Putnam Master Intermediate Income Trust
ANNUAL REPORT
September 30, 1994
[LOGO]
BOSTON * LONDON * TOKYO
<PAGE>
Performance highlights
Morningstar noted in its September 9, 1994, analysis that "Putnam
Master Intermediate Income Trust is currently one of the most
appealing offerings in the multisector-bond objective." As of
September 30, 1994, the fund's Morningstar rating has been
upgraded to five stars, the highest ranking available.*
Performance should always be considered in light of a fund's
investment strategy. Putnam Master Intermediate Income Trust is
designed 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.
FISCAL 1994 RESULTS AT A GLANCE
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Total return: NAV Market price
- -----------------------------------------------------------------
12 months ended 9/30/94
(change in value during
period plus reinvested
distributions) -0.47% -5.57%
- -----------------------------------------------------------------
Share value: NAV Market price
- -----------------------------------------------------------------
9/30/93 $8.91 $8.375
9/30/94 8.13 7.250
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment Capital Paid-in
Distributions: No. income gains capital Total
- -----------------------------------------------------------------
12 $0.55 $0.06 $0.08 $0.69
- -----------------------------------------------------------------
<S> <C> <C>
Current return: NAV Market price
- -----------------------------------------------------------------
Current dividend rate(1) 8.49% 9.52%
- -----------------------------------------------------------------
<FN>
Performance data represent past results. For performance over
longer periods, see page 8. (1)Income portion of most recent
distribution, annualized and divided by net asset value or
market price at end of period.
* Morningstar is an independent research firm that rates funds
relative to funds with similar objectives, based on risk-
adjusted 3- and 5-year total return, as applicable, and adjusted
for sales charges. Ratings are updated monthly. A five-star
rating put the fund in the top 10% of rated funds. Past
performance is not indicative of future results.
</TABLE>
<PAGE>
From the Chairman
[PHOTO]
(c) Karsh, Ottawa
Dear Shareholder:
As Putnam Master Intermediate Income Trust completes its sixth
full fiscal year, I am pleased to announce that D. William Kohli,
Andrew J. Dudley, and Mark J. Siegel have joined Jennifer Leichter
in the management of your fund. Jennifer has been the fund's lead
manager since 1989.
Bill, formerly senior vice president and co-director of global
bond management for Franklin Advisors/Templeton Investment
Counsel, is now managing the fund's international fixed-income
holdings. Bill has eight years of investment experience. Andrew,
formerly with J.P. Morgan Securities and Refco, joined Putnam in
1991 and has assumed responsibility for the fund's U.S. government
holdings. Andrew has five years of investment experience. Mark has
11 years of investment experience and joined Putnam in 1993 from
Salomon Brothers International, Ltd. in London. Mark manages the
fund's holdings in emerging markets.
In the following report, your fund's managers discuss the
challenges of fiscal '94 and what they see in store for fiscal
'95.
Respectfully yours,
[Signature]
George Putnam
Chairman of the Trustees
November 16, 1994
<PAGE>
Report from the fund managers
Jennifer E. Leichter, lead manager
D. William Kohli
Andrew Dudley
Mark Siegel
The year's rapidly changing fixed-income markets brought home once
again the value of investing in sectors that respond to different
economic factors. Although declines in Putnam Master Intermediate
Income Trust's U.S. government and international securities could
not be completely offset by the strength of the high-yield sector,
its total return of -0.47% at net asset value for the 12 months
ended September 30, 1994, is respectable in comparison with the
average of the 10 closed-end flexible income funds tracked by
Lipper Analytical Services over this period.*
INTERNATIONAL: DAMPENED RETURNS
The first nine months of 1994 provided a volatile environment for
international fixed-income markets. The cyclical recovery which
began in the United States has expanded and now includes all of
the developed economies of the world. With it has come an increase
in cyclical inflationary pressures, which would typically result
in lower bond prices and higher yields. However, the reaction we
have seen in the global bond markets has been more severe than is
justified by the cyclical pressures.
Over the last few years, as many countries became accustomed to
running large budget and current account deficits, they also have
become accustomed to high levels of dependence on foreign capital.
Countries, like companies, compete for investors' capital. If an
increased supply and lower yields make a country's bonds less
attractive to investors, the country must raise rates until the
bonds become competitive enough to attract foreign capital again.
* Lipper Analytical Services is an independent research firm whose
rankings vary over time and do not include the effects of sales
charges. For the periods ended September 30, 1994, the fund's
shares were ranked 4th out of 10 funds for one year, 7th out of
10 funds for three years, and 6th out of 9 funds for five years.
Past performance is not indicative of future results.
Although higher rates make the countries' bonds more inviting for
new investors, they inevitably mean some loss of value for
existing investors. This occurred with a number of the fund's
international holdings this year. Furthermore, as countries
compete aggressively for capital, prices of safe-harbor
currencies, such as the dollar, may depreciate. Consequently, our
currency hedging strategies, which had been intended to help
protect the value of these holdings relative to the U.S. dollar,
were not effective.
EMERGING MARKETS: EXPANDING POTENTIAL
This year, we began to invest a small portion of the fund's
holdings--approximately 5% of the overall portfolio--in emerging
market securities. Because they are sensitive to emerging country
politics as well as global economics, these markets are volatile.
But we believe they have the potential for rewarding returns. We
are focusing primarily on emerging market bonds that are
denominated in dollars. In addition, we are being highly
selective, emphasizing government issues in countries where we
consider that we have the best understanding of the internal and
external risk factors that can affect bond performance.
U.S. GOVERNMENT: STRATEGIC DEFENSE
Careful yield curve positioning provided some protection for the
U.S. government portfolio during recent interest rate increases.
Early in 1994, anticipating that intermediate-term securities
would be among the hardest hit, we refocused the portfolio into
short-term and longer-term securities. This shortened the average
maturity, thereby reducing interest rate sensitivity and
protecting the value of the fund's holdings.
The tactic ran counter to the fund's normal strategy of investing
primarily in intermediate bonds. The shorter average maturity
provides a measure of defensiveness on an ongoing basis. Our
desire for even more stability during this trying period had a
tradeoff: lower earnings than we had been able to generate in
previous months. As prices of intermediate bonds became attractive
again, we moved the portfolio back toward a more concentrated
position to seek higher income.
Holdings in mortgage-backed securities had been reduced during the
spring's turbulence. However, the signs of strengthening that we
noted in the semiannual report have returned in full force.
Prepayments have declined and the yield spread between mortgage-
backed securities and Treasuries has widened once again.
Consequently, we have built up the fund's position in this sector,
targeting higher-yielding mortgage- sector securities that have a
slightly shorter duration.
HIGH YIELD: UNDERLYING SUPPORT
Over the past three years, your fund's ability to invest in lower-
rated higher-yielding bonds proved invaluable; as the U.S. economy
strengthened, these bonds became the fixed-income market's top
performers.
As the sector strengthened, we built up the fund's weighting to a
peak of 45% this past February. Toward the end of the fiscal year,
however, we became convinced that although high-yield bonds remain
attractive, other opportunities are becoming compelling and may
offer less credit risk. We will seek to take profits on some high-
yield holdings, reduce the fund's dependence on lower-rated bonds
and take full advantage of the opportunities this year's
volatility has created in the U.S. government and international
sectors.
OUTLOOK: BUILDING ON A SOUND STRATEGY
After the fund's year-end financial review, it was determined that
11.3% of the fiscal year's distribution must be classified as a
return of capital and is therefore not taxable to shareholders.
Your Form 1099, which will be mailed in January 1995, will
indicate the exact amount of your distributions not subject to
tax. In addition, you will need to adjust the cost basis of your
shares when you eventually redeem or exchange them. This will
increase any resulting capital gain or decrease any capital loss
you incur at that time.
A return of capital is determined in accordance with federal tax
law. Under the law, certain gains and losses on foreign currency
transactions, which would otherwise be considered capital gains
and losses, must be reclassified as ordinary income. Thus, losses
on these transactions result in a reduction of net investment
income available for distribution. These losses can occur
unpredictably at a point in the year after monthly or quarterly
distributions have already been made, necessitating a
redesignation.
We see a more promising outlook for government and mortgage-backed
securities and attractive opportunities becoming available in the
international bond market. We are positioning the portfolio to
take advantage of these anticipated changes. In closing, we
believe that your fund's relatively modest losses in a year that
severely challenged most fixed- income investments stand as
evidence that its strategy remains an effective and valuable one
for today's income investor.
