Putnam
Balanced
Retirement
Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
4-30-00
[SCALE LOGO OMITTED]
FROM THE CHAIRMAN
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[COPYRIGHT] Karsh, Ottawa
Dear Shareholder:
This is the last letter to you and the other shareholders of Putnam
Balanced Retirement Fund that I will be signing. After more than 30
years as Chairman of the Trustees and President of the Putnam Funds, the
time has come for me to step aside. As of July 1, 2000, John Hill will
become Chairman. John is currently an independent Trustee and has served
on the board for the past 14 years. In addition, my son, George Putnam,
III, will take on the role of President. I am confident that the
leadership of the funds will be in exceptionally strong hands.
I will become Chairman Emeritus, remain a Putnam shareholder, and stay
in close touch with the funds. It has been my privilege to serve you.
In one final piece of news, I am pleased to announce the addition of
David L. King and Jeanne L. Mockard to your fund's management team. Dave
has been with Putnam since 1983 and has 18 years of investment
experience. Jeanne joined Putnam in 1985 and has 15 years of investment
experience.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
June 21, 2000
REPORT FROM THE FUND MANAGERS
David L. King
Jeanne L. Mockard
Charles G. Pohl
James M. Prusko
and the Core Fixed-
Income Team
Rising interest rates caused problems for the value stocks and
fixed-income investments in Putnam Balanced Retirement Fund's portfolio
during the six months ended April 30, 2000. Nevertheless, some positive
trends developed toward the end of the period. The market rotated away
from "new economy" growth stocks that had reached astonishingly high
valuations and back toward the numerous quality old economy stocks that
had come to populate the value universe. The fund's conservative
investment approach left it poised to benefit from this shift and to
some extent, helped protect it from the significant volatility that hit
the markets during the period.
Total return for 6 months ended 4/30/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
----------------------------------------------------------------------
-1.84% -7.48% -2.26% -6.80% -2.25% -3.16% -2.31% -5.69%
----------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 5.
* HIGH EXPECTATIONS, HIGH VALUATIONS
The first four months of the period turned out to be among the most
glorious in history for aggressive growth stock performance,
particularly in the technology sector. For its part, your fund lagged
the market because it is a mirror image of an aggressive portfolio. It
is characterized by a diversified, conservative, value-oriented
approach. As this growth run-up was happening, many of the stocks that
had entered the value universe offered generally rising profits.
Nevertheless, their valuations began the period at low levels and then
fell even lower.
That development prompted a shift in March. Investors became more aware
of the risks inherent in owning stocks of companies that offered high
expectations and high valuations but no earnings and low yields. They
moved to take advantage of the attractive valuations in the rest of the
market, and value stocks posted a double-digit recovery during a time
when the Standard & Poor's 500 Index posted negative returns.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Banking 9.4%
Oil and gas 6.0%
Electric utilities 4.5%
Telecommunications 3.8%
Regional Bells 3.8%
Footnote reads:
*Based on net assets as of 4/30/00. Holdings will vary over time.
* PORTFOLIO QUALITY UPGRADED
The market's advance through the first four months of the period was
quite narrow, with new economy growth stocks enjoying nearly all the
attention. Regardless of their prospects, old economy stocks fell out of
favor, reaching exceptionally attractive prices. Some especially
high-quality companies were selling at similar valuations to their
lower-quality brethren. Therefore, we were able to increase the overall
quality of the fund's portfolio at little cost, adding such names as
Fannie Mae, Freddie Mac, and Emerson Electric. While these holdings,
along with others discussed in this report, were viewed favorably at the
end of the period, all portfolio holdings are subject to review and
adjustment in accordance with the fund's strategy and may vary in the
future.
Looking back at the semiannual period, we would like to highlight three
stocks that contributed to performance. Hewlett-Packard benefited from
the appointment of a new CEO as well as its successful spinoff of
Agilent Technologies. Seagram, now a diversified entertainment company,
performed well as a result of speculation that the Bronfman family might
sell its controlling interest. Finally Pharmacia did well, as investors
came to appreciate the combined strength of the drug pipelines offered
by its Pharmacia, Upjohn, and Monsanto operations. On the down side, the
fund was hurt by not owning more large-capitalization companies such as
Enron and Morgan Stanley that are found in some value indexes. Other
than that, there were no investments that declined precipitously.
* MINOR ADJUSTMENTS MADE TO BOND PORTFOLIO
With interest rates on the rise, your fund's fixed-income investments
struggled along with the rest of the bond market. The makeup of the bond
portfolio remained relatively unchanged, with a neutral positioning
regarding interest rates that helped insulate it against major price
declines. Some changes were made on the margin regarding the fund's
corporate bond allocation. We moved some of the fund's investment -grade
corporate debt into slightly lower-quality BB-rated bonds, which we
believed offered a better risk/reward profile. We counterbalanced this
move by maintaining a relatively high weighting in mortgage-backed
securities that offered higher credit quality. This was a positive
attribute at a time when most non-Treasury sectors significantly
underperformed. Treasuries benefited from strong demand; investors
scrambled to scoop up diminishing supply after the Treasury announced
its intention to buy back outstanding debt and offer fewer securities at
future auctions.
"We would like to reassure shareholders that the change in the fund's
management will not result in a change in the fund's investment
philosophy. Among us, we have managed nearly all the funds in Putnam's
value group and bring to the table a combination of experience in
specialized sectors of the value universe as well as mainstream value
investing."
-- David L. King and Jeanne L. Mockard, managers, Putnam Balanced Retirement
Fund
* VALUE PHILOSOPHY REMAINS IN PLACE
We would like to reassure shareholders that the change in the fund's
management will not result in a change in the fund's investment
philosophy. Among us, we have managed nearly all the funds in Putnam's
value group and bring to the table a combination of experience in
specialized sectors of the value universe as well as mainstream value
investing.
While the fund will remain diversified going forward, we may eventually
place a bit more emphasis on those companies we consider to offer the
best potential. Overall, however, we would like to reaffirm our
commitment to the value style as a part of a diversified approach to
investing.
[GRAPHIC OMITTED: TOP FIVE EQUITY HOLDINGS]
TOP FIVE EQUITY HOLDINGS
ExxonMobil Corp.
Oil and gas
SBC Communications, Inc.
Regional Bells
AT&T Corp.
Telecommunications
Citigroup, Inc.
Financial
Fannie Mae
Financial
[GRAPHIC OMITTED: TOP FIVE FIXED-INCOME HOLDINGS]
TOP FIVE FIXED-INCOME HOLDINGS
Federal Home Loan Mortgage Corporation
6s, with due dates from 5/1/29 to 9/1/29
Government National Mortgage Association
pass-through certificates, 8s, with due dates from 1/15/22 to 12/15/27
Federal National Mortgage Association
pass-through certificates, 7 1/2s, with due dates from 4/1/30 to 5/1/30
Government National Mortgage Association
pass-through certificates, 7s, with due dates from 4/15/23 to 12/15/28
U.S. Treasury Notes
6 1/8s, 12/31/01
Footnote reads:
The top five equity holdings and the top five fixed-income holdings
represent 15.8% of the fund's net assets as of 4/30/00. Portfolio
holdings will vary over time.
* OUTLOOK: BRIGHTER PROSPECTS GOING FORWARD
The question is whether or not the heyday for value stocks will
continue. For at least a year, there have been a number of positive
factors for value stocks that have not been factored into the
marketplace. First, increasing global economic growth should help
because there are a lot of mature companies in the value universe with
global franchises. Second, we believe we are nearer to the end of the
Fed's program of interest-rate increases than we are to the beginning. A
soft landing -- with the Fed slowing growth enough to head off
inflation, but not so much that we enter a recession -- and continued
global growth would be an ideal scenario for the value style. We
probably will not see value stock prices rise as significantly as much
of the over-the-counter market did last year, but the stocks could be
poised to offer better returns than the market as a whole. The kinds of
value stocks now in the fund tend to offer lower risk, precisely the
investments appropriate for a retirement fund. We have had quite an
opportunity to buy exceptionally good companies at excellent prices, so
over time we expect that they will prove fruitful investments.
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 4/30/00, 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, as a secondary investment objective, the fund seeks relative
stability of principal from a diversified portfolio of equity and debt
securities.
TOTAL RETURN FOR PERIODS ENDED 4/30/00
Class A Class B Class C Class M
(inception dates) (4/19/85) (2/1/94) (7/26/99) (3/17/95)
NAV POP NAV CDSC NAV CDSC NAV POP
------------------------------------------------------------------------------
6 months -1.84% -7.48% -2.26% -6.80% -2.25% -3.16% -2.31% -5.69%
------------------------------------------------------------------------------
1 year -5.88 -11.27 -6.65 -10.91 -6.61 -7.46 -6.48 -9.76
------------------------------------------------------------------------------
5 years 70.86 60.99 64.60 62.60 64.51 64.51 66.74 60.92
Annual average 11.31 9.99 10.48 10.21 10.47 10.47 10.77 9.98
------------------------------------------------------------------------------
10 years 190.72 174.01 169.61 169.61 169.57 169.57 176.31 166.55
Annual average 11.26 10.61 10.43 10.43 10.42 10.42 10.70 10.30
------------------------------------------------------------------------------
Life of fund 333.67 308.87 282.52 282.52 287.07 287.07 297.07 283.27
Annual average 10.25 9.82 9.34 9.34 9.42 9.42 9.61 9.35
------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/00
Standard Lehman Brothers
& Poor's Govt./Corp. Consumer
500 Index Bond Index price index
-----------------------------------------------------------------------
6 months 7.19% 1.49% 1.84%
-----------------------------------------------------------------------
1 year 10.13 0.93 3.01
-----------------------------------------------------------------------
5 years 208.37 38.46 12.71
Annual average 25.25 6.72 2.42
-----------------------------------------------------------------------
10 years 458.94 118.09 32.82
Annual average 18.78 8.11 2.88
-----------------------------------------------------------------------
Life of fund 1124.25 261.29 60.15
Annual average 18.17 8.94 3.19
-----------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A and class M
shares reflect the current maximum initial sales charges of 5.75% and
3.50%, respectively. Class B share returns for the 1-, 5-, and 10-year
(where available) and life-of-fund periods reflect the applicable
contingent deferred sales charge (CDSC), which is 5% in the first year,
declines to 1% in the sixth year, and is eliminated thereafter. Returns
shown for class B and class M shares for periods prior to their
inception are derived from the historical performance of class A shares,
adjusted to reflect both the initial sales charge or CDSC, if any,
currently applicable to each class and in the case of class B and class
M shares the higher operating expenses applicable to such shares. For
class C shares, returns for periods prior to their inception are derived
from the historical performance of class A shares, adjusted to reflect
both the CDSC currently applicable to class C shares, which is 1% for
the first year and is eliminated thereafter, and the higher operating
expenses applicable to class C shares. All returns assume reinvestment
of distributions at NAV. Investment return and principal value will
fluctuate so that an investor's shares when redeemed may be worth more
or less than their original cost.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 4/30/00
Class A Class B Class C Class M
-----------------------------------------------------------------------------
Distributions (number) 2 2 2 2
-----------------------------------------------------------------------------
Income $0.220 $0.180 $0.199 $0.194
-----------------------------------------------------------------------------
Capital gains
Long-term 0.481 0.481 0.481 0.481
-----------------------------------------------------------------------------
Short-term 0.081 0.081 0.081 0.081
-----------------------------------------------------------------------------
Total $0.782 $0.742 $0.761 $0.756
-----------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
-----------------------------------------------------------------------------
10/31/99 $10.66 $11.31 $10.56 $10.64 $10.61 $10.99
-----------------------------------------------------------------------------
4/30/00 9.69 10.28 9.59 9.65 9.62 9.97
-----------------------------------------------------------------------------
Current return (end of period)
-----------------------------------------------------------------------------
Current dividend rate1 4.54% 4.28% 3.75% 4.10% 4.03% 3.89%
-----------------------------------------------------------------------------
Current 30-day
SEC yield2 4.02 3.79 3.26 3.27 3.52 3.39
-----------------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2Based on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 3/31/00 (most recent calendar quarter)
Class A Class B Class C Class M
(inception dates) (4/19/85) (2/1/94) (7/26/99) (3/17/95)
NAV POP NAV CDSC NAV CDSC NAV POP
------------------------------------------------------------------------------
6 months 0.82% -4.94% 0.52% -4.15% 0.51% -0.43% 0.36% -3.19%
------------------------------------------------------------------------------
1 year -0.87 -6.59 -1.54 -6.04 -1.65 -2.54 -1.38 -4.84
------------------------------------------------------------------------------
5 years 74.86 64.72 68.45 66.45 68.41 68.41 70.63 64.73
Annual average 11.82 10.50 10.99 10.73 10.99 10.99 11.28 10.50
------------------------------------------------------------------------------
10 years 185.30 168.92 164.73 164.73 164.60 164.60 171.26 161.90
Annual average 11.05 10.40 10.22 10.22 10.22 10.22 10.49 10.11
------------------------------------------------------------------------------
Life of fund 334.57 309.71 283.72 283.72 288.27 288.27 298.31 284.47
Annual average 10.33 9.89 9.41 9.41 9.50 9.50 9.69 9.43
------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns and principal value will fluctuate so that an investor's shares
when sold may be worth more or less than their original cost. See first
page of performance section for performance calculation method.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class C shares are not subject to an initial sales charge and are
subject to a contingent deferred sales charge only if the shares are
redeemed during the first year
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 5.75% maximum sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B or C 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 unmanaged list of
large-capitalization common stocks and is frequently used as a general
gauge of stock market performance.
