Putnam
Equity
Income
Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
5-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The dedication of Putnam Equity Income Fund's management team to the
fund's investment style assumed a brighter glow toward the midpoint of
fiscal 1999. In April and May, the type of value stocks in which the fund
invests took a positive turn with a favorable effect on performance during
the semiannual period.
The shift was a long time in coming. As the fund's managers explain in the
following report, prices of these stocks had lagged those of growth stocks
since early 1997. A management team less committed to style consistency
might have yielded to the temptation to switch to the better-performing
stocks in hopes of capturing short-term gains.
Experience has shown us, however, that over the long haul such maneuvers
often prove to be illusory. While one can never count past performance as
a guarantee of future results, the fund's record of solid growth to date
tends to confirm the efficacy of Putnam's longstanding investment
discipline. The managers provide greater detail of the fund's performance
during the six months ended May 31, 1999, and then offer their views on
the outlook for the fiscal year's second half.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
July 21, 1999
Report from the Fund Managers
Edward P. Bousa
James M. Prusko
David L. Waldman
Krishna Memani
Rekindled interest in the value stocks that make up Putnam Equity Income
Fund's portfolio helped the fund post solid results during the six months
ended May 31, 1999. Following an easing of monetary policy in the United
States, which was echoed in other developed nations, stock prices rallied
to approach the high levels of last summer. Much of the strength was
restricted to a small group of growth stocks that have dominated the
market in recent years.
In April and May, however, the types of value stocks in which your fund
invests began to assume the lead. The continued strength of the U.S.
economy and signs of improving economic conditions in Asia helped propel
this long-awaited recovery. While the resurgence of value stocks brings
with it a new set of challenges, your fund has benefited from this
changing environment and is off to a strong start for fiscal 1999.
Total return for 6 months ended 5/31/99
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- -------------------------------------------------------------------------
10.89% 4.53% 10.49% 5.50% 10.53% 9.54% 10.62% 6.75%
- -------------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
* RETURNS FOR VALUE STOCKS ON RISE
Since early 1997, when it seemed that the earnings of value stocks would
suffer because of slower economic growth in many regions of the world, a
small group of companies with high rates of earnings growth led the market
and value stocks lagged behind. In April and May, we saw signs that
undervalued stocks in general could be poised for a comeback. A broader
range of undervalued stocks and somewhat smaller companies began to show
improved performance.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Insurance and
finance 21.5%
Utilities 12.6%
Oil and gas 9.9%
Food and
beverages 4.1%
Chemicals 4.0%
Footnote reads:
*Based on net assets as of 5/31/99. Holdings will vary over time.
Although your fund invests primarily in stocks of domestic companies, many
of these companies have achieved success in their industries by building
global operations. This approach, while attractive as a long-term
strategy, has reduced profits of many of these companies during the past
two years because of recessions in different regions of the world.
Companies in sectors with strong growth rates, such as technology and
pharmaceuticals, have achieved handsome profits despite the global
economic slowdown. In addition, oil prices began a precipitous rise in
early 1999. As might be expected, this rise increased the appeal of energy
stocks, including those held by your fund. For example, the fund benefited
from its investments in Mobil and Halliburton BP/Amoco. The latter was
sold at a profit during the period.
By late March and early April, a strong rally in the energy and basic
materials sectors was under way, punctuated by an agreement among OPEC
nations to reduce petroleum production and support oil prices. In April
and May, indications of stronger economic growth in Asia and continuing
strength in the U.S. economy created strong demand for undervalued stocks
in many sectors, such as industrial cyclicals.
* BUYING OPPORTUNITIES LEAD TO FOCUS ON CYCLICAL STOCKS
The elevated level of volatility in equity markets during the period
provided many buying opportunities -- just the type of situation that your
fund's value strategy is designed to employ opportunistically. We were
able to purchase stocks of large, established companies at attractive
prices, taking advantage of pessimism in many industrial sectors to add
new holdings.
"[Fund Manager Edward] Bousa looks for undervalued stocks with some catalyst
for positive change in their fundamentals. He favors those stocks with strong
dividend yields, which along with the fund's bond stake, help meet the fund's
primary objective of providing current income. Bousa's value-bent and sizable
bond stakes have also bred well-below-average volatility -- the fund is one of
the least-volatile offerings in this category."
- -- Morningstar Mutual Funds, April 4, 1999
In particular, earnings forecasts for commodity sectors were exceptionally
low. As a result, the fund added substantial positions in industrial
cyclical stocks whose fortunes tend to rise and fall with the economic
cycle. Examples included Alcoa, DuPont, Meade, and Weyerhaeuser as well as
other companies in the chemical, paper, and aluminum industries. While
these holdings, 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 strategy
and may vary in the future.
We were also drawn to consumer cyclicals such as automotive, building
materials, appliances, and newspaper stocks during the period. One
particularly appealing opportunity was found in the toy industry, which
after considerable consolidation is now dominated by two companies, Hasbro
and Mattel. Both companies appear close to making their products available
over the Internet, a development that could dramatically increase their
profitability. We also made some purchases in the insurance industry,
investing in such companies as Unum, Chubb, Ace, and Safeco.
With every period come some disappointments, and for this most recent six
months, food stocks and utilities proved to be among the fund's laggards.
These sectors fell out of favor because their defensive, low-growth
characteristics were less appealing to investors hoping to take advantage
of a market that was rebounding from a significant tumble. Airline stocks
such as Delta and UAL (the holding company of United Airlines) performed
well for your fund earlier in the period as they maintained both pricing
and sales levels despite last fall's more pessimistic projections. Airline
stocks gave back some of their gains in May, however, leading us to reduce
the fund's weighting in this industry.
Making the case for value investing in the months ahead
Putnam Equity Income Fund's lead manager, Edward Bousa, was featured in a
cover article in the June 14, 1999, issue of Barron's. Here are excerpts
from the interview.
"Value stocks now have a level playing field. Many are amazingly cheap. If you
go back far enough, you'll see that historically, value outperforms growth. We
have a decent chance to do the same. Of course, markets are fickle and you'll
see a quarter here, a quarter there where things don't happen exactly as you
expect. But I do expect over the next few years that value does have a long
way to go."
"We are in interesting times, which favor funds and organizations with
thorough research and the ability to identify stocks, not just themes. We've
had so much theme investing recently that it's about time we have truly
bottom-up stock picking for a change."
Putnam Equity Income Fund's class A shares were ranked in the top 28% by
Lipper for the 1-year period ended 6/30/99. The fund ranked 66 out of 237
domestic equity income funds ranked.
Past performance is not indicative of future results. Lipper is an industry
research firm whose rankings are based on total return performance, vary over
time, and do not reflect the effects of sales charges. Performance of other
share classes will vary. The fund was ranked 7 out of 96 funds (8%) for the
5-year period and 19 out of 44 (43%) for the 10-year period. Performance of
other share classes will vary.
* OUTLOOK: VALUE TREND SUPPORTED BY POSITIVE FUNDAMENTALS
As we look ahead, there is reason for optimism that your fund's value
style of investing may be particularly timely. Indications of strong
economic growth in the United States and an improving outlook for Europe
and Asia could provide stronger revenues for many of the large, globally
diversified companies in which the fund invests. In addition, the
regulatory environment for the fund's electric and telephone utility
holdings has started to improve.
Of course, because the fund's recent returns have been greater than the
long-term performance of most equities, it would not be surprising if
gains were to moderate in the coming year. Current market valuations
reflect significant confidence that the market will continue to rise for a
long time. Whether the fund's investment style is in favor or not,
however, it is important to remember that its emphasis on undervalued
stocks is a method of limiting volatility. Because most of the fund's
holdings pay dividends and do not carry inflated expectations, they tend
to be insulated from the market's most severe movements. With this
disciplined value investment process in place, your fund is positioned to
achieve attractive current income and risk-adjusted capital appreciation
over long periods.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 5/31/99, there is no guarantee the fund will
continue to hold these securities in the future.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Bank of America Corp.
Insurance and finance
Citigroup, Inc.
Insurance and finance
Exxon Corp.
Oil and gas
GTE Corp.
Utilities
Mobil Corp
Oil and gas
American Telephone &
Telegraph Co.
Utilities
Bank One Corp.
Insurance and finance
Ameritech Corp.
Utilities
Bristol-Myers Squibb Co.
Pharmaceuticals
American Home Products Corp.
Pharmaceuticals
Footnote reads:
These holdings represent 15.1% of the fund's net assets as of 5/31/99.
Portfolio holdings will vary over time.
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.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 5/31/99
Class A Class B Class C Class M
(inception dates) (6/15/77) (9/13/93) (2/1/99) (12/2/94)
NAV POP NAV CDSC NAV CDSC NAV POP
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6 months 10.89% 4.53% 10.49% 5.50% 10.53% 9.54% 10.62% 6.75%
- ---------------------------------------------------------------------------------------------
1 year 12.87 6.41 12.11 7.11 12.09 11.09 12.36 8.40
- ---------------------------------------------------------------------------------------------
5 years 157.12 142.24 148.05 146.05 147.84 147.84 150.59 141.93
Annual average 20.79 19.36 19.92 19.73 19.90 19.90 20.17 19.33
- ---------------------------------------------------------------------------------------------
10 years 270.03 248.89 242.68 242.68 243.43 243.43 250.52 238.27
Annual average 13.98 13.31 13.11 13.11 13.13 13.13 13.36 12.96
- ---------------------------------------------------------------------------------------------
Life of fund 1325.78 1243.54 1069.48 1069.48 1107.90 1107.90 1134.43 1090.92
Annual average 12.86 12.56 11.85 11.85 12.01 12.01 12.12 11.94
- ---------------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/99
S&P 500 Consumer
Index price index
- ------------------------------------------------------------------------------
6 months 12.61% 1.34%
- ------------------------------------------------------------------------------
1 year 21.03 2.09
- ------------------------------------------------------------------------------
5 years 215.97 12.68
Annual average 25.88 2.42
- ------------------------------------------------------------------------------
10 years 426.54 34.25
Annual average 18.07 2.99
- ------------------------------------------------------------------------------
Life of fund 4079.15 465.31
Annual average 13.53 4.49
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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-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. For class C shares, returns for periods prior to their
inception are derived from the historical performance of class A shares,
adjusted to reflect both the CDSC currently applicable to class C shares,
which is 1% for the first year and is eliminated thereafter, and the
higher operating expenses applicable to class C shares. All returns assume
reinvestment of distributions at NAV. 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.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 5/31/99
Class A Class B Class C Class M
- ------------------------------------------------------------------------------
Distributions (number) 2 2 1 2
- ------------------------------------------------------------------------------
Income $0.1400 $0.0810 $0.0660 $0.1010
- ------------------------------------------------------------------------------
Capital gains
Long-term 1.2330 1.2330 -- 1.2330
- ------------------------------------------------------------------------------
Short-term 0.3012 0.3012 -- 0.3012
- ------------------------------------------------------------------------------
Total $1.6742 $1.6152 $0.0660 $1.6352
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- ------------------------------------------------------------------------------
11/30/98 $16.94 $17.97 $16.83 $ -- $16.85 $17.46
- ------------------------------------------------------------------------------
2/1/99* -- -- -- 15.76 -- --
- ------------------------------------------------------------------------------
5/31/99 16.92 17.95 16.80 16.89 16.82 17.43
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 1.65% 1.56% 0.95% 1.56% 1.19% 1.15%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 1.50 1.42 0.74 0.73 0.99 0.93
- ------------------------------------------------------------------------------
* Inception date of class C shares.
