Putnam
Balanced
Retirement
Fund
SEMIANNUAL REPORT
April 30, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Putnam's preference for consistency is amply demonstrated in this
fund."
-- Morningstar Mutual Funds, March 14, 1997
* "The past six months has been a volatile period in the financial
markets. Nevertheless, because of our investment approach, the fund has
performed well in the market downdrafts and offered competitive returns on
the rallies."
-- Edward Bousa, lead manager
Putnam Balanced Retirement Fund
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
38 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
In few places is the power of suggestion more aptly demonstrated than the
capital markets. For months, both the equity and fixed-income markets
translated conjecture over the prospect of an increase in short-term interest
rates by the Federal Reserve Board into volatility. Instead of settling down
after the Fed finally raised rates by a quarter point in late March, the
markets immediately began responding to the suggestion that the Fed was about
to raise rates again, if not in May, then at some point.
Uncertainty heightens the intensity of volatility, as we have seen throughout
Putnam Balanced Retirement Fund's semiannual period. Over the long term,
however, rational research and analysis, backed by expertise and experience,
play a larger role in investment success -- and thus generally work to the
advantage of those who maintain a long-term investment perspective.
Since your fund's management team believes the current volatility may continue
for a while, this seems an appropriate time to counsel patience. In the
following report, the managers discuss the current market environment and what
they see in prospect for the months ahead.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
June 18, 1997
Report from the Fund Managers
Edward P. Bousa, lead manager
Charles G. Pohl
Kenneth J. Taubes
Rosemary H. Thomsen
With the stock market becoming more unpredictable and the country's economic
outlook more uncertain, Putnam Balanced Retirement Fund continues to march to
the beat of a more stable drummer. Over the six months ended April 30, 1997,
your fund's balanced portfolio of stocks and bonds delivered solid performance
in what was often a topsy-turvy marketplace. For the semiannual period, the
fund's class A shares provided a total return of 7.82% at net asset value,
exceeding the 6.22% average total return of the Lipper Analytical Service's
balanced funds category. The fund's total return at maximum public offering
price was 1.63%. Additional results for class A shares, as well as for other
share classes and comparative indexes, are listed in the performance summary
that begins on page 9.
* MARKET PROGRESSES DESPITE HIGH VOLATILITY LEVEL
The stock market's positive returns for the first half of fiscal 1997 mask the
abrupt day-to-day changes registered by many market indexes. During much of
the period, the market was led by large, highly liquid companies believed to
have reliable earnings growth. March, however, brought a month-long correction
in stock prices. In a much-anticipated move, the Federal Reserve Board raised
the target for the federal funds rate one quarter of a percentage point to
5.5%. Investors, anticipating further changes in interest rates and fearing
the worst for current and future corporate earnings, helped drive the Dow
Jones Industrial Average down 9.8% (as of April 13) from its March 11 high.
However, as many corporate sectors announced strong first-quarter earnings,
the market began to recover amid optimism that the economy will continue to
grow steadily with few signs of inflation.
* STRONG STOCK SELECTION MARKS PERIOD
In our opinion, one reason for the fund's above-average performance was our
ability to select undervalued companies with the potential for positive
change. For example, key holding Texas Instruments epitomized the 1990s wave
of corporate restructurings when it announced sale of its defense unit. In
addition, TI is a pioneer in a cellular-phone component known as digital
signal processing. This light-based technology is considered to be an
attractive alternative to the more common dynamic random access memory (DRAM)
chips.
Delta Air Lines was another standout during the period. The airline, which we
consider to have one of the lowest cost structures in the industry, benefited
from a highly advantageous pricing environment as more consumers took to the
skies. In fact, the company recently announced record third-quarter profits.
The fund also benefited from owning stock in companies involved in favorable
acquisitions. Three examples from the past six months include ITT Industries,
Great Western Financial Corp., and U.S. Bancorp. While these stocks, along
with others discussed in this report, were viewed favorably at the end of the
fiscal period, all portfolio holdings are subject to review and adjustment in
accordance with the fund's investment strategy and may vary in the future.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Insurance and finance 8.6%
Utilities 6.9%
Oil and Gas 5.4%
Chemicals 3.8%
Food and beverages 2.4%
Footnote reads:
*Based on net assets as of 4/30/97. Holdings will vary over time.
* TARGETING POTENTIAL PROSPECTS FOR THE FUTURE
Patience is a big part of our equity investment discipline. Many companies we
target have been known to falter on a short-term basis while, in our opinion,
retaining the potential to blossom two or three years down the line. An
example was Pharmacia & Upjohn, Inc., one of the world's largest
pharmaceutical companies. The company's pipeline of new products had all but
dried up, much of its profits were hurt by the weak Japanese yen, and no
chairman was in place for several months. We believe these setbacks have
brought the stock price down to levels that do not reflect the company's
long-term potential. We are confident in the abilities of the new chairman and
expect the stock's price to recover as the company resumes its product
development efforts.
One spin-off company we believe holds excellent potential is NCR Corp.,
formerly a unit of AT&T. NCR's lineage dates back to the trust-busting days of
Theodore Roosevelt's presidency when it was founded as the National Cash
Register Company. More recently, it has become the leading producer of retail
point-of-sale inventory and pricing computers, in addition to other
businesses. The company recently fell short of its first-quarter earnings
target and, in an unforgiving market such as the present one, that was enough
to hold the company's stock price down.
* FIXED INCOME: DEFENSIVE POSTURE GOING FORWARD
Within the fixed-income portion of your portfolio, we are taking a more
defensive position than had been the case at the beginning of the fiscal year.
In general, this is done by lowering the portfolio's duration. Duration,
measured in years, indicates a portfolio's potential sensitivity to
interest-rate changes, and the longer the duration, the greater the degree of
fluctuation in portfolio value with each interest-rate change.
Mostly, the rationale for our defensive stance is that we believe the economy
is stronger than the market currently believes. The recent drop in the 30-year
Treasury bond yield to below 7% suggests that the market expects little or no
further action by the Fed to curtail economic growth that could lead to
inflation -- a notion we do not endorse. Additionally, shareholders may have
noticed economic growth has generally picked up globally.
TOP FIVE EQUITY HOLDINGS
Exxon Corp.
Oil and gas
Mobil Corp.
Oil and gas
SBC Communications, Inc.
Utilities
Weyerhaeser Co.
Paper and forest products
Minnesota Mining and Manufacturing Co.
Chemicals
TOP FIVE FIXED-INCOME HOLDINGS
Government National Mortgage Association 7s,
various due dates
Federal Home Loan Mortgage Co. 8-1/8s,
various due dates
U.S. Treasury notes 8-1/8s, 8/15/19
Government National Mortgage Association 7-1/2s,
various due dates
Federal National Mortgage Association 7s,
6/16/27
These holdings represent 11.4% of the fund's net assets as of 4/30/97.
Portfolio holdings will vary over time.
During the period, the fund benefited from an overweighting in mortgage-backed
securities relative to its competitors. These securities tend to do well in
relatively stable interest-rate environments. We also reduced the size of the
high-yield bond position, eliminating those bonds we believed had become
overvalued.
* CONSERVATIVE STYLE SHOULD PROVIDE CUSHION AGAINST FUTURE VOLATILITY
Both the equity and fixed-income portions of your fund are managed in a
conservative style. As opposed to some more aggressive investments, the very
nature of the fund is based on a low-risk approach to security selection.
Because they have generally already experienced some decline in value, the
stocks we select appear resilient in contrast to highly volatile
earnings-growth-oriented stocks.
Despite the stock market's downturn earlier in the reporting period, records
seem easier than ever to break. No matter what happens, though, we remain
committed to the consistent execution of our strategy of using a
well-diversified portfolio of bonds and value stocks to seek above-average
returns in strong market phases and reasonable protection in market downturns.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 4/30/97, 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.
TOTAL RETURN FOR PERIODS ENDED 4/30/97
Class A Class B Class M
(inception date) (4/19/85) (2/1/94) (3/17/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 7.82% 1.63% 7.43% 2.45% 7.60% 3.80%
- ------------------------------------------------------------------------------
1 year 14.99 8.42 14.14 9.14 14.48 10.46
- ------------------------------------------------------------------------------
5 years 78.68 68.45 -- -- -- --
Annual average 12.31 10.99 -- -- -- --
- ------------------------------------------------------------------------------
10 years 170.17 154.60 -- -- -- --
Annual average 10.45 9.80 -- -- -- --
- ------------------------------------------------------------------------------
Life of class -- -- 41.28 38.27 39.70 34.84
Annual average -- -- 11.25 10.52 17.08 15.14
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/97
Lehman Bros.
Govt./Corp. Consumer
Bond Index Price Index
- ------------------------------------------------------------------------------
6 months 1.30% 1.20%
- ------------------------------------------------------------------------------
1 year 6.72 2.50
- ------------------------------------------------------------------------------
5 years 43.57 14.84
Annual average 7.50 2.81
- ------------------------------------------------------------------------------
10 years 127.67 42.15
Annual average 8.57 3.58
- ------------------------------------------------------------------------------
Life of class B 17.33 9.58
Annual average 5.05 2.86
- ------------------------------------------------------------------------------
Life of class M 17.57 5.81
Annual average 8.08 2.70
- ------------------------------------------------------------------------------
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%.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 4/30/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 2 2 2
- ------------------------------------------------------------------------------
Income $0.220 $0.186 $0.196
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term 0.413 0.413 0.413
- ------------------------------------------------------------------------------
Short-term 0.219 0.219 0.219
- ------------------------------------------------------------------------------
Total $0.852 $0.818 $0.828
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
10/31/96 $10.67 $11.32 $10.60 10.63 11.02
- ------------------------------------------------------------------------------
4/30/97 10.62 11.27 10.54 10.58 10.96
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 4.14% 3.90% 3.56% 3.71% 3.58%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 3.83 3.61 3.10 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 3/31/97
(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
- ------------------------------------------------------------------------------
6 months 7.60% 1.40% 7.21% 2.24% 7.28% 3.51%
- ------------------------------------------------------------------------------
1 year 13.17 6.66 12.20 7.20 12.54 8.58
- ------------------------------------------------------------------------------
5 years 78.28 68.07 -- -- -- --
Annual average 12.26 10.94 -- -- -- --
- ------------------------------------------------------------------------------
10 years 165.02 149.70 -- -- -- --
Annual average 10.24 9.58 -- -- -- --
- ------------------------------------------------------------------------------
Life of class -- -- 38.33 35.33 36.66 31.91
Annual average -- -- 10.81 10.05 16.55 14.54
- ------------------------------------------------------------------------------
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
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.
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.
*These indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage commissions or other costs.
Securities in the fund do not match those in the indexes and performance
of the fund will differ. It is not possible to invest directly in an
index.
WELCOME TO
www.putnaminv.com
Now you can get up-to-date information about your funds, learn more
about investing and retirement planning, and access market news and an
economic outlook from Putnam experts -- with just a few clicks of the
mouse!
Visit Putnam's new site on the World Wide Web to find out:
* the benefits of investing with Putnam
* Putnam's money management philosophy
* daily fund pricing and long-term fund performance
* how to tell if your retirement savings plan is on track
* how quickly money can accumulate in a tax-deferred investment
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provider.
New features will be added to the site on an ongoing basis. So, visit us
at http://www.putnaminv.com -- often!
