Putnam 811-4242
Balanced
Retirement
Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
4-30-02
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Fellow Shareholder:
Despite a market environment unsettled by the residual anxiety of the
September 11 terrorist attacks, the collapse of Enron, and the new set
of uncertainties created by unrest in the Middle East, Putnam Balanced
Retirement Fund was able to post a modest gain at net asset value during
the six months ended April 30, 2002. On the following pages, the report
from your fund's management team will provide a full discussion of what
has been driving the fund's performance as well as a view of prospects
for the fiscal year's second half.
You may notice as you read this report that we are now listing the team
that manages your fund. We do this to reflect more accurately how your
fund is managed as well as Putnam's firm belief in the value of team
management. The names of the individuals who comprise the management
team are shown at the end of Management's discussion of performance.
This economic climate has also given Putnam pause and after a lengthy
review of the Putnam family of funds as well as several working sessions
with Putnam Investments, your Trustees are recommending the merger of
several Putnam funds. The intent of the mergers is to provide
shareholders with more consistent investment performance. Your fund has
been proposed for merger into The George Putnam Fund of Boston. For more
details, see page 6.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
June 19, 2002
REPORT FROM FUND MANAGEMENT
This fund is managed by the
Putnam Large-Cap Value and
Core Fixed-Income teams
The markets struggled to find firm footing during the first six months
of Putnam Balanced Retirement Fund's 2002 fiscal year. Despite the
widespread uncertainty, we are pleased to report that solid strategic
decisions on the fixed-income side and the equity side of the portfolio
enabled your fund to outperform both of its benchmarks, the Lehman
Government/Credit Bond Index and the S&P 500 Index. In addition, the
fund performed better than the average for its Lipper Balanced Funds
category because it held a larger stake in bonds than most of its peers
- -- approximately 60%/40% bond/stock mix instead of 40%/60% -- during a
period in which bonds outperformed stocks (see page 7 for more
performance details).
Total return for 6 months ended 4/30/02
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- -----------------------------------------------------------------------
3.47% -2.44% 3.14% -1.86% 3.08% 2.08% 3.24% -0.39%
- -----------------------------------------------------------------------
Past performance does not indicate future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 7.
* ANTICIPATION OF RECOVERY CAUSED RISE IN BOND YIELDS
After two years of strong returns that outpaced those in the volatile
equity markets, the results for the bond market were more mixed during
this semiannual period. This is typical of a transitional environment
and reflects the end of the Federal Reserve Board's easing cycle and the
beginning of an economic recovery in the United States. Yields on
Treasury bonds of all maturities rose during the period, with the
sharpest rise occurring at the beginning of November. In the aftermath
of September 11, investors poured money into bonds, especially short- to
intermediate-maturity Treasuries. This brought yields, which were
already low, to extremely low levels by the end of October. In the first
two weeks of November, reports about a strengthening U.S. economy, a
surging stock market, and positive news from the war in Afghanistan
triggered the reversal in yields.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Banking 9.2%
Oil and gas 5.0%
Financial 4.8%
Electric utilities 3.6%
Insurance 2.7%
Footnote reads:
*Based on net assets as of 4/30/02. Holdings will vary over time.
Since November, the bond market has been more volatile than normal, as
uncertainty about the strength and timing of the recovery caused mixed
reactions to reports of economic activity. A strengthening economy is
viewed negatively by bond investors, because it generally sparks
inflation, which diminishes the value of a bond's fixed payments. In
addition, the Enron accounting scandal raised concerns about the ability
of companies to make interest payments. As a result, the bond market
seesawed during the first four months of 2002. In March, yields rose --
and prices declined -- as investors digested reports of
stronger-than-expected economic growth as well as news that corporate
accounting problems plagued more companies than just Enron. However, in
April, yields dropped again and prices rose as the news about the
economy turned more negative.
Fund Profile
Putnam Balanced Retirement Fund seeks high current return with relative
stability of principal as a secondary objective. The fund balances its
investments between value-oriented stocks and an array of fixed-income
securities. This fund is suitable for investors looking to preserve
capital and generate income.
* FUND SHIFTED BOND-SECTOR ALLOCATIONS
The fund's strong fixed-income showing also reflected our timely
avoidance of troubled sectors. When rates rose, short- and
intermediate-maturity Treasury bonds were the hardest hit, while the
corporate sector was hurt by the accounting scandal. We took steps to
reduce the fund's weightings in these sectors, which proved beneficial.
In addition, we increased the fund's weighting in mortgage-backed
securities and, to a lesser extent, in BB-rated high-yield bonds. The
mortgage-backed holdings fared particularly well, as their attractive
yields and comparative stability helped produce solid returns.
Lipper Analytical Services ranked Putnam Balanced Retirement Fund's
class A shares 22 out of 494 (5th percentile) balanced funds tracked for
1-year performance, as of 4/30/02.
The fund's class A shares ranked 91 out of 296 and 22 out of 73 for the
5- and 10-year periods ending, respectively, as of 4/30/02. Past
performance does not indicate future results. Lipper Inc. ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper.
We remained risk-averse and keenly aware of problem bond issues. As a
result, the fund did not have any significant exposure to bonds that
experienced difficulties. Certain industries in the corporate sector --
such as banking and brokerage and some industrial bonds -- performed
well for some time. In response, we sold several issues that had a long
run of strong performance because we did not believe there was much
potential for further improvement. We allocated the proceeds from these
sales to Treasuries and the mortgage- and asset-backed sectors, which we
believe can still benefit. We also reduced our holdings in BB-rated
corporate bonds after they performed well.
* CONSERVATIVE APPROACH DROVE STOCK PERFORMANCE
At the beginning of 2002, we started to transition the fund's stock
holdings from a defensive positioning to a more cyclical one. To that
end, we looked to gradually position the fund to benefit from the
impending economic recovery by slowly allocating more investments into
economically sensitive areas. However, we did so in a disciplined,
careful, and conservative manner, paying strict attention to valuation
parameters. This approach paid off, as it proved better to be more
conservatively positioned in a market that was plagued by fits and
starts and ended the period in negative territory. Stock investors
remained uncertain about the pace of recovery in general, and business
spending and possible accounting fiascoes in particular. Consumer
spending held up fairly well, buoyed by falling energy prices,
relatively low interest rates, 0% auto financing, and other compelling
offers by retailers.
[GRAPHIC OMITTED: TOP FIVE EQUITY HOLDINGS]
TOP FIVE EQUITY HOLDINGS*
Exxon Mobil Corp.
Oil and gas
Citigroup, Inc.
Financial
Bank of America Corp.
Banking
Philip Morris Companies, Inc.
Tobacco
U.S. Bancorp
Financial
[GRAPHIC OMITTED: TOP FIVE FIXED-INCOME HOLDINGS]
TOP FIVE FIXED-INCOME HOLDINGS*
Federal National Mortgage
Association
Pass-through certificates, 6 1/2s,
various due dates from May 1, 2031,
to April 1, 2032
Federal National Mortgage
Association
Pass-through certificates, 6 1/2s,
various due dates from September 1,
2010, to February 1, 2017
Federal National Mortgage Association
Pass-through certificates TBA, 7s,
May 1, 2032
Government National Mortgage
Association
Pass-through certificates, TBA, 7s,
May 1, 2032
U.S. Treasury Notes
3 3/8s, April 30, 2004
Footnote reads:
*These holdings represent 27.3% of the fund's net assets as of 4/30/02.
Portfolio holdings will vary over time.
This environment created a stock picker's market, rather than one driven
by the performance of particular sectors. That said, we kept an
overweighted position in utilities, a move that turned out well due to
these stocks' attractive defensive qualities, the high yields they
offered in a low interest-rate environment, and their ability to rebound
from depressed stock valuations. In finance, we favored property and
casualty insurers benefiting from a positive pricing cycle. At the same
time, we maintained a significantly underweighted position in the
struggling technology and telecommunications sectors.
Performance of the fund's equity holdings, like the fixed-income
portion, benefited from what we didn't own or were underweight in,
including IBM and Worldcom. Investments that provided positive
performance included The Limited, which contributed positively due to
the company's reduction of square footage to improve profits. Entergy, a
utility, offered strong gains to boost the fund's performance as well.
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.
On the down side, holdings in Qwest Communications, Dynegy, and Tyco
International held back fund performance. Concern about the firms'
accounting practices hurt these companies, but we maintained our
positions because we believed they would offer significant profit
opportunities once they emerged from this cloud of concern.
* A PROLONGED WEAK RECOVERY IS EXPECTED
On the fixed-income side, we believe that the market will continue to
waver in the face of slow, choppy, but generally positive economic
growth. With respect to stocks, we remain cautiously optimistic. We
intend to carefully pursue opportunities to increase the economic
sensitivity of the portfolio, looking for more consistent signs of
steady, significant economic growth. We are bullish on the economy's
direction, but do not want to position the fund more aggressively until
we see valuation opportunities and early signs that the recovery is
underway.
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 4/30/02, there is no guarantee the fund will
continue to hold these securities in the future.
This fund is managed by the Putnam Large-Cap Value and Core Fixed-Income
teams. The members of the Large-Cap Value Team are Deborah Kuenstner,
Michael Abata, Bart Geer, David King, Cole Lannum, Christopher Miller,
Jeanne Mockard, and Hugh Mullin. The members of the Core Fixed-Income
Team are Kevin Cronin, Rob Bloemker, Andrea Burke, Joanne Driscoll, D.
William Kohli, Krishna Memani, James Prusko, and David Waldman.
MERGER PROPOSED FOR PUTNAM BALANCED RETIREMENT FUND
After careful study and lengthy working sessions with Putnam Investment
Management, your fund's Trustees have agreed to recommend the merger of
Putnam Balanced Retirement Fund into The George Putnam Fund of Boston.
Completion of the merger is subject to a number of conditions, including
the approval of shareholders. Proxy materials will be delivered within the
next few months so you can submit your vote.
The George Putnam Fund of Boston has a similar objective to that of your
fund, investing in both stocks and bonds for investors seeking both
growth and income. If the merger is approved, shareholders are expected
to benefit from potentially lower expenses provided by a larger asset
base of the merged funds.We encourage you to vote on this important
matter by returning your completed proxy material. Once a registration
statement relating to a merger has been filed with the SEC and is
effective, you may call 1-800-225-1581 or visit www.sec.gov for a free
copy of the prospectus/proxy statement. Please read this important
information carefully.
A NOTE ABOUT DUPLICATE MAILINGS
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these materials
to customers who share the same address. This change will automatically
apply to all shareholders except those who notify us. If you would prefer
to receive your own copy, please call Putnam at 1-800-225-1581.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy.
TOTAL RETURN FOR PERIODS ENDED 4/30/02
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 3.47% -2.44% 3.14% -1.86% 3.08% 2.08% 3.24% -0.39%
- ------------------------------------------------------------------------------
1 year 3.63 -2.36 2.94 -2.02 2.84 1.85 3.15 -0.50
- ------------------------------------------------------------------------------
5 years 45.21 36.83 40.11 38.16 39.90 39.90 41.65 36.74
Annual average 7.75 6.47 6.98 6.68 6.94 6.94 7.21 6.46
- ------------------------------------------------------------------------------
10 years 159.46 144.61 141.06 141.06 140.76 140.76 146.99 138.39
Annual average 10.00 9.36 9.20 9.20 9.18 9.18 9.46 9.08
- ------------------------------------------------------------------------------
Annual average
(life of fund) 9.98 9.60 9.09 9.09 9.16 916 9.36 9.13
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/02
Standard Lehman S&P/Barra Lehman
& Poor's Govt./Credit 500 Value Aggregate Consumer
500 Index Bond Index Index* Bond Index* price index
- ----------------------------------------------------------------------------------------------------
6 months 2.31% -1.00% 3.91% -0.01% 1.07%
- ----------------------------------------------------------------------------------------------------
1 year -12.63 7.48 -14.86 7.84 1.53
- ----------------------------------------------------------------------------------------------------
5 years 43.91 43.89 43.47 44.65 12.12
Annual average 7.55 7.55 7.49 7.66 2.31
- ----------------------------------------------------------------------------------------------------
10 years 216.89 106.58 213.08 106.29 28.67
Annual average 12.23 7.53 12.09 7.51 2.55
- ----------------------------------------------------------------------------------------------------
Annual average
(life of fund) 14.02 9.04 13.48 9.17 3.10
- ----------------------------------------------------------------------------------------------------
Past performance does not indicate future results. More recent returns
may be less or more than those shown. Investment return and principal
value will fluctuate and you may have a gain or a loss when you sell
your shares.
