-----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, DYEp7TtSGb6Z52IEHWiCUOvE/+AfyscJomhO7n7vpJ1SloStGJ3LHwPOhZ/8c0eF rdC0zfp//v+Utd+L68OXyg== 0000928816-02-000251.txt : 20020415 0000928816-02-000251.hdr.sgml : 20020415 ACCESSION NUMBER: 0000928816-02-000251 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020131 FILED AS OF DATE: 20020322 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEORGE PUTNAM FUND OF BOSTON CENTRAL INDEX KEY: 0000081259 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: 02582443 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 GEORGE FUND OF BOSTON DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: PUTNAM EQUITY INCOME FUND/NEW DATE OF NAME CHANGE: 19940302 N-30D 1 gpf1.txt THE GEORGE PUTNAM FUND OF BOSTON The George Putnam Fund of Boston SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK 1-31-02 [SCALE LOGO OMITTED] FROM THE TRUSTEES [GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III] Dear Shareholder: The George Putnam Fund of Boston's semiannual period was marked by tumultuous events including the terrorist attacks and the high-profile collapse of Enron. Performance for the six months ended January 31, 2002, reflects the difficult challenges faced by your fund's management teams. Though the fund's return is disappointing in absolute terms, it compares favorably with returns for the Standard & Poor's 500 [Registration Mark] Index and the fund's competitive universe. We are not out of the woods yet, but signs are beginning to appear that suggest the economic and market fundamentals are not as dire as many observers believed in the weeks immediately following September 11th. However, exactly when investors will regain their confidence and re-enter the market remains to be seen. As you will note in this report, we are now listing the team responsible for the fund's management rather than individual team members. This change reflects Putnam's belief that mutual funds are more effectively overseen by teams than by individuals. Respectfully yours, /S/ JOHN A. HILL /S/ GEORGE PUTNAM, III John A. Hill George Putnam, III Chairman of the Trustees President of the Funds March 13, 2002 REPORT FROM FUND MANAGEMENT This fund is managed by the Putnam Large-Cap Value and Core Fixed-Income teams January 31, 2002, marked the midpoint of the 2002 fiscal year for The George Putnam Fund of Boston. As the semiannual period began, markets were weak, but a year-end rally in growth stocks revived hopes of a strengthening economy. Increased volatility in January reflected investors' lingering uncertainties. Within this challenging environment, The George Putnam Fund of Boston's total returns for all share classes were negative -- however, they were also ahead of the -6.01% returned by the Standard & Poor's 500 Index, the fund's primary benchmark, over the period. Results for a balanced fund -- a fund that holds both equities and fixed-income securities -- generally fall between the equity and fixed-income benchmarks, and this was the case for this semi annual period; the fund lagged its fixed-income benchmark, the Lehman Government Credit Index, which returned 3.02%. While it is never pleasant to have to report a negative return, we believe that our strategies have been effective in limiting losses and positioning the portfolio to benefit from more favorable market trends. Furthermore, the fund's strong competitive standing (see page 3) should be encouraging for shareholders. Total return for 6 months ended 1/31/02 Class A Class B Class C Class M NAV POP NAV CDSC NAV CDSC NAV POP - ------------------------------------------------------------------------ -1.91% -7.54% -2.24% -7.08% -2.26% -3.23% -2.11% -5.54% - ------------------------------------------------------------------------ Past performance does not indicate future results. Performance information for longer periods and explanation of performance calculation methods begin on page 8. [GRAPHIC OMITTED: horizontal bar chart COMPARATIVE PORTFOLIO COMPOSITION] COMPARATIVE PORTFOLIO COMPOSITION* 1/31/2002 7/31/2001 Common stocks 60.4% 58.3% U.S. government and agency securities 20.1% 21.4% Corporate bonds and notes 12.4% 10.8% Cash and other 8.9% 7.5% Collateralized mortgage obligations 3.8% 5.0% Convertible and preferred securities 0.9% 0.3% Foreign government bonds and notes 0.3% 0.3% Footnote reads: *Based on net assets as of 1/31/02. Portfolio allocations will vary over time. * FUND'S BOND HOLDINGS LIMIT LOSSES IN RECESSIONARY ENVIRONMENT During the fund's semiannual period the economy continued to weaken and the recession that appeared to have begun in March of 2001 was declared official. Against a backdrop of discouraging economic indicators and corporate earnings disappointments, the Federal Reserve Board continued to lower the target for short-term interest rates an additional five times, thus establishing the lowest discount and federal funds rates in 40 years. The terrorist attacks of September 11th heightened investors' worries, while the dramatic collapse of Enron Corp., one of the nation's most prominent companies, cast a shadow of doubt over financial markets and corporate accountability. Together, these varied factors presented significant challenges to Putnam's Large-Cap Value and Core Fixed-Income teams, which manage your fund. We reevaluated our investment theses as each new event unfolded and believe that the fund's competitive returns reflect our diligent efforts to meet its objectives while maintaining consistency with its investment style. In volatile and weak market environments, investors generally prefer the relative safety of bonds and the stable stream of income they offer. In calendar years 2000 and 2001, bonds as a whole outperformed stocks by a significant margin. Bond prices were driven higher by an increased demand for "safe" securities and by falling interest rates, which make the higher coupons on previously issued bonds more attractive. Your fund generally allocates about 40% of its assets to a diverse mixture of investment-grade bonds, including U.S. treasuries, U.S. government agency bonds, mortgage-backed securities, and corporate debt. The fund's generous allocation to bonds serves two roles: it can help lessen the volatility of equity returns, and it enables the fund to actively participate in and benefit from favorable bond markets. The fund's competitive return for the reporting period is due in large measure to the contribution of its fixed-income investments, and in particular, to the fund's exposure to bond sectors with the strongest performance in late 2001, U.S. Treasuries and mortgage-backed securities. Lipper Analytical Services ranked the George Putnam Fund of Boston's class A shares 41 out of 481 (9th percentile) of all balanced funds tracked for 1-year performance, as of 1/31/02, and 17 out of 71 (24th percentile) of all balanced funds tracked for 10-year performance, as of 1/31/02. The fund's class A shares ranked 41 out of 481, 113 out of 297, and 17 out of 71 for 1-, 5-, and 10-year periods, respectively, as of 1/31/02. Past performance does not indicate future results. Lipper Inc. ranks funds (without sales charges) with similar current investment styles or objectives as determined by Lipper. Performance was also supported by the portfolio's very slight exposure to higher-yielding bonds. These lower-rated bonds can often perform well as economic recovery begins to take hold. In an effort to position the fund to benefit from such a recovery, we built a marginal position in corporate high-yield bonds early in 2001. We selected bonds of companies with attractive prospects, carrying coupons we believed sufficient to compensate for the extra level of risk involved. These bonds enjoyed strong performance prior to the events of September 11th, but a large portion of the gains attributable to these securities was lost in the months that followed, as investors abandoned high-yield bonds for safer alternatives. Still, the net result of the portfolio's high-yield bond holdings was a slight positive contribution to the fund's return. We continue to maintain a very small exposure to these bonds, as we still believe they will benefit from an eventual economic recovery. As always, the fund's highly diversified portfolio of fixed-income securities remains focused on investment-grade bonds rated between AAA and BBB. * HEIGHTENED FOCUS ON CORPORATE ACCOUNTING PRESENTS CHALLENGES, OPPORTUNITIES The high-profile accounting and bankruptcy scandal at Enron, formerly one of the nation's leading energy traders, has shone a spotlight on questionable accounting practices, raised investors' awareness about accounting in general, and resulted in increased scrutiny of corporate financial statements by the Securities and Exchange Commission, debt-rating agencies, and banks. As the verity of corporate profits and earnings reports has been called into question, credit ratings have suffered and many companies have greater difficulty borrowing money to fund their operations. Under these conditions, a hint of bad news can cause a quick retreat in the valuation of a company or sector. Fund Profile The George Putnam Fund of Boston seeks long-term capital growth and current income by investing in a combination of undervalued stocks and high-quality bonds. The fund targets attractively priced stocks of large, established, dividend-paying companies that are poised to experience positive change and improved financial performance. The bond portion is a diversified mix of investment-grade securities intended to enhance current income and smooth portfolio performance. The fund is appropriate for investors seeking current income and long-term growth from a balanced investment. We address the challenge of avoiding troubled stocks by relying on Putnam's in-depth research and the fund's strict stock selection criteria. For your fund's portfolio, we pursue stocks of high-quality, mature companies that have seasoned, capable management and a history of paying above-average dividends. Our focus on high-yielding stocks was a positive contributor for the period, as these stocks tended to hold their value to a greater extent than stocks without strong dividend records. In addition, our team management approach provides very real benefits in terms of risk management and enhancing potential returns. It is extremely helpful to be able to discuss with the bond experts their assumptions about the economy and what the Federal Reserve Board will do next, and how that might affect the equities market. When a company is facing difficulty, the bond market will often know about it first. With equity and bond analysts working together, we hope to avoid many of the market's pitfalls. Solid research also helps us to identify buying opportunities, such as stock price declines that we believe are undeserved and driven by investor fear or uncertainty. One recent example of this would be our purchase of additional shares of Tyco International, Ltd., a large conglomerate based in Bermuda. In the wake of the Enron debacle, Tyco came under increased scrutiny for its handling of merger accounting. The company faced difficulty obtaining credit, and ultimately decided to break into several distinct companies. We have done a great deal of research and believe the breakup of Tyco makes sense and will add value over time. Though the value of our shares declined over the period, we continue to build our position in Tyco as valuation opportunities arise. [GRAPHIC OMITTED: TOP 10 HOLDINGS] TOP 10 EQUITY HOLDINGS Citigroup, Inc. Financial Exxon Mobil Corp. Oil and gas Royal Dutch Petroleum Co. Netherlands Oil and gas Merck & Company, Inc. Pharmaceuticals Philip Morris Companies, Inc. Tobacco Bank of America Corp. Banking U.S. Bancorp Banking SBC Communications, Inc. Regional Bells Verizon Communications, Inc. Regional Bells Bristol-Myers Squibb Co. Pharmaceuticals Footnote reads: These holdings represent 14.5% of the fund's net assets as of 1/31/02. Portfolio holdings will vary over time. While this stock and others mentioned in this report were viewed favorably at the end of the reporting period, all are subject to review in accordance with the fund's investment policy and may change in the future. * INSURANCE AND SPECIALTY RETAIL STOCKS SUPPORTED PERFORMANCE ACE, Ltd. and XL Capital, Ltd., companies that specialize in catastrophic insurance and reinsurance, were among the strongest contributors to the fund's semiannual returns. In the immediate aftermath of the tragedies of September 11th, insurance stocks suffered as concerns about solvency inspired many investors to sell their insurance holdings. Convinced that the insurers could absorb the blow of exorbitant claims, we bought aggressively as stock prices fell. This proved to be the right move. Since September, insurers have experienced a tremendous increase in business and increased pricing power. The net present value of the new business appears to exceed the amount of the claims against the insurers, ultimately adding value to the companies. Fund holding Entergy Corp., one of the nation's best-run electric utilities and a premier manager of nuclear facilities, benefited from a general trend among investors seeking the relative safety of high-yielding stocks. We continue to hold shares of the company. Stocks of retailers TJX Companies, Inc. and The Limited, Inc. appreciated during the period. During this recessionary time, discount retailer TJX has profited from increased demand for bargain-priced consumer goods. The Limited's cost-cutting strategies have begun to improve the company's business prospects. The market's recognition of these positive changes is reflected in a higher price for the company's stock. * ENERGY POSITIONS HURT RESULTS DURING PERIOD BUT STILL HOLD GROWTH POTENTIAL The stock of Reliant Energy, Inc., an electric utility company, suffered as investors reacted to the energy crisis in California. Reliant had some exposure to the California market, and as the crisis unfolded, people conserved power, demand slackened, and energy providers lost their pricing power. In our opinion, Reliant stock was unduly affected by this situation, as were stocks of other companies in the industry. Although this position dampened the fund's performance during the period, we continue to hold shares of Reliant and believe the stock will recover in time. Shares of energy trader Dynegy, Inc. began falling precipitously after Enron's demise spooked investors into doubting the entire industry. Bond-rating agencies had begun to downgrade Dynegy's debt, which could have imperiled the company's ability to conduct the business it had inherited from Enron. The stock's decline detracted from portfolio performance during the period, yet because we know the company very well and have confidence in its financial strength and its management, we used the opportunity to buy additional shares of Dynegy. * FUND MAINTAINS STRATEGIC POSITIONING Our outlook for coming months is one of cautious optimism. Recent economic data appear to indicate that the economy is entering into a period of slow growth. We interpreted the Fed's decision in January to leave interest rates unchanged as supportive of our view. If we are correct, fixed-income markets are likely to stabilize and non-Treasury sectors may benefit from improved performance. On the equity side, we continue to marginally increase the fund's exposure to economically-sensitive stocks as valuation opportunities allow. Though the timing of a recovery remains uncertain, we believe the fund is well positioned to protect against market volatility and to benefit from improving market conditions. 