Putnam
Master
Intermediate
Income Trust
ANNUAL REPORT
September 30, 1995
(graphic)
B O S T O N (bullet) L O N D O N (bullet) T O K Y O
<PAGE>
Performance highlights
(bullet) "As one of the few intermediate funds in the closed-end universe,
Putnam Master Intermediate Income Trust is far less volatile than
most. For the trailing five years, PIM's risk score is one of the
best in its objective, and better than 87% of all closed-end
funds'."*
--Morningstar Mutual Funds, September 8, 1995
(bullet) "Closed-ends have several portfolio management advantages. For
example, they are not subject to the same diversification rules as
open-end funds . . . portfolio managers also don't have to worry
about shareholder redemptions so they can concentrate exclusively on
their own security trading strategies and need not keep a day-to-day
liquidity reserve."
--Mutual Funds Magazine, September 1995
FISCAL 1995 RESULTS AT A GLANCE
<TABLE>
<CAPTION>
Total return NAV Market price
<S> <C> <C> <C> <C> <C>
...................................................................................
12 months ended
9/30/95 (change in
value during
period plus
reinvested
distributions) 12.38% 10.90%
Share value NAV Market price
...................................................................................
9/30/94 $8.13 $7.250
9/30/95 $8.38 $7.375
Return
Distributions No. Income of capital(1) Total
...................................................................................
12 $0.4871 $0.1424 $0.6295
Current return NAV Market price
...................................................................................
End of period
Current dividend rate(2) 7.45% 8.46%
</TABLE>
Performance data represent past results. For performance over longer periods,
see pages 9 and 10. (1)For more information regarding return of capital see
page 33. (2)Income portion of most recent distribution, annualized and
divided by net asset value or market price at end of period.
*Morningstar rates a fund relative to other funds with similar investment
objectives based on the fund's 3- and 5-year average returns and adjusted for
risk factors and sales charges. Rates are updated monthly. For the 3-year
period, there were 77 funds in the fixed-income category and the fund
received 4 stars. For the 5-year period, there were 64 funds in the category
and the fund received 4 stars. The overall rating was 4 stars, which put the
fund in the top 32.5% of the 77 fixed-income funds. Past performance is not
indicative of future results.
<PAGE>
From the Chairman
(George Putnam Photo)
(c) Karsh, Ottawa
Dear Shareholder:
The skill of managing a fund that maintains virtually equal weighting in
international, domestic high-yield, and U.S. government securities lies not
just in continually shifting heaviest emphasis to the more promising sectors,
but in regularly working to achieve the best possible performance in each
individual sector.
Putnam Master Intermediate Income Trust's management team successfully met
the challenge during the fiscal year that ended September 30, 1995. The
fund's positive results across the board came as welcome relief after 1994's
worldwide drought in the fixed-income markets.
A more defensive stance in high-yield bonds and pursuit of opportunities for
maximizing both capital appreciation and income in the U.S. government sector
paid off in fiscal 1995. We also believe it has succeeded in positioning the
fund well as it begins its new fiscal year.
In the report that follows, your fund's management team provides more detail
about performance to date and prospects for the months ahead.
Respectfully yours,
/s/George Putnam
George Putnam
Chairman of the Trustees
November 15, 1995
<PAGE>
Report from the Fund Managers
Jennifer E. Leichter, lead manager
D. William Kohli
Neil J. Powers
Mark J. Siegel
For investors who held firm during 1994's great bond bear
market, Putnam Master Intermediate Income Trust's performance
for the fiscal year ended September 30, 1995, comes as sweet
reward. Several factors enabled bond markets around the world
to register measurable improvement as the fiscal year progressed:
a slowdown in economic growth, at home and abroad, a decline in long-term
interest rates, and a continuing trend toward global disinflation--the
slowing down of the rate at which prices increase.
The fund's high-yield and U.S. government sectors posted the strongest
results throughout the period, while the international segment played
catch-up following a disappointing currency strategy in the first half of the
fiscal year.
We determined early on that while high-yield bonds still appeared attractive
to us, they had reached fair value. U.S. government bonds, on the other hand,
showed further appreciation potential. Consequently, over the course of the
year, we decreased the fund's high-yield weighting from 43% to 34% of net
assets, and increased the U.S. government weighting. International bonds
remained slightly underweighted throughout the period.
(bullet) HIGH-YIELD BONDS CONTINUED IMPRESSIVE RUN
The high-yield sector has performed extremely well in the past several years,
continuing to do so in fiscal 1995. Corporate profitability remained robust
despite slowing economic growth and fears of recession earlier in the period.
A number of industries in which the fund has holdings, including health care,
paper, chemicals, telecommunications, cable, and broadcasting, delivered
attractive results.
We have taken on a more defensive orientation since our last report, moving
away from economically sensitive issues and
4
<PAGE>
increasing the sleeve's weighting in utilities, finance, and insurance
holdings, as well as BB-rated issues, when opportunities arose. As utilities
became oversold and downgraded, their yields relative to other similarly
rated credits were too compelling to ignore. Furthermore, many insurance
companies have positioned themselves for credit upgrades as they seek to
comply with regulatory requirements and pay down debt. And with a steeper
yield curve, financial holdings are poised for increased profitability,
benefiting from the gap between rates paid on short-term investments and
those charged on loans.
Initial public offerings of stock, mergers, and acquisitions set the stage
for rating upgrades of many fund holdings. For example, OSI Specialties
Corp., one of the fund's largest chemical holdings, was purchased by Witco, a
broad-based petroleum and chemical manufacturer with an A credit rating. The
acquisition resulted in an immediate credit upgrade for OSI. This trend
toward consolidation prevailed in many other industries--health care,
entertainment, cable, and finance--helping produce similar results for other
holdings, such as Continental Medical, Outlet Broadcasting, and Healthtrust.
>LONGER DURATION THE FOCUS OF U.S. GOVERNMENT SEGMENT
Throughout the year, we concentrated our efforts on maximizing the
appreciation potential of Treasury securities within the full range of
intermediate notes, while tapping the attractive income potential offered by
discount-coupon mortgage-backed issues. We did this in a manner that also
gave the fund a longer duration posture. Duration is a measure of sensitivity
to interest rate changes. Longer duration can mean a more volatile portfolio,
but also one more likely to appreciate substantially if rates decline.
Early in the period, we focused on shorter-term Treasury notes. This
concentration proved rewarding as investors reentered the market with renewed
confidence in the Federal Reserve Board's ability to subdue inflation. As the
Fed's actions began to take effect and the economy showed signs of slowing,
we shifted toward the longer end of the intermediate spectrum. Interest
<PAGE>
rates then came down across the board. Thanks to the sector's longer duration
and emphasis on longer-term Treasury notes, the fund was able to benefit.
Holdings in the mortgage-backed securities market also proved advantageous
for the fund. We kept a watchful eye on the effect prepayment fears had on
prices, trading in and out of discount- coupon mortgages. When we perceived
worries were not justified and the prices became too compelling to ignore, we
bought. When prepayment concerns diminished and demand began to increase, we
sold holdings at a profit.
>COUNTRY POSITIONING PRIMARY FOCUS IN INTERNATIONAL ARENA
A series of defensive currency hedges earlier in the fiscal year hampered our
ability to take advantage of gains in many international markets' as the U.S.
dollar weakened progressively. Considered a sort of currency insurance
policy, a hedge is designed to lock in specific exchange rates. Although we
removed all hedges in March to allow for full exposure to international
currencies, their effect resulted in a drag on the international sector's
performance throughout the period.
However, our country positioning and duration strategy proved worthwhile. In
the first half of the fiscal year, we maintained a fairly long duration by
investing in longer-term bonds within core markets like Germany, Japan, the
Netherlands, and the United Kingdom. By midyear, however, the higher-yielding
peripheral markets of Europe--Italy, Sweden, and Spain--began presenting
attractive income and appreciation prospects. To pursue these opportunities,
we selectively sold core European positions and eliminated virtually all of
the sector's Japanese holdings.
Markets across Europe rallied later in the period, with the higher-yielding
ones strengthening appreciably. We have since realized gains on the
higher-yielding issues and are looking to reenter certain peripheral markets,
once valuation levels become more reasonable.
<PAGE>
TOP THREE HOLDINGS PER SECTOR
HIGH-YIELD BONDS
Midland Funding Corp. II deb. Ser. A, 11-3/4S, 2005
Kaiser Aluminum & Chemical Corp. sr. sub. notes 12-3/4s, 2003
Trans Texas Gas Corp. sr. secd. notes 11-1/2s, 2002
..............................................................................