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.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 6/30/99 (most recent calendar quarter)
Class A Class B Class C Class M
(inception dates) (6/15/77) (9/13/93) (2/1/99) (12/2/94)
NAV POP NAV CDSC NAV CDSC NAV POP
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6 months 11.25% 4.87% 10.85% 5.84% 10.92% 9.92% 10.97% 7.11%
- ---------------------------------------------------------------------------------------------
1 year 14.58 7.97 13.76 8.76 13.83 12.82 13.95 9.95
- ---------------------------------------------------------------------------------------------
5 years 166.34 151.15 156.64 154.64 156.74 156.74 159.37 150.20
Annual average 21.64 20.22 20.74 20.56 20.75 20.75 21.00 20.13
- ---------------------------------------------------------------------------------------------
10 years 277.98 256.41 250.01 250.01 250.56 250.56 258.18 245.57
Annual average 14.22 13.55 13.35 13.35 13.36 13.36 13.61 13.20
- ---------------------------------------------------------------------------------------------
Life of fund 1356.13 1272.14 1093.78 1093.78 1133.16 1133.16 1160.05 1115.64
Annual average 12.92 12.62 11.91 11.91 12.07 12.07 12.18 12.00
- ---------------------------------------------------------------------------------------------
</TABLE>
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. 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 summary for method of calculation.
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 C shares are not subject to an initial sales charge and are subject
to a contingent deferred sales charge only if the shares are redeemed
during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 5.75% maximum 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 or C shares and assumes redemption at the end of
the period. Your fund's class B 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. The CDSC for class C shares is 1% for one year after
purchase.
Comparative benchmarks
Standard & Poor's 500 Composite Stock Price 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 index 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.
A guide to the financial statements
These sections of the report constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as of
the last day of the reporting period. Holdings are organized by asset type and
industry sector, country, or state to show areas of concentration and
diversification.
Statement of assets and liabilities shows how the fund's net assets and share
price is determined. All investment and non-investment assets are added
together. Any unpaid expenses and other liabilities are subtracted from this
total. The result is divided by the number of shares to determine the net
asset value per share, which is calculated separately for each class of
shares. (For funds with preferred shares, the amount subtracted from total
assets includes the net assets allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for the
reporting period. This is determined by adding up all the fund's earnings --
from dividends and interest income -- and subtracting its operating expenses.
This statement also lists any net gain or loss the fund realized on the sales
of its holdings and -- for holdings that remain in the portfolio -- any change
in unrealized gains or losses over the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of the
fund's shares. It lists distributions and their sources (net investment income
or realized capital gains) over the current reporting period and the most
recent fiscal year-end. The distributions listed here may not match the
amounts listed in the Statement of Operations because the distributions are
determined on a tax basis and may be paid in a different period from the one
in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also includes
the current reporting period. For open-ended funds, a separate table is
provided for each share class.
<TABLE>
<CAPTION>
The fund's portfolio
May 31, 1999 (Unaudited)
COMMON STOCKS (89.2%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Aerospace and Defense (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
414,900 Boeing Co. $ 17,529,525
360,200 Lockheed Martin Corp. 14,565,553
124,000 Raytheon Co. Class B (NON) 8,439,750
--------------
40,534,828
Agriculture (--%)
- --------------------------------------------------------------------------------------------------------------------------
1,101 PSF Holdings LLC Class A (NON) 13,212
Automotive (2.5%)
- --------------------------------------------------------------------------------------------------------------------------
177,528 Delphi Automotive Systems Corp. (NON) 3,483,991
353,200 Ford Motor Co. 20,154,475
254,000 General Motors Corp. 17,526,000
216,000 Lear Corp. (NON) 10,624,500
--------------
51,788,966
Basic Industrial Products (2.5%)
- --------------------------------------------------------------------------------------------------------------------------
127,100 Caterpillar, Inc. 6,974,613
293,800 Deere (John) & Co. 11,182,763
218,300 Minnesota Mining & Manufacturing Co. 18,719,225
505,800 Owens-Illinois, Inc. (NON) 15,426,900
--------------
52,303,501
Building and Construction (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
85,900 Armstrong World Industries, Inc. (NON) 5,003,675
359,500 Sherwin Williams Co. 11,077,094
--------------
16,080,769
Business Equipment and Services (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
228,600 Xerox Corp. 12,844,463
Chemicals (3.9%)
- --------------------------------------------------------------------------------------------------------------------------
162,500 Dow Chemical Co. 19,743,750
283,100 du Pont (E.I.) de Nemours & Co., Ltd. 18,525,356
725,600 Engelhard Corp. 14,693,400
216,600 PPG Industries, Inc. 13,144,913
289,000 Union Carbide Corp. 14,829,313
--------------
80,936,732
Computer Services and Software (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
336,000 Apple Computer, Inc. (NON) 14,805,000
317,200 Computer Associates International, Inc. 15,007,525
123,100 IBM Corp. 14,318,069
260,300 Oracle Corp. (NON) 6,458,694
--------------
50,589,288
Conglomerates (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
242,500 Allied-Signal, Inc. 14,080,156
333,300 TRW, Inc. 16,685,831
--------------
30,765,987
Consumer Durable Goods (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
458,207 Hasbro, Inc. 13,116,175
3 Mothers Work, Inc. (NON) 33
211,500 Whirlpool Corp. (NON) 13,641,750
--------------
26,757,958
Consumer Non Durables (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
138,555 Colgate-Palmolive Co. 13,838,181
259,800 Kimberly-Clark Corp. 15,247,013
537,550 Philip Morris Cos., Inc. 20,729,272
--------------
49,814,466
Consumer Products (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
233,500 Fortune Brands, Inc. 9,544,313
Consumer Services (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
678,100 Service Corp. International 13,011,044
202,500 Tribune Co. 15,984,844
--------------
28,995,888
Electronics and Electrical Equipment (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
256,200 Emerson Electric Co. 16,364,775
163,800 Illinois Tool Works, Inc. (NON) 12,571,650
105,000 Micron Technology, Inc. 3,983,438
216,700 Motorola, Inc. 17,945,469
--------------
50,865,332
Entertainment (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
353,000 Disney (Walt) Productions, Inc. 10,281,125
197 Fitzgerald Gaming Corp. (NON) 49
--------------
10,281,174
Environmental Control (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
499,900 Republic Services, Inc. (NON) 11,747,650
Food and Beverages (4.1%)
- --------------------------------------------------------------------------------------------------------------------------
269,400 Bestfoods 13,470,000
257,300 Heinz (H.J.) Co. 12,430,806
349,600 Kellogg Co. 12,126,750
696,100 Pepsi Bottling Group, Inc. (The) (NON) 16,140,819
678,050 Sara Lee Corp. 16,273,200
503,300 SYSCO Corp. 14,941,719
--------------
85,383,294
Health Care (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
703,200 HEALTHSOUTH Corp. (NON) 9,405,300
Hospital Management and Medical Services (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
240,839 Tenet Healthcare Corp. (NON) 5,900,556
Insurance and Finance (20.2%)
- --------------------------------------------------------------------------------------------------------------------------
462,700 Ace Ltd. (NON) 14,112,350
419,600 Allstate Corp. (NON) 15,289,175
255,600 American General Corp. 18,467,100
649,352 Bank of America Corp. 42,004,958
510,000 Bank One Corp. 28,846,875
376,700 BankBoston Corp. (NON) 17,846,163
479,900 Charter One Financial, Inc. (NON) 13,647,156
223,200 Chase Manhattan Corp. 16,182,000
230,080 CIGNA Corp. 21,454,960
525,050 Citigroup, Inc. 34,784,563
220,000 Fannie Mae 14,960,000
27,600 Morgan (J.P.) & Co., Inc. 3,844,956
337,400 Paine Webber Group Inc. 15,857,800
363,600 PNC Bank Corp. 20,816,100
257,800 SAFECO Corp. 11,327,088
293,887 Synovus Financial Corp. 5,914,476
246,700 The Chubb Corp. 17,284,419
233,550 The Equitable Cos., Inc. (NON) 16,392,291
224,100 Torchmark Corp. 7,479,338
474,300 U.S. Bancorp (NON) 15,414,750
261,800 UNUM Corp. (NON) 14,088,113
168,000 Wachovia Corp. 14,826,000
489,850 Washington Mutual, Inc. (NON) 18,706,147
511,100 Wells Fargo Co. (NON) 20,444,000
--------------
419,990,778
Medical Supplies and Devices (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
236,300 Baxter International, Inc. 15,256,119
Metals and Mining (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
235,300 Alcoa Inc. 12,941,500
Oil and Gas (9.6%)
- --------------------------------------------------------------------------------------------------------------------------
169,200 Burlington Resources Inc. (NON) 7,265,025
212,000 Chevron, Inc. 19,649,750
442,800 Conoco, Inc. 12,010,950
276,900 El Paso Energy Corp. 9,985,706
209,900 Elf Aquitane ADR (France) 14,902,900
424,100 Exxon Corp. 33,874,988
469,000 Halliburton Co. 19,404,875
319,400 Mobil Corp. 32,339,250
293,400 Phillips Petroleum Co. 15,385,163
400,800 Royal Dutch Petroleum Co. PLC ADR (Netherlands) 22,670,250
514,200 Tosco Corp. 13,144,238
