Putnam
Equity
Income
Fund
ANNUAL REPORT
November 30, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "In periods of high market volatility, rigorous analysis of stock
values can be especially beneficial. We believe that our research can lead
us to many stocks that the market has unfairly punished and steer us away
from the most vulnerable."
-- Edward P. Bousa, co-manager
Putnam Equity Income Fund
* "Conservative investors should find this offering attractive,
particularly if they are looking for some fixed-income exposure."
-- Morningstar Mutual Funds,
August 29, 1997
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
14 Portfolio holdings
37 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
In the fiscal year just ended, Putnam Equity Income Fund once again
demonstrated its ability to deliver commendable performance with a
conservative investment strategy. Its portfolio of carefully chosen growth
stocks and dividend-paying stocks of well-established companies allowed
shareholders, in a sense, to have their cake and eat it too.
The vibrant equity market that prevailed throughout most of the 12-month
period ended November 30, 1997, presented an atmosphere conducive to achieving
both the satisfaction of capital growth and the security of dividend income.
Fund Manager Edward Bousa and his management team used this favorable climate
to position your fund's portfolio to seek maximum advantage on both counts.
In the report that follows, the team discusses fiscal 1997 strategy in detail
and provides its assessment of what lies ahead.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
January 21, 1998
Report from the Fund Managers
Edward P. Bousa
Kenneth J. Taubes
Robert M. Paine
Successfully pursuing growth and current income from a single portfolio
generally means deriving much of the income from dividend-paying stocks. This
approach is inherently low-risk, since these stocks tend to be less volatile
than those of smaller or rapidly growing companies. Although it may not always
outperform a growth-oriented investment, this strategy offers conservative
investors potential for attractive levels of appreciation -- as evidenced by
Putnam Equity Income Fund's performance over the 12 months ended November 30,
1997.
The fiscal year just ended tested both your fund's resilience and its return
potential. As in previous years, U.S. stocks set many new records, but unlike
previous years, they also experienced significant volatility and short-term
drops. The fund continued to produce admirable absolute returns, however, with
class A shares returning 23.15% at NAV (16.07% based on the public offering
price). For performance of other share classes and returns for longer time
periods, please see the tables beginning on page 8.
* STRATEGY WELL SUITED TO VOLATILE MARKET
Following our value-oriented approach to equity investing, we continued to
search for companies exhibiting qualities of "cheapness and change" throughout
the year. We research large, well-established companies, looking for those
that sport an inexpensive stock price but also have some ingredient of
positive change that we believe can boost the price. Because such ingredients
can take a variety of forms -- restructurings, cost-cutting measures, share
repurchases -- the strategy works well in different industries and in
different market conditions.
During the stock market's downturns of the past year, we looked for value
opportunities among stocks the market rejected. We were neither active buyers
in the first downdraft of December 1996 nor in March 1997, but the slump that
occurred in late summer resulted in some price declines that we considered
unjustified. For example, we added significantly to a long-held position in Du
Pont. We believe that the company's recent acquisitions will provide new
international distribution channels that can enhance its global
competitiveness. Closer to home, Du Pont's agricultural chemical business has
taken a step forward with technological improvements of its seed products that
should make them more productive for farmers.
Although industrial cyclical companies have often been prominent in the
portfolio, our recent decision to purchase Caterpillar stock might seem to be
a bit contrarian. This stock performed very well during the early portion of
the current economic expansion from as far back as 1993. When Southeast Asian
currency and stock markets plummeted during the summer, lower projections of
Asian economic growth hurt Caterpillar's stock price. Our research shows that
only 8% of Caterpillar's business is in Southeast Asia, however. We considered
the stock unfairly punished and quickly established a position.
* FINANCIALS REMAIN SOURCE OF STRENGTH
Continuing a trend of the past two years, financial stocks, especially
regional banks, have contributed strong performance to the fund. Bank stocks
struggled in the early 1990s, but in the past few years, they have generally
risen as the industry has consolidated. Banks have realized greater economies
of scale and have obtained new revenues from new customer service fees.
Among this group, Fleet Financial and PNC Bank are two of the fund's largest
holdings. Fleet, now the largest bank in New England, has grown by purchasing
local competitors as well as an asset management company and a discount
brokerage. Its stock price has appreciated significantly but remains
inexpensive compared with the industry average and we believe that it still
offers value. PNC Bank, based in Ohio and West Virginia, has experienced
strong growth in its credit-card and money management businesses, and its core
banking operations continue to be solid. While these stocks, along with others
discussed in this report, were viewed favorably at the end of the fiscal
period, all portfolio holdings are subject to review and adjustment in
accordance with the fund's investment strategy and may vary in the future. In
particular, we are keeping a cautious eye for signs that the positive trend of
consolidation in the financial industry has run its course.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Insurance and finance 19.0%
Utilities 11.9%
Oil and gas 8.0%
Pharmaceuticals 4.8%
Food and beverages 4.7%
Footnote reads:
*Based on net assets as of 11/30/97. Holdings will vary over time.
* OIL STOCKS AMONG THOSE THAT FACED HARDSHIP
Many of the largest positions in the portfolio during the fiscal year have
been oil companies, such as Exxon, Mobil, and Amoco. Each of these companies
exemplified qualities of cheapness and change. Dogged by sluggish growth in
demand for oil, they undertook restructuring measures several years ago to
achieve greater efficiencies in drilling, production, and distribution. Their
stock prices responded and boosted the fund's returns during the past fiscal
year. During the summer, though, we decided that they no longer provided
unusual value and we began to trim the fund's positions. The subsequent
decision by OPEC to increase oil production has reduced the price of oil and
thereby has dampened prices of the stocks. We are monitoring them in the wake
of the selloff to see if the stocks might once again pass our valuation
screens.
Other holdings in the portfolio faced similar problems in their respective
markets. Freeport-McMoRan Copper and Gold, for instance, has struggled because
of lower prices for gold and other commodities as well as weak demand in Asia.
Despite Eastman Kodak's restructuring efforts, its stock has been battered
because it is losing global market share. As a result we liquidated this
holding after the fund's fiscal year end. We have also liquidated the fund's
position in Sears, Roebuck. After many years of cost cutting and other
shareholder-friendly moves, Sears nonetheless continues to have problems with
certain businesses, especially its credit-card business.
* BONDS BOOST RESULTS; VIGILANCE REMAINS VITAL
The bond portion of the fund represented approximately 7% of net assets at the
end of the fiscal period. As in the past, it consisted of a mixture of
Treasury, agency mortgages, and corporate bonds. In the early part of the
fiscal year, with concerns about an overheating economy, we favored
mortgage-backed bonds over Treasuries. Since the Federal Reserve Board's
decision to raise short-term interest rates in March, though, we felt more
confident that the economy would resume a sustainable and noninflationary pace
and began to shift back toward Treasuries. These have enjoyed a welcome rally
since the summer because of signs of economic deceleration in the United
States and a surge in foreign purchases as Southeast Asian markets became
inhospitable.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 EQUITY HOLDINGS
SBC Communications, Inc.
Utilities
Weyerhaeuser Co.
Paper and forest products
Philip Morris Cos., Inc.
Consumer nondurables
E.I. du Pont de Nemours & Co., Ltd.
Chemicals
Mobil Corp.
Oil and gas
Baxter International, Inc.
Medical supplies and devices
Exxon Corp.
Oil and gas
Banc One Corp.
Insurance and finance
American Home Products Corp.
Pharmaceuticals
Sprint Corp.
Utilities
Footnote reads;
These holdings represent 14.6% of the fund's net assets as of 11/30/97.
Portfolio holdings will vary over time.
While the fund's strong results in 1997 add a third year to bullish returns,
our cautious approach reminds us to be watchful for a change in the stock
market's positive trends. Despite the U.S. economy's remarkable stamina, the
market's recent volatility affirms our attentiveness to risk. We remain
confident that the fund's strategy can weather many different storms.
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 11/30/97, there is no guarantee the fund will continue to hold
these securities in the future.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its 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.
TOTAL RETURN FOR PERIODS ENDED 11/30/97
Class A Class B Class M
(inception date) (6/15/77) (9/13/93) (12/2/94)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year 23.15% 16.07% 22.24% 17.24% 22.58% 18.29%
- ------------------------------------------------------------------------------
5 years 143.70 129.72 134.75 132.75 137.32 129.1
Annual average 19.50 18.10 18.61 18.41 18.87 18.03
- ------------------------------------------------------------------------------
10 years 337.78 312.62 303.47 303.47 313.12 298.61
Annual average 15.91 15.23 14.97 14.97 15.24 14.83
- ------------------------------------------------------------------------------
Annual average
(life of fund) 12.62 12.30 11.60 11.60 11.88 11.68
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/97
S&P 500 Consumer
Index Price Index
- ------------------------------------------------------------------------------
1 year 28.50% 1.83%
- ------------------------------------------------------------------------------
5 years 150.27 13.73
Annual average 20.14 2.61
- ------------------------------------------------------------------------------
10 years 455.36 39.95
Annual average 18.70 3.42
- ------------------------------------------------------------------------------
Annual average (life of fund) 15.99 4.91
- ------------------------------------------------------------------------------
Returns for class A and class M shares reflect the current maximum initial
sales charges of 5.75% and 3.50%, respectively. Class B share returns for
the 1-, 5-, 10-year and life-of-fund periods reflect the applicable
contingent deferred sales charge (CDSC), which is 5% in the first year,
declines to 1% in the sixth year, and is eliminated thereafter. Returns
shown for class B and class M shares for periods prior to their inception
are derived from the historical performance of class A shares, adjusted to
reflect both the initial sales charge or CDSC, if any, currently
applicable to each class and, in the case of class B and class M shares,
the higher operating expenses applicable to such shares. All returns
assume reinvestment of distributions at NAV and represent past
performance; they do not guarantee future results. Investment return and
principal value will fluctuate so that an investor's shares when redeemed
may be worth more or less than their original cost.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 11/30/87
Plot points read:
S&P 500 Consumer Price
Date/year Fund at POP Index Index
11/30/87 9425 10000 10000
11/30/88 12085 12325 10425
11/30/89 14321 16132 10911
11/30/90 12728 15568 11595
11/30/91 15163 18734 11942
11/30/92 16931 22190 12306
11/30/93 19819 24432 12636
11/30/94 20135 24686 12973
11/30/95 26814 33802 13312
11/30/96 33507 43216 13746
11/30/97 41262 55536 13995
Footnote reads:
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B shares would have
been valued at $40,347 and no contingent deferred sales charges would apply;
a $10,000 investment in the fund's class M shares would have been valued at
$41,312 at net asset value ($39,861 at public offering price). See first
page of performance section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 11/30/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 4 4 4
- -----------------------------------------------------------------------------
Income $0.290 $0.197 $0.229
- ------------------------------------------------------------------------------
Capital gains -- -- --
- ------------------------------------------------------------------------------
Total $0.290 $0.197 $0.229
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
11/30/96 $13.29 $14.10 $13.23 $13.23 $13.71
- ------------------------------------------------------------------------------
11/30/97 16.04 17.02 15.95 15.96 16.54
- ------------------------------------------------------------------------------
Current return
- ------------------------------------------------------------------------------
End of period
- ------------------------------------------------------------------------------
Current dividend rate1 1.75% 1.65% 1.08% 1.28% 1.23%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 1.63 1.54 0.90 1.13 1.09
- ------------------------------------------------------------------------------
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.
TOTAL RETURN FOR PERIODS ENDED 12/31/97
(most recent calendar quarter)
Class A Class B Class M
(inception date) (6/15/77) (9/13/93) (12/2/94)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year 26.46% 19.19% 25.49% 20.49% 25.77% 21.40%
- ------------------------------------------------------------------------------
5 years 143.80 129.89 134.85 132.85 137.44 129.27
Annual average 19.51 18.11 18.62 18.42 18.88 18.05
- ------------------------------------------------------------------------------
10 years 318.20 293.97 285.66 285.66 294.85 281.13
Annual average 15.38 14.70 14.45 14.45 14.72 14.32
- ------------------------------------------------------------------------------
Annual average
(life of fund) 12.68 12.36 11.66 11.66 11.93 11.73
- ------------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment returns and
principal value will fluctuate so that an investor's shares, when sold,
may be worth more or less than their original cost. See first page of
performance section for performance calculation method.