Performance assumes reinvestment of distributions and does not account
for taxes. Returns at public offering price (POP) for classes A and M
shares reflect a sales charge of 5.75% and 3.50%, respectively. Class B
share returns reflect the applicable contingent deferred sales charge
(CDSC), which is 5% in the first year, declining to 1% in the sixth
year, and is eliminated thereafter. Class C shares reflect a 1% CDSC the
first year that is eliminated thereafter. Performance for class B, C,
and M shares before their inception are derived from the historical
performance of class A shares, adjusted for the applicable sales charge
(or CDSC) and higher operating expenses for such shares.
LIPPER INFORMATION:
The average cumulative return for the 511 funds in the Lipper Balanced
Funds category over the 6 months ended 4/30/02 was 2.12%. Over the 1-, 5-,
and 10-year periods ended 4/30/02, annualized returns for the category were
- -4.92%, 6.57%, and 9.22%, respectively.
*These indices will replace the S&P 500 Index and the Lehman
Government/Credit Index as the benchmarks for this fund. After a recent
review of fund benchmarks, Putnam Management has determined that the
securities tracked by these indexes more accurately reflect the types of
securities generally held by the fund.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 4/30/02
Class A Class B Class C Class M
- ------------------------------------------------------------------------------
Distributions
(number) 2 2 2 2
- ------------------------------------------------------------------------------
Income $0.220 $0.184 $0.189 $0.195
- ------------------------------------------------------------------------------
Capital gains -- -- -- --
- ------------------------------------------------------------------------------
Total $0.220 $0.184 $0.189 $0.195
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- ------------------------------------------------------------------------------
10/31/01 $10.23 $10.85 $10.12 $10.17 $10.16 $10.53
- ------------------------------------------------------------------------------
4/30/02 10.36 10.99 10.25 10.29 10.29 10.66
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current
dividend
rate 1 4.25% 4.00% 3.59% 3.65% 3.81% 3.68%
- ------------------------------------------------------------------------------
Current
30-day SEC
yield 2 3.56 3.36 2.81 2.81 3.06 2.95
- ------------------------------------------------------------------------------
1 Most recent distribution, excluding capital gains, annualized and
divided by NAV or POP at end of period.
2 Based only on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 3/31/02 (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 4.28% -1.71% 3.85% -1.15% 3.89% 2.88% 3.95% 0.28%
- ------------------------------------------------------------------------------
1 year 5.65 -0.46 4.87 -0.13 4.86 3.86 5.08 1.40
- ------------------------------------------------------------------------------
5 years 48.85 40.34 43.51 41.52 43.49 43.49 45.22 40.08
Annual average 8.28 7.01 7.49 7.19 7.49 7.49 7.75 6.97
- ------------------------------------------------------------------------------
10 years 165.38 150.18 146.50 146.50 146.23 146.23 152.55 143.59
Annual average 10.25 9.60 9.44 9.44 9.43 9.43 9.71 9.31
- ------------------------------------------------------------------------------
Annual average
(life of fund) 10.05 9.67 9.15 9.15 9.23 9.23 9.42 9.20
- ------------------------------------------------------------------------------
Past performance does not indicate future results. More recent returns
may be less or more than those shown. Investment return and principal
value will fluctuate and you may have a gain or a loss when you sell
your shares.
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.
Net asset value (NAV) is the price, or value, of one share of a mutual
fund, without a sales charge. NAVs fluctuate with market conditions. The
NAV is calculated by dividing the net value of all the fund's assets by
the number of outstanding shares.
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. The CDSC for class C shares is 1% for one
year after purchase.
Class A shares are generally subject to an initial sales charge and no
sales charge on redemption (except on certain redemptions of shares
bought without an initial sales charge).
Class B shares are not subject to an initial sales charge and 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 (except on certain
redemptions of shares bought without an initial sales charge).
COMPARATIVE BENCHMARKS
The Lehman Aggregate Bond Index* is an unmanaged index used as a general
measure of U.S. fixed-income securities.
The Lehman Government/Credit Bond Index* is an unmanaged index of U.S
fixed-income securities.
The S&P 500 Index* is an unmanaged index of common stock performance.
The S&P/Barra 500 Value Index* is an unmanaged index of
capitalization-weighted stocks chosen for their value orientation.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Lipper Inc. is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper.
*Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report, as well as the accompanying Notes,
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.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal 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.
THE FUND'S PORTFOLIO
April 30, 2002 (Unaudited)
COMMON STOCKS (41.9%) (a)
NUMBER OF SHARES VALUE
Advertising and Marketing Services (0.1%)
- -------------------------------------------------------------------------------------------------------------------
17,500 Valassis Communications, Inc. (NON) $ 654,325
Aerospace and Defense (0.7%)
- -------------------------------------------------------------------------------------------------------------------
49,000 Boeing Co. (The) 2,185,400
24,400 Lockheed Martin Corp. 1,534,760
26,300 Northrop Grumman Corp. 3,173,358
-------------
6,893,518
Agriculture (0.1%)
- -------------------------------------------------------------------------------------------------------------------
20,500 Monsanto Co. 631,400
110 PSF Holdings, LLC Class A 231,273
-------------
862,673
Automotive (0.1%)
- -------------------------------------------------------------------------------------------------------------------
33,100 Delphi Automotive Systems Corp. 514,705
26,400 Ford Motor Co. 422,400
-------------
937,105
Banking (6.6%)
- -------------------------------------------------------------------------------------------------------------------
141,500 Bank of America Corp. 10,255,920
56,800 Bank of New York Company, Inc. (The) 2,078,312
19,500 Banknorth Group, Inc. 514,605
23,300 BB&T Corp. 887,264
172,500 Charter One Financial, Inc. 6,103,050
100,300 Comerica, Inc. 6,303,855
42,200 FleetBoston Financial Corp. 1,489,660
9,400 Greenpoint Financial Corp. 464,830
121,000 JPMorgan Chase & Co. 4,247,100
30,100 M&T Bank Corp. 2,569,938
90,200 Mellon Financial Corp. 3,405,952
11,800 Mercantile Bankshares Corp. 485,688
369,600 U.S. Bancorp 8,759,520
120,500 Wachovia Corp. 4,583,820
123,900 Washington Mutual, Inc. 4,674,747
85,800 Wells Fargo & Co. 4,388,670
15,100 Zions Bancorporation 816,608
-------------
62,029,539
Beverage (0.6%)
- -------------------------------------------------------------------------------------------------------------------
19,400 Brown-Forman Corp. Class B 1,525,228
86,400 Coca-Cola Enterprises, Inc. 1,695,168
89,600 Pepsi Bottling Group, Inc. (The) 2,566,144
-------------
5,786,540
Cable Television (0.2%)
- -------------------------------------------------------------------------------------------------------------------
114,600 Charter Communications, Inc. Class A (NON) 938,574
48,400 Comcast Corp. Class A (NON) 1,294,700
-------------
2,233,274
Capital Goods (0.1%)
- -------------------------------------------------------------------------------------------------------------------
5,700 Eaton Corp. 482,277
Chemicals (0.8%)
- -------------------------------------------------------------------------------------------------------------------
51,600 E.I. du Pont de Nemours & Co. 2,296,200
91,300 Engelhard Corp. 2,777,346
31,500 PPG Industries, Inc. 1,647,765
18,600 Rohm & Haas Co. 690,246
-------------
7,411,557
Coal (0.1%)
- -------------------------------------------------------------------------------------------------------------------
32,900 Peabody Energy Corp. 889,287
Commercial and Consumer Services (--%)
- -------------------------------------------------------------------------------------------------------------------
31,800 ServiceMaster Co. (The) 445,200
Computers (1.0%)
- -------------------------------------------------------------------------------------------------------------------
348,200 Compaq Computer Corp. 3,534,230
182,600 Hewlett-Packard Co. 3,122,460
21,700 IBM Corp. 1,817,592
36,500 NCR Corp. (NON) 1,418,390
-------------
9,892,672
Conglomerates (1.1%)
- -------------------------------------------------------------------------------------------------------------------
1,300 Berkshire Hathaway, Inc. Class B (NON) 3,162,900
80,100 Cooper Industries, Inc. 3,508,380
44,100 Honeywell International, Inc. 1,617,588
130,000 Tyco International, Ltd. (Bermuda) 2,398,500
-------------
10,687,368
Consumer Finance (0.2%)
- -------------------------------------------------------------------------------------------------------------------
34,200 Household International, Inc. 1,993,518
Consumer Goods (1.0%)
- -------------------------------------------------------------------------------------------------------------------
108,100 Fortune Brands, Inc. 5,649,306
61,100 Kimberly-Clark Corp. 3,978,832
-------------
9,628,138
Electric Utilities (2.4%)
- -------------------------------------------------------------------------------------------------------------------
66,100 Cinergy Corp. 2,348,533
28,000 Constellation Energy Group, Inc. 893,760
16,400 Dominion Resources, Inc. 1,089,288
113,300 DPL, Inc. 2,948,066
6,500 DTE Energy Co. 294,710
42,800 Duke Energy Corp. 1,640,524
49,900 Edison International (NON) 905,685
71,800 Entergy Corp. 3,331,520
29,600 FirstEnergy Corp. 985,680
11,000 FPL Group, Inc. 698,390
67,500 Northeast Utilities 1,350,000
25,800 PPL Corp. 983,238
78,500 Progress Energy, Inc. 4,073,365
58,400 Reliant Energy, Inc. 1,482,192
-------------
23,024,951
Electronics (0.4%)
- -------------------------------------------------------------------------------------------------------------------
14,000 Avnet, Inc. 358,680
84,800 Motorola, Inc. 1,305,920
32,100 W.W. Grainger, Inc. 1,799,847
-------------
3,464,447
Financial (2.7%)
- -------------------------------------------------------------------------------------------------------------------
361,200 Citigroup, Inc. 15,639,960
266,399 Contifinancial Corp. Liquidating Trust units (NON) 13,320
68,300 Fannie Mae 5,390,919
72,400 Freddie Mac 4,731,340
-------------
25,775,539
Food (0.5%)