--------------
200,633,095
Paper and Forest Products (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
354,500 Mead Corp. 13,249,438
370,000 Weyerhaeuser Co. 22,963,125
--------------
36,212,563
Pharmaceuticals (3.5%)
- --------------------------------------------------------------------------------------------------------------------------
435,400 American Home Products Corp. 25,089,925
388,600 Bristol-Myers Squibb Co. 26,667,675
386,470 Pharmacia & Upjohn, Inc. 21,424,931
--------------
73,182,531
Publishing (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
246,000 McGraw-Hill, Inc. 12,761,250
Real Estate (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
240,200 Equity Office Properties Trust (R) (NON) 6,785,650
331,800 Equity Residential Properties Trust (R) (NON) 15,905,663
428,900 Starwood Lodging Trust 14,046,475
--------------
36,737,788
Retail (3.6%)
- --------------------------------------------------------------------------------------------------------------------------
304,900 Albertsons, Inc. 16,312,150
359,000 Federated Department Stores, Inc. (NON) 19,565,500
479,000 Rite Aid Corp. (NON) 11,975,000
433,900 Saks, Inc. 11,986,488
317,200 Sears, Roebuck & Co. 15,166,125
--------------
75,005,263
Specialty Consumer Products (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
569,220 Mattel, Inc. 15,048,754
Telecommunications (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
51 Allegiance Telecom, Inc. (NON) 1,887
228,800 ALLTEL Corp. 16,402,100
205 Viatel, Inc. (NON) 9,205
--------------
16,413,192
Transportation (3.0%)
- --------------------------------------------------------------------------------------------------------------------------
599,100 Burlington Northern Santa Fe Corp. 18,572,100
261,600 Delta Air Lines, Inc. 15,009,300
245,800 FDX Corp. (NON) 13,534,363
215,100 UAL Corp. (NON) 14,465,475
--------------
61,581,238
Utilities (12.4%)
- --------------------------------------------------------------------------------------------------------------------------
576,150 American Telephone & Telegraph Co. 31,976,325
409,300 Ameritech Corp. 26,937,056
338,000 Bell Atlantic Corp. 18,505,500
235,400 CiNergy Corp. 8,033,025
269,700 Consolidated Natural Gas Co. 16,030,294
358,634 Duke Energy Corp. 21,630,113
577,700 Edison International 15,886,750
518,800 Entergy Corp. 16,828,575
515,700 GTE Corp. 32,521,331
615,800 OGE Energy Corp. 15,856,850
405,206 SBC Communications, Inc. 20,716,157
692,000 Sempra Energy 14,878,000
176,800 Texas Utilities Co. 7,956,000
363,800 Western Resources, Inc. 10,572,938
--------------
258,328,914
--------------
Total Common Stocks (cost $1,605,723,251) $1,858,646,662
CORPORATE BONDS AND NOTES (4.0%) (a)
PRINCIPAL AMOUNT VALUE
Advertising (--%)
- --------------------------------------------------------------------------------------------------------------------------
$ 50,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 54,250
60,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 62,850
5,000 Lamar Advertising Co. company guaranty 8 5/8s, 2007 5,075
10,000 Outdoor Communications Inc. sr. sub. notes 9 1/4s, 2007 10,500
60,000 Outdoor Systems, Inc. company guaranty 8 7/8s, 2007 63,000
--------------
195,675
Aerospace and Defense (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
135,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 128,925
30,000 Aviation Sales Co. company guaranty 8 1/8s, 2008 30,000
20,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 20,700
10,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 9,650
820,000 Boeing Co. deb. 6 5/8s, 2038 749,611
10,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 10,163
440,000 Raytheon Co. deb. 7s, 2028 427,425
360,000 Raytheon Co notes 6.45s, 2002 360,875
--------------
1,737,349
Agriculture (--%)
- --------------------------------------------------------------------------------------------------------------------------
205,000 IMC Global, Inc. notes 7.4s, 2002 208,239
12,786 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 11,827
--------------
220,066
Apparel (--%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 Fruit of the Loom 144A company guaranty 8 7/8s, 2006 28,800
Automotive (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
9,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 9,360
405,000 Chrysler Corp. deb. Ser. B, 7.45s, 2097 411,282
280,000 Delphi Automotive Systems Corp. deb. 7 1/8s, 2029 269,618
30,000 Dura Operating Corp. 144A sr. sub. notes 9s, 2009 29,550
295,000 Ford Motor Co. deb. 7.4s, 2046 294,165
730,000 Ford Motor Co. bonds 6 5/8s, 2028 672,118
60,000 Hayes Wheels International, Inc. company guaranty
Ser. B, 9 1/8s, 2007 61,800
90,000 Lear Corp. sub. notes 9 1/2s, 2006 98,325
60,000 Navistar International Corp. sr. notes Ser. B, 7s, 2003 59,100
50,000 Talon Automotive Group sr. sub. notes Ser. B, 9 5/8s, 2008 43,000
--------------
1,948,318
Banks (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
630,000 BankAmerica Corp. sr. notes 5 7/8s, 2009 590,216
750,000 Bank United notes 8s, 2009 736,395
25,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2008 25,375
10,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 10,150
435,000 Colonial Bank sub. notes 8s, 2009 417,287
510,000 Dresdner Funding Trust I 144A notes 8.151s, 2031 513,519
365,000 First Citizens Bank Capital Trust I company guaranty 8.05s, 2028 347,663
500,000 Imperial Bank sub. notes 8 1/2s, 2009 488,750
995,000 Peoples Bank- Bridgeport sub. notes 7.2s, 2006 935,738
250,000 Riggs National Corp. sub. deb. 8 1/2s, 2006 255,250
300,000 Scotland International Finance 144A sub. notes
8.85s, 2006 (Netherlands) 328,299
650,000 Sovereign Bancorp, Inc. sr. notes 6 5/8s, 2001 647,914
230,000 St. Paul Bancorp sr. notes 7 1/8s, 2004 224,839
285,000 Webster Capital Trust I 144A bonds 9.36s, 2027 282,706
--------------
5,804,101
Basic Industrial Products (--%)
- --------------------------------------------------------------------------------------------------------------------------
280,000 American Standard Companies, Inc. sr. notes 7 3/8s, 2008 266,000
140,000 National Steel Corp. 144A 1st mtge. 9 7/8s, 2009 142,450
65,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 65,783
--------------
474,233
Broadcasting (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
35,000 Affinity Group Holdings sr. notes 11s, 2007 34,300
25,000 Allbritton Communications Co. sr. sub. deb. Ser. B, 9 3/4s, 2007 25,500
80,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 82,700
25,000 Chancellor Media Corp. sr. sub. notes 9 3/8s, 2004 25,750
110,000 Chancellor Media Corp. 144A sr. notes 8s, 2008 108,900
10,000 Comcast Corp. sr. notes sub. 9 1/8s, 2006 10,663
30,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) (STP) 26,775
65,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 50,456
25,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 26,000
10,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 9,850
5,000 Gray Communications Systems, Inc. sr. sub. notes 10 5/8s, 2006 5,225
40,000 Lenfest Communications, Inc. sr. sub. notes 10 1/2s, 2006 47,200
180,000 Lenfest Communications, Inc. sr. notes 8 3/8s, 2005 191,700
20,000 Lenfest Communications, Inc. sr. sub. notes 8 1/4s, 2008 20,800
25,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 27,500
30,000 SFX Entertainment Inc. company guaranty 9 1/8s, 2008 29,700
25,000 Sinclair Broadcast Group, Inc. company guaranty 9s, 2007 24,750
10,000 Sinclair Broadcast Group, Inc. sr. sub. notes 8 3/4s, 2007 9,800
25,000 Spanish Broadcasting Systems sr. notes 12 1/2s, 2002 28,063
5,000 Spanish Broadcasting Systems sr. notes Ser. B, 11s, 2004 5,456
1,280,000 TCI Communications Inc deb. 8 3/4s, 2015 1,489,741
1,475,000 Viacom, Inc. sr. notes 7 3/4s, 2005 1,529,678
--------------
3,810,507
Building and Construction (--%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 Albecca Inc. company guaranty 10 3/4s, 2008 24,900
5,000 Building Materials Corp. sr. notes Ser. B, 8 5/8s, 2006 5,113
30,000 Building Materials Corp. 144A sr. notes 8s, 2008 28,500
5,000 D.R. Horton Inc. company guaranty 10s, 2006 5,225
150,000 D.R. Horton, Inc. company guaranty 8s, 2009 144,750
10,000 Jackson Products, Inc. company guaranty Ser. B, 9 1/2s, 2005 9,925
10,000 Morris Material Handling, Inc. company guaranty 9 1/2s, 2008 5,550
20,000 NCI Building Systems 144A sr. sub. notes 9 1/4s, 2009 19,750
--------------
243,713
Business Equipment and Services (--%)
- --------------------------------------------------------------------------------------------------------------------------
10,000 Cex Holdings, Inc. company guaranty Ser. B, 9 5/8s, 2008 9,400
30,000 Iron Mountain, Inc. med. term notes company guaranty
10 1/8s, 2006 32,550
40,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 44,400
809,760 Federal Express Corp. pass-thru certificates
Ser. 1998-1A, 6.72s, 2022 784,819
50,000 U.S. Office Products Co. company guaranty 9 3/4s, 2008 31,000
7,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 7,718
10,000 United Stationer Supply, Inc. sr. sub. notes 8 3/8s, 2008 9,800
--------------
919,687
Cable Television (--%)
- --------------------------------------------------------------------------------------------------------------------------
8,187 Adelphia Communications Corp. sr. notes 9 1/2s, 2004 (PIK) 8,474
40,000 Adelphia Communications Corp. 144A sr. notes 8 3/8s, 2008 39,600
10,000 Century Communications Corp. sr. notes 8 3/4s, 2007 10,050
140,000 Charter Communications Holdings LLC 144A sr. notes
8 5/8s, 2009 136,850
25,000 CSC Holdings, Inc. sr. sub. deb. 10 1/2s, 2016 29,000
5,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2023 5,563
60,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2013 65,850
10,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 9,892
30,000 TeleWest Communications PLC 144A sr. disc. notes
stepped-coupon zero %, (9 1/4, 4/15/04) 2009 (STP) 19,650
--------------
324,929
Chemicals (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
405,000 DSM NV 144A notes 6 1/4s, 2004 (Netherlands) 397,386
125,000 Equistar Chemicals LP notes 9 1/8s, 2002 127,265
40,000 ISP Holdings, Inc. sr. notes Ser. B, 9 3/4s, 2002 41,000
