Putnam
Balanced
Retirement
Fund
SEMIANNUAL REPORT
April 30, 1996
[Putnam Scales Logo]
BOSTON * LONDON * TOKYO
Fund highlights
* "The balanced investment strategy -- owning both stocks and
bonds in one portfolio -- allows investors to pursue both capital
appreciation and income. These goals may be pursued in a conservative
fashion; Putnam Balanced Retirement Fund is one of Putnam's most
conservative equity-oriented strategies."
-- Edward P. Bousa, Lead Manager,
Putnam Balanced Retirement Fund
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
14 Portfolio holdings
29 Financial statements
[PHOTO OMITTED OF George Putnam]
(copyright) Karsh, Ottawa
From the Chairman
Dear Shareholder:
Shareholders seeking an investment portfolio consisting of both stocks
and bonds were well served by Putnam Balanced Retirement Fund during the
six months ended April 30, 1996. Solid performance for the fund's
semiannual period reflected gains made by the fund's value-oriented
stocks in an advancing market and with a fixed-income strategy aimed at
minimizing interest-rate risk.
With the domestic economy showing surprising strength, the stock market
outperformed the bond market. Bond weakness derived from inflation
concerns; these concerns appear well discounted.
Your fund's management team believes that in the second half of 1996,
bonds may improve relative to stocks.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
June 19, 1996
Report from the Fund Managers
Edward P. Bousa, lead manager
Kenneth J. Taubes
Rosemary H. Thomsen
Charles G. Pohl
The six months ended April 30, 1996, saw stocks handily outperform
bonds. During this period -- the first half of Putnam Balanced
Retirement Fund's fiscal year -- a steady stream of surprising economic
news simultaneously ignited impressive gains for value-oriented stocks
while thwarting an extended bond-market rally, demonstrating the
benefits of diversification for income-oriented investors. The strong
returns of your fund's stock holdings more than offset the disappointing
results of its fixed-income securities, resulting in solid performance
during a particularly challenging market environment. For the semiannual
period, your fund's class A shares returned a total of 8.12% and 1.90%
at net asset value and public offering price, respectively. (Results for
class B and class M shares, as well as performance over longer periods,
can be found on pages 8 and 9.)
Once again, these respectable returns were achieved in conjunction with
careful risk management. The key was keeping the fund's equity
allocation in the high end of its range of 35% to 55% and continuing to
buy and hold stocks of companies with compelling evidence of positive
change. Our focus is on companies that are committed to improving their
earnings through internal improvements. On the bond side, we tried to
take advantage of opportunities created by rising rates and investors'
overreactions to economic data.
* EQUITY STRATEGY PROVES EFFECTIVE
The past six months represented a positive environment for stocks. At
the end of 1995, the economy appeared fragile. Interest rates were
declining, inflation appeared low, and the perception of slow economic
growth prevailed. As it turned out, the market was much stronger than
most people thought. In early 1996, unexpected news that the gross
domestic product (GDP) was increasing while unemployment had come down
created a favorable climate for equities -- especially cyclical stocks
whose performance tends to rise and fall with the pace of the economy.
The fund's performance during this time was buoyed by holdings in retail
stocks. Business prospects for retailers had become so bleak that we
believed either fundamentals had to improve or a number of retailers --
some of them prominent -- could be forced to close. After three years of
disappointing results, retailers finally dropped their pattern of
opening more and more stores and turned to making current stores more
profitable.
The retailer Dayton Hudson is new to the fund and as of period's end was
its largest retail holding. The company's stock enjoyed significant
price appreciation during the past six months and benefited from recent
price increases adopted by one of its main competitors, Wal-Mart. J.C.
Penney is a well-managed retailer whose stock has been depressed and is
now recovering. While these stocks, along with others discussed in this
report, were viewed favorably at the end of the fiscal period, all
portfolio holdings are subject to review and adjustment in accordance
with the fund's investment strategy and may well vary in the future.
Financial stock holdings also contributed to the fund's positive
results. When the economy appeared to be slowing, investor sentiment was
that banks were experiencing credit-quality problems. But when the
economy suddenly picked up again, these fears were diminished, and
several key holdings benefited. Nationsbank experienced strong loan
growth largely because of its location in the economically strong
regions of the Southeast and Texas. Beneficial Corp., a high-margin
consumer loan company, benefited from its tax-loan business during the
early part of the year. Synovus Financial, a Georgia-based bank, is
steadily improving its profitability.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS FOR STOCK
HOLDINGS*]
Insurance and finance 7.9%
Utilities 7.0%
Oil and gas 3.9%
Retail 3.5%
Transportation 1.9%
*Based on net assets as of 4/30/96. Holdings will vary over time.
* FIXED-INCOME STRATEGY SEES TO MINIMIZE INTEREST-RATE RISK
The economic events that fueled equity performance were a drag on the
bond market. Strong employment numbers caused bond prices to fall and
yields to rise rapidly. We shortened the portfolio's duration to help
protect its value in a rising-rate environment. (Duration is a measure
of sensitivity to interest-rate changes. A longer duration can mean a
more volatile portfolio if rates increase -- but also one more likely to
appreciate substantially if rates decline. A shorter duration can help
preserve portfolio value as interest rates rise.) Several other
strategies within the bond sector were used to help maintain
performance.
The fund increased its holdings in international bonds. Most of the
holdings were in continental Europe, with some in the United Kingdom and
several in Canada. All of these markets were attractive alternatives to
the U.S. market during the period; their economies had been slower than
ours with resultant positive effects on bonds there. Central banks in
Europe and Canada continued to cut rates throughout most of the period.
In addition, traditionally weaker credits such as those in Italy,
Sweden, Denmark, and Spain began reducing their budget deficits, which
made them more attractive investments. Toward the end of the period,
valuations started to peak and we began to reduce the fund's
international exposure.
Another effective strategy was to increase the fund's holdings in lower-
rated higher-yielding corporate bonds. Of the nearly 40% of the fixed-
income portion of the fund invested in corporate bonds, about one
quarter were high-yield bonds. With the turnaround in the economy and
the bond market selloff, high-yield corporate bonds began to perform
quite well. While investing in these bonds requires careful attention to
credit risk, they can often deliver solid returns in a shaky bond
market.
The fund's weighting in near investment-grade bonds also increased
during the period. In particular, Parker & Parsley Petroleum Co., an oil
exploration company, was attractive, especially since we were bullish on
the then-undervalued energy sector.
[GRAPHIC OMITTED: TOP 5 EQUITY HOLDINGS]
Weyerhauser Co.
Timber products
Warner-Lambert Co.
Pharmaceuticals
General Motors Corp.
Automobiles
Dayton Hudson Corp.
Retailing
Philip Morris Cos., Inc.
Tobacco Conglomerate
TOP 5 FIXED-INCOME HOLDINGS
U.S. Treasury notes 5 1/4s, July 31, 1998
U.S. Treasury bonds 8 7/8s, August 15, 2017
U.S. Treasury bonds 11 5/8s, November 15, 2004
Government National Mortgage Association pass-through
certificates 7 1/2s, with various due dates from October 15, 2025,
to March 15, 2026
Government National Mortgage Association pass-thru certificates TBA,
May 16, 2026
These holdings represent 15.5% of the fund's net assests as of 4/30/96.
Portfolio holdings will vary over time.
* LOOKING AHEAD: SELECTIVITY IS KEY
Given both the stock and bond markets' recent activity, we expect to use
extreme caution and selectivity in the next few months. On the fixed-
income side, after a lengthy pause in the bond market rally, we believe
prices may be poised to improve. We intend to be cautious until we're
satisfied that the economy isn't going to continue to accelerate to an
unsustainable level of growth.
On the equity side, we will stick to a similar strategy. It is likely
that we will buy more defensive holdings than cyclical stock in order to
try to preserve the gains made in the past six months. We intend to
continue our strategy of seeking value and internal change in an ongoing
effort to own stocks that can perform well, independently of market
conditions.
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 4/30/96, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam Balanced Retirement Fund is designed for investors
seeking high current return and relative stability of principal from a
diversified portfolio of equity and debt securities.
This section provides, at a glance, information about your fund's
performance. Total return shows how the value of the fund's shares
changed over time, assuming you held the shares through the entire
period and reinvested all distributions back into the fund.
TOTAL RETURN FOR PERIODS ENDED 4/30/96
Class A Class B Class M
(inception date) (4/19/85) (2/1/94) (3/17/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
6 months 8.12% 1.90% 7.64% 2.64% 7.87% 4.06%
- ------------------------------------------------------------------------
1 year 19.27 12.38 18.31 13.31 18.82 14.68
- ------------------------------------------------------------------------
5 years 75.03 64.96 -- -- -- --
Annual average 11.85 10.53 -- -- -- --
- ------------------------------------------------------------------------
10 years 163.96 148.70 -- -- -- --
Annual average 10.19 9.54 -- -- -- --
- ------------------------------------------------------------------------
Life of class -- -- 23.78 20.78 22.04 17.79
Annual average -- -- 9.94 8.75 19.35 15.65
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/96
Lehman Bros.
