Putnam
Balanced
Retirement
Fund
SEMIANNUAL REPORT
April 30, 1998
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Putnam Balanced Retirement Fund has done better than expected.
Most funds with a similar yield orientation have lagged the domestic
hybrid average by a wide margin in recent years because they tend to have
less in stocks than most hybrid funds."
-- Morningstar, December 31, 1997
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
42 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
By adhering to its strategy of focusing on stocks of companies undergoing
change for capital appreciation and on high-quality bonds for protection in
volatile markets, Putnam Balanced Retirement Fund provided another period of
positive performance during the first half of fiscal 1998. During the period,
some significant changes were made in the fund's management team.
I am pleased to announce that Jeffrey Kobylarz, James Prusko, and David
Waldman have joined lead manager Edward Bousa's team. Jeffrey joined Putnam's
High-Yield Bond Group in 1993, coming from Dean Witter InterCapital and W. R.
Huff Asset Management. He has 11 years of investment experience. Jim has been
at Putnam since 1992. He was formerly with Salomon Brothers and has four years
of investment management experience. David was with Lazard Freres Asset
Management and Goldman Sachs Asset Management before joining Putnam in 1997.
He has 10 years of investment management experience.
Your fund's management team discusses performance and prospects in the
following report.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
June 17, 1998
Report from the Fund Managers
Edward P. Bousa, lead manager
Jeffery J. Kobylarz
Charles G. Pohl
James M. Prusko
David L. Waldman
History was made during Putnam Balanced Retirement Fund's semiannual period
when the Dow Jones Industrial Average reached an all-time high of 9000.
However, it's important to remember that downside protection is just as
significant as participation on the upside. By focusing on the stocks of
undervalued companies undergoing positive change as well as high-quality
bonds, your fund seeks to participate in the upside of the market while
offering a measure of protection in the event of a correction.
In accordance with this balanced strategy, the fund delivered solid returns
for the semiannual period, the six months ended April 30, 1998; total return
for the class A shares was 11.25% at net asset value (4.86% at public offering
price). For additional performance information, please turn to page 9.
* FUND'S STOCK HOLDINGS BENEFIT FROM CONSOLIDATION TREND
Over the past six months, it became clear that the economic and financial
problems in Asia were not materially going to affect the U.S. stock market.
Consequently, performance of your fund's stock holdings was stronger than we
had initially expected. Actually, the Asian crisis has acted to keep interest
rates relatively stable as well as energy prices low. Within this fairly
positive environment, we have observed several broad-based business trends
such as an urgency to bring out new products and to lower costs and the desire
to merge. We have sought to identify companies that are keeping in step with
these trends while avoiding those that will be left behind.
One area that has undergone a tremendous amount of consolidation in the past
few years is the financial sector. We positioned the portfolio in companies
such as Citicorp, NationsBank, and BankAmerica, which benefited from their
high-profile merger announcements. While these holdings, along with others
discussed in this report, were viewed favorably at the end of the fiscal
period, all portfolio holdings are subject to review and adjustment in
accordance with the fund's investment strategy and may vary in the future.
These broad themes also affected consumer cyclical companies such as
automobile manufacturers. Given the global surplus in the auto industry, we
believe consolidation is inevitable for manufacturers and suppliers. The fund
has already benefited from this phenomenon following the merger announcement
of Chrysler and Daimler-Benz AG just after the close of the period. In short,
we believe the market has been slow to recognize the potential of these
developments with respect to many companies, thus creating opportunities for
an investor seeking growth.
* TARGETING UNDERVALUED SITUATIONS
As part of our value strategy, we habitually target stocks of large companies
undergoing positive changes that we believe will ultimately enhance financial
performance. One example is Texas Instruments, a significant holding of the
fund. A worldwide supply glut of semiconductors, particularly the dynamic
random access memory chips -- often referred to as DRAM chips -- that TI
produces, led to a price slump that hurt the company's stock price. At the
time, we bought more shares, believing that the company's new focus on digital
signal processing solutions (DSPS) would improve profitability as more
electronic devices such as personal computers and cellular phones now utilize
DSPS. During the period, DSPS sales have surged and TI's stock has
appreciated.
[GRAPHIC OMITTED: HORIZONTAL BAR CHART OF TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Insurance and
finance 19.5%
Utilities 8.3%
Oil and gas 6.7%
Transportation 4.3%
Pharmaceuticals 3.1%
Footnote reads:
* Based on net assets as of 4/30/98. Holdings will vary over time.
Another company we view quite favorably is Xerox. The inventor of
photocopiers, the company is once again in the industry's vanguard, taking
advantage of changing technology and converting its copiers from analog to
digital. Although the investing public hasn't recognized the potential of this
shift, we have established a position because we believe the shift will have a
substantial impact on the industry's future.
Other companies whose stocks were undervalued at the time we purchased them
include Eastman Kodak and Cincinnati Bell, a telephone company that does
outsourcing bill collecting from cable companies. Both are now doing extremely
well and we are optimistic about their long-term potential.
Although the overall performance of the fund was strong, some individual
stocks were disappointing. Toys R Us has not met our expectations in terms of
sales or profitability. However, because the company has made some management
changes and has shown signs of improvement, we are cautiously optimistic and
have maintained a position.
* FIXED-INCOME FOCUS REMAINS IN CORPORATE BONDS
For the fixed-income portion of the fund, we made relatively few changes in
the overall composition of the portfolio. We continue to utilize Putnam's
extensive research capabilities in order to uncover attractive investments
across the corporate, high-yield, mortgage-backed, and government bond
sectors. Because corporate profitability continued to be fairly strong during
the period, we emphasized high-quality corporate bonds. As with stocks, the
value of corporate bonds is affected by the financial health of the issuing
company. Therefore, factors such as the current economic environment of solid
growth with low inflation can support corporate profitability and thus, the
performance of these bonds. Our favorite areas in the corporate bond market
were cable and media, specifically companies such as Time Warner, Viacom, and
TCI. Because of the recent boom in the cable industry, this has been an
unusually profitable sector.
[GRAPHIC OMITTED: TOP FIVE EQUITY HOLDINGS]
TOP FIVE EQUITY HOLDINGS
Exxon Corp.
Oil and gas
E.I. du Pont de Nemours Co., Inc.
Chemicals
Weyerhaeuser Co.
Paper and forest products
Merck & Co., Inc.
Pharmaceuticals
Mobil Corp.
Oil and gas
[GRAPHIC OMITTED: TOP FIVE FIXED-INCOME HOLDINGS]
TOP FIVE FIXED-INCOME HOLDINGS
Government National Mortgage Association 7s,
various due dates
Government National Mortgage Association 7 1/2s,
various due dates
United Kingdom Treasury Bonds 7 1/4s,
2007
U.S. Treasury Notes 6 1/8s,
August 15, 2007
U.S. Treasury Notes 5 1/2s,
March 31, 2000
These holdings represent 11.5% of the fund's net assets as of 4/30/98.
Portfolio holdings will vary over time.
The fund's fixed-income segment has also benefited from holdings in the real
estate investment trust (REIT) market. REITs have performed well in
conjunction with the strong real estate market. Finally, the fund owned
corporate bonds in the insurance industry -- even though the industry has
lagged behind the rest of the financial services industry. We believe that it
will achieve cost efficiencies and economies of scale through the type of
consolidation and reorganization we've seen in other financial industries.
Within the fixed-income portion of the fund, we believe there are greater
benefits to be gained by careful selection of bond sectors and individual
securities rather than by attempting to guess the direction of interest rates.
Outside the corporate market, the fund benefited from its holdings in
commercial mortgage-backed securities. This once obscure market has grown
tremendously in the past few years and has become more attractive as the real
estate market has surged. Much of the remainder of the fund's fixed-income
holdings is spread among generic mortgage pass-through securities,
asset-backed securities, U.S. Treasuries, and agency bonds, all of which
provide a measure of income and stability for the fund.
* LOOKING AHEAD
As we look at the United States in comparison to the rest of the world, we
find that its economic fundamentals are solid. However, there have recently
been reports that the Federal Reserve Board may raise short-term rates, given
the stronger-than-expected economy. Therefore, barring any significant changes
in the country's inflation picture, we will maintain a slightly defensive
stance for the fund's fixed-income portion. As for the equity segment of the
fund, as the stock market continues to reach new heights, we will continue to
maintain a low-risk profile to reflect our more disciplined, value-oriented
approach.
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 4/30/98, there is no guarantee the fund will continue to hold
these securities in the future.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
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 4/30/98
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 11.25% 4.86% 10.85% 5.85% 10.86% 7.03%
- ------------------------------------------------------------------------------
1 year 22.66 15.58 21.88 16.88 21.99 17.76
- ------------------------------------------------------------------------------
5 years 94.29 83.19 87.32 85.32 89.65 82.95
Annual average 14.21 12.87 13.37 13.13 13.66 12.84
- ------------------------------------------------------------------------------
10 years 244.99 225.19 218.59 218.59 226.52 215.20
Annual average 13.18 12.52 12.29 12.29 12.56 12.17
- ------------------------------------------------------------------------------
Life of fund 326.97 302.55 282.47 282.47 295.17 281.44
Annual average 11.78 11.28 10.84 10.84 11.12 10.82
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/98
Standard Lehman Bros.
& Poor's Govt./Corp. Consumer
500 Index Bond Index Price Index
- ------------------------------------------------------------------------------
6 months 22.49% 3.56% 0.56%
- ------------------------------------------------------------------------------
1 year 41.07 11.05 1.44
- ------------------------------------------------------------------------------
5 years 184.36 37.97 12.85
Annual average 23.25 6.65 2.45
- ------------------------------------------------------------------------------
10 years 466.16 132.43 38.77
Annual average 18.93 8.80 3.33
- ------------------------------------------------------------------------------
Life of fund 812.52 225.42 52.01
Annual average 18.54 9.50 3.27
- ------------------------------------------------------------------------------
Performance data represents past results, do not reflect future
performance, and will differ with each share class. Returns for class A
and class M shares reflect the current maximum initial sales charges of
5.75% and 3.50%, respectively. Class B share returns for the 1-, 5-, and
10-year (where available) and life-of-fund periods reflect the applicable
contingent deferred sales charge (CDSC), which is 5% in the first year,
declines to 1% in the sixth year, and is eliminated thereafter. Returns
shown for class B and class M shares for periods prior to their inception
are derived from the historical performance of class A shares, adjusted to
reflect both the initial sales charge or CDSC, if any, currently
applicable to each class and, in the case of class B and class M shares,
the higher operating expenses applicable to such shares. All returns
assume reinvestment of distributions at NAV and represent past
performance; they do not guarantee future results. Investment return and
principal value will fluctuate so that an investor's shares when redeemed
may be worth more or less than their original cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 4/30/98
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 2 2 2
- ------------------------------------------------------------------------------
Income $0.220 $0.181 $0.195
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term 0.610 0.610 0.610
- ------------------------------------------------------------------------------
Short-term 0.271 0.271 0.271
- ------------------------------------------------------------------------------
Total $1.101 $1.062 $1.076
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
10/31/97 $11.48 $12.18 $11.40 $11.44 $11.85
- ------------------------------------------------------------------------------
4/30/98 11.58 12.29 11.49 11.52 11.94
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 3.80% 3.58% 3.17% 3.40% 3.28%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 3.77 3.56 3.02 3.28 3.16
- ------------------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided by NAV
or POP at end of period.
2Based on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 3/31/98
(most recent calendar quarter)
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 8.60% 2.31% 8.28% 3.36% 8.30% 4.54%
- ------------------------------------------------------------------------------
1 year 24.94 17.79 24.15 19.15 24.38 19.97
- ------------------------------------------------------------------------------
5 years 93.40 82.36 86.62 84.62 88.94 82.27
Annual average 14.10 12.77 13.29 13.05 13.57 12.76
- ------------------------------------------------------------------------------
10 years 247.53 227.69 221.02 221.02 229.05 217.54
Annual average 13.27 12.60 12.37 12.37 12.65 12.25
- ------------------------------------------------------------------------------
Life of class 325.50 301.16 281.47 281.47 294.14 280.44
Annual average 11.83 11.32 10.89 10.89 11.17 10.87
- ------------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment returns and
principal value will fluctuate so that an investor's shares, when sold,
may be worth more or less than their original cost. See first page of
performance section for performance calculation method.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class 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's & 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.
* Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund (NON)
OTC & Emerging Growth Fund
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Strategic Income Fund (a)
High Quality Bond Fund (NON)
Global Governmental Income Trust
High Yield Advantage Fund (RES)
High Yield Total Return Fund
High Yield Trust (RES)
High Yield Trust II
Income Fund
Money Market Fund (RAT)
Intermediate U.S. Government
Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund (RAT)
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds (AFF)
Arizona, California, Florida, Massachusetts, Michigan, Minnesota,
New Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds (AFF)
California, New York
LIFESTAGE SM 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
(a) Formerly Putnam Diversified Income Trust II
(NON) Formerly Putnam Federal Income Trust
(RES) Closed to new investors. Some exceptions may apply.
Contact Putnam for details.
(AFF) Not available in all states.
(RAT) 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.
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.