140,000 Lyondell Petrochemical Co. 144A sec. notes 9 5/8s, 2007 142,100
540,000 Nova Chemicals Corp. deb. 7s, 2026 (Canada) 536,474
20,000 Royster-Clark Inc. 144A 1st mtge 10 1/4s, 2009 20,200
40,000 Scotts Co 144A sr. sub. notes 8 5/8s, 2009 40,100
5,000 UCAR Global Enterprises sr. sub. notes Ser. B, 12s, 2005 5,325
--------------
1,309,850
Computer Services and Software (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
895,000 IBM Corp. deb. 7 1/8s, 2096 891,098
30,000 IPC Information Systems sr. disc. notes stepped-coupon
zero % (10 7/8s, 11/1/01), 2008 (STP) 21,900
50,000 PSINet, Inc. sr. notes 11 1/2s, 2008 52,500
20,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 20,000
10,000 Unisys Corp. sr. notes 7 7/8s, 2008 10,100
20,000 Verio Inc. 144A sr. notes 11 1/4s, 2008 21,100
10,000 Verio Inc. sr. notes 10 3/8s, 2005 10,300
--------------
1,026,998
Conglomerates (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
70,000 Axia, Inc. company guaranty 10 3/4s, 2008 68,600
145,000 Canadian Pacific Ltd. deb. 9.45s, 2021 (Canada) 172,889
825,000 TRW, Inc. 144A notes 7 3/4s, 2029 816,965
95,000 Tyco International Ltd. company guaranty 6 3/8s, 2005 93,284
825,000 Tyco International Ltd. company guaranty 6 1/4s, 2003 814,069
--------------
1,965,807
Consumer Durable Goods (--%)
- --------------------------------------------------------------------------------------------------------------------------
73,000 Iron Age Corp. company guaranty 9 7/8s, 2008 53,290
Consumer Non Durables (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Doane Products Co. 144A sr. sub. notes 9 3/4s, 2007 102,500
10,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 10,100
50,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 50,500
750,000 Imperial Tobacco Global company guaranty, 7 1/8s, 2009 721,943
305,000 Philip Morris Companies., Inc. notes 7 1/2s, 2004 314,726
185,000 Philip Morris Cos., Inc. notes 7 1/8s, 2004 187,720
180,000 Philip Morris Companies Inc. notes 6.8s, 2003 180,738
30,000 Revlon Consumer Products sr. notes 9s, 2006 30,900
20,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 19,300
35,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 34,825
170,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2008 167,875
--------------
1,821,127
Consumer Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
35,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 34,913
100,000 Cinemark USA, Inc. sr. sub. notes Ser. D, 9 5/8s, 2008 (Mexico) 100,500
50,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 54,500
20,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 19,850
610,000 Hertz Corp. sr. notes 6 1/2s, 2006 597,800
115,000 Hertz Corp. notes 6 1/4s, 2009 108,549
10,000 Host Marriott Travel Plaza sr. notes Ser. B, 9 1/2s, 2005 10,200
60,000 ITT Corp. notes 6 3/4s, 2005 55,192
60,000 Jones Intercable, Inc. sr. sub. deb. 10 1/2s, 2008 64,200
21,000 Jones Intercable, Inc. sr. notes 9 5/8s, 2002 22,470
20,000 Protection One, Inc. sr. disc. notes stepped-coupon zero %,
(13 5/8s, 6/30/00), 2005 (STP) 22,300
100,000 Rogers Cablesystems Ltd. sr. notes Ser. B, 10s, 2005 (Canada) 111,250
135,000 Service Corp. International notes 6s, 2005 125,145
20,000 Starwood Hotels & Resorts notes 6 3/4s, 2003 18,774
45,000 Viasystems Inc. sr. sub notes 9 3/4s, 2007 39,375
--------------
1,385,018
Electronics and Electrical Equipment (--%)
- --------------------------------------------------------------------------------------------------------------------------
50,000 Amkor Technologies, Inc. 144A sr. notes 9 1/4s, 2006 48,500
5,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s, 2006
(Canada) 5,450
5,281 Cirent Semiconductor sr. sub. notes 10.22s, 2002 5,360
6,156 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 6,248
10,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 9,900
31,445 Fairchild Semiconductor Corp. 144A sr. sub. notes
11.74s, 2008 (PIK) 29,559
50,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 49,875
30,000 Flextronics International Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 30,150
60,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 61,200
20,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 20,450
70,000 Wavetek Corp. company guaranty 10 1/8s, 2007 63,000
--------------
329,692
Energy-Related (--%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 Calpine Corp. sr. notes 7 7/8s, 2008 19,550
845,000 KN Capital Trust III company guaranty 7.63s, 2028 793,709
50,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) 50,500
--------------
863,759
Entertainment (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 28,425
10,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 9,600
40,000 Diva Systems Corp. sr. disc. notes, stepped-coupon Ser. B,
zero % (12 5/8s, 3/1/03), 2008 (STP) 13,200
10,000 Isle of Capri Black Hawk LLC 144A 1st mortgage Ser. B,
13s, 2004 11,100
175,000 News America Holdings, Inc. deb. 7 3/4s, 2045 173,152
10,000 Premier Parks, Inc. sr. notes Ser. A, 12s, 2003 10,725
25,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 25,625
30,000 SFX Entertainment, Inc. 144A company guaranty Ser. B,
9 1/8s, 2008 30,375
10,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 4,500
110,000 Six Flags Corp. sr. sub. notes 12 1/4s, 2005 121,138
435,000 Time Warner Entertainment Inc. notes 8 7/8s, 2012 499,872
680,000 Time Warner Entertainment sr. notes 8 3/8s, 2033 763,382
25,000 Trump A.C. 1st mtge. 11 1/4s, 2006 21,750
60,000 United Artists Theatre 144A sr. sub. notes 9 3/4s, 2008 47,400
655,000 Walt Disney Co. med. term notes 5.62s, 2008 605,548
--------------
2,365,792
Environmental Control (--%)
- --------------------------------------------------------------------------------------------------------------------------
90,000 Allied Waste Industries, Inc. company guaranty Ser. B,
7 7/8s, 2009 84,600
130,000 Waste Management, Inc. notes 6 5/8s, 2002 130,904
260,000 WMX Technologies, Inc. notes 7.7s, 2002 270,171
--------------
485,675
Food and Beverages (--%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 5,238
315,000 Pepsi Bottling Group Inc. 144A sr. notes 7s, 2029 307,840
30,000 Trairc Consumer Products, Inc. 144A sr. sub. notes
10 1/4s, 2009 29,700
--------------
342,778
Health Care (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 Columbia/HCA Healthcare Corp. med. term notes
8.85s, 2007 244,203
20,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 17,852
50,000 Columbia/HCA Healthcare Corp. med term notes 6.63s, 2045 46,806
10,000 Conmed Corp. company guaranty 9s, 2008 10,000
10,000 Hudson Respiratory Care, Inc. sr. sub. notes 9 1/8s, 2008 8,100
60,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007 39,300
30,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 19,500
70,000 Lifepoint Hospital Holdings 144A sr. sub. notes 10 3/4s, 2009 71,225
20,000 Mariner Post-Acute Network, Inc. sr. sub. notes
stepped-coupon Ser. B, zero % (10 1/2s, 11/1/02), 2007 (STP) 4,400
70,000 Mariner Post-Acute Network, Inc. sr. sub. notes
Ser. B, 9 1/2s, 2007 24,500
80,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 61,800
10,000 Paragon Corp. Holdings, Inc. company guaranty
Ser. B, 9 5/8s, 2008 5,800
25,000 Quorum Health Group, Inc. sr. sub. notes 8 3/4s, 2005 24,813
50,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 9,500
10,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s, 2008 1,900
180,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 179,100
255,000 Tenet Healthcare Corp. sr. notes 8s, 2005 249,900
--------------
1,018,699
Hospital Management and Medical Services (--%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 MedPartners, Inc. sr. notes 7 3/8s, 2006 52,350
20,000 Triad Hospitals Holdings 144A sr. sub. notes 11s, 2009 20,400
--------------
72,750
Insurance and Finance (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 Advanta Corp. med-term notes Ser. B, 7s, 2001 18,440
50,000 Advanta Corp. med-term notes Ser. D, 6.92s, 2002 43,326
1,000,000 AFC Capital Trust company guaranty Ser. B, 8.207s, 2027 1,059,310
585,000 AFLAC, Inc. 144A sr. notes 6 1/2s, 2009 565,496
685,000 American General Institute 144A company guaranty
8 1/8s, 2046 756,110
465,000 Bombardier Capital Inc. 144A notes 6s, 2002 457,142
660,000 Capital One Financial Corp. notes 7 1/4s, 2006 644,454
80,000 Capital One Financial Corp. notes 7 1/4s, 2003 78,627
410,000 Citicorp sub. notes 6 3/8s, 2008 393,252
5,000 Colonial Capital I 144A company guaranty 8.92s, 2027 4,699
475,000 Conseco Financing Trust II company guaranty 8.7s, 2026 434,454
350,000 Conseco Inc. med-term notes 6 1/2s, 2002 333,648
150,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 132,000
490,000 Countrywide Home Loan Corp. company guaranty
6.935s, 2007 487,658
500,000 Dime Bancorp, Inc. sr. notes 6 3/8s, 2001 494,145
1,095,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 1,156,627
65,000 DTI Holdings Inc. sr. disc. notes, stepped-coupon Ser. B,
zero % (12 1/2s, 3/01/03), 2008 (STP) 25,675
490,000 Executive Risk Capital Trust company guaranty Ser. B,
8.675s, 2027 513,275
300,000 Finova Capital Corp. notes 9 1/8s, 2002 320,004
515,000 Finova Capital Corp. notes 7.4s, 2007 533,071
160,000 Finova Capital Corp. notes 6 1/4s, 2002 158,568
710,000 Finova Capital Corp. med-term notes 6.11s, 2003 699,052
120,000 First Financial Caribbean Corp. sr. notes 7.84s, 2006 118,067
145,000 Firstar Bank Milwaukee sr. bank notes 6 1/4s, 2002 144,330
280,000 Firstar Capital Trust I company guaranty Ser. B, 8.32s, 2026 290,371
264,000 Ford Motor Credit Corp. sr. notes 6s, 2003 260,895
570,000 Ford Motor Credit Corp. sr. notes 5.8s, 2009 529,040
60,000 Ford Motor Credit Corp. notes 5 1/8s, 2001 58,639
600,000 General Motors Acceptance Corp. notes 5 3/4s, 2003 583,458
150,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 144,869
165,000 Hartford Life, Inc. deb. 7.65s, 2027 169,146
990,000 Household Finance Corp. notes 6 1/2s, 2008 961,290
570,000 Household Finance Corp. sr. unsub. 5 7/8s, 2009 528,054
650,000 Lehman Bros Holdings, Inc. notes 6 1/4s, 2003 633,549
260,000 Markel Capital Trust I company guaranty Ser. B, 8.71s, 2046 244,098
250,000 Money Store, Inc. notes 8.05s, 2002 261,400
10,000 Nationwide Credit Inc. sr. notes Ser. A, 10 1/4s, 2008 7,050
