-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, GltpqXUp4feb34rhSO5kXikTST7Jg8F8VndieoKg1+iyV0UI7eW7uIxK1/nN6R84 g6ZY8SjkAoyrJJpgM8g/SA== 0000824463-94-000001.txt : 19940112 ACCESSION NUMBER: 0000824463-94-000001 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19931031 FILED AS OF DATE: 19940104 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUTNAM MASTER INCOME TRUST CENTRAL INDEX KEY: 0000824463 STANDARD INDUSTRIAL CLASSIFICATION: 0000 IRS NUMBER: 042993219 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: 40 SEC FILE NUMBER: 001-09774 FILM NUMBER: 94500261 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQ CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6172921471 N-30D 1 ANNUAL REPORT (logo) Putnam Master Income Trust Annual Report October 31, 1993 (artwork) For investors seeking high current income consistent with preservation of capital through a portfolio diversified among U.S. government, high-yield and international fixed-income securities Contents 2 How your fund performed 3 From the Chairman 4 Report from Putnam Management Annual Report 6 Report of Independent Accountants 7 Portfolio of investments owned 18 Financial statements 30 Dividend Policy 33 Federal tax information 34 Fund performance supplement 35 Your Trustees A member of the Putnam Family of Funds How your fund performed For periods ended October 31, 1993 Total return* Consumer Fund Price NAV Market price Index 1 year 15.74% 13.27% 2.75% 3 years 64.99 77.35 9.14 annualized 18.16 21.04 2.96 5 years 80.21 66.26 21.21 annualized 12.50 10.70 3.92 Life-of-fund (since 12/28/87) 101.09 72.35 26.26 annualized 12.71 9.77 4.07 Share data NAV Market price October 31, 1992 $9.15 $8.625 October 31, 1993 9.62 8.875 In excess of Distributions Investment investment 12 months ended Number income income Total October 31, 1993 12 $0.7269 $0.1416 $0.8685 Current returns at the end of the period NAV Market price Current dividend rate 7.80% 8.45% *Performance data represent past results. Investment return, 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. Terms you need to know Total return is the change in value of an investment from the beginning to the end of a period, assuming the reinvestment of all distributions. It may be shown at net asset value or at market price. Net asset value (NAV) is the value of all your fund's assets, minus any liabilities, divided by the number of outstanding shares, not reflecting any sales charge. Market price is the current trading price of one share of the fund. Market prices are set by transactions between buyers and sellers on the New York Stock Exchange. Current dividend rate is calculated by annualizing the income portion of the fund s most recent distribution and dividing by the NAV or market price on the last day of the period. Please see the fund performance supplement on page 34 for additional information about performance comparisons. From the Chairman (photograph of George Putnam) c. Karsh, Ottawa George Putnam Chairman of the Trustees Dear Shareholder: I am pleased to report that Putnam Master Income Trust has had another successful year. Falling interest rates remained an ongoing trend through most of your fund's fiscal year and they appear likely to remain low well into 1994. These lower rates have brought higher bond prices and have allowed the fund to reap substantial capital gains. These returns have not gone unnoticed. Morningstar, Inc., an industry research firm, gave the fund its four-star rating (above-average) for risk-adjusted return through October 31, 1993. Reviewing the year's results for each of the three fixed income sectors in which your fund invests, it s clear that the lower-rated, higher-yielding corporate bonds made the greatest contribution. Careful bond selection, intensive credit research and active management enabled the fund to make the most of opportunities in the high-yield bond market. Meanwhile, the U.S. government and international fixed income securities jockeyed for second-place performance, with the leader shifting back and forth from quarter to quarter. The past three years have included periods of significant strength for all three sectors of your fund's portfolio. The fund's flexibility to shift assets between sectors enabled it to take advantage of many investment opportunities. Although we may not experience such fortuitous market conditions in the coming year, Rosemary Thomsen and her investment team remain confident of the fund's ability to produce attractive current income while minimizing volatility. Respectfully yours, George Putnam December 15, 1993 Report from Putnam Management Putnam Master Income Trust continues to reward its shareholders with attractive distributions, relatively low volatility and strong total return. In the 12 months ended October 31, 1993, the fund produced a total return of 15.74% at net asset value, or 13.27% for those who purchased shares at the market price at the beginning of the period. High-yield bonds lead returns For the second consecutive year, your fund's total return was driven by the strength of the high-yield bond market. We have emphasized investments in this area and had approximately 40% of total net assets invested in these securities throughout the period. While the prices of our bond holdings in all three sectors have risen, ongoing interest rate declines have affected the income streams available from U.S. government and international fixed income securities. High-yield bonds, while also affected, have benefited from an ongoing supply of new issues, which has helped keep coupon rates attractive versus Treasury bonds. Early in the year, performance in the high-yield bond sector was led by cyclical companies, like manufacturers of automobiles and heavy machinery, firms that typically do well at the start of an economic recovery. As the year progressed, however, growth-oriented investments, issued by fast-developing companies in such industries as gaming and telecommunications, outperformed other sectors. Shifting strategies for U.S. government securities During the year, long-term rates declined, with 30-year Treasury bonds falling from 7.63% to 5.97% and 10-year bonds moving from 6.97% to 5.43%. Short-term rates remained relatively stable. These moves provided us with opportunities for capital appreciation, since bond prices rise as rates decline. Early in the year, we began concentrating assets in both short-term securities and 30-year Treasuries. As rates declined, our long-term holdings grew in value. Mortgage-backed securities have, historically, made up a large part of the fund's U.S. government securities portfolio. However, interest rate declines have prompted record levels of prepayments, putting the income stream from these investments at risk. In anticipation of these developments, we reduced our mortgage-backed holdings and concentrated our investments on those with relatively low coupons. When mortgage-backed securities prices fall to a level that we believe offsets their risk, we expect to build up the fund s holdings. Changing currencies limit potential return Performance of our overseas holdings this year exemplified the special risks associated