Portfolio of investments owned
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS (49.7%) *
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Aerospace and Defense (0.9%)
- ------------------------------------------------------------------------------------------------------------
35,000 General Motors Corp. Class H $ 1,881,250
32,000 Lockheed Martin Corp. 2,864,000
11,000 Northrop Grumman Corp. 918,500
--------------
5,663,750
Agriculture (0.1%)
- ------------------------------------------------------------------------------------------------------------
11,013 PSF Holdings LLC Class A + 291,845
Automotive (1.9%)
- ------------------------------------------------------------------------------------------------------------
1,500 Bayerische Motoren Werke (BMW) AG (Germany) 1,230,049
33,000 Eaton Corp. 2,470,875
96,000 Ford Motor Co. 3,336,000
73,000 General Motors Corp. 4,224,875
--------------
11,261,799
Basic Industrial Products (0.7%)
- ------------------------------------------------------------------------------------------------------------
57,000 Deere (John) & Co. 2,622,000
66,000 New Holland N.V. (Netherlands) + 1,460,250
--------------
4,082,250
Building and Construction (0.2%)
- ------------------------------------------------------------------------------------------------------------
27,000 Masco Corp. 1,019,250
Business Equipment and Services (1.0%)
- ------------------------------------------------------------------------------------------------------------
49,000 Deluxe Corp. 1,500,625
24,800 Ikon Office Solutions, Inc. 666,500
64,000 Xerox Corp. 3,936,000
--------------
6,103,125
Cable Television (0.2%)
- ------------------------------------------------------------------------------------------------------------
85,500 Comcast Corp. Class A 1,346,625
Chemicals (3.8%)
- ------------------------------------------------------------------------------------------------------------
60,000 Bayer AG ADR (Germany) 2,387,298
27,000 Dow Chemical Co. 2,291,625
20,000 du Pont (E.I.) de Nemours & Co., Ltd. 2,122,500
51,000 Eastman Chemical Co. 2,601,000
66,000 Hercules, Inc. 2,598,750
35,000 Imperial Chemical Industries PLC ADR (United Kingdom) 1,623,125
58,000 Minnesota Mining & Manufacturing Co. 5,046,000
37,000 PPG Industries, Inc. 2,011,875
12,000 Rohm & Haas Co. 999,000
33,000 Witco Chemical Corp. 1,233,375
--------------
22,914,548
Computer Services and Software (1.3%)
- ------------------------------------------------------------------------------------------------------------
30,000 Computer Associates Intl., Inc. 1,560,000
26,500 IBM Corp. 4,259,875
66,000 NCR Corp. + 1,914,000
--------------
7,733,875
Conglomerates (0.7%)
- ------------------------------------------------------------------------------------------------------------
74,900 TRW, Inc. 3,904,163
Consumer Durable Goods (0.5%)
- ------------------------------------------------------------------------------------------------------------
69,000 Whirlpool Corp. 3,225,750
Consumer Non-Durables (2.8%)
- ------------------------------------------------------------------------------------------------------------
60,000 American Brands, Inc. 3,225,000
17,000 Colgate-Palmolive Co. 1,887,000
78,000 Kimberly-Clark Corp. 3,997,500
96,000 Philip Morris Cos., Inc. 3,780,000
69,000 RJR Nabisco Holdings Corp. + 2,052,750
57,300 Tupperware Corp. + 1,905,225
--------------
16,847,475
Consumer Related (0.3%)
- ------------------------------------------------------------------------------------------------------------
42,000 Lowe's Cos., Inc. 1,596,000
Consumer Services (0.4%)
- ------------------------------------------------------------------------------------------------------------
25 AmeriKing, Inc. + 1,250
45,000 McGraw-Hill, Inc. 2,289,375
--------------
2,290,625
Electronics and Electrical Equipment (2.0%)
- ------------------------------------------------------------------------------------------------------------
60,000 Cooper Industries, Inc. 2,760,000
49,700 Hewlett-Packard Co. 2,609,250
26,000 Motorola, Inc. 1,488,500
31,000 Siemens AG (Germany) 1,681,587
35,000 Texas Instruments, Inc. 3,123,750
--------------
11,663,087
Food and Beverages (2.4%)
- ------------------------------------------------------------------------------------------------------------
60,700 Anheuser-Busch Cos., Inc. 2,602,513
35,000 Dole Food Co. 1,426,250
53,500 Flowers Industries, Inc. 1,304,063
51,000 General Mills, Inc. 3,162,000
67,000 Sara Lee Corp. 2,814,000
125,000 Whitman Corp. 2,890,625
--------------
14,199,451
Health Care (0.8%)
- ------------------------------------------------------------------------------------------------------------
78,400 Baxter International, Inc. 3,753,400
10,000 Warner-Lambert Co. 980,000
--------------
4,733,400
Insurance and Finance (8.6%)
- ------------------------------------------------------------------------------------------------------------
54,000 Ahmanson (H.F.) & Co. 2,058,750
70,000 American General Corp. 3,053,750
44,000 AON Corp. 2,926,000
102,000 Banc One Corp. 4,322,250
48,000 Bank of New York Co., Inc. 1,896,000
30,377 Bankers Trust New York Corp. 2,471,928
26,000 Beneficial Corp. 1,664,000
11,600 CIGNA Corp. 1,744,350
73,000 Fleet Financial Group, Inc. 4,453,000
54,000 Keycorp 2,814,750
33,000 Mercantile Bancorpation, Inc. 1,914,000
49,000 Morgan (J.P.) & Co., Inc. 4,991,875
50,000 NationsBank Corp. 3,018,750
42,000 Norwest Corp. 2,094,750
12,000 Old Kent Financial Corp. 609,000
85,000 PNC Bank Corp. 3,495,625
36,000 Salomon, Inc. 1,800,000
12,000 Southtrust Corp. 448,500
35,000 St. Paul Cos., Inc. 2,345,000
61,500 Synovus Financial Corp. 1,491,375
103,000 USF&G Corp. 2,060,000
--------------
51,673,653
Metals and Mining (0.4%)
- ------------------------------------------------------------------------------------------------------------
11,900 Carpenter Technology Corp. 483,438
66,000 Freeport-McMoRan Copper & Gold Co., Inc. Class A 1,848,000
--------------
2,331,438
Office Supplies and Equipment (--%)
- ------------------------------------------------------------------------------------------------------------
15,000 Unisource Worldwide, Inc. + 221,250
Oil and Gas (5.4%)
- ------------------------------------------------------------------------------------------------------------
53,000 Amoco Corp. 4,432,125
18,000 British Petroleum PLC ADR (United Kingdom) 2,477,250
67,500 Elf Aquitane ADR (France) 3,282,188
104,000 Exxon Corp. 5,889,000
45,000 Mobil Corp. 5,850,000
105,000 Occidental Petroleum Corp. 2,323,125
70,000 PanEnergy Corp. 3,097,500
83,000 Total Corp. ADR (France) 3,454,875
48,000 YPF S.A. ADR (Argentina) 1,326,000
--------------
32,132,063
Packaging and Containers (0.4%)
- ------------------------------------------------------------------------------------------------------------
48,000 Crown Cork & Seal Co., Inc. 2,628,000
Paper and Forest Products (1.6%)
- ------------------------------------------------------------------------------------------------------------
31,000 Chesapeake Corp. 1,061,750
30,000 Rayonier, Inc. 1,211,250
42,000 Temple Inland, Inc. 2,331,000
113,000 Weyerhaeuser Co. 5,169,750
--------------
9,773,750
Pharmaceuticals (1.4%)
- ------------------------------------------------------------------------------------------------------------
37,200 American Home Products Corp. 2,464,500
40,000 Bristol-Myers Squibb Co. 2,620,000
106,160 Pharmacia & Upjohn, Inc. 3,144,990
--------------
8,229,490
Photography (1.0%)
- ------------------------------------------------------------------------------------------------------------
46,000 Eastman Kodak Co. 3,841,000
39,000 Polaroid Corp. 1,891,500
--------------
5,732,500
Real Estate (0.6%)
- ------------------------------------------------------------------------------------------------------------
38,400 Beacon Properties Corp. 1,185,600
23,000 Duke Realty Investments, Inc. (R) 845,250
25,000 Equity Residential Properties Trust (R) 1,093,750
40,000 LTC Properties, Inc. (R) 670,000
--------------
3,794,600
Retail (1.3%)
- ------------------------------------------------------------------------------------------------------------
45,000 Dayton-Hudson Corp. 2,025,000
109,000 K mart Corp. + 1,485,125
46,000 Rite Aid Corp. 2,116,000
48,000 Sears, Roebuck & Co. 2,304,000
--------------
7,930,125
Transportation (2.1%)
- ------------------------------------------------------------------------------------------------------------
5,600 Burlington Northern Santa Fe Corp. + 441,000
53,000 CSX Corp. 2,471,125
41,000 Delta Air Lines, Inc. 3,777,125
18,000 Norfolk Southern Corp. 1,617,750
108,200 Ryder System, Inc. 3,367,725
12,400 Union Pacific Corp. 790,500
--------------
12,465,225
Utilities (6.9%)
- ------------------------------------------------------------------------------------------------------------
30,000 American Telephone & Telegraph Co. 1,005,000
51,000 Ameritech Corp. 3,117,375
27,000 Baltimore Gas & Electric Co. 688,500
46,000 Bell Atlantic Corp. 3,116,500
57,000 BellSouth Corp. 2,536,500
20,000 Carolina Power & Light Co. 680,000
24,000 Central & South West Corp. 483,000
95,000 Cinergy Corp. 3,158,750
38,000 GTE Corp. 1,743,250
74,000 MCI Communications Corp. 2,821,250
59,000 NYNEX Corp. 3,053,250
36,000 OGE Energy Corp. 1,494,000
86,000 Pacific Enterprises 2,633,750
50,000 Potomac Electric Power Co. 1,125,000
34,000 Public Service Co. of Colorado 1,317,500
97,303 SBC Communications, Inc. 5,400,317
47,200 Scana Corp. 1,138,700
106,000 Sprint Corp. 4,650,750
21,000 Veba (Vereinigte Elektrizitaets Bergwerks) AG (Germany) + 1,083,276
--------------
41,246,668
--------------
Total Common Stocks (cost $245,231,155) $ 297,035,780
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (20.9%) *
PRINCIPAL AMOUNT VALUE
Agency Obligations (2.4%)
- ------------------------------------------------------------------------------------------------------------
$ 2,285,000 Federal Home Loan Mortgage Corporation 8 1/2s,
TBA, June 16, 2027 $ 2,358,531
Federal National Mortgage Association
9,790,000 7s, TBA, June 16, 2027 9,484,063
2,695,000 5.94s, December 12, 2005 2,512,656
--------------
14,355,250
U.S. Government Agency Mortgage Pass-Through Certificates (11.1%)
- ------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.