TOP 3 HOLDINGS PER SECTOR*
- -----------------------------------------------------------------
HIGH-YIELD BONDS
- -----------------------------------------------------------------
Gaylord Container Corp.
- -----------------------------------------------------------------
Viacom International
- -----------------------------------------------------------------
Ivex Packaging Corp.
- -----------------------------------------------------------------
INTERNATIONAL FIXED-INCOME SECURITIES
- -----------------------------------------------------------------
Canada (Government of) bonds 5 3/4s, 1999
- -----------------------------------------------------------------
United Kingdom Treasury bond 9 1/8s, 2001
- -----------------------------------------------------------------
Australia (Government of) bonds 9 1/2s, 2003
- -----------------------------------------------------------------
U.S. GOVERNMENT SECURITIES
- -----------------------------------------------------------------
GNMA 8s
- -----------------------------------------------------------------
U.S. Treasury Notes 3 7/8s
- -----------------------------------------------------------------
U.S. Treasury Notes 5 3/4s
- -----------------------------------------------------------------
* Based on net assets as of 9/30/94. Portfolio holdings will vary
in the future.
<PAGE>
Performance summary
This section provides, at a glance, information about your fund's
performance. Total return shows how the value of the fund's shares
changed over time, assuming you held the shares through the entire
period and reinvested all distributions back into the fund. We
show total return in two ways: on a cumulative long-term basis and
on average how the fund might have grown each year over varying
periods. For comparative purposes, we show how the fund performed
relative to appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDED 9/30/94
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NAV MARKET PRICE
- -----------------------------------------------------------------
1 year -0.47% -5.57%
- -----------------------------------------------------------------
5 years 59.50 46.40
Annual average 9.79 7.92
- -----------------------------------------------------------------
Life of fund (since 4/29/88) 72.61 43.16
Annual average 8.87 5.75
- -----------------------------------------------------------------
</TABLE>
COMPARATIVE INDEXES AND BENCHMARKS
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Salomon Bros.
Lehman Bros. Non-U.S. First Boston Consumer
Government World Govt. High Yield Price
Bond Index Bond Index Index Index
- -----------------------------------------------------------------
1 year -4.04% 5.58% 3.47% 2.96%
- -----------------------------------------------------------------
5 years 48.62 74.28 79.77 19.52
Annual average 8.25 11.75 12.45 3.63
- -----------------------------------------------------------------
Life of fund 70.44 67.06 98.17 27.58
Annual average 8.66 8.32 11.25 3.87
- -----------------------------------------------------------------
<FN>
Performance data represent past results. Investment returns and
net asset value will fluctuate so an investor's shares, when sold,
may be worth more or less than their original cost. Fund
performance data do not take into account any adjustment for taxes
payable on reinvested distributions.
TERMS AND DEFINITIONS
Net asset value (NAV) is the value of all your fund's assets,
minus any liabilities, divided by the number of outstanding 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 in account brokerage fees or
taxes. Securities in the fund do not match those in the indexes
and performance of the fund will differ.
<PAGE>
Report of independent accountants
for the year ended September 30, 1994
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 September 30, 1994, and
the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in
the period then ended, and the "Financial Highlights" for each of
the six years in the period then ended, 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 September 30, 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 September 30, 1994, the results of its
operations for the year then ended, the changes in its net assets
for the each of the two years in the period then ended, and the
"Financial Highlights" for each of the six years in the period
then ended, and for the period April 29, 1988 (commencement of
operations) to September 30, 1988, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
November 17, 1994
<PAGE>
Portfolio of investments owned
September 30, 1994
</TABLE>
<TABLE><CAPTION>
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CORPORATE BONDS AND NOTES (36.7%)(a)
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------
Recreation (2.6%)
- -----------------------------------------------------------------
$ 715,000 Arizona Charlies Corp.
sub. deb. Ser. B, 12s, 2000 $ 614,006
300,000 Capital Gaming International,
Inc. sr. notes 11 1/2s, 2001 208,500
520,000 Capitol Queen Corp. sr. sub.
deb. Ser. B, 12s, 2000(b) 394,550
925,000 Casino America Inc. 1st mtge.
deb. 11 1/2s, 2001 804,750
560,000 Casino Magic Finance Corp.
1st mtge. deb. 11 1/2s, 2001 414,400
800,000 Elsinore Corp. 1st mtge.
12 1/2s, 2000(b) 496,000
1,000,000 Fitzgerald Gaming Co. sr.
notes 13s, 1996(b) 700,000
900,000 Golden Nugget Finance Corp.
1st mtge. deb. Ser. B, 10 5/8s, 2003 486,000
1,400,000 Grand Casino Resorts, Inc.
notes 12 1/2s, 2000 1,344,000
1,000,000 Grate Bay Property Funding Corp.
1st. mtge. 10 7/8s, 2004 750,000
515,000 Louisiana Casino Cruises Corp.
sr. sub. deb. 11 1/2s, 1998 448,050
594,000 Trump Castle Funding Corp.
sr. sub. notes 11 1/2s, 2000(b) 594,000
500,000 Trump Plaza Funding, Inc.
1st mtge. notes 10 7/8s, 2001 357,500
1,122,753 Trump Taj Mahal sub. deb.
Ser. A, 11.35s, 1999(c) 741,017
-----------
8,352,773
Retail (2.6%)
- -----------------------------------------------------------------
1,277,000 Duane Reade Corp. sr. notes 12s, 2002 1,225,920
3,350,000 Finlay Enterprises Inc. sr. disc.
deb. stepped-coupon zero %
(12s, 5/1/98), 2005(d) 2,010,000
830,000 Loehmanns' Holdings, Inc. sr.
sub. notes 13 3/4s, 1999 830,000
2,200,000 Loehmanns' Holdings, Inc.
sr. sub. notes 10 1/2s, 1997 2,164,250
1,250,000 Parisian Inc. sr. sub. notes
9 7/8s, 2003 1,062,500
1,750,000 Pay'n Pak Stores, Inc. sr.
sub. deb. 13 1/2s, 1998(g) 1,094
840,000 Specialty Retailers, Inc. sr. sub.
notes 11s, 2003 802,200
-----------
8,095,964
Chemicals (2.3%)
- -----------------------------------------------------------------
300,000 Arcadian Partners L.P.
sr. notes, Ser. B, 10 3/4s, 2005 297,000
1,250,000 G-I Holdings Inc. sr.
notes zero %, 1998 775,000
2,000,000 Harris Chemical Corp.
sr. sub. notes 10 3/4s, 2003 1,870,000
1,000,000 Huntsman Corp. 1st mtge. 11s, 2004 1,040,000
1,200,000 OSI Specialty Inc. sr.
sub. notes 9 1/4s, 2003 1,122,000
2,200,000 UCC Investors Holding, Inc.
sr. notes 10 1/2s, 2002 2,266,000
-----------
7,370,000
Forest Products (2.3%)
- -----------------------------------------------------------------
4,350,000 Gaylord Container Corp. sr. sub.
disc. deb. stepped- coupon zero %
(12 3/4s, 5/15/96), 2005(d) 3,681,188
1,150,000 Stone Container Corp. sr.
notes 11 1/2s, 2004 1,154,313
1,000,000 Stone Savannah River Pulp & Paper
Corp. sr. sub. notes 14 1/8s, 2000 1,071,250
1,250,000 Williamhouse Regency Delaware, Inc.
sr. sub. deb. 11 1/2s, 2005 1,212,500
-----------
7,119,251
Broadcasting (2.2%)
- -----------------------------------------------------------------
500,000 Act III Broadcasting Inc. sr.
sub. notes 9 5/8s, 2003 475,000
1,500,000 Adelphia Communications Corp.
sr. notes 9 1/2s, 2004(c) 1,177,500
250,000 Continental Broadcasting Inc.
sr. sub. notes 10 5/8s, 2003 252,500
250,000 New City Broadcasting Corp.
sr. sub. notes 11 3/8s, 2003 244,375
2,450,000 Panamsat L.P. sr. sub. notes
stepped-coupon zero % (11 3/8s,
8/1/98), 2003(d) 1,653,750
1,250,000 SFX Broadcasting Inc. sr. sub.
notes 11 3/8s, 2000 1,296,875
2,829,000 Spectra Vision Inc. sr. sub.
ext. reset notes 11.65s, 2002(c) 1,442,790
901,000 Telemedia Broadcasting Corp.
