Putnam
Balanced
Retirement
Fund
ANNUAL REPORT
October 31, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* Putnam Balanced Retirement Fund's class A shares ranked 19 out of the
73 balanced funds tracked by Lipper Analytical Services for the five-
year period ended October 1996, based on total return performance.*
* Morningstar Mutual Funds noted in its June 7, 1996,
analysis that blending bonds with value stocks "has brought notable
advantages to investors, particularly a dramatically lower risk score."
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
14 Portfolio holdings
33 Financial statements
Footnote reads:
*Lipper Analytical Services, an independent research organization, ranks
funds according to total return performance. Their rankings vary over
time and do not reflect the effects of sales charges. For periods ended
10/31/96, class A shares ranked 104 out of 266, 19 out of 73, and 19 out
of 32 for 1-, 5-, and 10-year performance respectively; class B shares
ranked 149 out of 266 for 1-year performance; and class M shares ranked
126 out of 266 for 1-year performance. Past performance is not
indicative of future results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
Putnam Balanced Retirement Fund closed the books on its fiscal year on
October 31, 1996, with strong total returns.
Certainly, a positive investing environment supported your fund. Just as
important, however, is the extensive research we conduct when selecting
stocks for the portfolio.
Similar research helped your fund's fixed-income portion. Throughout the
period, the portfolio's higher-yielding bonds and international bonds
made positive contributions to performance.
In the following report, your fund's management team provides detailed
discussion of fiscal '96 performance and prospects for the months ahead
as the fund enters its new fiscal year.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
December 18, 1996
Report from the Fund Managers
Edward P. Bousa, lead manager
Charles G. Pohl
Kenneth J. Taubes
Rosemary H. Thomsen
Putnam Balanced Retirement Fund took full advantage of the stock
market's strength and an improving bond market throughout its 1996
fiscal year. Without sacrificing its dedication to careful risk
management, the fund posted strong total returns at net asset value for
all three share classes over the 12 months ended October 31, 1996.
The fund's class A shares demonstrated an encouraging longer-term trend
as well; these shares placed among the top 40% of all balanced funds
tracked by Lipper Analytical Services for three- and five-year total
return performance. Although the fund's 10-year performance figures are
slightly less successful, it is important to bear in mind that the fund
has been managed in its current balanced style only since 1993. Complete
Lipper rankings for all share classes appear on page 2; performance results
for all share classes are detailed in the performance summary that begins
on page 9.
* RISK MANAGEMENT HELPED CUSHION FUND THROUGH MARKET CORRECTION
Continued economic growth and low inflation characterized your fund's
fiscal year. Overall, the strength of corporate America, exemplified by
high returns on equity and disciplined cost containment, kept the market
on a positive track. In July, however, the market experienced a sudden,
but short-lived, correction, spurred by a drop in the price of
technology stocks.
Although ensuing positive economic indicators quickly restored consumer
confidence and reversed the downturn, many mutual fund investors were
shaken by the interruption in the market's record-setting advances. For
your fund's shareholders, the effect of the correction was softened by
the portfolio's emphasis on the stocks of undervalued companies that
perform well through both up and down markets as well as a favorable
weighting in fixed-income securities.
[GRAPHIC OMITTED: TOP 5 EQUITY HOLDINGS]
Exxon Corp.
Oil and gas
Weyerhaeuser Co.
Paper and forest products
Kimberly-Clark Corp.
Consumer nondurables
Warner-Lambert Co.
Health care
IBM Corp.
Computer services and software
[GRAPHIC OMITTED:TOP 5 FIXED-INCOME HOLDINGS]
TOP 5 FIXED-INCOME HOLDINGS
U.S. Treasury notes 6 3/8s, 8/15/02
U.S. Treasury notes 7 1/2s, 5/15/02
Government National Mortgage Association 7s, various due dates
U.S. Treasury notes 6 1/4s, 6/30/98
U.S. Treasury Bonds 8 7/8s, 8/15/17
Footnote reads:
These holdings represent 16.7% of the fund's net assets as of 10/31/96.
Portfolio holdings will vary over time.
* IN-DEPTH RESEARCH UNCOVERS COMPANIES' POTENTIAL
Your fund's managers and analysts combine decades of collective
investment experience to seek quality companies whose stocks appear
undervalued in the market yet possess a strong potential to turn around
over time. Our in-depth research goes beyond how the companies look on
paper to include on-site visits and close contact with company
management. We believe this approach helps us to better understand a
company's potential worth before that worth is reflected in its stock
price. One byproduct of our search for value is a portfolio that is
spread among a wide variety of industry sectors. Some of the fund's top-
performing holdings during the year came from industries as diverse as
computer semiconductors, pharmaceuticals, regional banks, and retail
department stores.
As discussed in the fund's most recent semiannual report, stocks from
retailers like Dayton-Hudson significantly helped the fund's performance
in the fiscal first half, when this sector began to recover from three
years of disappointing results. Cost reductions and a focus on customer
frequency are a few of the characteristics that were common to the
retailers whose stock your fund held during the period.
New product development and expansion in the global marketplace are
other characteristics that we believe indicate a company with strong
potential. We have been successful in identifying a number of companies
in the consumer and industrial-products industries that fit this
profile. Kimberly-Clark contributed to the fund's performance this year,
while Minnesota Mining and Manufacturing, more commonly known as 3M, is
employing an aggressive marketing strategy that we believe will lead to
strong geographical expansion in developing countries.
Although deregulation has had an initially negative effect on utility
stocks in general, we do see long-term potential in well-positioned
companies. As the stocks of electric utilities have suffered from
concerns over competition, we have sought low-cost producers in growing
regions and avoided those companies that face the most intense
competition. In the telephone utility sector, the FCC's deregulation
process is hurting local telephone companies and we favor instead more
highly diversified telecommunications companies. Sprint, for example, is
well positioned in the long-distance, local, and wireless communications
fields. It also has a talent for developing innovative marketing
programs that we expect will continue to benefit the company and,
consequently, your fund.
* ASSET ALLOCATION KEY TO PERFORMANCE IN FIXED-INCOME SECTOR
Some of the same economic factors that put the stock market on its
upward trend introduced volatility into the U.S. fixed-income market in
the first half of the fiscal year. As a defensive maneuver designed to
limit the effects of volatility on the fund's portfolio, we shortened
the fund's duration, a measure of sensitivity to interest-rate changes.
A shorter duration can help preserve portfolio value as interest rates
rise. A longer duration can mean a more volatile net asset value if
rates change -- but also a net asset value that is more likely to
appreciate substantially if rates decline. When we perceived that the
bond market was ready to stabilize and begin recouping some of its
losses, we adjusted the duration back to a moderately long position.
This helped the fund take advantage of the rise of almost half a
percentage point decline in bond yields since July 1.
[GRAPHIC OMITTED: TOP INDUSTRY SECTORS*]
TOP INDUSTRY SECTORS*
Insurance and finance 14.9%
Utilities 10.5%
Oil and gas 5.3%
Chemicals 4.2%
Automotive 3.4%
Footnote reads:
Based on net assets as of 10/31/96. Holdings will vary over time.
Throughout the fiscal year, we maintained a moderately high weighting in
higher-yielding, lower-rated corporate bonds. This strategy proved
effective; high-yield bonds significantly outperformed their high-grade
government and corporate counterparts. As in the stock portion of the
fund's portfolio, in-depth corporate research and steady communications
with management play crucial roles in high-yield bond selection.
An increased allocation to international bonds also contributed to the
fund's positive performance. While falling interest rates in the
countries of Continental Europe -- most notably in Germany and Italy --
helped boost the fund's net asset value during the year, we took profits
from the fund's holdings in those countries in the closing months of the
fiscal year and redeployed the assets to non-U.S.-dollar-denominated
countries including Canada and Australia. Developing economies such as
Mexico, which currently make up approximately 1% of the fixed-income
portfolio, represent another investment area we favor.
* BALANCED STRATEGY WELL SUITED FOR CONSERVATIVE INVESTORS
As the fund moves into its new fiscal year, we expect moderate growth
and low inflation to continue to characterize the U.S. economy for the
near term -- a scenario that bodes well for the securities held in your
fund's portfolio, especially stocks and corporate bonds. True to the
fund's value-oriented investment style, we plan to keep the portfolio
positioned to take advantage of positive internal changes in companies
that are likely to perform well regardless of the economic environment.
In anticipation of overseas growth, we plan to seek opportunities in
international bonds and in the stocks of U.S.-based companies, such as
those we mentioned earlier, whose products and marketing strategies we
believe to be particularly well suited to foreign consumers.
No matter what the investment climate, however, we remain committed to
our strategy of combining value stocks and well-diversified bond
holdings. We believe this balanced investment approach offers an
attractive way for conservative investors and those seeking limited
equity exposure to participate in rising markets without sacrificing
protection against market declines.
Footnote reads:
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 10/31/96, there is no guarantee the fund
will continue to hold these securities in the future.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam 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 10/31/96
Class A Class B Class M
(inception date) (4/19/85) (2/1/94) (3/17/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
1 year 15.31% 8.68% 14.36% 9.36% 14.76% 10.70%
- -----------------------------------------------------------------------
5 years 78.86 68.61 -- -- -- --
Annual average 12.33 11.01 -- -- -- --
- ------------------------------------------------------------------------
10 years 175.75 159.78 -- -- -- --
Annual average 10.68 10.02 -- -- -- --
- ------------------------------------------------------------------------
Life of class -- -- 31.51 28.51 29.83 25.32
Annual average -- -- 10.48 9.55 17.37 14.85
- -----------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 10/31/96
Standard Lehman Bros.
& Poor's Gov't./Corp. Consumer
500 Index Index Price Index
- ------------------------------------------------------------------------
1 year 24.08% 5.39% 2.99%
- ------------------------------------------------------------------------
5 years 105.60 46.62 15.21
Annual average 15.50 7.95 2.87
- ------------------------------------------------------------------------
10 years 292.00 125.53 43.52
Annual average 14.64 8.47 3.68
- ------------------------------------------------------------------------
Life of class B 57.82 15.83 8.28
Annual average 18.08 5.49 2.93
- ------------------------------------------------------------------------
Life of class M 48.02 16.06 4.56
Annual average 27.27 9.83 2.77
- ------------------------------------------------------------------------
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.
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
applicable sales charge., with the maximum being 5%.