13,245,716 8 1/2s, with due dates from May 1, 2026 to March 1, 2027 13,671,978
6,938,698 5 1/2s, with due dates from March 1, 2011 to April 1, 2011 6,461,664
Federal National Mortgage Association
7,837,641 7s, with due dates from February 1, 2024 to
January 1, 2027 7,592,724
1,021,645 6s, Dwarf, with due dates from January 1, 2009 to
February 1, 2009 971,842
Government National Mortgage Association
11,089,666 7 1/2s, with due dates from June 15, 2026 to
February 15, 2027 10,992,636
23,467,694 7s, with due dates from March 15, 2026 to
April 15, 2027 22,697,500
4,228,996 6 1/2s, with due dates from January 15, 2026 to
May 15, 2026 3,973,909
--------------
66,362,253
U.S. Treasury Obligations (7.4%)
- ------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
740,000 11 5/8s, November 15, 2004 952,284
3,660,000 10 3/4s, August 15, 2005 # 4,576,720
35,000 8 7/8s, August 15, 2017 41,869
10,295,000 8 1/8s, August 15, 2019 11,519,178
U.S. Treasury Notes
55,000 11 7/8s, November 15, 2003 70,005
1,795,000 6 7/8s, May 15, 2006 1,810,150
4,815,000 6 1/2s, October 15, 2006 4,735,986
7,350,000 6 3/8s, April 30, 1999 7,363,745
7,410,000 6 1/4s, February 15, 2007 7,169,175
5,855,000 6 1/4s, October 31, 2001 5,783,628
--------------
44,022,740
--------------
Total U.S. Government and Agency Obligations
(cost $125,327,618) $ 124,740,243
CORPORATE BONDS AND NOTES (17.4%) *
PRINCIPAL AMOUNT VALUE
Advertising (--%)
- ------------------------------------------------------------------------------------------------------------
$ 25,000 Adams Outdoor Advertising, Ltd. sr. notes 10 3/4s, 2006 $ 25,938
40,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 39,900
10,000 Outdoor Systems, Inc. sr. sub. notes 9 3/8s, 2006 9,828
55,000 Universal Outdoor, Inc. sr. sub. notes 9 3/4s, 2006 54,450
--------------
130,116
Aerospace and Defense (--%)
- ------------------------------------------------------------------------------------------------------------
25,000 BE Aerospace sr. notes 9 3/4s, 2003 25,813
25,000 Howmet Corp. sr. sub. notes 10s, 2003 26,625
10,000 L-3 Communications Corp. 144A sr. sub. notes 10 3/8s, 2007 10,300
25,000 Sequa Corp. bonds 8 3/4s, 2001 24,875
25,000 Sequa Corp. sr. notes 9 5/8s, 1999 25,375
20,000 Tracor, Inc. 144A sr. sub. notes 8 1/2s, 2007 19,600
25,000 Wyman-Gordon Co. sr. notes 10 3/4s, 2003 26,625
--------------
159,213
Agriculture (--%)
- ------------------------------------------------------------------------------------------------------------
25,000 AGCO Corp. sr. sub. notes 8 1/2s, 2006 25,250
121,274 Premium Standard Farms, Inc. sr. secd. notes 11s, 2003 [2 DBL. DAGGERS] 129,157
--------------
154,407
Apparel (--%)
- ------------------------------------------------------------------------------------------------------------
10,000 GFSI, Inc. 144A sr. sub. notes 9 5/8s, 2007 9,900
Automotive (0.1%)
- ------------------------------------------------------------------------------------------------------------
47,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 51,700
680,000 Chrysler Corp. deb. Ser. B, 7.45s, 2097 640,846
15,000 CSK Auto, Inc. 144A sr. sub. notes 11s, 2006 15,375
25,000 DRA, Inc. 144A notes 11 1/2s, 2004 [2 DBL. DAGGERS] 25,250
35,000 Harvard Industries Inc. sr. notes 11 1/8s, 2005 15,750
5,000 Hawk Corp. sr. notes 10 1/4s, 2003 5,038
25,000 Key Plastics Corp. 144A sr. sub. notes 10 1/4s, 2007 25,250
5,000 Safelite Glass Corp. 144A sr. sub. notes 9 7/8s, 2006 5,075
--------------
784,284
Banks (0.2%)
- ------------------------------------------------------------------------------------------------------------
740,000 Abbey National PLC sub. notes 7.35s, 2049
(United Kingdom) 731,024
445,000 First National Bank of Omaha sub. notes 7.32s, 2010 423,484
--------------
1,154,508
Basic Industrial Products (--%)
- ------------------------------------------------------------------------------------------------------------
20,000 Astor Corp. 144A sr. sub. notes 10 1/2s, 2006 20,400
45,000 Clark-Schwebel sr. notes 10 1/2s, 2006 47,700
5,000 Inter-City Products sr. notes 9 3/4s, 2000 5,000
5,000 Owens Illinois, Inc. sr. sub. notes 9 3/4s, 2004 5,288
5,000 Titan Wheel International Inc. sr. sub. notes 8 3/4s, 2007 5,000
--------------
83,388
Broadcasting (0.1%)
- ------------------------------------------------------------------------------------------------------------
25,000 Allbritton Communications Co. sr. sub. deb. 11 1/2s, 2004 26,125
45,000 Argyle Television Corp. sr. sub. notes 9 3/4s, 2005 46,125
45,000 Capstar Broadcasting 144A sr. disc. notes stepped-coupon
zero % (12 3/4s, 2/1/02), 2009 ++ 25,088
40,000 Commodore Media, Inc. sr. sub. notes stepped-coupon
7 1/2s, (13 1/4s, 5/1/98), 2003 ++ 42,600
150,000 Dial Call Communications, Inc. sr. disc. notes stepped-
coupon zero % (12 1/4s, 4/15/99), 2004 ++ 117,750
10,000 Gray Communications Systems, Inc. sr. sub. notes
10 5/8s, 2006 10,200
15,000 Heritage Media Corp. sr. sub. notes 8 3/4s, 2006 15,600
20,000 Jacor Communications, Inc. company guaranty 9 3/4s, 2006 20,450
45,000 Jacor Communications, Inc. sr. sub. notes 10 1/8s, 2006 46,575
35,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes stepped-coupon
zero % (13 1/2s, 8/1/99), 2004 ++ 28,963
25,000 Pegasus Media & Communications notes
Ser. B, 12 1/2s, 2005 26,750
15,000 RBS Participacoes S.A. 144A company guaranty 11s, 2007
(Brazil) 15,147
40,000 Sinclair Broadcasting Group sr. sub. notes 10s, 2005 40,700
25,000 Spanish Broadcasting Systems 144A sr. notes 11s, 2004 25,125
45,000 Sullivan Broadcasting sr. sub. notes 10 1/4s, 2005 45,000
15,000 TV Azteca Sa De Cv 144A sr. notes 10 1/2s, 2007 (Mexico) 14,756
--------------
546,954
Building and Construction (--%)
- ------------------------------------------------------------------------------------------------------------
35,000 Atrium Companies Inc. 144A sr. sub. notes 10 1/2s, 2006 35,000
10,000 Building Materials Corp. sr. notes Ser. B, 8 5/8s, 2006 9,650
20,000 Continental Homes Holding Corp. sr. notes 10s, 2006 19,700
35,000 Schuller International Corp. sr. notes 10 7/8s, 2004 38,150
35,000 Scotsman Group, Inc. sr. secd. notes 9 1/2s, 2000 36,750
40,000 Terex Corp. sr. notes Ser. B, 13 1/4s, 2002 43,950
5,000 Webb (Del E.) Corp. sr. sub. notes 9 3/4s, 2008 4,775
--------------
187,975
Business Equipment and Services (0.1%)
- ------------------------------------------------------------------------------------------------------------
475,000 Boise Cascade Corp. deb. 7.35s, 2016 439,114
40,000 Corporate Express, Inc. sr. sub. notes Ser. B, 9 1/8s, 2004 38,800
30,000 Intertek Finance PLC 144A sr. sub. notes 10 1/4s, 2006
(United Kingdom) 30,900
15,000 Iron Mountain, Inc. med. term notes company guaranty
10 1/8s, 2006 15,244
10,000 Loomis Fargo & Co. 144A sr. sub. notes 10s, 2004 10,100
35,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 37,800
--------------
571,958
Cable Television (0.3%)
- ------------------------------------------------------------------------------------------------------------
15,000 Bell Cablemedia PLC sr. disc. notes zero %
(11.95s, 7/15/99), 2004 (United Kingdom) ++ 13,200
5,000 Cablevision Systems Corp. sr. sub. deb. 9 7/8s, 2023 4,700
1,465,000 Continental Cablevision, Inc. sr. deb. 9 1/2s, 2013 1,639,950
5,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (13 1/2s, 9/30/99), 2004
(United Kingdom) ++ 4,100
5,000 Diamond Cable Communications Co. 144A sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) ++ 2,975
35,000 Heartland Wireless Communications, Inc. sr. notes
Ser. B, 14s, 2004 16,800
25,000 Lenfest Communications, Inc. sr. notes 8 3/8s, 2005 23,906
45,000 Marcus Cable Co. (L.P.) sr. deb. 11 7/8s, 2005 47,025
25,000 Marcus Cable Co. (L.P.) sr. disc. notes stepped-coupon
zero % (14 1/4s, 6/15/00), 2005 ++ 17,813
5,000 Rogers Communications, Inc. sr. deb. 10 7/8s, 2004 5,200
5,000 Rogers Cablesystems Ltd. deb. 10 1/8s, 2012 (Canada) 5,113
25,000 TCI Satellite Entertainment 144A sr. sub. notes 10 7/8s, 2007 23,750
20,000 TV Filme, Inc. 144A sr. notes 12 7/8s, 2004 (Brazil) 20,300
--------------
1,824,832
Chemicals (0.4%)
- ------------------------------------------------------------------------------------------------------------
15,000 Freedom Chemicals, Inc. sr. sub. notes 10 5/8s, 2006 15,563
45,000 Great Lakes Carbon Corp. sr. notes 10s, 2006 46,800
900,000 Lyondell Petrochemical Co. notes 9 1/8s, 2002 973,116
895,000 Millennium America, Inc. company guaranty 7 5/8s, 2026 833,943
25,000 NL Industries, Inc. sr. notes stepped-coupon zero %
(13s, 10/15/98), 2005 ++ 23,094
475,000 Sociedad Quimica Y Minera de Chile S.A. 144A
bonds 7.7s, 2006 (Chile) 475,594
40,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 ++ 25,300
15,000 Union Carbide Global Enterprises sr. sub. Ser. B, 12s, 2005 16,800
--------------
2,410,210
Computer Services and Software (--%)
- ------------------------------------------------------------------------------------------------------------
35,000 Unisys Corp. sr. notes 11 3/4s, 2004 36,838
Conglomerates (--%)
- ------------------------------------------------------------------------------------------------------------
15,000 Aramark Corp. sub. notes 8 1/2s, 2003 15,188
20,000 Congoleum Corp. sr. notes 9s, 2001 20,000
40,000 MacAndrews & Forbes Holdings, Inc. sub. deb.
