Putnam
Balanced
Retirement
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
10-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Not surprisingly, periods of investor uncertainty and market volatility,
such as we have seen over the past year or so, tend to generate a measure
of concern among shareholders. The best counsel, of course, is to sit
tight, wait out the markets' twists and turns, and keep an eye on the
long-term results.
A look back at Putnam Balanced Retirement Fund's long-term performance
suggests that its conservative investment strategy can provide comfortably
positive results over time without the often sharper swings of more
aggressive funds. Past performance can never be taken as a guarantee of
future results, but it can provide guideposts for investors in setting
their long-term expectations.
While your fund's fiscal 1999 results, as discussed in the following
report, may lack the exuberance experienced by more aggressive portfolios,
they are based on a sound and time-tested strategy that should amply
reward cautious shareholders with patience and long investment horizons.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
December 15, 1999
Report from the Fund Managers
Edward P. Bousa
Charles G. Pohl
James M. Prusko
David L. Waldman
Krishna K. Memani
Putnam Balanced Retirement Fund's equity and fixed-income investments felt
the negative effects of rising interest rates during the 12 months ended
October 31, 1999. In addition, the stock market's taste for growth stocks
came at the expense of the value stocks that make up your fund's equity
portfolio, a situation that inevitably dampened the fund's fiscal 1999
returns. Nevertheless, there were pockets of hope within this difficult
period, and your fund's conservative investment approach helped insulate
it against an extremely volatile environment for equities.
Total return for 12 months ended 10/31/99
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- ------------------------------------------------------------------------
6.73% 0.61% 5.94% 1.10% 5.94% 4.98% 6.27% 2.53%
- ------------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods and explanation of performance calculation
methods begin on page 6.
* GIVE AND TAKE FOR VALUE STOCKS
The market's volatility provided us with many opportunities to purchase
shares of solid companies at unusually attractive valuations. Emerging
stability in the bond market also left the fixed-income portfolio poised
to benefit from the positive developments we believe will arise there.
Except for a brief renaissance during the second quarter of 1999, value
stocks lagged the market. For the first five months of the fiscal year, a
small group of companies with high rates of earnings growth led the
market. Value stocks, whose performance tends to track the economy, pulled
ahead in the second quarter. Positive news regarding a rebound in global
economic growth helped propel many of the cyclical stocks that populate
the value universe. Starting in June, however, high-growth technology
stocks caught investors' eyes once again, leaving value behind through
much of the rest of your fund's fiscal year.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Insurance and
finance 20.0%
Utilities 10.3%
Oil and gas 7.5%
Pharmaceuticals and
biotechnology 4.2%
Food and
beverages 3.3%
Footnote reads:
*Based on net assets as of 10/31/99. Holdings will vary over time.
The primary reason for value's fade was a slight slowdown in the U.S.
economy, which caused investors to worry about the ability of cyclical
companies to meet their earnings targets. Federal Reserve Board monetary
policy fueled those concerns, as that body's three interest-rate increases
within the past five months presaged a further economic slowdown. In
theory, higher rates should have sidetracked the self-same high-growth
technology stocks that picked up the mantle of leadership from the
beginning of the third quarter.
Higher rates increase corporate borrowing costs, diminishing earnings and
usually reducing the price investors are willing to pay for a company's
earnings growth. But that did not happen this time. In addition, the past
five months were particularly harsh on value stocks in that they did not
provide the usual downside protection that comes from trading at already
cheap valuations. If a company missed its earnings projections, the market
severely punished its share price.
* SECTOR WEIGHTINGS REJIGGERED
Higher interest rates hurt financial stocks, turning that sector into
fertile ground for attractively priced acquisitions. When the sector
rebounded significantly in October, the fund's increased finance position
helped performance considerably. Among the holdings that did well were
Bank of America, which met earnings expectations in advance of the
completion of its merger with NationsBank, and your fund's meaningful
stake in insurance companies. Torchmark, American General, and Hartford
Financial were bolstered by the passage of legislation tearing down some
of the regulatory walls among banks, insurance companies, and other
financial services companies, allowing them to engage in each other's
businesses.
"There were pockets of hope within this difficult fiscal year, and your fund's
conservative investment approach helped insulate it against an extremely
volatile environment for equities. That volatility also provided us with many
opportunities to purchase shares of solid companies at attractive valuations.
Emerging stability in the bond market also left the fixed-income portfolio
poised to benefit from the positive developments we believe will arise there."
- -- Edward Bousa, fund manager
Other sector moves included additions to electric utilities and natural
gas companies, two groups offering both low volatility in an uncertain
environment as well as an improving regulatory backdrop. Health-care's
representation in the portfolio also spiked up with added investments in
Merck, Abbott Labs, and Baxter. These three companies rode the upward
swing in pharmaceutical stocks in October.
Energy and communications services also did well, thanks to a recovery in
oil prices and the boom in wireless and data communications. Royal Dutch
Petroleum, Bell Atlantic, and Sprint were top performers from these two
groups. While these holdings, along with others discussed in the report,
were viewed favorably at the end of the fiscal period, all portfolio
holdings are subject to review and adjustment in accordance with the
fund's strategy and may vary in the future.
On the cyclical front, where your fund has been focused for some time,
there were some changes. While our allocations to basic materials and
capital goods remained essentially unchanged, we dramatically reduced fund
exposure to consumer cyclicals, such as Armstrong World, and eliminated
Saks Fifth Avenue, and Mattel. This area was hurt the most by the increase
in interest rates and the perception that an economic slowdown would
follow.
* CORPORATE BOND POSITION INCREASED
U.S. bonds experienced a shift during the course of the fiscal year, as
inflation fears worsened amid a backdrop of accelerating global economic
growth. Your fund's fixed-income investments weathered the storm of the
Fed's three interest-rate increases as best as possible. All the same,
these holdings experienced many of the same tribulations as the market
itself. The bond portfolio's neutral posture toward the direction of
interest rates proved to be a beneficial stance, given the volatility in
the markets.
[GRAPHIC OMITTED: TOP FIVE EQUITY HOLDINGS]
TOP FIVE EQUITY HOLDINGS
SBC Communications, Inc.
Utilities
Citigroup, Inc.
Insurance and finance
Bank of America Corp.
Insurance and finance
American Telephone & Telegraph Co.
Utilities
Exxon Corp.
Oil and gas
[GRAPHIC OMITTED: TOP FIVE FIXED-INCOME HOLDINGS]
TOP FIVE FIXED-INCOME HOLDINGS
Government National Mortgage Association
pass-through certificates, 8s,
various due dates 2025-2029
U.S. Treasury notes
5 1/4s, 5/15/04
U.S. Treasury notes
5 7/8s, 10/31/01
U.S. Treasury notes
5 1/2s, 5/31/03
Government National Mortgage Association
pass-through certificates, 7s,
various due dates 2023-2028
Footnote reads:
The top five equity holdings and the top five fixed-income holdings
represent 14.6% of the fund's net assets as of 10/31/99. Portfolio
holdings will vary over time.
Corporate bonds tumbled from April through September, the result of a glut
of new issuance. While your fund was caught in this downdraft, we found
numerous opportunities to buy high-grade corporate securities at
attractive valuations and added investments in other non-Treasury sectors.
As these sectors recovered, the fund's increased allocation to them paid
off. That included additional purchases in mortgage-backed securities that
were made in September, just in time to take advantage of a rally in
September and October.
* OUTLOOK: OPPORTUNITY AMID VOLATILITY
We believe that the stock market is going to remain volatile. Currently
there is an extreme divergence between the high-altitude valuations found
in the technology sector and the rest of the market. While the U.S.
economy has started to moderate somewhat, growth in the rest of the world
has accelerated. Therefore, the outlook for U.S. companies doing business
overseas is quite positive.
On the other hand, companies solely dependent on the U.S. economy might
see their growth rates slow. If technology stock valuations retract
somewhat, value stocks may have the opportunity to re-emerge. Additional
volatility that leads to sharp share-price drops should certainly increase
opportunities to buy companies at attractive prices.
On the fixed-income front, corporate bonds remain poised to perform well.
Overall corporate profitability is likely to be substantial enough to
support a rally in that sector, especially since corporate bonds
historically outperform in the first quarter of the calendar year.
Non-Treasury securities remain attractively valued now and could well
appreciate in the future.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 10/31/99, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
This section provides information about your fund's performance, which should
always be considered in light of its investment strategy. Putnam 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.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 10/31/99
Class A Class B Class C Class M
(inception dates) (4/19/85) (2/1/94) (7/26/99) (3/17/95)
NAV POP NAV CDSC NAV CDSC NAV POP
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 6.73% 0.61% 5.94% 1.10% 5.94% 4.98% 6.27% 2.53%
- -------------------------------------------------------------------------------------------
5 years 88.27 77.45 81.19 79.19 81.32 81.32 84.03 77.49
Annual average 13.49 12.15 12.62 12.37 12.64 12.64 12.97 12.16
- -------------------------------------------------------------------------------------------
10 years 189.09 172.46 167.97 167.97 168.00 168.00 175.23 165.58
Annual average 11.20 10.54 10.36 10.36 10.36 10.36 10.65 10.26
- -------------------------------------------------------------------------------------------
Life of fund 341.80 316.53 291.38 291.38 295.99 295.99 306.46 292.33
Annual average 10.77 10.32 9.85 9.85 9.93 9.93 10.13 9.86
- -------------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 10/31/99
Standard Lehman Brothers
& Poor's Govt./Corp. Consumer
500 Index Bond Index price index
- ----------------------------------------------------------------------------
1 year 25.67% -0.67% 2.69%
- ----------------------------------------------------------------------------
5 years 217.79 45.92 12.51
Annual average 26.02 7.85 2.39
- ----------------------------------------------------------------------------
10 years 415.26 112.69 33.92
Annual average 17.82 7.84 2.96
- ----------------------------------------------------------------------------
Life of fund 1042.08 255.98 57.34
Annual average 18.29 9.15 3.17
- ----------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A and class M
shares reflect the current maximum initial sales charges of 5.75% and
3.50% respectively. Class B share returns for the 1-, 5-, and 10-year
(where available) and life-of-fund periods reflect the applicable
contingent deferred sales charge (CDSC), which is 5% in the first year,
declines to 1% in the sixth year, and is eliminated thereafter. Returns
shown for class B and class M shares for periods prior to their inception
are derived from the historical performance of class A shares, adjusted to
reflect both the initial sales charge or CDSC, if any, currently
applicable to each class and in the case of class B and class M shares,
the higher operating expenses applicable to such shares. For class C
shares, returns for periods prior to their inception are derived from the
historical performance of class A shares, adjusted to reflect both the
CDSC currently applicable to class C shares, which is 1% for the first
year and is eliminated thereafter, and the higher operating expenses
applicable to class C shares. All returns assume reinvestment of
distributions at NAV. Investment return and principal value will fluctuate
so that an investor's shares when redeemed may be worth more or less than
their original cost.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 10/31/89
Lehman Bros.
Fund's class A S&P 500 Govt./Corp. Consumer price
Date shares at POP Index Bond Index index
10/31/89 9,425 10,000 10,000 10,000
10/31/90 8,611 9,525 10,550 10,629
10/31/91 11,132 12,351 12,171 10,939
10/31/92 12,374 13,581 13,451 11,290
10/31/93 14,561 15,610 15,285 11,600
10/31/94 14,471 16,214 14,756 11,903
10/31/95 17,267 20,501 16,932 12,237
10/31/96 19,911 25,441 17,845 12,604
10/31/97 23,667 33,610 19,418 12,866
10/31/98 25,527 41,001 21,413 13,041
10/31/99 $27,246 $51,526 $21,269 $13,392
Footnote reads:
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B and class C shares
would have been valued at $26,797 and $26,800, respectively, and no
contingent deferred sales charges would apply; a $10,000 investment in the
fund's class M shares would have been valued at $27,523 ($26,558 at public
offering price).
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 10/31/99
Class A Class B Class C Class M
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distributions (number) 4 4 1 4
- --------------------------------------------------------------------------------------
Income $0.3871 $0.3101 $0.11 $0.3361
- --------------------------------------------------------------------------------------
Capital gains
Long-term 0.6290 0.6290 -- 0.6290
- --------------------------------------------------------------------------------------
Short-term 0.0529 0.0529 -- 0.0529
- --------------------------------------------------------------------------------------
Total $1.0690 $0.9920 $0.11 $1.0180
- --------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- --------------------------------------------------------------------------------------
10/31/98 $11.01 $11.68 $10.92 -- $10.96 $11.36
- --------------------------------------------------------------------------------------
7/26/99* -- -- -- $11.09 -- --
- --------------------------------------------------------------------------------------
10/31/99 10.66 11.31 10.56 10.64 10.61 10.99
- --------------------------------------------------------------------------------------
Current return (end of period)
- --------------------------------------------------------------------------------------
Current dividend rate1 4.13% 3.89% 3.41% 4.14% 3.66% 3.53%
- --------------------------------------------------------------------------------------
Current 30-day SEC yield2 3.58 3.37 2.85 2.87 3.10 2.99
- --------------------------------------------------------------------------------------
* Inception of class C shares.
