-----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, THtzCUxkedJOD5A5JdZuaQplBAv/k93kM/mo/tLp7vE4ijDdQHC2tUtut28R2SEp sheiOxgF/OI4R9RdzycfJw== 0000928816-96-000098.txt : 19960405 0000928816-96-000098.hdr.sgml : 19960405 ACCESSION NUMBER: 0000928816-96-000098 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960131 FILED AS OF DATE: 19960404 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEORGE PUTNAM FUND OF BOSTON CENTRAL INDEX KEY: 0000081259 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 046407893 STATE OF INCORPORATION: MA FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-00058 FILM NUMBER: 96544494 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQ STREET 2: MAILSTOP A 14 CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 8002252581 FORMER COMPANY: FORMER CONFORMED NAME: PUTNAM EQUITY INCOME FUND/NEW DATE OF NAME CHANGE: 19940302 FORMER COMPANY: FORMER CONFORMED NAME: PUTNAM GEORGE FUND OF BOSTON DATE OF NAME CHANGE: 19920703 N-30D 1 GEORGE PUTNAM FUND OF BOSTON The George Putnam Fund of Boston SEMIANNUAL REPORT January 31, 1996 [GRAPHIC OMITTED: Putnam Scales Logo] BOSTON * LONDON * TOKYO Fund highlights * "Put simply, The George Putnam Fund of Boston is beating its peers like it never has before. It has scored some of the balanced group's very best returns over the past two years."* -- Morningstar Mutual Funds, January 19, 1996 * For the year ended January 31, 1996, The George Putnam Fund of Boston, class A shares, were ranked 27 out of 237 balanced funds for total- return performance -- placing them in the top 12% -- according to Lipper Analytical Services. Over the same period, the fund's class M and class B shares were ranked 36 and 41, respectively, out of 237 funds, placing both share classes within the top 18% of balanced funds tracked.+ CONTENTS 4 Report from Putnam Management 8 Fund performance summary 12 Portfolio holdings 27 Financial statements *For the year ended 12/31/94, the average total return of the 262 balanced funds tracked by Morningstar was -2.81% versus total returns at net asset value (NAV) of -0.38% and -1.02% for The George Putnam Fund of Boston's class A and class B shares, respectively. For the year ended 12/31/95, the average total return of the 299 balanced funds tracked by Morningstar was 24.82% versus total returns at NAV of 30.12%, 29.07%, and 29.34% for The George Putnam Fund of Boston's class A, class B, and class M shares, respectively. Past performance is not indicative of future results. +Lipper rankings are based on total-return performance, vary over time, and do not reflect the effects of sales charges. For periods ended 1/31/96, the fund's class A shares were ranked 21 out of 62 funds for 5- year performance and 6 out of 31 funds for 10-year performance. The fund's class B shares were ranked 21 out of 103 funds for 3-year performance and were not ranked over periods exceeding 3 years. The fund's class M shares were not ranked over periods exceeding 1 year. Past performance is not indicative of future results. [GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM] (copyright) Karsh, Ottawa From the Chairman Dear Shareholder: The first half of The George Putnam Fund of Boston's current fiscal year fell squarely within one of the most exuberant market environments in recent memory. The extent of the rise in both stocks and bonds, along with management's adept positioning within those markets, is clearly reflected in your fund's performance during the six months ended January 31, 1996. Quite naturally, we are pleased with the results. However, as recent events have demonstrated, favorable conditions like these do not last indefinitely. It would be realistic to expect some moderation in the pace of the advance and further corrections from time to time during the second half of fiscal 1996. Putnam Management believes the prospect of a slower economy still has the potential to cool equity investors' ardor a bit. As a result, financial markets may be in for some additional near-term volatility. Nevertheless, your fund's management team believes both stocks and bonds, on balance, may continue their upward course in 1996, but at a more subdued pace than they enjoyed in 1995. Respectfully yours, /s/George Putnam George Putnam Chairman of the Trustees March 20, 1996 Report from the Fund Managers Edward P. Bousa, lead manager Kenneth J. Taubes Rosemary H. Thomsen Maintaining a full complement of stocks in a strong bull market, along with an advantageous positioning in the bond markets, The George Putnam Fund of Boston posted a solid performance for the six months ended January 31, 1996. Following our value-oriented stock-picking discipline, we capitalized on opportunities in sectors such as public utilities, consumer nondurables, and transportation. Minimal exposure to the underperforming technology sector also helped the equity portfolio's performance over the period. Longer maturities and exceptional results from European holdings boosted the fund's overall fixed-income component, which made up 38% of net assets at the end of the period. (Please refer to the table on page 9 for complete performance details.) * DECLINING INTEREST RATES AND REDUCED FEARS OF DEREGULATION BOOST UTILITIES Several factors combined to create a favorable backdrop for the electric utility sector over the period. Chief among them were declining interest rates coupled with investors' belief that the potentially negative impact of rate deregulation was already reflected in the stocks' prices. In addition, the anticipated passage of telecommunications deregulation lifted the prices of the regional Bell operating companies (RBOCs) as well as those of the principal long-distance carriers. Major holdings such as Bell Atlantic, NYNEX, U.S. West, and Sprint rose as Congress finalized legislation that will permit, among other things, local and long-distance telephone providers to enter each other's markets. President Clinton signed the legislation into law shortly after the close of the fiscal period. Moreover, rapid growth of the Internet has accelerated the demand for additional telephone lines -- a development that has been particularly rewarding for the RBOCs. * LIMITED TECHNOLOGY EXPOSURE PROVES BENEFICIAL AS SECTOR UNDERPERFORMS Following a powerful rally last summer, technology stocks generally underperformed other market sectors during the period as investors took profits and anticipated a slowdown in company earnings. Because many of the companies that dominate this sector do not meet the price-to- earnings and other valuation criteria that drive our stock-selection process, your fund typically maintains very limited commitments to high- technology stocks. The fund's negligible exposure to technology thus proved fortuitous over the period and boosted performance relative to competitors with larger technology weightings. Nevertheless, given our emphasis on finding bargains and our desire to buy globally competitive companies, we added a significant position in IBM early in the fiscal year when the stock's price reached its recent lows. We are enthusiastic about IBM's new CMOS mainframe technology, which has been very well received by investors as well as by IBM's customers. In addition, Big Blue's recent earnings have exceeded expectations. As a result, the stock advanced from approximately $92 per share in mid-September to nearly $109 per share when the fiscal period ended. [GRAPHIC OMITTED: TOP 10 EQUITY HOLDINGS (1/31/96)* Weyerhaeuser Co. Paper and forest products manufacturing TRW, Inc. Manufacturing of auto parts and accessories Philip Morris Companies Multinational tobacco, food, and beer E. I. du Pont De Nemours & Co., Ltd. Diversified manufacturing of chemicals and related materials General Motors Corp. Multinational automobile manufacturing International Business Machines Corp. Multinational computers, information systems, and services Exxon Corp. Exploration, production, and distribution of oil and natural gas Bell Atlantic Corp. Telecommunications J. P. Morgan & Company Multinational banking and finance NYNEX Corp. Telecommunications Footnote reads: * Top 10 holdings represent 11.2% of the fund's net assets. Portfolio holdings will vary over time.] * PROFITS FROM SUCCESSFUL HOLDINGS REDEPLOYED Consumer nondurables -- which includes industries such as pharmaceuticals, food, and beverages -- was the best-performing sector over the fiscal first half. Consequently, we took profits on many long- standing investments that had reached our price targets, including Bristol Meyers Squibb, a former top-ten holding. Likewise, investments in the transportation sector contributed significantly, leading us to take profits on such holdings as Union Pacific Corp., a major railroad operator and the fund's fourth largest holding at the beginning of fiscal 1996. Consistent with our focus on finding value-priced opportunities, we redeployed these profits into industries that are currently out of favor, including retailers, paper manufacturers, and automakers. For example, we added a significant position in General Motors Corp. GM is planning to introduce a large number of new models over the next three years and, at the same time, has done a good job of keeping its costs under control. Moreover, GM is the parent of publicly traded Hughes Electronics (also owned by the fund), which has benefited from its activity in the rapidly developing direct broadcast satellite (DBS) market. So, while we cannot provide guarantees, we believe GM currently offers the potential for attractive price gains, while Hughes may be in the early stages of an exceptional growth opportunity with DBS. * LONGER MATURITIES BOLSTER BOND PORTFOLIO AS FED CUTS RATES Declining interest rates across the entire maturity spectrum created an extremely favorable environment for your fund's bond portfolio over the period. Providing a further boost to market sentiment, the Federal Reserve Board reduced the primary target for short-term bank-lending rates in December and January, its first reductions in the federal funds rate since July 1995. Your fund's emphasis on longer maturities served it well as rates declined. The positive tone in the U.S. market, combined with a generally stronger dollar, set the pace for rallies in markets around the world. The fund's foreign, mostly European, holdings -- which increased to approximately 7% of the overall bond portfolio at the end of the fiscal period -- proved very satisfactory as rates in much of Europe declined even more than in the United States. For example, the fund's investments in Italy performed extremely well as that country's government, despite frequent turmoil, appears to be taking credible steps to reduce a sizable budget deficit. [GRPHIC OMITTED: Horzontal bar chart COMPARATIVE PORTFOLIO COMPOSITION* 7/31/95 1/31/96 ------- ------- Common stocks 57.1% 58.9% U.S. government and agency securities 19.1% 23.2% Corporate bonds and notes 11.9% 9.4% Foreign bonds 3.1% 3.5% Convertible securities 2.6% 2.5% Collateralized mortgage obligations 2.4% 1.9% Footnote reads: *Based on percentage of net assets. Balance of portfolio on dates listed was invested in cash and short-term securities. Portfolio allocations will vary over time.] The fund's high-yield corporate holdings performed in line with expectations. We shifted exposure away from cyclical industries, such as chemicals and steel, and into sectors including telecommunications and cable television. The appeal of these fast-growing industries in a slowing economy lies in the fact that they are not overly sensitive to the economy's ups and downs. * CONCENTRATING ON STOCKS THAT MAY ALREADY REFLECT ECONOMIC SLOWDOWN Leading indicators depict an economy that may be slowing down. In such an environment, we believe corporations are likely to have more difficulty registering profit gains in 1996 compared with 1995. As a result, we are focusing our stock-picking efforts on companies whose stock prices, in our opinion, already reflect the economic slowdown. High-quality retailers such as J.C. Penney and Dayton Hudson, paper manufacturers such as Weyerhaeuser, and the automobile manufacturers all fit this profile. We currently plan to maintain the fund's exposure to overseas bond markets. Notwithstanding their recent impressive rallies, most European bond markets still offer greater value than their U.S. counterpart, while most overseas economies remain comparatively weaker. If the Fed continues to pursue an easier monetary policy with lower short-term interest rates -- although this is far from certain at this time -- we believe high-yield corporate bonds may respond positively. While we cannot provide assurances, we believe the sector would begin to anticipate a pickup in economic activity -- a development that could strengthen the cash flows and the overall creditworthiness of high-yield issuers. Nevertheless, given the current slow pace of growth, and the renewed uncertainty over the Fed's monetary stance, ongoing vigilance will be necessary. 