[GRAPHIC WORM CHART OMITTED:GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 10/31/86
Starting value (Insert ending Total)
$9,425 Fund's class A shares at POP $25,978
$10,000 Lehman Bros. Govt/Corp Bond Index $22,553
$10,000 Consumer Price Index $14,352
$10,000 S&P 500 Index $39,200
(plot points for 10-year total return mountain chart)
Lehman Bros S&P
Date/year Fund at POP Govt/Corp Index CPI 500 Index
10/31/86 9425 10000 10000 10000
10/31/87 8825 10188 10453 10623
10/31/88 10573 11270 10898 12217
10/31/89 12296 12638 11387 15438
10/31/90 11234 13334 12103 14282
10/31/91 14524 15382 12457 19006
10/31/92 16143 17000 12856 20960
10/31/93 18997 19318 13209 24064
10/31/94 18880 18422 13554 24992
10/31/95 22529 21399 13935 31692
10/31/96 25978 22553 14352 39200
Footnote reads:
Past performance is no assurance of future results. A $10,000 investment
in the fund's class B shares at inception on 2/1/94 would have been
valued at $13,151 at net asset value on 10/31/96 ($12,851 with a
redemption at the end of the period). A $10,000 investment in the fund's
class M shares at inception on 3/17/95 would have been valued at $12,983
at net asset value on 10/31/96 ($12,532 at public offering price).
PRICE AND DISTRIBUTION INFORMATION
12 months ended 10/31/96
Class A Class B Class M
- ------------------------------------------------------------------------
Distributions (number) 4 4 4
- ------------------------------------------------------------------------
Income $0.436 $0.375 $0.404
- -----------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------
Long-term -- -- --
- ------------------------------------------------------------------------
Short-term 0.186 0.186 0.186
- ------------------------------------------------------------------------
Total $0.622 $0.561 $0.590
- ------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------
10/31/95 $9.84 $10.44 $9.80 $9.82 $10.18
- ------------------------------------------------------------------------
10/31/96 10.67 11.32 10.60 10.63 11.02
- ------------------------------------------------------------------------
Current return
- ------------------------------------------------------------------------
End of period
- ------------------------------------------------------------------------
Current dividend rate1 4.12% 3.89% 3.47% 3.73% 3.59%
- ------------------------------------------------------------------------
Current 30-day SEC yield2 3.81 3.59 3.09 3.35 3.23
- ------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2 Based on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 9/30/96
(most recent calendar quarter)
Class A Class B Class M
(inception date) (4/19/85) (2/1/94) (3/17/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
1 year 12.92% 6.44% 11.98% 6.98% 12.49% 8.52%
- ------------------------------------------------------------------------
5 years 76.78 66.58 -- -- -- --
Annual average 12.07 10.74 -- -- -- --
- ------------------------------------------------------------------------
10 years 182.38 166.05 -- -- -- --
Annual average 10.94 10.28 -- -- -- --
- ------------------------------------------------------------------------
Life of class -- -- 29.03 26.03 27.39 22.96
Annual average -- -- 10.06 9.09 17.02 14.36
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment returns
and net asset value will fluctuate so that an investor's shares, when
sold, may be worth more or less than their original cost.
TERMS AND DEFINITIONS
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the maximum 5.75% sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B shares and assumes redemption at the end of
the period. Your fund's CDSC declines from a 5% maximum during the first
year to 1% during the sixth year. After the sixth year, the CDSC no
longer applies.
COMPARATIVE BENCHMARKS
Standard & Poor's 500 Index* is an unmanaged list of large-
capitalization common stocks and is frequently used as a general gauge
of stock market performance.
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.
Footnote reads:
*These indexes assume reinvestment of all distributions and interest
payments and do not take into 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.
Report of independent accountants
To the Trustees and Shareholders of
Putnam Balanced Retirement Fund
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned, and the related statements
of operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Putnam Balanced Retirement Fund (the "fund") at October 31, 1996, and
the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements")
are the responsibility of the fund's management; our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of investments owned at October
31, 1996 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from
brokers were not received, provide a reasonable basis for the opinion
expressed above.
Price Waterhouse LLP
Boston, Massachusetts
December 12, 1996
<TABLE>
<CAPTION>
Portfolio of investments owned
October 31, 1996
COMMON STOCKS (46.2%) *
NUMBER OF SHARES VALUE
<S> <C> <C> <C> <C>
Aerospace and Defense (0.4%)
- ----------------------------------------------------------------------------------------------
39,000 General Motors Corp. Class H $ 2,081,628
Agriculture (--%)
- ----------------------------------------------------------------------------------------------
11,013 PSF Holdings LLC Class A 187,221
Automotive (2.1%)
- ----------------------------------------------------------------------------------------------
3,000 Bayerische Motoren Werke (BMW) AG (Germany) 1,750,988
30,000 Chrysler Corp. 1,008,750
41,800 Eaton Corp. 2,497,550
60,000 Echlin, Inc. 1,957,500
73,000 General Motors Corp. 3,932,875
------------
11,147,663
Basic Industrial Products (0.4%)
- ----------------------------------------------------------------------------------------------
45,000 Deere (John) & Co. 1,878,750
Business Equipment and Services (0.6%)
- ----------------------------------------------------------------------------------------------
24,000 Alco Standard Corp. 1,113,000
3,600 Deluxe Corp. 117,450
41,000 Xerox Corp. 1,901,375
------------
3,131,825
Chemicals (3.8%)
- ----------------------------------------------------------------------------------------------
42,000 Bayer AG ADR (Germany) 1,588,160
6,000 Bayer AG (Germany) 226,166
21,000 Dow Chemical Co. 1,632,750
27,000 du Pont (E.I.) de Nemours & Co., Ltd. 2,504,250
54,000 Eastman Chemical Co. 2,848,500
40,000 Hoechst AG (Germany) 1,500,659
36,000 Imperial Chemical Industries PLC ADR (United Kingdom) 1,795,500
52,000 Minnesota Mining & Manufacturing Co. 3,984,500
48,000 PPG Industries, Inc. 2,736,000
42,000 Witco Chemical Corp. 1,302,000
------------
20,118,485
Computer Services and Software (0.8%)
- ----------------------------------------------------------------------------------------------
33,000 IBM Corp. 4,257,000
Conglomerates (1.2%)
- ----------------------------------------------------------------------------------------------
32,000 ITT Industries, Inc. 744,000
43,000 TRW, Inc. 3,891,500
14,000 United Technologies Corp. 1,802,500
------------
6,438,000
Consumer Durable Goods (0.5%)
- ----------------------------------------------------------------------------------------------
59,000 Whirlpool Corp. 2,787,750
Consumer Non Durables (2.6%)
- ----------------------------------------------------------------------------------------------
80,000 American Brands, Inc. 3,820,000
19,000 Avon Products, Inc. 1,030,750
48,000 Kimberly-Clark Corp. 4,476,000
30,600 Philip Morris Cos., Inc. 2,834,325
59,900 RJR Nabisco Holdings Corp. + 1,729,613
------------
13,890,688
Electronics and Electrical Equipment (1.4%)
- ----------------------------------------------------------------------------------------------
30,000 Hewlett-Packard Co. 1,323,750
12,000 Motorola, Inc. 552,000
24,000 Siemens AG (Germany) 1,237,154
86,000 Texas Instruments, Inc. 4,138,750
------------
7,251,654
Environmental Control (0.2%)
- ----------------------------------------------------------------------------------------------
33,000 WMX Technologies, Inc. 1,134,375
Food and Beverages (1.7%)
- ----------------------------------------------------------------------------------------------
51,000 Anheuser-Busch Cos., Inc. 1,963,500
38,000 Dole Food Co. 1,482,000
58,500 Flowers Industries, Inc. 1,367,438
36,000 General Mills, Inc. 2,056,500
102,000 Whitman Corp. 2,473,500
------------
9,342,938
Health Care (1.2%)
- ----------------------------------------------------------------------------------------------
53,600 Baxter International, Inc. 2,231,100
67,000 Warner-Lambert Co. 4,262,875
------------
6,493,975
Insurance and Finance (8.7%)
- ----------------------------------------------------------------------------------------------
59,000 American General Corp. 2,197,750
41,000 AON Corp. 2,367,750
97,000 Banc One Corp. 4,110,375
31,600 Bankers Trust New York Corp. 2,670,200
33,000 Beneficial Corp. 1,930,500
11,600 CIGNA Corp. 1,513,800
40,000 CoreStates Financial Corp. 1,945,000
64,000 Fleet Financial Group, Inc. 3,192,000
42,000 Great Western Financial Corp. 1,176,000
73,000 Keycorp 3,403,625
12,000 Marshall & Ilsley Corp. 385,500
49,000 Morgan (J.P.) & Co., Inc. 4,232,375
39,000 NationsBank Corp. 3,675,750
48,000 Norwest Corp. 2,106,000
85,000 PNC Bank Corp. 3,081,250
31,900 SAFECO Corp. 1,204,225
30,000 Salomon, Inc. 1,353,750
42,000 St. Paul Cos., Inc. 2,283,750
46,500 Synovus Financial Corp. 1,389,188
126,000 USF&G Corp. 2,394,000
------------
46,612,788
Metals and Mining (0.1%)
- ----------------------------------------------------------------------------------------------
11,900 Carpenter Technology Corp. 388,238
12,000 Freeport-McMoRan Copper & Gold
Co., Inc. Class A 348,000
------------
736,238
Oil and Gas (4.0%)
- ----------------------------------------------------------------------------------------------
42,000 Amoco Corp. 3,181,500
39,000 Chevron, Inc. 2,564,250
58,000 Exxon Corp. 5,140,250
28,000 Mobil Corp. 3,269,000
111,000 Occidental Petroleum Corp. 2,719,500
44,000 PanEnergy Corp. 1,694,000
72,000 Total Corp. ADR (France) 2,808,000
------------
21,376,500
Packaging and Containers (0.3%)
- ----------------------------------------------------------------------------------------------
36,700 Crown Cork & Seal Co., Inc. 1,761,600
Paper and Forest Products (1.8%)