notes 13s, 1999 40,100
--------------
75,288
Consumer Durable Goods (--%)
- ------------------------------------------------------------------------------------------------------------
40,000 Remington Products Co. sr. sub. notes Ser. B, 11s, 2006 33,800
50,000 Selmer Co., Inc. sr. sub. notes 11s, 2005 53,500
--------------
87,300
Consumer Non-Durables (0.1%)
- ------------------------------------------------------------------------------------------------------------
30,000 Foamex (L.P.) Capital Corp. sr. sub. deb. 11 7/8s, 2004 32,175
50,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 50,500
430,000 RJR Nabisco, Inc. notes 8 3/4s, 2005 417,444
--------------
500,119
Consumer Products (0.1%)
- ------------------------------------------------------------------------------------------------------------
295,000 Philip Morris Cos., Inc. deb. 7 3/4s, 2027 278,026
50,000 Revlon Worldwide Corp. 144A sr. disc. notes zero %, 2001 32,750
--------------
310,776
Consumer Services (--%)
- ------------------------------------------------------------------------------------------------------------
45,000 Affinity Group Holdings 144A sr. notes 11s, 2007 46,125
15,000 AmeriKing, Inc. sr. notes 10 3/4s, 2006 15,525
40,000 Coinmach Corp. sr. notes Ser. B, 11 3/4s, 2005 44,000
45,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 46,575
15,000 Hollinger International Publishing, Inc. company guaranty
9 1/4s, 2007 14,813
15,000 Hollinger International Publishing, Inc. company guaranty
8 5/8s, 2005 14,813
30,000 Host Marriott Travel Plaza sr. notes Ser. B, 9 1/2s, 2005 30,525
25,000 John Q Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 24,500
20,000 Specialty Retailers, Inc. sr. sub. notes 11s, 2003 21,050
--------------
257,926
Electronics and Electrical Equipment (0.1%)
- ------------------------------------------------------------------------------------------------------------
25,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s,
2006 (Canada) 26,438
25,000 Fairchild Semiconductor Corp. 144A sr. sub. notes 11.74s,
2008 22,083
20,000 Fairchild Semiconductor Corp. 144A sr. sub. notes 10 1/8s,
2007 20,200
25,000 Health O Meter Products, Inc. sr. sub. notes 13s, 2002 27,375
50,000 International Semi-Tech. Corp. sr. secd. disc. notes stepped-
coupon zero % (11 1/2s, 8/15/00), 2003 (Canada) ++ 27,625
40,000 Motors and Gears Inc. 144A sr. notes Ser. A, 10 3/4s, 2006 40,100
--------------
163,821
Energy-Related (--%)
- ------------------------------------------------------------------------------------------------------------
40,000 Panda Global Energy Co. 144A sr. notes 12 1/2s, 2004 38,000
Entertainment (0.6%)
- ------------------------------------------------------------------------------------------------------------
855,000 News America Holdings, Inc. deb. 7 3/4s, 2045 772,467
30,000 Premier Parks, Inc. sr. notes Ser. A, 12s, 2003 33,000
35,000 Six Flags Corp. sr. sub. notes stepped-coupon zero %
(12 1/4s, 6/15/98), 2005 ++ 34,563
2,100,000 Time Warner Entertainment Inc. deb. 7 1/4s, 2008 2,032,065
615,000 Time Warner Entertainment Inc. notes 8 7/8s, 2012 664,458
5,000 Viacom International, Inc. sub. deb. 8s, 2006 4,669
--------------
3,541,222
Food and Beverages (0.1%)
- ------------------------------------------------------------------------------------------------------------
45,000 Canandaigua Wine Co. sr. sub. notes Ser. C, 8 3/4s, 2003 44,775
10,000 Del Monte Corp. 144A sr. sub. notes 12 1/4s, 2007 10,300
80,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 85,000
10,000 MBW Foods, Inc. 144A sr. sub. notes 9 7/8s, 2007 10,000
35,000 Stater Brothers sr. notes 11s, 2001 37,275
--------------
187,350
Gaming (0.1%)
- ------------------------------------------------------------------------------------------------------------
50,000 Alliance Gaming Corp. sr. notes 12 7/8s, 2003 53,938
25,000 Argosy Gaming Co. 1st mtge. 13 1/4s, 2004 22,375
125,000 Arizona Charlies Corp. 1st mtge. Ser. B, 12s, 2000 + 71,250
30,000 Casino America, Inc. sr. notes 12 1/2s, 2003 30,225
25,000 Casino Magic Corp. 144A 1st mtge. 13s, 2003 20,750
50,000 Coast Hotels & Casinos company guaranty Ser. B, 13s, 2002 54,750
35,000 Empress River Casino sr. notes 10 3/4s, 2002 36,925
20,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 20,300
25,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 25,625
259,000 Louisiana Casino Cruises Corp. 1st mtge. 11 1/2s, 1998 261,590
35,000 Mohegan Tribal Gaming sr. secd. notes Ser. B, 13 1/2s, 2002 45,850
45,000 Players International Inc. sr. notes 10 7/8s, 2005 46,688
30,000 Trump A.C. 1st mtge. 11 1/4s, 2006 29,175
--------------
719,441
Health Care (0.5%)
- ------------------------------------------------------------------------------------------------------------
1,340,000 Columbia Healthcare Corp. deb. 8.36s, 2024 1,437,083
15,000 Genesis Health Ventures, Inc. sr. sub. notes 9 1/4s, 2006 15,075
35,000 Graphic Controls Corp. sr. sub. notes Ser. A, 12s, 2005 38,063
55,000 IMED Corp. sr. sub. notes 9 3/4s, 2006 55,000
15,000 Integrated Health Services sr. sub. notes 9 5/8s, 2002 15,300
35,000 Magellan Health Services, Inc. sr. sub. deb.
Ser. A, 11 1/4s, 2004 38,675
35,000 Merit Behavioral Care sr. sub. notes 11 1/2s, 2005 37,625
60,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 56,700
1,020,000 Tenet Healthcare Corp. sr. notes 8s, 2005 999,600
25,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 24,875
35,000 Wright Medical Technology, Inc. sr. secd. notes
Ser. B, 10 3/4s, 2000 35,350
--------------
2,753,346
Insurance and Finance (7.3%)
- ------------------------------------------------------------------------------------------------------------
10,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 9,300
1,890,000 Advanta National Bank sr. notes 7.02s, 2001 1,837,760
485,000 Allstate Financing II company guaranty 7.83s, 2045 455,633
1,015,000 Bangkok Bank Public Co. 144A sub. notes 8 3/8s, 2027
(Hong Kong) 987,869
1,145,000 Bangkok Bank Public Co. 144A sub. notes 8 1/4s, 2016
(Thailand) 1,113,673
1,215,000 BankAmerica Corp. sub. notes 7 1/8s, 2009 1,178,732
35,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 34,475
2,200,000 Citicorp sub. notes 7 1/8s, 2005 2,184,270
15,000 Colonial Capital I 144A company guaranty 8.92s, 2027 14,576
1,165,000 Conseco Inc. sr. notes 10 1/2s, 2004 1,350,375
3,150,000 Den Danske Bank 144A sub. notes 6.55s, 2003 (Denmark) 3,047,027
10,000 Dime Capital Trust I bank gtd. Ser. A, 9.33s, 2027 10,000
1,710,000 Discover Credit Corp. med. term notes 9.07s, 2012 1,935,754
20,000 Dollar Financial Group Inc. sr. notes Ser. A, 10 7/8s, 2006 20,300
1,895,000 Executive Risk Capital Trust 144A company guaranty
8.675s, 2027 1,870,934
540,000 First Financial Caribbean Corp. sr. notes 7.84s, 2006 533,925
35,000 First Nationwide Holdings sr. sub. notes 10 5/8s, 2003 37,100
1,070,000 Firstar Capital Trust I 144A bonds 8.32s, 2026 1,067,047
1,920,000 Ford Motor Credit Corp. notes 8.2s, 2002 2,011,277
1,675,000 Lehman Bros Holdings, Inc. med. term notes 6.4s, 1999 1,657,212
1,015,000 Markel Capital Trust I 144A company guaranty
8.71s, 2046 1,005,286
1,195,000 Money Store, Inc. (The) notes 8.05s, 2002 1,195,000
25,000 North Fork Bancorp, Inc. 144A bonds 8.7s, 2026 24,240
5,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 5,413
5,000 Ocwen Financial Corp. notes 11 7/8s, 2003 5,337
470,000 Orange Cogen Funding 144A company guaranty
8.175s, 2022 472,519
20,000 Outsourcing Solutions, Inc. 144A sr. sub. notes 11s, 2006 21,250
1,265,000 Peoples Bank- Bridgeport sub. notes 7.2s, 2006 1,219,409
1,335,000 Phoenix Home Life Mutual Insurance Co. 144A
notes 6.95s, 2006 1,283,069
20,000 Phoenix Re Corp. sr. notes 9 3/4s, 2003 21,425
35,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 25,200
5,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 2003 5,138
15,000 Riggs Capital Trust bonds 8 5/8s, 2026 15,094
2,500,000 Riggs National Corp. sub. deb. 8 1/2s, 2006 2,525,000
1,100,000 Salton Sea Funding Corp. company guaranty
Ser. E, 8.3s, 2011 1,125,905
1,600,000 Sampoerna International Finance Co. 144A company
guaranty 8 3/8s, 2006 (Indonesia) 1,616,624
2,000,000 Scotland International Finance 144A sub. notes 8.85s,
2006 (Netherlands) 2,193,980
1,100,000 Societe Generale 144A notes 7.85s, 2049 (France) 1,105,500
885,000 Southern Investments Service Co. sr. notes 6.8s, 2006
(United Kingdom) 851,972
20,000 Sovereign Capital Trust 144A company guaranty 9s, 2027 19,500
1,095,000 Sparbanken Sverige AB (Swedbank) 144A sub. 7 1/2s,
2006 (Sweden) 1,077,546
985,000 St. Paul Bancorp sr. notes 7 1/8s, 2004 960,326
635,000 State Development Bank of China notes 7 3/8s, 2007
(China) 629,114
585,000 State Street Institution 144A company guaranty 7.94s, 2026 568,427
1,365,000 Tig Capital Trust I 144A bonds 8.597s, 2027 1,366,679
1,235,000 Trenwick Capital Trust 144A bonds 8.82s, 2037 1,238,223
25,000 Webster Capital Trust I 144A bonds 9.36s, 2027 25,515
1,500,000 Webster Financial Corp. sr. notes 8 3/4s, 2000 1,505,925
--------------
43,465,855
Medical Supplies and Devices (--%)
- ------------------------------------------------------------------------------------------------------------
25,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 27,313
Metals and Mining (0.3%)
- ------------------------------------------------------------------------------------------------------------
35,000 AK Steel Corp. sr. notes 9 1/8s, 2006 34,563
10,000 Altos Hornos De Mexico 144A bonds 11 7/8s,
2004 (Mexico) 10,125
25,000 Continental Global Group 144A sr. notes
Ser. A, 11s, 2007 25,750
15,000 Echo Bay Mines jr. sub. deb. 11s, 2027 (Canada) 14,775
5,000 Ispat Mexicana, S.A. 144A bonds 10 3/8s, 2001 (Brazil) 5,106
25,000 Maxxam Group Holdings Inc. sr. notes Ser. B, 12s, 2003 25,250
750,000 Noranda Inc. notes 7s, 2005 (Canada) 726,855
1,035,000 PT Alatief Freeport sr. notes 9 3/4s, 2001 (Netherlands) 1,119,694
30,000 Royal Oak Mines, Inc. company guaranty Ser. B, 11s, 2006
(Canada) 30,150
--------------
1,992,268
Motion Picture Distribution (--%)
- ------------------------------------------------------------------------------------------------------------
55,000 Act III Theatres, Inc. sr. sub. notes 11 7/8s, 2003 59,675
40,000 AMC Entertainment, Inc. 144A sr. sub. notes 9 1/2s, 2009 39,600
20,000 Cobb Theatres LLC company guaranty 10 5/8s, 2003 20,700
30,000 United Artists notes 11 1/2s, 2002 31,200
--------------
151,175
Oil and Gas (0.9%)
- ------------------------------------------------------------------------------------------------------------
30,000 Abraxas Petroleum Corp. 144A sr. notes
Ser. B, 11 1/2s, 2004 31,800
25,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 26,750
20,000 Chesapeake Energy Corp. sr. notes 10 1/2s, 2002 21,712
20,000 CIA Naviera Perez Companc S.A. 144A bonds 9s,
2004 (Argentina) 20,038
5,000 Costilla Energy, Inc. sr. notes 10 1/4s, 2006 5,025
680,000 El Paso Natural Gas Co. deb. 7 1/2s, 2026 660,049
970,000 Gulf Canada Resources, Ltd. sr. notes 8.35s, 2006
(Canada) 996,675
685,000 Husky Oil Ltd. deb. 7.55s, 2016 (Canada) 664,347
15,000 Kelley Oil & Gas Corp. sr. sub. notes Ser. B, 10 3/8s, 2006 15,000
5,000 Maxus Energy Corp. global notes 9 7/8s, 2002 5,163
20,000 Maxus Energy Corp. notes 9 1/2s, 2003 20,600
5,000 Maxus Energy Corp. notes 9 3/8s, 2003 5,263
30,000 Parker Drilling Corp. sr. notes Ser. B, 9 3/4s, 2006 30,825
640,000 Petro Geo-Services, A.S. ADR notes 7 1/2s, 2007 (Norway) 636,000
215,000 Petroliam Nasional Berhad 144A notes 7 5/8s, 2026
(Malaysia) 211,364
1,655,000 Petroliam Nasional Berhad 144A notes 7 1/8s, 2005
(Malaysia) 1,641,164
5,000 Texas Petrochemical Corp. sr. sub. notes 11 1/8s, 2006 5,200
133,000 TransTexas Gas Corp. sr. disc. notes stepped-coupon
zero % (13 1/4s, 12/16/01), 2003 ++ 83,790
--------------
5,080,765
Packaging and Containers (--%)
- ------------------------------------------------------------------------------------------------------------
30,000 Innova S De R.L. 144A sr. notes 12 7/8s, 2007 (Mexico) 29,550
5,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 5,431
20,000 Radnor Holdings Corp. 144A sr. notes 10s, 2003 20,300
20,000 US Can Corp. company guaranty Ser. B, 10 1/8s, 2006 20,900
--------------
76,181
Paper and Forest Products (.1%)
- ------------------------------------------------------------------------------------------------------------