with international investing. Although the bond markets of certain countries provided substantial gains, currency exchange-rate shifts reduced our profits when translated back into U.S. dollars. This year, in anticipation of a stronger dollar, which would decrease the effective return from foreign investments, we relied on hedging strategies to protect our investments. By employing these hedges, we gave up a portion of our current return in exchange for a greater measure of capital protection against changing currency values. Historically, the fund's ability to use hedges has helped us produce better long-term returns than funds that lack this flexibility. This year, however, their use proved less advantageous, particularly when the dollar weakened instead of strengthening. Outlook With interest rates at unrealistically high levels in the upper-tier European countries, we expect muted growth, low inflation, excess capacity and high unemployment through the end of calendar 1993 and into 1994. We suspect that the European bond market rally may be largely over, and we will look to expand our investment horizons into other parts of the world. We have, in fact, already begun to invest in the bond markets of such emerging economies as Argentina, Mexico and Brazil. At home, we expect lower rates to prevail and the economy to gain momentum, however slowly. This should translate into an overall improvement in the credit quality of many issuers and, in turn, even greater stability in the domestic high-yield portion of your fund's portfolio. We believe the investment strategies embodied in Putnam Master Income Trust will enable us to take advantage of many opportunities in the fixed income markets, both at home and abroad. Top 10 high-yield bond holdings (10/31/93) Midland Funding Corp. II Playtex Family Products Corp. Loehmanns' Holdings Inc. Pathmark stores, Inc. Premium Standard Farms Gaylord Container Corp. Collins & Aikman Group, Inc. Comcast Cellular Corp. Grand Union Co. AMC Entertainment, Inc. *Reflects a % of the total portfolio based on net assets. Top high-yield bond industry sectors (Based on a percentage of total market value of corporate bonds & notes as of 10/31/93) Retail ..............................8.9% Recreation .............................8.8% Conglomerates ...........................7.7% Putnam Master Income Trust Annual Report For the Year Ended October 31, 1993 Report of Independent Accountants To the Trustees and Shareholders of Putnam Master Income Trust We have audited the accompanying statement of assets and liabilities of Putnam Master Income Trust, including the portfolio of investments owned, as of October 31, 1993, 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 five years in the period then ended, and for the period December 28, 1987 (commencement of operations) to October 31, 1988. These financial statements and "Financial Highlights" are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and "Financial Highlights" based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and "Financial Highlights" are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1993 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 Income Trust as of October 31, 1993, 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 five years in the period then ended and for the period December 28, 1987 (commencement of operations) to October 31, 1988, in conformity with generally accepted accounting principles. Coopers & Lybrand Boston, Massachusetts December 15, 1993 Portfolio of investments owned October 31, 1993 Corporate Bonds and Notes (37.1%)(a) Principal Amount Value Retail (3.3%) $ 1,600,000 Bradlees, Inc. sr. sub. notes 11s, 2002 $ 1,732,000 2,100,000 County Seat Stores units 12s, 2001 2,047,500 1,870,000 Duane Reade Corp. sr. notes 12s, 2002 2,000,900 1,000,000 Eckerd (Jack) Corp. sub. deb. 11 1/8s, 2001 1,010,000 5,000,000 Loehmanns' Holdings Inc. sr. sub. notes 10 1/2s, 1997(b) 4,656,250 50,000 Loehmanns' Holdings Inc. sr. sub. notes 13 3/4s, 1999 50,875 4,000,000 Pathmark Stores, Inc. sub. notes 11 5/8s, 2002 4,440,000 1,950,000 Pay'n Pak Stores, Inc. sr. sub. deb. 13 1/2s, 1998(c) 9,750 1,050,000 Specialty Retailers, Inc. sr. sub. notes 11s, 2003(b) 1,044,750 16,992,025 Recreation (3.3%) 3,000,000 AMC Entertainment, Inc. sr. sub. deb. 12 5/8s, 2002 3,375,000 2,000,000 Act III Theatres sr. sub. notes 11 7/8s, 2003 2,210,000 334,000 Belle Casinos bonds 12s, 2000(b) 339,010 1,800,000 Casino Magic Finance 1st mtge. deb. 11 1/2s, 2001(b) 1,818,000 675,000 Cinemark Mexico notes 12s, 2003(b) 629,438 1,825,000 Cinemark USA sr. notes 12s, 2002 2,002,956 625,000 Golden Nugget Finance Corp. 1st mtge deb. 10 5/8s, 2003 606,250 $480,000 Presidential Riverboat Casinos sr. sub. notes 11 3/4s, 2001(b) $ 470,400 2,912,000 Trump Castle Funding units 9 1/2s, 1998(d) 2,329,600 1,000,000 Trump Plaza Funding, Inc. 1st mtge. notes 10 7/8s, 2001 990,000 2,000,000 Trump Taj Mahal sub. deb. Ser. A, 11.35s, 1999(d) 1,980,000 16,750,654 Conglomerates (2.9%) 250,000 ADT Ltd. sr. sub. notes 9 1/4s, 2003 258,750 4,082,000 Collins & Aikman Group, Inc. sub notes 15s, 1995 4,102,410 2,900,000 Haynes International Inc. sr. sub. notes 13 1/2s, 1999 2,929,000 879,142 IFINT Diversified Holdings sub. deb. 12.5135s, 1998 (acquired 3/29/93, cost $879,143)(e) 901,121 2,000,000 Jordan Industries, Inc. sr. notes 10 3/8s, 2003 1,995,000 2,050,000 MacAndrews & Forbes Group Inc. deb. 12 1/4s, 1996 2,101,250 498,000 MacAndrews & Forbes Group Inc. sub. notes 13 1/4s, 1994 499,245 1,000,000 MacAndrews & Forbes Holdings Inc. sub. deb. 13s, 1999 1,005,000 1,650,000 Talley Industries, Inc. sr. disc. deb. stepped-coupon zero % (12 1/4s, 10/15/98), 2005(f) 919,875 14,711,651 Cable Television (2.4%) $ 1,000,000 Adelphia Communications Corp. notes 9 7/8s, 2005 $ 1,030,000 2,000,000 Adelphia Communications Corp. sr. notes 12 1/2s, 2002 2,240,000 1,250,000 Cablevision Industries Corp. sr. notes 10 3/4s, 2002 1,334,375 1,000,000 Century Communications Corp. sr. sub. deb. 11 7/8s, 2003 1,150,000 975,000 Continental Cablevision, Inc. sr. deb. 9s, 2008 1,072,500 1,891,000 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003(b)(d) 1,966,640 2,300,000 Insight Communications Co. sr. sub. notes stepped-coupon 8 1/4s (11 1/4s, 3/1/96), 2000(f) 2,242,500 1,000,000 Summit Communications Group, Inc. sr. sub. deb. 10 1/2s, 2005 1,070,000 12,106,015 Cellular Communications (2.1%) 1,500,000 Cellular, Inc. sr. sub. disc. notes stepped-coupon zero % (11 3/4s, 9/1/98), 2003(f) 975,000 6,650,000 Comcast Cellular Corp. sr. par. Ser. A, zero %, 2000 4,089,750 4,670,000 Horizon Cellular Telephone Co. sr. sub. disc. notes stepped-coupon zero % (11 3/8s, 10/1/97), 2000(b)(f) 3,245,650 $ 3,500,000 NEXTEL Communications Inc. sr. disc. notes stepped-coupon zero % (11 1/2s, 9/1/98), 2003(f) $ 2,450,000 10,760,400 Forest Products (1.8%) 1,600,000 Container Corp. of America sr. notes 9 3/4s, 2003 1,622,000 5,735,000 Gaylord Container Corp. sr. sub. notes stepped- coupon zero % (12 3/4s, 5/15/96), 2005(f) 4,129,200 2,150,000 Stone Savannah River Pulp & Paper Corp. sr. sub. notes 14 1/8s, 2000 1,763,000 1,500,000 Williamhouse Regency