- ----------------------------------------------------------------------------------------------
31,000 Chesapeake Corp. 875,750
39,000 Rayonier, Inc. 1,545,375
41,400 Temple Inland, Inc. 2,121,750
110,000 Weyerhaeuser Co. 5,046,250
------------
9,589,125
Pharmaceuticals (1.0%)
- ----------------------------------------------------------------------------------------------
24,000 Bristol-Myers Squibb Co. 2,538,000
82,160 Pharmacia & Upjohn, Inc. 2,957,760
------------
5,495,760
Photography (0.8%)
- ----------------------------------------------------------------------------------------------
42,000 Eastman Kodak Co. 3,349,500
29,000 Polaroid Corp. 1,178,125
------------
4,527,625
Publishing (0.1%)
- ----------------------------------------------------------------------------------------------
14,400 Times Mirror Co. Class A 666,000
Real Estate (0.7%)
- ----------------------------------------------------------------------------------------------
43,000 Bradley Real Estate Trust, Inc. (R) 714,875
29,900 Duke Realty Investments, Inc. (R) 1,031,550
31,200 Equity Residential Properties Trust (R) 1,146,600
40,000 LTC Properties, Inc. (R) 680,000
------------
3,573,025
Retail (2.2%)
- ----------------------------------------------------------------------------------------------
90,600 Dayton Hudson Corp. 3,137,025
109,000 K mart Corp. 1,062,750
48,000 May Department Stores Co. 2,274,000
54,000 Penney (J.C.) Co., Inc. 2,835,000
73,000 Rite Aid Corp. 2,482,000
------------
11,790,775
Transportation (2.0%)
- ----------------------------------------------------------------------------------------------
45,000 CSX Corp. 1,940,625
38,000 Delta Air Lines, Inc. 2,693,250
18,000 Norfolk Southern Corp. 1,604,250
108,200 Ryder System, Inc. 3,218,950
23,000 Union Pacific Corp. 1,290,875
------------
10,747,950
Utilities (7.6%)
- ----------------------------------------------------------------------------------------------
63,000 Bell Atlantic Corp. 3,795,750
36,000 BellSouth Corp. 1,467,000
2,000 Carolina Power & Light Co. 72,250
103,000 Cinergy Corp. 3,411,875
45,000 Dominion Resources, Inc. 1,698,750
49,000 Edison International 967,750
40,000 GTE Corp. 1,685,000
88,200 MCI Communications Corp. 2,216,025
18,000 NIPSCO Industries, Inc. 681,750
93,000 NYNEX Corp. 4,138,500
35,000 Oklahoma Gas & Electric Co. 1,369,375
74,000 Pacific Enterprises 2,275,500
101,000 Pacific Gas & Electric Co. 2,373,500
54,000 Pacific Telesis Group 1,836,000
50,000 Potomac Electric Power Co. 1,281,250
34,000 Public Service Co. of Colorado 1,258,000
66,000 SBC Communications, Inc. 3,209,250
62,200 Scana Corp. 1,663,850
74,900 Sprint Corp. 2,939,825
18,000 Veba (Vereinigte Elektrizitaets Bergwerks) AG (Germany) 957,747
32,000 WICOR, Inc. 1,140,000
------------
$ 40,438,947
------------
Total Common Stocks (cost $207,933,363) $ 247,458,285
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (20.6%) *
PRINCIPAL AMOUNT VALUE
Agency Obligations (0.5%)
- ----------------------------------------------------------------------------------------------
$2,695,000 Federal National Mortgage Association medium term
notes 5.94s, December 12, 2005 $ 2,571,192
U.S. Government Agency Mortgage Pass-Through Certificates (6.7%)
- ----------------------------------------------------------------------------------------------
Federal National Mortgage Association
6,383,134 7s, with various due dates from February 1, 2024
to May 1, 2026 6,261,415
4,761,819 6s, Dwarf, with various due dates from January 1, 2009
to October 1, 2009 4,587,682
Government National Mortgage Association
16,104,587 7s, with various due dates from March 15, 2026
to May 15, 2026 15,792,492
4,256,825 6 1/2s, with various due dates from January 15, 2026
to May 15, 2026 4,069,233
2,749,784 6 1/2s, Midgets, with various due dates from
July 15, 2008 to June 15, 2009 2,713,684
2,828,072 6s, Midgets, with various due dates from
November 15, 2008 to April 15, 2009 2,747,648
------------
36,172,154
U.S. Treasury Obligations (13.4%)
- ----------------------------------------------------------------------------------------------
U.S. Treasury Bonds
2,995,000 10 3/4s, August 15, 2005 3,868,701
6,380,000 8 7/8s, August 15, 2017 7,901,247
3,970,000 8 1/8s, August 15, 2019 4,599,602
U.S. Treasury Notes
3,185,000 11 7/8s, November 15, 2003# 4,189,772
15,700,000 7 1/2s, May 15, 2002 16,703,387
925,000 7 1/4s, August 15, 2004 978,909
1,225,000 6 1/2s, August 15, 2005 1,237,826
1,930,000 6 1/2s, May 31, 2001 1,961,671
17,275,000 6 3/8s, August 15, 2002 17,472,108
4,655,000 6 1/4s, April 30, 2001 4,686,282
8,095,000 6 1/4s, June 30, 1998 8,165,831
------------
71,765,336
------------
Total U.S. Government and Agency Obligations (cost $109,400,616) $ 110,508,682
CORPORATE BONDS AND NOTES (16.4%) *
PRINCIPAL AMOUNT VALUE
Advertising (0.1%)
- ----------------------------------------------------------------------------------------------
$150,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 156,000
10,000 Outdoor Systems, Inc. sr. sub. notes 9 3/8s, 2006 9,950
55,000 Universal Outdoor, Inc. sr. sub. notes 9 3/4s, 2006 54,450
------------
220,400
Aerospace and Defense (0.4%)
- ----------------------------------------------------------------------------------------------
100,000 Howmet Corp. sr. sub. notes 10s, 2003 $ 107,500
1,725,000 Northrop-Grumman Corp. notes 7s, 2006 1,709,165
270,000 Sequa Corp. bonds 8 3/4s, 2001 267,300
2,083,965
Agriculture (--%)
- ----------------------------------------------------------------------------------------------
121,274 Premium Standard Farms, Inc. sr. secd.
notes 11s, 2003 (2 double daggers) 123,093
Automotive (0.3%)
- ----------------------------------------------------------------------------------------------
150,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 165,000
35,000 CSK Auto, Inc. 144A sr. sub. notes 11s, 2006 35,525
1,205,000 Daimler-Benz med. term notes 7 3/8s, 2006 (Germany) 1,239,053
65,000 Key Plastics Corp. sr. notes 14s, 1999 66,950
80,000 Lear Corp. sub. notes 9 1/2s, 2006 85,200
15,000 Speedy Muffler King, Inc. company
guaranty 10 7/8s, 2006 (Canada) 15,375
------------
1,607,103
Banks (0.2%)
- ----------------------------------------------------------------------------------------------
740,000 Abbey National PLC sub. notes
7.35s, 2049 (United Kingdom) 751,736
445,000 First National Bank of Omaha sub.
notes 7.32s, 2010 435,642
------------
1,187,378
Basic Industrial Products (0.1%)
- ----------------------------------------------------------------------------------------------
20,000 Astor Corp. 144A sr. sub. notes 10 1/2s, 2006 20,000
275,000 Inter-City Products sr. notes 9 3/4s, 2000 273,625
10,000 Mettler Toledo, Inc. company guaranty 9 3/4s, 2006 10,200
------------
303,825
Broadcasting (0.2%)
- ----------------------------------------------------------------------------------------------
125,000 Allbritton Communications Co. sr. sub. deb.
Ser. B, 9 3/4s, 2007 117,500
25,000 Allbritton Communications Co. sr. sub. deb. 11 1/2s, 2004 26,000
150,000 Argyle Television Corp. sr. sub. notes 9 3/4s, 2005 150,000
50,000 Commodore Media, Inc. sr. sub. notes stepped-coupon
7 1/2s, (13 1/4s, 5/1/98), 2003 ++ 52,000
200,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (13 1/2s, 9/30/99), 2004
(United Kingdom) ++ 155,000
10,000 Gray Communications System Inc. sr. sub. notes 10 5/8s, 2006 10,100
190,000 Jacor Communications, Inc. sr. sub. notes 10 1/8s, 2006 193,800
70,000 Park Broadcasting, Inc. sr. notes Ser. B, 11 3/4s, 2004 80,850
10,000 Paxson Communications Corp. 144A sr. sub. notes 11 5/8s, 2002 10,200
125,000 Rogers Cablesystem Ltd. deb. 10 1/8s, 2012 (Canada) 123,750
150,000 Sinclair Broadcasting Group sr. sub. notes 10s, 2005 145,500
------------
1,064,700
Building and Construction (0.1%)
- ----------------------------------------------------------------------------------------------
70,000 Cemex S.A. 144A bonds 12 3/4s, 2006 (Mexico) 75,338
200,000 Scotsman Group, Inc. sr. secd. notes 9 1/2s, 2000 201,000
100,000 Triangle Pacific Corp. sr. notes 10 1/2s, 2003 105,000
------------
381,338
Business Equipment and Services (--%)
- ----------------------------------------------------------------------------------------------
100,000 Corporate Express, Inc. sr. sub. notes
Ser. B, 9 1/8s, 2004 100,000
15,000 Iron Mountain Inc. sr. sub. notes 10 1/8s, 2006 15,375
30,000 Pierce Leahy Corp. 144A sr. sub. notes 11 1/8s, 2006 32,100
------------
147,475
Cable Television (0.5%)
- ----------------------------------------------------------------------------------------------
75,000 Cablevision Systems Corp. sr. sub. deb. 9 7/8s, 2023 67,500
105,000 Cablevision Systems Corp. sr. sub. reset deb. 10 3/4s, 2004 106,575
1,465,000 Continental Cablevision, Inc. sr. deb. 9 1/2s, 2013 1,648,125
100,000 Jones Intercable, Inc. sr. sub. deb. 10 1/2s, 2008 105,500
50,000 Lenfest Communications, Inc. sr. notes 8 3/8s, 2005 45,625
150,000 Lenfest Communications, Inc. sr. sub. notes 10 1/2s, 2006 150,750
200,000 Marcus Cable Co. (L.P) sr. disc. notes stepped-coupon
zero % (14 1/4s, 6/15/00), 2005 ++ 133,000
55,000 Rogers Communications, Inc. sr. deb. 10 7/8s, 2004 56,650
195,000 Telewest Communications PLC deb. stepped-coupon zero %
(11s, 10/1/00), 2007 (United Kingdom) ++ 124,313
130,000 Videotron Holdings. sr. disc. notes stepped-coupon zero %
(11s, 8/15/00), 2005 (United Kingdom) ++ 94,250
------------
2,532,288
Chemicals (0.4%)
- ----------------------------------------------------------------------------------------------
150,000 Arcadian Partner sr. notes 10 3/4s, 2005 165,000
15,000 Freedom Chemicals, Inc. 144A sr.
sub. notes 10 5/8s, 2006 15,169
100,000 Great Lakes Carbon Corp. sr. notes 10s, 2006 105,000
150,000 IMC Fertilizer Group, Inc. deb. 9.45s, 2011 171,000
900,000 Lyondell Petrochemical Co. notes 9 1/8s, 2002 985,212
475,000 Sociedad Quimica Y Minera de Chile S.A. 144A bonds
7.7s, 2006 (Chile) 486,281
15,000 Texas Petrochemical 144A sr. sub. notes 11 1/8s, 2006 15,938
------------
1,943,600
Computer Services and Software (--%)
- ----------------------------------------------------------------------------------------------
60,000 Unisys Corp. sr. notes 11 3/4s, 2004 60,900
Conglomerates (--%)
- ----------------------------------------------------------------------------------------------
100,000 ADT Ltd. sr. sub. notes 9 1/4s, 2003 105,250
100,000 MacAndrews & Forbes Holdings, Inc.