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 1/31/02, there is no guarantee the fund will continue to hold these securities in the future. NEWS FROM THE TRUSTEES In July 2001, we welcomed Charles B. Curtis to Putnam's Board of Trustees. He brings an impressive list of credentials that include several key positions in Washington and directorships in education and energy-related industries. We look forward to the contributions Charles will make to the continued success of the Putnam funds. A NOTE ABOUT DUPLICATE MAILINGS In response to investors' requests, the SEC has modified mailing regulations for proxy statements, semiannual and annual reports, and prospectuses. Putnam is now able to send a single copy of these materials to customers who share the same address. This change will automatically apply to all shareholders except those who notify us. If you would prefer to receive your own copy, please call Putnam at 1-800-225-1581. PERFORMANCE SUMMARY This section provides information about your fund's performance, which should always be considered in light of its investment strategy. TOTAL RETURN FOR PERIODS ENDED 1/31/02 Class A Class B Class C Class M (inception dates) (11/5/37) (4/27/92) (7/26/99) (12/1/94) NAV POP NAV CDSC NAV CDSC NAV POP - ------------------------------------------------------------------------------ 6 months -1.91% -7.54% -2.24% -7.08% -2.26% -3.23% -2.11% -5.54% - ------------------------------------------------------------------------------ 1 year -0.83 -6.55 -1.51 -6.32 -1.57 -2.53 -1.26 -4.70 - ------------------------------------------------------------------------------ 5 years 42.33 34.15 37.17 35.20 37.06 37.06 38.99 34.11 Annual average 7.32 6.05 6.53 6.22 6.51 6.51 6.81 6.05 - ------------------------------------------------------------------------------ 10 years 167.62 152.21 148.63 148.63 148.14 148.14 154.55 145.57 Annual average 10.34 9.69 9.54 9.54 9.51 9.51 9.79 9.40 - ------------------------------------------------------------------------------ Annual average (life of fund) 9.64 9.54 8.59 8.59 8.82 8.82 8.87 8.81 - ------------------------------------------------------------------------------ COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 1/31/02 Lehman S&P 500 Government Consumer Index Credit Index price index - ------------------------------------------------------------------------------ 6 months -6.01% 3.02% 0.11% - ------------------------------------------------------------------------------ 1 year -16.15 7.49 1.08 - ------------------------------------------------------------------------------ 5 years 54.18 43.53 11.42 Annual average 9.05 7.50 2.19 - ------------------------------------------------------------------------------ 10 years 238.94 106.29 28.60 Annual average 12.98 7.51 2.55 - ------------------------------------------------------------------------------ Annual average (life of fund) N/A N/A 3.97 - ------------------------------------------------------------------------------ Past performance does not indicate future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate and you may have a gain or a loss when you sell your shares Performance assumes reinvestment of distributions and does not account for taxes. Returns at public offering price (POP) for class A and class M shares reflect a sales charge of 5.75% and 3.50%, respectively. Class B share returns reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declining to 1% in the sixth year, and is eliminated thereafter. Class C shares reflect a 1% CDSC the first year that is eliminated thereafter. Performance for class B, C, and M shares before their inception are derived from the historical performance of class A shares, adjusted for the applicable sales charge (or CDSC) and higher operating expenses for such shares. PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 1/31/02 Class A Class B Class C Class M - ------------------------------------------------------------------------------ Distributions (number) 2 2 2 2 - ------------------------------------------------------------------------------ Income $0.252 $0.188 $0.193 $0.210 - ------------------------------------------------------------------------------ Capital gains -- -- -- -- - ------------------------------------------------------------------------------ Total $0.252 $0.188 $0.193 $0.210 - ------------------------------------------------------------------------------ Share value: NAV POP NAV NAV NAV POP - ------------------------------------------------------------------------------ 7/31/01 $17.24 $18.29 $17.07 $17.16 $17.08 $17.70 - ------------------------------------------------------------------------------ 1/31/02 16.66 17.68 16.50 16.58 16.51 17.11 - ------------------------------------------------------------------------------ Current return (end of period) - ------------------------------------------------------------------------------ Current dividend rate 1 3.03% 2.85% 2.28% 2.34% 2.54% 2.45% - ------------------------------------------------------------------------------ Current 30-day SEC yield 2 2.69 2.54 1.94 1.94 2.19 2.07 - ------------------------------------------------------------------------------ 1 Most recent distribution, excluding capital gains, annualized and divided by NAV or POP at end of period. 2 Based only on investment income, calculated using SEC guidelines. TOTAL RETURN FOR PERIODS ENDED 12/31/01 (most recent calendar quarter) Class A Class B Class C Class M (inception dates) (11/5/37) (4/27/92) (7/26/99) (12/1/94) NAV POP NAV CDSC NAV CDSC NAV POP - ------------------------------------------------------------------------------ 6 months -1.09% -6.79% -1.48% -6.35% -1.44% -2.42% -1.29% -4.76% - ------------------------------------------------------------------------------ 1 year 0.51 -5.28 -0.28 -5.15 -0.22 -1.20 0.03 -3.48 - ------------------------------------------------------------------------------ 5 years 47.20 38.74 41.72 39.72 41.75 41.75 43.69 38.67 Annual average 8.04 6.77 7.22 6.92 7.23 7.23 7.52 6.76 - ------------------------------------------------------------------------------ 10 years 165.58 150.29 146.72 146.72 146.27 146.27 152.53 143.73 Annual average 10.26 9.61 9.45 9.45 9.43 9.43 9.71 9.32 - ------------------------------------------------------------------------------ Annual average (life of fund) 9.66 9.56 8.61 8.61 8.84 8.84 8.89 8.83 - ------------------------------------------------------------------------------ Past performance does not indicate future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate and you may have a gain or a loss when you sell your shares TERMS AND DEFINITIONS Total return shows how the value of the fund's shares changed over time, assuming you held the shares through the entire period and reinvested all distributions in the fund. Class A shares are generally subject to an initial sales charge and no sales charge on redemption (except on certain redemptions of shares bought without an initial sales charge). Class B shares may be subject to a sales charge upon redemption. Class C shares are not subject to an initial sales charge and are subject to a contingent deferred sales charge only if the shares are redeemed during the first year. Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no sales charge on redemption (except on certain redemptions of shares bought without an initial sales charge). Net asset value (NAV) is the price, or value, of one share of a mutual fund, without a sales charge. NAVs fluctuate with market conditions. The NAV is calculated by dividing the net value of all the fund's assets by the number of outstanding shares. Public offering price (POP) is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. POP performance figures shown here assume the 5.75% maximum sales charge for class A shares and 3.50% for class M shares. Contingent deferred sales charge (CDSC) is a charge applied at the time of the redemption of class B or C shares and assumes redemption at the end of the period. Your fund's class B CDSC declines from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. The CDSC for class C shares is 1% for one year after purchase. COMPARATIVE BENCHMARKS The Lehman Government Credit Index* is an unmanaged index of U.S. fixed-income securities. The S&P 500 Index* is an unmanaged index of common stock performance. Consumer price index (CPI) is a commonly used measure of inflation; it does not represent an investment return. Lipper Inc. is a third-party industry ranking entity that ranks funds (without sales charges) with similar current investment styles or objectives as determined by Lipper. Footnote reads: *Indexes assume reinvestment of all distributions and do not account for fees. Securities and performance of a fund and an index will differ. You cannot invest directly in an index. A GUIDE TO THE FINANCIAL STATEMENTS These sections of the report, as well as the accompanying Notes, constitute the fund's financial statements. The fund's portfolio lists all the fund's investments and their values as of the last day of the reporting period. Holdings are organized by asset type and industry sector, country, or state to show areas of concentration and diversification. Statement of assets and liabilities shows how the fund's net assets and share price are determined. All investment and noninvestment assets are added together. Any unpaid expenses and other liabilities are subtracted from this total. The result is divided by the number of shares to determine the net asset value per share, which is calculated separately for each class of shares. (For funds with preferred shares, the amount subtracted from total assets includes the net assets allocated to remarketed preferred shares.) Statement of operations shows the fund's net investment gain or loss. This is done by first adding up all the fund's earnings -- from dividends and interest income -- and subtracting its operating expenses to determine net investment income (or loss). Then, any net gain or loss the fund realized on the sales of its holdings -- as well as any unrealized gains or losses over the period -- is added to or subtracted from the net investment result to determine the fund's net gain or loss for the fiscal period. Statement of changes in net assets shows how the fund's net assets were affected by distributions to shareholders and by changes in the number of the fund's shares. It lists distributions and their sources (net investment income or realized capital gains) over the current reporting period and the most recent fiscal year-end. The distributions listed here may not match the sources listed in the Statement of operations because the distributions are determined on a tax basis and may be paid in a different period from the one in which they were earned. Financial highlights provide an overview of the fund's investment results, per-share distributions, expense ratios, net investment income ratios and portfolio turnover in one summary table, reflecting the five most recent reporting periods. In a semiannual report, the highlight table also includes the current reporting period. For open-end funds, a separate table is provided for each share class.
THE FUND'S PORTFOLIO January 31, 2002 (Unaudited) COMMON STOCKS (60.4%) (a) NUMBER OF SHARES VALUE Advertising and Marketing Services (0.1%) - ------------------------------------------------------------------------------------------------------------------- 71,500 Valassis Communications, Inc. (NON) $ 2,642,640 Aerospace and Defense (0.8%) - ------------------------------------------------------------------------------------------------------------------- 205,400 Boeing Co. (The) 8,411,130 439,500 Lockheed Martin Corp. 23,280,303 129,600 Northrop Grumman Corp. 14,464,656 ------------- 46,156,089 Agriculture (--%) - ------------------------------------------------------------------------------------------------------------------- 220 PSF Holdings, LLC Class A 352,400 Automotive (0.2%) - ------------------------------------------------------------------------------------------------------------------- 136,300 Delphi Automotive Systems Corp. 1,947,727 687,300 Ford Motor Co. 10,515,690 ------------- 12,463,417 Banking (6.7%) - ------------------------------------------------------------------------------------------------------------------- 993,400 Bank of America Corp. 62,614,002 870,700 Bank of New York Company, Inc. (The) 35,681,286 38,500 Banknorth Group, Inc. 910,910 20,300 BB&T Corp. 713,141 1,207,990 Charter One Financial, Inc. 35,973,942 746,700 Comerica, Inc. 42,031,743 176,000 FleetBoston Financial Corp. 5,917,120 125,100 M&T Bank Corp. 9,382,500 372,700 Mellon Financial Corp. 14,311,680 80,800 Mercantile Bankshares Corp. 3,525,304 110,200 PNC Financial Services Group 6,364,050 68,000 Synovus Financial Corp. 1,879,520 2,884,698 U.S. Bancorp 60,059,412 405,900 Wachovia Corp. 13,496,175 512,600 Washington Mutual, Inc. 17,592,432 1,074,400 Wells Fargo & Co. 49,841,416 131,100 Zions Bancorporation 6,597,478 ------------- 366,892,111 Beverage (1.7%) - ------------------------------------------------------------------------------------------------------------------- 287,600 Anheuser-Busch Companies, Inc. 13,594,852 80,250 Brown-Forman Corp. Class B 5,256,375 600,200 Coca-Cola Co. (The) 26,258,750 448,900 Coca-Cola Enterprises, Inc. 7,294,625 625,300 Fortune Brands, Inc. 25,468,469 671,000 Pepsi Bottling Group, Inc. (The) 15,466,550 ------------- 93,339,621 Broadcasting (--%) - ------------------------------------------------------------------------------------------------------------------- 46,600 Clear Channel Communications, Inc. (NON) 2,145,464 Cable Television (0.1%) - ------------------------------------------------------------------------------------------------------------------- 190,900 Comcast Corp. Class A (NON) 6,773,132 Capital Goods (0.2%) - ------------------------------------------------------------------------------------------------------------------- 162,900 Eaton Corp. 11,986,182 Chemicals (1.2%) - ------------------------------------------------------------------------------------------------------------------- 304,900 Avery Dennison Corp. 18,141,550 232,000 Dow Chemical Co. (The) 6,853,280 211,000 E.I. du Pont de Nemours & Co. 9,319,870 380,400 Engelhard Corp. 10,597,944 354,200 PPG Industries, Inc. 17,210,578 77,700 Rohm & Haas Co. 2,857,806 ------------- 64,981,028 Coal (0.2%) - ------------------------------------------------------------------------------------------------------------------- 218,500 Arch Coal, Inc. 4,348,150 295,500 Peabody Energy Corp. 7,490,925 ------------- 11,839,075 Commercial and Consumer Services (--%) - ------------------------------------------------------------------------------------------------------------------- 131,000 ServiceMaster Co. (The) 1,862,820 Computers (2.7%) - ------------------------------------------------------------------------------------------------------------------- 3,044,800 Compaq Computer Corp. 37,603,280 543,600 Dell Computer Corp. (NON) 14,943,564 1,697,600 Hewlett-Packard Co. 37,533,936 387,900 IBM Corp. 41,850,531 191,400 Lexmark International, Inc. (NON) 10,632,270 149,500 NCR Corp. (NON) 6,359,730 ------------- 148,923,311 Conglomerates (1.2%) - ------------------------------------------------------------------------------------------------------------------- 5,760 Berkshire Hathaway, Inc. Class B (NON) 14,129,280 335,700 Cooper Industries, Inc. 12,219,480 271,700 General Electric Co. 10,093,655 181,800 Honeywell International, Inc. 6,110,298 720,500 Tyco International, Ltd. (Bermuda) 25,325,575 ------------- 67,878,288 Consumer Finance (0.2%) - ------------------------------------------------------------------------------------------------------------------- 201,300 Household International, Inc. 10,314,612 199,900 Providian Financial Corp. 769,615 ------------- 11,084,227 Consumer Goods (0.3%) - ------------------------------------------------------------------------------------------------------------------- 60,900 Colgate-Palmolive Co. 3,480,435 252,000 Kimberly-Clark Corp. 15,195,600 ------------- 18,676,035 Electric Utilities (3.2%) - ------------------------------------------------------------------------------------------------------------------- 700,320 Cinergy Corp. 22,620,336 235,500 Constellation Energy Group, Inc. 6,641,100 66,600 Dominion Resources, Inc. 3,920,742 473,492 DPL, Inc. 11,013,424 28,300 DTE Energy Co. 1,160,300 173,000 Duke Energy Corp. 6,032,510 206,100 Edison International 3,184,245 797,000 Entergy Corp. 32,820,460 364,400 FirstEnergy Corp. 13,555,680 45,400 FPL Group, Inc. 2,433,894 274,900 Northeast Utilities 4,978,439 152,300 PG&E Corp. 3,274,450 325,000 PPL Corp. 10,952,500 629,930 Progress Energy, Inc. 27,527,941 914,600 Reliant Energy, Inc. 22,938,168 ------------- 173,054,189 Electronics (1.6%) - ------------------------------------------------------------------------------------------------------------------- 57,400 Avnet, Inc. 1,529,710 1,424,600 Intel Corp. 49,917,984 1,444,100 Motorola, Inc. 19,220,971 853,600 Solectron Corp. (NON) 10,004,192 132,280 W.W. Grainger, Inc. 7,182,804 ------------- 87,855,661 Energy (0.3%) - ------------------------------------------------------------------------------------------------------------------- 51,400 Baker Hughes, Inc. 1,809,280 227,100 Schlumberger, Ltd. 12,806,169 ------------- 14,615,449 Financial (3.6%) - ------------------------------------------------------------------------------------------------------------------- 375,400 American Express Co. 13,458,090 2,700,900 Citigroup, Inc. 128,022,660 1,684,270 Contifinacial Corp. Liquidating Trust units 84,214 468,300 Fannie Mae 37,908,885 302,600 Freddie Mac 20,310,512 ------------- 199,784,361 Food (0.9%) - ------------------------------------------------------------------------------------------------------------------- 325,200 General Mills, Inc. 16,113,660 334,550 H.J. Heinz Co. 13,850,370 456,900 Kraft Foods, Inc. Class A 16,932,714 ------------- 46,896,744 Gaming & Lottery (--%) - ------------------------------------------------------------------------------------------------------------------- 1,733 Fitzgerald Gaming Corp. (NON) 17 Health Care (0.2%) - ------------------------------------------------------------------------------------------------------------------- 254,220 HCA, Inc. 10,804,350 Health Care Services (1.4%) - ------------------------------------------------------------------------------------------------------------------- 516,600 Anthem, Inc. (NON) 27,483,120 416,300 CIGNA Corp. 38,299,600 3,596 Genesis Health Ventures, Inc. 57,536 262,500 McKesson Corp. 10,106,250 ------------- 75,946,506 Household Furniture and Appliances (0.1%) - ------------------------------------------------------------------------------------------------------------------- 90,900 Newell Rubbermaid, Inc. 2,509,749 Insurance (2.7%) - ------------------------------------------------------------------------------------------------------------------- 1,032,700 ACE, Ltd. (Bermuda) 40,120,395 124,900 AMBAC Financial Group, Inc. 7,450,285 270,600 American International Group, Inc. 20,064,990 75,200 Chubb Corp. (The) 5,027,120 147,600 Hartford Financial Services Group, Inc. (The) 9,769,644 52,400 MBIA, Inc. 2,823,312 105,800 PMI Group, Inc. (The) 7,464,190 331,500 Radian Group, Inc. 14,884,350 84,800 UnumProvident Corp. 2,399,840 452,900 XL Capital, Ltd. Class A (Bermuda) 39,909,548 ------------- 149,913,674 Investment Banking/Brokerage (2.5%) - ------------------------------------------------------------------------------------------------------------------- 141,600 Goldman Sachs Group, Inc. (The) 12,316,368 1,353,000 JPMorgan Chase & Co. 46,069,650 111,400 Lehman Brothers Holdings, Inc. 7,215,378 598,000 Merrill Lynch & Company, Inc. 30,486,040 772,300 Morgan Stanley Dean Witter & Co. 42,476,500 ------------- 138,563,936 Lodging/Tourism (0.7%) - ------------------------------------------------------------------------------------------------------------------- 1,154,802 Cendant Corp. (NON) 20,185,939 343,400 Marriott International, Inc. Class A 14,003,852 185,600 Royal Caribbean Cruises, Ltd. 3,351,936 ------------- 37,541,727 Machinery (0.4%) - ------------------------------------------------------------------------------------------------------------------- 208,500 Ingersoll-Rand Co. Class A (Bermuda) 9,221,955 272,200 Parker-Hannifin Corp. 13,348,688 ------------- 22,570,643 Manufacturing (0.1%) - ------------------------------------------------------------------------------------------------------------------- 63,800 Illinois Tool Works, Inc. 4,554,044 Media (1.2%) - ------------------------------------------------------------------------------------------------------------------- 1,579,100 Liberty Media Corp. Class A (NON) 20,528,300 328,500 USA Networks, Inc. (NON) 9,391,815 1,816,676 Walt Disney Co. (The) 38,259,197 ------------- 68,179,312 Medical Technology (0.2%) - ------------------------------------------------------------------------------------------------------------------- 182,900 Pall Corp. 4,217,674 275,940 Zimmer Holdings, Inc. (NON) 8,976,328 ------------- 13,194,002 Metals (0.1%) - ------------------------------------------------------------------------------------------------------------------- 149,430 Alcoa, Inc. 5,357,066 155,600 Freeport-McMoRan Copper & Gold, Inc. 2,419,580 Class B (NON) ------------- 7,776,646 Natural Gas Utilities (0.7%) - ------------------------------------------------------------------------------------------------------------------- 745,400 Dynegy, Inc. Class A 17,777,790 240,000 El Paso Corp. 9,108,000 105,500 National Fuel Gas Co. 2,415,950 411,500 NiSource, Inc. 8,559,200 67,500 Williams Companies, Inc. (The) 1,193,400 ------------- 39,054,340 Oil & Gas (5.6%) - ------------------------------------------------------------------------------------------------------------------- 120,000 Anadarko Petroleum Corp. 5,895,600 76,100 Chevron Texaco Corp. 6,377,180 441,620 Conoco, Inc. 12,436,019 213,200 Devon Energy Corp. 7,935,304 2,630,722 Exxon Mobil Corp. 102,729,694 216,700 Marathon Oil Corp. 6,078,435 451,328 Phillips Petroleum Co. 26,389,148 1,962,450 Royal Dutch Petroleum Co. (Netherlands) 98,063,627 246,100 TotalFinaElf SA ADR (France) 17,315,596 635,600 Unocal Corp. 22,214,220 43,000 Valero Energy Corp. 1,975,420 ------------- 307,410,243 Paper & Forest Products (1.5%) - ------------------------------------------------------------------------------------------------------------------- 1,276,300 Abitibi-Consolidated, Inc. (Toronto Exchange) (Canada) 10,210,400 920,700 Abitibi-Consolidated, Inc. (Canada) 7,420,842 163,900 Boise Cascade Corp. 5,834,840 597,800 International Paper Co. 24,976,084 1,173,900 Smurfit-Stone Container Corp. (NON) 18,559,359 377,200 Sonoco Products Co. 10,014,660 90,700 Weyerhaeuser Co. 5,289,624 ------------- 82,305,809 Pharmaceuticals (5.3%) - ------------------------------------------------------------------------------------------------------------------- 146,700 Abbott Laboratories 8,464,590 1,193,000 Bristol-Myers Squibb Co. 54,126,410 783,500 Johnson & Johnson 45,059,085 1,535,400 Merck & Company, Inc. 90,864,972 1,244,000 Pfizer, Inc. 51,837,480 362,273 Pharmacia Corp. 14,672,057 727,700 Schering-Plough Corp. 23,562,926 ------------- 288,587,520 Publishing (0.1%) - ------------------------------------------------------------------------------------------------------------------- 152,360 Tribune Co. 5,663,221 Railroads (0.8%) - ------------------------------------------------------------------------------------------------------------------- 98,600 CSX Corp. 3,944,000 622,300 Union Pacific Corp. 38,613,715 ------------- 42,557,715 Real Estate (1.0%) - ------------------------------------------------------------------------------------------------------------------- 404,400 Archstone-Smith Trust 10,061,472 296,900 Boston Properties, Inc. (R) 10,878,416 329,720 Equity Office Properties Trust (R) 9,492,639 816,600 Equity Residential Properties Trust (R) 21,868,548 ------------- 52,301,075 Regional Bells (2.7%) - ------------------------------------------------------------------------------------------------------------------- 923,900 BellSouth Corp. 36,956,000 1,552,800 SBC Communications, Inc. 58,152,360 1,193,400 Verizon Communications, Inc. 55,314,090 ------------- 150,422,450 Restaurants (0.9%) - ------------------------------------------------------------------------------------------------------------------- 100 AmeriKing, Inc. (NON) 1 274,800 Darden Restaurants, Inc. 11,321,760 1,337,900 McDonald's Corp. 36,364,122 62,200 Tricon Global Restaurants, Inc. (NON) 3,470,760 ------------- 51,156,643 Retail (1.7%) - ------------------------------------------------------------------------------------------------------------------- 226,700 Federated Department Stores, Inc. (NON) 9,435,254 786,800 J.C. Penney Co., Inc. 19,567,716 511,800 Kroger Co. (NON) 10,543,080 1,204,700 Limited, Inc. (The) 22,347,185 96,200 May Department Stores Co. 3,540,160 128,900 Office Depot, Inc. (NON) 2,120,405 298,200 Rite Aid Corp. (NON) 709,716 99,100 Safeway, Inc. (NON) 4,008,595 379,300 Staples, Inc. (NON) 6,910,846 368,900 TJX Companies, Inc. (The) 15,250,326 ------------- 94,433,283 Software (0.4%) - ------------------------------------------------------------------------------------------------------------------- 1,135,800 BMC Software, Inc. (NON) 20,069,586 124,600 Computer Associates International, Inc. 4,293,716 ------------- 24,363,302 Technology (0.1%) - ------------------------------------------------------------------------------------------------------------------- 203,100 Flextronics International, Ltd. (Singapore) (NON) 4,508,820 Technology Services (1.0%) - ------------------------------------------------------------------------------------------------------------------- 212,800 Automatic Data Processing, Inc. 11,491,200 449,200 Convergys Corp. (NON) 14,235,148 1,383,000 KPMG Consulting, Inc. (NON) 22,957,800 335,800 Unisys Corp. (NON) 4,197,500 ------------- 52,881,648 Telecommunications (1.3%) - ------------------------------------------------------------------------------------------------------------------- 114,900 ALLTEL Corp. 6,374,652 145,645 AT&T Wireless Services, Inc. (NON) 1,674,918 272,600 Citizens Communications Co. (NON) 2,728,726 2,073,500 Qwest Communications International, Inc. 21,771,750 1,114,700 Sprint Corp. (FON Group) 19,730,190 1,654,200 WorldCom, Inc.-WorldCom Group (NON) 16,624,710 ------------- 68,904,946 Tobacco (1.7%) - ------------------------------------------------------------------------------------------------------------------- 114,000 Loews Corp. - Carolina Group (NON) 3,192,000 1,775,400 Philip Morris Companies, Inc. 88,965,294 ------------- 92,157,294 Waste Management (0.8%) - ------------------------------------------------------------------------------------------------------------------- 874,600 Republic Services, Inc. (NON) 15,218,040 954,600 Waste Management, Inc. 27,511,571 ------------- 42,729,611 ------------- Total Common Stocks (cost $3,179,318,291) $3,321,194,770 U.S. GOVERNMENT AND AGENCY OBLIGATIONS (20.1%) (a) PRINCIPAL AMOUNT VALUE U.S. Government Agency Mortgage Obligations (16.4%) - ------------------------------------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corporation $ 788,557 8 3/4s, with due dates from May 1, 2009 to June 1, 2009 $ 840,365 70,199,978 7s, with due dates from February 1, 2015 to October 1, 2016 72,919,525 Federal National Mortgage Association 92,016,000 TBA, 6 1/2s, February 1, 2032 92,562,575 98,900,000 TBA, 6 1/2s, February 1, 2017 101,279,534 53,640,000 TBA, 6s, February 1, 2032 52,768,350 332,000 TBA, 6s, January 1, 2032 325,568 9,880,000 TBA, 6s, February 1, 2017 9,944,813 Federal National Mortgage Association Pass-Through Certificates 67,521 11s, with due dates from October 1, 2015 to March 1, 2016 75,921 50,445 8 3/4s, July 1, 2009 53,894 9,244,223 8s, with due dates from August 1, 2026 to June 1, 2028 9,840,335 62,879,299 7 1/2s, with due dates from September 1, 2028 to August 1, 2031 65,285,181 102,039,309 7s, with due dates from August 1, 2022 to January 1, 2032 104,547,475 547,770 7s, with due dates from November 1, 2014 to December 1, 2014 568,865 223,080,329 6 1/2s, with due dates from July 1, 2010 to December 1, 2031 224,647,262 17,142,797 6s, with due dates from May 1, 2029 to January 1, 2032 16,891,755 843,090 5 1/2s, August 15, 2014 840,366 Government National Mortgage Association Pass-Through Certificates 668 15s, September 15, 2011 798 56,871,828 8s, with due dates from January 15, 2022 to December 15, 2027 60,427,548 6,001,267 7 1/2s, with due dates from August 15, 2029 to January 15, 2030 6,269,344 10,427 7 1/2s, September 15, 2005 10,929 Government National Mortgage Association Pass-Through Certificates 26,935,503 7s, with due dates from January 15, 2023 to December 15, 2028 27,864,605 50,970,628 6 1/2s, with due dates from September 15, 2024 to November 15, 2031 51,617,478 ------------- 899,582,486 U.S. Treasury Obligations (3.7%) - ------------------------------------------------------------------------------------------------------------------- U.S. Treasury Bonds 9,630,000 8s, November 15, 2021 12,270,739 30,390,000 6 1/8s, August 15, 2029 (SEG) 32,503,017 9,795,000 6s, February 15, 2026 10,185,233 10,260,000 5 3/8s, February 15, 2031 10,171,867 U.S. Treasury Notes 32,710,000 7s, July 15, 2006 36,170,064 50,855,000 6 5/8s, May 15, 2007 55,757,931 27,085,000 3 1/2s, November 15, 2006 26,077,709 22,700,000 3 1/4s, December 31, 2003 22,767,419 ------------- 205,903,979 ------------- Total U.S. Government and Agency Obligations (cost $1,104,103,486) $1,105,486,465 CORPORATE BONDS AND NOTES (12.4%) (a) PRINCIPAL AMOUNT VALUE Aerospace and Defense (0.5%) - ------------------------------------------------------------------------------------------------------------------- $ 7,230,000 Boeing Co. (The) debs. 6 5/8s, 2038 $ 6,799,454 5,720,000 Lockheed Martin Corp. bonds 8 1/2s, 2029 6,850,730 2,890,000 Raytheon Co. notes 8.3s, 2010 3,198,970 8,385,000 Raytheon Co. notes 6.15s, 2008 8,282,535 2,250,000 Sequa Corp. sr. notes 9s, 2009 2,182,500 ------------- 27,314,189 Airlines (0.4%) - ------------------------------------------------------------------------------------------------------------------- 2,276,896 Continental Airlines, Inc. pass through certificates Ser. 974C, 6.8s, 2009 1,800,820 11,885,000 Continental Airlines, Inc. pass-through certificates Ser. 98-2, 6.32s, 2008 10,280,168 6,053,370 Continental Airlines, Inc. pass-through certificates Ser. 981C, 6.541s, 2009 5,030,290 1,690,000 Northwest Airlines, Inc. company guaranty 8.7s, 2007 1,470,300 1,310,000 Northwest Airlines, Inc. company guaranty 8.52s, 2004 1,218,300 385,000 US Air, Inc. pass-through certificates Ser. 93A2, 9 5/8s, 2003 300,300 ------------- 20,100,178 Automotive (0.4%) - ------------------------------------------------------------------------------------------------------------------- 5,070,000 DaimlerChrysler Corp. company guaranty 8 1/2s, 2031 5,566,353 2,560,000 Dana Corp. 144A sr. notes 9s, 2011 2,329,600 10,375,000 Ford Motor Co. bonds 6 5/8s, 2028 8,784,616 4,310,000 Ford Motor Co. notes 7.45s, 2031 4,027,221 180,000 Hayes Lemmerz International, Inc. company guaranty Ser. B, 9 1/8s, 2007 (In default) (NON) 7,200 520,000 Lear Corp. company guaranty Ser. B, 8.11s, 2009 532,043 3,070,000 Visteon Corp. sr. notes 8 1/4s, 2010 3,129,619 ------------- 24,376,652 Banking (2.1%) - ------------------------------------------------------------------------------------------------------------------- 19,110,000 Bank of America Corp. sub. notes 7.4s, 2011 20,528,344 10,165,000 Bank One Corp. notes 6s, 2008 10,226,092 10,470,000 Bank United Corp. notes Ser. A, 8s, 2009 11,394,710 4,250,000 BankAmerica Corp. sr. notes 5 7/8s, 2009 4,217,148 11,255,000 Citicorp sub. notes 6 3/8s, 2008 11,519,267 120,000 Colonial Bank sub. notes 9 3/8s, 2011 127,476 5,505,000 Colonial Bank sub. notes 8s, 2009 5,418,351 4,050,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 4,401,864 2,035,000 Firstar Bank Milwaukee sr. notes 6 1/4s, 2002 2,090,474 3,655,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 3,647,215 185,000 Imperial Bank sub. notes 8 1/2s, 2009 205,689 1,455,000 Merita Bank, Ltd. sub. notes 6 1/2s, 2006 (Finland) 1,519,558 3,130,000 National City Corp. sub. notes 7.2s, 2005 3,345,907 4,975,000 NB Capital Trust IV company guaranty 8 1/4s, 2027 5,285,689 3,240,000 Norwest Corp. med. term sr. notes 6 3/4s, 2027 3,187,512 11,995,000 Peoples Bank-Bridgeport sub. notes 7.2s, 2006 11,676,173 5,800,000 PNC Funding Corp. company guaranty 5 3/4s, 2006 5,838,454 2,590,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 2,823,100 4,595,000 Wachovia Corp. notes 4.95s, 2006 4,527,086 2,910,000 Webster Capital Trust I 144A bonds 9.36s, 2027 2,668,994 ------------- 114,649,103 Beverage (0.1%) - ------------------------------------------------------------------------------------------------------------------- 7,300,000 Pepsi Bottling Group, Inc. (The) sr. notes Ser. B, 7s, 2029 7,777,201 Broadcasting (--%) - ------------------------------------------------------------------------------------------------------------------- 2,140,000 British Sky Broadcasting PLC company guaranty 8.2s, 2009 (United Kingdom) 2,189,284 335,000 News America Holdings, Inc. debs. 7.7s, 2025 328,367 ------------- 2,517,651 Cable Television (0.1%) - ------------------------------------------------------------------------------------------------------------------- 4,250,000 CSC Holdings, Inc. sr. sub. debs. 9 7/8s, 2013 4,462,500 720,000 NTL Communications Corp. sr. notes Ser. B, 11 7/8s, 2010 255,600 ------------- 4,718,100 Chemicals (0.2%) - ------------------------------------------------------------------------------------------------------------------- 2,755,000 Equistar Chemicals LP/Equistar Funding Corp. company guaranty 10 1/8s, 2008 2,713,675 130,000 Hercules, Inc. company guaranty 11 1/8s, 2007 137,150 350,000 IMC Global, Inc. company guaranty Ser. B, 10 7/8s, 2008 376,068 1,850,000 Lyondell Petrochemical Co. notes Ser. A, 9 5/8s, 2007 1,845,375 1,920,000 Lyondell Petrochemical Co. sec. notes Ser. B, 9 7/8s, 2007 1,862,400 500,000 Millenium America, Inc. company guaranty 9 1/4s, 2008 518,750 960,000 Millenium America, Inc. company guaranty 7s, 2006 915,437 4,195,000 Rohm & Haas Co. notes 7.4s, 2009 4,488,482 ------------- 12,857,337 Commercial and Consumer Services (--%) - ------------------------------------------------------------------------------------------------------------------- 711,000 Unicco Service Co. company guaranty Ser. B, 9 7/8s, 2007 675,450 Communications Equipment (--%) - ------------------------------------------------------------------------------------------------------------------- 2,000,000 PanAmSat Corp. 144A sr. notes 8 1/2s, 2012 2,002,500 Conglomerates (0.3%) - ------------------------------------------------------------------------------------------------------------------- 17,280,000 TRAINS 5-2002 144A sec. notes FRN 5.996s, 2007 17,764,186 Computers (0.1%) - ------------------------------------------------------------------------------------------------------------------- 5,505,000 IBM Corp. deb. 7 1/8s, 2096 5,647,524 Consumer Finance (0.7%) - ------------------------------------------------------------------------------------------------------------------- 1,400,000 Capital One Financial Corp. notes 7 1/4s, 2006 1,335,475 1,000,000 Conseco Finance Trust III, Inc. bonds 8.796s, 2027 300,000 3,385,000 Ford Motor Credit Corp. bonds 7 3/8s, 2011 3,362,253 1,160,000 Ford Motor Credit Corp. notes 7.6s, 2005 1,188,780 10,000,000 Ford Motor Credit Corp. notes 7 3/8s, 2009 10,004,100 9,635,000 Ford Motor Credit Corp. notes 6 1/2s, 2007 9,472,056 2,195,000 Ford Motor Credit Corp. sr. notes 5.8s, 2009 2,014,439 5,075,000 General Motors Acceptance Corp. notes Ser. MTN, 5.36s, 2004 5,053,178 2,920,000 Household Finance Corp. notes 6 1/2s, 2008 2,882,215 3,300,000 Household Finance Corp. sr. unsub. 