Putnam
Equity
Income
Fund
SEMIANNUAL REPORT
May 31, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* For the 12 months ended June 30, 1996, Putnam Equity Income Fund's
class A shares were ranked 22 out of 140 equity income funds for total
return performance -- placing them in the top 16% of these funds --
according to Lipper Analytical Services. Over the same period, the
fund's class B and class M shares were ranked 37 and 33, respectively,
out of 140 funds, placing both classes within the top 27% of equity
income funds tracked.*
* "Prospective investors should regard this fund as having a short but
terrific record."
-- Morningstar Mutual Funds analysis, February 2, 1996
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
27 Financial statements
* Lipper rankings are based on total return performance, vary over time,
and do not reflect the effects of sales charges. For the period ended
6/30/96, the fund's class A shares ranked 27 out of 47 and 15 out of 66
equity income funds for 5- and 10-year performance, respectively. The
fund's class B and class M shares were ranked 37 out of 140 and 33 out
of 140 equity income funds, respectively, for 1-year performance. Past
performance is not indicative of future results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
After 33 months of steady growth and unquestionably fine performance,
Putnam Equity Income Fund shows no sign of losing momentum. While this
is a tribute to the efforts of the management team, the contribution
made by the stock market cannot be overlooked.
Such markets do not last indefinitely without an occasional pause, a
point we are moved to make as the fund enters a period when some market
volatility is a reasonable expectation. Seasoned investors with a long-
term perspective should take any such fluctuations in stride.
In the report that follows, Fund Managers Edward Bousa, Kenneth Taubes,
and Rosemary Thomsen review your fund's performance thus far in fiscal
1996 and comment on the outlook for the remainder of the year.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
July 17, 1996
Report from the Fund Managers
Edward P. Bousa, lead manager
Kenneth J. Taubes
Rosemary H. Thomsen
Our careful, value-oriented approach to individual securities selection
clearly played the definitive role in the positive performance of Putnam
Equity Income Fund during the first half of fiscal 1996, encompassing
the six months ended May 31, 1996. Over this period, results for the
fund's three classes of shares at net asset value (11.35% for class A,
10.96% for class B, and 11.17% for class M) were competitive with the
Standard & Poor's 500(registered trademark) Index, which gained 11.76%.
Results at public offering price were 4.92% and 7.32% for class A and
class M shares, respectively; 5.96% for class B shares with CDSC. Please
see pages 9 and 10 for complete performance details.
Since stocks accounted for approximately 84% of your fund's portfolio,
the same events that favored the market -- low inflation and continuing
economic strength -- bolstered fund performance as well. The small bond
position was employed mainly for additional income and to cushion any
potential downside in stock prices. Corporates, international bonds,
Treasuries, and mortgage-backed securities minimally affected the fund's
net investment income. Convertible securities, a relatively small
percentage of the portfolio, performed well, particularly those of
foreign companies. In the final analysis, however, we believe your
fund's strong performance is due more to our overall investment strategy
than to economic and market factors.
* BASIC VALUE STRATEGY ON TARGET
Our proactive bottom-up strategy is built on a combination of thoughtful
security selection and expert teamwork between Putnam analysts and
portfolio managers, and meetings with the senior managements of
companies we research. This characteristic Putnam approach to
identifying positive internal change fosters consistent results and was
especially beneficial during a time when the markets, the economy, and
fiscal policymakers were sending out a mix of signals. Over the period,
prolonged economic strength helped drive the domestic stock market to
new heights. Simultaneously, investor fears about inflation contributed
to an eventual slowing in earnings growth. In this environment, we
believe it was the fund's basic-value approach to equity investing that
continued to drive its success.
We invest for long-term growth potential and seek out undervalued
companies that perform well through market ups and downs. Thus day-to-
day projections and market shifts do not overly concern us. Rather, we
focus on locating a combination of inexpensive prices and potential for
change in the companies selected for the portfolio. This combination
proved effective for your fund in the first half of fiscal 1996.
* STRONGEST PERFORMANCE FROM AUTOMOTIVE AND RETAIL SECTORS
Early in the period, we increased the fund's position in consumer
durables, most notably in automotive and retail sector stocks. Both
areas were benefiting from the strength of the economy; the fund, in
turn, was able to benefit from the strength of companies such as Ford,
General Motors, and TRW, among the automotives, and Dayton Hudson, a
large retailer that was among the portfolio's top performers. While
these securities, along with others discussed in this report, were
viewed favorably at the end of the period, all portfolio holdings are
subject to review and adjustment in accordance with the fund's
investment strategy and may well vary in the future.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS*]
Insurance and finance 15.0%
Utilities 13.5%
Oil and gas 7.3%
Retail 5.9%
Consumer nondurables 5.3%
Footnote reads:
*Based on net assets as of 5/31/96. Holdings will vary over time.
Ford convertible preferred stock, a relatively new holding for the fund,
is an example of remarkable success from our close scrutiny during
securities selection. We began aggressively purchasing Ford stock for
the fund in the first quarter of calendar 1996. At the time, its
underlying common stock was selling for a very attractive $29 per share
while yielding nearly 5%. We discovered that the underlying value of
Ford's non-auto assets was essentially worth the full price of the stock
and, therefore, investors who took advantage of this opportunity
theoretically received Ford's auto business for free.
While overlooked by Wall Street because of cost overruns and sales
problems with its flagship Taurus model, Ford nevertheless seemed to us
to exhibit desirable characteristics of inexpensive price and the
potential for internal change. We were particularly struck by the
company's clear management mandate to tackle its cost problems
aggressively. We decided that Ford stock had considerable potential for
growth both in terms of its dividend and its share price and we've been
proved correct. At period's end, the price of the underlying Ford common
stock had risen to $35 per share. Ford's convertible preferred stock
rose a like amount. At a 21% year-to-date total return, Ford stock has
been one of the major contributors to fund performance this year.
Retail stocks were even more powerful performers for the fund during the
period. By the close of fiscal 1995, these securities had been long out
of favor as consumers turned thrifty. However, regardless of the tough
retail environment at the time, we identified several change-minded
companies with aggressive managements and excellent potential to perform
over the long term. As the economy heated up, our stock picks from
established leaders in the retail industry -- among them, Dayton Hudson
- -- participated in an impressive comeback and added much to overall fund
performance.
* SOME WEAKNESS FROM INTEREST-RATE-SENSITIVE STOCKS, PARTICULARLY
UTILITIES
Following one of the strongest advances in recent memory, bond markets
turned abruptly downward beginning in February. The domestic bond market
had reacted to concern over a pickup in inflation resulting from
economic overheating. As interest rates rose sharply, losses resulted in
several sectors of the market and the effects spread to interest-rate-
sensitive stocks. Electric and telephone utilities -- higher-yielding
securities often negatively impacted by sudden increases in interest
rates -- proved weak performers for the fund in the second half of the
period.
[GRAPHIC OMITTED: TOP 10 HOLDINGS (5/31/96)]
Weyerhaeuser Company
Paper and forest products manufacturing
Warner-Lambert Company
Pharmaceuticals
General Motors Corp.
Multinational automobile manufacturing
J.P. Morgan Co., Inc.
Multinational banking and finance
Phillip Morris Companies, Inc.
Multinational tobacco, food, and alcohol
IBM Corp.
Multinational computers, information systems, and services
Kimberly Clark Corp.
Consumer nondurables
Dayton Hudson Corp.
Retailer
TRW, Inc.
Auto parts and accessories; space, and defense
NYNEX Corp.
Utilities
Footnote reads:
These holdings represent 14.8% of the fund's net assets. Portfolio
holdings will vary over time.
Despite the interest-rate backup, however, portfolio companies in the
insurance and finance sector were not as directly affected, although
some stocks lagged below the market average. Overall, strong earnings
within the banking industry have continued.
* OUTLOOK: DIVERSIFICATION REMAINS IMPORTANT
Over the next few months, we expect to increase the portfolio's holdings
in a variety of sectors, taking a defensive posture focused on
valuation. In forest products, one large portfolio holding,
Weyerhaeuser, has done especially well for the fund. Several common
elements mark the fund's holdings within this sector. In addition to our
key criteria of inexpensive stock price and capacity for positive
internal change, holdings include companies in which return assets and
improved cost control are priorities and which have excellent underlying
asset value. In addition, we believe investments in this sector may
offer considerable downside protection.
We have also begun to increase positions in technology-driven companies
that are developing leading-edge products and offering investors
depressed stock prices as well. Two such names are International
Business Machines (IBM), in the computer systems business, and Intel,
specializing in electronics and electrical equipment.
Stocks of chemical companies with global exposure will be another fund
focus going forward. Hoechst AG, a chemical company based in Germany,
and Eastman Chemical and Du Pont, both U.S.-based companies, are all
well positioned for success overseas regardless of any possible slowing
in the domestic economy. Also, among the utilities, we plan to increase
holdings in regional Bell operating companies because, in our opinion,
their underlying fundamentals appear especially strong and their
valuations particularly attractive.
