Putnam
Equity
Income
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
11-30-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The markets continued to provide their share of challenges and
opportunities as your fund closed its books on fiscal 1999. In the
following report, the fund's managers discuss performance for the period
and prospects for the months ahead.
This is the last letter to you and the other shareholders of Putnam Equity
Income Fund that I will be signing. After more than 30 years as Chairman
of the Trustees and President of the Putnam Funds, the time has come for
me to step aside.
In June, John Hill will become Chairman. John is currently an independent
Trustee and has served on the board for the past 14 years. In addition, my
son, George Putnam, III, will take on the role of President. I am
confident that the leadership of the funds will be in exceptionally strong
hands.
I will become Chairman Emeritus, remain a shareholder, and stay in close
touch with the funds. It has been my privilege to serve you.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
January 19, 2000
Report from the Fund Managers
Edward P. Bousa,
lead manager
James M. Prusko
David L. Waldman
Krishna Memani
While there is much positive news to report from the stock market in 1999,
we believe that much of it has yet to be reflected in Putnam Equity Income
Fund's returns. Many sectors well represented in the portfolio, especially
energy, basic materials, and industrial stocks that were previously out of
favor, posted solid gains during the fund's fiscal year, which concluded
on November 30. Companies in these sectors benefited from improving global
economic growth, and this trend is likely to continue.
In comparison with the overall market, however, dividend-paying stocks
lagged behind. This was especially apparent in the second half of the year
because of the effects of rising interest rates. As reports showed that
the economy was growing faster than expected, the Federal Reserve Board
raised interest rates more aggressively than it has since 1994. While
these factors kept the fund's gains moderate, they also set up a situation
in which yield levels are becoming more attractive.
Total return for 12 months ended 11/30/99
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- ---------------------------------------------------------------------------
4.16% -1.81% 3.34% -1.30% 3.41% 2.49% 3.60% -0.02%
- ---------------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods and explanation of performance calculation
methods begin on page 7.
* DIVIDEND-PAYING STOCKS SIDELINED IN TECHNOLOGY RALLY
To achieve an attractive level of income in this fund, we invest primarily
in dividend-paying stocks, and keep a portion of assets -- generally 5% to
10% of the portfolio -- invested in a diversified portfolio of bonds. In
selecting stocks, we try to identify those that yield more than the
average of the Standard and Poor's 500(R) Index, which contains the
largest companies in the United States. We seek to buy stocks when they
fall out of favor, their valuations sink to bargain levels, and their
dividend yields rise. We hold them while the companies develop and execute
positive changes that improve their earnings and share prices. Finally we
sell stocks when they are, in our opinion, fairly valued.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Insurance and
finance 20.5%
Utilities 14.8%
Oil and gas 11.3%
Food and
beverages 5.8%
Pharmaceuticals 4.4%
Footnote reads:
*Based on net assets as of 11/30/99. Holdings will vary over time.
For much of this year, the stocks we sold at what we considered fair value
continued to rise afterwards, while many of those that we bought at what
we considered undervalued prices have not yet appreciated. In the past
year, investors have paid less heed to the certainties of dividends than
to the possibilities created by new technologies. Meanwhile, many untested
companies lacking not only dividends but also revenues and profits have,
nonetheless, enjoyed rapid stock price appreciation. Investors are excited
about what these companies might achieve in the future. But we believe
that for the time being many investors have overlooked the fact that the
technologies newer companies are developing also help other companies from
a broad variety of sectors. From paper manufacturers to airlines, many of
the companies represented in your fund are using computers and the
Internet to cut costs and improve future earnings growth. In sum, we
believe the portfolio is well positioned with dividend-paying stocks of
companies undertaking positive changes to be competitive as the technology
landscape changes.
* GLOBAL ECONOMIC REBOUND BOOSTS VALUE SECTORS
While value stocks generally underperformed the broad market, we
nevertheless owned several stocks that provided strong performance. We
believe these successes reflect the reliability of our value-oriented
approach. They also represent a harbinger of events that could likely
follow once investors recognize the attributes of our holdings.
The basic materials sector experienced a strong rebound from the depressed
levels it reached in 1998. In the wake of the Asian financial crisis of
1997/98, demand for materials such as chemicals, metals, and paper
products dropped, and it was not until early 1999, when the Asian economic
decline reached bottom, that these companies were able to shake off the
effects. Two holdings that performed well in the ensuing months were
Weyerhaeuser, a large paper manufacturer, and Union Carbide, a chemicals
company. The managers of these companies were not idly waiting for
business conditions to improve but instead seizing opportunities for
positive change. During the past year, Weyerhaeuser acquired
MacMillan-Bloedel, a leading Canadian paper company that controls valuable
timberlands north of the border and gives Weyerhaeuser more attractive
growth possibilities internationally. In August, Union Carbide agreed to
merge with Dow Chemical. The new entity will become the world's second
largest chemicals company and will be well positioned to take advantage of
rising chemical prices with a broader range of products throughout the
world. Although these holdings as well others mentioned 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.
Reflecting its competitive performance over longer time periods, Putnam Equity
Income Fund's class A shares were ranked in the top 16% by Lipper for the
5-year period ended 12/31/99. The fund's returns placed 30 out of 118 equity
income funds ranked for the period.
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 147 out of 238 funds (62%) for
the 1-year period and 18 out of 44 funds (40%) for the 10-year period.
Value stocks in the new economy
Forces driving economic change can benefit a broad variety of companies beyond
the technology sector. The Internet, for example, a driving force in economic
change, can help large, established companies to cut their costs and enhance
their earnings. Putnam Equity Income Fund's lead manager Edward Bousa has
found several such opportunities. Take airlines for example. "They're going to
be able to print tickets over the Internet without the cost of the travel
agent. That will save them a lot of money." In the automobile industry,
"Factory planning and automation can be done on-line, saving costs in the
design and manufacture of automobiles." Ford and General Motors, for example,
have announced plans to purchase auto components through the Internet. The
capital discipline that many companies in traditional sectors -- energy,
industrial, even utilities -- are practicing is also beneficial. As more
efficient producers, these companies can profit doubly when pricing power
improves for their products.
Energy companies have also benefited from rebounding economies, in which
the industrial and consumer sectors are demanding greater amounts of fuel.
Fund holding Royal Dutch Petroleum, one of the three largest oil companies
in the world, was one of these beneficiaries. Two other top holdings,
Exxon and Mobil, recently completed their merger during the period. Over
the past decade, Exxon was among the most cost-efficient oil companies,
and with Mobil's marketing prowess it is in a position to achieve better
earnings growth.
* INTEREST RATES PUNISH BONDS, UTILITIES
Helping the global economy recover was a stronger-than-expected U.S.
economy. However, with the unemployment rate lower than it has been in 30
years, the bond market soon reflected concerns about the possibility of
inflation. The Federal Reserve Board decided to act preemptively and has
raised short-term interest rates three times since June.
As a result of the rate increases, bonds generally lost ground in the
second half of the fund's fiscal year. During most of the fiscal year the
bond portion of your fund represented just under 10% of assets and was
well positioned for rising rates by emphasizing mortgage-backed and
corporate bonds. These sectors withstood the effects of rising interest
rates to a greater extent than Treasuries did. In our opinion, bonds
currently offer attractive yields and may be poised to achieve capital
appreciation as the economy slows in 2000.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
SBC Communications, Inc.
Utilities
AT&T Corp.
Utilities
Exxon Corp.
Oil and gas
Bank of America Corp.
Insurance and finance
Citigroup, Inc.
Insurance and finance
Mobil Corp.
Oil and gas
Bell Atlantic Corp.
Utilities
GTE Corp.
Utilities
Weyerhaeuser Co.
Paper and forest products
Abbott Laboratories
Health care
Footnote reads:
These holdings represent 17.3% of the fund's net assets as of 11/30/99.
Portfolio holdings will vary over time.
Several sectors of the equity portfolio also felt the negative impact of
rising interest rates. Traditionally utilities have underperformed in
periods of rising interest rates and this happened again in 1999.
Financial stocks also are sensitive to rising rates. Although the fund
held many strong banking and insurance stocks, the sector as a whole
underperformed the market. Among the fund's holdings, Bank One had
disappointing earnings because of problems in its First USA credit card
division.
* VALUE STOCKS IN COMPETITIVE POSITION
The trends that contributed to the outperformance of many value sectors in
the middle of the past fiscal year remain in place for the coming year.
For example, global economic growth is likely to accelerate. Many of the
companies we hold in this fund have successfully globalized their
operations and can take advantage of growing demand for everything from
energy to industrial products to financial services. We also believe that
the fund is positioned to capitalize on well-established companies that
are finding new, more efficient ways to do business using computer and
Internet technologies. Finally consolidation in many of the sectors we
favor, such as energy, financials, and basic materials, will allow newly
formed entities to become more profitable. We believe that over time the
market will gradually recognize and reward the positive changes in these
businesses. In the meantime, we believe that our portfolio of undervalued
stocks is much less vulnerable to volatility than the overall market.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 11/30/99, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
This section provides information about your fund's performance, which should
always be considered in light of its investment strategy. Putnam Equity
Income Fund is designed for investors seeking high 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 11/30/99
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>
1 year 4.16% -1.81% 3.34% -1.30% 3.41% 2.49% 3.60% -0.02%
- --------------------------------------------------------------------------------------------
5 years 141.03 127.12 132.28 130.28 132.09 132.09 134.66 126.40
Annual average 19.24 17.83 18.36 18.15 18.34 18.34 18.60 17.75
- --------------------------------------------------------------------------------------------
10 years 241.04 221.28 216.06 216.06 216.15 216.15 223.60 212.32
Annual average 13.05 12.38 12.20 12.20 12.20 12.20 12.46 12.06
- --------------------------------------------------------------------------------------------
Annual average
(life of fund) 12.25 11.95 11.24 11.24 11.40 11.40 11.51 11.34
- --------------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/99
S&P 500 Composite Consumer
Stock Price Index price index
- ----------------------------------------------------------------------
1 year 20.90% 2.68%
- ----------------------------------------------------------------------
5 years 236.51 12.49
Annual average 27.47 2.38
- ----------------------------------------------------------------------
10 years 415.23 33.76
Annual average 17.82 2.95
- ----------------------------------------------------------------------
Annual average
(life of fund) 16.57 4.66
- ----------------------------------------------------------------------
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-, 5-, and 10-year
(where available) 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.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 11/30/89
Fund's class A S&P 500 Consumer price
Date shares at POP Index index
11/30/89 9,421 10,000 10,000
11/30/90 8,426 9,653 10,627
11/30/91 10,038 11,617 10,945
11/30/92 11,209 13,763 11,279
11/30/93 13,120 15,152 11,581
11/30/94 13,329 15,311 11,890
11/30/95 17,751 20,973 12,200
11/30/96 22,182 26,817 12,597
11/30/97 27,316 34,463 12,828
11/30/98 30,843 42,617 13,026
11/30/99 $32,128 $51,523 $13,376
Footnote reads:
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B or class C shares
would have been valued at $31,606 and $31,615, respectively, and no
contingent deferred sales charges would apply; a $10,000 investment in the
fund's class M shares would have been valued at $32,360 ($31,232 at public
offering price).