INTERNATIONAL FIXED-INCOME SECURITIES
Germany (Republic of) bonds 7-3/8s, 2005
Germany (Republic of) bonds 6-7/8s, 2005
France (Government of) OAT 8-1/2s, 2002
..............................................................................
U.S. GOVERNMENT SECURITIES
U.S. Treasury Notes 6-1/2s, May 15, 2005
U.S. Treasury Notes 7-1/2s, February 15, 2005
U.S. Treasury Notes 6-1/2s, August 15, 2005
Top holdings represent 22.1% of the fund's net assets as of 9/30/95.
Portfolio holdings will vary overtime.
As interest rates around the world declined, we shifted our emphasis from
longer-term intermediate securities to shorter- term issues, believing
longer-term intermediates no longer offered an attractive risk premium. Near
period's end, we began reintroducing hedging strategies against several
European and Asian currencies. The hedges have since helped protect the value
of the fund's foreign holdings as a number of European currencies declined
against the U.S. dollar.
Emerging markets comprise roughly 3% of the overall portfolio. While these
markets experienced bouts of extreme volatility, there were months in which
they performed quite well, contributing to performance when the core markets
stalled.
>THE ECONOMY SEEMS TO HAVE LANDED--SOFTLY
Recent economic data in the U.S. point to the desired soft landing scenario
of low inflation, moderating economic growth, and low interest rates, boding
well for bond performance. Given such conditions, we currently plan to
maintain a relatively long duration in the U.S. government sleeve and
focusing holdings in the high-yield portion on industries that have
historically performed well in the later stages of the business cycle.
<PAGE>
Abroad, we believe continued global economic slowing should help
international bond markets deliver solid returns. Our primary focus in the
international segment remains core Europe-- France, Germany, the
Netherlands--with select higher yielding markets gaining increased attention
as opportunities arise. We will maintain a watchful eye on the dollar's
direction, adjusting our currency hedges if necessary.
The views expressed in this report are exclusively those of Putnam
Management, and are not meant as investment advice. Although the described
holdings were viewed favorably as of 9/30/95, 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 summaryThis 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.
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.
TOTAL RETURN FOR PERIODS ENDED 9/30/95
<TABLE>
<CAPTION>
NAV Market price
===========================================================================
<S> <C> <C>
1 year 12.38% 10.90%
---------------------------------------------------------------------------
5 years 78.47 87.26
Annual average 12.28 13.37
---------------------------------------------------------------------------
Life of fund
(since 4/29/88) 93.98 58.77
Annual average 9.34 6.43
---------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 9/30/95
<TABLE>
<CAPTION>
Salomon
Lehman Bros. Bros. First
Gov't. Non-U.S. Boston Consumer
Intermediate World Govt. High-Yield Price
Bond Index Bond Index Index Index
===========================================================================
<S> <C> <C> <C> <C>
1 year 10.60% 17.79% 14.05% 2.54%
---------------------------------------------------------------------------
5 years 49.81 89.59 125.14 15.45
Annual average 8.42 13.65 17.63 2.91
---------------------------------------------------------------------------
Life of Fund 83.17 96.77 126.12 30.83
Annual average 8.50 9.56 11.63 3.69
---------------------------------------------------------------------------
</TABLE>
Performance data represent past results and is no indication of future
performance. Investment returns net asset value, and market price 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 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.+
Salomon Brothers Non-U.S. Dollar World Government Bond Index* is a market
capitalization-weighted benchmark that tracks the performance of the
government bond markets tracked by the Salomon Brothers World Government Bond
Index, excluding the United States.
First Boston High Yield Index* is an unmanaged index of lower-rated,
higher-yielding U.S. corporate bonds. It includes over 180 issues with an
average maturity range of 7 to 10 years.
Consumer Price Index (CPI) is a commonly used measure of inflation; it does
not represent an investment return.
* Securities indexes assume reinvestment of all distributions and interest
payments and do not take into account brokerage fees or taxes. Securities
in the fund do not match those in the indexes and performance of the fund
will differ.
+ The Lehman Brothers Government Intermediate Bond Index is an unmanaged list
of U.S. government and mortgage-backed securities.
<PAGE>
Report of independent accountants
For the year ended September 30, 1995
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, 1995, 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 periods indicated therein. These financial
statements and financial highlights are the responsibility of the fund'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, 1995 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, 1995, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended and the financial highlights
for each of the periods indicated therein, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
November 14, 1995
<PAGE>
Portfolio of investments owned
September 30, 1995
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (41.2%)*
PRINCIPAL AMOUNT VALUE
-----------------------------------------------------------------------------------
<S> <C> <C>
Federal National Mortgage Association dwarfs
$ 7,704 8-1/2s, March 1, 2006 $ 7,988
26,912,145 7-1/2s, with various due dates to July, 1, 2025 27,080,343
6,366,344 7s, with various due dates to August 1, 2025 6,278,807
Government National Mortgage Association
2,826,566 8s, with various due dates to September 15, 2025 2,906,050
4,048,907 7-1/2s, with various due dates to June 15, 2024 4,282,146
4,324,789 midgets 7-1/2s, April 15, 2008 4,419,369
6,083,000 TBA 7-1/2s, October 14, 2025+++ 6,143,886
9,369,516 7s, with various due dates to July 15, 2025 9,071,351
21,123,000 TBA 6-1/2s, October 14, 2025+++ 20,383,695
3,000,000 U.S. Treasury Bonds 10-3/4s, August 15, 2005 3,975,480
5,770,000 U.S. Treasury Bonds 10-3/4s, May 15, 2003 7,350,461
3,325,000 U.S. Treasury Bonds 9-3/8s, February 15, 2006 4,103,782
11,565,000 U.S. Treasury Notes 7-1/2s, February 15, 2005 12,596,829
9,710,000 U.S. Treasury Notes 6-1/2s, August 15, 2005 9,948,186
15,605,000 U.S. Treasury Notes 6-1/2s, May 15, 2005 15,963,447
-----------------------------------------------------------------------------------
Total U.S. Government and Agency Obligations (cost
$132,640,005) $134,511,820
-----------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES (31.9%)*
PRINCIPAL AMOUNT VALUE
Advertising (0.4%)
-----------------------------------------------------------------------------------
$ 800,000 Universal Outdoor, Inc. sub. deb. 11s, 2003 $ 784,000
1,000,000 Universal Outdoor, Inc. sr. notes stepped-coupon
zero % (14s, 7/1/99), 2004++ 622,600
-------------
1,406,600
Aerospace and Defense (0.4%)
-----------------------------------------------------------------------------------
250,000 Alliant Techsystems, Inc. sr. sub. notes 11-3/4s,
2003 271,250
850,000 K&F Industries Inc. sub. deb. 13-3/4s, 2001 881,875
-------------
1,153,125
Agriculture (1.1%)
-----------------------------------------------------------------------------------
1,380,000 PMI Holdings Corp. Ser. B, sub. disc. deb. stepped-
coupon zero % (11-1/2s, 9/1/00), 2005++ 717,600
1,000,000 PSF Finance (L.P.) sr. exch. notes 12-1/4s, 2004 1,031,750
1,225,140 PSF Finance (L.P.) sr. notes 12s, 2000 1,277,208
