-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DWYMlTN7uWHp7M0ACchrJcPPJqEVTJMNUBWvlX9U8JY7Gtgc+ICwtqIhECm3F0cu O0N3PIu/Asjb976lfb/PWQ== 0000928816-97-000115.txt : 19970409 0000928816-97-000115.hdr.sgml : 19970409 ACCESSION NUMBER: 0000928816-97-000115 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970131 FILED AS OF DATE: 19970408 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEORGE PUTNAM FUND OF BOSTON CENTRAL INDEX KEY: 0000081259 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 046407893 STATE OF INCORPORATION: MA FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-00058 FILM NUMBER: 97576681 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQ STREET 2: MAILSTOP A 14 CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 8002252581 FORMER COMPANY: FORMER CONFORMED NAME: PUTNAM EQUITY INCOME FUND/NEW DATE OF NAME CHANGE: 19940302 FORMER COMPANY: FORMER CONFORMED NAME: PUTNAM GEORGE FUND OF BOSTON DATE OF NAME CHANGE: 19920703 N-30D 1 THE GEORGE PUTNAM FUND OF BOSTON The George Putnam Fund of Boston SEMIANNUAL REPORT January 31, 1997 [LOGO: BOSTON * LONDON * TOKYO] Fund highlights * For the 12 months ended January 31, 1997, The George Putnam Fund of Boston's class A shares were ranked 58 out of 281 balanced funds for total return performance, placing them in the top 21% of the category, according to Lipper Analytical Services. Over the same period, the fund's class M and class B shares were ranked 73 and 85, respectively, out of 281 funds, placing the share classes within the top 26% and 31%, respectively, of balanced funds tracked.* * "George Putnam Fund of Boston's managers have upgraded an old classic. Since managers Ken Taubes and Ed Bousa took over the fund in 1993 (Rosemary Thomsen joined them in 1995), they have turned it from solid to sparkling." -- Morningstar, October 25, 1996 CONTENTS 4 Report from Putnam Management 9 Fund performance summary 13 Portfolio holdings 33 Financial statements *Lipper rankings are based on total return performance, vary over time, and do not reflect the effects of sales charges. For periods ended 1/31/97, the fund's class A shares were ranked 11 out of 76 funds for 5-year performance and 8 out of 36 funds for 10-year performance. The fund's class B shares were ranked 24 out of 166 funds for 3-year performance and were not ranked over periods exceeding 3 years. The fund's class M shares were not ranked over periods exceeding 1 year. Past performance is not indicative of future results. From the Chairman [GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM] (copyright) Karsh, Ottawa Dear Shareholder: I am pleased to note that during the first half of fiscal 1997 The George Putnam Fund of Boston continued its tradition of delivering positive performance from a portfolio of stocks and bonds. In fact, your fund outperformed most of its peers by a comfortable margin during the period, as reflected in the Lipper numbers on the facing page. In my opinion, full credit for these results should go to your fund's long-standing strategy of seeking out undervalued stocks of companies undergoing positive changes. Careful selection of high-yield bonds and timely adjustments to the average duration of the portfolio's fixed-income securities also made significant contributions to the fund's performance during the period. Robert M. Paine joined your fund's management team during the fiscal period. A member of Putnam's High Yield Bond Group since 1989, Bob has eight years of investment experience. In the following report, the fund's managers discuss first-half performance and prospects for the second half. Respectfully yours, /S/George Putnam George Putnam Chairman of the Trustees March 19, 1997 Report from the Fund Managers Edward P. Bousa, lead manager Kenneth J. Taubes Robert M. Paine Rosemary H. Thomsen The George Putnam Fund of Boston deftly stayed its course in the often tumultuous scene that epitomized stock and bond markets over the six months ended January 31, 1997. With the discipline and quiet persistence that have become its trademark, your fund relied on its basic value equity investing strategy -- emphasizing undervalued companies undergoing internal changes ahead of their respective industries throughout the period -- to generate solid performance. Additionally, we believe astute selection on the fixed-income side of the portfolio provided shareholders with appreciation potential as well as an attractive level of current income. For the semiannual period, the fund's class A shares had a total return of 15.21% at net asset value and 8.55% at public offering price. This is substantially ahead of the average 14.20% return for the balanced funds tracked by Lipper Analytical Services for the period. For performance of other share classes over longer periods of time and against the fund's benchmark indexes, please turn to page 9. * FUND BENEFITS AS MARKET FAVORS LARGE-CAP VALUE STOCKS As the stock market has reached one record high after another, investors' preference for large-capitalization stocks has increased. Large-capitalization stocks, with their relative earnings stability and greater liquidity, benefited from global expansion opportunities. For example, IBM, one of your fund's key holdings, had been shunned for some time in the belief that demand for mainframe computers had leveled off. The company's earnings were expected to suffer now that its focus has lessened in mainframes. As it turned out, the company's performance was better than expected and IBM roared back to life to such an extent that The Wall Street Journal called the stock a "panic buy."* During the period, the fund benefited from its IBM position as well as its holdings in other strong technology companies such as Texas Instruments, Hewlett Packard, and Motorola. While these stocks, along with others discussed in this report, were viewed favorably at the end of the fiscal period, all portfolio holdings are subject to review and adjustment in accordance with the fund's investment strategy and may vary in the future. * ENERGY AND FINANCE SECTORS CONTRIBUTE TO PERFORMANCE AS UTILITIES FALTER Energy and oil companies benefited from the continued strength of crude oil prices and the improved efficiencies many were able to achieve from restructurings. We found attractive value in foreign-based global energy companies such as Total and Elf Aquitane. On the other hand, the fund generally did not participate in the strong price appreciation of service-oriented energy companies because we considered many of these firms overvalued. *The Wall Street Journal, November 22, 1996 TOP 10 EQUITY HOLDINGS (1/31/97)+ Exxon Corp. Oil and gas Mobil Corp. Oil and gas J.P. Morgan & Co., Inc. Insurance and finance Weyerhaeuser Co. Paper and forest products Minnesota Mining & Manufacturing Basic industrial products Amoco Corp. Oil and gas General Motors Corp. Automotive TRW, Inc. Conglomerates Kimberly-Clark Corp. Consumer nondurables Banc One Corp. Insurance and finance + Top 10 holdings represent 10.7% of the fund's net assets. Portfolio holdings will vary over time. Financial sector stocks have enjoyed a prosperous year, riding on the momentum of a relatively stable interest-rate environment and heightened financial activity. The fund particularly benefited from its exposure to banking stocks as industry consolidation and profits from traditional and nontraditional banking businesses boosted performance. The fund benefited from its interest in regional banks such as NationsBank, Banc One and PNC Bank Corp. Considering regional banks to have lower inherent risk than money-center banks, we structured our allocation accordingly, and thus the fund did not fully participate in the growth of money-center banks over this period. Unfortunately, positive trends were few and far between in the utility sector. The market questioned the ability of many electric utilities to compete in a newly deregulated marketplace. Additionally, although passage of the Telecommunications Act of 1996 opened the door for increased competition, few companies have yet been successful in taking advantage of the expanded opportunities. In fact, stocks of the regional Bell operating companies suffered as many companies stumbled in their first efforts to break into the long-distance area of the market. Although the fund's utility position has not been able to contribute to performance over this period, we believe that this sector retains its potential for growth and that the companies we've selected have the ability to meet the challenge of regulatory changes and broader competition successfully. * FIXED INCOME BECOMES IMPORTANT CONTRIBUTOR Signs of increased economic activity and the inflationary expectations they spawned dampened bond performance for much of calendar 1996. More recently, however, U.S. fixed-income markets were buoyed by benign hourly-wage reports, indicating that the economy's steady growth and the tight labor market did not necessarily portend an increase in inflation. Consequently, as of this writing, bond prices are generally higher -- and their yields generally lower - -- than we saw at this time last year. The fund took advantage of this positive trend by extending the duration of the portfolio's fixed-income portion. Duration, measured in years, indicates a portfolio's potential sensitivity to interest-rate changes. A longer duration can mean a more volatile net asset value if rates change but also one more likely to appreciate if rates decline. [GRAPHIC OMIITED: horizontal bar chart COMPARATIVE PORTFOLIO COMPOSITION] COMPARATIVE PORTFOLIO COMPOSITION* 7/31/96 1/31/97 Common stocks 59.1% 62.9% US government and agency securities 20.5% 14.2% Corporate bonds and notes 9.9% 12.8% Foreign government bond and notes 2.6% 2.4% Collateralized mortgage obligations 1.9% 1.3% Convertible bonds and notes 1.1% 0.3% Convertible preferred stocks 0.7% 0.5% Footnote reads: * Based on percentage of net assets. Balance of portfolio on dates listed was invested in cash and short-term securities. Portfolio allocations will vary over time. Given the market uncertainties throughout the semiannual period, our fixed-income asset allocation decisions represent the key to the fund's successful performance. The high-yield bond sector, benefiting from strong technical factors and improving credit quality, propelled the market, and our emphasis on this sector served the fund well. Although they were a relatively small part of the portfolio, emerging market bonds were also a positive force. Additionally, in the investment-grade area, mortgage-backed securities also performed well for the fund. * GLOBALIZATION: A KEY ONGOING THEME We believe our focus on globalization as an important theme in our investment decisions has helped the fund greatly. Historically, it's been proved that geographic expansion is the most cost-effective route toward meaningful corporate growth because the development of additional distribution channels is not as demanding as the development of new products or technologies. This explains why so many major U.S. companies are taking advantage of the opportunity to be pioneers in newer markets in Eastern Europe, Asia, and Latin America. Some of the more attractive companies participating in this trend include Colgate-Palmolive, Eastman Kodak, and 3M -- all fund holdings -- as well as some of the largest energy companies and pharmaceutical firms. * FUND'S STRATEGY MAY PROVIDE GREATER RELATIVE STABILITY IN UNCERTAIN MARKETS No one can say with any certainty what lies ahead in some of these heady markets. As far as the fund is concerned, on the equity side, we will continue to focus on undervalued companies that are committed to improving productivity and products faster than their competition. On the bond side, our outlook is somewhat mixed, as we believe the Federal Reserve Board may still be inclined to raise interest rates at the slightest hint of wage pressure in the economy. As a result, we are proceeding somewhat defensively. Since income will always make up a significant portion of your fund's total return, any shift in stock market direction is likely to have less impact on performance of this fund than it would on a pure stock fund. Because your fund generally buys stocks with dividend yields higher than the market average and maintains a sizable fixed-income component (typically 35%), you may be better prepared to ride out any future market downturns than more aggressive equity investors. 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 1/31/97, there is no guarantee the fund will continue to hold these securities in the future. Performance summary Performance should always be considered in light of a fund's investment strategy. The George Putnam Fund of Boston is designed for investors seeking capital appreciation and current income. This section provides, at a glance, information about your fund's performance. 