Putnam
Balanced
Retirement
Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
4-30-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Dramatic shifts in sentiment in the equity and fixed-income market sectors
in which Putnam Balanced Retirement Fund concentrates its investments
provided a positive environment for the first half of the fund's current
fiscal year.
In April, value stocks finally took a positive turn. The shift was a long
time in coming; prices of these stocks had lagged those of growth stocks
since early 1997. The favorable turn of events in the fixed-income market
came sooner. As investors realized last summer that the global financial
crisis would not touch off a U.S. recession, they tempered their extreme
aversion to risk and returned to non-Treasury issues, causing a rally in
corporate bonds. Both developments as well as thoughtful and timely
portfolio selections contributed to the fund's positive results for the
period.
I am pleased to announce the addition of Krishna K. Memani to your fund's
management team. Before joining Putnam in 1998, Krishna was with Morgan
Stanley & Co. and Price Waterhouse LLP. He has 14 years of investment
experience.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
June 16, 1999
Report from the Fund Manager
Edward P. Bousa
Charles G. Pohl
James M. Prusko
David L. Waldman
Krishna K. Memani
The combination of equity and fixed-income investments that makes up
Putnam Balanced Retirement Fund provided solid results during the six
months ended April 30, 1999. Prices in both asset classes rallied to
approach their previous levels following an easing of monetary policy in
the United States and other developed nations.
Following this recovery and near the end of the semiannual period, the
types of value stocks in which your fund invests emerged as leaders in
equity markets after several years of lagging. However, the same factors
that helped value stocks rally -- better-than-expected U.S. economic
growth and signs of economic recovery in Asia -- have also rekindled
inflation concerns, driving interest rates higher and bond prices lower.
While the resurgence of value stocks brings with it a new set of
challenges, the fund is nevertheless off to a strong start for fiscal
1999.
Total return for 6 months ended 4/30/99
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------
11.31% 4.92% 10.91% 5.91% 11.01% 7.10%
- -------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
* RISING RETURNS FOR VALUE STOCKS
For the first five months of the period, a small group of companies with
high rates of earnings growth led the market and value stocks lagged
behind. This trend had been in place since early 1997, when it seemed that
the earnings of value stocks would suffer because of slower economic
growth in many regions of the world. Although your fund invests primarily
in stocks of domestic companies, many of those companies have achieved
success in their industries by building global operations. This approach,
while attractive as a long-term strategy, has unfortunately damaged
profits during the past two years because of recessions in different
regions of the world. Meanwhile, large companies in sectors with strong
growth rates, such as technology and pharmaceuticals, have achieved
greater profits.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Insurance and
finance 21.2%
Oil and gas 7.7%
Utilities 7.3%
Health care 7.0%
Transportation 3.1%
Footnote reads:
*Based on net assets as of 4/30/99. Holdings will vary over time.
"Now, for the first time in almost a year, market breadth is starting
to show signs of improvement . . . The moves are taking place mainly
in the value areas that have been left behind over the past year."
-- Barron's, May 3, 1999
As the period drew to a close, we saw signs that undervalued stocks in
general could be poised for relatively stronger results. Early in 1999, a
broader range of undervalued stocks and somewhat smaller companies began
to show improved performance. In addition, oil prices began a precipitous
rise from their levels at the beginning of the year, which, as always,
increased the appeal of energy stocks, including those held by your fund.
By late March and early April, a strong rally in energy and basic
materials sectors was under way, punctuated by an agreement among OPEC
nations to reduce petroleum production and support oil prices. In April,
indications of stronger economic growth in Asia and continuing strength in
the U.S. economy created strong demand for undervalued stocks in many
sectors, such as industrial cyclicals.
* BUYING OPPORTUNITIES LEAD TO FOCUS ON CYCLICAL STOCKS
The elevated level of volatility in equity markets during the period
provided many buying opportunities -- just the type of situation that your
fund's value strategy is designed to exploit. We were able to purchase
stocks of large, established companies at attractive prices, taking
advantage of pessimism in many industrial sectors to add new holdings. In
particular, earnings forecasts for commodity sectors were unusually low.
As a result, the fund added substantial positions in industrial cyclical
stocks whose fortunes tend to rise and fall with the economic cycle.
Examples included Alcoa, Du Pont, and Weyerhaeuser as well as other
companies in the chemical, paper, and aluminum industries. While these
holdings, along with others discussed in this report, were viewed
favorably at the end of the fiscal period, all portfolio holdings are
subject to review and adjustment in accordance with the fund's strategy
and may vary in the future.
"As we look ahead, there is reason for optimism that your fund's value
investment style may be particularly timely. Indications of strong economic
growth in the United States and an improving outlook for Europe and Asia
could provide stronger revenues for many of the large, globally diversified
companies in which the fund invests."
-- Edward P. Bousa, manager
Putnam Balanced Retirement Fund
We were also drawn to consumer cyclicals such as automotive stocks,
building materials, appliances, and newspapers. One particularly appealing
opportunity was found in the toy industry, which, after considerable
consolidation, is now dominated by two current portfolio holdings, Hasbro
and Mattel. Both companies appear close to making their products available
over the Internet, a development that could dramatically increase their
profitability.
During the global financial crisis in August and September, we added
positions in Morgan Stanley and Citigroup, two fundamentally strong
companies whose stock prices had fallen by half because of what we
considered as essentially a short-term problem. We saw no genuine threat
to these companies' long-term business. Our perspective was rewarded when
the stocks recovered and we were able to sell them at significant profits.
Also profitable to your fund were airline stocks such as Delta and UAL
(the holding company of United Airlines), which sustained both pricing and
sales levels in contrast to last fall's more pessimistic projections.
With every period come some disappointments, and for this most recent
period, food stocks and utilities proved to be among the fund's laggards.
These sectors fell out of favor because their defensive, low-growth
characteristics were less appealing to investors seeking to take advantage
of a market that was rebounding from a significant tumble.
[GRAPHIC OMITTED: TOP FIVE EQUITY HOLDINGS HOLDINGS]
TOP FIVE EQUITY HOLDINGS
Bank of America Corp.
Insurance and finance
Citigroup, Inc.
Insurance and finance
Exxon Corp.
Oil and gas
Mobil Corp.
Oil and gas
GTE Corp.
Utilities
[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
51/2 s, 5/31/03
U.S. Treasury notes
43/4 s, 2/15/04
Government National Mortgage Association
pass-through certificates, 7s,
various due dates 2023-2028
Government National Mortgage Association
pass-through certificates, 61/2 s,
various due dates 2023-2029
Footnote reads:
The top five equity holdings and the top five fixed-income holdings
represent 14.8% of the fund's net assets as of 4/30/99. Portfolio holdings
will vary over time.
* BOND MARKETS ALSO RECOVER
The big story in the fixed-income markets during the past six months has
been the transition from widespread concern in the third quarter of 1998
to increased acceptance of higher-risk investments in the first quarter of
1999. Non-Treasury sectors, including corporate bonds, came roaring back
from dismal relative performance in late 1998 to recoup much of their
losses as fears eased that a spreading economic contagion would lead to a
recession in the United States. However, when the U.S. economy posted
stronger growth than expected in late 1998 and early 1999, interest rates
reversed course and started to rise.
While bond prices experienced some declines in the first four months of
1999, your fund benefited from the strong relative performance of its
corporate fixed-income holdings, 40% of which were in the investment-grade
area and 10% in higher-yielding investments. Looking ahead, we do not
foresee a protracted period of rising rates. Instead, we anticipate
eventual interest-rate stability and consistent returns dictated by
appropriate changes to the bond portfolio's sector allocations, including
corporate issues.
* OUTLOOK: VALUE TREND SUPPORTED BY POSITIVE FUNDAMENTALS
As we look ahead, there is reason for optimism that your fund's value
investment style might be particularly timely. Indications of strong
economic growth in the United States and an improving outlook for Europe
and Asia could provide stronger revenues for many of the large, globally
diversified companies in which the fund invests. Of course, because the
fund's recent returns have been greater than the long-term performance of
most equities, it would also not be surprising if gains were to moderate
in the coming year. Current market valuations reflect significant
confidence that the market will continue to rise for a long time. Whether
the fund's investment style is in favor or not, though, remember that its
emphasis on undervalued stocks is a method for limiting volatility.
Because most of the fund's holdings pay dividends and do not carry
inflated expectations, they tend to be insulated from the severe movements
that may characterize the U.S. market going forward. With this disciplined
value investment process in place, your fund is positioned to achieve
attractive risk-adjusted capital appreciation over long periods.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 4/30/99, 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.
TOTAL RETURN FOR PERIODS ENDED 4/30/99
Class A Class B Class M
(inception dates) (4/19/85) (2/1/94) (3/17/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
6 months 11.31% 4.92% 10.91% 5.91% 11.01% 7.10%
- ------------------------------------------------------------------------
1 year 7.91 1.68 7.14 2.25 7.44 3.66
- ------------------------------------------------------------------------
5 years 101.59 90.02 93.94 91.94 96.94 89.99
Annual average 15.05 13.70 14.17 13.93 14.52 13.70
- ------------------------------------------------------------------------
10 years 222.76 204.10 198.79 198.79 206.53 195.76
Annual average 12.43 11.76 11.57 11.57 11.85 11.45
- ------------------------------------------------------------------------
Life of fund 360.74 334.39 309.77 309.77 324.58 309.83
Annual average 11.50 11.04 10.58 10.58 10.86 10.58
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/99
Standard Lehman Bros.
& Poor's Govt./Corp. Consumer
500 Index Bond Index price index
- ---------------------------------------------------------------------
6 months 22.32% -0.12% 1.47%
- ---------------------------------------------------------------------
1 year 21.82 6.27 2.28
- ---------------------------------------------------------------------
5 years 228.92 46.67 12.75
Annual average 26.89 7.96 2.43
- ---------------------------------------------------------------------
10 years 461.10 134.16 35.01
Annual average 18.83 8.88 3.05
- ---------------------------------------------------------------------
Life of fund 1011.66 257.95 55.47
Annual average 18.77 9.54 3.20
- ---------------------------------------------------------------------
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. 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.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 4/30/99
Class A Class B Class M
- -----------------------------------------------------------------------------
Distributions (number) 2 2 2
- -----------------------------------------------------------------------------
Income $0.220 $0.182 $0.195
- -----------------------------------------------------------------------------
Capital gains
Long-term 0.629 0.629 0.629
- -----------------------------------------------------------------------------
Short-term -- -- --
- -----------------------------------------------------------------------------
Total $0.849 $0.811 $0.824
- -----------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- -----------------------------------------------------------------------------
10/31/98 $11.01 $11.68 $10.92 $10.96 $11.36
- -----------------------------------------------------------------------------
4/30/99 11.34 12.03 11.24 11.28 11.69
- -----------------------------------------------------------------------------
Current return (end of period)
- -----------------------------------------------------------------------------
Current dividend rate1 3.88% 3.66% 3.91% 3.48% 3.35%
- -----------------------------------------------------------------------------
Current 30-day SEC yield2 3.35 3.15 2.62 2.86 2.76
- -----------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2 Based on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 3/31/99 (most recent calendar quarter)
Class A Class B Class M
(inception dates) (4/19/85) (2/1/94) (3/17/95)
NAV POP NAV CDSC NAV POP
- -----------------------------------------------------------------------------
6 months 8.87% 2.64% 8.36% 3.36% 8.57% 4.74%
- -----------------------------------------------------------------------------
1 year 3.03 -2.86 2.16 -2.50 2.47 -1.14
- -----------------------------------------------------------------------------
5 years 92.25 81.20 85.31 83.31 87.77 81.13
Annual average 13.97 12.62 13.13 12.89 13.43 12.62
- -----------------------------------------------------------------------------
10 years 219.50 201.27 195.47 195.47 203.27 192.51
Annual average 12.32 11.66 11.44 11.44 11.73 11.33
- -----------------------------------------------------------------------------
Life of fund 338.39 313.32 289.72 289.72 303.88 289.84
Annual average 11.18 10.71 10.24 10.24 10.52 10.24
- -----------------------------------------------------------------------------
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 summary for method of calculation.
Terms and definitions
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 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.
Comparative benchmarks
Standard & Poor's 500 Index* is an index of common stocks frequently used
as a general measure 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,
non-convertible, 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.
Welcome to www.putnaminv.com
Now you can use your PC to get up-to-date information about your funds, learn
more about investing and retirement planning, and access market news and
economic outlooks from Putnam.
VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR:
* the benefits of investing with Putnam
* Putnam's money management philosophy
* complete fund information, daily pricing and long-term performance
* your current account value, portfolio value and transaction history
* the latest on new funds and other Putnam news
You can also read Putnam economist Dr. Robert Goodman's commentary and
Putnam's Capital Markets outlook, search for a particular fund by name or
objective, use our glossary to decode investment terms . . . and much more.
The site can be accessed through any of the major online services (America
Online, CompuServe, Prodigy) that offer web access. Of course, you can also
access it via Netscape or Microsoft Internet Explorer, using an independent
Internet service provider.
New features will be added to the site regularly. So be sure to bookmark us
at
http://www.putnaminv.com
A guide to the financial statements
These sections of the report 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 is determined. All investment and non-investment 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
amounts 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-ended funds, a separate table is
provided for each share class.