Basic value, or looking for bargains, remains at the heart of your
fund's strategy. In this current market environment of hypergrowth that
sometimes seems tentative and even speculative, investors are well
advised to balance the asset allocation of their portfolios with strong
performing value-oriented mutual funds such as yours in addition to
their growth-oriented funds. Your fund's diversified portfolio of
stocks, bonds, and convertible securities should continue to provide an
opportunity for attractive current income, growth potential, and
relatively low volatility in the months ahead.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 5/31/96, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam Equity Income Fund seeks current income by investing
primarily in a diversified portfolio of income-producing equity
securities. Capital growth is a secondary objective when consistent with
seeking current income.
This section provides, at a glance, information about your fund's
performance. Total return shows how the value of the fund's shares
changed over time, assuming you held the shares through the entire
period and reinvested all distributions in the fund.
TOTAL RETURN FOR PERIODS ENDED 5/31/96
Class A Class B Class M
(inception date) (6/15/77) (9/13/93) (12/2/94)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
6 months 11.35% 4.92% 10.96% 5.96% 11.17% 7.32%
- ------------------------------------------------------------------------
1 year 26.02 18.76 24.97 19.97 25.39 20.94
- ------------------------------------------------------------------------
5 years 88.50 77.59 -- -- -- --
Annual average 13.52 12.17 -- -- -- --
- ------------------------------------------------------------------------
10 years 178.16 162.14 -- -- -- --
Annual average 10.77 10.12 -- -- -- --
- ------------------------------------------------------------------------
Life of class -- -- 47.88 44.88 47.73 42.50
Annual average -- -- 15.47 14.60 29.71 26.63
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/96
Standard & Poor's Consumer
500 Index Price Index
- ------------------------------------------------------------------------
6 months 11.76% 1.95%
- ------------------------------------------------------------------------
1 year 28.45 2.89
- ------------------------------------------------------------------------
5 years 97.43 15.49
Annual average 14.57 2.92
- ------------------------------------------------------------------------
10 years 268.47 43.80
Annual average 13.93 3.70
- ------------------------------------------------------------------------
Life of class B 55.19 8.15
Annual average 17.54 2.92
- ------------------------------------------------------------------------
Life of class M 53.06 4.61
Annual average 32.81 3.05
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They do not take into
account any adjustment for taxes payable on reinvested distributions or
for payments under the fund's class A distribution plan prior to its
implementation on 1/1/90. Investment returns and net asset value will
fluctuate so that an investor's shares when sold may be worth more or
less than their original cost. POP assumes 5.75% maximum sales charge
for class A shares and 3.50% for class M shares. CDSC for class B shares
declines from a 5.0% maximum during the first year to 1.0% during the
sixth year. Prior to 3/7/91, the fund operated under different
investment objectives, policies and strategies.
TOTAL RETURN FOR PERIODS ENDED 6/30/96
(most recent calendar quarter)
Class A Class B Class M
(inception) (6/15/77) (9/13/93) (12/2/94)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
6 months 9.31% 3.00% 8.78% 3.78% 9.02% 5.22%
- ------------------------------------------------------------------------
1 year 25.14 17.95 24.19 19.19 24.50 20.10
- ------------------------------------------------------------------------
5 years 97.92 86.54 -- -- -- --
Annual average 14.63 13.28 -- -- -- --
- ------------------------------------------------------------------------
10 years 180.34 164.12 -- -- -- --
Annual average 10.86 10.20 -- -- -- --
- ------------------------------------------------------------------------
Life of class -- -- 48.36 45.36 48.20 42.96
Annual average -- -- 15.13 14.29 28.27 25.38
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment returns
and net asset value will fluctuate so that an investor's shares, when
sold, may be worth more or less than their original cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 5/31/96
Class A Class B Class M
- ------------------------------------------------------------------------
Distributions (number) 2 2 2
- ------------------------------------------------------------------------
Income $0.160 $0.125 $0.137
- ------------------------------------------------------------------------
Total $0.160 $0.125 $0.137
- ------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------
11/30/95 $10.93 $11.60 $10.89 $10.89 $11.28
- ------------------------------------------------------------------------
5/31/96 12.00 12.73 11.95 11.96 12.39
- ------------------------------------------------------------------------
Current return (end of period) NAV POP NAV NAV POP
- ------------------------------------------------------------------------
Current dividend rate1 2.67% 2.51% 2.08% 2.27% 2.20%
- ------------------------------------------------------------------------
Current 30-day
SEC yield2 2.48 2.34 1.75 1.99 1.92
- ------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2 Based on investment income, calculated using SEC guidelines.
TERMS AND DEFINITIONS
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the maximum 5.75% sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B shares and assumes redemption at the end of
the period. Your fund's CDSC declines from a 5% maximum during the first
year to 1% during the sixth year. After the sixth year, the CDSC no
longer applies.
COMPARATIVE BENCHMARKS
Standard & Poor's 500 Index is an unmanaged list of common stocks that
is frequently used as a general measure of stock market performance. The
index assumes reinvestment of all distributions and does not take into
account brokerage commissions or other costs. The fund's portfolio
contains securities that do not match those in the index. It is not
possible to invest directly in an index.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Health Sciences Trust
International New Opportunities Fund
Investors Fund
Natural Resources Fund
New Opportunities Fund
OTC Emerging Growth Fund
Overseas Growth Fund
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
Intermediate U.S. Government Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds*
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
LIFESTAGESM FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments to help maximize your return and reduce your risk.
The three portfolios:
Putnam Asset Allocation: Balanced Portfolio
Putnam Asset Allocation: Conservative Portfolio
Putnam Asset Allocation: Growth Portfolio
MOST CONSERVATIVE
INVESTMENTS+
Putnam money market funds:
California Tax Exempt Money Market Fund
Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts++
* Not available in all states.
+ Relative to above.
++ Not offered by Putnam Investments. Certificates of deposit offer a
fixed rate of return and may be insured up to certain limits by
federal/state agencies. Savings accounts may also be insured up to
certain limits. Please call your financial advisor or Putnam at 1-800-
225-1581 to obtain a prospectus for any Putnam fund. It contains more
complete information, including charges and expenses. Please read it
carefully before you invest or send money.