1 Income portion of most recent distribution, annualized and divided by NAV or POP at
end of period.
2 Based on investment income, calculated using SEC guidelines.
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 9/30/99 (most recent calendar quarter)
Class A Class B Class C Class M
(inception dates) (4/19/85) (2/1/94) (7/26/99) (3/17/95)
NAV POP NAV CDSC NAV CDSC NAV POP
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 7.04% 0.92% 6.15% 1.30% 6.24% 5.27% 6.69% 2.92%
- -------------------------------------------------------------------------------------------
5 years 83.68 73.12 76.73 74.73 76.69 76.69 79.69 73.31
Annual average 12.93 11.60 12.06 11.81 12.06 12.06 12.44 11.63
- -------------------------------------------------------------------------------------------
10 years 173.82 158.00 153.51 153.51 153.88 153.88 160.62 151.50
Annual average 10.60 9.94 9.75 9.75 9.76 9.76 10.05 9.66
- -------------------------------------------------------------------------------------------
Life of fund 331.03 306.38 281.74 281.74 286.32 286.32 296.88 283.09
Annual average 10.64 10.19 9.71 9.71 9.80 9.80 10.01 9.74
- -------------------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns may be more or less
than those shown. They do not take into account any adjustment for taxes payable on
reinvested distributions. Investment returns and principal value will fluctuate so that an
investor's shares when sold may be worth more or less than their original cost. See first
page of performance section for performance calculation method.
</TABLE>
Terms and definitions
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class C shares are not subject to an initial sales charge and are subject
to a contingent deferred sales charge only if the shares are redeemed
during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 5.75% maximum sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's class B CDSC declines from a 5% maximum during the
first year to 1% during the sixth year. After the sixth year, the CDSC no
longer applies. The CDSC for class C shares is 1% for one year after
purchase.
Comparative benchmarks
Standard & 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 index 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 used as a general measure
of the performance of fixed-income securities.
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.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed here
may not match the sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-end funds, a separate
table is provided for each share class.
Report of independent accountants
For the fiscal year ended October 31, 1999
To the Trustees and Shareholders of
Putnam Balanced Retirement Fund
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Putnam Balanced
Retirement Fund (the "fund") at October 31, 1999, and the results of its
operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of investments owned at October 31, 1999 by correspondence
with the custodian, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 13, 1999
<TABLE>
<CAPTION>
The fund's portfolio
October 31, 1999
COMMON STOCKS (51.3%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Aerospace and Defense (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
82,600 Boeing Co. $ 3,804,763
88,700 Raytheon Co. Class B 2,583,388
--------------
6,388,151
Agriculture (--%)
- --------------------------------------------------------------------------------------------------------------------------
11,013 PSF Holdings LLC Class A (NON) 137,663
Automotive (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
96,500 Ford Motor Co. 5,295,438
58,400 General Motors Corp. 4,102,600
43,400 Lear Corp. (NON) 1,464,750
--------------
10,862,788
Basic Industrial Products (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
50,500 Caterpillar, Inc. 2,790,125
94,200 Dover Corp. 4,009,388
58,200 Ingersoll-Rand Co. 3,040,950
55,100 Minnesota Mining & Manufacturing Co. 5,237,944
117,400 Owens-Illinois, Inc. (NON) 2,810,263
26,500 W W Grainger 1,122,938
--------------
19,011,608
Broadcasting (--%)
- --------------------------------------------------------------------------------------------------------------------------
2,795 AMFM, Inc. (NON) 195,650
Building and Construction (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
20,900 Armstrong World Industries, Inc. 781,138
Business Equipment and Services (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
28,700 Hewlett-Packard Co. 2,125,594
175 Internet Capital Group Inc. (NON) 20,366
87 U.S. Interactive, Inc. (NON) 3,121
73,500 Xerox Corp. 2,058,000
--------------
4,207,081
Cable Television (--%)
- --------------------------------------------------------------------------------------------------------------------------
3,703 Cablevision Systems Corp. Class A (NON) 250,154
Chemicals (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
40,500 Dow Chemical Co. 4,789,125
36,938 du Pont (E.I.) de Nemours & Co., Ltd. 2,380,192
32,600 Eastman Chemical Co. 1,257,138
141,000 Engelhard Corp. 2,485,125
56,000 PPG Industries, Inc. 3,395,000
14,300 Union Carbide Corp. 872,300
--------------
15,178,880
Computer Services and Software (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
58,000 Computer Associates International, Inc. 3,277,000
41,800 Electronic Data Systems Corp. 2,445,300
30,900 IBM Corp. 3,039,788
--------------
8,762,088
Conglomerates (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
35,500 TRW, Inc. 1,522,063
51,300 United Technologies Corp. 3,103,650
--------------
4,625,713
Consumer Durable Goods (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
147,550 Hasbro, Inc. 3,043,219
44,000 Whirlpool Corp. 3,066,250
--------------
6,109,469
Consumer Non Durables (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
303 Hedstrom Holdings, Inc. 144A (NON) 303
71,200 Kimberly-Clark Corp. 4,494,500
--------------
4,494,803
Consumer Products (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
88,900 Fortune Brands, Inc. 3,150,394
Consumer Services (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
25 AmeriKing, Inc. (NON) 250
49,000 Marriott International, Inc. Class A 1,650,688
229,200 Service Corp. International 2,191,725
--------------
3,842,663
Electronics and Electrical Equipment (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
71,000 Emerson Electric Co. 4,264,438
45,500 Motorola, Inc. 4,433,406
2,178 Sensormatic Electronics Corp. (NON) 32,942
--------------
8,730,786
Entertainment (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
102,900 Disney (Walt) Productions, Inc. (NON) 2,713,988
748 Fitzgerald Gaming Corp. 187
--------------
2,714,175
Environmental Control (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
157,900 Waste Management, Inc. 2,901,413
Food and Beverages (3.1%)
- --------------------------------------------------------------------------------------------------------------------------
81,500 Heinz (H.J.) Co. 3,891,625
144,900 Nabisco Holdings Corp. 1,856,531
12,400 Nabisco Holdings Corp. Class A 463,450
175,700 Pepsi Bottling Group, Inc. (The) 3,195,544
102,500 PepsiCo, Inc. 3,555,469
194,100 Sara Lee Corp. 5,252,831
76,000 Seagram Co., Ltd. 3,752,500
110,500 SYSCO Corp. 4,247,344
--------------
26,215,294
Health Care (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
35,000 Baxter International, Inc. 2,270,625
179,200 HEALTHSOUTH Corp. (NON) 1,030,400
--------------
3,301,025
Insurance and Finance (11.9%)
- --------------------------------------------------------------------------------------------------------------------------
101,500 Allstate Corp. 2,918,125
43,500 American General Corp. 3,227,156
61,600 AON Corp. 2,186,800
136,943 Bank of America Corp. 8,815,706
106,700 Bank One Corp. 4,007,919
111,836 BB&T Corp. 4,068,035
32,600 Bear Stearns Companies, Inc. (The) 1,389,575
128,900 Charter One Financial, Inc. 3,166,106
40,000 CIGNA Corp. 2,990,000
179,000 Citigroup, Inc. 9,688,375
76,200 Comerica, Inc. 4,529,138
94,000 Fannie Mae 6,650,500
85,862 Fleet Boston Corp. 3,745,730
81,400 Hartford Financial Services Group 4,217,538
68,300 Household International, Inc. 3,047,888
10,000 Jefferson-Pilot Corp. 750,625
59,200 MBNA Corp. 1,635,400
11,300 Merrill Lynch & Co., Inc. 887,050
13,700 Morgan (J.P.) & Co., Inc. 1,792,988
113,600 National City Corp. 3,351,200
31,500 Paine Webber Group Inc. 1,283,625
86,000 PNC Bank Corp. 5,127,750
106,250 Synovus Financial Corp. 2,277,734
104,400 Torchmark Corp. 3,255,975
133,300 U.S. Bancorp 4,940,431
80,900 Unum Corp. 2,664,644
125,400 Washington Mutual, Inc. 4,506,563
103,000 Wells Fargo & Co. 4,931,125
--------------
102,053,701
Metals and Mining (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
53,000 Alcoa Inc. 3,219,750
Oil and Gas (5.8%)
- --------------------------------------------------------------------------------------------------------------------------
74,900 Baker Hughes, Inc. (NON) 2,092,519
53,800 Chevron, Inc. 4,912,613
135,100 Conoco, Inc. 3,706,806
63,017 Conoco, Inc. Class B 1,709,336
66,500 El Paso Energy Corp. 2,726,500
108,000 Exxon Corp. 7,998,750
55,200 Halliburton Co. 2,080,350
70,100 Mobil Corp. 6,764,650
3,022 Pride International, Inc. (NON) 41,553
109,800 Royal Dutch Petroleum Co. Plc ADR (Netherlands) 6,581,138
129,400 Tosco Corp. 3,275,438
50,407 Total Corp. ADR (France) 3,361,517
155,900 Union Pacific Resources Group Inc. 2,260,550
72,700 Williams Companies, Inc. 2,726,250
--------------
50,237,970
Paper and Forest Products (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
98,100 Mead Corp. 3,531,600
107,600 Weyerhaeuser Co. 6,422,375
--------------
9,953,975
Pharmaceuticals and Biotechnology (3.8%)
- --------------------------------------------------------------------------------------------------------------------------
168,800 Abbott Laboratories 6,815,300
125,000 American Home Products Corp. 6,531,250
51,500 Bristol-Myers Squibb Co. 3,955,844
76,200 Merck & Co., Inc. 6,062,663
92,300 Monsanto Co. 3,553,550
113,800 Pharmacia & Upjohn, Inc. 6,138,088
--------------
33,056,695
Publishing (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
70,900 McGraw-Hill, Inc. 4,227,413
Real Estate (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
84,000 Equity Office Properties Trust (R) 1,858,500
82,000 Equity Residential Properties Trust (R) 3,428,625
107,700 Starwood Hotels & Resorts Worldwide, Inc. (R) 2,470,369
--------------
7,757,494
Retail (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
42,200 Albertsons, Inc. 1,532,388
91,800 Federated Department Stores, Inc. (NON) 3,918,713
12 Mothers Work, Inc. (NON) 126
119,400 Rite Aid Corp. 1,044,750
--------------
6,495,977
Telecommunications (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
57,500 ALLTEL Corp. 4,786,875
657 Intermedia Communications, Inc. 17,082
--------------
4,803,957
Textiles (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
133,158 Shaw Industries, Inc. 2,055,627
Transportation (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
145,197 Burlington Northern Santa Fe Corp. 4,628,154
41,900 CSX Corp. 1,717,900
58,000 Delta Air Lines, Inc. 3,157,375
52,000 FDX Corp. 2,239,250
40,600 UAL Corp. (NON) 2,763,338
--------------
14,506,017
Utilities (8.2%)
- --------------------------------------------------------------------------------------------------------------------------
175,400 American Telephone & Telegraph Co. 8,199,950
105,600 Bell Atlantic Corp. 6,857,400
102,600 BellSouth Corp. 4,617,000
72,000 CiNergy Corp. 2,034,000
62,900 Consolidated Natural Gas Co. 4,025,600
145,400 DPL, Inc. 2,944,350
23,400 DQE, Inc. 934,538
97,800 Duke Energy Corp. 5,525,700
130,400 Entergy Corp. 3,903,850
33,900 Florida Progress Corp. 1,553,044
91,400 GTE Corp. 6,855,000
154,400 OGE Energy Corp. 3,502,950
248,154 SBC Communications, Inc. 12,640,344
153,900 Sempra Energy 3,145,331
93,800 Texas Utilities Co. 3,634,725
--------------
70,373,782
--------------
Total Common Stocks (cost $402,264,840) $ 440,603,294
CORPORATE BONDS AND NOTES (21.0%) (a)
PRINCIPAL AMOUNT VALUE
Advertising (--%)