Delaware, Inc. sr. sub. deb. 11 1/2s, 2005 1,545,000 9,059,200 Specialty Consumer Products (1.7%) 2,000,000 Equitable Bag Co. sub. deb. 12 3/8s, 2002 1,700,000 4,425,000 Playtex Family Products Corp. sr. sub. disc. notes stepped-coupon zero % (14 3/4s, 12/15/93), 1997(f) 4,590,938 600,000 Playtex Family Products Corp. sr. sub. notes 13 1/2s, 1998 639,000 2,000,000 Revlon Consumer Products Corp. sr. sub. notes 10 1/2s, 2003 1,920,000 8,849,938 Food (1.6%) $ 2,085,000 Del Monte Corp. sub. notes 12 1/4s, 2002 (acquired 3/12/93, $1,413,498)(d)(e) $ 1,433,253 2,250,000 Fresh Del Monte Produce N.V. Corp. deb. 10s, 2003(b) 2,160,000 2,500,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 2,662,500 1,100,000 Specialty Foods Corp. sr. sub. notes 11 3/4s, 2003(b) 1,127,500 1,700,000 Specialty Foods Corp. units stepped-coupon zero % (13 1/2s, 8/15/99), 2005(b)(f) 807,500 8,190,753 Electric Utilities (1.2%) 1,500,000 Midland Funding Corp. II sub. secd. lease oblig. bonds Ser. A, 11 3/4s, 2005 1,653,750 4,000,000 Midland Funding Corp. II sub. secd. lease oblig. bonds Ser. B, 13 1/4s, 2006 4,720,000 6,373,750 Food Chains (1.1%) 2,000,000 Grand Union Capital Corp. sr. notes stepped- coupon zero % (15s, 6/15/99), 2004(f) 890,000 3,250,000 Grand Union Co. sub. deb. 12 1/4s, 2002 3,420,625 $ 410,000 Megafoods Stores Inc. sr. notes 10 1/4s, 2000 $ 407,950 1,250,000 Southland Corp. 1st priority sr. sub. deb. 5s, 2003 928,125 5,646,700 Agriculture (1.0%) 1,994,000 PMI Acquisition Corp. units stepped-coupon zero%, (11 1/2, 3/1/00) 2005(b)(f) 967,090 1,173,000 Premium Standard Farms deb. zero %, 2003(b)(g) 856,290 558,000 Premium Standard Farms deb. zero %, 2003(b) 417,105 550,500 Premium Standard Farms exch. pfd. units 12 1/2s, 2000(b) 576,649 2,449,280 Premium Standard Farms sr. secd. notes 12s, 2000(b) 2,565,621 5,382,755 Publishing (1.0%) 1,950,000 Affinity Group sr. sub. notes 11 1/2s, 2003 2,032,875 5,100,000 Marvel Parent Holdings, Inc. sr. secd. disc. notes zero %, 1998 3,136,500 5,169,375 Building Products (0.9%) 750,000 American Standard, Inc. sr. deb., 11 3/8s, 2004 828,750 1,000,000 Nortek Inc. sr. notes 9 3/4, 1997 965,000 $1,750,000 Southdown, Inc. sr. sub. notes Ser. B, 14s, 2001 $ 1,995,000 1,000,000 Triangle Pacific Corp. sr. notes 10 1/2s, 2003 1,035,000 4,823,750 Electronics (0.9%) 2,250,000 Ampex Group Inc. sr. sub. deb. 13 1/4s, 1996(c) 472,500 2,700,000 Amphenol Corp. sr. sub. notes 12 3/4s, 2002 2,983,500 2,500,000 International Semi-Tech sr. secd. disc. notes stepped-coupon zero % (111/2s, 8/15/00), 2003(f) 1,300,000 4,756,000 Health Care (0.9%) 1,350,000 American Medical International Inc. sr. sub. notes 13 1/2s, 2001 1,579,500 1,022,500 EPIC Healthcare Group, Inc. jr. sub. notes 11s, 2003(d) 601,358 2,000,000 EPIC Holdings Inc. sr. sub. notes stepped-coupon zero% (12s, 3/15/97), 2002(f) 1,427,500 1,000,000 Quorum Health Group, Inc. sr. sub. notes 11 7/8s, 2002 1,105,000 4,713,358 Advertising (0.8%) $1,935,000 Katz Corp. sr. sub. notes 12 3/4s, 2002 $ 2,147,850 2,000,000 Lamar Advertising Co. notes 11s, 2003 2,105,000 4,252,850 Chemicals (0.8%) 500,000 Arcadian Partners L.P. sr. notes 10 3/4s, 2005 520,000 1,800,000 G-I Holdings Inc. sr. notes zero %, 1998(b) 1,093,500 700,000 Harris Chemical Corp. sr. sub. notes 10 3/4s, 2003 721,000 1,750,000 UCC Investors Holding, Inc. sr. notes 10 1/2s, 2002 1,890,000 4,224,500 Restaurants (0.7%) 350,000 American Restaurant Group, Inc. sr. secd. notes 12s, 1998 351,750 3,200,000 Flagstar Corp. sr. sub. deb. sinking fund 11.25s, 2004 3,256,000 3,607,750 Nursing Homes (0.7%) 1,150,000 Beverly Enterprises Inc. sr. secd. notes 14 1/4s, 1997 1,334,000 1,987,000 Multicare Cos., Inc. sr. sub. notes 12 1/2s, 2002 2,245,310 3,579,310 Computers (0.7%) $3,000,000 Computervision Corp. sub. deb. 11 3/8s, 1999 $ 2,040,000 3,598,000 DR Holdings Inc. sr. sub. deb. 15 1/2s, 2002(c) 377,790 1,000,000 Unisys Corp. sr. notes 10 5/8s, 1999 1,090,000 3,507,790 Communications (0.7%) 115,000 Page Mart Inc. sr. disc. notes stepped-coupon zero % (12 1/4s, 11/1/98), 2003(b)(f) 672,750 4,200,000 Panamsat L.P. sr. sub. notes stepped-coupon zero % (11 3/8s, 8/1/98), 2003(f) 2,709,000 3,381,750 Insurance (0.6%) 975,000 American Annuity Group, Inc. sr. notes 9 1/2s, 2001 987,188 1,950,000 Bankers Life Holding Corp. sr. sub. deb. 13s, 2002 2,320,500 3,307,688 Containers (0.5%) 2,500,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 2,675,000 Medical Supplies (0.5%) 2,515,000 Wright Medical Technology sr. secd. notes 10 3/4s, 2000(b) 2,533,863 Automotive Parts (0.5%) $750,000 Exide Corp. sr. notes 10 3/4s, 2002 $ 810,938 1,350,000 Key Plastics Corp. sr. notes 14s, 1999 1,582,875 2,393,813 Oil and Gas (0.5%) 2,350,000 Maxus Energy Corp. notes 9 3/8s, 2003 2,391,125 Metals and Mining (0.5%) 528,000 Horsehead Industries, Inc. sr. sub. ext. reset notes 13 1/2s, 1994 520,080 2,000,000 Horsehead Industries, Inc. sub. notes 14s, 1999 1,820,000 2,340,080 Aluminum (0.4%) 2,350,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12 3/4s, 2003 2,303,000 Textiles (0.4%) 2,000,000 Foamex (L.P.) Capital Corp. sr. sub. deb. 11 7/8s, 2004 2,115,000 125,000 Foamex (L.P.) sr. secd. notes 9 1/2s, 2000 129,375 2,244,375 Consumer Services (0.4%) 1,000,000 Solon Automated Services, Inc. sr. notes 12 3/4s, 2001 1,100,000 $1,000,000 Solon Automated Services, Inc. sr. sub. deb. 13 3/4s, 2002 $ 1,100,000 2,200,000 School Busses (0.4%) 2,000,000 Blue Bird Acquisition Corp. sub. deb. 11 3/4s, 2002 2,120,000 Environmental Services (0.4%) 2,000,000 Envirosource, Inc. sr. notes 9 3/4s, 2003 1,960,000 Airlines (0.4%) 1,800,000 USAir, Inc. pass-thru certificates 10 3/8s, 2013(g) 1,815,750 Shipping (0.3%) 1,250,000 Viking Star Shipping sr. secd. notes 9 5/8s, 2003(b) 1,287,500 Apparel (0.3%) 1,250,000 Guess?, Inc. sr. sub. notes 10s, 2003(b) 1,275,000 Financial Services (0.2%) 1,125,000 Comdata Network, Inc. sr. notes 12 1/2s, 1999 1,220,622 Gas (0.2%) 1,000,000 TransTexas Gas Corp. sr. secd. notes 10 1/2s, 2000 1,070,000 Broadcasting (0.1%) $ 500,000 SFX Broadcasting deb. 11 3/8s, 2000 $ 515,000 Total Corporate Bonds and Notes (cost $186,207,689) $190,493,090 U.S. Government and Agency Obligations (26.4%)(a) Principal Amount Value $1,452,678 Federal Home Loan Mortgage Corporation 7 1/2s, July 1, 2016 $ 1,492,627 Federal National Mortgage Association 3,671,037 Interest Only PAC (IO) Strips 1,071s, April 25, 2008(h) 330,393 6,270,000 TBA, 6s, January 14, 2009(i) 6,254,325 9,000,000 TBA, 5 1/2s, January 14, 2009(i) 8,808,750 Government National Mortgage Association 167 9s, May 15, 2021 178 3,480,000 TBA, 6 1/2s, January 15, 2024(i) 3,490,875 10,200,000 TBA, 6 1/2s, December 15, 2023(i) 10,257,375 12,870,000 U.S. Treasury Bonds 8 7/8s, August 15, 2017 17,032,641 6,740,000 U.S. Treasury Bonds 8 1/8s, August 15, 2021 8,382,875 880,000 U.S. Treasury Bonds 8s, November 15, 2021 1,082,400 2,980,000 U.S. Treasury Notes 6 7/8s, August 15, 1994 3,057,294 22,600,000 U.S. Treasury Notes 5 1/4s, July 31, 1998 23,016,688 $ 20,827,000 U.S. Treasury Notes 5 1/8s, June 30, 1998 $ 21,119,880 10,690,000 U.S. Treasury Notes 4 1/4s, July 31, 1995 10,750,131 2,980,000 U.S. Treasury Notes 4 1/4s, August 31, 1994 2,999,556 11,250,000 