<TABLE>
<CAPTION>
The fund's portfolio
April 30, 1999 (Unaudited)
COMMON STOCKS (52.1%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Aerospace and Defense (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
104,700 Boeing Co. $ 4,253,438
61,400 Raytheon Co. Class B 4,313,350
--------------
8,566,788
Agriculture (--%)
- --------------------------------------------------------------------------------------------------------------------------
11,013 PSF Holdings LLC Class A 137,663
Automotive (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
90,000 Ford Motor Co. 5,754,375
63,000 General Motors Corp. 5,603,063
55,000 Lear Corp. (NON) 2,523,125
--------------
13,880,563
Basic Industrial Products (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
32,400 Caterpillar, Inc. 2,085,750
76,000 Deere (John) & Co. 3,268,000
132,000 Owens-Illinois, Inc. (NON) 3,828,000
--------------
9,181,750
Building and Construction (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
90,500 Sherwin Williams Co. 2,816,813
Business Equipment and Services (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
38,500 Pitney Bowes, Inc. 2,692,594
57,000 Xerox Corp. 3,348,750
--------------
6,041,344
Chemicals (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
44,000 Dow Chemical Co. 5,772,250
83,000 du Pont (E.I.) de Nemours & Co., Ltd. (NON) 5,861,875
58,600 Minnesota Mining & Manufacturing Co. 5,215,400
48,100 PPG Industries, Inc. 3,123,494
--------------
19,973,019
Computer Equipment (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
85,000 Apple Computer, Inc. (NON) 3,910,000
37,100 Compaq Computer Corp. (NON) 827,794
--------------
4,737,794
Computer Services and Software (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
93,300 Computer Associates International, Inc. 3,982,744
27,800 IBM Corp. (NON) 5,815,444
--------------
9,798,188
Conglomerates (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
71,000 Allied-Signal, Inc. 4,171,250
63,200 TRW, Inc. (NON) 2,650,450
--------------
6,821,700
Consumer Durable Goods (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
105,050 Hasbro, Inc. 3,584,831
111,000 Mattel, Inc. 2,872,125
52,700 Whirlpool Corp. 3,497,963
--------------
9,954,919
Consumer Non Durables (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
37,800 Colgate-Palmolive Co. 3,872,138
303 Hedstrom Holdings, Inc. 144A 303
73,000 Kimberly-Clark Corp. 4,475,813
135,700 Philip Morris Cos., Inc. 4,757,981
--------------
13,106,235
Consumer Products (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
91,500 Fortune Brands, Inc. (NON) 3,614,250
Consumer Services (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
25 AmeriKing, Inc. (NON) 975
129,000 Service Corp. Intl. 2,676,750
--------------
2,677,725
Electronics and Electrical Equipment (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
69,500 Emerson Electric Co. (NON) 4,482,750
41,000 Illinois Tool Works, Inc. 3,157,000
2,079 Lernout & Hauspie Speech Products N.V. (Belgium) 81,337
26,500 Micron Technology, Inc. (NON) 983,813
54,400 Motorola, Inc. 4,358,800
10,336 SCI Systems, Inc. (NON) 393,462
1,203 Sensormatic Electronics Corp. (NON) 14,436
--------------
13,471,598
Entertainment (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
90,000 Disney (Walt) Productions, Inc. 2,857,500
748 Fitzgerald Gaming Corp. 187
--------------
2,857,687
Environmental Control (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
126,200 Republic Services, Inc. (NON) 2,594,988
Food and Beverages (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
70,700 Bestfoods 3,548,256
39,000 Heinz (H.J.) Co. 1,820,813
89,200 Kellogg Co. 3,300,400
175,700 Pepsi Bottling Group, Inc. (The) (NON) 3,700,681
170,700 Sara Lee Corp. 3,798,075
130,100 SYSCO Corp. 3,862,344
25,200 The Quaker Oats Co. 1,626,975
1,600 Whitman Corp. 26,200
--------------
21,683,744
Health Care (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
58,900 Baxter International, Inc. 3,710,700
179,200 HEALTHSOUTH Corp. (NON) 2,408,000
61,376 Tenet Healthcare Corp. (NON) 1,450,008
--------------
7,568,708
Insurance and Finance (11.9%)
- --------------------------------------------------------------------------------------------------------------------------
116,800 Ace Ltd. 3,533,200
105,800 Allstate Corp. 3,848,475
65,000 American General Corp. 4,810,000
167,143 Bank of America Corp. 12,034,296
126,000 Banc One Corp. 7,434,000
93,100 BankBoston Corp. 4,561,900
982 Bankers Trust New York Corp. (NON) (CUS) 88,441
114,300 Charter One Financial, Inc. (NON) 3,571,875
58,700 Chase Manhattan Corp. 4,857,425
58,000 CIGNA Corp. 5,056,875
152,500 Citigroup, Inc. 11,475,625
57,100 Fannie Mae 4,050,531
25,800 Hartford Financial Services Group 1,520,588
37,000 Mercantile Bancorporation, Inc. 2,109,000
40,700 Merrill Lynch & Co., Inc. (NON) 3,416,256
55,600 Paine Webber Group Inc. 2,609,725
92,200 PNC Bank Corp. 5,336,075
74,250 Synovus Financial Corp. 1,642,781
55,000 The Chubb Corp. 3,258,750
49,200 The Equitable Cos., Inc. 3,311,775
28,000 Torchmark Corp. 957,250
106,400 U.S. Bancorp 3,943,450
20,800 UNUM Corp. 1,136,200
31,000 Wachovia Corp. (NON) 2,724,125
125,400 Washington Mutual, Inc. 5,157,085
128,700 Wells Fargo & Co. (NON) 5,558,231
--------------
108,003,934
Metals and Mining (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
58,800 Alcoa Inc. (NON) 3,660,300
Paper and Forest Products (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
76,700 Mead Corp. 3,207,019
99,000 Weyerhaeuser Co. (NON) 6,645,375
--------------
9,852,394
Oil and Gas (5.9%)
- --------------------------------------------------------------------------------------------------------------------------
52,000 BP Amoco PLC ADR (United Kingdom) 5,885,750
56,000 Burlington Resources Inc. 2,579,500
54,000 Chevron, Inc. 5,386,500
117,000 Conoco, Inc. (NON) 3,173,625
66,500 El Paso Energy Corp. 2,443,875
49,000 Elf Aquitane ADR (France) (NON) 3,828,125
108,000 Exxon Corp. (NON) 8,970,750
131,000 Halliburton Co. 5,583,875
82,000 Mobil Corp. (NON) 8,589,500
19,000 Phillips Petroleum Co. 961,875
129,400 Tosco Corp. 3,461,450
57,100 Williams Cos., Inc. 2,697,975
--------------
53,562,800
Pharmaceuticals (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
107,000 American Home Products Corp. (NON) 6,527,000
97,000 Bristol-Myers Squibb Co. (NON) 6,165,563
77,400 Merck & Co., Inc. 5,437,350
96,000 Pharmacia & Upjohn, Inc. 5,376,000
--------------
23,505,913
Publishing (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
62,000 McGraw-Hill, Inc. 3,425,500
51,000 Tribune Co. 4,255,313
--------------
7,680,813
Real Estate (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
82,000 Equity Residential Properties Trust (R) 3,792,500
109,000 Starwood Hotels & Resorts Worldwide, Inc. 3,998,938
--------------
7,791,438
Retail (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
74,000 Albertsons, Inc. (NON) 3,811,000
96,200 Federated Department Stores, Inc. (NON) 4,491,338
12 Mothers Work, Inc. (NON) 130
103,000 Rite Aid Corp. 2,401,188
110,600 Saks, Inc. (NON) 3,131,363
79,300 Sears, Roebuck & Co. 3,647,800
--------------
17,482,819
Telecommunications (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
57,500 ALLTEL Corp. 3,877,656
154,900 AT&T Corp. 7,822,450
170 Intermedia Communications, Inc. (NON) 5,472
--------------
11,705,578
Transportation (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
32,200 AMR Corp-Del (NON) 2,247,962
150,900 Burlington Northern Santa Fe Corp. 5,526,713
34,100 Delta Air Lines, Inc. 2,163,219
37,400 FDX Corp. 4,209,838
14,800 Ryder System, Inc. 390,350
55,000 UAL Corp. (NON) 4,441,250
--------------
18,979,332
Utilities (5.7%)
- --------------------------------------------------------------------------------------------------------------------------
101,000 Ameritech Corp. 6,912,188
87,000 Bell Atlantic Corp. 5,013,375
62,300 Consolidated Natural Gas Co. 3,706,850
82,200 Duke Energy Corp. (NON) 4,603,200
148,650 Edison International (NON) 3,641,925
120,600 Entergy Corp. (NON) 3,768,750
127,000 GTE Corp. 8,501,063
145,700 OGE Energy Corp. 3,451,269
108,000 SBC Communications, Inc. 6,048,000
175,000 Sempra Energy 3,631,250
84,900 Western Resources, Inc. 2,308,219
--------------
51,586,089
--------------
Total Common Stocks (cost $384,159,410) $ 473,296,886
CORPORATE BONDS AND NOTES (20.6%) (a)
PRINCIPAL AMOUNT VALUE
Advertising (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
$ 300,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 327,750
190,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 203,300
10,000 Lamar Advertising Co. company guaranty 8 5/8s, 2007 10,475
210,000 Outdoor Communications Inc. sr. sub. notes 9 1/4s, 2007 223,125
10,000 Outdoor Systems, Inc. sr. sub. notes 9 3/8s, 2006 10,725
--------------
775,375
Aerospace and Defense (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 19,450
100,000 Aviation Sales Co. company guaranty 8 1/8s, 2008 100,250
100,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 9 7/8s, 2006 105,500
40,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 42,600
30,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 29,775
1,885,000 Boeing Co. deb. 6 5/8s, 2038 1,802,550
100,000 Burke Industries, Inc. company guaranty 10s, 2007 80,000
20,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 20,650
1,330,000 Raytheon Co. notes 6.45s, 2002 1,348,700
980,000 Raytheon Co. deb. 7s, 2028 982,744
105,000 Sequa Corp. bonds 8 3/4s, 2001 106,575
--------------
4,638,794
Agriculture (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
635,000 IMC Global, Inc. notes 7.4s, 2002 652,653
134,901 Premium Standard Farms, Inc. sr. secd. notes 11s, 2003 (PIK) 128,156
--------------
780,809
Apparel (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
390,000 Fruit of the Loom 144A company guaranty 8 7/8s, 2006 382,200
50,000 Kasper A.S.L. Ltd. sr. notes 12 3/4s, 2004 48,250
20,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 21,350
--------------
451,800
Automotive (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
47,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 49,468
1,365,000 Chrysler Corp. deb. Ser. B, 7.45s, 2097 1,445,740
965,000 Dana Corp. notes 7s, 2029 928,813
1,040,000 Delphi Automotive Systems Corp. deb. 7 1/8s, 2029 1,020,448
70,000 Dura Operating Corp. 144A sr. sub. notes 9s, 2009 70,963
290,000 Federal Mogul Corp. 144A notes 7 3/8s, 2006 284,925
45,000 Ford Motor Co. bonds 6 5/8s, 2028 43,196
710,000 Ford Motor Co. deb. 7.4s, 2046 736,320
200,000 Hayes Wheels International, Inc. company guaranty
Ser. B, 9 1/8s, 2007 209,000
210,000 Lear Corp. sub. notes 9 1/2s, 2006 229,950
10,000 Safety Components International, Inc. sr. sub. notes
Ser. B, 10 1/8s, 2007 9,750
80,000 Talon Automotive Group sr. sub. notes Ser. B, 9 5/8s, 2008 70,000
85,000 Walbro Corp. sr. notes Ser. B, 9 7/8s, 2005 86,275
--------------
5,184,848
Basic Industrial Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
190,000 American Standard Companies, Inc. sr. notes 7 3/8s, 2008 188,100
110,000 Axia Inc. company guaranty 10 3/4s, 2008 111,375
250,000 Newcor, Inc. company guaranty Ser. B, 9 7/8s, 2008 233,750
160,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 166,258
5,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 4,800
--------------
704,283
Broadcasting (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
245,000 Affinity Group Holdings sr. notes 11s, 2007 245,000
100,000 Allbritton Communications Co. sr. sub. deb. Ser. B, 9 3/4s, 2007 106,500
70,000 Allbritton Communications Co. sr. sub. notes Ser. B, 8 7/8s, 2008 71,750
75,000 Benedek Broadcasting sr. notes 11 7/8s, 2005 81,375
45,000 Capstar Broadcasting sr. disc. notes stepped-coupon zero %
(12 3/4s, 2/1/02), 2009 (STP) 37,913
205,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 219,350
310,000 Chancellor Media Corp. 144A sr. notes 8s, 2008 319,300
10,000 Citadel Broadcasting Co. sr. sub. notes 10 1/4s, 2007 11,050
325,000 Comcast Corp. sr. sub. notes 9 1/2s, 2008 342,648
75,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 78,188
250,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 249,375
10,000 Gray Communications Systems, Inc. sr. sub. notes 10 5/8s, 2006 10,700
15,000 Heritage Media Services Corp. sr. sub. notes 8 3/4s, 2006 15,788
250,000 Jacor Communications, Inc. company guaranty
Ser. B, 8 3/4s, 2007 266,250
30,000 Pegasus Communications Corp. 144A sr. notes 9 3/4s, 2006 31,200
25,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 27,500
180,000 Scandinavian Broadcasting System SA cv. sub. notes 7s, 2004
(Luxembourg) 219,375
80,000 SFX Broadcasting, Inc. 144A sr. sub. notes 9 1/8s, 2008 82,200