6.4s, 2004(b) 540,600
-----------
7,083,390
Cable Television (1.5%)
- -----------------------------------------------------------------
450,000 Adelphia Communications Corp.
notes, Ser. B, 9 7/8s, 2005 387,000
250,000 Adelphia Communications Corp.
sr. deb. 11 7/8s, 2004 241,250
1,400,000 Cablevision Systems Corp.
sr. sub. reset deb. 10 3/4s, 2004 1,421,000
877,063 Falcon Holdings Group Inc.
sr. sub. notes 11s, 2003(c) 789,357
1,300,000 Insight Communications Co. sr. sub.
notes stepped- coupon notes
8 1/4s (11 1/4s, 2/29/96), 2000(d) 1,241,500
700,000 Summit Communications Group, Inc.
sr. sub. deb. 10 1/2s, 2005 738,500
-----------
4,818,607
Food (1.5%)
- -----------------------------------------------------------------
950,000 Chiquita Brands International Inc.
sub. deb. 11 1/2s, 2001 983,250
901,000 Del Monte Corp. sub. deb. 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,
$52,000 par acquired 3/16/94,
cost $52,000)(c)(e) 901,000
1,500,000 Fresh Del Monte Produce Corp.
sr. notes, Ser. B, 10s, 2003 1,320,000
1,000,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 982,500
130,000 Specialty Foods Acquisition Corp.
sr. secd. disc. deb. stepped-coupon
zero %, (13s, 8/15/99), 2005(d) 48,100
425,000 Specialty Foods Corp. sr. sub.
notes 11 1/4s, 2003 357,000
-----------
4,591,850
Motion Picture Distribution (1.2%)
- -----------------------------------------------------------------
1,500,000 AMC Entertainment, Inc.
sr. sub. deb. 12 5/8s, 2002 1,665,000
1,100,000 Act III Theatres sr. sub.
notes 11 7/8s, 2003 1,177,000
1,000,000 Cinemark USA sr. notes 12s, 2002 1,072,500
-----------
3,914,500
Conglomerates (1.2%)
- -----------------------------------------------------------------
1,650,000 Haynes International, Inc.
sr. sub. notes 13 1/2s, 1999 1,006,500
1,500,000 MacAndrews & Forbes Group Inc.
deb. 12 1/4s, 1996 1,500,000
750,000 MacAndrews & Forbes Holdings Inc.
sub. deb. 13s, 1999 750,000
1,125,000 Talley Industries, Inc. sr.
disc. deb. stepped-coupon zero %
(12 1/4s, 10/15/98), 2005(d) 604,688
-----------
3,861,188
Cellular Communications (1.2%)
- -----------------------------------------------------------------
1,200,000 Centennial Cellular Corp.
sr. notes 8 7/8s, 2001 1,080,000
2,500,000 Horizon Cellular Telephone Co.
sr. sub. disc. notes stepped-coupon
zero % (11 3/8s, 10/1/97), 2000(d) 1,825,000
1,500,000 NEXTEL Communications Inc. sr.
disc. notes stepped- coupon zero %
(11 1/2s, 9/1/98), 2003(d) 817,500
250,000 NEXTEL Communications Inc. sr.
disc. notes stepped- coupon zero %
(9 3/4s, 2/15/99), 2004(d) 120,000
-----------
3,842,500
Health Care (1.1%)
- -----------------------------------------------------------------
215,000 Abbey Healthcare Group, Inc.
sr. sub. notes 9 1/2s, 2002 197,263
1,000,000 Charter Medical sr. sub. notes
11 1/4s, 2004(b) 1,030,000
500,000 McGaw, Inc. sr. notes 10 3/8s, 1999 515,000
440,000 Mediplex Group, Inc. sr. sub.
notes 11 3/4s, 2002 474,100
500,000 Ornda Healthcorp sr. sub. notes
12 1/4s, 2002 527,500
650,000 Quorum Health Group, Inc. sr.
sub. notes 11 7/8s, 2002 692,250
-----------
3,436,113
Restaurants (1.1%)
- -----------------------------------------------------------------
225,000 American Restaurant Group, Inc.
sr. secd. notes, Ser. A, 12s, 1998 213,750
900,000 American Restaurant Group, Inc.
sr. notes, Ser. B, 12s, 1998 855,000
1,750,000 American Restaurant Group, Inc. sr.
notes stepped- coupon zero %
(14s, 12/15/98), 2005(d) 840,000
1,750,000 Flagstar Corp. sr. sub.
notes 11 3/8s, 2003 1,505,000
-----------
3,413,750
Food Chains (1.1%)
- -----------------------------------------------------------------
3,000,000 Grand Union Capital Corp.
sr. notes stepped-coupon zero %
(15s, 12/15/99), 2004(d) 330,000
800,000 Grand Union Co. sr. sub.
notes 12 1/4s, 2002 594,000
1,250,000 Southland Corp. deb. 4s, 2004 725,000
1,750,000 Stater Brothers sr. notes 11s, 2001 1,675,625
-----------
3,324,625
Publishing (1.0%)
- -----------------------------------------------------------------
1,150,000 Enquirer/Star Inc. sr. sub.
notes zero %, 1997 937,250
750,000 Marvel III Holdings, Inc. sr.
notes Ser. B, 9 1/8s, 1998 656,250
2,350,000 Marvel Parent Holdings, Inc. sr.
secd. disc. notes zero %, 1998 1,468,750
-----------
3,062,250
Metals and Mining (0.9%)
- -----------------------------------------------------------------
1,500,000 Horsehead Industries, Inc. sub.
notes 14s, 1999 1,500,000
1,550,000 Kaiser Aluminum & Chemical Corp.
sr. sub. notes 12 3/4s, 2003 1,511,250
-----------
3,011,250
Entertainment (0.9%)
- -----------------------------------------------------------------
3,450,000 Viacom International sub.
deb. 8s, 2006 3,001,500
Insurance (0.9%)
- -----------------------------------------------------------------
600,000 American Life Holding Co. sr.
sub. notes 11 1/4s, 2004 609,000
1,000,000 Penn Corp. Financial Group sr. sub.
notes 9 1/4s, 2003 920,000
500,000 Reliance Group Holdings sr.
sub. deb. 9 3/4s, 2003 452,500
1,000,000 Reliance Group Holdings sr.
notes 9s, 2000 925,000
-----------
2,906,500
Containers (0.8%)
- -----------------------------------------------------------------
2,500,000 Ivex Packaging Corp. sr. sub.
notes 12 1/2s, 2002 2,600,000
Electronics (0.8%)
- -----------------------------------------------------------------
1,500,000 Ampex Group, Inc. sr. sub.
deb. 13 1/4s, 1996(g) 105,000
1,300,000 Amphenol Corp. sr. sub.
notes 12 3/4s, 2002 1,475,500
2,100,000 International Semi-Tech. Corp.
sr. disc. notes stepped- coupon
zero % (11 1/2s, 8/15/00), 2003(d) 1,002,750
-----------
2,583,250
Building and Construction (0.7%)
- -----------------------------------------------------------------
500,000 Miles Homes Services sr. notes 12s, 2001 470,000
1,000,000 Presley Co. sr. notes 12 1/2s, 2001 970,000
800,000 Scotsman Group Inc. sr.
notes 9 1/2s, 2000 752,000
-----------
2,192,000
Agriculture (0.6%)
- -----------------------------------------------------------------
1,225,140 Premium Standard Farms sr.
secd. notes 12s, 2000(b) 1,326,214
831,000 Premium Standard Farms deb.
stepped-coupon zero % (12s,
9/15/96), 2003(b)(d) 656,490
-----------
1,982,704
Shipping (0.6%)
- -----------------------------------------------------------------
2,000,000 Viking Star Shipping sr.
secd. notes 9 5/8s, 2003 1,915,000
Building Products (0.6%)
- -----------------------------------------------------------------
16,000 American Standard, Inc. sub.
disc. deb. 14 1/4s, 2003 16,480
1,000,000 American Standard, Inc. sr. sub.
deb. stepped-coupon zero %
(10 1/2s, 6/1/98) 2005(d) 652,500
735,000 Axia, Inc. sr. sub. notes 11s, 2001 720,300
500,000 Triangle Pacific Corp. sr.
notes 10 1/2s, 2003 490,000
-----------
1,879,280
Consumer Services (0.6%)
- -----------------------------------------------------------------
250,000 Flagstar Corp. sr. sub. deb.