831,000 PSF Finance (L.P.) sr. disc. notes stepped-coupon
zero % (12s, 9/15/96), 2003++ 725,048
-------------
3,751,606
Aluminum (0.6%)
-----------------------------------------------------------------------------------
1,720,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes
12-3/4s, 2003 1,861,900
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
Automotive (0.6%)
----------------------------------------------------------------------------------------
$ 200,000 Aftermarket Technology corp. sr. sub. notes 12s, 2004 $ 210,500
1,450,000 Key Plastics Corp. sr. notes 14s, 1999 1,522,500
175,000 P.T. Astra International bonds 9-3/4s, 2001 (Indonesia) 178,938
-------------
1,911,938
Banks (0.5%)
----------------------------------------------------------------------------------------
250,000 Banco del Sud S.A. sr. unsub. med. term notes 10-1/8s, 1997
(Argentina) 236,875
1,850,000 Banco Nacional bonds 7-1/4s, 2004 (Mexico) 1,433,750
-------------
1,670,625
Broadcasting (1.8%)
----------------------------------------------------------------------------------------
1,150,000 Commodore Media, Inc. sr. sub. notes stepped-coupon 7-1/2s
(13-1/4s, 5/1/98), 2003++ 1,029,250
375,000 Echostar Communications sr. disc. notes stepped-coupon
zero % (12-7/8s, 6/1/99), 2004++ 176,250
250,000 New City Broadcasting Corp. sr. sub. notes 11-3/8s, 2003 243,750
1,000,000 Panamsat (L.P.) sr. sub. notes stepped-coupon zero %
(11-3/8s, 8/1/98), 2003++ 780,000
1,000,000 Paxson Communications Corp. 144A sr. sub. notes 11-5/8s, 2002 980,000
579,000 Petracom Hldgs. notes stepped-coupon zero %
(17-1/2s, 8/1/98), 2003++ 368,389
1,250,000 SFX Broadcasting, Inc. sr. sub. notes 11-3/8s, 2000 1,303,125
935,061 Telemedia Broadcasting Corp. 144A deb. stepped-
coupon 6.4s (16s, 6/15/99), 2004++ 841,555
-------------
5,722,319
Building and Construction (1.0%)
----------------------------------------------------------------------------------------
250,000 Miles Homes Services sr. notes 12s, 2001 187,500
1,500,000 Presley Co. sr. notes 12-1/2s, 2001 1,252,500
1,000,000 Schuller International Corp. sr. notes 10-7/8s, 2004 1,100,000
800,000 Scotsman Group, Inc. sr. secd. notes 9-1/2s, 2000 798,000
-------------
3,338,000
Business Services (0.2%)
----------------------------------------------------------------------------------------
500,000 Corporate Express, Inc. Ser. B, sr. sub. notes 9-1/8s, 2004 495,000
Cable Television (1.6%)
----------------------------------------------------------------------------------------
1,645,884 Adelphia Communications Corp. sr. notes 9-1/2s, 2004## 1,382,543
1,000,000 CF Cable TV, Inc. sr. notes 11-5/8s, 2005(Canada) 1,080,000
1,194,914 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003## 1,123,219
1,200,000 Insight Communications Co. sr. sub. notes stepped-
coupon 8-1/4s (11-1/4s, 2/29/96), 2000++ 1,212,000
750,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes stepped-
coupon zero % (13-1/2s, 8/1/99), 2004++ 510,000
-------------
5,307,762
Cellular Communications (2.0%)
----------------------------------------------------------------------------------------
285,000 Call-Net Enterprises sr. disc. notes stepped-coupon zero %
(13-1/4s, 12/1/99), 2004++ 183,825
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
Cellular Communications (continued)
----------------------------------------------------------------------------------------
$1,000,000 Cellular, Inc. sr. sub. disc. notes stepped-coupon zero %
(11-3/4s, 9/1/98), 2003++ $ 770,000
250,000 Cencall Communications Corp. sr. disc. notes stepped-
coupon zero % (10-1/8s, 1/15/99), 2004++ 129,375
1,200,000 Centennial Cellular Corp. sr. notes 8-7/8s, 2001 1,146,000
500,000 Commnet Cellular Inc. bonds 11-1/4s, 2005 517,500
750,000 Dial Call Communications, Inc. sr. disc. notes stepped-
coupon zero % (12-1/4s, 4/15/99), 2004++ 395,625
1,200,000 Horizon Cellular Telephone Co. Ser. B, sr. sub. disc. notes
stepped-coupon zero % (11-3/8s, 10/1/97), 2000++ 1,008,000
250,000 NEXTEL Communications, Inc. sr. disc. notes stepped-
coupon zero % (9-3/4s, 2/15/99), 2004++ 123,125
1,500,000 NEXTEL Communications, Inc. sr. disc. notes stepped-
coupon zero % (11-1/2s, 9/1/98), 2003++ 847,500
1,700,000 Pricellular Wireless sr. disc. notes Ser. B, stepped-
coupon zero % (14s, 11/15/97), 2001++ 1,415,250
-------------
6,536,200
Chemicals (1.1%)
----------------------------------------------------------------------------------------
1,000,000 Acetex Corp. 144A sr. notes 9-3/4s, 2003 (Canada) 1,008,750
1,250,000 G-I Holdings, Inc. Ser. B, sr. disc. notes zero %, 1998 906,250
250,000 OSI Specialties Inc. sr. sub. notes 9-1/4s, 2003 272,500
1,750,000 OSI Specialties Inc. Ser. B, sr. secd. disc. deb. stepped-
coupon zero % (11-1/2s, 4/15/99), 2004++ 1,435,000
-------------
3,622,500
Computer Equipment (0.6%)
----------------------------------------------------------------------------------------
1,000,000 Computervision Corp. sr. sub. notes 11-3/8s, 1999 1,020,000
1,000,000 Computervision Corp. sr. notes 10-7/8s, 1997 1,042,500
-------------
2,062,500
Conglomerates (1.6%)
----------------------------------------------------------------------------------------
985,000 Axia, Inc. Ser. B, sr. sub. notes 11s, 2001 965,300
1,650,000 Haynes International, Inc. sr. sub. notes 13-1/2s, 1999 1,105,500
1,500,000 MacAndrews & Forbes Group, Inc. deb. 12-1/4s, 1996 1,507,500
750,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes 13s, 1999 750,000
1,125,000 Talley Industries, Inc. sr. disc. deb. stepped-coupon
zero % (12-1/4s, 10/15/98), 2005++ 810,000
-------------
5,138,300
Consumer Services (0.5%)
----------------------------------------------------------------------------------------
750,000 Solon Automated Services, Inc. sr. sub. deb. 13-3/4s, 2002 750,000
750,000 Solon Automated Services, Inc. notes 12-3/4s, 2001 750,000
-------------
1,500,000
Containers (0.7%)
----------------------------------------------------------------------------------------
1,500,000 Ivex Packaging Corp. sr. sub. notes 12-1/2s, 2002 1,627,500
1,000,000 Ivex Holdings Corp. sr. disc. deb. stepped-coupon zero %
(13-1/4s, 3/15/00), 2005++ 580,000
-------------
2,207,500
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
Electric Utilities (0.9%)
----------------------------------------------------------------------------------------
$ 900,000 Cleveland Electric Illuminating Co. Ser. B, 1st mtge. 9-1/2s,
2005 $ 901,260
1,950,000 Midland Funding Corp. II deb. Ser. A, deb. 11-3/4s, 2005 2,042,625
-------------
2,943,885
Electronics (0.8%)
----------------------------------------------------------------------------------------
1,300,000 Amphenol Corp. sr. sub. notes 12-3/4s, 2002 1,475,500
2,100,000 International Semi-Tech. Corp. sr. secd. disc. notes stepped-
coupon zero % (11-1/2s, 8/15/00), 2003++ (Canada) 1,092,000
-------------
2,567,500
Entertainment (0.3%)
----------------------------------------------------------------------------------------
1,000,000 Premier Parks, Inc. sr. notes 12s, 2003 1,020,000
Finance (0.2%)
----------------------------------------------------------------------------------------
750,000 APP International Finance Co. company guaranty 11-3/4s,
2005 (Netherlands) 761,250
Financial Services (0.5%)
----------------------------------------------------------------------------------------
1,000,000 Comdata Network, Inc. sr. sub. deb. 13-1/4s, 2002 1,180,000
500,000 First Federal Financial Corp. notes 11-3/4s, 2004 500,000
-------------
1,680,000
Food (1.4%)
----------------------------------------------------------------------------------------
950,000 Chiquita Brands International Inc. sub. deb. 11-1/2s, 2001 988,000
1,014,000 Del Monte Corp. sub. deb. notes 12-1/4s, 2002 861,900
2,000,000 Fresh Del Monte Produce Corp. NV 144A Ser. B, sr.