Portfolio of investments owned
April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS (51.6%) (a)
NUMBER OF SHARES VALUE
Aerospace and Defense (0.4%)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
27,800 Lockheed Martin Corp. $ 3,096,225
Agriculture (-%)
- -------------------------------------------------------------------------------------------------------------
11,013 PSF Holdings LLC Class A (NON) 330,390
Automotive (1.7%)
- -------------------------------------------------------------------------------------------------------------
88,500 Chrysler Corp. 3,556,594
37,000 Dana Corp. 2,187,625
24,100 Eaton Corp. 2,226,238
58,500 Ford Motor Co. 2,680,031
45,000 Goodyear Tire & Rubber Co. (The) 3,150,000
--------------
13,800,488
Basic Industrial Products (1.0%)
- -------------------------------------------------------------------------------------------------------------
69,000 Caterpillar, Inc. 3,928,688
64,400 Deere (John) & Co. 3,763,375
--------------
7,692,063
Business Equipment and Services (1.0%)
- -------------------------------------------------------------------------------------------------------------
69,200 Pitney Bowes, Inc. 3,321,600
41,300 Xerox Corp. 4,687,550
--------------
8,009,150
Cable Television (0.4%)
- -------------------------------------------------------------------------------------------------------------
97,650 Comcast Corp. Class A 3,497,091
Chemicals (1.9%)
- -------------------------------------------------------------------------------------------------------------
99,000 du Pont (E.I.) de Nemours & Co., Ltd. 7,208,438
54,000 Eastman Chemical Co. 3,712,500
44,000 Minnesota Mining & Manufacturing Co. 4,152,500
--------------
15,073,438
Computer Services and Software (1.9%)
- -------------------------------------------------------------------------------------------------------------
101,100 3Com Corp. (NON) 3,462,675
45,000 Computer Associates International, Inc. 2,635,313
90,000 Electronic Data Systems Corp. 3,870,000
44,000 IBM Corp. 5,098,500
--------------
15,066,488
Conglomerates (0.5%)
- -------------------------------------------------------------------------------------------------------------
24,400 Allied-Signal, Inc. 1,069,025
54,600 TRW, Inc. 2,883,563
--------------
3,952,588
Consumer Durable Goods (0.4%)
- -------------------------------------------------------------------------------------------------------------
96,400 Hasbro, Inc. 3,548,725
Consumer Non Durables (1.7%)
- -------------------------------------------------------------------------------------------------------------
37,500 Colgate-Palmolive Co. 3,363,281
34,700 Fortune Brands, Inc. 1,279,563
303 Hedstrom Holdings, Inc. 144A 379
82,100 Kimberly-Clark Corp. 4,166,575
126,000 Philip Morris Cos., Inc. 4,701,375
--------------
13,511,173
Consumer Services (--%)
- -------------------------------------------------------------------------------------------------------------
25 AmeriKing, Inc. (NON) 1,250
Electronics and Electrical Equipment (2.4%)
- -------------------------------------------------------------------------------------------------------------
61,000 Cooper Industries, Inc. 4,079,375
73,000 Emerson Electric Co. 4,644,625
63,700 Hewlett-Packard Co. 4,797,406
83,750 Texas Instruments, Inc. 5,365,234
--------------
18,886,640
Entertainment (0.4%)
- -------------------------------------------------------------------------------------------------------------
43,400 Time Warner, Inc. 3,406,900
Food and Beverages (3.0%)
- -------------------------------------------------------------------------------------------------------------
72,700 Anheuser-Busch Cos., Inc. 3,330,569
119,000 ConAgra, Inc. 3,473,313
32,741 Diageo PLC (United Kingdom) 389,773
56,100 General Mills, Inc. 3,790,256
61,000 Heinz (H.J.) Co. 3,324,500
51,300 Nabisco Holdings Corp. Class A 2,452,781
57,200 Sara Lee Corp. 3,406,975
170,800 Whitman Corp. 3,341,275
--------------
23,509,442
Health Care (2.2%)
- -------------------------------------------------------------------------------------------------------------
108,000 Baxter International, Inc. 5,987,250
103,800 U.S. Surgical Corp. 3,269,700
60,000 United Healthcare Corp. 4,215,000
51,200 Wellpoint Health Networks, Inc. (NON) 3,692,800
--------------
17,164,750
Insurance and Finance (11.5%)
- -------------------------------------------------------------------------------------------------------------
80,700 American General Corp. 5,376,638
60,000 AON Corp. 3,870,000
68,400 Banc One Corp. 4,022,775
39,900 BankAmerica Corp. 3,391,500
34,100 BankBoston Corp. 3,680,669
31,278 Bankers Trust New York Corp. (CUS) 4,038,772
30,000 Charter One Financial, Inc. 2,030,625
17,900 CIGNA Corp. 3,704,181
37,000 Citicorp 5,568,500
20,600 Crestar Financial Corp. 1,232,138
55,100 Federal National Mortgage Association 3,299,113
58,800 First Chicago NBD Corp. 5,461,050
76,200 First Union Corp. 4,600,575
30,000 Firstar Corp. 1,119,375
47,500 Fleet Financial Group, Inc. 4,102,813
40,600 Hartford Financial Services Group 4,496,450
16,000 Heller Financial Inc. (Germany) 480,000
94,000 KeyCorp 3,730,625
41,000 Merrill Lynch & Co., Inc. 3,597,750
30,200 Morgan (J.P.) & Co., Inc. 3,963,750
78,600 NationsBank Corp. 5,953,950
87,600 Norwest Corp. 3,476,625
70,200 PNC Bank Corp. 4,242,713
2,100 Suiza Capital Trust II (NON) 103,163
49,500 Synovus Financial Corp. 1,741,781
49,000 Washington Mutual, Inc. 3,433,063
--------------
90,718,594
Oil and Gas (5.3%)
- -------------------------------------------------------------------------------------------------------------
142,000 Amoco Corp. 6,283,500
5,704 Apache Corp. 201,779
66,700 British Petroleum PLC ADR (United Kingdom) 6,303,150
65,600 Elf Aquitane ADR (France) 4,259,900
69,000 Enron Corp. 3,393,938
108,000 Exxon Corp. 7,877,250
80,000 Mobil Corp. 6,320,000
74,700 Sonat, Inc. 3,314,813
75,000 Total Corp. ADR (France) 4,406,250
--------------
42,360,580
Paper and Forest Products (1.4%)
- -------------------------------------------------------------------------------------------------------------
31,000 Chesapeake Corp. 1,127,625
54,000 Temple Inland, Inc. 3,486,375
111,000 Weyerhaeuser Co. 6,396,375
--------------
11,010,375
Pharmaceuticals (3.0%)
- -------------------------------------------------------------------------------------------------------------
67,200 American Home Products Corp. 6,258,000
56,000 Bristol-Myers Squibb Co. 5,929,000
53,000 Merck & Co., Inc. 6,386,500
133,160 Pharmacia & Upjohn, Inc. 5,601,043
--------------
24,174,543
Photography (0.5%)
- -------------------------------------------------------------------------------------------------------------
51,000 Eastman Kodak Co. 3,681,563
Publishing (0.5%)
- -------------------------------------------------------------------------------------------------------------
48,400 McGraw-Hill, Inc. 3,747,975
Real Estate (0.8%)
- -------------------------------------------------------------------------------------------------------------
48,000 Duke Realty Investments, Inc. (R) 1,143,000
46,400 Equity Residential Properties Trust (R) 2,279,400
65,000 Starwood Lodging Trust 3,262,188
--------------
6,684,588
Retail (1.0%)
- -------------------------------------------------------------------------------------------------------------
64,200 May Department Stores Co. 3,960,338
133,900 Toys R Us 3,690,619
--------------
7,650,957
Telecommunications (0.5%)
- -------------------------------------------------------------------------------------------------------------
103,000 Cincinnati Bell, Inc. 3,939,750
58 Intermedia Communications, Inc. (NON) 4,233
1,005 NEXTEL Communications, Inc. Class A (NON) 28,831
--------------
3,972,814
Transportation (2.4%)
- -------------------------------------------------------------------------------------------------------------
44,000 Burlington Northern Santa Fe Corp. (NON) 4,356,000
34,900 Delta Air Lines, Inc. 4,057,125
47,000 FDX Corp. 3,196,000
111,300 Ryder System, Inc. 3,874,631
44,000 UAL Corp. (NON) 3,836,250
--------------
19,320,006
Utilities (5.8%)
- -------------------------------------------------------------------------------------------------------------
66,850 American Telephone & Telegraph Co. 4,015,178
127,200 Ameritech Corp. 5,413,950
40,000 Bell Atlantic Corp. 3,742,500
68,000 BellSouth Corp. 4,364,750
76,108 Duke Energy Corp. 4,404,751
72,400 GTE Corp. 4,230,875
42,000 OGE Energy Corp. 2,307,375
74,100 Pacific Enterprises 2,885,269
58,000 Potomac Electric Power Co. 1,421,000
102,600 SBC Communications, Inc. 4,251,488
136,100 Southern Co. 3,606,650
52,000 Sprint Corp. 3,552,250
54,000 Texas Utilities Co. 2,160,000
--------------
46,356,036
--------------
Total Common Stocks (cost $318,387,784) $ 410,224,832
CORPORATE BONDS AND NOTES (20.5%) (a)
PRINCIPAL AMOUNT VALUE
Advertising (0.1%)
- -------------------------------------------------------------------------------------------------------------
$ 175,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 191,625
10,000 Lamar Advertising Co. company guaranty 8 5/8s, 2007 10,125
190,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 201,400
210,000 Outdoor Communications Inc. sr. sub. notes 9 1/4s, 2007 221,025
190,000 Outdoor Systems, Inc. company guaranty 8 7/8s, 2007 196,175
10,000 Outdoor Systems, Inc. sr. sub. notes 9 3/8s, 2006 10,525
--------------
830,875
Aerospace and Defense (0.3%)
- -------------------------------------------------------------------------------------------------------------
20,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 20,250
40,000 Aviation Sales Co. 144A sr. sub. notes 8 1/8s, 2008 39,200
30,000 BE Aerospace, Inc. 144A sr. sub. notes 8s, 2008 29,625
20,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 20,800
2,515,000 Raytheon Co notes 6.45s, 2002 2,535,849
25,000 Sequa Corp. bonds 8 3/4s, 2001 25,563
25,000 Sequa Corp. sr. notes 9 5/8s, 1999 25,750
20,000 Tracor, Inc. sr. sub. notes 8 1/2s, 2007 21,600
--------------
2,718,637
Agriculture (0.1%)
- -------------------------------------------------------------------------------------------------------------
915,000 Potash Corp. of Saskatchewan notes 7 1/8s, 2007 (Canada) 937,381
127,869 Premium Standard Farms, Inc. sr. secd. notes 11s, 2003 (PIK) 138,099
40,000 Purina Mills, Inc. 144A sr. sub. notes 9s, 2010 41,100
--------------
1,116,580
Apparel (--%)
- -------------------------------------------------------------------------------------------------------------
100,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 101,000
60,000 Sassco Fashions Ltd. sr. notes 12 3/4s, 2004 64,350
--------------
165,350
Automotive (0.2%)
- -------------------------------------------------------------------------------------------------------------
47,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 52,111
5,000 Cambridge Industries Inc. company guaranty Ser. B,
10 1/4s, 2007 5,163
680,000 Chrysler Corp. deb. Ser. B, 7.45s, 2097 720,848
200,000 Hayes Wheels International, Inc. company guaranty Ser. B,
9 1/8s, 2007 210,000
200,000 Lear Corp. sub. notes 9 1/2s, 2006 221,000
190,000 Navistar International Corp. sr. notes Ser. B, 7s, 2003 189,525
10,000 Safety Components International, Inc. sr. sub. notes Ser. B,
10 1/8s, 2007 10,475
80,000 Talon Automotive Group 144A sr. sub. notes 9 5/8s, 2008 79,600
125,000 Walbro Corp. sr. notes Ser. B, 9 7/8s, 2005 125,000
--------------
1,613,722
Banks (0.1%)
- -------------------------------------------------------------------------------------------------------------
740,000 Abbey National First Capital PLC sub. notes 7.35s, 2049
(United Kingdom) 774,884
Basic Industrial Products (--%)
- -------------------------------------------------------------------------------------------------------------
45,000 Clark-Schwebel sr. notes 10 1/2s, 2006 49,500
70,000 Grove Worldwide 144A sr. sub. notes 9 1/4s, 2008 70,175
30,000 Johnstown America Industries, Inc. company guaranty
Ser. C, 11 3/4s, 2005 33,450
20,000 Koppers Industries, Inc. 144A 9 7/8s, 2007 20,650
40,000 Morris Material Handling Inc. 144A sr. notes 9 1/2s, 2008 39,800
10,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 10,604
5,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 5,113
--------------
229,292
Broadcasting (0.2%)
- -------------------------------------------------------------------------------------------------------------
45,000 Affinity Group Holdings sr. notes 11s, 2007 48,825
100,000 Allbritton Communications sr. sub. deb. Ser. B, 9 3/4s, 2007 105,000
75,000 American Radio Systems Corp. company guaranty 9s, 2006 80,250
75,000 Benedek Broadcasting sr. notes 11 7/8s, 2005 84,750
150,000 Benedek Communications Corp. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2006 (STP) 118,500
45,000 Capstar Broadcasting sr. disc. notes stepped-coupon zero %
(12 3/4s, 2/1/02), 2009 (STP) 33,525
125,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 130,000
20,000 Central European Media Enterprises Ltd. sr. notes 9 3/8s, 2004 19,800
100,000 Chancellor Media Corp. sr. sub. notes 9 3/8s, 2004 105,000
10,000 Citadel Broadcasting Inc. sr. sub. notes 10 1/4s, 2007 10,975
100,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 102,000
75,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 79,500
10,000 Gray Communications Systems, Inc. sr. sub. notes 10 5/8s, 2006 10,850
15,000 Heritage Media Services Corp. sr. sub. notes 8 3/4s, 2006 15,900
145,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B,
zero % (11 1/2s, 2/01/01), 2006 (STP) 117,450
10,000 Pegasus Communications Corp. sr. notes Ser. B, 9 5/8s, 2005 10,450
25,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 28,500
5,000 Radio One Inc. company guaranty stepped-coupon Ser. B, 7s,
(12s, 5/15/00), 2004 (STP) 5,100
30,000 SFX Entertainment Inc. 144A sr. sub. notes 9 1/8s, 2008 29,100
75,000 Sinclair Broadcast Group, Inc. company guaranty 9s, 2007 77,250
40,000 Sinclair Broadcasting Group sr. sub. notes 10s, 2005 42,800
25,000 Spanish Broadcasting sr. notes Ser. B, 11s, 2004 27,375
120,000 Sullivan Broadcasting sr. sub. notes 10 1/4s, 2005 129,600
15,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s,