- --------------------------------------------------------------------------------------------------------------------------
$ 10,000 Outdoor Systems, Inc. sr. sub. notes 9 3/8s, 2006 $ 10,450
Aerospace and Defense (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 16,900
100,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 9 7/8s, 2006 97,500
1,885,000 Boeing Co. deb. 6 5/8s, 2038 1,645,171
1,450,000 Litton Industries Inc. 144A notes 8s, 2009 1,473,780
1,555,000 Norsk Hydro notes 6.36s, 2009 (Norway) 1,445,668
1,330,000 Raytheon Co notes 6.45s, 2002 1,304,504
1,000,000 Raytheon Co. deb. 6.4s, 2018 855,930
--------------
6,839,453
Agriculture (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
635,000 IMC Global, Inc. notes 7.4s, 2002 631,050
134,901 Premium Standard Farms, Inc. sr. secd. notes 11s, 2003 (PIK) 124,109
--------------
755,159
Apparel (--%)
- --------------------------------------------------------------------------------------------------------------------------
80,000 Fruit of the Loom company guaranty 8 7/8s, 2006 20,000
50,000 Kasper A.S.L. Ltd. sr. notes 12 3/4s, 2004 43,250
--------------
63,250
Automotive (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
1,365,000 Chrysler Corp. deb. Ser. B, 7.45s, 2097 1,301,746
1,040,000 Delphi Automotive Systems Corp. deb. 7 1/8s, 2029 935,917
290,000 Federal Mogul Corp. notes 7 3/8s, 2006 266,049
710,000 Ford Motor Co. deb. 7.4s, 2046 675,345
45,000 Ford Motor Co. bonds 6 5/8s, 2028 40,031
1,500,000 Ford Motor Credit Corp. notes 7 3/8s, 2009 1,507,800
190,000 Ford Motor Credit Corp. notes 6.55s, 2002 188,894
1,405,000 Ford Motor Credit Corp. sr. notes 5.8s, 2009 1,268,251
2,325,000 General Motors Acceptance Corp. sr. unsub. 5.85s, 2009 2,110,728
210,000 Lear Corp. sub. notes 9 1/2s, 2006 215,250
80,000 Talon Automotive Group sr. sub. notes Ser. B, 9 5/8s, 2008 64,000
--------------
8,574,011
Basic Industrial Products (--%)
- --------------------------------------------------------------------------------------------------------------------------
190,000 American Standard Companies, Inc. sr. notes 7 3/8s, 2008 167,200
160,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 154,579
--------------
321,779
Broadcasting (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
70,000 Allbritton Communications Co. sr. sub. notes Ser. B,
8 7/8s, 2008 66,675
400,000 AMFM, Inc. sr. sub. notes 9 3/8s, 2004 408,000
205,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 212,688
75,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 76,688
250,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 240,625
140,000 Lenfest Communications, Inc. sr. sub. notes 10 1/2s, 2006 158,200
225,000 Sinclair Broadcast Group, Inc. company guaranty 9s, 2007 211,500
--------------
1,374,376
Building and Construction (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
90,000 Albecca Inc. company guaranty 10 3/4s, 2008 68,850
70,000 Building Materials Corp. company guaranty 8s, 2008 63,525
530,000 D.R. Horton, Inc. company guaranty 8s, 2009 462,425
50,000 NCI Building Systems Inc. sr. sub. notes Ser. B, 9 1/4s, 2009 46,125
--------------
640,925
Business Equipment and Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,650,867 Federal Express Corp. pass-thru certificates Ser. 1998-1A,
6.72s, 2022 1,545,888
90,000 Iron Mountain, Inc. company guaranty 10 1/8s, 2006 91,800
233,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 246,398
--------------
1,884,086
Cable Television (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
29,375 Adelphia Communications Corp. sr. notes 9 1/2s, 2004 (PIK) 29,669
140,000 Adelphia Communications Corp. sr. notes Ser. B, 8 3/8s, 2008 132,300
40,000 Adelphia Communications Corp. sr. notes 7 7/8s, 2009 36,000
350,000 Century Communications Corp. sr. notes 9 1/2s, 2005 349,125
60,000 Century Communications Corp. sr. notes 8 3/4s, 2007 57,300
180,000 Charter Communications Holdings LLC sr. disc. notes
stepped-coupon zero % (9.92s, 4/1/04), 2011 (STP) 106,200
75,000 CSC Holdings, Inc. sr. sub. deb. 10 1/2s, 2016 81,750
30,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 28,434
250,000 CSC Holdings, Inc. sr. notes 7 7/8s, 2007 246,150
80,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) (STP) 72,600
260,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 204,100
175,000 Jones Intercable, Inc. sr. sub. deb. 10 1/2s, 2008 184,625
55,000 Jones Intercable, Inc. sr. notes 9 5/8s, 2002 58,300
100,000 Lamar Media Corp. company guaranty 9 5/8s, 2006 101,750
210,000 Lamar Media Corp. sr. sub. notes 9 1/4s, 2007 206,850
70,000 Lenfest Communications, Inc. sr. sub. notes 8 1/4s, 2008 70,000
90,000 TeleWest Communications Plc 144A sr. disc. notes
stepped-coupon zero %, (9 1/4, 4/15/04) 2009
(United Kingdom) (STP) 54,675
--------------
2,019,828
Chemicals (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
735,000 Equistar Chemicals LP notes 9 1/8s, 2002 741,049
100,000 ISP Holdings, Inc. sr. notes Ser. B, 9 3/4s, 2002 100,500
280,000 Lyondell Petrochemical Co. notes Ser. A, 9 5/8s, 2007 280,700
1,145,000 Nova Chemicals Corp. deb. 7s, 2026 (Canada) 1,112,722
930,000 Rohm & Haas Co. 144A deb. 7.85s, 2029 951,660
--------------
3,186,631
Computer Services and Software (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
2,425,000 IBM Corp. deb. 7 1/8s, 2096 2,314,517
50,000 Verio Inc. sr. notes 11 1/4s, 2008 51,500
--------------
2,366,017
Conglomerates (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
465,000 Canadian Pacific Ltd. deb. 9.45s, 2021 (Canada) 533,364
1,320,000 TRW, Inc. 144A notes 7 3/4s, 2029 1,255,558
1,665,000 Tyco International Ltd. company guaranty 6 3/8s, 2005 1,589,759
1,530,000 Tyco International Ltd. company guaranty 6 1/4s, 2003 1,473,910
--------------
4,852,591
Consumer Non Durables (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
130,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 131,300
1,630,000 Imperial Tobacco company guaranty 7 1/8s, 2009 1,489,576
295,000 Philip Morris Companies, Inc. notes 7 1/2s, 2004 293,401
600,000 Philip Morris Companies, Inc. notes 7 1/8s, 2004 587,070
295,000 Philip Morris Companies, Inc. notes 6.8s, 2003 288,628
--------------
2,789,975
Consumer Services (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 103,500
1,420,000 Hertz Corp. sr. notes 6 1/2s, 2006 1,359,125
270,000 Hertz Corp. notes 6 1/4s, 2009 247,212
610,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 529,175
40,000 Protection One, Inc. sr. disc. notes stepped-coupon zero %
(13 5/8s, 6/30/00), 2005 (STP) 8,800
210,000 Williams Communications Group Inc. sr. notes 10 7/8s, 2009 216,300
--------------
2,464,112
Cosmetics (--%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 Revlon Consumer Products sr. notes 9s, 2006 47,400
75,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 58,500
--------------
105,900
Electronics and Electrical Equipment (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
120,000 Amkor Technologies, Inc. 144A sr. notes 9 1/4s, 2006 116,100
30,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 28,500
90,000 Flextronics International Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 89,100
150,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 147,000
235,000 Wavetek Corp. company guaranty 10 1/8s, 2007 192,700
--------------
573,400
Energy-Related (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,345,000 Amerada Hess Corp. bonds 7 7/8s, 2029 1,318,369
60,000 Calpine Corp. sr. notes 7 7/8s, 2008 56,400
400,000 Calpine Corp. sr. notes 7 3/4s, 2009 375,480
880,000 Osprey Trust 144A sec. notes 8.31s, 2003 886,050
130,000 York Power Funding 144A company guaranty 12s, 2007
(Cayman Islands) 132,600
--------------
2,768,899
Entertainment (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
550,000 ITT Corp. notes 6 3/4s, 2005 494,527
1,380,000 News America Holdings, Inc. deb. 7 3/4s, 2045 1,258,394
700,000 News America Holdings, Inc. deb. 7.7s, 2025 657,902
20,000 PX Escrow Corp. sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 (STP) 9,000
100,000 SFX Entertainment, Inc. 144A company guaranty Ser. B,
9 1/8s, 2008 91,750
80,000 SFX Entertainment, Inc. company guaranty 9 1/8s, 2008 73,600
615,000 Time Warner Entertainment Co. notes 8 7/8s, 2012 679,987
2,385,000 Time Warner Entertainment Co. sr. notes 8 3/8s, 2033 2,553,834
190,000 United Artists Theatre sr. sub. notes 9 3/4s, 2008 38,238
775,000 Walt Disney Co. med. term notes 5.62s, 2008 695,136
--------------
6,552,368
Environmental Control (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
640,000 Allied Waste Industries, Inc. company guaranty Ser. B,
7 7/8s, 2009 544,800
Food and Beverages (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,425,000 Pepsi Bottling Group Inc. sr. notes Ser. B, 7s, 2029 1,319,265
Gaming (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
40,000 Circus Circus Enterprises, Inc. sr. notes 6.45s, 2006 35,306
400,000 Harrahs Entertainment, Inc. company guaranty 7 7/8s, 2005 381,000
30,000 Harrahs Entertainment, Inc. company guaranty 7 1/2s, 2009 28,066
110,000 Hollywood Park, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 106,425
50,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 48,000
170,000 International Game Technology sr. notes 7 7/8s, 2004 163,200
20,000 Mohegan Tribal Gaming, Auth. sr. sub. notes 8 3/4s, 2009 19,450
910,000 Mohegan Tribal Gaming, Auth. sr. notes 8 1/8s, 2006 878,150
370,000 Park Place Entertainment sr. sub. notes 7 7/8s, 2005 348,725
--------------
2,008,322
Health Care (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
140,000 Columbia/HCA Healthcare Corp. med. term notes 9s, 2014 133,000
30,000 Columbia/HCA Healthcare Corp. med. term notes 6.63s, 2045 28,527
40,000 Hudson Respiratory Care, Inc. sr. sub. notes 9 1/8s, 2008 31,300
75,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007 6,000
50,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 4,000
50,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
stepped-coupon zero % (10 1/2s, 11/1/02), 2007 (STP)
(In default) (NON) 1,000
180,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 (In default) (NON) 5,400
220,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 66,000
75,000 Quorum Health Group, Inc. sr. sub. notes 8 3/4s, 2005 68,625
150,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 139,875
1,510,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 1,359,000
--------------
1,842,727
Insurance and Finance (7.5%)
- --------------------------------------------------------------------------------------------------------------------------
40,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 37,355
140,000 Advanta Corp. med. term notes Ser. D, 6.92s, 2002 127,266
1,495,000 AFC Capital Trust company guaranty Ser. B, 8.207s, 2027 1,431,253
1,225,000 AFLAC Inc. sr. notes 6 1/2s, 2009 1,153,815
605,000 American General Institute 144A company guaranty
8 1/8s, 2046 603,469
565,000 Associates First Capital Corp. sub. deb. 8.15s, 2009 603,753
495,000 Associates First Capital Corp. deb. 6.95s, 2018 470,047
2,975,000 BankAmerica Corp. sr. notes 5 7/8s, 2009 2,702,103
1,630,000 Bank United notes 8s, 2009 1,536,063
1,280,000 Bayer Hypo-Verinsbank 144A bonds 8.741s, 2031 1,236,685
1,165,000 Capital One Financial Corp. notes 7 1/4s, 2006 1,106,750
185,000 Capital One Financial Corp. notes 7 1/4s, 2003 180,414
1,885,000 Citicorp sub. notes 6 3/8s, 2008 1,775,142
950,000 Colonial Bank sub. notes 8s, 2009 889,675
15,000 Colonial Capital II 144A company guaranty 8.92s, 2027 13,676
1,570,000 Conseco Financing Trust II company guaranty 8.7s, 2026 1,366,057
950,000 Conseco Inc. notes 8 1/2s, 2002 952,841
775,000 Conseco Inc. med. term notes 6 1/2s, 2002 738,164
140,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 28,000
150,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 25,500
1,045,000 Countrywide Home Loan Corp. company guaranty
6.935s, 2007 1,021,049
850,000 Countrywide Home Loan Corp. company guaranty
6 1/4s, 2009 781,686
1,050,000 Dime Bancorp, Inc. sr. notes 6 3/8s, 2001 1,051,544
1,190,000 Dresdner Funding Trust I 144A notes 8.151s, 2031 1,111,972