notes 10s, 2003 (Netherlands) 1,700,000
1,000,000 Mafco, Inc. sr. sub. notes 11-7/8s, 2002 1,030,000
-------------
4,579,900
Food Chains (0.8%)
----------------------------------------------------------------------------------------
1,250,000 Southland Corp. deb. 4s, 2004 798,438
1,750,000 Stater Brothers sr. notes 11s, 2001 1,763,125
-------------
2,561,563
Forest Products (0.5%)
----------------------------------------------------------------------------------------
500,000 Gaylord Container Corp. sr. sub. disc. deb. stepped-
coupon zero % (12-3/4s, 5/15/96), 2005++ 492,500
1,150,000 Stone Container Corp. 1st mtge. 10-3/4s, 2002 1,193,125
-------------
1,685,625
Health Care (1.1%)
----------------------------------------------------------------------------------------
1,775,000 Columbia/HCA Healthcare bonds 6.87s, 2003 1,776,109
1,000,000 Graphic Controls Corp. 144A sr. sub. notes 12s, 2005 1,007,500
650,000 Quorum Health Group, Inc. sr. sub. notes 11-7/8s, 2002 718,250
-------------
3,501,859
Hospital Management (0.4%)
----------------------------------------------------------------------------------------
250,000 Paracelsus Healthcare Corp. sr. sub. notes 9-7/8s, 2003 254,375
1,000,000 Tenet Healthcare Corp. sr. sub. notes 10-1/8s, 2005 1,057,500
-------------
1,311,875
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
Insurance (0.8%)
----------------------------------------------------------------------------------------
$1,000,000 Penn Corp. Financial Group sr. sub. notes 9-1/4s, 2003 $1,005,000
500,000 Reliance Group Holdings, Inc. sr. sub. deb. 9-3/4s, 2003 496,250
1,000,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 995,000
-------------
2,496,250
Lodging (0.2%)
----------------------------------------------------------------------------------------
750,000 HMH Properties Inc. 144A sr. notes 9-1/2s, 2005 738,750
Medical Supplies and Devices (0.1%)
----------------------------------------------------------------------------------------
350,000 Wright Medical Technology, Inc. Ser. B, sr. secd.
notes 10-3/4s, 2000 351,750
Metals and Mining (0.1%)
----------------------------------------------------------------------------------------
451,000 Essar Gujarat Ltd. 144A deb. FRN 8.4s, 1999 (India) 447,618
Motion Picture Distribution (1.3%)
----------------------------------------------------------------------------------------
1,500,000 AMC Entertainment, Inc. sr. sub. deb. 12-5/8s, 2002 1,657,500
1,100,000 Act III Theatres, Inc. sr. sub. notes 11-7/8s, 2003 1,171,500
465,000 Cinemark Mexico notes 12s, 2003 432,450
1,000,000 Cinemark USA sr. notes 12s, 2002 1,090,000
-------------
4,351,450
Oil and Gas (1.4%)
----------------------------------------------------------------------------------------
500,000 Chesapeake Energy Corp. sr. exch. notes 12s, 2001 522,500
500,000 Chesapeake Energy Corp. sr. notes 10-1/2s, 2002 500,000
600,000 Flores & Rucks, Inc. sr. notes 13-1/2s, 2004 672,000
750,000 Maxus Energy Corp. global notes 9-7/8s, 2002 746,250
250,000 Maxus Energy Corp. notes 9-1/2s, 2003 240,625
50,000 Petroleos Mexicanos 144A med. term notes 6-1/8s, 1996 (Mexico) 48,750
1,750,000 Trans Texas Gas Corp. sr. secd. notes 11-1/2s, 2002 1,833,125
-------------
4,563,250
Publishing (0.4%)
----------------------------------------------------------------------------------------
750,000 Marvel Holdings, Inc. Ser. B, sr. notes zero %, 1998 540,000
1,000,000 Marvel Parent Holdings, Inc. sr. secd. disc.
notes zero %, 1998 710,000
-------------
1,250,000
Recreation (2.3%)
----------------------------------------------------------------------------------------
715,000 Arizona Charlies Corp. 1st mtge. Ser. B, 12s, 2000 579,150
260,000 Capitol Queen Corp. 1st mtge. notes Ser. B, 12s, 2000 228,800
875,000 Casino America, Inc. 1st mtge. deb. 11-1/2s, 2001 840,000
400,000 Elsinore Corp. 1st mtge. 12-1/2s, 2000 400,000
500,000 Fitzgerald Gaming Co. 144A sr. notes 13s, 1996 380,000
1,000,000 Grate Bay Property Funding Corp. 1st mtge. 10-7/8s, 2004 842,500
1,500,000 Lady Luck Gaming Corp. 1st mtge. Ser. B 10-1/2s, 2001 1,155,000
515,000 Louisiana Casino Cruises Corp. 1st mtge. 11-1/2s, 1998 489,250
750,000 Stratosphere Corp. 1st mtge. 14-1/4s, 2002 791,250
400,000 Trump Castle Funding Corp. 1st mtge. 11-3/4s, 2003 309,000
594,000 Trump Castle Funding Corp. sr. sub. notes 11-1/2s, 2000 594,000
550,000 Trump Holdings & Funding Corp. sr. notes 15-1/2s, 2005 544,500
500,000 Trump Plaza Funding, Inc. 1st mtge. notes 10-7/8s, 2001 458,125
-------------
7,611,575
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
Restaurants (0.3%)
----------------------------------------------------------------------------------------
$ 500,000 Dominick's Finer Foods 144A sr. sub. notes 10-7/8s, 2005 $ 508,750
500,000 Flagstar Corp. sr. sub. notes 11-3/8s, 2003 386,250
-------------
895,000
Retail (1.6%)
----------------------------------------------------------------------------------------
1,200,000 County Seat Stores Inc. sr. sub. notes 12s, 2002 1,134,000
2,500,000 Finlay Enterprises, Inc. sr. disc. deb. stepped-coupon
zero % (12s, 5/1/98), 2005++ 1,725,000
1,330,000 Loehmanns' Holdings, Inc. sr. sub. notes 13-3/4s, 1999 1,316,700
1,200,000 Loehmanns' Holdings, Inc. sr. notes 10-1/2s, 1997 1,200,000
1,750,000 Pay'n Pak Stores, Inc. sr. sub. deb. 13-1/2s, 1998
(In Default)+ 1,094
-------------
5,376,794
School Buses (0.5%)
----------------------------------------------------------------------------------------
1,500,000 Blue Bird Body Co. sub. deb. Ser. B, 11-3/4s, 2002 1,541,250
Specialty Consumer Products (--%)
----------------------------------------------------------------------------------------
75,000 Herff Jones, Inc. 144A sr. sub. notes 11s, 2005 77,250
Steel (0.4%)
----------------------------------------------------------------------------------------
1,500,000 Ispat Mexicana, SA 144A notes 10-3/8s, 2001 (Mexico) 1,342,500
Telephone Services (0.1%)
----------------------------------------------------------------------------------------
250,000 Philippines Long Distance Telephone Co. deb 10-5/8s,
2004 (Philippines) 269,063
Telephone Utilities (0.6%)
----------------------------------------------------------------------------------------
700,000 Intermedia Communications of Florida sr. notes 13-1/2s, 2005 745,500
2,140,000 Telewest Communications PLC deb. stepped-coupon zero %
(11s, 10/1/00), 2007 (United Kingdom)++ 1,265,275
-------------
2,010,775
Textiles (0.2%)
----------------------------------------------------------------------------------------
750,000 Foamex (L.P.) Capital Corp. sr. sub. deb. 11-7/8s, 2004 735,000
----------------------------------------------------------------------------------------
Total Corporate Bonds and Notes
(cost $103,365,566) $104,357,607
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOREIGN GOVERNMENT BONDS AND NOTES (23.4%)*
PRINCIPAL AMOUNT VALUE
AUD 1,975,000 Australia (Government of) notes 8-3/4s, 2001 $ 1,528,188
USD 500,000 Buenos Aires (Province of) bonds 9-1/2s, 1997 485,000
CAD 1,725,000 Canada (Government of) deb. 9s, 2004 1,389,823
CAD 6,830,000 Canada (Government of) bonds, 6-1/2 2004 4,698,584
USD 500,000 Czech (Republic of) National Bank 144A bonds 496,250
7s, 1996
FRF 36,980,000 France Treasury bills 7-3/4s, 2000 7,762,948
FRF 37,574,000 France (Government of) OAT deb. 8-1/2s, 2002 8,150,691
DEM 4,800,000 Germany (Republic of) bonds 8-1/4s, 2001 3,703,289
DEM 14,175,000 Germany (Republic of) bonds 7-3/8s, 2005 10,395,661
DEM 13,070,000 Germany (Republic of) bonds 6-7/8s, 2005 9,310,889