- -------------------------------------------------------------------------------------------------------------------
42,000 General Mills, Inc. 1,850,100
67,500 H.J. Heinz Co. 2,834,325
-------------
4,684,425
Gaming & Lottery (--%)
- -------------------------------------------------------------------------------------------------------------------
748 Fitzgerald Gaming Corp. (NON) 7
Health Care (0.3%)
- -------------------------------------------------------------------------------------------------------------------
61,100 HCA, Inc. 2,919,969
Health Care Services (0.9%)
- -------------------------------------------------------------------------------------------------------------------
53,200 Anthem, Inc. (NON) 3,628,240
42,000 CIGNA Corp. 4,578,000
569 Genesis Health Ventures, Inc. (NON) 10,697
-------------
8,216,937
Household Furniture and Appliances (0.1%)
- -------------------------------------------------------------------------------------------------------------------
22,000 Newell Rubbermaid, Inc. 690,800
Insurance (2.7%)
- -------------------------------------------------------------------------------------------------------------------
138,700 ACE, Ltd. (Bermuda) 6,036,224
34,300 AMBAC Financial Group, Inc. 2,156,098
26,900 American International Group, Inc. 1,859,328
7,100 Chubb Corp. (The) 544,570
26,200 Hartford Financial Services Group, Inc. (The) 1,815,660
15,900 MBIA, Inc. 857,487
25,200 PMI Group, Inc. (The) 2,044,224
79,000 Radian Group, Inc. 4,100,100
33,600 Travelers Property Casualty Corp. Class A (NON) 624,624
20,200 UnumProvident Corp. 570,448
55,700 XL Capital, Ltd. Class A (Bermuda) 5,255,295
-------------
25,864,058
Investment Banking/Brokerage (1.0%)
- -------------------------------------------------------------------------------------------------------------------
29,600 Lehman Brothers Holdings, Inc. 1,746,400
109,500 Merrill Lynch & Company, Inc. 4,592,430
75,800 Morgan Stanley Dean Witter & Co. 3,617,176
-------------
9,956,006
Lodging/Tourism (0.5%)
- -------------------------------------------------------------------------------------------------------------------
139,300 Cendant Corp. (NON) 2,506,007
30,700 Marriott International, Inc. Class A 1,348,958
44,900 Royal Caribbean Cruises, Ltd. 1,059,191
-------------
4,914,156
Machinery (0.4%)
- -------------------------------------------------------------------------------------------------------------------
28,000 Ingersoll-Rand Co. Class A (Bermuda) 1,398,600
48,400 Parker-Hannifin Corp. 2,417,580
-------------
3,816,180
Manufacturing (0.1%)
- -------------------------------------------------------------------------------------------------------------------
9,900 Illinois Tool Works, Inc. 713,790
Media (1.0%)
- -------------------------------------------------------------------------------------------------------------------
245,700 Liberty Media Corp. Class A (South Korea) (NON) 2,628,990
80,400 USA Networks, Inc. (NON) 2,404,764
189,400 Walt Disney Co. (The) 4,390,292
-------------
9,424,046
Medical Technology (0.2%)
- -------------------------------------------------------------------------------------------------------------------
52,700 Pall Corp. 1,096,160
15,200 Zimmer Holdings, Inc. (NON) 527,592
-------------
1,623,752
Metals (0.1%)
- -------------------------------------------------------------------------------------------------------------------
36,100 Freeport-McMoRan Copper & Gold, Inc. Class B (NON) 641,136
Natural Gas Utilities (0.5%)
- -------------------------------------------------------------------------------------------------------------------
92,500 Dynegy, Inc. Class A 1,665,000
57,300 El Paso Corp. 2,292,000
25,800 National Fuel Gas Co. 614,556
-------------
4,571,556
Oil & Gas (3.9%)
- -------------------------------------------------------------------------------------------------------------------
18,300 ChevronTexaco Corp. 1,586,793
107,200 Conoco, Inc. 3,006,960
27,000 Devon Energy Corp. 1,331,370
395,800 Exxon Mobil Corp. (SEG) 15,899,286
52,400 Marathon Oil Corp. 1,522,744
53,500 Phillips Petroleum Co. 3,199,835
48,500 Royal Dutch Petroleum Co. PLC ADR (Netherlands) 2,534,610
59,200 TotalFinaElf SA ADR (France) 4,482,032
89,100 Unocal Corp. 3,313,629
10,400 Valero Energy Corp. 448,864
-------------
37,326,123
Paper & Forest Products (1.3%)
- -------------------------------------------------------------------------------------------------------------------
223,500 Abitibi-Consolidated, Inc. (Canada) 2,011,500
40,300 Boise Cascade Corp. 1,364,961
73,200 International Paper Co. 3,032,676
143,400 Smurfit-Stone Container Corp. (NON) 2,328,816
95,900 Sonoco Products Co. 2,771,510
22,500 Weyerhaeuser Co. 1,341,225
-------------
12,850,688
Pharmaceuticals (1.2%)
- -------------------------------------------------------------------------------------------------------------------
35,700 Abbott Laboratories 1,926,015
59,600 Bristol-Myers Squibb Co. 1,716,480
20,800 Johnson & Johnson 1,328,288
105,500 Merck & Company, Inc. 5,732,870
41,300 Schering-Plough Corp. 1,127,490
-------------
11,831,143
Publishing (0.2%)
- -------------------------------------------------------------------------------------------------------------------
36,800 Tribune Co. 1,625,456
Railroads (0.7%)
- -------------------------------------------------------------------------------------------------------------------
23,600 CSX Corp. 853,612
109,500 Union Pacific Corp. 6,219,600
-------------
7,073,212
Real Estate (1.0%)
- -------------------------------------------------------------------------------------------------------------------
97,800 Archstone-Smith Trust (R) 2,636,688
11,000 Boston Properties, Inc. (R) 428,780
80,100 Equity Office Properties Trust (R) 2,293,263
162,600 Equity Residential Properties Trust (R) 4,585,320
-------------
9,944,051
Regional Bells (2.0%)
- -------------------------------------------------------------------------------------------------------------------
147,200 BellSouth Corp. 4,467,520
203,400 SBC Communications, Inc. 6,317,604
212,500 Verizon Communications, Inc. 8,523,375
-------------
19,308,499
Restaurants (0.6%)
- -------------------------------------------------------------------------------------------------------------------
25 AmeriKing, Inc. (NON) --
19,700 Darden Restaurants, Inc. 786,030
137,100 McDonald's Corp. 3,893,640
15,100 Tricon Global Restaurants, Inc. (NON) 952,206
-------------
5,631,876
Retail (1.7%)
- -------------------------------------------------------------------------------------------------------------------
55,400 Federated Department Stores, Inc. (NON) 2,201,042
157,700 JC Penney Company, Inc. 3,428,398
169,200 Kroger Co. (NON) 3,852,684
131,800 Limited, Inc. (The) 2,525,288
23,300 May Department Stores Co. 808,044
31,500 Office Depot, Inc. (NON) 602,910
75,600 Rite Aid Corp. (NON) 239,652
23,900 Safeway, Inc. (NON) 1,002,605
42,200 TJX Companies, Inc. (The) 1,839,076
-------------
16,499,699
Software (0.3%)
- -------------------------------------------------------------------------------------------------------------------
97,400 BMC Software, Inc. (NON) 1,408,404
90,100 Computer Associates International, Inc. 1,675,860
-------------
3,084,264
Technology (0.1%)
- -------------------------------------------------------------------------------------------------------------------
63,900 Flextronics International, Ltd. (Singapore) (NON) 885,015
Technology Services (0.1%)
- -------------------------------------------------------------------------------------------------------------------
70,400 KPMG Consulting, Inc. (NON) 1,232,000
Telecommunications (0.6%)
- -------------------------------------------------------------------------------------------------------------------
24,200 ALLTEL Corp. 1,197,900
107,600 AT&T Wireless Services, Inc. (NON) 963,020
66,900 Citizens Communications Co. (NON) 620,163
195,700 Qwest Communications International, Inc. 984,371
145,400 Sprint Corp. (FON Group) 2,304,590
-------------
6,070,044
Tobacco (1.0%)
- -------------------------------------------------------------------------------------------------------------------
169,200 Philip Morris Companies, Inc. 9,209,556
Waste Management (0.7%)
- -------------------------------------------------------------------------------------------------------------------
209,500 Republic Services, Inc. (NON) 4,148,100
82,500 Waste Management, Inc. 2,173,050
-------------
6,321,150
-------------
Total Common Stocks (cost $367,237,044) $ 400,021,522
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (37.9%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (28.2%)
- -------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association
$ 33,540,000 7s, TBA, with due dates from May 1, 2017 to May 1, 2032 $ 34,735,783
21,038,000 6 1/2s, TBA, May 1, 2032 21,287,931
16,190,000 6s, TBA, May 1, 2032 15,997,825
Federal National Mortgage Association Pass-Through Certificates
12,548 8s, February 1, 2027 13,290
12,430,159 7 1/2s, with due dates from September 1, 2022 to July 1, 2031 12,987,824
579,086 7s, with due dates from November 1, 2029 to October 1, 2030 598,098
3,740,417 7s, with due dates from December 1, 2007 to April 1, 2017 3,916,790
60,843,605 6 1/2s, with due dates from May 1, 2031 to April 1, 2032 61,643,091
39,509,346 6 1/2s, with due dates from September 1, 2010 to February 1, 2017 40,772,049
15,199,173 6s, with due dates from May 1, 2016 to September 1, 2029 15,419,319
32,891,000 Government National Mortgage Association 7s, TBA, May 1, 2032 33,959,958
Government National Mortgage Association Pass-Through Certificates
8,367,476 8s, with due dates from January 15, 2022 to December 15, 2027 8,927,134
787,645 7 1/2s, August 15, 2029 827,768
7,157,038 7s, with due dates from April 15, 2023 to December 15, 2028 7,430,021
10,303,975 6 1/2s, with due dates from September 15, 2024 to
February 15, 2032 10,466,553
-------------
268,983,434
U.S. Treasury Obligations (9.7%)
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
3,725,000 8s, November 15, 2021 4,717,377
1,445,000 6 1/4s, May 15, 2030 1,550,442
2,415,000 6s, February 15, 2026 2,491,217
U.S. Treasury Bonds
10,635,000 5 3/8s, February 15, 2031 10,292,659
U.S. Treasury Notes
1,110,000 7s, July 15, 2006 1,222,732
8,675,000 6 5/8s, May 15, 2007 9,476,050
1,800,000 5 3/4s, August 15, 2010 1,884,096
19,475,000 4 7/8s, February 15, 2012 19,143,341
4,000,000 4 5/8s, May 15, 2006 4,052,480
8,345,000 3 1/2s, November 15, 2006 8,034,649
29,180,000 3 3/8s, April 30, 2004 29,252,950
-------------
92,117,993
-------------
Total U.S. Government and Agency Obligations
(cost $358,868,300) $ 361,101,427
CORPORATE BONDS AND NOTES (16.3%) (a)
PRINCIPAL AMOUNT VALUE
Advertising and Marketing Services (--%)
- -------------------------------------------------------------------------------------------------------------------
$ 40,000 Telehub Communications Corp. company guaranty
13 7/8s, 2005 (In default) (NON) $ 1
Aerospace and Defense (0.9%)