11 1/4s, 2004 214,375
750,000 Solon Automated Services, Inc.
sr. sub. deb. 13 3/4s, 2002 772,500
750,000 Solon Automated Services, Inc.
notes 12 3/4s, 2001 742,500
1,729,375
Automotive Parts (0.5%)
- -----------------------------------------------------------------
1,450,000 Key Plastics Corp. sr. notes 14s, 1999 1,643,938
Financial Services (0.5%)
- -----------------------------------------------------------------
1,000,000 Comdata Network, Inc. sr. sub.
deb. 13 1/4s, 2002 1,105,000
500,000 Comdata Network, Inc. sr. notes
12 1/2s, 1999 537,500
-----------
1,642,500
School Buses (0.5%)
- -----------------------------------------------------------------
1,500,000 Blue Bird Body Co. sub. deb.
Ser. B, 11 3/4s, 2002 1,526,250
Steel (0.5%)
- -----------------------------------------------------------------
1,000,000 AK Steel Corp. sr. notes 10 3/4s, 2004 1,007,500
500,000 Armco Inc. sr. notes 11 3/8s, 1999 505,000
-----------
1,512,500
Oil and Gas (0.5%)
- -----------------------------------------------------------------
1,000,000 Oryx Energy Co. deb. 9 3/4s, 1998 1,001,875
500,000 TransTexas Gas Corp. sr. secd.
notes 10 1/2s, 2000 490,000
-----------
1,491,875
Electric Utilities (0.4%)
- -----------------------------------------------------------------
1,318,759 Midland Cogeneration Venture L.P.
sr. deb. 10.33s, 2002 1,285,790
Nursing Homes (0.4%)
- -----------------------------------------------------------------
1,125,000 Multicare Cos., Inc. sr. sub.
notes 12 1/2s, 2002 1,243,125
Environmental Control (0.4%)
- -----------------------------------------------------------------
1,250,000 Envirosource, Inc. sr.
notes 9 3/4s, 2003 1,125,000
Textiles (0.3%)
- -----------------------------------------------------------------
1,000,000 Foamex (L.P.) Capital Corp. sr.
sub. deb. 11 7/8s, 2004 1,030,000
Machinery (0.3%)
- -----------------------------------------------------------------
1,000,000 Specialty Equipment Co. sr. sub.
notes 11 3/8s, 2003 995,000
Consumer Products (0.3%)
- -----------------------------------------------------------------
1,675,000 Equitable Bag Co.
sr. notes 12 3/8s, 2002(g) 988,250
Advertising (0.2%)
- -----------------------------------------------------------------
800,000 Universal Outdoor Inc.
sub. deb. 11s, 2003 748,000
Banks (0.2%)
- -----------------------------------------------------------------
700,000 Westpac Banking Corp.
sub. deb. 9 1/8s, 2001 732,813
Real Estate (0.2%)
- -----------------------------------------------------------------
700,000 Kearny State Real Estate L.P.
secd. notes 9.56s, 2003 707,000
Apparel (0.2%)
- -----------------------------------------------------------------
750,000 Guess Jeans, Inc. sr. sub.
notes 9 1/2s, 2003 705,000
Telephone Services (0.2%)
- -----------------------------------------------------------------
1,000,000 MFS Communications sr. disc. notes
stepped-coupon zero % (9 3/8s,
1/15/99), 2004(d) 580,000
Specialty Consumer Products (0.2%)
- -----------------------------------------------------------------
590,000 Playtex Family Products Corp.
sr. sub. notes 9s, 2003 507,400
Finance (0.2%)
- -----------------------------------------------------------------
500,000 First Federal Financial Corp.
notes 11 3/4s, 2004 500,000
Business Services (0.1%)
- -----------------------------------------------------------------
500,000 Corporate Express, Inc.
sr. notes 9 5/8s, 2004(b) 463,750
Medical Supplies (0.1%)
- -----------------------------------------------------------------
350,000 Wright Medical Technology Inc.
sr. secd. notes Ser. B, 10 3/4s, 2000 346,500
Communications (0.1%)
- -----------------------------------------------------------------
400,000 Pagemart Inc. sr. disc. notes
stepped-coupon zero % (12 1/4s,
11/1/98) 2003(d) 252,000
Lodging (0.1%)
- -----------------------------------------------------------------
250,000 Red Roof Inns sr. notes 9 5/8s, 2003 232,500
- -----------------------------------------------------------------
Total Corporate Bonds and Notes
(cost $123,428,549) $116,346,811
- -----------------------------------------------------------------
</TABLE>
<PAGE>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (26.8)(a)
<TABLE><CAPTION>
<C> <S> <C>
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------
Federal National Mortgage Association
$ 14,611 8 1/2s, Dwarfs, March 1, 2006 $ 14,867
8,077,000 7s, with various due dates to
February 2, 2024 7,419,313
161,000 4 3/4s, March 1, 2000 159,932
Government National Mortgage Association
5,408,000 9s, with various due dates to
April 15, 2009 5,621,173
17,254,000 8s, with various due dates to
September 15, 2024 16,965,624
8,220,000 8s, TBA, October 14, 2024(f) 7,973,400
4,749,000 7 1/2s, with various due dates to
June 30, 2024 4,462,840
3,820,000 U.S. Treasury Notes 7 7/8s,
April 15, 1998 3,913,113
2,075,000 U.S. Treasury Notes 7 3/8s,
May 15, 1996 2,104,828
7,580,000 U.S. Treasury Notes 5 1/4s,
July 31, 1998 7,110,987
8,790,000 U.S. Treasury Notes 5 3/4s,
October 31, 1997 8,504,325
4,450,000 U.S. Treasury Notes 4 1/8s,
June 30, 1995 4,398,546
2,250,000 U.S. Treasury Notes 4s,
January 31, 1996 2,186,718
14,585,000 U.S. Treasury Notes 3 7/8s,
October 31, 1995 14,261,395
- -----------------------------------------------------------------
Total U.S. Government and
Agency Obligations (cost $87,202,009) $85,097,061
- -----------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE><CAPTION>
<C> <S> <C>
FOREIGN BONDS AND NOTES (25.2%)(a)
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------
ARA 1,000,000 Argentina (Republic of) Floating
Rate Notes (FRN), 8s, 2001(h) $735,000
AUD 870,000 Australia (Government of)
bonds 13s, 1996(h) 691,650
AUD 8,830,000 Australia (Government of)
bonds 9 1/2s, 2003(h) 6,241,706
AUD 756,000 Australia (Government of)
bonds 8 3/4s, 2001(h) 527,310
AUD 442,000 Australia (Government of)
bonds 6 1/4s, 1999(h) 287,300
USD 1,500,000 Banco Nacional bonds 7 1/4s, 2004
1,245,000
ARA 500,000 Buenos Aires (Province of)
bonds 9 1/2s, 1997(h) 497,500
CAD 20,380,000 Canada (Government of)
bonds 5 3/4s, 1999(h) 13,781,975
USD 2,000,000 Cemex SA med. term notes 10s, 1999
2,040,000
USD 1,000,000 Czech (Republic of)
National Bank bonds 7s, 1996 995,000
USD 500,000 Essar Gujart Ltd. sub.
deb. FRN 8.025s, 1999(b) 500,000
FIM 7,000,000 Finland (Republic of)
notes 11s, 1999(h) 1,500,625
FIM 10,000,000 Finland (Republic of)
notes 10 3/4s, 2002(h) 2,118,750
FIM 3,000,000 Finland (Government of)
bonds 9 1/2s, 2004(h) 586,875
FRF 1,170,000 France (Government of)
Balladurs 6s, 1997(h) 214,988
FRF 36,780,000 France (Government of)
OAT bonds 5 1/2s, 2004(h) 5,769,863
FRF 2,900,000 France (Government of)
BTAN bonds 4 3/4s, 1999(h) 489,375
THB 10,000,000 International Finance Corp.