ITL 8,410,000,000 Italy (Government of) bonds 12s, 2003 5,301,206
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOREIGN GOVERNMENT BONDS AND NOTES (continued)
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
ITL 5,245,000,000 Italy (Government of) bonds 10-1/2s, 2005 $ 3,050,244
ITL 3,785,000,000 Italy (Government of) notes 8-1/2s, 1999 2,166,959
NLG 7,325,000 Netherlands (Government of) bonds 9s, 2000 5,178,183
USD 260,000 Panama (Republic of) FRN 7-1/4s, 2002 204,750
ESP 535,200,000 Spain (Government of) bonds 10.833s, 2000 4,567,986
THB 6,000,000 Thailand (IFC of) bonds FRN 11s, 1996 241,029
GBP 2,200,000 United Kingdom Treasury notes 7-3/4s, 2006 3,367,363
GBP 3,025,000 United Kingdom Treasury notes 7s, 2001 4,582,314
-------------------------------------------------------------------------------
Total Foreign Government Bonds and
Notes (cost $75,734,280) $76,581,357
-------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
UNITS (2.4%)*
NUMBER OF UNITS VALUE
<S> <C> <C>
290 America Telecasting 144A unit stepped-coupon zero %
(14-1/2s, 8/15/00), 2005++ $ 136,300
1,000 Australis Media units stepped-coupon zero %
(14s, 5/15/00), 2003 (Australia)++ 600,000
125 Celcaribe S.A. 144A units stepped-coupon zero %
(13-1/2s, 3/15/98), 2004++ 1,112,500
1,235 Cellnet Data Systems Inc. units stepped-coupon zero %
(13s, 6/15/00), 2005++ 703,950
1,000,000 Hollywood Casino units 13-1/2s, 1998 1,210,000
1,350 ICF Kaiser International, Inc. sr. sub. units 12s, 2003 1,279,125
296 Intelcom Group (USA) Inc. 144A units stepped-coupon
zero % (13-1/2s, 9/15/00), 2005++ 1,628,000
2,752 Premium Standard Farms 144A exch. pfd. units 12-1/2s,
2000 302,720
500 Terex Corp. 144A Units 13-3/4s, 2002 407,500
645 Total Renal Care, Inc. units stepped-coupon zero %
(12s, 8/15/97), 2004++ 612,750
----------------------------------------------------------------------------------
Total Units (cost $7,685,298) $7,992,845
----------------------------------------------------------------------------------
COMMON STOCKS (1.5%)*
NUMBER OF SHARES VALUE
58,361 Ampex Corp. Class A+ $ 258,977
12,730 Applause Enterprises, Inc. (acquired various dates from
1/17/89 to 6/07/89, cost $3,340)+# 44,555
2,955 Axia Holding Corp. 144A+ 82,740
4,000 Capital Gaming International, Inc. 144A+ 2,000
114,603 Computervision Corp.+ 1,389,561
10,250 Chesapeake Energy Corp.+ 324,156
53,023 Grand Union Co. (acquired 06/20/1995, cost $50,875)+# 689,299
16,807 Elsinore Corp.+ 8,404
28,724 Gaylord Container Corp. A+ 271,083
3,770 IFINT Diversified Holdings 144A+ 188,500
35,327 Lady Luck Gaming Corp. (acquired 10/01/93,
cost $29,100)#+ 70,654
117,371 Loehmanns' Holdings, Inc. 144A+ 205,399
60,000 NEXTEL Communications, Inc. Class A+ 1,012,500
464 PMI Holdings Corp. 144A+ 92,800
327 Premium Holdings L.P. (acquired various dates from
01/04/94 to 09/29/94, cost $21,314)+++ 32,699
735 Pyramid Communications, Inc. New Class B 144A+ 17,642
10,050 Specialty Foods Corp.+ 12,563
3,499 Taj Mahal Holding Corp. Class A+ 34,990
25,000 Total Renal Care, Inc. 144A+ 181,250
----------------------------------------------------------------------------------
Total Common Stocks (cost $7,864,517) $4,919,772
----------------------------------------------------------------------------------
</TABLE>
<PAGE>
ASSET-BACKED SECURITIES (1.0%)*
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
$1,000,000 Citicorp Mtg. Securities, Inc. 1992-10 M, 8s, 2022 $1,031,875
826,867 Resolution Trust Corp. Ser. 94-1 A2A, 7-3/4s, 2029 833,069
1,491,150 Resolution Trust Corp. Ser. 94-1 M1, 7.14s, 2029 1,437,562
-----------------------------------------------------------------------------------
Total Asset-Backed Securities (cost $3,057,806) $3,302,506
-----------------------------------------------------------------------------------
PREFERRED STOCKS (0.8%)*
NUMBER OF SHARES VALUE
29,202 Foxmeyer Health Corp. Ser. A, $4.20 pfd. $1,091,425
24,468 Pyramid Communications, Inc. Ser. C, $3.125 exch. pfd.+ 590,292
3,700 SDW Holdings Corp. 144A units $15.00 pfd. 1,036,000
-----------------------------------------------------------------------------------
Total Preferred Stocks (cost $2,638,053) $2,717,717
-----------------------------------------------------------------------------------
BRADY BONDS (0.8%)*
PRINCIPAL AMOUNT VALUE
$1,720,000 Argentina (Republic of) FRN 6.813s, 2005 $1,066,400
1,225,000 Brazil (Republic of) FRN 7-1/4s, 2006 813,094
846,450 Brazil (Republic of) FRN 6.688s, 2001 717,366
-----------------------------------------------------------------------------------
Total Brady Bonds (cost $2,422,213) $2,596,860
-----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
WARRANTS (0.2%)*+
NUMBER OF WARRANTS EXPIRATION DATE VALUE
32,500 Becker Gaming Corp. 144A 11/15/00 $ 16,250
6,825 Capital Gaming International, Inc. 2/1/99 853
1,387 Casino America, Inc. 11/15/96 208
7,860 Casino Magic Finance Corp. 10/14/96 393
9,091 Cinemark Mexico USA, Inc. 8/1/03 84,228
1,150 Commodore Media 144A 5/1/00 92,000
1,200 County Seat Holdings, Inc. 10/15/98 24,000
750 Dial Page, Inc. 1/1/97 1,313
9,900 Echostar Communications Corp. 6/1/04 111,375
9,999 Elsinore Corp. 10/8/98 1,000
3,000 Fitzgerald Gaming Co. 144A 3/15/99 30,000
700 Intermedia Communications 144A 6/1/00 7,000
1,470 Louisiana Casino Cruises, Inc. 144A 12/1/98 22,050
1,500 OSI Specialties Inc. 144A 4/15/99 90,000
1,840 Pagemart, Inc. 144A 12/31/03 16,560
1,750 Payless Cashways, Inc. 11/1/96 438
1,400 Petracom Holdings, Inc. 8/1/05 9,975
1,500 President Riverboat Casinos, Inc.
144A 9/23/96 75
12,500 Southdown, Inc. 144A 10/31/96 31,250
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 $497,584) $591,429
---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CONVERTIBLE BONDS AND NOTES (0.2%)* (COST $641,332)
PRINCIPAL AMOUNT VALUE
<S> <C>
$900,000 Pricellular Wireless 144A cv. sub. notes stepped-
coupon zero % (10-3/4s, 8/15/00), 2004++ $544,500
- ---------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PURCHASED OPTION OUTSTANDING (-%)* (cost $127,323)
EXPIRATION DATE/
Contract Amount STRIKE PRICE VALUE
<S> <C> <C>
$7,740,000 US Dollars In Exchange For
Deutschemarks Dec. 95/DEM1.490 $ 64,242
---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS (2.5%)*
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
IDR 1,000,000,000 Bank Tabunga Negara zero %, February 12, 1996 $ 415,363
USD 500 Mexican Tesobono bonds zero %, October 19, 1995 497,030
U.S. Dollar Certificate of Deposit (Issued by
J.P. Morgan Securities, Inc. The principal at
redemption is linked to the bid price for the
Polish Treasury Bill, at maturity, and the change
in the spot rate of the Polish Zloty from issue
date to maturity date.)
USD 290,868 zero %, January 25, 1996 262,770
USD 282,575 zero %, October 20, 1995 269,972
Interest in $652,192,000 joint repurchase agreement
dated September 29, 1995 with Goldman, Sachs &
Co. due October 2, 1995 with respect to various
U.S. Treasury obligations--maturity value of
6,612,000 $6,615,513 for an effective yield of 6.375% 6,614,342
--------------------------------------------------------------------------------------
Total Short-Term Investments
(cost $8,084,710) $ 8,059,477
--------------------------------------------------------------------------------------
Total Investments (cost $344,758,687)*** $346,240,132
--------------------------------------------------------------------------------------
</TABLE>
* Percentages indicated are based on net assets of $326,734,657, which
correspond to a net asset value per share of $8.38.