Lehman Brothers Government/Corporate Bond Index* is an index of publicly
issued U.S. Treasury obligations, debt obligations of U.S. government
agencies (excluding mortgage-backed securities), fixed-rate,
nonconvertible, investment-grade corporate debt securities and U.S.
dollar-denominated, SEC-registered nonconvertible debt issued by foreign
governmental entities or international agencies used as a general
measure of the performance of fixed-income securities.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund will
differ. It is not possible to invest directly in an index.
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 are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss
for the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that
remain in the portfolio -- any change in unrealized gains or losses over
the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment income
ratios and portfolio turnover in one summary table, reflecting the five
most recent reporting periods. In a semiannual report, the highlight
table also includes the current reporting period. For open-end funds, a
separate table is provided for each share class.
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
April 30, 2000 (Unaudited)
COMMON STOCKS (50.1%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Aerospace/Defense (0.7%)
-------------------------------------------------------------------------------------------------------------------
87,900 Boeing Co. $ 3,488,531
76,500 Lockheed Martin Corp. 1,902,938
----------------
5,391,469
Airlines (0.3%)
-------------------------------------------------------------------------------------------------------------------
34,600 Delta Air Lines, Inc. 1,825,150
Automotive (0.5%)
-------------------------------------------------------------------------------------------------------------------
68,100 Ford Motor Co. 3,724,219
Banking (6.1%)
-------------------------------------------------------------------------------------------------------------------
120,043 Bank of America Corp. 5,882,107
114,200 BB&T Corp. 3,040,575
108,500 Charter One Financial, Inc. 2,203,906
42,700 Chase Manhattan Corp. 3,077,069
80,300 Comerica, Inc. 3,402,713
113,600 Firstar Corp. 2,825,800
108,000 FleetBoston Financial Corp. 3,827,250
81,300 Mellon Financial Corp. 2,611,763
19,900 Morgan (J.P.) & Co., Inc. 2,554,663
74,200 National City Corp. 1,261,400
71,100 PNC Bank Corp. 3,101,738
89,650 Synovus Financial Corp. 1,664,128
95,500 U.S. Bancorp 1,939,844
23,500 Wachovia Corp. 1,473,156
60,000 Washington Mutual, Inc. 1,533,750
102,600 Wells Fargo Co. 4,213,013
----------------
44,612,875
Beverage (0.8%)
-------------------------------------------------------------------------------------------------------------------
30,100 Anheuser-Busch Cos., Inc. 2,123,931
19,500 Brown-Forman Corp. Class B 1,063,969
78,400 Fortune Brands, Inc. 1,960,000
42,400 Pepsi Bottling Group, Inc. (The) 914,250
----------------
6,062,150
Broadcasting (--%)
-------------------------------------------------------------------------------------------------------------------
19 XM Satellite Radio Holdings, Inc. Class A 548
Capital Goods (0.4%)
-------------------------------------------------------------------------------------------------------------------
33,900 Eaton Corp. 2,847,600
Chemicals (2.1%)
-------------------------------------------------------------------------------------------------------------------
17,800 Dow Chemical Co. 2,011,400
75,138 du Pont (E.I.) de Nemours & Co., Ltd. 3,564,359
92,400 Engelhard Corp. 1,622,775
38,800 Minnesota Mining & Manufacturing Co. 3,356,200
49,100 PPG Industries, Inc. 2,669,813
39,100 Praxair, Inc. 1,737,506
----------------
14,962,053
Combined Utilities (0.3%)
-------------------------------------------------------------------------------------------------------------------
57,000 Constellation Energy Group 1,884,563
Computers (1.6%)
-------------------------------------------------------------------------------------------------------------------
45,200 Compaq Computer Corp. 1,322,100
18,500 Gateway, Inc. (NON) 1,022,125
42,000 Hewlett-Packard Co. 5,670,000
29,900 IBM Corp. 3,337,588
----------------
11,351,813
Conglomerates (0.4%)
-------------------------------------------------------------------------------------------------------------------
36,500 Honeywell International, Inc. 2,044,000
19,000 Tyco International, Ltd. 872,813
----------------
2,916,813
Consumer Finance (0.4%)
-------------------------------------------------------------------------------------------------------------------
50,500 Capital One Financial Corp. 2,209,375
36,700 MBNA Corp. 974,844
----------------
3,184,219
Consumer Goods (0.4%)
-------------------------------------------------------------------------------------------------------------------
49,800 Kimberly-Clark Corp. 2,891,513
Distribution (0.4%)
-------------------------------------------------------------------------------------------------------------------
73,400 SYSCO Corp. 2,761,675
Electric Utilities (3.0%)
-------------------------------------------------------------------------------------------------------------------
78,900 Carolina Power & Light Co. 2,884,781
67,300 CiNergy Corp. 1,800,275
46,700 Dominion Resources, Inc. 2,101,500
114,891 DPL, Inc. 2,671,216
66,400 Duke Energy Corp. 3,818,000
107,300 Entergy Corp. 2,729,444
72,300 Pacific Gas & Electric Co. 1,875,281
52,800 Reliant Energy, Inc. 1,405,800
79,100 Texas Utilities Co. 2,664,681
----------------
21,950,978
Electrical Equipment (0.6%)
-------------------------------------------------------------------------------------------------------------------
82,000 Emerson Electric Co. 4,499,750
2,178 Sensormatic Electronics Corp. 144A (NON) 36,345
395 Sensormatic Electronics Corp. (NON) 6,586
----------------
4,542,681
Electronics (0.5%)
-------------------------------------------------------------------------------------------------------------------
21,400 Motorola, Inc. 2,547,938
32,300 W W Grainger 1,401,013
----------------
3,948,951
Energy (0.7%)
-------------------------------------------------------------------------------------------------------------------
16,900 Grant Prideco, Inc. (NON) 325,325
2,422 Pride International, Inc. (NON) 54,798
26,800 Schlumberger, Ltd. 2,051,875
43,400 Transocean Sedco Forex, Inc. 2,039,800
16,900 Weatherford International, Inc. (NON) 686,563
----------------
5,158,361
Financial (2.8%)
-------------------------------------------------------------------------------------------------------------------
128,000 Citigroup, Inc. 7,608,000
121,700 Fannie Mae 7,340,031
25,600 Hartford Life, Inc. 1,260,800
67,300 Household International, Inc. 2,809,775
24,200 MGIC Investment Corp. 1,157,063
11,013 PSF Holdings LLC Class A 110,130
----------------
20,285,799
Food (0.8%)
-------------------------------------------------------------------------------------------------------------------
102,700 Archer Daniels Midland Co. 1,020,581
43,600 General Mills, Inc. 1,585,950
42,400 Heinz (H.J.) Co. 1,441,600
98,300 Sara Lee Corp. 1,474,500
----------------
5,522,631
Gaming & Lottery (--%)
-------------------------------------------------------------------------------------------------------------------
748 Fitzgerald Gaming Corp. 187
Health Care Services (1.0%)
-------------------------------------------------------------------------------------------------------------------
37,700 Baxter International, Inc. 2,455,213
33,200 CIGNA Corp. 2,647,700
139,500 HEALTHSOUTH Corp. (NON) 1,124,719
30,800 Mallinckrodt, Inc. 827,750
----------------
7,055,382
Household Furniture and Appliances (0.2%)
-------------------------------------------------------------------------------------------------------------------
21,100 Whirlpool Corp. 1,374,138
Insurance (2.2%)
-------------------------------------------------------------------------------------------------------------------
35,600 AFLAC, Inc. 1,737,725
56,900 Allstate Corp. 1,344,263
44,800 American General Corp. 2,508,800
16,300 American International Group, Inc. 1,787,906
40,800 AON Corp. 1,104,150
83,600 Hartford Financial Services Group 4,362,875
40,800 Lincoln National Corp. 1,420,350
71,100 Torchmark Corp. 1,781,944
----------------
16,048,013
Investment Banking/Brokerage (0.9%)
-------------------------------------------------------------------------------------------------------------------
60,365 Bear Stearns Companies, Inc. (The) 2,588,149
45,500 Franklin Resources, Inc. 1,467,375
64,700 Paine Webber Group, Inc. 2,838,713
----------------
6,894,237
Lodging/Tourism (0.5%)
-------------------------------------------------------------------------------------------------------------------
55,200 Marriott International, Inc. Class A 1,766,400
77,900 Starwood Hotels & Resorts Worldwide, Inc. 2,215,281
----------------
3,981,681
Machinery (0.1%)
-------------------------------------------------------------------------------------------------------------------
22,100 Caterpillar, Inc. 871,569
Manufacturing (0.4%)
-------------------------------------------------------------------------------------------------------------------
49,800 Illinois Tool Works, Inc. 3,190,313
Media (0.4%)
-------------------------------------------------------------------------------------------------------------------
68,700 Disney (Walt) Productions, Inc. 2,975,569
Metals (0.2%)
-------------------------------------------------------------------------------------------------------------------
25,900 Alcoa, Inc. 1,680,263
Natural Gas Utilities (0.5%)
-------------------------------------------------------------------------------------------------------------------
87,735 Sempra Energy 1,628,581
45,700 Williams Cos., Inc. 1,705,181
----------------
3,333,762
Oil & Gas (4.9%)
-------------------------------------------------------------------------------------------------------------------
68,200 BP Amoco Plc ADR (United Kingdom) 3,478,200
48,400 Chevron Corp. 4,120,050
76,100 Conoco, Inc. 1,812,131
73,617 Conoco, Inc. Class B 1,831,223
152,740 ExxonMobil Corp. 11,865,989
99,700 Royal Dutch Petroleum Co. Plc ADR (Netherlands) 5,720,288
43,900 Tosco Corp. 1,407,544
34,207 Total S.A. ADR (France) 2,586,904
127,900 Union Pacific Resources Group, Inc. 2,454,081
----------------
35,276,410
Paper & Forest Products (1.0%)
-------------------------------------------------------------------------------------------------------------------
74,200 Mead Corp. 2,583,088
82,900 Owens-Illinois, Inc. (NON) 1,119,150
72,500 Weyerhaeuser Co. 3,874,219
----------------
7,576,457
Pharmaceuticals (2.5%)
-------------------------------------------------------------------------------------------------------------------
90,700 Abbott Laboratories 3,486,281
75,300 Bristol-Myers Squibb Co. 3,948,544
50,500 Johnson & Johnson 4,166,250
91,020 Pharmacia Corp. 4,545,311
53,600 Schering-Plough Corp. 2,160,750
----------------
18,307,136
Photography/Imaging (0.5%)
-------------------------------------------------------------------------------------------------------------------
41,700 Eastman Kodak Co. 2,332,594
40,300 Xerox Corp. 1,065,431
----------------
3,398,025
Publishing (0.5%)
-------------------------------------------------------------------------------------------------------------------
45,300 McGraw-Hill, Inc. 2,378,250
37,000 Tribune Co. 1,438,375
----------------
3,816,625
Railroads (0.5%)
-------------------------------------------------------------------------------------------------------------------
90,000 Union Pacific Corp. 3,791,250
Real Estate (1.1%)
-------------------------------------------------------------------------------------------------------------------
106,100 Equity Office Properties Trust (R) 2,884,594
109,400 Equity Residential Properties Trust (R) 4,977,700
----------------
7,862,294
Regional Bells (3.7%)
-------------------------------------------------------------------------------------------------------------------
107,500 Bell Atlantic Corp. 6,369,375
116,100 BellSouth Corp. 5,652,619
77,900 GTE Corp. 5,277,725
220,760 SBC Communications, Inc. 9,672,048
----------------
26,971,767
Restaurants (--%)
-------------------------------------------------------------------------------------------------------------------
25 AmeriKing, Inc. (NON) 250
Retail (1.5%)
-------------------------------------------------------------------------------------------------------------------
47,400 Albertsons, Inc. 1,543,463
46,200 CVS Corp. 2,009,700
86,500 Federated Department Stores, Inc. (NON) 2,941,000
130,300 K mart Corp. (NON) 1,058,688
12 Mothers Work, Inc. (NON) 144
7,889 Pier 1 Imports, Inc. 89,737
49,500 Sears, Roebuck & Co. 1,812,938
71,600 Staples, Inc. 1,364,875
----------------
10,820,545
Software (0.3%)
-------------------------------------------------------------------------------------------------------------------
36,000 Computer Associates International, Inc. 2,009,250
Technology Services (0.5%)
-------------------------------------------------------------------------------------------------------------------
49,100 Electronic Data Systems Corp. 3,375,625
87 U.S. Interactive, Inc. (NON) 1,446
----------------
3,377,071
Telecommunications (2.4%)
-------------------------------------------------------------------------------------------------------------------
60,400 ALLTEL Corp. 4,024,150
183,500 AT&T Corp. 8,567,156
115 Leap Wireless International, Inc. (NON) 5,908
77,000 Sprint Corp. 4,735,500
----------------
17,332,714
Textiles (0.3%)
-------------------------------------------------------------------------------------------------------------------
128,658 Shaw Industries, Inc. 2,034,405
Tobacco (0.4%)
-------------------------------------------------------------------------------------------------------------------
127,900 Philip Morris Cos., Inc. 2,797,813
Toys (0.3%)
-------------------------------------------------------------------------------------------------------------------
125,450 Hasbro, Inc. 1,999,359
Trucks & Parts (0.2%)
-------------------------------------------------------------------------------------------------------------------
17,600 Johnson Controls, Inc. 1,114,300
Waste Management (0.3%)
-------------------------------------------------------------------------------------------------------------------
133,400 Waste Management, Inc. 2,117,713
----------------
Total Common Stocks (cost $351,889,481) $ 363,834,559
CORPORATE BONDS AND NOTES (22.9%) (a)
PRINCIPAL AMOUNT VALUE
Advertising and Marketing Services (--%)
-------------------------------------------------------------------------------------------------------------------
$ 210,000 Lamar Media Corp. sr. sub. notes 9 1/4s, 2007 $ 207,375
Aerospace and Defense (1.3%)
-------------------------------------------------------------------------------------------------------------------