<TABLE>
<CAPTION>
Portfolio of investments owned
May 31,1996 (Unaudited)
COMMON STOCKS (83.7%)*
NUMBER OF SHARES VALUE
<S> <C> <C> <C> <C>
Aerospace and Defense (1.8%)
- -------------------------------------------------------------------------------------------------------------------------
71,000 General Motors Corp. Class H $ 4,313,250
76,000 Lockheed Martin Corp. 6,374,500
-------------
10,687,750
Automotive (4.0%)
- -------------------------------------------------------------------------------------------------------------------------
90,000 Echlin, Inc. 3,093,750
161,000 General Motors Corp. 8,875,125
88,300 TRW, Inc. 8,322,275
76,000 Varity Corp. + 3,733,500
-------------
24,024,650
Basic Industrial Products (1.9%)
- -------------------------------------------------------------------------------------------------------------------------
44,000 Ball Corp. 1,215,500
66,000 Deere (John) & Co. 2,747,250
108,500 Minnesota Mining & Manufacturing Co. 7,405,125
-------------
11,367,875
Business Equipment and Services (2.1%)
- -------------------------------------------------------------------------------------------------------------------------
80,000 IBM Corp. 8,540,000
27,600 Xerox Corp. 4,343,550
-------------
12,883,550
Chemicals (4.6%)
- -------------------------------------------------------------------------------------------------------------------------
52,300 Bayer AG-Sponsored ADR (Germany) 1,746,266
99,600 (E.I.) duPont de Nemours & Co. 7,943,100
52,000 Eastman Chemical Co. 3,484,000
14,000 Hoechst AG (Germany) 4,666,667
104,000 PPG Industries, Inc. 5,382,000
33,000 Union Carbide Corp. 1,423,125
98,500 Witco Chemical Corp. 3,139,688
-------------
27,784,846
Conglomerates (0.3%)
- -------------------------------------------------------------------------------------------------------------------------
17,000 United Technologies Corp. 1,859,375
Consumer Durable Goods (0.8%)
- -------------------------------------------------------------------------------------------------------------------------
87,000 Whirlpool Corporation 4,948,125
Consumer Non Durables (5.3%)
- -------------------------------------------------------------------------------------------------------------------------
179,300 American Brands, Inc. 7,844,370
39,300 Avon Products, Inc. 3,635,250
116,500 Kimberly-Clark Corp. 8,489,938
88,000 Philip Morris Cos., Inc. 8,745,000
96,820 RJR Nabisco Holdings Corp. + 3,207,163
-------------
31,921,721
Electronics and Electrical Equipment (2.8%)
- -------------------------------------------------------------------------------------------------------------------------
86,600 Eaton Corp. 5,011,975
54,000 Intel Corp. 4,077,000
135,000 Texas Instruments, Inc. 7,593,750
-------------
16,682,725
Energy-Related (0.2%)
- -------------------------------------------------------------------------------------------------------------------------
80,000 Westcoast Energy, Inc. 1,200,000
Environmental Control (0.4%)
- -------------------------------------------------------------------------------------------------------------------------
73,000 WMX Technologies, Inc. 2,573,250
Food and Beverages (2.3%)
- -------------------------------------------------------------------------------------------------------------------------
68,000 Anheuser-Busch Cos., Inc. 4,845,000
135,000 Flowers Industries, Inc. 2,126,250
53,000 General Mills, Inc. 3,040,875
51,000 Nestle S.A. ADR (Registered) (Switzerland) 2,798,625
24,000 Quaker Oats Co. 843,000
-------------
13,653,750
Insurance and Finance (14.5%)
- -------------------------------------------------------------------------------------------------------------------------
72,000 AON Corp. 3,627,000
133,000 American General Corp. 4,721,500
212,000 Banc One Corp. 7,844,000
75,100 Bankers Trust New York Corp. 5,641,888
77,400 Beneficial Corp. 4,508,550
19,800 CIGNA Corp. 2,274,525
108,000 CoreStates Financial Corp. 4,252,500
140,000 Fleet Financial Group, Inc. 6,177,500
65,000 Household International, Inc. 4,501,250
163,000 Keycorp 6,316,250
101,000 Morgan (J.P.) & Co., Inc. 8,774,375
97,200 NationsBank Corp. 7,885,350
102,000 Norwest Corp. 3,557,250
161,000 PNC Bank Corp. 4,890,375
16,900 SAFECO Corp. 569,319
92,000 St. Paul Cos., Inc. 4,864,500
101,950 Synovus Financial Corp. 2,344,850
269,000 USF&G Corp. 4,304,000
-------------
87,054,982
Medical Supplies and Devices (0.9%)
- -------------------------------------------------------------------------------------------------------------------------
115,600 Baxter International, Inc. 5,115,300
Metals and Mining (0.8%)
- -------------------------------------------------------------------------------------------------------------------------
24,400 Carpenter Technology Corp. 881,450
53,000 Phelps Dodge Corp. 3,630,500
-------------
4,511,950
Oil and Gas (7.1%)
- -------------------------------------------------------------------------------------------------------------------------
74,000 Amoco Corp. 5,365,000
92,000 Chevron, Inc. 5,497,000
97,000 Exxon Corp. 8,220,750
223,000 Occidental Petroleum Corp. 5,770,125
120,000 PanEnergy Corp. 3,855,000
94,600 Repsol S.A. ADS (Spain) 3,216,400
34,500 Royal Dutch Petroleum Co. PLC ADR (Netherlands) 5,175,000
161,000 Total Corp. ADR (France) 5,796,000
-------------
42,895,275
Paper and Forest Products (3.2%)
- -------------------------------------------------------------------------------------------------------------------------
67,000 Chesapeake Corp. 1,783,875
87,000 Rayonier, Inc. 3,262,500
66,000 Temple Inland, Inc. 3,250,500
240,000 Weyerhaeuser Co. 10,890,000
-------------
19,186,875
Pharmaceuticals (4.0%)
- -------------------------------------------------------------------------------------------------------------------------
78,000 American Home Products Corp. 4,173,000
55,100 Bristol-Myers Squibb Co. 4,704,163
124,370 Pharmacia & Upjohn, Inc. 5,083,624
175,800 Warner-Lambert Co. 9,844,800
-------------
23,805,587
Photography (1.7%)
- -------------------------------------------------------------------------------------------------------------------------
101,000 Eastman Kodak Co. 7,511,875
64,000 Polaroid Corp. 2,880,000
-------------
10,391,875
Publishing (1.1%)
- -------------------------------------------------------------------------------------------------------------------------
74,000 Dow Jones & Co., Inc. 2,895,250
33,000 Dun & Bradstreet Corp. 2,107,875
30,100 Times Mirror Co. Class A 1,313,113
-------------
6,316,238
Real Estate Investment Trusts (REITS) (1.7%)
- -------------------------------------------------------------------------------------------------------------------------
70,000 Bradley Real Estate Trust, Inc. 1,032,500
56,000 Duke Realty Investments, Inc. 1,687,000
67,000 Equity Residential Properties Trust 2,077,000
44,000 Evans Withycombe Residential 913,000
67,000 LTC Properties, Inc. 1,072,000
100,000 Nationwide Health Properties, Inc. 2,175,000
35,000 Storage USA, Inc. 1,176,875
-------------
10,133,375
Retail (5.8%)
- -------------------------------------------------------------------------------------------------------------------------
136,000 American Stores Co. 5,083,000
82,600 Dayton Hudson Corporation 8,425,200
286,000 K mart Corp. 3,324,750
75,000 May Department Stores Co. 3,553,125
144,000 Penney (J.C.) Co., Inc. 7,470,000
184,000 Rite Aid Corp. 5,405,000
28,600 Sears, Roebuck & Co. 1,455,025
-------------
34,716,100
Transportation (3.3%)
- -------------------------------------------------------------------------------------------------------------------------
91,700 Canadian National Railway Co. (Canada) 1,696,450
50,000 CSX Corp. 2,475,000
41,000 Delta Air Lines, Inc. 3,397,875
220,400 Ryder System, Inc. 6,446,700
84,000 Union Pacific Corp. 5,890,500
-------------
19,906,525
Utilities (13.2%)
- -------------------------------------------------------------------------------------------------------------------------
113,000 American Telephone & Telegraph Co. 7,048,375
132,100 Bell Atlantic Corp. 8,239,738
46,400 Central & South West Corp. 1,281,800
243,463 Cinergy Corp. 7,212,591
121,000 Dominion Resources, Inc. 4,582,875
96,000 Edison International 1,584,000
99,000 GTE Corp. 4,232,250
39,000 NIPSCO Industries, Inc. 1,452,750