sub. deb. notes 13s, 1999 100,000
------------
205,250
Consumer Durable Goods (--%)
- ----------------------------------------------------------------------------------------------
20,000 Rayovac Corp. 144A sr. sub. notes 10 1/4s, 2006 20,100
80,000 Selmer Co., Inc. sr. sub. notes 11s, 2005 84,800
------------
104,900
Consumer Non Durables (0.1%)
- ----------------------------------------------------------------------------------------------
15,000 E&S Holdings Corp. 144A sr. sub. notes 10 3/8s, 2006 15,394
200,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 204,000
430,000 RJR Nabisco, Inc. notes 8 3/4s, 2005 425,601
------------
644,995
Consumer Services (0.1%)
- ----------------------------------------------------------------------------------------------
250,000 Host Marriott Travel Plaza Corp. sr. notes
Ser. B, 9 1/2s, 2005 252,500
150,000 John Q Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 146,250
125,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 105,000
------------
503,750
Electronics and Electrical Equipment (0.1%)
- ----------------------------------------------------------------------------------------------
500,000 Amphenol Corp. sr. notes 10.95s, 2001 539,600
200,000 International Semi-Tech. Corp. sr. secd. disc. notes
stepped-coupon zero % (11 1/2s, 8/15/00), 2003 (Canada) ++ 122,000
------------
661,600
Entertainment (0.6%)
- ----------------------------------------------------------------------------------------------
70,000 Cinemark USA, Inc. 144A sr. sub. notes 9 5/8s, 2008 68,950
100,000 Premier Parks, Inc. sr. notes Ser. A, 12s, 2003 108,250
250,000 Six Flags Corp. sr. sub. notes stepped-coupon zero %
(12 1/4s, 6/15/98), 2005 ++ 225,000
2,100,000 Time Warner Entertainment Co. deb. 7 1/4s, 2008 2,046,744
615,000 Time Warner Inc. notes 8 7/8s, 2012 669,335
------------
3,118,279
Food and Beverages (0.3%)
- ----------------------------------------------------------------------------------------------
50,000 Canandaigua Wine Co. 144A sr. sub. notes 8 3/4s, 2003 48,000
1,070,000 Kroger Co. sr. notes 8.15s, 2006 1,112,319
270,000 Stater Brothers sr. notes 11s, 2001 285,525
------------
1,445,844
Gaming (0.3%)
- ----------------------------------------------------------------------------------------------
120,000 Alliance Gaming Corp. 12 7/8s, 2003 123,600
45,000 Argosy Gaming Co. 1st mtge. 13 1/4s, 2004 43,200
250,000 Arizona Charlies Corp. 1st mtge. Ser. B, 12s, 2000 175,000
100,000 Bally Park Place Funding 1st mtge. 9 1/4s, 2004 109,250
110,000 Casino America, Inc. sr. notes 12 1/2s, 2003 112,750
35,000 Casino Magic Corp. 144A 1st mtge. 13s, 2003 35,525
75,000 Coast Hotels & Casino company guaranty Ser. B, 13s, 2002 80,625
125,000 Empress River Casino sr. notes 10 3/4s, 2002 133,750
100,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 98,250
150,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 142,500
259,000 Louisiana Casino Cruises Corp. 1st mtge. 11 1/2s, 1998 236,985
250,000 Players International Inc. sr. notes 10 7/8s, 2005 247,500
150,000 Trump A.C. 1st. mtge. 11 1/4s, 2006 141,750
100,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 116,000
------------
1,796,685
Health Care (0.4%)
- ----------------------------------------------------------------------------------------------
1,340,000 Columbia Healthcare Corp. deb. 8.36s, 2024 1,495,386
100,000 Dade International, Inc. 144A
sr. sub. notes 11 1/8s, 2006 107,000
15,000 Genesis Health Ventures, Inc. 144A sr.
sub. notes 9 1/4s, 2006 14,963
200,000 Graphic Controls Corp. sr. sub. notes
Ser. A, 12s, 2005 216,000
250,000 Ivac Corp. sr. notes 9 1/4s, 2002 253,125
150,000 Merit Behavioral Care sr. sub. notes 11 1/2s, 2005 157,125
55,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 51,150
40,000 Wright Medical Technology, Inc. sr. secd. notes
Ser. B, 10 3/4s, 2000 40,400
------------
2,335,149
Insurance and Finance (5.0%)
- ----------------------------------------------------------------------------------------------
815,000 ABN Ambro Bank N.V. sub. notes 7.55s, 2006 850,925
25,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 25,250
1,890,000 Advanta National Bank sr. notes 7.02s, 2001 1,898,165
200,000 AIM Management Group sr. secd. notes 9s, 2003 209,000
150,000 American Life Holding Co. sr. sub. notes 11 1/4s, 2004 170,625
1,145,000 Bangkok Bank Public Co. 144A sub. notes 8 1/4s, 2016 (Thailand) 1,165,392
35,000 Berkeley Federal Bank & Trust sub. deb. 12s, 2005 38,150
150,000 Centerbank sub. notes 8 3/8s, 2002 160,500
150,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 157,125
2,200,000 Citicorp sub. notes 7 1/8s, 2005 2,229,920
1,165,000 Conseco Inc. sr. notes 10 1/2s, 2004 1,377,112
245,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 246,225
3,150,000 Den Danske Bank 144A sub. notes 6.55s, 2003 (Denmark) 3,085,457
1,710,000 Discover Credit Corp. med. term notes 9.07s, 2012 1,999,281
540,000 First Financial Caribbean Corp. sr. notes 7.84s, 2006 544,601
200,000 First Nationwide Holdings 144A sr. sub. notes 10 5/8s, 2003 210,000
100,000 First Nationwide Holdings sr. sub. notes 9 1/8s, 2003 98,000
1,920,000 Ford Motor Credit Corp. notes 8.2s, 2002 2,052,883
30,000 Intertek Finance PLC 144A sr. sub. notes 10 1/4s, 2006
(United Kingdom) 30,450
125,000 Keystone Group, Inc. sr. secd. notes 9 3/4s, 2003 134,375
20,000 Ocwen Financial Corp. notes 11 7/8s, 2003 21,200
25,000 Olympic Financial Ltd. sr. notes 13s, 2000 27,750
20,000 Outsourcing Solutions Inc. 144A sr. sub. notes 11s, 2006 20,450
250,000 Phoenix Re Corp. sr. notes 9 3/4s, 2003 263,125
200,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 2003 205,000
2,500,000 Riggs National Corp. sub. deb. 8 1/2s, 2006 2,584,375
1,100,000 Salton Sea Funding Corp. company guaranty Ser. E, 8.3s, 2011 1,145,639
1,600,000 Sampoerna International Finance Co. 144A company guaranty
8 3/8s, 2006 (Indonesia) 1,632,576
2,000,000 Scotland International Finance 144A sub. notes 8.85s,
2006 (Netherlands) 2,252,820
200,000 Van Kampen Merritt sr. notes 9 3/4s, 2003 214,000
1,500,000 Webster Financial Corp. sr. notes 8 3/4s, 2000 1,561,245
------------
26,611,616
Metals and Mining (0.4%)
- ----------------------------------------------------------------------------------------------
250,000 Ispat Mexicana, SA 144A deb. 10 3/8s,
2001 (Mexico) 251,250
750,000 Noranda Inc. notes 7s, 2005 (Canada) 738,218
1,035,000 PT Alatief Freeport sr. notes 9 3/4s,
2001 (Netherlands) 1,129,299
25,000 Renco Metals, Inc. sr. notes 11 1/2s, 2003 26,000
40,000 Royal Oak Mines, Inc. 144A sr. sub. notes 11s,
2006 (Canada) 41,200
------------
2,185,967
Motion Picture Distribution (0.1%)
- ----------------------------------------------------------------------------------------------
250,000 United Artists notes 11 1/2s, 2002 265,000
Oil and Gas (1.1%)
- ----------------------------------------------------------------------------------------------
10,000 Costilla Energy, Inc. sr. notes 10 1/4s, 2006 10,025
20,000 Flores & Rucks Corp. sr. sub. notes 9 3/4s, 2006 20,525
30,000 Forcenergy Inc. sr. sub. notes 9 1/2s, 2006 30,525
970,000 Gulf Canada Resources Ltd. sr. notes 8.35s, 2006 (Canada) 1,001,525
25,000 Kelley Oil & Gas Corp. 144A sr. sub. notes 10 3/8s, 2006 24,938
200,000 Maxus Energy Corp. global notes 9 7/8s, 2002 204,000
50,000 Maxus Energy Corp. notes 9 3/8s, 2003 50,500
1,965,000 Parker & Parsley Petro Co. sr. notes 8 7/8s, 2005 2,185,611
215,000 Petroliam Nasional Berhad 144A notes 7 5/8s, 2026 (Malaysia) 217,533
1,655,000 Petroliam Nasional Berhad 144A notes 7 1/8s, 2005 (Malaysia) 1,674,148
100,000 TransTexas Gas Corp. sr. secd. notes 11 1/2s, 2002 106,000
250,000 Triton Energy sr. sub. disc. notes stepped-coupon
zero % (9 3/4s, 12/15/96), 2000 ++ 255,000
------------
5,780,330
Packaging and Containers (0.1%)
- ----------------------------------------------------------------------------------------------
20,000 Ivex Holdings Corp. sr. disc. deb. stepped-coupon
zero % (13 1/4s, 3/15/00), 2005 ++ 15,100
150,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 161,250
10,000 Printpack, Inc. 144A sr. sub. notes 10 5/8s, 2006 10,325
25,000 Printpack, Inc. 144A sr. notes 9 7/8s, 2004 25,688
20,000 US Can Corp. 144A sr. sub. notes 10 1/8s, 2006 20,600
------------
232,963
Paper and Forest Products (0.1%)
- ----------------------------------------------------------------------------------------------
200,000 Doman Industries Ltd. sr. notes 8 3/4s, 2004 (Canada) 188,000
70,000 Domtar, Inc. deb. 9 1/2s, 2016 (Canada) 74,200
250,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 252,500
100,000 Stone Consolidated Corp. sr. notes 10 1/4s, 2000 105,750
------------
620,450
Publishing (0.4%)
- ----------------------------------------------------------------------------------------------
250,000 American Media Operation, Inc. sr. sub.
notes 11 5/8s, 2004 266,875
275,000 Marvel Parent Holdings, Inc. sr. secd.