180,000 Argo-Tech Corp. company guaranty Ser. D, 8 5/8s, 2007 136,800
1,885,000 Boeing Co. deb. 6 5/8s, 2038 1,590,865
1,450,000 Litton Industries, Inc. sr. notes 8s, 2009 1,360,550
2,335,000 Lockheed Martin Corp. bonds 8 1/2s, 2029 2,283,957
1,555,000 Norsk Hydro ASA notes 6.36s, 2009 (Norway) 1,399,687
1,330,000 Raytheon Co notes 6.45s, 2002 1,284,527
1,000,000 Raytheon Co. deb. 6.4s, 2018 816,470
500,000 Sequa Corp. sr. notes 9s, 2009 465,000
----------------
9,337,856
Agriculture (--%)
-------------------------------------------------------------------------------------------------------------------
142,320 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 129,511
Airlines (1.0%)
-------------------------------------------------------------------------------------------------------------------
725,000 Airbus Industries 144A notes Ser. A, 8.027s, 2020 717,562
1,394,466 Atlas Air, Inc. pass-through certificates Ser. 991A, 7.2s, 2019 1,231,899
30,000 Calair LLC 144A company guaranty 8 1/8s, 2008 25,988
1,632,190 Continental Airlines, Inc. pass-through certificates Ser. 981C,
6.541s, 2009 1,530,929
1,420,000 Delta Air Lines, Inc. notes 8.3s, 2029 1,267,350
470,000 Northwest Airlines, Inc. company guaranty 8.7s, 2007 440,672
110,000 Northwest Airlines, Inc. company guaranty 7 7/8s, 2008 93,610
2,029,113 Northwest Airlines Corp. pass-through certificate Ser. 1999-1A,
6.81s, 2020 1,757,739
----------------
7,065,749
Automotive (0.7%)
-------------------------------------------------------------------------------------------------------------------
1,365,000 Chrysler Corp. deb. Ser. B, 7.45s, 2097 1,238,437
1,040,000 Delphi Automotive Systems Corp. deb. 7 1/8s, 2029 880,994
950,000 Federal Mogul Corp. notes 7 1/2s, 2009 723,910
290,000 Federal Mogul Corp. notes 7 3/8s, 2006 235,553
710,000 Ford Motor Co. deb. 7.4s, 2046 651,737
105,000 Ford Motor Co. bonds 6 5/8s, 2028 89,835
190,000 Lear Corp. sub. notes 9 1/2s, 2006 183,128
80,000 Talon Automotive Group sr. sub. notes Ser. B, 9 5/8s, 2008 34,400
810,000 TRW, Inc. deb. 7 3/4s, 2029 720,398
----------------
4,758,392
Banking (3.3%)
-------------------------------------------------------------------------------------------------------------------
1,135,000 Abbey National Capital Trust I company guaranty 8.963s, 2049 1,100,950
615,000 BankAmerica Corp. sr. notes 5 7/8s, 2009 542,030
264,000 Bank United Corp. sub. notes 8 7/8s, 2007 248,395
1,630,000 Bank United Corp. notes, Ser. A, 8s, 2009 1,400,512
1,280,000 Bayer Hypo Vereinsbank 144A bonds 8.741s, 2031 (Germany) 1,182,310
1,885,000 Citicorp sub. notes 6 3/8s, 2008 1,724,078
950,000 Colonial Bank sub. notes 8s, 2009 880,517
15,000 Colonial Capital II 144A company guaranty 8.92s, 2027 13,668
1,150,000 First Citizens Bank Capital Trust I company guaranty
8.05s, 2028 927,188
1,675,000 First Union Capital II company guaranty Ser. A, 7.95s, 2029 1,541,050
705,000 First Union Institute Capital I bonds 8.04s, 2026 633,076
470,000 Firstar Bank Milwaukee sr. notes 6 1/4s, 2002 455,454
1,240,000 FleetBoston Corp. sub. notes 7 3/8s, 2009 1,190,226
1,145,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 1,020,985
1,085,000 Imperial Bank sub. notes 8 1/2s, 2009 986,157
1,520,000 NB Capital Trust IV company guaranty 8 1/4s, 2027 1,418,023
720,000 Norwest Corp. med. term sr. notes Ser. J, 6 3/4s, 2027 619,603
1,935,000 Peoples Bank-Bridgeport sub. notes 7.2s, 2006 1,764,333
15,000 Peoples Heritage Capital Trust company guaranty Ser. B,
9.06s, 2027 14,516
995,000 Royal Bank Of Scotland Group, Plc bonds Ser. 2, 8.817s, 2049
(United Kingdom) 1,007,656
2,000,000 Scotland International Finance 144A sub. notes 8.85s, 2006
(Netherlands) 2,093,660
980,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 967,750
780,000 Sovereign Bancorp, Inc. sr. notes 6 5/8s, 2001 756,525
985,000 St. Paul Bancorp sr. notes 7 1/8s, 2004 947,580
585,000 State Street Institution 144A company guaranty 7.94s, 2026 530,338
150,000 Webster Capital Trust I 144A bonds 9.36s, 2027 144,579
----------------
24,111,159
Beverage (0.1%)
-------------------------------------------------------------------------------------------------------------------
1,095,000 Pepsi Bottling Group, Inc. sr. notes Ser. B, 7s, 2029 965,582
Broadcasting (0.4%)
-------------------------------------------------------------------------------------------------------------------
70,000 Allbritton Communications Co. sr. sub. notes Ser. B, 8 7/8s, 2008 62,475
66,600 AMFM Operating, Inc. deb. 12 5/8s, 2006 (PIK) 76,007
12,500 Capstar Broadcasting sub. deb. 12s, 2009 (PIK) 14,125
205,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 205,513
75,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 72,188
250,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 215,625
2,140,000 News America Holdings, Inc. deb. 7 3/4s, 2045 1,825,784
700,000 News America Holdings, Inc. deb. 7.7s, 2025 620,942
----------------
3,092,659
Building Materials (--%)
-------------------------------------------------------------------------------------------------------------------
190,000 American Standard Companies, Inc. sr. notes 7 3/8s, 2008 173,850
70,000 Building Materials Corp. company guaranty 8s, 2008 59,150
----------------
233,000
Cable Television (0.1%)
-------------------------------------------------------------------------------------------------------------------
125,000 Century Communications Corp. sr. notes 9 1/2s, 2005 119,063
75,000 CSC Holdings, Inc. sr. sub. deb. 10 1/2s, 2016 81,188
30,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 27,011
260,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 202,800
90,000 NTL Communications Corp. sr. notes Ser. B, 11 1/2s, 2008 91,125
10,000 NTL, Inc. sr. notes, stepped-coupon Ser. B, zero %
(9 3/4s, 4/1/03), 2008 (United Kingdom) (STP) 6,325
90,000 TeleWest Communications Plc sr. disc. notes zero %,
(9 1/4, 4/15/04), 2009 (United Kingdom) (STP) 53,100
----------------
580,612
Chemicals (0.4%)
-------------------------------------------------------------------------------------------------------------------
735,000 Equistar Chemicals LP notes 9 1/8s, 2002 728,672
635,000 IMC Global, Inc. notes 7.4s, 2002 622,116
100,000 ISP Holdings, Inc. sr. notes Ser. B, 9 3/4s, 2002 95,250
1,100,000 Lyondell Petrochemical Co. sec. notes Ser. B, 9 7/8s, 2007 1,080,750
280,000 Lyondell Petrochemical Co. notes Ser. A, 9 5/8s, 2007 275,100
----------------
2,801,888
Coal (--%)
-------------------------------------------------------------------------------------------------------------------
140,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 28,000
Commercial and Consumer Services (--%)
-------------------------------------------------------------------------------------------------------------------
100,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 93,000
Computers (0.3%)
-------------------------------------------------------------------------------------------------------------------
2,425,000 IBM Corp. deb. 7 1/8s, 2096 2,216,305
Conglomerates (0.4%)
-------------------------------------------------------------------------------------------------------------------
1,665,000 Tyco International, Ltd. company guaranty 6 3/8s, 2005 1,548,800
1,530,000 Tyco International,Ltd. company guaranty 6 1/4s, 2003 1,453,347
----------------
3,002,147
Consumer Finance (1.1%)
-------------------------------------------------------------------------------------------------------------------
495,000 Associates Corp. deb. 6.95s, 2018 447,252
565,000 Associates First Capital Corp. sub. deb. 8.15s, 2009 573,283
700,000 Associates First Capital Corp. sr. notes 6 1/4s, 2008 628,719
110,000 Capital One Financial Corp. notes 7 1/4s, 2006 100,448
185,000 Capital One Financial Corp. notes 7 1/4s, 2003 178,405
140,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 14,000
150,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 15,000
720,000 Finova Capital Corp. notes 7 1/4s, 2004 663,098
515,000 Finova Capital Corp. notes 6 1/4s, 2002 477,832
1,500,000 Ford Motor Credit Corp. notes 7 3/8s, 2009 1,449,930
215,000 Ford Motor Credit Corp. notes 6.55s, 2002 209,681
1,405,000 Ford Motor Credit Corp. sr. notes 5.8s, 2009 1,225,596
525,000 Household Finance Corp. notes 6 1/2s, 2008 473,204
1,335,000 Household Finance Corp. sr. unsub. 5 7/8s, 2009 1,154,481
----------------
7,610,929
Consumer Services (--%)
-------------------------------------------------------------------------------------------------------------------
233,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 239,408
Electric Utilities (1.5%)
-------------------------------------------------------------------------------------------------------------------
1,005,000 Arizona Public Service Co. sr. notes 6 3/4s, 2006 924,148
960,000 CILCORP, Inc. sr. notes 8.7s, 2009 952,228
380,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 359,100
1,555,000 DPL, Inc. 144A sr. notes 8 1/4s, 2007 1,553,601
475,000 Niagara Mohawk Power Corp. sr. notes Ser. G, 7 3/4s, 2008 452,993
27,502 Northeast Utilities System notes Ser. A, 8.58s, 2006 27,444
446,133 Northeast Utilities System notes Ser. B, 8.38s, 2005 442,422
1,287,000 Public Service Co. of New Mexico deb. 10 1/4s, 2012 1,383,551
1,685,000 Texas New-Mexico Power Utilities 1st mtge. 9 1/4s, 2000 1,697,570
1,300,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 1,227,148
1,685,000 TXU Electrical Capital company guaranty 8.175s, 2037 1,526,374
130,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) 127,400
----------------
10,673,979
Energy (0.4%)
-------------------------------------------------------------------------------------------------------------------
370,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 375,550
300,000 Petro Geo-Services notes 7 1/2s, 2007 ADR (Norway) 284,067
1,505,000 Petro Geo-Services sr. notes 7 1/8s, 2028 (Norway) 1,249,797
290,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 284,200
90,000 RBF Finance Co. company guaranty 11 3/8s, 2009 96,300
200,000 RBF Finance Co. company guaranty 11s, 2006 212,000
----------------
2,501,914
Entertainment (0.1%)
-------------------------------------------------------------------------------------------------------------------
80,000 SFX Entertainment, Inc. company guaranty 9 1/8s, 2008 80,400
100,000 SFX Entertainment, Inc. 144A company guaranty Ser. B,
9 1/8s, 2008 100,000
190,000 United Artists Theatre sr. sub. notes 9 3/4s, 2008 (In default) (NON) 3,800
775,000 Walt Disney Co. med. term notes 5.62s, 2008 678,102
----------------
862,302
Financial (3.2%)
-------------------------------------------------------------------------------------------------------------------
400,000 Advanta Corp. notes Ser. C, 7.47s, 2001 384,672
40,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 37,758
295,000 Advanta Corp. notes Ser. C, 6.94s, 2001 283,643
150,000 Advanta Corp. notes Ser. D, 6.925s, 2002 139,736
140,000 Advanta Corp. med-term notes Ser. D, 6.92s, 2002 130,409
605,000 American General Institute 144A company guaranty
8 1/8s, 2046 565,276
1,260,000 AT&T Capital Corp. med. term notes 6.6s, 2005 1,202,330
270,000 Conseco Financial Corp. sr. sub. notes 10 1/4s, 2002 162,000
1,570,000 Conseco Financing Trust II company guaranty 8.7s, 2026 549,500
775,000 Conseco, Inc. med-term notes 6 1/2s, 2002 480,500
1,895,000 Executive Risk Capital Trust company guaranty Ser. B,
8.675s, 2027 1,768,395
140,000 Fremont General Corp. sr. notes Ser. B, 7.7s, 2004 121,517
1,440,000 Goldman Sachs Group, Inc. (The) notes Ser. B, 7.35s, 2009 1,375,934
520,000 Hartford Life, Inc. deb. 7.65s, 2027 488,462
1,855,000 Heller Financial, Inc. 144A notes 7 3/8s, 2009 1,752,752
1,030,000 Liberty Mutual Insurance 144A notes 7.697s, 2097 765,393
1,015,000 Markel Capital Trust I company guaranty Ser. B, 8.71s, 2046 762,864
785,000 Money Store, Inc. notes 8.05s, 2002 790,409
1,035,000 Newcourt Credit Group, Inc. company guaranty Ser. A,
7 1/8s, 2003 1,019,020
980,000 Newcourt Credit Group, Inc. company guarantee 6 7/8s, 2005 942,623
875,000 Presidential Life Corp. sr. notes 7 7/8s, 2009 761,250
1,445,000 Principal Financial Group 144A notes 7.95s, 2004 (Australia) 1,433,339
2,730,000 Provident Companies, Inc. bonds 7.405s, 2038 2,078,049
760,000 Safeco Capital Trust I company guaranty 8.072s, 2037 625,845
1,965,000 Sun Life Canada Capital Trust 144A company guaranty,
8.526s, 2049 1,746,099
1,955,000 Tig Capital Trust I 144A bonds 8.597s, 2027 1,809,587
1,235,000 Trenwick Capital Trust I company guaranty 8.82s, 2037 942,774
----------------
23,120,136
Gaming & Lottery (0.2%)
-------------------------------------------------------------------------------------------------------------------
110,000 Hollywood Park, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 110,000
50,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 50,000
330,000 International Game Technology 144A sr. notes 8 3/8s, 2009 302,775
170,000 International Game Technology sr. notes 7 7/8s, 2004 160,650
20,000 Mohegan Tribal Gaming, Auth. sr. sub. notes 8 3/4s, 2009 19,000
410,000 Mohegan Tribal Gaming, Auth. sr. notes 8 1/8s, 2006 385,400
580,000 Park Place Entertainment 144A sr. sub. notes 9 3/8s, 2007 574,200
130,000 Park Place Entertainment sr. notes 8 1/2s, 2006 126,248
----------------
1,728,273
Health Care (0.3%)
-------------------------------------------------------------------------------------------------------------------
55,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 44,000
140,000 Columbia/HCA Healthcare Corp. med. term notes 9s, 2014 134,750
30,000 Columbia/HCA Healthcare Corp. med. term notes 6.63s, 2045 28,305
40,000 Hudson Respiratory Care, Inc. sr. sub. notes 9 1/8s, 2008 31,150
650,000 Omega Healthcare Investors, Inc. notes 6.95s, 2007 (R) 390,000
860,000 Omega Healthcare Investors, Inc. notes 6.95s, 2002 (R) 602,000
150,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 143,250
1,020,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 948,600
----------------
2,322,055
Homebuilding (--%)
-------------------------------------------------------------------------------------------------------------------
100,000 D.R. Horton, Inc. company guaranty 8s, 2009 85,250
180,000 Lennar Corp. 144A sr. notes 9.95s, 2010 166,163
----------------
251,413
Household Furniture & Appliances (--%)
-------------------------------------------------------------------------------------------------------------------
90,000 Albecca, Inc. company guaranty 10 3/4s, 2008 71,325
Industrial (0.3%)
-------------------------------------------------------------------------------------------------------------------
1,950,000 Union Oil Company of California company guaranty
7 1/2s, 2029 1,778,186
Investment Banking/Brokerage (0.4%)
-------------------------------------------------------------------------------------------------------------------
500,000 Bear Stearns & Co., Inc. sr. unsecd. notes 7 5/8s, 2009 477,270