U.S. Treasury Notes 4 1/8s, June 30, 1995 11,295,703 14,220,000 U.S. Treasury Stripped Principal Payment Coupon Securities zero %, November 15, 2021 2,332,968 12,015,000 U.S. Treasury Stripped Principal Payment Coupon Securities zero %, May 15, 2021 2,016,267 11,680,000 U.S. Treasury Stripped Principal Payment Coupon Securities zero %, August 15, 2020 2,036,700 Total U.S. Government and Agency Obligations (Cost $132,999,416) $135,757,626 Foreign Bonds and Notes (25.3%)(a) Principal Amount Value U.S. 3,500,000 Argentina (Government of) bonds 4s, 2023 $ 2,716,875 U.S. 8,350,000 Argentina (Government of) bonds 4s, 2023 5,521,438 U.S. 250,000 Argentina (Government of) bonds 4s, 2023 165,625 A 5,215,000 Australia (Government of) bonds 7 1/2s, 2005(j) 3,722,206 U.S. 3,000,000 Brazil (Government of) bonds 8 3/4s, 2001 2,388,750 DKK 35,000,000 Denmark (Government of) bonds 9s, 1998(j) 5,796,875 FIM 5,000,000 Finland (Government of) 10 3/4s, 2002(j) 1,034,375 FF 17,400,000 France (Government of) Balladurs 6s, 1997(j) $ 3,001,500 ECU 1,130,000 France Treasury bonds 8 1/4s, 2022(j) 1,470,413 ITL 5,850,000,000 Italy (Government of) BTPS 12s, 1995(j) 3,747,656 ITL 4,460,000,000 Italy (Government of) BTPS 11 1/2s, 1996(j) 2,862,763 ITL 3,600,000,000 Italy (Government of) bonds 11 1/2s, 2003(j) 2,511,000 ITL 960,000,000 Italy (Government of) bonds 10s, 2003(j) 624,000 ECU 4,000,000 Italy (Government of) notes 9 1/4s, 2011(j) 5,205,000 JPY 998,000,000 Japan (Government of) BTPS 5 1/2s, 2013(j) 10,266,925 JPY 500,000,000 Japan (Government of) BTPS 5.3s, 2013(j) 5,018,750 JPY 824,000,000 Japan (Government of) BTPS 4.9s, 2009(j) 7,931,000 JPY 335,500,000 Japan (Government of) BTPS 4.8s, 2002(j) 3,317,256 U.S. 5,500,000 Mexican Aztec bonds 5s, 2008(j) 5,273,125 NLG 25,550,000 Netherlands (Government of) bonds 7 1/2s, 2023(j) 15,585,500 ZAL 7,600,000 South Africa bonds 11s, 2008(j) 1,567,500 SP 305,000,000 Spain (Government of) notes 12 1/4s, 2000(j) 2,680,188 SP 121,650,000 Spain (Government of) notes 11s, 1997(j) 978,522 SEK 20,200,000 Sweden (Government of) bonds 10 1/4s, 2003(j) 2,929,000 SEK 29,300,000 Sweden (Government of) bonds 6s, 2005(j) 3,149,750 GBP 2,530,000 United Kingdom Treasury bonds 9s, 2008(j) 4,362,669 GBP 925,000 United Kingdom Treasury bonds 8 3/4s, 2017(j) 1,610,656 GBP 1,970,000 United Kingdom Treasury bonds 8 1/2s, 2007(j) 3,252,963 GBP 3,100,000 United Kingdom Treasury bonds 7 1/4s, 1998(j) $ 4,779,813 GBP 1,250,000 United Kingdom Treasury war bonds 3 1/2s, 2049(j) 899,219 $2,500,000 Venezuela (Government of) bonds 6 3/4s, 2020 1,868,750 $3,750,000 Venezuela (Government of) bonds 6s, 2007 2,981,250 $3,500,000 Venezuela (Government of) bonds 4.3521s, 2007 2,581,250 JPY 854,000,000 World Bank notes 4 1/2s, 2003(j) 8,289,135 Total Foreign Bonds and Notes (cost $126,656,154) $130,091,697 Asset-Backed Securities (1.1%)(a) Principal Amount Value $ 1,575,000 First Deposit Master Trust Ser. 93-2, 5 3/4s, 2001 $ 1,610,438 3,117,298 Security Pacific Acceptance Corp. Ser. A1, 7.65s, 2012 3,249,783 905,000 Standard Credit Card Trust Ser. 91-5B, 6 1/2s, 1994 909,525 Total Asset-Backed Securities (cost $5,592,517) $ 5,769,746 Common Stocks (0.9%)(a) Number of Shares Value 5,700 Applause Enterprises Inc. (acquired 10/4/90, cost $64,125)(c)(e) $ 1,425 246 CDK Holding Corp. rights (acquired 10/31/88, cost $13,762)(c)(e) 5,566 116,043 Charter Medical Corp.(c) $ 2,915,580 10,234 Computervision Corp. (acquired 8/24/92, cost $92,106)(e) 21,107 15,261 Grand Casinos, Inc.(c) 381,525 9,653 Kendall International, Inc.(c) 424,732 30,773 SPI Holdings Inc. Class B(c) 376,969 108,263 Solon Automated Services, Inc. (acquired 6/18/92 cost $64,650)(c)(e) 67,664 1 Southland Corp.(c) 6 25,500 Specialty Foods Corp. (acquired 8/10/93, cost $18,533)(c) 28,688 11,231 Taj Mahal Holding Corp. Class A(c) 235,851 10,000 Triangle Pacific Corp.(c) 133,750 Total Common Stocks (cost $1,974,180) $ 4,592,863 Preferred Stocks (0.9%)(a) Number of Shares Value 1,709,000 Playtex Family Products Corp. $0.14, jr. pfd. (acquired 2/6/92, cost $2,623,144)(e) $ 3,204,375 16,319 Stone Savannah River Pulp & Paper Corp. $3.84 exch. pfd.(d) 1,174,968 1,935 Supermarkets General Holdings Corp. $3.52 exch. pfd. 54,180 Total Preferred Stocks (cost $4,253,068) $ 4,433,523 Convertible Preferred Stocks (0.3%)(a) (cost $1,400,000) Number of Shares Value 28,000 Conseco, Inc. Ser. D, $3.25 cv. pfd. $ 1,673,000 Call Options On Foreign Bonds (0.3%)(a)(j) Expiration Date/ Number of Contracts Strike Price Value 8,600 Brazil (Government of) bonds Dec/U.S.$77.625 $ 172,000 30 France Treasury bonds Apr/FF107.18 38,440 315 France Treasury bonds Dec/FF16.07 1,130,316 871 Japanese (Government of) bonds Jan/JPY110.754 135,717 3,900 Morocco (Government of) bonds Jan/U.S.$76.875 167,310 Total Call Options On Foreign Bonds (cost $841,826) $ 1,643,783 Yankee Bonds and Notes (0.3%)(a) (cost $1,567,787) Principal Amount Value $ 1,575,000 Banco De Galicia notes 9s, 2003(g) $ 1,567,787 Collateralized Mortgage Obligations (0.2%)(a) (cost $938,935) Principal Amount Value $ 936,294 Prudential Home Mortgage Securities Co. Ser. 92-39 P1, 5.15s, 2007 $ 936,879 Warrants (0.1%)(a)(c) Number of Expiration Warrants Date Value 334 Belle Casinos 10/15/03 $ 6,680 406 CDK Holding Corp. Class A (acquired 10/31/88, cost $22,777)(e) 7/7/99 9,186 434 CDK Holding Corp. Class B (acquired 10/31/88, cost $12,180)(e) 7/7/99 8,951 7,499 Cinemark Mexico 8/1/03 72,178 2,880 Presidential Riverboat Casinos 9/15/96 34,560 20,000 Southdown, Inc. (acquired 10/31/91, cost $60,000)(e) 11/1/96 180,000 2,054 Southland Corp. 3/5/96 10,784 1,036 Wright Medical Technology Inc. 6/30/03 88,025 Total Warrants (cost $258,812) $ 410,364 Call Options On Cross Forward Currency Contracts (0.1%)(a) Expiration Date/ Number of Contracts Strike Price Value 2,650 British Sterling In Exchange For Deutschemarks Dec/2.48 $ 57,240 13,000 Deutschemarks In Exchange For Japanese Yen Dec/65.7 63,700 26,000 Deutschemarks In Exchange For Japanese Yen Dec/66.25 78,000 19,000 U.S. Dollars In Exchange For Deutschemarks Nov/1.69 $ 17,100 7,800 U.S. Dollars In Exchange for Japanese Yen Jan/109 137,280 Total Call Options On Cross Forward Currency Contracts (cost $760,048) $ 353,320 Short-Term Investments (9.9%)(a) Principal Amount Value GRD 535,000,000 Greece Treasury Bills zero %, May 31, 1994(j) $ 1,966,125 GRD 300,000,000 Greece Treasury bills zero %, May 17, 1994(g)(j) 1,111,875 $ 15,000,000 Shearson Lehman Brothers Holdings Inc. 3.13s, November 1, 1993 14,928,696 32,880,000 Interest in $356,683,000 joint repurchase agreement dated October 29, 1993 with Kidder, Peabody & Co. Inc. due November 1, 1993 with respect to various U.S. Treasury obligations--maturity value of $32,885,389 for an effective yield of 2.95% 32,885,389 Total Short-Term Investments (cost $51,333,066) $ 50,892,085 Total Investments (cost $514,783,498)(k) $528,615,763 Notes (a) Percentages indicated are based on total net assets of $513,315,877, which corresponds to a net asset value per share of 9.62. (b) Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At October 31, 1993 these securities were valued at $30,510,506 or 5.9% of net assets. (c) Non-income-producing