Putnam
Master
Intermediate
Income Trust
SEMIANNUAL REPORT
March 31, 1995
(Logo: scales)
B O S T O N * L O N D O N * T O K Y O
<PAGE>
Performance highlights
> Morningstar, an independent rating agency, noted in its March 10, 1995,
analysis that "[the fund's] long-term trailing returns are in the category's
top half. . . . Putnam Master Intermediate Income Trust is a fine choice as
an income fund with relatively little [net asset value] volatility."*
> 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.
SEMIANNUAL RESULTS AT A GLANCE
Total return NAV Market price
...........................................................................
(change in value during
period plus reinvested
distributions)
6 months ended 3/31/95 3.64% 2.74%
Share value NAV Market price
...........................................................................
9/30/94 $ 8.13 $ 7.250
3/31/95 8.06 7.125
Distributions No. Income Total
...........................................................................
6 $0.317500 $0.317500
Current return NAV Market price
..........................................................................
End of period
Current dividend rate(1) 7.74% 8.76%
Performance data represent past results. For performance over longer periods,
see pages 8 and 9. (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. Past
performance is not indicative of future results.
<PAGE>
From the Chairman
(Photo: George Putnam)
(c) Karsh, Ottawa
Dear Shareholder:
Confidence levels in the U.S. bond market have increased substantially since
Putnam Master Intermediate Income Trust began its fiscal year this past
October. Your fund's performance as of March 31, 1995, the fiscal year's
halfway point, reflects this change for the better in two of its three
portfolio sectors.
The fund's high-yield and U.S. government bond sectors benefited from the
market's improved disposition. Last year's rising rates may have rattled the
financial markets, but they seem to have succeeded in heading off inflation.
The latter, after all, was the Federal Reserve Board's intent as it nudged
short-term rates higher throughout 1994 and into early 1995. By concentrating
its international holdings in Europe, your fund avoided the downturn in
emerging markets.
In the report that follows, your fund's management team looks back on the first
half of fiscal 1995, and offers some thoughts regarding the outlook for the
rest of the year.
Respectfully yours,
/s/George Putnam
George Putnam
Chairman of the Trustees
May 17, 1995
<PAGE>
Report from the fund managers
Jennifer E. Leichter, lead manager
D. William Kohli
Neil J. Powers
All three sectors--or sleeves--of Putnam Master Intermediate Income Trust's
portfolio showed improved performance during the first half of fiscal 1995. In
the U.S. government sleeve, we were able to take particular advantage of market
opportunities as bonds began to offer attractive value following 1994's
dramatic selloffs. The high-yield bond and international fixed-income sleeves
provided positive, but somewhat more restrained, results for the period. The
fund's total return for the six months ended March 31, 1995, was 3.64% at net
asset value.
> U.S. GOVERNMENT: A STRONG MORTGAGE MARKET
Early in the period, the Federal Reserve Board raised short-term interest
rates for the sixth time in 11 months. At that point, the U.S. bond market
appeared to have regained confidence in the Fed's efforts to moderate economic
growth and to reduce the risk of inflation. Previous rate increases had
resulted in a great deal of volatility and a flattening of the yield curve as
the bond market prepared for--and priced in--even higher rates. After the sixth
rate increase, we reallocated a portion of the portfolio's high-yield assets
into the U.S. government sleeve, anticipating that interest rates would begin
to stabilize.
During the latter half of the period, both U.S. government bonds and
mortgage-backed securities rallied significantly. However, because of their
yield advantages, mortgage-backed securities attracted more investors than
long-term government bonds, causing mortgage-backed prices to increase more
than government bond prices.
Our strategy for the U.S. government sleeve was to take advantage of the strong
performance of both government bonds and mortgage-backed securities while
maintaining the fund's focus of investing primarily in intermediate-term bonds.
The fund's mortgage-backed holdings were relatively overweighted--
approximately 50% of the sleeve, as opposed to a typical 30%. This reflected
our assessment of the attractive income opportunities they were offering. In
keeping with our intermediate focus,
<PAGE>
we also "balanced" the longer maturities of the sleeve's mortgage-backed
holdings with shorter-term government bonds.
It is also important to note that, with the mortgage-backed securities,
prepayment risk over this period was relatively low in comparison with the
record increases in mortgage prepayments in late 1993 and early 1994. Upturns
in interest rates, like those we experienced in 1994, have historically reduced
prepayment risk.
> HIGH YIELD: REALLOCATING ASSETS AS GROWTH SLOWS
During fiscal 1994, investments in lower-rated higher-yielding bonds proved to
be the fund's greatest strength. Our strategy of concentrating holdings in this
sector was based on the tendency of high-yield investments to do well in
periods of growing economic activity, as well as the belief that the high-yield
market in general was undervalued. Over the past six months, however, the
robust economic activity finally showed signs of abating and high-yield bond
prices have moved closer to fair value. We believe the prospects for additional
appreciation have diminished, and we have reduced the fund's holdings in this
sector from 37% to 32% of net assets.
Although they now compose a smaller portion of the portfolio, high-yield
holdings continue to make a solid contribution to fund performance. Mergers and
consolidations in the health-care and cable television industries proved
especially beneficial for the fund. One example is the merger of Columbia/HCA
Mortgage-Backed Securities
vs. Government Bonds
[Vertical Bar Chart]
<TABLE>
<CAPTION>
<S> <C>
4/94 -0.09
5/94 0.24
6/94 0
7/94 0.69
8/94 0.72
9/94 0.13
10/94 0.04
11/94 0.19
12/94 0.66
1/95 1.17
2/95 1.8
3/95 1.72
</TABLE>
Chart illustrates how mortgage-backed securities have outperformed U.S.
government securities of similar maturities during the 12 months ended March
31, 1995. With the exception of April 1994, mortgage-backed securities
outperformed government bonds. Numbers represent the cumulative relative total
return of mortgage-backed securities in relation to government bonds. Sources:
Lehman Brothers Mortgage-Backed Index and Lehman Brothers Government
Intermediate Bond Index. Indexes are unmanaged and do not reflect fund
performance. Past performance is not indicative of future results.
<PAGE>
Healthcare Corporation, an investment-grade (A-rated) bond and HealthTrust,
Inc., a higher-yielding, lower-rated (B) bond. The HealthTrust securities rose
sharply in value and we expect them to be rated in line with Columbia/HCA
securities following the merger.
Despite generally constructive results in the high-yield sector, one position
proved disappointing: Grand Union Company, a supermarket operator in the
Northeast. In November, the company announced that it would reorganize its
capital structure in an effort to reduce debt, to improve liquidity, and to
refurbish its supermarket base. The announcement caused the prices of the
company's high-yield bonds to drop sharply. Fortunately, the fund's Grand Union
holdings amounted to less than 0.5% of the portfolio, so the impact on
performance was not substantial.
> INTERNATIONAL: MORE FAVORABLE BOND MARKETS
Around the world, many fixed-income investments have become more attractively
priced as a result of 1994's widespread bond-market selloffs. While we
increased the fund's international holdings slightly during the period, the
international sleeve remains underweighted at 28% of the overall portfolio.
Early in fiscal 1995, the fund's international holdings were concentrated in
smaller European markets, where stronger performance was expected as a result
of structural reforms and proactive monetary policies. However, many of the
uncertainties that were prevalent in 1994's international markets began to
resurface. As a result, we've shifted assets out of some countries, such as
Canada and Australia, and increased the fund's exposure in stronger core
markets such as Germany and Japan.