5 7/8s, 2009 3,118,203 ------------- 38,730,699 Electric Utilities (0.8%) - ------------------------------------------------------------------------------------------------------------------- 3,840,000 Arizona Public Service Co. sr. notes 6 3/4s, 2006 4,002,432 2,050,000 Avista Corp. sr. notes 9 3/4s, 2008 2,119,495 5,405,000 CILCORP, Inc. sr. notes 8.7s, 2009 5,394,568 5,000 CMS Energy Corp. pass-through certificates 7s, 2005 4,855 2,200,000 CMS Energy Corp. sr. notes 7 5/8s, 2004 2,216,874 100,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 100,001 7,330,000 DPL, Inc. 144A bonds 8 1/8s, 2031 7,115,751 9,120,000 FirstEnergy Corp. notes Ser. A, 5 1/2s, 2006 9,091,819 1,340,000 Mission Energy Holding Co. sec. notes 13 1/2s, 2008 1,487,400 551,974 Northeast Utilities notes Ser. A, 8.58s, 2006 587,295 1,509,821 Northeast Utilities notes Ser. B, 8.38s, 2005 1,577,219 2,060,000 Progress Energy, Inc. sr. notes 6.55s, 2004 2,144,769 6,435,000 PSI Energy, Inc. 1st mtge. Ser. EEE, 6.65s, 2006 6,518,091 ------------- 42,360,569 Energy (0.2%) - ------------------------------------------------------------------------------------------------------------------- 2,000,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 2,100,000 7,270,000 Transocean Sedco Forex, Inc. notes 6 5/8s, 2011 7,168,002 ------------- 9,268,002 Financial (1.8%) - ------------------------------------------------------------------------------------------------------------------- 4,275,000 Ace INA Holdings, Inc. company guaranty 8.3s, 2006 4,647,566 2,640,000 American General Institute 144A company guaranty 8 1/8s, 2046 2,988,480 3,770,000 Associates Corp. sr. notes 6 1/4s, 2008 3,899,801 3,165,000 Associates First Capital Corp. debs. 6.95s, 2018 3,297,360 3,500,000 Associates First Capital Corp. sub. debs. 8.15s, 2009 3,889,620 5,665,000 Conseco Financing Trust II company guaranty 8.7s, 2026 1,699,500 620,000 Fairfax Financial Holdings, Ltd. notes 6 7/8s, 2008 (Canada) 437,410 20,475,000 Fannie Mae bonds 7 1/4s, 2030 23,111,156 17,545,000 Fannie Mae notes Ser. B, 7 1/4s, 2010 19,480,389 6,905,000 Liberty Mutual Insurance 144A notes 7.697s, 2097 5,357,728 3,280,000 Markel Capital Trust I company guaranty Ser. B, 8.71s, 2046 2,211,934 4,900,000 Metlife, Inc. sr. notes 5 1/4s, 2006 4,911,149 9,580,000 Principal Financial Group AU 144A notes 7.95s, 2004 (Australia) 10,277,999 10,345,000 Sun Life Canada Capital Trust 144A company guaranty 8.526s, 2049 10,825,732 4,920,00TIG Capital Trust I 144A bonds 8.597s, 2027 2,755,200 310,000 Willis Corroon Corp. 144A company guaranty 9s, 2009 320,850 ------------- 100,111,874 Food (0.2%) - ------------------------------------------------------------------------------------------------------------------- 8,775,000 Kraft Foods, Inc. notes 4 5/8s, 2006 8,594,147 Gaming & Lottery (0.2%) - ------------------------------------------------------------------------------------------------------------------- 2,145,000 International Game Technology sr. notes 8 3/8s, 2009 2,273,700 1,160,000 International Game Technology sr. notes 7 7/8s, 2004 1,206,400 1,270,000 Mandalay Resort Group sr. sub. notes Ser. B, 10 1/4s, 2007 1,352,550 490,000 MGM Mirage, Inc. company guaranty 9 3/4s, 2007 523,075 930,000 MGM Mirage, Inc. company guaranty 8 3/8s, 2011 940,463 910,000 Mohegan Tribal Gaming Authority sr. notes 8 1/8s, 2006 928,200 320,000 Mohegan Tribal Gaming Authority sr. sub. notes 8 3/4s, 2009 331,200 390,000 Mohegan Tribal Gaming Authority sr. sub. notes 8 3/8s, 2011 395,850 640,000 Park Place Entertainment Corp. sr. notes 7 1/2s, 2009 620,017 3,100,000 Park Place Entertainment Corp. sr. sub. notes 9 3/8s, 2007 3,274,375 ------------- 11,845,830 Health Care (--%) - ------------------------------------------------------------------------------------------------------------------- 930,000 HCA, Inc. deb. 7.19s, 2015 913,725 75,000 HCA, Inc. med. term notes 8.85s, 2007 81,000 1,220,000 HCA, Inc. med. term notes 8.7s, 2010 1,293,200 60,000 HCA, Inc. notes 7 1/4s, 2008 61,200 530,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007 (In default) (NON) 53 280,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 (In default) (NON) 28 1,280,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 (In default) (NON) 12,800 260,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-coupon Ser. B, zero % (10 1/2s, 11/1/02), 2007 (In default) (NON) (STP) 1,300 1,388,000 Multicare Companies, Inc. sr. sub. notes 9s, 2007 (In default) (NON) 139 140,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 149,598 ------------- 2,513,043 Homebuilding (0.1%) - ------------------------------------------------------------------------------------------------------------------- 2,710,000 D.R. Horton, Inc. company guaranty 8s, 2009 2,743,875 Investment Banking/Brokerage (0.3%) - ------------------------------------------------------------------------------------------------------------------- 5,120,000 Goldman Sachs Group, Inc (The) notes Ser. B, 7.35s, 2009 5,432,064 5,100,000 Merrill Lynch & Company, Inc. notes Ser. B, 5.36s, 2007 5,104,080 4,445,000 Morgan Stanley Dean Witter & Co. sr. notes 6 3/4s, 2011 4,577,861 ------------- 15,114,005 Lodging/Tourism (0.2%) - ------------------------------------------------------------------------------------------------------------------- 1,400,000 Felcor Lodging LP company guaranty 9 1/2s, 2008 (R) 1,452,500 2,160,000 Hilton Hotels Corp. notes 8 1/4s, 2011 2,173,934 4,670,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 4,529,900 ------------- 8,156,334 Manufacturing (0.2%) - ------------------------------------------------------------------------------------------------------------------- 9,915,000 Norsk Hydro ASA notes 6.36s, 2009 (Norway) 9,958,031 Media (0.2%) - ------------------------------------------------------------------------------------------------------------------- 10,200,000 AOL Time Warner, Inc. bonds 7 5/8s, 2031 10,545,474 Metals (0.1%) - ------------------------------------------------------------------------------------------------------------------- 2,835,000 AK Steel Corp. company guaranty 7 7/8s, 2009 2,799,563 90,550 Anker Coal Group, Inc. company guaranty Ser. B, 14 1/4s, 2007 (PIK) 38,937 ------------- 2,838,500 Natural Gas Utilities (0.1%) - ------------------------------------------------------------------------------------------------------------------- 7,610,000 Nisource Finance Corp. company guaranty 7 7/8s, 2010 7,848,421 Oil & Gas (0.9%) - ------------------------------------------------------------------------------------------------------------------- 3,820,000 Conoco Funding Co. company guaranty 6.35s, 2011 3,892,351 5,800,000 Conoco Funding Co. company guaranty 5.45s, 2006 5,832,538 1,540,000 El Paso Energy Partners L.P. company guaranty Ser. B, 8 1/2s, 2011 1,565,025 3,260,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 3,467,825 7,465,000 Louis Dreyfus Natural Gas Corp. notes 6 7/8s, 2007 7,699,177 660,000 Newfield Exploration Co. sr. notes 7 5/8s, 2011 646,800 630,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 659,749 9,590,000 Occidental Petroleum, Corp. 144A Structured Notes 6.019s, 2004 (issued by STEERS Credit Trust 2001) 9,829,750 6,155,000 Phillips Petroleum Co. notes 8 3/4s, 2010 7,199,811 640,000 Pioneer Natural Resources Co. company guaranty 9 5/8s, 2010 710,400 1,680,000 Port Arthur Finance Corp. company guaranty 12 1/2s, 2009 1,705,200 6,020,000 Union Oil Company of California company guaranty 7 1/2s, 2029 6,239,790 2,425,000 Union Pacific Resources Group, Inc. notes 7.3s, 2009 2,537,447 ------------- 51,985,863 Paper & Forest Products (0.1%) - ------------------------------------------------------------------------------------------------------------------- 1,310,000 Boise Cascade Corp. notes 7 1/2s, 2008 1,319,825 1,490,000 Georgia-Pacific Corp. notes 8 7/8s, 2031 1,326,741 790,000 Norampac, Inc. sr. notes 9 1/2s, 2008 (Canada) 825,550 ------------- 3,472,116 Power Producers (0.2%) - ------------------------------------------------------------------------------------------------------------------- 6,070,000 AES Corp. (The) sr. notes 9 3/8s, 2010 5,288,488 1,300,000 Calpine Corp. sr. notes 8 3/4s, 2007 1,059,500 4,290,000 Calpine Corp. sr. notes 8 1/2s, 2011 3,474,900 460,000 Calpine Corp. sr. notes 7 7/8s, 2008 377,200 200,000 Mirant Americas Generation, Inc. sr. notes 8.3s, 2011 178,000 737,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) (In default) (NON) 692,780 ------------- 11,070,868 Publishing (--%) - ------------------------------------------------------------------------------------------------------------------- 2,010,000 PRIMEDIA, Inc. company guaranty 8 7/8s, 2011 1,869,300 Railroads (0.1%) - ------------------------------------------------------------------------------------------------------------------- 6,705,000 Burlington Northern Santa Fe Corp. notes 7 1/8s, 2010 7,061,103 Real Estate (0.2%) - ------------------------------------------------------------------------------------------------------------------- 5,850,000 Simon Property Group LP 144A notes 6 3/8s, 2007 5,786,294 2,575,000 Tanger Properties, Ltd. company guaranty 7 7/8s, 2004 2,497,750 ------------- 8,284,044 Restaurants (0.1%) - ------------------------------------------------------------------------------------------------------------------- 1,060,000 Tricon Global Restaurants, Inc. sr. notes 8 7/8s, 2011 1,123,600 2,240,000 Tricon Global Restaurants, Inc. sr. notes 7.65s, 2008 2,251,200 ------------- 3,374,800 Retail (0.1%) - ------------------------------------------------------------------------------------------------------------------- 560,000 Dillards, Inc. notes 6.43s, 2004 501,771 1,555,000 J.C. Penney Co., Inc. notes 7.6s, 2007 1,485,025 695,000 Southland Corp. debs. Ser. A, 4 1/2s, 2004 649,269 1,710,000 Southland Corp. sr. sub. debs. 5s, 2003 1,638,129 ------------- 4,274,194 Shipping (--%) - ------------------------------------------------------------------------------------------------------------------- 11,184 Aran Shipping & Trading SA notes 8.3s, 2004 (Greece) 5,592 Software (--%) - ------------------------------------------------------------------------------------------------------------------- 280,000 Telehub Communications Corp. company guaranty 13 7/8s, 2005 (In default) (NON) 28 Technology (--%) - ------------------------------------------------------------------------------------------------------------------- 450,000 Flextronics International, Ltd. sr. sub. notes 9 7/8s, 2010 (Singapore) 486,000 330,000 Lucent Technologies, Inc. debs. 6.45s, 2029 226,050 300,000 Lucent Technologies, Inc. notes 7 1/4s, 2006 264,000 ------------- 976,050 Technology Services (0.1%) - ------------------------------------------------------------------------------------------------------------------- 230,000 Xerox Cap Europe PLC company guaranty 5 7/8s, 2004 (United Kingdom) 208,150 350,000 Xerox Corp. notes 5 1/2s, 2003 322,000 580,000 Xerox Corp. notes Ser. E, 5 1/4s, 2003 529,250 3,030,000 Xerox Corp. 144A sr. notes 9 3/4s, 2009 2,848,200 ------------- 3,907,600 Telecommunications (1.0%) - ------------------------------------------------------------------------------------------------------------------- 5,485,000 Calpoint Receivable Structured Trust 2001 144A bonds 7.44s, 2006 5,392,358 4,290,000 Cingular Wireless 144A notes 5 5/8s, 2006 4,304,758 9,690,000 France Telecom 144A notes 7 3/4s, 2011 (France) 10,346,594 9,515,000 Verizon Global Funding Corp. notes 7 1/4s, 2010 10,187,615 13,765,000 Verizon Wireless, Inc. 144A notes 5 3/8s, 2006 13,656,257 9,780,000 WorldCom, Inc.-WorldCom Group notes 7 1/2s, 2011 9,567,578 ------------- 53,455,160 Textiles (--%) - ------------------------------------------------------------------------------------------------------------------- 255,000 Kasper A.S.L., Ltd. sr. notes 12 3/4s, 2004 (In default) (NON) 56,100 530,000 Levi Strauss & Co. sr. notes 11 5/8s, 2008 528,675 ------------- 584,775 Tobacco (0.1%) - ------------------------------------------------------------------------------------------------------------------- 4,360,000 Philip Morris Companies, Inc. notes 7 1/4s, 2003 4,498,648 2,925,000 Philip Morris Companies, Inc. notes 7 1/8s, 2004 3,082,043 ------------- 7,580,691 Toys (--%) - ------------------------------------------------------------------------------------------------------------------- 590,000 Hasbro, Inc. notes 6.15s, 2008 536,900 Waste Management (0.1%) - ------------------------------------------------------------------------------------------------------------------- 6,294,000 Browning-Ferris deb. 7.4s, 2035 5,003,730 2,250,000 Waste Management, Inc. notes 6 5/8s, 2002 2,284,515 ------------- 7,288,245 Water Utilities (0.1%) - ------------------------------------------------------------------------------------------------------------------- 3,960,000 Azurix Corp. sr. notes Ser. B, 10 3/8s, 2007 3,128,400 ------------- Total Corporate Bonds and Notes (cost $684,232,063) $ 679,884,604 COLLATERALIZED MORTGAGE OBLIGATIONS (3.8%) (a) PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------- $ 52,217,000 Amortizing Residential Collateral Trust Ser. 01-BC6, Class AIO, Interest Only (IO), 6s, 2004 $ 4,063,135 2,414,189 Arc Net Interest Margin Trust FRN Ser. 01-5A, Class A, 9.76s, 2008 2,408,153 518,988 Arc Net Interest Margin Trust 144A Ser. 01-6A, Class A, 7 1/4s, 2031 513,798 11,367,276 Banc of America Commercial Mortgage, Inc. Ser. 01-PB1, Class XC, IO, 0.833s, 2035 486,661 2,346,016 Chase Commercial Mortgage Securities Corp. Ser. 98-1, Class A1, 6.34s, 2006 2,442,790 105,249,686 Commercial Mortgage Asset Trust Ser. 99-C1, Class X, IO, 0.92s, 2020 6,134,083 Countrywide Home Loan 5,768,800 Ser. 98-A12, Class A14, 8s, 2028 6,098,703 4,920,000 Ser. 98-3, Class A5, 6 3/4s, 2028 4,954,594 6,795,000 Countrywide Mortgage Backed Securities, Inc. Ser. 93-C, Class A8, 6 1/2s, 2024 6,735,680 12,260,000 Criimi Mae Commercial Mortgage Trust Ser. 98-C1, Class A2, 7s, 2011 12,374,938 4,850,000 Criimi Mae Commercial Mortgage Trust 144A Ser. 98-C1, Class B, 7s, 2011 4,344,539 CS First Boston Mortgage Securities Corp. 3,114,000 Ser. 1999-C1, Class E, 7.928s, 2009 3,324,541 3,094,932 Ser. 01-CK3, Class A1, 5.26s, 2006 3,163,742 Fannie Mae 4,501 Ser. 92-15, Class L, IO, 10.376s, 2022 116,665 14,673,563 Ser. 01-T8, Class A1, 7 1/2s, 2031 15,521,879 21,187,620 Ser. 01-T4, Class A1, 7 1/2s, 2028 22,412,530 