40,000 Sinclair Broadcast Group, Inc. sr. sub. notes 10s, 2005 41,000
225,000 Sinclair Broadcast Group, Inc. company guaranty 9s, 2007 228,375
30,000 Sinclair Broadcast Group, Inc. sr. sub. notes 8 3/4s, 2007 30,150
25,000 Spanish Broadcasting Systems sr. notes Ser. B, 11s, 2004 27,250
--------------
2,742,237
Building and Construction (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
90,000 Albecca Inc. company guaranty 10 3/4s, 2008 76,500
100,000 Applied Power Inc. sr. sub. notes 8 3/4s, 2009 102,500
10,000 Building Materials Corp. sr. notes Ser. B, 8 5/8s, 2006 10,250
70,000 Building Materials Corp. 144A sr. notes 8s, 2008 69,125
20,000 D.R. Horton, Inc. company guaranty 10s, 2006 21,200
130,000 D.R. Horton, Inc. company guaranty 8s, 2009 128,700
20,000 Jackson Products, Inc. company guaranty Ser. B, 9 1/2s, 2005 20,050
40,000 Morris Material Handling, Inc. company guaranty 9 1/2s, 2008 21,800
50,000 NCI Building Systems 144A sr. sub. notes 9 1/4s, 2009 50,525
75,000 Southdown, Inc. sr. sub. notes Ser. B, 10s, 2006 83,625
--------------
584,275
Business Equipment and Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
40,000 Cex Holdings, Inc. company guaranty Ser. B, 9 5/8s, 2008 37,700
1,654,511 Federal Express Corp. pass-through certificates,
Ser. 98-1A, 6.72s, 2022 1,642,582
90,000 Iron Mountain, Inc. med. term notes company guaranty
10 1/8s, 2006 97,425
233,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 259,213
210,000 U.S. Office Products Co. company guaranty 9 3/4s, 2008 140,700
--------------
2,177,620
Cable Television (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
29,375 Adelphia Communications Corp. sr. notes 9 1/2s, 2004 (PIK) 30,256
140,000 Adelphia Communications Corp. 144A sr. notes 8 3/8s, 2008 142,800
40,000 Adelphia Communications Corp. sr. notes 7 7/8s, 2009 39,950
65,000 Century Communications Corp. sr. notes 8 7/8s, 2007 67,925
60,000 Century Communications Corp. sr. notes 8 3/4s, 2007 62,400
180,000 Charter Communications Holdings LLC 144A sr. disc. notes
stepped-coupon zero % (9.92s, 4/1/04), 2011 (STP) 118,800
270,000 Charter Communications Holdings LLC 144A sr. notes
8 5/8s, 2009 276,750
75,000 CSC Holdings, Inc. sr. sub. deb. 10 1/2s, 2016 90,375
5,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2023 5,625
250,000 CSC Holdings, Inc. sr. notes 7 7/8s, 2007 263,080
30,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 30,679
80,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) (STP) 72,200
305,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 243,238
120,000 Diva Systems Corp. sr. disc. notes, stepped-coupon
Ser. B, zero % (12 5/8s, 3/1/03), 2008 (STP) 42,000
175,000 Jones Intercable, Inc. sr. sub. deb. 10 1/2s, 2008 187,469
55,000 Jones Intercable, Inc. sr. notes 9 5/8s, 2002 59,538
140,000 Lenfest Communications, Inc. sr. sub. notes 10 1/2s, 2006 164,150
70,000 Lenfest Communications, Inc. sr. sub. notes 8 1/4s, 2008 72,800
175,000 Rogers Cablesystems Ltd. sr. notes Ser. B, 10s, 2005 197,750
20,000 TeleWest Communications PLC 144A sr. notes
11 1/4s, 2008 (United Kingdom) 23,050
90,000 TeleWest Communications PLC 144A sr. disc. notes
stepped-coupon, zero %, (9 1/4, 4/15/04) 2009
(United Kingdom) (STP) 60,975
--------------
2,251,810
Chemicals (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
900,000 Equistar Chemicals LP notes 9 1/8s, 2002 925,533
100,000 ISP Holdings, Inc. sr. notes Ser. B, 9 3/4s, 2002 102,500
1,145,000 Nova Chemicals Corp. deb. 7s, 2026 (Canada) 1,152,786
10,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 8,500
630,000 Royster-Clark Inc. 144A 1st mtge 10 1/4s, 2009 639,450
90,000 Scotts Co 144A sr. sub. notes 8 5/8s, 2009 93,150
15,000 Union Carbide Global Enterprises sr. sub. notes
Ser. B, 12s, 2005 15,844
--------------
2,937,763
Computer Services and Software (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
575,000 Dell Computer Corp. deb. 7.1s, 2028 569,791
1,240,000 IBM Corp. deb. 7 1/8s, 2096 1,274,050
90,000 IPC Information Systems sr. disc. notes stepped-coupon
zero % (10 7/8s, 11/1/01), 2008 (STP) 67,950
120,000 PSINet, Inc. sr. notes 11 1/2s, 2008 133,500
50,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 52,375
30,000 Unisys Corp. sr. notes 7 7/8s, 2008 31,425
50,000 Verio Inc. 144A sr. notes 11 1/4s, 2008 56,250
30,000 Verio Inc. sr. notes 10 3/8s, 2005 31,950
--------------
2,217,291
Conglomerates (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
465,000 Canadian Pacific Ltd. deb. 9.45s, 2021 (Canada) 571,420
1,665,000 Tyco International Ltd. company guaranty 6 3/8s, 2005 1,679,868
1,530,000 Tyco International Ltd. company guaranty 6 1/4s, 2003 1,540,542
--------------
3,791,830
Consumer Durable Goods (--%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 Hedstrom Holdings, Inc. 144A sr. disc. notes stepped-coupon
zero % (12s, 6/1/02), 2009 (STP) 1,950
20,000 Sealy Mattress Co. 144A sr. sub. notes Ser. B, 9 7/8s, 2007 20,200
--------------
22,150
Consumer Non Durables (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
130,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 130,325
1,630,000 Imperial Tobacco company guaranty 7 1/8s, 2009 1,617,726
295,000 Philip Morris Companies, Inc. notes 7 1/2s, 2004 309,712
600,000 Philip Morris Companies, Inc. notes 7 1/8s, 2004 620,454
295,000 Philip Morris Companies, Inc. notes 6.8s, 2003 300,986
390,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2008 398,775
--------------
3,377,978
Consumer Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Coinmach Corp. sr. notes 11 3/4s, 2005 110,000
45,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 46,125
210,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 202,650
30,000 Host Marriott Travel Plaza sr. notes Ser. B, 9 1/2s, 2005 31,425
80,000 Iron Age Corp. company guaranty 9 7/8s, 2008 58,400
40,000 Protection One, Inc. sr. disc. notes stepped-coupon,
(13 5/8s, 6/30/00), 2005 (STP) 45,700
--------------
494,300
Cosmetics (--%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 5,075
20,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 20,400
60,000 Revlon Consumer Products sr. notes 9s, 2006 61,200
75,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 74,250
--------------
160,925
Electronics and Electrical Equipment (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
15,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s, 2006
(Canada) 16,650
30,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 30,375
59,431 Fairchild Semiconductor Corp. 144A sr. sub. notes 11.74s, 2008 55,865
20,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 20,200
90,000 Flextronics International Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 93,150
10,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 9,650
150,000 Metromedia Fiber Network, Inc. 144A sr. notes 10s, 2008 161,250
70,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 72,275
100,000 Viasystems Inc. sr. sub notes 9 3/4s, 2007 96,750
235,000 Wavetek Corp. company guaranty 10 1/8s, 2007 220,900
--------------
777,065
Energy-Related (--%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 Calpine Corp. sr. notes 7 7/8s, 2008 60,600
60,000 CMS Energy Corp. sr. notes 6 3/4s, 2004 58,883
130,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) 130,650
--------------
250,133
Entertainment (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
40,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 39,400
47,000 Aztar Corp. sr. sub. notes 11s, 2002 48,058
300,000 Cinemark USA, Inc. sr. sub. notes Ser. D, 9 5/8s, 2008 (Mexico) 312,000
60,000 Cinemark USA, Inc. sr. sub. notes 8 1/2s, 2008 (Mexico) 60,000
1,410,000 Disney (Walt) Co. med. term notes 5.62s, 2008 1,346,423
150,000 ITT Corp. notes 6 3/4s, 2005 140,835
30,000 Premier Parks, Inc. sr. notes Ser. A, 12s, 2003 32,175
75,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 78,375
100,000 SFX Entertainment, Inc. 144A company guaranty Ser. B,
9 1/8s, 2008 103,500
40,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 19,200
185,000 Six Flags Corp. sr. sub. notes 12 1/4s, 2005 205,350
615,000 Time Warner Entertainment Co. (L.P.) notes 8 7/8s, 2012 737,324
2,385,000 Time Warner Entertainment Co. sr. notes 8 3/8s, 2033 2,797,056
70,000 Trump A.C. 1st mtge. 11 1/4s, 2006 61,425
3,305,000 Viacom, Inc. sr. notes 7 3/4s, 2005 3,500,987
--------------
9,482,108
Environmental Control (--%)
- --------------------------------------------------------------------------------------------------------------------------
240,000 Allied Waste Industries, Inc. company guaranty
Ser. B, 7 7/8s, 2009 234,600
Food and Beverages (--%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 Ameriserve Food Co. company guaranty 8 7/8s, 2006 27,825
10,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 10,838
50,000 Aurora Foods, Inc. 144A sr. sub. notes Ser. D, 9 7/8s, 2007 54,188
25,000 Signature Brands Ltd. sr. sub. notes 13s, 2002 (Canada) 27,625
80,000 Triarc Consumer Products, Inc. 144A sr. sub. notes
10 1/4s, 2009 80,600
--------------
201,076
Gaming (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 Argosy Gaming Co. company guaranty 13 1/4s, 2004 283,125
25,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 25,813
40,000 Circus Circus Enterprises, Inc. sr. notes 6.45s, 2006 37,324
30,000 Harrahs Entertainment, Inc. company guaranty 7 1/2s, 2009 30,120
110,000 Hollywood Park, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 113,575
50,000 Hollywood Park, Inc. 144A sr. sub. notes 9 1/4s, 2007 51,625
20,000 Isle of Capri Black Hawk LLC 144A 1st mtge. Ser. B, 13s, 2004 22,200
1,285,000 Mashantucket Pequot Tribe 144A bonds Ser. A,
Financial Security Assurance (FSA), 6.57s, 2013 1,252,361
20,000 Mohegan Tribal Gaming, Auth. 144A sr. sub. notes 8 3/4s, 2009 20,700
80,000 Mohegan Tribal Gaming, Auth. 144A sr. notes 8 1/8s, 2006 81,600
60,000 Park Place Entertainment sr. sub. notes 7 7/8s, 2005 58,800
--------------
1,977,243
Health Care (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
140,000 Columbia/HCA Healthcare Corp. med. term notes
9s, 2014 139,076
30,000 Columbia/HCA Healthcare Corp. deb. 8.36s, 2024 28,435
30,000 Columbia/HCA Healthcare Corp. med. term notes
6.63s, 2045 28,343
105,000 Conmed Corp. company guaranty 9s, 2008 106,575
70,000 Extendicare Health Services, Inc. company guaranty 9.35s, 2007 53,200
40,000 Hudson Respiratory Care, Inc. sr. sub. notes 9 1/8s, 2008 32,500
105,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007 75,600
150,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 102,000
50,000 Mariner Post-Acute Network, Inc. sr. sub. notes
stepped-coupon Ser. B, zero % (10 1/2s, 11/1/02), 2007 (STP) 18,500
180,000 Mariner Post-Acute Network, Inc. sr. sub. notes
Ser. B, 9 1/2s, 2007 93,600
150,000 MedPartners, Inc. sr. notes 7 3/8s, 2006 126,000
240,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 187,200
20,000 Paragon Corp. Holdings, Inc. company guaranty
Ser. B, 9 5/8s, 2008 12,000
75,000 Quorum Health Group, Inc. sr. sub. notes 8 3/4s, 2005 75,000
110,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 27,500
40,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s, 2008 8,800
150,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 151,500
55,000 Triad Hospitals Holdings 144A sr. sub. notes 11s, 2009 55,671
--------------
1,321,500
Insurance and Finance (8.5%)
- --------------------------------------------------------------------------------------------------------------------------
40,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 36,380
140,000 Advanta Corp. med. term notes Ser. D, 6.92s, 2002 121,930
1,495,000 AFC Capital Trust company guaranty Ser. B, 8.207s, 2027 1,609,457
1,225,000 AFLAC, Inc. 144A sr. notes 6 1/2s, 2009 1,209,136
605,000 American General Institute 144A company guaranty
8 1/8s, 2046 667,811
565,000 Associates First Capital Corp. sub. deb. 8.15s, 2009 631,094
2,415,000 BankAmerica Corp. sr. notes 5 7/8s, 2009 2,317,748
1,630,000 Bank United term notes 8s, 2009 1,628,892
990,000 Bombardier Capital Inc. 144A notes 6s, 2002 983,862
1,415,000 Capital One Financial Corp. notes 7 1/4s, 2006 1,417,179
185,000 Capital One Financial Corp. notes 7 1/4s, 2003 184,767
75,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2008 75,750
35,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 35,350
935,000 Citicorp sub. notes 6 3/8s, 2008 929,895
950,000 Colonial Bank sub. notes 8s, 2009 927,685
15,000 Colonial Capital II 144A company guaranty 8.92s, 2027 14,304
775,000 Conseco Inc. med. term notes 6 1/2s, 2002 742,706
10,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 7,025
30,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 22,800