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 11/30/99
Class A Class B Class C Class M
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distributions (number) 4 4 3 4
- ----------------------------------------------------------------------------------------
Income $0.242 $0.120 $0.163 $0.161
- ----------------------------------------------------------------------------------------
Capital gains
Long-term 1.233 1.233 -- 1.233
- ----------------------------------------------------------------------------------------
Short-term 0.339 0.339 -- 0.339
- ----------------------------------------------------------------------------------------
Total $1.814 $1.692 $0.163 $1.733
- ----------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- ----------------------------------------------------------------------------------------
11/30/98 $16.94 $17.97 $16.83 -- $16.85 $17.46
- ----------------------------------------------------------------------------------------
02/01/99* -- -- -- $15.76 -- --
- ----------------------------------------------------------------------------------------
11/30/99 15.76 16.72 15.64 15.71 15.66 16.23
- ----------------------------------------------------------------------------------------
Current return (end of period)
- ----------------------------------------------------------------------------------------
Current dividend rate1 1.78% 1.67% 0.97% 1.12% 1.25% 1.21%
- ----------------------------------------------------------------------------------------
Current 30-day
SEC yield2 1.79 1.69 1.03 1.03 1.28 1.21
- ----------------------------------------------------------------------------------------
* 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>
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 12/31/99 (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>
1 year 1.07% -4.73% 0.24% -4.23% 0.34% -0.55% 0.56% -2.94%
- --------------------------------------------------------------------------------------------
5 years 135.29 121.75 126.40 124.40 126.71 126.71 129.30 121.23
Annual average 18.66 17.27 17.75 17.54 17.79 17.79 18.05 17.21
- --------------------------------------------------------------------------------------------
10 years 236.49 217.01 211.79 211.79 212.04 212.04 219.20 208.02
Annual average 12.90 12.23 12.04 12.04 12.05 12.05 12.31 11.91
- --------------------------------------------------------------------------------------------
Annual average
(life of fund) 12.14 11.84 11.13 11.13 11.29 11.29 11.41 11.23
- --------------------------------------------------------------------------------------------
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 section for performance calculation method.
</TABLE>
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 class 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 and Poor's 500 Composite Stock Price Index is an index of common
stocks frequently used as a general measure of stock market performance.
Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, 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 are determined. All investment and noninvestment 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 sources 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-end funds, a separate
table is provided for each share class.
Report of independent accountants
The Board of Trustees and Shareholders
Putnam Equity Income Fund
We have audited the accompanying statement of assets and liabilities of
Putnam Equity Income Fund, including the fund's portfolio, as of November
30, 1999, and the related statement of operations, statement of changes in
net assets and financial highlights for the year or period then ended.
These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audit.
The statement of changes in net assets for the year ended November 30,
1998, and the financial highlights for each of the years or periods in the
four-year period ended November 30, 1998 were audited by other auditors
whose report dated January 14, 1999 expressed an unqualified opinion on
that financial statement and those financial highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of November 30, 1999 by correspondence
with the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Putnam Equity Income Fund as of November 30, 1999, the results of its
operations, changes in its net assets and financial highlights for the
year or period then ended, in conformity with generally accepted
accounting principles.
KPMG LLP
Boston, Massachusetts
January 5, 2000
<TABLE>
<CAPTION>
The fund's portfolio
November 30, 1999
COMMON STOCKS (91.1%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Aerospace and Defense (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
298,900 Boeing Co. $ 12,198,856
353,300 Raytheon Co. Class B 10,841,894
--------------
23,040,750
Agriculture (--%)
- --------------------------------------------------------------------------------------------------------------------------
1,101 PSF Holdings LLC Class A 13,487
Automotive (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
339,200 Ford Motor Co. 17,129,600
226,900 General Motors Corp. 16,336,800
195,900 Lear Corp. (NON) 6,476,944
--------------
39,943,344
Basic Industrial Products (3.4%)
- --------------------------------------------------------------------------------------------------------------------------
56,500 Caterpillar, Inc. 2,620,188
380,000 Dover Corp. 16,482,500
145,700 Ingersoll-Rand Co. 7,057,344
223,200 Minnesota Mining & Manufacturing Co. 21,329,550
473,300 Owens-Illinois, Inc. (NON) 11,329,619
138,000 W W Grainger 6,503,250
--------------
65,322,451
Business Equipment and Services (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
273,400 Hewlett-Packard Co. 25,938,825
127,500 Pitney Bowes, Inc. 6,112,031
301,100 Xerox Corp. 8,148,519
--------------
40,199,375
Chemicals (3.6%)
- --------------------------------------------------------------------------------------------------------------------------
116,000 Air Products & Chemicals, Inc. 3,755,500
146,000 Dow Chemical Co. 17,100,250
151,128 du Pont (E.I.) de Nemours & Co., Ltd. 8,982,671
131,900 Eastman Chemical Co. 5,127,613
447,800 Engelhard Corp. 7,528,637
283,500 Monsanto Co. 11,960,156
229,000 PPG Industries, Inc. 13,410,813
--------------
67,865,640
Computer Services and Software (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
235,100 Computer Associates International, Inc. 15,281,500
176,300 Electronic Data Systems Corp. 11,338,294
187,100 IBM Corp. 19,282,994
--------------
45,902,788
Conglomerates (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
57,500 Temple Inland, Inc. 3,291,875
207,600 United Technologies Corp. 11,729,400
--------------
15,021,275
Consumer Durable Goods (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
598,507 Hasbro, Inc. 12,905,307
152,800 Whirlpool Corp. 9,320,800
--------------
22,226,107
Consumer Non Durables (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
288,400 Kimberly-Clark Corp. 18,421,550
373,400 Philip Morris Cos., Inc. 9,825,088
--------------
28,246,638
Consumer Services (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
220,200 Marriott International, Inc. Class A 7,170,263
936,500 Service Corp. International 7,082,281
--------------
14,252,544
Electronics and Electrical Equipment (3.0%)
- --------------------------------------------------------------------------------------------------------------------------
110,500 Eaton Corp. 8,556,844
284,600 Emerson Electric Co. 16,222,200
159,100 Illinois Tool Works, Inc. 10,301,725
184,000 Motorola, Inc. 21,022,000
--------------
56,102,769
Entertainment (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
417,000 Disney (Walt) Productions, Inc. 11,623,875
197 Fitzgerald Gaming Corp. 49
--------------
11,623,924
Environmental Control (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
637,000 Waste Management, Inc. 10,351,250
Food and Beverages (5.8%)
- --------------------------------------------------------------------------------------------------------------------------
364,200 Fortune Brands, Inc. 12,451,088
329,300 Heinz (H.J.) Co. 13,789,438
586,700 Nabisco Group Holdings Corp. 6,783,719
50,900 Nabisco Holdings Corp. Class A 1,695,606
696,100 Pepsi Bottling Group, Inc. (The) 12,181,750
417,100 PepsiCo, Inc. 14,416,019
793,150 Sara Lee Corp. 19,233,888
309,300 Seagram Co., Ltd. 13,473,881
448,700 SYSCO Corp. 17,078,644
--------------
111,104,033
Health Care (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
684,500 Abbott Laboratories 26,011,000
703,200 HEALTHSOUTH Corp. (NON) 3,999,450
--------------
30,010,450
Insurance and Finance (19.0%)
- --------------------------------------------------------------------------------------------------------------------------
72,500 Aetna Inc. 3,960,313
410,700 Allstate Corp. 10,755,206
177,900 American General Corp. 13,042,294
249,800 AON Corp. 8,914,738
555,452 Bank of America Corp. 32,493,942
379,500 Bank One Corp. 13,377,375
440,500 BB&T Corp. 14,151,063
253,070 Bear Stearns Companies, Inc. (The) 10,328,419
513,900 Charter One Financial, Inc. 11,145,206
130,280 CIGNA Corp. 10,715,530
596,675 Citigroup, Inc. 32,145,866
308,300 Comerica, Inc. 16,339,900
381,000 Fannie Mae 25,384,125
348,344 FleetBoston Financial Corp. 13,171,758
361,900 Hartford Financial Services Group 16,896,206
276,800 Household International, Inc. 10,950,900
40,900 Jefferson-Pilot Corp. 2,776,088
172,900 MBNA Corp. 4,365,725
55,500 Morgan (J.P.) & Co., Inc. 7,298,250
462,300 National City Corp. 11,528,606
268,000 PNC Bank Corp. 14,941,000
431,687 Synovus Financial Corp. 8,633,740
403,000 Torchmark Corp. 12,795,250