179,000 NYNEX Corp. 8,256,375
74,000 Oklahoma Gas & Electric Co. 2,821,250
165,000 Pacific Enterprises 4,351,875
236,000 Pacific Gas & Electric Co. 5,487,000
81,000 Pacific Telesis Group 2,703,375
127,600 Potomac Electric Power Co. 3,253,800
66,000 Public Service Co. of Colorado 2,186,250
95,000 Public Service Enterprise Group, Inc. 2,517,500
126,000 SBC Communications, Inc. 6,221,250
113,000 Scana Corp. 2,952,125
11,500 Sprint Corp. 487,313
68,400 WICOR, Inc. 2,496,600
-------------
79,369,092
-------------
Total Common Stocks (cost $423,542,129) $502,990,791
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (4.4%)*
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Pass-Through Certificates (1.8%)
- -------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association
$2,045,099 7s, with various due dates from July 1, 2023 to May 1, 2026 $1,949,860
883,701 6s, Dwarf, with various due dates from April 1, 2009 to October 1, 2009 828,187
510,000 5.94s, December 12, 2005 467,925
Government National Mortgage Association
1,372,141 8s, with various due dates from January 15, 2025 to May 15, 2026 1,374,706
2,017,470 7 1/2s, with various due dates from January 15, 2026 to March 15, 2026 1,972,704
1,527,850 7s, with various due dates from April 1, 2026 to April 15, 2026 1,453,841
1,440,000 7s, TBA, June 16, 2026 1,370,246
873,649 6 1/2s, with various due dates from March 15, 2026 to April 15, 2026 806,483
432,406 6 1/2s, Midget, March 15, 2009 416,594
447,391 6s, Midget, September 15, 2008 422,641
-------------
11,063,187
U.S. Treasury Obligations (2.6%)
- -------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
3,055,000 11 5/8s, November 15, 2004 3,977,702
110,000 10 3/4s, August 15, 2005 138,514
555,000 8 7/8s, August 15, 2017 656,376
221,000 7 1/2s, November 15, 2024 230,669
2,320,000 7 1/8s, February 15, 2023 2,308,400
U.S. Treasury Notes
385,000 11 7/8s, November 15, 2003 496,769
845,000 11 1/8s, August 15, 2003 1,049,380
2,530,000 9 1/4s, August 15, 1998 2,680,206
3,601,000 7 1/4s, August 15, 2004 3,691,025
65,000 6 1/4s, February 15, 2003 63,263
55,000 6 1/4s, May 31, 2000 54,355
-------------
15,346,659
-------------
Total U.S. Government and Agency Obligations (cost $27,125,153) $26,409,846
CORPORATE BONDS AND NOTES (2.5%)*
PRINCIPAL AMOUNT VALUE
Advertising (--%)
- -------------------------------------------------------------------------------------------------------------------------
$25,000 Outdoor Systems, Inc. sr. notes 10 3/4s, 2003 $25,750
Aerospace and Defense (0.1%)
- -------------------------------------------------------------------------------------------------------------------------
50,000 Alliant Techsystems, Inc. sr. sub. notes 11 3/4s, 2003 54,250
25,000 BE Aerospace sr. notes 9 3/4s, 2003 25,250
50,000 Howmet Corp. 144A sr. sub. notes 10s, 2003 53,000
320,000 Northrop Grumman Corp. 144A notes 7s, 2006 306,800
20,000 Sequa Corp. bonds 8 3/4s, 2001 19,200
5,000 UNC Inc. 144A sr, sub. notes 11s, 2006 5,075
50,000 Wyman-Gordon Co. sr. notes 10 3/4s, 2003 53,250
-------------
516,825
Agriculture (--%)
- -------------------------------------------------------------------------------------------------------------------------
50,000 PSF Finance (L.P.) sr. exch. notes 12 1/4s, 2004 (acquired 10/28/94,
cost $51,399) (In Default) +(double dagger) 35,000
Automotive (0.1%)
- -------------------------------------------------------------------------------------------------------------------------
50,000 A.P.S., Inc. 144A sr. sub. notes 11 7/8s, 2006 51,750
25,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 26,750
25,000 Exide Corp. stepped-coupon zero % (12 1/4s, 12/15/97), 2004 ++ 21,000
300,000 Ford Capital BV deb. 9s, 1998 314,019
-------------
413,519
Basic Industrial Products (--%)
- -------------------------------------------------------------------------------------------------------------------------
50,000 Clark Schwebel Inc. 144A sr. notes 10 1/2s, 2006 52,125
75,000 Inter-City Products sr. notes 9 3/4s, 2000 69,000
-------------
121,125
Broadcasting (0.1%)
- -------------------------------------------------------------------------------------------------------------------------
25,000 Allbritton Communications Corp. 144A sr. sub. notes 9 3/4s, 2007 23,000
25,000 Argyle Television Corp. sr. sub. notes 9 3/4s, 2005 24,125
10,000 Cablevision Systems Corp. sr. sub. deb. 9 7/8s, 2023 9,300
25,000 Cablevision Systems Corp. sr. sub. reset deb. 10 3/4s, 2004 26,156
50,000 Commodore Media, Inc. sr. sub. notes stepped-coupon 7 1/2s, (13 1/4s,
5/1/98), 2003 ++ 51,500
80,000 Diamond Cable Communication Co. sr. disc. notes stepped-coupon zero % (11 3/4s,
12/15/00), 2005 (United Kingdom) ++ 48,200
20,000 Diamond Cable Communication Co. sr. disc. notes stepped-coupon zero % (13 1/2s,
9/30/99), 2004 (United Kingdom) ++ 14,250
85,000 Intel Cabletel sr. notes Ser. B 11 1/2s, 2006 49,725
25,000 Jones Intercable, Inc. sr. sub. deb. 10 1/2s, 2008 26,375
25,000 Lenfest Communications, Inc. sr. notes 8 3/8s, 2005 23,125
50,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes stepped-coupon zero % (13
1/2s, 8/1/99), 2004 ++ 36,313
15,000 Park Broadcasting 144A sr. notes 11 3/4s, 2004 15,113
25,000 Paxson Communications Corp. sr. sub. notes 11 5/8s, 2002 26,250
25,000 Rogers Cablesystem Ltd. deb. 10 1/8s, 2012 (Canada) 24,813
25,000 Rogers Cablesystem Ltd. notes 9 5/8s, 2002 (Canada) 24,938
50,000 Sullivan Broadcasting sr. sub. notes 10 1/4s, 2005 47,375
75,000 Videotron Holdings. sr. disc. notes stepped-coupon zero % (11s,
8/15/2005), 2005 (United Kingdom) ++ 50,250
-------------
520,808
Building and Construction (--%)
- -------------------------------------------------------------------------------------------------------------------------
25,000 Schuller International Corp. sr. notes 10 7/8s, 2004 27,000
50,000 Scotsman Group, Inc. sr. secd. notes 9 1/2s, 2000 50,500
25,000 Triangle Pacific Corp. sr. notes 10 1/2s, 2003 26,094
-------------
103,594
Business Equipment and Services (--%)
- -------------------------------------------------------------------------------------------------------------------------
25,000 Corporate Express, Inc. sr. sub. notes Ser. B, 9 1/8s, 2004 24,625
25,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 27,125
-------------
51,750
Chemicals (0.1%)
- -------------------------------------------------------------------------------------------------------------------------
25,000 IMC Fertilizer notes Ser. B, 10 1/8s, 2001 26,625
25,000 IMC Fertilizer sr. deb. 9.45s, 2011 25,500
125,000 Lyondell Petrochemical Co. notes 9 1/8s, 2002 134,181
-------------
186,306
Conglomerates (--%)
- -------------------------------------------------------------------------------------------------------------------------
25,000 ADT Operations Ltd. sr. sub. notes 9 1/4s, 2003 25,875
50,000 Congoleum Corp. sr. notes 9s, 2001 48,250
25,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes 13s, 1999 25,031
-------------
99,156
Consumer Durable Goods (--%)
- -------------------------------------------------------------------------------------------------------------------------
15,000 Selmer Co., Inc. sr. sub. notes 11s, 2005 15,975
Consumer Non Durables (--%)
- -------------------------------------------------------------------------------------------------------------------------
25,000 Coty Inc. Gtd. sr. sub. notes 10 1/4s, 2005 26,125
50,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 50,750
-------------
76,875
Consumer Services (--%)
- -------------------------------------------------------------------------------------------------------------------------
50,000 Coinmach Crop sr. notes Ser. B, 11 3/4s, 2005 51,500
50,000 Host Marriott Corp. sr. notes Ser. B, 9 1/2s, 2005 48,375
-------------
99,875
Electronics and Electrical Equipment (--%)
- -------------------------------------------------------------------------------------------------------------------------
30,000 Amphenol Corp. sr. sub. notes 12 3/4s, 2002 33,000
40,000 International Semi-Tech. Corp. sr. secd. disc. notes stepped-coupon zero %
(11 1/2s, 8/15/00), 2003 (Canada) ++ 23,400
-------------
56,400
Entertainment (0.4%)