150,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 118,500
1,045,000 Countrywide Home Loan Corp. company guaranty
6.935s, 2007 1,067,750
10,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 8,150
1,050,000 Dime Bancorp, Inc. sr. notes 6 3/8s, 2001 1,042,010
10,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 10,727
255,000 DTI Holdings Inc. sr. disc. notes, stepped-coupon Ser. B,
zero % (12 1/2s, 03/01/03), 2008 (STP) 99,450
1,895,000 Executive Risk Capital Trust company guaranty
Ser. B, 8.675s, 2027 2,016,545
515,000 Finova Capital Corp. notes 6 1/4s, 2002 517,235
1,445,000 Finova Capital Corp. med. term notes 6.11s, 2003 1,443,642
1,150,000 First Citizens Bank Capital Trust I company guaranty
8.05s, 2028 1,115,500
470,000 Firstar Bank Milwaukee sr. bank notes 6 1/4s, 2002 474,362
1,070,000 Firstar Capital Trust I company guaranty Ser. B, 8.32s, 2026 1,110,179
520,000 Florida Windstorm Underwriting Association 144A sec. notes
Municipal Bond Investors Assurance Corporation (MBIA),
7 1/8s, 2019 531,960
402,000 Ford Motor Credit Corp. sr. notes 6s, 2003 402,748
1,675,000 Ford Motor Credit Corp. sr. notes 5.8s, 2009 1,598,017
190,000 Ford Motor Credit Corp. notes 5 1/8s, 2001 187,264
750,000 Fuji JGB Inv. LLC 144A FLIRB 9.87s, 2049 (Japan) 701,250
2,325,000 General Motors Acceptance Corp. sr. unsub. 5.85s, 2009 2,223,026
5,000 Greenpoint Capital Trust I company guaranty 9.1s, 2027 5,193
520,000 Hartford Life, Inc. deb. 7.65s, 2027 562,676
805,000 Household Finance Corp. notes 6 1/2s, 2008 800,806
950,000 Household Finance Corp. sr. unsub. 5 7/8s, 2009 901,531
1,085,000 Imperial Bank sub. notes 8 1/2s, 2009 1,083,644
980,000 Lehman Brothers Holdings, Inc. notes 6 5/8s, 2004 982,695
1,675,000 Lehman Brothers Holdings, Inc. med. term notes 6.4s, 1999 1,682,923
1,740,000 Lehman Brothers Holdings, Inc. notes 6 1/4s, 2003 1,727,246
1,015,000 Markel Capital Trust I company guaranty Ser. B, 8.71s, 2046 968,818
785,000 Money Store, Inc. notes 8.05s, 2002 830,200
250,000 Nationwide Credit Inc. sr. notes Ser. A, 10 1/4s, 2008 135,000
1,035,000 Newcourt Credit Group, Inc. 144A company guaranty
7 1/8s, 2003 1,072,571
980,000 Newcourt Credit Group, Inc. 144A notes 6 7/8s, 2005 1,003,334
25,000 North Fork Capital Trust I company guaranty 8.7s, 2026 26,162
720,000 Norwest Corp. med. term sr. notes Ser. J, 6 3/4s, 2027 708,278
5,000 Ocwen Financial Corp. notes 11 7/8s, 2003 4,475
470,000 Orange Cogen Funding 144A company guaranty 8.175s, 2022 494,017
1,630,000 Paine Webber Group, Inc. sr. notes 6.55s, 2008 1,588,908
1,605,000 Paine Webber Group, Inc. sr. med. term notes 6.52s, 2005 1,584,938
1,935,000 Peoples Bank-Bridgeport sub. notes 7.2s, 2006 1,868,978
325,000 Peoples Heritage Capital Trust company guaranty
Ser. B, 9.06s, 2027 317,756
1,335,000 Phoenix Home Life Mutual Insurance Co. 144A notes
6.95s, 2006 1,326,883
875,000 Presidential Life Corp. sr. notes 7 7/8s, 2009 875,000
2,010,000 Provident Companies, Inc. bonds 7.405s, 2038 2,003,347
35,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 (In default) 15,706
1,290,000 Prudential Insurance Co. 144A 6 7/8s, 2003 1,302,410
20,000 PX Escrow Corp. sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 (STP) 12,200
90,000 RBF Finance 144A company guaranty 11 3/8s, 2009 94,950
200,000 RBF Finance 144A company guaranty 11s, 2006 209,000
15,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 14,607
2,500,000 Riggs National Corp. sub. deb. 8 1/2s, 2006 2,602,650
1,425,000 Salomon, Inc. sr. notes 7.3s, 2002 1,479,321
1,100,000 Salton Sea Funding Corp. company guaranty Ser. E, 8.3s, 2011 1,160,610
2,000,000 Scotland International Finance Co. B.V. 144A sub. notes
8.85s, 2006 (Netherlands) 2,236,140
2,535,000 Sears Roebuck Acceptance Corp. notes 6 1/2s, 2028 2,321,705
1,430,000 Sovereign Bancorp, Inc. sr. notes 6 5/8s, 2001 1,431,244
20,000 Sovereign Capital Trust company guaranty 9s, 2027 19,877
570,000 Sprint Capital Corp. company guaranty 6.9s, 2019 561,518
2,040,000 Sprint Capital Corp. company guaranty 6 1/8s, 2008 1,975,618
1,085,000 Sprint Capital Corp. company guaranty 5.7s, 2003 1,065,926
985,000 St. Paul Bancorp sr. notes 7 1/8s, 2004 978,932
585,000 State Street Institution 144A company guaranty 7.94s, 2026 609,055
1,965,000 Sun Life Canada Capital Trust 144A 8.526s, 2049 2,046,292
1,955,000 Tig Capital Trust I 144A bonds 8.597s, 2027 1,734,437
715,000 Transamerica Capital III bonds 7 5/8s, 2037 737,358
1,235,000 Trenwick Capital Trust I company guaranty 8.82s, 2037 1,157,393
175,000 Webster Capital Trust I 144A bonds 9.36s, 2027 176,339
1,500,000 Webster Financial Corp. sr. notes 8 3/4s, 2000 1,528,755
1,275,000 Zurich Capital Trust I 144A company guaranty 8.376s, 2037 1,351,067
--------------
77,610,575
Medical Supplies and Devices (--%)
- --------------------------------------------------------------------------------------------------------------------------
55,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 55,688
25,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 27,875
80,000 Mediq, Inc. deb. stepped-coupon zero %, (13s, 6/1/03) 2009 (STP) 32,000
--------------
115,563
Metals and Mining (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
150,000 AK Steel Corp. sr. notes 9 1/8s, 2006 159,000
40,000 AK Steel Corp. 144A sr. notes 7 7/8s, 2009 39,900
50,000 Ameristeel Corp. company guaranty Ser. B, 8 3/4s, 2008 51,000
30,000 Anker Coal Group, Inc. sr. notes Ser. B, 9 3/4s, 2007
(In default) (NON) 15,000
140,000 California Steel Industries 144A sr. notes 8 1/2s, 2009 143,150
95,000 Continental Global Group sr. notes Ser. B, 11s, 2007 87,400
140,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 109,200
350,000 National Steel Corp. 144A 1st mtge. 9 7/8s, 2009 368,375
30,000 WHX Corp. sr. notes 10 1/2s, 2005 30,000
--------------
1,003,025
Oil and Gas (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,675,000 Coastal Corp. bonds 6.95s, 2028 1,625,119
930,000 Conoco, Inc. sr. notes 6.95s, 2029 909,038
65,000 Eagle Geophysical, Inc. company guaranty Ser. B, 10 3/4s, 2008 39,000
560,000 Enron Corp. notes 6.4s, 2006 557,984
659,736 Express Pipeline Ltd. 144A sub. notes Ser. B, 7.39s, 2019
(Canada) 594,759
70,000 Gulf Canada Resources, Ltd. sr. notes 8 3/8s, 2005 (Canada) 71,225
970,000 Gulf Canada Resources, Ltd. sr. notes 8.35s, 2006 (Canada) 971,174
1,120,000 KN Capital Trust III company guaranty 7.63s, 2028 1,088,192
440,000 KN Energy, Inc. sr. notes 6.45s, 2003 444,488
1,555,000 Norsk Hydro ASA notes 6.36s, 2009 (Norway) 1,520,277
60,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 61,200
90,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 88,200
300,000 Petro Geo-Services AS ADR notes 7 1/2s, 2007 (Norway) 311,286
1,505,000 Petro Geo-Services sr. notes 7 1/8s, 2028 (Norway) 1,424,979
960,000 Statoil 144A notes 6 1/2s, 2028 (Norway) 901,786
81,000 TransTexas Gas Corp. sr. sub. notes Ser. D, 13 3/4s, 2001
(In default) (NON) 4,050
1,950,000 Union Oil Company of California company guaranty
7 1/2s, 2029 2,013,999
--------------
12,626,756
Packaging and Containers (--%)
- --------------------------------------------------------------------------------------------------------------------------
15,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 15,600
210,000 Packaging Corp. 144A sr. sub. notes 9 5/8s, 2009 216,300
20,000 Radnor Holdings Inc. sr. notes 10s, 2003 21,100
--------------
253,000
Paper and Forest Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
10,000 Boise Cascade Co. med. term notes Ser. A, 7.43s, 2005 9,582
190,000 Pacifica Papers, Inc. 144A sr. notes 10s, 2009 (Canada) 197,600
40,000 Republic Group, Inc. sr. sub. notes 9 1/2s, 2008 41,000
200,000 Riverwood International Corp. company guaranty 10 5/8s, 2007 212,000
70,000 Riverwood International Corp. company guaranty 10 1/4s, 2006 72,800
190,000 Tembec Industries, Inc. company guaranty 8 5/8s, 2009 (Canada) 196,650
--------------
729,632
Pharmaceuticals and Biotechnology (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
150,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 154,875
825,000 Monsanto Co. 144A deb. 6.6s, 2028 786,167
--------------
941,042
Publishing (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
50,000 American Media Operation, Inc. 144A sr. sub. notes
10 1/4s, 2009 50,655
140,000 Garden State Newspapers, Inc. sr. sub. notes
Ser. B, 8 3/4s, 2009 141,050
160,000 Garden State Newspapers 144A sr. sub. notes
8 5/8s, 2011 162,400
1,380,000 News America Holdings, Inc. deb. 7 3/4s, 2045 1,422,752
700,000 News America Holdings, Inc. deb. 7.7s, 2025 730,163
20,000 Perry-Judd company guaranty 10 5/8s, 2007 19,850
10,000 Von Hoffman Press, Inc. 144A sr. sub. notes 10 3/8s, 2007 10,400
--------------
2,537,270
Real Estate (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
1,005,000 Avalon Properties, Inc. notes 6 7/8s, 2007 (R) 991,724
920,000 Avalon Properties, Inc. notes 6 5/8s, 2005 (R) 908,206
1,335,000 EOP Operating L.P. notes 6.8s, 2009 1,306,204
360,000 EOP Operating L.P. sr. notes 6 3/4s, 2008 351,792
490,000 EOP Operating L.P. notes 6 3/8s, 2002 489,187
70,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 65,100
1,590,000 Equity Residential Properties notes 6.63s, 2005 1,565,498
650,000 OMEGA Healthcare Investors, Inc. notes 6.95s, 2007 (R) 561,828
860,000 OMEGA Healthcare Investors, Inc. notes 6.95s, 2002 837,993
60,000 Starwood Hotels & Resorts notes 6 3/4s, 2003 55,894
40,000 Tanger Properties Ltd. partnership gtd. notes 8 3/4s, 2001 39,968
--------------
7,173,394
Restaurants (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
670,000 Tricon Global Restaurants, Inc. sr. notes 7.45s, 2005 684,298
Retail (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
975,000 Federated Department Stores, Inc. sr. notes 8 1/2s, 2003 1,058,636
40,000 Home Interiors & Gifts, Inc. company guaranty 10 1/8s, 2008 40,600
60,000 K mart Corp. med. term notes 7.55s, 2004 58,442
40,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 42,100
115,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 98,038
--------------
1,297,816
Satellite Services (--%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Golden Sky Systems company guaranty Ser. B, 12 3/8s, 2006 112,500
Telecommunications (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
560,000 AirTouch Communications, Inc. notes 6.65s, 2008 569,643
1,260,000 AT&T Capital Corp. med. term notes 6.6s, 2005 1,278,459
230,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 214,475
25,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(13 1/4s, 12/1/99), 2004 (Canada) (STP) 25,688
20,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(9.27s, 8/15/02), 2007 (Canada) (STP) 14,100
170,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(8.94s, 8/15/03), 2008 (Canada) (STP) 110,500
70,000 Call-Net Enterprises Inc. sr. notes 8s, 2008 (Canada) 67,550
70,000 CapRock Communications Corp. sr. notes Ser. B, 12s, 2008 74,025
40,000 Colt Telecommunications Group PLC sr. disc. notes
stepped-coupon zero % (12s, 12/15/01), 2006
(United Kingdom) (STP) 34,200
220,000 Covad Communications Group, Inc. 144A sr. notes
12 1/2s, 2009 223,300
150,000 Dial Call Communications, Inc. sr. disc. notes Ser. B,
10 1/4s, 2005 (STP) 155,625
170,000 Econophone, Inc. 144A notes stepped-coupon zero %
(11s, 2/15/03), 2008 (STP) 95,625
20,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 21,550
30,000 Facilicom International sr. notes Ser. B, 10 1/2s, 2008 23,400
130,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 129,025
140,000 Focal Communications Corp. sr. disc. notes, stepped-coupon
Ser. B, zero % (12 1/8s, 02/15/03), 2008 (STP) 82,600
410,000 Global Crossing Holdings, Ltd. company guaranty
9 5/8s, 2008 456,125
395,000 Hyperion Telecommunications Corp., Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 (STP) 330,813
110,000 Hyperion Telecommunications Corp., Inc. sr. notes Ser. B,
12 1/4s, 2004 119,350
780,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 483,600
390,000 Intermedia Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 1/4s, 7/15/02), 2007 (STP) 294,450
90,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 89,550
85,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 1/2s, 2008 84,150
665,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B,
zero % (11 1/2s, 2/01/01), 2006 (STP) 580,213
50,000 IXC Communications, Inc. sr. sub. notes 9s, 2008 50,250
80,000 KMC Telecom Holdings, Inc. sr. disc. notes stepped-coupon
zero % (12 1/2s, 2/15/03), 2008 (STP) 45,200
145,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon zero %,
(11 7/8s, 10/15/02), 2007 (STP) 89,900
10,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 11,025