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 1/31/96, there is no guarantee the fund will continue to hold these securities in the future. Performance summary Performance should always be considered in light of a fund's investment strategy. The George Putnam Fund of Boston is designed for investors seeking capital appreciation and current income. This section provides, at a glance, information about your fund's performance. Total return shows how the value of the fund's shares changed over time, assuming you held the shares through the entire period and reinvested all distributions in the fund. TOTAL RETURN FOR PERIODS ENDED 1/31/96 Class A Class B Class M Inception dates (11/5/37) (4/27/92) (12/1/94) NAV POP NAV CDSC NAV POP - ------------------------------------------------------------------------ 6 months 12.62% 6.14% 12.21% 7.21% 12.40% 8.45% - ------------------------------------------------------------------------ 1 year 29.62 22.14 28.60 23.60 28.87 24.35 - ------------------------------------------------------------------------ 5 years 87.89 77.13 -- -- -- -- Annual average 13.44 12.11 -- -- -- -- - ------------------------------------------------------------------------ 10 years 226.49 207.64 -- -- -- -- Annual average 12.56 11.89 -- -- -- -- - ------------------------------------------------------------------------ Life of class -- -- 52.31 49.31 33.21 28.58 Annual average -- -- 11.84 11.25 27.78 23.97 - ------------------------------------------------------------------------ COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 1/31/96 Standard Lehman Bros. & Poor's Govt. /Corp Consumer 500 Index Bond Index Price Index - ------------------------------------------------------------------------ 6 months 14.49% 7.74% 1.25% - ------------------------------------------------------------------------ 1 year 38.56 17.72 2.73 - ------------------------------------------------------------------------ 5 years 113.15 58.81 14.71 Annual average 16.34 9.69 2.78 - ------------------------------------------------------------------------ 10 years 310.40 151.26 40.88 Annual average 15.16 9.65 3.49 - ------------------------------------------------------------------------ Life of class B 69.99 39.57 10.68 Annual average 15.16 9.27 2.74 - ------------------------------------------------------------------------ Life of class M 44.72 20.78 3.14 Annual average 37.15 17.51 2.68 - ------------------------------------------------------------------------ Performance data represent past results, do not reflect future performance, and will differ for each share class. They do not take into account any adjustment for taxes payable on reinvested distributions or, for class A shares, distribution fees prior to implementation of the class A distribution plan in 1990. Investment returns and net asset value will fluctuate so that an investor's shares, when sold, may be worth more or less than their original cost. POP assumes 5.75% maximum sales charge for class A shares and 3.50% for class M shares, which became effective 12/1/94. CDSC for class B shares assumes the applicable sales charge, with the maximum being 5%. TOTAL RETURN FOR PERIODS ENDED 12/31/95 (most recent calendar quarter) Class A Class B Class M NAV POP NAV CDSC NAV POP - ------------------------------------------------------------------------ 6 months 12.37% 5.94% 11.95% 6.95% 12.06% 8.14% - ------------------------------------------------------------------------ 1 year 30.12 22.62 29.07 24.07 29.34 24.79 - ------------------------------------------------------------------------ 5 years 90.57 79.59 -- -- -- -- Annual average 13.77 12.42 -- -- -- -- - ------------------------------------------------------------------------ 10 years 222.48 203.97 -- -- -- -- Annual average 12.42 11.76 -- -- -- -- - ------------------------------------------------------------------------ Life of class -- -- 49.50 46.50 30.76 26.21 Annual average -- -- 11.55 10.93 28.18 24.05 - ------------------------------------------------------------------------ Performance data represent past results, do not reflect future performance, and will differ for each share class. They do not take into account any adjustment for taxes payable on reinvested distributions or, for class A shares, distribution fees prior to implementation of the class A distribution plan in 1990. Investment returns and net asset value will fluctuate so that an investor's shares, when sold, may be worth more or less than their original cost. PRICE AND DISTRIBUTION INFORMATION 6 months ended 1/31/96 Class A Class B Class M - ------------------------------------------------------------------------ Distributions: - ------------------------------------------------------------------------ Number 2 2 2 - ------------------------------------------------------------------------ Income $0.297 $0.243 $0.269 - ------------------------------------------------------------------------ Capital gains - ------------------------------------------------------------------------ Long-term $ 0.210 $ 0.210 $ 0.210 - ------------------------------------------------------------------------ Short-term 0.418 0.418 0.418 - ------------------------------------------------------------------------ Total $0.925 $0.871 $0.897 - ------------------------------------------------------------------------ Share value: NAV POP NAV NAV POP - ------------------------------------------------------------------------ 7/31/95 $14.90 $15.81 $14.83 $14.84 $15.38 - ------------------------------------------------------------------------ 1/31/96 15.80 16.76 15.72 15.73 16.30 - ------------------------------------------------------------------------ Current return NAV POP NAV NAV POP - ------------------------------------------------------------------------ End of period Current dividend rate1 3.97% 3.75% 3.28% 3.51% 3.39% - ------------------------------------------------------------------------ Current 30-day SEC yield2 3.66 3.45 2.89 3.14 3.03 - ------------------------------------------------------------------------ 1 Income portion of most recent distribution, annualized and divided by NAV or POP at end of period. 2 Based only on investment income, calculated using SEC guidelines. TERMS AND DEFINITIONS Class A shares are generally subject to an initial sales charge. Class B shares may be subject to a sales charge upon redemption. Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no sales charge on redemption. Net asset value (NAV) is the value of all your fund's assets, minus any liabilities, divided by the number of outstanding shares, not including any initial or contingent deferred sales charge. Public offering price (POP) is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. POP performance figures shown here assume the maximum 5.75% sales charge for class A shares and 3.50% for class M shares. Contingent deferred sales charge (CDSC) is a charge applied at the time of the redemption of class B shares and assumes redemption at the end of the period. Your fund's CDSC declines from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. COMPARATIVE BENCHMARKS Standard & Poor's 500 Index is an unmanaged list of common stocks that is frequently used as a general measure of stock market performance.* Lehman Brothers Government/Corporate Bond Index is an unmanaged list of publicly issued U.S. Treasury obligations, debt obligations of U.S. government agencies (excluding mortgage-backed securities), and fixed- rate, nonconvertible investment-grade corporate debt securities.* Consumer Price Index (CPI) is a commonly used measure of inflation; it does not represent an investment return. *Index results assume reinvestment of all distributions and do not take into account brokerage commisions or other costs. Securities in the fund's portfolio do not match those in the indexes and may pose different risks. Our commitment to quality service * CHOSE AWARD-WINNING SERVICE Putnam Investor Services has won the DALBAR Quality Tested Service Seal for the past six years. In 1995, over 146,000 tests of 56 shareholder service components demonstrated that Putnam outperformed the industry standard in every category. HELP YOUR INVESTMENT GROW Set up a systematic program for investing with as little as $25 a month from a Putnam money market fund or from your checking or savings account.* * SWITCH FUNDS EASILY You can move money from one account to another with the same class of shares without a service charge. (This privilege is subject to change or termination.) * ACCESS YOUR MONEY QUICKLY You can get checks sent regularly or redeem shares any business day at the then-current net asset value, which may be more or less than the original cost of the shares. For details about any of these or other services, contact your financial advisor or call the toll-free number shown below and speak with a helpful Putnam representative. To make an additional investment in this or any other Putnam fund, contact your financial advisor or call our toll-free number: 1-800-225-1581. * Regular investing of course, does not guarantee a profit or protect against a loss in a declining market.
Portfolio of investments owned January 31, 1996 (Unaudited) Common Stocks (58.9%)* NUMBER OF SHARES VALUE Aerospace and Defense (0.7%) - ------------------------------------------------------------------------------------------------------------ 176,000 Lockheed Martin Corp. $13,266,000 Automotive (2.8%) - ------------------------------------------------------------------------------------------------------------ 76,000 Chrysler Corp. 4,389,000 306,000 Ford Motor Co. 9,065,250 390,000 General Motors Corp. 20,523,750 147,000 General Motors Corp. Class H 8,379,000 258,000 Varity Corp. + 9,546,000 -------------- 51,903,000 Basic Industrial Products (1.8%) - ------------------------------------------------------------------------------------------------------------ 110,000 Ball Corp. 3,121,250 165,000 Deere (John) & Co. 6,187,500 125,000 General Signal Corp. 4,218,750 178,000 Harnischfeger Industries, Inc. 6,029,750 207,600 Minnesota Mining & Manufacturing Co. 13,390,200 -------------- 32,947,450 Business Equipment and Services (2.5%) - ------------------------------------------------------------------------------------------------------------ 193,000 Dun & Bradstreet Corp. 12,545,000 188,000 IBM Corp. 20,445,000 99,100 Xerox Corp. 12,251,238 -------------- 45,241,238 Chemicals (2.6%) - ------------------------------------------------------------------------------------------------------------ 270,000 du Pont (E.I.) de Nemours & Co. 20,756,250 30,000 Hoechst AG (Germany) 8,850,181 251,900 Union Carbide Corp. 10,611,288 259,000 Witco Chemical Corp. 8,223,250 -------------- 48,440,969 Conglomerates (2.3%) - ------------------------------------------------------------------------------------------------------------ 241,000 Corning, Inc. 7,531,250 235,800 Ogden Corp. 5,482,350 282,000 TRW, Inc. 23,829,000 50,000 United Technologies Corp. 5,131,250 -------------- 41,973,850 Consumer Durable Goods (0.3%) - ------------------------------------------------------------------------------------------------------------ 118,000 Whirlpool Corporation 6,416,250 Consumer Non Durables (3.5%) - ------------------------------------------------------------------------------------------------------------ 338,000 American Brands, Inc. 15,421,250 111,600 Avon Products, Inc. 8,816,400 107,000 Kimberly-Clark Corp. 8,626,875 225,000 