Early in the period, to protect the fund from adverse foreign-currency
movements, some of its foreign currency holdings were hedged back into U.S.
dollars. In February, however, we began to adjust the fund's currency exposure
as the U.S. dollar weakened significantly against other currencies, especially
the German deutschemark and the Japanese yen. At the end of the period, the
fund had eliminated all its U.S. dollar hedges and had full exposure to
international currencies.
<PAGE>
TOP THREE HOLDINGS PER SECTOR
HIGH-YIELD BONDS
Adelphia Communications Corp.
...............................................
PSF Finance (L.P.)
...............................................
Equitable Bag Co.
...............................................
INTERNATIONAL FIXED-INCOME SECURITIES
Germany (Republic of) bonds 7-3/8s, 2005
...............................................
Japan (Government of) bonds 44s, 2004
...............................................
United Kingdom Treasury bonds 9-3/4s, 2002
...............................................
U.S. GOVERNMENT SECURITIES
GNMA 7-1/2s
...............................................
U.S. Treasury notes 7-3/8s
...............................................
FNMA 7-1/2s (TBA)
...............................................
Based on net assets as of 3/31/95. Portfolio holdings will vary over time.
Our emerging markets holdings peaked at about 5% during the period, and were
reduced to 2%, primarily due to recent intense volatility in many of these
areas.
> OUTLOOK: WATCHING FOR MORE EVIDENCE OF AN ECONOMIC SLOWDOWN
Heading into the second half of fiscal 1995, we will continue to adjust the
portfolio's asset allocation to seek to take advantage of changing market
conditions. We expect to reduce the fund's high-yield holdings as the year
progresses, but will wait until we see stronger evidence of a slowdown in
economic activity. We believe there is value in the international sector, and
we anticipate that the U.S. dollar may stabilize.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 3/31/95, there is no guarantee the fund will continue to hold
these securities in the future. Investments in non-U.S. securities may be
subject to certain risks such as currency fluctuations and political
developments. The lower ratings of high-yield debt securities reflect a greater
possibility that adverse changes in an issuer's business or financial
condition, or in general economic conditions, may impair the issuer's ability
to pay principal and interest on the securities. Although the U.S. government
guarantees the timely payment of principal and interest on the U.S. government
and agency obligations, the value of the fund shares is not guaranteed and will
fluctuate.
<PAGE>
Performance summary
This section provides, at a glance, information about your fund's performance.
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions back into the fund. We show total return in two ways: on a
cumulative long-term basis and on average how the fund might have grown each
year over varying periods. For comparative purposes, we show how the fund
performed relative to appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDED 3/31/95
NAV Market price
6 months 3.64 % 2.74 %
1 year 1.89 0.53
5 years 70.72 71.43
Annual average 11.29 11.38
Life of fund (since 4/29/88) 78.89 47.08
Annual average 8.77 5.73
COMPARATIVE INDEXES AND BENCHMARKS
Salomon Bros. First
Lehman Bros. Non-U.S. Boston Consumer
Aggregate Bond World Govt. High Yield Price
Index Bond Index Index Index
6 months 5.44 % 15.09 % 4.66% 1.34 %
1 year 4.99 18.98 4.83 2.85
5 years 53.16 109.04 98.78 17.64
Annual average 8.90 15.89 14.73 3.30
Life of fund 81.91 92.27 107.59 29.29
Annual average 9.04 9.91 11.14 3.78
Performance data represent past results. Investment returns and principal 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.
<PAGE>
TERMS AND DEFINITIONS
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares.
Market price is the current trading price of one share of the fund. Market
prices are set by transactions between buyers and sellers on the New York Stock
Exchange.
COMPARATIVE BENCHMARKS
Lehman Brothers Aggregate Bond Index* is composed of securities from Lehman
Brothers Government/Corporate Bond Index, Mortgage-Backed Securities Index, and
the Asset-Backed Securities Index.
Lehman Brothers Government Intermediate Bond Index* is composed of all bonds
covered by the Lehman Brothers Government Bond Index with maturities between 1
and 9.99 years.
Lehman Brothers Mortgage-Backed Securities Index* reflects performance of 15-
and 30-year fixed-rate securities backed by mortgage pools of the Government
National Mortgage Association, Federal Home Loan Mortgage Corporation, and
Federal National Mortgage Association.
Salomon Brothers Non-U.S. World Government Bond Index* is an unmanaged list of
government 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>
A Putnam perspective on risk and reward
You've probably been told how important it is to understand the relationship
between an investment's potential rewards and its accompanying risks. Given the
cautionary nature of such instructions, it may take most investors a while to
realize that risk has a positive side.
Every risk signals a potential reward. Selecting only those investments that
offer the greatest degree of security generally leads to only modest rewards.
Furthermore, even insured or guaranteed investments may be subject to changes
in their rates of return or, in some cases, in their principal values.
Experienced investors know that no investment is truly risk free and are
therefore willing to take on some measure of risk in order to increase their
potential gains.
The greater the risk, the greater the potential reward.
Accepting an appropriate level of investment risk can give you a better chance
of outpacing inflation over time and seeking to maximize your investment's
return. How much risk?
> A RUNDOWN OF RISK TYPES
MARKET RISK Most important for stock funds, but relevant to all funds, this is
a measure of how sensitive a fund's holdings are to changes in general market
conditions. Remember, though, that securities that lose value quickly in market
declines may also show the strongest gains in more favorable environments.
INTEREST-RATE RISK Since bond prices fall as interest rates rise, this type of
risk is a particular concern for fixed-income investors. However, interest-rate
increases can also have a substantial negative effect on the stock market.
INFLATION RISK If your investments cannot keep pace with inflation, your money
will begin to lose its purchasing power. Stock investments are generally
considered among the best ways of addressing inflation risk over the long term.
<PAGE>
Your financial advisor's feedback and your time horizon can make all the
difference in determining how much risk is compatible with your investment
goals and your peace of mind.
> FITTING YOUR FUND SELECTION TO YOUR
RISK TOLERANCE
How do you find the right balance between investment risks and their potential
rewards. It's helpful to understand the types of risks that can apply to
different types of investments, and to look at your own portfolio with this
perspective.
For short-term goals, your first priority may be managing market risk.
Longer-term investors may be more concerned with inflation risk. And all
income-oriented investors should consider interest-rate, credit, and prepayment
risks carefully.
CREDIT AND PREPAYMENT RISK Credit risk is the concern that the security's
issuer will not be able to meet its payment, while prepayment risk involves the
premature payoff of a loan, with a resulting loss of interest income.
Professional management and in-depth research are invaluable in managing both
these risks.
LIQUIDITY RISK Not all investments can be readily converted into cash at their
perceived market values. Liquidity risk can affect the price of securities held
in the fund's portfolio and, thus, the fund's share prices.
This list covers only the most general types of risks; however, each investment
will also have its own specific risks.