328,400 UnumProvident Corp. 10,693,525
544,800 U.S. Bancorp 18,625,350
417,050 Washington Mutual, Inc. 12,094,450
318,000 Wells Fargo Co. 14,787,000
--------------
362,311,825
Lodging (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
438,500 Starwood Hotels & Resorts Worldwide, Inc. 9,784,031
Medical Supplies and Devices (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
168,700 Baxter International, Inc. 11,397,794
106,800 Mallinckrodt Inc. 3,551,100
--------------
14,948,894
Metals and Mining (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
150,800 Alcoa Inc. 9,877,400
Oil and Gas (11.0%)
- --------------------------------------------------------------------------------------------------------------------------
508,800 Baker Hughes, Inc. 12,847,200
217,200 Chevron, Inc. 19,235,775
463,200 Conoco, Inc. Class A 12,187,950
255,387 Conoco, Inc. Class B 6,687,947
268,900 El Paso Energy Corp. 10,352,650
483,600 Exxon Corp. 38,355,525
222,700 Halliburton Co. 8,615,706
287,100 Mobil Corp. 29,948,119
442,500 Royal Dutch Petroleum Co. PLC ADR (Netherlands) 25,665,000
514,200 Tosco Corp. 13,915,538
204,307 Total S.A. ADR (France) 13,509,800
632,200 Union Pacific Resources Group Inc. 8,258,113
322,600 Williams Cos., Inc. 10,887,750
--------------
210,467,073
Paper and Forest Products (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
396,800 Mead Corp. 14,160,800
435,400 Weyerhaeuser Co. 26,668,250
--------------
40,829,050
Pharmaceuticals (4.4%)
- --------------------------------------------------------------------------------------------------------------------------
455,600 American Home Products Corp. 23,691,200
176,000 Bristol-Myers Squibb Co. 12,859,000
307,000 Merck & Co., Inc. 24,099,500
432,170 Pharmacia & Upjohn, Inc. 23,634,297
--------------
84,283,997
Publishing (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
252,000 McGraw-Hill, Inc. 14,285,250
Real Estate (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
339,000 Equity Office Properties Trust 7,436,813
331,800 Equity Residential Properties Trust (R) 13,334,213
--------------
20,771,026
Retail (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
170,100 Albertsons, Inc. 5,432,569
371,900 Federated Department Stores, Inc. 17,502,544
3 Mothers Work, Inc. (NON) 31
476,500 Rite Aid Corp. 3,603,531
--------------
26,538,675
Telecommunications (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
228,800 ALLTEL Corp. 19,791,200
109 Intermedia Communications, Inc. 3,038
--------------
19,794,238
Textiles (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
578,041 Shaw Industries, Inc. 9,068,018
Transportation (2.8%)
- --------------------------------------------------------------------------------------------------------------------------
588,282 Burlington Northern Santa Fe Corp. 17,060,178
114,700 CSX Corp. 4,079,019
235,000 Delta Air Lines, Inc. 11,573,750
211,200 FDX Corp. 8,910,000
166,000 UAL Corp. 11,412,500
--------------
53,035,447
Utilities (14.6%)
- --------------------------------------------------------------------------------------------------------------------------
710,350 American Telephone & Telegraph Co. 39,690,806
432,200 Bell Atlantic Corp. 27,363,663
454,500 BellSouth Corp. 20,992,219
276,100 Carolina Power & Light Co. 8,317,513
289,500 CiNergy Corp. 7,327,969
195,200 Consolidated Natural Gas Co. 12,517,200
589,100 DPL, Inc. 10,530,163
396,034 Duke Energy Corp. 20,073,973
518,800 Entergy Corp. 14,299,425
370,700 GTE Corp. 27,061,100
615,800 OGE Energy Corp. 13,162,725
188,800 Pacific Gas & Electric Co. 4,224,400
970,691 SBC Communications, Inc. 50,415,264
485,700 Sempra Energy 8,985,450
380,050 Texas Utilities Co. 13,610,541
--------------
278,572,411
--------------
Total Common Stocks (cost $1,656,492,216) $1,735,794,160
CORPORATE BONDS AND NOTES (4.3%) (a)
PRINCIPAL AMOUNT VALUE
Advertising (--%)
- --------------------------------------------------------------------------------------------------------------------------
$ 60,000 Outdoor Systems, Inc. company guaranty 8 7/8s, 2007 $ 61,050
Aerospace and Defense (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
135,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 114,750
820,000 Boeing Co. deb. 6 5/8s, 2038 705,528
630,000 Litton Industries Inc. 144A notes 8s, 2009 627,600
625,000 Lockheed Martin Corp. bonds 8 1/2s, 2029 626,188
360,000 Raytheon Co notes 6.45s, 2002 351,839
435,000 Raytheon Co. deb. 6.4s, 2018 360,036
--------------
2,785,941
Agriculture (--%)
- --------------------------------------------------------------------------------------------------------------------------
205,000 IMC Global, Inc. notes 7.4s, 2002 202,802
14,230 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 13,092
--------------
215,894
Airlines (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,090,000 Airbus Industries 144A 8.027s, 2020 1,100,606
472,289 Continental Airlines, Inc. pass-thru certificates Ser. 981C,
6.541s, 2008 451,263
615,000 Continental Airlines, Inc. pass-thru certificates Ser. 98-2,
6.32s, 2008 567,491
469,603 Northwest Airlines Corp. pass-thru certificate Ser. 1999-1A,
6.81s, 2020 423,817
10,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 6,600
50,000 Trans World Airlines, Inc. sr. notes 11 3/8s, 2006 21,000
810,000 United Air Lines Corp. deb. 9 3/4s, 2021 901,093
--------------
3,471,870
Apparel (--%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 Fruit of the Loom company guaranty 8 7/8s, 2006 3,600
Automotive (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
405,000 Chrysler Corp. deb. Ser. B, 7.45s, 2097 382,652
280,000 Delphi Automotive Systems Corp. deb. 7 1/8s, 2029 249,984
295,000 Ford Motor Co. deb. 7.4s, 2046 279,595
730,000 Ford Motor Co. bonds 6 5/8s, 2028 646,306
60,000 Ford Motor Credit Corp. notes 6.55s, 2002 59,554
90,000 Lear Corp. sub. notes 9 1/2s, 2006 90,000
60,000 Navistar International Corp. sr. notes Ser. B, 7s, 2003 57,450
50,000 Talon Automotive Group sr. sub. notes Ser. B, 9 5/8s, 2008 31,000
--------------
1,796,541
Banks (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
875,000 BankAmerica Corp. sr. notes 5 7/8s, 2009 795,454
750,000 Bank United med. term notes Ser. A, 8s, 2009 699,833
560,000 Bayer Hypo-Vereinsbank 144A bonds 8.741s, 2031 (Denmark) 533,411
820,000 Citicorp sub. notes 6 3/8s, 2008 771,054
435,000 Colonial Bank sub. notes 8s, 2009 403,397
510,000 Dresdner Funding Trust I 144A notes 8.151s, 2031 473,285
365,000 First Citizens Bank Capital Trust I company guaranty 8.05s, 2028 319,375
500,000 Imperial Bank sub. notes 8 1/2s, 2009 471,875
300,000 Scotland International Finance 144A sub. notes 8.85s,
2006 (Netherlands) 319,494
150,000 Sovereign Bancorp Inc. sr. notes 10 1/2s, 2006 151,313
650,000 Sovereign Bancorp, Inc. sr. notes 6 5/8s, 2001 625,294
230,000 St. Paul Bancorp sr. notes 7 1/8s, 2004 221,564
155,000 State Street Institution 144A company guaranty 7.94s, 2026 149,088
240,000 Webster Capital Trust I 144A bonds 9.36s, 2027 225,494
--------------
6,159,931
Basic Industrial Products (--%)
- --------------------------------------------------------------------------------------------------------------------------
280,000 American Standard Companies, Inc. sr. notes 7 3/8s, 2008 257,600
65,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 62,265
--------------
319,865
Broadcasting (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 Allbritton Communications Co. sr. sub. notes Ser. B, 8 7/8s, 2008 28,800
21,200 AMFM Operating, Inc. deb. 12 5/8s, 2006 (PIK) 24,062
80,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 81,600
225,000 Chancellor Media Corp. sr. sub. notes 9 3/8s, 2004 228,938
10,000 Comcast Corp. sr. notes sub. 9 1/8s, 2006 10,324
30,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00),
2005 (United Kingdom) (STP) 27,900
55,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02),
2007 (United Kingdom) (STP) 44,000
25,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 25,375
10,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 9,600
40,000 Lenfest Communications, Inc. sr. sub. notes 10 1/2s, 2006 45,200
180,000 Lenfest Communications, Inc. sr. notes 8 3/8s, 2005 185,996
20,000 Lenfest Communications, Inc. sr. sub. notes 8 1/4s, 2008 19,900
30,000 SFX Entertainment Inc. company guaranty 9 1/8s, 2008 28,200
25,000 Sinclair Broadcast Group, Inc. company guaranty 9s, 2007 23,250
1,280,000 TCI Communications Inc deb. 8 3/4s, 2015 1,416,474
320,000 TCI Communications sr. notes 7 1/8s, 2028 299,446
--------------
2,499,065
Building and Construction (--%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 Albecca Inc. company guaranty 10 3/4s, 2008 22,875
30,000 Building Materials Corp. company guaranty 8s, 2008 27,450
10,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 9,470
250,000 D.R. Horton, Inc. company guaranty 8s, 2009 230,000
20,000 NCI Building Systems Inc. sr. sub. notes Ser. B, 9 1/4s, 2009 18,400
--------------
308,195
Business Equipment and Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
807,977 Federal Express Corp. pass-thru certificates Ser. 1998-1A,
6.72s, 2022 746,587
30,000 Iron Mountain, Inc. med. term notes company guaranty
10 1/8s, 2006 30,975
40,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 42,800
--------------
820,362
Cable Television (--%)
- --------------------------------------------------------------------------------------------------------------------------
8,187 Adelphia Communications Corp. sr. notes 9 1/2s, 2004 (PIK) 8,207
40,000 Adelphia Communications Corp. sr. notes Ser. B, 8 3/8s, 2008 37,700
10,000 Century Communications Corp. sr. notes 8 3/4s, 2007 9,600