40,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 41,850
90,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 88,200
30,000 Long Distance International, Inc. sr. notes 12 1/4s, 2008 21,000
45,000 McCaw International Ltd sr. disc. notes stepped coupon zero %
(13s, 4/15/02), 2007 (STP) 30,150
190,000 McLeodUSA, Inc. 144A sr. notes 8 1/8s, 2009 188,100
20,000 MetroNet Communications Corp. sr. disc. notes
stepped-coupon zero % (10 3/4s, 11/1/02), 2007
(Canada) (STP) 16,350
210,000 MetroNet Communications Corp. 144A sr. notes 10 5/8s,
2008 (Canada) 246,225
110,000 MetroNet Communications Corp. sr. disc. stepped-coupon
notes zero % (9.95s, 6/15/03), 2008 (Canada) (STP) 85,250
100,000 Microcell Telecommunications sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 84,000
180,000 NEXTEL Communications, Inc. 144A sr. notes 12s, 2008 211,500
110,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (10.65s, 9/15/02), 2007 (STP) 85,800
100,000 Nextel Communications, Inc. sr. disc. notes stepped-coupon
zero % (9.95s, 2/15/03), 2008 (STP) 75,000
285,000 NEXTEL Communications, Inc. sr. disc. notes 9 3/4s, 2004 (STP) 296,400
120,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 126,600
90,000 NTL Inc. 144A sr. notes 11 1/2s, 2008 (United Kingdom) 101,250
75,000 NTL Inc. sr. notes Ser. B, 10s, 2007 (United Kingdom) 80,250
10,000 NTL Inc. sr. notes, stepped-coupon Ser. B, zero %
(9 3/4s, 4/1/03), 2008 (United Kingdom) (STP) 7,050
230,000 Paramount Communications, Inc. deb. 7 1/2s, 2023 226,621
60,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 33,600
200,000 Price Communications Wireless, Inc. 144A sr. notes
9 1/8s, 2006 210,500
200,000 Primus Telecommunications Group, Inc. sr. notes 11 3/4s, 2004 210,000
30,000 Primus Telecommunications Group, Inc. sr. notes Ser. B,
9 7/8s, 2008 29,550
195,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 158,980
200,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (8.29s, 2/1/03), 2008 (STP) 154,524
30,000 RCN Corp. sr. disc. notes stepped-coupon, zero %
(11 1/8s, 10/15/02), 2007 (STP) 20,775
30,000 RSL Communications, Ltd. company guaranty 9 1/8s, 2008 29,250
80,000 Startec Global Communications Corp. sr. notes 12s, 2008 72,400
2,785,000 TCI Communications Inc. deb. 8 3/4s, 2015 3,340,524
260,000 TCI Communications Inc. sr. notes 7 1/8s, 2028 266,825
30,000 Telecom Tech, Inc. company guaranty 9 3/4s, 2008 30,300
40,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 27,600
370,000 Time Warner Telecom Inc. sr. notes 9 3/4s, 2008 399,600
85,000 United International Holdings sr. disc. notes stepped-coupon
Ser. B, zero % (10 3/4s, 2/15/03), 2008 (STP) 58,225
40,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 43,200
--------------
12,851,840
Telephone Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 OnePoint Communications Corp. 144A sr. notes 14 1/2s, 2008 10,200
725,000 U S West, Inc. notes 5 5/8s, 2008 690,323
--------------
700,523
Textiles (--%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 Day International Group, Inc. company guaranty 9 1/2s, 2008 57,600
100,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 77,000
15,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 15,300
40,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 40,400
--------------
190,300
Transportation (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
1,410,000 Atlas Air, Inc. pass-through certificates Ser. 991A, 7.2s, 2019 1,414,935
1,270,000 Burlington Northern Santa Fe notes 6 3/8s, 2005 1,278,877
30,000 Calair LLC company guaranty 8 1/8s, 2008 28,566
60,000 Canadian Airlines Corp. sr. sec. notes 10s, 2005 (Canada) 43,500
100,000 Continental Airlines, Inc. sr. notes 9 1/2s, 2001 104,500
1,671,339 Continental Airlines, Inc. pass-through certificates Ser. 981C,
6.541s, 2008 1,669,701
1,130,000 CSX Corp. deb. 7.95s, 2027 1,229,440
35,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s, 2003
(Greece) 33,425
20,000 Hermes Europe Railtel 144A sr. notes 11 1/2s, 2007
(Netherlands) 21,900
45,000 International Shipholding Corp. sr. notes 9s, 2003 45,619
260,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 249,600
40,000 Johnstown America Industries, Inc. company guaranty
Ser. C, 11 3/4s, 2005 43,400
50,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 50,625
20,000 MC Shipping, Inc. sr. notes Ser. B, 11 1/4s, 2008 13,400
30,000 MCII Holdings sec. notes, stepped-coupon zero %
(15s,11/15/99), 2002 (STP) 27,000
2,060,000 Northwest Airlines Corp. pass-through certificate,
Ser. 99-1A, 6.81s, 2020 2,035,404
--------------
8,289,892
Utilities (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,005,000 Arizona Public Service Co. sr. notes 6 3/4s, 2006 1,035,813
150,000 Cleveland Electric Illuminating Co. 1st mtge 6.86s, 2008 150,810
395,000 Connecticut Light & Power Co. 1st mtge. Ser. A, 7 7/8s, 2001 406,913
305,000 Edison Mission Energy 144A company guaranty 7.33s, 2008 311,957
25,000 El Paso Electric Co. 1st mtge. Ser. D, 8.9s, 2006 27,882
1,910,000 El Paso Electric Co. 1st mtge. Ser. B, 7 3/4s, 2001 1,954,006
780,000 GTE Corp. deb. 6.46s, 2008 789,360
35,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 39,633
493,707 Midland Funding Corp. I deb. Ser. C-94, 10.33s, 2002 523,171
80,000 Niagara Mohawk Power Corp. med. term notes 9.95s, 2000 82,803
50,000 Niagara Mohawk Power Corp. sr. notes Ser. F, 7 5/8s, 2005 51,526
49,174 Northeast Utilities System notes Ser. A, 8.58s, 2006 49,756
582,533 Northeast Utilities System notes Ser. B, 8.38s, 2005 587,234
1,307,000 Public Service Co. of New Mexico deb. 10 1/4s, 2012 1,504,854
1,685,000 Texas New-Mexico Power Utilities 1st mtge. 9 1/4s, 2000 1,757,961
1,300,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 1,376,336
1,360,000 Texas Utilities Electric Capital Trust V company guaranty
8.175s, 2037 1,390,831
--------------
12,040,846
Wireless Communications (--%)
- --------------------------------------------------------------------------------------------------------------------------
90,000 Telecorp PCS Inc. 144A sr. disc. notes stepped-coupon zero %,
(11 5/8s, 4/15/04), 2009 (STP) 50,625
--------------
Total Corporate Bonds and Notes (cost $187,987,243) $ 186,746,710
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (16.7%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (8.1%)
- --------------------------------------------------------------------------------------------------------------------------
$ 5,427,041 Federal Home Loan Mortgage Corp. 5 1/2s, with due dates
from March 1, 2011 to April 1, 2011 $ 5,271,013
Federal National Mortgage Association
Pass-Through Certificates
1,978,633 7s, Dwarf, with due dates from March 1, 2007 to
May 1, 2011 2,021,294
4,892,269 6 1/2s, with due dates from May 1, 2026 to
February 15, 2029 4,860,763
1,100,640 6 1/2s, Dwarf, with due dates from September 1, 2010 to
April 1, 2013 1,109,578
9,364,803 6s, Dwarf, with due dates from April 1, 2013 to
December 1, 2013 9,276,960
2,811,000 5 1/8s, with due date of February 13, 2004 2,747,753
Government National Mortgage Association
325,000 6 1/2s, TBA, May 15, 2029 322,865
Government National Mortgage Association
Pass- Through Certificates
18,890,349 8s, with due dates from June 15, 2025 to January 15, 2029 19,684,419
15,666,876 7s, with due dates from April 15, 2023 to
December 15, 2028 15,915,718
12,849,758 6 1/2s, with due dates from July 15, 2023 to
March 15, 2029 12,779,496
--------------
73,989,859
U.S. Treasury Obligations (8.6%)
- --------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
1,356,000 5 1/2s, August 15, 2028 1,292,227
2,750,000 5 1/4s, February 15, 2029 2,581,563
1,875,000 5 1/4s, November 15, 2028 1,734,956
U.S. Treasury Notes
1,485,000 5 7/8s, February 15, 2004 1,524,219
1,075,000 5 7/8s, September 30, 2002 (SEG) 1,097,167
4,655,000 5 5/8s, May 15, 2008 4,724,825
18,260,000 5 1/2s, May 31, 2003 18,416,853
165,000 5 1/2s, March 31, 2003 166,470
8,890,000 4 7/8s, March 31, 2001 8,856,663
8,346,000 4 3/4s, November 15, 2008 7,971,682
18,231,000 4 3/4s, February 15, 2004 17,872,032
6,970,000 4 5/8s, December 31, 2000 6,919,886
5,350,000 4 1/4s, November 15, 2003 5,138,515
--------------
78,297,058
--------------
Total U.S. Government and Agency Obligations
(cost $151,850,579) $ 152,286,917
CONVERTIBLE BONDS AND NOTES (2.6%) (a)
PRINCIPAL AMOUNT VALUE
Advertising (--%)
- --------------------------------------------------------------------------------------------------------------------------
$ 202,000 Omnicom Group Inc. cv. sub. deb. 2 1/4s, 2013 $ 322,443
Aerospace and Defense (--%)
- --------------------------------------------------------------------------------------------------------------------------
184,000 SPACEHAB, Inc. 144A cv. sub. notes 8s, 2007 136,620
Automotive (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
195,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 110,663
200,000 Magna International cv. sub. deb. 5s, 2002 227,000
325,000 Tower Automotive, Inc. cv. sub. notes 5s, 2004 343,281
--------------
680,944
Business Equipment and Services (--%)
- --------------------------------------------------------------------------------------------------------------------------
151,000 National Data Corp. cv. sub. notes 5s, 2003 163,835
110,000 Personnel Group of America, Inc. cv. sub. notes 5 3/4s, 2004 88,963
--------------
252,798
Computer Services and Software (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
259,000 Aspen Technology, Inc. cv. sub. deb. 5 1/4s, 2005 147,792
110,000 Aspen Technology, Inc. 144A cv. sub. deb. 5 1/4s, 2005 62,769
37,000 EMC Corp. cv. sub. notes 3 1/4s, 2002 178,248
330,000 Intevac, Inc. 144A cv. sub. notes 6 1/2s, 2004 195,525
737,000 Network Associates, Inc. cv. sub deb. zero %, 2018 213,730
175,000 Platinum Technology International, Inc. cv. sub. notes
6 1/4s, 2002 163,188
460,000 System Software Associates, Inc. cv. sub. notes 7s, 2002 255,875
107,000 Vantive Corp. (The) cv. sub. notes 4 3/4s, 2002 72,091
1,550,000 Western Digital Corp. 144A cv. sub. deb. zero %, 2018 317,750
--------------
1,606,968
Computers (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
217,000 Apple Computer, Inc. cv. sub. notes 6s, 2001 341,504
134,000 Safeguard Scientifics, Inc. 144A cv. sub. notes 6s, 2006 380,058
350,000 Softkey International, Inc. 144A cv. sr. notes 5 1/2s, 2000 360,063
150,000 Synoptics Communications Inc. 144A cv. sub. deb. 5 1/4s, 2003 151,688
--------------
1,233,313
Conglomerates (--%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 ADT Operations, Inc. cv. sub. notes zero %, 2010 44,775
150,000 Thermo Electron Corp. 144A cv. sub. deb. 4 1/4s, 2003 135,563
--------------
180,338
Consumer Durable Goods (--%)
- --------------------------------------------------------------------------------------------------------------------------
1,120,000 Sunbeam Corp. 144A cv. sr. sub. notes zero %, 2018 126,000
Consumer Non Durables (--%)
- --------------------------------------------------------------------------------------------------------------------------
230,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 2007 127,650
Consumer Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
16,000 America Online, Inc. cv. sub. notes 4s, 2002 174,960
65,000 At Home Corp. 144A cv. sub. deb. 0 1/2s, 2018 60,775
500,000 Boston Chicken, Inc. cv. notes LYON (Liquid Yield
Option Notes) zero %, 2015 (In default) 2,500
320,000 Boston Chicken, Inc. cv. sub. deb. 7 3/4s, 2004 (In default) 16,000
412,000 CKE Restaurants, Inc. cv. sub. notes 4 1/4s, 2004 312,605
82,000 Doubleclick, Inc. 144A cv. sub. notes 4 3/4s, 2006 147,600
112,000 Interpublic Group Cos. cv. sub. notes 1.8s, 2004 126,700
150,000 Loews Corp. cv. sub. notes 3 1/8s, 2007 129,750
93,000 Protection One, Inc. cv. sr. sub. notes 6 3/4s, 2003 81,608
--------------
1,052,498
Electronics and Electrical Equipment (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
480,000 Credence Systems Corp. cv. sub. notes 5 1/4s, 2002 396,000
530,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 382,263
150,000 Integrated Process Equipment Corp. 144A cv. sub. notes
6 1/4s, 2004 112,688
579,000 Kent Electronics Corp. cv. sub. notes 4 1/2s, 2004 431,355
350,000 Lam Research Corp. cv. sub. notes 5s, 2002 300,125
63,000 Level One Communications, Inc. cv. sub. notes 4s, 2004 127,575
134,000 LSI Logic Corp. 144A cv. sub. notes 4 1/4s, 2004 174,200
3,107,000 Micron Technology, Inc. cv. sub. notes 7s, 2004 3,087,581
366,000 Motorola, Inc. cv. sub. deb. LYON zero %, 2013 344,040
490,000 Park Electrochemical Corp. cv. sub. notes 5 1/2s, 2006 418,950
58,000 Photronics, Inc. cv. sub. notes 6s, 2004 63,293