- -------------------------------------------------------------------------------------------------------------------------
25,000 Alliance Entertainment Corp. sr. sub. notes Ser. B, 11 1/4s, 2005 23,500
10,000 Argosy Gaming Co. 144A 1st mtge. 13 1/4s, 2004 10,000
25,000 Bally Park Place Funding 1st mtge. 9 1/4s, 2004 25,188
25,000 Coast Hotels & Casinos, Inc. 1st mtge. 13s, 2002 26,625
5,000 Cobblestone Golf Grp 144A sr. notes 11 1/2s, 2003 5,075
25,000 Empress River Casino sr. notes 10 3/4s, 2002 26,000
25,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 25,625
50,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 48,750
390,000 News America Holdings, Inc. sr. notes 12s, 2001 424,683
420,000 News America Holdings, Inc.sr. deb. 7.7s, 2025 381,944
50,000 Players International Inc. sr. notes 10 7/8s, 2005 50,875
25,000 Premier Parks, Inc. sr. notes Ser. A, 12s, 2003 26,688
50,000 Six Flags Corp. sr. sub. notes stepped-coupon zero %
(12 1/4s, 6/15/98), 2005 ++ 43,000
20,000 Stratosphere Corp. 1st mtge. 14 1/4s, 2002 24,350
715,000 Time Warner, Inc. deb. 7 1/4s, 2008 663,184
25,000 TRUMP A.C. 1st mtge. 11 1/4s, 2006 25,188
50,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 58,250
270,000 VIACOM International Inc. sr. notes 7 3/4s, 2005 259,200
50,000 Viacom International, Inc. sub. deb. 8s, 2006 46,000
-------------
2,194,125
Environmental Control (--%)
- -------------------------------------------------------------------------------------------------------------------------
34,000 Allied Waste Industries sr. sub. notes 12s, 2004 36,890
Food and Beverages (--%)
- -------------------------------------------------------------------------------------------------------------------------
50,000 Stater Brothers sr. notes 11s, 2001 51,875
50,000 Twin Laboratories Inc. 144A sr. sub. notes 10 1/4s, 2004 50,750
-------------
102,625
Health Care (0.1%)
- -------------------------------------------------------------------------------------------------------------------------
180,000 Columbia Healthcare Corp. deb. 8.36s, 2024 189,547
50,000 Ivac Corp. sr. notes 9 1/4s, 2002 50,375
50,000 Merit Behavioral Care sr. sub. notes 11 1/2s, 2005 52,875
25,000 Tenet Healthcare Corp. sr. notes 8 5/8s, 2003 25,375
-------------
318,172
Insurance and Finance (0.5%)
- -------------------------------------------------------------------------------------------------------------------------
400,000 Advanta National Bank sr. notes 7.02s, 2001 395,500
300,000 American Financial Group sub. notes 10 7/8s, 2011 324,831
50,000 American Life Holding Co. sr. sub. notes 11 1/4s, 2004 52,500
225,000 Bankgkok Bank Pub 144A sub. notes 8 1/4s, 2016 (Thailand) 221,018
25,000 Centerbank sub. notes 8 3/8s, 2002 24,500
20,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 19,900
300,000 Citicorp sub. notes 7 1/8s, 2005 293,868
150,000 Conseco, Inc. sr. notes 10 1/2s, 2004 167,448
300,000 Den Danske Bank sub. notes 6.55s, 2003 (Denmark) 284,310
300,000 Finova Capital Corp. notes 9 1/8s, 2002 325,062
85,000 First National Bank of Omaha sub. notes 7.32s, 2010 78,727
25,000 First Nationwide Holdings 144A sr. sub. notes 9 1/8s, 2003 24,313
25,000 Keystone Group, Inc. sr. secd. notes 9 3/4s, 2003 24,750
50,000 Primark Corp. sr. notes 8 3/4s, 2000 50,063
25,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 24,875
25,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 2003 24,750
250,000 Riggs National Corp. sub. deb. 8 1/2s, 2006 251,250
300,000 Scotland International Finance 144A sub. notes 8.85s, 2006 (Netherlands) 326,625
-------------
2,914,290
Lodging (--%)
- -------------------------------------------------------------------------------------------------------------------------
25,000 John Q Hammons Hotels, Inc. 1st mtge. 9 3/4s, 2005 24,500
Medical Supplies and Devices (--%)
- -------------------------------------------------------------------------------------------------------------------------
25,000 Dade International Inc. 144A sr. sub. notes 11 1/8s, 2004 25,750
50,000 Graphic Controls Corp. sr. sub. notes Ser. A, 12s, 2005 53,250
-------------
79,000
Metals and Mining (0.1%)
- -------------------------------------------------------------------------------------------------------------------------
390,000 BHP Finance (USA), Inc. company guaranty 6.42s, 2026 373,226
25,000 Great Lakes Carbon Corp. sr. notes 10s, 2006 25,875
190,000 Noranda Inc. notes 7s, 2005 (Canada) 180,523
221,000 PT Alatief Freeport sr. notes 9 3/4s, 2001 (Netherlands) 233,730
-------------
813,354
Motion Picture Distribution (--%)
- -------------------------------------------------------------------------------------------------------------------------
50,000 Cinemark USA sr. notes 12s, 2002 54,250
Oil and Gas (0.2%)
- -------------------------------------------------------------------------------------------------------------------------
25,000 Benton Oil & Gas 144A sr. notes 11 5/8s, 2003 25,688
50,000 Chesapeake Energy Corp. sr. notes 12s, 2001 54,125
17,000 Gerrity Oil & Gas Corp. sr. sub. notes 11 3/4s, 2004 17,850
25,000 Maxus Energy Corp. notes 9 7/8s, 2002 25,000
25,000 Maxus Energy Corp. notes 9 1/2s, 2003 24,688
330,000 Parker & Parsley Petro Co. sr. notes 8 7/8s, 2005 352,288
295,000 Petroliam Nasional Berhad 144A notes 7 1/8s, 2005 286,519
370,000 Union Texas Petroleum sr. notes Ser. A, 6.51s, 2002 353,602
-------------
1,139,760
Packaging & Container (--%)
- -------------------------------------------------------------------------------------------------------------------------
52,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 54,860
Paper and Forest products (0.1%)
- -------------------------------------------------------------------------------------------------------------------------
50,000 Doman Industries Ltd. sr. notes 8 3/4s, 2004 46,000
25,000 Domtar, Inc. deb 11 1/4s, 2017 (Canada) 26,625
25,000 Domtar, Inc. notes 12s, 2001 (Canada) 29,125
50,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 46,500
25,000 Stone Consolidated Corp. sr. notes 10 1/4s, 2000 25,813
-------------
174,063
Publishing (--%)
- -------------------------------------------------------------------------------------------------------------------------
50,000 American Media Operation, Inc. sr. sub. notes 11 5/8s, 2004 50,500
50,000 K-III Communications Corp. sr. notes 10 1/4s, 2004 51,750
40,000 Marvel Parent Holdings, Inc. sr. secd. disc. notes zero %, 1998 31,200
-------------
133,450
REIT's (0.1%)
- -------------------------------------------------------------------------------------------------------------------------
25,000 HMH Properties, Inc. sr. notes Ser. B, 9 1/2s, 2005 24,188
120,000 Health Care Property Investors, Inc. sr. notes 6 1/2s, 2006 109,262
305,000 Meditrust med. term notes 7.3s, 2006 294,670
205,000 Sun Communities, Inc. sr. notes 7 5/8s, 2003 203,206
50,000 Tanger Properities Ltd. Partnership Gtd. notes 8 3/4s, 2001 48,625
-------------
679,951
Retail (0.1%)
- -------------------------------------------------------------------------------------------------------------------------
25,000 Brylane (L.P.) sr. sub. notes 10s, 2003 24,000
195,000 Federated Department Stores notes 8 1/2s, 2003 194,025
25,000 Finlay Enterprises, Inc. sr. notes 10 5/8s, 2003 25,250
15,000 Loehmann's Inc. sr. notes 11 7/8s, 2002 15,450
25,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 26,688
300,000 Sears, Roebuck & Co. med. term notes 5.91s, 1999 293,535
40,000 Southland Corp. sr. sub. deb. 5s, 2003 31,600
10,000 Southland Corp. deb. Ser. C, 12s, 2009 10,000
25,000 Specialty Retailers, Inc. notes 10s, 2000 25,000
50,000 Waban, Inc. sr. sub. notes 11s, 2004 52,250
-------------
697,798
Specialty Consumer Products (--%)
- -------------------------------------------------------------------------------------------------------------------------
25,000 Herff Jones, Inc. sr. sub. notes 11s, 2005 26,250
Telecommunications (0.1%)
- -------------------------------------------------------------------------------------------------------------------------
330,000 360 Communications Co. sr. notes 7 1/2s, 2006 310,395
75,000 Call-Net Enterprises sr. disc. notes stepped-coupon zero % (13 1/4s,
12/1/99), 2004 ++ 55,406
100,000 Cencall Communications Corp. sr. disc. notes stepped-coupon zero %