TERMS AND DEFINITIONS
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.
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 upon 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 Stock Index is an index of common stocks frequently
used as a general measure of stock market performance. The index assumes
reinvestment of all distributions and interest payments and does not take
in account brokerage fees or taxes. Securities in the fund do not match
those in the indexes and performance of the fund will differ. 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.
WELCOME TO
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about investing and retirement planning, and access market news and an
economic outlook from Putnam experts -- with just a few clicks of the
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VISIT PUTNAM'S NEW SITE ON THE WORLD WIDE WEB TO FIND OUT:
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* daily fund pricing and long-term fund performance
* how to tell if your retirement savings plan is on track
* how quickly money can accumulate in a tax-deferred investment
You can also read Dr. Robert Goodman's economic commentary and Putnam's
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The site can be accessed through any of the major online services
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provider.
New features will be added to the site on an ongoing basis. So, visit us
at http://www.putnaminv.com -- often!
Report of independent accountants
For the fiscal year ended November 30, 1997
To the Trustees and Shareholders of
Putnam Equity Income Fund
We have audited the accompanying statement of assets and liabilities of Putnam
Equity Income Fund, including the portfolio of investments owned, as of
November 30, 1997, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of November 30, 1997, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Putnam Equity Income Fund as of November 30, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each
of the periods indicated therein, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 15, 1998
Portfolio of investments owned
November 30, 1997
<TABLE>
<CAPTION>
COMMON STOCKS (89.3%) *
NUMBER OF SHARES VALUE
Aerospace and Defense (2.2%)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
305,000 Boeing Co. $ 16,203,126
85,000 Lockheed Martin Corp. 8,292,813
32,800 Northrop Grumman Corp. 3,698,200
59,800 Rockwell International Corp. 2,915,250
--------------
31,109,389
Agriculture (--%)
- ------------------------------------------------------------------------------------------------------------
1,101 PSF Holdings LLC Class A + 33,030
Automotive (2.9%)
- ------------------------------------------------------------------------------------------------------------
6,700 Bayerische Motoren Werke (BMW) AG (Germany) 4,998,527
287,600 Chrysler Corp. 9,868,275
283,374 Ford Motor Co. 12,185,082
233,000 Michelin Corp. Class B (France) 12,545,547
--------------
39,597,431
Basic Industrial Products (3.8%)
- ------------------------------------------------------------------------------------------------------------
290,000 Caterpillar, Inc. 13,901,875
179,000 Cooper Industries, Inc. 9,240,875
206,800 Deere (John) & Co. 11,335,225
86,400 Ingersoll-Rand Co. 3,531,600
157,000 Minnesota Mining & Manufacturing Co. 15,297,688
--------------
53,307,263
Broadcasting (0.4%)
- ------------------------------------------------------------------------------------------------------------
210,000 Comcast Corp. Class A 5,880,000
Building and Construction (--%)
- ------------------------------------------------------------------------------------------------------------
60 Terex Corp. Rights + 1,200
Business Equipment and Services (3.5%)
- ------------------------------------------------------------------------------------------------------------
203,900 Hewlett-Packard Co. 12,450,644
146,000 IBM Corp. 15,996,125
115,700 Pitney Bowes, Inc. 9,726,031
141,000 Xerox Corp. 10,953,938
--------------
49,126,738
Chemicals (4.2%)
- ------------------------------------------------------------------------------------------------------------
178,300 Bayer AG ADR (Germany) 6,597,938
150,000 Dow Chemical Co. 14,812,500
353,200 du Pont (E.I.) de Nemours & Co., Ltd. 21,390,675
169,000 Eastman Chemical Co. 10,203,375
95,000 PPG Industries, Inc. 5,504,063
--------------
58,508,551
Computer Services and Software (0.6%)
- ------------------------------------------------------------------------------------------------------------
165,000 Computer Associates Intl., Inc. 8,590,313
Conglomerates (1.7%)
- ------------------------------------------------------------------------------------------------------------
161,000 Temple Inland, Inc. 9,197,125
243,800 TRW, Inc. 13,835,650
--------------
23,032,775
Consumer Non Durables (3.8%)
- ------------------------------------------------------------------------------------------------------------
108,000 Colgate-Palmolive Co. 7,215,750
376,500 Gallaher Group PLC (United Kingdom) 8,071,219
312,800 Kimberly-Clark Corp. 16,285,150
493,000 Philip Morris Cos., Inc. 21,445,500
--------------
53,017,619
Consumer Products (0.8%)
- ------------------------------------------------------------------------------------------------------------
284,500 Fortune Brands, Inc. 10,295,344
Electronics and Electrical Equipment (3.2%)
- ------------------------------------------------------------------------------------------------------------
283,000 Emerson Electric Co. 15,565,000
171,000 Intel Corp. 13,273,875
412,300 Siebe PLC (United Kingdom) 7,492,851
152,000 Texas Instruments, Inc. 7,486,000
--------------
43,817,726
Environmental Control (0.7%)
- ------------------------------------------------------------------------------------------------------------
280,200 Browning-Ferris Industries, Inc. 9,999,638
Food and Beverages (4.7%)
- ------------------------------------------------------------------------------------------------------------
256,000 Anheuser-Busch Cos., Inc. 11,056,000
104,000 Dole Food Co. 5,135,000
201,000 General Mills, Inc. 14,874,000
192,000 PepsiCo, Inc. 7,080,000
148,000 The Quaker Oats Co. 7,844,000
174,800 Sara Lee Corp. 9,242,550
389,000 Whitman Corp. 10,235,563
--------------
65,467,113
Health Care (1.8%)
- ------------------------------------------------------------------------------------------------------------
156,000 Merck & Co., Inc. 14,751,750
196,000 United Healthcare Corp. 10,204,250
--------------
24,956,000
Hospital Management and Medical Services (0.4%)
- ------------------------------------------------------------------------------------------------------------
170,000 Tenet Healthcare Corp. + 5,386,875
Insurance and Finance (18.1%)
- ------------------------------------------------------------------------------------------------------------
107,000 Aetna, Inc. 8,065,125
168,000 Ahmanson (H.F.) & Co. 9,996,000
268,000 American General Corp. 14,438,500
213,800 AON Corp. 11,318,038
363,000 Banc One Corp. 18,649,125
86,000 BankBoston Corp. 7,664,750
85,800 Bankers Trust New York Corp. [UPSIDE DOWN DELTA] 10,172,663
58,000 Beneficial Corp. 4,502,250
66,000 Chase Manhattan Corp. 7,169,250
30,360 CIGNA Corp. 5,077,710
73,600 Crestar Financial Corp. 3,781,200
139,000 Federal National Mortgage Association 7,340,938
202,100 First Chicago NBD Corp. 15,814,325
66,000 First of America Bank Corp. 3,877,500
266,900 First Union Corp. 13,011,375
60,000 Firstar Corp. 2,340,000
228,000 Fleet Financial Group, Inc. 15,062,250
94,000 Hartford Financial Services Group 7,872,500
81,200 Keycorp 5,475,925
124,500 Mercantile Bancorp., Inc. 6,474,000
110,000 Morgan (J.P.) & Co., Inc. 12,560,625
252,400 NationsBank Corp. 15,159,775
244,000 Norwest Corp. 9,134,750
325,000 PNC Bank Corp. 17,489,063
44,000 Star Banc Corp. 2,376,000
215,925 Synovus Financial Corp. 6,896,105
31,500 USF&G Corp. 635,906
75,200 Wachovia Corp. 5,790,400
50,000 Washington Mutual, Inc. 3,456,250
--------------
251,602,298
Medical Supplies and Devices (1.4%)
- ------------------------------------------------------------------------------------------------------------
375,200 Baxter International, Inc. 18,994,500
Metals and Mining (1.1%)
- ------------------------------------------------------------------------------------------------------------
143,500 Aluminum Co. of America 9,650,375
24,400 Carpenter Technology Corp. 1,149,850
224,000 Freeport-McMoRan Copper & Gold Co., Inc. Class A 4,466,000
--------------
15,266,225
Oil and Gas (8.0%)
- ------------------------------------------------------------------------------------------------------------
150,000 Amoco Corp. 13,500,000
162,300 British Petroleum PLC ADR (United Kingdom) 13,470,900
218,800 Elf Aquitane ADR (France) 12,526,300
117,000 Enron Corp. 4,533,750
116,000 Ente Nazionale Idrocarburi S.P.A. (ENI) ADR (Italy) 6,735,250
307,000 Exxon Corp. 18,727,000
107,000 Kerr-McGee Corp. 7,095,438
278,400 Mobil Corp. 20,027,400
265,000 Total Corp. ADR (France) 13,929,063
--------------
110,545,101
Paper and Forest Products (1.8%)
- ------------------------------------------------------------------------------------------------------------
95,000 Chesapeake Corp. 3,253,750
414,000 Weyerhaeuser Co. 21,864,375
--------------
25,118,125
Pharmaceuticals (4.8%)
- ------------------------------------------------------------------------------------------------------------
258,700 American Home Products Corp. 18,076,663
187,000 Bristol-Myers Squibb Co. 17,507,875
185,300 Glaxo Wellcome PLC ADR (United Kingdom) 8,465,894
112,000 Johnson & Johnson 7,049,000
477,470 Pharmacia & Upjohn, Inc. 16,114,613
--------------
67,214,045
Photography (0.7%)
- ------------------------------------------------------------------------------------------------------------
113,400 Eastman Kodak Co. 6,874,875
77,000 Polaroid Corp. 3,272,500
--------------
10,147,375
Publishing (0.6%)
- ------------------------------------------------------------------------------------------------------------
127,600 McGraw-Hill, Inc. 8,732,625
REITs (Real Estate Investment Trust) (0.7%)
- ------------------------------------------------------------------------------------------------------------
170,000 Duke Realty Investments, Inc. 3,910,000
114,000 Equity Residential Properties Trust 5,700,000
--------------
9,610,000
Retail (2.0%)
- ------------------------------------------------------------------------------------------------------------
279,000 K mart Corp. + 3,504,938
260,100 Lowe's Cos., Inc. 11,948,344
379,200 Toys "R" Us, Inc. + 12,940,200
--------------
28,393,482
Telecommunications (--%)
- ------------------------------------------------------------------------------------------------------------
192 NEXTEL Communications, Inc. 144A 4,606
Transportation (3.9%)
- ------------------------------------------------------------------------------------------------------------
104,000 Burlington Northern Santa Fe Corp. 9,516,000
192,000 CSX Corp. 10,044,000
157,000 Delta Air Lines, Inc. 17,495,688
220,400 Ryder System, Inc. 8,003,275
153,000 Union Pacific Corp. 9,180,000
--------------
54,238,963
Utilities (11.5%)
- ------------------------------------------------------------------------------------------------------------
164,000 American Telephone & Telegraph Co. 9,163,500