Govt./Corp. Consumer
Bond Index Price Index
- ------------------------------------------------------------------------
6 months 0.04% 1.69%
- ------------------------------------------------------------------------
1 year 8.65 2.90
- ------------------------------------------------------------------------
5 years 49.02 15.61
Annual average 8.30 2.94
- ------------------------------------------------------------------------
10 years 123.47 43.92
Annual average 8.37 3.71
- ------------------------------------------------------------------------
Life of class B 9.94 6.91
Annual average 4.31 3.01
- ------------------------------------------------------------------------
Life of class M 10.90 3.24
Annual average 9.26 2.86
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They do not take into
account any adjustment for taxes payable on reinvested distributions or,
for class A shares, distribution fees prior to implementation of the
class distribution plan in 1990. Investment returns and net asset value
will fluctuate so that an investor's shares, when sold, may be worth
more or less than their original cost. POP assumes 5.75% maximum sales
charge for class A shares and 3.50% for class M shares. CDSC for class B
shares assumes the 5% maximum contingent deferred sales charge.
TOTAL RETURN FOR PERIODS ENDED 3/31/96
(most recent calendar quarter)
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
6 months 7.37% 1.21% 7.00% 2.00% 7.24% 3.45%
- ------------------------------------------------------------------------
1 year 21.09 14.07 20.22 15.22 20.62 16.45
- ------------------------------------------------------------------------
5 years 75.21 65.07 -- -- -- --
Annual average 11.87 10.54 -- -- -- --
- ------------------------------------------------------------------------
10 years 163.74 148.62 -- -- -- --
Annual average 10.18 9.54 -- -- -- --
- ------------------------------------------------------------------------
Life of class -- -- 23.29 20.29 21.44 17.22
Annual average -- -- 10.18 8.93 20.45 16.44
- ------------------------------------------------------------------------
PRICE AND DISTRIBUTION INFORMATION
6 months ended 4/30/96
Class A Class B Class M
- ------------------------------------------------------------------------
Distributions (number) 2 2 2
- ------------------------------------------------------------------------
Income $0.220 $0.192 $0.206
- ------------------------------------------------------------------------
Capital gains1
- ------------------------------------------------------------------------
Long-term -- -- --
- ------------------------------------------------------------------------
Short-term 0.182 0.182 0.182
- ------------------------------------------------------------------------
Total $0.402 $0.374 $0.388
- ------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------
10/31/95 $9.84 $10.44 $9.80 $9.82 $10.18
- ------------------------------------------------------------------------
4/30/96 10.22 10.84 10.16 10.19 10.56
- ------------------------------------------------------------------------
Current return
- ------------------------------------------------------------------------
End of period
- ------------------------------------------------------------------------
Current dividend rate2 4.31% 4.06% 3.78% 4.04% 3.90%
- ------------------------------------------------------------------------
Current 30-day SEC yield3 3.57 3.36 2.78 3.05 2.94
- ------------------------------------------------------------------------
1 Capital gains are taxable for federal and, in most cases, state
tax purposes. For some investors, investment income may also be subject
to the federal alternative minimum tax. Investment income may be subject
to state and local taxes.
2 Income portion of most recent distribution, annualized and divided
by NAV or POP at end of period.
3 Based on investment income, calculated using SEC guidelines.
*TERMS AND DEFINITIONS
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the maximum 5.75% sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B shares and assumes redemption at the end of
the period. Your fund's CDSC declines from a 5% maximum during the first
year to 1% during the sixth year. After the sixth year, the CDSC no
longer applies.
*COMPARATIVE BENCHMARKS
*Lehman Brothers Government/Corporate Bond Index is an unmanaged list of
publicly issued U.S. Treasury obligations, debt obligations of U.S.
government agencies (excluding mortgage-backed securities), fixed-rate,
nonconvertible investment-grade corporate debt securities and U.S.
dollar-denominated SEC-registered nonconvertible debt issued by foreign
governmental entities or international agencies.
Consumer Price Index (CPI ) is a commonly used measure of inflation; it
does not represent an investment return.
*Index assumes a reinvestment of all distributions and interest payments
and does not take in account brokerage commissions or other costs.
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.
A Putnam perspective on risk and reward
You've probably been told how important it is to understand the
relationship between an investment's potential rewards and its
accompanying risks. Given the cautionary nature of such
instructions, it may take most investors a while to realize that risk
has a positive side.
Every risk signals a potential reward. Selecting only those investments
that offer the greatest degree of security generally leads to only
modest rewards. Furthermore, even insured or guaranteed investments may
be subject to changes in their rates of return or, in some cases, in
their principal values. Experienced investors know that no investment is
truly risk free and are therefore willing to take on some measure of
risk in order to increase their potential gains.
The greater the risk, the greater the potential reward. Accepting an
appropriate level of investment risk can give you a better chance of
outpacing inflation over time and seeking to maximize your investment's
return. How much risk? Your financial advisor's feedback and your time
horizon can make all the difference in determining how much risk is
compatible with your investment goals and your peace of mind.
* FITTING YOUR FUND SELECTION TO YOUR
RISK TOLERANCE
How do you find the right balance between investment risks and their
potential rewards? It's helpful to understand the types of risks that
can apply to different types of investments, and to look at your own
portfolio with this perspective.
For short-term goals, your first priority may be managing market risk.
Longer-term investors may be more concerned with inflation risk. And all
income-oriented investors should consider interest-rate, credit, and
prepayment risks carefully. Within each of Putnam's four investment
categories, you can select funds with differing levels of risk and
reward potential to customize your portfolio.
This list covers only the most general types of risks; however, each
investment will also have its own specific risks. You will find a more
detailed discussion of these risk considerations in each fund's
prospectus.
* A RUNDOWN OF RISK TYPES
MARKET RISK Most important for stock funds, but relevant to all funds,
this is a measure of how sensitive a fund's holdings are to changes in
general market conditions. Remember, though, that securities that lose
value quickly in market declines may also show the strongest gains in
more favorable environments.
INTEREST-RATE RISK Since bond prices fall as interest rates rise, this
type of risk is a particular concern for fixed-income inves-
tors. However, interest-rate increases can also have a substantial
negative effect on the stock market.
INFLATION RISK If your investments cannot keep pace with inflation, your
money will begin to lose its purchasing power. Stock investments are
generally considered among the best ways of addressing inflation risk
over the long term.
CREDIT AND PREPAYMENT RISK Credit risk is the concern that the
security's issuer will not be able to meet its payment, while prepayment
risk involves the premature payoff of a loan, with a resulting loss of
interest income. Professional management and in-depth research are
invaluable in managing both these risks.
LIQUIDITY RISK Not all investments can be readily converted into cash at
their perceived market values. Liquidity risk can affect the price of
securities held in the fund's portfolio and, thus, the fund's share
prices.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Health Sciences Trust
International New Opportunities Fund
Investors Fund
Natural Resources Fund
New Opportunities Fund
OTC Emerging Growth Fund
Overseas Growth Fund
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
Intermediate U.S. Government Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds*
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
LIFESTAGESM FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments to help maximize your return and reduce your risk.
The three portfolios:
Putnam Asset Allocation: Balanced Portfolio
Putnam Asset Allocation: Conservative Portfolio
Putnam Asset Allocation: Growth Portfolio
MOST CONSERVATIVE
INVESTMENT+
Putnam money market funds:
California Tax Exempt Money Market Fund
Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts++
* Not available in all states.
+ Relative to above.
++ Not offered by Putnam Investments. Certificates of deposit offer a
fixed rate of return and may be insured up to certain limits by
federal/state agencies. Savings accounts may also be insured up to
certain limits. Please call your financial advisor or Putnam at 1-800-
225-1581 to obtain a prospectus for any Putnam fund. It contains more
complete information, including charges and expenses. Please read it
carefully before you invest or send money.
<TABLE>
<CAPTION>
Portfolio of investments owned
April 30, 1996 (Unaudited)
COMMON STOCKS (45.7%) *
NUMBER OF SHARES VALUE
Aerospace and Defense (0.9%)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
27,000 General Motors Corp. Class H $ 1,650,375
35,000 Lockheed Martin Corp. 2,821,875
------------
4,472,250
Automotive (2.0%)
- -----------------------------------------------------------------------------------------------------------------
41,800 Eaton Corp. 2,528,900
36,000 Echlin, Inc. 1,237,500
78,000 General Motors Corp. 4,231,500
50,000 Varity Corp. + 2,131,250
------------
10,129,150
Basic Industrial Products (1.0%)
- -----------------------------------------------------------------------------------------------------------------
20,000 Ball Corp. 622,500
33,000 Deere (John) & Co. 1,282,875
51,000 Minnesota Mining & Manufacturing Co. 3,353,250
------------
5,258,625
Business Equipment and Services (0.5%)
- -----------------------------------------------------------------------------------------------------------------
60,000 Unisys Corp. + 360,000
15,000 Xerox Corp. 2,197,500
------------
2,557,500
Chemicals (1.9%)
- -----------------------------------------------------------------------------------------------------------------
43,000 du Pont (E.I.) de Nemours & Co., Ltd. 3,456,125
6,000 Hoechst AG (Germany) + 2,019,189
48,000 PPG Industries, Inc. 2,430,000
44,300 Witco Chemical Corp. 1,511,738
------------
9,417,052
Computer Services and Software (0.8%)
- -----------------------------------------------------------------------------------------------------------------
37,000 IBM Corp. 3,977,500
Conglomerates (1.4%)
- -----------------------------------------------------------------------------------------------------------------
43,000 Corning, Inc. 1,494,250
29,000 Ogden Corp. 587,250
44,000 TRW, Inc. 4,130,500
8,000 United Technologies Corp. 884,000
------------
7,096,000
Consumer Durable Goods (0.5%)
- -----------------------------------------------------------------------------------------------------------------
42,000 Whirlpool Corporation 2,525,250
Consumer Non Durables (2.8%)
- -----------------------------------------------------------------------------------------------------------------
85,000 American Brands, Inc. 3,538,125
17,000 Avon Products, Inc. 1,510,875
51,000 Kimberly-Clark Corp. 3,703,875
46,000 Philip Morris Cos., Inc. 4,145,750
38,900 RJR Nabisco Holdings Corp. + 1,162,138
------------
14,060,763
Consumer Services (0.5%)
- -----------------------------------------------------------------------------------------------------------------
42,000 Dun & Bradstreet Corp. 2,556,750
Electronics and Electrical Equipment (1.0%)
- -----------------------------------------------------------------------------------------------------------------
26,000 Intel Corp. 1,761,500
60,000 Texas Instruments, Inc. 3,390,000
------------
5,151,500
Energy-Related (0.1%)
- -----------------------------------------------------------------------------------------------------------------
37,000 Westcoast Energy, Inc. 573,500
Environmental Control (0.3%)
- -----------------------------------------------------------------------------------------------------------------
46,000 WMX Technologies, Inc. 1,598,500
Food and Beverages (1.2%)
- -----------------------------------------------------------------------------------------------------------------
31,000 Anheuser-Busch Cos., Inc. 2,080,875
65,500 Flowers Industries, Inc. 876,063
24,000 General Mills, Inc. 1,332,000
28,000 Nestle S.A. ADR (Registered) (Switzerland) 1,561,000
12,000 The Quaker Oats Co. 412,500
------------
6,262,438
Health Care (1.4%)
- -----------------------------------------------------------------------------------------------------------------
52,600 Baxter International, Inc. 2,327,550
41,900 Warner-Lambert Co. 4,682,325
------------
7,009,875
Hospital Management and Medical Services (-%)
- -----------------------------------------------------------------------------------------------------------------
1,500 Total Renal Care Holdings, Inc.