Philip Morris Cos., Inc. 20,925,000 205,800 RJR Nabisco Holdings Corp. + 6,688,500 86,700 Springs Industries, Inc. Class A 3,468,000 -------------- 63,946,025 Electronics and Electrical Equipment (2.1%) - ------------------------------------------------------------------------------------------------------------ 254,400 Eaton Corp. 14,755,200 56,000 Emerson Electric Co. 4,690,000 200,000 General Electric Co. 15,350,000 85,000 Intel Corp. 4,694,922 -------------- 39,490,122 Energy-Related (0.2%) - ------------------------------------------------------------------------------------------------------------ 183,000 Westcoast Energy, Inc. 2,859,375 Environmental Control (0.5%) - ------------------------------------------------------------------------------------------------------------ 308,000 WMX Technologies, Inc. 9,201,500 Food and Beverages (1.0%) - ------------------------------------------------------------------------------------------------------------ 101,000 Anheuser-Busch Cos., Inc. 7,019,500 325,500 Flowers Industries, Inc. 4,312,875 121,000 Nestle S.A. ADR (Switzerland) 6,337,375 -------------- 17,669,750 Forest Products (2.0%) - ------------------------------------------------------------------------------------------------------------ 162,000 Chesapeake Corp. 4,596,750 8,100 Crown Vantage, Inc. + 131,625 200,000 Rayonier, Inc. 7,250,000 534,000 Weyerhaeuser Co. 24,630,750 -------------- 36,609,125 Health Care (0.6%) - ------------------------------------------------------------------------------------------------------------ 239,900 Baxter International, Inc. 10,915,450 Insurance and Finance (10.3%) - ------------------------------------------------------------------------------------------------------------ 168,000 AON Corp. 9,135,000 240,000 American General Corp. 9,060,000 139,000 BankAmerica Corp. 9,365,125 186,183 Bankers Trust New York Corp. 12,078,622 263,000 Beneficial Corp. 12,854,125 46,000 CIGNA Corp. 5,456,750 267,000 CoreStates Financial Corp. 10,680,000 357,000 Fleet Financial Group, Inc. 14,280,000 200,000 Household International, Inc. 12,975,000 129,000 ITT Hartford Group, Inc. + 6,466,126 345,500 Keycorp 12,697,125 227,000 Morgan (J.P.) & Co., Inc. 18,443,750 239,000 NationsBank Corp. 16,700,125 210,000 Norwest Corp. 7,218,750 398,000 PNC Bank Corp. 11,940,000 132,000 SAFECO Corp. 4,735,500 59,000 St. Paul Cos., Inc. 3,363,000 150,000 Synovus Financial Corp. 4,218,750 475,000 USF&G Corp. 7,600,000 -------------- 189,267,748 Metals and Mining (0.8%) - ------------------------------------------------------------------------------------------------------------ 55,800 Carpenter Technology Corp. 2,120,400 198,000 Phelps Dodge Corp. 12,474,000 -------------- 14,594,400 Oil and Gas (5.3%) - ------------------------------------------------------------------------------------------------------------ 168,000 Amoco Corp. 11,823,000 251,600 Exxon Corp. 20,190,900 96,600 Mobil Corp. 10,698,450 555,000 Occidental Petroleum Corp. 11,932,500 268,000 Panhandle Eastern Corp. 7,738,500 247,000 Phillips Petroleum Co. 8,058,375 204,200 Repsol S.A. ADS (Spain) 7,121,475 70,000 Royal Dutch Petroleum Co. PLC ADR (Netherlands) 9,730,000 281,000 Total Corp. ADR (France) 9,694,500 -------------- 96,987,700 Pharmaceuticals (2.7%) - ------------------------------------------------------------------------------------------------------------ 102,000 American Home Products Corp. 10,404,000 150,000 Bristol-Myers Squibb Co. 13,275,000 231,570 Pharmacia & Upjohn, Inc. 9,696,994 182,000 Warner-Lambert Co. 17,062,500 -------------- 50,438,494 Photography (1.3%) - ------------------------------------------------------------------------------------------------------------ 237,000 Eastman Kodak Co. 17,389,875 158,000 Polaroid Corp. 7,090,250 -------------- 24,480,125 Publishing (0.5%) - ------------------------------------------------------------------------------------------------------------ 98,000 McGraw-Hill, Inc. 8,722,000 Real Estate (1.2%) - ------------------------------------------------------------------------------------------------------------ 132,500 Duke Realty Investments, Inc. 4,256,563 229,700 Equity Residential Properties Trust 7,063,275 103,500 Evans Withycombe Residential 2,264,063 167,000 LTC Properties, Inc. 2,734,625 63,100 Macerich Co. 1,238,338 50,000 Nationwide Health Properties, Inc. 2,125,000 87,000 Storage USA, Inc. 2,740,500 -------------- 22,422,364 Retail (3.0%) - ------------------------------------------------------------------------------------------------------------ 211,000 Dayton Hudson Corporation 15,772,250 709,000 K mart Corp. 4,165,375 120,000 May Department Stores Co. 5,340,000 334,000 Melville Corporation 9,519,000 301,000 Penney (J.C.) Co., Inc. 14,749,000 157,000 Sears, Roebuck & Co. 6,515,500 -------------- 56,061,125 Telecommunications (0.3%) - ------------------------------------------------------------------------------------------------------------ 197,000 MCI Communications Corp. 5,639,125 Transportation (2.0%) - ------------------------------------------------------------------------------------------------------------ 52,000 CSX Corp. 2,411,500 217,900 Canadian National Railway Co. + 3,840,488 52,000 Conrail, Inc. 3,679,000 546,800 Ryder System, Inc. 12,781,450 212,200 Union Pacific Corp. 14,137,825 -------------- 36,850,263 Utilities (8.6%) - ------------------------------------------------------------------------------------------------------------ 91,000 American Telephone & Telegraph Co. 6,085,625 279,000 Bell Atlantic Corp. 19,216,125 120,265 Cinergy Corp. 3,743,248 52,900 Consolidated Natural Gas Co. 2,380,500 186,000 Dominion Resources, Inc. 7,974,750 139,000 Entergy Corp. 4,117,875 148,000 GTE Corp. 6,808,000 328,000 NYNEX Corp. 17,589,000 158,000 Oklahoma Gas & Electric Co. 6,636,000 267,000 Pacific Enterprises 7,409,250 101,400 Pacific Telesis Group 2,991,300 317,000 Potomac Electric Power Co. 8,559,000 155,000 Public Service Co. of Colorado 5,580,000 235,000 Public Service Enterprise Group, Inc. 7,343,750 59,000 SBC Communications, Inc. 3,340,875 227,000 SCE Corp. 4,199,500 276,300 Scana Corp. 7,563,713 264,000 Sprint Corp. 11,385,000 115,200 Telefonica de Espana SA ADR 5,083,200 215,000 Texas Utilities Co. 8,788,125 200,800 US West, Inc. 7,053,100 155,000 WICOR, Inc. 4,882,500 -------------- 158,730,436 -------------- Total Common Stocks (cost $888,204,563) $1,085,073,884 U.S. Government and Agency Obligations (23.2%)* VALUE PRINCIPAL AMOUNT - ------------------------------------------------------------------------------------------------------------ Federal Home Loan Mortgage Association Pass Through Certificates $2,080,867 8 3/4s, June 1, 2009 $2,180,353 1,128,824 8 3/4s, May 1, 2009 1,182,793 Federal National Mortgage Association Pass Through Certificates 334,570 11s, with various due dates from October 1, 2015 to March 1, 2016 379,526 169,643 8 3/4s, July 1, 2009 177,647 16,168,230 7s, with various due dates from February 1, 2024 to December 1, 2024 16,314,713 12,177,047 Dwarf, 6s, with various due dates from January 1, 2009 to October 1, 2010 12,081,823 18,930,000 TBA, 7s, March 16, 2026 19,101,506 6,790,000 Federal National Mortgage Association med. term notes, 5.94s, December 12, 2005 6,814,376 Government National Mortgage Association Pass Through Certificates 1,521 15s, September 15, 2011 1,875 161,892 8s, with various due dates from December 15, 2016 to January 15, 2020 171,100 25,919,811 7 1/2s, with various due dates from September 15, 2005 to December 15, 2025 26,682,114 31,899,687 7s, with various due dates from January 15, 2023 to January 15, 2026 32,318,289 15,685,711 6 1/2s, with various due dates from November 15, 2023 to October 15, 2025 15,587,677 5,909,016 Midget, 6 1/2s, with various due dates from February 1, 2009 to June 15, 2009 5,982,880 5,950,479 Midget, 6s, with various due dates from August 15, 2008 to May 15, 2009 5,928,165 12,970,000 TBA, 7s, March 16, 2026 13,140,166 15,715,000 TBA, 6 1/2s, March 16, 2026 15,616,781 23,580,000 U.S. Treasury Bonds 11 7/8s, November 15, 2003 32,894,100 25,745,000 U.S. Treasury Bonds 11 5/8s, November 15, 2004 36,380,774 13,440,000 U.S. Treasury Bonds 11 1/8s, August 15, 2003 18,020,083 10,620,000 U.S. Treasury Bonds 10 3/4s, August 15, 2005 14,579,242 18,825,000 U.S. Treasury Bonds 8 7/8s, August 15, 2017 25,043,086 23,870,000 U.S. Treasury Bonds 8 1/8s, August 15, 2019 29,792,624 5,078,000 U.S. Treasury Bonds 7 1/2s, November 15, 2024 6,038,859 77,255,000 U.S. Treasury Notes 7 1/4s, August 15, 2004 85,922,238 4,765,000 U.S. Treasury Notes 6 1/4s, May 31, 2000 4,951,121 -------------- Total U.S. Government and Agency Obligations (cost $411,638,892) $427,283,911 Corporate Bonds and Notes (9.4%)* PRINCIPAL AMOUNT VALUE Advertising (--%) - ------------------------------------------------------------------------------------------------------------ $300,000 Outdoor Systems, Inc. sr. notes, 10 3/4s, 2003 $303,000 Aerospace and Defense (0.2%) - ------------------------------------------------------------------------------------------------------------ 750,000 BE Aerospace sr. notes, 9 3/4s, 2003 787,500 700,000 Coltec Industries sr. notes, 9 3/4s, 2000 726,250 775,000 Howmet Corp. 144A sr. sub. notes, 10s, 2003 826,344 364,000 K&F Industries Inc. sub. deb., 13 3/4s, 2001 378,105 -------------- 2,718,199 Agriculture (0.1%) - ------------------------------------------------------------------------------------------------------------ 1,000,000 PSF Finance (L.P.) sr. exch. notes, 12 1/4s, 2004 1,000,000 Automotive (0.1%) - ------------------------------------------------------------------------------------------------------------ 370,000 Aftermarket Technology Corp. sr. sub. notes Ser. D, 12s, 2004 402,375 325,000 Aftermarket Technology Corp. sr. sub. notes, 12s, 2004 353,438 350,000 Exide Corp. sr. notes, 10 3/4s, 2002 378,000 -------------- 1,133,813 Basic Industrial Products (0.1%) - ------------------------------------------------------------------------------------------------------------ 250,000 Day International Group sr. sub. notes Ser. B, 11 1/8s, 2005 259,375 800,000 Inter-City Products sr. notes, 9 3/4s, 2000 596,000 -------------- 855,375 Broadcasting (0.6%) - ------------------------------------------------------------------------------------------------------------ 400,000 Act III Broadcasting sr. notes, 10 1/4s, 2005 412,000 400,000 Adelphia Communications Corp. sr. notes, 12 1/2s, 2002 403,000 250,000 Argyle Television Corp. sr. sub. notes, 9 3/4s, 2005 251,250 350,000 CF Cable TV sr. notes, 9 1/8s, 2007 (Canada) 360,500 500,000 Cablevision Systems Corp. sr. sub. reset deb., 10 3/4s, 2004 531,250 300,000 Century Communications Corp. sr. notes, 9 1/2s, 2005 312,000 200,000 Comcast Corp. sr. sub. deb. 9 1/2s, 2008 212,000 500,000 Continental Cablevision, Inc. 144A sr. notes, 8.3s, 2006 503,125 1,315,000 International CableTel, Inc. 144A stepped-coupon zero % (11 1/2s, 2/1/01), 2006 ++ 765,988 750,000 Jones Intercable, Inc. sr. sub. deb., 10 1/2s, 2008 832,500 575,000 Jones Intercable Inc. sr. notes, 9 5/8s, 2002 623,875 500,000 Lenfest Communications sr. notes, 8 3/8s, 2005 502,500 500,000 Marcus Cable Co. (L.P.) sr. disc. notes zero %, 2004 376,250 400,000 Paxson Communications Corp. 144A sr. sub. notes, 11 5/8s, 2002 420,000 150,000 Rogers Cablesystem Ltd. deb., 10 1/8s, 2012 (Canada) 162,375 350,000 SFX Broadcasting, Inc. sr. sub. notes, 11 3/8s, 2000 378,000 2,000,000 Tele-Communications, Inc. sr. deb, 9.8s, 2012 2,402,740 730,000 Telewest PLC deb. stepped-coupon zero % (11s, 10/1/00), 2007 (United Kingdom)++ 447,125 750,000 Young Broadcasting 144A sr. sub. notes, 9s, 2006 744,375 -------------- 10,640,8539 Building and Construction (0.1%) - ------------------------------------------------------------------------------------------------------------ 400,000 American Standard, Inc. deb., 9 1/4s, 2016 421,000 310,000 Congoleum Corp. sr. notes, 9s, 2001 300,700 350,000 Scotsman Group, Inc. sr. secd. notes, 9 1/2s, 2000 357,000 500,000 Triangle Pacific Corp. sr. notes, 10 1/2s, 2003 535,000 -------------- 1,613,700 Business Services (--%) - ------------------------------------------------------------------------------------------------------------ 