- -------------------------------------------------------------------------------------------------------------------
1,185,000 Boeing Co. (The) deb. 6 5/8s, 2038 1,133,025
840,000 Lockheed Martin Corp. bonds 8 1/2s, 2029 997,844
710,000 Raytheon Co. notes 8.3s, 2010 783,812
2,240,000 Raytheon Co. notes 8.2s, 2006 2,416,893
2,040,000 Raytheon Co. notes 6.15s, 2008 2,014,051
-------------
7,345,625
Airlines (0.1%)
- -------------------------------------------------------------------------------------------------------------------
1,225,884 Continental Airlines, Inc. pass-through certificates
Ser. 981C, 6.541s, 2009 1,142,046
Automotive (0.4%)
- -------------------------------------------------------------------------------------------------------------------
895,000 DaimlerChrysler Corp. company guaranty 8 1/2s, 2031 991,982
630,000 Dana Corp. notes 9s, 2011 644,175
1,455,000 Ford Motor Co. bonds 6 5/8s, 2028 1,247,677
710,000 Ford Motor Co. notes 7.45s, 2031 670,723
580,000 Visteon Corp. sr. notes 8 1/4s, 2010 610,027
-------------
4,164,584
Banking (2.5%)
- -------------------------------------------------------------------------------------------------------------------
300,000 Bank of America Corp. sub. notes 7.4s, 2011 322,698
2,320,000 Bank United Corp. notes Ser. A, 8s, 2009 2,523,789
615,000 BankAmerica Corp. sr. notes 5 7/8s, 2009 611,814
665,000 BankBoston NA sub. notes Ser. BKNT, 6 3/8s, 2008 678,466
1,885,000 Citicorp sub. notes 6 3/8s, 2008 1,930,146
640,000 Colonial Bank sub. notes 9 3/8s, 2011 687,622
750,000 Colonial Bank sub. notes 8s, 2009 746,183
15,000 Colonial Capital II 144A company guaranty 8.92s, 2027 13,488
600,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 645,036
470,000 Firstar Bank Milwaukee sr. notes 6 1/4s, 2002 480,035
585,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 584,345
755,000 Imperial Bank sub. notes 8 1/2s, 2009 833,118
1,125,000 JPMorgan Chase & Co. notes 5.35s, 2007 1,115,370
475,000 National City Corp. sub. notes 7.2s, 2005 506,578
850,000 NB Capital Trust IV company guaranty 8 1/4s, 2027 910,537
720,000 Norwest Corp. med. term sr. notes 6 3/4s, 2027 697,126
2,240,000 Norwest Corp. notes Ser. G, 6 7/8s, 2006 2,396,419
2,985,000 Peoples Bank- Bridgeport sub. notes 7.2s, 2006 2,900,554
15,000 Peoples Heritage Capital Trust company guaranty
Ser. B, 9.06s, 2027 15,318
1,430,000 PNC Funding Corp. company guaranty 5 3/4s, 2006 1,445,501
995,000 Royal Bank of Scotland Group PLC bonds Ser. 2,
8.817s, 2005 (United Kingdom) 1,080,192
620,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 678,900
790,000 Wachovia Corp. notes 4.95s, 2006 783,633
910,000 Webster Capital Trust I 144A bonds 9.36s, 2027 906,697
-------------
23,493,565
Broadcasting (0.2%)
- -------------------------------------------------------------------------------------------------------------------
530,000 British Sky Broadcasting PLC company guaranty 8.2s,
2009 (United Kingdom) 537,261
700,000 News America Holdings, Inc. deb. 7.7s, 2025 666,701
290,000 News America, Inc. sr. notes 6 5/8s, 2008 290,534
-------------
1,494,496
Building Materials (--%)
- -------------------------------------------------------------------------------------------------------------------
70,000 Building Materials Corp. company guaranty 8s, 2008 57,400
110,000 Morrison Knudsen Corp. 144A sr. notes 11s, 2010
(In default) (NON) 23,100
-------------
80,500
Cable Television (--%)
- -------------------------------------------------------------------------------------------------------------------
75,000 CSC Holdings, Inc. sr. sub. deb. 10 1/2s, 2016 76,875
40,000 NTL Communications Corp. sr. notes Ser. B, 11 7/8s,
2010 (In default) (NON) 16,400
410,000 NTL Communications Corp. sr. notes Ser. B, 11 1/2s,
2008 (In default) (NON) 164,000
-------------
257,275
Chemicals (0.2%)
- -------------------------------------------------------------------------------------------------------------------
80,000 Airgas, Inc. company guaranty 9 1/8s, 2011 85,400
680,000 Equistar Chemicals LP/Equistar Funding Corp. company
guaranty 10 1/8s, 2008 669,800
30,000 Hercules, Inc. company guaranty 11 1/8s, 2007 33,150
70,000 IMC Global, Inc. company guaranty Ser. B, 10 7/8s, 2008 78,300
260,000 IMC Global, Inc. notes 6.55s, 2005 249,051
640,000 Lyondell Petrochemical Co. notes Ser. A, 9 5/8s, 2007 633,600
290,000 Lyondell Petrochemical Co. sec. notes Ser. B, 9 7/8s, 2007 285,650
180,000 Millenium America, Inc. company guaranty 9 1/4s, 2008 183,600
120,000 Millenium America, Inc. company guaranty 7s, 2006 115,433
-------------
2,333,984
Computers (0.1%)
- -------------------------------------------------------------------------------------------------------------------
975,000 IBM Corp. deb. 7 1/8s, 2096 966,381
Conglomerates (0.2%)
- -------------------------------------------------------------------------------------------------------------------
2,065,000 Tyco International Group SA notes 6 3/8s, 2011 (Luxembourg) 1,636,513
Consumer Finance (0.6%)
- -------------------------------------------------------------------------------------------------------------------
300,000 Capital One Financial Corp. notes 7 1/4s, 2006 298,986
730,000 Caterpillar Financial Services Corp. sr. notes 5.95s, 2006 753,148
550,000 Conseco Finance Trust III, Inc. bonds 8.796s, 2027 170,500
1,040,000 General Motors Acceptance Corp. notes 7s, 2012 1,045,745
1,015,000 General Motors Acceptance Corp. notes 6 1/8s, 2006 1,026,195
1,530,000 General Motors Acceptance Corp. notes Ser. MTN, 5.36s, 2004 1,540,358
-------------
4,834,932
Electric Utilities (1.0%)
- -------------------------------------------------------------------------------------------------------------------
1,005,000 Arizona Public Service Co. sr. notes 6 3/4s, 2006 1,043,904
370,000 Avista Corp. sr. notes 9 3/4s, 2008 397,143
760,000 CILCORP, Inc. sr. notes 8.7s, 2009 795,994
380,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 383,808
1,785,000 DPL, Inc. bonds 8 1/8s, 2031 1,722,630
2,235,000 FirstEnergy Corp. notes Ser. A, 5 1/2s, 2006 2,132,972
590,000 Mission Energy Holding Co. sec. notes 13 1/2s, 2008 647,525
441 Northeast Utilities notes Ser. A, 8.58s, 2006 476
630,000 Northwestern Corp. 144A notes 8 3/4s, 2012 636,120
720,000 NRG Energy, Inc. sr. notes 6 3/4s, 2006 691,690
1,375,000 PSI Energy, Inc. 1st mtge. Ser. EEE, 6.65s, 2006 1,390,156
-------------
9,842,418
Electronics (--%)
- -------------------------------------------------------------------------------------------------------------------
380,000 Sequa Corp. sr. notes 9s, 2009 385,700
Energy (0.2%)
- -------------------------------------------------------------------------------------------------------------------
290,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 302,325
1,240,000 Transocean Sedco Forex, Inc. notes 6 5/8s, 2011 1,239,777
-------------
1,542,102
Entertainment (0.3%)
- -------------------------------------------------------------------------------------------------------------------
2,450,000 Viacom, Inc. company guaranty 7 7/8s, 2030 2,603,591
Financial (4.0%)
- -------------------------------------------------------------------------------------------------------------------
1,065,000 Ace INA Holdings, Inc. company guaranty 8.3s, 2006 1,176,729
1,515,000 American General Corp. sr. notes 6 5/8s, 2029 1,488,352
700,000 Associates Corp. sr. notes 6 1/4s, 2008 715,820
705,000 Associates First Capital Corp. deb. 6.95s, 2018 717,627
565,000 Associates First Capital Corp. sub. deb. 8.15s, 2009 624,099
1,200,000 CIT Group, Inc. sr. notes 7 3/4s, 2012 1,183,692
890,000 Conseco Financing Trust II company guaranty 8.7s, 2026 275,900
130,000 Fairfax Financial Holdings, Ltd. notes 6 7/8s, 2008 (Canada) 110,552
6,535,000 Fannie Mae bonds 7 1/4s, 2030 7,348,804
8,371,000 Fannie Mae bonds 7 1/4s, 2010 9,306,208
155,000 Fannie Mae bonds 6 5/8s, 2030 161,975
525,000 Ford Motor Credit Corp. bonds 7 3/8s, 2011 528,528
215,000 Ford Motor Credit Corp. notes 7.6s, 2005 222,910
1,500,000 Ford Motor Credit Corp. notes 7 3/8s, 2009 1,511,775
2,910,000 Ford Motor Credit Corp. notes 6 1/2s, 2007 2,891,110
510,000 Ford Motor Credit Corp. sr. notes 5.8s, 2009 472,877
815,000 Household Finance Corp. notes 6 1/2s, 2008 812,164
335,000 Household Finance Corp. sr. unsub. 5 7/8s, 2009 320,210
1,300,000 Liberty Mutual Insurance 144A notes 7.697s, 2097 1,021,462
455,000 Markel Capital Trust I company guaranty Ser. B, 8.71s, 2046 366,871
1,210,000 Metlife, Inc. sr. notes 5 1/4s, 2006 1,209,505
290,000 Port Arthur Finance Corp. company guaranty 12 1/2s, 2009 316,100
1,445,000 Principal Financial Group AU 144A notes 7.95s, 2004 (Australia) 1,542,971
1,595,000 Sun Life Canada Capital Trust 144A company guaranty 8.526s, 2049 1,667,812
955,000 TIG Capital Trust I 144A bonds 8.597s, 2027 401,100
1,905,000 Verizon Global Funding Corp. notes 7 1/4s, 2010 1,911,210
-------------
38,306,363
Food (0.2%)
- -------------------------------------------------------------------------------------------------------------------
2,145,000 Kraft Foods, Inc. notes 4 5/8s, 2006 2,099,226
Gaming & Lottery (0.2%)
- -------------------------------------------------------------------------------------------------------------------
170,000 International Game Technology sr. notes 7 7/8s, 2004 176,800
320,000 Mandalay Resort Group sr. sub. notes Ser. B, 10 1/4s, 2007 351,200
110,000 MGM Mirage, Inc. company guaranty 9 3/4s, 2007 121,275
190,000 MGM Mirage, Inc. company guaranty 8 3/8s, 2011 197,600
410,000 Mohegan Tribal Gaming Authority sr. notes 8 1/8s, 2006 415,125
20,000 Mohegan Tribal Gaming Authority sr. sub. notes 8 3/4s, 2009 20,700
100,000 Park Place Entertainment Corp. sr. notes 7 1/2s, 2009 98,339
480,000 Park Place Entertainment Corp. sr. sub. notes 9 3/8s, 2007 512,400
-------------
1,893,439
Health Care (--%)
- -------------------------------------------------------------------------------------------------------------------
400,000 HCA, Inc. med. term notes 8.7s, 2010 442,148
30,000 HCA, Inc. med. term notes 6.63s, 2045 30,096
180,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B, 9 1/2s,
2007 (In default) (NON) 1,800
50,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-coupon
Ser. B, zero % (10 1/2s, 11/1/02), 2007 (In default) (NON) (STP) 250
220,000 Multicare Companies, Inc. sr. sub. notes 9s, 2007 (In default) (NON) 22
-------------
474,316
Homebuilding (0.1%)
- -------------------------------------------------------------------------------------------------------------------
680,000 D.R. Horton, Inc. company guaranty 8s, 2009 669,800
190,000 Toll Corp. sr. sub. notes 8 1/4s, 2011 190,950
-------------
860,750
Industrial (0.4%)
- -------------------------------------------------------------------------------------------------------------------
4,300,000 TRAINS 5-2002 144A sec. notes FRN 5.996s, 2007 4,292,217
Investment Banking/Brokerage (0.1%)
- -------------------------------------------------------------------------------------------------------------------