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. TOTAL RETURN FOR PERIODS ENDED 1/31/97 Class A Class B Class M Inception (11/5/37) (4/27/92) (12/1/94) NAV POP NAV CDSC NAV POP - ------------------------------------------------------------------------------ 6 months 15.21% 8.55% 14.69% 9.69% 14.87% 10.85% - ------------------------------------------------------------------------------ 1 year 17.39 10.66 16.49 11.49 16.77 12.68 - ------------------------------------------------------------------------------ 5 years 88.03 77.19 -- -- -- -- Annual average 13.46 12.12 -- -- -- -- - ------------------------------------------------------------------------------ 10 years 197.32 180.17 -- -- -- -- Annual average 11.51 10.85 -- -- -- -- - ------------------------------------------------------------------------------ Life of class -- -- 77.43 75.43 55.55 50.14 Annual average -- -- 12.77 12.51 22.58 20.6 - ------------------------------------------------------------------------------ COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 1/31/97 Lehman Bros. S&P 500 Govt./Corp. Consumer Index Bond Index Price Index - ------------------------------------------------------------------------------ 6 months 24.13% 4.75% 1.34% - ------------------------------------------------------------------------------ 1 year 26.33 2.39 3.04 - ------------------------------------------------------------------------------ 5 years 119.41 43.73 15.21 Annual average 17.01 7.52 2.87 - ------------------------------------------------------------------------------ 10 years 287.63 120.81 43.08 Annual average 14.51 8.24 3.65 - ------------------------------------------------------------------------------ Life of class B 114.57 42.90 14.05 Annual average 17.41 7.80 2.79 - ------------------------------------------------------------------------------ Life of class M 82.31 23.66 6.28 Annual average 31.86 10.28 2.85 - ------------------------------------------------------------------------------ Performance data represent past results, do not reflect future performance, and will differ for each share class. They do not take into account any adjustment for taxes payable on reinvested distributions or, for class A shares, distribution fees prior to implementation of the class A distribution plan in 1990. Investment returns and net asset value will fluctuate so that an investor's shares, when sold, may be worth more or less than their original cost. POP assumes 5.75% maximum sales charge for class A shares and 3.50% for class M shares. CDSC for class B shares assumes the applicable sales charge, with the maximum being 5%. PRICE AND DISTRIBUTION INFORMATION 6 months ended 1/31/97 Class A Class B Class M - ------------------------------------------------------------------------------ Distributions: (Number) 2 2 2 - ------------------------------------------------------------------------------ Income $0.377 $0.320 $0.345 - ------------------------------------------------------------------------------ Capital gains - ------------------------------------------------------------------------------ Long-term $0.680 $0.680 $0.680 - ------------------------------------------------------------------------------ Short-term 0.229 0.229 0.229 - ------------------------------------------------------------------------------ Total $1.286 $1.229 $1.254 - ------------------------------------------------------------------------------ Share value: NAV POP NAV NAV POP - ------------------------------------------------------------------------------ 7/31/96 $15.82 $16.79 $15.74 $15.74 $16.31 - ------------------------------------------------------------------------------ 1/31/97 $16.88 $17.91 $16.77 $16.77 $17.38 - ------------------------------------------------------------------------------ Current return: NAV POP NAV NAV POP - ------------------------------------------------------------------------------ End of period - ------------------------------------------------------------------------------ Current dividend rate1 3.41% 3.22% 2.75% 3.04% 2.94% - ------------------------------------------------------------------------------ Current 30-day SEC yield2 3.24% 3.05% 2.48% 2.72% 2.63% - ------------------------------------------------------------------------------ 1Income portion of most recent distribution, annualized and divided by NAV or POP at end of period. 2Based only on investment income, calculated using SEC guidelines. TOTAL RETURN FOR PERIODS ENDED 12/31/96 (most recent calendar quarter) Class A Class B Class M Inception (11/5/37) (4/27/92) (12/1/94) NAV POP NAV CDSC NAV POP - ------------------------------------------------------------------------------ 6 months 9.71% 3.44% 9.32% 4.32% 9.42% 5.61% - ------------------------------------------------------------------------------ 1 year 16.25 9.54 15.42 10.42 15.63 11.58 - ------------------------------------------------------------------------------ 5 years 80.41 70.02 -- -- -- -- Annual average 12.53 11.2 -- -- -- -- - ------------------------------------------------------------------------------ 10 years 215.46 197.42 -- -- -- -- Annual average 12.18 11.52 -- -- -- -- - ------------------------------------------------------------------------------ Life of class -- -- 72.56 70.56 51.19 45.93 Annual average -- -- 12.36 12.08 21.87 19.82 - ------------------------------------------------------------------------------ Performance data represent past results, do not reflect future performance, and will differ for each share class. They do not take into account any adjustment for taxes payable on reinvested distributions or, for class A shares, distribution fees prior to implementation of the class A distribution plan in 1990. Investment returns and net asset value will fluctuate so that an investor's shares, when sold, may be worth more or less than their original cost. TERMS AND DEFINITIONS Class A shares are generally subject to an initial sales charge. Class B shares may be subject to a sales charge upon redemption. Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no sales charge on redemption. Net asset value (NAV) is the value of all your fund's assets, minus any liabilities, divided by the number of outstanding shares, not including any initial or contingent deferred sales charge. Public offering price (POP) is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. POP performance figures shown here assume the maximum 5.75% sales charge for class A shares and 3.50% for class M shares. Contingent deferred sales charge (CDSC) is a charge applied at the time of the redemption of class B shares and assumes redemption at the end of the period. Your fund's CDSC declines from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. COMPARATIVE BENCHMARKS Standard & Poor's 500 Index* is an unmanaged list of common stocks that is frequently used as a general measure of stock market performance. Lehman Brothers Government/Corporate Bond Index* is an unmanaged list of publicly issued U.S. Treasury obligations, debt obligations of U.S. government agencies (excluding mortgage-backed securities), fixed-rate, nonconvertible investment-grade corporate debt securities and U.S. dollar-denominated SEC-registered nonconvertible debt issued by foreign governmental entities or international agencies. Consumer Price Index (CPI) is a commonly used measure of inflation; it does not represent an investment return. *The indexes assume reinvestment of all distributions and do not take into account brokerage commissions or other costs. The fund's portfolio contains securities that do not match those in the indexes. It is not possible to invest in an index. Portfolio of investments owned January 31, 1997 (Unaudited)
COMMON STOCKS (62.9%) * NUMBER OF SHARES VALUE Aerospace and Defense (0.5%) - --------------------------------------------------------------------------------------------------------- 167,000 Lockheed Martin Corp. $ 15,364,000 Agriculture (--%) - --------------------------------------------------------------------------------------------------------- 22,025 PSF Holdings LLC Class A 550,625 Automotive (2.3%) - --------------------------------------------------------------------------------------------------------- 18,200 Bayerische Motoren Werke (BMW) AG (Germany) 11,646,312 202,000 Chrysler Corp. 7,044,750 636,000 Ford Motor Co. 20,431,500 511,000 General Motors Corp. 30,149,000 -------------- 69,271,562 Basic Industrial Products (2.3%) - --------------------------------------------------------------------------------------------------------- 324,000 Cooper Industries, Inc. 13,972,500 330,000 Deere (John) & Co. 14,107,500 371,000 Minnesota Mining & Manufacturing Co. 31,627,750 433,000 New Holland N.V. (Netherlands) 9,526,000 -------------- 69,233,750 Broadcasting (0.2%) - --------------------------------------------------------------------------------------------------------- 317,700 Cox Communications, Inc. Class A + 6,949,688 Building and Construction (--%) - --------------------------------------------------------------------------------------------------------- 1,600 Terex Corp. Rights expiration date 5/15/00 4,800 Business Equipment and Services (2.0%) - --------------------------------------------------------------------------------------------------------- 376,000 Deluxe Corp. 11,562,000 253,000 Hewlett-Packard Co. 13,314,125 197,000 Ikon Office Solutions, Inc. 8,692,625 459,400 Xerox Corp. 26,932,325 -------------- 60,501,075 Chemicals (3.4%) - --------------------------------------------------------------------------------------------------------- 399,300 Bayer AG ADR (Germany) 15,165,517 138,000 Dow Chemical Co. 10,643,250 197,000 du Pont (E.I.) de Nemours & Co., Ltd. 21,596,125 334,000 Eastman Chemical Co. 18,244,750 233,000 Imperial Chemical Industries PLC ADR (United Kingdom) 11,446,125 349,000 PPG Industries, Inc. 18,671,500 237,000 Witco Chemical Corp. 7,050,750 -------------- 102,818,017 Computer Services and Software (1.3%) - --------------------------------------------------------------------------------------------------------- 165,000 IBM Corp. 25,946,250 321,000 NCR Corp. + 12,157,875 -------------- 38,104,125 Conglomerates (2.5%) - --------------------------------------------------------------------------------------------------------- 244,000 General Motors Corp. Class H 14,884,000 210,000 ITT Industries, Inc. + 5,302,500 281,000 Temple Inland, Inc. 15,525,250 564,000 TRW, Inc. 28,623,000 156,000 United Technologies Corp. 10,881,000 -------------- 75,215,750 Consumer Durable Goods (0.8%) - --------------------------------------------------------------------------------------------------------- 457,000 Whirlpool Corp. 23,249,875 Consumer Non Durables (3.7%) - --------------------------------------------------------------------------------------------------------- 399,000 American Brands, Inc. 20,349,000 129,200 Avon Products, Inc. 8,107,300 140,000 Colgate-Palmolive Co. 13,545,000 293,000 Kimberly-Clark Corp. 28,567,500 221,000 Philip Morris Cos., Inc. 26,271,375 412,800 RJR Nabisco Holdings Corp. 13,519,200 -------------- 110,359,375 Electronics and Electrical Equipment (2.5%) - --------------------------------------------------------------------------------------------------------- 232,000 Eaton Corp. 16,240,000 120,000 General Electric Co. 12,360,000 123,000 Motorola, Inc. 8,394,750 54,500 Rockwell International Corp. + 3,583,375 209,000 Siemens AG (Germany) 10,244,098 296,000 Texas Instruments, Inc. 23,199,000 -------------- 74,021,223 Entertainment (0.3%) - --------------------------------------------------------------------------------------------------------- 164,000 ITT Corp. + 9,368,500 Environmental Control (0.3%) - --------------------------------------------------------------------------------------------------------- 230,000 WMX Technologies, Inc. 8,423,750 Food and Beverages (2.8%) - --------------------------------------------------------------------------------------------------------- 393,000 Anheuser-Busch Cos., Inc. 16,702,500 248,000 Dole Food Co. 9,238,000 325,500 Flowers Industries, Inc. 6,957,563 280,000 General Mills, Inc. 18,970,000 325,000 Sara Lee Corp. 12,837,500 791,000 Whitman Corp. 18,193,000 -------------- 82,898,563 Insurance and Finance (10.6%) - --------------------------------------------------------------------------------------------------------- 446,000 American General Corp. 17,784,250 254,000 AON Corp. 16,414,750 610,000 Banc One Corp. 27,678,750 325,000 Bank of New York Company, Inc. 11,903,125 194,502 Bankers Trust New York Corp. 16,532,670 177,000 Beneficial Corp. 11,903,250 62,500 CIGNA Corp. 9,476,563 467,000 Fleet Financial Group, Inc. 25,218,000 259,000 Great Western Financial Corp. 8,190,875 374,500 Keycorp 19,614,438 316,000 Morgan (J.P.) & Co., Inc. 32,548,000 230,000 NationsBank Corp. 24,840,000 272,000 Norwest Corp. 12,954,000 531,000 PNC Bank Corp. 21,107,250 232,000 Salomon, Inc. 12,818,000 265,000 St. Paul Cos., Inc. 16,562,500 259,000 Synovus Financial Corp. 8,385,125 200,000 US Bancorp 9,112,500 735,000 USF&G Corp. 15,526,875 -------------- 318,570,921 Medical Supplies and Devices (0.8%) - --------------------------------------------------------------------------------------------------------- 502,400 Baxter International, Inc. 23,173,200 Metals and Mining (0.4%) - --------------------------------------------------------------------------------------------------------- 55,800 Carpenter Technology Corp. 2,008,800 309,000 Freeport-McMoRan Copper & Gold Co., Inc. Class A 8,458,875 -------------- 10,467,675 Oil and Gas (6.4%) - --------------------------------------------------------------------------------------------------------- 354,000 Amoco Corp. 30,798,000 435,300 Elf Aquitane ADR (France) 21,112,050 389,000 Exxon Corp. 40,310,125 295,000 Mobil Corp. 38,718,750 663,000 Occidental Petroleum Corp. 16,906,500 296,000 PanEnergy Corp. 13,653,000 537,000 Total Corp. ADR (France) 23,158,125 283,000 YPF S.A. ADR (Argentina) 7,888,625 -------------- 192,545,175 Packaging and Containers (0.5%) - --------------------------------------------------------------------------------------------------------- 242,700 Crown Cork & Seal Co., Inc. 13,955,250 Paper and Forest Products (1.6%) - --------------------------------------------------------------------------------------------------------- 214,000 Chesapeake Corp. 6,366,500 215,000 Rayonier, Inc. 8,035,625 98,500 Unisource Worldwide, Inc. + 2,142,375 709,000 Weyerhaeuser Co. 32,259,500 -------------- 48,804,000 Pharmaceuticals (2.6%) - --------------------------------------------------------------------------------------------------------- 208,000 American Home Products Corp. 13,182,000 140,000 Bristol-Myers Squibb Co. 17,780,000 701,270 Pharmacia & Upjohn, Inc. 26,122,308 270,200 Warner-Lambert Co. 21,751,100 -------------- 78,835,408 Photography (1.1%) - --------------------------------------------------------------------------------------------------------- 288,000 Eastman Kodak Co. 24,984,000 179,000 Polaroid Corp. 7,876,000 -------------- 32,860,000 Real Estate Investment Trusts (REITs) (0.5%) - --------------------------------------------------------------------------------------------------------- 132,500 Duke Realty Investments, Inc. 5,250,313 166,700 Equity Residential Properties Trust 7,168,100 167,000 LTC Properties, Inc. 3,026,875 -------------- 15,445,288 Retail (2.4%) - --------------------------------------------------------------------------------------------------------- 576,300 Dayton Hudson Corp. 21,683,288 647,000 K mart Corp. 7,197,875 500,000 May Department Stores Co. 22,250,000 505,000 Rite Aid Corp. 20,200,000 -------------- 71,331,163 Telecommunications (0.6%) - --------------------------------------------------------------------------------------------------------- 481,100 MCI Communications Corp. 16,898,638 Transportation (2.4%) - --------------------------------------------------------------------------------------------------------- 