160,000 Sanmina Corp. 144A cv. sub. notes 4 1/4s, 2004 160,000
261,000 Solectron Corp. 144A cv. notes zero %, 2019 128,216
340,000 Thermo Instrument Systems, Inc. 144A cv. deb. 4 1/2s, 2003 302,600
282,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 275,303
--------------
6,704,189
Energy-Related (--%)
- --------------------------------------------------------------------------------------------------------------------------
81,000 Nabors Industries, Inc. cv. sub. notes 5s, 2006 95,884
Health Care (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
637,000 Alza Corp. cv. sub. LYON zero %, 2014 312,926
556,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 465,650
226,000 Integrated Health Services, Inc. cv. sr. sub. deb 5 3/4s, 2001 139,555
175,000 PhyMatrix, Inc. cv. sub. deb. 6 3/4s, 2003 83,125
110,000 Tenet Health Care Corp. cv. sub. notes 6s, 2005 92,400
--------------
1,093,656
Information Systems (--%)
- --------------------------------------------------------------------------------------------------------------------------
98,000 Automatic Data Processing cv. deb. zero %, 2012 112,823
301,000 Quantum Corp. cv. sub. 7s, 2004 275,415
--------------
388,238
Infrastructure (--%)
- --------------------------------------------------------------------------------------------------------------------------
255,000 Thermo Terratech, Inc. 144A cv. sub. deb. 4 5/8s, 2003 219,938
Insurance and Finance (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
227,000 Berkshire Hathaway, Inc. cv. sr. notes 1s, 2001 510,750
1,125,000 Mutual Risk Management cv. sub. deb. zero %, 2015 939,808
--------------
1,450,558
Medical Supplies and Devices (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
316,000 Athena Neurosciences, Inc. cv. notes 4 3/4s, 2004 328,640
297,000 Centocor, Inc. cv. sub. deb. 4 3/4s, 2005 320,760
250,000 Thermo Instrument Systems, Inc. cv. company guaranty
Ser. RG, 4s, 2005 202,813
--------------
852,213
Metals and Mining (--%)
- --------------------------------------------------------------------------------------------------------------------------
200,000 Inco Ltd. deb. 5 3/4s, 2004 (Canada) 184,000
200,000 Quanex Corp. cv. sub. deb. 6.88s, 2007 200,000
--------------
384,000
Oil and Gas (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
330,000 Diamond Offshore Drilling, Inc. cv. sub. notes 3 3/4s, 2007 355,988
270,000 Lomak Petroleum, Inc. 144A cv. sub. deb. 6s, 2007 137,700
350,000 Offshore Logistics, Inc. cv. sub. notes 6s, 2003 309,313
150,000 Parker Drilling Co. cv. sub. notes 5 1/2s, 2004 91,688
794,000 Pennzenergy Co. cv. deb. 4.95s, 2008 839,655
256,000 Pride International, Inc. cv. sub. deb. 6 1/4s, 2006 273,280
350,000 Swift Energy Co. cv. sub. notes 6 1/4s, 2006 274,313
--------------
2,281,937
Pharmaceuticals (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
300,000 Roche Holdings, Inc. 144A cv. unsub. LYON zero %, 2010
(Switzerland) 183,000
5,000 Sandoz Capital BVI Ltd. 144A cv. company guaranty 2s, 2002
(Switzerland) 7,176
74,000 Sepracor, Inc. 144A cv. notes 7s, 2005 74,833
96,000 Sepracor, Inc. cv. sub. deb. 6 1/4s, 2005 180,840
--------------
445,849
Publishing (--%)
- --------------------------------------------------------------------------------------------------------------------------
200,000 World Color Press, Inc. cv. sub. notes 6s, 2007 189,750
Real Estate (--%)
- --------------------------------------------------------------------------------------------------------------------------
150,000 Malan Realty Investors cv. sub. notes 9 1/2s, 2004 147,188
Retail (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
239,000 Costco Cos, Inc. cv. sub. notes zero %, 2017 227,648
274,000 Home Depot, Inc. cv. sub. notes 3 1/4s, 2001 711,715
180,000 Michaels Stores, Inc. cv. sub. notes 6 3/4s, 2003 165,150
527,000 Office Depot, Inc. cv. LYON zero %, 2007 517,778
238,000 Pier 1 Imports, Inc. cv. sub. notes 5 3/4s, 2003 255,553
103,000 Rite Aid Corp. cv. sub. notes 5 1/4s, 2002 103,000
100,000 Whole Foods Market, Inc. cv. sub. deb. zero %, 2018 34,625
--------------
2,015,469
Satellite Services (--%)
- --------------------------------------------------------------------------------------------------------------------------
116,000 Gilat Satellite Networks Ltd. cv. sub. notes 6 1/2s, 2004 (Israel) 157,905
Telecommunications (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 MIDCOM Communications, Inc. 144A cv. sub. deb. 8 1/4s, 2003
(In default) 43,750
800,000 Rogers Communications cv. deb. 2s, 2005 604,000
--------------
647,750
Transportation (--%)
- --------------------------------------------------------------------------------------------------------------------------
264,000 Continental Airlines, Inc. cv. sub. deb. 6 3/4s, 2006 382,470
--------------
Total Convertible Bonds and Notes
(cost $24,659,386) $ 23,176,566
CONVERTIBLE PREFERRED STOCKS (2.3%) (a)
NUMBER OF SHARES VALUE
Aerospace and Defense (--%)
- --------------------------------------------------------------------------------------------------------------------------
3,983 Coltec Capital Trust $2.625 cv. pfd. $ 189,193
Automotive (--%)
- --------------------------------------------------------------------------------------------------------------------------
2,957 Federal-Mogul Corp. $3.50 cum. cv. pfd. 159,308
5,182 Tower Automotive Capital Trust 144A $3.375 cv. pfd. 250,032
--------------
409,340
Basic Industrial Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
3,965 Case Corp. $4.50 cv. cum. pfd. 314,226
6,642 Owens-Illinois, Inc. $2.375 cv. pfd. 265,680
--------------
579,906
Broadcasting (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,842 Chancellor Media Corp. $3.00 cv. cum. pfd. 203,081
2,520 Comcast Corp. $3.35 cv. pfd. 189,945
4,100 Sinclair Broadcast Group, Inc. $3.00 cv. pfd. 162,975
--------------
556,001
Cable Television (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,100 Adelphia Communications Corp. Ser. D, $5.50 cv. pfd. 223,850
2,497 CSC Holdings, Inc. Ser. I, $8.50 cv. pfd. 285,907
--------------
509,757
Chemicals (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
13,263 Monsanto Co. $2.60 cv. pfd. 588,546
Communications (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
5,676 Mediaone Group, Inc. Ser. D, $2.25 cv. pfd. 920,222
Computer Services and Software (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
5,341 Unisys Corp. Ser. A, $3.75 cv. pfd. 291,752
7,800 Vanstar Financial Trust Corp. $3.375 cv. pfd. 151,125
2,794 Wang Laboratories, Inc. Ser. B, $3.25 cv. pfd. 145,288
--------------
588,165
Consumer Non Durables (--%)
- --------------------------------------------------------------------------------------------------------------------------
4,900 DIMON, Inc. $2.00 cv. pfd. 27,563
2,770 Estee Lauder Aces TR II $5.41 cv. pfd. 264,535
--------------
292,098
Consumer Services (--%)
- --------------------------------------------------------------------------------------------------------------------------
5,500 Metromedia International Group, Inc. $3.625 cv. cum. pfd. 143,688
Electronics and Electrical Equipment (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
3,059 Lernout & Hauspie Speech Products N.V. 144A $2.375 cv. pfd. 105,536
9,450 Pioneer Standard Electronics, Inc. 144A $3.375 cv. pfd. 363,825
8,670 Sensormatic Electronics Corp. 144A $1.625 cv. pfd. 172,316
--------------
641,677
Food and Beverages (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
5,500 Dole Food Co., Inc. $2.75 cv. pfd. 169,125
1,792 Ralston Ralston Purina Co. $4.336 cv. pfd. 78,624
7,831 Wendy's Financing Ser. A, $2.50 cv. pfd. 448,325
--------------
696,074
Health Care (--%)
- --------------------------------------------------------------------------------------------------------------------------
15,823 MedPartners, Inc. $6.50 cv. pfd. 116,695
Insurance and Finance (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
5,121 Aetna Inc. $6.25 cv. pfd. 391,757
3,887 American Bankers Insurance Group, Inc. Ser. B, $3.125 cv. pfd. 409,107
7,742 American General Delaware Corp. $3.00 cv. cum. pfd. 709,361
6,250 American Heritage Life Investment Corp. $4.25 cv. pfd. 400,781
4,637 CNB Capital Trust I $1.50 cum. cv. pfd. 117,084
4,000 CNF Trust I Ser. A, $2.50 cv. cum. pfd. 242,500
11,400 Decs Trust IV $0.91 cv. pfd. 78,375
4,500 Devon Financing Trust $3.25 cv. pfd. 263,813
5,923 Finova Finance Trust $2.75 cv. cum. pfd. 393,880
4,957 Fleetwood Capital Trust $3.00 cv. cum. pfd. 198,280
14,400 Lincoln National Corp. $0.463 cv. cum. pfd. 370,800
5,000 Mandatory Common Exchange Trust (The) $3.625 cv. pfd. 22,500
4,700 Matewan Bancshares, Inc. Ser. A, $3.75 cv. cum. pfd. 146,875
4,763 National Australia Bank Ltd. $1.969 cv. pfd. (Australia) 161,347
4,700 Newell Financial Trust I $2.625 cv. cum. pfd. 267,313
3,570 Penncorp Financial Group, Inc. $3.50 cv. pfd. 33,915
28,475 Philadelphia Consolidated Holding Corp. $0.534 cv. pfd. 270,513
6,300 Protective Life Corp. $3.25 cv. cum. pfd. 403,200
3,450 St. Paul Capital LLC $3.00 cv. cum. pfd. 185,869
4,400 Suiza Capital Trust II $2.75 cv. pfd. 160,600
5,035 Union Planters Corp. Ser. E, $2.00 cv. cum. pfd. 266,855
--------------
5,494,725
Medical Supplies and Devices (--%)
- --------------------------------------------------------------------------------------------------------------------------
1,388 Mckesson Corp. $2.50 cv. pfd. 77,381
8,292 Owens & Minor Trust I 144A Ser. A, $2.688 cv. cum. pfd. 289,184
--------------
366,565
Metals and Mining (--%)
- --------------------------------------------------------------------------------------------------------------------------
15,900 Freeport-McMoRan Copper Co., Inc. $1.75 cv. pfd. 300,113
6,575 Titanium Metals Corp. $3.313 cv. pfd. 136,431
--------------
436,544
Oil and Gas (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
235 Chesapeake Energy Corp. $3.50 cv. cum. pfd. 5,346
3,111 Evi, Inc. $2.50 cv. cum. pfd. 112,774
5,586 Neuvo Energy Ser. A, $2.875 cv. pfd. 182,243
7,750 Tosco Financing Trust $2.875 cv. pfd. 391,375
10,620 Unocal Capital Trust $3.125 cv. cum. pfd. 613,305
1,314 Williams Companies, Inc. $1.25 cv. cum. pfd. 289,573
--------------
1,594,616
Packaging and Containers (--%)
- --------------------------------------------------------------------------------------------------------------------------
4,660 Sealed Air Corp. Ser. A, $2.00 cv. pfd. 270,863
Paper and Forest Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
11,164 International Paper Co. $2.625 cv. pfd. 569,364
Publishing (--%)
- --------------------------------------------------------------------------------------------------------------------------
6,562 Tribune Co. $1.75 cv. pfd. 187,017
526 Tribune Co. $2.00 cv. pfd. 78,374
--------------
265,391
Real Estate (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
16,768 Equity Residential Property Ser. E, $1.75 cv. pfd. 429,680
2,261 Vornado Realty Trust Ser. A, $3.25 cv. cum. pfd. 123,790
--------------
553,470
Recreation (--%)
- --------------------------------------------------------------------------------------------------------------------------
1,172 Royal Caribbean Cruises Ltd. Ser. A, $3.625 cv. cum. pfd. 134,634
Retail (--%)
- --------------------------------------------------------------------------------------------------------------------------
499 Ann Taylor Finance Trust $4.25 cv. cum. pfd. 60,130
1,020 CVS Auto Exchange $6.00 cv. pfd. 86,318
3,468 Dollar General Strypes Trust $3.352 cv. pfd. 140,454
4,633 K mart Financing I $3.875 cv. cum. pfd. 251,340
--------------
538,242
Telecommunications (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
4,150 AirTouch Communications, Inc. Ser. C, $2.125 cv. cum. pfd. 536,906
1,038 QUALCOMM Inc. $2.875 cum. pfd. 147,915
1,061 Qwest Trends Trust 144A $5.75 cv. pfd. 78,116
234 TCI Pacific Comm $5.00 cv. pfd. 74,997
--------------
837,934
Transportation (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
11,125 Union Pacific Capital Trust $3.125 cv. cum. pfd. 591,016
Utilities (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
6,300 CalEnergy Capital Trust $3.125 cv. cum. pfd. 351,225
27,585 El Paso Energy Capital Trust $2.375 cv. pfd. 1,382,698
6,051 Houston Industries, Inc. $3.22 cv. pfd 712,505
2,900 KN Energy Inc. $3.55 cv. pfd. 92,438
3,000 Nipsco $3.875 cv. pfd. 153,000
400 Texas Utilities Co. $0.205 cv. pfd. 17,450
--------------
2,709,316
--------------
Total Convertible Preferred Stocks (cost $20,943,203) $ 20,594,042
COLLATERALIZED MORTGAGE OBLIGATIONS (2.3%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 22,347 Chase Mortgage Finance Corp. Ser. 93-3, Class B13,
7.461s, 2024 $ 21,371
Commercial Mortgage Acceptance Corp.