+ Non-income-producing security.
## Income may be received in cash or additional securities at the discretion
of the issuer.
++ The interest rate and date shown parenthetically represent the new
interest rate to be paid and the date the fund will begin receiving
interest at this rate.
+++ TBA's are mortgage-backed securities traded under delayed delivery
commitments settling after September 30, 1995. Although the unit price
for the trades has been established, the principal amount has not been
finalized. However, the amount of the commitments will not fluctuate more
than 2.0% from the principal amount. Income on the securities will not be
earned until settlement date. The cost of TBA purchases at September 30,
1995 was $26,561,031.
TBA Sale Commitments Outstanding at September 30, 1995 (proceeds receivable
$21,341,475)
<TABLE>
<CAPTION>
Principal Delivery Coupon Market
Agency Amount Month Rate Value
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FNMA $ 18,297,000 Oct. 95 7-1/2s $ 18,411,356
GNMA 2,826,000 Oct. 95 8s 2,905,467
------------------------------------------------------------------------
$ 21,316,823
------------------------------------------------------------------------
</TABLE>
# 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 September 30, 1995
was $837,207 or 0.3% of net assets.
*** The aggregate identified cost for federal income tax purposes is
$344,925,082, resulting in gross unrealized appreciation and depreciation
of $11,135,813 and $9,820,763, respectively, or net unrealized
appreciation of $1,315,050.
<PAGE>
Forward Cross Currency Contracts Outstanding at September 30, 1995
(aggregate face value $3,570,520)
<TABLE>
<CAPTION>
In
Market Exchange Market Delivery Unrealized
Value For Value Date Depreciation
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Deutschemarks French
$1,922,096 Francs $1,927,480 11/14/95 $ (5,384)
Deutschemarks French
1,753,737 Francs 1,758,604 11/14/95 (4,867)
-------------------------------------------------------------------------------------
$3,675,833 $3,686,084 $(10,251)
-------------------------------------------------------------------------------------
</TABLE>
Forward Currency Contracts to Buy at September 30, 1995
<TABLE>
<CAPTION>
Unrealized
Market Aggregate Delivery Appreciation/
Value Face Value Date (Depreciation)
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian
Dollars $ 1,432,163 $ 1,443,723 12/13/95 $(11,560)
Australian
Dollars 1,824,123 1,809,724 12/13/95 14,399
Australian
Dollars 7,538 7,538 12/13/95 --
Canadian Dollars 2,151,830 2,145,400 12/13/95 6,430
Danish Krona 2,219,368 2,152,984 12/13/95 66,384
Danish Krona 306,742 306,074 12/13/95 668
Deutschemarks 2,127,939 2,069,389 12/13/95 58,550
Deutschemarks 3,406,107 3,322,032 12/13/95 84,075
Deutschemarks 1,776,794 1,725,168 12/13/95 51,626
Deutschemarks 1,825,954 1,832,715 12/13/95 (6,761)
Deutschemarks 1,979,673 1,979,673 12/13/95 --
Deutschemarks 505,649 507,863 12/13/95 (2,214)
Deutschemarks 2,318,177 2,260,150 12/13/95 58,027
Japanese Yen 9,893,044 9,849,172 12/14/95 43,872
Japanese Yen 4,053,488 4,036,938 12/14/95 16,550
Japanese Yen 6,466,377 6,420,213 12/14/95 46,164
New Zealand
Dollars 1,305,820 1,299,609 10/16/95 6,211
Spanish Peseta 1,045,460 1,021,731 12/13/95 23,729
Spanish Peseta 1,334,921 1,305,493 12/13/95 29,428
Spanish Peseta 152,792 153,028 12/13/95 (236)
Swedish Krona 2,365,151 2,282,268 12/13/95 82,883
-------------------------------------------------------------------------
$48,499,110 $47,930,885 $568,225
-------------------------------------------------------------------------
</TABLE>
<PAGE>
Forward Currency Contracts to Sell at September 30, 1995
<TABLE>
<CAPTION>
Unrealized
Market Aggregate Delivery Appreciation/
Value Face Value Date (Depreciation)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
British Pounds $ 552,302 $ 552,821 12/13/95 $ 519
Canadian
Dollars 938,168 925,994 12/13/95 (12,174)
Deutschemarks 4,143,512 4,050,390 12/13/95 (93,122)
Deutschemarks 1,404,580 1,360,674 12/13/95 (43,906)
Deutschemarks 2,127,939 2,071,937 12/13/95 (56,002)
Deutschemarks 1,488,855 1,450,068 12/13/95 (38,787)
Deutschemarks 8,638,168 8,411,407 12/13/95 (226,761)
Deutschemarks 3,637,863 3,521,366 12/13/95 (116,497)
Deutschemarks 1,755,725 1,744,470 12/13/95 (11,255)
Deutschemarks 140,084 135,558 10/20/95 (4,526)
Deutschemarks 140,767 136,054 1/25/96 (4,713)
French Francs 7,055,771 6,864,176 12/13/95 (191,595)
Italian Dollars 364,822 365,349 12/13/95 527
Italian Lira 5,142,052 5,087,423 12/13/95 (54,629)
Japanese Yen 1,733,547 1,795,048 12/13/95 61,501
Japanese Yen 610,040 632,796 12/13/95 22,756
Japanese Yen 3,039,621 3,073,172 12/13/95 33,551
Japanese Yen 2,168,263 2,146,009 12/13/95 (22,254)
Netherland
Guilders 1,192,309 1,153,424 12/13/95 (38,885)
Netherland
Guilders 4,142,351 3,987,795 12/13/95 (154,556)
Spanish Peseta 3,940,428 3,839,073 12/13/95 (101,355)
-----------------------------------------------------------------------
$54,357,167 $53,305,004 ($1,052,163)
-----------------------------------------------------------------------
</TABLE>
Written Options Outstanding at September 30, 1995
(Premium received $33,282)
<TABLE>
<CAPTION>
Expiration
Contract Date/
Amount Strike Price Value
- -----------------------------------------------------------------------
<S> <C> <C> <C>
$7,740,000 US Dollars in Exchange For Dec. 95
Deutschemarks DEM1.565 $19,350
- -----------------------------------------------------------------------
</TABLE>
<PAGE>
144A after the name of a security represents those exempt from registration
under Rule 144A of the Securities Act of 1933. These securities may be resold
in transactions exempt from registration, normally to qualified institutional
buyers.
The rates shown on Floating Rate Notes (FRN) are the current interest rates
at September 30, 1995, which are subject to change based on the terms of the
security.