191,000 Ameritech Corp. 14,718,938
84,000 Baltimore Gas & Electric Co. 2,577,750
195,036 Bell Atlantic Corp. 17,406,963
290,000 BellSouth Corp. 15,877,500
256,463 Cinergy Corp. 9,136,494
209,000 Dominion Resources, Inc. 8,124,875
260,034 Duke Power Co. 13,521,768
109,000 OGE Energy Corp. 5,545,375
262,000 Pacific Enterprises 9,268,250
138,600 Potomac Electric Power Co. 3,430,350
360,403 SBC Communications, Inc. 26,241,843
296,000 Southern Co. 7,104,000
308,000 Sprint Corp. 18,037,250
--------------
160,154,856
--------------
Total Common Stocks (cost $1,025,196,145) $1,242,149,206
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (3.0%) *
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Pass-Through Certificates (1.7%)
- ------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Association
630,000 8 1/2s, TBA, December 16, 2027 657,361
114,571 7s, February 15, 2027 109,019
525,000 7s, TBA, December 15, 2012 531,232
Federal National Mortgage Association
710,000 7s, Dwarf, TBA, December 15, 2012 717,760
340,000 6 1/2s, December 25, 2008 340,425
1,792,850 6 1/2s, with due dates from August 1, 2025 to
September 1, 2027 1,758,107
510,000 5.94s, December 12, 2005 501,391
915,000 Government National Mortgage Association 5 1/2s, TBA,
December 16, 2027 914,570
1,702,201 Federal Home Loan Mortgage Corp. 5 1/2s, with
due dates from March 1, 2011 to April 1, 2011 1,633,042
2,373,670 8 1/2s, with due dates from July 15, 2026 to
August 15, 2027 2,482,696
3,795,210 7 1/2s, with due dates from January 15, 2027 to
October 15, 2027 3,871,117
619,796 7 3/8s, with due dates from April 20, 2023
to May 20, 2024 639,051
1,842,160 7 1/8s, with due dates from July 20, 2023 to
September 20, 2024 1,894,821
4,076,414 7s, with due dates from October 15, 2025 to
November 15, 2027 4,087,869
878,699 6s, October 20, 2027 883,642
1,953,000 5 1/2s, with due dates from October 20, 2027 to
November 20, 2027 1,942,634
--------------
22,964,737
U.S. Treasury Obligations (1.3%)
- ------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes
385,000 11 7/8s, November 15, 2003 # 499,176
845,000 11 1/8s, August 15, 2003 1,056,512
1,170,000 7s, July 15, 2006 1,254,825
305,000 6 5/8s, May 15, 2007 320,775
2,290,000 6 1/2s, October 15, 2006 2,381,234
780,000 6 3/8s, April 30, 1999 786,458
1,045,000 6 1/4s, February 15, 2007 1,069,986
470,000 6 1/4s, June 30, 2002 477,050
2,398,000 6 1/8s, August 15, 2007 2,444,090
4,690,000 6s, July 31, 2002 4,717,108
570,000 5 7/8s, September 30, 2002 570,353
1,160,000 5 7/8s, July 31, 1999 1,161,264
1,240,000 5 3/4s, October 31, 2002 1,234,767
790,000 5 5/8s, October 31, 1999 787,527
--------------
18,761,125
--------------
Total U.S. Government and Agency Obligations
(cost $41,351,700) $ 41,725,862
CORPORATE BONDS AND NOTES (2.7%) *
PRINCIPAL AMOUNT VALUE
Advertising (--%)
- ------------------------------------------------------------------------------------------------------------
50,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 54,500
60,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 63,600
20,000 Lamar Advertising Co. 144A sr. sub. notes 8 5/8s, 2007 20,225
10,000 Outdoor Communications Inc. sr. sub. notes 9 1/4s, 2007 10,050
60,000 Outdoor Systems, Inc. company guaranty 8 7/8s, 2007 62,100
65,000 Universal Outdoor, Inc. sr. sub. notes 9 3/4s, 2006 72,800
25,000 Universal Outdoor, Inc. sr. sub. notes Ser. B, 9 3/4s, 2006 28,000
--------------
311,275
Aerospace and Defense (0.1%)
- ------------------------------------------------------------------------------------------------------------
5,000 Howmet Corp. sr. sub. notes 10s, 2003 5,550
10,000 K & F Industries, Inc.144A sr. sub. notes 9 1/4s, 2007 10,138
765,000 Raytheon Co notes 6.45s, 2002 765,451
10,000 Sequa Corp. bonds 8 3/4s, 2001 10,100
5,000 Tracor, Inc. sr. sub. notes 8 1/2s, 2007 5,038
10,000 Wyman-Gordon Co. sr. notes 10 3/4s, 2003 10,600
--------------
806,877
Agriculture (--%)
- ------------------------------------------------------------------------------------------------------------
265,000 Potash Corp. of Saskatchewan notes 7 1/8s, 2007 (Canada) 270,793
12,786 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 [2 DBL. DAGGERS] 14,065
--------------
284,858
Apparel (--%)
- ------------------------------------------------------------------------------------------------------------
20,000 Sassco Fashions Ltd. sr. notes 12 3/4s, 2004 21,200
Automotive (--%)
- ------------------------------------------------------------------------------------------------------------
9,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 9,990
180,000 Chrysler Corp. deb. Ser. B, 7.45s, 2097 188,357
60,000 Hayes Wheels International, Inc. company guaranty Ser. B,
9 1/8s, 2007 61,800
50,000 Lear Corp. sub. notes 9 1/2s, 2006 54,500
--------------
314,647
Banks (0.2%)
- ------------------------------------------------------------------------------------------------------------
170,000 Abbey National First Capital PLC sub. notes 7.35s, 2049
(United Kingdom) 176,715
400,000 Advanta National Bank sr. notes 7.02s, 2001 400,096
25,000 Chevy Chase Savings Bank sub. deb. 9 1/4s, 2008 25,500
10,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 10,200
300,000 Den Danske Bank 144A sub. notes 6.55s, 2003 (Denmark) 301,464
35,000 First Nationwide Holdings sr. sub. notes 10 5/8s, 2003 39,288
5,000 Ocwen Federal Bank sub. deb. 12s, 2005 5,550
315,000 Peoples Bank- Bridgeport sub. notes 7.2s, 2006 315,844
5,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 5,313
250,000 Riggs National Corp. sub. deb. 8 1/2s, 2006 262,103
300,000 Scotland International Finance 144A sub. notes 8.85s, 2006
(Netherlands) 342,576
310,000 Sparbanken Sverige AB (Swedbank) 144A sub. 7 1/2s, 2006
(Sweden) 315,803
230,000 St. Paul Bancorp sr. notes 7 1/8s, 2004 232,558
155,000 State Street Institution 144A company guaranty 7.94s, 2026 162,476
285,000 Webster Capital Trust I 144A bonds 9.36s, 2027 320,001
325,000 Webster Financial Corp. sr. notes 8 3/4s, 2000 340,984
--------------
3,256,471
Basic Industrial Products (--%)
- ------------------------------------------------------------------------------------------------------------
15,000 Clark-Schwebel sr. notes 10 1/2s, 2006 16,200
5,000 Inter-City Products sr. notes 9 3/4s, 2000 5,138
10,000 Koppers Industries, Inc. 144A sr. sub notes 9 7/8s, 2007 10,125
5,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 5,294
--------------
36,757
Broadcasting (0.1%)
- ------------------------------------------------------------------------------------------------------------
10,000 Acme Television/Finance 144A sr. disc. notes stepped-coupon
zero % (10 7/8s, 9/30/00), 2004 ++ 7,300
35,000 Affinity Group Holdings sr. notes 11s, 2007 37,188
25,000 Allbritton Communications sr. sub. deb. Ser. B, 9 3/4s, 2007 25,188
25,000 American Radio Systems Corp. company guaranty 9s, 2006 26,563
40,000 Argyle Television Corp. sr. sub. notes 9 3/4s, 2005 44,450
25,000 Benedek Broadcasting sr. notes 11 7/8s, 2005 28,000
50,000 Benedek Communications Corp. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2006 ++ 36,750
25,000 Cablevision Systems Corp. sr. sub. deb. 10 1/2s, 2016 28,563
5,000 Cablevision Systems Corp. sr. sub. deb. 9 7/8s, 2023 5,425
50,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 51,000
10,000 Capstar Broadcasting sr. disc. notes stepped-coupon zero %
(12 3/4s, 2/1/02), 2009 ++ 7,100
10,000 Central European Media Enterprises Ltd. sr. notes 9 3/8s, 2004 9,900
25,000 Chancellor Media Corp. sr. sub. notes 9 3/8s, 2004 26,063
25,000 Comcast Corp. sr. sub. notes 9 1/2s, 2008 26,470
10,000 Comcast Corp. sr. sub. 9 1/8s, 2006 10,638
35,000 Commodore Media, Inc. sr. sub. notes stepped-coupon 7 1/2s,
(13 1/4s, 5/1/98), 2003 ++ 39,200
305,000 Continental Cablevision, Inc. sr. deb. 9 1/2s, 2013 350,997
60,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) ++ 45,300
5,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (13 1/4s, 9/30/99), 2004
(United Kingdom) ++ 4,425
65,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) ++ 42,575
30,000 Fox/Liberty Networks LLC 144A sr. notes 8 7/8s, 2007 29,775
25,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 25,938
5,000 Gray Communications Systems, Inc. sr. sub. notes 10 5/8s, 2006 5,325
60,000 Jones Intercable, Inc. sr. sub. deb. 10 1/2s, 2008 65,400
30,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes stepped-coupon
zero % (13 1/2s, 8/1/99), 2004 ++ 27,450
25,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 28,500
3,000 Radio One Inc. company guaranty stepped-coupon Ser. B, 7s,
(12s, 5/15/00), 2004 ++ 2,970
5,000 Rogers Cablesystems Ltd. deb. 10 1/8s, 2012 (Canada) 5,400
50,000 Rogers Cablesystems Ltd. sr. notes Ser. B, 10s, 2005 54,750
10,000 Sinclair Broadcasting Group sr. sub. notes 10s, 2005 10,550
25,000 Sinclair Broadcast Group, Inc. company guaranty 9s, 2007 25,250
5,000 Spanish Broadcasting sr. notes Ser. B, 11s, 2004 5,500
25,000 Spanish Broadcasting Systems sr. notes
12 1/2s, 2002 28,875
65,000 Sullivan Broadcasting sr. sub. notes 10 1/4s, 2005 69,388
30,000 TCI Satellite Entertainment 144A sr. sub. notes 10 7/8s, 2007 31,050
5,000 TV Azteca Sa De CV sr. notes 10 1/2s, 2007 (Mexico) 5,200
40,000 UIH Australia/Pacific, Inc. 144A sr. disc. notes stepped-coupon
zero % (14s, 5/15/01), 2006 (Australia) ++ 26,000
--------------
1,300,416
Building Products (--%)
- ------------------------------------------------------------------------------------------------------------
25,000 Southdown, Inc. sr. sub. notes Ser. B, 10s, 2006 27,750
Building and Construction (--%)
- ------------------------------------------------------------------------------------------------------------
35,000 Atrium Companies, Inc. sub. notes 10 1/2s, 2006 36,838
5,000 Building Materials Corp. sr. notes Ser. B, 8 5/8s, 2006 5,150
5,000 Cemex S.A. 144A bonds 12 3/4s, 2006 (Mexico) 6,050
5,000 Cia Latino Americana 144A company guaranty 11 5/8s, 2004
(Argentina) 5,050
5,000 Continental Homes Holding Corp. sr. notes 10s, 2006 5,375
210,000 Guangdong Enterprises 144A sr. notes 8 7/8s, 2007 (China) 206,552
25,000 M.D.C. Holdings, Inc. notes Ser. B, 11 1/8s, 2003 27,750
10,000 Terex Corp. sr. notes Ser. B, 13 1/4s, 2002 11,438
--------------
304,203
Business Equipment and Services (--%)
- ------------------------------------------------------------------------------------------------------------
10,000 Corporate Express, Inc. sr. sub. notes Ser. B, 9 1/8s, 2004 10,300
30,000 Iron Mountain, Inc. sr. sub. notes 10 1/8s, 2006 32,550
5,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 5,575
40,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 45,200
7,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 7,963
5,000 Axiohm Transactions Solutions 144A sr. sub. notes 9 3/4s, 2007 5,013
--------------
106,601
Chemicals (--%)
- ------------------------------------------------------------------------------------------------------------
15,000 Great Lakes Carbon Corp. sr. notes 10s, 2006 16,050
25,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 26,063
15,000 Huntsman Corp. 144A sr. sub. notes FRN 9.187s, 2007 15,525
125,000 Lyondell Petrochemical Co. notes 9 1/8s, 2002 136,724
5,000 NL Industries, Inc. sr. notes stepped-coupon zero %
(13s, 10/15/98), 2005 ++ 4,963
10,000 Pharmaceutical Fine Chemicals 144A sr. sub. notes 9 3/4s,