35,000 Domtar, Inc. deb. 9 1/2s, 2016 (Canada) 34,300
25,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 2003 24,000
50,000 Rainy River Forest Products, Inc. sr. notes 10 3/4s, 2001
(Canada) 54,750
60,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 56,400
10,000 Repap New Brunswick sr. notes 9 1/2s, 2000 (Canada) 9,800
45,000 Stone Consolidated Corp. sr. notes 10 1/4s, 2000 47,925
--------------
227,175
Publishing (0.3%)
- ------------------------------------------------------------------------------------------------------------
35,000 American Media Operation, Inc. sr. sub. notes 11 5/8s,
2004 37,450
2,085,000 News America Holdings, Inc. deb. 7.7s, 2025 1,912,696
10,000 Sun Media Corp. 144A sr. sub. notes 9 1/2s, 2007 (Canada) 9,650
--------------
1,959,796
Real Estate (0.6%)
- ------------------------------------------------------------------------------------------------------------
275,000 American Health Properties, Inc. notes 7 1/2s, 2007 (R) 271,640
205,000 American Health Properties, Inc. notes 7.05s, 2002 (R) 202,774
630,000 Health Care Property Investors, Inc. sr. notes 6 1/2s, 2006 (R) 587,765
1,620,000 Meditrust med. term notes 7.3s, 2006 (R) 1,576,957
5,000 Prime Hospitality Corp. 1st mtge. 9 1/4s, 2006 5,088
35,000 Prime Hospitality Corp. 144A sr. sub. notes 9 3/4s, 2007 35,700
1,015,000 Sun Communities, Inc. sr. notes 7 5/8s, 2003 (R) 1,027,373
40,000 Tanger Properities Ltd. Partnership Gtd. notes 8 3/4s,
2001 (R) 40,815
--------------
3,748,112
Recreation (--%)
- ------------------------------------------------------------------------------------------------------------
45,000 Lady Luck Gaming 1st mtge. 11 7/8s, 2001 45,000
Retail (0.2%)
- ------------------------------------------------------------------------------------------------------------
50,000 Brylane (L.P.) sr. sub. notes 10s, 2003 51,750
975,000 Federated Department Stores sr. notes 8 1/2s, 2003 1,013,795
40,000 Loehmanns, Inc. sr. notes 11 7/8s, 2003 41,600
40,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 41,000
15,000 Quality Food Centers, Inc. 144A sr. sub. notes 8.7s, 2007 14,775
20,000 Ralphs Grocery Co. 144A sr. sub. notes 11s, 2005 21,200
110,000 Southland Corp. 1st priority sr. sub. deb. 5s, 2003 91,300
5,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 3,800
20,000 Supermercados Norte 144A bonds 10 7/8s,
2004 (Argentina) 20,000
35,000 Waban, Inc. sr. sub. notes 11s, 2004 39,025
20,000 William Carter Co. 144A sr. sub. notes 12s, 2008 20,400
--------------
1,358,645
Specialty Consumer Products (--%)
- ------------------------------------------------------------------------------------------------------------
45,000 Coty, Inc. Gtd. sr. sub. notes 10 1/4s, 2005 47,700
25,000 Genesco, Inc. sr. notes 10 3/8s, 2003 25,688
45,000 Herff Jones, Inc. sr. sub. notes 11s, 2005 47,700
60,000 Sassco Fashions Ltd. 144A notes 12 3/4s, 1999 62,100
--------------
183,188
Technology (--%)
- ------------------------------------------------------------------------------------------------------------
25,000 Computervision Corp. sr. sub. notes 11 3/8s, 1999 24,719
Telecommunications (0.5%)
- ------------------------------------------------------------------------------------------------------------
50,000 Arch Communications Group sr. disc. notes stepped-
coupon zero % (10 7/8s, 3/15/01), 2008 ++ 22,750
55,000 Call-Net Enterprises sr. disc. notes stepped-coupon
zero % (13 1/4s, 12/1/99), 2004 ++ 46,200
100,000 Cencall Communications Corp. sr. disc. notes stepped-
coupon zero % (10 1/8s, 1/15/99), 2004 ++ 74,000
5,000 Centennial Cellular Corp. sr. notes 10 1/8s, 2005 5,044
45,000 Centennial Cellular Corp. sr. notes 8 7/8s, 2001 43,650
10,000 Consorcio Ecuatoriano 144A notes 14s, 2002 (Ecuador) 10,100
150,000 Dial Call Communication, Inc. sr. disc. notes stepped-
coupon Ser. B, zero % (10 1/4s, 12/15/98), 2005 ++ 111,375
25,000 Dobson Communications Corp. 144A sr. notes 11 3/4s,
2007 24,000
20,000 Fonorola, Inc. sr. notes 12 1/2s, 2002 (Canada) 21,600
25,000 Frontiervision Operating Partners L.P. sr. sub. notes 11s,
2006 25,063
40,000 Globo Communicacoes 144A company guaranty 10 1/2s,
2006 (Brazil) 40,900
80,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 5/1/01), 2006 ++ 44,700
35,000 Intermedia Communications, Inc. sr. disc. notes stepped-
coupon zero % (12 1/2s, 5/15/01), 2006 ++ 22,575
35,000 Intermedia Communications, Inc. sr. notes
Ser. B, 13 1/2s, 2005 39,025
70,000 International Cabletel, Inc. sr. notes stepped-coupon
Ser. B, zero % (11 1/2s, 2/01/01), 2006 ++ 45,850
50,000 McLeod, Inc. 144A sr. disc. notes stepped-coupon zero %
(10 1/2s, 3/1/02), 2007 ++ 28,625
25,000 MFS Communications sr. disc. notes stepped-coupon
zero % (8 7/8s, 1/1/01), 2006 ++ 18,963
65,000 MFS Communications sr. disc. notes stepped-coupon
zero % (9 3/8s, 1/15/99), 2004 ++ 59,095
75,000 Millicom International Cellular S.A. sr. disc. notes stepped-
coupon zero % (13 1/2s, 6/1/01), 2006 (Luxembourg) ++ 52,500
30,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 29,700
210,000 NEXTEL Communications, Inc. sr. disc. notes stepped-
coupon zero % (9 3/4s, 2/15/99), 2004 ++ 152,775
65,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 50,700
50,000 Orbcomm Global Capital Corp. sr. notes Ser. B, 14s, 2004 51,000
30,000 Paging Network, Inc. sr. sub. notes 10s, 2008 26,700
35,000 Pricellular Wireless Corp. sr. notes 10 3/4s, 2004 36,050
20,000 Pronet, Inc. sr. sub. notes 11 7/8s, 2005 18,400
95,000 Teleport Communications Group Inc. sr. disc. notes
stepped-coupon zero % (11 1/8s, 7/1/01), 2007 ++ 65,313
15,000 Wireless One, Inc. sr. notes 13s, 2003 9,750
1,790,000 WorldCom, Inc. notes 7 3/4s, 2007 1,763,150
--------------
2,939,553
Textiles (--%)
- ------------------------------------------------------------------------------------------------------------
5,000 Anvil Knitwear Inc. 144A sr. notes 10 7/8s, 2007 4,875
10,000 Glenoit Corp. 144A sr. sub. notes 11s, 2007 10,100
65,000 Polysindo International Finance company guaranty 11 3/8s,
2006 (Indonesia) 68,250
40,000 Tultex Corp. sr. notes 10 5/8s, 2005 43,350
--------------
126,575
Transportation (0.4%)
- ------------------------------------------------------------------------------------------------------------
10,000 Atlantic Express, Inc. 144A company guaranty 10 3/4s, 2004 10,250
20,000 Blue Bird Body Co. sr. sub. notes Ser. B, 10 3/4s, 2006 20,900
1,690,000 Burlington Northern Santa Fe notes 6 3/8s, 2005 1,586,437
30,000 Consorcio/MCII Holdings secd. notes stepped-coupon
zero % (12s, 11/15/98), 2002 ++ 25,425
520,000 Continental Airlines, Inc. 144A bonds 7.42s, 2008 518,960
35,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s, 2003
(Greece) 34,300
45,000 International Shipholding Corp. sr. notes 9s, 2003 45,900
35,000 Viking Star Shipping sr. secd. notes 9 5/8s, 2003 35,875
--------------
2,278,047
Utilities (4.0%)
- ------------------------------------------------------------------------------------------------------------
25,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 25,656
750,000 Arizona Public Service Co. sr. notes 6 3/4s, 2006 721,583
1,135,000 California Energy Corp. disc. notes
10 1/4s, 2005 1,208,775
5,000 Chesapeake Energy Corp. sr. notes 9 1/8s, 2006 4,988
1,125,000 Citizens Utilities Co. bonds 7.68s, 2034 1,212,525
1,065,000 Connecticut Light & Power Co. 1st mtge.
Ser. A, 7 7/8s, 2001 1,065,735
305,000 Edison Mission Energy 144A company guaranty 7.33s,
2008 300,471
1,382,000 EIP Funding-Public Service Co. of New Mexico deb.
10 1/4s, 2012 1,516,621
1,910,000 El Paso Electric Co. 1st mtge. Ser. B, 7 3/4s, 2001 1,917,220
25,000 El Paso Electric Co. 1st mtge. Ser. D, 8.9s, 2006 25,982
775,000 Enersis S.A. ADR notes 7.4s, 2016 (Chile) 729,756
775,000 Enersis S.A. ADR notes 6.6s, 2026 (Chile) 747,720
30,000 First PV Funding deb. 10.15s, 2016 31,950
15,000 Hidroelectric Pierda Aguila 144A bonds 10 5/8s, 2001
(Argentina) 15,656
430,000 Illinova Corp. sr. notes 7 1/8s, 2004 422,591
1,005,000 Israel Electric Corp., Ltd. 144A sr. notes 7 1/4s, 2006 (Israel) 983,453
677,182 Midland Cogeneration Ventures deb. 10.33s, 2002 724,585
35,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 39,902
5,000 Niagara Mohawk Power Corp. 1st mtge. 7 3/4s, 2006 4,819
80,000 Niagara Mohawk Power Corp. med. term notes 9.95s, 2000 79,900
296,872 Northeast Utilities System notes Ser. A, 8.58s, 2006 282,919
809,600 Northeast Utilities System notes Ser. B, 8.38s, 2005 779,256
470,000 Ras Laffan Natural Gas 144A sec. notes 8.294s, 2014 489,388
925,000 Ras Laffan Natural Gas 144A sec. notes 7.628s, 2006 946,969
1,685,000 Texas New-Mexico Power Utilities 1st mtge. 9 1/4s, 2000 1,771,407
4,700,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 4,665,784
1,360,000 Texas Utilities Electric Capital Trust V company guaranty
8.175s, 2037 1,342,932
415,000 Thermochemical Funding 144a sr. secd. notes 10 1/8s, 2014 431,081
1,135,000 US West Capital Funding, Inc. company guaranty 6.95s, 2037 1,118,111
--------------
23,607,735
--------------
Total Corporate Bonds and Notes (cost $104,516,568) $ 103,981,274
CONVERTIBLE BONDS AND NOTES (3.6%) *
PRINCIPAL AMOUNT VALUE
Aerospace and Defense (--%)
- ------------------------------------------------------------------------------------------------------------
$ 100,000 Rohr, Inc. cv. sub. notes 7 3/4s, 2004 $ 156,125
Automotive (0.2%)
- ------------------------------------------------------------------------------------------------------------
355,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 201,906
350,000 Magna International cv. sub. deb. 5s, 2002 380,625
JPY 60,000,000 Toyota Motor Corp. cv. deb. 1.2s, 1998 897,568
--------------
1,480,099
Basic Industrial Products (0.1%)
- ------------------------------------------------------------------------------------------------------------
126,000 Cooper Industries, Inc. cv. sub. 7.05s, 2015 139,860
250,000 Thermo Electron Corp. cv. deb. 5s, 2001 412,500
--------------
552,360
Broadcasting (--%)
- ------------------------------------------------------------------------------------------------------------
250,000 International Cabletel Inc. 144A cv. deb. 7 1/4s, 2005 240,313
Business Equipment and Services (0.1%)
- ------------------------------------------------------------------------------------------------------------
250,000 Corporate Express, Inc. 144A cv. notes 4 1/2s, 2000 213,438
400,000 Staples, Inc. 144A cv. sub. deb. 4 1/2s, 2000 414,000
200,000 U.S. Office Products Co. 144A cv. sub. notes 5 1/2s, 2003 167,750
--------------
795,188
Cellular Broadcasting (0.1%)
- ------------------------------------------------------------------------------------------------------------
550,000 Comcast Corp. cv. notes 1 1/8s, 2007 280,500
Chemicals (0.1%)
- ------------------------------------------------------------------------------------------------------------
120,000 Hercules, Inc. cv. deb. 8s, 2010 319,050
Computer Services and Software (--%)
- ------------------------------------------------------------------------------------------------------------
330,000 Intevac, Inc. 144A cv. sub. notes 6 1/2s, 2004 278,850
Computers (0.2%)
- ------------------------------------------------------------------------------------------------------------
450,000 Safeguard Scientifics, Inc. 144A cv. sub. notes 6s, 2006 408,938
650,000 Softkey International, Inc. 144A cv. sr. notes 5 1/2s, 2000 483,438
150,000 Synoptics Communications Inc. 144A cv. sub. deb. 5 1/4s,
2003 131,063
--------------
1,023,439
Conglomerates (--%)
- ------------------------------------------------------------------------------------------------------------
175,000 Hexcel Corp. cv. sub. notes 7s, 2003 228,375
Consumer Non-Durables (0.1%)
- ------------------------------------------------------------------------------------------------------------
1,400,000 Coleman Worldwide Corp. cv. sr. sec. notes LYON
zero %, 2013 423,500
350,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 2007 + 315,875
--------------
739,375
Consumer Services (0.4%)
- ------------------------------------------------------------------------------------------------------------
500,000 Boston Chicken, Inc. cv. notes LYON zero %, 2015 123,125
645,000 Boston Chicken, Inc. cv. sub. deb. 7 3/4s, 2004 698,213
750,000 Hollinger, Inc. cv. LYON zero %, 2013 273,750
550,000 Pharmaceutical Marketing Services Inc. 144A cv. deb.