2007 (Mexico) 15,825
--------------
1,428,325
Building and Construction (0.1%)
- -------------------------------------------------------------------------------------------------------------
20,000 American Architectural Products Corp. 144A sr. notes
11 3/4s, 2007 21,150
35,000 Atrium Companies Inc. 144A sub. notes 10 1/2s, 2006 36,838
30,000 Beazer Homes USA, Inc. 144A sr. notes 8 7/8s, 2008 29,625
100,000 Big 5 Corp. 144A 10 7/8s, 2007 102,000
10,000 Building Materials Corp. sr. notes Ser. B, 8 5/8s, 2006 10,300
20,000 D.R. Horton Inc. company guaranty 10s, 2006 21,500
70,000 GS Superhighway Holdings sr. notes 9 7/8s 60,200
750,000 Guangdong Enterprises 144A sr. notes 8 7/8s, 2007 (China) 666,615
20,000 Jackson Products, Inc. 144A company guaranty 9 1/2s, 2005 20,200
75,000 M.D.C. Holdings, Inc. notes Ser. B, 11 1/8s, 2003 82,125
75,000 Southdown, Inc. sr. sub. notes Ser. B, 10s, 2006 81,375
--------------
1,131,928
Business Equipment and Services (0.1%)
- -------------------------------------------------------------------------------------------------------------
20,000 ATC Group Services Inc. 144A sr. sub. notes 12s, 2008 19,500
10,000 Axiohm Transactions Solutions Inc. company guaranty
9 3/4s, 2007 10,250
40,000 Corporate Express, Inc. sr. sub. notes Ser. B, 9 1/8s, 2004 41,000
90,000 Iron Mountain, Inc. med. term notes company guaranty
10 1/8s, 2006 97,200
20,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 21,175
233,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 260,960
10,000 Williams Scotsman, Inc. 144A sr. notes 9 7/8s, 2007 10,400
--------------
460,485
Cable Television (0.4%)
- -------------------------------------------------------------------------------------------------------------
35,000 Acme Television sr. disc. notes stepped-coupon zero %
(10 7/8s, 9/30/00), 2004 (STP) 28,700
177,375 Adelphia Communications Corp. sr. notes 9 1/2s, 2004 (PIK) 184,470
75,000 Century Communications Corp. sr. notes 8 7/8s, 2007 78,375
75,000 Comcast Corp. sr. sub. notes 9 1/2s, 2008 79,769
1,465,000 Continental Cablevision, Inc. sr. deb 9 1/2s, 2013 1,720,467
75,000 CSC Holdings, Inc. sr. sub. deb. 10 1/2s, 2016 87,000
5,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2023 5,450
5,000 Diamond Cable Communication Co. sr. disc. notes stepped-coupon
zero % (13 1/4s, 9/30/99), 2004 (United Kingdom) (STP) 4,650
210,000 Diamond Cable Communication Co. sr. disc. notes stepped-coupon
zero % (11 3/4s, 12/15/00), 2005 (United Kingdom) (STP) 166,950
155,000 Diamond Cable Communication Co. sr. disc. notes stepped-coupon
zero % (10 3/4s, 2/15/02), 2007 (United Kingdom) (STP) 109,663
79,125 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003 (PIK) 84,664
90,000 Fox Kids Worldwide Inc. 144A sr. discount notes stepped-coupon
zero % (10 1/4s, 11/1/02), 2007 (STP) 57,600
120,000 Fox Kids Worldwide Inc. 144A sr. notes 9 1/4s, 2007 118,350
30,000 Globo Communicacoes 144A sr. notes 10 5/8s, 2008 30,300
175,000 Jones Intercable, Inc. sr. sub. deb. 10 1/2s, 2008 190,750
70,000 Lenfest Communications, Inc. 144A sr. sub. notes 8 1/4s, 2008 70,700
110,000 Marcus Cable Co. notes stepped-coupon zero %
(13 1/2s, 8/1/99), 2004 (L.P.) (STP) 105,050
45,000 Marcus Cable Co. sr. deb 11 7/8s, 2005 (L.P.) 48,825
80,000 RCN Corp. 144A sr. disc. notes stepped-coupon zero %
(9.8s, 2/15/03), 2008 (STP) 50,000
5,000 Rogers Cablesystems Ltd. deb. 10 1/8s, 2012 (Canada) 5,425
175,000 Rogers Cablesystems Ltd. sr. notes Ser. B, 10s, 2005 (Canada) 192,500
85,000 United International Holdings sr. disc. notes stepped-coupon
Ser. B, zero % (10 3/4s, 2/15/03), 2008 (STP) 53,762
--------------
3,473,420
Chemicals (0.2%)
- -------------------------------------------------------------------------------------------------------------
45,000 Great Lakes Carbon Corp. sr. notes 10s, 2006 50,850
50,000 Huntsman Corp. 144A sr. sub. notes FRN 9.187s, 2007 50,125
900,000 Lyondell Petrochemical Co. notes 9 1/8s, 2002 981,387
20,000 Pharmaceutical Fine Chemicals 144A sr. sub. notes 9 3/4s,
2007 (Switzerland) 20,600
10,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 10,150
25,000 Polytama International notes 11 1/4s, 2007 15,750
20,000 Sovereign Specialty Chemical 144A sr. sub. notes 9 1/2s, 2007 20,900
30,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 (STP) 17,250
15,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 14,100
15,000 Union Carbide Global Enterprises sr. sub. notes Ser. B, 12s, 2005 16,050
--------------
1,197,162
Computer Services and Software (0.2%)
- -------------------------------------------------------------------------------------------------------------
1,650,000 Dell Computer Corp. deb. 7.1s, 2028 1,645,875
90,000 IPC Information Systems sr. disc. notes stepped-coupon
zero % (10 7/8s, 11/1/01), 2008 (STP) 65,700
90,000 Viasystems Inc. sr. sub notes 9 3/4s, 2007 94,275
--------------
1,805,850
Conglomerates (--%)
- -------------------------------------------------------------------------------------------------------------
15,000 Aramark Corp. sub. notes 8 1/2s, 2003 15,413
5,000 Cia Latino Americana 144A company guaranty 11 1/8s, 2004
(Argentina) 5,138
20,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes 13s, 1999 19,900
--------------
40,451
Consumer Durable Goods (--%)
- -------------------------------------------------------------------------------------------------------------
5,000 Hedstrom Holdings, Inc. 144A sr. disc. notes
stepped-coupon zero % (12s, 6/1/02), 2009 (STP) 3,125
20,000 Sealy Mattress Co. 144A sr. sub. notes 9 7/8s, 2007 21,150
50,000 Selmer Co., Inc. sr. sub. notes 11s, 2005 54,000
--------------
78,275
Consumer Non Durables (0.2%)
- -------------------------------------------------------------------------------------------------------------
10,000 Amscan Holdings, Inc. sr. sub. notes 9 7/8s, 2007 10,500
20,000 Chattem, Inc. 144A sr. sub. notes 8 7/8s, 2008 20,000
40,000 Packaged Ice, Inc. 144A sr. notes 9 3/4s, 2005 40,700
295,000 Philip Morris Cos., Inc. deb. 7 3/4s, 2027 310,906
295,000 Philip Morris Cos., Inc. notes 7 1/2s, 2004 308,313
600,000 Philip Morris Cos., Inc. notes 7 1/8s, 2004 615,906
295,000 Philip Morris Cos., Inc. notes 6.8s, 2003 298,575
--------------
1,604,900
Cosmetics (--%)
- -------------------------------------------------------------------------------------------------------------
25,000 Carson, Inc. company guaranty Ser. B, 10 3/8s, 2007 25,625
20,000 French Fragrances, Inc. 144A sr. notes 10 3/8s, 2007 21,300
5,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 5,275
--------------
52,200
Consumer Products (--%)
- -------------------------------------------------------------------------------------------------------------
80,000 Iron Age Corp. 144A sr. sub. notes 9 7/8s, 2008 80,800
Consumer Services (0.2%)
- -------------------------------------------------------------------------------------------------------------
100,000 Coinmach Corp. sr. notes 11 3/4s, 2005 112,000
45,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 49,163
30,000 Host Marriott Travel Plaza sr. notes Ser. B, 9 1/2s, 2005 31,875
100,000 John Q Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 100,500
75,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 76,125
1,060,000 TCI Communications, Inc. sr. notes 8.65s, 2004 1,166,064
--------------
1,535,727
Electronics and Electrical Equipment (--%)
- -------------------------------------------------------------------------------------------------------------
25,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s, 2006
(Canada) 27,563
20,000 Details, Inc. sr. sub. notes Ser. B, 10s, 2005 20,650
30,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 30,150
25,000 Dobson Communications Corp. 11 3/4s, 2007 27,250
20,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 20,800
51,511 Fairchild Semiconductor Corp. 144A sr. sub. notes 11.74s, 2008 58,981
50,000 Flag Limited 144A sr. notes 8 1/4s, 2008 (Bermuda) 50,875
30,000 Flextronics International Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 30,375
10,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 10,475
70,000 Motors and Gears Inc. sr. notes Ser. D, 10 3/4s, 2006 75,950
20,000 Samsung Electronics 144A company guaranty 9 3/4s, 2003 20,100
5,000 Wavetek Corp. company guaranty 10 1/8s, 2007 5,150
60,000 Zilog Inc. 144A sr. notes 9 1/2s, 2005 51,600
--------------
429,919
Energy-Related (0.3%)
- -------------------------------------------------------------------------------------------------------------
95,000 AES Corp. sr. sub. notes 8 3/8s, 2007 96,663
1,840,000 CalEnergy, Inc. sr. notes 7.63s, 2007 1,830,174
10,000 Newpark Resources, Inc. company guaranty Ser. B, 8 5/8s, 2007 10,100
40,000 Panda Global Energy Co. company guaranty 12 1/2s, 2004 38,400
725,000 Quezon Power Ltd. sr. notes 8.86s, 2017 (Philippines) 651,594
30,000 RAM Energy Inc. sr. notes 11 1/2s, 2008 29,925
--------------
2,656,856
Entertainment (1.2%)
- -------------------------------------------------------------------------------------------------------------
40,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 41,600
75,000 Aztar Corp. sr. sub. notes 11s, 2002 76,875
190,000 Cinemark USA, Inc. 9 5/8s, 2008 198,550
1,380,000 News America Holdings, Inc. deb. 7 3/4s, 2045 1,441,686
30,000 Premier Parks, Inc. sr. notes Ser. A, 12s, 2003 33,300
100,000 Regal Cinemas, Inc. sr. sub. notes 8 1/2s, 2007 109,750
40,000 Silver Cinemas Intl.144A sr. sub. notes 10 1/2s, 2005 40,700
185,000 Six Flags Corp. sr. sub. notes stepped-coupon zero %
(12 1/4s, 6/15/98), 2005 (STP) 207,894
2,385,000 Time Warner Entertainment sr. notes 8 3/8s, 2033 2,746,948
615,000 Time Warner Entertainment Co. notes 8 7/8s, 2012 725,632
660,000 Time Warner, Inc. notes 7 3/4s, 2005 699,851
90,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 90,900
40,000 United Artists Theatre 144A sr. sub. notes 9 3/4s, 2008 40,200
355,000 Viacom International, Inc. sub. deb. 8s, 2006 359,881
2,125,000 Viacom International, Inc. sr. notes 7 3/4s, 2005 2,240,154
--------------
9,053,921
Environmental Control (--%)
- -------------------------------------------------------------------------------------------------------------
30,000 Allied Waste Industries, Inc. sr. disc. notes stepped-coupon
zero % (11.3s, 6/1/07), 2007 (STP) 21,900
Food and Beverages (0.1%)
- -------------------------------------------------------------------------------------------------------------
40,000 Ameriserve Food Co. company guaranty 8 7/8s, 2006 40,700
10,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 10,775
50,000 Aurora Foods, Inc. 144A ser. sub. notes Ser. D, 9 7/8s, 2007 53,875
45,000 Canandaigua Wine Co. sr. sub. notes Ser. C, 8 3/4s, 2003 45,788
10,000 Eagle Family Foods 144A sr. sub. notes 8 3/4s, 2008 9,900
20,000 Fleming Companies, Inc. company guaranty Ser. B,
10 1/2s, 2004 20,800
75,000 Jitney Jungle Store company guaranty 12s, 2006 84,000
70,000 RAB Enterprises, Inc. 144A sr. notes 10 1/2s, 2005 70,350
25,000 Signature Brands Ltd. sr. sub. notes 13s, 2002 (Canada) 28,219
140,000 Smithfield Foods, Inc. 144A sr. sub. notes 7 5/8s, 2008 140,350
20,000 Southern Foods Group 144A sr. sub. notes 9 7/8s, 2007 21,050
115,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 95,450
100,000 Stater Brothers Holdings 144A sr. sub. notes 9s, 2004 104,000
--------------
725,257
Gaming (0.1%)
- -------------------------------------------------------------------------------------------------------------
25,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 26,438
15,000 Casino America, Inc. sr. notes 12 1/2s, 2003 16,763
50,000 Coast Hotels & Casino company guaranty Ser. B, 13s, 2002 58,000
35,000 Empress River Casino sr. notes 10 3/4s, 2002 38,019
80,000 Fitzgeralds Gaming Corp. 144A company guaranty
12 1/4s, 2004 81,200
20,000 Isle of Capri Black Hawk LLC 1st mortgage Ser. B, 13s, 2004 20,400
120,000 Lady Luck Gaming Corp. 1st mtge. 11 7/8s, 2001 124,200
59,000 Louisiana Casino Cruises Corp. 1st mtge. 11 1/2s, 1998 59,590
110,000 Mohegan Tribal Gaming sr. secd. notes Ser. B, 13 1/2s, 2002 140,250
75,000 Showboat Marina Casino 1st mtge. Ser. B, 13 1/2s, 2003 88,125
75,000 Sun International Hotels Ltd. company guaranty 9s, 2007 78,563
70,000 Trump A.C Association/Funding Inc. company guaranty
11 1/4s, 2006 70,175
--------------
801,723
Health Care (0.3%)
- -------------------------------------------------------------------------------------------------------------
70,000 Extendicare Inc. 144A sr. sub. notes 9.35s, 2007 (Canada) 71,050
90,000 Genesis Health Ventures, Inc. sr. sub. notes 9 1/4s, 2006 92,700
35,000 Global Health Sciences 144A sr. notes 11s, 2008 34,300
35,000 Graphic Controls Corp. sr. sub. notes Ser. A, 12s, 2005 38,850
40,000 Hudson Respiratory Care, Inc. 144A sr. sub. notes
9 1/8s, 2008 40,400
65,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/2s, 2007 67,925
50,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/4s, 2008 51,750
365,000 Manor Care, Inc. sr. notes 7 1/2s, 2006 355,703
50,000 MedPartners, Inc. sr. notes 7 3/8s, 2006 44,782
30,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 30,375
20,000 Paragon Corp. Holdings 144A sr. notes 9 5/8s, 2008 19,450
110,000 Paragon Health Networks, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 111,650
75,000 Quorum Health Group, Inc. sr. sub. notes 8 3/4s, 2005 78,000
100,000 Sun Healthcare Group Inc. 144A sr. sub. notes 9 1/2s, 2007 102,500
1,020,000 Tenet Healthcare Corp. sr. notes 8s, 2005 1,042,950
150,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 155,250
--------------
2,337,635
Insurance and Finance (7.1%)
- -------------------------------------------------------------------------------------------------------------
10,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 10,000
1,080,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 1,006,603
1,495,000 AFC Capital Trust I company guaranty Ser. B, 8.207s, 2027 1,673,219
485,000 Allstate Financing II company guaranty 7.83s, 2045 507,126
605,000 American General Institute 144A company guaranty
8 1/8s, 2046 676,735
1,640,000 Amvescap PLC 144A sr. notes 6.6s, 2005 (United Kingdom) 1,642,591