2007 (Switzerland) 10,050
240,000 Sociedad Quimica Y Minera de Chile S.A. 144A bonds 7.7s,
2006 (Chile) 245,160
5,000 Sovereign Capital TR I 9s, 2027 5,397
5,000 Sovereign Specialty Chemical 144A sr. sub. notes 9 1/2s, 2007 5,138
10,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 ++ 6,650
25,000 Sterling Chemicals, Inc. sr. sub. notes Ser. A, 11 1/4s, 2007 26,500
5,000 Union Carbide Global Enterprises sr. sub. notes Ser. B, 12s, 2005 5,600
--------------
503,820
Communications (--%)
- ------------------------------------------------------------------------------------------------------------
51,187 Adelphia Communications Corp. sr. notes 9 1/2s, 2004 [2 DBL. DAGGERS] 51,827
55,000 FrontierVision Holdings LP 144A sr. discount notes
stepped-coupon zero % (11 7/8s, 9/15/01), 2007 ++ 38,363
5,000 Pratama Datakom Asia BV 144A company guaranty
12 3/4s, 2005 4,000
--------------
94,190
Computer Services and Software (--%)
- ------------------------------------------------------------------------------------------------------------
5,000 DecisionOne Corp. sr. sub. notes 9 3/4s, 2007 5,125
Conglomerates (--%)
- ------------------------------------------------------------------------------------------------------------
10,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes 13s, 1999 10,038
Consumer Durable Goods (--%)
- ------------------------------------------------------------------------------------------------------------
15,000 Icon Fitness Corp. sr. disc. notes stepped-coupon Ser. B,
zero % (14s, 11/15/01), 2006 ++ 8,550
10,000 Remington Products Co. sr. sub. notes Ser. B, 11s, 2006 8,400
15,000 Selmer Co., Inc. sr. sub. notes 11s, 2005 16,463
--------------
33,413
Consumer Non Durables (--%)
- ------------------------------------------------------------------------------------------------------------
10,000 Carson, Inc. 144A sr. sub. notes 10 3/8s, 2007 10,300
5,000 Foamex, L.P. company guaranty 9 7/8s, 2007 5,131
15,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 15,450
80,000 Philip Morris Cos., Inc. deb. 7 3/4s, 2027 85,012
90,000 Philip Morris Cos., Inc. notes 7 1/2s, 2004 93,517
185,000 Philip Morris Cos., Inc. notes 7 1/8s, 2004 188,719
15,000 RJR Nabisco, Inc. notes 8 3/4s, 2005 16,116
--------------
414,245
Consumer Services (--%)
- ------------------------------------------------------------------------------------------------------------
35,000 Boyd Gaming Corp. 144A sr. sub. notes 9 1/2s, 2007 36,050
25,000 Century Communications Corp. sr. notes 8 7/8s, 2007 25,313
60,000 Cinemark USA, Inc. 9 5/8s, 2008 61,800
15,000 Coinmach Corp. sr. notes Ser. B, 11 3/4s, 2005 16,613
35,000 Coinmach Corp. 144A sr. notes 11 3/4s, 2005 38,413
25,000 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003 [2 DBL. DAGGERS] 26,250
20,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 21,725
30,000 Hollinger International Publishing, Inc. company guaranty
9 1/4s, 2007 30,900
5,000 Hollinger International Publishing, Inc. company guaranty
8 5/8s, 2005 5,113
10,000 Host Marriott Corp. sr. notes Ser. B, 9 1/2s, 2005 10,550
10,000 John Q Hammons Hotels, Inc. 1st mtge. 9 3/4s, 2005 10,575
25,000 John Q Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 25,375
5,000 Viasystems Inc., 144A sr. sub. notes 9 3/4s, 2007 5,175
--------------
313,852
Electronics and Electrical Equipment (--%)
- ------------------------------------------------------------------------------------------------------------
10,000 Argo-Tech Corp. 144A sr. sub. notes 8 5/8s, 2007 9,900
5,000 Celestica International Ltd. sr. sub. notes 10 1/2s,
2006 (Canada) 5,300
6,998 Cirent Semiconductor, Inc. sr. sub. notes 10.22s, 2002 7,147
7,427 Cirent Semiconductor, Inc.144A sr. sub. notes 10.14s, 2004 7,604
10,000 DII Group, Inc. 144A sr. sub. notes 8 1/2s, 2007 9,875
10,000 Dobson Communications Corp. 11 3/4s, 2007 10,400
5,000 Fairchild Semiconductor Corp. 144A sr. sub. notes 11.74s, 2008 5,113
30,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 31,350
10,000 Flextronics International Ltd. 144A sr. sub. notes 8 3/4s, 2007 9,975
10,000 Motors and Gears, Inc. sr. notes Ser. B, 10 3/4s, 2006 10,600
--------------
107,264
Energy-Related (0.1%)
- ------------------------------------------------------------------------------------------------------------
35,000 AES Corp. sr. sub. notes 8 3/8s, 2007 34,388
585,000 Calenergy, Inc. sr. notes 7.63s, 2007 585,889
10,000 Panda Global Energy Co. company guaranty 12 1/2s, 2004 9,400
210,000 Quezon Power Ltd. sr. notes 8.86s, 2017 (Philippines) 181,125
--------------
810,802
Entertainment (0.3%)
- ------------------------------------------------------------------------------------------------------------
60,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 61,500
25,000 Aztar Corp. sr. sub. notes 11s, 2002 25,750
25,000 Harveys Casino Resorts sr. sub. notes 10 5/8s, 2006 27,250
10,000 Isle of Capri Black Hawk LLC 144A 1st mortgage 13s, 2004 10,100
720,000 News America Holdings, Inc. deb. 7.7s, 2025 729,209
625,000 News America Holdings, Inc. deb. 7 3/4s, 2045 629,888
10,000 Premier Parks, Inc. sr. notes Ser. A, 12s, 2003 11,100
60,000 Six Flags Corp. sr. sub. notes stepped-coupon zero %
(12 1/4s, 6/15/98), 2005 ++ 63,750
435,000 Time Warner Entertainment Co. notes 8 7/8s, 2012 505,444
680,000 Time Warner Entertainment sr. notes 8 3/8s, 2033 761,274
580,000 Time Warner Entertainment, Inc. deb. 7 1/4s, 2008 592,627
--------------
3,417,892
Environmental Control (--%)
- ------------------------------------------------------------------------------------------------------------
10,000 Allied Waste Industries, Inc. 144A sr. disc. notes
stepped-coupon zero % (11.3s, 6/1/02), 2007 ++ 6,875
Food and Beverages (--%)
- ------------------------------------------------------------------------------------------------------------
5,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 5,250
60,000 Canandaigua Wine Co. sr. sub. notes Ser. C, 8 3/4s, 2003 60,900
5,000 Del Monte Corp. sr. sub. notes Ser. B, 12 1/4s, 2007 5,450
5,000 Fleming Companies, Inc. 144A sr. sub. notes 10 1/2s, 2004 5,200
25,000 Ralphs Grocery Co. sr. notes 10.45s, 2004 28,156
5,000 Ralphs Grocery Co. company guaranty 10.45s, 2004 5,631
10,000 Southern Foods Group 144A sr. sub. notes 9 7/8s, 2007 10,400
10,000 Stater Brothers sr. notes 11s, 2001 11,050
25,000 Stater Brothers Holdings sr. sub. notes 9s, 2004 26,000
--------------
158,037
Health Care (--%)
- ------------------------------------------------------------------------------------------------------------
10,000 Genesis Eldercare 144A sr. sub. notes 9s, 2007 9,725
25,000 Genesis Health Ventures, Inc. sr. sub. notes 9 1/4s, 2006 25,313
20,000 Integrated Health Services, Inc. 144A sr. sub. notes 9 1/2s, 2007 20,200
20,000 Integrated Health Services, Inc. 144A sr. sub. notes 9 1/4s, 2008 19,950
30,000 Merit Behavioral Care sr. sub. notes 11 1/2s, 2005 34,800
40,000 Paragon Health Networks, Inc. 144A sr. sub. notes 9 1/2s, 2007 39,800
25,000 Quorum Health Group, Inc. sr. sub. notes 8 3/4s, 2005 25,750
255,000 Tenet Healthcare Corp. sr. notes 8s, 2005 257,550
5,000 Twin Laboratories, Inc. company guaranty 10 1/4s, 2006 5,400
--------------
438,488
Insurance and Finance (0.7%)
- ------------------------------------------------------------------------------------------------------------
470,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 442,082
245,000 AFC Capital Trust company guaranty Ser. B, 8.207s, 2027 268,839
130,000 Allstate Financing II company guaranty 7.83s, 2045 133,137
185,000 American General Institute 144A company guaranty 8 1/8s, 2046 199,095
5,000 Colonial Capital I company guaranty 8.92s, 2027 5,300
365,000 Conseco Inc. sr. notes 10 1/2s, 2004 435,146
10,000 Dine S.A. de C.V. 144A company guaranty 8 3/4s, 2007
(Luxembourg) 9,725
5,000 Dollar Financial Group, Inc. sr. notes Ser. A, 10 7/8s, 2006 5,325
10,000 Espirito Santo Centrais 144A sr. notes 10s, 2007 (Luxembourg) 9,600
490,000 Executive Risk Capital Trust company guaranty Ser. B,
8.675s, 2027 524,829
300,000 Finova Capital Corp. notes 9 1/8s, 2002 328,428
120,000 First Financial Caribbean Corp. sr. notes 7.84s, 2006 125,274
280,000 Firstar Capital Trust I company guaranty Ser. B, 8.32s, 2026 299,396
265,000 Greenpoint Bank sr. notes 6.7s, 2002 265,284
125,000 Greenpoint Capital Trust I company guaranty 9.1s, 2027 135,950
5,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 4,925
10,000 Intertek Finance PLC sr. sub. notes 10 1/4s, 2006 10,500
425,000 Lehman Bros Holdings, Inc. med. term notes 6.4s, 1999 425,714
260,000 Markel Capital Trust I 8.71s, 2046 275,600
1,250,000 Money Store, Inc. notes 8.05s, 2002 1,284,850
5,000 Netia Holdings B.V. 144A company guaranty 10 1/4s, 2007
(Poland) 4,738
10,000 North Fork Capital Trust I company guaranty 8.7s, 2026 10,769
10,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 10,750
125,000 Orange Cogen Funding 144A company guaranty 8.175s, 2022 133,363
100,000 Peoples Heritage Capital Trust company guaranty Ser. B,
9.06s, 2027 108,772
320,000 Phoenix Home Life Mutual Insurance Co. 144A notes
6.95s, 2006 323,040
5,000 Polytama International notes 11 1/4s, 2007 4,400
5,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 2003 5,278
10,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 10,466
400,000 Salomon, Inc. sr. notes 7.3s, 2002 410,112
220,000 Salton Sea Funding Corp. company guaranty Ser. E, 8.3s, 2011 238,821
335,000 Sampoerna International Finance Co. 144A company guaranty
8 3/8s, 2006 (Indonesia) 302,321
295,000 Sears, Roebuck Co., med. term notes 8.99s, 2012 356,531
495,000 Societe Generale 144A notes 7.85s, 2049 (France) 516,334
215,000 Southern Investments Service Co. sr. notes 6.8s, 2006
(United Kingdom) 215,585
165,000 State Development Bank of China notes 7 3/8s, 2007 (China) 163,530
530,000 Tig Capital Trust I 144A bonds 8.597s, 2027 566,867
315,000 Trenwick Capital Trust I company guaranty 8.82s, 2037 330,936
5,000 Vicap SA. 144A company guaranty 10 1/4s, 2002 (Mexico) 5,138
--------------
8,906,750
Medical Supplies and Devices (--%)
- ------------------------------------------------------------------------------------------------------------
15,000 ALARIS Medical, Inc. company guaranty 9 3/4s, 2006 15,825
25,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 27,938
10,000 Graphic Controls Corp. sr. sub. notes Ser. A, 12s, 2005 11,150
25,000 Imagyn Medical Technologies 12 1/2s, 2004 23,875
5,000 Kinetic Concepts, Inc. 144A sr. sub. notes 9 5/8s, 2007 5,038
60,000 Wright Medical Technology, Inc. notes Ser. C,
11 3/4s, 2000 60,900
--------------
144,726
Metals and Mining (0.1%)
- ------------------------------------------------------------------------------------------------------------
10,000 Anker Coal Group, Inc. 144A sr. notes 9 3/4s, 2007 10,050
10,000 Armco, Inc. sr. notes 9s, 2007 9,875
5,000 Continental Global Group sr. notes Ser. B, 11s, 2007 5,325
125,000 Freeport-McMoRan Copper & Gold Co., Inc. sr. notes
7 1/2s, 2006 123,721
20,000 Hylsa S.A. de C.V. 144A bonds 9 1/4s, 2007 (Mexico) 19,550
10,000 Maxxam Group Holdings, Inc. sr. notes Ser. B, 12s, 2003 10,800
190,000 Noranda, Inc. deb. 7s, 2005 (Canada) 192,134
221,000 PT Alatief Freeport sr. notes 9 3/4s, 2001 (Netherlands) 238,928
20,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 21,000
