close of the Fund's most recent
fiscal year end for financial reporting and tax purposes.
Note 5 Share Repurchase Program
The Trustees authorized the Fund to repurchase up to 2,000,000 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 is
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.
Through March 31, 1994 the Fund repurchased 1,164,500 of its shares for a
total of $7,752,414.
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 net investment income and net realized short-term
capital gains that the Fund is likely to earn over the long term.
At the time of each distribution, shareholders are furnished Putnam
Management's current estimate of the sources of such distribution. These
estimates are subject to adjustment depending on investment results for the
Fund's entire fiscal year. Final information regarding such matters is
furnished to shareholders in the Fund's annual reports and in tax information
provided following the end of each calendar year.
Selected
Quarterly
Data
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March December September June March December September June March December
31 31 30 30 31 31 30 30 31 31
1994 1993 1993 1993 1993 1992 1992 1992 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total
investment
income
Total $6,656,480 $6,708,398 $7,041,930 $7,195,247 $7,645,047 $8,072,454 $7,983,834 $7,987,880 $7,292,780 $8,632,922
Per
Share $.17 $.17 $.18 $.18 $.20 $.21 $.21 $.20 $.19 $.22
Net
investment
income
Total $5,943,501 $5,933,660 $6,242,378 $6,358,207 $6,824,852 $7,265,745 $7,176,693 $7,188,886 $6,477,492 $7,856,690
Per
Share $.15 $.15 $.16 $.16 $.17 $.19 $.19 $.18 $.17 $.20
Net
realized
and
unrealized
gain
(loss)
on
investments
Total $(12,399,006) $3,721,112 $1,922,543 $6,426,875 $8,329,706 $(5,700,262) $9,274,206 $6,449,757 $(288,221) $9,545,788
Per
Share $(.32) $.10 $.05 $.17 $.21 $(.15) $.23 $.16 $(.01) $.25
Net
increase
(decrease)
in net
assets
resulting
from
operations
Total $(5,825,505) $9,024,772 $8,164,921 $12,785,082 $15,154,558 $1,565,483 $16,450,899 $13,638,643 $6,189,271 $17,402,478
Per
Share $(.15) $.23 $.21 $.33 $.39 $.04 $.42 $.34 $.16 $.45
Net
assets
at end
of
period
Total $337,362,841 $350,096,781$347,620,379$346,281,167$340,516,994$332,383,362 $339,870,982$330,919,590$325,170,202 $326,870,196
Per
Share $8.65 $8.98 $8.91 $8.88 $8.23 $8.52 $8.71 $8.49 $8.35 $8.39
</TABLE>
<PAGE>
Fund
performance
supplement
Putnam Master Intermediate Income Trust is a portfolio managed for high
current income and relative stability of net asset value through U.S.
government, high-yield and international fixed income securities with limited
maturities. The fund invests in lower-rated, higher-yielding securities,
which may pose a greater risk to principal than higher rated securities.
High-yield securities are rated lower than investment-grade securities
because there is a greater possibility that negative changes in the issuer's
financial condition, or in general economic conditions, may hinder the
issuer's ability to pay principal and interest on securities.
The Consumer Price Index is a commonly used measure of inflation; it does not
represent an investment return.
The fund performance supplement has been prepared by Putnam Management to
provide additional information about the fund and the indexes used for
performance comparisons. The information is not part of the portfolio of
investments owned or the financial statements.
<PAGE>
Your
Trustees
George Putnam
Chairman
Chairman and President,
The Putnam Funds
William F. Pounds
Vice Chairman
Professor of Management,
Alfred P. Sloan
School of Management,
Massachusetts Institute of
Technology
Jameson Adkins Baxter
President,
Baxter Associates, Inc.
Hans H. Estin
Vice Chairman,
North American
Management Corporation
John A. Hill
Principal and
Managing Director,
First Reserve Corp.
Elizabeth T. Kennan
President,
Mount Holyoke College
Lawrence J. Lasser
President and
Chief Executive Officer,
Putnam Investments, Inc.
Robert E. Patterson
Executive Vice President,
Cabot Partners
Limited Partnership
Donald S. Perkins
Director of various
corporations
George Putnam, III
President, New Generation
Research, Inc.
A.J.C. Smith
Chairman of the Board
and Chief Executive Officer,
Marsh & McLennan
Companies, Inc.
W. Nicholas Thorndike
Director of various
corporations
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
Putnam
Master
Intermediate
Income
Trust
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
Investor servicing agent
Putnam Investor Services
Mailing address:
P.O. Box 41203
Providence, RI 02940-1203
1-800-225-1581
Custodian
Putnam Fiduciary
Trust Company
Legal counsel
Ropes & Gray
Independent accountants
Coopers & Lybrand
(DALBAR LOGO)
Putnam Investor Services
has received the DALBAR
award each year since
the award's 1990 inception.
In more than 10,000 tests
of 38 shareholder
service components,
Putnam outperformed
the industry standard
in every category.
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
Jennifer Leichter
Vice President
and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul 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.
MII-11906
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
Paid
Boston, MA
Permit No. 53749
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED
AND EDGAR-FILED TEXTS:
(1) Bold and italic typefaces are displayed in normal type.
(2) Headers (e.g., the name of the fund) are omitted.
(3) Certain tabular and columnar headings and symbols are displayed
differently in this filing.
(4) Bullet points and similar graphic signals are omitted.
(5) Page numbering is omitted.
(6) Pound sterling symbol replaced with (pound); Japanese yen replaced
with (yen).