425,000 Corporate Express, Inc. sr. sub notes, Ser. B, 9 1/8s, 2004 446,250 325,000 United Stationer Supply, Inc. sr. sub. notes, 12 3/4s, 2005 357,500 -------------- 803,750 Chemicals (0.1%) - ------------------------------------------------------------------------------------------------------------ 400,000 Acetex Corp. 144A sr. notes, 9 3/4s, 2003 (Canada) 414,000 300,000 Arcadian Partner sr. notes, 10 3/4s, 2005 333,000 1,640,000 Lyondell Petrochemical Co. notes, 9 1/8s, 2002 1,879,866 -------------- 2,626,866 Conglomerates (0.1%) - ------------------------------------------------------------------------------------------------------------ 500,000 ADT Ltd. sr. sub notes, 9 1/4s, 2003 537,500 350,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes, 13s, 1999 350,000 -------------- 887,500 Consumer Durable Goods (--%) - ------------------------------------------------------------------------------------------------------------ 500,000 Selmer Co., Inc. sr. sub. notes, 11s, 2005 503,750 159,208 Simmons Mattress Corp. 144A deb., 8s, 2003 ++++ 160,800 -------------- 664,550 Consumer Non Durables (--%) - ------------------------------------------------------------------------------------------------------------ 500,000 Playtex Family Products Corp. sr. sub. notes, 9s, 2003 461,250 Consumer Services (--%) - ------------------------------------------------------------------------------------------------------------ 263,750 Coinmach Corp. 144A sr. notes, 11 3/4s, 2005 270,344 Electronics (0.1%) - ------------------------------------------------------------------------------------------------------------ 1,000,000 Amphenol Corp. sr. sub. notes, 12 3/4s, 2002 1,135,000 Entertainment (0.4%) - ------------------------------------------------------------------------------------------------------------ 400,000 Alliance Entertainment Corp. sr. sub. notes, Ser. B, 11 1/4s, 2005 400,000 770,000 Cinemark USA sr. notes, 12s, 2002 839,300 500,000 Marvel Parent Holdings, Inc. sr. secd. disc. notes, 1998 367,500 350,000 Premier Parks, Inc. sr. notes, Ser. A, 12s, 2003 369,250 750,000 Six Flags Corp. sr. sub. notes stepped-coupon zero % (12 1/4s, 6/15/98), 2005 ++ 637,500 625,000 Time Warner Inc. deb. 9.15s, 2023 703,000 4,000,000 Time Warner Inc. deb. 9 1/8s, 2013 4,463,680 150,000 Time Warner, Inc. notes, 8.18s, 2007 160,880 150,000 Time Warner, Inc. notes, 8.11s, 2006 159,711 75,000 Time Warner, Inc. notes, 7.975s, 2004 79,334 -------------- 8,180,155 Environmental Control (--%) - ------------------------------------------------------------------------------------------------------------ 300,000 Allied Waste Industries sr. sub. notes, 12s, 2004 325,500 Food and Beverages (0.2%) - ------------------------------------------------------------------------------------------------------------ 1,000,000 Fresh Del Monte Produce Corp. NV 144A sr. notes, 10s, 2003 (Netherlands) 900,000 1,680,000 Secured Restaurants Trust deb., 10 1/4s, 2000 1,920,257 250,000 Stater Brothers sr. notes, 11s, 2001 251,250 -------------- 3,071,507 Health Care (0.4%) - ------------------------------------------------------------------------------------------------------------ 600,000 Abbey Healthcare Group sr. sub. notes, 9 1/2s, 2002 645,000 2,320,000 Columbia Healthcare Corp. deb., 8.36s, 2024 2,634,035 500,000 Graphic Controls Corp. 144A sr. sub. notes, 12s, 2005 527,500 250,000 Integrated Health Services sr. sub. notes, 9 5/8s, 2002 262,500 675,000 Ivac Corp. sr. notes, 9 1/4s, 2002 707,063 300,000 McGaw, Inc. sr. notes, 10 3/8s, 1999 307,500 750,000 Merit Behavioral Care 144A sr. sub. notes, 11 1/2s, 2005 806,250 1,050,000 Paracelsus Healthcare Corp. sr. sub. notes, 9 7/8s, 2003 1,073,625 150,000 Tenet Healthcare Corp. sr. notes, 8 5/8s, 2003 160,875 -------------- 7,124,348 Insurance and Finance (2.3%) - ------------------------------------------------------------------------------------------------------------ 375,000 AIM Management Group sr. secd. notes, 9s, 2003 395,625 1,500,000 AMBAC Indemnity Corp. deb., 9 3/8s, 2011 1,878,795 1,000,000 American Annuity Group, Inc. sr. sub. notes, 11 1/8s, 2003 1,090,000 3,000,000 American Financial Group sub. notes, 10 7/8s, 2011 3,590,400 150,000 American Life Holding Co. sr. sub. notes, 11 1/4s, 2004 159,000 1,245,000 BAT Capital Corp. 144A med. term notes, 6.19s, 2000 1,257,811 750,000 CCP Insurance sr. notes, 10 1/2s, 2004 878,438 250,000 Centerbank sub. notes, 8 3/8s, 2002 258,906 750,000 Chevy Chase Savings Bank Inc. sub. deb., 9 1/4s, 2005 772,500 5,000,000 Citicorp sub. notes, 7 1/8s, 2005 5,314,600 3,225,000 Den Danske Bank sub. notes 6.55s, 2003 (Denmark) 3,265,313 1,125,000 First National Omaha sub. notes, 7.32s, 2010 1,161,900 900,000 First Nationwide 144A sr. sub. notes 9 1/8s, 2003 922,500 2,000,000 Goldman, Sachs & Co. 144A deb., 8s, 2013 2,150,460 4,815,000 Great Western Financial Corp. notes, 6 1/8s, 1998 4,895,844 350,000 Keystone Group, Inc. sr. secd. notes, 9 3/4s, 2003 341,250 250,000 Leucadia National sr. sub. notes, 10 3/8s, 2002 272,500 2,300,000 Midlantic Banks deb., 9 7/8s, 1999 2,618,159 2,000,000 Orion Capital Corp. sr. notes, 9 1/8s, 2002 2,266,660 570,000 Phoenix Re Corp. 9 3/4s, 2003 614,175 150,000 Primark Corp. sr. notes, 8 3/4s, 2000 156,188 450,000 Reliance Group Holdings, Inc. sr. notes, 9s, 2000 465,750 3,750,000 Riggs National Corp. sub. deb., 8 1/2s, 2006 4,031,250 2,000,000 Society Bank & Trust 12 1/2s, 1999 2,405,000 450,000 Terra Nova Insurance Holdings. sr. notes, 10 3/4s, 2005 (United Kingdom) 495,000 -------------- 41,658,024 Lodging (0.1%) - ------------------------------------------------------------------------------------------------------------ 400,000 John Q. Hammons Hotels, Inc. 1st mtge., 8 7/8s, 2004 400,000 390,000 HMH Properties, Inc. sr. notes, 9 1/2s, 2005 402,188 500,000 La Quinta Motor Inns, Inc. deb., 9 1/4s, 2003 530,000 750,000 Prime Hospitality Corp. 1st mtge., 9 1/4s, 2006 750,938 -------------- 2,083,126 Metals and Mining (0.2%) - ------------------------------------------------------------------------------------------------------------ 450,000 Great Lakes Carbon Corp. sr. notes, 10s, 2006 472,500 3,765,000 Noranda Inc. notes, 7s, 2005 (Canada) 3,893,198 -------------- 4,365,698 Oil and Gas (1.2%) - ------------------------------------------------------------------------------------------------------------ 300,000 Chesapeake Energy Corp. sr. notes, 10 1/2s, 2002 316,500 300,000 Flores & Rucks, Inc. sr. notes, 13 1/2s, 2004 342,000 405,000 Gulf Canada Resources Ltd. sr. sub. notes, 9 5/8s, 2005 (Canada) 432,338 250,000 Maxus Energy Corp. global notes, 9 7/8s, 2002 255,000 400,000 Maxus Energy Corp. notes, 9 1/2s, 2003 396,000 100,000 Maxus Energy Corp. notes, 9 3/8s, 2003 101,000 4,710,000 Parker & Parsley Petro Co. sr. notes, 8 7/8s, 2005 5,303,696 3,000,000 Petro Canada deb., 9 1/4s, 2021 (Canada) 3,787,500 4,140,000 Petroliam Nasional Berhad 144A notes, 7 1/8s, 2005 (Malaysia) 4,383,225 750,000 Transtexas Gas Corp. sr. secd. notes, 11 1/2s, 2002 768,750 400,000 Triton Energy sr. sub. disc. notes stepped-coupon zero % (9 3/4s, 12/15/96), 2000 ++ 382,000 4,930,000 Union Texas Petroleum med. term notes, 6.51s, 2002 4,970,673 -------------- 21,438,682 Paper and Forest Products (0.2%) - ------------------------------------------------------------------------------------------------------------ 350,000 APP International Finance Co. notes, 11 3/4s, 2005 (Netherlands) 346,500 750,000 Doman Industries Ltd. sr. notes, 8 3/4s, 2004 (Canada) 712,500 425,000 Domtar, Inc. notes, 12s, 2001 (Canada) 502,563 250,000 Domtar, Inc. deb., 11 1/4s, 2017 (Canada) 265,938 750,000 Repap New Brunswick sr. notes, 10 5/8s, 2005 (Canada) 727,500 750,000 Stone Consolidated Corp. sr. notes, 10 1/4s, 2000 (Canada) 806,250 500,000 Stone Container Corp. sr. sub. notes, 9 7/8s, 2001 483,750 -------------- 3,845,001 Publishing (0.1%) - ------------------------------------------------------------------------------------------------------------ 500,000 American Media Operation, Inc. sr. sub. notes, 11 5/8s, 2004 518,750 500,000 World Color Press sr. sub. notes, 9 1/8s, 2003 512,500 -------------- 1,031,250 Real Estate (0.2%) - ------------------------------------------------------------------------------------------------------------ 4,255,000 Meditrust Inc. med. term notes, 7.30s, 2006 4,305,528 Recreation (0.2%) - ------------------------------------------------------------------------------------------------------------ 250,000 Arizona Charlies Corp. 1st mtge., Ser. B, 12s, 2000 162,500 750,000 Bally Park Place 1st mtge., 9 1/4s, 2004 768,750 250,000 Casino America, Inc. 1st mtge., 11 1/2s, 2001 246,250 250,000 Coast Hotels & Casinos Corp. 144A 1st mtge., 13s, 2002 244,375 900,000 Grand Casinos, Inc. 1st mtge., 10 1/8s, 2003 974,250 350,000 Lady Luck Gaming Corp. 1st mtge., Ser. B, 10 1/2s, 2001 290,500 500,000 Players International Inc. sr. notes, 10 7/8s, 2005 477,500 450,000 Trump Hotels Corp. sr. notes, 15 1/2s, 2005 497,250 750,000 Trump Plaza Funding, Inc. 1st mtge. notes, 10 7/8s, 2001 795,000 -------------- 4,456,375 Retail (0.5%) - ------------------------------------------------------------------------------------------------------------ 400,000 Brylane (L.P.) sr. sub. notes, 10s, 2003 354,000 1,000,000 County Seat Stores Inc. sr. sub notes, 12s, 2002 700,000 750,000 Federated Department Stores sr. notes, 8 1/8s, 2002 755,625 770,000 Finlay Enterprises, Inc. sr. notes, 10 5/8s, 2003 743,050 500,000 Loehmanns' Holdings, Inc. sr. notes, 10 1/2s, 1997 495,000 525,000 Mother's Work, Inc. sr. notes, 12 5/8s, 2005 538,125 500,000 Revco D.S., Inc. sr. notes, 9 1/8s, 2000 537,500 1,000,000 Safeway, Inc. med. term notes, 8.57s, 2003 1,086,250 2,000,000 Sears, Roebuck & Co. med. term notes, 9.1s, 2012 2,474,460 740,000 Southland Corp. 1st priority sr. sub. deb., 5s, 2003 616,050 500,000 Waban, Inc. sr. sub. notes, 11s, 2004 515,000 -------------- 8,815,060 Specialty Consumer Products (--%) - ------------------------------------------------------------------------------------------------------------ 715,000 Herff Jones, Inc. sr. sub. notes, 11s, 2005 772,200 Telecommunications (0.2%) - ------------------------------------------------------------------------------------------------------------ 425,000 Call-Net Enterprises sr. disc. notes stepped-coupon zero % (13 1/4s, 12/1/99), 2004 ++ 310,250 500,000 Centennial Cellular Corp. sr. notes, 8 7/8s, 2001 496,250 250,000 Fonorola, Inc. sr. notes, 12 1/2s, 2002 (Canada) 270,000 250,000 Intermedia Communications of Florida sr. notes, Ser. B, 13 1/2s, 2005 292,500 490,000 MFS Communications sr. disc. notes stepped-coupon zero % (9 3/8s, 1/15/99), 2004 ++ 388,325 700,000 MFS Communications sr. disc. notes stepped-coupon zero % (8 7/8s, 1/1/01), 2006 ++ 460,250 425,000 Metrocall, Inc. sr. sub. notes, 10 3/8s, 2007 456,875 250,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon zero % (11 1/2s, 9/1/98), 2003 ++ 155,000 250,000 Rogers Cantel Mobile Inc. deb., 10 3/4s, 2001 263,125 -------------- 3,092,575 Textiles (--%) - ------------------------------------------------------------------------------------------------------------ 500,000 Reeves Industries Inc. bonds, 11s, 2002 451,875 Transportation (0.6%) - ------------------------------------------------------------------------------------------------------------ 2,850,000 AMR Corp. deb., 9.73s, 2014 3,387,966 90,000 Blue Bird Body Co. sub. deb., Ser. B, 11 3/4s, 2002 93,600 4,275,000 Burlington Northern Santa Fe Corp. notes, 6 3/8s, 2005 4,288,210 450,000 Eletson Holdings, Inc. 1st. pfd. mtge. notes, 9 1/4s, 2003 452,250 450,000 International Shipholding Corp. sr. notes, 9s, 2003 459,000 2,000,000 Southwest Airlines Co. deb., 7 7/8s, 2007 2,205,880 500,000 Viking Star Shipping sr. secd. notes, 9 5/8s, 2003 525,000 -------------- 11,411,906 Utilities (1.1%) - ------------------------------------------------------------------------------------------------------------ 4,060,000 Arkla, Inc. notes, 8 7/8s, 1999 4,374,366 2,615,000 Citizens Utilities Co. bonds, 7.68s, 2034 3,017,919 350,000 Cleveland Electric Illuminating Co. 1st mtge., Ser. B, 9 1/2s, 2005 364,875 500,000 First PV Funding deb., 10.15s, 2016 517,500 2,581,908 Midland Cogeneration