1,045,000 Countrywide Home Loan Corp. company guaranty
6.935s, 2007 972,874
1,605,000 Paine Webber Group, Inc. sr. med. term notes 6.52s, 2005 1,492,650
----------------
2,942,794
Insurance (0.1%)
-------------------------------------------------------------------------------------------------------------------
1,225,000 AFLAC, Inc. sr. notes 6 1/2s, 2009 1,092,467
Lodging/Tourism (0.2%)
-------------------------------------------------------------------------------------------------------------------
1,300,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 1,124,500
60,000 ITT Corp. notes 6 3/4s, 2005 53,347
60,000 Starwood Hotels & Resorts notes 6 3/4s, 2003 55,737
----------------
1,233,584
Manufacturing (--%)
-------------------------------------------------------------------------------------------------------------------
95,000 Continental Global Group sr. notes Ser. B, 11s, 2007 27,550
60,000 Day International Group, Inc. company guaranty 9 1/2s, 2008 51,600
90,000 Flextronics International, Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 85,500
----------------
164,650
Media (0.8%)
-------------------------------------------------------------------------------------------------------------------
2,785,000 TCI Communications, Inc deb. 8 3/4s, 2015 3,015,375
2,385,000 Time Warner Entertainment sr. notes 8 3/8s, 2033 2,429,123
----------------
5,444,498
Medical Services (--%)
-------------------------------------------------------------------------------------------------------------------
75,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007
(In default) (NON) 1,500
50,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008
(In default) (NON) 1,000
50,000 Mariner Post-Acute Network, Inc. sr. sub. notes
stepped-coupon Ser. B, zero % (10 1/2s, 11/1/02),
2007 (In default) (STP) (NON) 250
180,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 (In default) (NON) 900
220,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 11,000
----------------
14,650
Metals (0.2%)
-------------------------------------------------------------------------------------------------------------------
150,000 AK Steel Corp. sr. notes 9 1/8s, 2006 147,000
1,055,000 AK Steel Corp. company guaranty 7 7/8s, 2009 960,050
24,000 Anker Coal Group, Inc. company guaranty Ser. B,
14 1/4s, 2007 (PIK) 10,800
60,000 California Steel Industries sr. notes Ser. B, 8 1/2s, 2009 56,700
220,000 LTV Corp. sr. notes 11 3/4s, 2009 219,450
295,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 295,000
----------------
1,689,000
Oil & Gas (1.1%)
-------------------------------------------------------------------------------------------------------------------
1,370,000 Amerada Hess Corp. bonds 7 7/8s, 2029 1,283,649
1,270,000 Coastal Corp. bonds 6.95s, 2028 1,077,849
658,944 Express Pipeline, Ltd. 144A sub. notes Ser. B,
7.39s, 2019 (Canada) 553,355
30,000 Gulf Canada Resources, Ltd. sr. sub. deb.
9 1/4s, 2004 (Canada) 29,903
40,000 Gulf Canada Resources, Ltd. sr. notes 8.35s, 2006 (Canada) 38,900
1,550,000 KN Capital Trust III company guaranty 7.63s, 2028 1,195,360
880,000 Maritime & NE Pipeline 144A sec. notes 7.7s, 2019 (Canada) 818,752
60,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 59,100
90,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 86,175
880,000 Osprey Trust 144A sec. notes 8.31s, 2003 872,608
70,000 Parker and Parsley, Inc. sr. notes 8 1/4s, 2007 66,431
70,000 Pioneer Natural Resources Co. company guaranty 9 5/8s, 2010 70,788
540,000 Port Arthur Finance Corp. 144A sec. notes 12 1/2s, 2009 521,100
930,000 Sonat, Inc. notes 7 5/8s, 2011 857,246
405,000 Union Pacific Resources Group, Inc. notes 7.3s, 2009 376,589
----------------
7,907,805
Paper & Forest Products (0.5%)
-------------------------------------------------------------------------------------------------------------------
1,730,000 Abitibi-Consolidated, Inc. deb. 8 1/2s, 2029 1,622,619
10,000 Boise Cascade Co. med. term notes Ser. A, 7.43s, 2005 9,484
960,000 Georgia Pacific Corp. bonds 7 3/4s, 2029 872,304
410,000 Norampac, Inc. sr. notes 9 1/2s, 2008 (Canada) 402,825
160,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 151,238
60,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 58,650
370,000 Tembec Industries, Inc. company guaranty 8 5/8s, 2009
(Canada) 364,450
----------------
3,481,570
Pharmaceuticals (0.1%)
-------------------------------------------------------------------------------------------------------------------
150,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 142,875
400,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 370,000
----------------
512,875
Power Producers (--%)
-------------------------------------------------------------------------------------------------------------------
60,000 Calpine Corp. sr. notes 7 7/8s, 2008 56,700
130,000 Calpine Corp. sr. notes 7 3/4s, 2009 121,550
35,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 37,635
----------------
215,885
Publishing (--%)
-------------------------------------------------------------------------------------------------------------------
140,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 123,550
Railroads (0.3%)
-------------------------------------------------------------------------------------------------------------------
1,270,000 Burlington Northern Santa Fe notes 6 3/8s, 2005 1,177,722
960,000 CSX Corp. deb. 7.95s, 2027 912,758
----------------
2,090,480
Real Estate (0.4%)
-------------------------------------------------------------------------------------------------------------------
1,005,000 Avalon Properties, Inc. notes 6 7/8s, 2007 (R) 924,007
595,000 EOP Operating L.P. notes 6.8s, 2009 (R) 529,187
490,000 EOP Operating L.P. notes 6 3/8s, 2002 (R) 477,495
710,000 Tanger Properties, Ltd. partnership gtd. notes 8 3/4s, 2001 (R) 701,161
----------------
2,631,850
Regional Bells (0.1%)
-------------------------------------------------------------------------------------------------------------------
780,000 GTE Corp. deb. 6.46s, 2008 715,393
Restaurants (0.1%)
-------------------------------------------------------------------------------------------------------------------
1,080,000 Tricon Global Restaurants, Inc. sr. notes 7.65s, 2008 1,008,148
Retail (0.7%)
-------------------------------------------------------------------------------------------------------------------
975,000 Federated Department Stores, Inc. sr. notes 8 1/2s, 2003 989,723
1,090,000 K mart Corp. notes 8 3/8s, 2004 1,042,847
60,000 K mart Corp. med. term notes 7.55s, 2004 56,172
1,005,000 Saks, Inc. company guaranty 8 1/4s, 2008 907,013
1,340,000 Sears Roebuck Acceptance Corp. notes 6 7/8s, 2017 1,154,316
1,010,000 Sears Roebuck Acceptance Corp. notes 6 1/2s, 2028 793,618
270,000 Southland Corp. sr. sub. deb. 5s, 2003 236,250
115,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 95,594
----------------
5,275,533
Semiconductor (0.1%)
-------------------------------------------------------------------------------------------------------------------
360,000 Amkor Technology, Inc. sr. notes 9 1/4s, 2006 352,800
Shipping (--%)
-------------------------------------------------------------------------------------------------------------------
35,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s, 2003 (Greece) 32,113
260,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 223,600
----------------
255,713
Software (--%)
-------------------------------------------------------------------------------------------------------------------
40,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 2,000
Technology Services (--%)
-------------------------------------------------------------------------------------------------------------------
30,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 30,300
50,000 Verio, Inc. sr. notes 11 1/4s, 2008 49,875
----------------
80,175
Telecommunications (1.4%)
-------------------------------------------------------------------------------------------------------------------
20,000 Exodus Communications, Inc. sr. notes 11 1/4s, 2008 20,250
170,000 Flag, Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 151,300
270,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 264,600
1,370,000 Global Crossing Holdings, Ltd. 144A sr. notes 9 1/2s, 2009 1,335,750
150,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 143,625
1,172,000 Nextel Communications, Inc. sr. notes 9 3/8s, 2009 1,110,470
905,000 Price Communications Wireless, Inc. 144A sr. notes 9 1/8s, 2006 893,688
200,000 Primus Telecomunications Group, Inc. sr. notes 12 3/4s, 2009 200,000
730,000 Sprint Capital Corp. company guaranty 6.9s, 2019 654,197
405,000 Sprint Capital Corp. company guaranty 6 7/8s, 2028 353,699
2,040,000 Sprint Capital Corp. company guaranty 6 1/8s, 2008 1,808,807
1,085,000 Sprint Capital Corp. company guaranty 5.7s, 2003 1,019,314
725,000 U S West, Inc. notes 5 5/8s, 2008 620,709
116,000 Viatel, Inc. sr. notes 11 1/2s, 2009 102,080
1,315,000 Williams Communications Group, Inc. sr. notes 10 7/8s, 2009 1,324,863
----------------
10,003,352
Telephone (0.1%)
-------------------------------------------------------------------------------------------------------------------
535,000 Hyperion Telecommunications Corp., Inc. sr. notes Ser. B,
12 1/4s, 2004 557,738
640,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 323,200
90,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 37,800
100,000 Microcell Telecommunications sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 90,000
----------------
1,008,738
Textiles (--%)
-------------------------------------------------------------------------------------------------------------------
100,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 43,000
130,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 130,650
50,000 Kasper A.S.L., Ltd. sr. notes 12 3/4s, 2004 25,000
----------------
198,650
Tobacco (0.3%)
-------------------------------------------------------------------------------------------------------------------
1,630,000 Imperial Tobacco BV company guaranty 7 1/8s, 2009
(Netherlands) 1,424,327
600,000 Philip Morris Cos., Inc. notes 7 1/8s, 2004 551,502
----------------
1,975,829
Transportation (0.4%)
-------------------------------------------------------------------------------------------------------------------
1,622,611 Federal Express Corp. pass-through certificates Ser. 1998-1A,
6.72s, 2022 1,481,717
1,420,000 Hertz Corp. sr. notes 6 1/2s, 2006 1,317,504
----------------
2,799,221
Transportation Services (0.1%)
-------------------------------------------------------------------------------------------------------------------
465,000 Canadian Pacific, Ltd. deb. 9.45s, 2021 (Canada) 502,684
Utilities (0.1%)
-------------------------------------------------------------------------------------------------------------------
895,603 Salton Sea Funding Corp. company guaranty Ser. E, 8.3s, 2011 884,677
Waste Management (0.2%)
-------------------------------------------------------------------------------------------------------------------
450,000 Allied Waste Industries, Inc. company guaranty Ser. B,
7 7/8s, 2009 337,500
1,100,000 Browning-Ferris Industries, Inc. deb. 7.4s, 2035 682,000
70,000 Waste Management, Inc. company guaranty 6 7/8s, 2009 56,890
----------------
1,076,390
Water Utilities (0.1%)
-------------------------------------------------------------------------------------------------------------------
950,000 Azurix Corp. 144A notes 10 3/8s, 2007 954,750
----------------
Total Corporate Bonds and Notes (cost $183,087,267) $ 166,422,866
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (14.8%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (12.7%)
-------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation
$ 7,487,522 6s, March 1, 2029 $ 6,783,171
4,695,263 5 1/2s, with due dates from March 1, 2011 to April 1, 2011 4,303,490
Federal National Mortgage Association
Pass-Through Certificates
1,464,697 8s, with due dates from February 1, 2027 to
November 1, 2029 1,462,398
14,504,231 7 1/2s, with due dates from April 1, 2030 to
May 1, 2030 14,192,784
7,083,237 7s, with due dates from March 1, 2007 to
February 1, 2030 6,794,172
6,968,708 6 1/2s, with due dates from August 15, 2004 to
September 1, 2010 6,771,254
22,458,253 6s, with due dates from May 1, 2029 to
September 1, 2029 20,325,512
Government National Mortgage Association
Pass-Through Certificates
1,429,131 8 1/2s, with due dates from October 15, 2017 to
November 15, 2017 1,458,069
15,188,559 8s, with due dates from January 15, 2022 to
December 15, 2027 15,217,264
13,354,402 7s, with due dates from April 15, 2023 to
December 15, 2028 12,868,790
2,244,127 6 1/2s, with due dates from September 15, 2024 to
May 15, 2029 2,101,758
----------------
92,278,662
U.S. Treasury Obligations (2.1%)
-------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
925,000 6 1/2s, November 15, 2026 958,679
4,325,000 6 1/8s, November 15, 2027 4,279,025
U.S. Treasury Notes
920,000 6 1/2s, February 15, 2010 938,253
1,545,000 6 3/8s, January 31, 2002 1,536,070
7,550,000 6 1/8s, December 31, 2001 (SEG) 7,480,389
320,000 5 7/8s, November 30, 2001 (SEG) 316,051
----------------
15,508,467
----------------
Total U.S. Government and Agency Obligations
(cost $109,282,294) $ 107,787,129
COLLATERALIZED MORTGAGE OBLIGATIONS (3.8%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 15,745,031 Commercial Mortgage Asset Trust Ser. 99-C1, Class X,
Interest Only (IO), 1.156s, 2020 $ 979,759
260,000 CS First Boston Mortgage Securities Corp. Ser. 99-C1,
Class F, 8.18s, 2009 243,100
1,499,722 DLJ Commercial Mortgage Corp. Ser. 98-CG1, Class A1A,
6.11s, 2007 1,422,861
Fannie Mae Strip
1,575,397 Ser. 241, Class 2, IO, 8 1/2s, 2023 445,050
2,557,562 Ser. 203, Class 2, IO, 8s, 2023 775,657
857,175 Ser. 217, Class 2, IO, 8s, 2023 253,938
2,891,607 Ser. 251, Class 2, IO, 8s, 2023 876,966
306,956 Ser. 176, Class 2, IO, 8s, 2022 90,936
4,670,898 Ser. 252, Class 2, IO, 7.55s, 2023 1,447,978
1,650,090 Ser. 276, Class 2, IO, 6 1/2s, 2024 495,543
63,297 Ser. 302, Class 2, IO, 6s, 2029 20,393
1,544,781 Ser. 304, Class 2, IO, 6s, 2028 447,021
2,919,934 Ser. 97-92, Class SM, IO, 2.944s, 2022 230,857
Freddie Mac
1,107,905 Ser. 147 Class IO, 8s, 2023 335,141
1,735,000 Ser. 2028, Class SG, IO, 6.66s, 2023 793,763
880,356 Ser. 2182, Class EC, Principal Only (PO), zero %, 2025 648,822
740,000 GE Capital Mortgage Services, Inc. Ser. 98-11, Class 2A4,
6 3/4s, 2028 679,261
General Growth Properties-Homart
225,000 Ser. 99-C1, Class F, 7.839s, 2003 225,563
195,000 Ser. 99-C1, Class G, 8.089s, 2003 195,488
993,000 General Growth Properties-Ivanhoe Ser. 99-C1, Class F, 2004 995,483
Government National Mortgage Association
3,232,500 Ser. 00-17, Class SB, 13.2s, 2026 3,043,399
12,488,210 Ser. 98-2 Class SA, IO, 2.37s, 2028 710,267
3,000,840 Ser. 99-46, Ser. SQ, IO, 2.32s, 2027 155,669
Housing Securities, Inc.