<PAGE>
Portfolio of investments owned
March 31, 1995 (Unaudited)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (34.1%)*
PRINCIPAL AMOUNT VALUE
Federal National Mortgage Association
$ 4,255,000 dwarfs 9-1/2s, April 14, 2010 $ 4,453,123
8,468 dwarfs 8-1/2s, March 1, 2006 8,661
5,433 dwarfs 8-1/2s, March 1, 2006 5,557
14,000,000 7-1/2s, April 14, 2025+++ 13,549,375
96,372 4-3/4s, March 11, 2004 94,836
7,491,144 8s, with various due dates to December 1,
2024 7,416,232
Government National Mortgage Association
4,946,573 9s, with various due dates to April 15,
2009 5,169,168
9,355,908 8s, with various due dates to October 15,
2024 9,270,600
15,203,156 7-1/2s, with various due dates to June 15,
2024 14,785,065
3,000,000 U.S. Treasury bonds 10-3/4s August 15, 2005 3,736,875
5,770,000 U.S. Treasury bonds 10-3/4s May 15, 2003 6,997,928
3,325,000 U.S. Treasury bonds 93/8s, February 15, 2006 3,840,375
10,105,000 U.S. Treasury notes 7-7/8s, July 15, 1996 10,256,575
13,945,000 U.S. Treasury notes 7-3/8s, May 15, 1996 14,058,303
13,330,000 U.S. Treasury notes 7-1/2s, January 31,1997 13,492,459
Total U.S. Government and Agency Obligations
(cost $106,147,369) $107,135,132
CORPORATE BONDS AND NOTES (31.9%)*
PRINCIPAL AMOUNT VALUE
Advertising (0.3%)
$ 800,000 Universal Outdoor, Inc. sub. deb. 11s, 2003 $ 740,000
500,000 Universal Outdoor, Inc. sr. note
stepped-coupon zero %
(14s, 7/1/99), 2004++ 277,500
1,017,500
Aluminum (0.5%)
1,550,000 Kaiser Aluminum & Chemical Corp. sr. sub.
notes
12-3/4s, 2003 1,604,250
Agriculture (0.8%)
1,380,000 PM Holdings Corp. sub. notes stepped-coupon
zero % (11-1/2s, 3/1/00), 2005++ 638,250
1,225,140 PSF Finance (L.P.) sr. note 12s, 2000 1,277,208
831,000 PSF Finance (L.P.) sr. disc. note
stepped-coupon zero % (12s, 9/15/96) 2003++ 677,265
2,592,723
Automotive Parts (0.5%)
1,450,000 Key Plastics Corp. sr. notes 14s, 1999 1,551,500
Banks (0.2%)
700,000 Westpac Banking Corp. sub. deb. 9-1/8s, 2001 741,563
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
Broadcasting (1.2%)
$ 500,000 Act III Broadcasting, Inc. sr. sub. notes
9-5/8s, 2003 $ 482,500
250,000 New City Broadcasting Corp. sr. sub. notes
11-3/8s, 2003 232,500
1,450,000 Panamsat (L.P.) sr. sub. notes
stepped-coupon zero % (11-3/8s, 8/1/98),
2003++ 957,000
1,250,000 SFX Broadcasting, Inc. sr. sub. notes
11-3/8s, 2000 1,275,000
901,000 Telemedia Broadcasting Corp. 144A deb. 6.4s,
2004 783,870
3,730,870
Building and Construction (0.9%)
250,000 Miles Homes Services sr. notes 12s, 2001 175,000
1,000,000 Presley Co. sr. notes 12-1/2s, 2001 830,000
1,000,000 Schuller International Corp. bonds 10-7/8s,
2004 1,052,500
800,000 Scotsman Group, Inc. sr. notes 9-1/2s, 2000 764,000
2,821,500
Building Products (0.3%)
750,000 Southdown, Inc. sr. sub. notes Ser. B, 14s,
2001 827,813
Business Services (0.1%)
500,000 Corporate Express, Inc. sr. sub. notes
9-1/8s, 2004 472,500
Cable Television (1.9%)
250,000 Adelphia Communications Corp. sr. deb.
11-7/8s, 2004 230,000
450,000 Adelphia Communications Corp. notes, Ser. B,
9-7/8s, 2005 378,000
1,571,250 Adelphia Communications Corp. sr. notes
9-1/2s, 2004++++ 1,170,581
1,400,000 Cablevision Systems Corp. sr. sub. reset
deb. 10-3/4s, 2004 1,442,000
500,000 Century Communications Corp. sr. notes
9-1/2s, 2005 480,000
1,084,383 Falcon Holdings Group, Inc. sr. sub. notes
11s, 2003++++ 943,413
1,300,000 Insight Communications Co. sr. sub. notes
stepped-coupon 8-1/4s (11-1/4s, 3/1/96),
2000++ 1,257,750
5,901,744
Cellular Communications (1.6%)
1,000,000 Cellular, Inc. sr. sub. disc. notes
stepped-coupon zero % (11-3/4s, 9/1/98),
2003++ 690,000
1,200,000 Centennial Cellular Corp. sr. notes 8-7/8s,
2001 1,116,000
1,200,000 Horizon Cellular Telephone Co. sr. sub.
disc. notes Ser. B, stepped-coupon zero %
(11-3/8s, 10/1/97), 2000++ 909,000
2,500,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (11-1/2s, 9/1/98),
2003++ 1,106,250
250,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (9-3/4s, 2/15/99),
2004++ 102,500
1,700,000 Pricellular Wireless Corp. 144A sr. sub.
disc. notes
zero % (14s, 11/15/97), 2001++ 1,258,000
5,181,750
Chemicals (1.3%)
1,250,000 G-I Holdings, Inc. sr. notes zero %, 1998 806,250
1,400,000 Harris Chemical Corp. sr. sub. notes
10-3/4s, 2003 1,330,000
1,200,000 OSI Specialities Corp. sr. sub. notes
9-1/4s, 2003 1,151,995
1,500,000 OSI Specialities Corp. sr. secd. disc. deb.
stepped-coupon zero % (11-1/2s, 4/15/99),
2004++ 990,000
4,278,245
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
Conglomerates (1.7%)
$ 735,000 Axia, Inc. sr. sub. notes Ser. B 11s, 2001 $ 676,200
1,650,000 Haynes International, Inc. sr. sub. notes
13-1/2s, 1999 1,072,500
750,000 MacAndrews & Forbes Holdings, Inc. sub. deb.
notes
13s, 1999 750,000
1,500,000 MacAndrews & Forbes Group, Inc. deb.
12-1/4s, 1996 1,500,000
1,125,000 Talley Industries, Inc. sr. disc. deb.
stepped-coupon
zero % (12-1/4s, 10/15/98), 2005++ 630,000
750,000 Valcor, Inc. sr. note 9-5/8s, 2003 690,000
5,318,700
Consumer Products (0.2%)
797,000 Equitable Bag Co. sr. notes 11s, 2004 597,750
Consumer Services (0.5%)
750,000 Solon Automated Services, Inc. notes
12-3/4s, 2001 736,875
750,000 Solon Automated Services, Inc. sr. sub. deb.
13-3/4s, 2002 750,000
1,486,875
Containers (1.0%)
1,000,000 Ivex Holdings Corp. sr. disc. deb.
stepped-coupon zero % (13-1/4s, 3/15/00),
2005++ 480,000
2,500,000 Ivex Packaging Corp. sr. sub. notes 12-1/2s,
2002 2,612,500
3,092,500
Defense Electronics (0.1%)
250,000 Alliant Techsystems Inc. 144A sr. sub notes
11-3/4s, 2003 255,625
Electric Utilities (0.7%)
1,950,000 Midland Funding Corp. II deb. Ser. A,
11-3/4s, 2005 1,930,500
250,000 Toledo Edison Co. 1st. mtge. 7-7/8s, 2004 216,563
2,147,063
Electronics (0.8%)
1,300,000 Amphenol Corp. sr. sub. notes 12-3/4s, 2002 1,456,000
2,100,000 International Semi-Tech. Corp. sr. disc.
notes stepped-coupon zero % (11-1/2s,
8/15/00), 2003++ 924,000
2,380,000
Entertainment (0.4%)
1,450,000 Viacom International, Inc. sub. deb. 8s,
2006 1,312,250
Environmental Control (0.1%)
200,000 Envirosource, Inc. sr. notes 9-3/4s, 2003 176,000
Finance (0.2%)
500,000 First Federal Financial Corp. notes 11-3/4s,
2004 506,250
Financial Services (0.5%)
1,000,000 Comdata Network, Inc. sr. sub. deb. 13-1/4s,
2002 1,090,000
400,000 Delaware Management Holdings, Inc. sr. notes
Ser. B, 10-1/4s, 2004 436,000
1,526,000
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
Food (1.0%)
$ 950,000 Chiquita Brands International Inc. sub. deb.
