-----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, QP4FTM16dinxDK4mRPllnmQPUlFF39e3HqEpbi/xIHUo/FdTEQCwuynOS6L0LtgQ OTh5w0wdA1/4tcTDUmGvjg== 0000928816-99-000083.txt : 19990322 0000928816-99-000083.hdr.sgml : 19990322 ACCESSION NUMBER: 0000928816-99-000083 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990319 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: SEC FILE NUMBER: 811-00058 FILM NUMBER: 99569068 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQ STREET 2: MAILSTOP A 14 CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 8002252581 FORMER COMPANY: FORMER CONFORMED NAME: PUTNAM EQUITY INCOME FUND/NEW DATE OF NAME CHANGE: 19940302 FORMER COMPANY: FORMER CONFORMED NAME: PUTNAM GEORGE FUND OF BOSTON DATE OF NAME CHANGE: 19920703 N-30D 1 THE GEORGE PUTNAM FUND OF BOSTON The George Putnam Fund of Boston SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK 1-31-99 [LOGO: BOSTON * LONDON * TOKYO] Fund highlights * ". . .this fund appears to have what it takes to reach the upper echelons of its peer group. . ." -- Morningstar Mutual Funds, November 6, 1998 * "With The George Putnam Fund of Boston, risk controls go beyond the mixing of stocks and bonds. The stocks are chosen for their attractive prices and solid financial condition, and the bond portion is thoroughly diversified. Each of these qualities helps to limit risk as we pursue growth and income." -- Edward Bousa, co-manager CONTENTS 4 Report from Putnam Management 9 Fund performance summary 13 Portfolio holdings 37 Financial statements From the Chairman [GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM] [copyright] Karsh, Ottawa Dear Shareholder: The first half of The George Putnam Fund of Boston's fiscal 1999 is an instructive example of the value of maintaining a long-term investment perspective. As the total return tables that follow the management report suggest, the fund's performance during the six months ended January 31, 1999, was certainly not representative of its long-term results. While one can never take past performance as an assurance of future results, your fund's management team as well as most other investment professionals believes that the volatility that has recently plagued the markets eventually will ease as the markets resume their more stable historic growth patterns. Meanwhile, the current environment provides an excellent opportunity to add to selected portfolio holdings and to acquire other investments that the fund's managers believe possess attractive potential. I am pleased to announce the addition of Krishna K. Memani to your fund's management team. He joined Putnam in 1998 as managing director of the Credit team within the Core Fixed Income Group. His 14 years of investment experience include service with Morgan Stanley and Price Waterhouse. Respectfully yours, /S/GEORGE PUTNAM George Putnam Chairman of the Trustees March 17, 1999 Report from the Fund Managers Edward P. Bousa James M. Prusko David L. Waldman Krishna K. Memani In the first half of The George Putnam Fund of Boston's 1999 fiscal year, which began on August 1, 1998, global capital markets experienced events of historic significance, from currency devaluations in Russia and Brazil to unprecedented action by the Federal Reserve Board to maintain investor confidence. Thanks to its balanced portfolio of stocks and bonds and broad diversity within these two asset classes, your fund experienced less volatility than the major stock indexes. The period nevertheless marked a departure from the steady ascent of security prices we had seen over the previous three years. Consequently, the fund's class A shares posted a modest gain of 5.04% at net asset value for the six months ended January 31, 1999 (they posted -1.01% at public offering price). For complete performance information, including the returns of all share classes, please turn to the performance tables on page 9. * FUND PERFORMS WELL AMID OPENING VOLATILITY As the fund's semiannual period began, many large-company stocks in the United States had just reached all-time highs; similarly most sectors of the bond market were humming along as interest rates fell to levels last seen in the late 1960s. In August, however, the government of Russia shook the world. To resolve a worsening fiscal situation, it devalued the ruble and announced a rescheduling of its foreign debt payments. International institutions suddenly turned intensely risk averse and began to restrict the use of borrowed funds for investing. The result was heavy selling pressure that lowered prices of securities around the world -- including those in the United States. This situation persisted until September, when the Federal Reserve Board reassured markets with the first of three interest-rate reductions in consecutive months. Although your fund experienced a sizable decline in August and September, we still consider that it was well prepared for the volatility. With approximately 35%-40% of its assets in bonds, its returns declined by a lesser extent than did the equity indexes. Treasuries, which represented roughly 10% of the overall portfolio, actually rallied during the crisis, as