(Thailand of) bonds 8s, 1996(h) 400,000
USD 8,410,000 Italy (Government of)
bonds 12s, 2003 5,419,194
USD 5,730,000 Italy (Government of)
bonds 8 1/2s, 2004 3,065,550
USD 820,000 Italy (Government of)
notes 8 1/2s, 1999 473,550
NLG 1,700,000 Netherlands (Government of)
deb. 5 3/4s, 2004(h) 864,875
USD 250,000 P.T. Astra bonds 9 3/4s, 2001
240,000
USD 1,000,000 Petroleos Mexicanos med.
term notes 7.6s, 2000 930,000
USD 250,000 Philippines (Government of)
deb. 10 5/8s, 2004 248,125
USD 2,126,000 Spain (Government of)
bonds 10.55s, 1996 1,658,280
USD 2,395,000 Spain (Government of)
bonds 10 1/4s, 1998 1,811,219
SEK 12,100,000 Statens Bostadsfinansier
deb. 11s, 1999(h) 1,603,250
SEK 11,900,000 Sweden (Government of)
bonds 11s, 1999(h) 1,606,500
SEK 4,300,000 Sweden (Government of)
bonds 10 1/4s, 2003(h) 545,563
USD 1,000,000 Tele-Argen bonds 8 3/8s, 2000
920,000
GBP 1,785,000 United Kingdom Exchequer
notes 9 3/4s, 1998(h) 2,905,088
ECU 5,298,000 United Kingdom Treasury
bonds 9 1/8s, 2001(h) 6,682,103
GBP 680,000 United Kingdom Treasury
bonds 9s, 2000(h) 1,081,200
GPB 1,780,000 United Kingdom Treasury
bonds 8s, 2003(h) 2,653,313
GBP 1,775,000 United Kingdom Treasury
notes 7 3/4s, 2006(h) 2,580,406
GBP 4,550,000 United Kingdom Treasury
bonds 6 3/4s, 2004(h) 6,190,844
- -----------------------------------------------------------------
Total Foreign Bonds and
Notes (cost $81,755,071) $80,101,977
- -----------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE><CAPTION>
<C> <S> <C>
UNITS (3.1%)(a)
NUMBER OF UNITS VALUE
- -----------------------------------------------------------------
125,000 Celcaribe S.A. units stepped-coupon
zero % (13 1/2s, 3/15/98), 2004(b)(d) $1,050,000
500,000 Chesapeake Energy Corp. deb. units
12s, 2001(b) 602,500
1,200,000 County Seat Stores units 12s, 2001 1,188,000
750,000 Dial Call units stepped-coupon
zero % (12 1/4s, 10/15/99), 2004(d) 397,500
2,425,000 Echostar Communication Corp. units
stepped-coupon zero % (12 7/8s,
12/1/99), 2004(d) 1,127,625
1,000,000 Health-O-Meter Product units 13s, 2002 970,000
1,000,000 Hollywood Casino units 13 1/2s, 1998(b) 790,000
1,350,000 ICF Kaiser International Inc.
sr. sub. units 12s, 2003 1,215,000
1,500,000 OSI Specialties units stepped-coupon
zero % (11 1/2s, 4/15/99), 2004(d) 915,000
1,380,000 PMI Acquisition Corp. units sub. disc.
deb. stepped- coupon zero % (11 1/2s,
3/1/00), 2005(d) 703,800
275,200 Premium Standard Farms exch.
pfd. units 12 1/2s, 2000(b) 297,904
290,000 Total Renal Care units stepped-coupon
zero % (12s, 8/15/99), 2004(b)(d) 207,350
500,000 Universal Outdoor Inc. sub. deb. units
stepped-coupon zero % (14s,
7/1/99) 2004(d) 259,063
- -----------------------------------------------------------------
Total Units (cost $9,876,045) $9,723,742
- -----------------------------------------------------------------
<PAGE>
YANKEE BONDS AND NOTES (3.0%)(a)
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------
$1,250,000 Argentina (Republic of) Floating
Rate Bond (FRB) deb. 4 1/4s, 2005(c) $953,125
250,000 Australia New Zealand Bank sub.
notes 6 1/4s, 2004 216,406
2,000,000 Banco de Galicia Inc. global
notes 9s, 2003 1,653,750
3,675,000 Brazil (Government of) bonds
8 3/4s, 2001 3,059,438
465,000 Cinemark Mexico notes 12s, 2003 451,050
750,000 Grupo Industrial Durango sr.
notes 12s, 2001 772,500
1,500,000 Ispat Mexicana sr. notes 10 3/8s, 2001(b)1,413,750
1,000,000 Methanex Corp. sr. notes 8 7/8s, 2001 980,000
- -----------------------------------------------------------------
Total Yankee Bonds and Notes
(cost $9,753,779) $9,500,019
- -----------------------------------------------------------------
COMMON STOCKS (0.9%)(a)
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------
1,750 American Restaurant Group, Inc.(b) $35,000
127,300 Applause Enterprises Inc. (13,300
shares acquired 1/17/89 cost
$340,795, 114,000 shares acquired
6/07/89 cost $3,000,000)(e)(g) 31,825
2,205 Axia Holding Co.(b)(g) 138
123 CDK Holding Corp. (acquired 10/31/88
cost $6,881)(e)(g) 5,166
6,001 Capital Gaming International, Inc.(b) 47,258
109,136 Computervision Corp.(g) 341,050
5,467 Computervision Corp. (acquired
8/24/92, cost $29,712)(e)(g) 12,984
33,334 Federated Department Stores Inc.(g) 766,682
10,175 Grand Casinos, Inc.(g) 138,634
3,770 IFINT Diversified Holdings(b) 263,900
4,827 Kendall International, Inc.(g) 290,827
35,327 Lady Luck Gaming Corp.(g) 136,892
117,371 Loehmanns' Holdings, Inc.(b)(g) 117,371
464 PMI Holdings Corp.(g) 92,800
327 Premium Holdings L.P.(b) 32,699
735 Pyramid Communications Inc. New Class B(b) 18,653
81,197 Solon Automated Services, Inc.(g) 50,748
12,000 Specialty Foods Corp.(b)(g) 9,000
53,619 Spectra Vision, Inc. Class B(g) 117,292
3,499 Taj Mahal Holding Corp. Class A(g) 34,990
15,000 Triangle Pacific Corp.(g) 205,313
- -----------------------------------------------------------------
Total Common Stocks (cost $6,450,011) $2,749,222
- -----------------------------------------------------------------
PREFERRED STOCKS (0.7%)(a)
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------
26,329 National Intergroup Corp.
Ser. A, $4.20 exch. pfd.(c) $921,515
21,656 Pyramid Communications Inc.
Ser. C, $3.125 exch. pfd. 506,209
5,600 Stone Savannah Corp.
Ser. A, $3.84 pfd.(c) 672,000
- -----------------------------------------------------------------
Total Preferred Stocks
(cost $1,940,047) $2,099,724
- -----------------------------------------------------------------
ASSET-BACKED SECURITIES (0.3%)(a) (cost $1,072,648)
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------
$1,075,000 First Deposit Master Trust
Ser. 93-2A, 5 3/4s, 2001 $1,018,563
- -----------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.3%) (cost $872,676)(a)
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------
$875,000 First Chicago Master Trust II
Ser. 1994-L, Class A, 7.15s, 2001 $858,047
- -----------------------------------------------------------------
</TABLE>
<TABLE><CAPTION>
<C> <S> <C> <C>
WARRANTS (0.3%) (a)(e)(g)
NUMBER OF WARRANTS EXPIRATION DATE VALUE
- -----------------------------------------------------------------
32,500 Becker Gaming Corp.(b) 11/15/00 $34,531
203 CDK Holding Corp. Class A
(acquired 10/31/88, cost $11,388)(e) 7/7/99 8,526
218 CDK Holding Corp. Class B
(acquired 10/31/88, cost $6,090)(e) 7/7/99 8,066
6,825 Capital Gaming Inc.(b) 2/1/99 20,475
1,387 Casino America Inc. 11/15/99 1,387
7,860 Casino Magic Finance Corp. 10/14/96 1,965
5,159 Cinemark Mexico 8/1/03 47,721
1,200 County Seat Holdings, Inc. 10/15/98 24,000
42,635 Elsinore Corp.(b) 10/4/98 31,976
1,000 Fitzgerald Gaming 3/15/99 50,000
65,655 Gaylord Container Corp. 7/31/96 459,585
1,470 Louisiana Casino Cruises, Inc.(b) 12/1/98 22,050
6,000 Miles Homes, Inc. 4/1/97 4,500
1,500 OSI Specialties Corp.(b) 4/15/99 15,000
1,840 Pagemart, Inc.(b) 12/31/03 9,200
1,750 Payless Cashways, Inc. 11/1/96 5,250
1,500 President Riverboat Casinos, Inc. 9/15/96 750
12,500 Southdown, Inc. (acquired 10/31/91,
cost $37,500)(e) 11/1/96 59,375
4,901 Southland Corp. 3/5/96 14,090
21 Telemedia Broadcasting Corp.(b) 4/1/04 15,942
100 Wright Medical Technology Inc.(b) 6/30/03 12,529
- -----------------------------------------------------------------
Total Warrants (cost $783,431) $846,918
- -----------------------------------------------------------------
</TABLE>
<TABLE><CAPTION>
<C> <S> <C>
EUROBONDS (0.2%)(a)
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------
$250,000 Banco del Sud sr. notes 10 1/8s, 1997 $250,000
500,000 Petroleo Brasileiro S.A. FRN 9.275s, 1998 505,625
- -----------------------------------------------------------------
Total Eurobonds (cost $757,500) $755,625
- -----------------------------------------------------------------
</TABLE>
<TABLE><CAPTION>
<C> <S> <C> <C>
PUT OPTIONS ON FOREIGN CURRENCY (--%)(a)
EXPIRATION DATE/
CURRENCY STRIKE PRICE VALUE
- -----------------------------------------------------------------
DM 16,800,000 Deutschemarks Oct. 94/1.52
$15,120
SF 5,600,000 Swiss Francs Oct. 94/1.26
6,160
- -----------------------------------------------------------------
Total Put Options On Foreign
Currencies (cost $140,000) $21,280
- -----------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE><CAPTION>
<C> <S> <C>
SHORT-TERM INVESTMENTS (4.9%)(a)
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------
$ 75,000 Federal National Mortgage Assn.