(10 1/8s, 1/15/99), 2004 ++ 62,250
25,000 Fonorola, Inc. sr. notes 12 1/2s, 2002 (Canada) 27,125
135,000 Intelcom Group Inc. 144A sr. disc. notes stepped-coupon zero %
(12 1/2s, 5/1/01), 2006 ++ 75,600
25,000 Intermedia Communications of Florida sr. notes Ser. B, 13 1/2s, 2005 28,000
45,000 Intercel, Inc. sr. disc. notes stepped-coupon zero % (12s, 5/1/01), 2006 ++ 25,200
30,000 Milicom Intl. 144A sr. disc. notes stepped-coupon zero %
(13 1/2s, 6/1/00), 2001 (Luxemburg) ++ 15,900
75,000 MFS Communications sr. disc. notes stepped-coupon zero % (8 7/8s,
1/1/01), 2006 ++ 45,938
70,000 MFS Communications sr. disc. notes stepped-coupon zero %
(9 3/8s, 1/15/99), 2004 ++ 53,025
25,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 26,188
50,000 Nextlink Communications 144A sr. notes 12 1/2s, 2004 50,688
50,000 Pricellular Wireless sr. disc. notes stepped-coupon Ser. B, zero %
(14s, 11/15/97), 2001 ++ 45,000
5,000 Pronet Inc. sr. sub. notes 10 7/8s, 2006 5,000
-------------
825,715
Textiles (--%)
- -------------------------------------------------------------------------------------------------------------------------
50,000 Day International Group, Inc. sr. sub. notes 11 1/8s, 2005 51,500
15,000 Reeves Industries Inc. bonds 11s, 2002 13,200
50,000 Tultex Corp. sr. notes 10 5/8s, 2005 52,000
-------------
116,700
Transportation (0.1%)
- -------------------------------------------------------------------------------------------------------------------------
10,000 Blue Bird Body Co. sub. deb. Ser. B, 11 3/4s, 2002 10,350
325,000 Burlington Northern Santa Fe notes 6 3/8s, 2005 298,500
25,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s, 2003 (Greece) 24,375
25,000 International Shipholding Corp. sr. notes 9s, 2003 24,250
-------------
357,475
Utilities (0.3%)
- -------------------------------------------------------------------------------------------------------------------------
250,000 Arkla, Inc. notes 8 7/8s, 1999 260,238
195,000 Citizens Utilities Co. bonds 7.68s, 2034 205,969
25,000 Cleveland Electric Illuminating Co. 1st mtge. Ser. B, 9 1/2s, 2005 24,313
240,000 Connecticut Yankee Atomic mtge. Ser. A, 12s, 2000 248,088
25,000 El Paso Electric Co. 1st mtge. Ser. D, 8.9s, 2006 24,938
50,000 First PV Funding deb. 10.15s, 2016 52,250
124,611 Midland Cogeneration Ventures deb. 10.33s, 2002 130,530
85,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 89,888
25,000 Niagara Mohawk Power Corp. med. term notes 9.95s, 2000 21,750
250,000 Texas New-Mexico Power Utilities 1st mtge. 9 1/4s, 2000 254,633
400,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 386,704
-------------
1,699,301
-------------
Total Corporate Bonds and Notes (cost $14,975,060) $14,765,487
CONVERTIBLE PREFERRED STOCKS (2.2%)*
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
27,000 Fieldcrest Cannon Ser. A, $3.00, cv. pfd. $1,215,000
60,000 Ford Motor Co. Ser. A, $4.20, dep. shs. cv. pfd. 7,110,000
169,000 Freeport-McMoRan Copper Co., Inc. stepped-coupon ($1.75, 8/1/96), $1.25 ++ 4,837,625
900 Granite Broadcasting $1.938, cv. pfd. 60,863
-------------
Total Convertible Preferred Stocks (cost $10,506,465) $13,223,488
CONVERTIBLE BONDS AND NOTES (1.5%)*
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
$25,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 $14,625
1,100,000 Magna International cv. sub. deb. 5s, 2002 1,155,000
4,000,000 Mitsubishi Bank Ltd. International Finance (Bermuda) cv. trust
guaranteed notes 3s, 2002 (Japan) 4,680,000
150,000 Toyota Motor Corp. cv. deb. 1.2s, 1998 (Japan) 1,773,156
1,368,000 WMX Technologies, Inc. cv. sub. notes 2s, 2005 1,333,800
-------------
Total Convertible Bonds and Notes (cost $8,045,640) $8,956,581
FOREIGN GOVERNMENT BONDS AND NOTES (0.6%)*
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
AUD 1,010,000 Australia (Government of) notes 8 3/4s, 2001 $810,314
CAD 1,106,000 Canada (Government of) deb. 7 1/2s, 2001 821,863
ITL 870,000,000 Italy (Government of) 10 1/2s, 2005 596,741
ITL 880,000,000 Italy (Government of) deb. 10 1/2s, 2000 600,179
USD 245,000 Italy (Republic of) deb. 6 7/8s, 2023 216,837
USD 390,000 Quebec (Province of) deb. 8 5/8s, 2005 416,668
-------------
Total Foreign Government Bonds and Notes (cost $3,476,646) $3,462,602
COLLATERALIZED MORTGAGE OBLIGATIONS (0.4%)*
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
$138,949 Chase Mortgage Finance Corp. Ser. 93-3, Class B13, 7.461s, 2024 $84,933
227,663 GE Capital Mortgage Services Inc. Ser. 94-12, Class B3, 6s, 2009 186,229
Housing Securities Inc.
144,375 Ser. 91-B, Class B6, 9s, 2009 142,931
320,793 Ser. 93-F, Class F9M2, 7s, 2023 287,210
20,492 Ser. 93-J, Class J4, 6.66s, 2009 16,573
22,554 Ser. 93-J, Class J5, 6.66s, 2009 15,499
22,774 Ser. 94-1, Class AB1, 6 1/2s, 2009 18,169
79,090 Prudential Home Loan Corp. Ser. 92-25, Class B3, 8s, 2022 (Indefault) + 58,774
Prudential Home Mortgage Securities
462,046 Ser. 1995-D, Class 5B, 7.54s, 2025 293,977
96,937 Ser. 92-13, Class B3, 7 1/2s, 2007 83,881
52,688 Ser. 93-31, Class B2, 6s, 2000 40,537
121,756 Ser. 93-36, Class M, 7 1/4s, 2023 113,080
94,871 Ser. 94-31, Class B3, 8s, 2009 83,813
298,262 144A Ser. 94-A, Class 4B, 6.8025s, 2024 259,068
218,547 144A Ser. 94-D, Class 3B, 6.311s, 2009 198,604
102,298 144A Ser. 94-D, Class B4, 6.312s, 2009 84,780
390,177 144A Ser. 95-C, Class B1, 7.815s, 2001 388,225
206,524 Ryland Mortgage Securities Corp. Ser. 94-7C, Class B2, 7.3586s, 2025 190,131
-------------
Total Collateralized Mortgage Obligations (cost $2,541,379) $2,546,414
PREFERRED STOCKS (--%)*
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
304 Cablevision Systems Corp. 144A Ser. L, $11.125, pfd. $29,564
514 K-III Communications Ser B, $11.625, pfd, (2 double daggers) 51,400
330 SD Warren Co. Ser. B, $3.50, pfd. 11,220
400 SD Warren Co. Ser. A, $3.50, exch. pfd. 11,600
50 Time Warner In. Ser. K, $102.5, pfd. 50,000
-------------
Total Preferred Stocks (cost $154,305) $153,784
UNITS (--%)*
NUMBER OF UNITS VALUE
- -------------------------------------------------------------------------------------------------------------------------
5 Cobblestone Hldg 144A units zero %, 2004 $1,825
25 Fitzgerald Gaming Co. units 13s, 2002 22,000
45 Hyperion Communication 144A units 13s, 2002 25,650
15 Terex Corp. 144A units 13 3/4s, 2002 15,375
-------------
Total Units (cost $61,786) $64,850
WARRANTS (--%)*+ EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------
25 Intermedia Communications 144A 6/1/00 $1,125
40 SDW Hldgs corp. Ser. B, 144A 12/15/06 520
-------------
Total Warrants (cost $1,066) $1,645
SHORT-TERM INVESTMENTS (4.7%)*(cost$28,307,183)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
$28,303,000 Interest in $846,949,000 joint repurchase agreement dated May 31,
1996 with Morgan (J.P.) & Co., Inc. due June 3, 1996 with respect to
various U.S. Treasury obligations -- maturity value of
$28,315,548 for an effective yield of 5.32% $28,307,183
- -------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $518,736,812) *** $600,882,671
- -------------------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $600,973,905.
+ Non-income-producing security.
(double dagger) Restricted, excluding 144A securities, as to public resale. The total market value of restricted
securities held at May 31, 1996 was $35,000 or less than 1% of net assets.
++ The interest rate or dividend rate and date shown parenthetically represent the new interest or dividend
rate to be paid and the date the fund will begin receiving interest or dividend income at this rate.
(2 double daggers) Income may be received in cash or additional securities at the discretion of the issuer.
*** The aggregate indentified cost on a tax basis is $520,071,679, resulting in gross unrealized
appreciation and depreciation of $85,775,485 and $4,964,493, respectively, or net unrealized
appreciation of $80,810,992.
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.
ADR or ADS after the name of a holding stands for American Depository Receipt or American
Depository Shares, respectively, representing ownership of foreign securities on deposit with a
domestic custodian bank.
TBA after the name of a security represents to be announced securities (Note 1).