25,000 CSC Holdings, Inc. sr. sub. deb. 10 1/2s, 2016 27,875
210,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2013 218,925
60,000 Lamar Media Corp. company guaranty 9 5/8s, 2006 61,050
10,000 Lamar Media Corp. sr. sub. notes 9 1/4s, 2007 9,863
30,000 TeleWest Communications PLC 144A sr. disc. notes
stepped-coupon zero % (9 1/4, 4/15/04),
2009 (United Kingdom) (STP) 18,675
--------------
391,895
Chemicals (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
55,000 Equistar Chemicals LP notes 9 1/8s, 2002 55,236
40,000 ISP Holdings, Inc. sr. notes Ser. B, 9 3/4s, 2002 40,100
120,000 Lyondell Petrochemical Co. notes Ser. A, 9 5/8s, 2007 123,300
540,000 Nova Chemicals Corp. deb. 7s, 2026 (Canada) 523,476
405,000 Rohm & Haas Co. deb. 7.85s, 2029 412,493
--------------
1,154,605
Computer Services and Software (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,410,000 IBM Corp. deb. 7 1/8s, 2096 1,329,433
Conglomerates (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
145,000 Canadian Pacific Ltd. deb. 9.45s, 2021 (Canada) 163,936
565,000 TRW, Inc. 144A notes 7 3/4s, 2029 541,219
95,000 Tyco International Ltd. company guaranty 6 3/8s, 2005 89,777
825,000 Tyco International Ltd. company guaranty 6 1/4s, 2003 792,347
--------------
1,587,279
Consumer Non Durables (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
50,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 50,625
750,000 Imperial Tobacco company guaranty 7 1/8s, 2009 (Netherlands) 683,288
305,000 Philip Morris Cos., Inc. notes 7 1/2s, 2004 299,382
185,000 Philip Morris Cos., Inc. notes 7 1/8s, 2004 179,918
180,000 Philip Morris Cos., Inc. notes 6.8s, 2003 175,311
30,000 Revlon Consumer Products sr. notes 9s, 2006 23,700
35,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 27,388
--------------
1,439,612
Consumer Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
150,000 Century Communications Corp. sr. notes 9 1/2s, 2005 149,625
50,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 51,750
610,000 Hertz Corp. sr. notes 6 1/2s, 2006 583,502
115,000 Hertz Corp. notes 6 1/4s, 2009 104,963
260,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 236,600
60,000 Jones Intercable, Inc. sr. sub. deb. 10 1/2s, 2008 63,300
21,000 Jones Intercable, Inc. sr. notes 9 5/8s, 2002 21,963
10,000 Sun International Hotels Ltd. sr. sub. notes 8 5/8s, 2007 9,300
--------------
1,221,003
Electronics and Electrical Equipment (--%)
- --------------------------------------------------------------------------------------------------------------------------
50,000 Amkor Technologies, Inc. 144A sr. notes 9 1/4s, 2006 48,250
10,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 9,700
30,000 Flextronics International Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 29,400
60,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 60,600
70,000 Wavetek Corp. company guaranty 10 1/8s, 2007 57,400
--------------
205,350
Energy-Related (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
585,000 Amerada Hess Corp. bonds 7 7/8s, 2029 577,688
20,000 Calpine Corp. sr. notes 7 7/8s, 2008 18,900
200,000 Calpine Corp. sr. notes 7 3/4s, 2009 186,660
845,000 KN Capital Trust III company guaranty 7.63s, 2028 727,123
390,000 Osprey Trust 144A sec. notes 8.31s, 2003 389,267
50,000 York Power Funding 144A company guaranty 12s,
2007 (Cayman Islands) 51,500
--------------
1,951,138
Entertainment (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
175,000 News America Holdings, Inc. deb. 7 3/4s, 2045 159,819
30,000 SFX Entertainment, Inc. 144A company guaranty Ser. B,
9 1/8s, 2008 28,275
10,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 4,100
435,000 Time Warner Entertainment Inc. notes 8 7/8s, 2012 477,834
680,000 Time Warner Entertainment sr. notes 8 3/8s, 2033 721,623
60,000 United Artists Theatre sr. sub. notes 9 3/4s, 2008 12,075
380,000 Walt Disney Co. med. term notes 5.62s, 2008 340,279
--------------
1,744,005
Environmental Control (--%)
- --------------------------------------------------------------------------------------------------------------------------
210,000 Allied Waste Industries, Inc. company guaranty Ser. B,
7 7/8s, 2009 186,375
40,000 Waste Management, Inc. 144A sr. notes 6 7/8s, 2009 33,145
130,000 Waste Management, Inc. notes 6 5/8s, 2002 118,648
260,000 WMX Technologies, Inc. notes 7.7s, 2002 245,526
--------------
583,694
Food and Beverages (--%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 Doane Pet Care Co. sr. sub. notes 9 3/4s, 2007 57,600
615,000 Pepsi Bottling Group Inc. sr. notes Ser. B, 7s, 2029 564,859
--------------
622,459
Gaming (--%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 Circus Circus Enterprises, Inc. sr. notes 6.45s, 2006 17,656
200,000 Harrahs Entertainment, Inc. company guaranty 7 7/8s, 2005 193,250
10,000 Harrahs Entertainment, Inc. company guaranty 7 1/2s, 2009 9,492
40,000 Hollywood Park Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 39,600
70,000 International Game Technology sr. notes 7 7/8s, 2004 68,250
420,000 Mohegan Tribal Gaming, Auth. sr. notes 8 1/8s, 2006 409,500
60,000 Park Place Entertainment sr. notes 8 1/2s, 2006 59,183
--------------
796,931
Health Care (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 Columbia/HCA Healthcare Corp. med. term notes 8.85s, 2007 245,313
50,000 Columbia/HCA Healthcare Corp. med term notes 6.63s, 2045 47,420
10,000 Hudson Respiratory Care, Inc. sr. sub. notes 9 1/8s, 2008 7,825
30,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007 2,700
20,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 1,800
20,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-coupon
Ser. B, zero % (10 1/2s, 11/1/02), 2007 (STP) 400
70,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 2,100
80,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 20,000
25,000 Quorum Health Group, Inc. sr. sub. notes 8 3/4s, 2005 23,813
50,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 6,250
10,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s, 2008 1,250
180,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 172,350
390,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 358,800
255,000 Tenet Healthcare Corp. sr. notes 8s, 2005 244,163
--------------
1,134,184
Insurance and Finance (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 18,733
50,000 Advanta Corp. med-term notes Ser. D, 6.92s, 2002 45,557
1,000,000 AFC Capital Trust company guaranty Ser. B, 8.207s, 2027 989,410
585,000 AFLAC Inc. sr. notes 6 1/2s, 2009 546,291
685,000 American General Institute 144A company guaranty
8 1/8s, 2046 671,588
210,000 Associates Corp. deb. 6.95s, 2018 197,841
560,000 Capital One Financial Corp. notes 7 1/4s, 2006 535,074
80,000 Capital One Financial Corp. notes 7 1/4s, 2003 77,649
460,000 CIT Group Holdings sr. notes 6 1/2s, 2002 456,145
5,000 Colonial Capital II 144A company guaranty 8.92s, 2027 4,522
680,000 Conseco Financing Trust II company guaranty 8.7s, 2026 603,160
350,000 Conseco, Inc. med-term notes 6 1/2s, 2002 332,668
410,000 Conseco, Inc. notes 8 1/2s, 2002 410,459
120,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 15,600
490,000 Countrywide Home Loan Corp. company guaranty
6.935s, 2007 476,241
375,000 Countrywide Home Loan Corp. company guaranty
med term notes 6 1/4s, 2009 343,253
500,000 Dime Bancorp, Inc. sr. notes 6 3/8s, 2001 499,515
425,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 413,848
490,000 Executive Risk Capital Trust company guaranty Ser. B,
8.675s, 2027 479,392
300,000 Finova Capital Corp. notes 9 1/8s, 2002 312,204
515,000 Finova Capital Corp. notes 7.4s, 2007 507,064
160,000 Finova Capital Corp. notes 6 1/4s, 2002 156,037
710,000 Finova Capital Corp. med-term notes 6.11s, 2003 687,103
120,000 First Financial Caribbean Corp. sr. notes 7.84s, 2006 115,552
145,000 Firstar Bank Milwaukee sr. bank notes 6 1/4s, 2002 142,241
280,000 Firstar Capital Trust I company guaranty Ser. B, 8.32s, 2026 270,273
655,000 Ford Motor Credit Corp. notes 7 3/8s, 2009 657,712
570,000 Ford Motor Credit Corp. sr. notes 5.8s, 2009 512,567
60,000 Fremont General Corp. sr. notes Ser. B, 7.7s, 2004 55,981
600,000 General Motors Acceptance Corp. notes 5 3/4s, 2003 575,520
630,000 Goldman Sachs Group, Inc. (The) notes Ser. B, 7.35s, 2009 626,252
150,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 136,287
165,000 Hartford Life, Inc. deb. 7.65s, 2027 163,051
810,000 Heller Financial Inc. 144A notes 7 3/8s, 2009 796,854
990,000 Household Finance Corp. notes 6 1/2s, 2008 930,244
570,000 Household Finance Corp. sr. unsub. 5 7/8s, 2009 511,894
650,000 Lehman Bros Holdings, Inc. notes 6 1/4s, 2003 629,155
455,000 Liberty Mutual Insurance 144A notes 7.697s, 2097 376,936
260,000 Markel Capital Trust I company guaranty Ser. B, 8.71s, 2046 223,636
435,000 Merey Sweeney L.P. 144A sr. notes 8.85s, 2019 426,300
250,000 Money Store, Inc. notes 8.05s, 2002 255,755
385,000 Newcourt Credit Group, Inc. company guaranty Ser. A, 7 1/8s,
2003 (Canada) 379,487
570,000 Newcourt Credit Group, Inc. company guaranty 6 7/8s,
2005 (Canada) 561,456
210,000 Norwest Corp. med. term sr. notes Ser. J, 6 3/4s, 2027 186,024
125,000 Orange Cogen Funding 144A company guaranty 8.175s, 2022 119,563
505,000 Paine Webber Group, Inc. sr. med. term notes 6.52s, 2005 476,594
995,000 Peoples Bank-Bridgeport sub. notes 7.2s, 2006 919,808
50,000 Peoples Heritage Capital Trust company guaranty Ser. B,
9.06s, 2027 47,137
430,000 Presidential Life Corp. sr. notes 7 7/8s, 2009 394,525
635,000 Principal Financial Group 144A notes 7.95s, 2004 (Australia) 640,080
1,725,000 Provident Companies, Inc. bonds 7.405s, 2038 1,452,588