385,000 Newcourt Credit Group, Inc. 144A company guaranty
7 1/8s, 2003 392,369
570,000 Newcourt Credit Group Inc. 144A notes 6 7/8s, 2005 572,383
10,000 North Fork Capital Trust I company guaranty 8.7s, 2026 10,025
210,000 Norwest Corp. med. term sr. notes Ser. J, 6 3/4s, 2027 195,386
125,000 Orange Cogen Funding 144A company guaranty 8.175s, 2022 127,950
1,025,000 Paine Webber Group, Inc. sr. notes 6.55s, 2008 981,673
505,000 Paine Webber Group, Inc. sr. med. term notes 6.52s, 2005 491,113
100,000 Peoples Heritage Capital Trust company guaranty Ser. B,
9.06s, 2027 96,312
430,000 Presidential Life Corp. sr. notes 7 7/8s, 2009 424,625
1,515,000 Provident Companies, Inc. bonds 7.405s, 2038 1,462,490
620,000 Prudential Insurance Co. 144A 6 7/8s, 2003 622,976
10,000 PX Escrow Corp. sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 (STP) 6,100
30,000 RBF Finance 144A company guaranty 11 3/8s, 2009 30,300
80,000 RBF Finance 144A company guaranty 11s, 2006 80,400
5,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 4,792
400,000 Salomon, Inc. sr. notes 7.3s, 2002 409,996
220,000 Salton Sea Funding Corp. company guaranty Ser. E, 8.3s, 2011 227,223
1,050,000 Sears Roebuck Acceptance Corp. notes 6 1/2s, 2028 931,823
5,000 Sovereign Capital Trust company guaranty 9s, 2027 4,888
240,000 Sprint Capital Corp. company guaranty 6.9s, 2019 229,150
925,000 Sprint Capital Corp. company guaranty 6 1/8s, 2008 870,185
390,000 Sprint Capital Corp. company guaranty 5.7s, 2003 375,496
155,000 State Street Institution 144A company guaranty 7.94s, 2026 158,585
925,000 Sun Life Canada Capital Trust 144A 8.526s, 2049 945,729
460,000 The CIT Group, Inc. notes 5 1/2s, 2001 453,643
530,000 Tig Capital Trust I 144A bonds 8.597s, 2027 463,427
555,000 Toyota Motor Credit Corp. notes 5 5/8s, 2003 537,756
325,000 Transamerica Capital III bonds 7 5/8s, 2037 326,186
315,000 Trenwick Capital Trust I company guaranty 8.82s, 2037 290,525
775,000 Zurich Capital Trust I 144A company guaranty 8.376s, 2037 806,233
--------------
26,773,028
Medical Supplies and Devices (--%)
- --------------------------------------------------------------------------------------------------------------------------
15,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 15,225
25,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 26,813
5,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 4,625
20,000 Mediq, Inc. deb. zero %, 2009 8,000
--------------
54,663
Metals and Mining (--%)
- --------------------------------------------------------------------------------------------------------------------------
70,000 AK Steel Corp. sr. notes 9 1/8s, 2006 72,450
20,000 Ameristeel Corp. company guaranty Ser. B, 8 3/4s, 2008 20,050
10,000 Anker Coal Group, Inc. sr. notes Ser. B, 9 3/4s, 2007 5,100
10,000 Armco, Inc. sr. notes 9s, 2007 10,350
35,000 Continental Global Group sr. notes Ser. B, 11s, 2007 31,500
40,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 32,000
40,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 39,200
10,000 WHX Corp. sr. notes 10 1/2s, 2005 9,850
--------------
220,500
Oil and Gas (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
770,000 Coastal Corp. bonds 6.95s, 2028 717,802
445,000 Conoco, Inc. sr. notes 6.95s, 2029 426,906
20,000 Eagle Geophysical, Inc. company guaranty Ser. B, 10 3/4s, 2008 12,000
170,000 Enron Corp. notes 6.4s, 2006 163,936
149,880 Express Pipeline Ltd. 144A sub. notes Ser. B, 7.39s, 2019 (Canada) 130,619
20,000 Gulf Canada Resources, Ltd. sr. notes 8 3/8s, 2005 (Canada) 20,000
205,000 Gulf Canada Resources, Ltd. sr. notes 8.35s, 2006 (Canada) 200,849
110,000 K N Energy, Inc. sr. notes 6.45s, 2003 109,637
635,000 Louis Dreyfus Natural Gas notes 6 7/8s, 2007 569,151
690,000 Norsk Hydro ASA notes 6.36s, 2009 (Norway) 658,964
30,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 30,150
30,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 29,700
705,000 Petro Geo-Services sr. notes 7 1/8s, 2028 (Norway) 644,307
10,000 Petro Geo-Services ADR notes 7 1/2s, 2007 (Norway) 10,204
5,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 4,950
350,000 Statoil 144A notes 6 1/2s, 2028 (Norway) 322,784
23,000 TransTexas Gas Corp. sr. sub. notes Ser. D, 13 3/4s, 2001 1,150
1,200,000 Union Oil Company of California company guaranty
7 1/2s, 2029 1,204,788
--------------
5,257,897
Packaging and Containers (--%)
- --------------------------------------------------------------------------------------------------------------------------
40,000 Packaging Corp. 144A sr. sub. notes 9 5/8s, 2009 40,600
5,000 Radnor Holdings Inc. sr. notes 10s, 2003 5,250
--------------
45,850
Paper and Forest Products (--%)
- --------------------------------------------------------------------------------------------------------------------------
40,000 Pacifica Papers, Inc. 144A sr. notes 10s, 2009 (Canada) 41,200
10,000 Republic Group, Inc. sr. sub. notes 9 1/2s, 2008 10,000
20,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 19,800
20,000 Riverwood International Corp. company guaranty 10 1/4s, 2006 20,400
--------------
91,400
Pharmaceuticals (--%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 62,100
Publishing (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 American Media Operation, Inc. 144A sr. sub. notes
10 1/4s, 2009 20,250
50,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 49,500
70,000 Garden State Newspapers 144A sr. sub. notes 8 5/8s, 2011 67,900
1,500,000 News America Holdings, Inc. deb. 7.7s, 2025 1,510,830
--------------
1,648,480
Recreation (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 Circus Circus Enterprises, Inc. sr. notes 6.45s, 2006 18,341
20,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 18,400
10,000 Harrahs Entertainment, Inc. company guaranty 7 1/2s, 2009 9,784
50,000 Hollywood Casino Corp. 144A sec. notes 11 1/4s, 2007 49,875
40,000 Hollywood Park Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 40,200
50,000 Horseshoe Gaming Holdings 144A sr. sub. notes 8 5/8s, 2009 48,500
70,000 International Game Technology 144A sr. notes 7 7/8s, 2004 69,125
705,000 Mashantucket Pequot Tribe 144A bonds Ser. A, FSA, 6.57s, 2013 658,047
30,000 Mohegan Tribal Gaming, Auth. 144A sr. notes 8 1/8s, 2006 29,550
20,000 Park Place Entertainment sr. sub. notes 7 7/8s, 2005 19,200
25,000 Sun International Hotels Ltd. company guaranty 9s, 2007 25,125
2,960,000 Tricon Global Restaurants, Inc. sr. notes 7.45s, 2005 2,983,414
--------------
3,969,561
REITs (Real Estate Investment Trust) (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
320,000 Avalon Properties, Inc. notes 6 7/8s, 2007 309,462
295,000 Avalon Properties, Inc. notes 6 5/8s, 2005 286,156
630,000 EOP Operating L.P. notes 6.8s, 2009 602,935
135,000 EOP Operating L.P. sr. notes 6 3/4s, 2008 129,326
235,000 EOP Operating L.P. notes 6 3/8s, 2002 232,335
30,000 Host Marriott L.P. 144A sr. notes 8 3/8s, 2006 29,100
60,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 55,500
420,000 Omega Healthcare Investors, Inc. notes 6.95s, 2002 405,350
15,000 Tanger Properties Ltd. partnership gtd. notes 8 3/4s, 2001 15,018
--------------
2,065,182
Retail (--%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 K mart Corp. med. term notes 7.55s, 2004 19,209
15,000 Kasper A.S.L. Ltd. sr. notes 12 3/4s, 2004 14,925
10,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 10,400
50,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 43,500
50,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 42,500
5,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 5,200
5,000 William Carter Holdings Co. sr. sub. notes Ser. A, 10 3/8s, 2006 5,175
10,000 Zale Corp. sr. notes Ser. B, 8 1/2s, 2007 10,200
--------------
151,109
Satellite Services (--%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 Golden Sky Systems company guaranty Ser. B, 12 3/8s, 2006 33,750
20,000 ICG Communications, Inc. sr. disc. notes stepped-coupon
zero % (10s, 02/15/03), 2008 (STP) 12,200
--------------
45,950
Telecommunications (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 Alaska Communications Systems 144A sr. sub. notes
9 3/8s, 2009 59,550
30,000 Allbritton Communications Co. sr. sub. notes Ser. B,
8 7/8s, 2008 29,250
390,000 AT&T Capital Corp. med. term notes 6.6s, 2005 378,616
70,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 64,050
100,000 Call-Net Enterprises Inc. sr. disc. notes stepped-coupon
zero % (10.8s, 5/15/04), 2009 (Canada) (STP) 56,000
30,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon
zero % (9.27s, 8/15/02), 2007 (Canada) (STP) 18,600
60,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon
zero % (8.94s, 8/15/03), 2008 (Canada) (STP) 35,400
30,000 Call-Net Enterprises Inc. sr. notes 8s, 2008 (Canada) 26,700
20,000 CapRock Communications Corp. sr. notes Ser. B, 12s, 2008 20,200
40,000 Caprock Communications Corp. 144A sr. notes 11 1/2s, 2009 39,000
25,000 Cencall Communications Corp. sr. disc. notes, 10 1/8s, 2004 25,750
90,000 Covad Communications Group Inc. sr. notes 12 1/2s, 2009 85,500
50,000 Econophone, Inc. 144A notes stepped-coupon zero %
(11s, 2/15/03), 2008 (STP) 26,750
10,000 Esprit Teleom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 10,750
50,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 47,500
110,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 120,450
80,000 Hyperion Telecommunications, Corp. sr. disc. notes
stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 (STP) 65,600
60,000 Hyperion Telecommunications, Corp. sr. notes Ser. B,
12 1/4s, 2004 63,000
25,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 (Canada) (STP) 22,500
150,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 90,750
35,000 Intelcom Group (USA), Inc. company guaranty
stepped-coupon zero % (12 1/2s, 5/1/01), 2006 (STP) 28,700
185,000 Intermedia Communications, Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (11 1/4s, 7/15/02), 2007 (STP) 132,275
30,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 28,050
225,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B,
zero % (11 1/2s, 2/1/01), 2006 (STP) 196,875
25,000 KMC Telecom Holdings, Inc. sr. disc. notes stepped-coupon
zero % (12 1/2s, 2/15/03), 2008 (STP) 13,250