278,000 CSX Corp. 13,483,000 292,000 Delta Air Lines, Inc. 23,068,000 200,000 Norfolk Southern Corp. 17,725,000 556,800 Ryder System, Inc. 15,868,800 -------------- 70,144,800 Utilities (8.1%) - --------------------------------------------------------------------------------------------------------- 354,000 Ameritech Corp. New 21,151,500 25,800 Baltimore Gas & Electric Co. 709,500 313,000 Bell Atlantic Corp. 21,049,250 401,000 BellSouth Corp. 17,794,375 134,400 Carolina Power & Light Co. 5,056,800 173,265 Cinergy Corp. 5,977,643 248,000 GTE Corp. 11,656,000 409,000 NYNEX Corp. 20,705,625 218,000 OGE Energy Corp. 9,292,250 572,000 Pacific Enterprises 17,231,500 353,000 Pacific Telesis Group 13,855,250 592,000 PG&E Corp. 13,468,000 301,600 Potomac Electric Power Co. 7,464,600 155,000 Public Service Co. of Colorado 6,045,000 406,000 SBC Communications, Inc. 22,279,250 468,300 Scana Corp. 12,234,338 661,000 Sprint Corp. 26,935,750 120,000 Veba (Vereinigte Elektrizitaets Bergwerks) AG (Germany) + 6,632,099 88,300 WICOR, Inc. 3,090,500 -------------- 242,629,230 -------------- Total Common Stocks (cost $1,515,872,932) $1,881,995,426 U.S. GOVERNMENT AND AGENCY OBLIGATIONS (14.2%) * PRINCIPAL AMOUNT VALUE U.S. Government Agency Mortgage Pass-Through Certificates (6.8%) - --------------------------------------------------------------------------------------------------------- Federal National Mortgage Association $ 257,482 11s, with due dates from October 1, 2015 to March 1, 2016 $ 290,713 2,912,961 8 3/4s, with due dates from May 1, 2009 to July 1, 2009 3,068,135 27,806,461 7s, with due dates from February 1, 2024 to January 1, 2027 27,215,597 5,112,000 7s, TBA, February 16, 2027 5,003,370 10,962,302 6s, Dwarf, with due dates from January 1, 2009 to October 1, 2010 10,551,224 22,770,000 6s, Dwarf, TBA, February 16, 2012 21,916,125 6,790,000 5.94s, December 12, 2005 6,423,951 Government National Mortgage Association 1,495 15s, September 15, 2011 1,856 49,327 7 1/2s, September 15, 2005 50,110 42,981,000 7 1/2s, TBA, February 16, 2027 43,074,699 50,887,858 7s, with due dates from January 15, 2026 to January 15, 2027 49,822,279 9,513,000 7s, TBA, February 16, 2027 9,313,798 14,188,566 6 1/2s, with due dates from November 15, 2025 to May 15, 2026 13,523,425 5,145,912 6 1/2s, Midget, with due dates from February 1, 2009 to June 15, 2009 5,079,949 2,680,000 6 1/2s, TBA, February 16, 2027 2,560,238 5,322,110 6s, Midget, with due dates from August 15, 2008 to May 15, 2009 5,144,145 -------------- 203,039,614 U.S. Treasury Obligations (7.4%) - --------------------------------------------------------------------------------------------------------- U.S. Treasury Bonds 25,745,000 11 5/8s, November 15, 2004 33,754,012 10,620,000 10 3/4s, August 15, 2005 13,530,517 98,575,000 8 1/8s, August 15, 2019 112,391,272 U.S. Treasury Notes 23,580,000 11 7/8s, November 15, 2003 # 30,572,885 1,475,000 11 1/8s, August 15, 2003 1,842,600 25,085,000 6 1/2s, October 15, 2006 25,061,420 960,000 6 1/2s, August 15, 2005 960,902 4,375,000 6 1/8s, December 31, 2001 4,348,356 -------------- 222,461,964 -------------- Total U.S. Government and Agency Obligations (cost $431,504,273) $ 425,501,578 CORPORATE BONDS AND NOTES (12.8%) * PRINCIPAL AMOUNT VALUE Advertising (--%) - --------------------------------------------------------------------------------------------------------- $ 275,000 Adams Outdoor Advertising, L.P. sr. notes 10 3/4s, 2006 $ 294,250 195,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 199,388 45,000 Outdoor Systems, Inc. sr. sub. notes 9 3/8s, 2006 45,900 800,000 Universal Outdoor, Inc. sr. sub. notes 9 3/4s, 2006 820,000 -------------- 1,359,538 Aerospace and Defense (0.1%) - --------------------------------------------------------------------------------------------------------- 440,000 Alliant Techsystems, Inc. sr. sub. notes 11 3/4s, 2003 492,800 350,000 BE Aerospace sr. notes 9 3/4s, 2003 364,000 70,000 Hawk Corp. 144A sr. notes 10 1/4s, 2003 71,225 915,000 Howmet Corp. sr. sub. notes 10s, 2003 997,350 105,000 Sequa Corp. bonds 8 3/4s, 2001 105,000 235,000 Sequa Corp. sr. notes 9 5/8s, 1999 242,050 300,000 Wyman-Gordon Co. sr. notes 10 3/4s, 2003 318,000 -------------- 2,590,425 Agriculture (--%) - --------------------------------------------------------------------------------------------------------- 525,000 AGCO Corp. sr. sub. notes 8 1/2s, 2006 530,250 242,548 Premium Standard Farms, Inc. sr. secd. notes 11s, 2003 256,495 -------------- 786,745 Automotive (0.1%) - --------------------------------------------------------------------------------------------------------- 486,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 543,105 15,000 Aftermarket Technology Corp. sr. sub. notes, Ser. D 12s, 2004 16,763 300,000 APS Holding, Inc. company guaranty 11 7/8s, 2006 318,000 180,000 CSK Auto, Inc. 144A sr. sub. notes 11s, 2006 189,000 1,130,000 Daimler-Benz AG med. term notes company guaranty 7 3/8s, 2006 (Germany) 1,151,606 625,000 Exide Corp. sr. notes 10s, 2005 646,094 240,000 Harvard Industries Inc. sr. notes 11 1/8s, 2005 182,400 300,000 Key Plastics Corp. sr. notes 14s, 1999 319,500 390,000 Lear Corp. sub. notes 9 1/2s, 2006 409,500 40,000 Safelite Glass Corp. 144A sr. sub. notes 9 7/8s, 2006 41,100 -------------- 3,817,068 Banks (1.9%) - --------------------------------------------------------------------------------------------------------- 2,620,000 Abbey National PLC sub. notes 7.35s, 2049 (United Kingdom) 2,634,174 5,950,000 Advanta National Bank sr. notes 7.02s, 2001 5,945,121 3,800,000 Bangkok Bank Public Co. 144A sub. notes 8 3/8s, 2027 (Thailand) 3,800,000 3,305,000 Bangkok Bank Public Co. 144A sub. notes 8 1/4s, 2016 (Thailand) 3,329,821 695,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 715,850 5,000,000 Citicorp sub. notes 7 1/8s, 2005 5,010,250 3,225,000 Den Danske Bank 144A sub. notes 6.55s, 2003 (Denmark) 3,138,602 4,015,000 Firstar Capital Trust I 144A bonds 8.32s, 2026 4,085,985 1,125,000 First National Bank of Omaha sub. notes 7.32s, 2010 1,087,785 350,000 First Nationwide Holdings sr. sub. notes 9 1/8s, 2003 358,750 535,000 First Nationwide Holdings 144A sr. sub. notes 10 5/8s, 2003 580,475 1,500,000 Merita Bank Ltd. sub. notes 6 1/2s, 2006 (Finland) 1,426,875 1,090,000 NationsBank Corp. sub. notes 7 1/4s, 2025 1,040,939 140,000 North Fork Bancorp, Inc. 144A bonds 8.7s, 2026 140,000 155,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 170,500 90,000 Ocwen Financial Corp. notes 11 7/8s, 2003 98,325 3,965,000 Peoples Bank Bridgeport sub. notes 7.2s, 2006 3,854,020 175,000 Peoples Heritage Capital Trust 144A company guaranty 9.06s, 2027 175,875 335,000 Provident Capital Trust 144A jr. sub. notes 8.6s, 2026 340,025 90,000 Riggs Capital Trust 144A bonds 8 5/8s 90,000 3,750,000 Riggs National Corp. sub. deb. 8 1/2s, 2006 3,937,500 2,000,000 Society Bank & Trust notes 12 1/2s, 1999 2,275,600 1,795,000 Sparbanken Sverige AB (Swedbank) 144A sub. deb. 7 1/2s, 2006 (Sweden) 1,787,353 2,400,000 State Development Bank of China deb. 7 3/8s, 2007 (China) 2,402,160 2,195,000 State Street Institution 144A company guaranty 7.94s, 2026 2,179,635 120,000 Webster Capital Trust I 144A bonds 9.36s, 2027 120,860 5,090,000 Webster Financial Corp. sr. notes 8 3/4s, 2000 5,261,024 -------------- 55,987,504 Basic Industrial Products (--%) - --------------------------------------------------------------------------------------------------------- 90,000 Astor Corp. 144A sr. sub. notes 10 1/2s, 2006 92,025 350,000 Clark-Schwebel sr. notes 10 1/2s, 2006 369,250 800,000 Inter-City Products sr. notes 9 3/4s, 2000 808,000 -------------- 1,269,275 Broadcasting (0.2%) - --------------------------------------------------------------------------------------------------------- 10,000 Allbritton Communications Co. sr. sub. deb. 11 1/2s, 2004 10,625 440,000 Argyle Television Corp. sr. sub. notes 9 3/4s, 2005 448,800 800,000 Chancellor Radio Broadcasting sr. sub. notes 9 3/8s, 2004 806,000 600,000 Commodore Media, Inc. sr. sub. notes stepped-coupon 7 1/2s, (13 1/4s, 5/1/98), 2003 ++ 633,000 350,000 Echostar Communications Corp. sr. disc. notes stepped-coupon zero % (12 7/8s, 6/1/99), 2004 ++ 289,625 45,000 Gray Communications Systems, Inc. sr. sub. notes 10 5/8s, 2006 47,925 115,000 Heritage Media Corp. sr. sub. notes 8 3/4s, 2006 109,825 100,000 Jacor Communications Co. company guaranty 9 3/4s, 2006 103,000 815,000 Jacor Communications, Inc. sr. sub. notes 10 1/8s, 2006 851,675 124,000 New City Broadcasting Corp. sr. sub. notes 11 3/8s, 2003 137,330 165,000 Park Broadcasting, Inc. sr. notes Ser. B, 11 3/4s, 2004 199,650 200,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 220,000 60,000 SFX Broadcasting, Inc. sr. sub. notes Ser. B, 10 3/4s, 2006 63,600 425,000 Sinclair Broadcasting Group sr. sub. notes 10s, 2005 435,625 550,000 Sullivan Broadcasting sr. sub. notes 10 1/4s, 2005 554,125 -------------- 4,910,805 Building and Construction (0.2%) - --------------------------------------------------------------------------------------------------------- 175,000 Atrium Companies Inc. 144A sr. sub. notes 10 1/2s, 2006 179,813 60,000 Building Materials Corp. 144A sr. notes 8 5/8s, 2006 60,000 285,000 Cemex S.A. 144A bonds 12 3/4s, 2006 (Mexico) 325,969 90,000 Clark Material Handling Co. 144A sr. notes 10 3/4s, 2006 93,825 140,000 Congoleum Corp. sr. notes 9s, 2001 138,600 285,000 Continental Homes Holding Corp. sr. notes 10s, 2006 294,263 510,000 Ispat Mexicana 144A deb. 10 3/8s, 2001 (Mexico) 524,025 475,000 Schuller International Corp. sr. notes 10 7/8s, 2004 524,875 820,000 Scotsman Group, Inc. sr. secd. notes 9 1/2s, 2000 844,600 475,000 Terex Corp. sr. notes Ser. B, 13 1/4s, 2002 524,875 795,000 Triangle Pacific Corp. sr. notes 10 1/2s, 2003 852,638 90,000 Webb (Del E.) Corp. sr. sub. notes 9 3/4s, 2008 91,013 -------------- 4,454,496 Business Equipment and Services (0.1%) - --------------------------------------------------------------------------------------------------------- 115,000 Aramark Corp. sub. notes 8 1/2s, 2003 117,588 470,000 Corporate Express, Inc. sr. sub. notes Ser. B, 9 1/8s, 2004 479,400 150,000 Intertek Finance PLC 144A sr. sub. notes 10 1/4s, 2006 (United Kingdom) 157,500 60,000 Iron Mountain, Inc. company guaranty 10 1/8s, 2006 63,600 45,000 Loomis Fargo & Co. 144A sr. sub. notes 10s, 2004 45,900 930,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 1,020,675 600,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 666,000 -------------- 2,550,663 Cable Television (0.5%) - --------------------------------------------------------------------------------------------------------- 750,000 Adelphia Communications Corp. sr. notes 12 1/2s, 2002 768,750 155,000 Adelphia Communications Corp. notes Ser. B, 9 7/8s, 2005 145,700 155,000 Century Communications Corp. sr. notes 9 1/2s, 2005 158,488 235,000 Comcast Corp. sr. sub. notes 9 1/2s, 2008 240,875 4,825,000 Continental Cablevision, Inc. sr. deb. 9 1/2s, 2013 5,473,673 565,000 Diamond Cable Communication Co. sr. disc. notes stepped-coupon zero % (11 3/4s, 12/15/00), 2005 (United Kingdom) ++ 398,325 275,000 Diamond Cable Communication Co. sr. disc. notes stepped-coupon zero % (13 1/2s, 9/30/99), 2004 (United Kingdom) ++ 222,750 450,000 Heartland Wireless Communications, Inc. 144A sr. notes 14s, 2004 472,500 1,505,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B, zero % (11 1/2s, 2/1/01), 2006 ++ 1,008,350 400,000 Jones Intercable, Inc. sr. sub. deb. 10 1/2s, 2008 432,000 575,000 Jones Intercable, Inc. sr. notes 9 5/8s, 2002 600,875 500,000 Lenfest Communications, Inc. sr. sub. notes 10 1/2s, 2006 530,000 500,000 Lenfest Communications, Inc. sr. notes 8 3/8s, 2005 480,000 125,000 Marcus Cable Co. (L.P.) sr. deb. 11 7/8s, 2005 133,750 1,250,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes stepped-coupon zero % (13 1/2s, 8/1/99), 2004 ++ 1,031,250 150,000 Rogers Cablesystems Ltd. deb. 10 1/8s, 2012 (Canada) 156,000 50,000 Rogers Cablesystems Ltd. notes 11s, 2015 (Canada) 53,750 625,000 Rogers Cablesystems Ltd. sr. notes Ser. B, 10s, 2005 (Canada) 659,375 1,055,000 Telewest Communications PLC deb. stepped-coupon zero % (11s, 10/1/00), 2007 (United Kingdom) ++ 722,675 95,000 TV Filme, Inc. 144A sr. notes 12 7/8s, 2004 (Brazil) 96,069 585,000 Videotron Holdings. sr. disc. notes stepped-coupon zero % (11s, 8/15/00), 2005 (United Kingdom) ++ 462,150 175,000 Wireless One, Inc. sr. notes 13s, 2003 172,813 -------------- 14,420,118 Chemicals (0.4%) - --------------------------------------------------------------------------------------------------------- 750,000 Arcadian Partner sr. notes 10 3/4s, 2005 819,375 80,000 Freedom Chemicals, Inc. 144A sr. sub. notes 10 5/8s, 2006 84,600 445,000 Great Lakes Carbon Corp. sr. notes 10s, 2006 471,700 810,000 Harris Chemical Corp. sr. sub. notes 10 3/4s, 2003 844,425 550,000 IMC Fertilizer Group, Inc. deb. 9.45s, 2011 649,000 1,640,000 Lyondell Petrochemical Co. notes 9 1/8s, 2002 1,777,793 3,380,000 Millennium America Inc. company guaranty 7 5/8s, 2026 3,250,647 250,000 NL Industries, Inc. sr. notes stepped-coupon zero % (13s, 10/15/98), 2005 ++ 216,250 1,610,000 Sociedad Quimica Y Minera de Chile S.A. 144A bonds 7.7s, 2006 (Chile) 1,642,200 525,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon zero % (13 1/2s, 8/15/01), 2008 ++ 317,625 700,000 Union Carbide Global Enterprises sr. sub. Ser. B, 12s, 2005 801,500 -------------- 10,875,115 Computer Services and Software (--%) - --------------------------------------------------------------------------------------------------------- 225,000 Computervision Corp. sr. sub. notes 11 3/8s, 1999 232,875 265,000 Unisys Corp. sr. notes 11 3/4s, 2004 285,538 -------------- 518,413 Conglomerates (--%) - --------------------------------------------------------------------------------------------------------- 375,000 ADT Ltd. sr. sub. notes 9 1/4s, 2003 395,625 465,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes 13s, 1999 465,000 -------------- 860,625 Consumer Durable Goods (--%) - --------------------------------------------------------------------------------------------------------- 100,000 Remington Products Co. sr. sub. notes Ser. B, 11s, 2006 89,250 165,000 Selmer Co., Inc. sr. sub. notes 11s, 2005 178,200 -------------- 267,450 Consumer Non Durables (--%) - --------------------------------------------------------------------------------------------------------- 