6 1/4s, 2003 451,000
300,000 Protection One, Inc. cv. sr. sub. notes 6 3/4s, 2003 285,375
800,000 Rogers Communications cv. deb. 2s, 2005 428,000
--------------
2,259,463
Electronics and Electrical Equipment (0.6%)
- ------------------------------------------------------------------------------------------------------------
130,000 Dovatron International cv. sub. notes 6s, 2002 136,175
350,000 HMT Technology Corp. 144A cv. sub. notes 5 3/4s, 2004 281,750
330,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s,
2002 278,438
200,000 Lernout & Hauspie Speech Products N.V. 144A
cv. sub. notes 8s, 2001 (Belgium) 226,000
500,000 Motorola, Inc. cv. sub. deb. LYON zero %, 2013 371,250
10,000 National Semiconductor Corp. cv. deb. 6 1/2s, 2002 9,750
350,000 S3, Inc. 144A cv. sub. notes 5 3/4s, 2003 289,625
319,000 SCI Systems, Inc. cv. sub. notes 5s, 2006 439,024
300,000 Solectron Corp. 144A cv. sub. notes 6s, 2006 328,875
205,000 Texas Instruments cv. sub. deb. 2 3/4s, 2002 441,519
340,000 Thermo Instrument Systems, Inc. 144A cv. deb. 4 1/2s, 2003 318,750
282,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 284,820
30,000 VLSI Technology, Inc. cv. sub. notes 8 1/4s, 2005 28,500
250,000 Xilinx, Inc. 144A cv. sub. notes 5 1/4s, 2002 286,250
--------------
3,720,726
Entertainment (--%)
- ------------------------------------------------------------------------------------------------------------
150,000 Signature Resorts, Inc. cv. sub. notes 5 3/4s, 2007 117,750
Environmental Control (0.1%)
- ------------------------------------------------------------------------------------------------------------
255,000 Thermo Terratech, Inc. 144A cv. sub. deb. 4 5/8s, 2003 224,400
200,000 USA Waste Services, Inc. cv. sub. notes 4s, 2002 197,500
250,000 WMX Technologies, Inc. cv. sub. notes 2s, 2005 216,250
--------------
638,150
Food and Beverages (0.1%)
- ------------------------------------------------------------------------------------------------------------
360,000 Grand Metropolitan PLC cv. unsub. 6 1/2s, 2000 442,800
Health Care (0.5%)
- ------------------------------------------------------------------------------------------------------------
900,000 Alza Corp. cv. sub. LYON zero %, 2014 394,875
200,000 Integrated Health Services cv. sr. sub. deb 5 3/4s, 2001 217,500
300,000 NovaCare, Inc. cv. sub. deb. 5 1/2s, 2000 271,875
175,000 PhyMatrix, Inc. cv. sub. deb. 6 3/4s, 2003 143,063
300,000 Renal Treatment Centers, Inc. cv. sub. notes 5 5/8s, 2006 271,500
200,000 Renal Treatment Centers, Inc. 144A cv. sub. notes 5 5/8s,
2006 181,000
250,000 Rotech Medical Corp. 144A cv. sub. deb. 5 1/4s, 2003 214,375
110,000 Tenet Health Care Corp. cv. sub. notes 6s, 2005 132,000
600,000 TheraTx Inc. cv. sub. 8s, 2002 597,000
200,000 U.S. Diagnostic Laboratories, Inc. 144A cv. sub. deb. 9s, 2003 192,000
200,000 Uromed Corp. 144A cv. sub. notes 6s, 2003 120,250
250,000 Vivra, Inc. 144A cv. sub. notes 5s, 2001 238,438
--------------
2,973,876
Insurance and Finance (0.2%)
- ------------------------------------------------------------------------------------------------------------
300,000 Berkshire Hathaway, Inc. cv. sr. notes 1s, 2001 287,625
300,000 Mitsubishi Bank Ltd. International Finance cv. trust
guaranteed notes 3s, 2002 (Bermuda) 304,875
700,000 USF&G Corp. cv. sub. notes zero %, 2009 458,500
--------------
1,051,000
Metals and Mining (--%)
- ------------------------------------------------------------------------------------------------------------
200,000 Quanex Corp. cv. sub. deb. 6.88s, 2007 203,000
Oil and Gas (0.2%)
- ------------------------------------------------------------------------------------------------------------
125,000 Apache Corp. 144A cv. sub. deb. 6s, 2002 149,844
300,000 Lomak Petroleum, Inc. 144A cv. sub. deb. 6s, 2007 339,000
175,000 Pennzoil Co. cv. sub. deb. 6 1/2s, 2003 280,219
100,000 Pride Petroleum Services, Inc. cv. sub. deb. 6 1/4s, 2006 145,375
--------------
914,438
Paper and Forest Products (0.1%)
- ------------------------------------------------------------------------------------------------------------
300,000 Stone Container Corp. cv. sr. sub. notes 8 7/8s, 2000 318,750
Pharmaceuticals (0.1%)
- ------------------------------------------------------------------------------------------------------------
100,000 Nabi, Inc. 144A cv. sub. notes 6 1/2s, 2003 78,750
125,000 North American Vaccine, Inc. 144A cv. sub. notes 6 1/2s, 2003 120,469
300,000 Roche Holdings, Inc. 144A cv. unsub. LYON zero %,
2010 (Switzerland) 138,000
275,000 Sandoz Capital BVI Ltd. 144A cv. company guaranty 2s,
2002 (Switzerland) 344,438
--------------
681,657
Real Estate (0.1%)
- ------------------------------------------------------------------------------------------------------------
250,000 LTC Properties, Inc. cv. sub. deb. 7 3/4s, 2002 (R) 259,062
150,000 Malan Realty Investors cv. sub. notes 9 1/2s, 2004 (R) 152,063
--------------
411,125
Recreation (--%)
- ------------------------------------------------------------------------------------------------------------
10,000 Argosy Gaming cv. sub. notes 12s, 2001 7,100
Retail (0.2%)
- ------------------------------------------------------------------------------------------------------------
350,000 Home Depot, Inc. cv. sub. notes 3 1/4s, 2001 357,438
180,000 Michaels Stores, Inc. cv. sub. notes 6 3/4s, 2003 156,825
350,000 Pier 1 Imports, Inc. cv. sub. notes 5 3/4s, 2003 425,688
480,000 Rite Aid Corp. cv. deb. zero %, 2006 352,800
--------------
1,292,751
Telecommunications (--%)
- ------------------------------------------------------------------------------------------------------------
250,000 MIDCOM Communications, Inc. 144A cv. sub. deb.
8 1/4s, 2003 207,500
Transportation (0.1%)
- ------------------------------------------------------------------------------------------------------------
200,000 British Airport Authority 144A cv. bonds 5 3/4s, 2006
(United Kingdom) 332,633
--------------
Total Convertible Bonds and Notes (cost $21,222,358) $ 21,666,393
COLLATERALIZED MORTGAGE OBLIGATIONS (2.2%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 784,921 Chase Mortgage Finance Corp. Ser. 93-3, Class B13,
7.461s, October 30, 2024 $ 487,878
Housing Securities Inc.