55,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon zero %
(11 7/8s, 10/15/02), 2007 (STP) 33,000
5,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 5,288
10,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 9,825
30,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 28,350
10,000 McCaw International Ltd sr. disc. notes stepped coupon
zero % (13s, 4/15/02), 2007 (STP) 6,100
5,000 MetroNet Communications Corp. sr. disc. notes
stepped-coupon zero % (10 3/4s, 11/1/02), 2007
(Canada) (STP) 3,975
80,000 MetroNet Communications Corp. 144A sr. notes 10 5/8s,
2008 (Canada) 91,400
40,000 MetroNet Communications Corp. sr. disc. notes
stepped-coupon zero % (9.95s, 6/15/03), 2008 (Canada) (STP) 29,600
50,000 Microcell Telecommunications sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 40,000
70,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (12 1/8s, 4/15/03), 2008 (STP) 35,700
80,000 NEXTEL Communications, Inc. 144A sr. notes 12s, 2008 89,800
30,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (10.65s, 9/15/02), 2007 (STP) 21,000
30,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (9.95s, 2/15/03), 2008 (STP) 19,950
30,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (9 3/4s, 10/31/02), 2007 (STP) 20,400
65,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (9 3/4s, 2/15/99), 2004 (STP) 66,950
50,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 51,500
40,000 NTL Inc. 144A sr. notes 11 1/2s, 2008 (United Kingdom) 44,400
50,000 NTL Inc. sr. notes, stepped-coupon Ser. B, zero %
(9 3/4s, 4/1/03), 2008 (United Kingdom) (STP) 33,500
20,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 11,200
230,000 Price Communications Wireless, Inc. 144A sr. notes
9 1/8s, 2006 235,750
70,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 54,902
80,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (8.29s, 2/1/03), 2008 (STP) 62,248
10,000 RCN Corp. sr. disc. notes stepped-coupon zero %,
(11 1/8s, 10/15/02), 2007 (STP) 6,600
10,000 RSL Communications, Ltd. company guaranty 9 1/8s, 2008 9,100
20,000 Startec Global Communications Corp. sr. notes 12s, 2008 17,800
320,000 TCI Communications sr. notes 7 1/8s, 2028 317,629
10,000 Telecommunications Techniques, Inc. company guaranty
9 3/4s, 2008 10,000
70,000 Telecorp PCS Inc. 144A sr. disc. notes stepped-coupon zero %,
(11 5/8s, 4/15/04), 2009 (STP) 36,050
10,000 TeleWest Communications PLC 144A 11 1/4s, 2008 11,325
20,000 Teligent, Inc. sr. notes 11 1/2s, 2007 19,450
100,000 Time Warner Telecom Inc. sr. notes 9 3/4s, 2008 105,000
25,000 United International Holdings sr. disc. notes stepped-coupon
Ser. B, zero % (10 3/4s, 2/15/03), 2008 (STP) 16,438
15,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 15,638
30,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(12 1/2s, 4/15/03), 2008 (STP) 19,575
85,000 Viatel, Inc. sr. notes 11 1/4s, 2008 86,381
15,000 WinStar Communications, Inc. sr. sub. notes stepped-coupon
zero % (15s, 3/1/02), 2007 (STP) 15,900
40,000 WinStar Communications. Inc. sr. sub. notes 11s, 2008 33,800
1,275,000 WorldCom, Inc. sr. notes 6.95s, 2028 1,241,442
--------------
4,642,032
Telephone Services (--%)
- --------------------------------------------------------------------------------------------------------------------------
10,000 Long Distance International, Inc. sr. notes 12 1/4s, 2008 6,900
10,000 OnePoint Communications Corp. 144A sr. notes 14 1/2s, 2008 4,900
620,000 U S West, Inc. notes 5 5/8s, 2008 573,791
--------------
585,591
Textiles (--%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 12,800
5,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 4,888
50,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 48,375
--------------
66,063
Transportation (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
650,000 Atlas Air, Inc. pass-through certificates Ser. 991A, 7.2s, 2019 633,295
10,000 Calair LLC 144A company guaranty 8 1/8s, 2008 9,350
20,000 Canadian Airlines Corp. sr. notes 12 1/4s, 2006 (Canada) 8,000
20,000 Canadian Airlines Corp. secd. notes 10s, 2005 (Canada) 14,850
515,000 Continental Airlines, Inc. pass-through certificates Ser. 981C,
6.541s, 2008 500,122
615,000 Continental Airlines, Inc. pass-through certificates Ser. 98-2,
6.32s, 2008 593,414
700,000 CSX Corp. deb. 7.95s, 2027 735,035
35,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s, 2003 (Greece) 33,250
10,000 International Shipholding Corp. sr. notes 9s, 2003 10,263
80,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 76,800
10,000 Johnstown America Industries, Inc. company guaranty Ser. C,
11 3/4s, 2005 10,725
20,000 Johnstown America Industries, Inc. sr. sub. notes 11 3/4s, 2005 21,450
20,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 19,850
10,000 MC Shipping, Inc. sr. notes Ser. B, 11 1/4s, 2008 7,000
10,000 MCII Holdings sec. notes, stepped-coupon zero %
(15s,11/18/99), 2002 (STP) 9,775
470,000 Northwest Airlines Corp. pass-through certificate Ser. 1999-1A,
6.81s, 2020 453,376
10,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 8,450
50,000 Trans World Airlines, Inc. sr. notes 11 3/8s, 2006 26,000
810,000 United Air Lines Corp. deb. 9 3/4s, 2021 952,617
--------------
4,123,622
Utilities (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
610,000 Aes Eastern Energy 144A pass-through certificates 9s, 2017 606,157
10,000 Applied Power Inc. sr. sub. notes 8 3/4s, 2009 9,675
240,000 Arizona Public Service Co. sr. notes 6 3/4s, 2006 240,026
60,000 Cleveland Electric Illuminating Co. 1st mtge 6.86s, 2008 58,308
140,000 CMS Energy Corp. sr. notes 8 1/8s, 2002 142,925
320,000 CMS Energy Corp. pass-through certificates 7s, 2005 306,352
190,000 Connecticut Light & Power Co. 1st mtge. Ser. C, 7 3/4s, 2002 194,444
100,000 Edison Mission Energy 144A company guaranty 7.33s, 2008 100,211
5,000 El Paso Electric Co. 1st mtge. Ser. D, 8.9s, 2006 5,461
335,000 GTE Corp. deb. 6.46s, 2008 329,617
10,000 Leviathan Gas Corp.144A sr. sub. notes 10 3/8s, 2009 10,100
10,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 11,150
80,496 Midland Funding I Corp. deb. Ser. C-94, 10.33s, 2002 84,680
20,000 Niagara Mohawk Power Corp. med. term notes 9.95s, 2000 20,598
20,000 Niagara Mohawk Power Corp. sr. notes Ser. F, 7 5/8s, 2005 20,039
69,105 Northeast Utilities System notes Ser. A, 8.58s, 2006 68,870
164,727 Northeast Utilities System notes Ser. B, 8.38s, 2005 164,287
294,000 Public Service Co. of New Mexico deb. 10 1/4s, 2012 331,426
160,000 Public Service Co. of New Mexico sr. notes Ser. B, 7 1/2s, 2018 158,613
250,000 Texas New-Mexico Power Utilities 1st mtge. 9 1/4s, 2000 259,295
400,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 415,664
345,000 Texas Utilities Electric Capital Trust V company guaranty
8.175s, 2037 344,534
--------------
3,882,432
--------------
Total Corporate Bonds and Notes (cost $85,479,380) $ 82,434,073
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (3.1%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government and Agency Mortgage Obligations (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association
Pass-through Certificates
$ 609,403 7s, Dwarf, with due dates from January 1, 2011 to
May 1, 2011 $ 618,159
10,922,976 6 1/2s, with due dates from March 1, 2027 to May 1, 2029 10,675,132
275,767 6 1/2s, Dwarf, November 1, 2010 274,559
2,445,722 6s, Dwarf, with due dates from January 1, 2013 to
December 1, 2013 2,386,095
532,000 5 1/8s with due dates of February 13, 2004 512,380
1,388,533 Federal Home Loan Mortgage Corp. 5 1/2s, with due dates
from March 1, 2011 to April 1, 2011 1,327,340
Government National Mortgage Association
Pass-through Certificates
7,116,204 8s, with due dates from July 15, 2024 to January 15, 2028 7,394,479
4,655,539 7s, with due dates from August 15, 2023 to
December 15, 2028 4,660,339
7,835,508 6 1/2s, with due dates from September 15, 2023 to
April 15, 2029 7,655,832
--------------
35,504,315
U.S. Treasury Obligations (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
3,880,000 5 1/4s, February 15, 2029 3,565,371
215,000 5 1/4s, August 15, 2003 211,573
U.S. Treasury Notes
480,000 6 1/8s, August 15, 2007 489,600
8,360,000 5 5/8s, May 15, 2008 8,282,921
379,000 5 1/2s, May 15, 2009 375,445
70,000 5 1/2s, March 31, 2003 69,595
7,625,000 4 5/8s, December 31, 2000 7,539,219
365,000 4 1/2s, September 30, 2000 361,120
7,635,000 4 1/4s, November 15, 2003 (SEG) 7,216,297
--------------
28,111,141
--------------
Total U.S. Government and Agency Obligations
(cost $64,746,000) $ 63,615,456
CONVERTIBLE BONDS AND NOTES (0.5%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 30,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 $ 25,275
10,200,000 Micron Technology, Inc. cv. sub. notes 7s, 2004 10,212,750
80,000 Western Digital Corp. cv. sub. deb. zero %, 2018 16,900
25,000 WinStar Communications. Inc. 144A cv. sr. disc. notes
stepped-coupon zero % (14s, 10/15/00), 2005 (STP) 35,000
--------------
Total Convertible Bonds and Notes (cost $10,956,225) $ 10,289,925
COLLATERALIZED MORTGAGE OBLIGATIONS (0.4%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp.
$ 55,000 Ser. 97-ML1, Class D, 7.11s, 2030 $ 53,977
480,000 Ser. 97-ML1, Class A3, 6.57s, 2007 474,600
342,313 Ser. 98-C2, Class A2, 6.03s, 2008 327,497
1,141,095 FannieMae Strip Ser. 299, Class 2, Interest only (IO),
6 1/2s, 2028 339,476
170,722 First Union-Lehman Brothers - Bank of America Ser. 98-C2,
Class A1, 6.28s, 2007 168,768
3,913,634 First Union-Lehman Brothers Commercial Mortgage Co.
Ser. 98-C2, IO, 0.816s, 2028 154,099
110,000 Freddie Mac Ser. 2040, Class PE, 7 1/2s, 2028 113,384
Freddie Mac Strip
917,551 Ser. 147, IO, 8s, 2023 219,065
345,387 Ser. 200, IO, 6 1/2s, 2029 110,524
528,837 Ser. 192, IO, 6 1/2s, 2028 154,354
1,756,279 Ser. 201, IO, 6s, 2029 560,363
152,570 Ser. 176, Principal Only (PO) zero %, 2026 111,615
501,180 Ser. 177, PO, zero %, 2026 366,644
270,000 GE Capital Mortgage Services 98-11, Class 2A4, 6 3/4s, 2028 261,478
GMAC Commercial Mortgage Securities Inc.
373,000 Ser. 98-C1, Class E, 7.153s, 2011 363,209
912,725 Ser. 98-C2, Class A2, 6.42s, 2008 892,581
729,109 Ser. 98-C2, Class A1, 6.15s, 2031 717,078
170,000 GS Mortgage Securities Corp. II Ser. 98-GLII, Class D,
7.191s, 2031 162,616
Housing Securities Inc.