240,000 Ser. 97-ML1, Class D, 7.11s, 2030 236,738
1,040,000 Ser. 97-ML1, Class A3, 6.57s, 2007 1,051,050
1,560,000 Ser. 98-C2, Class A2, 6.03s, 2008 1,530,994
366,943 First Union-Lehman Brothers -- Bank of America Ser. 98-C2,
Class A1, 6.28s, 2007 368,691
First Union-Lehman Brothers Commercial Mortgage Co.
290,000 Ser. 97-C2, Class D, 7.12s, 2012 277,494
620,000 Ser. 97-C2, Class A3, 6.65s, 2008 628,380
28,678,021 Ser. 98-C2, Interest only (IO), 0.816s, 2028 1,130,317
Freddie Mac Strip
1,681,788 Ser. 192, IO, 6 1/2s, 2028 468,891
5,502,937 Ser. 299, class 2, IO, 6 1/2s, 2028 1,564,898
482,240 Ser. 176, Principal only (PO), zero %, 2026 373,209
1,641,771 Ser. 177, PO, zero %, 2026 1,270,577
2,022,534 Ser. 188, IO, zero %, 7 1/2s, 2027 435,793
740,000 GE Capital Mtg. Services, Inc. Ser. 98-24, Class A5, 6 3/4s, 2028 735,878
GMAC Commercial Mortgage Securities Inc.
1,190,000 Ser. 98-C1, Class E, 7.153s, 2011 1,159,599
3,473,635 Ser. 98-C2, Class A2, 6.42s, 2008 3,472,685
1,715,000 Ser. 99-C1, Class A2, 6.135s, 2033 1,681,236
540,000 GS Mortgage Securities Corp. II Ser. 98-GLII, Class D,
7.191s, 2031 516,544
Housing Securities Inc.
303,855 Ser. 91-B, Class B6, 9s, 2006 303,285
421,807 Ser. 93-F, Class F9M2, 7s, 2023 418,644
1,099 Ser. 93-J, Class J4, 6.66s, 2009 998
131,426 Ser. 94-1, Class AB1, 6 1/2s, 2009 117,133
2,377,723 Merrill Lynch Mortgage Investors, Inc. Ser. 98-C2, IO,
1.587s, 2030 181,183
Morgan Stanley Capital I
545,000 Ser. 96-WF1, Class A2, 7.218s, 2006 564,586
305,000 Ser. 98-XL1, Class E, 6.989s, 2030 297,947
4,360,720 Mortgage Capital Funding, Inc. Ser. 97-MC2,
Class X, IO, 1.368s, 2012 323,477
573,188 Prudential Home Mortgage Securities Ser. 92-25,
Class B3, 8s, 2022 579,636
Prudential Home Mortgage Securities 144A
171,346 Ser. 94-31, Class B3, 8s, 2009 171,025
14,242 Ser. 93-E, Class 5B, 7.394s, 2023 12,418
24,304 Ser. 93-D, Class 2B, 7.108s, 2023 24,182
975,000 Residential Asset Securitization Trust, Ser. 98-A12,
Class A14, 8s, 2028 1,021,617
--------------
Total Collateralized Mortgage Obligations (cost $21,100,011) $ 20,940,476
FOREIGN GOVERNMENT BONDS AND NOTES (0.6%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 3,555,000 Ontario (Province of) sr. unsub. 5 1/2s, 2008 (Canada) $ 3,416,533
2,320,000 Quebec (Province of) sr. unsub. 5 3/4s, 2009 (Canada) 2,240,006
--------------
Total Foreign Government Bonds and Notes
(cost $5,841,939) $ 5,656,539
ASSET-BACKED SECURITIES (0.5%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 913,155 Green Tree Recreational Equipment & Cons. Ser. 98-A,
Class A1C, 6.18s, 2019 $ 915,189
7,525,000 Lehman Manufactured Housing Ser. 98-1, Class 1, IO,
0.82s, 2028 286,009
3,420,746 Provident Bank Home Equity Loan Trust Ser. 99-1,
Class A2, 5.08s, 2019 3,420,746
--------------
Total Asset-Backed Securities (cost $4,705,448) $ 4,621,944
PREFERRED STOCKS (0.2%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
1,326 AmeriKing, Inc. $3.25 pfd. (PIK) $ 33,813
118 Capstar Broadcasting, Inc. 144A $12.00 pfd. (PIK) 14,514
627 Capstar Communications, Inc. Ser. E, $12.625 cum. pfd. (PIK) 77,748
1,090 Centaur Funding Corp 144A 9.08% pfd. (Cayman Islands) 1,188,122
315 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. 16,931
1,147 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 134,773
55 Fresenius Medical Capital Trust I company guaranty, Ser. D,
9.00% pfd. (Germany) 57,338
170 Fresenius Medical Capital Trust II company guaranty,
7.875% pfd. (Germany) 168,300
1,444 Nextlink Communications, Inc. 144A $7.00 cum. pfd. (PIK) 79,420
15 Paxson Communications Corp. $13.25 cum. pfd. (PIK) 126,750
13,362 TCR Holding Corp. zero % cum. pfd. 802
--------------
Total Preferred Stocks (cost $1,770,008) $ 1,898,511
UNITS (--%) (a)
NUMBER OF UNITS VALUE
- --------------------------------------------------------------------------------------------------------------------------
80 Mediq Inc. 144A units stepped-coupon zero %
(13s, 6/1/03) 2009 (STP) $ 1
190,000 United Artists Theatre sr. sub. notes Ser. B, 9 3/4s, 2008 161,500
--------------
Total Units (cost $190,145) $ 161,501
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 19,000
360 Diva Systems Corp. 3/1/08 4,680
1,275 DTI Holdings Inc. 3/1/08 13
70 Epic Resorts 6/15/05 1
40 Esat Holdings, Inc. (Ireland) 2/1/07 2,960
150 Intermedia Communications, Inc. 6/1/00 16,050
80 KMC Telecom Holdings, Inc. 4/15/08 240
85 Knology Holdings, Inc. 144A 10/15/07 170
30 Long Distance International, Inc. 144A 4/15/08 60
45 McCaw International Ltd. 4/15/07 191
20 Onepoint Communications, Inc. 6/1/08 20
60 Pathnet, Inc. 144A 4/15/08 600
640 Rhythms Netcon 144A 5/15/08 143,712
80 Startec Global Communications Corp. 5/15/08 80
40 Telehub Communications Corp. 7/31/05 200
125 UIH Australia/Pacific, Inc. 144A 5/15/06 125
40 Versatel Telecom 144A 5/15/08 2,800
--------------
Total Warrants (cost $15,386) $ 190,932
SHORT-TERM INVESTMENTS (1.9%) (a) (cost $17,407,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 17,407,000 Interest in $600,000,000 joint repurchase agreement dated
April 30, 1999 with Salomon, Smith Barney Inc. due
May 3, 1999 with respect to various U.S. Treasury
obligations -- maturity value of $17,414,108 for an
effective yield of 4.9% $ 17,407,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $820,629,758) (b) $ 906,978,024
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $908,626,551.
(b) The aggregate identified cost on a tax basis is $821,614,955, resulting in gross unrealized appreciation and
depreciation of $913,199,263 and $827,836,194, respectively, or net unrealized appreciation of $85,363,069.
(NON) Non-income-producing security.
(STP) The interest rate and date shown parenthetically represent the new interest rate to be paid and the date the fund
will begin receiving interest at this rate.
(PIK) Income may be received in cash or additional securities at the discretion of the issuer.
(SEG) A portion of these Securities were pledged and segregated with the custodian to cover margin requirements for futures
contracts at April 30, 1998.
(CUS) This entity provides subcustodian services to the fund.
144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional
buyers.
ADR after the name of a foreign holding stands for American Depository Receipts, representing ownership of foreign
securities on deposit with a domestic custodian bank.
TBA after the name of a security represents to be announced securities (Note 1).
FLIRB represents Front Loaded Interest Reduction Bond.
- -------------------------------------------------------------------------------
Forward Currency Contracts to Buy at April 30, 1999 (Unaudited)
Aggregate Face Delivery Unrealized
Market Value Value Date Depreciation
- -------------------------------------------------------------------------------
Euro Dollar $15,600,621 $16,095,374 6-16-99 $(494,753)
- -------------------------------------------------------------------------------
Forward Currency Contracts to Sell at April 30, 1999 (Unaudited)
Market Aggregate Face Delivery Unrealized
Value Value Date Appreciation
- -------------------------------------------------------------------------------
Euro Dollar $14,966,225 $15,470,447 6-16-99 $ 504,222
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at April 30, 1999 (Unaudited)
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- -------------------------------------------------------------------------------
U.S. Treasury Bond
20 yr. (long) $ 8,172,750 $ 8,330,677 Jun-99 $(157,927)
- -------------------------------------------------------------------------------
TBA Sale Commitments at April 30, 1999 (Unaudited)
(Proceeds receivable $504,034)
Principal Settlement Market
Agency Amount Date Value
- -------------------------------------------------------------------------------
GNMA, 7s, May 2029 $ 494,000 5/24/99 $ 501,252
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
April 30, 1999 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $820,629,758) (Note 1) $906,978,024
- -----------------------------------------------------------------------------------------------
Cash 257,708
- -----------------------------------------------------------------------------------------------
Dividends, interest, and other receivables 6,822,454
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,845,071
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 52,194,531
- -----------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 504,222
- -----------------------------------------------------------------------------------------------
Total assets 968,602,010
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for variation margin 125,537
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 55,434,148
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,501,857
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,279,224
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 132,257
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 5,072
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,349
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 302,966
- -----------------------------------------------------------------------------------------------
Payable for open forward currency contracts 494,753
- -----------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 115,491
- -----------------------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable $504,034) 501,252
- -----------------------------------------------------------------------------------------------
Other accrued expenses 79,553
- -----------------------------------------------------------------------------------------------
Total liabilities 59,975,459
- -----------------------------------------------------------------------------------------------
Net assets $908,626,551
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $784,082,296
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (1,580,301)
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 39,961,651
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 86,162,905
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $908,626,551
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($699,868,580 divided by 61,711,565 shares) $11.34
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $11.34)* $12.03
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($191,672,189 divided by 17,057,020 shares)** $11.24
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($15,284,208 divided by 1,355,314 shares) $11.28
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $11.28)* $11.69
- -----------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($1,801,574 divided by 158,797 shares) $11.35
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group
sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended April 30, 1999 (Unaudited)
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest $14,515,503
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $4,722) 4,979,321
- -----------------------------------------------------------------------------------------------
Total investment income 19,494,824
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,561,252
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 811,632
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 5,841
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 4,989
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 825,189
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 837,477
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 50,433
- -----------------------------------------------------------------------------------------------
Reports to shareholders 33,685
- -----------------------------------------------------------------------------------------------
Auditing 45,353
- -----------------------------------------------------------------------------------------------
Legal 4,270
- -----------------------------------------------------------------------------------------------
Other 28,080
- -----------------------------------------------------------------------------------------------
Total expenses 5,208,201
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (141,504)
- -----------------------------------------------------------------------------------------------
Net expenses 5,066,697
- -----------------------------------------------------------------------------------------------
Net investment income 14,428,127
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 38,214,047
- -----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (265,524)
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (40,304)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 82,365
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures and
TBA sale commitments during the period 38,473,543
- -----------------------------------------------------------------------------------------------
Net gain on investments 76,464,127
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $90,892,254
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
April 30 October 31
1999* 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 14,428,127 $ 25,856,493
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 37,908,219 49,060,186
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments
and assets and liabilities in foreign currencies 38,555,908 (23,018,297)
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 90,892,254 51,898,382
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (13,200,111) (20,208,084)
- ---------------------------------------------------------------------------------------------------------------
Class B (2,737,532) (3,074,445)
- ---------------------------------------------------------------------------------------------------------------
Class M (233,358) (283,338)
- ---------------------------------------------------------------------------------------------------------------
Class Y (19,807) --
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (36,839,092) (49,312,780)
- ---------------------------------------------------------------------------------------------------------------
Class B (8,807,169) (7,189,378)
- ---------------------------------------------------------------------------------------------------------------
Class M (691,688) (717,582)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 73,632,357 158,747,947
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 101,995,854 129,860,722
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 806,630,697 676,769,975
- ---------------------------------------------------------------------------------------------------------------
End of period (including distributions
in excess of net investment income and
undistributed net investment income of
$1,580,301 and $182,380, respectively) $908,626,551 $806,630,697
- ---------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share April 30
operating performance (Unaudited) Year ended October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $11.01 $11.48 $10.67 $9.84 $8.68 $9.28
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .19(c) .40(c) .42 .44 .45 .43
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .99 .46 1.46 1.01 1.17 (.49)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.18 .86 1.88 1.45 1.62 (.06)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.36) (.40) (.43) (.46) (.43)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.63) (.97) (.67) (.19) -- (.11)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.85) (1.33) (1.07) (.62) (.46) (.54)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $11.34 $11.01 $11.48 $10.67 $9.84 $8.68
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 11.31* 7.86 18.87 15.31 19.32 (.61)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $699,869 $644,902 $585,624 $496,882 $468,725 $455,299
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .53* 1.13 1.15 1.20 1.15 1.08
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.78* 3.51 3.73 4.28 4.93 4.92
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 85.47* 124.34 152.66 142.36 131.00 125.69
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended October 31, 1995 and thereafter, includes amounts paid
through expense offset and brokerage service arrangements. Prior period ratios exclude these amounts (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share April 30 Feb. 1, 1994+
operating performance (Unaudited) Year ended October 31 to Oct. 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.92 $11.40 $10.60 $9.80 $8.67 $9.31
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .15(c) .31(c) .35 .36 .38 .34
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .98 .46 1.45 1.00 1.15 (.60)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.13 .77 1.80 1.36 1.53 (.26)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.18) (.28) (.33) (.37) (.40) (.27)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.63) (.97) (.67) (.19) -- (.11)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.81) (1.25) (1.00) (.56) (.40) (.38)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $11.24 $10.92 $11.40 $10.60 $9.80 $8.67
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 10.91* 7.08 18.11 14.36 18.25 (2.75)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $191,672 $149,712 $82,759 $35,118 $10,073 $4,196
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .91* 1.88 1.90 1.97 1.91 1.34*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.39* 2.76 2.98 3.51 4.09 3.20*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 85.47* 124.34 152.66 142.36 131.00 125.69
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended October 31, 1995 and thereafter, includes amounts paid
through expense offset and brokerage service arrangements. Prior period ratios exclude these amounts (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share April 30 Mar. 17, 1995+
operating performance (Unaudited) Year ended October 31 to Oct. 31
- ------------------------------------------------------------------------------------------------------------------------------------
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 .16(c) .34(c) .36 .42 .25
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .99 .45 1.47 .98 .90
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.15 .79 1.83 1.40 1.15
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.20) (.30) (.35) (.40) (.21)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.63) (.97) (.67) (.19) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.83) (1.27) (1.02) (.59) (.21)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $11.28 $10.96 $11.44 $10.63 $9.82
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 11.01* 7.30 18.41 14.76 13.13*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $15,284 $12,017 $8,387 $3,551 $522
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .78* 1.63 1.65 1.72 1.09*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.52* 3.01 3.23 3.74 2.76*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 85.47* 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) The ratio of expenses to average net assets for the year ended October 31, 1995 and thereafter, includes amounts paid
through expense offset and brokerage service arrangements. Prior period ratios exclude these amounts (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS Y
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share January 4, 1999+
operating performance to April 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $10.79
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .12(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .56
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .68
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $11.35
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 6.33*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,802
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .26*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.15*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 85.47
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended October 31, 1995 and thereafter, includes amounts paid
through expense offset and brokerage service arrangements. Prior period ratios exclude these amounts (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
</TABLE>
Notes to financial statements
April 30, 1999 (Unaudited)
Note 1
Significant accounting policies
Putnam Balanced Retirement Fund (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund seeks high current return by
investing in a diversified portfolio of equity and debt securities, with
secondary objective of stability of principle.