(acquired 8/4/95 cost $2,616) + ++ 57,375
Insurance and Finance (7.9%)
- -----------------------------------------------------------------------------------------------------------------
50,000 American General Corp. 1,756,250
34,000 AON Corp. 1,823,250
100,000 Banc One Corp. 3,475,000
36,779 Bankers Trust New York Corp. 2,551,543
42,000 Beneficial Corp. 2,320,500
11,000 CIGNA Corp. 1,247,125
48,000 CoreStates Financial Corp. 1,872,000
70,000 Fleet Financial Group, Inc. 3,010,000
31,000 Household International, Inc. 2,142,875
79,000 Keycorp 3,051,375
48,000 Morgan (J.P.) & Co., Inc. 4,038,000
45,300 NationsBank Corp. 3,612,675
48,000 Norwest Corp. 1,734,000
76,000 PNC Bank Corp. 2,299,000
42,000 St. Paul Cos., Inc. 2,231,250
40,500 Synovus Financial Corp. 911,250
129,000 USF&G Corp. 2,047,875
------------
40,123,968
Metals and Mining (0.4%)
- -----------------------------------------------------------------------------------------------------------------
11,900 Carpenter Technology Corp. 447,738
24,000 Phelps Dodge Corp. 1,764,000
------------
2,211,738
Oil and Gas (3.9%)
- -----------------------------------------------------------------------------------------------------------------
33,000 Amoco Corp. 2,409,000
41,000 Chevron, Inc. 2,378,000
46,000 Exxon Corp. 3,910,000
105,000 Occidental Petroleum Corp. 2,703,750
56,000 Panenergy Corp. 1,827,000
47,900 Repsol S.A. ADS (Spain) 1,772,300
17,000 Royal Dutch Petroleum Co. PLC ADR
(Netherlands) 2,435,250
76,000 Total Corp. ADR (France) 2,603,000
------------
20,038,300
Paper and Forest Products (1.6%)
- -----------------------------------------------------------------------------------------------------------------
31,000 Chesapeake Corp. 895,125
39,000 Rayonier, Inc. 1,399,125
12,000 Temple Inland, Inc. 582,000
110,000 Weyerhaeuser Co. 5,445,000
------------
8,321,250
Pharmaceuticals (1.2%)
- -----------------------------------------------------------------------------------------------------------------
18,000 American Home Products Corp. 1,899,000
26,000 Bristol-Myers Squibb Co. 2,138,500
52,760 Pharmacia & Upjohn, Inc. 2,018,070
------------
6,055,570
Photography (1.0%)
- -----------------------------------------------------------------------------------------------------------------
48,000 Eastman Kodak Co. 3,672,000
32,000 Polaroid Corp. 1,440,000
------------
5,112,000
Publishing (0.1%)
- -----------------------------------------------------------------------------------------------------------------
14,400 Times Mirror Co. Class A 613,800
Real Estate Investment Trusts (REITs) (0.9%)
- -----------------------------------------------------------------------------------------------------------------
43,000 Bradley Real Estate Trust, Inc. 634,250
29,900 Duke Realty Investments, Inc. 885,788
33,300 Equity Residential Properties Trust 1,073,925
29,000 Evans Withycombe Residential 627,125
40,000 LTC Properties, Inc. 615,000
18,000 Storage USA, Inc. 596,250
------------
4,432,338
Retail (3.5%)
- -----------------------------------------------------------------------------------------------------------------
66,000 American Stores Co. 2,202,750
44,200 Dayton Hudson Corp. 4,221,100
140,000 K mart Corp. 1,417,500
36,000 May Department Stores Co. 1,836,000
35,200 Melville Corporation 1,368,400
66,700 Penney (J.C.) Co., Inc. 3,301,650
72,000 Rite Aid Corp. 2,133,000
24,000 Sears, Roebuck & Co. 1,197,000
------------
17,677,400
Transportation (1.9%)
- -----------------------------------------------------------------------------------------------------------------
43,600 Canadian National Railway Co. (Canada) 828,400
24,000 CSX Corp. 1,230,000
18,000 Delta Airlines, Inc. 1,446,750
108,200 Ryder System, Inc. 3,151,325
41,000 Union Pacific Corp. 2,793,125
------------
9,449,600
Utilities (7.0%)
- -----------------------------------------------------------------------------------------------------------------
45,000 American Telephone & Telegraph Co. 2,756,250
58,000 Bell Atlantic Corp. 3,770,000
21,700 Central & South West Corp. 591,325
124,000 Cinergy Corp. 3,596,000
48,000 Dominion Resources, Inc. 1,848,000
46,000 Edison International 736,000
48,000 GTE Corp. 2,082,000
60,000 NYNEX Corp. 2,947,500
35,000 Oklahoma Gas & Electric Co. 1,321,250
72,000 Pacific Enterprises 1,854,000
72,000 Pacific Gas & Electric Co. 1,638,000
36,000 Pacific Telesis Group 1,233,000
61,900 Potomac Electric Power Co. 1,539,763
40,000 Public Service Co. of Colorado 1,325,000
46,000 Public Service Enterprise Group, Inc. 1,201,750
60,000 SBC Communications, Inc. 3,000,000
62,200 Scana Corp. 1,593,875
34,000 Sprint Corp. 1,432,250
32,000 WICOR, Inc. 1,100,000
------------
35,565,963
------------
Total Common Stocks (cost $197,107,327) $232,305,955
U.S. GOVERNMENT AGENCY AND OBLIGATIONS (19.9%) *
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Pass-Through Certificates (9.8%)
- -----------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association
$2,403,803 7s, with various due dates from February 1, 2024 to
June 1, 2024 $ 2,317,404
6,865,000 7s, TBA, May 16, 2006 6,618,272
5,068,934 6s, Dwarfs, with various due dates from
January 1, 2009 to October 1, 2009 4,799,538
2,695,000 5.94s, December 12, 2005 2,504,652
Government National Mortgage Association
6,931,000 8s, TBA, May 16, 2026 7,019,786
8,155,744 7 1/2s, with various due dates from
October 15, 2025 to March 15, 2026 8,061,385
2,085,650 7s, April 1, 2026 2,008,080
6,845,000 7s, TBA, May 16, 2026 6,590,434
2,905,838 6 1/2s, Midgets, with various due date from
July 15, 2008 to June 15, 2009 2,828,728
4,240,000 6 1/2s, TBA, May 16, 2026 3,968,343
3,073,483 6s, Midgets, with various due dates from
November 15, 2008 to April 15, 2009 2,926,508
------------
49,643,130
U.S. Treasury Obligations (10.1%)
U.S. Treasury Bonds
$8,225,000 11 5/8s, November 15, 2004 $10,842,853
3,845,000 10 3/4s, August 15, 2005 4,901,760
11,745,000 8 7/8s, August 15, 2017 14,033,396
U.S. Treasury Notes
4,180,000 11 7/8s, November 15, 2003 5,460,794
16,490,000 5 1/4s, July 31, 1998 16,201,425
------------
51,440,228
------------
Total U.S. Government and Agency
Obligations (cost $102,314,494) $101,083,358
CORPORATE BONDS AND NOTES (17.4%) *
PRINCIPAL AMOUNT VALUE
Advertising (--%)
- -----------------------------------------------------------------------------------------------------------------
$200,000 Outdoor Systems, Inc. sr. notes 10 3/4s, 2003 $203,000
Aerospace and Defense (0.5%)
- -----------------------------------------------------------------------------------------------------------------
214,000 K&F Industries Inc. sub. deb. 13 3/4s, 2001 222,560
150,000 Howmet Corp. 144A sr. sub. notes 10s, 2003 157,875
1,725,000 Northrop Grumman Corp. 144A notes 7s, 2006 1,666,781
270,000 Sequa Corp. bonds 8 3/4s, 2001 260,550
------------
2,307,766
Automotive (0.1%)
- -----------------------------------------------------------------------------------------------------------------
150,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 160,125
100,000 Aftermarket Technology Corp. sr. sub. notes
Ser. D, 12s, 2004 106,750
110,000 Exide Corp. sr. notes 10 3/4s, 2002 114,675
365,000 Key Plastics Corp. sr. notes 14s, 1999 378,688
------------
760,238
Basic Industrial Products (--%)
- -----------------------------------------------------------------------------------------------------------------
275,000 Inter-City Products sr. notes 9 3/4s, 2000 246,125
Broadcasting (0.8%)
- -----------------------------------------------------------------------------------------------------------------
125,000 Allbritton Communications Corp. 144A sr. sub.
notes 9 3/4s, 2007 118,125
75,000 Cablevision Systems Corp. sr. sub. deb. 9 7/8s, 2023 73,500
105,000 Cablevision Systems Corp. sr. sub. reset deb.