Ventures deb., 10.33s, 2002 2,727,140 1,075,000 Niagara Mohawk Power Corp. med. term notes, 9.95s, 2000 1,053,500 250,000 Texas New Mexico Power deb., 12 1/2s, 1999 277,500 3,925,000 Texas New-Mexico Power 1st mtge., 9 1/4s, 2000 4,163,248 4,100,000 Texas Utilities Co. secd. lease fac. bonds, 7.46s, 2015 4,340,834 -------------- 20,836,882 -------------- Total Corporate Bonds and Notes (cost $165,783,038) $172,379,892 Foreign Government Bonds and Notes (3.5%)* VALUE PRINCIPAL AMOUNT - ------------------------------------------------------------------------------------------------------------ DEM 16,705,000 Germany (Republic of) bonds, 6 7/8s, 2005 $11,975,393 ITL 8,500,000,000 Italy (Government of) bonds, 10 1/2s, 2000 5,555,366 USD 3,295,000 Italy (Republic of) global deb., 6 7/8s, 2023 3,185,507 NLG 28,645,000 Netherlands (Government of) deb., 6 3/4s, 2005 18,244,239 USD 1,790,000 Quebec (Government of) deb., 8 5/8s, 2005 2,062,062 DEM 11,800,000 Treuhandanstalt (Republic of Germany) 7 1/8s, 2003 8,613,572 GBP 4,670,000 United Kingdom Treasury bonds 8s, 2003 7,372,644 GBP 4,125,000 United Kingdom Treasury bonds 8s, 2000 6,569,173 -------------- Total Foreign Government Bonds and Notes (cost $63,423,173) $63,577,956 COLLATERALIZED MORTGAGE OBLIGATIONS (1.9%)* PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------ $1,878,562 Chase Mortgage Finance Corp. Ser. 93-3, Class B1, 7.461s, 2024 $1,239,264 1,436,862 GE Capital Mortgage Services, Inc. Ser. 94-12, Class B3, 6s, 2009 1,222,680 Housing Securities Inc. 1,996,327 Ser. 91-B, Class B6, 9s, 2006 2,007,557 286,671 Ser. 93-J, Class J4, 6.66s, 2009 244,297 155,997 Ser. 93-J, Class J5, 6.66s, 2009 113,098 253,038 Ser. 94-1, Class AB1, 6 1/2s, 2009 213,026 2,965,885 Prudential Home Loan Corp. Ser. 92-25, Class B3, 8s, 2002 2,343,049 Prudential Home Mortgage Securities 347,804 Ser. 94-31, Class B3, 8s, 2009 315,089 3,571,951 Ser. 93-B, Class 5B, 7.8366s, 2023 2,229,121 1,192,148 Ser. 95-D, Class 5B, 7.54s, 2025 767,445 1,288,924 Ser. 92-13, Class B3, 7 1/2s, 2007 1,104,648 2,034,798 Ser. 93-E, Class 5B, 7.3935s, 2023 1,163,332 1,647,433 Ser. 93-36, Class M, 7 1/4s, 2023 1,651,552 3,895,363 Ser. 93-D, Class 2B, 7.1082s, 2023 3,651,294 5,579,219 144A Ser. 95-C, Class B1, 7.8158s, 2001 5,675,111 3,528,428 144A Ser. 94-A, Class 4B, 6.8025s, 2024 3,356,417 1,271,643 144A Ser. 94-D, Class B4, 6.312s, 2009 1,058,643 1,419,461 Ryland Mortgage Securities Corp. Ser. 94-7C, Class B2, 7.3586s, 2025 1,362,682 4,291,085 Securitized Asset Sales, Inc. Ser. 93-J, Class 2B, 6.8076s, 2023 4,113,408 687,293 Travelers Mortgage Securities Corp. Ser. 84-1, 12s, 2014 763,754 -------------- Total Collateralized Mortgage Obligations (cost $33,229,367) $34,595,467 CONVERTIBLE BONDS AND NOTES (1.6%)* PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------ $4,600,000 ADT Operations Inc. cv. sub. notes, zero%, 2010 $2,173,500 575,000 Exide Corp. sr. sub. notes 2.9s, 2005 368,719 2,500,000 Liberty Property Trust cv. sub. deb. 8s, 2001 2,746,875 3,100,000 Magna International cv. sub. deb., 5s, 2002 3,146,500 9,400,000 Mitsubishi Bank Ltd. cv. trust guaranteed notes, 3s, 2002 (Japan) 10,551,500 700,000 Riverwood International Corp. sub. notes, 6 3/4s, 2003 789,250 11,000,000 Roche Holdings,144A Inc. cv. unsub. LYON (Liquid Yield Option Notes), zero%, 2010 (Switzerland) 4,908,750 280,000 Toyota Motor Corp. cv. deb. 1.2s, 1998 3,131,890 1,200,000 Trenwick Group, Inc. cv. deb. 6s, 1999 1,368,000 1,119,000 WMX Technologies, Inc. cv. sub. notes 2s, 2005 973,530 -------------- Total Convertible Bonds and Notes (cost $27,383,247) $30,158,514 CONVERTIBLE PREFERRED STOCKS (0.9%)* NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------------------------------------ 65,000 Fieldcrest Cannon Ser. A, $3.00 cv. pfd. $2,786,875 421,000 Freeport McMoran Copper Co., Inc. stepped-coupon $1.25 ($1.75, 8/1/96)++ 11,577,500 5,000 Granite Broadcasting $1.938 cv. pfd. 243,750 54,000 Pittston Mineral Corp. $3.125 cv. pfd. 1,944,000 -------------- Total Convertible Preferred Stocks (cost $15,687,171) $16,552,125 ASSET-BACKED SECURITIES (--%)*(COST $786,773) PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------ $795,976 Merrill Lynch Mortgage Investors Inc. Ser. 89-E, Class A, 9.4s, 2009 $849,203 PREFERRED STOCKS (--%)*(cost $786,563) NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------------------------------------ 7,500 K-III Communications Ser. B, $11.625 pfd. ++++ $783,750 UNITS(--%)* NUMBER OF UNITS VALUE - ------------------------------------------------------------------------------------------------------------ 250 Fitzgerald Gaming Co. units 13s, 2002 $233,770 276,000 Total Renal Care Holdings, Inc. units sr. sub. disc. notes stepped-coupon zero % (12s, 8/15/97), 2004 ++ 273,930 -------------- Total Units (cost $491,830) $507,700 WARRANTS (--%)*+(cost $2,500) NUMBER OF WARRANTS VALUE - ------------------------------------------------------------------------------------------------------------ 250 Intermedia Communications 144A $5,000 SHORT-TERM INVESTMENTS (4.7%)* PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------ $25,000,000 Ciesco L.P., effective yield of 5.48%, February 2, 1996 $24,996,194 15,000,000 Corporate Asset Funding Co. Inc., effective yield of 5.32%, April 22, 1996 14,820,450 8,000,000 Federal National Mortgage Assn., effective yield of 5.11%, June 13, 1996 7,848,971 15,000,000 Ford Motor Credit Co., effective yield of 5.62%, 5-Feb-96 14,990,633 16,400,000 USAA Capital Corp., effective yield of 5.38%, 14-Mar-96 16,297,063 7,311,000 Interest in $942,854,000 joint repurchase agreement dated January 31, 1996 with Morgan Stanley & Co. Inc. due February 1, 1996 with respect to various U.S. Treasury yield of 5.85% 7,312,188 -------------- Total Short-Term Investments (cost $86,265,499) $86,265,499 -------------- Total Investments (cost $1,693,682,616)*** $1,918,032,901 - ------------------------------------------------------------------------------------------------------------ * Percentages indicated are based on net assets of $1,841,786,936. + Non-income producing security. ++++ Income may be received in cash or additional securities at the discretion of the issuer. ++ The interest or dividend rate shown parenthetically represent the new interest or dividend rate to be paid and the date the fund will begin receiving interest or dividends at this rate. *** The aggregate identified cost on a tax basis is $1,696,576,287, resulting in gross unrealized appreciation and depreciation of $235,938,491 and $14,481,877, respectively, or net unrealized appreciation of $221,456,614. ADR or ADS after the name of a holding represents ownership of foreign securities on deposit with various domestic custodian banks. TBA after the name of a security represents to be announced securities (See Note 1 to Financial Statements). - ------------------------------------------------------------------------------ TBA Sale Commitments Outstanding at January 31, 1996 (Proceeds receivable $74,467,594) - ------------------------------------------------------------------------------ Principal Delivery Coupon Market Agency Amount Month Rate Value - ------------------------------------------------------------------------------ GNMA $25,919,000 Feb. 99 7 1/2s $26,680,241 GNMA 31,899,000 Feb. 99 7s 32,317,515 GNMA 15,686,000 Feb. 99 6 1/2s 15,587,963 - ------------------------------------------------------------------------------ $74,585,719 - ------------------------------------------------------------------------------ 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. - ------------------------------------------------------------------------------ Forward Currency Contracts to Sell at January 31, 1996 (aggregate face value $56,931,482) - ------------------------------------------------------------------------------ Unrealized Market Aggregate Delivery Appreciation/ Value Face Value Date (Depreciation) - ------------------------------------------------------------------------------ British Pounds $12,298,096 $12,522,534 3/13/96 $224,438 Deutschemarks 19,907,366 20,592,908 3/13/96 685,542 Italian Lira 5,341,060 5,276,587 3/13/96 (64,473) Netherland Guilders 17,960,115 18,539,453 3/13/96 579,338 - ------------------------------------------------------------------------------ $1,424,845 - ------------------------------------------------------------------------------ The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities January 31,1996 (Unaudited) Assets - --------------------------------------------------------------------------------------------------- Investments in securities, at value (identified cost $ 1,693,682,616) (Note 1) $1,918,032,901 - --------------------------------------------------------------------------------------------------- Cash 744,341 - --------------------------------------------------------------------------------------------------- Dividends and interest receivable 15,071,402 - --------------------------------------------------------------------------------------------------- Receivable for shares of the fund sold 5,806,190 - --------------------------------------------------------------------------------------------------- Receivable for securities sold 131,492,833 - --------------------------------------------------------------------------------------------------- Receivable for open forward currency contracts 1,489,318 - --------------------------------------------------------------------------------------------------- Total assets 2,072,636,985 Liabilities - --------------------------------------------------------------------------------------------------- Payable for securities purchased 151,599,291 - --------------------------------------------------------------------------------------------------- Payable for shares of the fund repurchased 940,366 - --------------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 1,494,917 - --------------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 1,723 - --------------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 2,126 - --------------------------------------------------------------------------------------------------- Payable for distribution fees (Note 2) 536,704 - --------------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 1,116,097 - --------------------------------------------------------------------------------------------------- Payable for open forward currency contracts 64,473 - --------------------------------------------------------------------------------------------------- TBA sales commitments, at value (premium received $74,467,594) 74,585,719 - --------------------------------------------------------------------------------------------------- Other accrued expenses 508,633 - --------------------------------------------------------------------------------------------------- Total liabilities 230,850,049 - --------------------------------------------------------------------------------------------------- Net assets $1,841,786,936 Represented by - --------------------------------------------------------------------------------------------------- Paid-in-capital (Note 4) $1,576,019,242 - --------------------------------------------------------------------------------------------------- Undistributed net investment income (Note 1) 8,785,281 - --------------------------------------------------------------------------------------------------- Accumulated net realized gain on investments and foreign currency transactions (Note 1) 31,367,917 - --------------------------------------------------------------------------------------------------- Net unrealized appreciation of investments and assets and liabilities in foreign currencies 225,614,496 - --------------------------------------------------------------------------------------------------- Total - Representing net assets applicable to capital shares outstanding $1,841,786,936 Computation of net asset value and offering price - --------------------------------------------------------------------------------------------------- Net asset value and redemption price of class A shares ($1,312,491,759 divided by 83,060,372 shares) $15.80 - --------------------------------------------------------------------------------------------------- Offering price per class A share (100/94.25 of $15.80)* $16.76 - --------------------------------------------------------------------------------------------------- Net asset value and offering price of class B shares ($314,904,178 divided by 20,029,795 shares)** $15.72 - --------------------------------------------------------------------------------------------------- Net asset value and redemption price of class M shares ($21,568,273 divided by 1,371,147 shares) $15.73 - --------------------------------------------------------------------------------------------------- Offering price per class M share (100 / 96.50 of $15.73)* $16.30 - --------------------------------------------------------------------------------------------------- Net asset value, offering price and redemption price of class Y shares ($192,822,726 divided by 12,187,328 shares) $15.82 - --------------------------------------------------------------------------------------------------- * On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the offering price is reduced. ** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. The accompanying notes are an integral part of these financial statements.