51,921 Ser. 91-B, Class B6, 9s, 2006 51,824
281,005 Ser. 93-F, Class F9M2, 7s, 2023 272,400
18,740 Ser. 94-1, Class AB1, 6 1/2s, 2009 16,615
4,519,411 Merrill Lynch Mortgage Investors, Inc. Ser. 98-C2, IO,
1.587s, 2030 341,074
Morgan Stanley Capital I
175,000 Ser. 96-WF1, Class A2, 7.218s, 2006 177,980
90,000 Ser. 98-XL1, Class E, 6.989s, 2030 87,676
2,131,410 Mortgage Capital Funding, Inc. Ser. 97-MC2, Class X, IO,
1.367s, 2012 155,943
65,400 Prudential Home Mortgage Securities Ser. 92-25, Class B3,
8s, 2022 (In default) 65,686
Prudential Home Mortgage Securities 144A
80,016 Ser. 94-31, Class B3, 8s, 2009 79,116
446,616 Ser. 95-D, Class 5B, 7.54s, 2024 424,146
51,724 Ser. 93-31, Class B2, 6s, 2000 50,544
360,000 Residential Asset Securitization Trust, 98-A12,
Class A14, 8s, 2028 374,625
190,724 Ryland Mortgage Securities Corp. Ser. 94-7C,
Class B2, 7.359s, 2025 187,774
--------------
Total Collateralized Mortgage Obligations (cost $7,775,618) $ 7,836,731
PREFERRED STOCKS (0.1%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
200 Capstar Communications, Inc. Ser. E, $12.625 cum. pfd. (PIK) $ 24,600
400 Centaur Funding Corp 144A $9.08 pfd. (Cayman Islands) 433,776
100 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. (PIK) 5,325
180 Citadel Broadcasting Inc. 144A $13.25 cum. pfd. (PIK) 21,600
162 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 19,035
50 Dobson Communications 144A $13.00 pfd. (PIK) 49,250
20 Dobson Communications Corp. 144A $12.25 pfd. (PIK) 18,600
15 Fresenius Medical Capital Trust I company guaranty, Ser. D,
$9.00 pfd. (Germany) 15,450
85 Fresenius Medical Capital Trust II company guaranty
7.875% pfd. (Germany) 84,363
25 Intermedia Communication Ser. B, $13.50 pfd. (PIK) 26,250
451 Nextlink Communications, Inc. 144A $7.00 cum. pfd. (PIK) 23,114
5 Paxson Communications Corp. $13.25 cum. pfd. (PIK) 44,500
219 Public Service Co. of New Hampshire $2.651 1st mtge. pfd. 5,585
4,078 TCR Holding Corp. pfd. 228
440 Webster Financial $7.375 pfd. 431,750
20 WinStar Communications, Inc. 144A $14.25 cum. pfd. (PIK) 16,200
--------------
Total Preferred Stocks (cost $1,192,861) $ 1,219,626
FOREIGN GOVERNMENT BONDS AND NOTES (--%) (a) (cost $797,765)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
USD 805,000 Quebec (Province of) sr. unsub. 5 3/4s, 2009 $ 752,900
ASSET-BACKED SECURITIES (--%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 277,487 Green Tree Recreational Equipment & Cons. Ser. 98-A,
Class A1C, 6.18s, 2019 $ 276,403
2,410,000 Lehman Manufactured Housing Ser. 98-1,
Class 1 IO, 0.819s, 2028 89,528
--------------
Total Asset-Backed Securities (cost $396,481) $ 365,931
WARRANTS (--%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
10 Club Regina, Inc. 144A 4/15/06 $ 10
10 Colt Telecommunications Group PLC 12/31/06 4,750
120 Diva Systems Corp. 3/1/08 1,440
325 DTI Holdings Inc. 3/1/08 3
10 Esat Holdings, Inc. (Ireland) 2/1/07 710
25 Hyperion Telecommunications 144A 4/15/01 1,375
25 Intermedia Communications 6/1/00 2,325
25 KMC Telecom Holdings, Inc. 4/15/08 81
25 Knology Holdings, Inc. 144A 10/15/07 50
10 Long Distance International, Inc. 144A 4/13/08 20
10 McCaw International Ltd. 4/15/07 43
10 OnePoint Communications Corp. 6/1/08 10
20 Pathnet, Inc. 144A 4/15/08 200
200 Rhythms Netcon 144A 5/15/08 29,100
20 STARTEC Global Communications Corp. 5/15/08 20
10 Sterling Chemicals Holdings 8/15/08 200
40 UIH Australia/Pacific, Inc. 144A 5/15/06 40
15 Versatel 144A (Netherlands) 5/15/08 900
--------------
Total Warrants (cost $8,450) $ 41,277
CONVERTIBLE PREFERRED STOCKS (--%) (a) (cost $21,109)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
200 Chancellor Media Corp. $3.00 cv. cum. pfd. $ 20,375
SHORT-TERM INVESTMENTS (3.1%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$49,715,000 Interest in $500,000,000 joint repurchase agreement
dated May 28, 1999 with Merrill Lynch, New York
due June 1, 1999 with respect to various U.S. Treasury
obligations -- maturity value of $49,741,404, for an
effective yield of 4.78% $ 49,715,000
15,000,000 Windmill Funding effective yield of 4.82, June 3, 1999 14,897,575
--------------
Total Short-Term Investments (cost $64,612,575) $ 64,612,575
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,841,709,715) (b) $2,089,835,531
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $2,082,567,170.
(b) The aggregate identified cost on a tax basis is $1,842,826,313 resulting in gross unrealized appreciation and
depreciation of $309,411,669 and $62,402,451, respectively, or net unrealized appreciation of $247,009,218.
(NON) Non-income-producing security.
(STP) 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.
(POR) A portion of the income will be received in additional securities.
(PIK) Income may be received in cash or additional securities at the discretion of the issuer.
(SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for futures
contracts at May 31, 1999.
(R) Real Estate Investment Trust.
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 rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interest rates shown at
May 31, 1999, which are subject to change based on the terms of the security.
- -------------------------------------------------------------------------------
Forward Currency Contracts to Buy at May 31, 1999 (Unaudited)
Aggregate Face Delivery Unrealized
Market Value Value Date Depreciation
- -------------------------------------------------------------------------------
Eurodollars $3,832,196 $4,027,198 6/16/99 $(195,002)
- -------------------------------------------------------------------------------
Forward Currency Contracts to Sell at May 31, 1999 (Unaudited)
Market Aggregate Face Delivery Unrealized
Value Value Date Appreciation
- -------------------------------------------------------------------------------
Eurodollars $3,664,814 $3,859,067 6/16/99 $ 194,253
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at May 31, 1999 (Unaudited)
Aggregate Face Expiration Unrealized
Total Value Value Date Appreciation
- -------------------------------------------------------------------------------
US Treasury Bonds
(short) $ 825,344 $ 839,808 June-99 $ 14,464
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
May 31, 1999 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,841,709,715) (Note 1) $2,089,835,531
- -----------------------------------------------------------------------------------------------
Cash 7,091
- -----------------------------------------------------------------------------------------------
Dividends and interest receivable 6,191,103
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 4,397,917
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 40,781,548
- -----------------------------------------------------------------------------------------------
Receivable for variation margin 5,688
- -----------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 194,253
- -----------------------------------------------------------------------------------------------
Total assets 2,141,413,131
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 49,529,411
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 4,736,806
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,717,356
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 224,911
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 19,267
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,649
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,214,586
- -----------------------------------------------------------------------------------------------
Payable for open forward currency contracts 195,002
- -----------------------------------------------------------------------------------------------
Other accrued expenses 206,973
- -----------------------------------------------------------------------------------------------
Total liabilities 58,845,961
- -----------------------------------------------------------------------------------------------
Net assets $2,082,567,170
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,681,724,254
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (974,464)
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign
currency transactions (Note 1) 153,642,507
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and liabilities
in foreign currencies 248,174,873
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $2,082,567,170
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,256,672,330 divided by 74,280,391 shares) $16.92
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $16.92)* $17.95
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($700,535,897 divided by 41,707,480 shares)** $16.80
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($7,189,292 divided by 425,590 shares)** $16.89
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($65,978,591 divided by 3,923,243 shares) $16.82
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $16.82)* $17.43
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class Y share
($52,191,060 divided by 3,083,683 shares) $16.92
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group
sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended May 31, 1999 (Unaudited)
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $18,636) $ 17,754,758
- -----------------------------------------------------------------------------------------------
Interest 6,241,564
- -----------------------------------------------------------------------------------------------
Total investment income 23,996,322
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 5,218,090
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,268,337
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 8,276
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 8,017
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,458,585
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 3,330,098
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 11,129
- -----------------------------------------------------------------------------------------------
1999* 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations: Distribution fees -- Class M (Note 2) 235,075
- -----------------------------------------------------------------------------------------------
Reports to shareholders 33,841
- -----------------------------------------------------------------------------------------------
Registration fees 36,400
- -----------------------------------------------------------------------------------------------
Auditing 40,326
- -----------------------------------------------------------------------------------------------
Legal 5,239
- -----------------------------------------------------------------------------------------------
Postage 81,386
- -----------------------------------------------------------------------------------------------
Other 108,202
- -----------------------------------------------------------------------------------------------
Total expenses 11,843,001
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (168,073)
- -----------------------------------------------------------------------------------------------
Net expenses 11,674,928
- -----------------------------------------------------------------------------------------------
Net investment income 12,321,394
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 151,483,109
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (145,168)
- -----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (79,742)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities
in foreign currencies during the period 80,863
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures,
and TBA sales during the period 32,828,154
- -----------------------------------------------------------------------------------------------
Net gain on investments 184,167,216
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $196,488,610
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
May 31 November 30
---------------------------------
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 12,321,394 $ 22,974,148
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 151,258,199 166,644,057
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments
and assets and liabilities in foreign currencies 32,909,017 (3,997,343)
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 196,488,610 185,620,862
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (9,688,712) (15,753,429)
- ---------------------------------------------------------------------------------------------------------------
Class B (3,223,052) (4,888,322)
- ---------------------------------------------------------------------------------------------------------------
Class C (10,681) --
- ---------------------------------------------------------------------------------------------------------------
Class M (376,240) (600,344)
- ---------------------------------------------------------------------------------------------------------------
Class Y (265,103) --
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (101,155,816) (43,816,633)
- ---------------------------------------------------------------------------------------------------------------
Class B (58,859,412) (23,667,013)
- ---------------------------------------------------------------------------------------------------------------
Class M (5,453,604) (2,487,768)
- ---------------------------------------------------------------------------------------------------------------
Class Y (879,675) --
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 243,693,416 336,733,983
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 260,269,731 431,141,336
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 1,822,297,439 1,391,156,103
- ---------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of net
investment income and undistributed net investment
income of $974,464 and $267,930, respectively) $2,082,567,170 $1,822,297,439
- ---------------------------------------------------------------------------------------------------------------
* Unaudited
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
- --------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share May 31
operating performance (Unaudited) Year ended November 30
- --------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $16.94 $16.04 $13.29 $10.93 $8.49 $8.67
- --------------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income .13(c) .27(c) .30 .31 .32 .32
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.52 1.68 2.74 2.37 2.44 (.18)
- --------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.65 1.95 3.04 2.68 2.76 .14
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.14) (.28) (.29) (.32) (.32) (.32)
- --------------------------------------------------------------------------------------------------------------------------------
From net
realized gains (1.53) (.77) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.67) (1.05) (.29) (.32) (.32) (.32)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.92 $16.94 $16.04 $13.29 $10.93 $8.49
- --------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 10.89* 12.91 23.15 24.96 33.17 1.59
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,256,672 $1,114,690 $878,766 $566,133 $391,551 $304,124
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .47* .99 1.06 1.09 1.13 1.04
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .77* 1.68 2.02 2.61 3.32 3.67
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 60.32* 94.77 82.48 67.56 70.39 82.49
- --------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share May 31
operating performance (Unaudited) Year ended November 30
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $16.83 $15.95 $13.23 $10.89 $8.46 $8.65
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .06(c) .15(c) .19 .21 .23 .26
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.52 1.66 2.73 2.37 2.46 (.18)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.58 1.81 2.92 2.58 2.69 .08
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.08) (.16) (.20) (.24) (.26) (.27)
- ---------------------------------------------------------------------------------------------------------------------------------
From net
Realized gains (1.53) (.77) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.61) (.93) (.20) (.24) (.26) (.27)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.80 $16.83 $15.95 $13.23 $10.89 $8.46
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 10.49* 12.04 22.24 24.06 32.30 .86
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $700,536 $638,660 $463,506 $221,259 $83,646 $32,114
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .85* 1.74 1.81 1.84 1.87 1.78
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .40* .95 1.25 1.86 2.63 3.02
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 60.32* 94.77 82.48 67.56 70.39 82.49
- ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS C
- --------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Feb. 1, 1999+
operating performance to May 31
- --------------------------------------------------------------------------------------------------------------------------------
1999
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $15.76
- --------------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income .03(c)
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.17
- --------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.20
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.07)
- --------------------------------------------------------------------------------------------------------------------------------
From net
realized gains --
- --------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income --
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (.07)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.89
- --------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 7.61*
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $7,189
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .56*
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .25*
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 60.32*
- --------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- --------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share May 31 Dec. 2, 1994+
operating performance (Unaudited) Year ended November 30 to Nov. 30
- --------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $16.85 $15.96 $13.23 $10.89 $8.45
- --------------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income .09(c) .19(c) .23 .25 .28(c)
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.51 1.67 2.73 2.36 2.45
- --------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.60 1.86 2.96 2.61 2.73
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.10) (.20) (.23) (.27) (.29)
- --------------------------------------------------------------------------------------------------------------------------------
From net
realized gains (1.53) (.77) -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.63) (.97) (.23) (.27) (.29)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.82 $16.85 $15.96 $13.23 $10.89
- --------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------------
Total return
at net asset value (%)(a) 10.62* 12.35 22.58 24.35 32.89*
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $65,979 $58,891 $48,884 $22,254 $7,051
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .73* 1.49 1.56 1.59 1.60*
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .52* 1.17 1.50 2.11 2.99*
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 60.32* 94.77 82.48 67.56 70.39
- --------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS Y
- --------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share May 31 Oct. 1, 1998+
operating performance (Unaudited) to Nov. 30
- --------------------------------------------------------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $16.94 $14.88
- --------------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income .14(c) .05(c)
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.53 2.01
- --------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.67 2.06
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.16) --
- --------------------------------------------------------------------------------------------------------------------------------
From net
realized gains (1.53) --
- --------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.69) --
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.92 $16.94
- --------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 11.02* 13.84*
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $52,191 $10,057
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .35* .12*
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .89* .33*
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 60.32* 94.77
- --------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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.