75,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2008 77,250
35,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 35,700
15,000 Colonial Capital I 144A company guaranty 8.92s, 2027 16,073
10,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 10,000
1,000,000 Den Danske Bank sub. notes 6.55s, 2003 (Denmark) 1,014,410
10,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 11,385
20,000 Dine S.A. de C.V. 144A company guaranty 8 3/4s, 2007
(Mexico) 19,500
20,000 Dollar Financial Group Inc. sr. notes Ser. A, 10 7/8s, 2006 21,700
1,895,000 Executive Risk Capital Trust company guaranty Ser. B,
8.675s, 2027 2,025,073
2,695,000 Federal National Mortgage Association med. term notes
5.94s, 2005 2,683,196
1,150,000 First Citizens Bank Capital Trust I 144A company guaranty
8.05s, 2008 1,169,766
540,000 First Financial Caribbean Corp. sr. notes 7.84s, 2006 562,151
110,000 First Nationwide Holdings sr. sub. notes 10 5/8s, 2003 123,200
1,055,000 Firstar Bank Milwaukee sr. bank notes 6 1/4s, 2002 1,055,200
1,070,000 Firstar Capital Trust I company guaranty Ser. B, 8.32s, 2026 1,157,066
1,890,000 Fleet Credit Card LLC sr. bank notes 7.02s, 2001 1,937,250
960,000 Ford Motor Credit Corp. sr. notes 6s, 2003 951,178
900,000 Greenpoint Bank sr. notes 6.7s, 2002 911,376
410,000 Greenpoint Capital Trust I company guaranty 9.1s, 2027 454,727
520,000 Hartford Life, Inc. deb. 7.65s, 2027 562,037
15,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 15,000
1,675,000 Lehman Bros Holdings, Inc. med. term notes 6.4s, 1999 1,683,526
1,015,000 Markel Capital Trust I company guaranty Ser. B 8.71s, 2046 1,091,298
785,000 Money Store, Inc. notes 8.05s, 2002 830,130
20,000 Nationwide Credit Inc. 144A sr. notes 10 1/4s, 2008 20,400
445,000 North Fork Bancorporation, Inc. company guaranty 8s, 2027 452,298
25,000 North Fork Capital Trust I company guaranty 8.7s, 2026 27,204
15,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 16,500
5,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 5,550
5,000 Ocwen Financial Corp. notes 11 7/8s, 2003 5,725
470,000 Orange Cogen Funding 144A company guaranty 8.175s, 2022 511,501
765,000 Orion Capital Corp. 144A company guaranty 7.701s, 2028 758,735
1,605,000 Paine Webber Group sr. med. term notes 6.52s, 2005 1,600,988
1,630,000 Paine Webber Group, Inc. sr. notes 6.55s, 2008 1,623,888
1,935,000 Peoples Bank- Bridgeport sub. notes 7.2s, 2006 1,980,531
325,000 Peoples Heritage Capital Trust company guaranty Ser. B,
9.06s, 2027 353,467
1,335,000 Phoenix Home Life Mutual Insurance Co. 144A notes
6.95s, 2006 1,362,354
55,000 Pindo Deli Finance Mauritius Ltd. company guaranty
10 3/4s, 2007 44,550
2,010,000 Provident Companies, Inc. bonds 7.405s, 2038 2,020,050
35,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 (In default)(NON) 25,988
15,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 15,885
2,500,000 Riggs National Corp. sub. deb. 8 1/2s, 2006 2,620,050
1,425,000 Salomon, Inc. sr. notes 7.3s, 2002 1,478,438
1,100,000 Salton Sea Funding Corp. company guaranty Ser. E, 8.3s, 2011 1,198,197
1,600,000 Sampoerna International Finance Co. 144A company guaranty
8 3/8s, 2006 (Indonesia) 1,104,000
2,000,000 Scotland International Finance 144A sub. notes 8.85s, 2006
(Netherlands) 2,294,860
885,000 Southern Investments Service Co. sr. notes 6.8s, 2006
(United Kingdom) 901,505
20,000 Sovereign Capital Trust company guaranty 9s, 2027 21,706
1,095,000 Sparbanken Sverige AB (Swedbank) 144A sub. 7 1/2s, 2006
(Sweden) 1,127,467
985,000 St. Paul Bancorp sr. notes 7 1/8s, 2004 1,009,655
585,000 State Street Institution 144A company guaranty 7.94s, 2026 621,814
670,000 Sumitomo Bank Treasury Co. 144A bonds Ser. A, FRB, 9.4s, 2049
(Japan) 686,241
1,955,000 Tig Capital Trust I 144A bonds 8.597s, 2027 2,038,400
1,235,000 Trenwick Capital Trust I company guaranty 8.82s, 2037 1,305,568
1,365,000 Trenwick Group, Inc. 144A sr. notes 6.7s, 2003 1,360,577
105,000 USF&G Corp. 144A company guaranty 8.312s, 2046 120,881
955,000 Webster Capital Trust I 144A bonds 9.36s, 2027 1,049,182
1,500,000 Webster Financial Corp. sr. notes 8 3/4s, 2000 1,568,130
--------------
55,266,751
Medical Supplies and Devices (0.2%)
- -------------------------------------------------------------------------------------------------------------
55,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 58,575
1,400,000 Beckman Coulter Inc. 144A company guaranty 7.1s, 2003 1,401,708
25,000 Conmed Corp. 144A sr. sub. notes 9s, 2008 25,063
25,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 28,000
60,000 Fresenius Medical Care AG 144A company guaranty 7 7/8s,
2008 (Germany) 59,400
5,000 Imagyn Medical Technologies company guaranty 12 1/2s, 2004 2,800
110,000 Wright Medical Technology, Inc. 144A notes Ser. C,
11 3/4s, 2000 108,900
--------------
1,684,446
Metals and Mining (0.2%)
- -------------------------------------------------------------------------------------------------------------
30,000 Anker Coal Group, Inc. sr. notes Ser. B, 9 3/4s, 2007 29,100
25,000 Continental Global Group sr. notes Ser. B, 11s, 2007 26,563
405,000 Freeport-McMoRan Copper & Gold Co., Inc. sr. notes
7 1/2s, 2006 344,043
25,000 Maxxam Group Holdings, Inc. sr. notes Ser. B, 12s, 2003 27,406
1,035,000 PT Alatief Freeport sr. notes 9 3/4s, 2001 (Netherlands) 987,701
--------------
1,414,813
Motion Picture Distribution (--%)
- -------------------------------------------------------------------------------------------------------------
20,000 Panavision Inc. 144A sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 (STP) 14,300
Oil and Gas (1.1%)
- -------------------------------------------------------------------------------------------------------------
40,000 Chesapeake Energy Corp. 144A sr. notes 9 5/8s, 2005 40,200
30,000 Abraxas Petroleum Corp. 144A sr. notes Ser. B, 11 1/2s, 2004 31,050
25,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 27,000
20,000 CIA Naviera Perez Companc S.A. 144A bonds 9s, 2004
(Argentina) 20,300
30,000 Coho Energy, Inc. sr. sub. notes 8 7/8s, 2007 28,050
5,000 Costilla Energy, Inc. sr. notes 10 1/4s, 2006 5,100
30,000 Dailey International Inc. 144A sr. notes 9 1/2s, 2008 30,300
10,000 DI Industries Inc. sr. notes 8 7/8s, 2007 10,100
660,000 Express Pipeline Ltd. 144A sub. notes Ser. B, 7.39s, 2019
(Canada) 652,199
20,000 Gothic Production 144A sr. notes 11 1/8s, 2005 20,100
970,000 Gulf Canada Resources, Ltd. sr. notes 8.35s, 2006 (Canada) 1,048,774
1,340,000 K N Energy, Inc. sr. notes 6.45s, 2003 1,340,630
30,000 Market Hub Partners 144A sr. notes 8 1/4s, 2008 30,600
100,000 Michael Petroleum Corp. 144A sr. notes 11 1/2s, 2005 98,500
20,000 Panaco, Inc. company guaranty Ser. B, 10 5/8s, 2004 20,300
640,000 Petro Geo-Services AS ADR notes 7 1/2s, 2007 (Norway) 676,954
2,070,000 Pioneer Natural Resources Co. bonds 7.2s, 2028 2,031,084
10,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 10,850
960,000 Saga Petroleum ASA deb. 7 1/4s, 2027 (Norway) 954,662
780,000 Sonat, Inc. notes 6 5/8s, 2008 774,314
30,000 Tokai Corp. 144A bonds FRB 9.98s, 2008 29,625
430,000 Transamerican Energy sr. disc. notes stepped-coupon Ser. B,
zero % (13s, 6/15/99), 2002 (STP) 365,500
125,000 Transamerican Energy sr. notes Ser. B, 11 1/2s, 2002 124,063
81,000 TransTexas Gas Corp. sr. sub. notes Ser. D, 13 3/4s, 2001 90,720
30,000 Trico Marine Services, Inc. company guaranty Ser. B,
8 1/2s, 2005 30,600
--------------
8,491,575
Packaging and Containers (--%)
- -------------------------------------------------------------------------------------------------------------
15,000 AEP Industries, Inc. 144A sr. sub. notes 9 7/8s, 2007 15,600
30,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 32,288
25,000 Radnor Holdings Corp. company guaranty 10s, 2003 26,063
20,000 Radnor Holdings Inc. sr. notes 10s, 2003 20,950
25,000 Vicap SA. 144A company guaranty 10 1/4s, 2002 25,750
--------------
120,651
Paper and Forest Products (0.1%)
- -------------------------------------------------------------------------------------------------------------
25,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 2003 27,250
30,000 Huntsman Packaging Corp. company guaranty 9 1/8s, 2007 30,713
80,000 Indah Kiat Financial Mauritius Ltd. company guaranty 10s, 2007
(Indonesia) 65,200
30,000 PT Pabrik Kertas Tjiwi Kimia company guaranty 10s, 2004 24,300
10,000 Repap New Brunswick sr. notes 7s, 2000 (Canada) 10,000
200,000 Riverwood International Corp. company guaranty
10 5/8s, 2007 211,000
70,000 Riverwood International Corp. company guaranty
10 1/4s, 2006 72,450
--------------
440,913
Pharmaceuticals (--%)
- -------------------------------------------------------------------------------------------------------------
40,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 43,150
30,000 PharMerica, Inc. 144A sr. sub. notes 8 3/8s, 2008 30,000
--------------
73,150
Publishing (0.3%)
- -------------------------------------------------------------------------------------------------------------
35,000 American Media Operation, Inc. sr. sub. notes 11 5/8s, 2004 38,019
30,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 30,750
2,085,000 News America Holdings, Inc. deb. 7.7s, 2025 2,181,390
20,000 Perry-Judd 144A sr. sub. notes 10 5/8s, 2007 21,050
10,000 Von Hoffman Press Inc. 144A sr. sub. notes 10 3/8s, 2007 10,700
--------------
2,281,909
Real Estate (1.5%)
- -------------------------------------------------------------------------------------------------------------
1,005,000 Avalon Properties, Inc. notes 6 7/8s, 2007 (R) 1,001,101
920,000 Avalon Properties, Inc. notes 5 5/8s, 2005 (R) 907,755
20,000 Bluegreen Corp. 144A sr. notes 10 1/2s, 2008 20,075
745,000 Chelsea GCA Realty, Inc. notes 7 1/4s, 2007 749,649
1,590,000 Equity Residential Properties notes 6.63s, 2015 (R) 1,584,864
2,035,000 First Industrial LP med. term notes 7s, 2006 2,051,504
1,235,000 First Industrial Realty Trust, Inc. notes 7.6s, 2007 1,287,327
630,000 Health Care Property Investors, Inc. sr. notes 6 1/2s, 2006 (R) 613,771
835,000 National Health Investors, Inc. bonds 7.3s, 2007 (R) 867,156
1,780,000 OMEGA Healthcare Investors, Inc. notes 6.95s, 2007 1,746,607
35,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 37,713
1,015,000 Sun Communities, Inc. sr. notes 7 5/8s, 2003 (R) 1,051,834
40,000 Tanger Properties Ltd. notes 8 3/4s, 2001 (R) 41,528
--------------
11,960,884
Retail (0.2%)
- -------------------------------------------------------------------------------------------------------------
30,000 Eye Care Centers of America 144A sr. sub. notes 9 1/8s, 2008 30,000
975,000 Federated Department Stores sr. notes 8 1/2s, 2003 1,062,263
35,000 Johns Manville International Group sr. notes 10 7/8s, 2004 38,850
40,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 43,400
10,000 Specialty Retailers, Inc. company guaranty Ser. B, 8 1/2s, 2005 10,300
40,000 United Stationer 144A sr. sub. notes 8 3/8s, 2008 40,200
20,000 William Carter Co. 144A sr. sub. notes 12s, 2008 21,600
40,000 Zale Corp. sr. notes Ser. B, 8 1/2s, 2007 40,700
--------------
1,287,313
Satellite Services (--%)
- -------------------------------------------------------------------------------------------------------------
40,000 East Holdings Ltd. 144A sr. notes stepped-coupon zero %
(12 1/2s, 2/01/02), 2007 (Ireland) (STP) 30,000
120,000 ICG Services, Inc. 144A sr. discount notes stepped-coupon
9 7/8s, (9 7/8s, 5/1/03), 2008 (STP) 74,250
55,000 Iridium LLC/Capital Corp. company guaranty Ser. B, 14s, 2005 61,875
45,000 Iridium LLC/Capital Corp. company guaranty Ser. A, 13s, 2005 49,050
30,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes 10 1/8s, 2004
(Mexico) 30,525
--------------
245,700
Shipping (--%)
- -------------------------------------------------------------------------------------------------------------
20,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 19,800
20,000 MC Shipping, Inc. 144A sr. notes 11 1/4s, 2008 20,000
34,000 Viking Star Shipping sr. secd. notes 9 5/8s, 2003 34,340
--------------
74,140
Steel (--%)
- -------------------------------------------------------------------------------------------------------------
50,000 Ameristeel Corp. 144A sr. notes 8 3/4s, 2008 50,000
60,000 Hylsa S.A. de C.V. 144A bonds 9 1/4s, 2007 (Mexico) 59,400
30,000 WHX Corp. 144A sr. notes 10 1/2s, 2005 30,450
--------------
139,850
Specialty Consumer Products (--%)
- -------------------------------------------------------------------------------------------------------------
45,000 Coty Inc. Gtd. sr. sub. notes 10 1/4s, 2005 47,700
50,000 Decora Industries, Inc. 144A sr. sec. notes 11s, 2005 48,688
--------------
96,388
Telecommunications (1.3%)
- -------------------------------------------------------------------------------------------------------------
20,000 Antenna TV S.A. sr. notes 144A 9s, 2007 (Greece) 20,000
50,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 52,000
30,000 Brand Scaffold Services 144A sr. notes 10 1/4s, 2008 30,600
25,000 Call-Net Enterprises sr. disc. notes stepped-coupon zero %
(13 1/4s, 12/1/99), 2004 (STP) 23,375
215,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon zero %
(14s, 10/1/02), 2007 (STP) 123,088
105,000 Centennial Cellular Corp. sr. notes 10 1/8s, 2005 117,075
45,000 Centennial Cellular Corp. sr. notes 8 7/8s, 2001 46,350
475,000 Cia de Telecomunicaciones de Chile S.A. notes 7 5/8s, 2006
(Chile) 492,257
40,000 Colt Telecommunications Group PLC sr. disc. notes stepped-
coupon zero % (12s, 12/15/01), 2006 (United Kingdom) (STP) 31,800
2,000,000 Colt Telecommunications Group PLC sr. notes 8 7/8s,
(United Kingdom) 1,225,285
30,000 Comcast Cellular Holdings sr. notes Ser. B, 9 1/2s, 2007 31,200
10,000 Consorcio Ecuatoiano notes 14s, 2002 (Ecuador) 9,700
30,000 CTI Holdings S.A. 144A sr. notes stepped-coupon zero %
(11 1/2s, 4/15/03), 2008 (STP) 17,700
150,000 Dial Call Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (10 1/4s, 12/15/98), 2005 (STP) 147,000
15,000 E. Spire Communications, Inc. sr. notes 13 3/4s, 2007 17,700
25,000 Echostar DBS Corp. company guaranty 12 1/2s, 2002 28,125