460,000 Coty Inc. gtd. sr. sub. notes 10 1/4s, 2005 499,100 75,000 E&S Holdings Corp. 144A sr. sub. notes 10 3/8s, 2006 78,469 180,000 Foamex (L.P.) Capital Corp. sr. sub. deb. 11 7/8s, 2004 194,850 600,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 615,000 -------------- 1,387,419 Consumer Services (0.1%) - --------------------------------------------------------------------------------------------------------- 70,000 AmeriKing Inc. sr. notes 10 3/4s, 2006 72,800 100,000 Cablevision Systems Corp. sr. sub. deb. 9 7/8s, 2023 97,000 513,750 Coinmach Corp. sr. notes Ser. B, 11 3/4s, 2005 559,345 580,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 604,650 490,000 Host Marriott Travel Plazas sr. notes Ser. B, 9 1/2s, 2005 509,600 90,000 Rose Hills Acquistion Corp. 144A sr. sub. notes 9 1/2s, 2004 92,700 325,000 Specialty Retailers, Inc. sr. sub. notes 11s, 2003 334,750 -------------- 2,270,845 Electronics and Electrical Equipment (0.1%) - --------------------------------------------------------------------------------------------------------- 775,000 Amphenol Corp. sr. notes 10.45s, 2001 843,316 110,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s, 2006 (India) 118,250 133,984 Cirent Semiconductor sr. sub. notes 10.22s, 2002 133,984 134,534 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 134,534 350,000 Health O Meter Products, Inc. sr. sub. notes 13s, 2002 382,375 625,000 International Semi-Tech. Corp. sr. secd. disc. notes stepped-coupon zero % (11 1/2s, 8/15/00), 2003 (Canada) ++ 368,750 190,000 Motors and Gears Inc. 144A sr. notes Ser. A, 10 3/4s, 2006 195,700 -------------- 2,176,909 Entertainment (0.8%) - --------------------------------------------------------------------------------------------------------- 145,000 Alliance Gaming Corp. sr. notes 12 7/8s, 2003 155,150 425,000 Argosy Gaming Co. 1st mtge. 13 1/4s, 2004 354,875 375,000 Arizona Charlies Corp. 1st mtge. Ser. B, 12s, 2000 + 262,500 470,000 Casino America, Inc. sr. notes 12 1/2s, 2003 462,950 155,000 Casino Magic of Louisiana Corp. 144A 1st mtge. 13s, 2003 155,000 850,000 Coast Hotels & Casinos, Inc. company guaranty Ser. B, 13s, 2002 945,625 475,000 Empress River Casino sr. notes 10 3/4s, 2002 510,625 625,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 640,625 325,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 316,875 685,000 Lady Luck Gaming 1st mtge. 11 7/8s, 2001 678,150 500,000 Mohegan Tribal Gaming sr. secd. notes, Ser. B, 13 1/2s, 11/15/02 662,500 6,240,000 News America Holdings, Inc. deb. 7.7s, 2025 5,839,205 500,000 Players International Inc. sr. notes 10 7/8s, 2005 512,500 935,000 Premier Parks, Inc. sr. notes Ser. A, 12s, 2003 1,049,538 790,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 537,200 975,000 Six Flags Corp. sr. sub. notes stepped-coupon zero % (12 1/4s, 6/15/98), 2005 ++ 933,563 295,000 Cinemark USA Inc. sr. sub. notes Ser. B, 9 5/8s, 2008 300,163 2,120,000 Time Warner Entertainment Co. notes 8 7/8s, 2012 2,304,673 6,120,000 Time Warner Entertainment Co. deb. 7 1/4s, 2008 5,954,882 475,000 Trump A.C. 1st mtge. 11 1/4s, 2006 458,375 625,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 715,625 1,350,000 Viacom International, Inc. sub. deb. 8s, 2006 1,309,500 -------------- 25,060,099 Environmental Control (--%) - --------------------------------------------------------------------------------------------------------- 195,000 Allied Waste Industries, Inc. 144A sr. sub. notes 10 1/4s, 2006 207,675 Food and Beverages (0.1%) - --------------------------------------------------------------------------------------------------------- 445,000 Canandaigua Wine Co. 144A sr. sub. notes 8 3/4s, 2003 442,775 225,000 Chiquita Brands sr. notes 9 5/8s, 2004 231,750 580,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 623,500 1,585,000 RJR Nabisco, Inc. notes 8 3/4s, 2005 1,607,729 250,000 Specialty Foods Corp. sr. notes Ser. B, 10 1/4s, 2001 237,500 595,000 Stater Brothers sr. notes 11s, 2001 642,600 -------------- 3,785,854 Health Care (0.4%) - --------------------------------------------------------------------------------------------------------- 2,320,000 Columbia Healthcare Corp. deb. 8.36s, 2024 2,555,434 280,000 Genesis Health Ventures, Inc. 144A sr. sub. notes 9 1/4s, 2006 287,000 265,000 IMED Corp. sr. sub. notes 9 3/4s, 2006 270,300 525,000 Integrated Health Services sr. sub. notes 10 3/4s, 2004 559,125 115,000 Integrated Health Services sr. sub. notes 9 5/8s, 2002 118,450 315,000 Magellan Health Services, Inc. sr. sub. deb. Ser. A, 11 1/4s, 2004 347,288 900,000 Merit Behavioral Care sr. sub. notes 11 1/2s, 2005 976,500 525,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 509,250 330,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 334,538 150,000 Tenet Healthcare Corp. sr. notes 8 5/8s, 2003 156,000 4,160,000 Tenet Healthcare Corp. sr. notes 8s, 2005 4,160,000 -------------- 10,273,885 Insurance and Finance (2.2%) - --------------------------------------------------------------------------------------------------------- 130,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 132,600 625,000 AIM Management Group sr. secd. notes 9s, 2003 671,875 1,500,000 AMBAC Indemnity Corp. deb. 9 3/8s, 2011 1,785,090 90,000 Colonial Capital Trust I 144A company guaranty 8.92s, 2027 91,308 2,810,000 Conseco Inc. sr. notes 10 1/2s, 2004 3,314,817 820,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 836,400 2,905,000 Discover Credit Corp. med. term notes 9.07s, 2012 3,344,410 90,000 Dollar Financial Group Inc. 144A sr. notes 10 7/8s, 2006 93,600 4,600,000 Executive Risk Capital Trust 144A company guaranty 8 5/8s, 2027 4,600,000 1,880,000 First Financial Caribbean Corp. sr. notes 7.84s, 2006 1,883,553 6,615,000 Ford Motor Credit Corp. notes 8.2s, 2002 7,023,476 100,000 Imperial Credit Industries, Inc. 144A sr. notes 9 7/8s, 2007 102,000 205,000 Investors Capital Trust, Inc. PLC 144A deb. 9.77s, 2027 (United Kingdom) 205,000 6,225,000 Lehman Bros. Holdings, Inc. med. term notes 6.4s, 1999 6,183,915 3,775,000 Markel Capital Trust I 144A company guaranty 8.71s, 2046 3,832,833 110,000 Olympic Financial Ltd. sr. notes 13s, 2000 124,300 2,000,000 Orion Capital Corp. sr. notes 9 1/8s, 2002 2,199,300 100,000 Outsourcing Solutions Inc. 144A sr. sub. notes 11s, 2006 106,000 4,825,000 Phoenix Home Life Mutual Insurance Co. 144A notes 6.95s, 2006 4,702,735 325,000 Phoenix Re Corp. sr. notes 9 3/4s, 2003 350,269 575,000 Primark Corp. sr. notes 8 3/4s, 2000 588,656 535,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 551,050 255,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 2003 267,750 3,450,000 Salton Sea Funding Corp. company guaranty Ser. E, 8.3s, 2011 3,557,123 5,225,000 Sampoerna International Finance Co. 144A company guaranty 8 3/8s, 2006 (Indonesia) 5,278,452 3,195,000 Southern Investments Service Co. sr. notes 6.8s, 2006 (United Kingdom) 3,110,556 5,270,000 Tig Capital Trust I 144A bonds 8.597s, 2027 5,289,763 4,745,000 Trenwick Capital Trust I 144A bonds 8.82s, 2037 4,863,625 -------------- 65,090,456 Lodging (--%) - --------------------------------------------------------------------------------------------------------- 547,000 John Q Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 541,530 Medical Supplies and Devices (--%) - --------------------------------------------------------------------------------------------------------- 150,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 162,000 625,000 Graphic Controls Corp. sr. sub. notes Ser. A, 12s, 2005 692,188 250,000 Wright Medical Technology, Inc. sr. secd. notes Ser. B, 10 3/4s, 2000 252,500 -------------- 1,106,688 Metals and Mining (0.3%) - --------------------------------------------------------------------------------------------------------- 180,000 AK Steel Corp. 144A sr. notes 9 1/8s, 2006 184,050 895,000 Maxxam Group Holdings Inc. 144A sr. notes 12s, 2003 915,138 3,765,000 Noranda Inc. notes 7s, 2005 (Canada) 3,696,477 3,870,000 PT Alatief Freeport sr. notes 9 3/4s, 2001 (Indonesia) 4,216,210 115,000 Renco Metals, Inc. sr. notes 11 1/2s, 2003 120,750 120,000 Royal Oak Mines Inc. company guaranty Ser. B, 11s, 2006 (Canada) 118,800 265,000 WCI Steel, Inc. 144A sr. notes 10s, 2004 272,950 -------------- 9,524,375 Motion Picture Distribution (--%) - --------------------------------------------------------------------------------------------------------- 665,000 Act III Theatres, Inc. sr. sub. notes 11 7/8s, 2003 724,850 140,000 Cobb Theatres LLC company guaranty 10 5/8s, 2003 147,525 100,000 United Artists notes 11 1/2s, 2002 105,125 -------------- 977,500 Oil and Gas (0.8%) - --------------------------------------------------------------------------------------------------------- 145,000 Abraxas Petrolem Corp. 144A sr. notes 11 1/2s, 2004 156,600 250,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 276,875 100,000 Chesapeake Energy Corp. sr. notes 10 1/2s, 2002 108,125 150,000 Chesapeake Energy Corp. sr. notes 9 1/8s, 2006 154,875 95,000 CIA Naviera Perez Companc S.A. 144A bonds 9s, 2004 (Argentina) 95,000 50,000 Costilla Energy, Inc. sr. notes 10 1/4s, 2006 53,000 2,440,000 El Paso Natural Gas Co. deb. 7 1/2s, 2026 2,404,156 135,000 Flores & Rucks, Inc. sr. notes 13 1/2s, 2004 160,988 265,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 281,563 145,000 Forcenergy, Inc. sr. sub. notes 9 1/2s, 2006 150,800 3,205,000 Gulf Canada Resources, Ltd. sr. notes 8.35s, 2006 (Canada) 3,317,175 100,000 HS Resources, Inc. 144A sr. sub. notes 9 1/4s, 2006 102,000 3,920,000 Husky Oil Ltd. deb. 7.55s, 2016 (Canada) 3,874,097 130,000 Kelley Oil & Gas Corp. 144A sr. sub. notes 10 3/8s, 2006 137,800 250,000 Maxus Energy Corp. global notes 9 7/8s, 2002 260,000 150,000 Maxus Energy Corp. med. term notes 10.83s, 2004 164,250 550,000 Maxus Energy Corp. notes 9 1/2s, 2003 566,500 100,000 Maxus Energy Corp. notes 9 3/8s, 2003 104,250 155,000 Parker Drilling Co. 144A company guaranty 9 3/4s, 2006 162,750 3,000,000 Petro-Canada deb. 9 1/4s, 2021 (Canada) 3,574,140 1,915,000 Petroliam Nasional Berhad 144A notes 7 5/8s, 2026 (Malaysia) 1,923,369 4,140,000 Petroliam Nasional Berhad 144A notes 7 1/8s, 2005 (Malaysia) 4,140,207 65,000 Texas Petrochemical Corp. sr. sub. notes 11 1/8s, 2006 69,875 694,000 Transtexas Gas Corp. sr. disc. notes stepped-coupon zero %, (13 1/4s, 12/16/01), 2003 ++ 437,220 435,000 Transtexas Gas Corp. sr. secd. notes 11 1/2s, 2002 477,413 550,000 Triton Energy sr. sub. disc. notes 9 3/4s, 2000 577,500 40,000 Vintage Petroleum, Inc. sr. sub. notes 8 5/8s, 2009 39,663 -------------- 23,770,191 Packaging and Containers (0.1%) - --------------------------------------------------------------------------------------------------------- 75,000 Amtrol, Inc. 144A sr. sub. notes 10 5/8s, 2006 77,625 75,000 Ivex Holdings Corp. sr. disc. deb. stepped-coupon zero % (13 1/4s, 3/15/00), 2005 ++ 60,000 900,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 974,250 250,000 Owens Illinois, Inc. deb. 11s, 2003 278,125 165,000 Owens Illinois, Inc. sr. sub. notes 9 3/4s, 2004 174,075 105,000 Printpack, Inc. 144A sr. notes 9 7/8s, 2004 109,725 90,000 Radnor Holdings Corp. 144A sr. notes 10s, 2003 91,575 1,015,000 Riverwood International company guaranty 10 7/8s, 2008 877,975 90,000 US Can Corp. 144A sr. sub. notes 10 1/8s, 2006 94,500 -------------- 2,737,850 Paper and Forest Products (0.2%) - --------------------------------------------------------------------------------------------------------- 135,000 APP International Finance Co. notes 11 3/4s, 2005 (Netherlands) 146,644 975,000 Doman Industries Ltd. sr. notes 8 3/4s, 2004 (Canada) 921,375 300,000 Domtar, Inc. deb. 9 1/2s, 2016 (Canada) 321,750 365,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 2003 390,550 325,000 Rainy River Forest Products, Inc. sr. notes 10 3/4s, 2001 (Canada) 351,813 1,150,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 1,135,625 550,000 Stone Consolidated Corp. sr. notes 10 1/4s, 2000 (Canada) 581,625 500,000 Stone Container Corp. sr. notes 11 7/8s, 2016 (Canada) 535,000 -------------- 4,384,382 Publishing (--%) - --------------------------------------------------------------------------------------------------------- 925,000 American Media Operation, Inc. sr. sub. notes 11 5/8s, 2004 989,750 REITs (0.4%) - --------------------------------------------------------------------------------------------------------- 1,015,000 American Health Properties, Inc. notes 7 1/2s, 2007 1,007,070 760,000 American Health Properties, Inc. notes 7.05s, 2002 754,063 1,685,000 Health Care Property Investors, Inc. sr. notes 6 1/2s, 2006 1,590,674 4,255,000 Meditrust med. term notes 7.3s, 2006 4,195,898 750,000 Prime Hospitality Corp. 1st mtge. 9 1/4s, 2006 757,500 3,050,000 Sun Communities, Inc. sr. notes 7 5/8s, 2003 3,099,837 645,000 Tanger Properties (L.P.) gtd. notes 8 3/4s, 2001 645,206 -------------- 12,050,248 Retail (0.4%) - --------------------------------------------------------------------------------------------------------- 470,000 Brylane (L.P.) sr. sub. notes 10s, 2003 486,450 3,035,000 Federated Department Stores sr. notes 8 1/2s, 2003 3,160,953 475,000 Finlay Enterprises, Inc. sr. notes 10 5/8s, 2003 503,500 325,000 Loehmanns, Inc. sr. notes 11 7/8s, 2003 351,000 725,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 768,500 350,000 Phar-Mor, Inc. sr. notes 11.72s, 2002 367,500 500,000 Safeway, Inc. med. term notes 8.57s, 2003 526,300 2,000,000 Sears, Roebuck & Co. med. term notes 9.1s, 2012 2,322,440 1,090,000 Southland Corp. 1st priority sr. sub. deb. 5s, 2003 893,800 300,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 229,500 120,000 Supermercados Norte 144A bonds 10 7/8s, 2004 (Argentina) 121,500 575,000 Waban, Inc. sr. sub. notes 11s, 2004 638,250 -------------- 10,369,693 Specialty Consumer Products (--%) - --------------------------------------------------------------------------------------------------------- 125,000 Genesco, Inc. sr. notes 10 3/8s, 2003 128,125 225,000 Herff Jones, Inc. sr. sub. notes 11s, 2005 239,625 320,000 Sassco Fashions Ltd. 144A notes 12 3/4s, 2003 315,200 -------------- 682,950 Telecommunications (0.7%) - --------------------------------------------------------------------------------------------------------- 4,810,000 360 Communications Co. sr. notes 7 1/2s, 2006 4,794,223 1,100,000 Arch Communications Group sr. disc. notes stepped-coupon