1,895,000 Executive Risk Capital Trust company guaranty Ser. B,
8.675s, 2027 1,880,390
515,000 Finova Capital Corp. notes 6 1/4s, 2002 503,897
1,445,000 Finova Capital Corp. med-term notes 6.11s, 2003 1,403,702
1,150,000 First Citizens Bank Capital Trust I company guaranty
8.05s, 2028 1,023,500
470,000 Firstar Bank Milwaukee sr. bank notes 6 1/4s, 2002 462,565
1,070,000 Firstar Capital Trust I company guaranty Ser. B, 8.32s, 2026 1,064,746
1,440,000 Goldman Sachs Group, Inc. (The) notes Ser. B, 7.35s, 2009 1,436,400
520,000 Hartford Life, Inc. deb. 7.65s, 2027 508,492
1,515,000 Household Finance Corp. notes 6 1/2s, 2008 1,429,115
240,000 Household Finance Corp. sr. unsub. 5 7/8s, 2009 217,154
1,085,000 Imperial Bank sub. notes 8 1/2s, 2009 1,030,479
980,000 Lehman Brothers Holdings, Inc. notes 6 5/8s, 2004 956,402
1,740,000 Lehman Brothers Holdings, Inc. notes 6 1/4s, 2003 1,691,019
1,030,000 Liberty Mutual Insurance 144A notes 7.697s, 2097 866,385
1,015,000 Markel Capital Trust I company guaranty Ser. B, 8.71s, 2046 885,050
1,005,000 Merey Sweeney L.P. 144A sr. notes 8.85s, 2019 1,002,488
785,000 Money Store, Inc. notes 8.05s, 2002 805,614
1,035,000 Newcourt Credit Group, Inc. company guaranty Ser. A,
7 1/8s, 2003 1,033,075
980,000 Newcourt Credit Group, Inc. 144A notes 6 7/8s, 2005 968,171
720,000 Norwest Corp. med. term sr. notes Ser. J, 6 3/4s, 2027 644,170
470,000 Orange Cogen Funding 144A company guaranty 8.175s, 2022 454,349
1,605,000 Paine Webber Group, Inc. sr. med. term notes 6.52s, 2005 1,520,738
1,935,000 Peoples Bank-Bridgeport sub. notes 7.2s, 2006 1,798,350
185,000 Peoples Heritage Capital Trust company guaranty Ser. B,
9.06s, 2027 176,745
875,000 Presidential Life Corp. sr. notes 7 7/8s, 2009 831,250
1,445,000 Principal Financial Group 144A notes 7.95s, 2004 1,459,450
2,490,000 Provident Companies, Inc. bonds 7.405s, 2038 2,105,046
1,290,000 Prudential Insurance Co. 144A 6 7/8s, 2003 1,284,247
90,000 RBF Finance Co. company guaranty 11 3/8s, 2009 94,950
200,000 RBF Finance Co. company guaranty 11s, 2006 212,000
1,425,000 Salomon, Inc. sr. notes 7.3s, 2002 1,442,585
997,802 Salton Sea Funding Corp. company guaranty Ser. E, 8.3s, 2011 999,748
2,000,000 Scotland International Finance Co. B.V. 144A sub. notes
8.85s, 2006 (Netherlands) 2,144,860
1,430,000 Sovereign Bancorp, Inc. sr. notes 6 5/8s, 2001 1,401,700
985,000 St. Paul Bancorp sr. notes 7 1/8s, 2004 954,002
585,000 State Street Institution 144A company guaranty 7.94s, 2026 571,217
1,965,000 Sun Life Canada Capital Trust 144A 8.526s, 2049 1,838,808
1,955,000 Tig Capital Trust I 144A bonds 8.597s, 2027 1,809,763
715,000 Transamerica Capital III bonds 7 5/8s, 2037 665,844
1,235,000 Trenwick Capital Trust I company guaranty 8.82s, 2037 1,000,091
150,000 Webster Capital Trust I 144A bonds 9.36s, 2027 147,641
1,275,000 Zurich Capital Trust I 144A company guaranty 8.376s, 2037 1,226,601
--------------
64,897,078
Medical Supplies and Devices (--%)
- --------------------------------------------------------------------------------------------------------------------------
55,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 44,000
Metals and Mining (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
150,000 AK Steel Corp. sr. notes 9 1/8s, 2006 148,500
750,000 AK Steel Corp. company guaranty 7 7/8s, 2009 682,500
50,000 Ameristeel Corp. company guaranty Ser. B, 8 3/4s, 2008 49,125
24,000 Anker Coal Group, Inc. 144A sec. notes 14 1/4s, 2007 (PIK) 12,000
70,000 California Steel Industries 144A sr. notes 8 1/2s, 2009 66,500
95,000 Continental Global Group sr. notes Ser. B, 11s, 2007 49,400
140,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 84,000
295,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 292,050
--------------
1,384,075
Oil and Gas (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
815,000 Alliance Pipeline L.P. 144A sr. notes 7.77s, 2015 (Canada) 784,438
1,675,000 Coastal Corp. bonds 6.95s, 2028 1,495,574
659,208 Express Pipeline Ltd. 144A sub. notes Ser. B,
7.39s, 2019 (Canada) 567,789
70,000 Gulf Canada Resources, Ltd. sr. notes 8 3/8s, 2005 (Canada) 68,472
970,000 Gulf Canada Resources, Ltd. sr. notes 8.35s, 2006 (Canada) 961,357
1,550,000 KN Capital Trust III company guaranty 7.63s, 2028 1,344,470
370,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 379,250
880,000 Maritimes & NE Pipeline 144A secd. 7.7s, 2019 859,232
60,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 59,400
90,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 86,625
300,000 Petro Geo-Services ADR notes 7 1/2s, 2007 (Norway) 297,891
1,505,000 Petro Geo-Services sr. notes 7 1/8s, 2028 (Norway) 1,347,396
1,950,000 Union Oil Company of California company guaranty
7 1/2s, 2029 1,855,328
--------------
10,107,222
Paper and Forest Products (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
950,000 Abitibi-Consolidated Inc. deb. 8 1/2s, 2029 935,750
10,000 Boise Cascade Co. med. term notes Ser. A, 7.43s, 2005 9,642
90,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 91,575
370,000 Tembec Industries, Inc. company guaranty
8 5/8s, 2009 (Canada) 360,750
--------------
1,397,717
Pharmaceuticals and Biotechnology (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
150,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 143,250
400,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 365,000
825,000 Monsanto Co. 144A deb. 6.6s, 2028 733,937
--------------
1,242,187
Publishing (--%)
- --------------------------------------------------------------------------------------------------------------------------
140,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B,
8 3/4s, 2009 128,800
Real Estate (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
1,005,000 Avalon Properties, Inc. notes 6 7/8s, 2007 (R) 939,585
920,000 Avalon Properties, Inc. notes 6 5/8s, 2005 (R) 876,015
1,335,000 EOP Operating L.P. notes 6.8s, 2009 1,235,129
360,000 EOP Operating L.P. sr. notes 6 3/4s, 2008 334,300
490,000 EOP Operating L.P. notes 6 3/8s, 2002 481,420
650,000 OMEGA Healthcare Investors, Inc. notes 6.95s, 2007 (R) 533,403
860,000 OMEGA Healthcare Investors, Inc. notes 6.95s, 2002 (R) 798,476
60,000 Starwood Hotels & Resorts notes 6 3/4s, 2003 56,443
40,000 Tanger Properties Ltd. Partnership Gtd. notes 8 3/4s, 2001 (R) 39,731
--------------
5,294,502
Restaurants (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,010,000 Tricon Global Restaurants, Inc. sr. notes 7.45s, 2005 959,429
Retail (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
975,000 Federated Department Stores, Inc. sr. notes 8 1/2s, 2003 1,014,098
60,000 K mart Corp. med. term notes 7.55s, 2004 57,112
2,350,000 Sears Roebuck Acceptance Corp. notes 6 1/2s, 2028 1,917,036
270,000 Southland Corp. sr. sub. deb. 5s, 2003 232,875
115,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 94,300
--------------
3,315,421
Telecommunications (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
130,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(10.8s, 5/15/04), 2009 (Canada) (STP) 75,400
160,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(8.94s, 8/15/03), 2008 (Canada) (STP) 92,800
70,000 Call-Net Enterprises, Inc. sr. notes 8s, 2008 (Canada) 59,500
10,000 Clearnet Communications, Inc. sr. disc. notes stepped-coupon
zero % (14 3/4s, 12/15/00), 2005 (STP) 9,500
220,000 Covad Communications Group, Inc. sr. notes 12 1/2s, 2009 215,600
150,000 Dial Call Communications, Inc. sr. disc. notes Ser. B,
10 1/4s, 2005 153,000
170,000 Econophone, Inc. 144A notes stepped-coupon zero %
(11s, 2/15/03), 2008 (STP) 93,500
20,000 Exodus Communications, Inc. 144A sr. notes 11 1/4s, 2008 20,200
130,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 115,050
270,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 274,050
110,000 Hyperion Telecommunications Corp., Inc. sr. notes
Ser. B, 12 1/4s, 2004 116,600
640,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 316,800
240,000 Intermedia Communications, Inc. sr. disc. notes Ser. B,
stepped-coupon zero % (11 1/4s, 7/15/02), 2007 (STP) 165,600
565,000 International Cabletel, Inc. sr. notes Ser. B, stepped-coupon
zero % (11 1/2s, 2/01/01), 2006 (STP) 492,963
90,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 75,600
20,000 Long Distance International, Inc. sr. notes 12 1/4s, 2008 10,000
190,000 McLeodUSA, Inc. sr. notes 8 1/8s, 2009 176,700
100,000 Microcell Telecommunications sr. disc. notes Ser. B,
stepped-coupon zero % (14s, 12/1/01), 2006 (Canada) (STP) 82,250
180,000 NEXTEL Communications, Inc. sr. notes 12s, 2008 200,250
50,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (10.65s, 9/15/02), 2007 (STP) 37,500
100,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (9.95s, 2/15/03), 2008 (STP) 71,000
285,000 NEXTEL Communications, Inc. sr. disc. notes 9 3/4s, 2004 290,344
90,000 NTL, Inc. sr. notes Ser. B, 11 1/2s, 2008 96,750
10,000 NTL, Inc. sr. notes Ser. B, stepped-coupon zero %
(9 3/4s, 4/1/03), 2008 (United Kingdom) (STP) 6,700
380,000 Price Communications Wireless, Inc. 144A sr. notes
9 1/8s, 2006 384,750
200,000 Primus Telecommunications Group, Inc. sr. notes 11 3/4s, 2004 194,500
165,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 130,929
570,000 Sprint Capital Corp. company guaranty 6.9s, 2019 531,474
2,040,000 Sprint Capital Corp. company guaranty 6 1/8s, 2008 1,886,388
1,085,000 Sprint Capital Corp. company guaranty 5.7s, 2003 1,039,029
2,785,000 TCI Communications, Inc deb. 8 3/4s, 2015 3,111,291
260,000 TCI Communications, Inc. sr. notes 7 1/8s, 2028 247,416
30,000 Telecom Tech, Inc. company guaranty 9 3/4s, 2008 28,500
40,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02),
2005 (STP) 4,000
725,000 U S West, Inc. notes 5 5/8s, 2008 646,715
--------------
11,452,649
Textiles (--%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 Day International Group, Inc. company guaranty
9 1/2s, 2008 49,200
100,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 17,000
--------------
66,200
Transportation (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,510,000 Airbus Industries 144A notes 8.027s, 2020 2,510,000
1,410,000 Atlas Air, Inc. pass-through certificates Ser. 991A,
7.2s, 2019 1,304,673
1,270,000 Burlington Northern Santa Fe notes 6 3/8s, 2005 1,219,594
30,000 Calair LLC company guaranty 8 1/8s, 2008 27,713
1,664,482 Continental Airlines, Inc. pass-through certificates
Ser. 981C, 6.541s, 2008 1,599,085
1,130,000 CSX Corp. deb. 7.95s, 2027 1,140,950
35,000 Eletson Holdings, Inc. 1st pfd. mtge. notes
9 1/4s, 2003 (Greece) 31,500
260,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 236,600
40,000 Johnstown America Industries, Inc. sr. sub. notes
11 3/4s, 2005 40,700
2,058,260 Northwest Airlines Corp. pass-thru certificate
Ser. 1999-1A, 6.81s, 2020 1,834,115
--------------
9,944,930
Utilities (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
1,425,000 Aes Eastern Energy 144A pass-through certificates
9s, 2017 1,376,294
1,005,000 Arizona Public Service Co. sr. notes 6 3/4s, 2006 975,342
1,260,000 AT&T Capital Corp. med. term notes 6.6s, 2005 1,214,464
150,000 Cleveland Electric Illuminating Co. 1st mtge 6.86s, 2008 140,451
460,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 436,549
305,000 Edison Mission Energy 144A company guaranty
7.33s, 2008 295,295
930,000 El Paso Energy Corp. notes 7 5/8s, 2011 930,047
475,000 El Paso Energy Corp. sr. notes 6 3/4s, 2009 453,198
780,000 GTE Corp. deb. 6.46s, 2008 747,692
443,997 Midland Funding Corp. I deb. Ser. C-94, 10.33s, 2002 460,851
35,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 38,492
960,000 Midwest Energy Co. 144A notes 8.7s, 2009 967,920
475,000 Niagara Mohawk Power Corp. sr. notes Ser. G,
7 3/4s, 2008 480,358
37,805 Niagara Mohawk Power Corp. sr. notes Ser. F,
7 5/8s, 2005 38,147
49,174 Northeast Utilities System notes Ser. A, 8.58s, 2006 49,603
541,733 Northeast Utilities System notes Ser. B, 8.38s, 2005 536,424
1,305,000 Public Service Co. of New Mexico deb. 10 1/4s, 2012 1,425,791
1,025,000 Southern Energy 144A sr. notes 7.9s, 2009 989,709
1,685,000 Texas New-Mexico Power Utilities 1st mtge.