10 3/4s, 2004 109,725
150,000 Century Communications Corp. sr. notes
9 1/2s, 2005 148,500
250,000 CF Cable TV, Inc. sr. notes 9 1/8s, 2007 (Canada) 250,000
150,000 Commodore Media, Inc. sr. sub. notes
stepped-coupon 7 1/2s, (13 1/4s, 5/1/98), 2003 ++ 153,000
200,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (13 1/4s, 9/30/99), 2004 143,500
440,000 International Cabletel, Inc. sr. notes stepped-coupon
zero % (11 1/2s, 2/1/01), 2006 ++ 257,400
250,000 Jones Intercable, Inc. sr. sub. deb. 10 1/2s, 2008 266,250
50,000 Lenfest Communications, Inc. sr. notes 8 3/8s, 2005 47,063
225,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 225,000
200,000 Paxson Communications Corp. 144A sr. sub.
notes 11 5/8s, 2002 212,000
125,000 Rogers Cablesystem Ltd. deb. 10 1/8s, 2012 (Canada) 126,875
55,000 Rogers Communications, Inc. sr. deb. 10 7/8s, 2004 56,513
100,000 SFX Broadcasting, Inc. sr. sub. notes 11 3/8s, 2000 107,000
195,000 Telewest Communications PLC deb. stepped-coupon
zero % (11s, 10/1/00), 2007 (United Kingdom) ++ 119,925
250,000 Young Broadcasting, Inc. 144A sr. sub. notes 9s, 2006 231,250
1,260,000 Viacom Inc. sr. notes 7 3/4s, 2005 1,228,210
350,000 Videotron Holdings. sr. disc. notes stepped-coupon
zero % (11s, 8/15/2005), 2005 (United Kingdom) ++ 231,875
------------
4,105,711
Building and Construction (0.1%)
- -----------------------------------------------------------------------------------------------------------------
200,000 Scotsman Group, Inc. sr. secd. notes 9 1/2s, 2000 204,000
250,000 Triangle Pacific Corp. sr. notes 10 1/2s, 2003 259,375
------------
463,375
Business Equipment and Services (0.1%)
- -----------------------------------------------------------------------------------------------------------------
500,000 Corporate Express, Inc. sr. sub. notes Ser. B, 9 1/8s, 2004 503,750
Chemicals (0.3%)
- -----------------------------------------------------------------------------------------------------------------
225,000 Acetex Corp. sr. notes 9 3/4s, 2003 (Canada) 226,125
250,000 Arcadian Partner sr. notes 10 3/4s, 2005 268,750
200,000 Great Lakes Carbon Corp. sr. notes 10s, 2006 205,000
900,000 Lyondell Petrochemical Co. notes 9 1/8s, 2002 975,276
------------
1,675,151
Conglomerates (0.1%)
- -----------------------------------------------------------------------------------------------------------------
250,000 ADT Ltd. sr. sub. notes 9 1/4s, 2003 260,000
500,000 MacAndrews & Forbes Holdings, Inc. sub. deb.
notes 13s, 1999 500,625
------------
760,625
Consumer Durable Goods (0.1%)
- -----------------------------------------------------------------------------------------------------------------
200,000 Ekco Group, Inc. 144A sr. notes 9 1/4s, 2006 198,000
125,000 Selmer Co., Inc. sr. sub. notes 11s, 2005 131,875
------------
329,875
Consumer Services (0.1%)
- -----------------------------------------------------------------------------------------------------------------
250,000 Host Marriott Corp. sr. notes Ser. B, 9 1/2s, 2005 242,500
300,000 John Q Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 288,000
------------
530,500
Electronics and Electrical Equipment (0.1%)
- -----------------------------------------------------------------------------------------------------------------
500,000 Amphenol Corp. sr. notes 10.95s, 2001 540,000
Entertainment (0.9%)
- -----------------------------------------------------------------------------------------------------------------
250,000 Arizona Charlies Corp. 1st mtge. Ser. B, 12s, 2000 + 162,500
250,000 Bally Park Place Funding 1st mtge. 9 1/4s, 2004 256,875
250,000 Casino America, Inc. 1st mtge. 11 1/2s, 2001 265,625
75,000 Coast Hotels & Casinos, Inc. 1st mtge. 13s, 2002 79,125
150,000 Empress River Casino sr. notes 10 3/4s, 2002 156,375
100,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 104,500
150,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 147,000
273,000 Louisiana Casino Cruises Corp. 1st mtge. 11 1/2s, 1998 259,350
250,000 Players International Inc. sr. notes 10 7/8s, 2005 255,625
100,000 Premier Parks, Inc. sr. notes Ser. A, 12s, 2003 107,500
250,000 Six Flags Corp. sr. sub. notes stepped-coupon zero %
(12 1/4s, 6/15/98), 2005 ++ 210,625
250,000 Time Warner, Inc. deb. 9.15s, 2023 259,128
500 Time Warner, Inc. FRN 6.835s, 2000 505
75,000 Time Warner, Inc. notes 8.18s, 2007 74,325
75,000 Time Warner, Inc. notes 8.11s, 2006 75,080
2,100,000 Time Warner, Inc. deb. 7 1/4s, 2008 1,971,144
250,000 Trump A.C. 1st. mtge. 11 1/4s, 2006 253,750
------------
4,639,032
Environmental Control (--%)
- -----------------------------------------------------------------------------------------------------------------
150,000 Allied Waste Industries sr. sub. notes 12s, 2004 162,375
Food and Beverages (0.1%)
- -----------------------------------------------------------------------------------------------------------------
500,000 PSF Finance (L.P.) sr. exch. notes 12 1/4s, 2004
(acquired various dates from 5/20/94 to 8/25/94
cost $505,469) (in default) + ++ 350,000
270,000 Stater Brothers sr. notes 11s, 2001 280,125
------------
630,125
Health Care (0.6%)
- -----------------------------------------------------------------------------------------------------------------
1,340,000 Columbia Healthcare Corp. deb. 8.36s, 2024 1,408,635
100,000 Dade International Inc. sr. sub. notes 11 1/8s, 2006 100,000
200,000 Graphic Controls Corp. sr. sub. notes Ser. A, 12s, 2005 211,500
250,000 Healthsouth Rehablitaton sr. sub. notes 9 1/2s, 2001 260,000
250,000 Ivac Corp. sr. notes 9 1/4s, 2002 257,500
250,000 Paracelsus Healthcare Corp. sr. sub. notes 9 7/8s, 2003 250,000
250,000 Merit Behavioral Care sr. sub notes 11 1/2s, 2005 266,250
163,000 Total Renal Care Holdings, Inc. sr. disc. notes
stepped-coupon zero % (12s, 8/15/97), 2004 ++ 160,963
------------
2,914,848
Insurance and Finance (4.7%)
- -----------------------------------------------------------------------------------------------------------------
1,890,000 Advanta National Bank sr. notes 7.02s, 2001 1,887,638
200,000 AIM Management Group sr. secd. notes 9s, 2003 204,000
500,000 American Annuity Group, Inc. sr. sub. notes 11 1/8s, 2003 535,000
3,200,000 Penn Central sub. notes 10 7/8s, 2011 3,520,352
1,145,000 Bangkok Bank Public Co. 144A sub. notes
8 1/4s, 2016 (Thailand) 1,121,413
1,555,000 BHP Finance (USA), Inc. company guaranty 6.42s, 2026 1,503,856
150,000 Centerbank sub. notes 8 3/8s, 2002 148,875
270,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 267,300
2,200,000 Citicorp sub. notes 7 1/8s, 2005 2,176,988
1,025,000 Conseco, Inc. sr. notes 7 1/8s, 2005 1,151,485
3,150,000 Den Danske Bank 144A sub. notes 6.55s, 2003
(Denmark) 3,018,330
445,000 First National Bank of Omaha sub. notes 7.32s, 2010 419,413
250,000 First Nationwide Holdings 144A sr. sub. notes
9 1/8s, 2003 242,500
2,000,000 Goldman, Sachs & Co. 144A deb. 8s, 2013 1,993,520
175,000 Keystone Group, Inc. sr. secd. notes 9 3/4s, 2003 174,125
250,000 Phoenix Re Corp. 9 3/4s, 2003 265,000
200,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 2003 200,000
2,500,000 Riggs National Corp. sub. deb. 8 1/2s, 2006 2,525,000
2,000,000 Scotland International Finance 144A sub. notes 8.85s,
2006 (Netherlands) 2,190,000
450,000 Terra Nova Insurance Holdings. sr. notes 10 3/4s, 2005
(United Kingdom) 504,000
------------
24,048,795
Metals and Mining (0.5%)
- -----------------------------------------------------------------------------------------------------------------
175,000 Inland Steel Co. 1st mtge. 12s, 1998 188,125
250,000 Ispat Mexicana, SA 144A deb. 10 3/8s, 2001 (Mexico) 236,875
250,000 Kaiser Aluminum & Chemical Co. sr. notes 9 7/8s, 2002 251,250
750,000 Noranda Inc. notes 7s, 2005 (Canada) 721,950
1,035,000 PT Alatief Freeport sr. notes 9 3/4s, 2001 (Netherlands) 1,104,397
------------
2,502,597
Motion Picture Distribution (0.1%)