zero % (10 7/8s, 3/15/01), 2008 ++ 602,250 1,005,000 Call-Net Enterprises sr. disc. notes stepped-coupon zero % (13 1/4s, 12/1/99), 2004 (Canada)++ 834,150 165,000 CCPR Services, Inc. 144A company guaranty 10s, 2007 165,206 250,000 Cencall Communications Corp. sr. disc. notes stepped-coupon zero % (10 1/8s, 1/15/99), 2004 ++ 175,625 700,000 Centennial Cellular Corp. sr. notes 8 7/8s, 2001 686,000 910,000 Dial Call Communications, Inc. sr. disc. notes Ser. B stepped-coupon zero % (10 1/4s, 12/15/98), 2005 ++ 639,275 1,825,000 Dial Call Communications, Inc. sr. disc. notes stepped- coupon zero % (12 1/4s, 4/15/99), 2004 ++ 1,377,875 335,000 Fonorola, Inc. sr. notes 12 1/2s, 2002 (Canada) 366,825 105,000 Frontiervision Operating Partners L.P. sr. sub. notes 11s, 2006 108,150 330,000 Globo Communicacoes 144A company guaranty 10 1/2s, 2006 (Brazil) 336,600 700,000 Intercel, Inc. sr. disc. notes stepped-coupon zero % (12s, 5/1/01), 2006 ++ 444,500 1,000,000 Intermedia Communications, Inc. sr. disc. notes stepped- coupon zero % (12 1/2s, 5/15/01), 2006 ++ 675,000 250,000 Intermedia Communications, Inc. sr. notes Ser. B, 13 1/2s, 2005 284,375 520,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 442,000 2,300,000 MFS Communications sr. disc. notes stepped-coupon zero % (8 7/8s, 1/1/01), 2006 ++ 1,690,500 1,490,000 MFS Communications sr. disc. notes stepped-coupon zero % (9 3/8s, 1/15/99), 2004 ++ 1,300,025 850,000 Millicom International Cellular S.A. sr. disc. notes stepped- coupon zero % (13 1/2s, 6/1/01), 2006 (Luxembourg) ++ 554,625 705,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 690,900 1,800,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon zero % (9 3/4s, 2/15/99), 2004 ++ 1,269,000 850,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon zero % (11 1/2s, 9/1/98), 2003 ++ 684,250 700,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 724,500 215,000 Orbcomm Global Capital Corp. sr. notes Ser. B, 14s, 2004 218,763 325,000 Paging Network, Inc. sr. sub. notes 10s, 2008 326,625 600,000 Pricellular Wireless Corp. sr. notes 10 3/4s, 2004 628,500 80,000 Pronet, Inc. sr. sub. notes 11 7/8s, 2005 74,400 1,545,000 Teleport Communications Group Inc. sr. disc. notes stepped-coupon zero % (11 1/8s, 7/1/01), 2007 ++ 1,058,325 85,000 TV Azteca, S.A. 144A sr. notes 10 1/2s, 2007 (Mexico) 85,000 -------------- 21,237,467 Textiles (--%) - --------------------------------------------------------------------------------------------------------- 75,000 Collins & Aikman Corp. 144A sr. sub. notes 10s, 2007 76,125 245,000 Polysindo International Finance company guaranty 11 3/8s, 2006 (Indonesia) 257,250 250,000 Tultex Corp. sr. notes 10 5/8s, 2005 268,125 -------------- 601,500 Transportation (0.3%) - --------------------------------------------------------------------------------------------------------- 55,000 Atlantic Express Transportation Corp. company guaranty Ser. AI, 10 3/4s, 2004 56,513 115,000 Blue Bird Body Co. sr. sub. notes Ser. B, 10 3/4s, 2006 120,750 4,275,000 Burlington Northern Santa Fe notes 6 3/8s, 2005 4,072,835 785,000 Consorcio/MCII Holdings sec. notes stepped-coupon zero % (12s, 11/15/98), 2002 ++ 667,250 550,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s, 2003 (Greece) 551,375 235,000 Greenwich Air Services, Inc. sr. notes 10 1/2s, 2006 251,450 350,000 International Shipholding Corp. sr. notes 9s, 2003 358,312 100,000 Newport News Shipbuilding 144A sr. notes 8 5/8s, 2006 103,000 90,000 Newport News Shipbuilding 144A sr. sub. notes 9 1/4s, 2006 93,600 2,000,000 Southwest Airlines Co. deb. 7 7/8s, 2007 2,105,060 300,000 Viking Star Shipping sr. secd. notes 9 5/8s, 2003 313,875 -------------- 8,694,020 Utilities (2.4%) - --------------------------------------------------------------------------------------------------------- 330,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 343,200 2,705,000 Arizona Public Service Co. sr. notes 6 3/4s, 2006 2,641,081 4,035,000 California Energy Corp. disc. notes 10 1/4s, 2005 4,317,450 2,615,000 Citizens Utilities Co. bonds 7.68s, 2034 2,850,324 1,195,000 Commonwealth Edison notes 7 3/8s, 2004 1,197,988 2,345,000 Connecticut Light & Power Co. 1st mtge. Ser. A, 7 7/8s, 2001 2,373,750 1,160,000 Edison Mission Energy 144A company guaranty 7.33s, 2008 1,161,450 4,835,000 EIP Funding-Public Service Co. of New Mexico deb. 10 1/4s, 2012 5,310,426 6,040,000 El Paso Electric Co. 1st mtge. Ser. B, 7 3/4s, 2001 6,126,432 400,000 El Paso Electric Co. 1st mtge. Ser. D, 8.9s, 2006 417,836 200,000 Empresa Distribuidora Norte 144A notes 9 3/4s, 2001 (Argentina) 207,000 2,810,000 Enersis S.A. ADR notes 7.4s, 2016 (Chile) 2,731,713 2,970,000 Enersis S.A. ADR notes 6.6s, 2026 (Chile) 2,903,116 240,000 First PV Funding deb. 10.15s, 2016 254,400 183,000 First PV Funding deb. Ser. 86A, 10.3s, 2014 194,438 65,000 Hidro Pierda Aguila 144A bonds 10 5/8s, 2001 (Argentina) 67,925 1,620,000 Illinova Corp. notes 7 1/8s, 2004 1,609,940 3,745,000 Israel Electric Corp., Ltd. 144A sr. notes 7 1/4s, 2006 (Israel) 3,712,493 135,000 Long Island Lighting Co. deb. 9s, 2022 144,140 230,000 Long Island Lighting Co. refunding mtge. notes 9 3/4s, 2021 236,900 2,194,955 Midland Cogeneration Ventures deb. 10.33s, 2002 2,332,141 365,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 407,293 90,000 Niagara Mohawk Power Corp. 1st mtge. 7 3/4s, 2006 85,646 675,000 Niagara Mohawk Power Corp. med. term notes 9.95s, 2000 668,250 1,133,807 Northeast Utilities System notes Ser. A, 8.58s, 2006 1,075,983 4,194,667 Northeast Utilities System notes Ser. B, 8.38s, 2005 4,149,784 1,750,000 Ras Laffan Natural Gas 144A sec. notes 8.294s, 2014 (Qatar) 1,770,234 3,440,000 Ras Laffan Natural Gas 144A sec. notes 7.628s, 2006 (Qatar) 3,470,100 250,000 Texas New-Mexico Power Utilities deb. 12 1/2s, 1999 273,058 3,925,000 Texas New-Mexico Power Utilities 1st mtge. 9 1/4s, 2000 4,128,158 4,100,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 4,079,992 5,095,000 Texas Utilities Electric Capital Trust V company guaranty 8.175s, 2037 5,056,788 4,230,000 US West Capital Funding, Inc. company guaranty 6.95s, 2037 4,225,728 -------------- 70,525,157 -------------- Total Corporate Bonds and Notes (cost $376,078,262) $ 383,114,683 FOREIGN GOVERNMENT BONDS AND NOTES (2.4%) * PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------------------------- AUD 17,260,000 Australia (Government of) bonds 7 1/2s, 2005 $ 13,247,661 CAD 16,080,000 Canada (Government of) bonds 4s, 1999 11,859,731 USD 8,025,000 Quebec (Province of) deb. Ser. NN, 7 1/8s, 2024 7,567,094 USD 32,720,000 Bank of Foreign Economic Affairs of Russia (Vnesheconombank) principal loan 144A 8s, 2020+##+++ 18,895,800 ZAR 41,480,000 South Africa (Republic of) bonds Ser. 153, 13s, 2010 7,870,144 GBP 7,175,000 United Kingdom Exchequer foreign government guaranty 9 3/4s, 1998 11,844,068 -------------- Total Foreign Government Bonds and Notes (cost $70,455,174) $ 71,284,498 BRADY BONDS (1.6%) * PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------------------------- $ 12,176,500 Argentina (Republic of) FRB 6 5/8s, 2005 $ 10,928,409 20,520,000 United Mexican States FRB Ser. D, 6.352s, 2019 18,673,200 20,750,000 Venezuela (Government of) FRN 6 1/2s, 2007 18,752,813 -------------- Total Brady Bonds (cost $46,756,296) $ 48,354,422 COLLATERALIZED MORTGAGE OBLIGATIONS (1.3%) * PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------------------------- Chase Mortgage Finance Corp. $ 1,842,286 Ser. 93-3, Class B13, 7.461s, 2024 $ 1,145,096 2,202,992 Ser. 94-G, Class B2, 7s, 2025 2,057,044 1,374,566 GE Capital Mortgage Services, Inc. Ser. 94-12, Class B3, 6s, 2009 1,156,784 Housing Securities Inc. 1,568,563 Ser. 91-B, Class B6, 9s, 2006 1,566,848 1,369,695 Ser. 93-F, Class F9M2, 7s, 2023 1,259,692 272,536 Ser. 93-J, Class J4, 6.66s, 2009 234,977 147,601 Ser. 93-J, Class J5, 6.66s, 2009 106,226 240,450 Ser. 94-1, Class AB1, 6 1/2s, 2009 204,383 Prudential Home Mortgage Securities 2,965,885 Ser. 92-25, Class B3, 8s, 2022 + 2,875,054 1,218,852 Ser. 92-13, Class B3, 7 1/2s, 2007 1,090,682 1,628,220 Ser. 93-36, Class M, 7 1/4s, 2023 1,571,741 3,853,624 Ser. 93-D, Class 2B, 7.108s, 2023 3,532,087 2,030,446 Ser. 93-E, Class 5B, 7.393s, 2023 1,456,845 322,332 Ser. 94-31, Class B3, 8s, 2009 293,927 1,179,244 Ser. 95-D, Class 5B, 7.54s, 2024 862,322 Prudential Home Mortgage Securities 144A 3,486,575 Ser. 94-A, Class 4B, 6.802s, 2024 3,155,351 1,203,084 Ser. 94-D, Class B4, 6.312s, 2009 1,028,156 4,630,696 Ser. 95-C, Class B1, 7.815s, 2001 4,617,672 3,659,523 Residential Funding Mortgage Securities Ser. 93-MZ3, Class A1, 6.97s, August 30, 2023 3,579,471 Ryland Mortgage Securities Corp. 1,963,636 Ser. 94-7C, Class B1, 7.358s, 2025 1,879,568 1,386,976 Ser. 94-7C, Class B2, 7.358s, 2025 1,301,590 4,268,646 Securitized Asset Sales, Inc. Ser. 93-J, Class 2B, 6.807s, 2023 3,935,158 529,005 Travelers Mortgage Securities Corp. coll. oblig. Ser. 1, Class Z2, 12s, 2014 605,050 -------------- Total Collateralized Mortgage Obligations (cost $37,781,792) $ 39,515,724 CONVERTIBLE PREFERRED STOCKS (0.5%) * NUMBER OF SHARES VALUE - --------------------------------------------------------------------------------------------------------- 421,000 Freeport-McMoRan Copper Co., Inc. $1.75 cv. pfd. $ 11,524,875 5,000 Granite Broadcasting $1.938 cv. pfd. 274,375 77,000 K mart Financing I $3.875 cv. pfd. 3,927,000 -------------- Total Convertible Preferred Stocks (cost $13,824,015) $ 15,726,250 CONVERTIBLE BONDS AND NOTES (0.3%) * PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------------------------- $ 155,000 Argosy Gaming cv. sub. notes 12s, 2001 $ 83,700 835,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 512,481 100,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 85,625 45,000 National Semiconductor cv. deb. 6 1/2s, 2002 44,381 400,000 Toyota Motor Corp. cv. deb. 1.2s, 1998 5,335,528 3,219,000 WMX Technologies, Inc. cv. sub. notes 2s, 2005 3,154,620 -------------- Total Convertible Bonds and Notes (cost $8,216,546) $ 9,216,335 PREFERRED STOCKS (0.2%) * NUMBER OF SHARES VALUE - --------------------------------------------------------------------------------------------------------- 750 American Radio Systems Corp. 144A $11.375 pfd. $ 74,625 13,159 Cablevision Systems Ser. M, $11.125 dep. shs. pfd. [2 DBL. DAGGERS] 1,200,759 30,000 California Federal Bancorp Inc. Ser. A, $2.28 pfd. 742,500 2,300 Chancellor Radio Broadcasting 144A $12.00 pfd. 230,863 6,310 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. 332,853 11,662 El Paso Electric Co. $11.40 pfd. [2 DBL. DAGGERS] 1,271,158 265 Fresenius Medical Care $9.00 trust pfd. 270,300 7,171 K-III Communications Ser. B, $11.625 pfd. [2 DBL. DAGGERS] 709,929 37,000 Public Service Co. of New Hampshire $2.65 1st mtge. pfd. 925,000 4,550 SFX Broadcasting, Inc. Ser. E, $12.625 pfd. [2 DBL. DAGGERS] 455,000 1,123 Time Warner Inc. Ser. M, $10.25 pfd. [2 DBL. DAGGERS] 1,227,086 -------------- Total Preferred Stocks (cost $7,468,719) $ 7,440,073 UNITS (--%)* NUMBER OF UNITS VALUE - --------------------------------------------------------------------------------------------------------- 100 AmeriKing, Inc. pfd. units zero %, 2008 $ 111,000 210 Colt Telecommunications Group PLC units stepped-coupon zero % (12s, 12/15/01), 2006 (United Kingdom) ++ 130,725 205 Esat Holdings Ltd. 144A units stepped-coupon zero % (12 1/2s, 2/1/02), 2007 (Ireland)++ 115,825 335 Fitzgerald Gaming Co. units 13s, 2002 268,000 30 Intercel, Inc. units stepped-coupon zero % (12s, 2/1/01), 2006 ++ 204,750 5,870 Nextlink Communications 144A pfd. units zero % (14s, 2/1/02), 2009 [2 DBL. DAGGERS]++ 294,234 495 Wireless One Inc. units stepped-coupon zero % (13 1/2s, 8/1/01) 2006 ++ 240,075 -------------- Total Units (cost $1,372,269) $ 1,364,609 WARRANTS (--%)* +(cost $2500) EXPIRATION NUMBER OF WARRANTS DATE VALUE - --------------------------------------------------------------------------------------------------------- 250 Intermedia Communications, Inc. 144A 6/1/00 $ 8,750 SHORT-TERM INVESTMENTS (6.4%) * PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------------------------- 30,000,000 Asset Securitization Coop. Corp. effective yield of 5.33%, February 27, 1997 $ 29,884,517 30,000,000 Corporate Receivables Corp. effective yield of 5.36%, April 18, 1997 29,659,267 25,000,000 Falcon Asset Securitization Corp. effective yield of 5.33%, February 6, 1997 24,981,493 25,000,000 Federal Home Loan Bank effective yield of 5.23%, March 6, 1997 24,880,145 20,000,000 Fed Home Loan Mortgage Corp. effective yield of 5.33%, February 7, 1997 19,982,233 20,000,000 Preferred Receivables Funding Corp. effective yield of 5.42%, February 19, 1997 19,945,799 43,358,000 Interest in $667,115,000 joint repurchase agreement dated January 31, 1997 with UBS Securities due February 3, 1997 with respect to various U.S. Treasury obligations -- maturity value of $43,378,089 for an effective yield of 5.56% 43,364,696 -------------- Total Short-Term Investments (cost $192,712,809) $ 192,698,150 - --------------------------------------------------------------------------------------------------------- Total Investments (cost $2,702,045,587)*** $3,076,220,498 - ---------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $2,992,456,873. *** The aggregate identified cost on a tax basis is $2,706,694,552, resulting in gross unrealized appreciation and depreciation of $393,764,054 and $24,238,108, respectively, or net unrealized appreciation of $369,525,946. + Non-income-producing security. ++ The interest rate and date shown parenthetically represent the new interest rate to be paid and the date the fund will begin receiving interest at this rate. +++ A portion of the income will be received in additional securities. [2 DBL. DAGGERS] Income may be received in cash or additional securities at the discretion of the issuer. # A portion of this security was pledged and segregated with the custodian to cover margin requirements for futures contracts at January 31, 1997. ## When-issued securities (Note 1). 144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. ADR after the name of a foreign holding stands for American Depository Receipts, representing ownership of foreign securities on deposit with a domestic custodian bank. TBA after the name of a security represents to be announced securities (Note 1). The rate shown on Floating Rate Bonds (FRBs) and Floating Rate Notes (FRNs) are the current interest rates shown at January 31, 1997, which are subject to change based on the terms of the security.