investors bid more for their high credit quality. On the opposite end of the credit spectrum, the fund's high-yield bonds performed poorly, as demand in this sector evaporated. The fund's stock holdings did well on a relative basis. Generally we select undervalued stocks of companies in strong financial condition, the type of stocks that tend to attract investors in periods of uncertainty. Utilities and food companies, in particular, performed well during the downturn. In the recovery, however, value stocks again lagged behind large growth companies, though we believe that this long lasting trend may soon exhaust itself, leading to a period when value stocks can become more competitive. * SECTOR MOVES HELP PERFORMANCE In executing our value equity strategy, we frequently buy stocks that have become more attractively priced for short-term reasons. After all, our search for qualities of "cheapness and change" often leads us to companies undergoing attractive changes but with stock prices that are simply too high for our value criteria. When industry factors make stocks cheaper, as when low oil prices hurt all energy companies, we are able to take advantage of what we see as a temporary weakness. [GRAPHIC OMITTED: horizontal bar chart COMPARATIVE PORTFOLIO COMPOSITION] COMPARATIVE PORTFOLIO COMPOSITION* 1/31/99 7/31/98 Common stocks 58.2% 62.0% U.S. government and agency securities 17.3% 13.2% Corporate bonds and notes 17.6% 17.8% Foreign government bonds and notes 0.3% 1.8%+ Collateralized mortgage obligations 2.5% 2.8% Convertible and preferred securities 1.0% 0.4% Cash and other 6.5% 2.4% Footnotes read: *Based on net assets as of 1/31/99 and 7/31/98. Holdings will vary over time. +Includes Brady bonds. Brady bonds are U.S.-dollar denominated bonds of foreign governments whose principal is collateralized by U.S. Treasury obligations. For example, in August 1998, as equities in general sank, we added to positions in financial and technology companies. We bought stocks such as Sun Microsystems, which manufactures equipment for Internet service providers. Thanks to persistent demand for computers and Internet services, Sun rallied strongly by the end of the year and we have taken profits. Toward the end of the year we also began increasing the fund's stakes in industrial and consumer cyclical companies. Investors were selling Colgate Palmolive, a fund holding, because of its exposure to slowing global economies, including Brazil. Because the company was introducing new products and increasing its market share in many other countries, however, we added to our position as the price declined. We also added to telephone utilities, such as GTE, to energy companies, such as Exxon and Duke Energy, and to transportation stocks, including railroad Burlington Northern Santa Fe Corporation and several airlines. We believe price declines in each of these industries are near their cyclical lows and could reverse in late 1999. GTE and Burlington Northern also stand out as leaders in their industries. GTE is expanding as an Internet service provider and Burlington Northern is the fastest-growing major railroad in the country. Although these holdings, as well as others mentioned in this report, were viewed favorably at the end of the reporting period, all are subject to review and adjustment in accordance with the fund's investment strategy and may vary in the future. * FIXED-INCOME PORTION REDUCES RISK PROFILE The fixed-income side of the portfolio remained at its usual weight -- approximately 35%-40% -- during the period. As we have mentioned in previous reports, we manage the bonds with the goals of providing an attractive level of income and offsetting some of the risks of equities. Because of this income-oriented, low-risk strategy, investment-grade corporate bonds and a variety of mortgage-backed securities account for a majority of the bond holdings. We also keep approximately 20% of the bond portion in Treasuries. [GRAPHIC OMITTED: TOP 10 EQUITY HOLDINGS] TOP 10 EQUITY HOLDINGS BankAmerica Corp. Insurance and finance GTE Corp. Utilities Citigroup, Inc. Insurance and finance AT&T Corp. Utilities Philip Morris Cos., Inc. Consumer nondurables Exxon Corp. Oil and gas Mobil Corp. Oil and gas American Home Products Corp. Pharmaceuticals and biotechnology Pharmacia & Upjohn, Inc. Pharmaceuticals and biotechnology Bristol-Myers Squibb Co. Pharmaceuticals and biotechnology Footnote reads: These holdings represent 11.2% of the fund's net assets as of 1/31/99. Portfolio holdings will vary over time. The smallest slice of your fund's fixed-income pie is devoted to high-yield bonds. These holdings performed poorly during the August and September turmoil. Subsequently we made a strategic decision to reduce the high-yield allocation. Although this move sacrificed a bit of income, we believe that further reducing the high yield bonds would reflect the fund's overall aversion to risk better. Fortunately, during the financial recovery of late 1998, high-yield bonds performed well and we were able to sell into strength. Currently they account for about 10% of fixed-income holdings, or a little more than 5% of the