- -----------------------------------------------------------------------------------------------------------------
250,000 United Artists notes 11 1/2s, 2002 265,000
Oil and Gas (1.4%)
- -----------------------------------------------------------------------------------------------------------------
250,000 Chesapeake Energy Corp. sr. notes 9 1/8s, 2006 250,000
200,000 Gulf Canada Resources Ltd. sr. sub. notes
9 5/8s, 2005 (Canada) 203,000
200,000 Maxus Energy Corp. global notes 9 7/8s, 2002 198,000
50,000 Maxus Energy Corp. notes 9 3/8s, 2003 48,375
1,965,000 Parker & Parsley Petro Co. sr. notes 8 7/8s, 2005 2,105,753
1,655,000 Petroliam Nasional Berhad 144A notes 7 1/8s, 2005 1,630,175
250,000 Trans Texas Gas Corp. sr. secd. notes 11 1/2s, 2002 250,000
250,000 Triton Energy sr. sub. disc. notes stepped-coupon
zero % (9 3/4s, 12/15/96), 2000 ++ 240,000
2,030,000 Union Texas Pertoleum sr. notes Ser. A, 6.51s 12/5/02 1,954,809
------------
6,880,112
Packaging & Container (0.1%)
- -----------------------------------------------------------------------------------------------------------------
250,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 262,500
Paper and Forest products (0.2%)
- -----------------------------------------------------------------------------------------------------------------
100,000 APP International Finance Co. notes 11 3/4s, 2005
(Netherlands) 97,250
200,000 Doman Industries Ltd. sr. notes 8 3/4s, 2004 181,000
75,000 Domtar, Inc. deb 11 1/4s, 2017 (Canada) 78,750
200,000 Domtar, Inc. notes 12s, 2001 (Canada) 228,000
250,000 Repap New Brunswick sr. notes 10 5/8s, 2005
(Canada) 239,375
250,000 Stone Consolidated Corp. sr. notes 10 1/4s, 2000 261,250
------------
1,085,625
Publishing (0.5%)
- -----------------------------------------------------------------------------------------------------------------
250,000 American Media Operation, Inc. sr. sub. notes
11 5/8s, 2004 249,375
275,000 Marvel Parent Holdings, Inc. sr. secd. disc. notes
zero %, 1998 208,313
2,085,000 News America Hldgs, Inc. Inc. deb. 7.7s, 2025 1,892,742
------------
2,350,430
REITs (0.7%)
- -----------------------------------------------------------------------------------------------------------------
630,000 Health Care Property Investors, Inc. sr. notes
6 1/2s, 2006 581,484
175,000 HMH Properties, Inc, sr. notes Ser. B, 9 1/2s, 2005 169,750
1,620,000 Meditrust med. term notes 7.3s, 2006 1,587,049
1,015,000 Sun Communities, 7 5/8s, 2023 1,009,925
250,000 Tanger Properities Ltd. Partnership Gtd. notes
8 3/4s, 2001 244,763
------------
3,592,971
Retail (1.0%)
- -----------------------------------------------------------------------------------------------------------------
200,000 Brylane (L.P.) sr. sub. notes 10s, 2003 190,000
750,000 County Seat Stores Inc. sr. sub. notes 12s, 2002 637,500
250,000 Federated Department Stores Inc. sr. notes
8 1/8s, 2002 245,625
249,000 Finlay Enterprises, Inc. sr. notes 10 5/8s, 2003 244,020
100,000 K mart Funding Corp. notes 7.36s, 1998 95,000
250,000 Loehmanns' Holdings, Inc. sr. notes 10 1/2s, 1997 250,000
100,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 107,000
200,000 Revco D.S., Inc. sr. notes 9 1/8s, 2000 212,262
500,000 Safeway, Inc. med. term notes 8.57s, 2003 511,875
2,000,000 Sears, Roebuck & Co. med. term notes 5.91s, 1999 1,967,700
250,000 Southland Corp. 1st priority sr. sub. deb. 5s, 2003 197,500
200,000 Waban, Inc. sr. sub. notes 11s, 2004 208,000
------------
4,866,482
Specialty Consumer Products (0.1%)
- -----------------------------------------------------------------------------------------------------------------
250,000 Coty Inc. Gtd. sr. sub. notes 10 1/4s, 2005 265,000
225,000 Herff Jones, Inc. sr. sub. notes 11s, 2005 238,500
------------
503,500
Telecommunications (0.5%)
- -----------------------------------------------------------------------------------------------------------------
1,680,000 360 Communications Co. sr. notes 7 1/2s, 2006 1,599,310
100,000 Fonorola, Inc. sr. notes 12 1/2s, 2002 (Canada) 108,000
270,000 Intercel, Inc, sr, disc. notes stepped-coupon zero %
(12s, 5/1/01), 2006 (stp) 151,200
150,000 Intermedia Communications of Florida sr. notes
Ser. B, 13 1/2s, 2005 167,250
500,000 MFS Communications sr. disc. notes stepped-coupon
zero % (8 7/8s, 1/1/01), 2006 ++ 313,750
215,000 MFS Communications sr. disc. notes stepped-coupon
zero % (9 3/8s, 1/15/99), 2004 ++ 165,013
75,000 Mobilemedia Corp. sr. sub. notes 9 3/8s, 2007 72,000
------------
2,576,523
Textiles (0.1%)
- -----------------------------------------------------------------------------------------------------------------
100,000 Day International Group, Inc. sr. sub. notes 11 1/8s, 2005 102,000
200,000 Reeves Industries Inc. bonds 11s, 2002 190,500
------------
292,500
Transportation (0.3%)
- -----------------------------------------------------------------------------------------------------------------
40,000 Blue Bird Body Co. sub. deb. Ser. B, 11 3/4s, 2002 41,200
1,690,000 Burlington Northern Santa Fe notes 6 3/8s, 2005 1,573,289
15,000 Viking Star Shipping sr. secd. notes 9 5/8s, 2003 15,188
------------
1,629,677
Utilities (3.3%)
- -----------------------------------------------------------------------------------------------------------------
2,500,000 Arkla, Inc. notes 8 7/8s, 1999 2,599,300
1,125,000 Citizens Utilities Co. bonds 7.68s, 2034 1,191,533
225,000 Cleveland Electric Illuminating Co. 1st mtge.
Ser. B, 9 1/2s, 2005 219,049
225,000 El Paso Electric Co. 1st mtge. Ser. D, 8.9s, 2006 222,188
75,000 First PV Funding deb. 10.15s, 2016 78,750
200,000 Midland Cogeneration Ventures deb. 10.33s, 2002 210,500
764,827 Midland Funding Corp. II deb. Ser. A, 11 3/4s, 2005 804,412
100,000 Niagara Mohawk Power Corp. med. term notes
9.95s, 2000 90,000
5,000,000 Old Dominion Electric Co. 1st mtge. Sinking Fund
Ser. 93-A, 7.78s, 2023 4,920,500
175,000 Texas New Mexico Power deb. 12 1/2s, 1999 190,675
1,685,000 Texas New-Mexico Power Utilities 1st mtge.
9 1/4s, 2000 1,725,389
4,700,000 Texas Utilities Electric Co. secd. lease fac. bonds
7.46s, 2015 4,613,661
------------
16,865,957
------------
Total Corporate Bonds and Notes (cost $92,699,939) $ 88,495,165
CONVERTIBLE BONDS AND NOTES (4.6%)*
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
$1,000,000 ADT Operations Inc. cv. sub. notes zero %, 2010 $ 515,000
150,000 Altera Corp. 144A cv. sub. notes 5 3/4s, 2002 182,250
500,000 Apache Corp. 144A cv. sub. deb. 6s, 2002 557,500
250,000 Banco Nacional de Mexico SA cv. bonds 7s, 1999
(Mexico) 222,500
850,000 Boston Chicken, Inc. cv. notes Liquid Yield
Option Note (LYON) zero %, 2015 253,938
200,000 British Airport Authority 144A cv. bonds 5 3/4s,
2006 (United Kingdom) 325,941
600,000 Camden Property Trust cv. sub. deb. 7.33s, 2001 598,500
1,000,000 Cellular Communications, Inc. 144A cv. sub. deb.
zero %, 1999 795,000
1,000,000 Coleman Worldwide Corp. cv. sr. sec. notes
LYON zero %, 2013 362,500
500,000 Comcast Corp. cv. notes 1 1/8s, 2007 239,375
265,000 Emeritus Corp. 144A cv. sub. deb 6 1/4s, 2006 287,525
400,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 242,000
200,000 Grand Metropolitan PLC cv. unsub. notes
6 1/2s, 2000 220,500
750,000 Hollinger, Inc. cv. LYON zero %, 2013 240,000
800,000 Integrated Health Services cv. sr. sub. deb
5 3/4s, 2001 826,000
300,000 Lowes Companies Inc. cv. deb. 3s, 2003 373,875
250,000 LTC Properties, Inc. cv. sub. deb. 7 3/4s, 2002 246,250
1,400,000 Magna International cv. sub. deb. 5s, 2002 1,442,000
150,000 Malan Realty Investors cv. sub. notes 9 1/2s, 2004 134,250
250,000 Marriott International 144A cv. notes zero %, 2011 132,500
2,500,000 Mitsubishi Bank Ltd. International Finance cv. trust
guaranteed notes 3s, 2002 (Bermuda) 2,887,500
300,000 Motorola, Inc. cv. sub. deb. LYON zero %, 2013 235,500
125,000 Pennzoil Co. cv. sub. deb. 6 1/2s, 2003 175,000
550,000 Pharmaceutical Marketing Services Inc. 144A cv. deb.