- ---------------------------------------------------------------------------------------- Futures Contracts Outstanding at January 31, 1997 Aggregate Face Expiration Unrealized Total Value Value Date Depreciation - ---------------------------------------------------------------------------------------- U.S. Treasury Bonds (Short) $16,715,625 $ 17,296,875 Mar 97 $ (581,250) U.S. Treasury Bonds (Long) 36,311,172 36,094,434 Mar 97 (216,738) - ---------------------------------------------------------------------------------------- $ (797,988) - ---------------------------------------------------------------------------------------- Forward Currency Contracts to Sell at January 31, 1997 (aggregate face value $52,827,611) Market Aggregate Face Delivery Unrealized Value Value Date Appreciation - ---------------------------------------------------------------------------------------- Australian Dollars $13,145,847 $ 13,621,165 Mar 97 $ 475,318 British Pounds 11,439,888 11,650,175 Mar 97 210,287 Deutschemarks 22,060,852 23,466,968 Mar 97 1,406,116 Japanese Yen 40,518 46,962 Jul 97 6,444 Japanese Yen 3,510,535 4,042,341 Jan 98 531,806 - ---------------------------------------------------------------------------------------- $2,629,971 - ---------------------------------------------------------------------------------------- Forward Currency Contracts to Buy at January 31, 1997 (aggregate face value $38,704,752) Unrealized Market Aggregate Face Delivery Appreciation/ Value Value Date (Depreciation) - ---------------------------------------------------------------------------------------- Canadian Dollars $16,416,580 $ 16,416,006 Mar 97 $ 574 Deutschemarks 22,206,966 22,288,746 Mar 97 (81,780) - ---------------------------------------------------------------------------------------- $ (81,206) - ---------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities January 31, 1997 (Unaudited) Assets - --------------------------------------------------------------------------------------------------- Investments in securities, at value (identified cost $2,702,045,587) (Note 1) $3,076,220,498 - --------------------------------------------------------------------------------------------------- Cash 815,534 - --------------------------------------------------------------------------------------------------- Dividends and interest receivable 19,611,786 - --------------------------------------------------------------------------------------------------- Receivable for shares of the fund sold 16,512,270 - --------------------------------------------------------------------------------------------------- Receivable for securities sold 70,481,634 - --------------------------------------------------------------------------------------------------- Receivable for variation margin 14,031 - --------------------------------------------------------------------------------------------------- Receivable for open forward currency contracts 2,641,839 - --------------------------------------------------------------------------------------------------- Receivable for closed forward currency contracts 591,005 - --------------------------------------------------------------------------------------------------- Total assets 3,186,888,597 Liabilities - --------------------------------------------------------------------------------------------------- Payable for securities purchased 185,156,596 - --------------------------------------------------------------------------------------------------- Payable for shares of the fund repurchased 2,717,545 - --------------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 3,576,292 - --------------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 808,460 - --------------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 30,412 - --------------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 7,966 - --------------------------------------------------------------------------------------------------- Payable for distribution fees (Note 2) 987,028 - --------------------------------------------------------------------------------------------------- Payable for open forward currency contracts 93,074 - --------------------------------------------------------------------------------------------------- Payable for closed forward currency contracts 470,136 - --------------------------------------------------------------------------------------------------- Other accrued expenses 584,215 - --------------------------------------------------------------------------------------------------- Total liabilities 194,431,724 - --------------------------------------------------------------------------------------------------- Net assets $2,992,456,873 Represented by - --------------------------------------------------------------------------------------------------- Paid-in capital (Notes 1 and 4) $2,561,955,281 - --------------------------------------------------------------------------------------------------- Undistributed net investment income (Note 1) 4,662,037 - --------------------------------------------------------------------------------------------------- Accumulated net realized gain on investments and foreign currency transactions (Note 1) 49,915,403 - --------------------------------------------------------------------------------------------------- Net unrealized appreciation of investments and assets and liabilities in foreign currencies 375,924,152 - --------------------------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $2,992,456,873 Computation of net asset value and offering price - --------------------------------------------------------------------------------------------------- Net asset value and redemption price per class A share ($1,976,817,686 divided by 117,103,355 shares) $ 16.88 - --------------------------------------------------------------------------------------------------- Offering price per class A share (100/94.25 of $16.88)* $ 17.91 - --------------------------------------------------------------------------------------------------- Net asset value and offering price per class B share ($629,663,899 divided by 37,538,167 shares)** $ 16.77 - --------------------------------------------------------------------------------------------------- Net asset value and redemption price per class M share ($107,805,962 divided by 6,427,277 shares) $ 16.77 - --------------------------------------------------------------------------------------------------- Offering price per class M share (100/96.50 of $16.77)* $ 17.38 - --------------------------------------------------------------------------------------------------- Net asset value, offering price and redemption price per class Y share ($278,169,326 divided by 16,453,340 shares) $ 16.91 - --------------------------------------------------------------------------------------------------- * 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 January 31, 1997 (Unaudited) Investment income: - -------------------------------------------------------------------------------------------------- Interest $ 36,088,099 - -------------------------------------------------------------------------------------------------- Dividends (net of foreign tax of $5,547) 23,054,544 - -------------------------------------------------------------------------------------------------- Total investment income 59,142,643 - -------------------------------------------------------------------------------------------------- Expenses: - -------------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 6,762,584 - -------------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 3,293,491 - -------------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 50,831 - -------------------------------------------------------------------------------------------------- Administrative services (Note 2) 11,885 - -------------------------------------------------------------------------------------------------- Distribution fees -- Class A (Note 2) 2,165,199 - -------------------------------------------------------------------------------------------------- Distribution fees -- Class B (Note 2) 2,659,856 - -------------------------------------------------------------------------------------------------- Distribution fees -- Class M (Note 2) 293,424 - -------------------------------------------------------------------------------------------------- Reports to shareholders 71,525 - -------------------------------------------------------------------------------------------------- Registration fees 190,000 - -------------------------------------------------------------------------------------------------- Auditing 30,852 - -------------------------------------------------------------------------------------------------- Legal 17,813 - -------------------------------------------------------------------------------------------------- Postage 127,122 - -------------------------------------------------------------------------------------------------- Other 52,321 - -------------------------------------------------------------------------------------------------- Total expenses 15,726,903 - -------------------------------------------------------------------------------------------------- Expense reduction (Note 2) (594,697) - -------------------------------------------------------------------------------------------------- Net expenses 15,132,206 - -------------------------------------------------------------------------------------------------- Net investment income 44,010,437 - -------------------------------------------------------------------------------------------------- Net realized gain on investments (Notes 1 and 3) 90,141,305 - -------------------------------------------------------------------------------------------------- Net realized gain on futures contracts (Note 1) 2,359,814 - -------------------------------------------------------------------------------------------------- Net realized loss on foreign currency transactions (Note 1) (741,380) - -------------------------------------------------------------------------------------------------- Net unrealized appreciation of assets and liabilities in foreign currencies during the period 3,102,290 - -------------------------------------------------------------------------------------------------- Net unrealized appreciation of investments and futures during the period 219,753,871 - -------------------------------------------------------------------------------------------------- Net gain on investments 314,615,900 - -------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations $358,626,337 - -------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets Six months ended Year ended January 31 July 31 1997* 1996 - ---------------------------------------------------------------------------------------------------------------------- Increase in net assets - ---------------------------------------------------------------------------------------------------------------------- Operations: - ---------------------------------------------------------------------------------------------------------------------- Net investment income $ 44,010,437 $ 71,656,189 - ---------------------------------------------------------------------------------------------------------------------- Net realized gain on investments and foreign currency transactions 91,759,739 135,274,116 - ---------------------------------------------------------------------------------------------------------------------- Net unrealized appreciation of investments and assets and liabilities in foreign currencies 222,856,161 15,062,707 - ---------------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 358,626,337 221,993,012 - ---------------------------------------------------------------------------------------------------------------------- Distributions to shareholders: - ---------------------------------------------------------------------------------------------------------------------- From net investment income Class A (37,690,673) (45,601,237) - ---------------------------------------------------------------------------------------------------------------------- Class B (9,853,014) (9,159,784) - ---------------------------------------------------------------------------------------------------------------------- Class M (1,525,336) (712,551) - ---------------------------------------------------------------------------------------------------------------------- Class Y (5,642,920) (7,086,721) - ---------------------------------------------------------------------------------------------------------------------- From net realized gain on investments Class A (92,386,950) (45,185,859) - ---------------------------------------------------------------------------------------------------------------------- Class B (29,105,446) (10,868,927) - ---------------------------------------------------------------------------------------------------------------------- Class M (4,503,492) (596,616) - ---------------------------------------------------------------------------------------------------------------------- Class Y (13,502,169) (6,792,626) - ---------------------------------------------------------------------------------------------------------------------- Increase from capital share transactions (Note 4) 620,452,814 688,998,591 - ---------------------------------------------------------------------------------------------------------------------- Total increase in net assets 784,869,151 784,987,282 - ---------------------------------------------------------------------------------------------------------------------- Net assets - ---------------------------------------------------------------------------------------------------------------------- Beginning of period 2,207,587,722 1,422,600,440 - ---------------------------------------------------------------------------------------------------------------------- End of period (including undistributed net investment income of $4,662,037 and $15,363,543, respectively) $2,992,456,873 $2,207,587,722 - ---------------------------------------------------------------------------------------------------------------------- * Unaudited The accompanying notes are an integral part of these financial statements.