620,000 Prudential Insurance Co. 144A 6 7/8s, 2003 614,519
30,000 RBF Finance Co. company guaranty 11 3/8s, 2009 32,400
80,000 RBF Finance Co. company guaranty 11s, 2006 85,600
400,000 Salomon, Inc. sr. notes 7.3s, 2002 403,164
179,121 Salton Sea Funding Corp. company guaranty Ser. E, 8.3s, 2011 177,394
970,000 Sears Roebuck Acceptance Corp. notes 6 1/2s, 2028 775,515
240,000 Sprint Capital Corp. company guaranty 6.9s, 2019 221,837
925,000 Sprint Capital Corp. company guaranty 6 1/8s, 2008 851,934
390,000 Sprint Capital Corp. company guaranty 5.7s, 2003 372,540
925,000 Sun Life Canada Capital Trust 144A 8.526s, 2049 852,573
530,000 TIG Capital Trust I 144A bonds 8.597s, 2027 483,911
235,000 TIG Holdings, Inc. notes 8 1/8s, 2005 220,411
555,000 Toyota Motor Credit Corp. notes 5 5/8s, 2003 530,880
325,000 Transamerica Capital III bonds 7 5/8s, 2037 301,360
315,000 Trenwick Capital Trust I company guaranty 8.82s, 2037 251,877
775,000 Zurich Capital Trust I 144A company guaranty 8.376s, 2037 754,866
--------------
28,293,607
Lodging (--%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 15,400
260,000 ITT Corp. notes 6 3/4s, 2005 232,718
20,000 Starwood Hotels & Resorts notes 6 3/4s, 2003 18,736
15,000 Sun International Hotels Ltd. company guaranty 9s, 2007 14,250
--------------
281,104
Medical Supplies and Devices (--%)
- --------------------------------------------------------------------------------------------------------------------------
15,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 12,300
5,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 3,600
--------------
15,900
Metals and Mining (--%)
- --------------------------------------------------------------------------------------------------------------------------
8,000 Anker Coal Group, Inc. 144A sec. notes 14 1/4s, 2007 (PIK) 4,000
35,000 Continental Global Group sr. notes Ser. B, 11s, 2007 16,800
40,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 22,000
--------------
42,800
Oil and Gas (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
355,000 Alliance Pipeline L.P. 144A sr. notes 7.77s, 2015 (Canada) 347,900
770,000 Coastal Corp. bonds 6.95s, 2028 685,208
205,000 El Paso Energy Corp. sr. notes 6 3/4s, 2009 194,393
149,820 Express Pipeline Ltd. 144A sub. notes Ser. B, 7.39s,
2019 (Canada) 129,597
20,000 Gulf Canada Resources, Ltd. sr. notes 8 3/8s, 2005 (Canada) 19,460
205,000 Gulf Canada Resources, Ltd. sr. notes 8.35s, 2006 (Canada) 201,589
10,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 10,400
635,000 Louis Dreyfus Natural Gas notes 6 7/8s, 2007 549,967
690,000 Norsk Hydro ASA notes 6.36s, 2009 (Norway) 637,001
30,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 30,300
30,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 29,400
10,000 Petro Geo-Services ADR notes 7 1/2s, 2007 (Norway) 9,864
705,000 Petro Geo-Services sr. notes 7 1/8s, 2028 (Norway) 625,229
405,000 Sonat, Inc. notes 7 5/8s, 2011 402,825
1,200,000 Union Oil Company of California company guaranty
7 1/2s, 2029 1,143,006
--------------
5,016,139
Packaging and Containers (--%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 19,900
Paper and Forest Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
665,000 Abitibi-Consolidated Inc. deb. 8 1/2s, 2029 650,516
415,000 Georgia Pacific Corp. bonds 7 3/4s, 2029 400,761
30,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 30,900
80,000 Tembec Industries, Inc. company guaranty 8 5/8s, 2009 (Canada) 80,800
--------------
1,162,977
Pharmaceuticals (--%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 57,600
200,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 186,500
--------------
244,100
Photography (--%)
- --------------------------------------------------------------------------------------------------------------------------
10,000 PX Escrow Corp. sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 (STP) 4,800
Pipelines (--%)
- --------------------------------------------------------------------------------------------------------------------------
380,000 Maritime & NE Pipelines 144A sr. sec. notes 7.7s,
2019 (Canada) 370,766
Publishing (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
50,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B,
8 3/4s, 2009 46,875
1,500,000 News America Holdings, Inc. deb. 7.7s, 2025 1,408,500
--------------
1,455,375
Real Estate (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
320,000 Avalon Properties, Inc. notes 6 7/8s, 2007 (R) 299,024
295,000 Avalon Properties, Inc. notes 6 5/8s, 2005 (R) 280,772
630,000 EOP Operating L.P. notes 6.8s, 2009 580,350
135,000 EOP Operating L.P. sr. notes 6 3/4s, 2008 124,789
235,000 EOP Operating L.P. notes 6 3/8s, 2002 230,331
420,000 Omega Healthcare Investors, Inc. notes 6.95s, 2002 382,822
15,000 Tanger Properties Ltd. partnership gtd. notes 8 3/4s, 2001 14,875
--------------
1,912,963
Retail (--%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 K mart Corp. med. term notes 7.55s, 2004 18,961
15,000 Kasper A.S.L. Ltd. sr. notes 12 3/4s, 2004 12,525
440,000 Saks, Inc. company guaranty 8 1/4s, 2008 419,135
120,000 Southland Corp. sr. sub. deb. 5s, 2003 103,500
50,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 41,125
--------------
595,246
Steel (--%)
- --------------------------------------------------------------------------------------------------------------------------
70,000 AK Steel Corp. sr. notes 9 1/8s, 2006 71,400
200,000 AK Steel Corp. company guaranty 7 7/8s, 2009 187,500
20,000 Ameristeel Corp. company guaranty Ser. B, 8 3/4s, 2008 19,600
30,000 California Steel Industries sr. notes Ser. B, 8 1/2s, 2009 28,950
120,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 122,100
--------------
429,550
Telecommunications (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
390,000 AT&T Capital Corp. med. term notes 6.6s, 2005 373,273
60,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(10.8s, 5/15/04), 2009 (Canada) (STP) 28,200
60,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(8.94s, 8/15/03), 2008 (Canada) (STP) 29,400
30,000 Call-Net Enterprises, Inc. sr. notes 8s, 2008 (Canada) 23,100
90,000 Covad Communications Group Inc. sr. notes 12 1/2s, 2009 92,700
50,000 Econophone, Inc. 144A notes stepped-coupon zero %
(11s, 2/15/03), 2008 (STP) 34,000
10,000 Exodus Communications, Inc. 144A sr. notes 11 1/4s, 2008 10,200
50,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 45,000
110,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 110,000
60,000 Hyperion Telecommunications Corp., Inc. sr. notes Ser. B,
12 1/4s, 2004 64,050
150,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 75,000
120,000 Intermedia Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 1/4s, 7/15/02), 2007 (STP) 87,600
175,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B,
zero % (11 1/2s, 2/01/01), 2006 (STP) 157,500
30,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 22,500
50,000 Microcell Telecommunications sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 42,500
70,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (12 1/8s, 4/15/03), 2008 (STP) 38,500
80,000 NEXTEL Communications, Inc. sr. notes 12s, 2008 89,100
43,000 NEXTEL Communications, Inc. 144A sr. notes 9 3/8s, 2009 42,678
40,000 NTL Communications Corp. sr. notes Ser. B, 11 1/2s, 2008 43,400
50,000 NTL Inc. sr. notes, stepped-coupon Ser. B, zero %
(9 3/4s, 4/1/03), 2008 (United Kingdom) (STP) 34,125
230,000 Price Communications Wireless, Inc. 144A sr. notes 9 1/8s, 2006 233,450
70,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 55,602
10,000 Telecommunications Techniques, Inc. company guaranty
9 3/4s, 2008 9,000
20,000 Teligent, Inc. sr. notes 11 1/2s, 2007 19,200
80,000 Williams Communications Group Inc. sr. notes 10 7/8s, 2009 83,600
810,000 WorldCom, Inc. sr. notes 6.95s, 2028 750,157
--------------
2,593,835
Telephone Services (--%)
- --------------------------------------------------------------------------------------------------------------------------
620,000 U S West, Inc. notes 5 5/8s, 2008 547,975
Textiles (--%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 4,400
Transportation (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
650,000 Atlas Air, Inc. pass-through certificates Ser. 991A, 7.2s, 2019 600,652
10,000 Calair LLC 144A company guaranty 8 1/8s, 2008 9,238
700,000 CSX Corp. deb. 7.95s, 2027 707,210
35,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s, 2003 (Greece) 31,675
80,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 72,000
20,000 Johnstown America Industries, Inc. sr. sub. notes 11 3/4s, 2005 20,300
--------------
1,441,075
Utilities (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
610,000 AES Eastern Energy 144A pass-through certificates 9s, 2017 582,269
240,000 Arizona Public Service Co. sr. notes 6 3/4s, 2006 232,774
60,000 Cleveland Electric Illuminating Co. 1st mtge 6.86s, 2008 55,626
140,000 CMS Energy Corp. sr. notes 8 1/8s, 2002 139,301
320,000 CMS Energy Corp. pass-through certificates 7s, 2005 300,675
100,000 Edison Mission Energy 144A company guaranty 7.33s, 2008 96,305
335,000 GTE Corp. deb. 6.46s, 2008 322,139
72,391 Midland Funding Corp. I deb. Ser. C-94, 10.33s, 2002 74,784
10,000 Midland Funding Corp. II deb. Ser. A, 11 3/4s, 2005 10,931
425,000 Midwest Energy Co. 144A notes 8.7s, 2009 430,402
205,000 Niagara Mohawk Power Corp. sr. notes Ser. G, 7 3/4s, 2008 207,259
15,122 Niagara Mohawk Power Corp. sr. notes Ser. F, 7 5/8s, 2005 15,239
69,105 Northeast Utilities System notes Ser. A, 8.58s, 2006 69,380
153,393 Northeast Utilities System notes Ser. B, 8.38s, 2005 151,290
290,000 EIP Funding-Public Service Co. of New Mexico deb.