5,303,684 Ser. 00-4, Class SX, 6 1/2s, 2023 5,303,684 120,995,722 Ser. 01-T12, IO, 0.5723s, 2041 2,022,897 89,795,000 Ser. 02-T1, IO, 0.429s, 2031 1,136,468 3,775,000 Ser. 02-T2 Principal Only (PO) zero %, July 25, 2041 2,595,313 16,070,000 FFCA Secured Lending Corp. 144A Ser. 00-1, Class A2, 7.77s, 2027 17,175,021 First Union National Bank Commercial Mortgage 144A 1,145,000 Ser. 01-C4, Class G, 6.937s, 2033 1,150,188 575,000 Ser. 01-C4, Class F, 6.79s, 2033 579,627 Freddie Mac 1,728,000 Ser. 2028, Class SG, IO, 10.998s, 2023 692,280 13,689,283 Ser. 204, IO, 6s, 2029 3,593,437 1,047,518 G-Force FRB Ser. 01-1, Class A, 4.18s, 2033 1,047,518 5,000,000 GE Capital Mortgage Services, Inc. Ser. 98-11, Class 2A4, 6 3/4s, 2028 5,029,900 9,818,359 General Growth Properties-Mall Properties Trust FRB Ser. 01-C1A, Class D3, 4.07s, 2014 9,818,359 883,724 General Growth Properties-Mall Properties Trust 144A Ser. 01-C1A, Class D2, 5.89s, 2011 853,697 6,685,000 GS Mortgage Securities Corp. II Ser. 01-LIB, Class A2, 6.615s, 2016 6,685,000 260,000 Host Marriott Pool Trust Ser. 99-HMTA, Class C, 7.73s, 2009 268,531 Housing Securities Inc. 852,568 Ser. 93-F, Class F9M2, 7s, 2023 854,637 131,003 Ser. 94-1, Class AB1, 6 1/2s, 2009 123,728 3,495,000 LB Commercial Conduit Mortgage Trust Ser. 1999-C2, Class B, 7.425s, 2009 3,737,425 LB-UBS Commercial Mortgage Trust 6,960,000 Ser. 00-C3, Class A2, 7.95s, 2010 7,701,690 8,470,000 Ser. 01-C7, Class A5, 6.133s, 2011 8,428,668 39,581,000 LB-UBS Commercial Mortgage Trust 144A Ser. 01-C7, Class XCL, IO, 0.711s, 2033 1,563,188 Merrill Lynch Mortgage Investors, Inc. 3,465,000 Ser. 96-C2, Class E, 6.96s, 2028 3,265,763 1,325,161 Ser. 98-C2, Class A1, 6.22s, 2030 1,367,815 50,148,213 Ser. 98-C2, IO, 1.538s, 2030 3,173,442 1,535,000 Morgan Stanley Dean Witter Capital I Ser. 00, Class B, 7.638s, 2010 1,665,715 Morgan Stanley Dean Witter Capital I 144A 1,294,880 FRB Ser. 01-XLF, Class D, 3.6s, 2013 1,292,678 834,976 FRB Ser. 01-XLF, Class E, 3.337s, 2013 825,207 984,739 Prudential Home Mortgage Securities Ser. 92-25, Class B3, 8s, 2022 994,660 Prudential Home Mortgage Securities 144A 188,481 Ser. 94-31, Class B3, 8s, 2009 191,279 513,267 Ser. 95-D, Class 5B, 7.54s, 2024 498,431 3,950,000 Residential Funding Mortgage Ser. 98-S13, Class A21, 6 3/4s, 2028 3,980,850 Ryland Mortgage Securities Corp. 1,035,296 Ser. 94-7C, Class B1, 7.359s, 2025 1,047,267 1,465,792 Ser. 94-7C, Class B1, 7.359s, 2025 1,481,610 2,200,000 Salomon Brothers Mortgage Securities VII Ser. 00-C1, Class G, 7.52s, 2010 2,241,250 326,372 Sears Mortgage Securities Ser. 93-7, Class T7, 7s, 2007 327,652 8,385,127 TIAA Retail Commercial Mortgage Trust Ser. 1999-1, Class A, 7.17s, 2032 8,843,793 ------------- Total Collateralized Mortgage Obligations (cost $199,734,406) $ 206,655,099 ASSET-BACKED SECURITIES (1.5%) (a) PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------- $ 3,082,000 Advanta Mortgage Loan Trust Ser. 00-1, Class A4, 8.61s, 2028 $ 3,281,899 Asset Backed Securities Corp. 33,000,000 Home Equity Loan Trust Ser. 02-HE1, Class AIO, IO, 6 1/2s, 2032 3,733,125 1,396,868 NIMS Trust Ser. 01-HE3, Class A, 7s, 2031 1,371,550 349,440,000 Bayview Financial Acquisition Trust Ser. 02-XA, Class AIO1, IO, 1.326s, 2005 5,077,800 Conseco Finance Securitizations Corp. 12,760,000 Ser. 00-4, Class A6, 8.31s, 2032 13,449,838 9,840,000 Ser. 00-5, Class A6, 7.96s, 2032 10,332,251 6,645,000 Ser. 01-04, Class A4, 7.36s, 2019 6,655,383 5,125,000 Ser. 01-3, Class A4, 6.91s, 2031 4,950,430 3,050,000 Ser. 01-4, Class B1, 9.4s, 2010 2,912,869 3,049,204 First Plus 144A Ser. 98-A, Class A, 8 1/2s, 2023 2,012,475 5,140,140 First Plus Home Loan Trust Ser. 97-3, Class B1, 7.79s, 2023 5,272,660 Lehman Manufactured Housing 1,156,000 Ser. 01-B, Class A6, 6.467s, 2028 1,099,414 38,652,180 Ser. 98-1, Class 1, 0.819s, 2028 869,674 1,925,391 Mid-State Trust Ser. 10, Class B, 7.54s, 2036 1,829,122 Morgan Stanley Dean Witter Capital I 1,180,000 Ser. 01-NC3, Class B1, FRN, 4.38s, 2031 1,180,000 1,540,000 Ser. 02-AM1, Class B1, FRN, 4.661s, 2032 1,533,744 4,924,000 Ser. 01-NC4, Class B1, FRN, 4.42s, 2032 4,805,824 3,860,000 Option One Mortgage Loan Trust Ser. 02-1, 6 3/4s, 2032 3,819,200 16,464,837 Structured Asset Security Corp. Ser. 98-RF3, IO, 2.621s, 2028 3,068,634 7,456,683 Xerox Equipment Lease Owner Trust 144A FRB Ser. 01-1, Class A, 3.896s, 2008 7,479,985 ------------- Total Asset-Backed Securities (cost $86,537,320) $ 84,735,877 CONVERTIBLE PREFERRED STOCKS (0.5%) (a) NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------------------------------------------- 38 Anker Coal Group, Inc. 14.25% cv. pfd. $ 190 47,500 Anthem, Inc. $6.00 cv. pfd 3,265,625 141,500 Ford Motor Company Capital Trust II $3.25 cumulative (cum.) cv. pfd. 7,800,188 67,900 Motorola, Inc. $7.00 cv. pfd. 2,949,576 148,700 TXU Corp. $4.375 cv. pfd 7,791,880 129,300 Williams Companies, Inc. (The) $2.25 cv. pfd. 2,747,625 94 World Access, Inc. 144A Ser. D, zero % cv. pfd. 24 28,700 Xerox Corp. 144A $7.50 cv. notes 2,134,706 ------------- Total Convertible Preferred Stocks (cost $25,404,268) $ 26,689,814 FOREIGN GOVERNMENT BONDS AND NOTES (0.3%) (a) PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------- $ 1,605,000 Ontario (Province of) sr. unsub. 5 1/2s, 2008 (Canada) $ 1,612,062 16,135,000 Quebec (Province of) sr. unsub. 5 3/4s, 2009 (Canada) 16,256,013 ------------- Total Foreign Government Bonds and Notes (cost $17,580,634) $ 17,868,075 PREFERRED STOCKS (0.2%) (a) NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------------------------------------------- 7,561 AmeriKing, Inc. $3.25 cum. pfd. (PIK) $ 76 27,755 California Federal Bancorp, Inc. Ser. A, $2.281 pfd. 709,140 6,155 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. (PIK) 341,603 3,799 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 404,593 6,381,000 First Union Capital II Ser. A, 7.95% pfd. 6,573,515 1,605 Fresenius Medical Capital Trust II 7.875% company guaranty pfd. (Germany) 1,605,000 1 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 8,500 ------------- Total Preferred Stocks (cost $9,209,758) $ 9,642,427 CONVERTIBLE BONDS AND NOTES (0.2%) (a) (cost $8,351,563) PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------- $ 8,245,000 Service Corp. International cv. sub. notes 6 3/4s, 2008 $ 8,531,102 WARRANTS (--%) (a) (NON) EXPIRATION NUMBER OF WARRANTS DATE VALUE - ------------------------------------------------------------------------------------------------------------------- 3 Anker Coal Group, Inc. 144A 10/28/09 $ 1 16,000 CGA Group, Ltd. 144A 2/11/07 160 6,037 Genesis Health Ventures, Inc. 10/1/02 13,884 180 McCaw International, Ltd. 4/15/07 2 685 Raintree Resort 144A 12/1/04 6 280 Telehub Communications Corp. 144A 7/31/05 1 625 UIH Australia/Pacific, Inc. 144A 5/15/06 6 6,728 United Artists Theatre 3/2/08 53,824 ------------- Total Warrants (cost $1,111,312) $ 67,884 SHORT-TERM INVESTMENTS (7.4%) (a) PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------- $ 122,762,762 Short-term investments held as collateral for loaned securities with yields ranging from 1.74% to 2.31% and due dates ranging from February 1, 2002 to March 28, 2002 (d) $ 122,622,750 20,000,000 BP Amoco Capital PLC effective yield of 1.92%, February 1, 2002 19,998,933 75,000,000 Citicorp effective yield of 1.785%, February 19, 2002 74,933,062 50,000,000 General Electric Capital Corp. effective yield of 1.76%, February 13, 2002 49,970,667 50,000,000 Jupiter Securities Corp. effective yield of 2.05%, February 7, 2002 49,985,417 50,000,000 Receivables Capital Corp. effective yield of 1.71%, February 6, 2002 49,988,125 39,121,000 Interest in $500,000,000 joint tri-party repurchase agreement dated January 31,2002 with Goldman Sachs and Co., Inc. due February 1, 2002 with respect to various U.S. Government obligations -- maturity value of $39,123,086 for an effective yield of 1.92% 39,121,000 ------------- Total Short-Term Investments (cost $406,619,954) $ 406,619,954 - ------------------------------------------------------------------------------------------------------------------- Total Investments (cost $5,722,203,055)(b) $5,867,376,071 - ------------------------------------------------------------------------------------------------------------------- (a) Percentages indicated are based on net assets of $5,498,783,324. (b) The aggregate identified cost on a tax basis is $5,759,449,714, resulting in gross unrealized appreciation and depreciation of $403,701,293 and $295,774,936, respectively, or net unrealized appreciation of $107,926,357. (NON) Non-income-producing security. (STP) The interest or dividend rate and date shown parenthetically represent the new interest or dividend rate to be paid and the date the fund will begin accruing interest or dividend income at this rate. (PIK) Income may be received in cash or additional securities at the discretion of the issuer. (SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for futures contracts at January 31, 2002. (R) Real Estate Investment Trust. (d) See footnote 1 to the financial statements. 144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. ADR after the name of a foreign holding stands for American Depositary Receipts representing ownership of foreign securities on deposit with a custodian bank. TBA after the name of a security represents to be announced securities (Note 1). The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interest rates shown at January 31, 2002, which are subject to change based on the terms of the security.
- ------------------------------------------------------------------------------ Futures Contracts Outstanding at January 31, 2002 (Unaudited) Unrealized Aggregate Face Expiration Appreciation/ Total Value Value Date (Depreciation) - ------------------------------------------------------------------------------ S&P 500 (Long) $93,540,788 $94,448,119 Mar-02 $ (907,331) U.S. Treasury Bonds (Short) 1,028,438 1,043,629 Mar-02 15,191 U.S. Treasury 2 Year Notes (Short) 94,637,500 93,977,467 Mar-02 (660,033) U.S. Treasury 5 Year Notes (Long) 26,201,297 26,188,837 Mar-02 12,460 U.S. Treasury 10 Year Notes (Short) 13,657,875 13,548,483 Mar-02 (109,392) - ------------------------------------------------------------------------------ $(1,649,105) - ------------------------------------------------------------------------------ TBA Sales Commitments at January 31, 2002 (Unaudited) (premium received $70,619,785) Principal Expiration Market Agency Amount Date Value - ------------------------------------------------------------------------------ FNMA, 6 1/2s, February 1, 2032 $ 3,384,000 2/13/02 $ 3,404,101 FNMA, 6s, February 1, 2032 68,250,000 2/13/02 67,140,937 - ------------------------------------------------------------------------------ $70,545,038 - ------------------------------------------------------------------------------ The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES January 31, 2002 (Unaudited) Assets - ------------------------------------------------------------------------------------------- Investments in securities, at value including $117,586,098 of securities on loan (identified cost $5,722,203,055) (Note 1) $5,867,376,071 - ------------------------------------------------------------------------------------------- Dividends, interest and other receivables 26,584,138 - ------------------------------------------------------------------------------------------- Receivable for shares of the fund sold 8,807,162 - ------------------------------------------------------------------------------------------- Receivable for securities sold 194,987,565 - ------------------------------------------------------------------------------------------- Receivable for variation margin (Note 1) 1,385,037 - ------------------------------------------------------------------------------------------- Total assets 6,099,139,973 Liabilities - ------------------------------------------------------------------------------------------- Payable to subcustiodian (Note 2) 2,156,039 - ------------------------------------------------------------------------------------------- Payable for securities purchased 370,432,057 - ------------------------------------------------------------------------------------------- Payable for shares of the fund repurchased 24,252,558 - ------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 6,576,799 - ------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 1,640,896 - ------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 69,090 - ------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 3,788 - ------------------------------------------------------------------------------------------- Payable for distribution fees (Note 2) 1,872,352 - ------------------------------------------------------------------------------------------- TBA sales commitments, at value (proceeds receivable $70,619,785) (Note 1) 70,545,038 - ------------------------------------------------------------------------------------------- Collateral on securities loaned, at value (Note 1) 122,622,750 - ------------------------------------------------------------------------------------------- Other accrued expenses 185,282 - ------------------------------------------------------------------------------------------- Total liabilities 600,356,649 - ------------------------------------------------------------------------------------------- Net assets $5,498,783,324 Represented by - ------------------------------------------------------------------------------------------- Paid-in capital (Notes 1 and 4) $5,416,504,468 - ------------------------------------------------------------------------------------------- Distributions in excess of net investment income (Note 1) (6,901,241) - ------------------------------------------------------------------------------------------- Accumulated net realized loss on investments and foreign currency transactions (Note 1) (54,418,561) - ------------------------------------------------------------------------------------------- Net unrealized appreciation of investments and assets and liabilities in foreign currencies 143,598,658 - ------------------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $5,498,783,324 Computation of net asset value and offering price - ------------------------------------------------------------------------------------------- Net asset value and redemption price per class A share ($3,274,712,131 divided by 196,505,784 shares) $16.66 - ------------------------------------------------------------------------------------------- Offering price per class A share (100/94.25 of $16.66)* $17.68 - ------------------------------------------------------------------------------------------- Net asset value and offering price per class B share ($1,137,090,380 divided by 68,918,442 shares)** $16.50 - ------------------------------------------------------------------------------------------- Net asset value and offering price per class C share ($46,996,724 divided by 2,834,125 shares)** $16.58 - ------------------------------------------------------------------------------------------- Net asset value and redemption price per class M share ($246,349,861 divided by 14,924,378 shares) $16.51 - ------------------------------------------------------------------------------------------- Offering price per class M share (100/96.50 of $16.51)* $17.11 - ------------------------------------------------------------------------------------------- Net asset value, offering price and redemption price per class Y share ($793,634,228 divided by 47,516,855 shares) $16.70 - ------------------------------------------------------------------------------------------- * On single retail sales of less than $50,000. On sales of $50,000 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, 2002 (Unaudited) Investment income: - ------------------------------------------------------------------------------------------- Interest $ 65,176,337 - ------------------------------------------------------------------------------------------- Dividends (net of foreign tax of $175,457) 33,283,187 - ------------------------------------------------------------------------------------------- Securities lending 121,930 - ------------------------------------------------------------------------------------------- Total investment income 98,581,454 - ------------------------------------------------------------------------------------------- Expenses: - ------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 12,990,957 - ------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 4,645,901 - ------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 33,814 - ------------------------------------------------------------------------------------------- Administrative services (Note 2) 23,187 - ------------------------------------------------------------------------------------------- Distribution fees -- Class A (Note 2) 3,963,908 - ------------------------------------------------------------------------------------------- Distribution fees -- Class B (Note 2) 5,827,899 - ------------------------------------------------------------------------------------------- Distribution fees -- Class C (Note 2) 210,143 - ------------------------------------------------------------------------------------------- Distribution fees -- Class M (Note 2) 935,518 - ------------------------------------------------------------------------------------------- Other 951,388 - ------------------------------------------------------------------------------------------- Total expenses 29,582,715 - ------------------------------------------------------------------------------------------- Expense reduction (Note 2) (319,044) - ------------------------------------------------------------------------------------------- Net expenses 29,263,671 - ------------------------------------------------------------------------------------------- Net investment income 69,317,783 - ------------------------------------------------------------------------------------------- Net realized loss on investments (Notes 1 and 3) (78,517,245) - ------------------------------------------------------------------------------------------- Net realized loss on futures contracts (Note 1) (16,753,684) - ------------------------------------------------------------------------------------------- Net realized loss on foreign currency transactions (Note 1) (2,947) - ------------------------------------------------------------------------------------------- Net unrealized depreciation of investments, TBA sale commitments and futures contracts during the period (79,984,137) - ------------------------------------------------------------------------------------------- Net loss on investments (175,258,013) - ------------------------------------------------------------------------------------------- Net decrease in net assets resulting from operations $(105,940,230) - ------------------------------------------------------------------------------------------- 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 2002* 2001 --------------------------------- Increase in net assets - -------------------------------------------------------------------------------------------------- Operations: - -------------------------------------------------------------------------------------------------- Net investment income $ 69,317,783 $ 156,686,641 - -------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments and foreign currency transactions (95,273,876) 161,260,696 - -------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investments and assets and liabilities in foreign currencies (79,984,137) 312,597,900 - -------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (105,940,230) 630,545,237 - -------------------------------------------------------------------------------------------------- Distributions to shareholders (Note 1): - -------------------------------------------------------------------------------------------------- From net investment income Class A (46,966,484) (99,576,511) - -------------------------------------------------------------------------------------------------- Class B (13,257,483) (29,391,469) - -------------------------------------------------------------------------------------------------- Class C (467,048) (673,390) - -------------------------------------------------------------------------------------------------- Class M (3,147,220) (6,471,915) - -------------------------------------------------------------------------------------------------- Class Y (12,157,132) (23,787,314) - -------------------------------------------------------------------------------------------------- From net realized gain on investments Class A -- (1,110,037) - -------------------------------------------------------------------------------------------------- Class B -- (428,151) - -------------------------------------------------------------------------------------------------- Class C -- (11,764) - -------------------------------------------------------------------------------------------------- Class M -- (89,049) - -------------------------------------------------------------------------------------------------- Class Y -- (263,181) - -------------------------------------------------------------------------------------------------- Increase (decrease) from capital share transactions (Note 4) 246,426,648 (105,930,074) - -------------------------------------------------------------------------------------------------- Total increase in net assets 64,491,051 362,812,382 Net assets - -------------------------------------------------------------------------------------------------- Beginning of period 5,434,292,273 5,071,479,891 - -------------------------------------------------------------------------------------------------- End of period (including distributions in excess of net investment income of $6,901,241 and $223,657, respectively) $5,498,783,324 $5,434,292,273 - -------------------------------------------------------------------------------------------------- * Unaudited. The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS A - ------------------------------------------------------------------------------------------------------------------ Six months ended Per-share January 31 operating performance (Unaudited) Year ended July 31 - ------------------------------------------------------------------------------------------------------------------ 2002 2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $17.24 $15.77 $18.49 $18.82 $18.95 $15.82 - ------------------------------------------------------------------------------------------------------------------ Investment operations: - ------------------------------------------------------------------------------------------------------------------ Net investment income .23(c) .52(c) .55(c) .57(c) .60 .60(c) - ------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments (.56) 1.49 (1.44) .90 1.08 4.11 - ------------------------------------------------------------------------------------------------------------------ Total from investment operations (.33) 2.01 (.89) 1.47 1.68 4.71 - ------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------ From net investment income (.25) (.53) (.58) (.55) (.60) (.67) - ------------------------------------------------------------------------------------------------------------------ From net realized gain on investments -- (.01) (1.25) (1.25) (1.21) (.91) - ------------------------------------------------------------------------------------------------------------------ Total distributions (.25) (.54) (1.83) (1.80) (1.81) (1.58) - ------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $16.66 $17.24 $15.77 $18.49 $18.82 $18.95 - ------------------------------------------------------------------------------------------------------------------ Total return at net asset value (%)(a) (1.91)* 12.86 (5.09) 8.33 9.53 31.52 - ------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $3,274,712 $3,176,287 $3,030,281 $3,937,264 $3,387,620 $2,607,562 - ------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) .47* .92 .93 .93 1.00 1.06 - ------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 1.38* 3.11 3.32 3.10 3.11 3.51 - ------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 61.22(d)* 333.46 140.92 127.68 126.19 134.80 - ------------------------------------------------------------------------------------------------------------------ * Not annualized. (a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) Includes amounts paid through brokerage service and expense offset arrangements (Note 2). (c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. (d) Portfolio turnover excludes certain treasury note transactions executed in connection with a short-term trading strategy.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS B - ------------------------------------------------------------------------------------------------------------------ Six months ended Per-share January 31 operating performance (Unaudited) Year ended July 31 - ------------------------------------------------------------------------------------------------------------------ 2002 2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $17.07 $15.62 $18.33 $18.67 $18.82 $15.74 - ------------------------------------------------------------------------------------------------------------------ Investment operations: - ------------------------------------------------------------------------------------------------------------------ Net investment income .17(c) .39(c) .42(c) .43(c) .46 .46(c) - ------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments (.55) 1.48 (1.43) .90 1.07 4.08 - ------------------------------------------------------------------------------------------------------------------ Total from investment operations (.38) 1.87 (1.01) 1.33 1.53 4.54 - ------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------ From net investment income (.19) (.41) (.45) (.42) (.47) (.55) - ------------------------------------------------------------------------------------------------------------------ From net realized gain on investments -- (.01) (1.25) (1.25) (1.21) (.91) - ------------------------------------------------------------------------------------------------------------------ Total distributions (.19) (.42) (1.70) (1.67) (1.68) (1.46) - ------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $16.50 $17.07 $15.62 $18.33 $18.67 $18.82 - ------------------------------------------------------------------------------------------------------------------ Total return at net asset value (%)(a) (2.24)* 12.02 (5.82) 7.55 8.72 30.46 - ------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $1,137,090 $1,199,676 $1,175,947 $1,641,515 $1,305,897 $888,666 - ------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) .85* 1.67 1.68 1.68 1.75 1.81 - ------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 1.01* 2.36 2.57 2.35 2.37 2.74 - ------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 61.22(d)* 333.46 140.92 127.68 126.19 134.80 - ------------------------------------------------------------------------------------------------------------------ * Not annualized. (a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) Includes amounts paid through brokerage service and expense offset arrangements (Note 2). (c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. (d) Portfolio turnover excludes certain treasury note transactions executed in connection with a short-term trading strategy.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS C - ---------------------------------------------------------------------------------------- Six months ended For the period Per-share January 31 July 26, 1999+ operating performance (Unaudited) Year ended July 31 to July 31 - ---------------------------------------------------------------------------------------- 2002 2001 2000 1999 - ---------------------------------------------------------------------------------------- Net asset value, beginning of period $17.16 $15.71 $18.49 $18.76 - ---------------------------------------------------------------------------------------- Investment operations: - ---------------------------------------------------------------------------------------- Net investment income (loss)(c) .16 .39 .42 --(e) - ---------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (.55) 1.49 (1.44) (.27) - ---------------------------------------------------------------------------------------- Total from investment operations (.39) 1.88 (1.02) (.27) - ---------------------------------------------------------------------------------------- Less distributions: - ---------------------------------------------------------------------------------------- From net investment income (.19) (.42) (.51) -- - ---------------------------------------------------------------------------------------- From net realized gain on investments -- (.01) (1.25) -- - ---------------------------------------------------------------------------------------- Total distributions (.19) (.43) (1.76) -- - ---------------------------------------------------------------------------------------- Net asset value, end of period $16.58 $17.16 $15.71 $18.49 - ---------------------------------------------------------------------------------------- Total return at net asset value (%)(a) (2.26)* 12.02 (5.82) (1.44)* - ---------------------------------------------------------------------------------------- Ratios and supplemental data - ---------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $46,997 $37,453 $20,642 $565 - ---------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(b) .85* 1.67 1.68 .03* - ---------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) 1.00* 2.32 2.60 (.03)* - ---------------------------------------------------------------------------------------- Portfolio turnover (%) 61.22(d)* 333.46 140.92 127.68 - ---------------------------------------------------------------------------------------- + Commencement of operations. * Not annualized. (a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) Includes amounts paid through brokerage service and expense offset arrangements (Note 2). (c) Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding during the period. (d) Portfolio turnover excludes certain treasury note transactions executed in connection with a short-term trading strategy. (e) Amount represents less than $0.01 per share.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS M - ------------------------------------------------------------------------------------------------------------------ Six months ended Per-share January 31 operating performance (Unaudited) Year ended July 31 - ------------------------------------------------------------------------------------------------------------------ 2002 2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $17.08 $15.63 $18.33 $18.67 $18.82 $15.74 - ------------------------------------------------------------------------------------------------------------------ Investment operations: - ------------------------------------------------------------------------------------------------------------------ Net investment income .19(c) .43(c) .46(c) .47(c) .51 .53(c) - ------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments (.55) 1.48 (1.42) .90 1.06 4.06 - ------------------------------------------------------------------------------------------------------------------ Total from investment operations (.36) 1.91 (.96) 1.37 1.57 4.59 - ------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------ From net investment income (.21) (.45) (.49) (.46) (.51) (.60) - ------------------------------------------------------------------------------------------------------------------ From net realized gain on investments -- (.01) (1.25) (1.25) (1.21) (.91) - ------------------------------------------------------------------------------------------------------------------ Total distributions (.21) (.46) (1.74) (1.71) (1.72) (1.51) - ------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $16.51 $17.08 $15.63 $18.33 $18.67 $18.82 - ------------------------------------------------------------------------------------------------------------------ Total return at net asset value (%)(a) (2.11)* 12.31 (5.52) 7.80 8.98 30.83 - ------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $246,350 $252,802 $223,246 $293,336 $276,962 $187,475 - ------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) .72* 1.42 1.43 1.43 1.50 1.56 - ------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 1.13* 2.60 2.82 2.61 2.62 3.05 - ------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 61.22(d)* 333.46 140.92 127.68 126.19 134.80 - ------------------------------------------------------------------------------------------------------------------ * Not annualized. (a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) Includes amounts paid through brokerage service and expense offset arrangements (Note 2). (c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. (d) Portfolio turnover excludes certain treasury note transactions executed in connection with a short-term trading strategy.