11-1/2s, 2001 $ 969,000
1,014,000 Del Monte Corp. 144A sub. deb. notes
12-1/4s, 2002++++ 877,110
1,000,000 Mafco, Inc. sr. sub. notes 11-7/8s, 2002 965,000
425,000 Specialty Foods Corp. sr. sub. notes
11-1/4s, 2003 410,125
3,221,235
Food Chains (0.9%)
3,000,000 Grand Union Co. sr. sub. notes 12-1/4s, 2002
(In Default)+ 1,020,000
1,750,000 Stater Brothers sr. notes 144A 11s, 2001 1,680,000
2,700,000
Forest Products (1.3%)
3,200,000 Gaylord Container Corp. sr. sub. disc. deb.
stepped-coupon zero % (12-3/4s, 5/15/96),
2005++ 3,040,000
1,150,000 Stone Container Corp. 1st mtge. 10-3/4s,
2002 1,184,500
4,224,500
Health Care (1.2%)
100,000 Healthtrust, Inc. sub. notes 10-1/4s, 2004 110,750
500,000 McGaw, Inc. sr. notes 10-3/8s, 1999 517,500
1,000,000 National Medical Enterprises Inc. sr. notes
10-1/8s, 2005 1,026,250
500,000 National Medical Enterprises Inc. sr. notes
9-5/8s, 2002 511,250
500,000 Ornda Healthcorp sr. sub. notes 12-1/4s,
2002 545,000
250,000 Paracelsus Healthcare Corp. sr. sub. notes
9-7/8s, 2003 245,000
650,000 Quorum Health Group, Inc. sr. sub. notes
11-7/8s, 2002 702,000
3,657,750
Insurance (0.9%)
600,000 American Life Holding Co. sr. sub. notes
11-1/4s, 2004 597,000
1,000,000 Penn Corp. Financial Group sr. sub. notes
9-1/4s, 2003 920,000
500,000 Reliance Group Holdings, Inc. sr. sub. deb.
9-3/4s, 2003 457,500
1,000,000 Reliance Group Holdings, Inc. sr. notes 9s,
2000 937,500
2,912,000
Leisure (0.2%)
750,000 Stratosphere Corp. 1st mtge 14-1/4s, 2002 765,000
Lodging (0.1%)
250,000 Red Roof Inns sr. notes 9-5/8s, 2003 240,000
Machinery (0.3%)
1,000,000 Specialty Equipment Co. sr. sub. notes
11-3/8s, 2003 985,000
Medical Supplies (0.1%)
350,000 Wright Medical Technology, Inc. sr. secd.
notes Ser. B, 10-3/4s, 2000 343,000
Motion Picture Distribution (1.2%)
1,500,000 AMC Entertainment, Inc. sr. sub. deb.
12-5/8s, 2002 1,635,000
1,100,000 Act III Theatres, Inc. sr. sub. notes
11-7/8s, 2003 1,144,000
1,000,000 Cinemark USA, Inc. sr. sub. notes 12s, 2002 1,055,000
3,834,000
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
Nursing Homes (0.4%)
$1,125,000 Multicare Cos., Inc. sr. sub. notes 12-1/2s,
2002 $1,271,250
Oil and Gas (0.7%)
500,000 Chesapeake Energy Corp. sr. exch. notes 12s,
2001 520,000
600,000 Flores & Rucks, Inc. sr. notes 13-1/2s, 2004 627,000
250,000 Maxus Energy Corp. notes 9-1/2s, 2003 210,000
1,000,000 Oryx Energy Co. deb. 9-3/4s, 1998 1,005,000
2,362,000
Paging (0.1%)
400,000 Pagemart, Inc. sr. disc. notes
stepped-coupon zero % (12-1/4s, 11/1/98),
2003++ 246,500
Publishing (0.6%)
750,000 Marvel Holdings, Inc. sr. notes Ser. B zero %,
1998 476,250
2,350,000 Marvel Parent Holdings, Inc. sr. secd. disc.
notes zero %, 1998 1,468,750
1,945,000
Real Estate (0.2%)
700,000 Kearny State Real Estate (L.P.) secd. notes
9.56s, 2003 700,000
Recreation (2.1%)
715,000 Arizona Charlies Corp. 1st mtge. Ser. B,
12s, 2000 572,000
260,000 Capitol Queen Corp. 144A 1st mtge. note Ser.
B,
12s, 2000 234,000
875,000 Casino America, Inc. 1st mtge. 11-1/2s, 2001 850,938
1,000,000 Fitzgerald Gaming Co. 144A 1st mtge. 13s,
1996 620,000
1,400,000 Grand Casino Resorts, Inc. 1st mtge.
12-1/2s, 2000 1,428,000
1,000,000 Grate Bay Property Funding Corp. 1st. mtge.
10-7/8s, 2004 842,500
515,000 Louisiana Casino Cruises Corp. 1st. mtge.
deb. 11-1/2s, 1998 442,900
594,000 Trump Castle Funding Corp. priority 1st.
mtge. 11-1/2s, 2000 594,000
1,122,753 Trump Taj Mahal Funding, Inc. 1st. mtge. A,
11.35s, 1999++++ 850,485
6,434,823
Restaurants (1.0%)
225,000 American Restaurant Group, Inc. sr. secd.
notes Ser. A, 12s, 1998 204,750
900,000 American Restaurant Group, Inc. sr. notes,
Ser. B, 12s, 1998 828,000
1,750,000 American Restaurant Group, Inc. sr. notes
stepped-coupon zero % (14s, 12/15/98),
2005++ 840,000
1,500,000 Flagstar Corp. sr. sub. notes 11-3/8s, 2003 1,263,750
3,136,500
Retail (2.7%)
1,200,000 County Seat Stores sr. sub. notes 12s, 2001 1,194,000
1,277,000 Duane Reade Corp. sr. notes 12s, 2002 983,290
2,500,000 Finlay Enterprises, Inc. sr. disc. deb.
stepped-coupon
zero % (12s, 5/1/98), 2005++ 1,550,000
830,000 Loehmanns' Holdings, Inc. sr. sub. notes
13-3/4s, 1999 807,175
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
Retail (continued)
$2,200,000 Loehmanns' Holdings, Inc. sr. notes 10-1/2s,
1997 $ 2,178,000
750,000 Parisian, Inc. sr. sub. notes 9-7/8s, 2003 517,500
1,750,000 Pay'n Pak Stores, Inc. sr. sub. deb.
13-1/2s, 1998
(In Default)+ 1,094
1,250,000 Southland Corp. deb. 4s, 2004 739,063
740,000 Specialty Retailers, Inc. sr. sub. notes
11s, 2003 680,800
8,650,922
School Busses (0.5%)
1,500,000 Blue Bird Body Co. sr. sub. deb. Ser. B,
11-3/4s, 2002 1,515,000
Specialty Consumer Products (0.2%)
590,000 Playtex Family Products Corp. sr. sub. notes
9s, 2003 547,225
Telephone Services (0.1%)
285,000 Call-Net Enterprises bonds stepped-coupon
zero %
(13-1/4s, 12/1/99), 2004++ 156,038
400,000 MFS Communications sr. disc. notes
stepped-coupon zero % (9-3/8s,1/15/99),
2004++ 253,000
409,038
Textiles (0.3%)
1,000,000 Foamex (L.P.) Capital Corp. sr. sub. deb.