10 1/4s, 2012 313,081
160,000 Public Service Co. of New Mexico sr. notes Ser. B, 7 1/2s, 2018 151,429
450,000 Southern Energy 144A sr. notes 7.9s, 2009 432,882
250,000 Texas New-Mexico Power Utilities 1st mtge. 9 1/4s, 2000 254,770
400,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 395,624
485,000 Texas Utilities Electric Capital Trust V company guaranty
8.175s, 2037 464,378
--------------
4,700,538
--------------
Total Corporate Bonds and Notes
(cost $87,618,807) $ 81,736,952
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (2.7%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
$ 1,274,286 Federal Home Loan Mortgage Association 5 1/2s, with
due dates from March 1, 2011 to April 1, 2011 $ 1,193,050
5,000,000 Federal National Mortgage Association 7s, TBA,
December 1, 2029 4,885,950
Federal National Mortgage Association
Pass-Through Certificates
885,000 8s, November 1, 2029 897,718
1,600,159 7 1/2s, September 1, 2029 1,596,655
536,781 7s, with due dates from January 1, 2011 to May 1, 2011 534,263
2,370,000 6 5/8s, September 15, 2009 2,341,489
4,267,669 6 1/2s, with due dates from March 1, 2027 to
November 1, 2029 4,070,290
2,607,563 6 1/2s, with due dates from August 15, 2004 to
November 1, 2010 2,593,575
730,073 6s, November 1, 2014 698,811
532,000 5 1/8s, February 13, 2004 503,905
195,000 Government National Mortgage Association 7s, TBA,
December 1, 2029 190,429
Government National Mortgage Association
Pass-Through Certificates
5,458,924 8s, with due dates from July 15, 2024 to December 15, 2027 5,547,629
4,385,116 7s, with due dates from August 15, 2023 to
December 15, 2028 4,287,996
4,004,923 6 1/2s, with due dates from September 15, 2023 to
April 15, 2029 3,817,439
--------------
33,159,199
U.S. Treasury Obligations (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes
$ 165,000 6 1/8s, August 15, 2029 $ 161,520
905,000 5 7/8s, November 30, 2001 902,882
3,505,000 5 7/8s, October 31, 2001 3,496,238
11,705,000 5 1/4s, May 15, 2004 11,308,083
2,435,000 4 5/8s, December 31, 2000 (SEG) 2,401,908
585,000 U.S. Treasury Interest Strip zero %, February 15, 2019 164,677
--------------
18,435,308
--------------
Total U.S. Government and Agency Obligations
(cost $52,590,991) $ 51,594,507
COLLATERALIZED MORTGAGE OBLIGATIONS (0.9%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 480,000 Commercial Mortgage Acceptance Corp. Ser. 97-ML1,
Class A3, 6.57s, 2007 $ 459,450
CS First Boston Mortgage Securities Corp.
320,000 Ser. 99-C1, Class E, 8.18s, 2009 310,800
110,000 Ser. 99-C1, Class F, 8.18s, 2009 99,516
500,000 Ser. 99-C1, Class A2, 7.29s, 2009 497,656
120,559 Ser. 99-C1, Class A1, 6.91s, 2008 119,504
DLJ Commercial Mortgage Corp.
440,000 Ser. 99-CG3, Class A1B, 7.34s, 2009 439,313
438,405 Ser. 99-CG3, Class A1A, 7.12s, 2008 439,227
Fannie Mae Strip
730,544 Ser. 241, Class 2, Interest Only (IO), 8.5s, 2023 203,982
389,776 Ser. 217, Class 2, IO, 8s, 2023 116,811
139,314 Ser. 176, Class 2, IO, 8s, 2022 41,751
730,518 Ser. 252, Class 2, IO, 7.5s, 2023 219,954
32,301 Ser. 302, Class 2, IO, 6s, 2029 10,538
315,000 Federal Home Loan Mortgage Corp., Ser. T-20, Class A6,
7.49s, 2029 317,166
First Union-Lehman Brothers-Bank of America
424,253 Ser. 99-C2, Class A1, 6.28s, 2007 412,437
3,886,461 Ser. 98-C2, IO, 0.803s, 2028 142,858
Freddie Mac
442,219 Ser. 2182, Class SA, 7.93s, 2025 368,300
110,000 Ser. 2040, Class PE, 7.5s, 2028 108,326
270,000 GE Capital Mortgage Services, Inc. Ser. 98-11, Class 2A4,
6.75s, 2028 256,163
General Growth Properties-Homart
85,000 Ser. 99-C1, Class G, 8.97s, 2003 85,000
100,000 Ser. 99-C1, Class F, 8.72s, 2003 100,000
436,000 General Growth Properties-Ivanhoe, Ser. 99-C1, Class F,
8.97s, 2004 436,000
53,000 GMAC Commercial Mortgage Securities Inc. Ser. 98-C1,
Class E, 7.088s, 2011 48,375
GS Mortgage Securities Corp. II
170,000 Ser. 98-GLII, Class D, 7.19s, 2031 152,522
200,000 Ser. 97-GL, Class A2B, 6.86s, 2030 198,656
620,000 Ser. 98-GLII, Class A2, 6.562s, 2031 584,931
133,754 Ser. 98-GLII, Class A1, 6.312s, 2031 129,992
Housing Securities Inc.
37,274 Ser. 91-B, Class B6, 9s, 2006 37,134
270,222 Ser. 93-F, Class F9M2, 7s, 2023 256,119
17,566 Ser. 94-1, Class AB1, 6.5s, 2009 14,959
LB Commercial Conduit Mortgage Trust
623,904 Ser. 99-C2, Class A1, 7.105s, 2008 624,514
1,180,000 Ser. 99-C1, Class A2, 6.78s, 2009 1,140,359
1,647,369 Ser. 99-C1, Class A1, 6.41s, 2007 1,602,581
Merrill Lynch Mortgage Investors, Inc.
225,000 Ser. 96-C2, Class E, 6.96s, 2028 186,469
608,520 Ser. 98-C2, Class A1, 6.22s, 2030 592,547
3,768,275 Ser. 98-C2, IO, 1.576s, 2030 268,490
Morgan Stanley Capital I
175,000 Ser. 96-WF1, Class A2, 7.231s, 2006 176,094
825,000 Ser. 99-CAM1, Class A3, 6.92s, 2008 812,109
596,129 Ser. 99-CAM1, Class A2, 6.76s, 2008 587,560
295,000 Ser. 98-XL1, Class A3, 6.48s, 2030 279,697
225,156 Ser. 98-WF1, Class A1, 6.25s, 2007 219,316
242,202 Ser. 98-HF1, Class A1, 6.19s, 2007 235,088
Mortgage Capital Funding, Inc.