4.72s, October 26, 1994 $74,754
MXP 200,000 Mexican Cetes zero %, April 27, 1995(h)
55,000
MXP 400,000 Mexican Cetes zero %, October 27, 1994(h)
117,500
$ 750,000 Mexican Tesobono bonds zero %,
August 3, 1995 703,593
14,722,000 Interest in $81,000,000 joint
repurchase agreement dated
September 30, 1994 with J.P. Morgan
Securities Inc. due October 3, 1994
with respect to various U.S.
Treasury obligations -- maturity
value of $14,727,950 for an effective
yield of 4.85% 14,723,983
- -----------------------------------------------------------------
Total Short-Term Investments
($15,676,291) $15,674,830
- -----------------------------------------------------------------
Total Investments
(cost $339,708,057)(i) $324,793,819
- -----------------------------------------------------------------
<FN>
NOTES
(a) Percentages indicated are based on net assets of
$317,295,838, which correspond to a net asset value per share
of $8.13.
(b) Securities 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. At September 30, 1994, these securities
were valued at $11,748,830 or 3.7% of net assets.
(c) Income may be received in additional securities or cash at
the discretion of the issuer.
(d) The interest rate and date shown parenthetically represent
the next interest rate to be paid and the date the fund will
begin receiving interest at this rate.
(e) Restricted as to public resale, excluding 144A securities. 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 September 30, 1994 was $1,026,942 or 0.3%
of net assets.
(f) TBAs are mortgage backed securities traded under delayed
delivery commitments settling after September 30, 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
September 30, 1994 was $8,135,231.
(g) Non-income-producing security.
(h) Foreign currency-denominated. Market value is translated at
current exchange rate.
(i) The aggregate identified cost for federal tax purposes is
$339,727,350, resulting in gross unrealized appreciation and
depreciation of $5,358,117 and $20,291,648, respectively, or
net unrealized depreciation of $14,933,531.
</TABLE>
<PAGE>
Forward Currency Contracts Outstanding
at September 30, 1994 (aggregate face value $48,022,853)
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------
Unrealized
Aggregate Delivery Appreciation/
Market Value Face Value Date (Depreciation)
- ------------------------------------------------------------------------
Australian Dollars
(Sell) $3,402,620 $3,389,280 11/2/94 $(13,340)
Australian Dollars
(Sell) 1,776,000 1,748,736 10/11/94 (27,264)
Australian Dollars
(Sell) 2,883,894 2,883,894 12/5/94 --
Deutschemarks (Sell) 1,805,720 1,765,503 10/5/94 (40,217)
Deutschemarks (Sell) 3,740,420 3,647,799 10/13/94 (92,621)
Deutschemarks (Sell) 3,933,890 3,858,317 10/20/94 (75,573)
Deutschemarks (Sell) 4,138,564 4,138,564 1/5/95 --
Deutschemarks (Sell) 7,867,780 7,721,522 11/2/94 (146,258)
Deutschemarks (Sell) 7,354,140 7,215,144 11/30/94 (138,996)
Deutschemarks (Sell) 967,350 948,947 10/21/94 (18,403)
Deutschemarks (Sell) 3,804,910 3,738,803 10/17/94 (66,107)
Deutschemarks (Sell) 3,741,000 3,734,827 11/22/94 (6,173)
Deutschemarks (Sell) 1,419,220 1,425,217 11/28/94 5,997
Deutschemarks (Sell) 1,806,280 1,806,300 11/29/94 20
- ------------------------------------------------------------------------
$(618,935)
- ------------------------------------------------------------------------
</TABLE>
Forward Cross Currency Contracts Outstanding
at September 30, 1994 (aggregate face value $6,263,382)
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------
Market In Exchange Market Delivery Unrealized
Contracts Value For Value Date Appreciation
- ------------------------------------------------------------------------
British
Pounds
(Buy) $6,300,800 Deutschemarks $6,263,382 10/19/94 $37,418
- ------------------------------------------------------------------------
</TABLE>
<PAGE>
Futures Contracts Outstanding at September 30, 1994
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------
Market Aggregate Expiration Unrealized
Contracts Value Face Value Date Appreciation
- ------------------------------------------------------------------------
U.S. Treasury Bond
Futures (Sell) $2,968,125 $2,981,625 Dec. 94 $13,500
- ------------------------------------------------------------------------
</TABLE>
The rates shown on Floating Rate Notes (FRN) and Floating Rate
Bonds (FRB) are the current interest rates at September 30, 1994,
which are subject to change based on the terms of the security.