6 1/4s, 2003 442,750
200,000 Pioneer Financial Services cv. sub. notes 6 1/2s, 2003 198,500
300,000 Pride Petroleum Services, Inc. cv. sub. deb. 6 1/4s, 2006 446,250
300,000 Quanex Corp. cv. sub. deb. 6.88s, 2007 288,000
650,000 Quantum Health Resources, Inc. cv. deb. 4 3/4s, 2000 531,375
480,000 Rite Aid Corp. cv. deb. zero %, 2006 249,600
3,400,000 Roche Holdings, Inc. 144A cv. unsub. LYON
zero %, 2010 (Switzerland) 1,496,000
1,000,000 Rogers Communications cv. deb. 2s, 2005 540,000
200,000 Rohr, Inc. cv. sub. notes 7 3/4s, 2004 382,250
300,000 Safeguard Scientifics, Inc. 144A cv. sub. notes 6s, 2006 369,375
375,000 Sandoz Capital BVI Ltd. 144A cv. company guaranty
2s, 2002 (Switzerland) 399,375
650,000 Softkey International, Inc. 144A cv. sr. notes
5 1/2s, 2000 567,938
1,000,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 2007 695,000
150,000 Staples, Inc. 144A cv. sub. deb. 5s, 2002 159,563
400,000 Sumitomo Bank cv. deb. 3 1/8s, 2004 352,000
70,000 Tele-Communications International cv. sub. deb.
4 1/2s, 2006 65,975
225,000 Tenet Healthcare Corp. cv. sub. notes 6s, 2005 241,875
225,000 Texas Instruments cv. sub. deb. 2 3/4s, 2002 309,375
750,000 Theratx Inc. cv. sub. 8s, 2002 712,500
32,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 35,520
255,000 Thermo Terratech, Inc. 144A cv. sub. deb. 4 5/8s, 2003 267,750
60,000 Toyota Motor Corp. cv. deb. 1.2s, 1998 701,429
185,000 U.S. Diagnostic Laboratories, Inc. 144A cv. sub.
deb. 9s, 2003 195,175
200,000 U.S. Filter Corp. 144A cv. sub. notes 6s, 2005 253,000
300,000 U.S. Office Products Co. cv. sub. notes 5 1/2s, 2001 406,500
500,000 USF&G Corp. cv. sub. notes zero %, 2009 286,875
1,000,000 Whirpool Corp. Cv. LYON zero %, 2011 442,500
335,000 WMX Technologies, Inc. cv. sub. notes 2s, 2005 319,925
280,000 Xilinx, Inc. 144A cv. sub. notes 5 1/4s, 2002 275,800
------------
Total Convertible Bonds and Notes (cost $20,806,076) $ 23,127,579
FOREIGN GOVERNMENT BONDS AND NOTES (3.7%) *
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
AUD 5,050,000 Australia (Government of) notes
8 3/4s, 2001 $ 4,022,947
CAD 6,400,000 Canada (Government of) deb. 7 1/2s, 2001 4,778,610
DEM 4,015,000 Germany Federal (Republic of) bonds
6 7/8s, 2005 2,717,548
USD 1,300,000 Italy (Republic of) deb. 6 7/8s, 2023 1,146,990
USD 1,942,000 Quebec (Province of Canada) deb.
8 5/8s, 2005 2,101,263
DEM 3,200,000 Treuhandanstalt (Germany Republic of)
7 1/8s, 2003 2,228,575
GBP 1,157,000 United Kingdom Treasury bonds 10s, 2001 1,914,970
------------
Total Foreign Government Bonds and Notes
(cost $16,621,981) $ 18,910,903
COLLATERALIZED MORTGAGE OBLIGATIONS (3.0%)*
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
$801,601 Chase Mortgage Finance Corp. Ser. 93-3,
Class B13, 7.46s, 2024 $ 493,736
Housing Securities Inc.
477,373 Ser. 93-F, Class F9, 7s, 2023 434,708
839,140 Ser. 91-B, Class B6, 9s, 2006 830,093
197,596 Ser. 93-J, Class J4, 6.66s, 2009 161,226
89,816 Ser. 93-J, Class J5, 6.66s, 2009 62,114
159,655 Ser. 94-1, Class B1, 6 1/2s, 2009 128,522
Prudential Home Loan Corp.
706,869 Ser. 92-25, Class B3, 8s, 2022 (in default) + 523,083
569,697 144A Ser. 94-D, Class 3B, 6.31s, 2009 521,985
790,488 144A Ser. 94-D, Class B4, 6.31s, 2009 660,551
Prudential Home Mortgage Securities
202,701 Ser. 94-31, Class B3, 8s, 2009 177,553
1,805,283 Ser. 93-B, Class 5B, 7.84s, 2023 1,052,141
2,921,483 144A Ser. 95-C, Class B1, 7.81s, 2001 2,905,050
745,583 Ser. 92-13, Class B3, 7 1/2s, 2007 642,249
1,025,321 Ser. 93-E, Class 5B, 7.39s, 2023 567,932
848,226 Ser. 93-36, Class M, 7 1/4s, 2023 789,513
2,132,029 Ser. 93-D, Class 2B, 7.11s, 2023 1,892,842
2,178,097 Ser. 94-A, Class 4B, 6.80s, 2024 1,908,898
1,680,151 Securitized Asset Sales, Inc. Ser. 93-J,
Class 2B, 6.81s, 2023 1,495,072
------------
Total Collateralized Mortgage Obligations
(cost $15,082,338) $ 15,247,268
UNITS (0.1%) *
NUMBER OF UNITS VALUE
- -----------------------------------------------------------------------------------------------------------------
100 Fitzgerald Gaming Co. 13s, 2002 $ 92,000
375 ICF Kaiser International, Inc. units 13s, 2003 354,375
------------
Total Units (cost $487,258) $ 446,375
PREFERRED STOCKS (0.1%) *
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
1,650 Cablevision Systems Corp. 144A Ser. L, 11.125, pfd. $ 164,175
2,500 K-III Communications zero %, pfd 257,500
225 Time Warner, Inc. 144A Ser. K, $10.25, pfd 227,250
------------
Total Preferred Stocks (cost $652,188) $ 648,925
<CAPTION>
WARRANTS (-%) * + EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
150 Intermedia Communications 144A 6/1/05 $ 4,500
900 Louisiana Casino Cruises, Inc. 144A 12/1/98 13,500
------------
Total Warrants (cost $7,823) $18,000
<CAPTION>
CONVERTIBLE PREFERRED STOCKS (2.8%) *
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3,400 Ahmanson (H.F.) & Co., $3.00 cv. pfd. $ 190,400
6,600 American General Delaware Corp. Ser. A, $3.00 cv. pfd. 339,900
4,000 Ashland, Inc. $3.125 cv. pfd. 263,500
2,900 Banc One Ser. C, $3.50 cv. pfd. 194,300
5,819 Chiquita Brands Intl. Inc. Ser. A, $2.875 cv. pfd. 273,493
17,000 Cooper Industries, Inc. $0.81 cv. pfd. 293,250
9,900 Corning Deleware (L.P.) $3.00 cv. pfd. 524,700
3,000 Cyprus Amax Minerals Ser. A, $4.00 cv. pfd. 179,250
2,000 Diamond Shamrock, Inc. 144A $2.50 cv. pfd. 130,500
2,900 Elsag Bailey Process Automation N.V. $2.75 cv. pfd.
(Netherlands) 126,150
12,000 FHP International Corp. Ser. A, $1.25 cv. pfd. 328,500
28,000 Fieldcrest Cannon Ser. A, $3.00 cv. pfd. 1,302,000
28,000 Ford Motor Co. Ser. A, $4.20 cv. pfd 3,248,000
98,000 Freeport-McMoRan Copper Co., Inc. stepped coupon
$1.25 ($1.75, 8/1/96)++ 2,780,750
1,500 Granite Broadcasting $1.938 cv. pfd. 100,500
6,000 Greenfield Industries, Inc. 144A $3.00 cv. pfd. 342,000
4,700 Matewan Bancshares, Inc. $3.75 cv. pfd. 118,675
3,000 Occidental Petroleum Corp. 144A $3.875 cv. pfd. 186,000
20,000 Pittston Mineral Corp. 144A Ser. C, $3.125 cv. pfd. 740,000
9,000 Sovereign Bancorp Inc. Ser. B, $3.13 cv. pfd. 540,000
5,000 St. Paul Capital LLC $3.00 cv. pfd. 270,000
8,000 Tejas Gas Corp. $2.65 cv. pfd. 384,000
3,000 Tele-communications (TCI Group) Ser. A, $2.125 cv. pfd. 140,250
23,000 Triathlon Broadcasting Co., $0.945 cv. pfd. 247,250
10,200 Union Planters Corp. Ser E, $2.00 cv. pfd. 395,250
6,500 Wang Laboratories, Inc. 144A Ser. B, $3.25 cv. pfd. 357,500
------------
Total Convertible Preferred Stocks (cost $13,046,545) $ 13,996,118
SHORT TERM INVESTMENTS (7.0%) * (cost $35,473,232)
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
$35,468,000 Interest in $648,384,000 joint repurchase agreement
dated April 30, 1996, with Morgan (J.P.) & Co., Inc.
due May 1, 1996 with respect to various U.S.