<CAPTION>
- ---------------------------------------------------------------------------
Forward Currency Contracts to Sell at May 31, 1996
(aggregate face value $3,088)
Aggregate Unrealized
Market Face Delivery Appreciation/
Value Value Date (Depreciation)
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Spanish Paseta $3,088 $3,088 9/18/96 $--
- ---------------------------------------------------------------------------
Forward Currency Contracts to Sell at May 31, 1996
(aggregate face value $4,447,086)
Aggregate Unrealized
Market Face Delivery Appreciation/
Value Value Date (Depreciation)
- ---------------------------------------------------------------------------
Australian Dollars $808,718 $807,840 9/18/96 $(878)
Canadian Dollar 864,698 862,621 6/12/96 (2,077)
Italian Lira 1,212,278 1,209,068 9/18/96 (3,210)
Japanese Yen 1,526,088 1,515,878 1/28/98 (10,210)
Japanese Yen 17,223 17,236 1/28/97 13
Japanese Yen 16,784 17,611 7/28/96 827
Japanese Yen 16,799 16,832 7/29/96 33
- ---------------------------------------------------------------------------
$(15,502)
- ---------------------------------------------------------------------------
<CAPTION>
TBA Sale Commitments at May 31, 1996
(proceeds receivable $1,391,723)
Agency Principal Amount Delivery Month Coupon Rate Market Value
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GNMA $1,372,000 June 1996 8s $1,374,566
- ---------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
May 31, 1996 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $518,736,812) (Note 1) $600,882,671
- -----------------------------------------------------------------------------------------------------------------
Cash 56,067
- -----------------------------------------------------------------------------------------------------------------
Dividends and interest receivables 2,668,003
- -----------------------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,523,583
- -----------------------------------------------------------------------------------------------------------------
Receivable for securities sold 11,346,945
- -----------------------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 873
- -----------------------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 89,339
- -----------------------------------------------------------------------------------------------------------------
Total assets 617,567,481
Liabilities
- -----------------------------------------------------------------------------------------------------------------
Payable for securities purchased 13,193,883
- -----------------------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 249,090
- -----------------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 857,917
- -----------------------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 215,700
- -----------------------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 455
- -----------------------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,184
- -----------------------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 309,341
- -----------------------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 16,375
- -----------------------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 34,510
- -----------------------------------------------------------------------------------------------------------------
TBA sale commitments, at value (proceeds receivable $1,391,722) 1,374,566
- -----------------------------------------------------------------------------------------------------------------
Other accrued expenses 339,555
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 16,593,576
- -----------------------------------------------------------------------------------------------------------------
Net assets $600,973,905
Represented by
- -----------------------------------------------------------------------------------------------------------------
Paid-in-capital (Notes 1 and 4) $592,221,029
- -----------------------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 887,638
- -----------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions (Note 1) (74,282,566)
- -----------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and liabilities in foreign currencies 82,147,804
- -----------------------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $600,973,905
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------------------------
Net asset value and redemption price of class A shares ($453,462,617 divided by 37,789,128 shares) $12.00
- -----------------------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $12.00)* $12.73
- -----------------------------------------------------------------------------------------------------------------
Net asset value and offering price of class B shares ($134,753,145 divided by 11,277,102 shares)+ $11.95
- -----------------------------------------------------------------------------------------------------------------
Net asset value and redemption price of class M shares ($12,758,143 divided by 1,067,141 shares) $11.96
- -----------------------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $11.96)* $12.39
- -----------------------------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group
sales the offering price is reduced.
+ Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended May 31, 1996 (Unaudited)
<S> <C>
Investment Income
- ----------------------------------------------------------------------------------
Dividends (net of foreign tax of $37,726) $7,588,633
- ----------------------------------------------------------------------------------
Interest 2,572,013
- ----------------------------------------------------------------------------------
Total investment income 10,160,646
Expenses:
- ----------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,633,293
- ----------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 497,309
- ----------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 8,720
- ----------------------------------------------------------------------------------
Administrative services (Note 2) 7,165
- ----------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 529,881
- ----------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 547,103
- ----------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 35,936
- ----------------------------------------------------------------------------------
Reports to shareholders 71,916
- ----------------------------------------------------------------------------------
Registration fees 8,229
- ----------------------------------------------------------------------------------
Auditing 13,287
- ----------------------------------------------------------------------------------
Legal 3,375
- ----------------------------------------------------------------------------------
Postage 148,069
- ----------------------------------------------------------------------------------
Other 5,158
- ----------------------------------------------------------------------------------
Total expenses 3,509,441
- ----------------------------------------------------------------------------------
Expense reduction (Note 2) (125,966)
- ----------------------------------------------------------------------------------
Net expenses 3,383,475
- ----------------------------------------------------------------------------------
Net investment income 6,777,171
- ----------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 35,993,433
- ----------------------------------------------------------------------------------
Net realized gain on forward currency currency and foreign
currency translation. (Note 1) 87,355
- ----------------------------------------------------------------------------------
Net unrealized depreciation on forward currency contracts and
foreign currency translation during the period (47,795)
- ----------------------------------------------------------------------------------
Net unrealized appreciation on investments and TBA sale
commitments during the period 14,613,311
- ----------------------------------------------------------------------------------
Net gain on investments 50,646,304
- ----------------------------------------------------------------------------------
Net increase in net assets resulting from operations $57,423,475
- ----------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
May 31 November 30
1996* 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets:
- -------------------------------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------------------------------
Net investment income $6,777,171 $12,853,448
- -------------------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency transactions 36,080,788 28,109,020
- -------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 14,565,516 72,483,167
- -------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 57,423,475 113,445,635
- -------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- -------------------------------------------------------------------------------------------------------------
From net investment income
- -------------------------------------------------------------------------------------------------------------
Class A (5,854,018) (11,368,798)
- -------------------------------------------------------------------------------------------------------------
Class B (1,134,406) (1,283,160)
- -------------------------------------------------------------------------------------------------------------
Class M (105,891) (81,818)
- -------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 68,396,470 45,298,097
- -------------------------------------------------------------------------------------------------------------
Total increase in net assets 118,725,630 146,009,956
- -------------------------------------------------------------------------------------------------------------
Net assets
- -------------------------------------------------------------------------------------------------------------
Beginning of period 482,248,275 336,238,319
- -------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income
of $887,638 and $1,204,782, respectively) $600,973,905 $482,248,275
- -------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
(For a share outstanding throughout the period)
For the period
December 2, 1994
Six months (commencement Six months
ended of operations) to ended
March 31 November 30 March 31
- ---------------------------------------------------------------------------------------------------------------------
1996* 1995 1996*
- ---------------------------------------------------------------------------------------------------------------------
Class M
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.89 $8.45 $10.89
- ---------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------
Net investment income .12 (e) .28 (e) .11 (e)
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.09 2.45 1.08
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.21 2.73 1.19
- ---------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------
From net investment income (.14) (.29) (.13)
- ---------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- --
- ---------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- -- --
- ---------------------------------------------------------------------------------------------------------------------
From paid in capital -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (.14) (.29) (.13)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.96 $10.89 $11.95
- ---------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 11.17 (d) 32.89 (d) 10.96 (d)
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $12,758 $7,051 $134,753
- ---------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .82 (d) 1.60 (d) .94 (d)
- ---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 1.09 (d) 2.99 (d) .96 (d)
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 42.62 (d) 70.39 42.62 (d)
- ---------------------------------------------------------------------------------------------------------------------
Average commission rate paid (c) $.0559 (d) $.0559 (d)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (continued)
(For a share outstanding throughout the period)
For the period
September 13, 1993
(commencement
of operations) to
Year ended November 30 November 30
- ---------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
Class B
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.46 $8.65 $8.66
- ---------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------
Net investment income .23 .26 .06 (e)
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 2.46 (.18) (.07)
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.69 .08 (.01)
- ---------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------
From net investment income (.26) (.27) --
- ---------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- --
- ---------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- -- --
- ---------------------------------------------------------------------------------------------------------------------
From paid in capital -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (.26) (.27) --
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.89 $8.46 $8.65
- ---------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 32.30 .86 (.12)(d)
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $83,646 $32,114 $14,800
- ---------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.87 1.78 .44 (d)
- ---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 2.63 3.02 .55 (d)
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 70.39 82.49 125.85 (f)
- ---------------------------------------------------------------------------------------------------------------------
Average commission rate paid (c)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (continued)
(For a share outstanding throughout the period)
Six months
ended
March 31 Year ended November 30
- ---------------------------------------------------------------------------------------------------------------------
1996* 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.93 $8.49 $8.67
- ---------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------
Net investment income .15 (e) .32 .32
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.08 2.44 (.18)
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.23 2.76 .14
- ---------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------
From net investment income (.16) (.32) (.32)
- ---------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- --
- ---------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- -- --
- ---------------------------------------------------------------------------------------------------------------------
From paid in capital -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (.16) (.32) (.32)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.00 $10.93 $8.49
- ---------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 11.35 (d) 33.17 1.59
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $453,463 $391,551 $304,124
- ---------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .56 (d) 1.13 1.04
- ---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 1.32 (d) 3.32 3.67
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 42.62 (d) 70.39 82.49
- ---------------------------------------------------------------------------------------------------------------------
Average commission rate paid (c) $.0559 (d)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (continued)
(For a share outstanding throughout the period)
Year ended November 30
- ---------------------------------------------------------------------------------------------------------------------
1993 1992 1991+
- ---------------------------------------------------------------------------------------------------------------------
Class A
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $7.72 $7.29 $6.60
- ---------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------
Net investment income .28 .42 .30
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.01 .41 .93
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.29 .83 1.23
- ---------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------
From net investment income (.31) (.40) (.30)
- ---------------------------------------------------------------------------------------------------------------------
In excess of net investment income (.03) -- --
- ---------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- -- (.24)
- ---------------------------------------------------------------------------------------------------------------------
From paid in capital -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (.34) (.40) (.54)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.67 $7.72 $7.29
- ---------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 17.06 11.66 19.13
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $328,251 $334,127 $397,237
- ---------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.16 1.23 1.20
- ---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 3.40 5.57 4.13
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 125.85 (f) 340.99 198.18
- ---------------------------------------------------------------------------------------------------------------------
Average commission rate paid (c) --
- ---------------------------------------------------------------------------------------------------------------------
* Unaudited.
+ Effective March 7, 1991, the fund's investment objective was
changed from seeking high current return to seeking current
income. Information in the table previous to March 7, 1991,
does not reflect the fund's current investment objective.