The fund offers class A, class B, class M and class Y shares. The fund
began offering class Y shares on January 4, 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 M shares are
sold with a maximum front-end sales charge of 3.50% and pay an ongoing
distribution fee that is lower than class B shares and higher than class A
shares. Class Y shares, which are sold at net asset value, are generally
subject to the same expenses as class A, class B, 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. Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported -- as in the case of
some securities traded over-the-counter -- the last reported bid price.
Securities quoted in foreign currencies are translated into U.S. dollars
at the current exchange rate. Short-term investments having remaining
maturities of 60 days or less are stated at amortized cost which
approximates market, and 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, approved by the Trustees,
which determines valuations for normal, institutional-size trading units
of such securities using methods based on market transactions for
comparable securities and various relationships between securities which
are generally recognized by institutional traders.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam 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). 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. Any premium resulting
from the purchase of stepped coupon securities is amortized on a
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.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a decline
in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of a currency in which securities a fund intends to buy are
denominated, when a fund holds cash reserves and short-term investments).
The U.S. dollar value of forward currency contracts is determined using
current forward currency exchange rates supplied by a quotation service.
The market value of the contract will fluctuate with changes in currency
exchange rates. The contract is "marked to market" daily and the change in
market value is recorded as an unrealized gain or loss. When the contract
is closed, the fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed. The fund could be exposed to risk if
the value of the currency changes unfavorably, if the counterparties to
the contracts are unable to meet the terms of their contracts or if the
fund is unable to enter into a closing position.
G) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on securities
it owns or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of
the underlying instruments, if there is an illiquid secondary market for
the contracts, or if the counterparty to the contract is unable to
perform. When the contract is closed, the fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed. Realized gains and
losses on purchased options are included in realized gains and losses on
investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices supplied
by dealers.
H) TBA purchase commitments The fund may enter into "TBA" (to be
announced) purchase commitments to purchase securities for a fixed unit
price at a future date beyond customary settlement time. Although the unit
price has been established, the principal value has not been finalized.
However, the amount of the commitments will not fluctuate more than 1.0%
from the principal amount. The fund holds, and maintains until settlement
date, cash or high-grade debt obligations in an amount sufficient to meet
the purchase price, or the fund may enter into offsetting contracts for
the forward sale of other securities it owns. Income on the securities
will not be earned until settlement date. TBA purchase commitments may be
considered securities in themselves, and involve a risk of loss if the
value of the security to be purchased declines prior to the settlement
date, which risk is in addition to the risk of decline in the value of the
fund's other assets. Unsettled TBA purchase commitments are valued at the
current market value of the underlying securities, according to the
procedures described under "Security valuation" above.
Although the fund will generally enter into TBA purchase commitments with
the intention of acquiring securities for their portfolio or for delivery
pursuant to options contracts it has entered into, the fund may dispose of
a commitment prior to settlement if Putnam Management deems it appropriate
to do so.
I) TBA sale commitments The fund may enter into TBA sale commitments to
hedge its portfolio positions or to sell mortgage-backed securities it
owns under delayed delivery arrangements. Proceeds of TBA sale commitments
are not received until the contractual settlement date. During the time a
TBA sale commitment is outstanding, equivalent deliverable securities, or
an offsetting TBA purchase commitment deliverable on or before the sale
commitment date, are held as "cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of
the underlying securities, generally according to the procedures described
under "Security valuation" above. The contract is "marked-to-market" daily
and the change in market value is recorded by the fund as an unrealized
gain or loss. If the TBA sale commitment is closed through the acquisition
of an offsetting purchase commitment, the fund realizes a gain or loss. If
the fund delivers securities under the commitment, the fund realizes a
gain or a loss from the sale of the securities based upon the unit price
established at the date the commitment was entered into.
J) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the six months
ended April 30, 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.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations.
Note 2
Management fee, administrative
services, and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
Such fee is based on the following annual rates: 0.65% 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.
For the six months ended April 30, 1999, fund expenses were reduced by
$141,504 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 $840 has
been allocated to the fund, and an additional fee for each Trustee's
meeting attended. Trustees who are not interested persons of Putnam
Management and who serve on committees of the Trustees receive additional
fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
in the fund and are invested in certain Putnam funds until distribution in
accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as Trustee for at least five years. Benefits under the Pension Plan
are equal to 50% of the Trustee's average total retainer and meeting fees
for the three years preceding retirement. Pension expense for the fund is
included in Compensation of Trustees in the Statement of operations.
Accrued pension liability is included in Payable for compensation of
Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to compensate
Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments
Inc., for services provided and expenses incurred by it in distributing
shares of the fund. The Plans provide for payments by the fund to Putnam
Mutual Funds Corp. at an annual rate up to 0.35%, 1.00% and 1.00% of the
average net assets attributable to class A, class B and class M shares,
respectively. The Trustees have approved payment by the fund to an annual
rate of 0.25%, 1.00% and 0.75% of the average net assets attributable to
class A, class B and class M shares respectively.
For the six months ended April 30, 1999, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $128,184 and $6,704 from the
sale of class A and class M shares, respectively and $133,750 in
contingent deferred sales charges from redemptions of class B shares. A
deferred sales charge of up to 1% is assessed on certain redemptions of
class A shares. For the six months ended April 30, 1999, Putnam Mutual
Funds Corp., acting as underwriter received $932 on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended April 30, 1999, purchases and sales of
investment securities other than U.S. government obligations and
short-term investments aggregated $501,030,286 and $440,541,849,
respectively. Purchases and sales of U.S. government obligations
aggregated $255,662,995 and $261,524,120, respectively. In determining the
net gain or loss on securities sold, the cost of securities has been
determined on the identified cost basis.
Note 4
Capital shares
At April 30, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended April 30, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 5,680,733 $ 61,661,289
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,745,573 39,776,210
- -----------------------------------------------------------------------------
9,426,306 101,437,499
Shares
repurchased (6,274,292) (68,135,552)
- -----------------------------------------------------------------------------
Net increase 3,152,014 $ 33,301,947
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Six months ended April 30, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 4,074,264 $ 43,846,705
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 959,680 10,113,514
- -----------------------------------------------------------------------------
5,033,944 53,960,219
Shares
repurchased (1,686,316) (18,131,887)
- -----------------------------------------------------------------------------
Net increase 3,347,628 $ 35,828,332
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Six months ended April 30, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 343,000 $ 3,711,788
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 83,174 879,107
- -----------------------------------------------------------------------------
426,174 4,590,895
Shares
repurchased (167,639) (1,822,667)
- -----------------------------------------------------------------------------
Net increase 258,535 $ 2,768,228
- -----------------------------------------------------------------------------
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 January 4, 1999
(commencement of operations)
to April 30, 1999
- -----------------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------------
Shares sold 178,936 $1,955,735
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,842 19,807
- -----------------------------------------------------------------------------
180,778 1,975,542
Shares
repurchased (21,981) (241,692)
- -----------------------------------------------------------------------------
Net increase 158,797 $1,733,850
- -----------------------------------------------------------------------------
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds. Please
call your financial advisor or Putnam at 1-800-225-1581 to obtain a prospectus
for any Putnam fund. It contains more complete information, including charges
and expenses. Please read it carefully before you invest or send money.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Quality Bond Fund + [DBL. DAGGER]
High Yield Advantage Fund [DBL. DAGGER]
High Yield Total Return Fund
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
TAX-FREE INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota,
New Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK] **
California, New York
ASSET ALLOCATION FUNDS
Putnam Asset Allocation Funds -- three investment portfolios that spread
your money across a variety of stocks, bonds, and money market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Putnam Diversified Income Trust II
+ Formerly Putnam Federal Income Trust
[DBL. DAGGER] Closed to new investors. Some exceptions may apply. Contact
Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
Our commitment to quality service
* CHOOSE AWARD-WINNING SERVICE
Putnam Investments has won the DALBAR Service Award 8 times in the past 9
years. In 1997 and 1998, Putnam was the only company to win all three
DALBAR awards: for service to investors, to financial advisors, and to
variable annuity contract holders.*
* HELP YOUR INVESTMENTS GROW
Set up a systematic program for investing with as little as $25 a month
from a Putnam money market fund or from your checking or savings account.+
* SWITCH FUNDS EASILY
Within the same class of shares, you can move money from one account to
another without a service charge. (This privilege is subject to change or
termination.)
* ACCESS YOUR MONEY QUICKLY
You can get checks sent regularly or redeem shares any business day at the
then-current net asset value, which may be more or less than the original
cost of the shares.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a helpful
Putnam representative. To learn more about Putnam, visit our Web site.
www.putnaminv.com
To make an additional investment in this or any other Putnam fund, contact
your financial advisor or call our toll-free number.
1-800-225-1581
* DALBAR, Inc., an independent research firm, presents the awards to financial
services firms that provide consistently excellent service.
+ Regular investing, of course, does not guarantee a profit or protect
against a loss in a declining market.
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
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
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Thomas V. Reilly
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
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Balanced
Retirement Fund. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and
the most recent copy of Putnam's Quarterly Performance Summary. For more
information or to request a prospectus, call toll free: 1-800-225-1581.
You can also learn more at Putnam Investments' 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
SA018 52522 034/243/908 6/99
- -----------------------------------------------------------------------------
Putnam Balanced Retirement Fund
Supplement to Semiannual Report dated 4/30/99
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, B,
and M shares, which are discussed more extensively in the annual report.
SEMIANNUAL RESULTS AT A GLANCE
- -----------------------------------------------------------------------------
Total return NAV
Six months ended 4/30/99 11.48%
One year ended 4/30/99 8.08
Five years ended 4/30/99 15.09
Ten years ended 4/30/99 12.45
Life of class (since 4/19/85)
Annual average 11.52
- -----------------------------------------------------------------------------
Share value: NAV
10/31/98 $11.01
4/30/99 11.35
- -----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
2 $0.227 $0.629 $0.856
- -----------------------------------------------------------------------------
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. Performance data reflects an expense limitation previously in effect.
Without the expense limitation, total returns would have been lower.
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.