172,601 Ser. 91-B, Class B6, 9s, 2006 171,631
392,905 Ser. 93-F, Class F9M2, 7s, 2023 368,717
116,845 Ser. 94-1, Class AB1, 6 1/2s, 2009 93,038
515,000 LB Commercial Conduit Mortgage Trust Ser. 99-C2, Class B,
7.425s, 2009 500,113
Merrill Lynch Mortgage Investors, Inc.
520,000 Ser. 96-C2, Class E, 6.96s, 2028 440,781
1,348,585 Ser. 98-C2, Class A1, 6.22s, 2030 1,293,167
8,637,776 Ser. 98-C2, Class IO, 1.573s, 2030 595,197
519,164 Morgan Stanley Capital I Ser. 98-HF1, Class A1, 6.19s, 2007 496,207
Mortgage Capital Funding, Inc.
719,621 Ser. 98-MC1, Class A1, 6.417s, 2007 690,949
2,820,983 Ser. 97-MC2, Class X, IO, 0.856s, 2012 185,127
Morgan Stanley Dean Witter Capital
260,000 Ser. 00-LIFE, Class B, 7.638s, 2010 256,953
3,635,000 Ser. 00-LIFE, Class A2, 7.57s, 2009 3,598,082
475,026 Prudential Home Mortgage Securities Ser. 92-25, Class B3,
8s, 2022 449,196
155,021 Prudential Home Mortgage Securities 144A Ser. 94-31,
Class B3, 8s, 2009 148,166
975,000 Residential Asset Securitization Trust Ser. 98-A12, Class A14,
8s, 2028 973,172
1,582,616 TIAA Retail Commercial Mortgage Trust Ser. 99-1, Class A,
7.17s, 2032 1,545,771
----------------
Total Collateralized Mortgage Obligations
(cost $27,465,160) $ 27,319,182
CONVERTIBLE BONDS AND NOTES (2.6%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 68,000 ADT Operations, Inc. cv. sub. notes zero %, 2010 $ 170,170
84,000 Advanced Energy Industries, Inc. cv. sub. notes 5 1/4s, 2006 128,415
96,000 Aether Systems, Inc. cv. sub. notes 6s, 2005 89,760
30,000 Affymetrix, Inc. 144A cv. sub. notes 4 3/4s, 2007 21,000
55,000 Alexion Pharmaceuticals, Inc. 144A cv. sub. notes 5 3/4s, 2007 32,106
60,000 Alkermes, Inc. 144A cv. sub. notes 3 3/4s, 2007 35,025
285,000 Alza Corp. cv. sub. LYON (Lyon Yield Option Note)
zero %, 2014 168,863
12,000 America Online, Inc. cv. sub. notes 4s, 2002 110,130
180,000 America Online, Inc. cv. sub. notes zero %, 2019 94,050
41,000 American Tower Corp. cv. notes 6 1/4s, 2009 80,791
28,000 American Tower Corp. 144A cv. bonds 6 1/4s, 2009 56,385
110,000 American Tower Corp. 144A cv. notes 5s, 2010 114,400
100,000 Amkor Technology, Inc. 144A cv. sub. notes 5s, 2007 122,375
270,000 Anadarko Petroleum Corp. cv. sub. notes zero %, 2020 157,613
39,000 Ann Taylor Stores Corp. 144A cv. company guaranty
0.55s, 2019 16,136
52,000 Ann Taylor Stores Corp. cv. company guaranty 0.55s, 2019 21,515
104,000 ASM Lithography Holdings 144A cv. bonds 4 1/4s, 2004
(Netherlands) 127,660
94,000 Aspen Technology, Inc. cv. sub. deb. 5 1/4s, 2005 85,423
169,000 Athena Neurosciences, Inc. cv. notes 4 3/4s, 2004 219,278
98,000 Automatic Data Processing cv. deb. zero %, 2012 136,710
28,000 Aviron cv. sub. notes 5 3/4s, 2005 24,920
37,000 BEA Systems, Inc. 144A cv. sub. notes 4s, 2006 56,795
23,000 BEA Systems, Inc. cv. sub. notes 4s, 2005 167,900
32,000 Benchmark Electronics, Inc. 144A cv. sub. notes 6s, 2006 36,280
61,000 Berkshire Hathaway, Inc. cv. sr. notes 1s, 2001 163,023
50,000 Burr-Brown Corp. 144A cv. sub. notes 4 1/4s, 2007 65,000
258,000 Cedant Corp. cv. sub. notes 3s, 2002 236,393
232,000 Centocor, Inc. cv. sub. deb. 4 3/4s, 2005 288,260
38,000 CheckFree Holdings Corp. 144A cv. sub. notes 6 1/2s, 2006 35,578
79,000 Citrix Systems, Inc. cv. sub. deb. zero %, 2019 69,915
310,000 Clear Channel Communications, Inc. cv. sr. notes 1 1/2s, 2002 294,888
16,000 CNET Networks, Inc. cv. sub. notes 5s, 2006 17,120
119,000 Commscope, Inc. 144A cv. sub. notes 4s, 2006 146,221
37,000 Comverse Technology, Inc. cv. sub. deb. 4 1/2s, 2005 154,059
74,000 Conexant Systems, Inc. cv. sub. notes 4 1/4s, 2006 197,210
100,000 Conexant Systems, Inc. 144A cv. sub. notes 4s, 2007 84,625
54,000 Cor Therapeutics, Inc. 144A cv. notes 5s, 2007 67,433
160,000 Corecomm, Ltd. 144A cv. sub. notes 6s, 2006 205,200
212,000 Costco Cos, Inc. cv. sub. notes zero %, 2017 264,205
250,000 Cox Communications, Inc. cv. sub. deb. 5s, 2020 124,375
67,000 Credence Systems Corp. cv. sub. notes 5 1/4s, 2002 140,700
19,000 Critical Path, Inc. 144A cv. bonds 5 3/4s, 2005 15,853
140,000 Cypress Semiconductor Corp. cv. sub. notes 4s, 2005 182,875
325,000 Devon Energy Corp. cv. deb. 4.95s, 2008 314,031
170,000 Diamond Offshore Drilling, Inc. cv. sub. notes 3 3/4s, 2007 194,438
100,000 Digital Island, Inc. cv. bonds 6s, 2005 61,750
14,000 Doubleclick, Inc. 144A cv. sub. notes 4 3/4s, 2006 26,898
15,000 E(a)Trade Group, Inc. 144A cv. sub. notes, 6s, 2007 16,181
37,000 EarthWeb, Inc. 144A cv. sub. notes 7s, 2005 22,015
260,000 Echostar Communications Corp. 144A cv. sub. notes
4 7/8s, 2007 393,250
101,000 Efficient Networks, Inc. 144A cv. sub. notes 5s, 2005 67,291
23,000 Genzyme Corp. cv. sub. notes 5 1/4s, 2005 31,223
110,000 Getty Images, Inc. 144A cv. sub. notes 5s, 2007 79,063
27,000 Getty Images, Inc. cv. sub. notes 4 3/4s, 2003 31,354
72,000 Gilat Satellite Networks, Ltd. cv. 6 1/2s, 2004 (Israel) 148,680
109,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 85,565
228,000 Hewlett-Packard Co. cv. sub. notes zero %, 2017 173,280
130,000 Human Genome Sciences, Inc. 144A cv. sub. notes 3 3/4s, 2007 76,538
63,000 I2 Technologies, Inc. 144A cv. sub. notes 5 1/4s, 2006 117,574
74,000 iBasis, Inc. cv. sub. notes 5 3/4s, 2005 39,960
24,000 IDEC Pharmaceuticals Corp. cv. sub. notes zero %, 2019 20,790
31,000 Imclone Systems, Inc 144A cv. sub. notes 5 1/2s, 2005 29,760
200,000 Inco, Ltd. cv. deb. 5 3/4s, 2004 (Canada) 179,250
35,000 Inhale Therapeutic Systems 144A cv. sub. notes 5s, 2007 32,113
133,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 223,440
150,000 Integrated Process Equipment Corp. 144A cv. sub. notes
6 1/4s, 2004 113,625
20,000 Interliant, Inc. 144A cv. sub. notes 7s, 2005 11,800
127,000 Internet Capital Group, Inc. cv. sub. notes 5 1/2s, 2004 81,756
172,000 Interpublic Group Cos. cv. sub. notes 1.8s, 2004 194,575
130,000 Intevac, Inc. 144A cv. sub. notes 6 1/2s, 2004 64,025
40,000 Invitrogen Corp. 144A cv. sub. notes 5 1/2s, 2007 35,550
200,000 Juniper Networks, Inc. cv. sub. notes 4 3/4s, 2007 182,250
93,000 Kellstrom Industries, Inc. cv. sub. notes 5 1/2s, 2003 45,919
102,000 Kent Electronics Corp. cv. sub. notes 4 1/2s, 2004 90,143
54,000 Kerr-McGee Corp. cv. sub. deb. 5 1/4s, 2010 58,253
98,000 Kulicke & Soffa Industries, Inc. 144A cv. sub. notes 4 3/4s, 2006 179,340
34,000 Lam Research Corp. cv. sub. notes 5s, 2002 55,165
130,000 Lennar Corp. cv. deb. zero %, 2018 51,025
25,000 Level One Communications, Inc. cv. sub. notes 4s, 2004 102,469
170,000 Liberty Media Corp. 144A cv. deb. 4s, 2029 221,213
192,000 Liberty Media Corp. 144A cv. deb. 3 3/4s, 2030 191,520
150,000 Loews Corp. cv. sub. notes 3 1/8s, 2007 131,813
170,000 Lomak Petroleum, Inc. 144A cv. sub. deb. 6s, 2007 79,900
37,000 LSI Logic Corp. 144A cv. sub. notes 4 1/4s, 2004 147,075
25,000 LSI Logic Corp. cv. sub. notes 4 1/4s, 2004 99,375
200,000 Magna International cv. sub. deb. 5s, 2002 201,500
150,000 Malan Realty Investors cv. sub. notes 9 1/2s, 2004 131,625
56,000 Michaels Stores, Inc. cv. sub. notes 6 3/4s, 2003 61,600
250,000 MIDCOM Communications, Inc. 144A cv. sub. deb. 8 1/4s, 2003
(In default) 5,000
63,000 Millennium Pharmaceuticals, Inc. 144A cv. sub. notes
5 1/2s, 2015 67,253
39,000 Motorola, Inc. cv. sub. deb. LYON zero %, 2013 52,406
183,000 Mutual Risk Management cv. sub. deb. zero %, 2015 80,291
151,000 National Data Corp. cv. sub. notes 5s, 2003 127,406
678,000 Network Associates, Inc. cv. sub deb. zero %, 2018 237,300
230,000 News America Holdings, Inc. cv. LYON zero %, 2013 240,782
51,000 Nexstar Pharmaceuticals, Inc. cv. sub. deb. 6 1/4s, 2004 66,619
120,000 Nextel Communications, Inc. 144A cv. sr. notes 5 1/4s, 2010 116,400
128,000 Nextel Communications, Inc. 144A cv. sr. notes 4 3/4s, 2007 307,200
31,000 Nextel Communications, Inc. cv. sr. notes 4 3/4s, 2007 74,400
21,000 Oak Industries, Inc. cv. sub. notes 4 7/8s, 2008 89,618
427,000 Office Depot, Inc. cv. LYON zero %, 2007 280,219
250,000 Offshore Logistics, Inc. cv. sub. notes 6s, 2003 210,625
134,000 Omnicare, Inc. cv. bonds 5s, 2007 105,023
202,000 Omnicom Group Inc. cv. sub. deb. 2 1/4s, 2013 379,508
229,000 Park Electrochemical Corp. cv. sub. notes 5 1/2s, 2006 195,223
150,000 Parker Drilling Co. cv. sub. notes 5 1/2s, 2004 108,938
110,000 Personnel Group of America, Inc. cv. sub. notes 5 3/4s, 2004 70,813
58,000 Photronics, Inc. cv. sub. notes 6s, 2004 71,993
52,000 Protein Design Labs, Inc. 144A cv. sub. notes 5 1/2s, 2007 42,185
200,000 Quanex Corp. cv. sub. deb. 6.88s, 2007 174,500
215,000 Quantum Corp. cv. sub. 7s, 2004 169,850
167,000 Rational Software Corp. 144A cv. sub. notes 5s, 2007 223,780
103,000 Redback Networks Inc. 144A cv. sub. notes 5s, 2007 72,680
379,000 Rite Aid Corp. cv. sub. notes 5 1/4s, 2002 147,336
403,000 Roche Holdings, Inc. 144A cv. bonds zero %, 2015 (Switzerland) 301,243
182,000 Roche Holdings, Inc. 144A cv. unsub. LYON zero %, 2010
(Switzerland) 99,873
600,000 Rogers Communications cv. deb. 2s, 2005 538,500
84,000 Safeguard Scientifics, Inc. 144A cv. sub. notes 5s, 2006 153,825
5,000 Sandoz Capital BVI, Ltd. 144A cv. company guaranty 2s, 2002
(Switzerland) 6,713
60,000 Sanmina Corp. 144A cv. sub. notes 4 1/4s, 2004 88,800
180,000 Scandinavian Broadcasting System SA cv. sub. notes 7s, 2004
(Luxembourg) 346,725
200,000 SCI Systems, Inc. cv. sub. 3s, 2007 230,500
113,000 Seacor Holdings, Inc. cv. sub. notes 5.38s, 2006 117,096
83,000 Semtech Corp. 144A cv. sub. notes 4 1/2s, 2007 81,029
73,000 Sepracor, Inc. cv. sub. deb. 7s, 2005 114,793
11,000 Sepracor, Inc. cv. sub. deb. 6 1/4s, 2005 43,038