9 1/4s, 2000 1,721,851
1,300,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 1,298,479
1,685,000 Texas Utilities Electric Capital Trust V company guaranty
8.175s, 2037 1,656,694
--------------
16,233,651
--------------
Total Corporate Bonds and Notes (cost $191,156,971) $ 180,326,185
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (15.8%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (6.6%)
- --------------------------------------------------------------------------------------------------------------------------
$ 5,021,404 Federal Home Loan Mortgage Corp. 5 1/2s, with
due dates from March 1, 2011 to April 1, 2011 $ 4,726,397
Federal National Mortgage Association
5,935,000 6 1/2s, TBA, November 25, 2029 5,687,392
Federal National Mortgage Association
Pass-Through Certificates
1,744,650 7s, with due dates from March 1, 2007 to
August 1, 2014 1,741,910
1,478,349 6 1/2s, with due dates from September 1, 2010 to
January 1, 2027 1,440,470
8,883,702 6s, with due dates from April 1, 2013 to
December 1, 2013 8,544,967
2,811,000 5 1/8s, February 13, 2004 2,672,193
Government National Mortgage Association
Pass-Through Certificates
16,304,555 8s, with due dates from June 15, 2025 to
January 15, 2029 16,656,080
13,547,924 7s, with due dates from April 15, 2023 to
December 15, 2028 13,321,528
2,201,103 6 1/2s, with due dates from July 15, 2023 to
February 15, 2028 2,106,641
--------------
56,897,578
U.S. Treasury Obligations (9.2%)
- --------------------------------------------------------------------------------------------------------------------------
4,285,000 U.S. Treasury Bonds 5 1/4s, August 15, 2003 4,183,231
U.S. Treasury Notes
1,305,000 6s, August 15, 2009 1,303,173
6,490,000 6s, August 15, 2004 6,505,186
16,320,000 5 7/8s, October 31, 2001 16,346,112
15,725,000 5 1/2s, May 31, 2003 (SEG) 15,494,000
U.S. Treasury Notes
17,085,000 5 1/4s, May 15, 2004 16,601,836
10,901,000 4 3/4s, February 15, 2004 10,408,710
5,850,000 4 5/8s, December 31, 2000 5,781,438
1,900,000 4 1/4s, November 15, 2003 1,785,107
1,325,000 U.S. Treasury Strip zero %, February 15, 2019 375,877
--------------
78,784,670
--------------
Total U.S. Government and Agency Obligations
(cost $137,698,269) $ 135,682,248
COLLATERALIZED MORTGAGE OBLIGATIONS (3.4%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 1,040,000 Commercial Mortgage Acceptance Corp. Ser. 97-ML1,
Class A3, 6.57s, 2007 $ 999,538
DLJ Commercial Mortgage Corp.
1,005,000 Ser. 1999-CG3, Class A1B, 7.34s, 2009 1,009,397
1,010,000 Ser. 1999-CG3, Class A1A, 7.12s, 2009 1,013,472
Fannie Mae Strip
1,741,516 Ser. 241, Class 2, Interest Only (IO), 8 1/2s, 2023 481,094
926,913 Ser. 217, Class 2, IO, 8.00s, 2023 274,164
332,287 Ser. 176, Class 2, IO, 8.00s, 2022 98,284
720,000 Federal Home Loan Mortgage Corp. Ser. T-20, Class A6,
7.49s, 2029 720,000
17,645,599 First Union-Lehman Brothers Commercial Mortgage Co.
Ser. 98-C2, IO, 0.803s, 2028 655,506
1,067,066 Freddie Mac Ser. 2182, Class SA, 7.91s, 2021 933,016
595,022 Freddie Mac Strip Ser. 203, Principle Only (PO),
zero %, 2029 371,331
740,000 GE Capital Mortgage Services, Inc. Ser. 98-11, Class 2A4,
6 3/4s, 2028 702,075
993,000 GGP-Ivanhoe Ser. 1999-C1, Class F, 7.916s, 2004 993,000
455,000 GMAC Commercial Mortgage Securities, Inc. Ser. 98-C1,
Class E, 7.153s, 2011 419,400
GS Mortgage Securities Corp. II
540,000 Ser. 98-GLII, Class D, 7.191s, 2031 486,675
1,380,000 Ser. 98-GLII, Class A2, 6.562s, 2031 1,304,100
Housing Securities, Inc.
238,180 Ser. 91-B, Class B6, 9s, 2006 237,287
403,540 Ser. 93-F, Class F9M2, 7s, 2023 384,245
123,231 Ser. 94-1, Class AB1, 6 1/2s, 2009 106,942
LB Commercial Conduit Mortgage Trust
2,700,000 Ser. 1999-C1, Class A2, 6.78s, 2009 2,618,684
2,826,420 Ser. 1999-C1, Class A1, 6.41s, 2007 2,758,078
895,000 Ser. 1999-C2, Class A2, 7.325s, 2009 898,077
410,000 Ser. 1999-C2, Class A1, 7.105s, 2008 411,492
Merrill Lynch Mortgage Investors, Inc.
1,413,411 Ser. 98-C2, Class A1, 6.22s, 2030 1,378,517
721,340 Ser. 98-C2, IO, 1.449s, 2030 52,072
Morgan Stanley Capital I
1,186,640 Ser. 99-CAM1, Class A2, 6.76s, 2008 1,171,072
680,000 Ser. 98-XL1, Class A3, 6.48s, 2030 648,019
545,000 Ser. 96-WF1, Class A2, 7.218s, 2006 549,002
1,885,000 Ser. 99-CAM1, Class A3, 6.92s, 2008 1,857,903
4,332,297 Mortgage Capital Funding, Inc. Ser. 97-MC2, Class X,
IO, 1.581s, 2012 301,230
518,884 Prudential Home Mortgage Securities Ser. 92-25,
Class B3, 8s, 2022 503,317
165,240 Prudential Home Mortgage Securities 144A Ser. 94-31,
Class B3, 8s, 2009 162,529
975,000 Residential Asset Securitization Trust Ser. 98-A12,
Class A14, 8s, 2028 996,023
3,766,069 TIAA Retail Commercial Mortgage Trust Ser. 1999-1,
Class A, 7.17s, 2008 3,746,062
--------------
Total Collateralized Mortgage Obligations
(cost $29,528,722) $ 29,241,603
CONVERTIBLE PREFERRED STOCKS (2.3%) (a)
NUMBER OF SHARES VALUE
Aerospace and Defense (--%)
- --------------------------------------------------------------------------------------------------------------------------
3,283 Coltec Capital Trust $2.625 cv. pfd. $ 116,957
Automotive (--%)
- --------------------------------------------------------------------------------------------------------------------------
2,957 Federal-Mogul Corp. 144A $3.50 cv. cum. pfd. 110,518
5,182 Tower Automotive Capital Trust 144A $3.375 cv. pfd. 200,155
--------------
310,673
Basic Industrial Products (--%)
- --------------------------------------------------------------------------------------------------------------------------
7,160 Ingersoll-Rand Co. $0.195 cv. pfd. 163,785
6,642 Owens-Illinois, Inc. $2.375 cv.pfd. 217,526
--------------
381,311
Broadcasting (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,900 Comcast Corp. $2.00 cv. pfd. 242,513
2,450 Emmis Broadcasting Corp. Ser. A, $3.13 cv. pfd. 137,200
4,100 Sinclair Broadcast Group, Inc. $3.00 cv. pfd. 136,325
--------------
516,038
Cable Television (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
774 Adelphia Communications Corp. Ser. D, $5.50 cv. pfd. 131,000
12,433 MediaOne Group Inc. $6.25 cv. pfd. 1,289,924
5,676 MediaOne Group, Inc. Ser. D, $2.25 cv. pfd. 796,769
--------------
2,217,693
Computer Services and Software (--%)
- --------------------------------------------------------------------------------------------------------------------------
7,800 Vanstar Financial Trust Corp. $3.375 cv. pfd. 115,050
Consumer Non Durables (--%)
- --------------------------------------------------------------------------------------------------------------------------
4,900 DIMON, Inc. $8.50 cv. pfd. 20,825
2,770 Estee Lauder Aces TR II $5.41 cv. pfd. 244,799
--------------
265,624
Consumer Services (--%)
- --------------------------------------------------------------------------------------------------------------------------
6,500 Carriage Services, Inc. 144A $3.50 c.v. pfd. 187,688
5,500 Metromedia International Group, Inc. $3.625
cv. cum. pfd. 124,438
--------------
312,126
Electronics and Electrical Equipment (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
3,059 Lernout & Hauspie Speech Products N.V. 144A
$2.375 cv. Pfd. 92,917
9,450 Pioneer Standard Electronics, Inc. 144A $3.375 cv. pfd. 481,950
8,670 Sensormatic Electronics Corp. 144A $1.625 cv. pfd. 192,908
--------------
767,775
Food and Beverages (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,792 Ralston Purina Co. $4.336 cv. pfd. 73,696
6,900 Seagram Co., Ltd. $3.76 c.v. pfd. (Canada) 341,119
2,338 Wendy's Financing Ser. A, $2.50 cv. pfd. 121,868
--------------
536,683
Health Care (--%)
- --------------------------------------------------------------------------------------------------------------------------
14,823 MedPartners, Inc. $6.50 cv. pfd. 105,614
Insurance and Finance (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
2,072 AES Trust II $3.38 cv. pfd. 104,507
7,742 American General Delaware Corp. $3.00 cv. cum. pfd. 706,458
1,486 American Heritage Life Investment Corp. $4.25 cv. pfd. 151,944
4,637 CNB Capital Trust I $1.50 cv. cum. pfd. 158,238
4,000 CNF Trust I Ser. A, $2.50 cv. cum. pfd. 194,500
11,400 Decs Trust IV $0.91 cv. pfd. 74,100
4,500 Devon Financing Trust $3.25 cv. pfd. 286,875
5,923 Finova Finance Trust $2.75 cv. cum. pfd. 345,755
4,957 Fleetwood Capital Trust $3.00 cv. cum. pfd. 177,832
14,400 Lincoln National Corp. $0.463 cv. cum. pfd. 307,800
5,000 Mandatory Common Exchange Trust (The)
$3.625 cv. pfd. 13,438
4,763 National Australia Bank Ltd. $1.969 cv. pfd. (Australia) 133,959
4,700 Newell Financial Trust I 144A $2.625 cv. cum. pfd. 204,450
3,570 Penncorp Financial Group, Inc. 144A $3.50 cv. pfd. 32,130
28,475 Philadelphia Consolidated Holding Corp. $0.534 cv. pfd. 160,172
6,300 Protective Life Corp. $3.25 cv. cum. pfd. 367,763
2,053 QUALCOMM Financial Trust $2.875 cv. cum. pfd. 643,872
1,460 St. Paul Capital LLC $3.00 cv. cum. pfd. 84,315
4,400 Suiza Capital Trust II $2.75 cv. pfd. 150,150
5,035 Union Planters Corp. Ser. E, $2.00 cv. cum. pfd. 278,813
--------------
4,577,071
Medical Supplies and Devices (--%)
- --------------------------------------------------------------------------------------------------------------------------
8,292 Owens & Minor Trust I 144A Ser. A, $2.688 cv. cum. pfd. 269,490
Metals and Mining (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
4,595 Cyprus Amax Minerals Co. Ser. A, $4.00 cv. pfd. 240,089
15,900 Freeport-McMoRan Copper Co., Inc. $1.75 cv. pfd. 254,400
6,575 Titanium Metals Corp. $3.313 cv. pfd. 92,050
--------------
586,539
Oil and Gas (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
13,500 Apache Corp. $2.015 c.v. pfd. 482,625
235 Chesapeake Energy Corp. $3.50 cv. cum. pfd. 7,755
3,425 Coastal Corp. $1.656 c.v. pfd. 90,763
3,621 Evi, Inc. $2.50 cv. cum. pfd. 135,788
2,556 Kerr-McGee Corp. $1.825 c.v. pfd. 96,170
5,586 Neuvo Energy Ser. A, $2.875 cv. pfd. 146,633
1,900 Newfield Exploration Co. $3.25 c.v. pfd. 97,850
4,900 Pogo Producing Co. Ser. A, $3.25 c.v. pfd. 252,963
7,750 Tosco Financing Trust $2.875 cv. pfd. 349,719
10,620 Unocal Capital Trust $3.125 cv. cum. pfd. 552,240
582 Williams Companies, Inc. $3.50 cv. pfd. 101,996
--------------
2,314,502
Packaging and Containers (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
10,880 Sealed Air Corp. Ser. A, $2.00 cv.pfd. 579,360
Paper and Forest Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
5,318 Georgia Pacific Group $3.75 c.v. pfd. 230,004
11,164 International Paper Co. $2.625 cv. pfd. 590,297
--------------
820,301
Pharmaceuticals and Biotechnology (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
13,263 Monsanto Co. $2.60 cv. pfd. 497,363
Publishing (--%)
- --------------------------------------------------------------------------------------------------------------------------
3,521 Readers Digest 1.9336% cv. pfd. 104,310
2,785 Tribune Co. 2.00% cv. pfd. 373,190
--------------
477,500
Real Estate (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
16,768 Equity Residential Property Ser. E, $1.75 cv. pfd. (R) 389,856
2,261 Vornado Realty Trust Ser. A, $3.25 cv. cum. pfd. (R) 101,745
--------------
491,601
Recreation (--%)
- --------------------------------------------------------------------------------------------------------------------------
1,172 Royal Caribbean Cruises Ltd. Ser. A, $3.625 cv. cum. pfd. 187,520
Retail (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,020 CVS Auto Exchange $6.00 cv. pfd. 77,903
3,468 Dollar General Strypes Trust $3.352 cv. pfd. 130,050
9,592 K mart Financing I $3.875 cv. cum. pfd. 413,655
--------------
621,608
Telecommunications (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,757 Cox Communications, Inc. $3.50 c.v. pfd. 170,934
2,401 Global TeleSystems Group, Inc. $3.63 cv. pfd. 105,224
2,253 Qwest Trends Trust 144A $5.75 cv. pfd. 134,898
234 TCI Pacific Comm $5.00 cv. pfd. 69,323
--------------
480,379
Transportation (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
3,962 Canadian National Railway Co. $2.625 c.v. pfd. (Canada) 200,081
11,125 Union Pacific Capital Trust 144A $3.125 cum. cv. pfd. 534,000
--------------
734,081
Utilities (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
4,600 Calpine Capital Trust $2.88 cv. pfd. 271,400