135,458 Ser. 97-MC2, Class A1, 6.53s, 2007 132,834
2,120,017 Ser. 97-MC2, Class X, IO, 1.581s, 2012 145,751
57,054 Prudential Home Mortgage Securities Ser. 92-25, Class B3,
8s, 2022 54,896
Prudential Home Mortgage Securities 144A
77,624 Ser. 94-31, Class B3, 8s, 2009 75,926
442,044 Ser. 95-D, Class 5B, 7.541s, 2024 403,227
51,563 Ser. 93-31, Class B2, 6s, 2000 50,854
360,000 Residential Asset Securitization Trust Ser. 98-A12, Class A14,
8s, 2028 366,187
186,021 Ryland Mortgage Securities Corp. Ser. 94-7C, Class B2,
7.359s, 2025 180,063
1,632,214 TIAA Retail Commercial Mortgage Trust Ser. 99-4, Class A,
7.17s, 2008 1,624,053
--------------
Total Collateralized Mortgage Obligations
(cost $16,422,969) $ 16,366,055
PREFERRED STOCKS (0.1%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
545 Centaur Funding Corp 144A 9.08% cum. pfd. (Cayman Islands) $ 559,453
100 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. 5,400
124 Citadel Broadcasting Co. 144A Ser. B, $13.25 cum. pfd. (PIK) 14,260
170 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 18,445
15 Fresenius Medical Capital Trust I company guaranty Ser. D,
9.00% pfd. (Germany) 14,213
85 Fresenius Medical Capital Trust II company guaranty
7.875% pfd. (Germany) 76,925
5 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 50,500
440 Webster Financial Ser. A, 7.375% cum. pfd. 424,600
20 WinStar Communications, Inc. Ser. C, 14.25% cum. pfd. 16,800
--------------
Total Preferred Stocks (cost $1,193,154) $ 1,180,596
ASSET-BACKED SECURITIES (0.1%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 230,000 Associates Manufactured Housing Ser. 97-2, Class M,
7.03s, 2028 $ 208,150
220,927 Green Tree Recreational Equipment & Cons. Ser 98-A,
Class A1C, 6.18s, 2019 217,716
2,410,000 Lehman Manufactured Housing Ser. 98-1, Class 1,
IO, 0.82s, 2028 83,973
625,000 Residential Asset Securities Corp. Ser. 99-KS4, Class AI6,
7.17s, 2030 618,750
--------------
Total Asset-Backed Securities (cost $1,172,496) $ 1,128,589
FOREIGN GOVERNMENT BONDS AND NOTES (--%) (a) (cost $797,844)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
USD 805,000 Quebec (Province of) sr. unsub. 5 3/4s, 2009 (Canada) $ 730,755
MUNICIPAL BONDS AND NOTES (--%) (a) (cost $708,773)
PRINCIPAL AMOUNT RATING(RAT) VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 705,000 CT, Mashantucket Pequot Tribe 144A Rev. Bonds,
Ser. A, FSA, 6.57s, 9/1/13 Aaa $ 626,604
CONVERTIBLE BONDS AND NOTES (--%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 30,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 $ 23,138
80,000 Western Digital Corp. cv. sub. deb. zero %, 2018 10,600
--------------
Total Convertible Bonds and Notes (cost $54,584) $ 33,738
WARRANTS (--%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
10 Club Regina, Inc. 144A 12/1/04 $ 10
10 Esat Holdings, Inc. (Ireland) 2/1/07 700
25 Hyperion Telecommunications 144A 4/15/01 4,375
10 McCaw International Ltd. 4/15/07 43
10 Sterling Chemicals Holdings 8/15/08 160
40 UIH Australia/Pacific, Inc. 144A 5/15/06 1,200
15 Versatel Telecom B.V. 144A (Netherlands) 5/15/08 4,350
--------------
Total Warrants (cost $3,643) $ 10,838
SHORT-TERM INVESTMENTS (1.1%) (a) (cost $20,951,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 20,951,000 Interest in $567,064,000 joint repurchase agreement dated
November 30, 1999 with J.P. Morgan Securities, N.Y. due
December 1, 1999 with respect to various U.S. Treasury
obligations -- maturity value of $20,954,276 for an
effective yield of 5.63% $ 20,951,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,838,006,477) (b) $1,910,153,794
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,905,249,547.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
November 30, 1999 for the securities listed. Ratings are generally ascribed to securities at the time of issuance.
While the agencies may from time to time revise such ratings, they undertake no obligation to do so, and the ratings
do not necessarily represent what the agencies would ascribe to these securities at November 30, 1999. Securities
rated by Putnam are indicated by "/P" and are not publicly rated. Ratings are not covered by the Report of
independent accountants.
(b) The aggregate identified cost on a tax basis is $1,845,739,383, resulting in gross unrealized appreciation and
depreciation of $234,149,714 and $169,735,303, respectively, or net unrealized appreciation of $64,414,411.
(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.
(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 November 30, 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 Depositary 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).
FSA represents Financial Security Assurance Corporation.
- ----------------------------------------------------------------------------------
Futures Contracts Outstanding at November 30, 1999
Aggregate Face Expiration Unrealized
Total Value Value Date Appreciation
- ----------------------------------------------------------------------------------
US Treasury Bonds (Short) $558,375 $563,076 Mar-00 $4,701
- ----------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,838,006,477) (Note 1) $1,910,153,794
- -----------------------------------------------------------------------------------------------
Cash 718,168
- -----------------------------------------------------------------------------------------------
Dividends and interest receivable 5,665,315
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,462,601
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 15,472,215
- -----------------------------------------------------------------------------------------------
Total assets 1,934,472,093
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 20,253,129
- -----------------------------------------------------------------------------------------------
Payable for variation margin 2,063
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 4,866,805
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,610,280
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 191,554
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 20,915
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,308
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,105,249
- -----------------------------------------------------------------------------------------------
Other accrued expenses 169,243
- -----------------------------------------------------------------------------------------------
Total liabilities 29,222,546
- -----------------------------------------------------------------------------------------------
Net assets $1,905,249,547
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,655,364,374
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 3,073,929
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 174,659,226
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 72,152,018
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,905,249,547
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,150,143,382 divided by 72,974,933 shares) $15.76
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $15.76)* $16.72
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($631,736,233 divided by 40,380,985 shares)** $15.64
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($13,091,780 divided by 833,122 shares)** $15.71
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($60,128,169 divided by 3,838,774 shares) $15.66
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $15.66)* $16.23
- -----------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($50,149,983 divided by 3,181,264 shares) $15.76
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group
sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended November 30, 1999
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $26,695) $ 36,869,194
- -----------------------------------------------------------------------------------------------
Interest 13,411,595
- -----------------------------------------------------------------------------------------------
Total investment income 50,280,789
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 10,659,552
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,436,081
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 24,387
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 19,502
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 2,986,248
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 6,717,346
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 66,931
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 474,781
- -----------------------------------------------------------------------------------------------
Reports to shareholders 78,990
- -----------------------------------------------------------------------------------------------
Auditing 43,952
- -----------------------------------------------------------------------------------------------
Legal 13,533
- -----------------------------------------------------------------------------------------------
Postage 182,195
- -----------------------------------------------------------------------------------------------
Other 222,293
- -----------------------------------------------------------------------------------------------
Total expenses 23,925,791
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (413,679)
- -----------------------------------------------------------------------------------------------
Net expenses 23,512,112
- -----------------------------------------------------------------------------------------------
Net investment income 26,768,677
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 182,076,679
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (101,229)
- -----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (79,160)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year 46,270
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments, futures, and
TBA sales during the year (143,160,108)
- -----------------------------------------------------------------------------------------------
Net gain on investments 38,782,452
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 65,551,129
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended November 30
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 26,768,677 $ 22,974,148
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 181,896,290 166,644,057
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (143,113,838) (3,997,343)
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 65,551,129 185,620,862
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (17,719,087) (15,753,429)
- ---------------------------------------------------------------------------------------------------------------
Class B (4,968,406) (4,888,322)
- ---------------------------------------------------------------------------------------------------------------
Class C (69,861) --
- ---------------------------------------------------------------------------------------------------------------
Class M (624,961) (600,344)
- ---------------------------------------------------------------------------------------------------------------
Class Y (761,783) --
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (103,679,729) (43,816,633)
- ---------------------------------------------------------------------------------------------------------------
Class B (60,328,299) (23,667,013)
- ---------------------------------------------------------------------------------------------------------------
Class M (5,589,694) (2,487,768)
- ---------------------------------------------------------------------------------------------------------------
Class Y (901,628) --
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 212,044,427 336,733,983
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 82,952,108 431,141,336
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 1,822,297,439 1,391,156,103
- ---------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $3,073,929 and $267,930, respectively) $1,905,249,547 $1,822,297,439
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ---------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended November 30
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $16.94 $16.04 $13.29 $10.93 $8.49
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .26(c) .27(c) .30 .31 .32
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .37 1.68 2.74 2.37 2.44
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .63 1.95 3.04 2.68 2.76
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.24) (.28) (.29) (.32) (.32)
- ---------------------------------------------------------------------------------------------------------------------------------
From net
realized gains (1.57) (.77) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.81) (1.05) (.29) (.32) (.32)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $15.76 $16.94 $16.04 $13.29 $10.93
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 4.16 12.91 23.15 24.96 33.17
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,150,143 $1,114,690 $878,766 $566,133 $391,551
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .94 .99 1.06 1.09 1.13
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.62 1.68 2.02 2.61 3.32
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 112.36 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) Includes amounts paid through expense offset and brokerage service arrangements (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
- ---------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended November 30
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $16.83 $15.95 $13.23 $10.89 $8.46
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .14(c) .15(c) .19 .21 .23
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .36 1.66 2.73 2.37 2.46
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .50 1.81 2.92 2.58 2.69
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.12) (.16) (.20) (.24) (.26)
- ---------------------------------------------------------------------------------------------------------------------------------
From net
Realized gains (1.57) (.77) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.69) (.93) (.20) (.24) (.26)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $15.64 $16.83 $15.95 $13.23 $10.89
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 3.34 12.04 22.24 24.06 32.30
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $631,736 $638,660 $463,506 $221,259 $83,646
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.69 1.74 1.81 1.84 1.87
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .87 .95 1.25 1.86 2.63
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 112.36 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) Includes amounts paid through expense offset and brokerage service arrangements (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 Nov. 30
- ---------------------------------------------------------------------------------------------------------------------------------
1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $15.76
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (c) .13
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .11
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.16)
- ---------------------------------------------------------------------------------------------------------------------------------
From net
realized gains --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.16)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $15.71
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) .68*
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $13,092
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.40*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .74*
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 112.36
- ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service arrangements (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
- ---------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Dec. 2, 1994+
operating performance 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 .18(c) .19(c) .23 .25 .28(c)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .36 1.67 2.73 2.36 2.45
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .54 1.86 2.96 2.61 2.73
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.16) (.20) (.23) (.27) (.29)
- ---------------------------------------------------------------------------------------------------------------------------------
From net
realized gains (1.57) (.77) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.73) (.97) (.23) (.27) (.29)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $15.66 $16.85 $15.96 $13.23 $10.89
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return
at net asset value (%)(a) 3.60 12.35 22.58 24.35 32.89*
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $60,128 $58,891 $48,884 $22,254 $7,051
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.44 1.49 1.56 1.59 1.60*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.12 1.17 1.50 2.11 2.99*
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 112.36 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) Includes amounts paid through expense offset and brokerage service arrangements (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
- ---------------------------------------------------------------------------------------------------------------------------------
Year For the period
Per-share ended Oct. 1, 1998+
operating performance Nov. 30 to Nov. 30
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $16.94 $14.88
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (c) .31 .05
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .36 2.01
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .67 2.06
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.28) --
- ---------------------------------------------------------------------------------------------------------------------------------
From net
realized gains (1.57) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.85) --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $15.76 $16.94
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 4.42 13.84*
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $50,150 $10,057
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .69 .12*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.87 .33*
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 112.36 94.77
- ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service arrangements (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
November 30, 1999
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 and class C 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 the 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
of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period.