90,000 Econophone, Inc. 144A notes stepped-coupon zero %
(11s, 2/15/03), 2008 (STP) 52,200
20,000 Esprit Teleom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 21,900
30,000 Facilicom International 144A sr. notes 10 1/2s, 2008 30,900
20,000 Fonorola, Inc. sr. notes 12 1/2s, 2002 (Canada) 22,400
25,000 FrontierVision Operating Partners L.P. sr. sub. notes 11s, 2006 27,750
30,000 IDT Corp. 144A sr. notes 8 3/4s, 2006 29,850
70,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 5/1/01), 2006 (STP) 53,375
200,000 Intermedia Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 1/4s, 7/15/02), 2007 (STP) 147,000
15,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 7/8s, 2007 15,600
85,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 1/2s, 2008 86,275
50,000 IXC Communications, Inc. 144A sr. sub. notes 9s, 2008 50,000
85,000 Knology Holdings Inc. sr. disc. notes stepped-coupon zero %
(11 7/8s, 10/15/02), 2007 (STP) 49,300
10,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 11,050
2,250,000 LCI International, Inc. sr. notes 7 1/4s, 2007 2,257,245
40,000 Level 3 Communication, Inc. 144A sr. notes 9 1/8s, 2008 39,600
45,000 McCaw International Ltd sr. discount notes stepped coupon zero %
(13s, 4/15/02), 2007 (STP) 31,050
40,000 McLeod USA, Inc. 144A sr. notes 8 3/8s, 2008 40,600
100,000 Metrocall, Inc. sr. sub. notes 9 3/4s, 2007 102,500
20,000 MetroNet Communications Corp. sr. disc. notes stepped-coupon
zero % (10 3/4s, 11/1/02), 2007 (Canada) (STP) 13,800
265,000 Millicom International Cellular S.A. sr. disc. notes stepped-coupon
zero % (13 1/2s, 6/1/01), 2006 (Luxembourg) (STP) 208,025
20,000 MJD Communications, Inc. 144A notes FRB, 10s, 2008 20,175
30,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 35,175
170,000 NEXTEL Communications sr. disc. notes stepped-coupon zero %
(10.65s, 9/15/02), 2007 (STP) 113,900
285,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (9 3/4s, 2/15/99), 2004 (STP) 274,313
130,000 NEXTEL Communications, Inc. 144A sr. disc. notes stepped-
coupon zero % (9.95s, 2/15/03), 2008 (STP) 83,525
100,000 NEXTLINK Communications, Inc. 144A sr. disc. notes stepped-
coupon zero % (9.45s, 4/15/03), 2008 (STP) 62,500
150,000 NTL Inc. sr. notes Ser. B, 10s, 2007 (United Kingdom) 160,500
40,000 NTL Inc. 144A sr. notes stepped-coupon zero % (9 3/4s,
4/01/03), 2008 (STP) 25,600
20,000 Netia Holdings B.V. 144A company guaranty 10 1/4s, 2007
(Poland) 20,450
10,000 Netia Holdings B.V. 144A company guaranty stepped-coupon
zero % (11 1/4s, 11/1/02), 2007 (Poland) (STP) 7,050
60,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 65,250
50,000 Orbcomm Global Capital Corp. sr. notes Ser. B, 14s, 2004 58,500
75,000 Paging Network, Inc. sr. sub. notes 10s, 2008 78,000
10,000 Powertel, Inc. sr. notes 11 1/8s, 2007 10,800
110,000 Pricellular Wireless Corp. sr. notes 10 3/4s, 2004 126,775
20,000 Pronet, Inc. sr. sub. notes 11 7/8s, 2005 21,400
50,000 Psinet, Inc. 144A sr. notes 10s, 2005 51,375
55,000 Qwest Communications International Inc. sr. disc. notes stepped-
coupon zero % (9.47s, 10/15/02), 2007 (STP) 39,463
100,000 RCN Corp. sr. disc. notes stepped-coupon zero % (11 1/8s,
10/15/02), 2007 (STP) 66,250
40,000 RSL Communications, Ltd. 144A sr. disc. notes stepped-coupon
zero % (10 1/8s, 3/1/03), 2008 (STP) 25,000
30,000 RSL Communications, Ltd. 144A sr. notes 9 1/8s, 2008 30,000
20,000 Telesystem International Wireless Inc. sr. disc. notes stepped-
coupon Ser. C, zero % (10 1/2s, 11/1/02), 2007 (STP) 12,700
15,000 Transtel S.A. 144A pass through Certificates 12 1/2s, 2007
(Colombia) 14,700
125,000 UIH Australia/Pacific sr. disc. notes stepped-coupon Ser. D,
zero % (14s, 5/15/01), 2006 (Australia) (STP) 85,000
125,000 WinStar Equipment Corp. company guaranty 12 1/2s, 2004 140,000
15,000 Wireless One, Inc. sr. notes 13s, 2003 3,563
2,555,000 WorldCom, Inc. notes 7 3/4s, 2007 2,755,695
--------------
10,091,334
Textiles (--%)
- -------------------------------------------------------------------------------------------------------------
60,000 Day International Group, Inc. 144A sr. sub. notes 9 1/2s, 2008 60,600
10,000 GFSI, Inc. sr. sub. notes Ser. B, 9 5/8s, 2007 10,450
10,000 Glenoit Corp. company guaranty 11s, 2007 10,800
15,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 15,450
40,000 Polymer Group, Inc. 144A sr. sub.notes 8 3/4s, 2008 40,700
40,000 Polysindo International Finance company guaranty 11 3/8s,
2006 (Indonesia) 24,000
40,000 Tultex Corp. sr. notes 10 5/8s, 2005 41,100
--------------
203,100
Transportation (1.7%)
- -------------------------------------------------------------------------------------------------------------
20,000 Blue Bird Body Co. sr. sub. notes Ser. B, 10 3/4s, 2006 22,050
1,690,000 Burlington Northern Santa Fe notes 6 3/8s, 2005 1,684,153
1,340,000 Burlington Northern Santa Fe Corp. bonds 6 7/8s, 2027 1,310,922
30,000 Calair LLC 144A company guaranty 8 1/8s, 2008 29,775
60,000 Canadian Airlines Corp. sec. 10s, 2005 (Canada) 60,600
70,000 Cathay International Ltd. 144A sr. notes 13s, 2008 70,175
5,000 Chemical Leaman Corp. sr. notes 10 3/8s, 2005 5,300
30,000 Consorcio/MCII Holdings sec. notes stepped-coupon zero %
(12s, 11/15/98), 2002 (STP) 27,450
520,000 Continental Airlines pass thru cert. Ser. 97CI, 7.42s, 2007 537,503
1,295,000 Continental Airlines, Inc. pass-through certificates Ser. 981C,
6.541s, 2009 1,288,007
1,130,000 CSX Corp. deb. 7.95s, 2027 1,275,341
35,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s, 2003
(Greece) 35,875
30,000 Hermes Europe Railtel sr. notes 11 1/2s 2007 33,900
45,000 International Shipholding Corp. sr. notes 9s, 2003 46,181
50,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 52,500
1,330,000 Norfolk Southern Corp. bonds 7.8s, 2027 1,494,667
1,755,000 Norfolk Southern Corp. bonds 7.05s, 2037 1,849,823
5,000 TFM S.A. de C.V. company guaranty 10 1/4s, 2007 5,100
25,000 TFM S.A. de C.V. company guaranty stepped-coupon zero %
(11 3/4s, 6/15/02), 2009 (STP) 16,844
3,300,000 Wisconsin Central Transportation Corp. notes 6 5/8s, 2008 3,263,469
--------------
13,109,635
Utilities (2.4%)
- -------------------------------------------------------------------------------------------------------------
25,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 23,500
1,005,000 Arizona Public Service Co. sr. notes 6 3/4s, 2006 1,022,427
1,135,000 California Energy Corp. disc. notes 10 1/4s, 2005 1,217,742
30,000 Chesapeake Energy Corp. sr. notes 9 1/8s, 2006 29,400
1,005,000 CMS Energy Corp. pass through certificates 7s, 2005 963,825
495,000 CMS Energy Corp. sr. notes 8 1/8s, 2002 511,924
610,000 Connecticut Light & Power Co. 1st mtge. Ser. C,
7 3/4s, 2002 623,072
1,065,000 Connecticut Light & Power Co. 1st mtge. Ser. A, 7 7/8s, 2001 1,085,885
305,000 Edison Mission Energy 144A company guaranty 7.33s, 2008 319,259
1,354,000 EIP Funding-Public Service Co. of New Mexico deb.
10 1/4s, 2012 1,579,265
1,910,000 El Paso Electric Co. 1st mtge. Ser. B, 7 3/4s, 2001 1,946,137
25,000 El Paso Electric Co. 1st mtge. Ser. D, 8.9s, 2006 27,747
775,000 Enersis S.A. notes 6.6s, 2026 (Chile) 761,407
20,000 Espirito Santo Centrais 144A sr. notes 10s, 2007 (Brazil) 19,100
23,000 First PV Funding deb. 10.15s, 2016 24,021
790,000 Illinova Corp. sr. notes 7 1/8s, 2004 808,533
1,005,000 Israel Electric Corp., Ltd. 144A sr. notes 7 1/4s, 2006 (Israel) 1,028,648
563,920 Midland Cogeneration Ventures LP deb. 10.33s, 2002 608,307
35,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 41,853
80,000 Niagara Mohawk Power Corp. med. term notes 9.95s, 2000 81,261
296,872 Northeast Utilities System notes Ser. A, 8.58s, 2006 302,234
685,333 Northeast Utilities System notes Ser. B, 8.38s, 2005 697,799
1,685,000 Texas New-Mexico Power Utilities 1st mtge. 9 1/4s, 2000 1,779,983
1,300,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 1,319,019
1,360,000 Texas Utilities Electric Capital Trust V company guaranty
8.175s, 2037 1,395,469
1,135,000 US West Capital Funding, Inc. company guaranty 6.95s, 2037 1,197,249
--------------
19,415,066
--------------
Total Corporate Bonds and Notes (cost $157,058,974) $ 162,777,992
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (13.1%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (8.3%)
- -------------------------------------------------------------------------------------------------------------
$ 6,306,538 Federal Home Loan Mortgage Corp. 5 1/2s, with due dates
from March 1, 2011 to April 1, 2011 $ 6,091,674
Federal National Mortgage Association
282,434 7.837s, May 1, 2025 294,085
522,304 7.143s, July 1, 2027 529,486
Government National Mortgage Association
5,859,229 8s, with due dates from June 15, 2026 to February 15, 2028 6,078,953
3,620,000 8s, TBA, May 25, 2028 3,755,750
12,927,825 7 1/2s, with due dates from June 15, 2026 to October 15, 2027 13,279,710
1,822,163 7 3/8s, with due dates from June 20, 2022 to June 20, 2023 1,869,139
1,331,728 7 1/8s, July 20, 2023 1,365,854
14,957,073 7s, with due dates from July 20, 2024 to February 15, 2028 15,175,703
3,710,000 7s, TBA, May 15, 2028 3,754,038
2,937,530 6 1/2s, with due dates from March 15, 2026 to March 15, 2026 2,910,888
5,815,000 6 1/2s, TBA, June 15, 2028 5,762,258
1,299,068 6s, with due dates from May 20, 2024 to July 20, 2024 1,331,308
3,669,250 5 1/2s, April 15, 2028 3,680,716
--------------
65,879,562
U.S. Treasury Obligations (4.8%)
- -------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes
9,735,000 6 1/8s, August 15, 2007 9,998,137
2,110,000 5 7/8s, September 30, 2002 (SEG) 2,125,487
5,295,000 5 5/8s, December 31, 2002 5,284,251
5,884,000 5 1/2s, March 31, 2003 5,845,401
2,210,000 5 1/2s, February 28, 2003 2,194,464
4,540,000 5 1/2s, January 31, 2003 4,508,084
8,410,000 5 1/2s, March 31, 2000 8,395,535
--------------
38,351,359
--------------
Total U.S. Government and Agency Obligations
(cost $105,869,090) $ 104,230,921
FOREIGN GOVERNMENT BONDS AND NOTES (2.5%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
DEM 6,510,000 Germany (Federal Republic of) bonds Ser. 98,
5 5/8s, 2028 $ 3,671,053
DEM 1,990,000 Germany (Federal Republic of) Unity Fund bonds
8s, 2002 1,236,892
USD 955,000 Korea (Republic of) unsub. 8 7/8s, 2008 939,262
USD 775,000 Quebec (Province of) deb. Ser. NN, 7 1/8s, 2024 809,643
USD 905,000 Russia (Government of) deb. principal loans FRB
6.719s, 2020 (POR) 572,413
ZAR 14,527,000 South Africa (Republic of) bonds Ser. 153, 13s, 2010 2,870,917
GBP 5,492,000 United Kingdom Treasury bonds 7 1/4s, 2007 10,128,434
--------------
Total Foreign Government Bonds and Notes
(cost $19,844,158) $ 20,228,614
CONVERTIBLE BONDS AND NOTES (3.0%) (a)
PRINCIPAL AMOUNT VALUE
Aerospace and Defense (0.1%)
- -------------------------------------------------------------------------------------------------------------
$ 350,000 SPACEHAB, Inc. 144A cv. sub. notes 8s, 2007 $ 374,500
Automotive (--%)
- -------------------------------------------------------------------------------------------------------------
55,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 35,475
200,000 Magna International cv. sub. deb. 5s, 2002 265,000
--------------
300,475
Biotechnology (0.1%)
- -------------------------------------------------------------------------------------------------------------
313,000 Centocor, Inc. 144A cv. sub. notes 4 3/4s, 2005 335,301
Broadcasting (--%)
- -------------------------------------------------------------------------------------------------------------
200,000 Scandinavian Broadcasting System S.A. 144A cv. sub. 7s, 2004
(Luxembourg) 246,750
Business Equipment and Services (--%)
- -------------------------------------------------------------------------------------------------------------
200,000 U.S. Office Products Co. 144A cv. sub. notes 5 1/2s, 2003 168,000
Computer Services and Software (0.3%)
- -------------------------------------------------------------------------------------------------------------
118,000 EMC Corp. cv. sub. notes 3 1/4s, 2002 248,243
330,000 Intevac, Inc. 144A cv. sub. notes 6 1/2s, 2004 269,775
500,000 Network Associates, Inc. 144A cv. sub. deb. zero %, 2018 233,750
460,000 System Software Associates, Inc. cv. sub. notes 7s, 2002 392,725
2,590,000 Western Digital Corp. 144A cv. sub. deb. zero %, 2018 968,013
250,000 Xilinx, Inc. cv. sub. notes 5 1/4s, 2002 265,625
--------------
2,378,131
Computers (0.2%)
- -------------------------------------------------------------------------------------------------------------
500,000 Safeguard Scientifics, Inc. 144A cv. sub. notes 6s, 2006 730,625
650,000 Softkey International, Inc. 144A cv. sr. notes 5 1/2s, 2000 613,438
150,000 Synoptics Communications Inc. 144A cv. sub. deb. 5 1/4s, 2003 141,375
--------------
1,485,438
Conglomerates (0.1%)
- -------------------------------------------------------------------------------------------------------------
100,000 Dart & Kraft Finance N.V. cv. company guaranty Ser. WW,
7 3/4s, 1998 389,125
225,000 Hexcel Corp. cv. sub. notes 7s, 2003 417,938
150,000 Thermo Electron Corp. 144A cv. subordinated 4 1/4s, 2003 171,938
--------------
979,001
Consumer Durable Goods (0.1%)
- -------------------------------------------------------------------------------------------------------------
1,120,000 Sunbeam Corp. 144A cv. sr. sub. notes 1.862s, 2018 351,400
Consumer Non Durables (0.1%)
- -------------------------------------------------------------------------------------------------------------
350,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 2007 308,000
Consumer Services (0.3%)
- -------------------------------------------------------------------------------------------------------------
275,000 Aker Maritime cv. 5 1/4s, 2002 324,500
140,000 America Online, Inc. 144A cv. sub. notes 4s, 2002 241,850
500,000 Boston Chicken, Inc. cv. notes Liquid Yield Option Note
(LYON) zero %, 2015 44,375
320,000 Boston Chicken, Inc. cv. sub. deb. 7 3/4s, 2004 113,600
280,000 CKE Restaurants, Inc. 144A cv. sub. notes 4 1/4s, 2004 269,150
350,000 Fine Host Corp. 144A cv. sub. notes 5s, 2004 244,563
150,000 Loews Corp. cv. sub. notes 3 1/8s, 2007 152,250
550,000 Pharmaceutical Marketing Services Inc. 144A cv. deb.