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS Y - ------------------------------------------------------------------------------------------------------------------ Six months ended Per-share January 31 operating performance (Unaudited) Year ended July 31 - ------------------------------------------------------------------------------------------------------------------ 2002 2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $17.28 $15.80 $18.53 $18.85 $18.98 $15.85 - ------------------------------------------------------------------------------------------------------------------ Investment operations: - ------------------------------------------------------------------------------------------------------------------ Net investment income .25(c) .56(c) .60(c) .62(c) .64 .64(c) - ------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments (.56) 1.50 (1.46) .91 1.09 4.11 - ------------------------------------------------------------------------------------------------------------------ Total from investment operations (.31) 2.06 (.86) 1.53 1.73 4.75 - ------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------ From net investment income (.27) (.57) (.62) (.60) (.65) (.71) - ------------------------------------------------------------------------------------------------------------------ From net realized gain on investments -- (.01) (1.25) (1.25) (1.21) (.91) - ------------------------------------------------------------------------------------------------------------------ Total distributions (.27) (.58) (1.87) (1.85) (1.86) (1.62) - ------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $16.70 $17.28 $15.80 $18.53 $18.85 $18.98 - ------------------------------------------------------------------------------------------------------------------ Total return at net asset value (%)(a) (1.77)* 13.18 4.89 8.63 9.79 31.78 - ------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $793,634 $768,075 $621,363 $744,552 $471,176 $356,251 - ------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) .35* .67 .68 .68 .75 .81 - ------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 1.50* 3.35 3.57 3.33 3.37 3.74 - ------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 61.22(d)* 333.46 140.92 127.68 126.19 134.80 - ------------------------------------------------------------------------------------------------------------------ * Not annualized. (a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) Includes amounts paid through brokerage service and expense offset arrangements (Note 2). (c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. (d) Portfolio turnover excludes certain treasury note transactions executed in connection with a short-term trading strategy.
NOTES TO FINANCIAL STATEMENTS January 31, 2002 (Unaudited) Note 1 Significant accounting policies The George Putnam Fund of Boston (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 comprised 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 C, class M and class Y shares. Class A shares are sold with a maximum front-end sales charge of 5.75%. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge but pay a higher ongoing distribution fee than class A shares, and are subject to a contingent deferred sales charge, if those shares are redeemed within six years of purchase. Class C shares are subject to the same fees and expenses as class B shares, except that class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. Class M shares are sold with a maximum front-end sales charge of 3.50% and pay an ongoing distribution fee that is higher than class A shares but lower than class B and class C shares. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C and class M shares, but do not bear a distribution fee. Class Y shares are sold to defined contribution plans that invest at least $150 million in a combination of Putnam funds and other accounts managed by affiliates of Putnam Investment Management, LLC ("Putnam Management"), the fund's manager, an indirect wholly-owned subsidiary of Putnam LLC. Expenses of the fund are borne pro-rata by the holders of each class of shares, except that each class bears expenses unique to that class (including the distribution fees applicable to such class). Each class votes as a class only with respect to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. Shares of each class would receive their pro-rata share of the net assets of the fund, if that fund were liquidated. In addition, the Trustees declare separate dividends on each class of shares. The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. A) Security valuation Investments for which market quotations are readily available are stated at market value, which is determined using the last reported sales price on its principal exchange, or if no sales are reported -- as in the case of some securities traded over-the-counter -- the last reported bid price. Market quotations are not considered to be readily available for certain debt obligations; such investments are stated at fair value on the basis of valuations furnished by an independent pricing service or dealers, approved by the Trustees, which determine valuations for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and variable relationships, generally recognized by institutional traders, between securities. Short-term investments having remaining maturities of 60 days or less are stated at amortized cost, which approximates market value. Other investments, including restricted securities, are stated at fair value following procedures approved by the Trustees. B) Joint trading account The fund may transfer uninvested cash balances, including cash collateral received under security lending arrangements, into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Management. These balances may be invested in one or more repurchase agreements and/or short-term money market instruments. C) Repurchase agreements The fund, or any joint trading account, through its custodian, receives delivery of the underlying securities, the market value of which at the time of purchase is required to be in an amount at least equal to the resale price, including accrued interest. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the fund and the counterparty. Putnam Management is responsible for determining that the value of these underlying securities is at all times at least equal to the resale price, including accrued interest. D) Security transactions and related investment income Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recorded as soon as the fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. All premiums/discounts are amortized/ accreted on a yield-to-maturity basis. The premium in excess of the call price, if any, is amortized to the call date; thereafter, the remaining excess premium is amortized to maturity. E) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, and other assets and liabilities are recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when accrued or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on closed forward currency contracts, disposition of foreign currencies and the difference between the amount of investment income and foreign withholding taxes recorded on the fund's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign currencies arise from changes in the value of open forward currency contracts and assets and liabilities other than investments at the period end, resulting from changes in the exchange rate. Investments in foreign securities involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations, not present with domestic investments. F) Futures and options contracts The fund may use futures and options contracts to hedge against changes in the values of securities the fund owns or expects to purchase. The fund may also write options on securities it owns or in which it may invest to increase its current returns. The potential risk to the fund is that the change in value of futures and options contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts, or if the counterparty to the contract is unable to perform. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. The Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the futures contract. Such receipts or payments are known as "variation margin." Exchange traded options are valued at the last sale price, or if no sales are reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by dealers. G) TBA purchase commitments The fund may enter into "TBA" (to be announced) purchase commitments to purchase securities for a fixed unit price at a future date beyond customary settlement time. Although the unit price has been established, the principal value has not been finalized. However, the amount of the commitments will not fluctuate more than 0.01% from the principal amount. The fund holds, and maintains until settlement date, cash or high-grade debt obligations in an amount sufficient to meet the purchase price, or the fund may enter into offsetting contracts for the forward sale of other securities it owns. Income on the securities will not be earned until settlement date. TBA purchase commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date, which risk is in addition to the risk of decline in the value of the fund's other assets. Unsettled TBA purchase commitments are valued at the current market value of the underlying securities, according to the procedures described under "Security valuation" above. Although the fund will generally enter into TBA purchase commitments with the intention of acquiring securities for their portfolio or for delivery pursuant to options contracts it has entered into, the fund may dispose of a commitment prior to settlement if Putnam Management deems it appropriate to do so. H) TBA sale commitments The fund may enter into TBA sale commitments to hedge its portfolio positions or to sell mortgage-backed securities it owns under delayed delivery arrangements. Proceeds of TBA sale commitments are not received until the contractual settlement date. During the time a TBA sale commitment is outstanding, equivalent deliverable securities, or an offsetting TBA purchase commitment deliverable on or before the sale commitment date, are held as "cover" for the transaction. Unsettled TBA sale commitments are valued at the current market value of the underlying securities, generally according to the procedures described under "Security valuation" above. The contract is "marked-to-market" daily and the change in market value is recorded by the fund as an unrealized gain or loss. If the TBA sale commitment is closed through the acquisition of an offsetting purchase commitment, the fund realizes a gain or loss. If the fund delivers securities under the commitment, the fund realizes a gain or a loss from the sale of the securities based upon the unit price established at the date the commitment was entered into. I) Security lending The fund may lend securities, through its agent Citibank N.A., to qualified borrowers in order to earn additional income. The loans are collateralized by cash and/or securities in an amount at least equal to the market value of the securities loaned. The market value of securities loaned is determined daily and any additional required collateral is allocated to the fund on the next business day. The risk of borrower default will be borne by Citibank N.A., the fund will bear the risk of loss with respect to the investment of the cash collateral. Income from securities lending is included in investment income on the Statement of operations. At January 31, 2002, the value of securities loaned amounted to $117,586,098. The fund received cash collateral of $122,622,750, which is pooled with collateral of other Putnam funds into 55 issuers of high-grade short-term investments. J) Line of credit The fund has entered into a committed line of credit with certain banks. This line of credit agreement includes restrictions that the fund maintains an asset coverage ratio of at least 300% and borrowings must not exceed prospectus limitations. For the six months ended January 31, 2002, the fund had no borrowings against the line of credit. K) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Internal Revenue Code of 1986, as amended. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains. L) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Distributions from capital gains, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. Note 2 Management fee, administrative services, and other transactions Compensation of Putnam Management, for management and investment advisory services is paid quarterly based on the average net assets of the fund. Such fee is based on the following annual rates: 0.65% of the first $500 million of average net assets, 0.55% of the next $500 million, 0.50% of the next $500 million, 0.45% of the next $5 billion, 0.425% of the next $5 billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion and 0.38% thereafter. The fund reimburses Putnam Management an allocated amount for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees. Custodial functions for the fund's assets are provided by Putnam Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam LLC. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. Under the subcustodian contract between the subcustodian bank and PFTC, the subcustodian bank has a lien on the securities of the fund to the extent permitted by the fund's investment restrictions to cover any advances made by the subcustodian bank for the settlement of securities purchased by the fund. At January 31, 2002, the payable to the subcustodian bank represents the amount due for cash advance for the settlement of a security purchased. The fund has entered into an arrangement with PFTC whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the fund's expenses. The fund also reduced expenses through brokerage service arrangements. For the six months ended January 31, 2002, the fund's expenses were reduced by $319,044 under these arrangements. Each independent Trustee of the fund receives an annual Trustee fee, of which $3,417 has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees receive additional fees for attendance at certain committee meetings. The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which allows the Trustees to defer the receipt of all or a portion of Trustees Fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan. The fund has adopted an unfunded noncontributory defined benefit pension plan (the "Pension Plan") covering all Trustees of the fund who have served as a Trustee for at least five years. Benefits under the Pension Plan are equal to 50% of the Trustee's average total retainer and meeting fees for the three years preceding retirement. Pension expense for the fund is included in Compensation of Trustees in the Statement of operations. Accrued pension liability is included in Payable for compensation of Trustees in the Statement of assets and liabilities. The fund has adopted distribution plans (the "Plans") with respect to its class A, class B, class C and class M shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam Retail Management, a wholly-owned subsidiary of Putnam LLC and Putnam Retail Management GP, Inc. for services provided and expenses incurred by it in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management at an annual rate up to 0.35%, 1.00%, 1.00% and 1.00% of the average net assets attributable to class A, class B, class C and class M shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00% and 0.75% of the average net assets attributable to class A, class B, class C and class M shares, respectively. For the six months ended January 31, 2002, Putnam Retail Management, acting as underwriter received net commissions of $424,186 and $6,308 from the sale of class A and class M shares, respectively, and received $876,885 and $3,290 in contingent deferred sales charges from redemptions of class B and class C shares, respectively. A deferred sales charge of up to 1.00% and 0.65% is assessed on certain redemptions of class A and class M shares, respectively. For the six months ended January 31, 2002, Putnam Retail Management, acting as underwriter received $7,781 and no monies on class A and class M redemptions, respectively. Note 3 Purchases and sales of securities During