--------------
631,383
Oil and Gas (0.1%)
- ------------------------------------------------------------------------------------------------------------
10,000 Abraxas Petroleum Corp. sr. notes Ser. B, 11 1/2s, 2004 10,800
5,000 CIA Naviera Perez Companc S.A. 144A bonds 9s,
2004 (Argentina) 5,075
10,000 Coho Energy, Inc. sr. sub. notes 8 7/8s, 2007 9,975
25,000 Gulf Canada Resources, Ltd. sr. sub. notes 9 5/8s, 2005 (Canada) 27,125
205,000 Gulf Canada Resources, Ltd. sr. notes 8.35s, 2006 (Canada) 222,593
10,000 Panaco, Inc. 144A sr. notes 10 5/8s, 2004 9,950
10,000 Parker Drilling Corp. sr. notes Ser. B, 9 3/4s, 2006 10,700
175,000 Petro Geo-Services notes 7 1/2s, 2007 (Norway) 183,839
5,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 5,350
295,000 Saga Petroleum ASA deb. 7 1/4s, 2027 (Norway) 299,741
5,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 5,038
55,000 Transamerican Energy 144A sr. disc. notes stepped-coupon
zero % (13s 6/15/00), 2002 ++ 44,688
20,000 Transamerican Energy 144A sr. notes 11 1/2s, 2002 20,000
23,000 TransTexas Gas Corp. sr. sub. notes Ser. D, 13 3/4s, 2001 25,760
10,000 Trico Marine Services, Inc. company guaranty Ser. B, 8 1/2s, 2005 10,150
10,000 Trico Marine Services, Inc. 144A company guaranty Ser. C,
8 1/2s, 2005 10,075
--------------
900,859
Packaging and Containers (--%)
- ------------------------------------------------------------------------------------------------------------
5,000 Huntsman Packaging Corp. 144A sr. sub. notes 9 1/8s, 2007 5,138
10,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 9,850
10,000 Radnor Holdings Corp. 144A sr. notes Ser. B, 10s, 2003 10,300
5,000 Radnor Holdings, Inc. sr. notes 10s, 2003 5,175
--------------
30,463
Paper and Forest Products (--%)
- ------------------------------------------------------------------------------------------------------------
30,000 Domtar, Inc. deb. 9 1/2s, 2016 (Canada) 33,182
15,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 2003 16,050
151,000 Pindo Deli Finance Mauritius Ltd. 144A company guaranty
10 3/4s, 2007 (India) 139,675
20,000 PT Pabrik Kertas Tjiwi Kimia 144A company guaranty 10s,
2004 (Indonesia) 18,300
--------------
207,207
Patient Care (--%)
- ------------------------------------------------------------------------------------------------------------
30,000 Sun Healthcare Group, Inc. sr. sub. notes 9 1/2s, 2007 30,525
Pharmaceuticals (--%)
- ------------------------------------------------------------------------------------------------------------
10,000 ICN Pharmaceuticals, Inc. sr. notes 9 1/4s, 2005 10,500
Publishing (--%)
- ------------------------------------------------------------------------------------------------------------
10,000 American Media Operation, Inc. sr. sub. notes 11 5/8s, 2004 10,850
10,000 Garden State Newspapers 144A sr. sub. notes 8 3/4s, 2009 9,850
--------------
20,700
REITs (Real Estate Investment Trust) (0.2%)
- ------------------------------------------------------------------------------------------------------------
235,000 Chelsea GCA Realty, Inc. notes 7 1/4s, 2007 235,681
345,000 First Industrial Realty Trust, Inc. notes 7.6s, 2007 357,693
120,000 Health Care Property Investors, Inc. sr. notes 6 1/2s, 2006 118,438
585,000 National Health Investors, Inc. bonds 7.3s, 2007 596,688
510,000 OMEGA Healthcare Investors, Inc. notes 6.95s, 2007 502,595
10,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 10,650
205,000 Sun Communities, Inc. sr. notes 7 5/8s, 2003 213,280
15,000 Tanger Properties Ltd. Partnership gtd. notes 8 3/4s, 2001 15,583
--------------
2,050,608
Real Estate (0.1%)
- ------------------------------------------------------------------------------------------------------------
55,000 HMH Properties, Inc. company guaranty Ser. B, 8 7/8s, 2007 56,650
Recreation (--%)
- ------------------------------------------------------------------------------------------------------------
50,000 Coast Hotels & Casinos, Inc. company guaranty Ser. B, 13s, 2002 56,250
10,000 Empress River Casino sr. notes 10 3/4s, 2002 10,700
25,000 Lady Luck Gaming Corp. 1st mtge. 11 7/8s, 2001 25,500
25,000 Mohegan Tribal Gaming Auth. sr. notes Ser. B, 13 1/2s, 2002 32,125
25,000 Showboat Marina Casino 1st mtge. Ser. B, 13 1/2s, 2003 28,563
25,000 Sun International Hotels Ltd. company guaranty 9s, 2007 25,750
45,000 Trump A.C. 1st mtge. 11 1/4s, 2006 44,550
--------------
223,438
Retail (--%)
- ------------------------------------------------------------------------------------------------------------
10,000 Ameriserve Food Co. 144A sr. notes 8 7/8s, 2006 10,000
295,000 Federated Department Stores sr. notes 8 1/2s, 2003 319,627
25,000 Jitney-Jungle Stores company guaranty 12s, 2006 28,250
10,000 Johns Manville International Group sr. notes 10 7/8s, 2004 11,200
10,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 10,700
5,000 William Carter Co. 144A sr. sub. notes 12s, 2008 5,350
5,000 William Carter Co. sr. sub. notes Ser. A, 10 3/8s, 2006 5,175
10,000 Zale Corp. 144A sr. notes 8 1/2s, 2007 9,925
--------------
400,227
Satellite Services (--%)
- ------------------------------------------------------------------------------------------------------------
5,000 Echostar DBS Corp. 144A company guaranty 12 1/2s, 2002 5,319
10,000 Esat Holdings Ltd. sr. notes stepped-coupon zero %
(12 1/2s, 2/01/02), 2007 (Ireland) ++ 7,000
15,000 Globalstar L.P. Capital 11 3/8s, 2004 15,113
--------------
27,432
Specialty Consumer Products (--%)
- ------------------------------------------------------------------------------------------------------------
10,000 Coty Inc. gtd. sr. sub. notes 10 1/4s, 2005 10,675
5,000 GFSI, Inc. sr. sub. notes Ser. B, 9 5/8s, 2007 5,125
15,000 Herff Jones, Inc. sr. sub. notes 11s, 2005 16,275
--------------
32,075
Telecommunications (0.2%)
- ------------------------------------------------------------------------------------------------------------
10,000 Advanced Radio Telecom Corp. sr. notes 14s, 2007 9,500
15,000 American Communications Services, Inc. sr. disc. notes
stepped-coupon zero % (12 3/4s, 4/1/01), 2006 ++ 10,575
10,000 Antenna TV S.A. 144A sr. notes 9s, (Greece) 2007 9,800
10,000 Barak ITC 144A sr. disc. notes stepped-coupon zero %
(12 1/2s, 11/15/02), 2007 (Israel) ++ 5,525
25,000 Celcaribe S.A. sr. notes stepped-coupon zero %
(13 1/2s, 3/15/98), 2004 ++ 25,625
25,000 Cencall Communications Corp. sr. disc. notes stepped-coupon
zero % (10 1/8s, 1/15/99), 2004 ++ 21,844
10,000 Centennial Cellular Corp. sr. notes 8 7/8s, 2001 10,150
DEM 625,000 Colt Telecommunications Group PLC sr. notes 8 7/8s,
2007 (United Kingdom) 354,047
10,000 Comcast Cellular Holdings sr. notes Ser. B, 9 1/2s, 2007 10,350
175,000 Compania Telecom Chile notes 7 5/8s, 2006 (Chile) 180,157
10,000 Fonorola, Inc. sr. notes 12 1/2s, 2002 (Canada) 11,250
30,000 Fox Kids Worldwide, Inc. 144A sr. discount notes
stepped-coupon zero % (10 1/4s, 11/1/02), 2007 ++ 17,175
40,000 Fox Kids Worldwide, Inc. 144A sr. notes 9 1/4s, 2007 38,100
5,000 Frontiervision Operating Partners L.P. sr. sub. notes 11s, 2006 5,425
10,000 FWT, Inc. 144A sr. sub. notes 9 7/8s, 2007 10,025
25,000 Hyperion Telecommunication Corp. sr. disc. notes
stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 ++ 17,125
20,000 Hyperion Telecommunications, Inc. sr. notes Ser. B, 12 1/4s, 2004 21,400
25,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 ++ 20,000
35,000 Intelcom Group (USA), Inc. company guaranty
stepped-coupon zero % (12 1/2s, 5/1/01), 2006 ++ 25,725
20,000 Interact Systems, Inc. sr. disc. notes stepped-coupon zero %
(14s, 8/1/99), 2003 ++ 7,600
25,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 5/1/01), 2006 ++ 17,844
75,000 Intermedia Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 1/4s, 7/15/02), 2007 ++ 51,375
45,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B,
zero % (11 1/2s, 2/01/01), 2006 ++ 33,975
15,000 Iridium LLC/Capital Corp. company guaranty Ser. B, 14s, 2005 16,050
40,000 Iridium LLC/Capital Corp. 144A sr. notes 11 1/4s, 2005 38,700
5,000 ITC Deltacom, Inc. sr. notes 11s, 2007 5,363
5,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 5,400
665,000 LCI International, Inc. sr. notes 7 1/4s, 2007 681,552
10,000 McCaw International Ltd sr. discount notes stepped-coupon
zero % (13s, 4/15/02), 2007 ++ 5,875
15,000 McLeodUSA, Inc. sr. disc. notes stepped-coupon zero %
(10 1/2s, 3/1/02), 2007 ++ 10,275
5,000 Metronet Communications 144A sr. disc. notes
stepped-coupon zero % (10 3/4s, 2002), 2007 ++ 2,913
80,000 Millicom International Cellular S.A. sr. disc. notes stepped-
coupon zero % (13 1/2s, 6/1/01), 2006 (Luxembourg) ++ 58,400
15,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 17,138
50,000 NEXTEL Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (10.65s, 9/15/02), 2007 ++ 30,375
100,000 NEXTEL Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (9 3/4s, 10/31/02), 2007 ++ 57,750
65,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (9 3/4s, 2/15/99), 2004 ++ 56,063
15,000 Nextlink Communications sr. notes 12 1/2s, 2006 17,025
15,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 15,900
10,000 Orbcomm Global Capital Corp. sr. notes Ser. B, 14s, 2004 10,650
5,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 4,350
25,000 Paging Network, Inc. sr. sub. notes 10s, 2008 25,688
25,000 Pricellular Wireless Corp. sr. notes 10 3/4s, 2004 27,125
30,000 RCN Corp. Step 144A zero %
(11 1/8s,10/15/07), 2007 ++ 17,625
5,000 Sprint Spectrum L.P. sr. notes 11s, 2006 5,625
5,000 Sygnet Wireless, Inc. sr. notes 11 1/2s, 2006 5,350
25,000 Teleport Communications Group Inc. sr. disc. notes
stepped-coupon zero % (11 1/8s, 7/1/01), 2007 ++ 19,813
50,000 Teleport Communications Group, Inc. sr.notes 9 7/8s, 2006 55,000
5,000 Telesystem International Wireless Inc. 144A sr. disc. notes
stepped-coupon zero % (10 1/2s, 11/1/02), 2007 (Canada) ++ 2,725
30,000 Teligent, Inc. sr. notes 11 1/2s, 2007 30,000
15,000 Winstar Communications. Inc. 144A sr. sub. notes zero %, 2007 17,475
25,000 Winstar Equipment Corp. company guaranty 12 1/2s, 2004 27,250
795,000 WorldCom, Inc. notes 7 3/4s, 2007 845,920
--------------
3,027,967
Telephone Utilities (--%)
- ------------------------------------------------------------------------------------------------------------
20,000 BTI Telecom Corp. 144A sr. notes 10 1/2s, 2007 19,900
Textiles (--%)
- ------------------------------------------------------------------------------------------------------------
5,000 Glenoit Corp. 144A sr. sub. notes 11s, 2007 5,400
5,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 4,913
10,000 Polysindo International Finance company guaranty 11 3/8s,
2006 (Indonesia) 10,050
10,000 Tultex Corp. sr. notes 10 5/8s, 2005 10,825
--------------
31,188
Transportation (0.2%)
- ------------------------------------------------------------------------------------------------------------
5,000 Atlantic Express, Transportation Corp.144A company guaranty
10 3/4s, 2004 5,250
5,000 Blue Bird Body Co. sr. sub. notes Ser. B, 10 3/4s, 2006 5,325
325,000 Burlington Northern Santa Fe notes 6 3/8s, 2005 320,307
10,000 Consorcio/MCII Holdings sec. notes stepped-coupon zero %
(12s, 11/15/98), 2002 ++ 9,075
110,000 Continental Airlines pass thru cert. Ser. 97CI, 7.42s, 2007 113,535
315,000 CSX Corp. deb. 7.95s, 2027 351,291