disc. notes zero %, 1998 101,750
2,085,000 News America Holdings Inc. deb. 7.7s, 2025 1,993,406
------------
2,362,031
Real Estate (0.6%)
- ----------------------------------------------------------------------------------------------
630,000 Health Care Property Investors, Inc.
sr. notes 6 1/2s, 2006 (R) 599,760
1,620,000 Meditrust med. term notes 7.3s, 2006 (R) 1,582,724
1,015,000 Sun Communities, Inc. sr. notes 7 5/8s, 2003 (R) 1,032,793
250,000 Tanger Properities Ltd. Partnership Gtd.
notes 8 3/4s, 2001 (R) 251,535
------------
3,466,812
Retail (0.4%)
- ----------------------------------------------------------------------------------------------
100,000 Brylane (L.P.) sr. sub. notes 10s, 2003 103,000
975,000 Federated Department Stores sr. notes 8 1/2s, 2003 1,015,619
99,000 Finlay Enterprises, Inc. sr. notes 10 5/8s, 2003 100,238
75,000 Loehmanns, Inc. sr. notes 11 7/8s, 2003 79,500
100,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 105,750
500,000 Safeway, Inc. med. term notes 8.57s, 2003 530,960
250,000 Southland Corp. 1st priority sr. sub. deb. 5s, 2003 200,000
200,000 Waban, Inc. sr. sub. notes 11s, 2004 213,000
------------
2,348,067
Specialty Consumer Products (0.1%)
- ----------------------------------------------------------------------------------------------
100,000 Coty Inc. Gtd. sr. sub. notes 10 1/4s, 2005 106,000
25,000 Genesco, Inc. sr. notes 10 3/8s, 2003 24,938
125,000 Herff Jones, Inc. sr. sub. notes 11s, 2005 133,125
------------
264,063
Telecommunications (0.7%)
- ----------------------------------------------------------------------------------------------
1,680,000 360 Communications Co. sr. notes 7 1/2s, 2006 1,664,628
200,000 Arch Communications Group sr. disc. notes
stepped-coupon zero % (10 7/8s, 3/15/01), 2008 ++ 110,000
100,000 Centennial Cellular Corp. sr. notes 10 1/8s, 2005 97,500
100,000 Fonorola, Inc. sr. notes 12 1/2s, 2002 (Canada) 108,750
25,000 Frontiervision Operating Partners L.P.
sr. sub. notes 11s, 2006 24,750
200,000 Intercel, Inc. sr. disc. notes stepped-coupon
zero % (12s, 5/1/01), 2006 ++ 113,000
150,000 Intermedia Communications of Florida sr. notes
Ser. B, 13 1/2s, 2005 169,875
290,000 International Cabletel, Inc. sr. notes stepped-coupon
Ser. B, zero % (11 1/2s, 2/01/01), 2006 ++ 174,000
500,000 MFS Communications sr. disc. notes stepped-coupon
zero % (8 7/8s, 1/1/01), 2006 ++ 353,750
115,000 MFS Communications sr. disc. notes stepped-coupon
zero % (9 3/8s, 1/15/99), 2004 ++ 97,750
150,000 Milicom International Cellular 144A sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/01/00),
2006 (Luxembourg) ++ 85,125
75,000 Mobilemedia Corp. sr. sub. notes 9 3/8s, 2007 41,250
30,000 Omnipoint Corp. 144A sr. notes 11 5/8s, 2006 30,300
50,000 Orbcomm Global Capital Corp. 144A sr. notes 14s, 2004 50,500
70,000 Paging Network, Inc. 144A sr. sub. notes 10s, 2008 69,300
50,000 Pricellular Wireless Corp. 144A sr. notes 10 3/4s, 2004 50,375
100,000 Pronet, Inc. sr. sub. notes 11 7/8s, 2005 92,000
370,000 Teleport Communications Group Inc. sr. disc. notes
stepped-coupon zero % (11 1/8s, 7/1/01), 2007 ++ 236,800
------------
3,569,653
Textiles (--%)
- ----------------------------------------------------------------------------------------------
65,000 Polysindo International Finance company guaranty
11 3/8s, 2006 (Indonesia) 68,900
100,000 Tultex Corp. sr. notes 10 5/8s, 2005 105,200
------------
174,100
Transportation (0.3%)
- ----------------------------------------------------------------------------------------------
40,000 Blue Bird Body Co. sub. deb. Ser. B, 11 3/4s, 2002 41,400
1,690,000 Burlington Northern Santa Fe notes 6 3/8s, 2005 1,617,989
60,000 Greenwich Air Services, Inc. sr. notes 10 1/2s, 2006 62,700
135,000 MCII Holding (USA), Inc. bonds stepped-coupon
zero % (12s, 11/15/98 ), 2002 ++ 109,350
------------
1,831,439
Utilities (2.9%)
- ----------------------------------------------------------------------------------------------
1,135,000 California Energy Corp. disc. notes stepped-coupon
zero % (10 1/4s, 1/15/97), 2005 ++ 1,163,375
150,000 Chesapeake Energy Corp. sr. notes 9 1/8s, 2006 152,625
1,125,000 Citizens Utilities Co. bonds 7.68s, 2034 1,253,891
365,000 Connecticut Light & Power 1st mtge. 7 7/8s, 2001 372,052
1,200,000 Connecticut Yankee mtge. Ser. A, 12s, 2000 1,232,724
1,395,000 EIP Funding-Public Service Co. of New Mexico deb.
10 1/4s, 2012 1,547,055
150,000 El Paso Electric Co. 1st mtge. Ser. D, 8.9s, 2006 155,045
1,910,000 El Paso Electric Co. 1st mtge. Ser. B, 7 3/4s, 2001 1,918,366
36,000 First PV Funding deb. 10.15s, 2016 38,340
15,000 Hidroelectric Pierda Aguila 144A bonds 10 5/8s,
2001 (Argentina) 15,019
713,751 Midland Cogeneration Ventures deb. 10.33s, 2002 754,792
200,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 219,526
100,000 Niagara Mohawk Power Corp. med. term notes 9.95s, 2000 91,000
100,000 Niagara Mohawk Power Corp. 1st mtge. 7 3/4s, 2006 93,229
175,000 Texas New Mexico Power Utilities deb. 12 1/2s, 1999 191,590
1,685,000 Texas New-Mexico Power Utilities 1st mtge. 9 1/4s, 2000 1,762,999
4,700,000 Texas Utilities Electric Co. secd. lease fac.
bonds 7.46s, 2015 4,725,333
------------
15,686,961
------------
Total Corporate Bonds and Notes (cost $86,597,521) $ 87,871,969
CONVERTIBLE BONDS AND NOTES (4.2%) *
PRINCIPAL AMOUNT VALUE
Aerospace and Defense (--%)
- ----------------------------------------------------------------------------------------------
$100,000 Rohr, Inc. cv. sub. notes 7 3/4s, 2004 183,250
Automotive (0.4%)
- ----------------------------------------------------------------------------------------------
400,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 243,000
1,100,000 Magna International cv. sub. deb. 5s, 2002 1,204,500
JPY 60,000,000 Toyota Motor Corp. cv. deb. 1.2s, 1998 (Japan) 731,707
------------
2,179,207
Basic Industrial Products (0.1%)
- ----------------------------------------------------------------------------------------------
$450,000 Cooper Industries, Inc. cv. sub. 7.05s, 2015 477,000
Building and Construction (--%)
- ----------------------------------------------------------------------------------------------
200,000 New World Infrastructure Ltd. 144A cv.
bonds 5s, 2001 (Hong Kong) 215,000
Business Equipment and Services (0.1%)
- ----------------------------------------------------------------------------------------------
250,000 Corporate Express, Inc. 144A cv. notes 4 1/2s, 2000 233,750
150,000 Staples, Inc. 144A cv. sub. deb. 4 1/2s, 2000 156,938
200,000 US Office Products Co. 144A cv. sub. notes 5 1/2s, 2003 180,500
------------
571,188
Computers (0.2%)
- ----------------------------------------------------------------------------------------------
200,000 EMC Corp. cv. sub. notes 4 1/4s, 2001 270,000
200,000 Safeguard Scientifics, Inc. 144A cv.
sub. notes 6s, 2006 272,750
650,000 Softkey International, Inc. 144A cv.
sr. notes 5 1/2s, 2000 529,750
150,000 Synoptics Communications Inc. 144A cv.
sub. deb. 5 1/4s, 2003 131,438
------------
1,203,938
Conglomerates (0.1%)
- ----------------------------------------------------------------------------------------------
175,000 Hexcel Corp. cv. sub. notes 7s, 2003 234,500
Consumer Durable Goods (0.1%)
- ----------------------------------------------------------------------------------------------
1,350,000 Whirpool Corp. Cv. LYON(Liquid Yield
Option Notes) zero %, 2011 518,063
Consumer Non Durables (0.1%)
- ----------------------------------------------------------------------------------------------
1,400,000 Coleman Worldwide Corp. cv. sr. sec. LYON zero %, 2013 400,750
500,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 2007 386,875
------------
787,625
Consumer Services (0.3%)
- ----------------------------------------------------------------------------------------------
850,000 Boston Chicken, Inc. cv. LYON zero %, 2015 269,875
750,000 Hollinger, Inc. cv. LYON zero %, 2013 255,000
550,000 Pharmaceutical Marketing Services Inc.