6,183 El Paso Energy Capital Trust $2.375 cv. pfd. 326,153
6,051 Houston Industries, Inc. $3.22 cv. pfd 701,916
2,900 KN Energy Inc. $3.55 cv. pfd. 97,150
3,000 NiSource, Inc. $3.875 c.v. pfd. 119,250
4,201 Texas Utilities Co. $4.625 cv. pfd. 213,714
400 Texas Utilities Co. $0.205 cv. pfd. 18,300
--------------
1,747,883
--------------
Total Convertible Preferred Stocks (cost $21,516,769) $ 20,030,742
CONVERTIBLE BONDS AND NOTES (2.2%) (a)
PRINCIPAL AMOUNT VALUE
Advertising (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
$ 202,000 Omnicom Group Inc. cv. sub. deb. 2 1/4s, 2013 $ 367,893
Aerospace and Defense (--%)
- --------------------------------------------------------------------------------------------------------------------------
93,000 Kellstrom Industries, Inc. cv. sub. notes 5 1/2s, 2003 59,404
184,000 SPACEHAB, Inc. 144A cv. sub. notes 8s, 2007 135,240
--------------
194,644
Automotive (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
195,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 100,913
200,000 Magna International cv. sub. deb. 5s, 2002 194,250
260,000 Standard Motor Products, Inc. cv. sub. deb. 6 3/4s, 2009 209,950
325,000 Tower Automotive, Inc. cv. sub. notes 5s, 2004 279,094
--------------
784,207
Broadcasting (--%)
- --------------------------------------------------------------------------------------------------------------------------
180,000 Scandinavian Broadcasting System SA cv. sub. notes
7s, 2004 (Luxembourg) 242,325
Business Equipment and Services (--%)
- --------------------------------------------------------------------------------------------------------------------------
151,000 National Data Corp. cv. sub. notes 5s, 2003 124,009
110,000 Personnel Group of America, Inc. cv. sub. notes
5 3/4s, 2004 77,688
--------------
201,697
Computer Services and Software (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
369,000 Aspen Technology, Inc. cv. sub. deb. 5 1/4s, 2005 233,854
63,000 EMC Corp. cv. sub. notes 3 1/4s, 2002 405,878
330,000 Intevac, Inc. 144A cv. sub. notes 6 1/2s, 2004 187,688
878,000 Network Associates, Inc. cv. Sub. deb. zero %, 2018 289,740
460,000 System Software Associates, Inc. cv. sub. notes 7s, 2002 148,350
51,000 Vantive Corp. (The) cv. sub. notes 4 3/4s, 2002 41,629
117,000 Veritas Software Corp. cv. disc. notes 1.856s, 2006 163,800
1,250,000 Western Digital Corp. 144A cv. sub. deb. zero %, 2018 171,875
--------------
1,642,814
Computers (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
84,000 Safeguard Scientifics, Inc. 144A cv. sub. notes 5s, 2006 107,205
350,000 Softkey International, Inc. 144A cv. sr. notes 5 1/2s, 2000 343,875
--------------
451,080
Conglomerates (--%)
- --------------------------------------------------------------------------------------------------------------------------
31,000 ADT Operations, Inc. cv. sub. notes zero %, 2010 67,386
150,000 Thermo Electron Corp. 144A cv. sub. deb. 4 1/4s, 2003 125,250
--------------
192,636
Consumer Durable Goods (--%)
- --------------------------------------------------------------------------------------------------------------------------
1,120,000 Sunbeam Corp. 144A cv. sr. sub. notes zero %, 2018 155,400
Consumer Non Durables (--%)
- --------------------------------------------------------------------------------------------------------------------------
230,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 2007 118,450
Consumer Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
59,000 America Online, Inc. cv. sub. notes 4s, 2002 588,378
65,000 At Home Corp. 144A cv. sub. deb. 0.525s, 2018 38,025
500,000 Boston Chicken, Inc. cv. notes LYON (Liquid Yield
Option Notes) zero %, 2015 (In default) (NON) 315
320,000 Boston Chicken, Inc. cv. sub. deb. 7 3/4s, 2004
(In default) (NON) 1,600
412,000 CKE Restaurants, Inc. cv. sub. notes 4 1/4s, 2004 248,230
42,000 Doubleclick, Inc. 144A cv. sub. notes 4 3/4s, 2006 77,490
272,000 Interpublic Group Cos. cv. sub. notes 1.8s, 2004 316,540
150,000 Loews Corp. cv. sub. notes 3 1/8s, 2007 123,938
93,000 Protection One, Inc. cv. sr. sub. notes 6 3/4s, 2003 24,994
--------------
1,419,510
Electronics and Electrical Equipment (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
260,000 Benchmark Electronics, Inc. 144A cv. sub. notes 6s, 2006 179,400
239,000 Credence Systems Corp. cv. sub. notes 5 1/4s, 2002 229,141
500,000 Integrated Device Technology, Inc. cv. sub. notes
5 1/2s, 2002 486,875
150,000 Integrated Process Equipment Corp. 144A cv. sub.
notes 6 1/4s, 2004 106,313
187,000 Kent Electronics Corp. cv. sub. notes 4 1/2s, 2004 147,496
136,000 Lam Research Corp. cv. sub. notes 5s, 2002 157,420
26,000 Level One Communications, Inc. cv. sub. notes 4s, 2004 66,170
25,000 LSI Logic Corp. cv. sub. notes 4 1/2s, 2004 46,000
70,000 LSI Logic Corp. 144A cv. sub. notes 4 1/4s, 2004 128,800
84,000 Micron Technology, Inc. cv. sub. notes 7s, 2004 103,110
366,000 Motorola, Inc. cv. sub. deb. LYON zero %, 2013 409,463
329,000 Park Electrochemical Corp. cv. sub. notes 5 1/2s, 2006 325,710
58,000 Photronics, Inc. cv. sub. notes 6s, 2004 57,130
160,000 Sanmina Corp. 144A cv. sub. notes 4 1/4s, 2004 195,000
272,000 Solectron Corp. 144A cv. notes zero %, 2019 169,660
340,000 Thermo Instrument Systems, Inc. 144A cv. deb.
4 1/2s, 2003 281,350
250,000 Thermo Instrument Systems, Inc. cv. company guaranty
Ser. RG, 4s, 2005 184,688
282,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 271,425
--------------
3,545,151
Health Care (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
637,000 Alza Corp. cv. sub. LYON zero %, 2014 359,109
556,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 418,390
110,000 Tenet Health Care Corp. cv. sub. notes 6s, 2005 97,900
--------------
875,399
Information Systems (--%)
- --------------------------------------------------------------------------------------------------------------------------
98,000 Automatic Data Processing cv. deb. zero %, 2012 122,378
215,000 Quantum Corp. cv. sub. 7s, 2004 185,035
--------------
307,413
Infrastructure (--%)
- --------------------------------------------------------------------------------------------------------------------------
255,000 Thermo Terratech, Inc. 144A cv. sub. deb. 4 5/8s, 2003 210,056
Insurance and Finance (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
227,000 Berkshire Hathaway, Inc. cv. sr. notes 1s, 2001 551,326
1,125,000 Mutual Risk Management cv. sub. deb. zero %, 2015 489,375
--------------
1,040,701
Metals and Mining (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
200,000 Inco Ltd. cv. deb. 5 3/4s, 2004 (Canada) 192,250
200,000 Quanex Corp. cv. sub. deb. 6.88s, 2007 189,000
--------------
381,250
Oil and Gas (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
617,000 Devon Energy Corp. cv. deb. 4.95s, 2008 623,941
270,000 Diamond Offshore Drilling, Inc. cv. sub. notes
3 3/4s, 2007 276,075
270,000 Lomak Petroleum, Inc. 144A cv. sub. deb. 6s, 2007 163,350
350,000 Offshore Logistics, Inc. cv. sub. notes 6s, 2003 286,125
150,000 Parker Drilling Co. cv. sub. notes 5 1/2s, 2004 105,750
350,000 Swift Energy Co. cv. sub. notes 6 1/4s, 2006 276,938
--------------
1,732,179
Pharmaceuticals and Biotechnology (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
316,000 Athena Neurosciences, Inc. cv. notes 4 3/4s, 2004 310,075
214,000 Centocor, Inc. cv. sub. deb. 4 3/4s, 2005 310,835
300,000 Roche Holdings, Inc. 144A cv. unsub. LYON
zero %, 2010 (Switzerland) 181,125
5,000 Sandoz Capital BVI Ltd. 144A cv. company guaranty
2s, 2002 (Switzerland) 7,156
231,000 Sepracor, Inc. cv. sub. deb. 7s, 2005 221,760
96,000 Sepracor, Inc. cv. sub. deb. 6 1/4s, 2005 177,840
--------------
1,208,791
Publishing (--%)
- --------------------------------------------------------------------------------------------------------------------------
200,000 World Color Press, Inc. cv. sub. notes 6s, 2007 214,000
Real Estate (--%)
- --------------------------------------------------------------------------------------------------------------------------
150,000 Malan Realty Investors cv. sub. notes 9 1/2s, 2004 (R) 133,125
Retail (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
186,000 Ann Taylor Stores Corp. 144A cv. company guaranty
0.55s, 2019 107,415
138,000 Cedant Corp. cv. sub. notes 3s, 2002 123,683
239,000 Costco Cos, Inc. cv. sub. notes zero %, 2017 225,556
11,892 Home Depot, Inc. (The) cv. notes 3 1/4s, 2099 897,693
180,000 Michaels Stores, Inc. cv. sub. notes 6 3/4s, 2003 183,600
527,000 Office Depot, Inc. cv. LYON zero %, 2007 354,408
238,000 Pier 1 Imports, Inc. cv. sub. notes 5 3/4s, 2003 229,670
679,000 Rite Aid Corp. cv. sub. notes 5 1/4s, 2002 468,510
100,000 Whole Foods Market, Inc. cv. sub. deb. zero %, 2018 33,000
--------------
2,623,535
Satellite Services (--%)
- --------------------------------------------------------------------------------------------------------------------------
116,000 Gilat Satellite Networks Ltd. cv. 6 1/2s, 2004 (Israel) 151,808
Telecommunications (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
160,000 Corecomm Ltd. 144A cv. sub. notes 6s, 2006 179,200
800,000 Rogers Communications cv. deb. 2s, 2005 643,000
--------------
822,200
--------------
Total Convertible Bonds and Notes
(cost $20,784,113) $ 19,016,264
FOREIGN GOVERNMENT BONDS AND NOTES (0.6%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
USD $ 3,555,000 Ontario (Province of) sr. unsub. 5 1/2s, 2008 $ 3,223,354
USD 2,320,000 Quebec (Province of) sr. unsub. 5 3/4s, 2009 2,112,616
--------------
Total Foreign Government Bonds and Notes
(cost $5,842,166) $ 5,335,970
ASSET-BACKED SECURITIES (0.4%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 729,374 Green Tree Recreational Equipment & Cons. Ser. 98-A,
Class A1C, 6.18s, 2019 $ 718,148
7,525,000 Lehman Manufactured Housing Ser. 98-1,
Class 1 IO, 0.82s, 2028 265,139
2,827,210 Provident Bank Home Equity Loan Trust Ser. 99-1,
Class A2, FRB 5.5587s, 2019 2,827,210
--------------
Total Asset-Backed Securities (cost $3,928,131) $ 3,810,497
PREFERRED STOCKS (0.2%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
1,369 AmeriKing, Inc. $3.25 pfd. (PIK) $ 23,273
125 Capstar Broadcasting, Inc. 144A $12.00 pfd. (PIK) 14,625
666 Capstar Communications, Inc. Ser. E, $12.625 cum. pfd. (PIK) 77,922
1,090 Centaur Funding Corp. 144A 9.08% pfd. (Cayman Islands) 1,121,414
315 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. 17,010
1,178 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 126,046
55 Fresenius Medical Capital Trust I company guaranty
9.00% pfd. (Germany) 53,350
320 Fresenius Medical Capital Trust II company guaranty
7.875% pfd. (Germany) 284,800
15 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 162,750
--------------
Total Preferred Stocks (cost $1,847,213) $ 1,881,190
MUNICIPAL BONDS AND NOTES (0.1%) (cost $1,283,978)
PRINCIPAL AMOUNT RATING (RAT) VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 1,285,000 Mashantucket Pequot Tribe 144A bonds Ser. A,
FSA, 6.57s, 2013 Aaa $ 1,148,532
WARRANTS (--%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
30 Club Regina, Inc. 144A 12/1/04 $ 30
40 Colt Telecommunications Group Plc 12/31/06 20,000
40 Esat Holdings, Inc. (Ireland) 2/1/07 3,040
20 Long Distance International, Inc. 144A 4/13/08 40
45 McCaw International Ltd. 4/15/07 191
40 Telehub Communications Corp. 7/31/05 200
125 UIH Australia/Pacific, Inc. 144A 5/15/06 3,750
40 Versatel Telecom 144A 5/15/08 5,800
--------------
Total Warrants (cost $7,732) $ 33,051
SHORT-TERM INVESTMENTS (2.7%) (a) (cost $22,924,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$22,924,000 Interest in $462,305,000 joint repurchase agreement
October 29, 1999 with S.B.C. Warburg Inc. due
November 1, 1999 respect to various U.S. Treasury
obligations -- maturity value of $22,933,972 for an
effective yield of 5.22% $ 22,924,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $838,782,904) (b) $ 860,033,576
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $859,694,857.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
October 31, 1999 for the securities listed. Ratings are generally ascribed to securities at the time of issuance.