35,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s, 2003 (Greece) 35,700
10,000 Hermes Europe Railtel 144A sr. notes 11 1/2s,
2007 (Netherlands) 10,950
10,000 International Shipholding Corp. sr. notes 9s, 2003 10,213
10,000 Johnstown America Industries, Inc. 144A sr. sub. notes
11 3/4s, 2005 10,875
20,000 Kitty Hawk, Inc. 144A sr. notes 9.95s, 2004 20,075
715,000 Norfolk Southern Corp. bonds 7.8s, 2027 786,822
610,000 Norfolk Southern Corp. bonds 7.05s, 2037 635,590
10,000 TFM S.A. de C.V. 144A company guaranty stepped-coupon
zero % (11 3/4s, 6/15/02), 2009 (Mexico) ++ 6,600
--------------
2,321,608
Utilities (0.4%)
- ------------------------------------------------------------------------------------------------------------
240,000 Arizona Public Service Co. sr. notes 6 3/4s, 2006 242,246
260,000 California Energy Corp. disc. notes 10 1/4s, 2005 284,076
195,000 Citizens Utilities Co. bonds 7.68s, 2034 221,325
140,000 CMS Energy Corp. sr. notes 8 1/8s, 2002 143,587
280,000 Connecticut Light & Power Co. 1st mtge. Ser. A, 7 7/8s, 2001 283,486
100,000 Edison Mission Energy 144A company guaranty 7.33s, 2008 103,761
303,000 EIP Funding-Public Service Co. of New Mexico deb.
10 1/4s, 2012 340,054
5,000 El Paso Electric Co. 1st mtge. Ser. D, 8.9s, 2006 5,434
385,000 El Paso Electric Co. 1st mtge. Ser. B, 7 3/4s, 2001 390,640
690,000 Enersis S.A. notes 7.4s, 2016 (Chile) 685,467
190,000 Enersis S.A. notes 6.6s, 2026 (Chile) 186,341
10,000 First PV Funding deb. 10.15s, 2016 10,720
215,000 Illinova Corp. sr. notes 7 1/8s, 2004 218,455
255,000 Israel Electric Corp., Ltd. 144A sr. notes 7 1/4s, 2006 (Israel) 258,202
101,415 Midland Funding Corp. I deb. 10.33s, 2002 110,719
10,000 Midland Funding Corp. II deb. Ser. A, 11 3/4s, 2005 11,955
20,000 Niagara Mohawk Power Corp. med. term notes 9.95s, 2000 20,079
79,696 Northeast Utilities System notes Ser. A, 8.58s, 2006 78,887
193,795 Northeast Utilities System notes Ser. B, 8.38s, 2005 193,928
250,000 Texas New-Mexico Power Utilities 1st mtge. 9 1/4s, 2000 265,135
400,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 412,612
345,000 Texas Utilities Electric Capital Trust V company guaranty
8.175s, 2037 361,118
590,000 US West Capital Funding, Inc. company guaranty 6.95s, 2037 600,237
--------------
5,428,464
--------------
Total Corporate Bonds and Notes (cost $36,861,885) $ 37,587,766
FOREIGN GOVERNMENT BONDS AND NOTES (0.5%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
USD 405,000 Argentina (Republic of) bonds Ser. PRE 1,
FRB 3.205s, 2001 $ 408,201
USD 311,000 Bank of Foreign Economic Affairs of Russia
(Vnesheconombank) FRN Libor plus 13/16s,
2020 + ## +++ 177,270
DEM 2,710,000 Germany (Federal Republic of) bonds Ser. 97,
6 1/2s, 2027 1,631,864
NZD 605,000 New Zealand (Government of) bonds 10s, 2002 415,554
NZD 2,470,000 New Zealand (Government of) bonds 8s, 2004 1,613,597
USD 626,000 Peru (Government of) 144A Ser. US, 4s, 2017 386,555
USD 195,000 Poland (Government of) deb. 3 1/4s, 2014 164,775
USD 1,050,000 Quebec (Province of) deb. Ser. NM, 7 1/8s, 2024 1,067,997
ZAR 10,740,000 South Africa (Republic of) bonds Ser. 153, 13s, 2010 2,039,870
--------------
Total Foreign Government Bonds and Notes
(cost $8,045,999) $ 7,905,683
CONVERTIBLE PREFERRED STOCKS (0.4%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
169,000 Freeport-McMoRan Copper Co., Inc. $1.75 cv. pfd. $ 3,855,313
200 Granite Broadcasting $1.938 cv. pfd. 9,600
31,000 K mart Financing $3.875 cv. pfd. 1,716,625
--------------
Total Convertible Preferred Stocks (cost $5,365,276) $ 5,581,538
COLLATERALIZED MORTGAGE OBLIGATIONS (0.2%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 135,363 Chase Mortgage Finance Corp. Ser. 93-3,
Class B13, 7.461s, 2024 $ 110,278
440,000 First Union Lehman Brothers 1997-c2 A3, 6.65s, June 18, 2008 440,000
209,810 GE Capital Mortgage Services, Inc. 144A Ser. 94-12, Class B3,
6s, March 25, 2009 189,551
Housing Securities Inc.
98,498 Ser. 91-B, Class B6, 9s, August 25, 2006 98,436
313,117 Ser. 93-F, Class F9M2, 7s, September 25, 2023 304,507
18,853 Ser. 93-J, Class J4, 6.66s, January 25, 2009 17,657
20,649 Ser. 93-J, Class J5, 6.66s, January 25, 2009 17,145
21,205 Ser. 94-1, Class AB1, 6 1/2s, March 25, 2009 19,661
Prudential Home Mortgage Securities 144A
52,461 Ser. 93-31, Class B2, 6s, August 25, 2000 43,612
90,113 Ser. 94-A, Class 4B, 7 1/2s, June 25, 2007 82,453
95,820 Ser. 94-D, Class B4, 6.312s, August 28, 2009 84,082
79,090 Ser. 92-25, Class B3, 8s +, August 15, 2022 76,297
89,202 Ser. 94-31, Class B3, 8s. November 25, 2009 89,006
294,822 Ser. 94-A, Class 4B, 6.802s, April 28, 2024 286,253
202,240 Ser. 94-D, Class 3B, 6.311s, August 28, 2009 189,600
305,499 Ser. 95-C, Class B1, 7.815s, October 28, 2001 305,164
454,278 Ser. 95-D, Class 5B, 7.54s, October 28, 2025 345,252
199,849 Ryland Mortgage Securities Corp. Ser. 94-7C, Class B2, 7.358s,
August 25, 2025 208,031
--------------
Total Collateralized Mortgage Obligations (cost $2,672,063) $ 2,906,985
CONVERTIBLE BONDS AND NOTES (0.2%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 5,000 APP Global Finance (V) Ltd. 144A cv. sec. 2s, 2000
(United Kingdom) $ 4,425
10,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 6,363
JPY 150,000,000 Toyota Motor Corp. cv. deb. 1.2s, 1998 (Japan) 2,248,004
25,000 Winstar Communications. Inc. 144A cv. sr. disc. notes
stepped-coupon zero % (14s, 10/15/00), 2005 ++ 26,500
--------------
Total Convertible Bonds and Notes (cost $1,715,433) $ 2,285,292
BRADY BONDS (0.1%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 3,780 Argentina (Republic of) deb. FRB 6.688s, 2005 $ 3,341
4,420 Brazil (Government of) Ser. EI-L, FRB 6.688s, 2006 3,740
476,000 Philippines (Government of) Ser. B, FRB 6 1/4s, 2017 397,460
415,000 United Mexican States Ser. C, FRB 6.820s, 2019 378,169
--------------
Total Brady Bonds (cost $802,697) $ 782,710
MUNICIPAL BONDS AND NOTES (--%) * (cost $355,000)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 355,000 NJ Econ. Dev. Auth. Rev. Bonds, Ser. A, MBIA
7.425s, 2/15/29 Aaa $ 385,580
PREFERRED STOCKS (--%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
1 American Radio Systems, Inc. $11.375 pfd. $ 120
137 Cablevision Systems Corp. Ser. M, $11.125 dep. shs. pfd. [2 DBL. DAGGERS] 15,687
153 Chancellor Media Corp. $12.00 pfd. [2 DBL. DAGGERS] 18,054
100 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. 5,100
150 Citadel Broadcasting, Inc. 144A $13.25 17,250
10 Echostar Communications Corp. 144A 12.125% 10,275
272 El Paso Electric Co. $11.40 pfd [2 DBL. DAGGERS] 29,920
15 Fresenius Medical Care AG Ser. D, 9% pfd. (Germany) 15,637
25 Intermedia Communication Ser. B, 13.50% pfd. 29,750
358 Nextlink Communications, Inc. $7.00 pfd. 21,480
292 Public Service Co. of New Hampshire $2.65 1st mtge. pfd. 7,446
335 SFX Broadcasting, Inc. Ser. E, $12.625 pfd. [2 DBL. DAGGERS] 39,530
10 Spanish Broadcasting Systems 14.25% cum. pfd. 10,600
50 Time Warner, Inc. Ser. M, 10.25% pfd. 57,000
--------------
Total Preferred Stocks (cost $261,430) $ 277,849
UNITS (--%) *
NUMBER OF UNITS VALUE
- ------------------------------------------------------------------------------------------------------------
70 Cellnet Data Systems, Inc. 144A units stepped-coupon zero %
(14s, 10/01/02), 2007 ++ $ 35,558
10 Club Regina Resorts, Inc.144A units 10,000
10 Colt Telecommunications Group PLC units stepped-coupon
zero % (12s, 12/15/01), 2006 (United Kingdom) ++ 7,650
10 Conecel Holdings 144A units 14s, 2000 10,000
25 Fitzgerald Gaming Co. units 13s, 2002 25,250
25 Knology Holdings, Inc. 144A units stepped-coupon
zero % (11 7/8s, 2002), 2007 ++ 12,875
5 Stone Container Corp. units sr. sub. 12 1/4s, 2002 5,188
--------------
Total Units (cost $93,597) $ 106,521
WARRANTS (--%) +* EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- ------------------------------------------------------------------------------------------------------------
150 Advanced Radio Telecommunications 2/15/07 $ 1,872
10 Esat Holdings, Inc. (Ireland) 1/1/04 350
15 Globalstar Telecom 144A 2/15/04 1,800
25 Hyperion Telecommunications 4/15/01 1,500
20 Interact Systems, Inc. 8/1/03 5
25 Intermedia Communications 6/1/00 1,875
10 McCaw International Ltd. 4/15/07 3
335 Nextlink Communications, Inc. 144A 2/1/09 3
10 Spanish Broadcasting Systems 144A 6/30/99 2,350
10 Sterling Chemicals Holdings 8/15/08 380
25 Urohealth Systems, Inc. 144A 4/10/04 125
--------------
Total Warrants (cost $8,691) $ 10,263
PURCHASED OPTIONS OUTSTANDING (--%)* (COST $7,630)
EXPIRATION
CONTRACT DATE/
AMOUNT STRIKE PRICE VALUE
- ------------------------------------------------------------------------------------------------------------
$ 1,400,000 U.S. Dollars in exchange for Japanese Yen (put) Dec 97/
121.22 JPY $ 630
SHORT-TERM INVESTMENTS (3.9%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
25,000,000 Fed Home Loan Mortgage Corp. 5.41s,
12/10/97 $ 24,966,187
TRL 63,480,000,000 Turkey Treasury bills zero %, September 16, 1998 166,807
TRL 80,840,000,000 Turkey Treasury bills zero %, July 29, 1998 232,538
TRL 27,994,000,000 Turkey Treasury bills zero %, June 4, 1998 224,615
27,994,000 Interest in $453,820,000 joint repurchase agreement
dated November 28, 1997 with JP Morgan due
December 1, 1997 with respect to various
U.S. Treasury obligations -- maturity value of
$28,007,227 for an effective yield of 5.67% 28,007,227
--------------
Total Short-Term Investments (cost $53,597,374) $ 53,597,374
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,176,334,602) *** $1,395,303,259
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------
Forward Currency Contracts to Buy at November 30, 1997
(aggregate face value $14,583,553)
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deutschemarks $5,465,129 $5,483,262 12/17/97 $(18,133)
Indonesian Rupiah 1,024,686 1,043,298 12/17/97 (18,612)
Italian Lira 1,930,768 1,899,105 12/17/97 31,663
Japanese Yen 2,678,599 2,855,979 12/17/97 (177,380)
Mexican Peso 120,171 116,055 5/12/98 4,116
Mexican Peso 149,171 145,068 5/11/98 4,103
Philippines Peso 215,212 221,630 3/25/98 (6,418)
Polish Zolty 317,611 339,919 6/5/98 (22,308)
Swedish Krona 1,701,437 1,728,987 12/17/97 (27,550)
Swiss Franc 408,084 400,621 12/17/97 7,463
Venezuelan Bolivar 81,376 82,582 6/19/98 (1,206)
Venezuelan Bolivar 268,653 267,047 6/5/98 1,606
- ----------------------------------------------------------------------------------------
$(222,656)
- ----------------------------------------------------------------------------------------
<CAPTION>
Forward Currency Contracts to Sell at November 30, 1997
(aggregate face value $18,119,885)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
British Pounds $ 74,932 $ 70,381 6/5/98 $ (4,551)
Deutschemarks 6,828,873 6,880,982 12/17/97 52,109
Deutschemarks 262,962 254,409 6/5/98 (8,553)
Italian Lira 1,982,455 1,944,615 12/17/97 (37,840)
Japanese Yen 3,010,168 3,130,178 12/17/97 120,010
Japanese Yen 1,199,291 1,515,878 1/28/98 316,587
New Zealand Dollar 2,065,885 2,121,900 12/17/97 56,015
South African Rand 1,746,459 1,770,904 12/17/97 24,445
Swiss Franc 437,660 430,638 12/17/97 (7,022)
- ----------------------------------------------------------------------------------------
$511,200
- ----------------------------------------------------------------------------------------
<CAPTION>
Futures Contracts Outstanding at November 30, 1997