the six months ended January 31, 2002, cost of purchases and proceeds from sales of investment securities other than U.S. government obligations and short-term investments aggregated $2,463,851,572 and $2,156,422,624, respectively. Purchases and sales of U.S. government obligations aggregated $3,712,276,429 and $3,903,091,591, respectively. Note 4 Capital shares At January 31, 2002, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: Six months ended January 31, 2002 - --------------------------------------------------------------------------- Class A Shares Amount - --------------------------------------------------------------------------- Shares sold 30,850,640 $509,411,332 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 2,570,621 43,055,895 - --------------------------------------------------------------------------- 33,421,261 552,467,227 Shares repurchased (21,150,827) (349,151,621) - --------------------------------------------------------------------------- Net increase 12,270,434 $203,315,606 - --------------------------------------------------------------------------- Year ended July 31, 2001 - --------------------------------------------------------------------------- Class A Shares Amount - --------------------------------------------------------------------------- Shares sold 40,741,462 $ 687,242,385 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 5,902,524 99,705,341 - --------------------------------------------------------------------------- 46,643,986 786,947,726 Shares repurchased (54,554,286) (920,648,179) - --------------------------------------------------------------------------- Net decrease (7,910,300) $(133,700,453) - --------------------------------------------------------------------------- Six months ended January 31, 2002 - --------------------------------------------------------------------------- Class B Shares Amount - --------------------------------------------------------------------------- Shares sold 7,809,996 $127,707,199 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 746,122 12,390,656 - --------------------------------------------------------------------------- 8,556,118 140,097,855 Shares repurchased (9,910,370) (161,633,066) - --------------------------------------------------------------------------- Net decrease (1,354,252) $(21,535,211) - --------------------------------------------------------------------------- Year ended July 31, 2001 - --------------------------------------------------------------------------- Class B Shares Amount - --------------------------------------------------------------------------- Shares sold 11,797,739 $197,620,503 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 1,670,131 27,938,692 - --------------------------------------------------------------------------- 13,467,870 225,559,195 Shares repurchased (18,472,064) (307,492,091) - --------------------------------------------------------------------------- Net decrease (5,004,194) $(81,932,896) - --------------------------------------------------------------------------- Six months ended January 31, 2002 - --------------------------------------------------------------------------- Class C Shares Amount - --------------------------------------------------------------------------- Shares sold 829,632 $13,680,878 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 26,284 438,369 - --------------------------------------------------------------------------- 855,916 14,119,247 Shares repurchased (204,053) (3,348,938) - --------------------------------------------------------------------------- Net increase 651,863 $10,770,309 - --------------------------------------------------------------------------- Year ended July 31, 2001 - --------------------------------------------------------------------------- Class C Shares Amount - --------------------------------------------------------------------------- Shares sold 1,218,314 $20,514,563 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 38,991 658,541 - --------------------------------------------------------------------------- 1,257,305 21,173,104 Shares repurchased (388,740) (6,502,776) - --------------------------------------------------------------------------- Net increase 868,565 $14,670,328 - --------------------------------------------------------------------------- Six months ended January 31, 2002 - --------------------------------------------------------------------------- Class M Shares Amount - --------------------------------------------------------------------------- Shares sold 1,535,459 $25,217,483 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 187,012 3,105,496 - --------------------------------------------------------------------------- 1,722,471 28,322,979 Shares repurchased (1,599,221) (26,193,427) - --------------------------------------------------------------------------- Net increase 123,250 $ 2,129,552 - --------------------------------------------------------------------------- Year ended July 31, 2001 - --------------------------------------------------------------------------- Class M Shares Amount - --------------------------------------------------------------------------- Shares sold 3,702,786 $62,108,571 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 386,039 6,462,872 - --------------------------------------------------------------------------- 4,088,825 68,571,443 Shares repurchased (3,571,223) (59,738,719) - --------------------------------------------------------------------------- Net increase 517,602 $ 8,832,724 - --------------------------------------------------------------------------- Six months ended January 31, 2002 - --------------------------------------------------------------------------- Class Y Shares Amount - --------------------------------------------------------------------------- Shares sold 8,060,452 $134,411,415 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 724,382 12,157,132 - --------------------------------------------------------------------------- 8,784,834 146,568,547 Shares repurchased (5,716,609) (94,822,155) - --------------------------------------------------------------------------- Net increase 3,068,225 $ 51,746,392 - --------------------------------------------------------------------------- Year ended July 31, 2001 - --------------------------------------------------------------------------- Class Y Shares Amount - --------------------------------------------------------------------------- Shares sold 15,602,604 $263,525,503 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 1,422,240 24,050,495 - --------------------------------------------------------------------------- 17,024,844 287,575,998 Shares repurchased (11,892,032) (201,375,775) - --------------------------------------------------------------------------- Net increase 5,132,812 $ 86,200,223 - --------------------------------------------------------------------------- Note 5 New accounting pronouncement As required, effective January 1, 2001, the fund has adopted the provisions of the AICPA Audit and Accounting Guide, Audits of Investment Companies. This Guide requires that the fund amortize premium and accrete discount on all fixed-income securities, and classify as interest income gains and losses realized on paydowns on mortgage-backed securities. Prior to January 1, 2001, the fund did not amortize premium and accrete discounts for certain fixed income securities and characterized as realized gains and losses paydowns on mortgage backed securities. Adopting these accounting principles will not affect the fund's net asset value, but will change the classification of certain amounts between interest income and realized and unrealized gain/loss in the Statement of operations. The adoption of this principle is not material to the financial statements. THE PUTNAM FAMILY OF FUNDS The following is a complete list of Putnam's open-end mutual funds. Please call your financial advisor or Putnam at 1-800-225-1581 to obtain a prospectus for any Putnam fund. It contains more complete information, including charges and expenses. Please read it carefully before you invest or send money. GROWTH FUNDS Asia Pacific Growth Fund Capital Appreciation Fund Capital Opportunities Fund Europe Growth Fund Global Equity Fund Global Growth Fund Global Natural Resources Fund Growth Opportunities Fund Health Sciences Trust International Growth Fund International New Opportunities Fund Investors Fund New Century Growth Fund New Opportunities Fund OTC & Emerging Growth Fund Research Fund Tax Smart Equity Fund Technology Fund Vista Fund Voyager Fund Voyager Fund II GROWTH AND INCOME FUNDS Balanced Fund Balanced Retirement Fund Classic Equity Fund * Convertible Income-Growth Trust Equity Income Fund The George Putnam Fund of Boston Global Growth and Income Fund The Putnam Fund for Growth and Income International Growth and Income Fund Mid Cap Value Fund New Value Fund Small Cap Value Fund Utilities Growth and Income Fund INCOME FUNDS American Government Income Fund Diversified Income Trust Global Governmental Income Trust High Yield Advantage Fund [DBL. DAGGER] High Yield Trust [DBL. DAGGER] High Yield Trust II Income Fund Intermediate U.S. Government Income Fund Money Market Fund ** Preferred Income Fund Strategic Income Fund U.S. Government Income Trust TAX-FREE INCOME FUNDS Municipal Income Fund Tax Exempt Income Fund Tax Exempt Money Market Fund ** Tax-Free High Yield Fund Tax-Free Insured Fund State tax-free income funds [SECTION MARK] Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey, New York, Ohio and Pennsylvania State tax-free money market funds [SECTION MARK] ** California, New York ASSET ALLOCATION FUNDS Putnam Asset Allocation Funds--three investment portfolios that spread your money across a variety of stocks, bonds, and money market investments. The three portfolios: Asset Allocation: Balanced Portfolio Asset Allocation: Conservative Portfolio Asset Allocation: Growth Portfolio * Formerly Putnam Growth and Income Fund II [DBL. DAGGER] Closed to new investors. Some exceptions may apply. Contact Putnam for details. [SECTION MARK] Not available in all states. ** An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the funds seek to preserve your investment at $1.00 per share, it is possible to lose money by investing in the fund. Check your account balances and current performance at www.putnaminvestments.com. PUTNAM IS A LEADER IN GLOBAL MONEY MANAGEMENT Putnam Investments traces its heritage to the early 19th century when ship captains hired trustees to manage their money while they were away at sea. In a landmark 1830 decision that involved one such trustee, Massachusetts Supreme Judicial Court Justice Samuel Putnam established The Prudent Man Rule, a legal foundation for responsible money management. In 1937, his great-great grandson founded Putnam with The George Putnam Fund of Boston, the first fund to offer a balanced portfolio of stocks and bonds. Today, Putnam Investments is one of the largest investment management firms in the world, and this balanced approach remains the foundation of everything we do. With more than 60 years of experience, Putnam now has over $339 billion in assets under management, 124 mutual funds, over 14 million shareholder accounts, and nearly 3,000 institutional and 401(k) clients. We're one of the largest mutual fund companies in the United States. Putnam has won the DALBAR award for service ten times in the past eleven years. Putnam offers products in every investment category, including growth, value, and blend as well as international and fixed-income. Teamwork is a cornerstone of Putnam's investment philosophy. Our funds are managed by teams in a collaborative environment that promotes an active exchange of information. Putnam's disciplined investment philosophy is based on style consistency. We aim for less volatility over the short term and strong, consistent performance over time. Our truth in labeling approach ensures that we adhere to every fund's stated objective, style, and risk positioning. We are committed to the role of the financial advisor, who continually provides sound, sensible guidance, information, and expertise to help investors reach their financial goals. FUND INFORMATION ABOUT PUTNAM INVESTMENTS One of the largest mutual fund families in the United States, Putnam Investments has a heritage of investment leadership dating back to Judge Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition and practice since 1830. Founded 65 years ago, Putnam Investments was built around the concept that a balance between risk and reward is the hallmark of a well-rounded financial program. We presently manage over 100 mutual funds in growth, value, blend, fixed income, and international. INVESTMENT MANAGER Putnam Investment Management, LLC One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Retail Management One Post Office Square Boston, MA 02109 CUSTODIAN Putnam Fiduciary Trust Company LEGAL COUNSEL Ropes & Gray TRUSTEES John A. Hill, Chairman Jameson Adkins Baxter Charles B. Curtis Ronald J. Jackson Paul L. Joskow Elizabeth T. Kennan Lawrence J. Lasser John H. Mullin III Robert E. Patterson George Putnam, III A.J.C. Smith W. Thomas Stephens W. Nicholas Thorndike OFFICERS George Putnam, III President Charles E. Porter Executive Vice President and Treasurer Patricia C. Flaherty Senior Vice President Lawrence J. Lasser Vice President Gordon H. Silver Vice President Ian C. Ferguson Vice President Brett C. Browchuk Vice President Stephen Oristaglio Vice President Deborah F. Kuenstner Vice President Richard G. Leibovitch Vice President John R. Verani Vice President 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 and Putnam's Quarterly Ranking Summary. For more information or to request a prospectus, call toll free: 1-800-225-1581. The fund's Statement of Additional Information contains additional information about the fund's Trustees and is available without charge upon request by calling 1-800-225-1581. Visit www.putnaminvestments.com or call a representative at 1-800-225-1581. NOT FDIC INSURED, MAY LOSE VALUE, NO BANK GUARANTEE PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 - --------------------- PRSRT STD U.S. POSTAGE PAID PUTNAM INVESTMENTS - --------------------- For account balances, economic forecasts, and the latest on Putnam funds, visit www.putnaminvestments.com SA021-79246 001/880/242 3/02 PUTNAM INVESTMENTS [SCALE LOGO OMITTED] - ---------------------------------------------------------------------------- The George Putnam Fund of Boston Supplement to semiannual Report dated 1/31/02 The following information has been prepared to provide class Y shareholders with a performance overview specific to their holdings. Class Y shares are offered exclusively to clients that meet the eligibility requirements specified in the fund's prospectus for such shares. Performance of class Y shares, which incur neither a front-end load, distribution fee, nor contingent deferred sales charge, will differ from performance of class A, B, C, and M shares, which are discussed more extensively in the annual report. SEMIANNUAL RESULTS AT A GLANCE - ---------------------------------------------------------------------------- Total return for periods ended 1/31/02 NAV 6 months -1.77% 1 year -0.52 5 years 44.10 Annual average 7.58 10 years 173.20 Annual average 10.57 Life of fund (since class A inception, 11/5/37) Annual average 9.68 Share value: NAV 7/31/01 $17.28 1/31/02 $16.70 - ---------------------------------------------------------------------------- Distributions: No. Income Capital gains Total 2 $0.274 -- $0.274 - ---------------------------------------------------------------------------- Please note that past performance is not indicative of future results. More recent returns may be more or less than those shown. Returns shown for class Y shares for periods prior to their inception are derived from the historical performance of class A shares, adjusted to reflect the initial sales charge currently applicable to class A shares. These returns have not been adjusted to reflect differences in operating expenses which, for class Y shares, typically are lower than the operating expenses applicable to class A shares. All returns assume reinvestment of distributions at net asset value. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. See full report for information on comparative benchmarks. If you have questions, please consult your fund prospectus or call Putnam toll free at 1-800-752-9894. -----END PRIVACY-ENHANCED MESSAGE-----