1,155,000 Morgan Stanley Dean Witter & Co. sr. notes 6 3/4s, 2011 1,165,187
Lodging/Tourism (0.2%)
- -------------------------------------------------------------------------------------------------------------------
340,000 Felcor Lodging LP company guaranty 9 1/2s, 2008 (R) 359,550
540,000 Hilton Hotels Corp. notes 8 1/4s, 2011 550,030
850,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 834,063
-------------
1,743,643
Machinery (0.3%)
- -------------------------------------------------------------------------------------------------------------------
80,000 Case Corp. notes 7 1/4s, 2016 60,400
2,345,000 Caterpillar, Inc. notes 6.55s, 2011 2,426,559
-------------
2,486,959
Media (0.1%)
- -------------------------------------------------------------------------------------------------------------------
1,215,000 AOL Time Warner, Inc. bonds 7 5/8s, 2031 1,132,769
Medical Services (--%)
- -------------------------------------------------------------------------------------------------------------------
75,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/2s, 2007 (In default) (NON) 8
50,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/4s, 2008 (In default) (NON) 5
-------------
13
Metals (--%)
- -------------------------------------------------------------------------------------------------------------------
275,000 AK Steel Corp. company guaranty 7 7/8s, 2009 277,063
18,710 Anker Coal Group, Inc. company guaranty Ser. B, 14 1/4s, 2007 (PIK) 6,549
220,000 LTV Corp. company guaranty 11 3/4s, 2009 (In default) (NON) 1,100
-------------
284,712
Oil & Gas (1.3%)
- -------------------------------------------------------------------------------------------------------------------
920,000 Conoco Funding Co. company guaranty 6.35s, 2011 929,918
1,385,000 Conoco Funding Co. company guaranty 5.45s, 2006 1,394,009
480,000 El Paso Energy Partners L.P. company guaranty Ser. B, 8 1/2s, 2011 494,400
370,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 394,975
1,870,000 Louis Dreyfus Natural Gas Corp. notes 6 7/8s, 2007 1,956,114
160,000 Newfield Exploration Co. sr. notes 7 5/8s, 2011 156,000
1,720,000 Nisource Finance Corp. company guaranty 7 7/8s, 2010 1,733,485
2,135,000 Occidental Petroleum Corp. 144A Structured Notes
(issued by STEERS Credit Trust 2001) 6.019s, 2004 2,188,375
1,495,000 Phillips Petroleum Co. notes 8 3/4s, 2010 1,732,152
60,000 Pioneer Natural Resources Co. company guaranty 9 5/8s, 2010 66,900
360,000 Transcontinental Gas Pipeline Corp. notes Ser. B, 7s, 2011 348,019
645,000 Union Oil Company of California company guaranty 7 1/2s, 2029 674,090
405,000 Union Pacific Resources Group, Inc. notes 7.3s, 2009 425,752
-------------
12,494,189
Paper & Forest Products (0.3%)
- -------------------------------------------------------------------------------------------------------------------
330,000 Boise Cascade Corp. notes 7 1/2s, 2008 332,856
915,000 Georgia-Pacific Corp. notes 8 7/8s, 2031 890,030
140,000 Norampac, Inc. sr. notes 9 1/2s, 2008 (Canada) 149,100
870,000 Weyerhaeuser Co. 144A bonds 7 3/8s, 2032 873,115
725,000 Weyerhaeuser Co. 144A notes 6 3/4s, 2012 731,402
-------------
2,976,503
Photography/Imaging (0.1%)
- -------------------------------------------------------------------------------------------------------------------
50,000 Xerox Cap Europe PLC company guaranty 5 7/8s,
2004 (United Kingdom) 45,875
70,000 Xerox Corp. notes 5 1/2s, 2003 65,275
130,000 Xerox Corp. notes Ser. E, 5 1/4s, 2003 121,225
320,000 Xerox Corp. 144A sr. notes 9 3/4s, 2009 305,600
-------------
537,975
Power Producers (0.1%)
- -------------------------------------------------------------------------------------------------------------------
1,500,000 AES Corp. (The) sr. notes 9 3/8s, 2010 1,245,000
35,000 Midland Funding II debs. Ser. A, 11 3/4s, 2005 38,438
127,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands)
(In default) (NON) 116,840
-------------
1,400,278
Publishing (--%)
- -------------------------------------------------------------------------------------------------------------------
210,000 PRIMEDIA, Inc. company guaranty 8 7/8s, 2011 180,600
Railroads (0.4%)
- -------------------------------------------------------------------------------------------------------------------
1,020,000 Burlington Northern Santa Fe Corp. notes 7 1/8s, 2010 1,068,501
2,440,000 Norfolk Southern Corp. sr. notes 6 3/4s, 2011 2,492,558
-------------
3,561,059
Real Estate (0.1%)
- -------------------------------------------------------------------------------------------------------------------
1,425,000 Simon Property Group LP 144A notes 6 3/8s, 2007 1,419,314
Regional Bells (0.2%)
- -------------------------------------------------------------------------------------------------------------------
390,000 Qwest Capital Funding, Inc. company guaranty 7 3/4s, 2006 307,613
970,000 Qwest Capital Funding, Inc. company guaranty 7 1/4s, 2011 708,100
435,000 Qwest Corp. 144A notes 8 7/8s, 2012 431,428
-------------
1,447,141
Restaurants (--%)
- -------------------------------------------------------------------------------------------------------------------
210,000 Tricon Global Restaurants, Inc. sr. notes 8 7/8s, 2011 225,750
190,000 Tricon Global Restaurants, Inc. sr. notes 7.65s, 2008 192,850
-------------
418,600
Retail (0.1%)
- -------------------------------------------------------------------------------------------------------------------
120,000 Dillards, Inc. notes 6.43s, 2004 116,908
690,000 JC Penney Company, Inc. notes 7.6s, 2007 683,100
145,000 Levi Strauss & Co. sr. notes 11 5/8s, 2008 153,700
115,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 107,982
270,000 Southland Corp. sr. sub. deb. 5s, 2003 260,280
-------------
1,321,970
Technology (--%)
- -------------------------------------------------------------------------------------------------------------------
90,000 Flextronics International, Ltd. sr. sub. notes 9 7/8s,
2010 (Singapore) 97,088
Telecommunications (0.8%)
- -------------------------------------------------------------------------------------------------------------------
1,235,372 Calpoint Receivable Structured Trust 2001 144A bonds
7.44s, 2006 1,000,651
1,070,000 Cingular Wireless 144A notes 5 5/8s, 2006 1,042,758
720,000 France Telecom notes 7 3/4s, 2011 (France) 733,615
490,000 PanAmSat Corp. 144A sr. notes 8 1/2s, 2012 490,886
1,635,000 Sprint Capital Corp. company guaranty 5 7/8s, 2004 1,548,492
725,000 Sprint Capital Corp. 144A bonds 8 3/4s, 2032 692,150
1,915,000 Verizon Wireless, Inc. 144A notes 5 3/8s, 2006 1,838,438
-------------
7,346,990
Telephone (0.1%)
- -------------------------------------------------------------------------------------------------------------------
2,010,000 WorldCom, Inc.-WorldCom Group notes 7 1/2s, 2011 954,750
Textiles (--%)
- -------------------------------------------------------------------------------------------------------------------
50,000 Kasper A.S.L., Ltd. sr. notes 12 3/4s, 2004 (In default) (NON) 10,000
Tobacco (0.2%)
- -------------------------------------------------------------------------------------------------------------------
1,120,000 Philip Morris Companies, Inc. notes 7 1/2s, 2004 1,186,539
600,000 Philip Morris Companies, Inc. notes 7 1/8s, 2004 633,252
-------------
1,819,791
Toys (--%)
- -------------------------------------------------------------------------------------------------------------------
130,000 Hasbro, Inc. notes 6.15s, 2008 118,300
Waste Management (0.2%)
- -------------------------------------------------------------------------------------------------------------------
1,090,000 Browning-Ferris Industries, Inc. deb. 7.4s, 2035 855,650
1,335,000 Waste Management, Inc. sr. notes 6 1/2s, 2008 1,315,171
-------------
2,170,821
Water Utilities (0.1%)
- -------------------------------------------------------------------------------------------------------------------
950,000 Azurix Corp. sr. notes Ser. B, 10 3/8s, 2007 855,000
-------------
Total Corporate Bonds and Notes (cost $158,552,571) $ 155,993,677
COLLATERALIZED MORTGAGE OBLIGATIONS (4.7%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
Amortizing Residential Collateral Trust
$ 5,730,000 Ser. 02-BC1, Class AIO, Interest Only (IO), 6s, 2005 $ 473,397
12,852,000 Ser. 01-BC6, Class AIO, IO, 6s, 2004 1,008,079
521,000 Ser. 02-BC1, Class M2, FRN, 2.95s, 2032 514,694
357,242 Arc Net Interest Margin Trust FRN Ser. 01-5A,
Class A, 2.54s, 2008 356,348
2,760,323 Banc of America Commercial Mortgage, Inc. Ser. 01-PB1,
Class XC, IO, 0.8s, 2035 126,910
545,000 Bear Stearns Commercial Mortgage Securitization Corp.
Ser. 02-TOP6, Class A2, 6.46s, 2012 561,009
510,059 Chase Commercial Mortgage Securities Corp. Ser. 98-1,
Class A1, 6.34s, 2006 529,087
15,439,195 Commercial Mortgage Asset Trust Ser. 99-C1, Class X,
IO, 1.16s, 2020 894,991
975,000 Countrywide Home Loan Ser. 98-A12, Class A14, 8s, 2028 1,037,766
CS First Boston Mortgage Securities Corp.
654,449 Ser. 01-CK3, Class A1, 5.26s, 2006 667,516
193,365 Ser. 01-CKN5, Class A1, 3.801s, 2006 191,942
3,036,952 DLJ Commercial Mortgage Corp. Ser. 00-CKP1, Class A1A,
6.93s, 2009 3,202,405
Fannie Mae
2,867,532 Ser. 01-T8, Class A1, 7 1/2s, 2031 3,044,961
3,495,150 Ser. 01-T4, Class A1, 7 1/2s, 2028 3,711,413
4,899,703 Ser. 319, Class 2, IO, 6 1/2s, 2032 1,352,012
1,836,040 Ser. 01-67, Class IA, IO, 6s, 2019 191,360
28,931,413 Ser. 01-T12, IO, 0.57s, 2041 533,423
21,355,331 Ser. 02-T1, IO, 0.43s, 2031 295,304
156,638 Ser. 01-T7, Principal Only (PO), zero %, 2031 104,556
128,709 Ser. 00-T6, PO, zero %, 2030 85,913
92,220 Ser. 01-T3, PO, zero %, 2029 61,557
469,081 Ser. 01-T4, PO, zero %, 2028 313,111
31,022 Ser. 01-T1, PO, zero %, 2028 20,707
3,725,000 FFCA Secured Lending Corp. 144A Ser. 00-1, Class A2,
7.77s, 2027 4,066,285
145,000 First Union National Bank Commercial Mortgage 144A
Ser. 01-C4, Class F, 6.79s, 2033 150,409
Freddie Mac
1,735,000 Ser. 2028, Class SG, IO, 9.75s, 2023 614,841
1,653,200 Ser. 2422, Class IB, IO, 6.5s, 2028 251,596
5,207,945 Ser. 2422, Class DI, IO, 6.5s, 2022 633,091
944,300 Ser. 2406, Class PI, IO, 6.5s, 2021 125,930
2,439,913 Ser. 2382, Class IM, IO, 6s, 2021 237,065
3,858,826 Ser. 2366, Class IA, IO, 6s, 2019 617,412
740,000 GE Capital Mortgage Services, Inc. Ser. 98-11, Class 2A4,
6 3/4s, 2028 750,501
2,463,029 General Growth Properties-Mall Properties Trust FRB
Ser. 01-C1A, Class D3, 4.11s, 2014 2,463,029
218,494 General Growth Properties-Mall Properties Trust 144A
Ser. 01-C1A, Class D2, 5.89s, 2011 214,026
1,922,000 GMAC Commercial Mortgage Securities, Inc. Ser. 97-C2,
Class A2, 6.55s, 2007 1,989,270
1,383,981 Government National Mortgage Association Ser. 98-2,
Class EA, PO, zero %, 2028 1,148,219
1,145,000 GS Mortgage Securities Corp. II Ser. 01-LIB, Class A2,
6.615s, 2016 1,145,474
58,000 Host Marriott Pool Trust Ser. 99-HMTA, Class C, 7.73s, 2009 61,244
Housing Securities, Inc.