Unrealized
Aggregate Face Expiration Appreciation/
Total Value Value Date (Depreciation)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
US Treasury Notes
10-Yr (long) $1,559,250 $1,560,282 Mar-98 $ (1,032)
US Treasury Notes
5-Yr (short) 7,458,469 7,467,984 Mar-98 9,515
US Treasury Bonds
20-Yr (long) 6,546,719 6,539,844 Mar-98 6,875
- ----------------------------------------------------------------------------------------
$15,358
- ----------------------------------------------------------------------------------------
<CAPTION>
TBA Sales Commitments at November 30, 1997
(proceeds receivable $1,644,623)
Settlement Market
Agency Principal Amount Date Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
FNMA, 8.5s, December 2027 $1,571,000 11/21/97 $1,643,156
- ----------------------------------------------------------------------------------------
<CAPTION>
Written Options Outstanding at November 30, 1997
(premium received $15,249)
Expiration Date/ Market
Contract Amount Strike Price Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
$2,400,000 Deutschemarks in exchange for Japanese Yen Dec. 97/JPY 74.55 $3,604
- ----------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $1,391,156,103.
*** The aggregate identified cost on a tax basis is $1,176,892,377, resulting in gross
unrealized appreciation and depreciation of $236,593,778 and $18,182,896, respectively,
or net unrealized appreciation of $218,410,882.
+ Non-income-producing security.
++ The interest rate and date shown parenthetically represent the new interest rate to be
paid and the date the fund will begin receiving interest at this rate.
++++ Income may be received in cash or additional securities at the discretion of the issuer.
+++ A portion of the income will be received in additional securities.
# A portion of this security was pledged and segregated with the custodian to cover margin
requirements for futures contracts at November 30,1997.
## When-issued securities (Note 1).
[UPSIDE DOWN DELTA] This entity provides subcustodian services to the fund.
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 after the name of a foreign holding stands for American Depository Receipts,
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).
The rate shown on Floating Rate Bonds and Floating Rate Notes are the current interest
rates shown at November 30, 1997, which are subject to change based on the terms of
the security.
The fund had the following industry group concentrations greater than 10% at November
30, 1997 (as a percentage of net assets):
Insurance and Finance 19.0%
Utilities 11.9
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1997
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $1,176,334,602) (Note 1) $1,395,303,259
- ---------------------------------------------------------------------------------------------------
Cash 1,273,845
- ---------------------------------------------------------------------------------------------------
Foreign currency (cost $409,336) 410,155
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 4,055,767
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 3,747,452
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 9,797,970
- ---------------------------------------------------------------------------------------------------
Receivable for variation margin 93,445
- ---------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 733,320
- ---------------------------------------------------------------------------------------------------
Total assets 1,415,415,213
Liabilities
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 100,840
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 17,631,146
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 705,078
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,916,137
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 295,748
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 12,079
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,310
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 790,008
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 444,776
- ---------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 475,402
- ---------------------------------------------------------------------------------------------------
Written options outstanding, at value (premiums received $15,249) (Note 3) 3,604
- ---------------------------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable $1,644,623) (Note 1) 1,643,156
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 237,826
- ---------------------------------------------------------------------------------------------------
Total liabilities 24,259,110
- ---------------------------------------------------------------------------------------------------
Net assets $1,391,156,103
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,101,277,386
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 1,263,288
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency
transactions (Note 1) 69,352,230
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and liabilities
in foreign currencies 219,263,199
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $1,391,156,103
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($878,766,115 divided by 54,773,735 shares) $16.04
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $16.04)* $17.02
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($463,505,952 divided by 29,065,077 shares)** $15.95
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($48,884,036 divided by 3,062,970 shares) $15.96
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $15.96)* $16.54
- ---------------------------------------------------------------------------------------------------
* 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
Year ended November 30, 1997
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $110,029) $ 25,358,615
- --------------------------------------------------------------------------------------------------
Interest 8,181,679
- --------------------------------------------------------------------------------------------------
Total investment income 33,540,294
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 6,510,272
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,914,454
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 26,334
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 17,504
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,807,509
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 3,444,973
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 277,108
- --------------------------------------------------------------------------------------------------
Reports to shareholders 77,052
- --------------------------------------------------------------------------------------------------
Registration fees 113,708
- --------------------------------------------------------------------------------------------------
Auditing 42,771
- --------------------------------------------------------------------------------------------------
Legal 15,707
- --------------------------------------------------------------------------------------------------
Postage 144,114
- --------------------------------------------------------------------------------------------------
Other 77,461
- --------------------------------------------------------------------------------------------------
Total expenses 14,468,967
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (468,763)
- --------------------------------------------------------------------------------------------------
Net expenses 14,000,204
- --------------------------------------------------------------------------------------------------
Net investment income 19,540,090
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 119,886,848
- --------------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (51,021)
- --------------------------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 15,420
- --------------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (488,142)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year 198,868
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures,
written options, and TBA sale commitments during the year 86,245,218
- --------------------------------------------------------------------------------------------------
Net gain on investments 205,807,191
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $225,347,281
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended November 30
--------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 19,540,090 $ 14,644,060
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 119,363,105 59,990,004
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 86,444,086 65,236,825
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 225,347,281 139,870,889
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
- ----------------------------------------------------------------------------------------------------------------------
Class A (13,929,347) (12,084,890)
- ----------------------------------------------------------------------------------------------------------------------
Class B (4,359,159) (2,607,143)
- ----------------------------------------------------------------------------------------------------------------------
Class M (540,928) (271,912)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 374,993,087 202,489,950
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 581,510,934 327,396,894
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 809,645,169 482,248,275
- ----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $1,263,288 and $813,615, respectively) $1,391,156,103 $809,645,169
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ----------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended November 30
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.29 $10.93 $8.49 $8.67 $7.72
- ----------------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income .30 .31 .32 .32 .28
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 2.74 2.37 2.44 (.18) 1.01
- ----------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.04 2.68 2.76 .14 1.29
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------------------
From net
investment income (.29) (.32) (.32) (.32) (.31)
- ----------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- -- (.03)
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.29) (.32) (.32) (.32) (.34)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.04 $13.29 $10.93 $8.49 $8.67
- ----------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 23.15 24.96 33.17 1.59 17.06
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $878,766 $566,133 $391,551 $304,124 $328,251
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.06 1.09 1.13 1.04 1.16
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.02 2.61 3.32 3.67 3.40
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 82.48 67.56 70.39 82.49 125.85(d)
- ----------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (e) $.0511 $.0509
- ----------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(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 expense offset and brokerage service arrangements. Prior period ratios
exclude these amounts. (Note 2).