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 sales price on its principal exchange, or if no sales are
reported -- as in the case of some securities traded over-the-counter --
the last reported bid price. Securities quoted in foreign currencies are
translated into U.S. dollars at the current exchange rate. Short-term
investments having remaining maturities of 60 days or less are stated at
amortized cost, which approximates market value. Other investments,
including restricted securities, are stated at fair value following
procedures approved by the Trustees. Market quotations are not considered
to be readily available for certain debt obligations; such investments are
stated at fair value on the basis of valuations furnished by a pricing
service or dealers, approved by the Trustees, which determine valuations
for normal institutional-size trading units of such securities, using
methods based on market transactions for comparable securities and
variable relationships between securities that are generally recognized by
institutional traders.
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). Gains or losses on securities sold are determined on
the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date except that certain dividends from
foreign securities are recorded as soon as the fund is informed of the
ex-dividend date. Discounts on zero coupon bonds, original issue discount
bonds, stepped-coupon bonds and payment-in-kind bonds are accreted
according to the 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. Investments in foreign securities involve
certain risks, including those related to economic instability,
unfavorable political developments and currency fluctuations, not present
with domestic investments.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a decline
in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of a currency in which securities a fund intends to buy are
denominated, when a fund holds cash reserves and short-term investments).
The U.S. dollar value of forward currency contracts is determined using
current forward currency exchange rates supplied by a quotation service.
The market value of the contract will fluctuate with changes in currency
exchange rates. The contract is "marked to market" daily and the change in
market value is recorded as an unrealized gain or loss. When the contract
is closed, the fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed. The fund could be exposed to risk if
the value of the currency changes unfavorably, if the counterparties to
the contracts are unable to meet the terms of their contracts or if the
fund is unable to enter into a closing position.
G) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on securities
it owns or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of
the underlying instruments, if there is an illiquid secondary market for
the contracts, or if the counterparty to the contract is unable to
perform. When the contract is closed, the fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed. Realized gains and
losses on purchased options are included in realized gains and losses on
investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices supplied
by dealers.
H) TBA purchase commitments The fund may enter into "TBA" (to be
announced) purchase commitments to purchase securities for a fixed unit
price at a future date beyond customary settlement time. Although the unit
price has been established, the principal value has not been finalized.
However, the amount of the commitments will not fluctuate more than 1.0%
from the principal amount. The fund holds, and maintains until settlement
date, cash or high-grade debt obligations in an amount sufficient to meet
the purchase price, or the fund may enter into offsetting contracts for
the forward sale of other securities it owns. Income on the securities
will not be earned until settlement date. TBA purchase commitments may be
considered securities in themselves, and involve a risk of loss if the
value of the security to be purchased declines prior to the settlement
date, which risk is in addition to the risk of decline in the value of the
fund's other assets. Unsettled TBA purchase commitments are valued at the
current market value of the underlying securities, according to the
procedures described under "Security valuation" above.
Although the fund will generally enter into TBA purchase commitments with
the intention of acquiring securities for their portfolio or for delivery
pursuant to options contracts it has entered into, the fund may dispose of
a commitment prior to settlement if Putnam Management deems it appropriate
to do so.
I) TBA sale commitments The fund may enter into TBA sale commitments to
hedge its portfolio positions or to sell mortgage-backed securities it
owns under delayed delivery arrangements. Proceeds of TBA sale commitments
are not received until the contractual settlement date. During the time a
TBA sale commitment is outstanding, equivalent deliverable securities, or
an offsetting TBA purchase commitment deliverable on or before the sale
commitment date, are held as "cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of
the underlying securities, generally according to the procedures described
under "Security valuation" above. The contract is "marked-to-market" daily
and the change in market value is recorded by the fund as an unrealized
gain or loss. If the TBA sale commitment is closed through the acquisition
of an offsetting purchase commitment, the fund realizes a gain or loss. If
the fund delivers securities under the commitment, the fund realizes a
gain or a loss from the sale of the securities based upon the unit price
established at the date the commitment was entered into.
J) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the year ended
November 30, 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. These
differences include temporary and permanent differences of losses on wash
sale transactions, foreign currency gains and losses, nontaxable
dividends, defaulted bond interest, unrealized gains and losses on certain
futures contracts, paydowns gains and losses on mortgage-backed
securities, market discount, interest on payment-in-kind securities and
foreign market discount. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations. For the
year ended November 30, 1999, the fund reclassified $181,420 to increase
undistributed net investment income and $5,289,109 to increase
paid-in-capital, with a decrease to accumulated net realized gains of
$5,470,529. The calculation of net investment income per share in the
financial highlights table excludes these adjustments.
Note 2
Management fees, administrative
services, and other transactions
Compensation of Putnam Management, for management and investment advisory
services, is paid quarterly based on the average net assets of the fund.
Such fee is based on the following annual rates: 0.65% of the first $500
million of average net assets, 0.55% of the next $500 million, 0.50% of
the next $500 million, 0.45% of the next $5 billion, 0.425% of the next $5
billion, 0.405% of the next $5 billion, 0.395% 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 year ended November 30, 1999, fund expenses were reduced by
$413,679 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 $1,828
has been allocated to the fund and an additional fee for each Trustee's
meeting attended. 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
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 a 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 year ended November 30, 1999, Putnam Mutual Funds Corp., acting as
underwriter, received net commissions of $481,203 and $23,531 from the
sale of class A and class M shares, respectively, and received $1,063,900
and $2,665 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 year ended
November 30, 1999, Putnam Mutual Funds Corp., acting as underwriter
received $20,245 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended November 30, 1999, cost of purchases and proceeds
from sales of investment securities other than U.S. government obligations
and short-term investments aggregated $1,933,721,297 and $1,829,584,295,
respectively. Purchases and sales of U.S. government obligations
aggregated $313,199,648 and $322,946,438, respectively.
Note 4
Capital shares
At November 30, 1999, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended November 30, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 20,484,164 $334,716,616
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,956,676 106,810,307
- -----------------------------------------------------------------------------
27,440,840 441,526,923
Shares
repurchased (20,271,579) (327,129,219)
- -----------------------------------------------------------------------------
Net increase 7,169,261 $114,397,704
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Year ended November 30, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 13,026,617 $212,072,816
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,804,438 57,860,671
- -----------------------------------------------------------------------------
16,831,055 269,933,487
Shares
repurchased (14,403,076) (232,778,684)
- -----------------------------------------------------------------------------
Net increase 2,427,979 $ 37,154,803
- -----------------------------------------------------------------------------
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 November 30, 1999
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 905,363 $14,899,584
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,748 61,338
- -----------------------------------------------------------------------------
909,111 14,960,922
Shares
repurchased (75,989) (1,215,419)
- -----------------------------------------------------------------------------
Net increase 833,122 $13,745,503
- -----------------------------------------------------------------------------
Year ended November 30, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 927,838 $15,031,937
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 383,333 5,841,338
- -----------------------------------------------------------------------------
1,311,171 20,873,275
Shares
repurchased (968,007) (15,612,398)
- -----------------------------------------------------------------------------
Net increase 343,164 $ 5,260,877
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Year ended November 30, 1999
- -----------------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------------
Shares sold 3,670,704 $59,127,489
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 105,874 1,663,411
- -----------------------------------------------------------------------------
3,776,578 60,790,900
Shares
repurchased (1,188,904) (19,305,360)
- -----------------------------------------------------------------------------
Net increase 2,587,674 $41,485,540
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Note 5
Change in Independent
Accountants (Unaudited)
Based on the recommendation of the Audit Committee of the fund, the Board
of Trustees has determined not to retain PricewaterhouseCoopers LLP as
this fund's independent accountants and voted to appoint KPMG LLP for the
fund's fiscal year ended November 30, 1999. During the two previous fiscal
years, PricewaterhouseCoopers LLP audit reports contained no adverse
opinion or disclaimer of opinion; nor were its reports qualified or
modified as to uncertainty, audit scope, or accounting principle. Further,
in connection with its audits for the two previous fiscal years and
through July 14, 1999, there were no disagreements between the fund and
PricewaterhouseCoopers LLP on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure,
which if not resolved to the satisfaction of PricewaterhouseCoopers LLP
would have caused it to make reference to the disagreements in its report
on the financial statements for such years.
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the Fund
hereby designates $140,072,514 as capital gain, for its taxable year ended
November 30, 1999.
The fund has designated 48.94% of the distributions from net investment
income, as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
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
INDEPENDENT
ACCOUNTANTS
KPMG LLP
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
Stephen Oristaglio
Vice President
Thomas V. Reilly
Vice President
Edward H. D'Alelio
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
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
AN020 57646 012/192/626/ 1/00
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ------------------------------------------------------------------------
Putnam Equity Income Fund
Supplement to Annual Report dated 11-30-99
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,
including corporate IRAs, 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,
class C, and class M shares, which are discussed more extensively in the
annual report.
ANNUAL RESULTS AT A GLANCE
- ------------------------------------------------------------------------
Total return for periods ended 11/30/99: NAV
1 year 4.42%
5 years 141.61
Annual average 19.30
10 years 241.86
Annual average 13.08
Life of fund (since class A inception, 6/15/77)
Annual average 12.26
Share value:
November 30, 1998 $16.94
November 30, 1999 15.76
- ------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
4 $0.320 $1.534 $1.854
- ------------------------------------------------------------------------
Past performance is not indicative of future results. Class Y shares are
offered without an initial sales charge or CDSC. The class Y share
returns shown for periods before their inception (10/1/98) are derived
from the historical performance of class A shares for such periods, but
have not been adjusted to reflect differences in expenses, which are
lower for class Y shares than for class A shares. All returns assume
reinvestment of distributions at net asset value. Investment return will
fluctuate and may involve the loss of principal. Performance of other
share classes will vary. 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.