252,193 Ser. 93-F, Class F9M2, 7s, 2023 254,231
74,554 Ser. 94-1, Class AB1, 6 1/2s, 2009 70,674
515,000 LB Commercial Conduit Mortgage Trust Ser. 1999-C2,
Class B, 7.425s, 2009 559,226
LB-UBS Commercial Mortgage Trust
2,765,000 Ser. 00-C5, Class A2, 6.51s, 2010 2,870,040
2,425,000 Ser. 01-C3, Class A2, 6.37s, 2011 2,492,445
9,845,581 LB-UBS Commercial Mortgage Trust 144A Ser. 01-C7,
Class XCL, IO, 0.83s, 2033 389,540
Merrill Lynch Mortgage Investors, Inc.
520,000 Ser. 96-C2, Class E, 6.96s, 2028 503,648
282,788 Ser. 98-C2, Class A1, 6.22s, 2030 293,223
Morgan Stanley Dean Witter Capital I
260,000 Ser. 00, Class B, 7.638s, 2010 286,894
196,415 Ser. 01-IQA, Class A1, 4.57s, 2006 195,963
Morgan Stanley Dean Witter Capital I 144A FRB
319,919 Ser. 01-XLF, Class D, 3.34s, 2013 319,419
204,984 Ser. 01-XLF, Class E, 3.343s, 2013 202,774
205,262 Prudential Home Mortgage Securities Ser. 92-25,
Class B3, 8s, 2022 208,685
102,945 Prudential Home Mortgage Securities 144A Ser. 94-31,
Class B3, 8s, 2009 103,621
540,000 Salomon Brothers Mortgage Securities VII Ser. 00-C1,
Class G, 7.52s, 2010 561,178
1,468,509 TIAA Retail Commercial Mortgage Trust Ser. 1999-1,
Class A, 7.17s, 2032 1,555,885
-------------
Total Collateralized Mortgage Obligations (cost $43,717,195) $ 44,614,299
ASSET-BACKED SECURITIES (3.1%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$ 216,965 ABSC Nims Trust Ser. 01-HE3, Class A, 7s, 2031 $ 213,032
504,000 Advanta Mortgage Loan Trust Ser. 00-1, Class A4, 8.61s, 2028 538,237
598,618 Arc Net Interest Margin Trust 144A Ser. 02-1A, Class A,
7 3/4s, 2032 592,725
516,460 Asset Backed Funding Corp. NIM Trust Ser. 02-WF1, 9.32s, 2032 511,376
Asset Backed Securities Corp. Home Equity Loan Trust
8,213,000 Ser. 02-HE1, Class AIO, IO, 6 1/2s, 2032 817,448
1,104,000 Ser. 02-HE2, Class M2, FRN, 2.974s, 2032 1,093,823
1,475,000 Bank One Issuance Trust Ser. 02-C1, Class C1, FRN, 2.8s, 2007 1,475,000
86,255,000 Bayview Financial Acquisition Trust 144A Ser. 02-XA, Class AIO1,
IO, 1.33s, 2005 1,105,142
Conseco Finance Securitizations Corp.
900,000 Ser. 02-1, Class M2, 9.546s, 2033 908,307
760,000 Ser. 01-4, Class B1, 9.4s, 2010 715,448
3,480,000 Ser. 00-4, Class A6, 8.31s, 2032 3,710,992
1,870,000 Ser. 00-5, Class A6, 7.96s, 2032 1,982,118
1,665,000 Ser. 01-04, Class A4, 7.36s, 2019 1,675,588
1,110,000 Ser. 01-3, Class A4, 6.91s, 2031 1,080,863
3,220,000 Ser. 02-1, Class A, 6.681s, 2033 3,240,254
9,792,535 Conseco Recreational Enthusiast Consumer Trust Ser. 01-A,
Class APIO, IO, 5s, 2025 773,082
624,000 Consumer Credit Reference IDX Securities Ser. 02-1A, Class A,
FRB, 3.99s, 2007 625,365
1,061,818 First Plus Home Loan Trust Ser. 97-3, Class B1, 7.79s, 2023 1,088,115
281,000 Lehman Abs Manufactured Housing Contract Ser. 01-B,
Class A6, 6.467s, 2028 272,849
7,288,588 Lehman Manufactured Housing Ser. 98-1, Class 1, 0.82s, 2028 156,875
Madison Avenue Manufactured Housing Contract
829,759 Ser. 02-A, Class B1, FRN, 5.1s, 2032 622,319
61,378,582 Ser. 02-A, IO, 0.3s, 2032 709,690
465,746 Mid-State Trust Ser. 10, Class B, 7.54s, 2026 455,267
Morgan Stanley Dean Witter Capital I, Class B1, FRN
1,227,000 Ser. 01-NC4, 4.35s, 2032 1,218,756
290,000 Ser. 01-NC3, 4.3s, 2031 286,148
395,000 Ser. 02-AM2, 4.1s, 2032 387,779
485,703 NC Finance Trust Ser. 02-1, 9 1/4s, 2032 482,403
1,007,522 Option One Mortgage Securities Corp. Ser. 02-2A, Class CFTS,
8.83s, 2032 1,007,467
360,000 Residential Asset Securities Corp. Ser. 02-KS2, Class MI2,
7.14s, 2032 366,750
1,482,730 Xerox Equipment Lease Owner Trust 144A FRB Ser. 01-1,
Class A, 3.86s, 2008 1,482,730
-------------
Total Asset-Backed Securities (cost $29,956,889) $ 29,595,948
CONVERTIBLE PREFERRED STOCKS (0.9%) (a)
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
7 Anker Coal Group, Inc. 14.25% cv. pfd. $ 35
10,430 Anthem, Inc. $6.00 cv. pfd 890,461
43,400 Ford Motor Company Capital Trust II $3.25 cum. cv. pfd. 2,431,702
17,300 General Motors Corp. Ser. B, $1.313 cv. pfd. 497,375
48,700 Motorola, Inc. $7.00 cv. pfd. 2,325,425
32,800 TXU Corp. $4.375 cv. pfd 1,857,300
29,000 Williams Companies, Inc. (The) $2.25 cv. pfd. 674,830
14 World Access, Inc. 144A Ser. D, zero % cv. pfd. 3
--------------
Total Convertible Preferred Stocks (cost $7,836,014) $ 8,677,131
PREFERRED STOCKS (0.3%) (a)
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
1,940 AmeriKing, Inc. $3.25 cum. pfd. (PIK) $ 19
315 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. (PIK) 17,924
7,579 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 704,847
1,820,000 First Union Capital II Ser. A, 7.95% pfd. 1,897,732
--------------
Total Preferred Stocks (cost $2,607,876) $ 2,620,522
CONVERTIBLE BONDS AND NOTES (0.2%) (a) (cost $1,828,875)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$ 1,800,000 Service Corp. International cv. sub. notes 6 3/4s, 2008 $ 1,574,820
WARRANTS (--%) (a) (NON)
NUMBER OF WARRANTS EXPIRATION DATE VALUE
- -------------------------------------------------------------------------------------------------------------------
1 Anker Coal Group, Inc. 144A 10/28/09 $ 1
956 Genesis Health Ventures, Inc. 10/1/02 2,304
45 McCaw International, Ltd. 4/15/07 1
30 Raintree Resort 144A 12/1/04 1
40 Telehub Communications Corp. 144A 7/31/05 1
125 UIH Australia/Pacific, Inc. 144A 5/15/06 1
1,278 United Artists Theatre 3/2/08 10,220
--------------
Total Warrants (cost $201,230) $ 12,529
SHORT-TERM INVESTMENTS (6.3%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$ 5,549,034 Short-term investments held as collateral for loaned securities
with yields ranging from 1.77% to 1.92% and due dates
ranging from May 1, 2002 to June 24, 2002 (d) $ 5,546,035
10,000,000 Ciesco L.P. effective yield of 1.80%, May 16, 2002 9,992,625
23,600,000 Park Avenue Receivables effective yield of 1.80%, May 13, 2002 23,585,840
21,431,000 Interest in $500,000,000 joint tri-party repurchase agreement
dated April 30, 2002 with Deutsche Bank Alex. Brown
due May 1, 2002 with respect to various U.S. Government
obligations--maturity value of $21,432,143 for an effective
yield of 1.92% 21,431,000
--------------
Total Short-Term Investments (cost $60,555,500) $ 60,555,500
- -------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,031,361,494) (b) $1,064,767,374
- -------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $954,130,505.
(b) The aggregate identified cost on a tax basis is $1,035,817,235,
resulting in gross unrealized appreciation and depreciation of
$65,127,165 and $36,177,026, respectively, or net unrealized
appreciation of $28,950,139.
(NON) Non-income-producing security.
(STP) The interest rate and date shown parenthetically represent the new
interest rate to be paid and the date the fund will begin accruing
interest at this rate.
(PIK) Income may be received in cash or additional securities at the
discretion of the issuer.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at April
30, 2002.
(R) Real Estate Investment Trust.
(d) See footnote 1 to the financial statements.
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 custodian bank.
TBA after the name of a security represents to be announced
securities (Note 1).
The rates shown on Floating Rate Bonds (FRB) and Floating Rate
Notes (FRN) are the current interest rates shown at April 30, 2002,
which are subject to change based on the terms of the security.
- ------------------------------------------------------------------------------
Futures Contracts Outstanding at April 30, 2002 (Unaudited)
Market Aggregate Face Expiration Unrealized
Value Value Date Appreciation
- ------------------------------------------------------------------------------
90 day Euro (Long) $22,035,375 $21,944,549 Jun-02 $ 90,826
US Treasury Bond
(Long) 5,320,250 5,293,437 Jun-02 26,813
US Treasury Bond
10 yr (Long) 1,055,625 1,029,876 Jun-02 25,749
US Treasury Note 5
yr (Long) 12,513,531 12,406,764 Jun-02 106,767
- ------------------------------------------------------------------------------
$250,155
- ------------------------------------------------------------------------------
TBA Sale Commitments at April 30, 2002 (Unaudited)
(proceeds receivable $67,945,993)
Principal Settlement Market
Agency Amount Date Value
- ------------------------------------------------------------------------------
FNMA, 7s, May 1,
2017 $12,439,000 5/16/02 $12,994,899
FNMA, 6 1/2s, May
1, 2017 38,771,000 5/16/02 39,946,149
FNMA, 6s, May 1,
2017 14,842,000 5/16/02 15,036,875
- ------------------------------------------------------------------------------
$67,977,923
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2002 (Unaudited)
Assets
- -------------------------------------------------------------------------------------------
Investments in securities, at value, including $5,306,924 of securities on
loan (identified cost $1,031,361,494) (Note 1) $1,064,767,374
- -------------------------------------------------------------------------------------------
Cash 11,187
- -------------------------------------------------------------------------------------------
Dividends, interest, and other receivables 6,274,489
- -------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 375,842
- -------------------------------------------------------------------------------------------
Receivable for securities sold 74,189,411
- -------------------------------------------------------------------------------------------
Receivable for variation margin (Note 1) 24,500
- -------------------------------------------------------------------------------------------
Total assets 1,145,642,803
Liabilities
- -------------------------------------------------------------------------------------------
Payable for securities purchased 113,185,596
- -------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 2,414,200
- -------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,384,792
- -------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 217,600
- -------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 50,527
- -------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 4,675
- -------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 377,206
- -------------------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 5,546,035
- -------------------------------------------------------------------------------------------
TBA sale commitments, at value (proceeds receivable $67,945,993)
(Note 1) 67,977,923
- -------------------------------------------------------------------------------------------
Other accrued expenses 353,744
- -------------------------------------------------------------------------------------------
Total liabilities 191,512,298
- -------------------------------------------------------------------------------------------
Net assets $ 954,130,505
Represented by
- -------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $ 918,892,011
- -------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 3,710,649
- -------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (2,096,260)
- -------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 33,624,105
- -------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares
outstanding $ 954,130,505
Computation of net asset value and offering price
- -------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($651,033,934 divided by 62,813,693 shares) $10.36
- -------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $10.36)* $10.99
- -------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($258,743,857 divided by 25,247,460 shares)** $10.25
- -------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($19,442,780 divided by 1,888,914 shares)** $10.29
- -------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($20,244,192 divided by 1,967,348 shares) $10.29
- -------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $10.29)* $10.66
- -------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($4,665,742 divided by 450,030 shares) $10.37
- -------------------------------------------------------------------------------------------
* 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.