40,000 Siebel Systems, Inc. 144A cv. sub. notes 5 1/2s, 2006 109,900
12,000 Siebel Systems, Inc. cv. sub. notes 5 1/2s, 2006 32,970
250,000 Softkey International, Inc. 144A cv. sr. notes 5 1/2s, 2000 247,500
142,000 Solectron Corp. 144A cv. notes zero %, 2019 108,453
44,000 SPACEHAB, Inc. 144A cv. sub. notes 8s, 2007 32,340
230,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 2007 107,238
138,000 Standard Motor Products, Inc. cv. sub. deb. 6 3/4s, 2009 85,905
520,000 Sunbeam Corp. 144A cv. sr. sub. notes zero %, 2018 87,100
250,000 Swift Energy Co. cv. sub. notes 6 1/4s, 2006 230,000
360,000 System Software Associates, Inc. cv. sub. notes 7s, 2002 79,650
110,000 Tenet Health Care Corp. cv. sub. notes 6s, 2005 88,550
111,000 Thermo Electron Corp. 144A cv. sub. deb. 4 1/4s, 2003 100,871
84,000 Thermo Instrument Systems, Inc. 144A cv. deb. 4 1/2s, 2003 77,175
90,000 Thermo Instrument Systems, Inc. cv. company guaranty
Ser. RG, 4s, 2005 77,288
32,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 34,040
155,000 Thermo Terratech, Inc. 144A cv. sub. deb. 4 5/8s, 2003 138,338
127,000 Times Mirror Co. cv. sub. notes zero %, 2017 75,724
225,000 Tower Automotive, Inc. cv. sub. notes 5s, 2004 190,969
120,000 TriQuint Semiconductor, Inc. 144A cv. sub. notes 4s, 2007 112,800
51,000 Vantive Corp. (The) cv. sub. notes 4 3/4s, 2002 43,860
150,000 Veritas Software Corp. cv. disc. notes 1.856s, 2006 451,688
13,000 VerticalNet, Inc. 144A cv. sub. 5 1/4s, 2004 36,985
13,000 VerticalNet, Inc. cv. sub. deb. 5 1/4s, 2004 36,985
160,000 Vitesse Semiconductor Corp. 144A cv. sub. deb. 4s, 2005 138,800
122,000 Waste Management, Inc. cv. sub. notes 4s, 2002 108,410
100,000 Whole Foods Market, Inc. cv. sub. deb. zero %, 2018 34,375
24,000 Wind River Systems, Inc. cv. sub. notes 5s, 2002 33,000
123,000 Young & Rubicam, Inc. 144A cv. sub. notes 3s, 2005 121,001
----------------
Total Convertible Bonds and Notes (cost $18,189,351) $ 18,783,991
CONVERTIBLE PREFERRED STOCKS (1.7%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
577 Adelphia Communications Corp. Ser. D, 5.50% cv. cum. pfd. $ 89,074
2,869 AES Trust II $3.375 cv. pfd. 206,209
638 Alkermes, Inc. $3.25s, cv. cum. pfd. 57,181
4,200 Alliant Energy 144A 7.25% cv. pfd. 320,250
5,865 American General Delaware Corp. $3.00 cv. cum. pfd. 403,952
786 American Heritage Life Investment Corp. $4.25 cv. cum. pfd. 65,533
4,023 Apache Corp. $2.015 cv. pfd. 169,972
1,088 Biovail Corp. $3.375 cv. pfd. 51,136
2,692 Calpine Capital Trust II 144A $2.75 cv. cum. pfd. 144,695
1,036 Canadian National Railway Co. $2.625 cv. pfd. (Canada) 44,937
5,200 Carriage Services, Inc. 144A $3.50 cv. cum. pfd. 130,000
189 Cephalon, Inc. $3.625 cv. pfd. 30,051
235 Chesapeake Energy Corp. $3.50 cv. cum. pfd. 11,691
3,737 CNB Capital Trust I $1.50 cv. cum. pfd. 124,255
1,843 CNF Trust I Ser. A, $2.50 cv. cum. pfd. 77,176
2,725 Coastal Corp. $1.656 cv. pfd. 77,663
2,300 Comcast Corp. 2.00% cv. pfd. 239,200
1,400 Comcast Corp. 2.00% cv. pfd. 147,700
2,157 Cox Communications, Inc. $3.50 cv. cum. pfd. 123,758
3,824 Cox Communications, Inc. 7.75% cv. pfd. 388,375
1,463 CVS Auto Exchange 6.00% cv. pfd. 110,822
3,900 Decs Trust 8.50% cv. pfd. 10,725
2,297 Decs Trust IV 7.00% cv. pfd. 25,841
1,981 Decs Trust VI 6.25% cv. pfd. . 105,488
2,768 Dollar General Strypes Trust 8.50% cv. pfd. 93,074
1,583 El Paso Energy Capital Trust $2.375 cv. pfd. 84,097
1,950 Emmis Broadcasting Corp. Ser. A, $3.125 cv. cum. pfd. 117,000
8,349 Equity Residential Property Ser. E, $1.75 cv. cum. pfd. 210,812
1,470 Estee Lauder Aces TR II 6.25% cv. pfd. 122,745
2,921 Evi, Inc. $2.50 cv. cum. pfd. 136,557
2,357 Federal-Mogul Financial Trust $3.50 cv. cum. pfd. 63,344
1,159 Finova Finance Trust $2.75 cv. cum. pfd. 34,480
9,700 Freeport-McMoRan Copper Co., Inc. $1.75 cv. cum. pfd. 124,888
6,933 Georgia Pacific Group $3.75 cv. pfd. 280,787
716 Global Crossing 144A $6.375 cv. cum. pfd. 64,619
300 Global Crossing, Ltd. $7.438 cv. cum. pfd. 75,413
1,901 Global TeleSystems Group, Inc. $3.625 cv. cum. pfd. 54,952
708 Hanover Compressor $3.625 cv. pfd. 63,012
5,228 Houston Industries, Inc. 7.00% cv. pfd 775,051
3,028 Ingersoll-Rand Co. $0.195 cv. pfd. 64,724
8,964 International Paper Co. $2.625 cv. cum. pfd. 378,729
6,692 K mart Financing I $3.875 cv. cum. pfd. 264,334
1,256 Kerr-McGee Corp. 5.50% cv. pfd. 56,285
2,300 KN Energy, Inc. 8.25% cv. pfd. 100,338
639 Lernout & Hauspie Scapital Trust I 144A $2.375 cv. cum. pfd. 52,957
10,800 Lincoln National Corp. $0.463 cv. cum. pfd. 180,900
4,000 Mandatory Common Exchange Trust (The) 7.25% cv. pfd. 6,750
150 MediaOne Group, Inc. 6.25% cv. pfd. 630,311
4,400 Metromedia International Group, Inc. $3.625 cv. cum. pfd. 117,700
600 MGC Communications, Inc. Ser. D, $3.625 cv. cum. pfd. (PIK) 29,400
4,419 Monsanto Co. 6.50% cv. pfd. 196,646
2,463 National Australia Bank, Ltd. $1.969 cv. pfd. 60,651
300 NBC Internet, Inc. 7.25% cv. pfd. 9,450
1,343 Neuvo Energy Ser. A, $2.875 cv. cum. pfd. 33,071
3,800 Newell Financial Trust I $2.625 cv. cum. pfd. 142,975
1,500 Newfield Exploration Co. $3.25 cv. cum. pfd. 92,438
2,400 NiSource, Inc. $3.875 cv. pfd. 86,400
6,592 Owens & Minor Trust I 144A Ser. A, $2.688 cv. cum. pfd. 227,424
5,342 Owens-Illinois, Inc. $2.375 cv.pfd. 127,540
1,553 Pegasus Communications Corp. 144A $6.50 cv. cum. pfd. 155,882
2,870 Penncorp Financial Group, Inc. $3.50 cv. cum. pfd. 25,830
22,775 Philadelphia Consolidated Holding Corp. 0.50% cv. pfd. 136,650
840 Pioneer Standard Electronics, Inc. 144A $3.375 cv. pfd. 45,360
1,087 Pogo Producing Co. Ser. A, $3.25 cv. cum. pfd. 64,677
3,800 Protective Life Corp. $3.25 cv. cum. pfd. 159,125
1,753 Qwest Trends Trust 144A 5.75% cv. pfd. 124,020
1,392 Ralston Purina Co. 7.00% cv. pfd. 36,018
2,821 Readers Digest $0.453 cv. pfd. 80,399
1,829 Seagram Co., Ltd.7.50% cv. pfd. (Canada) 93,050
8,680 Sealed Air Corp. Ser. A, $2.00 cv. cum. pfd. 456,785
6,970 Sensormatic Electronics Corp. 144A $1.625 cv. pfd. 172,508
3,300 Sinclair Broadcast Group, Inc. $3.00 cv. pfd. 84,975
2,300 Sovereign Bancorp, Inc. $3.75 cv. pfd. 107,956
359 St. Paul Capital LLC $3.00 cv. cum. pfd. 22,258
3,500 Suiza Capital Trust II $2.75 cv. pfd. 115,500
1,282 TCI Pacific Comm $5.00 cv. pfd. 379,312
2,031 Texas Utilities Co. $4.625 cv. cum. pfd. 87,333
300 Texas Utilities Co. $1.658 cv. pfd. 10,313
1,100 Titan Corp. 144A $2.875 cv. cum. pfd. 56,650
3,502 Tosco Financing Trust $2.875 cv. pfd. 179,915
4,182 Tower Automotive Capital Trust 144A $3.375 cv. pfd. 151,075
3,181 Tribune Co. 2.00% cv. pfd. 405,975
4,436 Union Pacific Capital Trust $3.125 cv. cum. pfd. 185,758
4,035 Union Planters Corp. Ser. E, $2.00 cv. cum. pfd. 141,729
2,558 Unitedglobalcom Ser. D, $3.50 cv. cum. pfd. 132,057
8,520 Unocal Capital Trust $3.125 cv. cum. pfd. 390,855
1,258 Verio, Inc. 144A $3.375 cv. pfd. 58,812
1,761 Vornado Realty Trust Ser. A, $3.25 cv. cum. pfd. 84,308
1,838 Wendy's Financing Ser. A, $2.50 cv. pfd. 92,819
13 World Access, Inc. 144A Ser. D, zero %, cv. pfd. 13,195
610 XM Satellite Radio Holdings Ser. B, $4.125 cv. pfd. 28,060
----------------
Total Convertible Preferred Stocks (cost $14,264,042) $ 12,594,697
FOREIGN GOVERNMENT BONDS AND NOTES (0.7%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 3,555,000 Ontario (Province of) sr. unsub. 5 1/2s, 2008 (Canada) $ 3,140,451
2,320,000 Quebec (Province of) sr. unsub. 5 3/4s, 2009 (Canada) 2,055,497
----------------
Total Foreign Government Bonds and Notes
(cost $5,842,403) $ 5,195,948
ASSET-BACKED SECURITIES (0.5%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 535,000 Delta Funding Home Equity Loan Trust Ser. 00-1, Class B,
8.09s, 2030 $ 452,911
850,000 Greenpoint Manufactured Housing Ser. 99-5, Class B,
9.9s, 2029 846,813
7,525,000 Lehman Manufactured Housing Ser. 98-1, Class 1, IO,
0.82s, 2028 225,750
1,854,943 Provident Bank Home Equity Loan Trust Ser. 99-1, Class A2,
6.029s, 2029 1,853,784
----------------
Total Asset-Backed Securities (cost $3,465,779) $ 3,379,258
PREFERRED STOCKS (0.4%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
1,505 AmeriKing, Inc. $3.25 pfd. (PIK) $ 16,555
1,430 Centaur Funding Corp 144A $9.08 cum. pfd. (Cayman Islands) 1,475,670
315 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. (PIK) 16,695
6,793 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 728,549
55 Fresenius Medical Capital Trust I company guaranty Ser. D,
9.00%, pfd. (Germany) 52,800
320 Fresenius Medical Capital Trust II company guaranty $7.875,
pfd. (Germany) 291,200
15 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 153,000
----------------
Total Preferred Stocks (cost $2,753,284) $ 2,734,469
MUNICIPAL BONDS AND NOTES (0.1%) (cost $1,284,001)
PRINCIPAL AMOUNT RATING(RAT) VALUE
-------------------------------------------------------------------------------------------------------------------
$ 1,285,000 Mashantucket Pequot Tribe 144A bonds Ser. A, FSA,
6.57s, 2013 Aaa $ 1,111,268
WARRANTS (--%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
-------------------------------------------------------------------------------------------------------------------
1 Anker Coal Group, Inc. 144A 10/28/09 $ 1
30 Club Regina, Inc. 144A 12/1/04 1
45 McCaw International, Ltd. 4/15/07 178
40 Telehub Communications Corp. 7/31/05 20
125 UIH Australia/Pacific, Inc. 144A 5/15/06 3,750
----------------
Total Warrants (cost $11,505) $ 3,950
SHORT-TERM INVESTMENTS (3.0%) (a) (cost $21,750,000)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 21,570,000 Interest in $434,310,000 joint repurchase agreement
dated April 28, 2000 with Salomon Smith Barney, Inc.