Financial highlights (For a share outstanding throughout the period) Six months December 1, 1994 ended Year (commencement January 31 ended of operations) (Unaudited) July 31 to July 31 ------------------------------------------------------ 1997 1996 1995 ------------------------------------------------------ Class M - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $15.74 $14.84 $12.77 - ---------------------------------------------------------------------------------------------------------------------------- Investment operations - ---------------------------------------------------------------------------------------------------------------------------- Net investment income .26 .55 .31 - ---------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 2.02 1.50 2.03 - ---------------------------------------------------------------------------------------------------------------------------- Total from investment operations 2.28 2.05 2.34 - ---------------------------------------------------------------------------------------------------------------------------- Less distributions from: - ---------------------------------------------------------------------------------------------------------------------------- Net investment income (.34) (.52) (.27) - ---------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments (.91) (.63) -- - ---------------------------------------------------------------------------------------------------------------------------- Total distributions (1.25) (1.15) (.27) - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $16.77 $15.74 $14.84 - ---------------------------------------------------------------------------------------------------------------------------- Total investment return at net asset value (%)(a) 14.87* 14.26 18.52 - ---------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $107,806 $49,541 $8,164 - ---------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(b) .79* 1.50 .93 - ---------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) 1.51* 3.50 2.53 - ---------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 109.55* 119.44 102.57 - ---------------------------------------------------------------------------------------------------------------------------- Average commission rate paid (d) $.0485 - ----------------------------------------------------------------------------------------------------------------------------
Financial highlights (continued) (For a share outstanding throughout the period) Six months ended January 31 (Unaudited) Year ended July 31 ------------------------------------------------------ 1997 1996 1995 ------------------------------------------------------ Class Y - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $15.85 $14.92 $13.54 - ---------------------------------------------------------------------------------------------------------------------------- Investment operations - ---------------------------------------------------------------------------------------------------------------------------- Net investment income .31 .68 .66 - ---------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 2.06 1.50 1.63 - ---------------------------------------------------------------------------------------------------------------------------- Total from investment operations 2.37 2.18 2.29 - ---------------------------------------------------------------------------------------------------------------------------- Less distributions from: - ---------------------------------------------------------------------------------------------------------------------------- Net investment income (.40) (.62) (.59) - ---------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments (.91) (.63) (.32) - ---------------------------------------------------------------------------------------------------------------------------- Total distributions (1.31) (1.25) (.91) - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $16.91 $15.85 $14.92 - ---------------------------------------------------------------------------------------------------------------------------- Total investment return at net asset value (%)(a) 15.26* 15.09 18.00 - ---------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $278,169 $207,508 $153,597 - ---------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(b) .41* .70 .66 - ---------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) 1.91* 4.33 4.78 - ---------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 109.55* 119.44 102.57 - ---------------------------------------------------------------------------------------------------------------------------- Average commission rate paid (d) $.0485 - ----------------------------------------------------------------------------------------------------------------------------
Financial highlights (continued) (For a share outstanding throughout the period) April 1, 1994 Six months (commencement ended of operations) January 31 Year ended to July 31 (Unaudited) July 31 ------------------------------------------------------ 1994 1997 1996 ------------------------------------------------------ Class Y Class B - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 13.21 $ 15.74 $ 14.83 - ---------------------------------------------------------------------------------------------------------------------------- Investment operations - ---------------------------------------------------------------------------------------------------------------------------- Net investment income .17 .23 .51 - ---------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments .31 2.03 1.50 - ---------------------------------------------------------------------------------------------------------------------------- Total from investment operations .48 2.26 2.01 - ---------------------------------------------------------------------------------------------------------------------------- Less distributions from: - ---------------------------------------------------------------------------------------------------------------------------- Net investment income (.15) (.32) (.47) - ---------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments -- (.91) (.63) - ---------------------------------------------------------------------------------------------------------------------------- Total distributions (.15) (1.23) (1.10) - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 13.54 $ 16.77 $15.74 - ---------------------------------------------------------------------------------------------------------------------------- Total investment return at net asset value (%)(a) 3.65* 14.69* 13.97 - ---------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $71,566 $629,664 $435,278 - ---------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(b) .25* .91* 1.71 - ---------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) 1.34* 1.40* 3.31 - ---------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 100.69 109.55* 119.44 - ---------------------------------------------------------------------------------------------------------------------------- Average commission rate paid (d) $.0485 - ----------------------------------------------------------------------------------------------------------------------------
Financial highlights (continued) (For a share outstanding throughout the period) Year ended July 31 ------------------------------------------------------ 1995 1994 1993 ------------------------------------------------------ Class B - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $13.46 $14.19 $14.22 - ---------------------------------------------------------------------------------------------------------------------------- Investment operations - ---------------------------------------------------------------------------------------------------------------------------- Net investment income .52 .50 .56 - ---------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 1.63 (.12) .48 - ---------------------------------------------------------------------------------------------------------------------------- Total from investment operations 2.15 .38 1.04 - ---------------------------------------------------------------------------------------------------------------------------- Less distributions from: - ---------------------------------------------------------------------------------------------------------------------------- Net investment income (.46) (.49) (.59) - ---------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments (.32) (.62) (.48) - ---------------------------------------------------------------------------------------------------------------------------- Total distributions (.78) (1.11) (1.07) - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $14.83 $13.46 $14.19 - ---------------------------------------------------------------------------------------------------------------------------- Total investment return at net asset value (%)(a) 16.87 2.70 7.87 - ---------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $224,166 $151,327 $81,983 - ---------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(b) 1.66 1.71 1.66 - ---------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) 3.81 3.39 3.43 - ---------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 102.57 100.69 89.22 - ---------------------------------------------------------------------------------------------------------------------------- Average commission rate paid (d) - ----------------------------------------------------------------------------------------------------------------------------
Financial highlights (continued) (For a share outstanding throughout the period) April 27, 1992 Six months (commencement ended of operations) January 31 Year ended to July 31 (Unaudited) July 31 ------------------------------------------------------ 1992 1997 1996 ------------------------------------------------------ Class B Class A - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 13.73 $ 15.82 $ 14.90 - ---------------------------------------------------------------------------------------------------------------------------- Investment operations - ---------------------------------------------------------------------------------------------------------------------------- Net investment income .13(c) .30 .63 - ---------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments .53 2.05 1.50 - ---------------------------------------------------------------------------------------------------------------------------- Total from investment operations .66 2.35 2.13 - ---------------------------------------------------------------------------------------------------------------------------- Less distributions from: - ---------------------------------------------------------------------------------------------------------------------------- Net investment income (.17) (.38) (.58) - ---------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments -- (.91) (.63) - ---------------------------------------------------------------------------------------------------------------------------- Total distributions (.17) (1.29) (1.21) - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 14.22 $16.88 $15.82 - ---------------------------------------------------------------------------------------------------------------------------- Total investment return at net asset value (%)(a) 4.99* 15.21* 14.75 - ---------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $11,946 $1,976,818 $1,515,260 - ---------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(b) .55* .54* .95 - ---------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) .84* 1.78* 4.07 - ---------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 78.90 109.55* 119.44 - ---------------------------------------------------------------------------------------------------------------------------- Average commission rate paid (d) $ .0485 - ----------------------------------------------------------------------------------------------------------------------------
Financial highlights (continued) (For a share outstanding throughout the period) Year ended July 31 ------------------------------------------------------ 1995 1994 1993 ------------------------------------------------------ Class A - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $13.52 $14.24 $14.24 - ----------------------------------------------------------------------------------------------------------------------------- Investment operations - ----------------------------------------------------------------------------------------------------------------------------- Net investment income .63 .59 .62 - ----------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 1.63 (.11) .52 - ----------------------------------------------------------------------------------------------------------------------------- Total from investment operations 2.26 .48 1.14 - ----------------------------------------------------------------------------------------------------------------------------- Less distributions from: - ----------------------------------------------------------------------------------------------------------------------------- Net investment income (.56) (.58) (.66) - ----------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments (.32) (.62) (.48) - ----------------------------------------------------------------------------------------------------------------------------- Total distributions (.88) (1.20) (1.14) - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $14.90 $13.52 $14.24 - ----------------------------------------------------------------------------------------------------------------------------- Total investment return at net asset value (%)(a) 17.73 3.46 8.64 - ----------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $1,036,674 $913,171 $772,540 - ----------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(b) .91 .95 .90 - ----------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) 4.58 4.15 4.34 - ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 102.57 100.69 89.22 - ----------------------------------------------------------------------------------------------------------------------------- Average commission rate paid (d) - -----------------------------------------------------------------------------------------------------------------------------
Financial highlights (continued) (For a share outstanding throughout the period) Year ended July 31 ----------------------- 1992 ----------------------- Class A - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------ Net asset value, beginning of period $ 13.52 - ------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------ Net investment income .64 - ------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments 1.12 - ------------------------------------------------------------------------------------ Total from investment operations 1.76 - ------------------------------------------------------------------------------------ Less distributions from: - ------------------------------------------------------------------------------------ Net investment income (.68) - ------------------------------------------------------------------------------------ Net realized gain (loss) on investments (.36) - ------------------------------------------------------------------------------------ Total distributions (1.04) - ------------------------------------------------------------------------------------ Net asset value, end of period $ 14.24 - ------------------------------------------------------------------------------------ Total investment return at net asset value (%)(a) 13.68 - ------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $622,129 - ------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) 1.06 - ------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 4.62 - ------------------------------------------------------------------------------------ Portfolio turnover (%) 78.90 - ------------------------------------------------------------------------------------ Average commission rate paid (d) - ------------------------------------------------------------------------------------ * Not annualized. (a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) The ratio of expenses to average net assets for the period ended July 31, 1996 includes amounts paid through brokerage service and expense offset arrangements. Prior period ratios exclude these amounts. (Note 2). (c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. (d) Average commission rate paid on security trades is required for fiscal periods beginning on or after September 1, 1995.