Diversification of Foreign Bonds and Notes
at September 30, 1994 (as a % of net assets)
- -----------------------------------------------------------------
United Kingdom 7.0% Sweden 1.2%
Canada 4.3 Argentia 0.8
Australia 2.4 Netherlands 0.3
France 2.0 Thailand 0.1
Finland 1.3 Indonesia 0.1
<PAGE>
Statement of assets and liabilities
September 30, 1994
<TABLE><CAPTION>
<S> <C>
Assets
- -----------------------------------------------------------------
Investments in securities, at value
(identified cost $339,708,057) (Note 1) $324,793,819
- -----------------------------------------------------------------
Cash 14,669
- -----------------------------------------------------------------
Interest and other receivables 6,835,160
- -----------------------------------------------------------------
Receivable for securities sold 1,315,328
- -----------------------------------------------------------------
Receivable for open forward and
cross forward currency contracts 43,435
- -----------------------------------------------------------------
Receivable for closed forward currency contracts 442,756
- -----------------------------------------------------------------
Total assets $333,445,167
Liabilities
- -----------------------------------------------------------------
Payable for securities purchased $11,896,536
- -----------------------------------------------------------------
Distributions payable to shareholders 2,156,926
- -----------------------------------------------------------------
Payable for compensation of Manager (Note 2) 605,006
- -----------------------------------------------------------------
Payable for administrative services (Note 2) 2,398
- -----------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 500
- -----------------------------------------------------------------
Payable for investor servicing and
custodian fees (Note 2) 53,905
- -----------------------------------------------------------------
Payable for open forward currency contracts 624,952
- -----------------------------------------------------------------
Payable for closed forward currency contracts 737,245
- -----------------------------------------------------------------
Other accrued expenses 64,361
- -----------------------------------------------------------------
Payable for variation margin 7,500
- -----------------------------------------------------------------
Total liabilities 16,149,329
- -----------------------------------------------------------------
Net assets $317,295,838
Represented by
- -----------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $363,176,669
- -----------------------------------------------------------------
Distributions in excess of net investment income (9,020,787)
- -----------------------------------------------------------------
Accumulated net realized loss on
investment transactions (21,377,789)
- -----------------------------------------------------------------
Net unrealized foreign currency translation loss (14,508)
- -----------------------------------------------------------------
Net unrealized depreciation of investments,
options, forward currency contracts and
futures contracts (15,467,747)
- -----------------------------------------------------------------
Total -- Representing net assets applicable
to capital shares outstanding $317,295,838
- -----------------------------------------------------------------
Computation of net asset value
- -----------------------------------------------------------------
Net asset value per share
($317,295,838 divided by 39,005,338 shares) $8.13
- -----------------------------------------------------------------
</TABLE>
<PAGE>
Statement of operations
Year ended September 30, 1994
<TABLE><CAPTION>
<S> <C>
Investment income:
- -----------------------------------------------------------------
Interest (net of foreign tax of $71,688) $27,151,091
- -----------------------------------------------------------------
Dividends 79,918
- -----------------------------------------------------------------
Total investment income $27,231,009
- -----------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------
Compensation of Manager (Note 2) $2,522,541
- -----------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 253,709
- -----------------------------------------------------------------
Compensation of Trustees (Note 2) 15,523
- -----------------------------------------------------------------
Reports to shareholders 66,465
- -----------------------------------------------------------------
Auditing 61,799
- -----------------------------------------------------------------
Legal 32,656
- -----------------------------------------------------------------
Postage 85,681
- -----------------------------------------------------------------
Administrative services (Note 2) 7,375
- -----------------------------------------------------------------
Exchange listing fees 25,294
- -----------------------------------------------------------------
Other 8,616
- -----------------------------------------------------------------
Total expenses 3,079,659
- -----------------------------------------------------------------
Net investment income 24,151,350
- -----------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (2,477,004)
- -----------------------------------------------------------------
Net realized loss on options (Notes 1 and 3) (912,409)
- -----------------------------------------------------------------
Net realized loss on forward currency contracts
(Notes 1 and 3) (3,839,658)
- -----------------------------------------------------------------
Net realized loss on foreign currency (Note 1) (303,883)
- -----------------------------------------------------------------
Net unrealized foreign currency translation loss (70,002)
- -----------------------------------------------------------------
Net unrealized depreciation of investments,
options, forward currency contracts and
futures contracts during the year (19,959,388)
- -----------------------------------------------------------------
Net loss on investment transactions (27,562,344)
- -----------------------------------------------------------------
Net decrease in net assets resulting
from operations $(3,410,994)
- -----------------------------------------------------------------
</TABLE>
<PAGE>
Statement of changes in net assets
<TABLE><CAPTION>
<S> <C> <C>
Year ended September 30
-----------------------
1994 1993
- -----------------------------------------------------------------
Increase (decrease) in net assets
- -----------------------------------------------------------------
Operations:
- -----------------------------------------------------------------
Net investment income $24,151,350 $26,691,182
- -----------------------------------------------------------------
Net realized gain (loss)
on investments (2,477,004) 4,761,624
- -----------------------------------------------------------------
Net realized gain (loss)
on options (912,409) 9,035
- -----------------------------------------------------------------
Net realized gain (loss)
on forward currency contracts (3,839,658) 10,507,915
- -----------------------------------------------------------------
Net realized loss on
foreign currency (303,883) (46,653)
- -----------------------------------------------------------------
Net unrealized foreign currency
translation gain (loss) (70,002) 60,976
- -----------------------------------------------------------------
Net unrealized depreciation
of investments, options,
forward currency contracts
and futures contracts (19,959,388) (4,314,035)
- -----------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations (3,410,994) 37,670,044
- -----------------------------------------------------------------
Distributions to shareholders
- -----------------------------------------------------------------
From net investment income (21,686,230) (26,691,182)
- -----------------------------------------------------------------
In excess of net
investment income -- (3,229,465)
- -----------------------------------------------------------------
From net realized gain on
investments (2,174,004) --
- -----------------------------------------------------------------
From paid-in capital (Note 1) (3,053,313) --
- -----------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions -- --
- -----------------------------------------------------------------
Total increase (decrease)
in net assets (30,324,541) 7,749,397
- -----------------------------------------------------------------
Net assets
- -----------------------------------------------------------------
Beginning of year 347,620,379 339,870,982
- -----------------------------------------------------------------
End of year (including
distributions in excess of
net investment income of
$9,020,787 and $3,229,465,
respectively) $317,295,838 $347,620,379
- -----------------------------------------------------------------
Number of fund shares
- -----------------------------------------------------------------
Shares outstanding at
beginning of year 39,005,338 39,005,338
- -----------------------------------------------------------------
Shares reinvested -- --
- -----------------------------------------------------------------
Shares outstanding at
end of year 39,005,338 39,005,338
- -----------------------------------------------------------------
</TABLE>
<PAGE>
Financial highlights
(For a share outstanding throughout the period)
<TABLE><CAPTION>
<S> <C> <C>
- -----------------------------------------------------------------
1994 1993
- -----------------------------------------------------------------
Net asset value, beginning of period $8.91 $8.71
- -----------------------------------------------------------------
Investment operations
Net investment income .62 .68
Net realized and unrealized gain
(loss) on investments (.71) .29
- -----------------------------------------------------------------
Total from investment operations (.09) .97
- -----------------------------------------------------------------
Less distributions(a)
From net investment income (.55) (.68)
In excess of net investment income -- (.09)
From net realized gain on investments (.06) --
From paid-in capital(b) (.08) --
- -----------------------------------------------------------------
Total distributions (.69) (.77)
- -----------------------------------------------------------------
Net asset value, end of period $8.13 $8.91
- -----------------------------------------------------------------
Market value, end of period $7.250 $8.375
- -----------------------------------------------------------------
Total investment return at
market value (%)(d) (5.57) 7.89
- -----------------------------------------------------------------
Net assets at end of period
(in thousands) $317,296 $347,620
- -----------------------------------------------------------------
Ratio of expenses to average
net assets (%) .92 .96
- -----------------------------------------------------------------
Ratio of net investment income to
average net assets (%) 7.18 7.83
- -----------------------------------------------------------------
Portfolio turnover (%) 204.92 237.63
- -----------------------------------------------------------------
</TABLE>
<PAGE>
Financial Highlights (continued)
<TABLE><CAPTION>
<C> <C> <C> <C> <C>
For the period
April 29, 1988
(commencement of
operations) to
Year Ended September 30 September 30
- -----------------------------------------------------------------
1992 1991 1990 1989 1988*
- -----------------------------------------------------------------
$8.16 $7.60 $8.62 $9.27 $9.29
- -----------------------------------------------------------------
.74 .76 .84 .97 .38
.63 .67 (.91) (.55) (.06)
1.37 1.43 (.07) .42 .32
- -----------------------------------------------------------------
(.74) (.76) (.85) (.99) (.34)
-- -- -- -- --
-- -- (.08) (.08) --
(.08) (.11) (.02) -- --
- -----------------------------------------------------------------
(.82) (.87) (.95) (1.07) (.34)
- -----------------------------------------------------------------
$8.71 $8.16 $7.60 $8.62 $9.27
- -----------------------------------------------------------------
$8.500 $7.750 $6.375 $8.375 $9.250
- -----------------------------------------------------------------
21.13 36.82 (13.29) 1.92 (4.05)(c)
- -----------------------------------------------------------------
$339,871 $317,747 $301,613 $345,931 $371,282
- -----------------------------------------------------------------
.98 1.08 1.04 1.04 .39(c)
- -----------------------------------------------------------------
8.76 9.65 10.4 10.61 4.13(c)
- -----------------------------------------------------------------
134.43 204.31 211.22 202.47 33.18(c)
- -----------------------------------------------------------------
<FN>
* Activity for the period from March 10, 1988 to April 28, 1988
is not included.
(a) See Note 1 to financial statements.
(b) Distributions from capital for the year ended 9/30/94 has been
calculated in accordance with statement of position 93-2.
"Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain and Return of Capital
Distributions" by Investment Companies (See Notes 1 and 5).
(c) Not annualized.
(d) Total investment return assumes dividend reinvestment and does
not reflect the effect of sales charges.Notes to financial
statementsSeptember 30, 1994
</TABLE>
<PAGE>
Notes to Financial Statements
September 30, 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. This 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's Manager deems it appropriate to do so.
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 cash or additional securities; interest on such securities
is recorded on the accrual basis by means of the effective yield
method, 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 daily 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 tobuy 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, 1994, the fund had approximately $14,419,000 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 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.