due May 1, 2000 with respect to various
U.S. Treasury obligations -- maturity value
of $21,580,264 for an effective yield of 5.71% $ 21,570,000
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $739,104,567) (b) $ 730,737,317
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $726,604,222.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at April 30, 2000 for the
securities listed. Ratings are generally ascribed to securities at the
time of issuance. While the agencies may from time to time revise such
ratings, they undertake no obligation to do so, and the ratings do not
necessarily represent what the agencies would ascribe to these
securities at April 30, 2000.
(b) The aggregate identified cost on a tax basis is $741,533,925,
resulting in gross unrealized appreciation and depreciation of
$43,969,040 and $54,765,648, respectively, or net unrealized
depreciation of $10,796,608.
(NON) Non-income-producing security.
(STP) The interest or dividend rate and date shown parenthetically
represent the new interest or dividend rate to be paid and the date the
fund will begin receiving interest or dividend income at this rate.
(PIK) Income may be received in cash or additional securities at the
discretion of the issuer.
(SEG) A portion of these securities was pledged and segregated with the
custodian to cover margin requirements for futures contracts at April
30, 2000.
(R) Real Estate Investment Trust.
FSA -- Financial Security Assurance
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
ADR after the name of a foreign holding stands for American
Depositary Receipts representing ownership of foreign securities on
deposit with a domestic custodian bank.
-------------------------------------------------------------------------------
Futures Contracts Outstanding at April 30, 2000 (Unaudited)
Aggregate Face Expiration Unrealized
Total Value Value Date Appreciation
-------------------------------------------------------------------------------
U.S. Treasury 10 year
Bonds (Short) $ 6,592,813 $ 6,745,925 Jun-00 $ 153,112
U.S. Treasury 5 year
Bonds (Short) 23,809,063 24,051,716 Jun-00 242,653
U.S. Treasury
Bond (Long) 4,055,625 3,900,981 Jun-00 154,644
-------------------------------------------------------------------------------
$ 550,409
-------------------------------------------------------------------------------
TBA Sales Commitments at April 30, 2000 (Unaudited)
(proceeds receivable $7,117,195)
Principal Settlement Market
Agency Amount Date Value
-------------------------------------------------------------------------------
FNMA, 7s, May 2030 $ 6,151,657 5/4/00 $5,885,414
FNMA, 6s, May 2030 1,290,000 5/4/00 1,167,656
-------------------------------------------------------------------------------
$7,053,070
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2000 (Unaudited)
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $739,104,567) (Note 1) $730,737,317
-------------------------------------------------------------------------------------------
Cash 1,084,939
-------------------------------------------------------------------------------------------
Dividends, interest, and other receivables 6,146,542
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 609,330
-------------------------------------------------------------------------------------------
Receivable for securities sold 22,847,295
-------------------------------------------------------------------------------------------
Receivable for variation margin 43,900
-------------------------------------------------------------------------------------------
Total assets 761,469,323
Liabilities
-------------------------------------------------------------------------------------------
Payable for securities purchased 24,810,545
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,336,287
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,121,679
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 194,064
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 13,984
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 798
-------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 253,331
-------------------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable $7,117,195) 7,053,070
-------------------------------------------------------------------------------------------
Other accrued expenses 81,343
-------------------------------------------------------------------------------------------
Total liabilities 34,865,101
-------------------------------------------------------------------------------------------
Net assets $726,604,222
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $737,745,294
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (2,640,151)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (620,594)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (7,880,327)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $726,604,222
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($561,183,530 divided by 57,932,044 shares) $9.69
-------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $9.69)* $10.28
-------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($148,641,613 divided by 15,504,141 shares)** $9.59
-------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($1,448,278 divided by 150,044 shares)** $9.65
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($13,059,911 divided by 1,357,213 shares) $9.62
-------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $9.62)* $9.97
-------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($2,270,890 divided by 234,470 shares) $9.69
-------------------------------------------------------------------------------------------
* 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, 2000 (Unaudited)
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Interest $ 13,684,805
-------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $3,000) 4,905,829
-------------------------------------------------------------------------------------------
Total investment income 18,590,634
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,385,681
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 596,464
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 13,595
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 4,716
-------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 733,726
-------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 862,957
-------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 4,746
-------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 51,833
-------------------------------------------------------------------------------------------
Reports to shareholders 27,896
-------------------------------------------------------------------------------------------
Registration fees 1,002
-------------------------------------------------------------------------------------------
Auditing 25,286
-------------------------------------------------------------------------------------------
Legal 4,205
-------------------------------------------------------------------------------------------
Postage 3,455
-------------------------------------------------------------------------------------------
Other 33,043
-------------------------------------------------------------------------------------------
Total expenses 4,748,605
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (127,579)
-------------------------------------------------------------------------------------------
Net expenses 4,621,026
-------------------------------------------------------------------------------------------
Net investment income 13,969,608
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (3,316,002)
-------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 226
-------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (140,340)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the period (42,289)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments, futures and
TBA sale commitments during the period (28,938,163)
-------------------------------------------------------------------------------------------
Net loss on investments (32,436,568)
-------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(18,466,960)
-------------------------------------------------------------------------------------------
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
2000* 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 13,969,608 $ 27,634,227
--------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions (3,456,116) 51,531,002
--------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (28,980,452) (26,506,872)
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (18,466,960) 52,658,357
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net investment income
Class A (13,177,977) (22,241,851)
--------------------------------------------------------------------------------------------------
Class B (3,225,691) (4,915,559)
--------------------------------------------------------------------------------------------------
Class C (18,034) (1,606)
--------------------------------------------------------------------------------------------------
Class M (274,085) (420,624)
--------------------------------------------------------------------------------------------------
Class Y (54,216) (54,051)
--------------------------------------------------------------------------------------------------
In excess of net investment income
Class A -- (1,377,881)
--------------------------------------------------------------------------------------------------
Class B -- (304,518)
--------------------------------------------------------------------------------------------------
Class C -- (99)
--------------------------------------------------------------------------------------------------
Class M -- (26,057)
--------------------------------------------------------------------------------------------------
Class Y -- (3,348)
--------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (33,919,655) (39,936,334)
--------------------------------------------------------------------------------------------------
Class B (10,348,339) (9,547,631)
--------------------------------------------------------------------------------------------------
Class C (36,430) --
--------------------------------------------------------------------------------------------------
Class M (797,954) (749,842)
--------------------------------------------------------------------------------------------------
Class Y (92,016) --
--------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) (52,679,278) 79,985,204
--------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (133,090,635) 53,064,160
Net assets
--------------------------------------------------------------------------------------------------
Beginning of period 859,694,857 806,630,697
--------------------------------------------------------------------------------------------------
End of period (including distributions in excess of net
investment income and undistributed net investment
income of $2,640,151 and $140,244, respectively) $726,604,222 $859,694,857
--------------------------------------------------------------------------------------------------
* 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
-------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.66 $11.01 $11.48 $10.67 $9.84 $8.68
-------------------------------------------------------------------------------------------------------------
Investment operations
-------------------------------------------------------------------------------------------------------------
Net investment income .18(c) .37(c) .40(c) .42 .44 .45
-------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.37) .35 .46 1.46 1.01 1.17
-------------------------------------------------------------------------------------------------------------
Total from
investment operations (.19) .72 .86 1.88 1.45 1.62
-------------------------------------------------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.37) (.36) (.40) (.43) (.46)
-------------------------------------------------------------------------------------------------------------
In excess of
net investment income -- (.02) -- -- -- --
-------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.56) (.68) (.97) (.67) (.19) --
-------------------------------------------------------------------------------------------------------------
Total distributions (.78) (1.07) (1.33) (1.07) (.62) (.46)
-------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.69 $10.66 $11.01 $11.48 $10.67 $9.84
-------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (1.84)* 6.73 7.86 18.87 15.31 19.32
-------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $561,184 $646,929 $644,902 $585,624 $496,882 $468,725
-------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .52* 1.09 1.13 1.15 1.20 1.15
-------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.87* 3.36 3.51 3.73 4.28 4.93
-------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 76.32* 144.87 124.34 152.66 142.36 131.00
-------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service
arrangements. (Note 2)
(c) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(d) Distributions in excess of net investment income amounted to less
than $0.01 per share.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS B
-------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share April 30
operating performance (Unaudited) Year ended October 31
-------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.56 $10.92 $11.40 $10.60 $9.80 $8.67
-------------------------------------------------------------------------------------------------------------
Investment operations
-------------------------------------------------------------------------------------------------------------
Net investment income .15(c) .28(c) .31(c) .35 .36 .38
-------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.38) .35 .46 1.45 1.00 1.15
-------------------------------------------------------------------------------------------------------------
Total from
investment operations (.23) .63 .77 1.80 1.36 1.53
-------------------------------------------------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------------------------------------------------
From net
investment income (.18) (.28) (.28) (.33) (.37) (.40)
-------------------------------------------------------------------------------------------------------------
In excess of
net investment income -- (.03) -- -- -- --
-------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.56) (.68) (.97) (.67) (.19) --
-------------------------------------------------------------------------------------------------------------
Total distributions (.74) (.99) (1.25) (1.00) (.56) (.40)
-------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.59 $10.56 $10.92 $11.40 $10.60 $9.80
-------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (2.26)* 5.94 7.08 18.11 14.36 18.25
-------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $148,642 $195,502 $149,712 $82,759 $35,118 $10,073
-------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .90* 1.84 1.88 1.90 1.97 1.91
-------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.50* 2.60 2.76 2.98 3.51 4.09
-------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 76.32* 144.87 124.34 152.66 142.36 131.00
-------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service
arrangements. (Note 2)
(c) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(d) Distributions in excess of net investment income amounted to less
than $0.01 per share.
</TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS C
------------------------------------------------------------------------
Six months
ended For the period
Per-share April 30 July 26, 1999+
operating performance (Unaudited) to October 31
------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------
Net asset value,
beginning of period $10.64 $11.09
------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------
Net investment income .15(c) .06(c)
------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.38) (.40)
------------------------------------------------------------------------
Total from
investment operations (.23) (.34)
------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------
From net
investment income (.20) (.11)
------------------------------------------------------------------------
In excess of
net investment income -- --(d)
------------------------------------------------------------------------
From net realized gain
on investments (.56) --
------------------------------------------------------------------------
Total distributions (.76) (.11)
------------------------------------------------------------------------
Net asset value,
end of period $9.65 $10.64
------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------
Total return at
net asset value (%)(a) (2.25)* (3.08)*
------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,448 $581
------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .90* .49*
------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.51* .63*
------------------------------------------------------------------------
Portfolio turnover (%) 76.32* 144.87
------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service
arrangements. (Note 2)
(c) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(d) Distributions in excess of net investment income amounted to less
than $0.01 per share.
<TABLE>
<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
-------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.61 $10.96 $11.44 $10.63 $9.82 $8.88
-------------------------------------------------------------------------------------------------------------------
Investment operations
-------------------------------------------------------------------------------------------------------------------
Net investment income .16(c) .31(c) .34(c) .36 .42 .25
-------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.40) .36 .45 1.47 .98 .90
-------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.24) .67 .79 1.83 1.40 1.15
-------------------------------------------------------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------------------------------------------------------
From net
investment income (.19) (.31) (.30) (.35) (.40) (.21)
-------------------------------------------------------------------------------------------------------------------
In excess of
net investment income -- (.03) -- -- -- --
-------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.56) (.68) (.97) (.67) (.19) --
-------------------------------------------------------------------------------------------------------------------
Total distributions (.75) (1.02) (1.27) (1.02) (.59) (.21)
-------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.62 $10.61 $10.96 $11.44 $10.63 $9.82
-------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (2.31)* 6.27 7.30 18.41 14.76 13.13*
-------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $13,060 $14,904 $12,017 $8,387 $3,551 $522
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .77* 1.59 1.63 1.65 1.72 1.09*
-------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.63* 2.85 3.01 3.23 3.74 2.76*
-------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 76.32* 144.87 124.34 152.66 142.36 131.00
-------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service
arrangements. (Note 2)
(c) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(d) Distributions in excess of net investment income amounted to less
than $0.01 per share.
</TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS Y
---------------------------------------------------------------------
Six months
ended For the period
Per-share April 30 Dec. 31, 1998+
operating performance (Unaudited) to Oct. 31
---------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------
Net asset value,
beginning of period $10.66 $10.79
---------------------------------------------------------------------
Investment operations
---------------------------------------------------------------------
Net investment income .19(c) .32(c)
---------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.37) (.10)
---------------------------------------------------------------------
Total from
investment operations (.18) .22
---------------------------------------------------------------------
Less distributions:
---------------------------------------------------------------------
From net
investment income (.23) (.32)
---------------------------------------------------------------------
In excess of
net investment income -- (.03)
---------------------------------------------------------------------
From net realized gain
on investments (.56) --
---------------------------------------------------------------------
Total distributions (.79) (.35)
---------------------------------------------------------------------
Net asset value,
end of period $9.69 $10.66
---------------------------------------------------------------------
Ratios and supplemental data
---------------------------------------------------------------------
Total return at
net asset value (%)(a) (1.71)* 2.00*
---------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,271 $1,779
---------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .40* .70*
---------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.01* 3.01*
---------------------------------------------------------------------
Portfolio turnover (%) 76.32* 144.87
---------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service
arrangements. (Note 2)
(c) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(d) Distributions in excess of net investment income amounted to less
than $0.01 per share.
NOTES TO FINANCIAL STATEMENTS
April 30, 2000 (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 relative stability of principle.
The fund offers class A, class B, class C, class M and class Y shares.
Class A shares are sold with a maximum front-end sales charge of 5.75%.
Class B shares, which convert to class A shares after approximately
eight years, do not pay a front-end sales charge but pay a higher
ongoing distribution fee than class A shares, and are subject to a
contingent deferred sales charge, if those shares are redeemed within
six years of purchase. Class C shares are subject to the same fees and
expenses as class B shares, except that class C shares have a one-year
1.00% contingent deferred sales charge and do not convert to class A
shares. Class M shares are sold with a maximum front end sales charge of
3.50% and pay an ongoing distribution fee that is higher than class A
shares but lower than class B and class C shares. Class Y shares, which
are sold at net asset value, are generally subject to the same expenses
as class A, class B, class C and class M shares, but do not bear a
distribution fee. Class Y shares are sold to defined contribution plans
that invest at least $150 million in a combination of Putnam funds and
other accounts managed by affiliates of Putnam Investment Management
Inc. ("Putnam Management"), the fund's manager, a wholly-owned
subsidiary of Putnam Investments, Inc.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if that fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities of the financial statements and the reported
amounts of increases and decreases in net assets from operations during
the reporting period. Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined using
the last reported sales price on its principal exchange, or if no sales
are reported -- as in the case of some securities traded
over-the-counter -- the last reported bid price. Short-term investments
having remaining maturities of 60 days or less are stated at amortized
cost, which approximates market value. Other investments, including
restricted securities, are stated at fair value following procedures
approved by the Trustees.
Market quotations are not considered to be readily available for certain
debt obligations; such investments are stated at fair value on the basis
of valuations furnished by a pricing service or dealers, approved by the
Trustees, which determine valuations for normal institutional-size
trading units of such securities using methods based on market
transactions for comparable securities and variable relationships
between securities that are generally recognized by institutional
traders.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Management. These balances may be invested in one or more
repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Collateral for certain tri-party repurchase agreements is held at the
counterparty's custodian in a segregated account for the benefit of the
fund and the counterparty. Putnam Management is responsible for
determining that the value of these underlying securities is at all
times at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Gains or losses on securities sold are determined
on the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date except that certain dividends from
foreign securities are recorded as soon as the fund is informed of the
ex-dividend date. Discounts on zero coupon bonds, original issue
discount bonds, stepped-coupon bonds and payment in kind bonds are
accreted according to the yield-to-maturity basis.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies and the difference between the amount
of investment income and foreign withholding taxes recorded on the
fund's books and the U.S. dollar equivalent amounts actually received or
paid. Net unrealized appreciation and depreciation of assets and
liabilities in foreign currencies arise from changes in the value of
open forward currency contracts and assets and liabilities other than
investments at the period end, resulting from changes in the exchange
rate. Investments in foreign securities involve certain risks, including
those related to economic instability, unfavorable political
developments, and currency fluctuations, not present with domestic
investments.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a decline
in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of a currency in which securities a fund intends to buy are
denominated, when a fund holds cash reserves and short-term
investments). The U.S. dollar value of forward currency contracts is
determined using current forward currency exchange rates supplied by a
quotation service. The market value of the contract will fluctuate with
changes in currency exchange rates. The contract is "marked to market"
daily and the change in market value is recorded as an unrealized gain
or loss. When the contract is closed, the fund records a realized gain
or loss equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed. The fund
could be exposed to risk if the value of the currency changes
unfavorably, if the counterparties to the contracts are unable to meet
the terms of their contracts or if the fund is unable to enter into a
closing position.
G) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices
supplied by dealers.
H) TBA 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.
I) 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, 2000, the fund had no borrowings against the line of
credit.
J) 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.
K) 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, 2000, fund expenses were reduced by
$127,579 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 $1,006
has been allocated to the fund, and an additional fee for each Trustees
meeting attended. Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B, class C and class M shares pursuant to Rule 12b-1
under the Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Plans provide for payments by
the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%,
1.00%, 1.00% and 1.00% of the average net assets attributable to class
A, class B, class C and class M shares, respectively. The Trustees have
approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%
and 0.75% of the average net assets attributable to class A, class B,
class C and class M shares respectively.
For the six months ended April 30, 2000, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $57,903 and $2,120
from the sale of class A and class M shares, respectively, and received
$235,403 and $300 in contingent deferred sales charges from redemptions
of class B and class C shares, respectively. A deferred sales charge of
up to 1% is assessed on certain redemptions of class A shares. For the
six months ended April 30, 2000, Putnam Mutual Funds Corp., acting as
underwriter received $2,851 on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended April 30, 2000, cost of purchases and
proceeds from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $478,924,653 and
$511,288,591, respectively. Purchases and sales of U.S. government
obligations aggregated $102,612,703 and $165,509,444, respectively.
Note 4
Capital shares
At April 30, 2000, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended April 30, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 4,421,956 $ 43,242,485
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,854,476 38,135,592
---------------------------------------------------------------------------
8,276,432 81,378,077
Shares
repurchased (11,015,637) (106,893,958)
---------------------------------------------------------------------------
Net decrease (2,739,205) $(25,515,881)
---------------------------------------------------------------------------
Year ended October 31, 1999
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 10,012,163 $109,000,444
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,702,959 50,323,503
---------------------------------------------------------------------------
14,715,122 159,323,947
Shares
repurchased (12,603,424) (136,977,187)
---------------------------------------------------------------------------
Net increase 2,111,698 $ 22,346,760
---------------------------------------------------------------------------
Six months ended April 30, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 1,692,225 $ 16,396,087
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,227,320 12,054,710
---------------------------------------------------------------------------
2,919,545 28,450,797
Shares
repurchased (5,929,979) (56,789,113)
---------------------------------------------------------------------------
Net decrease (3,010,434) $(28,338,316)
---------------------------------------------------------------------------
Year ended October 31, 1999
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 7,052,313 $76,141,950
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,215,074 12,903,110
---------------------------------------------------------------------------
8,267,387 89,045,060
Shares
repurchased (3,462,204) (37,141,730)
---------------------------------------------------------------------------
Net increase 4,805,183 $51,903,330
---------------------------------------------------------------------------
Six months ended April 30, 2000
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 104,757 $1,018,820
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 5,090 49,973
---------------------------------------------------------------------------
109,847 1,068,793
Shares
repurchased (14,398) (137,820)
---------------------------------------------------------------------------
Net increase 95,449 $ 930,973
---------------------------------------------------------------------------
For the period July 26, 1999
(commencement of operations)
to October 31, 1999
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 54,840 $582,901
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 108 1,163
---------------------------------------------------------------------------
54,948 584,064
Shares
repurchased (353) (3,770)
---------------------------------------------------------------------------
Net increase 54,595 $580,294
---------------------------------------------------------------------------
Six months ended April 30, 2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 232,866 $2,275,445
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 104,746 1,031,982
---------------------------------------------------------------------------
337,612 3,307,427
Shares
repurchased (385,542) (3,695,266)
---------------------------------------------------------------------------
Net decrease (47,930) $ (387,839)
---------------------------------------------------------------------------
Year ended October 31, 1999
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 589,317 $6,373,780
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 105,634 1,125,427
---------------------------------------------------------------------------
694,951 7,499,207
Shares
repurchased (386,587) (4,165,592)
---------------------------------------------------------------------------
Net increase 308,364 $3,333,615
---------------------------------------------------------------------------
Six months ended April 30, 2000
---------------------------------------------------------------------------
Class Y Shares Amount
---------------------------------------------------------------------------
Shares sold 304,433 $2,940,856
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 14,891 146,232
---------------------------------------------------------------------------
319,324 3,087,088
Shares
repurchased (251,695) (2,455,303)
---------------------------------------------------------------------------
Net increase 67,629 $ 631,785
---------------------------------------------------------------------------
For the period January 4, 1999
(commencement of operations)
to October 31, 1999
---------------------------------------------------------------------------
Class Y Shares Amount
---------------------------------------------------------------------------
Shares sold 201,446 $2,200,269
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,589 38,727
---------------------------------------------------------------------------
205,035 2,238,996
Shares
repurchased (38,194) (417,791)
---------------------------------------------------------------------------
Net increase 166,841 $1,821,205
---------------------------------------------------------------------------
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.
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
Capital Opportunities Fund
Europe Growth Fund
Global Equity Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Century Growth Fund
New Opportunities Fund
OTC & Emerging Growth Fund
Research Fund
Tax Smart Equity 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
Small Cap Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
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
[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.
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
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Thomas V. Reilly
Vice President
Stephen Oristaglio
Vice President
Edward H. D'Alelio
Vice President
David L. King
Vice President and Fund Manager
Jeanne L. Mockard
Vice President and Fund Manager
Charles G. Pohl
Vice President and Fund Manager
James M. Prusko
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
Vice President
John R. Verani
Vice President
This report is for the information of shareholders of Putnam Balanced
Retirement Fund. It may also be used as sales literature when preceded
or accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and
the most recent copy of Putnam's Quarterly Performance Summary. For more
information or to request a prospectus, call toll free: 1-800-225-1581.
You can also learn more at Putnam Investments' Web site: www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution; are not insured by the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board,
or any other agency; and involve risk, including the possible loss of
the principal amount invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
SA018 61448 034/243/908 6/00
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
---------------------------------------------------------------------------
Putnam Balanced Retirement Fund
Supplement to Semiannual Report dated 4/30/00
The following information has been prepared to provide class Y shareholders
with a performance overview specific to their holdings. Class Y shares are
offered exclusively to defined contribution plans investing $150 million or
more in one or more of Putnam's funds or private accounts. Performance of
class Y shares, which incur neither a front-end load, distribution fee, nor
contingent deferred sales charge, will differ from performance of class A,
class B, class C, and class M shares, which are discussed more extensively
in the annual report.
SEMIANNUAL RESULTS AT A GLANCE
---------------------------------------------------------------------------
Total return
for periods ended 4/30/00 NAV
6 months -1.71%
1 year -5.72
5 years 71.41
Annual average 11.38
10 years 191.66
Annual average 11.30
Life of fund (since class A inception, 4/19/85) 335.06
Annual average 10.28
Share value: NAV
10/31/99 $10.66
4/30/00 $9.69
---------------------------------------------------------------------------
Capital gains
Distributions: No. Income Short-term Long-term Total
2 $0.233 $0.081 $0.481 $0.795
---------------------------------------------------------------------------
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.