Notes to financial statements January 31, 1997 (Unaudited) Note 1 Significant accounting policies The fund is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The fund seeks to provide a balanced investment composed of a well-diversified portfolio of stocks and bonds which will produce both capital growth and current income. The fund offers class A, class B, 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 may be subject to a contingent deferred sales charge, if those shares are redeemed within six years of purchase. Class M shares are sold with a maximum front end sales charge of 3.50% and pay an ongoing distribution fee that is higher than class A shares but lower than class B shares. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A shares and class B shares, but do not bear a distribution fee. Class Y shares are sold to defined contribution plans that initially invest at least $250 million in a combination of Putnam Funds. 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 followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with generally accepted accounting principles and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Actual results could differ from those estimates. A) Security valuation Investments for which market quotations are readily available are stated at market value, which is determined using the last reported sale price, or, if no sales are reported -- as in the case of some securities traded over-the-counter -- the last reported bid price. Securities quoted in foreign currencies are translated into U.S. dollars at the current exchange rate. Short-term investments having remaining maturities of 60 days or less are stated at amortized cost, which approximates market value, and other investments are stated at fair value following procedures approved by the Trustees. Market quotations are not considered to be readily available for certain long-term corporate bonds and notes; such investments are stated at fair value on the basis of valuations furnished by a pricing service, approved by the Trustees, which determines valuations for normal, institutional size trading units of such securities using methods based on market transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. B) Joint trading account Pursuant to an exemptive order issued by the Securities and Exchange Commission, the fund may transfer uninvested cash balances into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam 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. Putnam Management is responsible for determining that the value of these underlying securities is at all times at least equal to the resale price, including accrued interest. D) Security transactions and related investment income Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recorded as soon as the fund is informed of the ex-dividend date. Discounts on zero coupon, original issue, stepped-coupon and payment in kind bonds are accreted according to the effective yield method. Securities purchased or sold on a when-issued or delayed delivery basis may be settled a month or more after the trade date; interest income is accrued based on the terms of the security. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract. E) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, other assets and liabilities are recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when accrued or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such fluctuations are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net exchange gains or losses on closed forward currency contracts, disposition of foreign currencies and the difference between the amount of investment income and foreign withholding taxes recorded on the fund's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized gains and losses on foreign currency transactions arise from changes in the value of open forward currency contracts and assets and liabilities other than investments at the period end, resulting from changes in the exchange rate. F) Forward currency contracts The fund may engage in forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date, to protect against a decline in value relative to the U.S. dollar of the currencies in which its portfolio securities are denominated or quoted (or an increase in the value of a currency in which securities a fund intends to buy are denominated, when a fund holds cash reserves and short-term investments). The U.S. dollar value of forward currency contracts forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is "marked to market" daily and the change in market value is recorded as an unrealized gain or loss. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. G) Futures and options contracts The fund may use futures and options contracts to hedge against changes in the values of securities the fund owns or expects to purchase. The fund may also write options on securities it owns or in which it may invest to increase its current returns. The potential risk to the fund is that the change in value of futures and options contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts, or if the counterparty to the contract is unable to perform. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. Exchange traded options are valued at the last sale price, or if no sales are reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by dealers. H) TBA purchase commitments The fund may enter into "TBA" (to be announced) purchase commitments to purchase securities for a fixed unit price at a future date beyond customary settlement time. Although the unit price has been established, the principal value has not been finalized. However, the amount of the commitments will not fluctuate more than 1.0% from the principal amount. The fund holds, and maintains until settlement date, cash or high-grade debt obligations in an amount sufficient to meet the purchase price, or the fund may enter into offsetting contracts for the forward sale of other securities it owns. Income on the securities will not be earned until settlement date. TBA purchase commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date, which risk is in addition to the risk of decline in the value of the fund's other assets. Unsettled TBA purchase commitments are valued at the current market value of the underlying securities, according to the procedures described under Security valuation above. Although the fund will generally enter into TBA purchase commitments with the intention of acquiring securities for their portfolio or for delivery pursuant to options contracts it has entered into, the fund may dispose of a commitment prior to settlement if Putnam Management deems it appropriate to do so. I) 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. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held and for excise tax on income and capital gains. J) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Capital gain distributions, if any, are recorded on the ex-dividend date and paid 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 for the quarter. Such fee is based on an annual rate of 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 and 0.425% of the next $5 billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion, and 0.38% of any amount thereafter. The fund reimburses Putnam Management 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 Investments, Inc. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. For the six months ended January 31, 1997, fund expenses were reduced by $594,697 under expense offset arrangements with PFTC and brokerage service arrangements. Investor servicing and custodian fees reported in the Statement of operations exclude these credits. The fund could have invested a portion of the assets utilized in connection with the expense offset arrangements in an income producing asset if it had not entered into such arrangements. Trustees of the fund receive an annual Trustees fee of $2,550 and an additional fee for each Trustee's meeting attended. Trustees who are not interested persons of Putnam Management and who serve on committees of the Trustees receive additional fees for attendance at certain committee meetings. The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows the Trustees to defer the receipt of all or a portion of Trustees Fees payable on or after July 1, 1995. The deferred fees remain in the fund and are invested in certain Putnam funds until distribution in accordance with the Plan. The fund has adopted an unfunded noncontributory defined benefit pension plan (the "PensionPlan") covering all Trustees of the fund who have served as Trustee for at least five years. Benefits under the Pension Plan are equal to 50% of the Trustee's average total retainer and meeting fees for the three years preceding retirement. Pension expense for the fund is included in Compensation of trustees in the Statement of operations. Accrued pension liability is included in Payable for compensation of Trustees in the Statement of assets and liabilities. The fund has adopted distribution plans (the "Plans") with respect to its class A, class B and class M shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments Inc., for services provided and expenses incurred by it in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%, 1.00% and 1.00% of the average net assets attributable to class A, class B and class M shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00% and 0.75% of the average net assets attributable to class A, class B and class M shares respectively. For the six months ended January 31, 1997, Putnam Mutual Funds Corp., acting as underwriter received net commissions of $760,990 and $31,497 from the sale of class A and class M shares, respectively and $282,369 in contingent deferred sales charges from redemptions of class B shares. A deferred sales charge of up to 1% is assessed on certain redemptions of class A shares. For the six months ended January 31, 1997, Putnam Mutual Funds Corp., acting as underwriter received $10,680 on class A redemptions. Note 3 Purchase and sales of securities During the six months ended January 31, 1997, purchases and sales of investment securities other than U.S. government obligations and short-term investments aggregated $1,183,910,320 and $696,050,102, respectively. Purchases and sales of U.S. government obligations aggregated $547,888,248 and $579,153,279, respectively. In determining the net gain or loss on securities sold, the cost of securities has been determined on the identified cost basis. Note 4 Capital shares At January 31, 1997, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: Six months ended January 31, 1997 - ------------------------------------------------------------ Class A Shares Amount - ------------------------------------------------------------ Shares sold 23,394,968 $ 385,486,122 - ------------------------------------------------------------ Shares issued in connection with reinvestment of distributions 7,182,726 116,726,427 - ------------------------------------------------------------ 30,577,694 502,212,549 Shares repurchased (9,225,988) (152,255,041) - ------------------------------------------------------------ Net increase 21,351,706 $ 349,957,508 - ------------------------------------------------------------ Year ended July 31, 1996 - ------------------------------------------------------------ Class A Shares Amount - ------------------------------------------------------------ Shares sold 34,625,208 $544,315,852 - ------------------------------------------------------------ Shares issued in connection with reinvestment of distributions 5,118,269 78,116,977 - ------------------------------------------------------------ 39,743,477 622,432,829 Shares repurchased (13,576,096) (213,268,263) - ------------------------------------------------------------ Net increase 26,167,381 $409,164,566 - ------------------------------------------------------------ Six months ended January 31, 1997 - ------------------------------------------------------------ Class B Shares Amount - ------------------------------------------------------------ Shares sold 9,497,398 $155,959,526 - ------------------------------------------------------------ Shares issued in connection with reinvestment of distributions 2,256,209 36,490,940 - ------------------------------------------------------------ 11,753,607 192,450,466 Shares repurchased (1,876,181) (30,821,786) - ------------------------------------------------------------ Net increase 9,877,426 $161,628,680 - ------------------------------------------------------------ Year ended July 31, 1996 - ------------------------------------------------------------ Class B Shares Amount - ------------------------------------------------------------ Shares sold 14,194,836 $222,056,702 - ------------------------------------------------------------ Shares issued in connection with reinvestment of distributions 1,222,091 18,574,383 - ------------------------------------------------------------ 15,416,927 240,631,085 Shares repurchased (2,872,681) (44,815,677) - ------------------------------------------------------------ Net increase 12,544,246 $195,815,408 - ------------------------------------------------------------ Six months ended January 31, 1997 - ------------------------------------------------------------ Class M Shares Amount - ------------------------------------------------------------ Shares sold 3,200,072 $52,616,514 - ------------------------------------------------------------ Shares issued in connection with reinvestment of distributions 348,522 5,633,629 - ------------------------------------------------------------ 3,548,594 58,250,143 Shares repurchased (269,036) (4,421,323) - ------------------------------------------------------------ Net increase 3,279,558 $53,828,820 - ------------------------------------------------------------ Year ended July 31, 1996 - ------------------------------------------------------------ Class M Shares Amount - ------------------------------------------------------------ Shares sold 2,783,402 $43,645,026 - ------------------------------------------------------------ Shares issued in connection with reinvestment of distributions 81,817 1,254,544 - ------------------------------------------------------------ 2,865,219 44,899,570 Shares repurchased (267,504) (4,203,507) - ------------------------------------------------------------ Net increase 2,597,715 $40,696,063 - ------------------------------------------------------------ Six months ended January 31, 1997 - ------------------------------------------------------------ Class Y Shares Amount - ------------------------------------------------------------ Shares sold 3,463,721 $57,172,463 - ------------------------------------------------------------ Shares issued in connection with reinvestment of distributions 1,177,384 19,145,059 - ------------------------------------------------------------ 4,641,105 76,317,522 Shares repurchased (1,283,357) (21,279,716) - ------------------------------------------------------------ Net increase 3,357,748 $55,037,806 - ------------------------------------------------------------ Year ended July 31, 1995 - ------------------------------------------------------------ Class Y Shares Amount - ------------------------------------------------------------ Shares sold 4,154,040 $64,937,258 - ------------------------------------------------------------ Shares issued in connection with reinvestment of distributions 908,731 13,879,347 - ------------------------------------------------------------ 5,062,771 78,816,605 Shares repurchased (2,265,107) (35,494,051) - ------------------------------------------------------------ Net increase 2,797,664 $43,322,554 - ------------------------------------------------------------ PUTNAM GROWTH FUNDS Asia Pacific Growth Fund Capital Appreciation Fund Diversified Equity Trust Europe Growth Fund Global Growth Fund Global Natural Resources Fund * Health Sciences Trust International Growth Fund + International New Opportunities Fund Investors Fund New Opportunities Fund OTC Emerging Growth Fund [DBL. DAGGER] Vista Fund Voyager Fund Voyager Fund II PUTNAM GROWTH AND INCOME FUNDS Balanced Retirement Fund Convertible Income-Growth Trust Equity Income Fund The George Putnam Fund of Boston The Putnam Fund for Growth and Income Growth and Income Fund II International Growth and Income Fund New Value Fund Utilities Growth and Income Fund PUTNAM INCOME FUNDS American Government Income Fund Diversified Income Trust Diversified Income Trust II Federal Income Trust Global Governmental Income Trust High Yield Advantage Fund High Yield Trust Income Fund Intermediate U.S. Government Income Fund Preferred Income Fund U.S. Government Income Trust PUTNAM TAX-FREE INCOME FUNDS Municipal Income Fund Tax Exempt Income Fund Tax-Free High Yield Fund Tax-Free Insured Fund State tax-free income funds [SECTION MARK] Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey, New York, Ohio and Pennsylvania LIFESTAGESM FUNDS Putnam Asset Allocation Funds--three investment portfolios that spread your money across a variety of stocks, bonds, and money market investments to help maximize your return and reduce your risk. The three portfolios: Asset Allocation: Balanced Portfolio Asset Allocation: Conservative Portfolio Asset Allocation: Growth Portfolio MOST CONSERVATIVE INVESTMENTS ** Putnam money market funds: ++ California Tax Exempt Money Market Fund Money Market Fund New York Tax Exempt Money Market Fund Tax Exempt Money Market Fund CDs and savings accounts [2 DBL. DAGGERS] * Formerly Natural Resources Fund + Formerly Overseas Growth Fund [DBL. DAGGER] Not available in all states. [SECTION MARK] Relative to above. ++ An investment in a money market fund is neither insured nor guaranteed by the U.S. government. These funds are managed to maintain a price of $1.00 per share, although there is no assurance that this price will be maintained in the future. [2 DBL. DAGGERS] Not offered by Putnam Investments. Certificates of deposit offer a fixed rate of return and may be insured up to certain limits by federal/state agencies. Savings accounts may also be insured up to certain limits. Please call your financial advisor or Putnam at 1-800- 225-1581 to obtain a prospectus for any Putnam fund. It contains more complete information, including charges and expenses. Please read it carefully before you invest or send money. Fund information INVESTMENT MANAGER Putnam Investment Management, Inc. One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Mutual Funds Corp. One Post Office Square Boston, MA 02109 CUSTODIAN Putnam Fiduciary Trust Company LEGAL COUNSEL Ropes & Gray TRUSTEES George Putnam, Chairman William F. Pounds, Vice Chairman Jameson Adkins Baxter Hans H. Estin John A. Hill Elizabeth T. Kennan Lawrence J. Lasser Robert E. Patterson Donald S. Perkins George Putnam, III A.J.C. Smith W. Nicholas Thorndike OFFICERS George Putnam President Charles E. Porter Executive Vice President Patricia C. Flaherty Senior Vice President John D. Hughes Senior Vice President and Treasurer Lawrence J. Lasser Vice President Gordon H. Silver Vice President Peter Carman Vice President Brett C. Browchuk Vice President Thomas V. Reilly Vice President Edward P. Bousa Vice President and Fund Manager Kenneth J. Taubes Vice President and Fund Manager Rosemary H. Thomsen Vice President and Fund Manager Robert M. Paine Vice President and Fund Manager William N. Shiebler Vice President John R. Verani Vice President Paul M. O'Neil Vice President Beverly Marcus Clerk and Assistant Treasurer This report is for the information of shareholders of The George Putnam Fund of Boston. It may also be used as sales literature when preceded or accompanied by the current prospectus, which gives details of sales charges, investment objectives, and operating policies of the fund, and the most recent copy of Putnam's Quarterly Performance Summary. For more information, or to request a prospectus, call toll free: 1-800-225-1581. You can also learn more at Putnam Investments' website: http://www.putnaminv.com. Shares of mutual funds are not deposits or obligations of, or guaranteed or endorsed by, any financial institution, are not insured by the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board or any other agency, and involve risk, including the possible loss of principal amount invested. PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 - -------------------- Bulk Rate U.S. Postage PAID Putnam Investments - -------------------- 31265-001/880/242 PUTNAM INVESTMENTS [SCALE LOGO OMITTED] - ------------------------------------------------------------------------ The George Putnam Fund of Boston Supplement to Semiannual Report dated 1/31/97 The following information has been prepared to provide class Y shareholders with a performance overview specific to their holdings. Class Y shares are offered exclusively to defined contribution plans investing $250 million or more in one or more of Putnam's funds or private accounts. Performance of class Y shares, which incur neither a front-end load, distribution fee, nor contingent deferred sales charge, will differ from performance of class A, B, and M shares, which are discussed more extensively in the semiannual report. SEMIANNUAL RESULTS AT A GLANCE - ------------------------------------------------------------------------ Total return: NAV Six months ended 1/31/96 15.33% One year ended 1/31 /96 17.72 Life of class (since 3/31/94) 62.34 Annual average 18.60 - ------------------------------------------------------------------------ Share value: NAV 7/31/96 $15.85 1/31/96 16.91 - ------------------------------------------------------------------------ Distributions: No. Income Capital gains Total 7/31/96 - 1/31/96 3 $0.397 $0.909 $1.306 - ------------------------------------------------------------------------ Please note that past performance does not indicate future results. 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. -----END PRIVACY-ENHANCED MESSAGE-----