STATEMENT OF OPERATIONS
Six months ended April 30, 2002 (Unaudited)
Investment income:
- -------------------------------------------------------------------------------------------
Interest $15,504,414
- -------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $3,986) 3,939,057
- -------------------------------------------------------------------------------------------
Securities lending 11,249
- -------------------------------------------------------------------------------------------
Total investment income 19,454,720
Expenses:
- -------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,724,627
- -------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 720,107
- -------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 14,512
- -------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,979
- -------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 780,686
- -------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,180,737
- -------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 79,720
- -------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 73,818
- -------------------------------------------------------------------------------------------
Other 435,144
- -------------------------------------------------------------------------------------------
Total expenses 6,016,330
- -------------------------------------------------------------------------------------------
Expense reduction (Note 2) (126,259)
- -------------------------------------------------------------------------------------------
Net expenses 5,890,071
- -------------------------------------------------------------------------------------------
Net investment income 13,564,649
- -------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (8,072,387)
- -------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 216,121
- -------------------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 29,858
- -------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures contracts and
TBA sale commitments during the period 23,552,559
- -------------------------------------------------------------------------------------------
Net gain on investments 15,726,151
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $29,290,800
- -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS
Six months ended Year ended
April 30 October 31
2002* 2001
- -------------------------------------------------------------------------------------------------------
Increase in net assets
- -------------------------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------------------------
Net investment income $ 13,564,649 $ 25,118,354
- -------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (7,826,408) 18,199,628
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments and
assets and liabilities in foreign currencies 23,552,559 (12,357,024)
- -------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 29,290,800 30,960,958
- -------------------------------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------------------------------
From net investment income
Class A (13,209,685) (16,286,466)
- -------------------------------------------------------------------------------------------------------
Class B (4,157,185) (3,791,661)
- -------------------------------------------------------------------------------------------------------
Class C (273,879) (103,677)
- -------------------------------------------------------------------------------------------------------
Class M (371,584) (384,774)
- -------------------------------------------------------------------------------------------------------
Class Y (83,344) (78,168)
- -------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A -- (6,502,243)
- -------------------------------------------------------------------------------------------------------
Class B -- (2,083,257)
- -------------------------------------------------------------------------------------------------------
Class C -- (80,294)
- -------------------------------------------------------------------------------------------------------
Class M -- (198,307)
- -------------------------------------------------------------------------------------------------------
Class Y -- (33,431)
- -------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 103,796,729 195,046,040
- -------------------------------------------------------------------------------------------------------
Total increase in net assets 114,991,852 196,464,720
Net assets
- -------------------------------------------------------------------------------------------------------
Beginning of period 839,138,653 642,673,933
- -------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of
$3,710,649 and $8,241,677, respectively) $954,130,505 $839,138,653
- -------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share April 30
operating performance (Unaudited) Year ended October 31
- ------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $10.23 $10.17 $10.66 $11.01 $11.48 $10.67
- ------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income .17(c) .37(c) .38(c) .37(c) .40(c) .42
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .18 .13 .13 .35 .46 1.46
- ------------------------------------------------------------------------------------------------------------------
Total from
investment operations .35 .50 .51 .72 .86 1.88
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.32) (.34) (.37) (.36) (.40)
- ------------------------------------------------------------------------------------------------------------------
In excess of
net investment income -- -- -- (.02) -- --
- ------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.12) (.65) (.68) (.97) (.67)
- ------------------------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments -- -- (.01) -- -- --
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.44) (1.00) (1.07) (1.33) (1.07)
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.36 $10.23 $10.17 $10.66 $11.01 $11.48
- ------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 3.47* 4.94 5.37 6.73 7.86 18.87
- ------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $651,034 $596,190 $478,968 $646,929 $644,902 $585,624
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .55* 1.08 1.08 1.09 1.13 1.15
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.60* 3.60 3.85 3.36 3.51 3.73
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 82.42*(d) 181.45(d) 139.30 144.87 124.34 152.66
- ------------------------------------------------------------------------------------------------------------------
* 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) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share April 30
operating performance (Unaudited) Year ended October 31
- ------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $10.12 $10.06 $10.56 $10.92 $11.40 $10.60
- ------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income .13(c) .29(c) .30(c) .28(c) .31(c) .35
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .18 .14 .12 .35 .46 1.45
- ------------------------------------------------------------------------------------------------------------------
Total from
investment operations .31 .43 .42 .63 .77 1.80
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
From net
investment income (.18) (.25) (.26) (.28) (.28) (.33)
- ------------------------------------------------------------------------------------------------------------------
In excess of
net investment income -- -- -- (.03) -- --
- ------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.12) (.65) (.68) (.97) (.67)
- ------------------------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments -- -- (.01) -- -- --
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.18) (.37) (.92) (.99) (1.25) (1.00)
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.25 $10.12 $10.06 $10.56 $10.92 $11.40
- ------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 3.14* 4.25 4.47 5.94 7.08 18.11
- ------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $258,744 $210,137 $146,552 $195,502 $149,712 $82,759
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .93* 1.83 1.83 1.84 1.88 1.90
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.23* 2.84 3.10 2.60 2.76 2.98
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 82.42*(d) 181.45(d) 139.30 144.87 124.34 152.66
- ------------------------------------------------------------------------------------------------------------------
* 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) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS C
- ----------------------------------------------------------------------------------------
Six months ended For the period
Per-share April 30 Year ended July 26, 1999+
operating performance (Unaudited) October 31 to October 31
- ----------------------------------------------------------------------------------------
2002 2001 2000 1999
- ----------------------------------------------------------------------------------------
Net asset value,
beginning of period $10.17 $10.12 $10.64 $11.09
- ----------------------------------------------------------------------------------------
Investment operations:
- ----------------------------------------------------------------------------------------
Net investment income (c) .13 .28 .31 .06
- ----------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .18 .15 .12 (.40)
- ----------------------------------------------------------------------------------------
Total from
investment operations .31 .43 .43 (.34)
- ----------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------
From net
investment income (.19) (.26) (.29) (.11)
- ----------------------------------------------------------------------------------------
In excess of
net investment income -- -- -- --(e)
- ----------------------------------------------------------------------------------------
From net realized gain
on investments -- (.12) (.65) --
- ----------------------------------------------------------------------------------------
In excess of net realized gain
on investments -- -- (.01) --
- ----------------------------------------------------------------------------------------
Total distributions (.19) (.38) (.95) (.11)
- ----------------------------------------------------------------------------------------
Net asset value,
end of period $10.29 $10.17 $10.12 $10.64
- ----------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 3.08* 4.25 4.54 (3.08)*
- ----------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $19,443 $11,464 $2,204 $581
- ----------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .93* 1.83 1.83 .49*
- ----------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.23* 2.81 3.14 .63*
- ----------------------------------------------------------------------------------------
Portfolio turnover (%) 82.42*(d) 181.45(d) 139.30 144.87
- ----------------------------------------------------------------------------------------
+ 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) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
(e) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share April 30
operating performance (Unaudited) Year ended October 31
- ------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $10.16 $10.10 $10.61 $10.96 $11.44 $10.63
- ------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income .14(c) .32(c) .33(c) .31(c) .34(c) .36
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .19 .13 .11 .36 .45 1.47
- ------------------------------------------------------------------------------------------------------------------
Total from
investment operations .33 .45 .44 .67 .79 1.83
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
From net
investment income (.20) (.27) (.29) (.31) (.30) (.35)
- ------------------------------------------------------------------------------------------------------------------
In excess of
net investment income -- -- -- (.03) -- --
- ------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.12) (.65) (.68) (.97) (.67)
- ------------------------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments -- -- (.01) -- -- --
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.20) (.39) (.95) (1.02) (1.27) (1.02)
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.29 $10.16 $10.10 $10.61 $10.96 $11.44
- ------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 3.24* 4.48 4.66 6.27 7.30 18.41
- ------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $20,244 $18,060 $13,078 $14,904 $12,017 $8,387
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .80* 1.58 1.58 1.59 1.63 1.65
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.35* 3.09 3.35 2.85 3.01 3.23
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 82.42*(d) 181.45(d) 139.30 144.87 124.34 152.66
- ------------------------------------------------------------------------------------------------------------------
* 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) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS Y
- ----------------------------------------------------------------------------------------
Six months
ended For the period
Per-share April 30 Year ended December 31, 1998+
operating performance (Unaudited) October 31 to October 31
- ----------------------------------------------------------------------------------------
2002 2001 2000 1999
- ----------------------------------------------------------------------------------------
Net asset value,
beginning of period $10.24 $10.16 $10.66 $10.79
- ----------------------------------------------------------------------------------------
Investment operations:
- ----------------------------------------------------------------------------------------
Net investment income (c) .18 .39 .52 .32
- ----------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .18 .16 --(e) (.10)
- ----------------------------------------------------------------------------------------
Total from
investment operations .36 .55 .52 .22
- ----------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------
From net
investment income (.23) (.35) (.36) (.32)
- ----------------------------------------------------------------------------------------
In excess of
net investment income -- -- -- (.03)
- ----------------------------------------------------------------------------------------
From net realized gain
on investments -- (.12) (.65) --
- ----------------------------------------------------------------------------------------
In excess of net realized gain
on investments -- -- (.01) --
- ----------------------------------------------------------------------------------------
Total distributions (.23) (.47) (1.02) (.35)
- ----------------------------------------------------------------------------------------
Net asset value,
end of period $10.37 $10.24 $10.16 $10.66
- ----------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 3.60* 5.40 5.53 2.00*
- ----------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $4,666 $3,288 $1,872 $1,779
- ----------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .43* .83 .83 .70*
- ----------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.72* 3.83 4.19 3.01*
- ----------------------------------------------------------------------------------------
Portfolio turnover (%) 82.42*(d) 181.45(d) 139.30 144.87
- ----------------------------------------------------------------------------------------
+ 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) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
(e) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
April 30, 2002 (Unaudited)
Note 1
Significant accounting policies
Putnam Balanced Retirement Fund (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund seeks high current return by
investing in a diversified portfolio of equity and debt securities, with
secondary objective of stability of principle.