632,692 Ser. 91-B, Class B6, 9s, August 25, 2006 623,992
470,244 Ser. 93-F, Class F9M2, 7s, September 25, 2023 444,051
187,528 Ser. 93-J, Class J4, 6.66s, January 25, 2009 160,395
85,240 Ser. 93-J, Class J5, 6.66s, January 25, 2009 61,186
151,044 Ser. 94-1, Class AB1, 6 1/2s, March 25, 2009 127,349
Prudential Home Mortgage Securities
706,246 Ser. 92-13, Class B3, 7 1/2s, June 25, 2027 628,117
706,869 Ser. 92-25, Class B3, 8s, August 25, 2023 + 685,221
2,109,267 Ser. 93-D, Class 2B, 7.108s, June 28, 2023 2,016,657
1,025,080 Ser. 93-E, Class 5B, 7.393s, July 28, 2023 741,741
194,044 Ser. 94-31, Class B3, 8s, November 25, 2009 175,246
Prudential Home Mortgage Securities 144A
2,160,020 Ser. 94-A, Class 4B, 6.802s, April 28, 2024 1,993,968
542,009 Ser. 94-D, Class 3B, 6.311s, August 28, 2009 503,222
755,260 Ser. 94-D, Class B4, 6.312s, August 28, 2009 649,405
2,479,075 Ser. 95-C, Class B1, 7.815s, October 28, 2001 2,462,031
1,671,338 Securitized Asset Sales, Inc. Ser. 93-J, Class 2B, 6.807s,
December 30, 2023 1,560,351
--------------
Total Collateralized Mortgage Obligations
(cost $12,421,566) $ 13,320,810
CONVERTIBLE PREFERRED STOCKS (2.0%) *
NUMBER OF SHARES VALUE
Automotive (0.1%)
- ------------------------------------------------------------------------------------------------------------
2,650 Ford Motor Co. Ser. A, $4.20 dep. shs. cv. pfd. $ 296,800
Banks (0.1%)
- ------------------------------------------------------------------------------------------------------------
7,300 Sovereign Bancorp, Inc. Ser. B, $3.125 cv. pfd. 540,200
Basic Industrial Products (0.1%)
- ------------------------------------------------------------------------------------------------------------
2,400 Case Corp. Ser. A, $2.25 cv. pfd. 322,200
Broadcasting (0.1%)
- ------------------------------------------------------------------------------------------------------------
4,500 Chancellor Broadcasting Corp. 144A $3.50 cv. pfd. 239,625
1,500 Granite Broadcasting $1.9375 cv. pfd. 65,063
2,500 SFX Broadcasting, Inc. 144A $3.25 cv. pfd. 112,500
--------------
417,188
Building and Construction (--%)
- ------------------------------------------------------------------------------------------------------------
350 Greenfield Capital Trust $3.00 cv. pfd. 14,350
3,500 Greenfield Industries, Inc. 144A $3.00 cv. pfd. 147,875
--------------
162,225
Computer Services and Software (0.1%)
- ------------------------------------------------------------------------------------------------------------
7,800 Vanstar Corp. 144A $3.375 cv. pfd. 238,875
7,210 Wang Laboratories, Inc. Ser. B, $3.25 cv. pfd. 328,055
--------------
566,930
Conglomerates (--%)
- ------------------------------------------------------------------------------------------------------------
8,000 Cooper Industries, Inc. 6.00% cv. pfd. 151,000
Consumer Non-Durables (0.1%)
- ------------------------------------------------------------------------------------------------------------
4,000 Corning Deleware L.P. $3.00 cv. pfd. 304,000
Consumer Services (--%)
- ------------------------------------------------------------------------------------------------------------
2,500 Service Corp. Ser. A, $3.125 cv. pfd. 286,563
Food and Beverages (--%)
- ------------------------------------------------------------------------------------------------------------
3,900 Chiquita Brands International, Inc. Ser. B, $3.75 cv. pfd. 228,150
Insurance and Finance (0.5%)
- ------------------------------------------------------------------------------------------------------------
4,850 Ahmanson (H.F.) & Co. Ser. D, $3.00 cv. pfd. 383,150
3,200 American Bankers Insurance Group, Inc. Ser. B,
$3.125 cv. pfd. 201,200
8,250 American General Delaware Corp. $3.00 cv. pfd. 481,594
5,000 Banc One Corp. Ser. C, $1.75 cv. pfd. 416,250
4,500 Devon Financing Trust $3.25 cv. pfd. 286,875
7,123 Finova Finance Trust $2.75 cv. pfd. 379,300
4,700 Matewan Bancshares, Inc. Ser. A, $1.875 cv. pfd. 113,975
5,300 Penncorp Financial Group, Inc. 144A $3.50 cv.pfd. 308,725
5,750 St. Paul Capital LLC $3.00 cv. pfd. 353,625
5,000 Timet Capital Trust, I 144A $3.3125 cv. pfd. 235,000
--------------
3,159,694
Metals and Mining (0.4%)
- ------------------------------------------------------------------------------------------------------------
80,000 Freeport-McMoRan Copper Co., Inc. $1.75 cv. pfd. 2,160,000
Oil and Gas (0.2%)
- ------------------------------------------------------------------------------------------------------------
5,986 Neuvo Energy Ser. A, $2.875 cv. pfd. 273,111
3,000 Occidental Petroleum Corp. 144A Ser. 1993, $3.875 cv. pfd. 164,250
5,500 Tejas Gas Corp. $2.625 cv. pfd. 294,250
5,250 Tosco Financing Trust 144A $2.875 cv. pfd. 290,063
--------------
1,021,674
Paper and Forest Products (--%)
- ------------------------------------------------------------------------------------------------------------
4,500 International Paper Co. $2.625 cv. pfd. 213,188
Real Estate (--%)
- ------------------------------------------------------------------------------------------------------------
5,600 Insignia Financial Group, Inc. 144A $3.25 cv. pfd. 249,200
Retail (0.3%)
- ------------------------------------------------------------------------------------------------------------
5,000 Ann Taylor Finance Trust $4.25 cv. pfd. 338,750
5,500 Boise Cascade Corp. Ser. G, $1.58 cv. pfd. 147,125
19,300 Kmart Financing I $3.875 cv. pfd. 1,112,163
--------------
1,598,038
Telecommunications (--%)
- ------------------------------------------------------------------------------------------------------------
6,150 Airtouch Communications, Inc. Ser. C, $2.125 cv. pfd. 279,825
--------------
Total Convertible Preferred Stocks (cost $11,187,942) $ 11,956,875
FOREIGN GOVERNMENT BONDS AND NOTES (1.5%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
CAD $2,015,000 Canada (Government of) 8s, 2023 $ 1,584,945
USD 250,000 Italy (Government of) cv. notes 5s, 2001 246,875
USD 2,750,000 Quebec (Province of) deb. Ser. NN, 7 1/8s, 2024 2,516,113
ZAR 4,095,000 South Africa (Republic of) bonds Ser. 153, 13s, 2010 817,342
GBP 2,045,000 United Kingdom Treasury bonds 7 1/2s, 2006 3,332,751
GBP 335,000 United Kingdom Treasury bonds 7s, 2002 540,342
--------------
Total Foreign Government Bonds and Notes
(cost $9,230,901) $ 9,038,368
ASSET-BACKED SECURITIES (0.4%) * (cost $2,646,470)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 2,665,000 Railcar Leasing L.L.C. Ser. 1, Class A1, 6 3/4s, 2006 $ 2,615,031
BRADY BONDS (.4%) * (DIAMOND)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 1,162,760 Argentina (Republic of) 4.188s, 2005 $ 1,066,832
1,155,000 United Mexican States Ser. D, 4.313s, 2019 1,022,897
--------------
Total Brady Bonds (cost $2,052,886) $ 2,089,729
PREFERRED STOCKS (0.1%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
53 American Radio Systems Corp. 144A $11.375 pfd. [2 DBL. DAGGERS] $ 5,234
1,000 AmeriKing, Inc. $3.25 pfd. [2 DBL. DAGGERS] 26,500
437 Cablevision Systems Corp. Ser. M, $11.125 dep. shs. pfd. [2 DBL. DAGGERS] 40,204
430 Chancellor Radio Broadcasting 144A $12.00 pfd. 42,570
1,215 Chevy Chase Capital Corp. Ser. A, $5.19 pfd. 58,928
2,034 El Paso Electric Co. $11.40 pfd. [2 DBL. DAGGERS] 221,706
55 Fresenius Medical Care AG Ser. D, $9.00 pfd. (Germany) 54,450
295 SFX Broadcasting, Inc. Ser. E, $12.625 pfd. [2 DBL. DAGGERS] 29,241
--------------
Total Preferred Stocks (cost $480,561) $ 478,833
UNITS (--%) *
NUMBER OF UNITS VALUE
- ------------------------------------------------------------------------------------------------------------
5 Anvil Holdings 144A pfd. units 13s, 2009 [2 DBL. DAGGERS] $ 4,925
40 Colt Telecommunications Group PLC units stepped-coupon
zero % (12s, 12/15/01), 2006 (United Kingdom) ++ 23,400
40 Esat Holdings Ltd. 144A units stepped-coupon zero %
(12 1/2s, 2/1/02), 2007 (Ireland) ++ 22,400
95 Fitzgerald Gaming Co. units 13s, 2002 61,750
40 Globalstar L.P. Capital units 11 3/8s, 2004 39,600
45 McCaw International Ltd. 144A units stepped-coupon
zero % (13s, 4/15/02), 2007 ++ 22,050
1,100 Nextlink Communications 144A pfd. units 14s, 2009 [2 DBL. DAGGERS] 51,700
15 Wireless One Inc. units stepped-coupon zero %
(13 1/2s, 8/1/01), 2006 ++ 4,050
--------------
Total Units (cost $264,432) $ 229,875
PURCHASED OPTIONS OUTSTANDING (--%) *
CONTRACT AMOUNT EXPIRATION DATE VALUE
- ------------------------------------------------------------------------------------------------------------
DEM 6,250,000 German Government Bond July 97/
Futures Contracts (Put) DEM 96.75 $ 3,614
ITL 4,200,000,000 Italian Government Bond Futures May 97/
Contracts (Put) ITL 122 491
USD 5,200,000 U.S. Dollars in exchange for May 97/
Deutschemarks (Call) DEM 1.692 118,040
--------------
Total Purchased Options Outstanding (cost $163,531) $ 122,145
WARRANTS (--%) * +
NUMBER OF WARRANTS DATE VALUE
- ------------------------------------------------------------------------------------------------------------
150 Intermedia Communications, Inc. 144A 6/1/05 $ 3,000
700 Louisiana Casino Cruises, Inc. 144A 12/1/98 35,000
--------------
Total Warrants (cost $6,418) $ 38,000
SHORT-TERM INVESTMENTS (5.1%) * (cost $30,236,560)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$30,232,000 Interest in $492,645,000 joint repurchase agreement
dated April 30, 1997, with Morgan (J.P.) & Co., Inc.
with respect to various U.S. Treasury obligations --
maturity value of $30,236,560 for an effective yield
of 5.43% $ 30,236,560
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $564,988,996) *** $ 617,549,916
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of
$597,585,471.
*** The aggregate identified cost on a tax basis is $565,500,434,
resulting in gross unrealized appreciation and depreciation of
$60,829,138 and $8,779,656, respectively, or net unrealized
appreciation of $52,049,482.
+ 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 DBL. 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 April 30, 1997.
[DIAMOND] Brady Bonds are foreign bonds collateralized by the
U.S. Government. The rates are floating and are the current
rates at April 30, 1997.
(R) Real Estate Investment Trust.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
ADR after the name of a foreign holding stands for American
Depository Receipts, representing ownership of foreign securities
on deposit with a domestic custodian bank.
TBA after the name of a security represents to be announced
securities (Note 1).
The rates shown on Floating Rate Bonds (FRB) and Floating Rate
Notes (FRN) are the current interest rates at April 30, 1997,
which are subject to change based on the terms of the security.