11-7/8s, 2004 970,000
Total Corporate Bonds and Notes
(cost $107,243,762) $100,591,714
FOREIGN BONDS AND NOTES (24.9%)*
PRINCIPAL AMOUNT VALUE
AUD 8,200,000 Australia (Government of) bonds 13s, 2000 $ 6,847,000
AUD 2,100,000 Australia (Government of) bonds 7-1/2s,
2005 1,309,875
USD 500,000 Buenos Aires (Province of) bonds 9-1/2s,
1997 415,000
CAD 1,500,000 Canada (Government of) deb. 9s, 2004 1,100,625
CAD 3,970,000 Canada (Government of) bonds 5-3/4s, 1999 2,610,275
USD 1,000,000 Czech (Republic of) National Bank 144A
bonds 7s, 1996 993,750
DKK 32,700,000 Denmark (Government of) bonds 8s, 2003 5,702,063
DEM 22,190,000 Germany (Republic of) bonds 7-3/8s, 2005 16,323,519
USD 175,000 PT Astra (Indonesia) bonds 9-3/4s, 2001 154,656
ITL 8,410,000,000 Italy (Government of) bonds 12s, 2003 4,704,344
ITL 9,165,000,000 Italy (Government of) bonds 8-1/2s, 2004 4,089,881
ITL 1,750,000,000 Italy (Government of) notes 8-1/2s, 1999 888,125
JPY 1,017,400,000 Japan (Government of) bonds 4.4s, 2004 12,329,616
USD 50,000 Petroleos Mexicanos 144A med. term notes
6-1/8s, 1996 43,375
USD 250,000 Phillipines (Government of) deb. 10-5/8s,
2004 238,750
USD 120,000 South Africa (Government of) notes
9-5/8s, 1999 117,300
ESP 212,600,000 Spain (Government of) bonds 10.55s, 1996 1,668,910
ESP 239,500,000 Spain (Government of) bonds 10-1/4s, 1998 1,799,244
THB 6,000,000 Thailand (IFC of) bonds FRN 8s, 1996 240,000
DEM 2,855,000 Treuhandanstalt (Government of) bonds
7-1/8s, 2003 2,071,659
GBP 6,730,000 United Kingdom Treasury bonds 9-3/4s,
2002 11,567,188
GBP 1,820,000 United Kingdom (Government of) bonds
(Gilt Stock) 9-1/2s, 2004 3,116,750
Total Foreign Bonds and Notes
(cost $76,588,317) $ 78,331,905
<PAGE>
UNITS (1.9%)*
NUMBER OF UNITS VALUE
125 Celcaribe S.A. 144A units stepped-coupon
zero % (13-1/2s, 3/15/98), 2004++ $1,063,438
750,000 Dial Call Communications, Inc. units stepped
coupon zero % (12-1/4s, 2000), 2004++ 281,250
2,425 Echostar Communication Corp. units
stepped-coupon zero % (12-7/8s, 12/1/99),
2004++ 1,164,000
400 Elsinore Corp 144A 1st. property mtge. units
20s, 1996 400,000
1,000,000 Hollywood Casino 144A units 13-1/2s, 1998 1,040,000
1,350 ICF Kaiser International, Inc. sr. sub.
units 12s, 2003 1,225,125
275,200 Premium Standard Farms 144A exch. pfd. units
12-1/2s, 2000 302,720
645 Total Renal Care units stepped-coupon zero %
(12s, 8/15/99), 2004++ 567,600
Total Units (cost $5,928,288) $6,044,133
YANKEE BONDS AND NOTES (1.3%)*
PRINCIPAL AMOUNT VALUE
$1,286,220 Brazil (Government of) bonds 7.8125s, 2001 $ 938,941
1,000,000 CF Cable TV., Inc. sr. notes 11-5/8s, 2005 1,025,000
465,000 Cinemark Mexico 144A notes 12s, 2003 432,450
1,500,000 Fresh Del Monte Produce Corp. sr. notes,
Ser. B, 10s, 2003 1,155,000
750,000 Grupo Industrial Durango (Mexico) notes 12s,
2001 634,688
Total Yankee Bonds and Notes (cost
$4,655,165) $ 4,186,079
ASSET-BACKED SECURITIES (1.0%)*
PRINCIPAL AMOUNT VALUE
$1,000,000 Citicorp Mtg. Securities, Inc. 1992-10 M 8s,
2022 $ 979,063
941,692 Resolution Trust Corp. Ser. 94-1 A2A 7-3/4s,
2029 931,392
1,530,576 Resolution Trust Corp. Ser. 94-1 M1 7.14s,
2029 1,372,735
Total Asset-Backed Securities (cost
$3,203,662) $3,283,190
COMMON STOCKS (0.9%)*+
NUMBER OF SHARES VALUE
1,750 American Restaurant Group, Inc. $ 35,000
82,861 Ampex Corp. Class A 139,828
12,730 Applause Enterprises, Inc. (acquired 1/17/89
shares 1,330 cost $340,795, acquired 6/7/89
shares 11,400 cost $3,000,000)++ 31,825
2,205 Axia Holding Corp. 144A 61,740
4,000 Capital Gaming International, Inc. 144A 20,500
10,250 Chesapeake Energy Corp. 217,813
109,136 Computervision Corp. 545,680
5,467 Computervision Corp. New (acquired 08/24/92
shares 5,467 cost $49,203)++ 19,476
75,773 Equitable Bag Co. Class A 179,961
33,334 Federated Department Stores 737,515
10,175 Grand Casinos, Inc. 232,753
3,770 IFINT Diversified Holdings 144A 266,728
35,327 Lady Luck Gaming Corp. 72,862
117,371 Loehmanns' Holdings, Inc. 144A 117,371
464 PMI Holdings Corp. 144A 92,800
327 Premium Holdings L.P. 144A 32,781
735 Pyramid Communications, Inc. 144A New
Class B 17,642
10,050 Specialty Foods Corp. 25,125
3,499 Taj Mahal Holding Corp. Class A 34,990
Total Common Stocks (cost $5,541,004) $2,882,390
<PAGE>
EUROBONDS (0.5%)*
PRINCIPAL AMOUNT VALUE
$ 250,000 Banco Del Sud S.A. (Argentina) sr. unsub.
med. term notes 10-1/8s, 1997 $ 172,500
161,000 Essar Gujarat Ltd. (India) 144A FRN 8.025s,
1999 156,975
1,500,000 Ispat Mexicana, SA 144A deb. 10-3/8s, 2001 1,050,000
259,000 Petroleo Brasileiro (Brazil) S.A. FRN
9.275s, 1998 257,058
Total Eurobonds (cost $2,159,210) $1,636,533
PREFERRED STOCKS (0.5%)*
NUMBER OF SHARES VALUE
27,729 Foxmeyer Health Corp. Ser. A, $4.20 pfd. $ 973,981
23,031 Pyramid Communications, Inc. Ser. C, $3.125
exch. pfd. 541,220
Total Preferred Stocks (cost $1,552,133) $1,515,201
WARRANTS (0.3%)*+
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
32,500 Becker Gaming Corp. 144A 11/15/00 $ 34,531
6,825 Capital Gaming International,
Inc. 2/1/99 16,209
1,387 Casino America, Inc. 11/15/96 347
7,860 Casino Magic Finance Corp. 10/14/96 491
5,159 Cinemark Mexico USA, Inc. 8/1/03 47,721
1,200 County Seat Holdings, Inc. 10/15/98 24,000
750 Dial Page, Inc. 1/1/97 375
9,999 Elsinore Corp. 144A 10/4/98 1,250
1,000 Fitzgerald Gaming Co. 144A 3/15/99 55,000
65,655 Gaylord Container Corp. 144A 7/31/96 689,378
1,470 Louisiana Casino Cruises, Inc.