The fund offers class A, class B, class 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,
LLC ("Putnam Management"), the fund's manager, an indirect wholly-owned
subsidiary of Putnam, LLC.
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 accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in 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. Securities quoted in
foreign currencies are translated into U.S. dollars at the current
exchange rate. Short-term investments having remaining maturities of 60
days or less are stated at amortized cost, which approximates market
value. 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 an independent 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, generally recognized by institutional traders, between
securities.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending arrangements,
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. Non-cash dividends, if any, are recorded at the fair
market value of the securities received. All premiums/discounts are
amortized/accreted on a yield-to-maturity basis.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies and the difference between the amount
of investment income and foreign withholding taxes recorded on the
fund's books and the U.S. dollar equivalent amounts actually received or
paid. Net unrealized appreciation and depreciation of assets and
liabilities in foreign currencies arise from changes in the value of
open forward currency contracts and assets and liabilities other than
investments at the period end, resulting from changes in the exchange
rate. 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) 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. The fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the futures contract. Such receipts or
payments are known as "variation margin." 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.
G) TBA purchase commitments The fund may enter into "TBA" (to be
announced) purchase commitments to purchase securities for a fixed unit
price at a future date beyond customary settlement time. Although the
unit price has been established, the principal value has not been
finalized. However, the amount of the commitments will not fluctuate
more than 0.01% from the principal amount. The fund holds, and maintains
until settlement date, cash or high-grade debt obligations in an amount
sufficient to meet the purchase price, or the fund may enter into
offsetting contracts for the forward sale of other securities it owns.
Income on the securities will not be earned until settlement date. TBA
purchase commitments may be considered securities in themselves, and
involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to the
risk of decline in the value of the fund's other assets. Unsettled TBA
purchase commitments are valued at the current market value of the
underlying securities, according to the procedures described under
"Security valuation" above.
Although the fund will generally enter into TBA purchase commitments
with the intention of acquiring securities for their portfolio or for
delivery pursuant to options contracts it has entered into, the fund may
dispose of a commitment prior to settlement if Putnam Management deems
it appropriate to do so.
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) Security lending The fund may lend securities, through its agent
Citibank N.A., to qualified borrowers in order to earn additional
income. The loans are collateralized by cash and/or securities in an
amount at least equal to the market value of the securities loaned. The
market value of securities loaned is determined daily and any additional
required collateral is allocated to the fund on the next business day.
The risk of borrower default will be borne by Citibank N.A., the fund
will bear the risk of loss with respect to the investment of the cash
collateral. Income from securities lending is included in investment
income on the Statement of operations. At April 30, 2002, the value of
securities loaned amounted to $5,306,924. The fund received cash
collateral of $5,546,035, which is pooled with collateral of other
Putnam funds into 36 issuers of high-grade short-term investments.
J) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintains an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the six months
ended April 30, 2002, the fund had no borrowings against the line of
credit.
K) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986, as amended. Therefore, no
provision has been made for federal taxes on income, capital gains or
unrealized appreciation on securities held nor for excise tax on income
and capital gains.
L) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, 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 wholly-owned subsidiary of Putnam,
LLC. Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. The fund also reduced expenses through
brokerage service arrangements. For the six months ended April 30, 2002,
the fund's expenses were reduced by $126,259 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,029 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 Retail Management, a wholly-owned subsidiary of
Putnam, LLC and Putnam Retail Management GP, 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 Retail Management 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, 2002, Putnam Retail Management,
acting as underwriter received net commissions of $147,216 and $2,658
from the sale of class A and class M shares, respectively, and received
$169,457 and $2,540 in contingent deferred sales charges from
redemptions of class B and class C shares, respectively. A deferred
sales charge of up to 1.00% and 0.65% is assessed on certain redemptions
of class A and class M shares, respectively. For the six months ended
April 30, 2002, Putnam Retail Management, acting as underwriter received
$1,372 and no monies on class A and class M redemptions, respectively.
Note 3
Purchases and sales of securities
During the six months ended April 30, 2002, cost of purchases and
proceeds from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $510,284,877 and
$449,635,440, respectively. Purchases and sales of U.S. government
obligations aggregated $1,171,233,066 and $1,152,285,414, respectively.
Written option transactions during the period are summarized as follows:
Contract Premiums
Amounts Received
- ---------------------------------------------------------------------------
Written options outstanding
at beginning of period $ -- $ --
- ---------------------------------------------------------------------------
Options opened 2,155,000 192,204
- ---------------------------------------------------------------------------
Options expired -- --
- ---------------------------------------------------------------------------
Options closed (2,155,000) (192,204)
- ---------------------------------------------------------------------------
Written options outstanding
at end of period $ -- $ --
- ---------------------------------------------------------------------------
Note 4
Capital shares
At April 30, 2002, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended April 30, 2002
- ---------------------------------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------------------------------
Shares sold 9,325,742 $ 96,242,634
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 1,059,852 10,794,149
- ---------------------------------------------------------------------------
10,385,594 107,036,783
Shares repurchased (5,823,998) (60,096,533)
- ---------------------------------------------------------------------------
Net increase 4,561,596 $ 46,940,250
- ---------------------------------------------------------------------------
Year ended October 31, 2001
- ---------------------------------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------------------------------
Shares sold 19,538,905 $ 202,597,163
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 1,731,039 17,912,555
- ---------------------------------------------------------------------------
21,269,944 220,509,718
Shares repurchased (10,129,303) (104,604,943)
- ---------------------------------------------------------------------------
Net increase 11,140,641 $ 115,904,775
- ---------------------------------------------------------------------------
Six months ended April 30, 2002
- ---------------------------------------------------------------------------
Class B Shares Amount
- ---------------------------------------------------------------------------
Shares sold 6,898,048 $ 70,419,279
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 364,376 3,674,433
- ---------------------------------------------------------------------------
7,262,424 74,093,712
Shares repurchased (2,771,431) (28,300,974)
- ---------------------------------------------------------------------------
Net increase 4,490,993 $ 45,792,738
- ---------------------------------------------------------------------------
Year ended October 31, 2001
- ---------------------------------------------------------------------------
Class B Shares Amount
- ---------------------------------------------------------------------------
Shares sold 11,460,841 $117,175,320
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 508,334 5,211,132
- ---------------------------------------------------------------------------
11,969,175 122,386,452
Shares repurchased (5,773,898) (58,954,897)
- ---------------------------------------------------------------------------
Net increase 6,195,277 $ 63,431,555
- ---------------------------------------------------------------------------
Six months ended April 30, 2002
- ---------------------------------------------------------------------------
Class C Shares Amount
- ---------------------------------------------------------------------------
Shares sold 918,835 $ 9,405,661
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 24,077 243,977
- ---------------------------------------------------------------------------
942,912 9,649,638
Shares repurchased (181,024) (1,858,274)
- ---------------------------------------------------------------------------
Net increase 761,888 $ 7,791,364
- ---------------------------------------------------------------------------
Year ended October 31, 2001
- ---------------------------------------------------------------------------
Class C Shares Amount
- ---------------------------------------------------------------------------
Shares sold 1,009,151 $10,361,159
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 15,038 155,551
- ---------------------------------------------------------------------------
1,024,189 10,516,710
Shares repurchased (114,842) (1,176,599)
- ---------------------------------------------------------------------------
Net increase 909,347 $ 9,340,111
- ---------------------------------------------------------------------------
Six months ended April 30, 2002
- ---------------------------------------------------------------------------
Class M Shares Amount
- ---------------------------------------------------------------------------
Shares sold 434,877 $ 4,460,038
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 35,107 355,263
- ---------------------------------------------------------------------------
469,984 4,815,301
Shares repurchased (279,778) (2,878,513)
- ---------------------------------------------------------------------------
Net increase 190,206 $ 1,936,788
- ---------------------------------------------------------------------------
Year ended October 31, 2001
- ---------------------------------------------------------------------------
Class M Shares Amount
- ---------------------------------------------------------------------------
Shares sold 746,580 $ 7,672,745
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 51,924 554,718
- ---------------------------------------------------------------------------
798,504 8,227,463
Shares repurchased (316,249) (3,238,938)
- ---------------------------------------------------------------------------
Net increase 482,255 $ 4,988,525
- ---------------------------------------------------------------------------
Six months ended April 30, 2002
- ---------------------------------------------------------------------------
Class Y Shares Amount
- ---------------------------------------------------------------------------
Shares sold 207,556 $2,151,355
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 8,184 83,344
- ---------------------------------------------------------------------------
215,740 2,234,699
Shares repurchased (86,831) (899,110)
- ---------------------------------------------------------------------------
Net increase 128,909 $1,335,589
- ---------------------------------------------------------------------------
Year ended October 31, 2001
- ---------------------------------------------------------------------------
Class Y Shares Amount
- ---------------------------------------------------------------------------
Shares sold 233,827 $ 2,379,323
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 10,767 111,599
- ---------------------------------------------------------------------------
244,594 2,490,922
Shares repurchased (107,700) (1,109,848)
- ---------------------------------------------------------------------------
Net increase 136,894 $ 1,381,074
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Note 5
Actions by Trustees
In April 2002, the Trustees approved the merger of Putnam Balanced
Retirement Fund into The George Putnam Fund of Boston. The transaction
is scheduled to occur in September 2002. It is subject to a number of
conditions and there is no guarantee it will occur.
FUND INFORMATION
ABOUT PUTNAM INVESTMENTS
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition and
practice since 1830. Founded 65 years ago, Putnam Investments was built
around the concept that a balance between risk and reward is the hallmark
of a well-rounded financial program. We presently manage over 100 mutual
funds in growth, value, blend, fixed income, and international.
INVESTMENT MANAGER
Putnam Investment Management, LLC
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
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, III
President
Charles E. Porter
Executive Vice President and Treasurer
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Deborah F. Kuenstner
Vice President
Richard G. Leibovitch
Vice President
Richard A. Monaghan
Vice President
Michael T. Healy
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 and
Putnam's Quarterly Ranking Summary. For more information or to request a
prospectus, call toll free: 1-800-225-1581. The fund's Statement of
Additional Information contains additional information about the fund's
Trustees and is available without charge upon request by calling
1-800-225-1581.
Visit www.putnaminvestments.com or call a representative at 1-800-225-1581.
NOT FDIC INSURED, MAY LOSE VALUE, NO BANK GUARANTEE
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
SA018-79305 034/243/908/ 6/02
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
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Putnam Balanced Retirement Fund
Supplement to Semiannual Report dated 4/30/02
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 clients that meet the eligibility requirements
specified in the fund's prospectus for such shares. Performance of class Y
shares, which incur neither a front-end load, distribution fee, nor
contingent deferred sales charge, will differ from performance of class A,
B, C, and M shares, which are discussed more extensively in the annual
report.
SEMIANNUAL RESULTS AT A GLANCE
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Total return for periods ended 4/30/02
NAV
6 months 3.60%
1 year 3.98
5 years 46.53
Annual average 7.94
10 years 161.82
Annual average 10.10
Life of fund (since class A inception, 4/19/85)
Annual average 10.04
Share value: NAV
10/31/01 $10.24
4/30/02 $10.37
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Distributions: No. Income Capital gains Total
2 $0.233 -- $0.233
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Please note that past performance is not indicative of future results. More
recent returns may be more or less than those shown. Returns shown for
class Y shares for periods prior to their inception are derived from the
historical performance of class A shares, and are not 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, typically are lower than the operating
expenses applicable to class A shares. All returns assume reinvestment of
distributions at net asset value. Investment return and principal value
will fluctuate so your shares, when redeemed, may be worth more or less
than their original cost. See full report for information on comparative
benchmarks. If you have questions, please consult your fund prospectus or
call Putnam toll free at 1-800-752-9894.