While the agencies may from time to time revise such ratings, they undertake no obligation to do so, and the ratings
do not necessarily represent what the agencies would ascribe to these securities at October 31, 1999. Ratings are
not covered by the Report of independent accountants.
(b) The aggregate identified cost on a tax basis is $841,212,262, resulting in gross unrealized appreciation and
depreciation of $70,137,000 and $51,315,686, respectively, or net unrealized appreciation of $18,821,314.
(NON) Non-income-producing security.
(STP) The interest or dividend rate and date shown parenthetically represent the new interest or dividend rate to be paid
and the date the fund will begin receiving interest or dividend income at this rate.
(PIK) Income may be received in cash or additional securities at the discretion of the issuer.
(SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for futures
contracts at October 31, 1999.
(R) Real Estate Investment Trust.
FSA -- Financial Security Assurance
144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from registration, normally to qualified
institutional buyers.
ADR after the name of a foreign holding stands for American Depositary Receipts, representing ownership of foreign
securities on deposit with a domestic custodian bank.
TBA after the name of a security represents to be announced securities (Note 1).
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at October 31, 1999
Aggregate Face Expiration Unrealized
Market Value Value Date Depreciation
- -------------------------------------------------------------------------------
U.S. Treasury
Bond (Long) $7,497,188 $7,562,413 Dec-99 $(65,225)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
October 31, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $838,782,904) (Note 1) $860,033,576
- -----------------------------------------------------------------------------------------------
Dividends, interest, and other receivables 6,715,728
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,306,988
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 28,505,037
- -----------------------------------------------------------------------------------------------
Receivable for variation margin 86,625
- -----------------------------------------------------------------------------------------------
Total assets 896,647,954
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for subcustodian (Note 2) 120,306
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 33,270,730
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,549,804
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,318,646
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 122,654
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 33,336
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 896
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 305,743
- -----------------------------------------------------------------------------------------------
Other accrued expenses 230,982
- -----------------------------------------------------------------------------------------------
Total liabilities 36,953,097
- -----------------------------------------------------------------------------------------------
Net assets $859,694,857
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $790,424,572
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 140,244
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 48,029,916
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 21,100,125
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $859,694,857
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($646,928,692 divided by 60,671,249 shares) $10.66
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $10.66)* $11.31
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($195,501,890 divided by 18,514,575 shares)** $10.56
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($581,024 divided by 54,595 shares)** $10.64
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($14,904,167 divided by 1,405,143 shares) $10.61
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $10.61)* $10.99
- -----------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($1,779,084 divided by 166,841 shares) $10.66
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group
sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended October 31, 1999
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest $27,859,386
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $4,722) 10,409,673
- -----------------------------------------------------------------------------------------------
Total investment income 38,269,059
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 5,264,261
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,539,050
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 16,178
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 10,526
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,669,820
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,822,776
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 778
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 108,057
- -----------------------------------------------------------------------------------------------
Reports to shareholders 69,533
- -----------------------------------------------------------------------------------------------
Registration fees 82,234
- -----------------------------------------------------------------------------------------------
Auditing 79,814
- -----------------------------------------------------------------------------------------------
Legal 7,870
- -----------------------------------------------------------------------------------------------
Postage 126,281
- -----------------------------------------------------------------------------------------------
Other 83,648
- -----------------------------------------------------------------------------------------------
Total expenses 10,880,826
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (245,994)
- -----------------------------------------------------------------------------------------------
Net expenses 10,634,832
- -----------------------------------------------------------------------------------------------
Net investment income 27,634,227
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 52,182,205
- -----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (135,066)
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (516,137)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year 24,282
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments, futures and
TBA sale commitments during the year (26,531,154)
- -----------------------------------------------------------------------------------------------
Net gain on investments 25,024,130
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $52,658,357
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended October 31
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 27,634,227 $ 25,856,493
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 51,531,002 49,060,186
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (26,506,872) (23,018,297)
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 52,658,357 51,898,382
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (22,241,851) (20,208,084)
- ---------------------------------------------------------------------------------------------------------------
Class B (4,915,559) (3,074,445)
- ---------------------------------------------------------------------------------------------------------------
Class C (1,606) --
- ---------------------------------------------------------------------------------------------------------------
Class M (420,624) (283,338)
- ---------------------------------------------------------------------------------------------------------------
Class Y (54,051) --
- ---------------------------------------------------------------------------------------------------------------
In excess of net investment income
Class A (1,377,881) --
- ---------------------------------------------------------------------------------------------------------------
Class B (304,518) --
- ---------------------------------------------------------------------------------------------------------------
Class C (99) --
- ---------------------------------------------------------------------------------------------------------------
Class M (26,057) --
- ---------------------------------------------------------------------------------------------------------------
Class Y (3,348) --
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (39,936,334) (49,312,780)
- ---------------------------------------------------------------------------------------------------------------
Class B (9,547,631) (7,189,378)
- ---------------------------------------------------------------------------------------------------------------
Class M (749,842) (717,582)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 79,985,204 158,747,947
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 53,064,160 129,860,722
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 806,630,697 676,769,975
- ---------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $140,244 and $182,380, respectively) $859,694,857 $806,630,697
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $11.01 $11.48 $10.67 $9.84 $8.68
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .37(c) .40(c) .42 .44 .45
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .35 .46 1.46 1.01 1.17
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .72 .86 1.88 1.45 1.62
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.37) (.36) (.40) (.43) (.46)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of
net investment income (.02) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.68) (.97) (.67) (.19) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.07) (1.33) (1.07) (.62) (.46)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.66 $11.01 $11.48 $10.67 $9.84
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 6.73 7.86 18.87 15.31 19.32
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $646,929 $644,902 $585,624 $496,882 $468,725
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.09 1.13 1.15 1.20 1.15
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.36 3.51 3.73 4.28 4.93
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 144.87 124.34 152.66 142.36 131.00
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service arrangements. (Note 2)
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during
the period.
(d) Distributions in excess of net investment income amounted to less than $0.01 per share.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.92 $11.40 $10.60 $9.80 $8.67
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .28 (c) .31 (c) .35 .36 .38
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .35 .46 1.45 1.00 1.15
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .63 .77 1.80 1.36 1.53
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.28) (.28) (.33) (.37) (.40)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of
net investment income (.03) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.68) (.97) (.67) (.19) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.99) (1.25) (1.00) (.56) (.40)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.56 $10.92 $11.40 $10.60 $9.80
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 5.94 7.08 18.11 14.36 18.25
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $195,502 $149,712 $82,759 $35,118 $10,073
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.84 1.88 1.90 1.97 1.91
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.60 2.76 2.98 3.51 4.09
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 144.87 124.34 152.66 142.36 131.00
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service arrangements. (Note 2)
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during
the period.
(d) Distributions in excess of net investment income amounted to less than $0.01 per share.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share July 26, 1999+
operating performance to October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $11.09
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .06(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.40)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.34)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.11)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of
net investment income --(d)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.11)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.64
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (3.08)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $581
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .49*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .63*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 144.87
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service arrangements. (Note 2)
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during
the period.
(d) Distributions in excess of net investment income amounted to less than $0.01 per share.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Mar. 17, 1995+
operating performance Year ended October 31 to Oct. 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.96 $11.44 $10.63 $9.82 $8.88
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .31(c) .34(c) .36 .42 .25
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .36 .45 1.47 .98 .90
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .67 .79 1.83 1.40 1.15
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.31) (.30) (.35) (.40) (.21)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of
net investment income (.03) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.68) (.97) (.67) (.19) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.02) (1.27) (1.02) (.59) (.21)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.61 $10.96 $11.44 $10.63 $9.82
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 6.27 7.30 18.41 14.76 13.13*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $14,904 $12,017 $8,387 $3,551 $522
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.59 1.63 1.65 1.72 1.09*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.85 3.01 3.23 3.74 2.76*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 144.87 124.34 152.66 142.36 131.00
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service arrangements. (Note 2)
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during
the period.
(d) Distributions in excess of net investment income amounted to less than $0.01 per share.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS Y
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share December 31, 1998+
operating performance to October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $10.79
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .32(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .22
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.32)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of
net investment income (.03)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.35)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.66
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.00*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,779
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .70*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.01*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 144.87
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service arrangements. (Note 2)
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during
the period.
(d) Distributions in excess of net investment income amounted to less than $0.01 per share.
</TABLE>
Notes to financial statements
October 31, 1999
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, class C, class M and class Y shares. The
fund began offering class Y shares on December 31, 1998 and class C shares
on July 26, 1999. Class A shares are sold with a maximum front-end sales
charge of 5.75%. Class B shares, which convert to class A shares after
approximately eight years, do not pay a front-end sales charge, but pay a
higher ongoing distribution fee than class A shares, and are subject to a
contingent deferred sales charge, if those shares are redeemed within six
years of purchase. Class C shares are subject to the same fees and
expenses as class B shares, except that class C shares have a one-year
1.00% contingent deferred sales charge and do not convert to class A
shares. Class M shares are sold with a maximum front-end sales charge of
3.50% and pay an ongoing distribution fee that is higher than class A
shares but lower than class B and class C shares. Class Y shares, which
are sold at net asset value, are generally subject to the same expenses as
class A, class B, class C and class M shares, but do not bear a
distribution fee. Class Y shares are sold to defined contribution plans
that invest at least $150 million in a combination of Putnam funds and
other accounts managed by affiliates of Putnam Investment Management, Inc.