144A 12/1/98 22,050
1,500 OSI Specialties Corp. 144A 4/15/99 30,000
1,840 Pagemart, Inc. 144A 12/31/03 14,030
1,750 Payless Cashways, Inc. 11/1/96 2,625
1,500 President Riverboat Casinos,
Inc. 144A 9/23/96 94
12,500 Southdown, Inc. 144A 10/31/96 43,750
21 Telemedia Broadcasting Corp.
144A 4/1/04 15,923
500 Universal Outdoor, Inc. 144A 7/1/04 20,000
100 Wright Medical Technology, Inc.
144A 6/30/03 16,538
Total Warrants (cost $646,831) $1,034,312
PUT OPTIONS PURCHASED (COST $242,500)(0.2%)*
NUMBER OF EXPIRATION DATE/
CONTRACTS STRIKE PRICE VALUE
JPY 483,000 Japanese 10 YR Future May95/$104 $ 588,487
SHORT-TERM INVESTMENTS (9.7%)*
Principal Amount VALUE
$14,775,000 Federal Home Loan Mortgage Corp. 5.94s, May
2, 1995 $ 14,699,426
14,737,000 Interest in $510,221,000 joint repurchase
agreement dated March 31, 1995 with Goldman
Sachs & Co., Inc., due April 3, 1995 with
respect to various U.S Treasury
obligations--maturity value of $14,744,712
for an effective yield of 6.28% 14,739,571
USD 500,000 Mexican Tesobono bonds zero %, October 19,
1995 425,000
USD 750,000 Mexican Tesobono bonds zero %, August 3,
1995 680,625
MXP 200,000 Mexican Treasury bills zero %, April 27,
1995 28,750
Total Short-Term Investments
(cost $30,690,417) $ 30,573,372
Total Investments (cost $344,598,658)*** $337,802,448
<PAGE>
NOTES
* Percentages indicated are based on net assets of $314,234,958, which
correspond to a net asset value per share of $8.06
++ The interest rate and date shown parenthetically represent the new
interest rate to be paid and the date the fund will begin receiving
interest at this rate.
## Income may be received in cash or additional securities at the discretion
of the issuer.
+++ TBA's are mortgage backed securities traded under delayed delivery
commitments, settling after March 31, 1995. Although the unit price for
the trades has been established, the principal value has not been
finalized. However, the amount of the commitments will not fluctuate more
than 2% from the principal amount. Income on the securities will not be
earned until settlement date. The cost of TBA purchases held at March 31,
1995 was $13,527,500.
+ Non-income-producing security.
# 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, 1995 was
$51,301 or less than 1% of net assets.
*** The aggregate identified cost on a tax cost basis is $344,617,951,
resulting in gross unrealized appreciation and depreciation of
$10,526,130 and $17,341,633, respectively, or net unrealized depreciation
of $6,815,503.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
<PAGE>
Forward Currency Contracts Outstanding at March 31, 1995
(Aggregate Face Value $91,378,412)
Unrealized
Market Aggregate Delivery Appreciation
Value Face Value Date (Depreciation)
Australian Dollars
(Sell) $2,413,248 $2,449,260 6/19/95 $ 36,012
Australian Dollars
(Sell) 1,316,340 1,335,204 6/19/95 18,864
Australian Dollars
(Sell) 1,097,250 1,083,075 6/14/95 (14,175)
Australian Dollars
(Sell) 1,755,600 1,735,800 6/14/95 (19,800)
British Pounds (Buy) 4,047,000 3,957,000 6/14/95 90,000
British Pounds (Sell) 6,154,100 6,170,250 5/9/95 16,150
British Pounds (Sell) 1,943,400 1,908,264 5/9/95 (35,136)
British Pounds (Sell) 3,075,720 3,063,750 6/14/95 (11,970)
Danish Krone (Buy) 321,125 301,943 4/19/95 19,182
Danish Krone (Buy) 1,101,000 1,072,252 4/19/95 28,748
Danish Krone (Sell) 2,807,550 2,526,712 4/18/95 (280,838)
Danish Krone (Sell) 3,706,700 3,334,489 4/18/95 (372,211)
Deutschemarks (Buy) 3,076,860 2,975,685 5/15/95 101,175
Deutschemarks (Buy) 7,075,180 6,932,781 6/16/95 142,399
Deutschemarks (Buy) 3,792,360 3,788,707 6/14/95 3,653
Deutschemarks (Sell) 1,710,330 1,566,667 5/2/95 (143,663)
Deutschemarks (Sell) 4,371,000 4,069,590 5/22/95 (301,410)
Deutschemarks (Sell) 2,222,230 2,066,396 5/23/95 (155,834)
Deutschemarks (Sell) 291,320 283,003 5/15/95 (8,317)
Deutschemarks (Sell) 4,296,970 4,195,406 5/15/95 (101,564)
Deutschemarks (Sell) 4,229,940 4,126,733 6/14/95 (103,207)
Deutschemarks (Sell) 1,383,200 1,250,411 5/8/95 (132,789)
Deutschemarks (Sell) 1,312,740 1,307,712 6/14/95 (5,028)
Deutschemarks (Sell) 2,041,480 1,922,912 6/6/95 (118,568)
French Francs (Buy) 4,278,620 4,134,471 5/15/95 144,149
French Francs (Buy) 4,610,940 4,458,347 5/15/95 152,593
French Francs (Buy) 1,953,320 1,889,409 5/9/95 63,911
French Francs (Sell) 436,380 421,436 5/9/95 (14,944)
French Francs (Sell) 1,846,750 1,792,674 6/8/95 (54,076)
Japanese Yen (Buy) 4,618,960 4,069,250 4/10/95 549,710
Japanese Yen (Buy) 3,477,210 3,165,100 5/8/95 312,110
Japanese Yen (Sell) 3,593,520 3,483,029 5/9/95 (110,491)
Swiss Francs (Buy) 2,389,770 2,316,523 5/3/95 73,247
Swiss Francs (Buy) 2,301,260 2,224,171 5/3/95 77,089
$(155,029)
<PAGE>
Forward Cross Currency Contracts Outstanding at March 31, 1995
(Aggregate Face Value $33,398,580)
In Unrealized
Market Exchange Market Delivery Appreciation
Contracts Value For Value Date (Depreciation)
British Pounds
(Sell) $6,455,600 Deutschemarks $6,355,420 6/14/95 $(100,180)
British Pounds
(Buy) 4,355,910 Deutschemarks 4,389,880 6/12/95 (33,970)
British Pounds
(Buy) 3,873,600 Deutschemarks 3,908,920 6/14/95 (35,320)
Deutschemarks
(Buy) 2,197,800 Italian Lira 2,261,612 5/22/95 (63,812)
Deutschemarks Spanish
(Buy) 3,937,140 Peseta 3,784,057 4/28/95 153,083
Deutschemarks
(Buy) 3,558,870 Swiss Francs 3,582,517 5/3/95 (23,647)
Deutschemarks
(Buy) 4,316,440 Swiss Francs 4,408,960 6/1/95 (92,520)
Deutschemarks
(Sell) 1,821,750 French Francs 1,826,171 5/3/95 4,421
Deutschemarks
(Buy) 3,796,000 French Francs 3,897,922 5/22/95 (101,922)
$(293,867)
Written Call Options on Foreign Currency (premium received $152,240)
NUMBER OF EXPIRATION DATE/
CONTRACTS STRIKE/PRICE VALUE
USD 76,120 U.S. Dollars in exchange
for Deutschemarks Apr.95/$1.4125 $240,540
Argentina 0.2%
Australia 2.6
Brazil 0.4
Canada 1.2
Denmark 1.8
Germany 5.9
Indonesia 0.1
Italy 3.1
Japan 3.9
Mexico 0.3
Phillipines 0.1
South Africa 0.1
Spain 1.1
Thailand 0.1
United Kingdom 4.6
25.5%
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of assets and liabilities
March 31, 1995 (Unaudited)
Assets
Investments in securities, at value (identified cost
$344,598,658) (Note 1) $337,802,448