</TABLE>
Notes to financial statements
May 31, 1999 (Unaudited)
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, class C, class M and class Y shares. The
fund began offering class C shares on February 1, 1999. 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 C shares are
subject to the same fees and expenses as class B shares, except that class
C shares have a one-year 1.00% contingent deferred sales charge and do not
convert to class A shares. Class M shares are sold with a maximum front
end sales charge of 3.50% and pay an ongoing distribution fee that is
higher than class A shares but lower than class B shares. Class Y shares,
which are sold at net asset value, are generally subject to the same
expenses as class A, class B, class C and class M shares, but do not bear
a distribution fee. Class Y shares are sold to defined contribution plans
that invest at least $150 million in a combination of Putnam funds and
other accounts managed by affiliates of Putnam Management, Inc. ("Putnam
Management"), the fund's Manager, a wholly-owned subsidiary of Putnam
Investments, Inc.
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 that 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 Management. 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. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. 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,
stepped-coupon bonds and payment in kind bonds are accreted according to
the yield-to-maturity basis.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and 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 realized 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 six months
ended May 31, 1999, 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.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations.
Note 2
Management 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, 0.395% 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 six months ended May 31, 1999, fund expenses were reduced by
$168,073 under expense offset arrangements with PFTC and brokerage service
arrangements. Investor servicing and custodian fees reported in the
Statement of operations exclude these credits. The fund could have
invested a portion of the assets utilized in connection with the expense
offset arrangements in an income producing asset if it had not entered
into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $1,440
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, class C 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%,
1.00% and 1.00% of the average net assets attributable to class A, class
B, class C and class M shares, respectively. The Trustees have approved
payment by the fund at an annual rate of 0.25%, 1.00%, 1.00% and 0.75% of
the average net assets attributable to class A, class B, class C and class
M shares respectively.
For the six months ended May 31, 1999, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $265,824 and $13,020 from the
sale of class A and class M shares, respectively and received $518,521 and
$116 in contingent deferred sales charges from redemptions of class B and
C shares respectively. A deferred sales charge of up to 1% is assessed on
certain redemptions of class A shares. For the six months ended May 31,
1999, Putnam Mutual Funds Corp., acting as underwriter received $10,032 on
class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended May 31, 1999, purchases and sales of
investment securities other than U.S. government obligations and
short-term investments aggregated $992,065,342 and $908,095,107,
respectively. Purchases and sales of U.S. government obligations
aggregated $226,175,510 and $224,820,035, respectively. In determining the
net gain or loss on securities sold, the cost of securities has been
determined on the identified cost basis.
Note 4
Capital shares
At May 31, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended May 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 11,636,953 $189,626,599
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,415,879 97,891,594
- -----------------------------------------------------------------------------
18,052,832 287,518,193
Shares
repurchased (9,578,113) (154,725,824)
- -----------------------------------------------------------------------------
Net increase 8,474,719 $132,792,369
- -----------------------------------------------------------------------------
Year ended November 30, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 21,169,953 $344,177,669
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,840,524 43,521,128
- -----------------------------------------------------------------------------
24,010,477 387,698,797
Shares
repurchased (12,978,540) (209,394,730)
- -----------------------------------------------------------------------------
Net increase 11,031,937 $178,304,067
- -----------------------------------------------------------------------------
Six months ended May 31, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 7,930,168 $129,005,682
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,633,487 55,054,410
- -----------------------------------------------------------------------------
11,563,655 184,060,092
Shares
repurchased (7,809,181) (126,306,342)
- -----------------------------------------------------------------------------
Net increase 3,754,474 $ 57,753,750
- -----------------------------------------------------------------------------
Year ended November 30, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 17,303,591 $279,177,147
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,488,102 22,610,691
- -----------------------------------------------------------------------------
18,791,693 301,787,838
Shares
repurchased (9,903,764) (159,004,351)
- -----------------------------------------------------------------------------
Net increase 8,887,929 $142,783,487
- -----------------------------------------------------------------------------
For the period February 1, 1999
(commencement of operations)
to May 31, 1999
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 431,106 $ 7,075,211
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 600 9,664
- -----------------------------------------------------------------------------
431,706 7,084,875
Shares repurchased (6,116) (100,403)
- -----------------------------------------------------------------------------
Net increase 425,590 $ 6,984,472
- -----------------------------------------------------------------------------
Six months ended May 31, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 553,610 $ 8,957,528
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 361,595 5,484,568
- -----------------------------------------------------------------------------
915,205 14,442,096
Shares
repurchased (487,572) (7,831,764)
- -----------------------------------------------------------------------------
Net increase 427,633 $ 6,610,332
- -----------------------------------------------------------------------------
Year ended November 30, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,517,130 $24,681,871
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 168,430 2,563,922
- -----------------------------------------------------------------------------
1,685,560 27,245,793
Shares
repurchased (1,252,920) (20,406,487)
- -----------------------------------------------------------------------------
Net increase 432,640 $ 6,839,306
- -----------------------------------------------------------------------------
Six months ended May 31, 1999
- -----------------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,900,649 $46,130,197
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 60,821 1,144,778
- -----------------------------------------------------------------------------
2,961,470 47,274,975
Shares
repurchased (471,377) (7,722,482)
- -----------------------------------------------------------------------------
Net increase 2,490,093 $39,552,493
- -----------------------------------------------------------------------------
For the period October 1, 1998
(commencement of operations)
to November 30, 1998
- -----------------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------------
Shares sold 670,650 $10,073,469
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
670,650 10,073,469
Shares
repurchased (77,060) (1,266,346)
- -----------------------------------------------------------------------------
Net increase 593,590 $ 8,807,123
- -----------------------------------------------------------------------------
Welcome to www.putnaminv.com
Now you can use your PC to get up-to-date information about your funds, learn
more about investing and retirement planning, and access market news and
economic outlooks from Putnam.
Visit Putnam's site on the World Wide Web FOR:
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New features will be added to the site regularly. So be sure to bookmark us
at
http://www.putnaminv.com
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds. 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.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities 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 [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Vista Fund
Voyager Fund
Voyager Fund II
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
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
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
ASSET ALLOCATION 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 Putnam Diversified Income Trust II
[DBL. DAGGER] Closed to new investors. Some exceptions may apply. Contact
Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
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
Anthony I. Kreisel
Vice President
Edward P. Bousa
Vice President and Fund Manager
James M. Prusko
Vice President and Fund Manager
David L. Waldman
Vice President and Fund Manager
Krishna Memani
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
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' Web site: 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
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
SA020-53223 012/192/626 7/99
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
Putnam Equity Income Fund
Supplement to Semiannual Report dated 5/31/99
The following information has been prepared to provide class Y shareholders
with a performance overview specific to their holdings. Class Y shares are
offered exclusively to defined contribution plans investing $150 million or
more in one or more of Putnam's funds or private accounts. Performance of
class Y shares, which incur neither a front-end load, distribution fee, nor
contingent deferred sales charge, will differ from performance of class A,
class B, and class M shares, which are discussed more extensively in the
semiannual report.
SEMIANNUAL RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return
for periods ended 5/30/99 NAV
6 months 11.02%
1 year 13.01
5 years 157.44
Annual average 20.82
10 years 270.42
Annual average 13.99
Life of fund (since class A inception, 6/15/77) 1327.51
Annual average 12.87
Share value: NAV
11/30/98 $16.94
5/31/99 $16.92
- ----------------------------------------------------------------------------
Long-term Short-term
Distributions: No. Income capital gains capital gains Total
2 $0.16 $1.233 $0.3012 $1.6942
- ----------------------------------------------------------------------------
Please note that past performance does not indicate future results. Returns
shown for class Y shares for periods prior to their inception are derived
from the historical performance of class A shares, adjusted to reflect the
initial sales charge currently applicable to class A shares. These returns
have not been adjusted to reflect differences in operating expenses which,
for class Y shares, are lower than the operating expenses applicable to
class A shares. All returns assume reinvestment of distributions at net
asset value. Performance data reflect an expense limitation previously in
effect. Without the expense limitation, total returns would have been lower.
Investment return and principal value will fluctuate so your shares, when
redeemed, may be worth more or less than their original cost. See full
report for information on comparative benchmarks. If you have questions,
please consult your fund prospectus or call Putnam toll free at
1-800-752-9894.