(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 November 30,
1995 and thereafter, includes amounts paid through brokerage service
and expense offset arrangements. Prior period ratios excluded these
amounts. (Note 2.)
(c) Average commission rate paid is presented for fiscal periods beginning
on or after September 1, 1995 in conformance with requirements
issued by the SEC.
(d) Not annualized.
(e) Per share net investment has been determined on the basis of the
weighted average number of shares outstanding during the period.
(f) Portfolio turnover excludes the impact of assets received from the
Putnam Equity Income Fund.
</TABLE>
Notes to financial statements
May 31, 1996 (Unaudited)
Note 1
Significant accounting policies
The fund is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. The
objective of the fund is to seek current income by investing primarily
in a diversified portfolio of income-producing equity securities.
Capital growth is a secondary objective when consistent with seeking
current income.
The fund offers class A, class B and class M shares. Class A shares are
sold with a maximum front-end sales charge of 5.75%. Class B shares,
which convert to class A shares after approximately eight years, do not
pay a front-end sales charge, but pay a higher ongoing distribution fee
than class A shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class
M shares are sold with a maximum front-end sales charge of 3.50% and pay
an ongoing distribution fee that is lower than class B shares and higher
than class A shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.
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. Market quotations
are not considered to be readily available for long-term corporate bonds
and notes; such investments are stated at fair market value on the basis
of valuations furnished by a pricing service approved by the Trustees.
Short-term investments having remaining maturities of 60 days or less
are stated at amortized cost, which approximates market value, and other
investments are stated at fair market value following procedures
approved by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances into a joint trading account along with the cash of other
registered investment companies managed by Putnam Investment Management,
Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc. and certain other accounts. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) 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.
D) 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.
Dividend income is recorded on the ex-dividend date except that certain
dividends from foreign securities are recorded as soon as the fund is
informed of the ex-dividend date. Discounts on zero coupon bonds,
original issue, stepped-coupon bonds and payment in kind bonds are
accreted according to the effective yield method.
E) 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 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.
F) 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 U.S. dollar value of forward currency contracts is
determined using forward currency exchange rates supplied by a quotation
service. 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 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) 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, the 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.
H) Federal taxes It is the policy of the fund to distribute all of its
taxable 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 on securities held and for excise tax on income and capital
gains.
At November 30, 1995, the fund had a capital loss carryover of
approximately $109,030,000 available to offset future net capital gain,
if any, which will expire on November 30, 1998.
I) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid annually. 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.
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.
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 net assets of
the fund. Such fee is based on the following annual rates: 0.75% of the
first $100 million of average net assets, 0.65% of the next $100
million, 0.55% of the next $300 million, 0.50% of the next $1.0 billion,
0.45% of the next $1 billion, and 0.40% of any amount over $2.5 billion,
subject, under current law, to reduction in any year by the amount of
certain brokerage commissions and fees (less expenses) received by
affiliates of Putnam Management on the fund's portfolio transactions.
On July 11, 1996, shareholders approved a proposal to increase
management fees payable to Putnam Management under the fund's Management
Contract. Effective July 11, 1996, management fees will be paid at the
annual rate of 0.65% of the first $500 million of average net assets,
0.55% of the next $500 million, 0.50% of the next $500 million, 0.45% of
the next $5 billion, 0.425% of the next $5 billion, 0.405% of the next
$5 billion, 0.39% of the next $5 billion, and 0.38% of any amount
thereafter.
The fund reimburses Putnam Management 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 Trustees fee of $990 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
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 invested in
certain Putnam funds until distribution in accordance with the Plan.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the six months ended May 31, 1996, fund expenses were reduced by
$125,966 under expense offset arrangements with PFTC and brokerage
service arrangements. Investor servicing and custodian fees reported in
the Statement of operations exclude these credits. The fund could have
invested a portion of the assets utilized in connection with the expense
offset arrangements in an income producing asset if it had not entered
into such arrangements.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Plans provide for payments by
the fund to Putnam Mutual Funds Corp. at an annual rate up to .35%,
1.00% and 1.00% of the average net assets attributable to class A, class
B and class M shares, respectively. The Trustees have approved payment
by the fund at an annual rate of .25%, 1.00% and .75% of the average net
assets attributable to class A, class B and class M shares respectively.
For the six months ended May 31, 1996, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $192,698 and $10,394 from the
sale of class A and class M shares, respectively and $58,322 in
contingent deferred sales charges from redemptions of class B shares. A
deferred sales charge of up to 1% is assessed on certain redemptions of
class A shares. For the year ended May 31, 1996, Putnam Mutual Funds
Corp., acting as underwriter received $708 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended May 31, 1996, purchases and sales of
investment securities other than U.S. government obligations and short-
term investments aggregated $246,116,364 and $184,262,335, respectively.
Purchases and sales of U.S. government obligations aggregated
$36,417,846 and $34,927,768, respectively. In determining the net gain
or loss on securities sold, the cost of securities has been determined
on the identified cost basis.
Note 4
Capital shares
At May 31, 1996 there was an unlimited number of shares of beneficial
interest authorized.
Six months ended
May 31, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 4,491,367 $51,655,522
- ----------------------------------------------------
Reinvestment of
distributions 385,367 4,346,473
- ----------------------------------------------------
4,876,734 56,001,995
Shares
repurchased (2,918,063) (33,576,064)
- ----------------------------------------------------
Net increase 1,958,67 $22,425,931
- ----------------------------------------------------
Year ended
November 30, 1995
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 4,980,350 $48,265,674
- ----------------------------------------------------
Reinvestment of
distributions 857,411 8,075,743
- ----------------------------------------------------
5,837,761 56,341,417
Shares
repurchased (5,848,286) (55,855,242)
- ----------------------------------------------------
Net increase
(decrease) (10,525) $486,175
- ----------------------------------------------------
Six months ended
May 31, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 4,607,537 $52,685,916
- ----------------------------------------------------
Reinvestment of
distributions 82,893 935,251
- ----------------------------------------------------
4,690,430 53,621,167
Shares
repurchased (1,092,997) (12,474,725)
- ----------------------------------------------------
Net increase 3,597,433 $41,146,442
- ----------------------------------------------------
Year ended
November 30, 1995
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 4,955,494 $49,153,948
- ----------------------------------------------------
Reinvestment of
distributions 111,600 1,063,257
- ----------------------------------------------------
5,067,094 50,217,205
Shares
repurchased (1,181,646) (11,615,462)
- ----------------------------------------------------
Net increase 3,885,448 $38,601,743
- ----------------------------------------------------
Six months ended
May 31, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 452,406 $5,204,916
- ----------------------------------------------------
Reinvestment of
distributions 8,609 97,165
- ----------------------------------------------------
461,015 5,302,081
Shares
repurchased (41,218) (477,984)
- ----------------------------------------------------
Net increase 419,797 $4,824,097
- ----------------------------------------------------
For the period
December 2, 1994
(commencement of
operations) to
November 30, 1995
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 684,912 $6,588,604
- ----------------------------------------------------
Reinvestment of
distributions 7,885 78,058
- ----------------------------------------------------
692,797 6,666,662
Shares
repurchased (45,453) (456,483)
- ----------------------------------------------------
Net increase 647,344 $6,210,179
- ----------------------------------------------------
Our commitment to quality service
* CHOOSE AWARD-WINNING SERVICE
Putnam Investor Services has won the DALBAR Quality Tested Service Seal
for the past six years. In 1995, over 146,000 tests of 56 shareholder
service components demonstrated that Putnam outperformed the industry
standard in every category.
* HELP YOUR INVESTMENT GROW
Set up a systematic program for investing with as little as $25 a month
from a Putnam money market fund or from your checking or savings
account.*
* SWITCH FUNDS EASILY
You can move money from one account to another with the same class of
shares without a service charge. (This privilege is subject to change or
termination.)
* ACCESS YOUR MONEY QUICKLY
You can get checks sent regularly or redeem shares any business day at
the then-current net asset value, which may be more or less than the
original cost of the shares.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a
helpful Putnam representative.
To make an additional investment in this or any other Putnam fund,
contact your financial advisor or call our toll-free number: 1-800-225-
1581.
*Regular investing of course, does not guarantee a profit or
protect against a loss in a declining market.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
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
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Peter Carman
Vice President
Thomas V. Reilly
Vice President
Brett C. Browchuk
Vice President
Edward P. Bousa
Vice President and Fund Manager
Kenneth J. Taubes
Vice President and Fund Manager
Rosemary H. Thomsen
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Equity
Income Fund. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and
the most recent copy of Putnam's Quarterly Performance Summary. For more
information, or to request a prospectus, call toll free: 1-800-225-1581
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution; are not insured by the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board
or any other agency; and involve risk, including the possible loss of
the principal amount invested.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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Bulk Rate
U.S. Postage
PAID
Putnam
Investments
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25854-012/192/626 7/96