Cash 70,810
Interest and other receivables 5,164,839
Receivable for securities sold 25,977,015
Receivable for open forward currency contracts 1,986,496
Receivable for closed forward currency contracts 965,194
Total assets 371,966,802
Liabilities
Payable for securities purchased 51,191,560
Distributions payable to shareholders 1,942,436
Payable for compensation of Manager (Note 2) 575,017
Payable for administrative services (Note 2) 2,180
Payable for compensation of Trustees (Note 2) 173
Payable for investor servicing and custodian fees (Note 2) 25,417
Payable for open forward currency contracts 2,435,392
Payable for closed forward currency contracts 1,171,385
Other accrued expenses 147,744
Written options outstanding at value
(premium received $152,240) 240,540
Total liabilities 57,731,844
Net assets $314,234,958
Represented by
Paid-in capital (Notes 1 and 4) $363,176,669
Distributions in excess of net investment income (8,155,763)
Accumulated net realized loss on investment transactions (33,497,569)
Net unrealized depreciation of investments, options,
forward currency contracts, and foreign currency translation (7,288,379)
Total--Representing net assets applicable to capital shares
outstanding $314,234,958
Computation of net asset value
Net asset value per share ($314,234,958 divided by
39,005,338 shares) $ 8.06
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of operations
Six months ended March 31, 1995 (Unaudited)
Investment income:
Interest (net of foreign tax of $72,799) $14,666,155
Total investment income
Expenses:
Compensation of Manager (Note 2) 1,158,649
Investor servicing and custodian fees (Note 2) 30,934
Compensation of Trustees (Note 2) 6,885
Reports to shareholders 124,393
Auditing 28,045
Legal 9,378
Postage 48,833
Administrative services (Note 2) 4,147
Other 5,799
Total expenses 1,417,063
Net investment income 13,249,092
Net realized loss on investments (Notes 1 and 3) (9,371,689)
Net realized loss on options written (Notes 1 and 3) (241,462)
Net realized loss on forward currency contracts and
translation of foreign currency (Notes 1 and 3) (2,576,927)
Net realized gain on futures (Note 1) 70,298
Net unrealized gain on forward currency contracts and foreign
currency translation during the period 177,647
Net unrealized appreciation of investments and options during
the period 8,016,229
Net loss on investment transactions (3,925,904)
Net increase in net assets resulting from operations $ 9,323,188
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of changes in net assets
Six months
ended Year ended
March 31 September 30
1995* 1994
Increase (decrease) in net assets
Operations:
Net investment income $ 13,249,092 $ 24,151,350
Net realized loss on
investments, options,
futures contracts, forward
currency contracts and
foreign currency
translation (12,119,780) (7,532,954)
Net unrealized appreciation
(depreciation) of
investments, options and
forward currency contracts
and foreign currency
translation 8,193,876 (20,029,390)
Net increase (decrease) in
net assets resulting from
operations 9,323,188 (3,410,994)
Distributions to shareholders
From net investment income (12,384,068) (21,686,230)
From net realized gain on
investments -- (2,174,004)
From paid-in capital (Note 1) -- (3,053,313)
Total decrease in net assets (3,060,880) (30,324,541)
Net assets
Beginning of period 317,295,838 347,620,379
End of period (including
distributions in excess of
net investment income of
$8,155,763 and $9,020,787,
respectively) $314,234,958 $317,295,838
Number of fund shares
Shares outstanding at
beginning and end of period 39,005,338 39,005,338
* Unaudited.
The accompanying notes are an integral part of these financial statements.
<PAGE>
Financial highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Six months
ended
March 31 Year ended September 30
1995* 1994 1993 1992
<S> <C> <C> <C> <C>
Net asset value, beginning
of period $ 8.13 $ 8.91 $ 8.71 $ 8.16
Investment operations
Net investment income .34 .62 .68 .74
Net realized and unrealized
gain (loss) on investments (.09) (.71) .29 .63
Total from investment
operations .25 (.09) .97 1.37
Less distributions from (a):
Net investment income (.32) (.55) (.68) (.74)
In excess of net investment
income -- -- (.09) --
Net realized gain on
investments -- (.06) -- --
Paid-in capital -- (.08)(b) -- (.08)
Total distributions (.32) (.69) (.77) (.82)
Net asset value, end of
period $ 8.06 $ 8.13 $ 8.91 $ 8.71
Market value, end of period $ 7.125 $ 7.250 $ 8.375 $ 8.500
Total investment return at
market value (%) (d) 2.74(c) (5.57) 7.89 21.13
Net assets at end of period
(in thousands) $314,235 $317,296 $347,620 $339,871
Ratio of expenses to average
net assets (%) .46(c) .92 .96 .98
Ratio of net investment
income to average net
assets (%) 4.27(c) 7.18 7.83 8.76
Portfolio turnover (%) 102.24(c) 204.92 237.63 134.43
</TABLE>
<PAGE>
For the period
April 29, 1988
(commencement
of operations) to
Year ended September 30 September 30
1991 1990 1989 1988**
$ 7.60 $ 8.62 $ 9.27 $ 9.29
.76 .84 .97 .38
.67 (.91) (.55) (.06)
1.43 (.07) .42 .32
(.76) (.85) (.99) (.34)
-- -- -- --
-- (.08) (.08) --
(.11) (.02) -- --
(.87) (.95) (1.07) (.34)
$ 8.16 $ 7.60 $ 8.62 $ 9.27
$ 7.750 $ 6.375 $ 8.375 $ 9.250
36.82 (13.29) 1.92 (4.05)(c)
$317,747 $301,613 $345,931 $371,282
1.08 1.04 1.04 .39(c)
9.65 10.4 10.61 4.13(c)
204.31 211.22 202.47 33.18
* Unaudited.
** 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 September 30, 1994 have 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 Note 1).
(c) Not annualized.
(d) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
<PAGE>
Notes to financial statements
March 31, 1995 (Unaudited)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% 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
intentions 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.
<PAGE>
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 and certain other accounts managed by Putnam Investment
Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc. 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, stepped-coupon
bonds and payment-in-kind bonds are 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.