Percentage of net assets invested in foreign countries at September 30, 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Argentina 0.8% Italy 3.2%
Australia 0.7 Mexico 0.9
Brazil 1.5 Netherlands 2.3
Canada 2.5 Panama 0.1
Czech 0.2 Philippines 0.1
France 4.9 Poland 0.2
Germany 7.2 Spain 1.4
India 0.2 Thailand 0.1
Indonesia 0.2 United Kingdom 2.8
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of assets and liabilities
September 30, 1995
<TABLE>
<CAPTION>
Assets
----------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (identified cost $344,758,687) (Note 1) $346,240,132
----------------------------------------------------------------------------------------------
Cash 1,205,077
----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 6,495,989
----------------------------------------------------------------------------------------------
Receivable for securities sold 33,480,684
----------------------------------------------------------------------------------------------
Receivable for open forward and forward cross currency contracts 707,850
----------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 1,116,063
----------------------------------------------------------------------------------------------
Total assets $389,245,795
----------------------------------------------------------------------------------------------
Liabilities
----------------------------------------------------------------------------------------------
Payable for securities purchased $ 35,959,726
----------------------------------------------------------------------------------------------
Distributions payable to shareholders 1,941,928
----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 611,550
----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,444
----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 475
----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 65,249
----------------------------------------------------------------------------------------------
Payable for open forward and forward cross currency contracts 1,202,039
----------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 1,314,098
----------------------------------------------------------------------------------------------
Other accrued expenses 77,456
----------------------------------------------------------------------------------------------
Written options outstanding, at value (premium received $33,282) 19,350
----------------------------------------------------------------------------------------------
TBA sale commitments outstanding, at value (proceeds receivable $21,341,475) 21,316,823
----------------------------------------------------------------------------------------------
Total liabilities 62,511,138
----------------------------------------------------------------------------------------------
Net assets $326,734,657
----------------------------------------------------------------------------------------------
Represented by
----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $359,297,889
----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (2,958,512)
----------------------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions and foreign currency
transactions (Note 1) (30,623,661)
----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and liabilities in
foreign currency transactions 1,018,941
----------------------------------------------------------------------------------------------
Total--Representing net assets applicable
to capital shares outstanding $326,734,657
----------------------------------------------------------------------------------------------
Computation of net asset value
----------------------------------------------------------------------------------------------
Net asset value per share
($326,734,657 divided by 38,995,338 shares) $ 8.38
----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Statement of operations
Year ended September 30, 1995
Investment income:
----------------------------------------------------------------------------------------
Interest (net of foreign tax of $155,434) $28,925,549
----------------------------------------------------------------------------------------
Dividends 248,579
----------------------------------------------------------------------------------------
Total investment income $29,174,128
----------------------------------------------------------------------------------------
Expenses:
----------------------------------------------------------------------------------------
Compensation of Manager (Note 2) $ 2,378,222
----------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 436,954
----------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 14,722
----------------------------------------------------------------------------------------
Reports to shareholders 143,352
----------------------------------------------------------------------------------------
Auditing 106,908
----------------------------------------------------------------------------------------
Legal 14,407
----------------------------------------------------------------------------------------
Postage 112,541
----------------------------------------------------------------------------------------
Administrative services (Note 2) 9,371
----------------------------------------------------------------------------------------
Registration fees 693
----------------------------------------------------------------------------------------
Other 39,035
----------------------------------------------------------------------------------------
Total expenses 3,256,205
----------------------------------------------------------------------------------------
Fees paid indirectly (Note 2) (207,446)
----------------------------------------------------------------------------------------
Net expenses 3,048,759
----------------------------------------------------------------------------------------
Net investment income 26,125,369
----------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (2,567,559)
----------------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 7,070
----------------------------------------------------------------------------------------
Net realized gain on futures contracts (Notes 1 and 3) 70,298
----------------------------------------------------------------------------------------
Net realized loss on forward currency contracts and foreign currency
(Notes 1 and 3) (6,076,577)
----------------------------------------------------------------------------------------
Net unrealized gain on forward currency contracts and foreign currency
translation during the year 94,936
----------------------------------------------------------------------------------------
Net unrealized appreciation of investments, options, futures contracts
and TBA sale committments during the year 16,406,260
----------------------------------------------------------------------------------------
Net gain on investment transactions 7,934,428
----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $34,059,797
----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of changes in net assets
<TABLE>
<CAPTION>
Year ended
September 30
----------------------------
1995 1994
----------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
----------------------------------------------------------------------------------
Operations:
----------------------------------------------------------------------------------
Net investment income $ 26,125,369 $ 24,151,350
----------------------------------------------------------------------------------
Net realized loss on investments and foreign
currency transaction (8,566,768) (7,532,954)
----------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments, and assets and liabilities in foreign
currency transactions 16,501,196 (20,029,390)
----------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 34,059,797 (3,410,994)
----------------------------------------------------------------------------------
Distributions to shareholders:
----------------------------------------------------------------------------------
From net investment income (19,003,541) (21,686,230)
----------------------------------------------------------------------------------
From net realized gain on investments -- (2,174,004)
----------------------------------------------------------------------------------
From return of capital (Note 1) (5,547,437) (3,053,313)
----------------------------------------------------------------------------------
Shares repurchased (Note 4) (70,000) --
----------------------------------------------------------------------------------
Total increase (decrease) in net assets 9,438,819 (30,324,541)
Net assets
----------------------------------------------------------------------------------
Beginning of year $317,295,838 $347,620,379
----------------------------------------------------------------------------------
End of year (including distributions in excess of
net investment income of $2,958,512 and $9,020,787,
respectively) $326,734,657 $317,295,838
----------------------------------------------------------------------------------
Number of fund shares
----------------------------------------------------------------------------------
Shares outstanding at beginning of year 39,005,338 39,005,338
----------------------------------------------------------------------------------
Shares repurchased (10,000) --
----------------------------------------------------------------------------------
Shares outstanding at the end of year 38,995,338 39,005,338
----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Financial highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Year ended September 30
-----------------------------------------------------
1995 1994 1993 1992 1991
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.13 $ 8.91 $ 8.71 $ 8.16 $ 7.60
------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------
Net investment income .67 .62 .68 .74 .76
------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments .21 (.71) .29 .63 .67
------------------------------------------------------------------------------------------------
Total from investment operations .88 (.09) .97 1.37 1.43
------------------------------------------------------------------------------------------------
Less distributions to shareholders:
------------------------------------------------------------------------------------------------
From net investment income (.49) (.55) (.68) (.74) (.76)
------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (.09) -- --
------------------------------------------------------------------------------------------------
From net realized gain on investments -- (.06) -- -- --
------------------------------------------------------------------------------------------------
From return of capital (.14) (.08) -- (.08) (.11)
------------------------------------------------------------------------------------------------
Total distributions (.63) (.69) (.77) (.82) (.87)
------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.38 $ 8.13 $ 8.91 $ 8.71 $ 8.16
------------------------------------------------------------------------------------------------
Market value, end of period $ 7.375 $ 7.250 $ 8.375 $ 8.500 $ 7.750
------------------------------------------------------------------------------------------------
Total investment return at market
value (%) (a) 10.90 (5.57) 7.89 21.13 36.82
------------------------------------------------------------------------------------------------
Net assets at end of period (in
thousands) $326,735 $317,296 $347,620 $339,871 $317,747
------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets (%) (b) 1.03 .92 .96 .98 1.08
------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) 8.24 7.18 7.83 8.76 9.65
------------------------------------------------------------------------------------------------
Portfolio turnover (%) 219.63 204.92 237.63 134.43 204.31
------------------------------------------------------------------------------------------------
</TABLE>
(a) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended September
30, 1995 includes amounts paid through expense offset arrangements. Prior
period ratios exclude these amounts. See Note 2.
<PAGE>
Notes to financial statements
September 30, 1995
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 commitments will not fluctuate more than 2.0% from the
principal amount. The fund holds, and maintains until settlement date, cash
or high-grade debt obligations in an amount sufficient to meet the purchase
price, or the fund may enter into offsetting contracts for the forward sale
of other securities they own. TBA purchase commitments may be considered
securities in themselves, and involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date, which risk is
in addition to the risk of decline in the value of the fund's other assets.
Unsettled TBA purchase commitments are valued at the current market value of
the underlying securities according to the procedures described under
"Security valuation" above.
Although the fund will generally enter into TBA purchase commitments with the
intention of acquiring securities for their portfolio or for delivery
pursuant to options contracts they have entered into, the fund may dispose of
a commitment prior to settlement if the fund's manager deem it appropriate to
do so.
<PAGE>
TBA sale commitments The fund may enter into TBA sale commitments to hedge
its portfolio positions or to sell mortgage-backed securities it owns under
delayed delivery arrangements. Proceeds of TBA sale commitments are not
received until the contractual settlement date. During the time a TBA sale
commitment is outstanding, equivalent deliverable securities, or an
offsetting TBA purchase commitment deliverable on or before the sale
commitment date, are held as "cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of the
underlying securities, generally according to the procedures described under
"Security valuation" above. The contract is "marked-to-market" daily and the
change in market value is recorded by a fund as an unrealized gain or loss.
If the TBA sale commitment is closed through the acquisition of an offsetting
purchase commitment, a fund realizes a gain or loss on the underlying
security. If the fund delivers securities under the commitment, the fund
realizes a gain or a loss from the sale of the securities based upon the unit
price established at the date the commitment was entered into.
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. Putnam Management 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 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.
Foreign currency-denominated receivables and payables are "marked-to- market"
using the current exchange rate. The fluctuation between the original
exchange rate and the current exchange rate is recorded as 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 and losses related to interest receivable are reported as part of
interest income.
F) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities, currency
holdings, other assets and liabilities
<PAGE>
are recorded in the books and records of the fund after translation to U.S.
dollars based on the exchange rates on that day. The cost of each security is
determined using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The fund
does not isolate that portion of realized or unrealized gains or losses
resulting from changes in the foreign exchange rate on investments from
fluctuations arising from changes in the market prices of the securities.