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Forward Currency Contracts to Buy at April 30, 1997 (Unaudited)
(aggregate face value $20,829,868)
<S> <C> <C> <C> <C>
Aggregate Face Delivery Unrealized
Market Value Value Date Depreciation
- ----------------------------------------------------------------------------------------
Australian Dollars $ 5,344,877 $ 5,367,928 Jun 97 $ (23,051)
Deutschemarks 13,982,402 14,360,953 Jun 97 (378,551)
Japanese Yen 731,191 740,426 Jun 97 (9,235)
Thai Baht 360,327 360,561 Jun 97 (234)
- ----------------------------------------------------------------------------------------
$ (411,071)
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at April 30, 1997 (Unaudited)
(aggregate face value $22,973,853)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
British Pounds $ 3,885,422 $ 3,797,955 6/18/97 $ (87,467)
Canadian Dollars 1,515,875 1,530,318 6/18/97 14,443
Deutschemarks 10,509,854 10,706,583 6/18/97 196,729
Japanese Yen 497,664 606,351 1/28/98 108,687
Japanese Yen 5,744 7,044 7/28/97 1,300
Japanese Yen 6,208,512 6,325,602 6/18/97 117,090
- ----------------------------------------------------------------------------------------
$ 350,782
- ----------------------------------------------------------------------------------------
Futures Contracts Outstanding at April 30, 1997 (Unaudited)
(aggregate face value $17,645,809)
Unrealized
Aggregate Face Expiration Appreciation/
Market Value Value Date (Depreciation)
- ----------------------------------------------------------------------------------------
U.S. Treasury Note Futures
(Short) $ 4,278,750 $ 4,302,500 6/9/97 $ 23,750
U.S. Treasury Bond Futures
(Short) 4,043,406 3,998,809 6/1/97 (44,597)
U.S. Treasury Note Futures
(Short) 9,264,750 9,344,500 6/21/97 79,750
- ----------------------------------------------------------------------------------------
$ 58,903
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
April 30, 1997 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $564,988,996) (Note 1) $617,549,916
- ---------------------------------------------------------------------------------------------------
Cash 196,685
- ---------------------------------------------------------------------------------------------------
Dividends and interest receivables 4,467,858
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,363,608
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 23,102,944
- ---------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 443,033
- ---------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 195,260
- ---------------------------------------------------------------------------------------------------
Total assets 647,319,304
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 46,682,861
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 843,029
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 914,277
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 200,366
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 9,876
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 976
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 154,521
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 503,322
- ---------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 297,016
- ---------------------------------------------------------------------------------------------------
Payable for variation margin 52,469
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 75,120
- ---------------------------------------------------------------------------------------------------
Total liabilities 49,733,833
- ---------------------------------------------------------------------------------------------------
Net assets $597,585,471
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $521,836,472
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (453,756)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign
currency transactions (Note 1) 23,642,780
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets
and liabilities in foreign currencies 52,559,975
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $597,585,471
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($536,635,689 divided by 50,545,289 shares) $10.62
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $10.62)* $11.27
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($55,536,342 divided by 5,267,499 shares)** $10.54
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($5,413,440 divided by 511,779 shares) $10.58
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $10.58)* $10.96
- ---------------------------------------------------------------------------------------------------
* On single 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 contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended April 30, 1997 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Interest (net of foreign tax of $40,125) $ 9,914,274
- --------------------------------------------------------------------------------------------------
Dividends 4,277,721
- --------------------------------------------------------------------------------------------------
Total investment income 14,191,995
- --------------------------------------------------------------------------------------------------
Expenses:
Compensation of Manager (Note 2) 1,810,455
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 727,228
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 13,544
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 5,729
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 631,245
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 226,997
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 16,320
- --------------------------------------------------------------------------------------------------
Reports to shareholders 47,718
- --------------------------------------------------------------------------------------------------
Registration fees 32,104
- --------------------------------------------------------------------------------------------------
Auditing 20,383
- --------------------------------------------------------------------------------------------------
Legal 988
- --------------------------------------------------------------------------------------------------
Other 22,435
- --------------------------------------------------------------------------------------------------
Total expenses 3,555,146
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (175,415)
- --------------------------------------------------------------------------------------------------
Net expenses 3,379,731
- --------------------------------------------------------------------------------------------------
Net investment income 10,812,264
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 23,555,807
- --------------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 552,578
- --------------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 336,047
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the period (90,181)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
futures during the period 6,841,344
- --------------------------------------------------------------------------------------------------
Net gain on investments 31,195,595
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $42,007,859
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
April 30 October 31
1997* 1996
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 10,812,264 $ 21,551,905
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 24,444,432 31,284,046
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 6,751,163 19,128,396
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 42,007,859 71,964,347
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
- ----------------------------------------------------------------------------------------------------------------------
Class A (10,644,311) (20,586,838)
- ----------------------------------------------------------------------------------------------------------------------
Class B (757,778) (777,109)
- ----------------------------------------------------------------------------------------------------------------------
Class M (76,009) (67,607)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (29,337,073) (8,805,295)
- ----------------------------------------------------------------------------------------------------------------------
Class B (2,134,758) (235,373)
- ----------------------------------------------------------------------------------------------------------------------
Class M (221,078) (19,705)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 63,198,468 14,757,987
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 62,035,320 56,230,407
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 535,550,151 479,319,744
- ----------------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income and undistributed net investment
income of $453,756 and $212,078, respectively) $597,585,471 $535,550,151
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share April 30
operating performance (Unaudited) Year ended October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.67 $9.84 $8.68 $9.28 $8.50 $8.56
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .20 (c) .44 .45 .43 .45 .16
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .60 1.01 1.17 (.49) .99 .74
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .80 1.45 1.62 (.06) 1.44 .90
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.43) (.46) (.43) (.45) (.16)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.63) (.19) -- (.11) (.21) (.80)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.85) (.62) (.46) (.54) (.66) (.96)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.62 $10.67 $9.84 $8.68 $9.28 $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 7.82 * 15.31 19.32 (.61) 17.68 11.15
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $536,636 $496,882 $468,725 $455,299 $551,391 $633,181
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .59 * 1.20 1.15 1.08 1.02 1.11
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.91 * 4.28 4.93 4.92 5.06 1.87
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 77.70 * 142.36 131.00 125.69 224.28 118.43
- ------------------------------------------------------------------------------------------------------------------------------------
Average commisssion
rate paid(d) $.0515 $.0511
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment return 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 through expense offset and brokerage service arrangements.
Prior period ratios exclude these amounts (Note 2).
(c) Per share net investment has been determined on the basis of the weighted
average number of shares outstanding during the period.
(d) Average commission rate paid on security trades is required for fiscal periods beginning on or
after September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share April 30 Feb. 1, 1994+
operating performance (Unaudited) Year ended Oct. 31 to Oct. 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $10.60 $9.80 $8.67 $9.31
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .16 (c) .36 .38 .34
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .60 1.00 1.15 (.60)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .76 1.36 1.53 (.26)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.19) (.37) (.40) (.27)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.63) (.19) -- (.11)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.82) (.56) (.40) (.38)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.54 $10.60 $9.80 $8.67
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 7.43 * 14.36 18.25 (2.75) *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $55,536 $35,118 $10,073 $4,196
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .97 * 1.97 1.91 1.34 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.55 * 3.51 4.09 3.20 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 77.70 * 142.36 131.00 125.69
- ------------------------------------------------------------------------------------------------------------------------------------
Average commisssion
rate paid(d) $.0515 $.0511
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment return 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 through expense offset and brokerage service arrangements.
Prior period ratios exclude these amounts (Note 2).
(c) Per share net investment has been determined on the basis of the weighted
average number of shares outstanding during the period.
(d) Average commission rate paid on security trades is required for fiscal periods beginning on or
after September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended Year For the period
Per-share April 30 ended Mar. 17, 1995+
operating performance (Unaudited) Oct. 31 to Oct. 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $10.63 $9.82 $8.88
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .18 (c) .42 .25
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .60 .98 .90
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .78 1.40 1.15
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.20) (.40) (.21)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.63) (.19) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.83) (.59) (.21)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.58 $10.63 $9.82
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 7.60 * 14.76 13.13 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $5,413 $3,551 $522
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .84 * 1.72 1.09 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.68 * 3.74 2.76 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 77.70 * 142.36 131.00
- ------------------------------------------------------------------------------------------------------------------------------------
Average commisssion
rate paid (d) $.0515 $.0511
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment return 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 through expense offset and brokerage service arrangements.
Prior period ratios exclude these amounts (Note 2).
(c) Per share net investment has been determined on the basis of the weighted
average number of shares outstanding during the period.
(d) Average commission rate paid on security trades is required for fiscal periods beginning on or
after September 1, 1995.
Notes to financial statements
April 30, 1997 (Unaudited)
Note 1
Significant accounting policies
Putnam Balanced Retirement Fund (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, with secondary
objective of stability of principle.
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 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.
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 appreciation and depreciation of
assets and liabilities in foreign currencies arise from changes in the value
of open forward currency contracts and assets and liabilities other than
investments at the period end, resulting from changes in the exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell currencies
at a set price on a future date, to protect against a decline in value
relative to the U.S. dollar of the currencies in which its portfolio
securities are denominated or quoted (or an increase in the value of a
currency in which securities a fund intends to buy are denominated, when a
fund holds cash reserves and short-term investments). The U.S. dollar value of
forward currency contracts is determined using 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) TBA purchase commitments The fund may enter into "TBA" (to be announced)
purchase commitments to purchase securities for a fixed unit price at a future
date beyond customary settlement time. Although the unit price has been
established, the principal value has not been finalized. However, the amount
of the commitments will not fluctuate more than 1.0% from the principal
amount. The fund holds, and maintains until settlement date, cash or
high-grade debt obligations in an amount sufficient to meet the purchase
price, or the fund may enter into offsetting contracts for the forward sale of
other securities it owns. Income on the securities will not be earned until
settlement date. TBA purchase commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in the value of the fund's other assets. Unsettled TBA
purchase commitments are valued at the current market value of the underlying
securities, according to the procedures described under "Security valuation"
above.
Although the fund will generally enter into TBA purchase commitments with the
intention of acquiring securities for their portfolio or for delivery pursuant
to options contracts it has entered into, the fund may dispose of a commitment
prior to settlement if Putnam Management deems it appropriate to do so.
I) Federal taxes It is the policy of the fund to distribute all of its taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
J) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date. Capital
gain distributions, if any, are recorded on the ex-dividend date and paid at
least annually. The amount and character of income and gains to be distributed
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. Reclassifications are made to the
fund's capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations.
Note 2
Management 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: 0.650% of the first $500 million
of average net assets, 0.550% of the next $500 million, 0.500% of the next
$500 million, 0.450% of the next $5 billion, 0.425% of the next $5 billion,
0.405% of the next $5 billion, 0.390% of the next $5 billion and 0.380% of any
excess thereafter. Prior to February 20, 1997, any amount over $1.5 billion
was based on a rate of 0.450%.
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 six months ended April 30, 1997, fund expenses were reduced by
$175,416 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 $900 and an additional
fee for each Trustee's meeting attended. Trustees who are not interested
persons of Putnam Management and who serve on committees of the Trustees
receive additional fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "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
covering all Trustees of the Fund who have served as Trustee for at least five
years. Benefits under the 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 Trustee fees 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 six months ended April 30, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $82,547 and $3,312 from the sale of
class A and class M shares, respectively and $34,005 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 six
months ended April 30, 1997, Putnam Mutual Funds Corp., acting as underwriter
received no monies on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended April 30, 1997, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $237,241,896 and $217,806,918, respectively. Purchases and sales of
U.S. government obligations aggregated $233,045,718 and $216,853,542,
respectively. In determining the net gain or loss on securities sold, the cost
of securities has been determined on the identified cost basis.
Note 4
Capital shares
At April 30, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
April 30, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 5,857,655 $ 61,302,975
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,680,432 27,682,237
- ------------------------------------------------------------
8,538,087 88,985,212
Shares
repurchased (4,558,383) (48,044,653)
- ------------------------------------------------------------
Net increase 3,979,704 $ 40,940,559
- ------------------------------------------------------------
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)
- ------------------------------------------------------------
Six months ended
April 30, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 3,551,805 $ 37,114,868
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 234,191 2,405,970
- ------------------------------------------------------------
3,785,996 39,520,838
Shares
repurchased (1,830,664) (19,132,593)
- ------------------------------------------------------------
Net increase 1,955,332 $ 20,388,245
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Six months ended
April 30, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 204,429 $ 2,158,384
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 24,097 246,750
- ------------------------------------------------------------
228,526 2,405,134
Shares
repurchased (50,691) (535,470)
- ------------------------------------------------------------
Net increase 177,835 $ 1,869,664
- ------------------------------------------------------------
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
- ------------------------------------------------------------
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund *
Health Sciences Trust
International Growth Fund +
International New Opportunities Fund
Investors Fund
New Opportunities Fund
OTC & Emerging Growth Fund [DBL. DAGGER]
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
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Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
Intermediate U.S. Government
Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
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Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
LIFESTAGESM FUNDS
Putnam Asset Allocation Funds-three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
MOST CONSERVATIVE
INVESTMENTS **
Putnam money market funds: ++
California Tax Exempt Money Market Fund
Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts [2 DBL. DAGGERS]
* Formerly Natural Resources Fund
+ Formerly Overseas Growth Fund
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** Relative to above.
++ An investment in a money market fund is neither insured nor guaranteed
by the U.S. government. These funds are managed to maintain a price
of $1.00 per share, although there is no assurance that this price
will be maintained in the future.
[2 DBL. DAGGERS] Not offered by Putnam Investments. Certificates of deposit
offer a fixed rate of return and may be insured up to certain
limits by federal/state agencies. Savings accounts may also
be insured up to certain limits. Please call your financial
advisor or Putnam at 1-800-225-1581 to obtain a prospectus for
any Putnam fund. It contains more complete information,
including charges and expenses. Please read it carefully before
you invest or send money.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
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
Thomas V. Reilly
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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
33896-034/243/908 6/97
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