Treasury obligations-maturity value of $35,473,232
for an effective yield of 5.31% $ 35,473,232
- -----------------------------------------------------------------------------------------------------------------
Total Investments (cost $494,299,201)*** $529,752,878
- -----------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $507,869,852.
+ Non-income producing security
++ The interest rate and date shown parenthetically represent the new interest rate to be paid and the
date the fund will begin receiving interest at this rate.
++ Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities
held at April 30, 1996 was $407,375 or less than 1.0% of net assets.
*** The aggregate identified cost on a tax cost basis is $494,299,201, resulting in gross unrealized
appreciation and depreciation of $45,277,591 and $9,823,914, respectively, or net unrealized appreciation
of $35,453,677.
TBA after the name of a security represents to be announced securities (Note 1)
The rate shown on Floating Rate Notes (FRN) are the current interest rates shown at April 30, 1996,
which are subject to change based on the terms of the security.
ADR or ADS after the name of a foreign holding stands for American Depository Receipt, American
Depository Shares, respectively, representing foreign securities on deposit with a domestic custodian bank.
<CAPTION>
Forward Currency Contracts to Sell at April 30, 1996
(aggregate face value $16,631,890)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian Dollars $4,149,926 $4,105,637 6/12/96 $(44,289)
- --------------------------------------------------------------------------------------------
Canadian Dollar 4,967,785 4,927,554 6/12/96 $(40,231)
- --------------------------------------------------------------------------------------------
Deutschemarks 4,731,155 5,007,653 6/12/96 $276,498
- --------------------------------------------------------------------------------------------
British Pounds 1,928,646 1,964,024 6/12/96 $ 35,378
- --------------------------------------------------------------------------------------------
Japanese Yen 624,178 606,351 1/28/98 $(17,827)
- --------------------------------------------------------------------------------------------
Japanese Yen 7,101 6,894 1/28/97 $ (207)
- --------------------------------------------------------------------------------------------
Japanese Yen 6,941 6,733 7/29/96 $ (208)
- --------------------------------------------------------------------------------------------
Japanese Yen 6,940 7,044 7/28/96 $ 104
- --------------------------------------------------------------------------------------------
$209,218
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
April 30,1996 (Unaudited)
Assets
- ------------------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value
(identified cost $494,299,201) (Note 1) $529,752,878
- ------------------------------------------------------------------------------------------------------
Cash 144,046
- ------------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 4,553,205
- ------------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 469,152
- ------------------------------------------------------------------------------------------------------
Receivable for securities sold 5,497,621
- ------------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 311,980
- ------------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 223,226
- ------------------------------------------------------------------------------------------------------
Total assets 540,952,108
Liabilities
- ------------------------------------------------------------------------------------------------------
Payable for securities purchased 30,854,158
- ------------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 872,710
- ------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 806,946
- ------------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 216,599
- ------------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 465
- ------------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,075
- ------------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 117,040
- ------------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 102,762
- ------------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 32,362
- ------------------------------------------------------------------------------------------------------
Other accrued expenses 78,139
- ------------------------------------------------------------------------------------------------------
Total liabilities 33,082,256
- ------------------------------------------------------------------------------------------------------
Net assets $507,869,852
Represented by
- ------------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $453,656,629
- ------------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 531,566
- ------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign
currency transactions (Note 1) 18,028,706
- ------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and liabilities in
foreign currencies 35,652,951
- ------------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $507,869,852
Computation of net asset value and offering price
- ------------------------------------------------------------------------------------------------------
Net asset value and redemption price of class A shares
($483,604,051 divided by 47,319,741 shares) $10.22
- ------------------------------------------------------------------------------------------------------
Offering price per Class A share (100/94.25 of $10.22)* $10.84
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price of class B shares
($21,889,900 divided by 2,153,662 shares)+ $10.16
- ------------------------------------------------------------------------------------------------------
Net asset value and redemption price of class M shares
($2,375,901 divided by 233,058 shares) $10.19
- ------------------------------------------------------------------------------------------------------
Offering price per Class M share (100/96.50 of $10.19)* $10.56
- ------------------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales the offering price is reduced.
+ Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended April 30,1996 (Unaudited)
Investment Income:
- -------------------------------------------------------------------------------------------
<S> <S>
Interest $ 9,917,739
- -------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $13,089) 3,881,361
- -------------------------------------------------------------------------------------------
Total investment income 13,799,100
Expenses:
- -------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,610,191
- -------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 523,838
- -------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 9,527
- -------------------------------------------------------------------------------------------
Adminstrative Services (Note 2) 5,789
- -------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 598,878
- -------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 78,371
- -------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 4,596
- -------------------------------------------------------------------------------------------
Reports to shareholders 24,282
- -------------------------------------------------------------------------------------------
Registration fees 225
- -------------------------------------------------------------------------------------------
Auditing 21,178
- -------------------------------------------------------------------------------------------
Legal 5,400
- -------------------------------------------------------------------------------------------
Postage 12,145
- -------------------------------------------------------------------------------------------
Other expenses 9,613
- -------------------------------------------------------------------------------------------
Total expenses 2,904,033
- -------------------------------------------------------------------------------------------
Expense reduction (Note 2) (75,274)
- -------------------------------------------------------------------------------------------
Net expenses 2,828,759
- -------------------------------------------------------------------------------------------
Net investment income 10,970,341
- -------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 18,153,172
- -------------------------------------------------------------------------------------------
Net realized gain on forward currency contracts and
foreign currency translation (Note 1) 296,265
- -------------------------------------------------------------------------------------------
Net unrealized appreciation on forward currency contracts and
foreign currency translation during the period 498,174
- -------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 8,474,361
- -------------------------------------------------------------------------------------------
Net gain on investments 27,421,972
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $38,392,313
- -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
April 30, 1996 October 31, 1996
1996* 1995
- --------------------------------------------------------------------------------------------------
Increase in net assets
- --------------------------------------------------------------------------------------------------
Operations:
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $10,970,341 $22,551,912
- --------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 18,449,437 9,676,977
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 8,972,535 48,139,850
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 38,392,313 80,368,739
- --------------------------------------------------------------------------------------------------
Distributions to shareholders:
- --------------------------------------------------------------------------------------------------
From net investment income
Class A (10,448,910) (22,841,206)
- --------------------------------------------------------------------------------------------------
Class B (275,214) (278,156)
- --------------------------------------------------------------------------------------------------
Class M (18,559) (3,268)
- --------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (8,619,626) (23,194)
- --------------------------------------------------------------------------------------------------
Class B (228,365) (500)
- --------------------------------------------------------------------------------------------------
Class M (10,322) (26)
- --------------------------------------------------------------------------------------------------
Increase/decrease from capital share transactions (Note 4) 9,758,791 (37,398,366)
- --------------------------------------------------------------------------------------------------
Total increase in net assets 28,550,108 19,824,023
- --------------------------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------------------------
Beginning of period 479,319,744 459,495,721
- --------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $531,566 and $303,908, respectively) $507,869,852 $479,319,744
- --------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
Financial highlights
(For a share outstanding throughout the period)
<CAPTION>
For the Period
March 17, 1995
Six months (commencement Six month
ended of operations) to ended Year ended
April 30 October 31 April 30 October 31
1996* 1995 1996* 1995
- ------------------------------------------------------------------------------------------------------------
Class M
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.82 $8.88 $9.80 $8.67
- ------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------
Net investment income .20 .25 .18 .38
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .56 .90 .55 1.15
- ------------------------------------------------------------------------------------------------------------
Total from investment operations .76 1.15 0.73 1.53
- ------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------
From net investment income (.21) (.21) (.19) (.40)
- ------------------------------------------------------------------------------------------------------------
From net realized gain on investments (.18) -- (.18) --
- ------------------------------------------------------------------------------------------------------------
From paid-in capital -- -- -- --
- ------------------------------------------------------------------------------------------------------------
Total distributions (.39) (.21) (.37) (.40)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.19 $9.82 $10.16 $9.80
- ------------------------------------------------------------------------------------------------------------
Total investment return at net asset
value (%)(a) 7.87(d) 13.13(d) 7.64(d) 18.25
- ------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $2,376 $522 $21,890 $10,073
- ------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 82(d) 1.09(d) .94(d) 1.91
- ------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) 1.97(d) 2.76(d) 1.83(d) 4.09
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 77.87 131.00 77.87 131.00
- ------------------------------------------------------------------------------------------------------------
Average commisssion rate paid (c) $.0561(d) -- $.0561(d) --
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
February 1, 1994
(commencement Six months
of operations) to ended
October 31 April 30
1994 1996* 1995*
- ------------------------------------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $9.31 $9.84 $8.68
- ------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------
Net investment income .34 .22 .45
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.60) .56 1.17
- ------------------------------------------------------------------------------------------------------------
Total from investment operations (.26) .78 1.62
- ------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------
From net investment income (.27) (.22) (.46)
- ------------------------------------------------------------------------------------------------------------
From net realized gain on investments (.11) (.18) --
- ------------------------------------------------------------------------------------------------------------
From paid-in capital -- -- --
- ------------------------------------------------------------------------------------------------------------
Total distributions (.38) (.40) (.46)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.67 $10.22 $9.84
- ------------------------------------------------------------------------------------------------------------
Total investment return at net asset
value (%)(a) (2.75) (d) 8.12 (d) 19.32
- ------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $4,196 $483,604 $468,725
- ------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.34 (d) .57 (d) 1.15
- ------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) 3.20 (d) 2.21 (d) 4.93
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 125.69 77.87 131.00
- ------------------------------------------------------------------------------------------------------------
Average commisssion rate paid (c) -- $.0561 (d) --
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Year ended October 31
1994 1993 1992 ** 1991
- ------------------------------------------------------------------------------------------------------------
Class A
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.28 $8.50 $8.56 $7.47
- ------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------
Net investment income .43 .45 .16 .21
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.49) .99 .74 1.87
- ------------------------------------------------------------------------------------------------------------
Total from investment operations (.06) 1.44 .90 2.08
- ------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------
From net investment income (.43) (.45) (.16) (.19)
- ------------------------------------------------------------------------------------------------------------
From net realized gain on investments (.11) (.21) (.80) (.75)
- ------------------------------------------------------------------------------------------------------------
From paid-in capital -- -- -- (.05)
- ------------------------------------------------------------------------------------------------------------
Total distributions (.54) (.66) (.96) (.99)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.68 $9.28 $8.50 $8.56
- ------------------------------------------------------------------------------------------------------------
Total investment return at net asset
value (%)(a) (.61) 17.68 11.15 29.29
- ------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $455,299 $551,391 $633,181 $699,858
- ------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.08 1.02 1.11 1.09
- ------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) 4.92 5.06 1.87 2.56
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 125.69 224.28 118.43 135.18
- ------------------------------------------------------------------------------------------------------------
Average commisssion rate paid (c) -- -- -- --
- ------------------------------------------------------------------------------------------------------------
* Unaudited
** During the fiscal year 1992, the fund expanded its investment flexibility to include corporate bonds,
foreign securities, warrants and restricted securities. Accordingly, results of operations prior to
fiscal 1992, as presented above, may not reflect those that would have been achieved under the fund's
current investment policies. (Note 1).