Such fluctuations are included with the net realized and unrealized gain or
loss on investments. Net realized gains and losses on foreign currency
transactions represent net exchange gains or losses on closed forward
currency contracts, disposition of foreign currencies and the difference
between the amount of investment income and foreign withholding taxes
recorded on the fund's books and the U.S. dollar equivalent amounts actually
received or paid. Net unrealized gains and losses on foreign currency
transactions arise from changes in the value of open forward currency
contracts and assets and liabilities other than investments at the period
end, resulting from changes in the exchange rate.
Futures and Options Contracts The fund may use futures and options contracts
to hedge against changes in the values of securities the fund owns or expects
to purchase. The fund may also write options on securities it owns or in
which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of the
underlying instruments, if there is an illiquid secondary market for the
contracts, or if the counterparty to the contract is unable to perform.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options are
valued at the last sale price, or if no sales are reported, the last bid
price for purchased options and the last ask price for written options.
Options traded over-the-counter are valued using prices supplied by dealers.
Forward currency contracts The fund may engage in forward currency contracts,
which are agreements between two parties to buy and sell currencies at a set
price on a future date, to protect against a decline in value relative to the
U.S. dollar of the currencies in which its portfolio securities are
denominated or quoted (or an increase in the value of a currency in which
securities a fund intends to buy are denominated, when a fund holds cash
reserves and short-term investments). The market value of the contract will
fluctuate with changes in currency exchange rates. The contract is "marked to
market" daily and the change in market value is recorded as an unrealized
gain or loss. When the contract is closed, the fund records a realized gain
or loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed. The maximum potential
loss from forward currency contracts is the aggregate face value in U.S.
dollars at the time the contract was opened. The fund could be exposed to
risk if the value of the currency changes unfavorably, if the counterparties
to the contracts are unable to meet the terms of their contracts or if the
fund is unable to enter into a closing position.
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 dis
<PAGE>
tribute 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 for excise tax on income and capital
gains.
At September 30, 1995 the fund had a capital loss carryover of approximately
$21,453,892 available to offset future capital gains, if any. The amount of
the carryover and the expiration dates are:
<TABLE>
<CAPTION>
Loss carryover Expiration
- ---------------- --------------------
<S> <C>
$14,418,915 September 30, 1999
$7,034,977 September 30, 2003
</TABLE>
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 market conditions
or investment decisions, the fund may not achieve projected investment
results for a given period. The amount and character of income and gains to
be distributed are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These differences
include treatment of post-October loss deferrals, interest on payment-in-kind
securities and realized and unrealized gains and losses on forward foreign
currency contracts. 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, 1995, the fund reclassified $1,059,553 to
increase distributions in excess of net investment income and $1,738,657 to
increase paid-in-capital, with an increase to accumulated net realized loss
of $679,104. The calculation of net investment income per share in the
financial highlights table excludes these adjustments.
Note 2
Management fee, administrative services, and other transactions
Compensation of Putnam Management for management and investment advisory
services is paid quarterly based on the average weekly net assets of the
fund. Such fee is based on the following annual rates: 0.75% of the first
$500 million of average weekly net assets, 0.65% of the next $500 million,
0.60% of the next $500 million and 0.55% of any amount over $1.5 billion.
The fund 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 $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.
During the year ended September 30, 1995, the fund adopted a Trustee Fee
Deferral Plan (the "Plan") which allows the Trustees to defer the receipt of
all or a portion of Trustees fees payable on or after July 1, 1995. The
deferred fees remain in the fund and are invested in the fund or in other
Putnam funds until distribution in accordance with the Plan.
Custodial functions for the fund's assets are 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.
For the year ended September 30, 1995, fund expenses were reduced by $207,446
under expense offset arrangements with PFTC.
<PAGE>
Investor servicing and custodian fees reported in the Statement of operations
exclude these credits. The fund could have invested the assets utilized in
connection with the offset arrangements in an income-producing asset if it
had not entered into such arrangements.
Note 3
Purchases and sales of securities
During the year ended September 30, 1995, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $271,877,944 and $303,856,876, respectively. Purchases and sales
of U.S. government obligations aggregated $404,440,000 and $358,561,330,
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> <C>
Contract Premiums
Amounts Received
--------------------------------------------------------------------------
Options written 15,307,000 $ 67,687
Options sold (7,567,000) (34,405)
--------------------------------------------------------------------------
Written options outstanding at end of year 7,740,000 $ 33,282
--------------------------------------------------------------------------
</TABLE>
Note 4
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 interest of the fund's
shareholders. Any repurchases of shares will have the effect of increasing
the net asset value per share of remaining shares outstanding.
For the year ended September 30, 1995, the fund repurchased 10,000 shares for
$70,000, which reflects a discount from net asset value of $11,567 or 13.80%.
<PAGE>
Federal tax information
(unaudited)
For the year ended September 30, 1995, a portion of the fund's distribution
represents a return of capital and is therefore not taxable to shareholders.
This is the result of losses on foreign currency transactions incurred in the
fiscal year ended September 30, 1994. Federal tax law allows certain losses
sustained in a fund's fiscal year to be deferred into the following year.
These losses must be reclassified as ordinary losses for tax purposes,
reducing the amount of net investment income the fund has available for
distribution.
The Form 1099 you receive in January 1996 will show the tax status of all
distributions paid to your account in calendar 1995, including the amount of
the distribution not subject to tax. You will need to adjust the cost basis
of your shares by the amount that is not subject to tax when you eventually
redeem or exchange them. This will increase any resulting capital gain or
decrease any capital loss you incur at that time.
Results of July 13, 1995 shareholder meeting
An annual meeting of shareholders of the fund was held on July 13, 1995. At
the meeting, each of the nominees for Trustees was elected, as follows:
<TABLE>
<CAPTION>
Votes
Votes for withheld
--------- -------------
<S> <C> <C>
Jameson Adkins Baxter 34,385,308 739,709
Hans H. Estin 34,393,365 731,653
John A. Hill 34,403,235 721,781
Elizabeth T. Kennan 34,390,529 734,488
Lawrence J. Lasser 34,397,024 727,993
Robert E. Patterson 34,398,855 726,161
Donald S. Perkins 34,396,100 728,917
William F. Pounds 34,399,888 725,129
George Putnam 34,397,372 727,645
George Putnam, III 36,394,507 730,510
E. Shapiro 34,351,246 773,771
A.J.C. Smith 34,400,687 724,329
W. Nicholas Thorndike 34,392,964 732,953
</TABLE>
A proposal to ratify the selection of Coopers & Lybrand L.L.P., as auditors
for the fund was approved as follows: 34,403,122 votes for, and 255,339 votes
against, with 466,556 abstentions and broker non-votes. A proposal to fix the
number of Trustees at 13 was approved as follows: 34,351,246 for, and 773,771
against. All tabulations have been rounded to the nearest whole number.
<PAGE>
Selected quarterly data
(unaudited)
<TABLE>
<CAPTION>
Net realized
and unrealized Net increase
Investment Net invest- gain (loss) on in net assets
income ment income investments from operations
----------------- ----------------- ------------------- --------------------
Quarter Per Per Per Per
ended Total Share Total Share Total Share Total Share
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/93 $6,708,398 $.17 $5,933,660 $.15 $ 3,721,112 $ .10 $ 9,024,772 $ .23
3/31/94 6,656,480 .17 5,943,501 .15 (12,399,006) (.32) (5,825,505) (.15)
6/30/94 6,935,539 .18 6,149,111 .16 (13,707,196) (.35) (7,558,085) (.19)
9/30/94 6,930,592 .18 6,125,078 .16 (5,177,254) (.14) 947,824 .02
12/31/94 7,244,967 .19 6,441,101 .17 (10,525,009) (.27) (4,083,908) (.10)
3/31/95 7,421,188 .19 6,807,991 .17 6,599,105 .18 13,407,096 .35
6/30/95 7,261,732 .19 6,450,743 .17 9,489,769 .24 15,940,512 .41
9/30/95 7,246,241 .18 6,425,534 .16 2,370,564 .06 8,796,098 .22
</TABLE>
Dividend Policy
It is the fund's dividend policy to pay monthly distributions from net
investment income and any net realized short-term gains (including gains from
options and futures transactions). Long-term capital gains are distributed at
least annually. In an effort to maintain a more stable level of
distributions, the fund's monthly distribution rate will be based on Putnam
Management's projections of 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>
Fund informationINVESTMENT 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
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
Jennifer E. Leichter
Vice President and Fund Manager
D. William Kohli
Vice President and Fund Manager
Neil J. Powers
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>
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
20982-074 11/95
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
<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); Service Mark symbol is replaced
with (SM)