("Putnam Management"), the fund's manager, a wholly-owned subsidiary of
Putnam Investments, Inc.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if 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
of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period.
Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sales price on its principal exchange, or if no sales are
reported -- as in the case of some securities traded over-the-counter --
the last reported bid price. Short-term investments having remaining
maturities of 60 days or less are stated at amortized cost which
approximates market. Other investments are stated at fair value following
procedures approved by the Trustees.
Market quotations are not considered to be readily available for certain
debt obligations; such investments are stated at fair value on the basis
of valuations furnished by a pricing service or dealers, approved by the
Trustees, which determine valuations for normal, institutional-size
trading units of such securities using methods based on market
transactions for comparable securities and variable relationships between
securities that are generally recognized by institutional traders.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Management. These balances may be invested in one or more
repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the market
value of which at the time of purchase is required to be in an amount at
least equal to the resale price, including accrued interest. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Gains or losses on securities sold are determined on
the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date except that certain dividends from
foreign securities are recorded as soon as the fund is informed of the
ex-dividend date. Discounts on zero coupon bonds, original issue discount
bonds, stepped-coupon bonds and payment in kind bonds are accreted
according to the yield-to-maturity basis.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The fund
does not isolate that portion of realized or unrealized gains or losses
resulting from changes in the foreign exchange rate on investments from
fluctuations arising from changes in the market prices of the securities.
Such gains and losses are included with the net realized and unrealized
gain or loss on investments. Net realized gains and losses on foreign
currency transactions represent net realized exchange gains or losses on
closed forward currency contracts, disposition of foreign currencies and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized appreciation
and depreciation of assets and liabilities in foreign currencies arise
from changes in the value of open forward currency contracts and assets
and liabilities other than investments at the period end, resulting from
changes in the exchange rate. Investments in foreign securities involve
certain risks, including those related to economic instability,
unfavorable political developments, and currency fluctuations, not present
with domestic investments.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a decline
in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of a currency in which securities a fund intends to buy are
denominated, when a fund holds cash reserves and short-term investments).
The U.S. dollar value of forward currency contracts is determined using
current forward currency exchange rates supplied by a quotation service.
The market value of the contract will fluctuate with changes in currency
exchange rates. The contract is "marked to market" daily and the change in
market value is recorded as an unrealized gain or loss. When the contract
is closed, the fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed. The fund could be exposed to risk if
the value of the currency changes unfavorably, if the counterparties to
the contracts are unable to meet the terms of their contracts or if the
fund is unable to enter into a closing position.
G) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on securities
it owns or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of
the underlying instruments, if there is an illiquid secondary market for
the contracts, or if the counterparty to the contract is unable to
perform. When the contract is closed, the fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed. Realized gains and
losses on purchased options are included in realized gains and losses on
investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices supplied
by dealers.
H) TBA purchase commitments The fund may enter into "TBA" (to be
announced) purchase commitments to purchase securities for a fixed unit
price at a future date beyond customary settlement time. Although the unit
price has been established, the principal value has not been finalized.
However, the amount of the commitments will not fluctuate more than 1.0%
from the principal amount. The fund holds, and maintains until settlement
date, cash or high-grade debt obligations in an amount sufficient to meet
the purchase price, or the fund may enter into offsetting contracts for
the forward sale of other securities it owns. Income on the securities
will not be earned until settlement date. TBA purchase commitments may be
considered securities in themselves, and involve a risk of loss if the
value of the security to be purchased declines prior to the settlement
date, which risk is in addition to the risk of decline in the value of the
fund's other assets. Unsettled TBA purchase commitments are valued at the
current market value of the underlying securities, according to the
procedures described under "Security valuation" above.
Although the fund will generally enter into TBA purchase commitments with
the intention of acquiring securities for their portfolio or for delivery
pursuant to options contracts it has entered into, the fund may dispose of
a commitment prior to settlement if Putnam Management deems it appropriate
to do so.
I) TBA sale commitments The fund may enter into TBA sale commitments to
hedge its portfolio positions or to sell mortgage-backed securities it
owns under delayed delivery arrangements. Proceeds of TBA sale commitments
are not received until the contractual settlement date. During the time a
TBA sale commitment is outstanding, equivalent deliverable securities, or
an offsetting TBA purchase commitment deliverable on or before the sale
commitment date, are held as "cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of
the underlying securities, generally according to the procedures described
under "Security valuation" above. The contract is "marked-to-market" daily
and the change in market value is recorded by the fund as an unrealized
gain or loss. If the TBA sale commitment is closed through the acquisition
of an offsetting purchase commitment, the fund realizes a gain or loss. If
the fund delivers securities under the commitment, the fund realizes a
gain or a loss from the sale of the securities based upon the unit price
established at the date the commitment was entered into.
J) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the year ended
October 31, 1999, the fund had no borrowings against the line of credit.
K) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies. It is also the intention of the fund to distribute an amount
sufficient to avoid imposition of any excise tax under Section 4982 of the
Internal Revenue Code of 1986, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains.
L) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid at least annually. The amount and character of income and gains
to be distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences include temporary and permanent differences of losses on wash
sale transactions, foreign currency gains and losses, nontaxable
dividends, defaulted bond interest, unrealized gains and losses on certain
futures contracts, paydown gains and losses on mortgage-backed securities,
market discount, interest on payment-in-kind securities and market
discount and premium accretion adjustment. Reclassifications are made to
the fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. For the year ended October 31, 1999, the fund reclassified
$1,669,231 to increase undistributed net investment income and $10,571 to
decrease paid-in-capital, with a decrease to accumulated net realized
gains of $1,658,660. The calculation of net investment income per share in
the financial highlights table excludes these adjustments.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
Such fee is based on the following annual rates: 0.65% of the first $500
million of average net assets, 0.55% of the next $500 million, 0.50% of
the next $500 million, 0.45% of the next $5 billion, 0.425% of the next $5
billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion and
0.38% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
Under the subcustodian contract between the subcustodian bank and PFTC,
the subcustodian bank has a lien on the securities of the fund to the
extent permitted by the fund's investment restrictions to cover any
advances made by the subcustodian bank for the settlement of securities
purchased by the fund. At October 31, 1999, the payable to the
subcustodian bank represents the amount due for cash advance for the
settlement of a security purchased.
For the year ended October 31, 1999, fund expenses were reduced by
$245,994 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 $998 has
been allocated to the fund, and an additional fee for each Trustee's
meeting attended. Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and meeting
fees for the three years preceding retirement. Pension expense for the
fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B, class C and class M shares pursuant to Rule 12b-1 under
the Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam
Investments Inc., for services provided and expenses incurred by it in
distributing shares of the fund. The Plans provide for payments by the
fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%, 1.00%,
1.00% and 1.00% of the average net assets attributable to class A, class
B, class C and class M shares, respectively. The Trustees have approved
payment by the fund to an annual rate of 0.25%, 1.00%, 1.00% and 0.75% of
the average net assets attributable to class A, class B, class C and class
M shares, respectively.
For the year ended October 31, 1999, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $229,368 and $10,300 from the sale
of class A and class M shares, respectively and $324,363 and no monies in
contingent deferred sales charges from redemptions of class B and class C
shares, respectively. A deferred sales charge of up to 1% is assessed on
certain redemptions of class A shares. For the year ended October 31,
1999, Putnam Mutual Funds Corp., acting as underwriter received $6,402 on
class A redemptions.
Note 3
Purchases and sales of securities
During the year ended October 31, 1999, cost of purchases and proceeds
from sales of investment securities other than U.S. government obligations
and short-term investments aggregated $1,008,807,337 and $956,541,221,
respectively. Purchases and sales of U.S. government obligations
aggregated $259,690,763 and $255,081,143, respectively.
Note 4
Share repurchase program
At October 31, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended October 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 10,012,163 $109,000,444
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,702,959 50,323,503
- -----------------------------------------------------------------------------
14,715,122 159,323,947
Shares
repurchased (12,603,424) (136,977,187)
- -----------------------------------------------------------------------------
Net increase 2,111,698 $ 22,346,760
- -----------------------------------------------------------------------------
Year ended October 31, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 11,014,274 $122,760,010
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,783,073 52,005,749
- -----------------------------------------------------------------------------
15,797,347 174,765,759
Shares
repurchased (8,230,021) (91,550,973)
- -----------------------------------------------------------------------------
Net increase 7,567,326 $ 83,214,786
- -----------------------------------------------------------------------------
Year ended October 31, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 7,052,313 $76,141,950
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,215,074 12,903,110
- -----------------------------------------------------------------------------
8,267,387 89,045,060
Shares
repurchased (3,462,204) (37,141,730)
- -----------------------------------------------------------------------------
Net increase 4,805,183 $51,903,330
- -----------------------------------------------------------------------------
Year ended October 31, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 9,671,097 $106,622,401
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 806,588 8,717,305
- -----------------------------------------------------------------------------
10,477,685 115,339,706
Shares
repurchased (4,026,790) (43,819,735)
- -----------------------------------------------------------------------------
Net increase 6,450,895 $ 71,519,971
- -----------------------------------------------------------------------------
For the period July 26, 1999
(commencement of operations)
to October 31, 1999
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 54,840 $582,901
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 108 1,163
- -----------------------------------------------------------------------------
54,948 584,064
Shares
repurchased (353) (3,770)
- -----------------------------------------------------------------------------
Net increase 54,595 $580,294
- -----------------------------------------------------------------------------
Year ended October 31, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 589,317 $6,373,780
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 105,634 1,125,427
- -----------------------------------------------------------------------------
694,951 7,499,207
Shares
repurchased (386,587) (4,165,592)
- -----------------------------------------------------------------------------
Net increase 308,364 $3,333,615
- -----------------------------------------------------------------------------
Year ended October 31, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 525,863 $5,826,012
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 87,480 947,225
- -----------------------------------------------------------------------------
613,343 6,773,237
Shares
repurchased (249,916) (2,760,047)
- -----------------------------------------------------------------------------
Net increase 363,427 $4,013,190
- -----------------------------------------------------------------------------
For the period December 31, 1998
(commencement of operations)
to October 31, 1999
- -----------------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------------
Shares sold 201,446 $2,200,269
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,589 38,727
- -----------------------------------------------------------------------------
205,035 2,238,996
Shares
repurchased (38,194) (417,791)
- -----------------------------------------------------------------------------
Net increase 166,841 $1,821,205
- -----------------------------------------------------------------------------
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the Fund
hereby designates $40,131,843 as capital gain, for its taxable year ended
October 31, 1999.
The fund has designated 25.47% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Thomas V. Reilly
Vice President
Stephen Oristaglio
Vice President
Edward H. D'Alelio
Vice President
Anthony I. Kreisel
Vice President
Edward P. Bousa
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
Krishna K. Memani
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
This report is for the information of shareholders of Putnam 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' Web site: www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution; are not insured by the Federal
Deposit Insurance Corporation (FDIC), the Federal Reserve Board, or any
other agency; and involve risk, including the possible loss of the
principal amount invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
AN018 56828 034/243/908 12/99
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- -----------------------------------------------------------------------------
Putnam Balanced Retirement Fund
Supplement to Annual Report dated 10/31/99
The following information has been prepared to provide class Y shareholders
with a performance overview specific to their holdings. Class Y shares are
offered exclusively to defined contribution plans investing $150 million or
more in one or more of Putnam's funds or private accounts. Performance of
class Y shares, which incur neither a front-end load, distribution fee, nor
contingent deferred sales charge, will differ from performance of class A,
class B, class C, and class M shares, which are discussed more extensively in
the annual report.
ANNUAL RESULTS AT A GLANCE
- -----------------------------------------------------------------------------
Total return
for periods ended 10/31/99 NAV
1 year 6.94%
5 years 88.63
Annual average 13.53
10 years 189.63
Annual average 11.22
Life of fund (since class A inception, 4/19/85) 342.64
Annual average 10.78
Share value: NAV
12/31/98* $10.79
10/31/99 $10.66
- -----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
3 $0.351 -- $0.351
- -----------------------------------------------------------------------------
*Inception of class Y shares.
Please note that past performance does not indicate future results. Returns
shown for class Y shares for periods prior to their inception are derived
from the historical performance of class A shares, adjusted to reflect the
initial sales charge currently applicable to class A shares. These returns
have not been adjusted to reflect differences in operating expenses which,
for class Y shares, are lower than the operating expenses applicable to class
A shares. All returns assume reinvestment of distributions at net asset
value. Investment return and principal value will fluctuate so your shares,
when redeemed, may be worth more or less than their original cost. See full
report for information on comparative benchmarks. If you have questions,
please consult your fund prospectus or call Putnam toll free at 1-800-752-9894.