144A cv. deb. 6 1/4s, 2003 421,438
300,000 Protection One Alarm cv. sr. sub. notes 6 3/4s, 2003 286,875
1,000,000 Rogers Communications cv. deb. 2s, 2005 528,750
------------
1,761,938
Electronics and Electrical Equipment (0.3%)
- ----------------------------------------------------------------------------------------------
200,000 ADT Operations Inc. cv. sub. notes zero %, 2010 117,500
30,000 Integrated Device Technology, Inc. cv.
sub. notes 5 1/2s, 2002 24,263
500,000 Motorola, Inc. cv. sub. deb. LYON zero %, 2013 340,000
135,000 National Data Corp cv. sub. notes 5s, 2003 136,688
250,000 Plasma & Materials Technologies, Inc. 144A
cv. notes 7 1/8s, 2001 256,875
100,000 S3, Inc. 144A cv. sub. notes 5 3/4s, 2003 118,000
325,000 Texas Instruments cv. sub. deb. 2 3/4s, 2002 394,875
140,000 Thermo Instrument Systems, Inc. 144A
cv. deb. 4 1/2s, 2003 139,300
32,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 32,640
30,000 VLSI Technology, Inc. cv. sub. notes 8 1/4s, 2005 28,350
------------
1,588,491
Environmental Control (0.2%)
- ----------------------------------------------------------------------------------------------
255,000 Thermo Terratech, Inc. 144A cv. sub. deb. 4 5/8s, 2003 237,150
100,000 U.S. Filter Corp. 144A cv. sub. notes 6s, 2005 191,000
635,000 WMX Technologies, Inc. cv. sub. notes 2s, 2005 603,250
------------
1,031,400
Food and Beverages (0.1%)
- ----------------------------------------------------------------------------------------------
260,000 Grand Metropolitan PLC cv. unsub. 6 1/2s, 2000 304,850
Health Care (0.5%)
- ----------------------------------------------------------------------------------------------
550,000 Alza Corp. cv. sub. LYON zero %, 2014 227,563
125,000 American Medical Response 144A
cv. sub. notes 5 1/4s, 2001 128,125
100,000 Complete Management, Inc. cv. sub. deb. 8s, 2003 116,250
350,000 Healthsource, Inc. 144A cv. sub. notes 5s, 2003 276,938
200,000 Integrated Health Services cv. sr. sub. deb 5 3/4s, 2001 193,750
250,000 IVAX Corp. cv. deb. 6 1/2s, 2001 225,938
200,000 Renal Treatment Centers, Inc. 144A
cv. sub. notes 5 5/8s, 2006 200,000
250,000 Rotech Medical Corp. 144A cv. sub. deb. 5 1/4s, 2003 212,813
225,000 Tenet Health Care Corp. cv. sub. notes 6s, 2005 229,781
600,000 Theratx Inc. cv. sub. 8s, 2002 540,000
200,000 Uromed Corp. 144A cv. sub. notes 6s, 2003 194,500
250,000 Vivra, Inc. 144A cv. sub. notes 5s, 2001 262,813
------------
2,808,471
Insurance and Finance (0.8%)
- ----------------------------------------------------------------------------------------------
54,000 Banamex (Nassau Branch) 144A cv. jr.
sub. notes 11s, 2003 (Mexico) 50,355
196,000 Banco Nacional De Mexico SA
cv. bonds 7s, 1999 (Mexico) 196,980
2,500,000 Mitsubishi Bank Ltd. International Finance
cv. trust guaranteed notes 3s, 2002 (Bermuda) 2,715,625
200,000 Pioneer Financial Services cv. sub. notes 6 1/2s, 2003 207,000
JPY 51,000,000 Sumitomo Bank Ltd. 144A cv. bank guarantee
3/4s, 2001 (Japan) 489,954
$400,000 Sumitomo Bank cv. deb. 3 1/8s, 2004 (Japan) 366,000
450,000 USF&G Corp. cv. sub. notes zero %, 2009 284,625
------------
4,310,539
Metals and Mining (0.1%)
- ----------------------------------------------------------------------------------------------
300,000 Quanex Corp. cv. sub. deb. 6.88s, 2007 309,750
Oil and Gas (0.1%)
- ----------------------------------------------------------------------------------------------
175,000 Pennzoil Co. cv. sub. deb. 6 1/2s, 2003 274,750
200,000 Pride Petroleum Services, Inc.
cv. sub. deb. 6 1/4s, 2006 310,000
------------
584,750
Paper and Forest Products (0.1%)
- ----------------------------------------------------------------------------------------------
300,000 Stone Container Corp. cv. sr.
sub. notes 8 7/8s, 2000 421,125
Pharmaceuticals (0.1%)
- ----------------------------------------------------------------------------------------------
100,000 Nabi, Inc. 144A cv. sub. notes 6 1/2s, 2003 94,750
275,000 North American Vaccine, Inc. 144A
cv. sub. notes 6 1/2s, 2003 264,688
300,000 Roche Holdings, Inc. 144A cv. unsub.
LYON zero %, 2010 (Switzerland) 132,375
275,000 Sandoz Capital BVI Ltd. 144A cv. company
guaranty 2s, 2002 (Switzerland) 304,219
------------
796,032
Real Estate (0.1%)
- ----------------------------------------------------------------------------------------------
250,000 LTC Properties, Inc. cv. sub. deb. 7 3/4s, 2002 (R) 257,500
150,000 Malan Realty Investors cv. sub. notes 9 1/2s, 2004 (R) 137,625
------------
395,125
Retail (0.2%)
- ----------------------------------------------------------------------------------------------
250,000 Home Depot, Inc. cv. sub. notes 3 1/4s, 2001 249,688
200,000 Office Depot, Inc. cv. LYON zero %, 2007 126,000
200,000 Pier 1 Imports, Inc. cv. sub. notes 5 3/4s, 2003 201,000
480,000 Rite Aid Corp. cv. deb. zero %, 2006 265,800
------------
842,488
Telecommunications (0.1%)
- ----------------------------------------------------------------------------------------------
250,000 MIDCOM Communications, Inc. 144A
cv. sub. deb. 8 1/4s, 2003 250,000
Transportation (0.1%)
- ----------------------------------------------------------------------------------------------
200,000 British Airport Authority 144A cv. bonds
5 3/4s, 2006 (United Kingdom) 339,125
250,000 Continental Airlines, Inc. cv. sub. deb.
6 3/4s, 2006 257,500
------------
596,625
------------
Total Convertible Bonds and Notes (cost $21,502,054) 22,371,355
CONVERTIBLE PREFERRED STOCKS (2.6%) *
NUMBER OF SHARES VALUE
Automotive (0.6%)
- ----------------------------------------------------------------------------------------------
31,300 Ford Motor Co. Ser. A, $4.20 dep. shs. cv. pfd. $ 3,200,425
Banks (0.1%)
- ----------------------------------------------------------------------------------------------
9,000 Sovereign Bancorp Inc. $3.13 cv. pfd. 571,500
Basic Industrial Products (0.1%)
- ----------------------------------------------------------------------------------------------
2,400 Case Corp. $4.50 cv. pfd. 277,200
Broadcasting (0.1%)
- ----------------------------------------------------------------------------------------------
1,500 Granite Broadcasting $1.938 cv. pfd. 90,000
2,500 SFX Broadcasting, Inc. Ser. D, $3.25 cv. pfd. 141,250
------------
231,250
Building and Construction (0.1%)
- ----------------------------------------------------------------------------------------------
7,500 Greenfield Industries, Inc. 144A $3.00 cv. pfd. 333,750
3,500 Southdown, Inc. $2.875 cv. pfd. 175,000
------------
508,750
Computer Services and Software (0.1%)
- ----------------------------------------------------------------------------------------------
6,200 Vanstar Corp. 144A $3.375 cv. pfd. 325,500
6,500 Wang Laboratories, Inc. 144A Ser. B, $3.25 cv. pfd. 342,063
------------
667,563
Consumer Services (--%)
- ----------------------------------------------------------------------------------------------
2,700 Wendy's Financing I Ser. A, $2.50 cv. pfd. 137,363
Energy-Related (--%)
- ----------------------------------------------------------------------------------------------
2,000 Diamond Shamrock, Inc. 144A $2.50 cv. pfd. 116,000
Entertainment (--%)
- ----------------------------------------------------------------------------------------------
3,200 Station Casinos, Inc. $3.50 cv. pfd. 163,200
Food and Beverages (--%)
- ----------------------------------------------------------------------------------------------
3,900 Chiquita Brands International, Inc.
Ser. B, $3.75 cv. pfd. 205,725
Insurance and Finance (0.4%)
- ----------------------------------------------------------------------------------------------
5,900 Ahmanson (H.F.) & Co. $3.00 cv. pfd. 398,988
6,600 American General Delaware Corp. $3.00 cv. pfd. 344,850
4,000 Banc One Corp. Ser. C, $3.50 cv. pfd. 330,000
4,700 Matewan Bancshares, Inc. Ser. A, $1.875 cv. pfd. 121,025
14,000 Merrill Lynch & Co. $1.3725 cv. pfd. 271,250
5,300 Penncorp Financial Group, Inc. 144A $3.50 cv.pfd. 310,050
3,000 St. Paul Capital LLC $3.00 cv. pfd. 157,500
10,200 Union Planters Corp. Ser. E, $2.00 cv. pfd. 438,600
------------
2,372,263
Metals and Mining (0.5%)
- ----------------------------------------------------------------------------------------------
98,000 Freeport-McMoRan Copper Co., Inc. $1.75 cv. pfd. 2,670,500
Oil and Gas (0.1%)
- ----------------------------------------------------------------------------------------------
4,000 Ashland, Inc. $3.125 cv. pfd. 266,500
3,000 Occidental Petroleum Corp. 144A $3.875 cv. pfd. 175,125
5,500 Tejas Gas Corp. $2.65 cv. pfd. 288,750
------------
730,375
Paper and Forest Products (0.1%)
- ----------------------------------------------------------------------------------------------
5,500 Boise Cascade Corp. Ser. G, $1.58 dep. shs. cv. pfd. 142,313
4,500 International Paper Co. $2.63 cv. pfd. 213,188
------------
355,501
Real Estate (0.1%)
- ----------------------------------------------------------------------------------------------
5,600 Insignia Financial Group, Inc. 144A $3.25 cv. pfd. 288,400
Retail (0.2%)
- ----------------------------------------------------------------------------------------------
19,300 K mart Financing I $3.875 cv. pfd. 916,750
Telecommunications (0.1%)
- ----------------------------------------------------------------------------------------------
6,150 Airtouch Communications, Inc. Ser. C, $2.125 cv. pfd. 285,206
3,000 Tele-Communications (TCI Group) Ser. A, $2.125 cv. pfd. 111,188
------------
396,394
------------
Total Convertible Preferred Stocks (cost $13,134,733) $ 13,809,159
FOREIGN GOVERMENT BONDS AND NOTES (3.0%) *
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------
AUD 4,800,000 Australia (Government of) bonds 10s, 2006 $ 4,453,999
CAD 7,603,000 Canada (Government of) deb. Ser. A-76, 9s, 2025 6,999,236
USD 250,000 Italy (Government of) cv. notes 5s, 2001 252,813
USD 2,315,000 Quebec (Province of) deb. Ser. NN, 7 1/8s, 2024 2,209,552
USD 4,170,000 Russia (Government of) principal loan 8s,
2020 + ##(2 double daggers) 2,225,738
------------
Total Foreign Government Bonds and Notes (cost $15,165,971) $ 16,141,338
COLLATERALIZED MORTGAGE OBLIGATIONS (2.9%) *
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------
$791,875 Chase Mortgage Finance Corp. Ser. 93-3, Class B13,
7.461s, October 30, 2024 $ 495,664
Housing Securities Inc.