6 1/4s, 2003 522,500
--------------
1,912,788
Electronics and Electrical Equipment (0.4%)
- -------------------------------------------------------------------------------------------------------------
530,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 461,100
150,000 Integrated Process Equipment Corp. 144A cv. sub. notes
6 1/4s, 2004 133,125
350,000 Kent Electronics Corp. cv. sub. notes 4 1/2s, 2004 292,250
350,000 Lam Research Corp. 144A cv. sub. notes 5s, 2002 299,688
100,000 Lernout & Hauspie Speech Products N.V. 144A cv. sub. notes
8s, 2001 (Belgium) 627,000
256,000 Micron Technology, Inc. cv. sub. notes 7s, 2004 246,080
10,000 National Semiconductor Corp. 144A cv. deb. 6 1/2s, 2002 9,625
100,000 Park Electrochemical Corp. cv. sub. notes 5 1/2s, 2006 89,000
15,000 Photronics, Inc. cv. sub. notes 6s, 2004 21,975
184,000 SCI Systems, Inc. cv. sub. notes 5s, 2006 327,520
150,000 Solectron Corp. 144A cv. sub. notes 6s, 2006 216,188
340,000 Thermo Instrument Systems, Inc. 144A cv. deb. 4 1/2s, 2003 350,625
282,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 361,313
--------------
3,435,489
Entertainment (--%)
- -------------------------------------------------------------------------------------------------------------
400,000 Time Warner, Inc. cv. sr. notes LYON zero %, 2013 244,000
Environmental Control (0.1%)
- -------------------------------------------------------------------------------------------------------------
255,000 Thermo Terratech, Inc. 144A cv. sub. deb. 4 5/8s, 2003 232,369
350,000 USA Waste Services, Inc. cv. sub. notes 4s, 2002 434,438
--------------
666,807
Health Care (0.3%)
- -------------------------------------------------------------------------------------------------------------
700,000 Alza Corp. cv. sub. LYON zero %, 2014 441,000
160,000 HEALTHSOUTH Corp. 144A cv. sub. notes 3 1/4s, 2003 167,200
200,000 Integrated Health Services cv. sr. sub. deb 5 3/4s, 2001 235,000
300,000 NovaCare, Inc. cv. sub. deb. 5 1/2s, 2000 288,750
175,000 PhyMatrix, Inc. cv. sub. deb. 6 3/4s, 2003 144,594
300,000 Renal Treatment Centers, Inc. cv. sub. notes 5 5/8s, 2006 388,500
200,000 Renal Treatment Centers, Inc. 144A cv. sub. notes 5 5/8s, 2006 259,000
110,000 Tenet Health Care Corp. cv. sub. notes 6s, 2005 101,200
200,000 U.S. Diagnostic Laboratories, Inc. 144A cv. sub. deb. 9s, 2003 148,000
200,000 Uromed Corp. 144A cv. sub. notes 6s, 2003 86,750
--------------
2,259,994
Insurance and Finance (0.1%)
- -------------------------------------------------------------------------------------------------------------
200,000 Berkshire Hathaway, Inc. cv. sr. notes 1s, 2001 369,750
625,000 Mutual Risk Management 144A cv. sub. deb. zero %, 2015 452,344
--------------
822,094
Medical Supplies and Devices (--%)
- -------------------------------------------------------------------------------------------------------------
250,000 Thermo Instrument Systems, Inc. cv. company guaranty
Ser. RG, 4s, 2005 260,313
Metals and Mining (--%)
- -------------------------------------------------------------------------------------------------------------
200,000 Quanex Corp. cv. sub. deb. 6.88s, 2007 210,000
Oil and Gas (0.2%)
- -------------------------------------------------------------------------------------------------------------
270,000 Lomak Petroleum, Inc. 144A cv. sub. deb. 6s, 2007 272,363
350,000 Offshore Logistics, Inc. cv. sub. notes 6s, 2003 406,875
150,000 Parker Drilling Co. cv. sub. notes 5 1/2s, 2004 146,625
290,000 Pennzoil Co. cv. deb. 4 3/4s, 2003 410,350
100,000 Pride International, Inc. cv. sub. deb. 6 1/4s, 2006 202,000
350,000 Swift Energy Co. cv. sub. notes 6 1/4s, 2006 345,188
--------------
1,783,401
Paper and Forest Products (0.1%)
- -------------------------------------------------------------------------------------------------------------
25,000 APP Global Finance (V) Ltd. 144A cv. sec. 2s, 2000
(United Kingdom) 26,125
150,000 APP Global Finance Ltd. 144A cv. company guaranty
3 1/2s, 2003 150,188
300,000 Stone Container Corp. cv. sr. sub. notes 8 7/8s, 2000 416,625
--------------
592,938
Pharmaceuticals (0.1%)
- -------------------------------------------------------------------------------------------------------------
100,000 Nabi, Inc. 144A cv. sub. notes 6 1/2s, 2003 64,000
300,000 Roche Holdings, Inc. 144A cv. unsub. LYON zero %, 2010
(Switzerland) 168,750
275,000 Sandoz Capital BVI Ltd. 144A cv. company guaranty 2s, 2002
(Switzerland) 426,250
300,000 Sepracor, Inc. 144A cv. sub. deb. 6 1/4s, 2005 358,875
--------------
1,017,875
Publishing (--%)
- -------------------------------------------------------------------------------------------------------------
750,000 Hollinger, Inc. cv. LYON zero %, 2013 305,625
Real Estate (--%)
- -------------------------------------------------------------------------------------------------------------
150,000 Malan Realty Investors cv. sub. notes 9 1/2s, 2004 (R) 154,125
Retail (0.2%)
- -------------------------------------------------------------------------------------------------------------
220,000 Federated Department Stores, Inc. cv. notes 5s, 2003 325,600
275,000 Home Depot, Inc. cv. sub. notes 3 1/4s, 2001 429,000
180,000 Michaels Stores, Inc. cv. sub. notes 6 3/4s, 2003 178,425
440,000 Office Depot, Inc. cv. LYON zero %, 2007 433,950
88,000 Pier 1 Imports, Inc. cv. sub. notes 5 3/4s, 2003 190,410
--------------
1,557,385
Satellite Services (--%)
- -------------------------------------------------------------------------------------------------------------
200,000 Gilat Satellite Networks Ltd. cv. sub. notes 6 1/2s, 2004 (Israel) 221,750
Telecommunications (0.1%)
- -------------------------------------------------------------------------------------------------------------
200,000 Inacom Corp. cv. sub. deb. 4 1/2s, 2004 218,250
250,000 MIDCOM Communications, Inc. 144A cv. sub. deb. 8 1/4s,
2003 (In default) (NON) 43,750
800,000 Rogers Communications cv. deb. 2s, 2005 480,000
--------------
742,000
Transportation (0.1%)
- -------------------------------------------------------------------------------------------------------------
200,000 British Airport Authority 144A cv. bonds 5 3/4s, 2006
(United Kingdom) 400,444
250,000 Continental Airlines, Inc. cv. sub. deb. 6 3/4s, 2006 505,938
--------------
906,382
--------------
Total Convertible Bonds and Notes (cost $21,917,637) $ 24,019,962
CONVERTIBLE PREFERRED STOCKS (2.2%) (a)
NUMBER OF SHARES VALUE
Automotive (--%)
- -------------------------------------------------------------------------------------------------------------
4,800 Federal-Mogul Corp. 144A $3.50 cv. cum. pfd. $ 345,600
Basic Industrial Products (0.1%)
- -------------------------------------------------------------------------------------------------------------
2,400 Case Corp. $4.50 cv. cum. pfd. 353,100
10,900 Ingersoll-Rand Co. $0.195 cv. pfd. 223,450
--------------
576,550
Broadcasting (0.1%)
- -------------------------------------------------------------------------------------------------------------
2,000 Chancellor Media Corp. $3.50 cv. pfd. 262,250
3,650 Evergreen Media Corp. 144A $3.00 cv. pfd. 359,069
4,100 Sinclair Broadcast Group, Inc. $3.00 cv. pfd. 262,656
--------------
883,975
Computer Services and Software (0.1%)
- -------------------------------------------------------------------------------------------------------------
7,800 Vanstar Financial Trust Corp. 144A $3.375 cv. cum. pfd. 312,975
9,828 Wang Laboratories, Inc. Ser. B, $3.25 cv. pfd. 562,653
--------------
875,628
Conglomerates (--%)
- -------------------------------------------------------------------------------------------------------------
16,000 Cooper Industries, Inc. $0.81 cv. pfd. 284,000
Consumer Non Durables (--%)
- -------------------------------------------------------------------------------------------------------------
10,600 DIMON, Inc. $3.25 cv. pfd. 178,875
Consumer Services (0.1%)
- -------------------------------------------------------------------------------------------------------------
6,400 Cendant Corp. $0.65 cv. pfd. 224,000
5,500 Metromedia International Group, Inc. $3.625 cv. cum. pfd. 352,688
--------------
576,688
Electronics and Electrical Equipment (0.1%)
- -------------------------------------------------------------------------------------------------------------
6,300 Pioneer Standard Electronics, Inc. 144A $3.375 cv. pfd. 330,750
9,800 Sensormatic Electronics Corp. 144A $1.625 cv. pfd. 252,350
--------------
583,100
Food and Beverages (--%)
- -------------------------------------------------------------------------------------------------------------
5,500 Dole Food Co., Inc. $2.74 cv. pfd. (7.00%) 229,625
Hospital Management and Medical Services (--%)
- -------------------------------------------------------------------------------------------------------------
15,823 MedPartners, Inc. $6.50 cv. pfd. 208,666
Insurance and Finance (0.8%)
- -------------------------------------------------------------------------------------------------------------
3,100 Aetna Inc. $6.25 cv. pfd. 243,350
3,550 Ahmanson (H.F.) & Co. $3.00 cv. cum. pfd. 559,791
5,242 American General Delaware Corp. $3.00 cv. cum. pfd. 445,570
6,300 CalEnergy Capital Trust $3.125 cv. cum. pfd. 378,788
1,700 CalEnergy Capital Trust 144A $3.125 cv. cum. pfd. 102,213
4,000 CNF Trust I Ser. A, $2.50 cv. cum. pfd. 232,000
4,500 Devon Financing Trust $3.25 cv. pfd. 312,750
7,123 Finova Finance Trust $2.75 cv. cum. pfd. 557,375
5,000 Mandatory Common Exchange Trust (The) $3.625 cv. pfd. 230,000
4,700 Matewan Bancshares, Inc. Ser. A, $3.75 cv. cum. pfd. 138,650
4,700 Newell Financial Trust 144A $2.625 cv. cum. pfd. 271,425
5,300 Penncorp Financial Group, Inc. 144A $3.50 cv. cum. pfd. 252,081
28,475 Philadelphia Consolidated Holding Corp. $0.5346 cv. pfd. 261,614
6,300 Protective Life Corp. $3.25 cv. cum. pfd. 393,750
7,300 Sovereign Bancorp Inc. $3.125 cv. cum. pfd. 992,800
4,750 St. Paul Capital LLC $3.00 cv. cum. pfd. 346,750
5,000 Timet Capital Trust I 144A $3.312 cv. pfd. 231,563
5,500 Union Planters Corp. Ser. E, $2.00 cv. cum. pfd. 415,250
--------------
6,365,720
Medical Supplies and Devices (--%)
- -------------------------------------------------------------------------------------------------------------
2,800 Mckesson Corp. $2.50 cv. pfd. 270,900
Metals and Mining (0.1%)
- -------------------------------------------------------------------------------------------------------------
15,900 Freeport-McMoRan Copper Co., Inc. $1.75 cv. pfd. 365,700
1,575 Titanium Metals Corp. $3.313 cv. pfd. 72,942
--------------
438,642
Oil and Gas (0.1%)
- -------------------------------------------------------------------------------------------------------------
235 Chesapeake Energy Corp. 144A $3.50 cv. cum. pfd. 11,662
5,986 Neuvo Energy Ser. A, $2.875 cv. pfd. 281,342
7,750 Tosco Financing Trust 144A $2.875 cv. pfd. 480,500
--------------
773,504
Paper and Forest Products (0.1%)
- -------------------------------------------------------------------------------------------------------------
9,300 International Paper Co. $2.625 cv. pfd. 502,200
REIT's (Real Estate Investment Trust) (0.1%)
- -------------------------------------------------------------------------------------------------------------
15,900 Equity Residential Property Ser. E, $1.75 cv. pfd. 433,275
8,300 Insignia Financial Group, Inc. 144A $3.25 cv. pfd. 447,163
--------------
880,438
Retail (0.2%)
- -------------------------------------------------------------------------------------------------------------
8,000 Ann Taylor Finance Trust $4.25 cv. cum. pfd. 404,000
14,300 K mart Financing $3.875 cv. pfd. 940,225
--------------
1,344,225
Telecommunications (0.1%)
- -------------------------------------------------------------------------------------------------------------
4,150 AirTouch Communications, Inc. Ser. C, $2.125 cv. cum. pfd. 318,772
5,000 Tele-Communications (TCI Group) Ser. A, $2.125 cv. pfd. 341,875
5,780 US West, Inc. Ser. D, $2.25 cv. cum. pfd. 440,725
--------------
1,101,372
Transportation (0.1%)
- -------------------------------------------------------------------------------------------------------------
5,100 Hvide Capital Trust 144A $3.25 cv. pfd. 238,425
7,814 Union Pacific 144A $3.125 cv. cum. pfd. 414,142
--------------
652,567
Utilities (0.1%)
- -------------------------------------------------------------------------------------------------------------
6,000 El Paso Energy Capital Trust $2.375 cv. pfd. 315,375
--------------
Total Convertible Preferred Stocks (cost $15,005,192) $ 17,387,650
COLLATERALIZED MORTGAGE OBLIGATIONS (3.0%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
$ 733,879 Chase Mortgage Finance Corp. Ser. 93-3, Class B13, 7.461s $ 603,520
Commercial Mortgage Acceptance Corp.