security. (d) Income may be received in cash or additional securities at the discretion of the issuer. (e) 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 October 31, 1993 was $5,861,336 or 1.1% of net assets. (f) The interest rate and date shown parenthetically represent the new interest rate to be paid and the date the Fund will begin accruing this rate. (g) A portion of these securities, having a value of $3,798,090 or 0.7% of net assets, have been purchased on a "forward commitment basis"--that is, the Fund has agreed to take delivery of and make payment for such securities beyond the settlement time of five business days after the trade date and subsequent to the the date of this report. The purchase price and interest rate of these securities are fixed at the trade date, although the Fund does not earn any interest on such securities until the settlement date. (h) Interest Only (IO) Strips represent the right to receive the monthly interest payments on an underlying pool of mortgage loans. No payments of principal on the pool are passed through to the IO holders. (i) TBA's are mortgage- backed securities traded under delayed delivery commitments settling after October 31, 1993. 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 2.0% from the principal amount. The cost of TBA purchases at October 31, 1993 was $28,781,691. (j) Foreign-currency denominated. Market value is translated at the current exchange rate. (k) The aggregate identified cost for federal income tax purposes is $515,033,644 resulting in gross unrealized appreciation and depreciation of $25,086,553 and $11,504,434, respectively, or net unrealized appreciation of $13,582,119. U.S. Treasury Bond Futures Contracts Outstanding at October 31, 1993 (Aggregate face value $12,841,875) Expiration Month/ Unrealized Number of Contracts Strike Price Appreciation 108 U.S. Treasury Bond Futures (Sell) Dec/93 $ 16,875 Forward Currency Contracts Outstanding at October 31, 1993 Market Aggregate Delivery Unrealized Value Face Value Date Appreciation Deutschemarks (Sell) $3,380,100 $3,500,476 11/12/93 $ 120,376 French Francs (Sell) 6,587,100 6,605,467 11/30/93 18,367 French Francs (Sell) 1,381,700 1,439,480 12/21/93 57,780 Japanese Yen (Sell) 5,540,820 5,602,868 12/24/93 62,048 Japanese Yen (Sell) 92,256 94,507 11/29/93 2,251 Japanese Yen (Sell) 923,950 951,701 1/7/94 27,751 Japanese Yen (Sell) 12,314,974 12,693,854 11/24/93 378,880 Japanese Yen (Sell) 11,902,185 12,240,018 12/3/93 337,833 Japanese Yen (Sell) 4,618,350 4,719,608 12/29/93 101,258 $1,106,544 Cross Forward Currency Contracts Outstanding at October 31, 1993 (aggregate face value $16,820,387) In Unrealized Market Exchange Market Delivery Appreciation/ Contracts Value For Value Date(Depreciation) Deutschemarks Greek (Buy) $1,211,200 Drachma $1,286,013 12/14/93 $ (74,813) Deutschemarks Greek (Buy) 1,806,120 Drachma 1,932,405 12/15/94 (126,285) Deutschemarks French (Buy) 3,206,520 Francs 3,206,322 1/12/94 198 Deutschemarks Danish (Buy) 3,991,190 Krone 4,035,401 1/18/94 (44,211) Deutschemarks French (Buy) 1,365,970 Francs 1,374,619 1/18/94 (8,649) Deutschemarks French (Buy) 1,395,665 Francs 1,412,200 1/18/94 (16,535) Deutschemarks Finnish (Sell) 2,968,500 Markka 3,004,798 1/20/94 36,298 $(233,997) Diversification of Foreign Bonds and Notes at October 31, 1993 (as a percentage of net assets): Japan 6.9% Mexico 1.0% Netherlands 3.0 France 0.9 Italy 2.9 Australia 0.7 United Kingdom 2.9 Spain 0.7 Argentina 1.6 Greece 0.6 Venezuela 1.4 Brazil 0.5 Sweden 1.2 South Africa 0.3 Denmark 1.1 Finland 0.2
Statement of assets and liabilities October 31, 1993 Assets Investments in securities, at value (identified cost $514,783,498) (Note 1) $528,615,763 Cash 257,277 Interest and other receivables 9,758,865 Receivable for securities sold 38,990,904 Receivable for open forward currency contracts 1,143,040 Receivable for closed forward currency contracts 272,070 Receivable for variation margin 23,625 Total assets 579,061,544 Liabilities Payable for securities purchased $59,773,779 Distributions payable to shareholders 3,321,879 Payable for compensation of Manager (Note 2) 966,397 Payable for administrative services (Note 2) 1,259 Payable for compensation of Trustees (Note 2) 1,103 Payable for investor servicing and custodian fees (Note 2) 58,740 Payable for open forward currency contracts 270,493 Payable for closed forward currency contracts 1,224,492 Other accrued expenses 127,525 Total liabilities 65,745,667 Net assets 513,315,877 Represented by Paid-in capital $481,523,815 Distributions in excess of net investment income (7,555,392) Accumulated net realized gain on investment transactions 24,629,143 Net unrealized appreciation of investments, options, futures, and forward currency contracts 14,718,311 Total -- Representing net assets applicable to capital shares outstanding $513,315,877 Computation of net asset value (and offering price) Net asset value per share ($513,315,877 divided by 53,375,649 shares) $9.62
Statement of operations Year ended October 31, 1993 Investment income: Interest (net of foreign tax $129,433) $42,653,732 Dividends 763,118 Total investment income 43,416,850 Expenses: Compensation of Manager (Note 2) $3,742,268 Investor servicing and custodian fees (Note 2) 385,850 Compensation of Trustees (Note 2) 21,902 Reports to shareholders 93,634 Exchange listing fee 47,496 Auditing 69,556 Legal 23,635 Postage 203,244 Administrative services (Note 2) 15,859 Amortization of organization expenses (Note 1) 1,134 Registration fees 1,088 Other 9,864 Total expenses 4,615,530 Net investment income 38,801,320 Net realized gain on investments (Notes 1 and 3) 19,534,051 Net realized gain on options (Notes 1 and 3) 538,864 Net realized gain on futures contracts (Notes 1 and 3) 6,615 Net realized gain on forward currency contracts (Notes 1 and 3) 4,586,142 Net realized loss on foreign currency (Note 1) (36,529) Net unrealized appreciation of investments, futures, and forward currency contracts during the year 7,976,174 Net gain on investment transactions 32,605,317 Net increase in net assets resulting from operations $71,406,637
Statement of changes in net assets Year ended October 31 1993 1992 Increase in net assets Operations: Net investment income $ 38,801,320 $ 41,273,369 Net realized gain on investments 19,534,051 32,235,783 Net realized gain (loss) on options 538,864 (1,628,393) Net realized gain on futures contracts 6,615 586,832 Net realized gain of forward currency contracts 4,586,142 4,731,149 Net realized loss on foreign currency (36,529) (79,502) Net unrealized appreciation (depreciation) of investments, options, futures and forward currency contracts 7,976,174 (9,097,376) Net increase in net assets resulting from operations 71,406,637 68,021,862 Distributions to shareholders from: Net investment income (38,801,320) (41,028,325) In excess of net investment income (7,555,392) -- Net realized gain on investments -- (5,542,096) Paid-in capital (Note 1) -- (2,957,248) Increase from capital share transactions -- 1,537,539 Total increase in net assets 25,049,925 20,031,732 Net assets Beginning of year 488,265,952 468,234,220 End of year (including distributions in excess of net investment income of $7,555,392 and $0, respectively) $513,315,877 $488,265,952 Fund shares Shares outstanding at beginning of year 53,375,649 53,207,901 53,375,649 53,207,901 Shares issued in connection with the reinvestment of distributions -- 167,748 Shares outstanding at end of year 53,375,649 53,375,649 /TABLE