(c) Per share net investment has been determined on the basis of the weighted average number
of shares outstanding during the period.
(d) Portfolio turnover excludes the impact of assets received from the Putnam Equity Income Fund,
formerly known as Putnam Total Return Fund.
(e) Average commission rate paid on security trades is presented for fiscal periods beginning on or after
September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- -------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Sept. 13, 1993+
operating performance Year ended November 30 to Nov. 30
- -------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.23 $10.89 $8.46 $8.65 $8.66
- -------------------------------------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------------------------------------
Net investment income .19 .21 .23 .26 .06(c)
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 2.73 2.37 2.46 (.18) (.07)
- -------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.92 2.58 2.69 .08 (.01)
- -------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------------------
From net
investment income (.20) (.24) (.26) (.27) --
- -------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Total distributions (.20) (.24) (.26) (.27) --
- -------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $15.95 $13.23 $10.89 $8.46 $8.65
- -------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 22.24 24.06 32.30 .86 (.12)*
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $463,506 $221,259 $83,646 $32,114 $14,800
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.81 1.84 1.87 1.78 .44*
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.25 1.86 2.63 3.02 .55*
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 82.48 67.56 70.39 82.49 125.85(d)
- -------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (e) $.0511 $.0509
- -------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(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 expense offset and brokerage service arrangements. Prior period ratios
exclude these amounts. (Note 2).
(c) Per share net investment has been determined on the basis of the weighted average number
of shares outstanding during the period.
(d) Portfolio turnover excludes the impact of assets received from the Putnam Equity Income Fund,
formerly known as Putnam Total Return Fund.
(e) Average commission rate paid on security trades is presented for fiscal periods beginning on or after
September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ----------------------------------------------------------------------------------------------------------------
For the period
Per-share Dec. 2, 1994+
operating performance Year ended November 30 to Nov. 30
- ----------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $13.23 $10.89 $8.45
- ----------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------
Net investment income .23 .25 .28 (c)
- ----------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 2.73 2.36 2.45
- ----------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.96 2.61 2.73
- ----------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------
From net
investment income (.23) (.27) (.29)
- ----------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- --
- ----------------------------------------------------------------------------------------------------------------
Total distributions (.23) (.27) (.29)
- ----------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $15.96 $13.23 $10.89
- ----------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 22.58 24.35 32.89*
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $48,884 $22,254 $7,051
- ----------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.56 1.59 1.60*
- ----------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.50 2.11 2.99*
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 82.48 67.56 70.39
- ----------------------------------------------------------------------------------------------------------------
Average commission
rate paid (e) $.0511 $.0509
- ----------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(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 expense offset and brokerage service arrangements. Prior period ratios
exclude these amounts. (Note 2).
(c) Per share net investment has been determined on the basis of the weighted average number
of shares outstanding during the period.
(d) Portfolio turnover excludes the impact of assets received from the Putnam Equity Income Fund,
formerly known as Putnam Total Return Fund.
(e) Average commission rate paid on security trades is presented for fiscal periods beginning on or after
September 1, 1995.
</TABLE>
Notes to financial statements
November 30, 1997
Note 1
Significant accounting policies
Putnam Equity Income Fund (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. 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 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 and certain other accounts managed by Putnam Investment
Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc. These balances may be invested in one
or more repurchase agreements and/or short-term money market instruments.
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 discount bonds,
stepped-coupon bonds and payment in kind bonds are accreted according to the
effective yield method.
Securities purchased or sold on a when-issued basis may be settled a month or
more after the trade date; interest income is accrued based on the terms of
the security. Losses may arise due to changes in the market value of the
underlying securities or if the counterparty does not perform under the
contract.
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 gains and losses 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 appreciation and
depreciation of assets and liabilities in foreign currencies 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 current 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) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund owns
or expects to purchase. The fund may also write options on securities it owns
or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of the
underlying instruments, if there is an illiquid secondary market for the
contracts, or if the counterparty to the contract is unable to perform. 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. Realized gains and losses on purchased
options are included in realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices established
by the exchange on which they trade. Exchange traded options are valued at the
last sale price, or if no sales are reported, the last bid price for purchased
options and the last ask price for written options. Options traded
over-the-counter are valued using prices supplied by dealers.
H) TBA purchase commitments The fund may enter into "TBA" (to be announced)
purchase commitments to purchase securities for a fixed unit price at a future
date beyond customary settlement time. Although the unit price has been
established, the principal value has not been finalized. However, the amount
of the commitments will not fluctuate more than 1.0% from the principal
amount. The fund holds, and maintains until settlement date, cash or
high-grade debt obligations in an amount sufficient to meet the purchase
price, or the fund may enter into offsetting contracts for the forward sale of
other securities it owns. Income on the securities will not be earned until
settlement date. TBA purchase commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in the value of the fund's other assets. Unsettled TBA
purchase commitments are valued at the current market value of the underlying
securities, according to the procedures described under "Security valuation"
above.
Although the fund will generally enter into TBA purchase commitments with the
intention of acquiring securities for their portfolio or for delivery pursuant
to options contracts it has entered into, the fund may dispose of a commitment
prior to settlement if Putnam Management deems it appropriate to do so.
I) TBA sale commitments The fund may enter into TBA sale commitments to hedge
its portfolio positions or to sell mortgage-backed securities it owns under
delayed delivery arrangements. Proceeds of TBA sale commitments are not
received until the contractual settlement date. During the time a TBA sale
commitment is outstanding, equivalent deliverable securities, or an offsetting
TBA purchase commitment deliverable on or before the sale commitment date, are
held as "cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of the
underlying securities, generally according to the procedures described under
"Security valuation" above. The contract is "marked-to-market" daily and the
change in market value is recorded by the fund as an unrealized gain or loss.
If the TBA sale commitment is closed through the acquisition of an offsetting
purchase commitment, the fund realizes a gain or loss. 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.
J) Line of credit The fund has entered into a committed line of credit with
certain banks. This line of credit agreement includes restrictions that the
fund maintain an asset coverage ratio of at least 300% and borrowings must not
exceed prospectus limitations. For the year ended November 30, 1997, the fund
had no borrowings against the line of credit.
K) 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, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
L) 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 at
least 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. These differences include temporary
and permanent differences of losses on wash sale transactions, foreign
currency gains and losses, non-taxable dividends, and market discount.
Reclassifications are made to the fund's capital accounts to reflect income
and gains available for distribution (or available capital loss carryovers)
under income tax regulations. For the year ended November 30, 1997, the fund
reclassified $260,983 to decrease undistributed net investment income and
$48,723 to decrease paid-in-capital, with an increase to accumulated net
realized gain on investments of $309,706. The calculation of net investment
income per share in the financial highlights table excludes these adjustments.
Note 2
Management fees, 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: 0.65% 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% thereafter.
The fund reimburses Putnam Management an allocated amount 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.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the year ended November 30, 1997, fund expenses were reduced by $468,763
under expense offset arrangements with PFTC. 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.
Each Trustee of the fund receives an annual Trustee fee, of which $1,200 has
been allocated to the fund, 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 has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund and are
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of Trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
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 0.35%, 1.00% and 1.00% of the average net assets
attributable to class A, class B and class M shares, respectively. The
Trustees currently limit payment by the fund to an annual rate of 0.25%, 1.00%
and 0.75% of the average net assets attributable to class A, class B and class
M shares respectively.
For the year ended November 30, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $679,769 and $39,981 from the sale of
class A and class M shares, respectively and $453,186 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 November 30, 1997, Putnam Mutual Funds Corp., acting as underwriter
received $9,171 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended November 30, 1997, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $1,239,993,255 and $863,143,998, respectively. Purchases and sales
of U.S. government obligations aggregated $12,458,545,510 and $12,450,909,201,
respectively. In determining the net gain or loss on securities sold, the cost
of securities has been determined on the identified cost basis.
Written option transactions during the year are summarized as follows:
Contract Premiums
Amounts Received
- ------------------------------------------------------------
Written options
outstanding at
beginning of year $-- $--
- ------------------------------------------------------------
Options opened 3,942,000 231,966
- ------------------------------------------------------------
Options expired -- --
- ------------------------------------------------------------
Options closed (1,542,000) (216,717)
- ------------------------------------------------------------
Written options
outstanding at
end of year 2,400,000 15,249
- ------------------------------------------------------------
Note 4
Capital shares
At November 30, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended
November 30, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 23,424,260 $341,520,121
- ------------------------------------------------------------
Reinvestment
of distributions 772,535 11,185,040
- ------------------------------------------------------------
24,196,795 352,705,161
Shares
repurchased (12,018,914) (175,195,821)
- ------------------------------------------------------------
Net increase 12,177,881 $177,509,340
- ------------------------------------------------------------
Year ended
November 30, 1996
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 11,955,031 $143,244,258
- ------------------------------------------------------------
Reinvestment
of distributions 781,164 9,134,877
- ------------------------------------------------------------
12,736,195 152,379,135
Shares
repurchased (5,970,798) (70,796,533)
- ------------------------------------------------------------
Net increase 6,765,397 $81,582,602
- ------------------------------------------------------------
Year ended
November 30, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 21,610,564 $312,136,112
- ------------------------------------------------------------
Reinvestment
of distributions 258,530 3,731,249
- ------------------------------------------------------------
21,869,094 315,867,361
Shares
repurchased (9,531,821) (137,987,600)
- ------------------------------------------------------------
Net increase 12,337,273 $177,879,761
- ------------------------------------------------------------
Year ended
November 30, 1996
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 12,982,383 $155,817,526
- ------------------------------------------------------------
Reinvestment
of distributions 186,237 2,182,469
- ------------------------------------------------------------
13,168,620 157,999,995
Shares
repurchased (4,120,485) (49,459,134)
- ------------------------------------------------------------
Net increase 9,048,135 $108,540,861
- ------------------------------------------------------------
Year ended
November 30, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 2,338,352 $33,895,325
- ------------------------------------------------------------
Reinvestment
of distributions 33,951 492,595
- ------------------------------------------------------------
2,372,303 34,387,920
Shares
repurchased (990,948) (14,783,934)
- ------------------------------------------------------------
Net increase 1,381,355 $19,603,986
- ------------------------------------------------------------
Year ended
November 30, 1996
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 1,124,338 $13,449,727
- ------------------------------------------------------------
Reinvestment
of distributions 21,224 249,407
- ------------------------------------------------------------
1,145,562 13,699,134
Shares
repurchased (111,291) (1,332,647)
- ------------------------------------------------------------
Net increase 1,034,271 $12,366,487
- ------------------------------------------------------------
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund *
International New Opportunities Fund
Investors Fund
New Opportunities Fund +
OTC & Emerging Growth Fund [DBL. DAGGERS]
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
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
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 Total Return Fund
High Yield Trust +
Income Fund
Money Market 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 Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK]
California, New York
LIFESTAGESM FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Overseas Growth Fund
+ Closed to new investors. Some exceptions may apply. Contact Putnam
for details.
[DBL. DAGGERS] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** An investment in a money market fund is neither insured nor
guaranteed by the U.S. government. These funds are managed to maintain a
price of $1.00 per share, although there is no assurance that this price
will be maintained in the future.
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.
Federal tax information
(Unaudited)
Pursuant to section 852 of the Internal Revenue Code, the Fund hereby
designates $69,925,364 as capital gain for its taxable year ended November
30, 1997.
The fund has designated 100% of the distributions from net investment income
as qualifying for the dividends received deduction for corporations.
The Form 1099 you receive in January 1998 will show the tax status of all
distributions paid to your account in calendar 1997.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Thomas V. Reilly
Vice President
Edward P. Bousa
Vice President and Fund Manager
Kenneth J. Taubes
Vice President and Fund Manager
Robert M. Paine
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. You can also learn more at Putnam
Investments' website: http://www.putnaminv.com.
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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
AN020-012/192/626 36881 1/98