1,655,000 Ser. 97-ML1, Class A3, 6.57s, December 15, 2007 1,674,912
605,000 Ser. 97-ML1, Class A2, 6.53s, June 15, 2007 612,563
540,000 Ser. 97-ML1, Class D, 7.11s, December 15, 2030 541,519
First Union-Lehman Brothers Commercial Mortgage Ser. 97-C2,
1,405,000 Class A3, 6.65s, December 18, 2007 1,426,295
885,000 Class D, 7.12s, November 18, 2012 883,202
GMAC Commercial Mortgage Securities Inc.
1,190,000 7.153s, May 15, 2030 1,195,392
758,000 6.7s, May 15, 2030 775,529
1,700,000 6.44s, May 15, 2030 1,715,937
1,048,771 Ser. 97-C2, Class A1, 6.45s, December 15, 2004 1,059,259
Housing Securities Inc.
430,218 Ser. 91-B, Class B6, 9s, August 25, 2006 431,159
464,598 Ser. 93-F, Class F9M2, 7s, September 25, 2023 455,161
175,636 Ser. 93-J, Class J4, 6.66s, January 25, 2009 166,086
79,834 Ser. 93-J, Class J5, 6.66s, January 25, 2009 67,285
141,646 Ser. 94-1, Class AB1, 6 1/2s, March 25, 2009 132,704
388,000 Merrill Lynch Mortgage Investors, Inc. Ser. 98-C2, Class D, 6.96s,
February 15, 2030 388,000
545,000 Morgan Stanley Capital I Ser. 96-WF1, Class A2, 7.218s,
January 16, 2006 563,564
Prudential Home Mortgage Securities
630,507 Ser. 94-A, Class 4B, 7 1/2s, June 25, 2007 582,234
707,008 Ser. 94-D, Class B4, 6.312s, August 28, 2009 669,006
Prudential Home Mortgage Securities 144A
706,869 Ser. 92-25, Class B3, 8s, August 25, 2022
(In default) (NON) 690,081
2,024,490 Ser. 93-D, Class 2B, 7.105s, June 28, 2023 2,028,919
1,025,080 Ser. 93-E, Class 5B, 7.394s, July 28, 2023 845,691
183,735 Ser. 94-31, Class B3, 8s, November 25, 2009 182,702
2,139,570 Ser. 94-A, Class 4B, 6.803s, April 28, 2024 2,096,779
507,381 Ser. 94-D, Class 3B, 6.311s, August 28, 2009 492,874
1,816,139 Ser. 95-C, Class 1B1, 7.226s, October 28, 2001 1,708,974
1,661,105 Securitized Asset Sales, Inc. Ser. 93-J, Class 2B, 6.808s,
November 28, 2023 1,638,784
--------------
Total Collateralized Mortgage Obligations
(cost $22,052,486) $ 23,628,131
ASSET-BACKED SECURITIES (0.6%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
$ 1,340,000 Green Tree Financial Corp. Ser. 98-2, Class A5, 6.24s, 2016 $ 1,337,697
2,002,628 Green Tree Recreational Equipment & Cons Ser. 97-B,
Class A1, 6.55s, 2028 2,013,262
1,307,212 Green Tree Recreational Equipment & Cons. Ser. 98-A,
Class A1C, 6.18s, 2019 1,305,579
7,525,000 Lehman Manufactured Housing Ser. 98-1, Class 1IO,
.81986s, 2028 376,250
--------------
Total Asset-Backed Securities (cost $5,045,899) $ 5,032,788
MUNICIPAL BONDS AND NOTES (0.2%) (a)(cost $1,205,000)
PRINCIPAL AMOUNT RATING(RAT) VALUE
- -------------------------------------------------------------------------------------------------------------
$ 1,205,000 NJ Econ. Dev. Auth. Municipal Bond Investors
Assurance Corp. Rev. Bonds,
Ser. A, 7.425s, 2/15/29 Aaa $ 1,314,691
BRADY BONDS (0.9%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
$ 2,908,000 Argentina (Republic of) Ser. L-GP, stepped-coupon
5 3/4s, (6s, 3/31/99). 2023 (STP) $ 2,210,080
2,012,000 Peru (Government of) 144A Ser. PDI 4s, 2017 1,368,160
1,441,000 Philippines (Government of) bonds Ser. PDI,
stepped-coupon 4s (5s, 10/1/98). 2014 (STP) 1,271,683
2,450,000 United Mexican States sec. Ser. B, 6 1/4s, 2019 2,064,125
--------------
Total Brady Bonds (cost $7,012,543) $ 6,914,048
PREFERRED STOCKS (0.1%) (a)
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
1,036 AmeriKing, Inc. $3.25 pfd. (PIK) $ 27,972
6 Anvil Holdings Ser. B, $3.25 pfd. (PIK) 153
106 Capstar Broadcasting Inc. 144A $12.00 pfd. 12,455
455 Chancellor Media Corp. $12.00 pfd. (PIK) 55,510
315 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. 17,010
1,002 CSC Holdings Inc. Ser. M, $11.125 cum. (PIK) 115,481
15 Echostar Communications, Inc. $12.125 pfd. 16,763
55,000 Fresenius Medical Care AG Ser. D, $9.00 pfd. (Germany) 57,200
1,260 Nextlink Communications, Inc. 144A $7.00 pfd. 76,230
1,110 SFX Broadcasting, Inc. Ser. E, $12.625 pfd. (PIK) 129,870
210 Time Warner Inc. Ser. M, $10.25 pfd. 236,775
--------------
Total Preferred Stocks (cost $696,361) $ 745,419
UNITS (0.1%) (a)
NUMBER OF UNITS VALUE
- -------------------------------------------------------------------------------------------------------------
80 Allegiance Telecom Inc. units sr. disc. notes
stepped-coupon zero %, (11 3/4s, 2/15/03), 2008 (STP) $ 44,800
30 Club Regina, Inc. 144A units 13s, 2004 32,175
120 Diva Systems Corp. 144A units stepped-coupon zero %
(12 5/8s, 3/1/03), 2008 (STP) 65,400
145 DTI Holdings Inc. units stepped-coupon zero %
(12 1/2s, 3/1/03), 2008 (STP) 83,375
80 KMC Telecom Holdings, Inc. units stepped-coupon zero %
(12 1/2s, 2/15/03), 2008 (STP) 47,600
90 Long Distance International Inc. 144A units 12 1/4s, 2008 91,800
60 Pathnet, Inc. 144A units 12 1/4s, 2008 61,725
90 Rhythms Netconnections 144A units stepped-coupon zero %
(13 1/2s, 5/15/03), 2008 (STP) 46,800
10 Stone Container Corp. units sr. sub. 12 1/4s, 2002 10,300
50 Transamerican Refining units 16s, 2003 53,375
--------------
Total Units (cost $521,368) $ 537,350
WARRANTS (--%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- -------------------------------------------------------------------------------------------------------------
225 Cellnet Data Systems, Inc. 9/15/07 $ 12,375
40 Colt Telecommunications Group PLC 12/31/06 5,400
40 Esat Holdings, Inc. (Ireland) 2/1/07 1,400
748 Fitzgeralds Gaming Co. 12/19/98 7
40 Globalstar Telecom 144A 2/15/04 5,800
150 Intermedia Communications 6/16/00 20,250
85 Knology Holdings Inc. 144A 10/15/07 43
900 Louisiana Casino Cruises, Inc. 144A 12/1/98 47,700
45 McCaw International Ltd. 4/15/07 14
125 UIH Australia/Pacific, Inc. 144A 5/15/06 1,875
--------------
Total Warrants (cost $13,507) $ 94,864
SHORT-TERM INVESTMENTS (2.5%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
TRL 217,990,000,000 Turkey Treasury bills zero %, June 4, 1998 $ 802,334
TRL 1,462,800,000,000 Turkey Treasury bills zero %, June 17, 1998 528,615
$ 18,785,000 Interest in $500,000,000 joint repurchase agreement
dated April 30, 1998 with Lehman Brothers Inc.
due May 1, 1998 with respect to various
U.S. Treasury obligations -- maturity value of
$18,787,875 for an effective yield of 5.51% 18,787,875
- -------------------------------------------------------------------------------------------------------------
Total Short-Term Investments (cost $20,021,819) $ 20,118,824
- -------------------------------------------------------------------------------------------------------------
Total Investments (cost $694,651,818) (b) $ 797,256,086
- -------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $794,616,220.
(RAT) The Moody's rating indicated is believed to be the most recent rating available at April 30, 1998 for
the security listed. Ratings are generally ascribed to securities at the time of issuance. While agencies
may from time to time revise such ratings, they undertake no obligation to do so, and the ratings do not
necessarily represent what the agencies would ascribe to these securities at April 30, 1998.
(b) The aggregate identified cost on a tax basis is $695,171,683, resulting in gross unrealized appreciation
and depreciation of $109,592,648 and $7,508,245, respectively, or net unrealized appreciation of
$102,084,403.
(NON) Non-income-producing security.
(STP) The interest rate and date shown parenthetically represent the new interest rate to be paid and the date
the fund will begin receiving interest at this rate.
(POR) A portion of the income will be received in additional securities.
(PIK) Income may be received in cash or additional securities at the discretion of the issuer.
(SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for
futures contracts at April 30, 1998.
(CUS) This entity provides subcustodian services to the fund.
(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 and Floating Rate Notes are the current interest rates shown at April 30,
1998, which are subject to change based on the terms of the security.