687,626 Ser. 91-B, Class B6, 9s, August 25, 2006 688,915
474,166 Ser. 93-F, Class F9M2, 7s, September 25, 2023 438,455
192,190 Ser. 93-J, Class J4, 6.66s, January 25, 2009 166,305
87,359 Ser. 93-J, Class J5, 6.66s, January 25, 2009 62,789
154,713 Ser. 94-1, Class AB1, 6 1/2s, March 25, 2009 131,989
706,869 Prudential Home Loan Corp. Ser. 92-25,
Class B3, 8s, August 25, 2022 + 614,976
Prudential Home Mortgage Securities
198,084 Ser. 94-31, Class B3, 8s, November 25, 2009 180,659
1,805,283 Ser. 93-B, Class 5B, 7.836s, April 28, 2023 1,214,053
722,314 Ser. 92-13, Class B3, 7 1/2s, June 25, 2007 653,017
1,025,080 Ser. 93-E, Class 5B, 7.393s, July 28, 2023 625,619
843,273 Ser. 93-36, Class M, 7 1/4s, October 25, 2023 810,860
2,120,773 Ser. 93-D, Class 2B, 7.108s, June 28, 2023 1,972,319
Prudential Home Mortgage Securities 144A
2,698,927 Ser. 95-C, Class B1, 7.815s, October 28, 2001 2,703,144
2,167,677 Ser. 94-A, Class 4B, 6.803s, April 28, 2024 1,959,716
775,746 Ser. 94-D, Class B4, 6.312s, August 28, 2009 647,990
556,712 Ser. 94-D, Class 3B, 6.311s, August 28, 2009 522,613
1,674,577 Securitized Asset Sales, Inc. Ser. 93-J,
Class 2B, 6.807s, December 30, 2023 1,537,994
------------
Total Collateralized Mortgage Obligations (cost $14,618,925) 15,427,077
BRADY BONDS (1.2%) *
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------
$3,870,000 Argentina (Republic of) FRN Ser. L-GL, 6.438s, 2023 $ 2,278,463
2,021,000 Poland (Government of) FRN 6 1/2s, 2024 1,930,055
2,545,000 United Mexican States FRB Ser. D, 6.453s, 2019 2,091,672
------------
Total Brady Bonds (cost $6,264,243) $ 6,300,190
UNITS (0.2%) *
NUMBER OF UNITS VALUE
- ----------------------------------------------------------------------------------------------
100 Fitzgerald Gaming Co. units 13s, 2002 $ 76,000
18 Sakura Finance 144A $0.75 cv. pfd. units (Bermuda) 1,074,142
115 Wireless One Inc. units stepped-coupon zero %
(13 1/2s, 8/1/01), 2006 ++ 60,663
------------
Total Units (cost $1,137,915) $ 1,210,805
PREFERRED STOCKS (0.2%) *
NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------
1,766 Cablevision Systems Ser. M, $11.125 dep. shs. pfd. $ 161,589
2,000 El Paso Electric Co. $11.40 pfd. (2 double daggers) 216,000
1,646 K-III Communications Ser. B, $11.625 pfd. (2 double daggers) 162,954
75 Paxson Communications Corp. $12.50 pfd. (2 double daggers) 71,625
235 Time Warner, Inc. 144A Ser. K, $10.25 pfd. (2 double daggers) 250,275
------------
Total Preferred Stocks (cost $859,995) $ 862,443
<CAPTION>
<S> <C> <C> <C> <C>
WARRANTS (--%)*+
NUMBER OF WARRANTS DATE VALUE
- ----------------------------------------------------------------------------------------------
150 Intermedia Communications 144A 6/1/05 $ 7,500
900 Louisiana Casino Cruises, Inc. 144A 12/1/98 12,825
------------
Total Warrants (cost $7,823) $ 20,325
<CAPTION>
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS (1.7%)*(cost $9,001,378)
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------
$9,000,000 Interest in $356,650,000 joint repurchase agreement
dated October 31, 1996 with Morgan (J.P) & Co., Inc due
November 1, 1996 with respect to various U.S. Treasury
obligations -- maturity value of $9,001,378 for an effective
yield of 5.51% $ 9,001,378
- ----------------------------------------------------------------------------------------------
Total Investments (cost $485,624,537)*** $ 530,983,006
- ----------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $535,550,151.
*** The aggregate identified cost on a tax basis is
$486,139,043, resulting in gross unrealized appreciation and
depreciation of $50,373,618 and $5,529,655, respectively,
or net unrealized appreciation of $44,843,963.
+ 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.
(2 double daggers) Income may be received in cash or additional securities
at the discretion of the issuer.
# A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at
October 31, 1996.
## When-issued securities (Note 1)
(R) Real Estate Investment Trust.
144A after the name of a security represents those exempt
from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional
buyers.
ADR after the name of a foreign holding stands for
American Depository Receipts, representing ownership
of foreign securities on deposit with domestic custodian bank.
The rates shown on Floating Rate Bonds (FRB) and
Floating Rate Notes (FRN) are the current interest rates
at October 31, 1996, which are subject to change
based on the terms of the security.
<CAPTION>
- ---------------------------------------------------------------------------------------------
Forward Currency Contracts to Buy at October 31, 1996
(aggregate face value $16,691)
- ---------------------------------------------------------------------------------------------
Market Aggregate Face Delivery Unrealized
Value Value Date Depreciation
<S> <C> <C> <C> <C>
Spanish Peseta $16,426 $16,691 12/18/96 $(265)
- ---------------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at October 31, 1996
(aggregate face value $1,670,961)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date Depreciation
- ----------------------------------------------------------------------------------------------
Australian Dollars $581,910 $581,183 12/18/96 $(727)
Canadian Dollars 480,428 469,488 12/18/96 (10,940)
Japanese Yen 566,524 606,352 1/28/98 39,828
Japanese Yen 6,558 7,044 7/28/97 486
Japanese Yen 6,391 6,894 1/28/97 503
- ----------------------------------------------------------------------------------------------
$29,150
- ----------------------------------------------------------------------------------------------
Futures Contracts Outstanding at October 31, 1996
Total Aggregate Face Expiration Unrealized
Value Value Date Appreciation
- ----------------------------------------------------------------------------------------------
U.S. Treasury Bonds
Futures (Long) $15,368,000 $14,947,990 Dec. 96 $420,010
- ----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
October 31, 1996
<S> <C>
Assets
- --------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $485,624,537) (Note 1) $530,983,006
- --------------------------------------------------------------------------------------------
Cash 685,643
- --------------------------------------------------------------------------------------------
Dividends, interest and other receivables 5,107,886
- --------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,281,010
- --------------------------------------------------------------------------------------------
Receivable for securities sold 7,399,572
- --------------------------------------------------------------------------------------------
Receivable for variation margin 55,250
- --------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 551
- --------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 40,817
- --------------------------------------------------------------------------------------------
Total assets 545,553,735
Liabilities
- --------------------------------------------------------------------------------------------
Payable for securities purchased 7,503,405
- --------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,041,525
- --------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 849,689
- --------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 140,270
- --------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 2,674
- --------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 4,020
- --------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 151,257
- --------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 62,257
- --------------------------------------------------------------------------------------------
Payable for open forward currency contracts 11,932
- --------------------------------------------------------------------------------------------
Other accrued expenses 236,555
- --------------------------------------------------------------------------------------------
Total liabilities 10,003,584
- --------------------------------------------------------------------------------------------
Net Assets $535,550,151
Represented by
- --------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $458,638,004
- --------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 212,078
- --------------------------------------------------------------------------------------------
Accumulated net realized gain on investments
and foreign currency transactions (Note 1) 30,891,257
- --------------------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign currencies 45,808,812
- --------------------------------------------------------------------------------------------
Total - Representing net assets applicable to capital shares outstanding $535,550,151
Computation of net asset value and offering price
- --------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($496,881,507 divided by 46,565,585 shares) $10.67
- --------------------------------------------------------------------------------------------
Offering price per Class A share (100/94.25 of $10.67)* $11.32
- --------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($35,117,830 divided by 3,312,167 shares)** $10.60
- --------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($3,550,814 divided by 333,944 shares) $10.63
- --------------------------------------------------------------------------------------------
Offering price per Class M share (100/96.50 of $10.63)* $11.02
- --------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales
the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred
sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended October 31, 1996
<S> <C>
Investment income:
- ------------------------------------------------------------------------------------------
Interest income (net of foreign tax of $45,837) $19,303,445
- ------------------------------------------------------------------------------------------
Dividends 8,343,485
- ------------------------------------------------------------------------------------------
Total investment income 27,646,930
- ------------------------------------------------------------------------------------------
Expenses
- ------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 3,291,466
- ------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,134,000
- ------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 16,726
- ------------------------------------------------------------------------------------------
Administrative services (Note 2) 11,953
- ------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,207,277
- ------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 229,819
- ------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 16,454
- ------------------------------------------------------------------------------------------
Reports to shareholders 65,697
- ------------------------------------------------------------------------------------------
Registration fees 3,330
- ------------------------------------------------------------------------------------------
Auditing 44,920
- ------------------------------------------------------------------------------------------
Legal 13,818
- ------------------------------------------------------------------------------------------
Postage 210,656
- ------------------------------------------------------------------------------------------
Other 31,518
- ------------------------------------------------------------------------------------------
Total expenses 6,277,634
- ------------------------------------------------------------------------------------------
Expense reduction (Note 2) (182,609)
- ------------------------------------------------------------------------------------------
Net expenses 6,095,025
- ------------------------------------------------------------------------------------------
Net investment income 21,551,905
- ------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 30,870,642
- ------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 289,119
- ------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 124,285
- ------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year 329,233
- ------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures during the year 18,799,163
- ------------------------------------------------------------------------------------------
Net gain on investments 50,412,442
- ------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $71,964,347
- ------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statment of changes in net assets
Year Ended October 31
----------------------------------
1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- --------------------------------------------------------------------------------------------------------------------
Operations:
- --------------------------------------------------------------------------------------------------------------------
Net investment income $21,551,905 $22,551,912
- --------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency transactions 31,284,046 9,676,977
- --------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and liabilities
in foreign currencies 19,128,396 48,139,850
- --------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 71,964,347 80,368,739
- --------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- --------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (20,586,838) (22,841,206)
- --------------------------------------------------------------------------------------------------------------------
Class B (777,109) (278,156)
- --------------------------------------------------------------------------------------------------------------------
Class M (67,607) (3,268)
- --------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (8,805,295) (23,194)
- --------------------------------------------------------------------------------------------------------------------
Class B (235,373) (500)
- --------------------------------------------------------------------------------------------------------------------
Class M (19,705) (26)
- --------------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) 14,757,987 (37,398,366)
- --------------------------------------------------------------------------------------------------------------------
Total increase in net assets 56,230,407 19,824,023
- --------------------------------------------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------------------------------------------
Beginning of year 479,319,744 459,495,721
- --------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income
of $212,078 and $303,908, respectively) $535,550,151 $479,319,744
- --------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
For the period
March 17, 1995
(commencement
Year ended of operations) to Year ended
October 31 October 31 October 31
------------------------------------------------------
1996 1995 1996
------------------------------------------------------
Class M
------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $9.82 $8.88 $9.80
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .42 .25 .36
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .98 .90 1.00
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.40 1.15 1.36
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income (.40) (.21) (.37)
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments (.19) -- (.19)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.59) (.21) (.56)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.63 $9.82 $10.60
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 14.76 13.13* 14.36
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $3,551 $522 $35,118
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.72 1.09* 1.97
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 3.74 2.76* 3.51