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. The
differences include treatment of losses on wash sales transactions
and post-October losses. Reclassifications are made to the fund's
capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income
tax regulations. For the year ended September 30, 1994, the fund
reclassified $3,838,575 to increase distributions in excess of net
investment income, $5,100,678 to decrease accumulated realized
loss and $1,262,103 to decrease paid-in capital.
Note 2
Management fee, administrative services, and other transactions
Compensation of Putnam Management for management and investment
advisory services is paid quarterly based on the average weekly
net assets of the fund. Such fee is based on the following annual
rates: 0.75% of the first $500 million of average weekly net
assets, 0.65% of the next $500 million, 0.60% of the next $500
million and 0.55% of any amount over $1.5 billion.
The fund also reimburses the Manager for the compensation and
related expenses of certain officers of the fund and their staff
who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the
Trustees. For the year ended September 30, 1994, the fund incurred
$7,375 for these services.
Trustees of the fund receive an annual Trustee's fee of $910 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
year ended September 30, 1994, amounted to $253,709. Investor
servicing and custodian fees reported in the Statement of
operations for the year ended September 30, 1994 have been reduced
by credits allowed by PFTC.
Note 3
Purchases and sales of securities
During the year ended September 30, 1994, purchases and sales of
investment securities other than U.S. government obligations and
short-term investments aggregated $371,908,022 and $360,511,979,
respectively. Purchases and sales of U.S. government obligations
aggregated $290,408,103 and $296,050,882, respectively. In
determining the net gain or loss on securities sold, the cost of
securities has been determined on the identified cost basis.
Written option transactions on foreign currencies during the year
are summarized as follows:
<TABLE><CAPTION>
<S> <C>
- -----------------------------------------------------------------
Premiums Received
- -----------------------------------------------------------------
Options written $89,827
Options exercised (63,702)
Option expired (26,125)
- -----------------------------------------------------------------
Written options outstanding at end of year $--
- -----------------------------------------------------------------
</TABLE>
Purchased option transactions on foreign currencies during the
year are summarized as follows:
<TABLE><CAPTION>
<S> <C>
- -----------------------------------------------------------------
Cost
- -----------------------------------------------------------------
Purchased options outstanding at begininng of year $566,128
Options purchased 2,784,327
- -----------------------------------------------------------------
3,350,455
- -----------------------------------------------------------------
Options expired (903,463)
Options sold (2,306,992)
- -----------------------------------------------------------------
(3,210,455)
- -----------------------------------------------------------------
Purchased options outstanding at end of year $140,000
- -----------------------------------------------------------------
</TABLE>
<PAGE>
Transactions in forward currency contracts during the year are
summarized as follows:
<TABLE><CAPTION>
<S> <C>
Sale of Forward
Currency Contracts
- -----------------------------------------------------------------
Aggregate
Face Value
- -----------------------------------------------------------------
Contracts outstanding at beginning of year $53,203,789
Contracts opened 505,261,085
Contracts closed (510,442,021)
- -----------------------------------------------------------------
Open at end of year $48,022,853
- -----------------------------------------------------------------
Purchases of Forward
- -----------------------------------------------------------------
Currency Contracts
Aggregate
Face Value
- -----------------------------------------------------------------
Contracts outstanding at beginning of year $11,114,051
Contracts opened 228,271,990
Contracts closed (233,122,659)
- -----------------------------------------------------------------
Open at end of year $6,263,382
- -----------------------------------------------------------------
</TABLE>
Transactions in U.S. Treasury Bond futures contracts during the
year are summarized as follows:
<TABLE><CAPTION>
<S> <C> <C>
Sale of Futures Contracts
- -----------------------------------------------------------------
Number of Aggregate
Contracts Face Value
- -----------------------------------------------------------------
Face Value
Contracts opened 30 $2,981,625
Contracts closed -- --
- -----------------------------------------------------------------
Open at end of year 30 $2,981,625
- -----------------------------------------------------------------
</TABLE>
Note 4
Reclassification of capital accounts
Effective October 1, 1993, Putnam Master Intermediate Income Trust
adopted the provisions of Statement of Position 93-2
"Determination Disclosure and Financial Statement Presentation of
Income, Capital Gain and Return of Capital Distributions, by
Investment Companies (SOP)." The purpose of this SOP is to report
the accumulated net investment income (loss) and accumulated net
realized gain (loss) accounts in such a manner as to approximate
amounts available for future 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 distribution 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 reclassifications, which have no impact on the total net
asset value of the fund, are primarily attributable to defaulted
bond interest, post-October loss deferrals, dividends payable, and
foreign currency gain (loss) reclassifications, which are treated
differently in the computation of distributable income and capital
gains under federal income tax rules and regulations versus
generally accepted accounting principles.
These reclassifications represent the cumulative amounts necessary
to report these balances through September 30, 1993, the close of
the fund's prior fiscal year for financial reporting and tax
purposes.
Note 5
Share repurchase program
In November, 1994, the Trustees authorized the fund to repurchase
up to 1,950,000 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.
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.
<PAGE>
Selected quarterly data
(Unaudited)
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
Three months ended
- ------------------------------------------------------------------------
September 30 June 30 March 31 December 31
1994 1994 1994 1993
- ------------------------------------------------------------------------
Total investment income
Total $6,930,592 $6,935,539 $6,656,480 $6,708,398
Per share $.18 $.18 $.17 $.17
- ------------------------------------------------------------------------
Net investment income
Total $6,125,078 $6,149,111 $5,943,501 $5,933,660
Per share $.16 $.16 $.15 $.15
- ------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
Total $(5,177,254) $(13,707,196) $(12,399,006) $3,721,112
Per share $(.14) $(.35) $(.32) $.10
- ------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations
Total $947,824 $(7,558,085) $(5,825,505) $9,024,772
Per share $.02 $(.19) $(.15) $.23
- ------------------------------------------------------------------------
Net assets at end of period
Total $317,295,838 $323,076,381 $337,362,841 $350,096,781
Per share $8.13 $8.28 $8.65 $8.98
- ------------------------------------------------------------------------
</TABLE>
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
Three months ended
- ------------------------------------------------------------------------
September 30 June 30 March 31 December 31
1993 1993 1993 1992
- ------------------------------------------------------------------------
Total investment income
Total $7,041,930 $7,195,247 $7,645,047 $8,072,454
Per share $.18 $.23 $.14 $.21
- ------------------------------------------------------------------------
Net investment income
Total $6,242,378 $6,358,207 $6,824,852 $7,265,745
Per share $.16 $.21 $.12 $.19
- ------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
Total $1,922,543 $6,426,875 $8,329,706 $(5,700,262)
Per share $.05 $.12 $.27 $(.15)
- ------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations
Total $8,164,921 $12,785,082 $15,154,558 $1,565,483
Per share $.21 $.33 $.39 $.04
- ------------------------------------------------------------------------
Net assets at end of period
Total $347,620,379 $346,281,167 $340,516,994 $332,383,362
Per share $8.91 $8.88 $8.73 $8.52
- ------------------------------------------------------------------------
</TABLE>
<PAGE>
Federal tax information
For federal income tax purposes, distributions of $0.55 from net
investment income, $0.05 and $0.01 from short-term and long-term
capital gains, respectively, and $0.08 from paid-in capital,
totaling $0.69 per share for the fiscal year ended September 30,
1994, constitute "dividend income."
The Form 1099 you will receive in January 1995 will show the tax
status of all distributions paid to your account in calendar 1994.
As required by law, your fund reports to the Internal Revenue
Service on a calendar year basis the amount of distributions paid
to each shareholder.Fund information
<PAGE>
Fund Information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
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
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
F. Mark Turner
Vice President
Jennifer E. Leichter
Vice President and Fund Manager
D. William Kohli
Vice President and Fund Manager
Andrew Dudley
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
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time
for up-to-date information about the fund's NAV or to request
Putnam's quarterly Closed-End Fund Commentary.
<PAGE>
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
074-14801
<PAGE>
APPENDIX TO FORM N30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN
PRINTED AND EDGAR-FILED TEXTS.
(1) Rule lines for tables are omitted.
(2) Boldface and italic typefaces are displayed in normal type.
(3) Headers (e.g. the names of the fund) and footers (e.g. page
numbers and OThe accompanying notes are an integral part of
these financial statementsO) are omitted.
(4) Because the printed page breaks are not reflected, certain
tabular and columnar headings and symbols are displayed
differently in this filing.
(5) Bullet points and similar graphic symbols are omitted.
(6) Page Numbering is different.