Financial highlights* (For a share outstanding throughout the period) For the period December 28, 1987 (commencement of operations) to Year ended October 31 October 31 1993 1992 1991 1990 1989 1988 Net Asset Value, Beginning of Period $9.15 $8.80 $8.01 $8.86 $9.50 $9.35 Investment Operations Net Investment Income .73 .77 .82 .84 .95 .81 Net Realized and Unrealized Gain (Loss) on Investments .61 .51 .90 (.69) (.44) .17 Total from Investment Operations 1.34 1.28 1.72 .15 .51 .98 Distributions to Shareholders From: Net Investment Income (.73) (.77) (.82) (.84) (.96) (.80) In Excess of Net Investment Income (.14) -- -- -- -- -- Net Realized Gain on Investments -- (.10) -- (.01) (.19) (.03) Paid-in Capital (a) -- (.06) (.11) (.15) -- -- Total Distributions (.87) (.93) (.93) (1.00) (1.15) (.83) Net Asset Value, End of Period $9.62 $9.15 $8.80 $8.01 $8.86 $9.50 Market Value, End of Period 8.88 8.63 8.38 6.88 8.25 9.50 Total Investment Return at Market Value (%) 13.27 14.34 36.93 (4.80) (1.52) 4.36(b) Net Assets, End of Period (in thousands) $513,316 $488,266 $468,234 $428,862 $482,494 $515,253 Ratio of Expenses to Average Net Assets (%) .92 .95 1.08 1.08 1.06 1.01(b) Ratio of Net Investment Income to Average Net Assets (%) 7.76 8.59 9.74 10.07 10.21 10.15(b) Portfolio Turnover (%) 132.24 221.30 323.27 125.33 323.44117.10(c) *Financial highlights for periods ended through October 31, 1992 have been restated to conform with requirements issued by the SEC in December 1992. (a)See Note 1 to the Financial Statements. (b)Annualized. (c)Not annualized. /TABLE Notes to financial statements October 31, 1993 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 investment objective of the Fund is to seek high current income consistent with preservation of capital. The Fund intends to diversify its investments among the following three sectors of the fixed income securities market: a U.S. government sector, consisting of debt obligations of the U.S. government and its agencies and instrumentalities and related options, futures and repurchase agreements; a high yield sector, consisting of high yielding, lower-rated U.S. corporate fixed income securities; and an international sector, consisting of obligations of foreign governments, their agencies and instrumentalities and other fixed income securities denominated in foreign currencies. 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 last reported 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, 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. (See Section F of Note 1 with respect to valuations of options, forward currency contracts and futures outstanding.) B) TBA purchase commitments The Fund may enter into "TBA" (to be announced) purchase commitments to purchase securities for a fixed price at a future date beyond customary settlement time. Although the unit price has been established, the principal value has not been finalized. However, the amount of the commitment will not fluctuate more than 2.0% from the principal amount. The Fund holds, and maintains until the settlement date, cash or high-grade debt obligations in an amount sufficient to meet the purchase price, or the Fund enters into offsetting contracts for the forward sale of other securities it owns. TBA purchase commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date, which risk is in addition to the risk of decline in the value of the Fund's other assets. Unsettled TBA purchase commitments are valued at the current market value of the underlying securities, generally according to the procedures described under "Security valuation" above. Although the Fund will generally enter into TBA purchase commitments with the intention of acquiring securities for its portfolio or for delivery pursuant to options contracts it has entered into, the Fund may dispose of a commitment prior to settlement if the Fund Manager deems it appropriate to do so. TBA sale commitments The Fund may enter into TBA sale commitments to hedge its portfolio positions or to sell mortgage-backed securities it owns under delayed delivery arrangements. Proceeds of TBA sale commitments are not received until the contractual settlement date. During the time a TBA sale commitment is outstanding, equivalent deliverable securities, or an offsetting TBA purchase commitment deliverable on or before the sale commitment date, are held as "cover" for the transaction. Unsettled TBA sale commitments are valued at the current market value of the underlying securities, generally according to the procedures described under "Security valuation" above. The contract is "marked-to-market" daily and the change in market value is recorded by the Fund as an unrealized gain or loss. If the TBA sale commitment is closed through the acquisition of an offsetting purchase commitment, the Fund realizes a gain or loss on the commitment without regard to any unrealized gain or loss on the underlying security. If the Fund delivers securities under the commitment, the Fund realizes a gain or loss from the sale of the securities based upon the unit price established at the date the commitment was entered into. C) Joint trading account Pursuant to an exemptive order issued by the Securities and Exchange Commission, the Fund may transfer uninvested cash balances into a joint trading account. The order permits the Fund's cash balance to be deposited into a single joint account along with the cash of other registered investment companies managed by Putnam Investment Management, Inc. (formerly known as The Putnam Management Company, Inc.), the Fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc. (formerly known as The Putnam Companies, Inc.), and certain accounts. These balances may be invested in one or more repurchase agreements and/or short-term money market instruments. D) Repurchase agreements The Fund through its custodian, receives delivery of the underlying securities, the market value of which at the time of purchase is required to be in an amount at least equal to the resale price, including accrued interest. The Fund s Manager is responsible for determining that the value of these underlying securities is at all times at least equal to the resale price, including accrued interest. E) Security transactions and related investment income Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Interest income is recorded on the accrual basis and dividend income is recorded on the ex-dividend date. Discount on zero coupon bonds, original issue discount bonds and step-up bonds is accreted according to the effective yield method. Certain securities held by the Fund pay interest in the form of additional securities; interest on such securities is recorded on the accrual basis at the lower of the coupon rate or the 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" daily using the current exchange rate. The fluctuation between the original exchange rate and the current exchange rate is recorded daily 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) Option accounting principles When the Fund writes a call or put option, an amount equal to the premium received by the Fund is included in the Fund's "statement of assets and liabilities" as an asset and an equivalent liability. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of 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, except that certain options on U.S. government obligations are stated at fair value on the basis of valuations furnished by a pricing service approved by the Trustees. 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 which the Fund purchases upon exercise of the option. The premium paid by the Fund for the purchase of a call or put option is included in the Fund's "statement of assets and liabilities" as an investment and is subsequently "marked-to-market" to reflect the current market value of the option. If an option which 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 securities acquired by exercising the call is increased by the premium paid to buy the call. If the Fund exercises a put option, it realizes a gain or loss from the sale of the underlying security and the proceeds from such sale are decreased by the premium originally paid. Options on foreign currencies The Fund writes and purchases put and call options on foreign currencies. The accounting principles and risks involved are similar to those described above relating to options on securities. The amount of potential loss to the Fund upon exercise of a written call option is the value (in U.S. dollars) of the currency sold, converted at the spot price, less the value of U.S. dollars received in exchange. The amount of potential loss to the Fund upon exercise of a written put option is the value (in U.S. dollars) of the currency received converted at the spot price, less the value of the U.S. dollars paid in exchange. Options on futures Options on futures generally operate in the same manner as options purchased or written directly on the underlying debt securities. The Fund is required to deposit in a manner similar to futures contracts as described below, "initial margin" and "variation margin" with respect to put and call options written on futures contracts. In addition, upon exercise, net premiums will decrease the unrealized loss or increase the unrealized gain on the future. Futures A futures contract is an agreement between two parties to buy and sell a security at a set price on a future date. Upon entering into such a contract the Fund is required to pledge to the broker an amount of cash or U.S. government securities equal to the minimum "initial margin" requirements of the exchange. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as "variation margin," and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The potential risk to the Fund is that the change in value of the underlying securities may not correspond to the change in value of the futures contracts. Forward currency contracts A forward currency contract is an agreement between two parties to buy and sell a currency at a set price on a future date. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is "marked-to-market" daily and the change in market value is recorded by the Fund as an unrealized gain or loss. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The maximum potential loss from forward currency 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. G) Federal taxes It is the policy of the Fund to distribute all of its income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. It is also the intention of the Fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Internal Revenue Code of 1986. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation of securities held and excise tax on income and capital gains. 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. Based on investment results for the years ended October 31, 1992, and 1991, $0.06 and $0.11 of per share distributions has been designated as a distribution from paid-in capital for financial presentation purposes. I) Unamortized organization expenses Expenses incurred by the Fund in connection with its organization aggregated $36,523. These expenses are being amortized on a straight-line basis over a five-year period. Note 2 Management fee, administrative services, and other transactions Compensation of Putnam Investment Management, Inc., for management and investment advisory services is paid quarterly based on the average net assets of the Fund. Such fee is based on the following annual rates: 0.75% of the first $500 million of average weekly net assets, 0.65% of the next $500 million, 0.60% of the next $500 million and 0.55% of any amount over $1.5 billion. The Fund also reimburses the Manager for the compensation and related expenses of certain officers of the Fund and their staff who provide administrative services to the Fund. The aggregate amount of all such reimbursements is determined annually by the Trustees. For the year ended October 31, 1993, the Fund incurred $15,859 for these services. Trustees of the Fund receive an annual Trustee's fee of $1,380 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 provided by Putnam Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. Fees paid for these investor servicing and custodial functions for the year ended October 31, 1993 amounted to $385,850. Investor servicing and custodian fees reported in the Statement of operations for the year ended October 31, 1993 have been reduced by credits allowed by PFTC. Note 3 Purchases and sales of securities During the year ended October 31, 1993, purchases and sales of investment securities other than U.S. government obligations and short-term investments aggregated $733,415,427 and $752,936,874, respectively. Purchases and sales of U.S. government obligations aggregated $416,330,463 and $417,100,454, 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: Principal Subject Premiums to Option Received Options written $ 15,600 $ 364,317 Options closed (15,600) (364,317) Written options outstanding at end of year$ -- $ -- Purchased option transactions on foreign bonds and currencies during the year are summarized as follows: Cost Options purchased $ 2,880,921 Options sold (1,279,047) Purchased options outstanding at end of year $ 1,601,874