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 142.36 131.00 142.36
- ---------------------------------------------------------------------------------------------------------------------------
Average commisssion rate paid(c) $.0511 -- $.0511
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
February 1, 1994
(commencement
Year ended of operations) to
October 31 October 31
------------------------------------------------------
1995 1994 1996
------------------------------------------------------
Class B
------------------------------------------------------
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.67 $9.31 $9.84
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .38 .34 .44
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.15 (.60) 1.01
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.53 (.26) 1.45
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income (.40) (.27) (.43)
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- (.11) (.19)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.40) (.38) (.62)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.80 $8.67 $10.67
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 18.25 (2.75)* 15.31
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $10,073 $4,196 $496,882
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.91 1.34* 1.20
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 4.09 3.20* 4.28
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 131.00 125.69 142.36
- ---------------------------------------------------------------------------------------------------------------------------
Average commisssion rate paid(c) -- -- $.0511
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Year ended October 31
------------------------------------------------------
1995 1994 1993
------------------------------------------------------
Class A
------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.68 $9.28 $8.50
- ----------------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income .45 .43 .45
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.17 (.49) .99
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.62 (.06) 1.44
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------------------
From net investment income (.46) (.43) (.45)
- ----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- (.11) (.21)
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.46) (.54) (.66)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.84 $8.68 $9.28
- ----------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%) (a) 19.32 (.61) 17.68
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $468,725 $455,299 $551,391
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.15 1.08 1.02
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 4.93 4.92 5.06
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 131.00 125.69 224.28
- ----------------------------------------------------------------------------------------------------------------------------
Average commisssion rate paid(c) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Year ended October 31
-------------
1992
-------------
Class A
-------------
<S> <C>
- ---------------------------------------------------------------------------------
Net asset value, beginning of period $8.56
- ---------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------
Net investment income .16
- ---------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .74
- ---------------------------------------------------------------------------------
Total from investment operations .90
- ---------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------
From net investment income (.16)
- ---------------------------------------------------------------------------------
From net realized gain on investments (.80)
- ---------------------------------------------------------------------------------
Total distributions (.96)
- ---------------------------------------------------------------------------------
Net asset value, end of period $8.50
- ---------------------------------------------------------------------------------
Total investment return at net asset value (%) (a) 11.15
- ---------------------------------------------------------------------------------
Net assets, end of period (in thousands) $633,181
- ---------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.11
- ---------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 1.87
- ---------------------------------------------------------------------------------
Portfolio turnover (%) 118.43
- ---------------------------------------------------------------------------------
Average commisssion rate paid(c) --
- ---------------------------------------------------------------------------------
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended October 31, 1995
and thereafter, includes amounts paid through expense offset and brokerage service
arrangements. Prior period ratios exclude these amounts. (Note 2)
(c) Average commission rate paid on security trades is required for fiscal periods
beginning on or after September 1, 1995.
</TABLE>
Notes to financial statements
October 31, 1996
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. 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 and certain other accounts managed by
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc.. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Putnam Management is responsible for determining that the value of these
underlying securities is at all times at least equal to the resale
price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed).
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date except that certain dividends from
foreign securities are recorded as soon as the fund is informed of the
ex-dividend date. Discounts on zero coupon bonds, original issue,
stepped-coupon bonds and payment in kind bonds are accreted according to
the effective yield method.
Securities purchased or sold on a when-issued or delayed delivery basis
may be settled a month or more after the trade date; interest income is
accrued based on the terms of the security. Losses may arise due to
changes in the market value of the underlying securities or if the
counterparty does not perform under the contract.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such 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) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices
supplied by dealers.
H) 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 nor for excise tax on income and capital
gains.
I) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid annually. The amount and character of income and gains to be
distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
These differences include treatment of paydown gains and losses on
mortgage backed securities, realized and unrealized gains and losses on
forward foreign currency contracts, currency gains and losses on foreign
bonds, market discount and losses on wash sale transactions.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. For the year ended October 31,
1996, the fund reclassified $212,182 to decrease undistributed net
investment income and $17,821 to decrease paid-in-capital, with an
increase to accumulated net realized gain on investments of $230,003.
The calculation of net investment income per share in the financial
highlights table excludes these adjustments.
Note 2
Management fee, administrative services and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.65% 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.
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 year ended October 31, 1996, fund expenses were reduced by
$182,609 under expense offset and brokerage service arrangements with
PFTC. Investor servicing and custodian fees reported in the Statement of
operations exclude these credits. The fund could have invested a portion
of the assets utilized in connection with the expense offset
arrangements in an income producing asset if it had not entered into
such arrangements.
Trustees of the fund receive an annual Trustees fee of $1,260 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 certain Putnam funds until distribution in
accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Plans provide for payments by
the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%,
1.00% and 1.00% of the average net assets attributable to class A, class
B and class M shares, respectively. The Trustees 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 year ended October 31, 1996, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $132,691 and $6,955 from the
sale of class A and class M shares, respectively and $42,607 in
contingent deferred sales charges from redemptions of class B shares. A
deferred sales charge of up to 1% is assessed on certain redemptions of
class A shares. For the year ended October 31, 1996, Putnam Mutual Funds
Corp., acting as underwriter received $10 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended October 31, 1996, purchases and sales of
investment securities other than U.S. government obligations and short-
term investments aggregated $357,139,886 and $356,079,766, respectively.
Purchases and sales of U.S. government obligations aggregated
$352,707,433 and $347,761,610, 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 October 31, 1996, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended
October 31, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 5,867,101 $59,837,952
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,221,161 12,087,099
- ----------------------------------------------------
7,088,262 71,925,051
Shares
repurchased (8,157,622) (83,150,218)
- ----------------------------------------------------
Net decrease (1,069,360) $(11,225,167)
- ----------------------------------------------------
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)
- ----------------------------------------------------
Year ended
October 31, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 6,516,135 $66,142,610
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 36,408 359,575
- ----------------------------------------------------
6,552,543 66,502,185
Shares
repurchased (4,268,278) (43,359,319)
- ----------------------------------------------------
Net increase 2,284,265 $23,142,866
- ----------------------------------------------------
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
- ----------------------------------------------------
Year ended
October 31, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 367,560 $3,738,317
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,485 24,710
- ----------------------------------------------------
370,045 3,763,027
Shares
repurchased (89,255) (922,739)
- ----------------------------------------------------
Net increase 280,790 $2,840,288
- ----------------------------------------------------
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
- ----------------------------------------------------
Federal tax information
(Unaudited)
The fund has designated 25.23% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 1997 will show the tax status of
all distributions paid to your account in calendar 1996.
Results of October 3, 1996 shareholder meeting
(Unaudited)
A meeting of shareholders of the fund was held on October 3, 1996. At
the meeting, each of the nominees for Trustees was elected, as follows:
Votes
Votes for withheld
---------- --------
Jameson Adkins Baxter 30,322,725 525,476
Hans H. Estin 30,224,019 477,983
John A. Hill 30,004,715 612,063
R.J. Jackson 29,861,031 675,076
Elizabeth T. Kennan 29,631,471 924,211
Lawrence J. Lasser 29,735,627 781,495
Robert E. Patterson 29,846,235 705,172
Donald S. Perkins 29,944,746 625,590
William F. Pounds 29,691,984 861,856
George Putnam 29,765,611 808,880
George Putnam, III 29,628,751 920,827
Eli Shapiro 29,638,187 902,016
A.J.C. Smith 29,612,547 935,958
W. Nicholas Thorndike 29,872,216 678,497
A proposal to ratify the selection of Price Waterhouse LLP as auditors
for the fund was approved as follows: 29,842,710 votes for, and 246,510
votes against, with 758,981 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to diversification of investments was approved as follows:
27,348,206 votes for, and 1,085,314 votes against, with 2,414,681
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in the securities of a single issuer was approved
as follows: 26,605,535 votes for, and 1,473,126 votes against, with
2,769,540 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to making loans through purchases of debt obligations,
repurchase agreements and securities loans was approved as follows:
25,694,499 votes for, and 2,427,031 votes against, with 2,726,671
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in real estate was approved as follows:
26,171,306 votes for, and 1,986,160 votes against, with 2,690,735
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to concentration of its assets was approved as follows:
26,842,643 votes for, and 1,348,801 votes against, with 2,656,757
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in senior securities was approved as follows:
27,173,182 votes for, and 1,081,109 votes against, with 2,593,910
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in commodities or commodity contracts was
approved as follows: 25,969,672 votes for, and 2,285,267 votes against,
with 2,593,262 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in securities of issuers in which management
of the fund or Putnam Investment Management, Inc. owns securities was
approved as follows: 26,216,225 votes for, and 1,972,594 votes against,
with 2,659,382 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to margin transactions was approved as follows: 25,537,499
votes for, and 2,560,324 votes against, with 2,750,378 abstentions and
broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to short sales was approved as follows: 25,708,306 votes
for, and 2,339,642 votes against, with 2,800,253 abstentions and broker
non-votes.
A proposal to eliminate the fund's fundamental investment restriction
which limits the fund's ability to pledge assets was approved as
follows: 25,427,401 votes for, and 2,517,877 votes against, with
2,848,923 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in certain oil, gas and mineral interests
was approved as follows: 26,582,270 votes for, and 1,579,866 votes
against, with 2,686,065 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to invest to gain control of a company's management was
approved as follows: 25,959,425 votes for, and 2,088,320 votes against,
with 2,800,456 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in restricted securities was approved as
follows: 25,841,978 votes for, and 2,182,308 votes against, with
2,823,915 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in other investment companies was approved
as follows: 26,281,183 votes for, and 1,731,070 votes against, with
2,835,948 abstentions and broker non-votes.
All tabulations are rounded to nearest whole number.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Peter Carman
Vice President
Edward P. Bousa
Vice President and Fund Manager
Charles G. Pohl
Vice President and Fund Manager
Kenneth J. Taubes
Vice President and Fund Manager
Rosemary H. Thomsen
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam 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.
You can also learn more at Putnam Investments' website:
http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution, are not insured by the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board
or any other agency, and involve risk, including the possible loss of
principal amount invested.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- ---------------------
29199-034/243/908 12/96