Statement of operations Six months ended January 31,1996 (Unaudited) Investment Income - --------------------------------------------------------------------------------------------------- Interest $ 23,670,346 - --------------------------------------------------------------------------------------------------- Dividends (net of foreign tax of $79,298) 16,476,990 - --------------------------------------------------------------------------------------------------- Total investment income 40,147,336 Expenses: - --------------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 2,853,599 - --------------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 2,122,278 - --------------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 20,471 - --------------------------------------------------------------------------------------------------- Reports to shareholders 63,062 - --------------------------------------------------------------------------------------------------- Auditing 30,229 - --------------------------------------------------------------------------------------------------- Legal 9,382 - --------------------------------------------------------------------------------------------------- Postage 54,815 - --------------------------------------------------------------------------------------------------- Registration Fees 126,194 - --------------------------------------------------------------------------------------------------- Distribution fees -- Class A (Note 2) 1,428,651 - --------------------------------------------------------------------------------------------------- Distribution fees -- Class B (Note 2) 1,327,744 - --------------------------------------------------------------------------------------------------- Distribution fees -- Class M (Note 2) 56,373 - --------------------------------------------------------------------------------------------------- Administrative services (Note 2) 12,832 - --------------------------------------------------------------------------------------------------- Other expenses 21,716 - --------------------------------------------------------------------------------------------------- Total expenses 8,127,346 - --------------------------------------------------------------------------------------------------- Expense reduction (Note 2) (248,906) - --------------------------------------------------------------------------------------------------- Net expenses 7,878,440 - --------------------------------------------------------------------------------------------------- Net investment income 32,268,896 - --------------------------------------------------------------------------------------------------- Net realized gain on investments 68,065,242 - --------------------------------------------------------------------------------------------------- Net realized gain on forward contracts and foreign currency translation 751,261 - --------------------------------------------------------------------------------------------------- Net unrealized appreciation of investments and TBA sale commitments during the period 85,413,522 - --------------------------------------------------------------------------------------------------- Net unrealized appreciation on forward currency contracts and foreign currency translation during the period 2,195,690 - --------------------------------------------------------------------------------------------------- Net gain on investments 156,425,715 - --------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations $188,694,611 - --------------------------------------------------------------------------------------------------- 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 1996* 1995 - ------------------------------------------------------------------------------- ------------------- Increase in net assets - ------------------------------------------------------------------------------- ------------------- Operations: - ------------------------------------------------------------------------------- ------------------- Net investment income $ 32,268,896 $ 55,185,187 - ------------------------------------------------------------------------------- ------------------- Net realized gain on investments and foreign currency transactions 68,816,503 29,434,191 - ------------------------------------------------------------------------------- ------------------- Net unrealized appreciation of investment transactions and assets and liabilities in foreign currencies 87,609,212 121,774,937 - ------------------------------------------------------------------------------- ------------------- Net increase in net assets resulting from operations 188,694,611 206,394,315 - ------------------------------------------------------------------------------- ------------------- Distributions to shareholders - ------------------------------------------------------------------------------- ------------------- From net investment income: Class A (21,138,450) (38,735,859) - ------------------------------------------------------------------------------- ------------------- Class B (3,980,422) (5,837,212) - ------------------------------------------------------------------------------- ------------------- Class M (212,714) (50,170) - ------------------------------------------------------------------------------- ------------------- Class Y (3,345,401) (3,750,110) - ------------------------------------------------------------------------------- ------------------- From net realized gain on investments: Class A (45,204,844) (21,876,638) - ------------------------------------------------------------------------------- ------------------- Class B (10,876,061) (3,901,612) - ------------------------------------------------------------------------------- ------------------- Class M (598,184) -- - ------------------------------------------------------------------------------- ------------------- Class Y (6,793,689) (1,862,529) - ------------------------------------------------------------------------------- ------------------- Increase from capital share transactions (Note 4) 322,641,650 156,156,398 - ------------------------------------------------------------------------------- ------------------- Total increase in net assets 419,186,496 286,536,583 - ------------------------------------------------------------------------------- ------------------- Net assets - ------------------------------------------------------------------------------- ------------------- Beginning of period 1,422,600,440 1,136,063,857 - ------------------------------------------------------------------------------- ------------------- End of period (including undistributed net investment income of $8,785,281 and $5,193,372, respectively) $1,841,786,936 $1,422,600,440 - ------------------------------------------------------------------------------- ------------------- * Unaudited.
Financial Highlights (For a share outstanding throughout the period.) - ------------------------------------------------------------------------------------------------------ December 1, 1994 (commencement Year Six months of operations) Six months ended ended Jan. 31 to July 31 ended Jan. 31 July 31 - ------------------------------------------------------------------------------------------------------ 1996* 1995 1996* 1995 - ------------------------------------------------------------------------------------------------------ Class M Class Y - ------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $14.84 $12.77 $14.92 $13.54 - ------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------ Net investment income .28 .31 .34 .66 - ------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments 1.51 2.03 1.51 1.63 - ------------------------------------------------------------------------------------------------------ Total from investment operations 1.79 2.34 1.85 2.29 - ------------------------------------------------------------------------------------------------------ Less distributions from: - ------------------------------------------------------------------------------------------------------ Net investment income (.27) (.27) (.32) (.59) - ------------------------------------------------------------------------------------------------------ Net realized gain (loss) on investments (.63) -- (.63) (.32) - ------------------------------------------------------------------------------------------------------ Total distributions (.90) (.27) (.95) (.91) - ------------------------------------------------------------------------------------------------------ Net asset value, end of period $15.73 $14.84 $15.82 $14.92 - ------------------------------------------------------------------------------------------------------ Total investment return at net asset value (%)(a) 12.40(b) 18.52(b) 12.75(b) 18.00 - ------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $21,568 $8,164 $192,823 $153,597 - ------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(c) .75(b) .93(b) .34(b) .66 - ------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average net assets (%) 1.79(b) 2.53(b) 2.22(b) 4.78 - ------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 54.10(b) 102.57 54.10(b) 102.57 - ------------------------------------------------------------------------------------------------------ Financial Highlights (Continued) (For a share outstanding throughout the period.) - ----------------------------------------------------------------------------------------------------- April 1, 1994 (commencement Six months of operations) ended Year to July 31 Jan. 31 ended July 31 - ----------------------------------------------------------------------------------------------------- 1994 1996* 1995 1994 - ----------------------------------------------------------------------------------------------------- Class B - ----------------------------------------------------------------------------------------------------- Net asset value, beginning of period $13.21 $14.83 $13.46 $14.19 - ----------------------------------------------------------------------------------------------------- Investment operations - ----------------------------------------------------------------------------------------------------- Net investment income .17 .26 .52 .50 - ----------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments .31 1.50 1.63 (.12) - ----------------------------------------------------------------------------------------------------- Total from investment operations .48 1.76 2.15 .38 - ----------------------------------------------------------------------------------------------------- Less distributions from: - ----------------------------------------------------------------------------------------------------- Net investment income (.15) (.24) (.46) (.49) - ----------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments -- (.63) (.32) (.62) - ----------------------------------------------------------------------------------------------------- Total distributions (.15) (.87) (.78) (1.11) - ----------------------------------------------------------------------------------------------------- Net asset value, end of period $13.54 $15.72 $14.83 $13.46 - ----------------------------------------------------------------------------------------------------- Total investment return at net asset value (%)(a) 3.65(b) 12.21(b) 16.87 2.70 - ----------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $71,566 $314,904 $224,166 $151,327 - ----------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) .25(b) .84(b) 1.66 1.71 - ----------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) 1.34(b) 1.71(b) 3.81 3.39 - ----------------------------------------------------------------------------------------------------- Portfolio turnover (%) 100.69 54.10(b) 102.57 100.69 - ----------------------------------------------------------------------------------------------------- Financial Highlights (Continued) (For a share outstanding throughout the period.) - ----------------------------------------------------------------------------------------------------- April 27, 1992 (commencement Six months of operations) ended to July 31 Jan. 31 - ----------------------------------------------------------------------------------------------------- 1993 1992 1996* 1995 - ----------------------------------------------------------------------------------------------------- Net asset value, beginning of period $14.22 $13.73 $14.90 $13.52 - ----------------------------------------------------------------------------------------------------- Investment operations - ----------------------------------------------------------------------------------------------------- Net investment income .56 .13** .32 .63 - ----------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments .48 .53 1.51 1.63 - ----------------------------------------------------------------------------------------------------- Total from investment operations 1.04 .66 1.83 2.26 - ----------------------------------------------------------------------------------------------------- Less distributions from: - ----------------------------------------------------------------------------------------------------- Net investment income (.59) (.17) (.30) (.56) - ----------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments (.48) -- (.63) (.32) - ----------------------------------------------------------------------------------------------------- Total distributions (1.07) (.17) (.93) (.88) - ----------------------------------------------------------------------------------------------------- Net asset value, end of period $14.19 $14.22 $15.80 $14.90 - ----------------------------------------------------------------------------------------------------- Total investment return at net asset value (%)(a) 7.87 4.99(b) 12.62(b) 17.73 - ----------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $81,983 $11,946 $1,312,492 $1,036,674 - ----------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) 1.66 .55(b) .46(b) .91 - ----------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) 3.43 .84(b) 2.10(b) 4.58 - ----------------------------------------------------------------------------------------------------- Portfolio turnover (%) 89.22 78.90 54.10(b) 102.57 - ----------------------------------------------------------------------------------------------------- Financial highlights (For a share outstanding throughout the period) - ----------------------------------------------------------------------------------------------------- Year ended July 31 - ----------------------------------------------------------------------------------------------------- 1994 1993 1992 1991 - ----------------------------------------------------------------------------------------------------- Class A - ----------------------------------------------------------------------------------------------------- Net asset value, beginning of period $14.24 $14.24 $13.52 $13.39 - ----------------------------------------------------------------------------------------------------- Investment operations - ----------------------------------------------------------------------------------------------------- Net investment .59 .62 .64 .69 income - ----------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (.11) .52 1.12 .64 - ----------------------------------------------------------------------------------------------------- Total from investment operations .48 1.14 1.76 1.33 - ----------------------------------------------------------------------------------------------------- Less distributions from: - ----------------------------------------------------------------------------------------------------- Net investment income (.58) (.66) (.68) (.68) - ----------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments (.62) (.48) (.36) (.52) - ----------------------------------------------------------------------------------------------------- Total distributions (1.20) (1.14) (1.04) (1.20) - ----------------------------------------------------------------------------------------------------- Net asset value, end of period $13.52 $14.24 $14.24 $13.52 - ----------------------------------------------------------------------------------------------------- Total investment return at net asset value (%)(a) 3.46 8.64 13.68 11.28 - ----------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $913,171 $772,540 $622,129 $479,287 - ----------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) .95 .90 1.06 .94 - ----------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) 4.15 4.34 4.62 5.42 - ----------------------------------------------------------------------------------------------------- Portfolio turnover (%) 100.69 89.22 78.90 64.98 - ----------------------------------------------------------------------------------------------------- See page 32 for Notes to the Financial highlights. * Unaudited. ** Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. (a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) Not annualized. (c) The ratio of expenses to average net assets for the period ended January 31, 1996 includes amounts paid through brokerage service and expense offset arrangements. Prior period ratios exclude these amounts. (See Note 2).
Notes to financial statements January 31, 1996 (Unaudited) Note 1 Significant accounting policies The fund is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The fund seeks to provide a balanced investment composed of a well- diversified portfolio of stocks and bonds which will produce both capital growth and current income. The fund offers class A, class B, class M and class Y shares. Class A shares are sold with a maximum front-end sales charge of 5.75%. Class B shares, which convert to class A shares after eight years, do not pay a front-end sales charge but pay a higher ongoing distribution fee than class A shares, and may be subject to a contingent deferred sales charge, if those shares are redeemed within six years of purchase. Class M shares are sold with a maximum front-end sales charge of 3.50% and pay an ongoing distribution fee that is lower than class B shares and higher than class A shares. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A shares, class B shares and class M shares, but do not bear a distribution fee. Class Y shares are sold to defined contribution plans that initially invest in a combination of Putnam funds. Expenses of the fund are borne pro-rata by the holders of each class of shares, except that each class bears expenses unique to that class (including the distribution fees applicable to such class). Each class votes as a class only with respect to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. Shares of each class would receive their pro-rata share of the net assets of the fund, if the fund were liquidated. In addition, the Trustees declare separate dividends on each class of shares. The following is a summary of significant accounting policies followed by the fund in the preparation of its financial statements. The preparation of financial statements are in conformity with generally accepted accounting principles and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Actual results could differ from those estimates. A) Security valuation Investments for which market quotations are readily available are stated at market value, which is determined using the last reported sale price, or, if no sales are reported -- as in the case of some securities traded over-the-counter -- the last reported bid price. Short-term investments having remaining maturities of 60 days or less are stated at amortized cost, which approximates market value, and other investments are stated at fair value following procedures approved by the Trustees. Market quotations are not considered to be readily available for certain long-term corporate bonds and notes; such investments are stated at fair value on the basis of valuations furnished by a pricing service, approved by the Trustees, which determines valuations for normal, institutional size trading units of such securities using methods based on market transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. B) Joint trading account Pursuant to an exemptive order issued by the Securities and Exchange Commission, the fund may transfer uninvested cash balances into a joint trading account, along with the cash of other registered investment companies managed by Putnam Investment Management, Inc. ("Putnam Management"), the fund's manager, a wholly-owned subsidiary of Putnam Invesments, Inc. and certain other accounts. 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 102% of the resale price, including accrued interest. Putnam Management is responsible for determining that the value of these underlying securities is at all times at least equal to 102% of the resale price, including accrued interest. D) Security transactions and related investment income Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Interest income is recorded on the accrual basis and dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recorded as soon as the fund is informed of the ex-dividend date. Discounts on zero coupon bonds, original issue, stepped-coupon bonds and payment in kind bonds are accreted according to the effective yield method. E) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, other assets and liabilities are recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when accrued or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such fluctuations are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net exchange gains or losses on closed forward currency contracts, disposition of foreign currencies and the difference between the amount of investment income and foreign withholding taxes recorded on the fund's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized gains and losses on foreign currency transactions arise from changes in the value of open forward currency contracts and assets and liabilities other than investments at the period end, resulting from changes in the exchange rate. F) Forward currency contracts The fund may engage in forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date, to protect against a decline in value relative to the U.S. dollar of the currencies in which its portfolio securities are denominated or quoted (or an increase in the value of a currency in which securities a fund intends to buy are denominated, when a fund holds cash reserves and short-term investments). The U.S. dollar value of forward currency contracts is determined using forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is "marked-to-market" daily and the change in market value is recorded as an unrealized gain or loss. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. G) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Internal Revenue Code of 1986. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation of securities held and for excise tax on income and capital gains. H) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Capital gain distributions, if any, are recorded on the ex-dividend date and paid annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. I) 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 2.0% from the principal amount. The fund holds, and maintains until settlement date, cash or high-grade debt obligations in an amount sufficient to meet the purchase price, or the fund may enter into offsetting contracts for the forward sale of other securities it owns. Income on the securities will not be earned until settlement date. TBA purchase commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date, which risk is in addition to the risk of decline in the value of the fund's other assets. Unsettled TBA purchase commitments are valued at the current market value of the underlying securities, generally 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. 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 a 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 on the underlying security. 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. Note 2 Management fee, administrative services, and other transactions Compensation of Putnam Management for management and investment advisory services is paid quarterly based on the average net assets of the fund for the quarter. Such fee is based on an annual rate of 0.60% of the first $100 million of average net assets, 0.50% of the next $100 million, 0.40% of the next $300 million, 0.325% of the next $500 million and 0.30% of any amount over $1.0 billion, subject under current law, to reduction in any year to the extent that expenses (exclusive of brokerage, interest, taxes, and distribution fees and extraordinary expenses) of the fund exceed 2.5% of the first $30 million of average net assets, 2.0% of the next $70 million and 1.5% of any amount over $100 million and by the amount of certain brokerage commissions and fees (less expenses) received by affiliates of the Manager on the fund's portfolio transactions. On January 5, 1996, the Trustees approved a proposal to increase fees payable to Putnam Management under the fund's Management Contract. The proposed increase is subject to shareholder approval and will be submitted to shareholders at a meeting scheduled to be held on July 11, 1996. If approved at the meeting, management fees would thereafter be paid at the annual rate of 0.65% of the first $500 million of average net assets, 0.55% of the next $500 million, 0.50% of the next $500 million, 0.45% of the next $5 billion, 0.425% of the next $5 billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion, and 0.38% of any amount thereafter. The fund reimburses Putnam Management for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees. Trustees of the fund receive an annual Trustees fee of $2,530 and an additional fee for each Trustee's meeting attended. Trustees who are not interested persons of Putnam Management and who serve on committees of the Trustees receive additional fees for attendance at certain committee meetings. The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows the Trustees to defer the receipt of all or a portion of Trustees Fees payable on or after July 1, 1995. The deferred fees remain in the fund and are invested in the fund or in other Putnam funds until distribution in accordance with the Plan. Custodial functions for the fund's assets are provided by Putnam Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam Investments, Inc.. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. For the six months ended January 31, 1996, fund expenses were reduced by $248,906 under expense offset arrangements with PFTC and brokerage service arrangements. Investor servicing and custodian fees reported in the Statement of operations exclude these credits. The fund could have invested the assets utilized in connection with the expense offset arrangements in an income producing asset if it had not entered into such arrangements. The fund has adopted distribution plans (the "Plans") with respect to its class A, class B and class M shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments Inc., for services provided and expenses incurred by it in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%, 1.00%, and 1.00% of the average net assets attributable to class A, class B, and class M shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%, and 0.75% of the average net assets attributable to class A, class B and class M shares, respectively. For the six months ended January 31, 1996, Putnam Mutual Funds Corp., acting as underwriter, received net commissions of $316,557 and $13,953 from the sale of class A and class M shares, respectively, and received $140,606 in contingent deferred sales charges from redemptions of class B shares. A deferred sales charge of up to 1% is assessed on certain redemptions of class A shares. For the six months ended January 31, 1996, Putnam Mutual Funds Corp., acting as underwriter received $8,152 on class A redemptions. Note 3 Purchases and sales of securities During the six months ended January 31, 1996, purchases and sales of investment securities other than U.S. government obligations and short- term investments aggregated $646,756,070 and $551,014,989, respectively. Purchases and sales of U.S. government obligations aggregated $399,946,734 and $262,768,272, respectively. In determining the net gain or loss on securities sold, the cost of securities has been determined on the identified cost basis. Note 4 Capital shares At January 31, 1996, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: Six months ended January 31, 1996 - ---------------------------------------------------- Class A Shares Amount - ---------------------------------------------------- Shares sold 14,758,071 $227,348,259 - ---------------------------------------------------- Shares issued in connection with reinvestment of distributions 3,824,843 57,388,279 - ---------------------------------------------------- 18,582,914 284,736,538 Shares repurchased (5,106,810) (78,423,374) - ---------------------------------------------------- Net increase 13,476,104 $206,313,164 - ---------------------------------------------------- Year ended July 31, 1995 - ---------------------------------------------------- Class A Shares Amount - ---------------------------------------------------- Shares sold 13,146,606 $180,553,042 - ---------------------------------------------------- Shares issued in connection with reinvestment of distributions 3,834,615 50,531,572 - ---------------------------------------------------- 16,981,221 231,084,614 Shares repurchased (14,933,076) (206,639,360) - ---------------------------------------------------- Net increase 2,048,145 $24,445,254 - ---------------------------------------------------- Six months ended January 31, 1996 - ---------------------------------------------------- Class B Shares Amount - ---------------------------------------------------- Shares sold 5,212,315 $79,756,032 - ---------------------------------------------------- Shares issued in connection with reinvestment of distributions 925,096 13,845,749 - ---------------------------------------------------- 6,137,411 93,601,781 Shares repurchased (1,224,111) (18,711,445) - ---------------------------------------------------- Net increase 4,913,300 $74,890,336 - ---------------------------------------------------- Year ended July 31, 1995 - ---------------------------------------------------- Class B Shares Amount - ---------------------------------------------------- Shares sold 5,418,159 $74,481,040 - ---------------------------------------------------- Shares issued in connection with reinvestment of distributions 682,650 8,962,991 - ---------------------------------------------------- 6,100,809 83,444,031 Shares repurchased (2,232,649) (30,300,283) - ---------------------------------------------------- Net increase 3,877,160 $53,143,748 - ---------------------------------------------------- Six months ended January 31, 1996 - ---------------------------------------------------- Class M Shares Amount - ---------------------------------------------------- Shares sold 831,718 $12,731,479 - ---------------------------------------------------- Shares issued in connection with reinvestment of distributions 51,926 777,807 - ---------------------------------------------------- 883,644 13,509,286 Shares repurchased (62,501) (956,307) - ---------------------------------------------------- Net increase 821,143 $12,552,979 - ---------------------------------------------------- December 1, 1994 (commencement of operations) to July 31, 1995 - ---------------------------------------------------- Class M Shares Amount - ---------------------------------------------------- Shares sold 593,067 $8,359,665 - ---------------------------------------------------- Shares issued in connection with reinvestment of distributions 3,587 49,999 - ---------------------------------------------------- 596,654 8,409,664 Shares repurchased (46,650) (638,771) - ---------------------------------------------------- Net increase 550,004 $7,770,893 - ---------------------------------------------------- Six months ended January 31, 1996 - ---------------------------------------------------- Class Y Shares Amount - ---------------------------------------------------- Shares sold 2,253,916 $34,711,736 - ---------------------------------------------------- Shares issued in connection with reinvestment of distributions 674,829 10,141,090 - ---------------------------------------------------- 2,928,745 44,852,826 - ---------------------------------------------------- Shares repurchased (1,039,345) (15,967,655) - ---------------------------------------------------- Net increase 1,889,400 $28,885,171 - ---------------------------------------------------- Year ended July 31, 1995 - ---------------------------------------------------- Class Y Shares Amount - ---------------------------------------------------- Shares sold 5,778,282 $81,698,558 - ---------------------------------------------------- Shares issued in connection with reinvestment of distributions 423,222 5,612,640 - ---------------------------------------------------- 6,201,504 87,311,198 - ---------------------------------------------------- Shares repurchased (1,188,113) (16,514,695) - ---------------------------------------------------- Net increase 5,013,391 $70,796,503 - ---------------------------------------------------- Fund information INVESTMENT MANAGER Putnam Investment Management, Inc. One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Mutual Funds Corp. One Post Office Square Boston, MA 02109 CUSTODIAN Putnam Fiduciary Trust Company LEGAL COUNSEL Ropes & Gray TRUSTEES George Putnam, Chairman William F. Pounds, Vice Chairman Jameson Adkins Baxter Hans H. Estin John A. Hill Elizabeth T. Kennan Lawrence J. Lasser Robert E. Patterson Donald S. Perkins George Putnam, III Eli Shapiro A.J.C. Smith W. Nicholas Thorndike OFFICERS George Putnam President Charles E. Porter Executive Vice President Patricia C. Flaherty Senior Vice President John D. Hughes Senior Vice President and Treasurer Lawrence J. Lasser Vice President Gordon H. Silver Vice President Edward P. Bousa Vice President and Fund Manager Kenneth J. Taubes Vice President and Fund Manager Rosemary H. Thomsen Vice President and Fund Manager William N. Shiebler Vice President John R. Verani Vice President Paul M. O'Neil Vice President Beverly Marcus Clerk and Assistant Treasurer This report is for the information of shareholders of The George Putnam Fund of Boston. It may also be used as sales literature when preceded or accompanied by the current prospectus, which gives details of sales charges, investment objectives, and operating policies of the fund, and the most recent copy of Putnam's Quarterly Performance Summary. For more information, or to request a prospectus, call toll free: 1-800-225-1581. Shares of mutual funds are not deposits or obligations of, or guaranteed or endorsed by, any financial institution, are not insured by the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board or any other agency, and involve risk, including the possible loss of principal amount invested. PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston Massachusetts, 02109 23298-001/880/242 Bulk Rate U.S. Postage PAID Putnam Investments -----END PRIVACY-ENHANCED MESSAGE-----