F) Option accounting principles The fund may, to the extent consistent with its
investment objectives and policies, seek to increase its current returns by
writing covered call and put options on securities it owns or in which it may
invest. When the fund writes a call option, an amount equal to the premium
received by the fund is included in the fund's "Statement of assets and
liabilities" as an asset and an equivalent liability. The amount of the
liability is subsequently "marked-to-market" to reflect the current market
value of an option written. The current market value of an option is the last
sale price or, in the absence of a sale, the last offering price. If an option
expires on its stipulated expiration date, or if the fund enters into a closing
purchase transaction, the fund realizes a gain (or loss if the 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 risk in writing a call option is that the fund relinquishes the opportunity
to profit if the market price of the underlying security increases and the
option is exercised. In writing a put option, the fund assumes the risk of
incurring a loss if the market price of the underlying security decreases and
the option is exercised. In addition, there is the risk the fund may not be
able to enter into a closing transaction because of an illiquid secondary
market.
<PAGE>
The fund may also, to the extent consistent with its investment objectives and
policies, buy put options to protect its portfolio holdings in an underlying
security against a decline in market value. The fund may buy call options to
hedge against an increase in the price of the securities that the fund
ultimately wants to buy. The fund may also buy and sell combinations of put and
call options on the same underlying security to earn additional income. The
premium paid by the fund for the purchase of a put and call option is included
in the fund's "Statement of assets and liabilities" as an investment and is
subsequently "marked-to-market" to reflect the current market value of the
option. If an option the fund has purchased expires on the stipulated
expiration date, the fund realizes a loss in the amount of the cost of the
option. If the fund enters into a closing sale transaction, the fund realizes a
gain or loss, depending on whether proceeds from the closing sale transaction
are greater or less than the cost of the option. If the fund exercises a call
option, the cost of 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 a sale are decreased by the premium originally paid. The
risk associated with purchasing options is limited to the premium originally
paid.
Options on foreign currencies The fund may to the extent consistent with its
investment objectives and policies write 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.
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 or sell
units of a particular index or a certain amount of a U.S. Government security
at a set price on a future date. Upon entering into such a contract the fund is
required to pledge to the broker an amount of cash or securities equal to the
minimum "initial margin" requirements of the futures. The fund may buy and sell
index and U.S. government futures contracts to hedge its portfolio securities
against fluctuations in the market. Buying futures tends to increase the fund's
exposure to the underlying index or instrument. Selling futures tends to
decrease the fund's exposure to the underlying index or instrument, or hedge
other fund instruments.
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.
<PAGE>
The potential risk to the fund is that the change in value of futures contracts
primarily corresponds with the value of underlying instruments which may not
correspond to the change in value of the hedged instruments. In addition, there
is a risk that the fund may not be able to close out its futures positions due
to an illiquid secondary market.
Forward currency contracts The fund may engage in forward currency contracts,
which are agreements between two parties to buy and sell currencies at a set
price on a future date, to protect against a decline in value relative to the
U.S. dollar of the currencies in which its portfolio securities are denominated
or quoted (or an increase in the value of a currency in which securities a fund
intends to buy are denominated, when a fund holds cash reserves and short term
investments). The market value of the contracts will fluctuate with changes in
currency exchange rates. The contract is "marked to market" daily and the
change in market value is recorded as unrealized gain or loss.
When the contract is closed, the fund records a realized gain or loss equal to
the difference between the value at the time it was closed. The fund could be
exposed to risk if the value of the currency changes unfavorably. In addition,
the fund could be exposed to risks if counterparties to the contracts are
unable to meet the terms of their contracts is the aggregate face value in U.S.
dollars at the time the contract was opened; however, management believes the
likelihood of such a loss to be remote.
H) Federal taxes It is the policy of the fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies. It is also
the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code of
1986 as amended. 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.
I) Distributions to shareholders Distributions to shareholders are recorded by
the fund on the ex-dividend date. At certain times, the fund may pay
distributions at a level rate even though, as a result of the market conditions
or investment decisions, the fund may not achieve projected investment results
for a given period.
The character of income and gains to be distributed determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. The differences include treatment of amortization of market
discount, paydown gains and losses, return of capital dividends received by the
fund, realized gains and losses on foreign exchange, recognition of income from
payment-in-kind securities, timing for recognition of certain capital gains and
losses, and recognition of income on defaulted bonds. Reclassifications are
made to the fund's capital accounts to reflect income and gains available for
distri-
<PAGE>
bution (or available capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative
services, and other transactions
Compensation of Putnam Management for management and investment advisory
services is paid quarterly based on the average weekly net assets of the fund.
Such fee is based on the following annual rates: 0.75% of the first $500
million of average weekly net assets, 0.65% of the next $500 million, 0.60% of
the next $500 million and 0.55% of any amount over $1.5 billion.
The fund also reimburses the Manager for the compensation and related expenses
of certain officers of the fund and their staff who provide administrative
services to the fund. The aggregate amount of all such reimbursements is
determined annually by the Trustees.
Trustees of the fund receive an annual Trustee's fee of $900 and an additional
fee for each Trustees' meeting attended. Trustees who are not interested
persons of the Manager and who serve on committees of the Trustees receive
additional fees for attendance at certain committee meetings.
Custodial functions for the fund's assets are being provided to the fund by
Putnam Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor Services, a
division of PFTC. Investor servicing and custodian fees reported in the
Statement of operations for the six months ended March 31, 1995 have been
reduced by credits allowed by PFTC.
Note 3
Purchases and sales of securities
During the six months ended March 31, 1995, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $130,776,756 and $154,916,058, respectively. Purchases and sales of
U.S. government obligations aggregated $167,676,030 and $145,408,615,
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:
Number of
Contracts Premiums Received
Options written 167,320 $245,780
Options closed (91,200) (93,540)
Written options outstanding at end of
period 76,120 $152,240
<PAGE>
Note 4
Shares 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 interest of the fund's
shareholders. Any repurchase of shares will have the effect of increasing the
net asset value per share of remaining shares outstanding.
<PAGE>
Selected Quarterly Data (Unaudited)
<TABLE>
<CAPTION>
Three months ended
Mar. 31 Dec. 31 Sep. 30 June 30 Mar. 31 Dec. 31
1995 1994 1994 1994 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Total investment income
Total $ 7,421,188 $ 7,244,967 $ 6,930,592 $ 6,935,539 $ 6,656,480 $ 6,708,398
Per share $ .19 $ .19 $ .18 $ .18 $ .17 $ .17
Net investment income
Total $ 6,807,991 $ 6,441,101 $ 6,125,078 $ 6,149,111 $ 5,943,501 $ 5,933,660
Per share $ .17 $ .17 $ .16 $ .16 $ .15 $ .15
Net realized and unrealized gain (loss) on investments
Total $ 6,599,105 $(10,525,009) $ (5,177,254) $(13,707,196) $(12,399,006) $ 3,721,112
Per share $ .18 $ (.27) $ (.14) $ (.35) $ (.32) $ .10
Net increase (decrease) in net assets resulting from operations
Total $ 13,407,096 $ (4,083,908) $ 947,824 $ (7,558,085) $ (5,825,505) $ 9,024,772
Per share $ .35 $ (.10) $ .02 $ (.19) $ (.15) $ .23
Net assets at end of period
Total $314,234,958 $306,912,627 $317,295,838 $323,076,381 $337,362,841 $350,096,781
Per share $ 8.06 $ 7.87 $ 8.13 $ 8.28 $ 8.65 $ 8.98
</TABLE>
Selected Quarterly Data (Unaudited)
<TABLE>
<CAPTION>
Three months ended
Sept. 30 June 30 Mar. 31 Dec. 31
1993 1993 1993 1992
<S> <C> <C> <C> <C>
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>
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
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
Jennifer E. Leichter
Vice President and Fund Manager
D. William Kohli
Vice President and Fund Manager
Neil J. Powers
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>
(Logo) PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
074-17788
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
<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) Trademark symbol replaced with (TM)