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Forward Currency Contracts to Buy at April 30, 1998 (Unaudited)
(aggregate face value $20,223,228)
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian Dollars $ 70,299 $ 71,025 6/17/98 $ (726)
Deutschemarks 16,574,910 16,406,114 6/17/98 168,796
Mexican Peso 505,788 477,339 5/11/98 28,449
Mexican Peso 407,465 381,870 5/12/98 25,595
New Zealand Dollar 1,605,095 1,627,640 6/17/98 (22,545)
South Korean Won 1,385,912 1,259,240 3/11/98 126,672
- ----------------------------------------------------------------------------------------------
$326,241
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Forward Currency Contracts to Sell at April 30, 1998 (Unaudited)
(aggregate face value $37,137,592)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
British Pounds $ 10,091,067 $ 9,904,056 6/17/98 $(187,011)
Deutschemarks 22,648,671 22,470,093 6/17/98 (178,578)
New Zealand Dollar 1,671,356 1,734,246 6/17/98 62,890
South African Rand 3,001,575 3,029,197 6/17/98 27,622
- ----------------------------------------------------------------------------------------------
$(275,077)
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Futures Contracts Outstanding at April 30, 1998 (Unaudited)
Unrealized
Aggregate Face Expiration Appreciation/
Total Value Value Date (Depreciation)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bonds
20yr (Long) $ 4,087,438 $ 4,116,698 Jun-98 $(29,260)
U.S. Treasury Bonds
5yr (Short) 29,727,141 29,721,546 Jun-98 (5,595)
Municipal Bond Index
(Long) 2,784,438 2,819,875 Jun-98 (35,437)
U.S. Treasury Bond
10yr (Long) 18,419,250 18,431,157 Jun-98 (11,907)
- ----------------------------------------------------------------------------------------------
$(82,199)
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TBA Sales Commitments at April 30, 1998 (Unaudited)
( proceeds receivable $13,264,827)
Settlement Market
Agency Principal Amount Date Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GNMA 7.5s May 2039 $ 7,310,000 20-May-98 $ 7,508,686
GNMA 7.5 June 2039 5,616,000 18-Jun-98 5,768,643
- ----------------------------------------------------------------------------------------------
$13,277,329
- ----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
April 30, 1998 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $694,651,818) (Note 1) $797,256,086
- ---------------------------------------------------------------------------------------------------
Cash 856,634
- ---------------------------------------------------------------------------------------------------
Dividends, interest, and other receivables 5,733,123
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,441,852
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 31,341,176
- ---------------------------------------------------------------------------------------------------
Receivable for variation margin 66,921
- ---------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 440,025
- ---------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 140,925
- ---------------------------------------------------------------------------------------------------
Total assets 837,276,742
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 25,100,989
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 473,901
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,149,721
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 132,651
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 14,093
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 873
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 241,392
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 388,861
- ---------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 1,771,686
- ---------------------------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable $13,264,827) 13,277,329
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 109,026
- ---------------------------------------------------------------------------------------------------
Total liabilities 42,660,522
- ---------------------------------------------------------------------------------------------------
Net assets $794,616,220
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $658,368,115
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (866,000)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign
currency transactions (Note 1) 34,552,537
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets
and liabilities in foreign currencies 102,561,568
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $794,616,220
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($660,376,155 divided by 57,039,303 shares) $11.58
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $11.58)* $12.29
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($123,859,489 divided by 10,783,754 shares)** $11.49
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($10,380,576 divided by 900,896 shares) $11.52
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $11.52)* $11.94
- ---------------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the
offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred
sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended April 30, 1998 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Interest $12,387,804
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $12,566) 4,378,803
- --------------------------------------------------------------------------------------------------
Total investment income 16,766,607
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,235,584
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 865,779
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 10,279
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 5,215
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 767,955
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 502,783
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 34,803
- --------------------------------------------------------------------------------------------------
Reports to shareholders 26,990
- --------------------------------------------------------------------------------------------------
Registration fees 3,354
- --------------------------------------------------------------------------------------------------
Auditing 29,644
- --------------------------------------------------------------------------------------------------
Legal 4,160
- --------------------------------------------------------------------------------------------------
Postage 17,737
- --------------------------------------------------------------------------------------------------
Other 4,540
- --------------------------------------------------------------------------------------------------
Total expenses 4,508,823
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (224,611)
- --------------------------------------------------------------------------------------------------
Net expenses 4,284,212
- --------------------------------------------------------------------------------------------------
Net investment income 12,482,395
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Note 1 and 3) 34,516,537
- --------------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 226,598
- --------------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (2,239,518)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 202,247
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures, and
TBA sale commitments during the period 31,734,027
- --------------------------------------------------------------------------------------------------
Net gain on investments 64,439,891
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $76,922,286
- --------------------------------------------------------------------------------------------------
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
1998* 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 12,482,395 $ 22,489,324
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 32,503,617 56,330,359
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 31,936,274 24,816,482
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 76,922,286 103,636,165
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
- ----------------------------------------------------------------------------------------------------------------------
Class A (11,797,485) (19,923,868)
- ----------------------------------------------------------------------------------------------------------------------
Class B (1,530,448) (1,699,007)
- ----------------------------------------------------------------------------------------------------------------------
Class M (155,686) (173,862)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
- ----------------------------------------------------------------------------------------------------------------------
Class A (45,036,591) (31,157,500)
- ----------------------------------------------------------------------------------------------------------------------
Class B (6,565,946) (2,267,224)
- ----------------------------------------------------------------------------------------------------------------------
Class M (655,356) (234,795)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 106,665,471 93,039,915
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 117,846,245 141,219,824
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 676,769,975 535,550,151
- ----------------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess
and undistributed net investment income
of $866,000 and $135,224, respectively) $794,616,220 $676,769,975
- ----------------------------------------------------------------------------------------------------------------------
* 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
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $11.48 $10.67 $9.84 $8.68 $9.28 $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .20 .42 .44 .45 .43 .45
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.00 1.46 1.01 1.17 (.49) .99
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.20 1.88 1.45 1.62 (.06) 1.44
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.40) (.43) (.46) (.43) (.45)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.88) (.67) (.19) -- (.11) (.21)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.10) (1.07) (.62) (.46) (.54) (.66)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $11.58 $11.48 $10.67 $9.84 $8.68 $9.28
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 11.25* 18.87 15.31 19.32 (.61) 17.68
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $660,376 $585,624 $496,882 $468,725 $455,299 $551,391
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .56* 1.15 1.20 1.15 1.08 1.02
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.76* 3.73 4.28 4.93 4.92 5.06
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 56.91* 152.66 142.36 131.00 125.69 224.28
- ------------------------------------------------------------------------------------------------------------------------------------
Average commisssion
rate paid(c) $.0505 $.0512 $.0511
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect
of sales charges.
(b) The ratio of expenses to average net assets for the year ended October 31, 1995 and thereafter,
includes amounts paid through expense offset and brokerage service arrangements.
Prior period ratios exclude these amounts (Note 2).
(c) Average commission rate paid on security trades is required for fiscal periods beginning on or
after September 1, 1995.
</TABLE>
<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 October 31 to Oct. 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $11.40 $10.60 $9.80 $8.67 $9.31
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .16 .35 .36 .38 .34
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .99 1.45 1.00 1.15 (.60)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.15 1.80 1.36 1.53 (.26)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.18) (.33) (.37) (.40) (.27)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.88) (.67) (.19) -- (.11)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.06) (1.00) (.56) (.40) (.38)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $11.49 $11.40 $10.60 $9.80 $8.67
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 10.85* 18.11 14.36 18.25 (2.75)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $123,859 $82,759 $35,118 $10,073 $4,196
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .94* 1.90 1.97 1.91 1.34*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.40* 2.98 3.51 4.09 3.20*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 56.91* 152.66 142.36 131.00 125.69
- ------------------------------------------------------------------------------------------------------------------------------------
Average commisssion
rate paid(c) $.0505 $.0512 $.0511
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect
of sales charges.
(b) The ratio of expenses to average net assets for the year ended October 31, 1995 and thereafter,
includes amounts paid through expense offset and brokerage service arrangements.
Prior period ratios exclude these amounts (Note 2).
(c) Average commission rate paid on security trades is required for fiscal periods beginning on or
after September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share April 30 Mar. 17, 1995+
operating performance (Unaudited) Year ended October 31 to Oct. 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $11.44 $10.63 $9.82 $8.88
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .17 .36 .42 .25
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .99 1.47 .98 .90
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.16 1.83 1.40 1.15
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.20) (.35) (.40) (.21)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.88) (.67) (.19) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.08) (1.02) (.59) (.21)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $11.52 $11.44 $10.63 $9.82
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 10.86* 18.41 14.76 13.13*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $10,381 $8,387 $3,551 $522
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .81* 1.65 1.72 1.09*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.51* 3.23 3.74 2.76*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 56.91* 152.66 142.36 131.00
- ------------------------------------------------------------------------------------------------------------------------------------
Average commisssion
rate paid (c) $.0505 $.0512 $.0511
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect
of sales charges.
(b) The ratio of expenses to average net assets for the year ended October 31, 1995 and thereafter,
includes amounts paid through expense offset and brokerage service arrangements.
Prior period ratios exclude these amounts (Note 2).
(c) Average commission rate paid on security trades is required for fiscal periods beginning on or
after September 1, 1995.
</TABLE>
Notes to financial statements
April 30, 1998 (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 discount bonds,
stepped-coupon bonds and payment in kind bonds are accreted according to the
yield-to-maturity basis.
Securities purchased or sold on a when-issued or delayed delivery basis may be
settled a month or more after the trade date; interest income is accrued based
on the terms of the security. Losses may arise due to changes in the market
value of the underlying securities or if the counterparty does not perform
under the contract.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities, currency
holdings, other assets and liabilities are recorded in the books and records
of the fund after translation to U.S. dollars based on the exchange rates on
that day. The cost of each security is determined using historical exchange
rates. Income and withholding taxes are translated at prevailing exchange
rates when accrued or incurred. The fund does not isolate that portion of
realized or unrealized gains or losses resulting from changes in the foreign
exchange rate on investments from fluctuations arising from changes in the
market prices of the securities. Such gains and losses are included with the
net realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net exchange gains or
losses on closed forward currency contracts, disposition of foreign currencies
and the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar equivalent
amounts actually received or paid. Net unrealized appreciation and
depreciation of assets and liabilities in foreign currencies arise from
changes in the value of open forward currency contracts and assets and
liabilities other than investments at the period end, resulting from changes
in the exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell currencies
at a set price on a future date, to protect against a decline in value
relative to the U.S. dollar of the currencies in which its portfolio
securities are denominated or quoted (or an increase in the value of a
currency in which securities a fund intends to buy are denominated, when a
fund holds cash reserves and short-term investments). The U.S. dollar value of
forward currency contracts is determined using current forward currency
exchange rates supplied by a quotation service. The market value of the
contract will fluctuate with changes in currency exchange rates. The contract
is "marked to market" daily and the change in market value is recorded as an
unrealized gain or loss. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
The fund could be exposed to risk if the value of the currency changes
unfavorably, if the counterparties to the contracts are unable to meet the
terms of their contracts or if the fund is unable to enter into a closing
position.
G) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund owns
or expects to purchase. The fund may also write options on securities it owns
or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of the
underlying instruments, if there is an illiquid secondary market for the
contracts, or if the counterparty to the contract is unable to perform. When
the contract is closed, the fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. Realized gains and losses on purchased
options are included in realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices established
by the exchange on which they trade. Exchange traded options are valued at the
last sale price, or if no sales are reported, the last bid price for purchased
options and the last ask price for written options. Options traded
over-the-counter are valued using prices supplied by dealers.
H) TBA purchase commitments The fund may enter into "TBA" (to be announced)
purchase commitments to purchase securities for a fixed unit price at a future
date beyond customary settlement time. Although the unit price has been
established, the principal value has not been finalized. However, the amount
of the commitments will not fluctuate more than 1.0% from the principal
amount. The fund holds, and maintains until settlement date, cash or
high-grade debt obligations in an amount sufficient to meet the purchase
price, or the fund may enter into offsetting contracts for the forward sale of
other securities it owns. Income on the securities will not be earned until
settlement date. TBA purchase commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in the value of the fund's other assets. Unsettled TBA
purchase commitments are valued at the current market value of the underlying
securities, according to the procedures described under "Security valuation"
above.
Although the fund will generally enter into TBA purchase commitments with the
intention of acquiring securities for their portfolio or for delivery pursuant
to options contracts it has entered into, the fund may dispose of a commitment
prior to settlement if Putnam Management deems it appropriate to do so.
I) TBA sale commitments The fund may enter into TBA sale commitments to hedge
its portfolio positions or to sell mortgage-backed securities it owns under
delayed delivery arrangements. Proceeds of TBA sale commitments are not
received until the contractual settlement date. During the time a TBA sale
commitment is outstanding, equivalent deliverable securities, or an offsetting
TBA purchase commitment deliverable on or before the sale commitment date, are
held as "cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of the
underlying securities, generally according to the procedures described under
"Security valuation" above. The contract is "marked-to-market" daily and the
change in market value is recorded by the fund as an unrealized gain or loss.
If the TBA sale commitment is closed through the acquisition of an offsetting
purchase commitment, the fund realizes a gain or loss. If the fund delivers
securities under the commitment, the fund realizes a gain or a loss from the
sale of the securities based upon the unit price established at the date the
commitment was entered into.
J) Line of credit The fund has entered into a committed line of credit with
certain banks. This line of credit agreement includes restrictions that the
fund maintain an asset coverage ratio of at least 300% and borrowings must not
exceed prospectus limitations. For the six months ended April 30, 1998, the
fund had no borrowings against the line of credit.
K) Federal taxes It is the policy of the fund to distribute all of its taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
L) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date. Capital
gain distributions, if any, are recorded on the ex-dividend date and paid at
least annually. The amount and character of income and gains to be distributed
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. Reclassifications are made to the
fund's capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations.
Note 2
Management 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%
thereafter.
The fund reimburses Putnam Management an allocated amount for the compensation
and related expenses of certain officers of the fund and their staff who
provide administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the six months ended April 30, 1998 fund expenses were reduced by $224,611
under expense offset arrangements with PFTC and brokerage service
arrangements. Investor servicing and custodian fees reported in the Statement
of operations exclude these credits. The fund could have invested a portion of
the assets utilized in connection with the expense offset arrangements in an
income producing asset if it had not entered into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $800 has
been allocated to the fund, and an additional fee for each Trustee's meeting
attended. Trustees who are not interested persons of Putnam Management and who
serve on committees of the Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund and are
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B, 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 currently limit payment by the fund to 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, 1998, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $151,532 and $4,738 from the sale of
class A and class M shares, respectively and $74,086 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, 1998, Putnam Mutual Funds Corp., acting as underwriter
received $2,227 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended April 30, 1998, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $329,481,295 and $311,312,425, respectively. Purchases and sales of
U.S. government obligations aggregated $191,110,508 and $191,856,002,
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, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
April 30, 1998
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 5,805,062 $64,641,520
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,931,952 42,444,239
- ------------------------------------------------------------
9,737,014 107,085,759
Shares
repurchased (3,689,936) (41,219,613)
- ------------------------------------------------------------
Net increase 6,047,078 $65,866,146
- ------------------------------------------------------------
Year ended
October 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 9,967,018 $108,022,258
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,382,364 35,489,762
- ------------------------------------------------------------
13,349,382 143,512,020
Shares
repurchased (8,922,742) (97,565,460)
- ------------------------------------------------------------
Net increase 4,426,640 $ 45,946,560
- ------------------------------------------------------------
Six months ended
April 30, 1998
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 4,936,149 $54,448,513
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 642,726 6,892,183
- ------------------------------------------------------------
5,578,875 61,340,696
Shares
repurchased (2,053,618) (22,374,945)
- ------------------------------------------------------------
Net increase 3,525,257 $38,965,751
- ------------------------------------------------------------
Year ended
October 31, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 6,602,648 $71,376,745
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 313,305 3,282,332
- ------------------------------------------------------------
6,915,953 74,659,077
Shares
repurchased (2,969,623) (31,940,101)
- ------------------------------------------------------------
Net increase 3,946,330 $42,718,976
- ------------------------------------------------------------
Six months ended
April 30, 1998
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 249,997 $2,766,195
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 71,874 772,788
- ------------------------------------------------------------
321,871 3,538,983
Shares
repurchased (154,327) (1,705,409)
- ------------------------------------------------------------
Net increase 167,544 $1,833,574
- ------------------------------------------------------------
Year ended
October 31, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 480,548 $5,284,277
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 33,306 349,022
- ------------------------------------------------------------
513,854 5,633,299
Shares
repurchased (114,446) (1,258,920)
- ------------------------------------------------------------
Net increase 399,408 $4,374,379
- ------------------------------------------------------------
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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
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Thomas V. Reilly
Vice President
Edward P. Bousa
Vice President and Fund Manager
Jeffery J. Kobylarz
Vice President and Fund Manager
Charles G. Pohl
Vice President and Fund Manager
James M. Prusko
Vice President and Fund Manager
David L. Waldman
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
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 the principal amount
invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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PAID
Putnam
Investments
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SA018-42848-034/243/908 6/98