Transactions in U.S. Treasury Bond futures contracts during the year are summarized as follows: Sales of Futures Contracts Number of Aggregate Contracts Face Value Contracts opened 128 $ 15,220,000 Contracts closed (20) (2,378,125) Open at end of year 108 $ 12,841,875 Transactions in forward and cross forward currency contracts during the year are summarized as follows: Purchase of Forward Currency Contracts Aggregate Face Value Contracts opened $ 557,158,280 Contracts closed (543,400,873) Open at end of year $ 13,757,407 Sales of Forward Currency Contracts Aggregate Face Value Contracts outstanding at beginning of year $ 121,294,731 Contracts opened 1,265,062,598 1,386,357,329 Contracts closed (1,335,446,370) Open at end of year $ 50,910,959 /TABLE Dividend Policy It is the Fund's dividend policy to pay monthly distributions from net investment income and any net realized short-term gains (including gains from options and futures transactions). Long-term capital gains are distributed at least annually. In an effort to maintain a more stable level of distributions, the Fund's monthly distribution rate will be based on Putnam Management's projections of the net investment income and net realized short-term capital gains that the Fund is likely to earn over the long term. Such distributions at times may exceed the current earnings of the Fund resulting in a return of capital to shareholders. At the time of each distribution, shareholders are furnished Putnam Management's current estimate of the sources of such distribution. These estimates are subject to adjustment depending on investment results for the Fund's entire fiscal year. Final information regarding such matters is furnished to shareholders in the Fund's annual reports and in tax information provided following the end of each calendar year.
Selected Quarterly Data (Unaudited) Three months ended October 31 July 31 April 30 January 31 1993 1993 1993 1993 Total investment income Total $ 10,173,560 $ 10,397,435 $ 11,266,547 $ 11,579,308 Per share $ .20 $ .19 $ .21 $ .22 Net investment income Total $ 8,974,985 $ 9,272,392 $ 10,035,513 $ 10,518,430 Per share $ .17 $ .17 $ .19 $ .20 Net realized and unrealized gain on investments Total $ 9,445,115 $ 7,121,780 $ 8,097,450 $ 7,940,972 Per share $ .18 $ .14 $ .14 $ .15 Net increase in assets resulting from operations Total $ 18,420,100 $ 16,394,172 $ 18,132,963 $ 18,459,402 Per share $ .35 $ .31 $ .33 $ .35 Net assets at end of period Total $513,315,877 $504,903,823 $499,318,157 $491,933,716 Per share $ 9.62 $ 9.46 $ 9.35 $ 9.22 Three months ended October 31 July 31 April 30 January 31 1992 1992 1992 1992 Total investment income Total $ 10,686,030 $ 12,026,006 $ 10,932,613 $ 12,202,807 Per share $ 0.20 $ 0.23 $ 0.21 $ 0.22 Net investment income Total $ 9,519,163 $ 10,861,523 $ 9,771,583 $ 11,121,100 Per share $ 0.17 $ 0.21 $ 0.19 $ 0.20 Net realized and unrealized gain on investments Total $ 4,170,992 $ 13,285,602 $ 198,122 $ 9,093,777 Per share $ 0.08 $ 0.25 $ -- $ 0.18 Net increase in assets resulting from operations Total $ 13,690,155 $ 24,147,125 $ 9,969,705 $ 20,214,877 Per share $ 0.25 $ 0.46 $ 0.19 $ 0.38 Net assets at end of period Total $488,265,952 $486,206,042 $473,677,649 $476,078,525 Per share $ 9.15 $ 9.12 $ 8.90 $ 8.95 /TABLE Federal tax information For federal income tax purposes, $0.869 per share for the year ended October 31, 1993 constitutes "dividend income". The Fund has designated 2.24% of the dividend income as qualifying for the dividends received deduction for corporations. In addition, the Fund has designated $0.269 per share as long-term capital gains. The Form 1099 you receive in January 1994 will show the tax status of all distributions paid to your account in calendar 1993. As required by law, your Fund reports to the Internal Revenue Service on a calendar year basis the amount of distributions paid to each shareholder. Fund performance supplement Putnam Master Income Trust is a portfolio managed for high current income consistent with preservation of capital through a portfolio diversified among U.S. government, high-yield and international fixed income securities. The fund invests in lower-rated, higher yielding securities, which may pose a greater risk to principal than higher-rated securities. High-yield securities are rated lower than investment-grade securities because there is a greater possibility that negative changes in the issuer's financial condition, or in general economic conditions, may hinder the issuer s ability to pay principal and interest on securities. The Consumer Price Index is a commonly used measure of inflation; it does not represent an investment return. Morningstar rates a fund in relation to similar funds, based on risk-adjusted 3-, 5- and 10-year total return, as applicable, adjusted for sales charges. Ratings are updated biweekly. The fund performance supplement has been prepared by Putnam Management to provide additional information about the fund and the indexes used for performance comparisons. The information is not part of the portfolio of investments owned or the financial statements. Your Trustees George Putnam Chairman Chairman and President, The Putnam Funds William F. Pounds Vice Chairman Professor of Management, Alfred P. Sloan School of Management, Massachusetts Institute of Technology Hans H. Estin Vice Chairman, North American Management Corporation John A. Hill Principal and Managing Director, First Reserve Corp. Elizabeth T. Kennan President, Mount Holyoke College Lawrence J. Lasser President and Chief Executive Officer, Putnam Investments, Inc. Robert E. Patterson Executive Vice President, Cabot Partners Limited Partnership Donald S. Perkins Director of various corporations George Putnam, III President, New Generation Research, Inc. A.J.C. Smith Chairman of the Board and Chief Executive Officer Marsh & McLennan Companies, Inc. W. Nicholas Thorndike Director of various corporations Putnam Master Income Trust Fund information Investment manager Putnam Investment Management, Inc. One Post Office Square Boston, MA 02109 Marketing services Putnam Mutual Funds Corp. One Post Office Square Boston, MA 02109 Investor servicing agent Putnam Investor Services Mailing address: P.O. Box 41203 Providence, RI 02940-1203 1-800-225-1581 Custodian Putnam Fiduciary Trust Company Legal counsel Ropes & Gray Independent accountants Coopers & Lybrand (DALBAR logo) Putnam Investor Services has received the DALBAR award each year since the award's 1990 inception. In more than 10,000 tests of 38 shareholder service components, Putnam outperformed the industry standard in every category. 9687 12/93 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 Paul O'Neil Vice President Rosemary H. Thomsen Vice President and Fund Manager William N. Shiebler Vice President John R. Verani Vice President John D. Hughes Vice President and Treasurer Beverly Marcus Vice President and Clerk Call 1-800-634-1587 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. - --------------------- Bulk Rate U.S. Postage Paid Boston, MA Permit No. 53749 - --------------------- PUTNAMINVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 APPENDIX TO FORM N30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED AND EDGAR-FILED TEXTS: (1) Rule lines for tables are omitted. (2) Boldface and italic typefaces are displayed in normal type. (3) Headers (e.g, the name of the fund) and footers (e.g., page numbers and "The accompanying notes are an integral part of these financial statements") are omitted. (4) Because the printed page breaks are not reflected, certain tabular and columnar headings and symbols are displayed differently in this filing. (5) Bullet points and similar graphic signals are omitted. (6) Page numbering is different. (7) "GBP" has replaced the sign for the British Pound, "JPY" has replace the sign for the Japanese Yen. -----END PRIVACY-ENHANCED MESSAGE-----