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended October 31, 1995 and thereafter,
includes amounts paid through expense offset and broker service arrangements. Prior period ratios
exclude these amounts. (Note 2).
(c) Average commission rate paid is presented for fiscal periods beginning on or after September 1, 1995
in conformance with requirements issued by the SEC.
(d) Not annualized.
</TABLE>
Notes to financial statements
April 30, 1996 (Unaudited)
Note 1
Significant accounting policies
The fund is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. The
fund seeks high current return by investing in a diversified portfolio
of equity and debt securities.
The fund offers class A, class B and class M shares. Class A shares are
sold with a maximum front-end sales charge of 5.75%. Class B shares,
which convert to class A shares after approximately eight years, do not
pay a front-end sales charge, but pay a higher ongoing distribution fee
than class A shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class
M shares are sold with a maximum front-end sales charge of 3.50% and pay
an ongoing distribution fee that is lower than class B shares and higher
than class A shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined using
the last reported sale price, or, if no sales are reported -- as in the
case of some securities traded over-the-counter -- the last reported bid
price, except that certain U.S. government obligations are stated at the
mean between the last reported bid and asked prices. 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, and other investments are stated at fair market value following
procedures approved by the Trustees. Market quotations are not
considered to be readily available for certain long-term corporate bonds
and notes; such investments are stated at fair value on the basis of
valuations furnished by a pricing service, approved by the Trustees,
which determines valuations for normal, institutional-size trading units
of such securities using methods based on market transactions for
comparable securities and various relationships between securities which
are generally recognized by institutional traders.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances into a joint trading account along with the cash of other
registered investment companies managed by Putnam Investment Management,
Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc. and certain other accounts. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to 102% of the resale price, including accrued
interest. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to
the resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Interest income is recorded on the accrual basis.
Dividend income is recorded on the ex-dividend date except that certain
dividends from foreign securities are recorded as soon as the fund is
informed of the ex-dividend date. Discounts on zero coupon bonds,
original issue, and stepped-coupon bonds are accreted according to the
effective yield method.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such fluctuations are included with the net realized
and unrealized gain or loss on investments. Net realized gains and
losses on foreign currency transactions represent net exchange gains or
losses on closed forward currency contracts, disposition of foreign
currencies and the difference between the amount of investment income
and foreign withholding taxes recorded on the fund's books and the U.S.
dollar equivalent amounts actually received or paid. Net unrealized
gains and losses on foreign currency transactions arise from changes in
the value of open forward currency contracts and assets and liabilities
other than investments at the period end, resulting from changes in the
exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a decline
in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of a currency in which securities a fund intends to buy are
denominated, when a fund holds cash reserves and short-term
investments). The U.S. dollar value of forward currency contracts is
determined using forward currency exchange rates supplied by a quotation
service. The market value of the contract will fluctuate with changes in
currency exchange rates. The contract is "marked to market" daily and
the change in market value is recorded as an unrealized gain or loss.
When the contract is closed, the fund records a realized gain or loss
equal to the difference between the value of the contract at the time it
was opened and the value at the time it was closed. The fund could be
exposed to risk if the value of the currency changes unfavorably, if the
counterparties to the contracts are unable to meet the terms of their
contracts or if the fund is unable to enter into a closing position.
G) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held and for excise tax on income and capital
gains.
H) 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 semiannually. The amount and character of income and gains to
be distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations.
Note 2
Management fee, administrative services and other transactions
Compensation of Putnam Management, for managment 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, and 0.45% of any amount over $1.5 billion
subject, under current law, to reduction in any year by the amount of
certain brokerage commissions and fees (less expenses) received by
affiliates of Putnam Management on the fund's portfolio transactions
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Trustees of the fund receive an annual Trustees fee of $980 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows
the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund
and are invested in the fund or in other Putnam funds until distribution
in accordance with the Plan.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the period ended April 30, 1996, fund expenses were reduced by
$75,274 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 these assets utilized in connection with the
expense offset arrangements in an income producing asset if it had not
entered into such arrangements.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Plans provide for payments by
the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%,
1.00% and 1.00% of the average net assets attributable to class A, class
B and class M shares, respectively. The Trustees have approved payment
by the fund at an annual rate of 0.25%, 1.00% and 0.75% of the average
net assets attributable to class A, class B and class M shares
respectively.
For the period ended April 30, 1996, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $63,344 and $3,729 from the
sale of class A and class M shares, respectively and received $11,446 in
contingent deferred sales charges from redemptions of class B shares. A
deferred sales charge of up to 1% is assessed on certain redemptions of
class A shares. For the period ended April 30, 1996, Putnam Mutual Funds
Corp., acting as underwriter received $10 on class A redemptions.
Note 3
Purchase and sale of securities
During the period ended April 30, 1996, purchases and sales of
investment securities other than U.S. government obligations and short-
term investments aggregated $188,408,161 and $179,300,274, respectively.
Purchases and sales of U.S. government obligations aggregated
$188,451,531 and $190,942,092, respectively. In determining the net gain
or loss on securities sold, the cost of securities has been determined
on the identified
cost basis.
Note 4
Capital shares
At April 30, 1996, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
April 30, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 2,338,893 $23,628,955
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,221,161 12,087,099
- ----------------------------------------------------
3,560,054 35,716,054
Shares
repurchased (3,875,258) (39,100,378)
- ----------------------------------------------------
Net decrease (315,204) $(3,384,324)
- ----------------------------------------------------
Year ended
October 31, 1995
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 3,666,969 $34,258,708
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,527,615 13,617,752
- ----------------------------------------------------
5,194,584 47,876,460
Shares
repurchased (9,988,950) (90,819,921)
- ----------------------------------------------------
Net decrease (4,794,366) $(42,943,461)
- ----------------------------------------------------
Six months ended
April 30, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 3,086,727 $31,156,753
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 36,408 359,575
- ----------------------------------------------------
3,123,135 31,516,328
Shares
repurchased (1,997,375) (20,188,258)
- ----------------------------------------------------
Net increase 1,125,760 $11,328,070
- ----------------------------------------------------
Year ended
October 31, 1995
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 869,347 $8,068,014
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 19,011 171,458
- ----------------------------------------------------
888,358 8,239,472
Shares
repurchased (344,450) (3,202,711)
- ----------------------------------------------------
Net increase 543,908 $5,036,761
- ----------------------------------------------------
Six months ended
April 30, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 183,498 $1,851,917
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,485 24,710
- ----------------------------------------------------
185,983 1,876,627
Shares
repurchased (6,079) (61,582)
- ----------------------------------------------------
Net increase 179,904 $1,815,045
- ----------------------------------------------------
For the period
March 17, 1995
(commencement
of operations) to
October 31, 1995
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 53,846 $515,096
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 288 2,727
- ----------------------------------------------------
54,134 517,823
Shares
repurchased (980) (9,489)
- ----------------------------------------------------
Net increase 53,154 $508,334
- ----------------------------------------------------
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Peter Carman
Vice President
Brett C. Browchuk
Vice President
Thomas V. Reilly
Vice President
Edward P. Bousa
Vice President and Fund Manager
Kenneth J. Taubes
Vice President and Fund Manager
Rosemary H. Thomsen
Vice President and Fund Manager
Charles G. Pohl
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Balanced
Retirement Fund. It may also be used as sales literature when preceded
or accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and
the most recent copy of Putnam's Quarterly Performance Summary. For more
information, or to request a prospectus, call toll free: 1-800-225-1581.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution; are not insured by the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board
or any other agency; and involve risk, including the possible loss of
the principal amount invested.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- -------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- -------------------
25119-034/243/908 6/96