overall fund. To replace the high yield bonds, we added to investment-grade corporates and mortgages. The steady growth and slightly rising interest rates we anticipate in 1999 should be favorable for these sectors. * MODEST ECONOMIC STRENGTH GOOD FOR FUND As we enter the second half of the fund's fiscal year, we believe there is greater calm in the financial markets than was the case last summer. Institutions in general are using less borrowed money to buy securities than they did a year ago. In addition, we believe that fewer risks, such as currency devaluations, loom on the horizon. This type of environment would be free of some of the worries that dogged the bond market in late 1998. Although value stocks have lagged behind the overall market, we believe they could get a lift if the Fed's easier monetary policy stimulates faster economic growth in 1999. Whether this calm is brief or long lasting, your fund, thanks to its diverse holdings in the stock and bond markets, is well positioned to build on its 61-year-history of providing shareholders with growth and income. 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 1/31/99, there is no guarantee the fund will continue to hold these securities in the future. Performance summary This section provides information about your fund's performance, which should always be considered in light of its investment strategy. The George Putnam Fund of Boston is designed for investors seeking capital appreciation and current income. TOTAL RETURN FOR PERIODS ENDED 1/31/99 Class A Class B Class M (inception date) (11/5/37) (4/27/92) (12/1/94) NAV POP NAV CDSC NAV POP - ------------------------------------------------------------------------------ 6 months 5.04% -1.01% 4.63% -0.21% 4.81% 1.12% - ------------------------------------------------------------------------------ 1 year 11.39 4.99 10.57 5.57 10.87 6.98 - ------------------------------------------------------------------------------ 5 years 98.56 87.12 91.31 89.31 93.53 86.79 Annual average 14.70 13.35 13.85 13.61 14.12 13.31 - ------------------------------------------------------------------------------ 10 years 249.21 229.12 223.01 223.01 230.55 219.00 Annual average 13.32 12.65 12.44 12.44 12.70 12.30 - ------------------------------------------------------------------------------ Annual average (life of fund) 9.99 9.89 8.93 8.93 9.20 9.14 - ------------------------------------------------------------------------------ COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 1/31/99 Standard & Lehman Bros. Poor's Govt./Corp. Consumer 500 Index Bond Index* Price Index - ------------------------------------------------------------------------------ 6 months 15.02% 5.74% 0.86% - ------------------------------------------------------------------------------ 1 year 32.49 8.71 1.86 - ------------------------------------------------------------------------------ 5 years 196.13 41.14 12.59 Annual average 24.25 7.13 2.40 - ------------------------------------------------------------------------------ 10 years 462.67 142.57 35.92 Annual average 18.86 9.27 3.12 - ------------------------------------------------------------------------------ Annual average (life of fund) 12.53 N/A 4.03 - ------------------------------------------------------------------------------ Past performance is no assurance of future results. More recent returns may be more or less than those shown. Returns for class A and class M shares reflect the current maximum initial sales charges of 5.75% and 3.50% respectively. Class B share returns for the 1-, 5-, and 10-year (where available) and life-of-fund periods reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declines to 1% in the sixth year, and is eliminated thereafter. Returns shown for class B and class M shares for periods prior to their inception are derived from the historical performance of class A shares, adjusted to reflect both the initial sales charge or CDSC , if any, currently applicable to each class and in the case of class B and class M shares, the higher operating expenses applicable to such shares. All returns assume reinvestment of distributions at NAV. Investment return and principal value will fluctuate so that an investor's shares when redeemed may be worth more or less than their original cost. *Inception date of index was 12/31/72, after the fund's inception. PRICE AND DISTRIBUTION INFORMATION 6 months ended 1/31/99 Class A Class B Class M - ------------------------------------------------------------------------------ Distributions (number) 2 2 2 - ------------------------------------------------------------------------------ Income $0.300 $0.233 $0.253 - ------------------------------------------------------------------------------ Capital gains - ------------------------------------------------------------------------------ Long-term 0.757 0.757 0.757 - ------------------------------------------------------------------------------ Short-term 0.442 0.442 0.442 - ------------------------------------------------------------------------------ Total $1.499 $1.432 $1.452 - ------------------------------------------------------------------------------ Share value: NAV POP NAV NAV POP - ------------------------------------------------------------------------------ 7/31/98 $18.82 $19.97 $18.67 $18.67 $19.35 - ------------------------------------------------------------------------------ 1/31/99 18.22 19.33 18.06 18.07 18.73 - ------------------------------------------------------------------------------ Current return (end of period) - ------------------------------------------------------------------------------ Current dividend rate1 3.29% 3.10% 2.59% 2.81% 2.71% - ------------------------------------------------------------------------------ Current 30-day SEC yield2 3.00 2.83 2.26 2.51 2.36 - ------------------------------------------------------------------------------ 1 Income portion of most recent distribution, annualized and divided by NAV or POP at end of period. 2 Based on investment income, calculated using SEC guidelines. TOTAL RETURN FOR PERIODS ENDED 12/31/98 (most recent calendar quarter) Class A Class B Class M (inception date) (11/5/37) (4/27/92) (12/1/94) NAV POP NAV CDSC NAV POP - ------------------------------------------------------------------------------ 6 months 2.42% -3.49% 2.06% -2.66% 2.18% -1.41% - ------------------------------------------------------------------------------ 1 year 10.60 4.22 9.77 4.77 10.07 6.20 - ------------------------------------------------------------------------------ 5 years 101.71 90.06 94.42 92.42 96.70 89.83 Annual average 15.07 13.70 14.22 13.99 14.49 13.68 - ------------------------------------------------------------------------------ 10 years 263.16 242.33 236.00 236.00 243.71 231.62 Annual average 13.77 13.10 12.88 12.88 13.14 12.74 - ------------------------------------------------------------------------------ Annual average (life of fund) 9.99 9.88 8.93 8.93 9.20 9.14 - ------------------------------------------------------------------------------ Past performance is no assurance of future results. More recent returns may be more or less than those shown. Returns do not take into account any adjustment for taxes payable on reinvested distributions. Investment returns and principal value will fluctuate so that an investor's shares when sold may be worth more or less than their original cost. See first page of performance section for performance calculation method. TERMS AND DEFINITIONS Total return shows how the value of the fund's shares changed over time, assuming you held the shares through the entire period and reinvested all distributions in the fund. Class A shares are generally subject to an initial sales charge. Class B shares may be subject to a sales charge upon redemption. Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no sales charge on redemption. Net asset value (NAV) is the value of all your fund's assets, minus any liabilities, divided by the number of outstanding shares, not including any initial or contingent deferred sales charge. Public offering price (POP) is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. POP performance figures shown here assume the 5.75% maximum sales charge for class A shares and 3.50% for class M shares. Contingent deferred sales charge (CDSC) is a charge applied at the time of the redemption of class B shares and assumes redemption at the end of the period. Your fund's CDSC declines from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. COMPARATIVE BENCHMARKS Standard & Poor's 500 Index* is an unmanaged list of common stocks that is frequently used as a general measure of stock market performance. Lehman Brothers Government/Corporate Bond Index* is an unmanaged list of publicly issued U.S. Treasury obligations, debt obligations of U.S. government agencies (excluding mortgage-backed securities), fixed-rate, nonconvertible investment-grade corporate debt securities and U.S. dollar-denominated SEC-registered nonconvertible debt issued by foreign governmental entities or international agencies. Consumer Price Index (CPI) is a commonly used measure of inflation; it does not represent an investment return. *Securities indexes assume reinvestment of all distributions and interest payments and do not take in account brokerage fees or taxes. Securities in the fund do not match those in the indexes and performance of the fund will differ. It is not possible to invest directly in an index. 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Portfolio of investments owned January 31, 1999 (Unaudited) COMMON STOCKS (58.2%) (a) NUMBER OF SHARES VALUE Aerospace and Defense (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 559,700 Raytheon Co. Class B $ 31,308,219 Agriculture (--%) - -------------------------------------------------------------------------------------------------------------------------- 22,025 PSF Holdings LLC Class A (acquired various dates from 5/20/94 to 8/25/94 cost $768,967) (NON) (RES) 280,819 Automotive (1.5%) - -------------------------------------------------------------------------------------------------------------------------- 769,800 Ford Motor Co. 47,294,588 498,000 General Motors Corp. 44,695,500 -------------- 91,990,088 Basic Industrial Products (1.5%) - -------------------------------------------------------------------------------------------------------------------------- 810,200 Deere (John) & Co. 26,382,138 478,200 Minnesota Mining & Manufacturing Co. 37,120,275 925,700 Owens-Illinois, Inc. (NON) 27,076,725 -------------- 90,579,138 Building and Construction (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 919,000 Sherwin Williams Co. 23,549,375 Business Equipment and Services (0.6%) - -------------------------------------------------------------------------------------------------------------------------- 40,500 Pitney Bowes, Inc. 2,786,906 258,700 Xerox Corp. 32,078,800 -------------- 34,865,706 Cable TV (0.7%) - -------------------------------------------------------------------------------------------------------------------------- 807,000 MediaOne Group Inc. (NON) 45,242,438 Chemicals (1.3%) - -------------------------------------------------------------------------------------------------------------------------- 320,600 Dow Chemical Co. 28,232,838 717,000 du Pont (E.I.) de Nemours & Co., Ltd. 36,701,438 440,400 Eastman Chemical Co. 17,891,250 -------------- 82,825,526 Computer Services and Software (2.6%) - -------------------------------------------------------------------------------------------------------------------------- 574,000 Apple Computer, Inc. 23,641,625 1,058,900 Compaq Computer Corp. 50,430,113 644,800 Computer Associates Intl., Inc. 32,643,000 301,000 IBM Corp. 55,158,250 -------------- 161,872,988 Conglomerates (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 677,000 Allied-Signal, Inc. 26,403,000 96,000 Temple Inland, Inc. 5,478,000 -------------- 31,881,000 Consumer Durable Goods (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 802,900 Hasbro, Inc. 29,857,844 44 Mothers Work, Inc. (NON) 550 -------------- 29,858,394 Consumer Non Durables (2.4%) - -------------------------------------------------------------------------------------------------------------------------- 402,300 Colgate-Palmolive Co. 32,360,006 1,213 Hedstrom Holdings, Inc. 144A 1,213 606,200 Kimberly-Clark Corp. 30,196,338 1,425,700 Philip Morris Cos., Inc. 67,007,900 199,000 Procter & Gamble Co. 18,084,125 -------------- 147,649,582 Consumer Products (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 578,400 Fortune Brands, Inc. 19,231,800 Consumer Services (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 100 AmeriKing, Inc. (NON) 4,000 472,200 Tribune Co. 30,191,288 -------------- 30,195,288 Electronics and Electrical Equipment (1.7%) - -------------------------------------------------------------------------------------------------------------------------- 493,400 Emerson Electric Co. 28,709,713 461,700 Illinois Tool Works, Inc. 27,846,281 666,200 Motorola, Inc. 48,132,950 -------------- 104,688,944 Entertainment (--%) - -------------------------------------------------------------------------------------------------------------------------- 1,733 Fitzgerald Gaming Corp. (NON) 867 Food and Beverages (3.3%) - -------------------------------------------------------------------------------------------------------------------------- 640,000 Anheuser-Busch Cos., Inc. 45,240,000 992,000 ConAgra, Inc. 32,240,000 465,900 Heinz (H.J.) Co. 26,235,994 666,800 Kellogg Co. 27,255,450 486,400 Nabisco Holdings Corp. Class A 20,459,200 1,358,000 Sara Lee Corp. 34,629,000 880,100 Whitman Corp. 17,161,950 -------------- 203,221,594 Health Care (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 1,202,500 HEALTHSOUTH Corp. (NON) 16,308,906 Insurance and Finance (13.6%) - -------------------------------------------------------------------------------------------------------------------------- 722,600 Allstate Corp. 27,142,663 552,000 American General Corp. 39,364,500 200,000 American International Group, Inc. 20,587,500 1,093,236 Bank One Corp. 57,258,236 1,485,226 BankAmerica Corp. 99,324,489 720,750 BankBoston Corp. 26,622,703 672,300 Charter One Financial, Inc. 18,824,400 252,900 Chase Manhattan Corp. 19,457,494 492,400 CIGNA Corp. 40,561,450 1,312,550 Citigroup, Inc. 73,584,834 548,600 Fannie Mae 39,979,225 551,000 First Union Corp. 28,996,375 365,600 Hartford Financial Services Group 18,988,350 515,500 KeyCorp 16,431,563 350,000 Lincoln National Corp. 29,159,375 330,000 Mercantile Bancorp., Inc. 14,829,375 417,000 Merrill Lynch & Co., Inc. 31,692,000 198,300 Morgan (J.P.) & Co., Inc. 20,920,650 494,600 Morgan Stanley, Dean Witter, Discover and Co. 42,937,463 745,900 PNC Bank Corp. 38,180,756 636,250 Synovus Financial Corp. 15,906,250 494,000 The Equitable Companies, Inc. 34,456,500 82,000 U.S. Bancorp 2,762,375 887,800 Washington Mutual, Inc. 37,287,600 1,060,000 Wells Fargo Co. 37,033,750 -------------- 832,289,876 Medical Supplies and Devices (0.7%) - -------------------------------------------------------------------------------------------------------------------------- 642,700 Baxter International, Inc. 45,591,531 Oil and Gas (5.8%) - -------------------------------------------------------------------------------------------------------------------------- 600,600 BP Amoco PLC ADR (United Kingdom) 48,723,675 413,000 Chevron, Inc. 30,871,750 693,200 Conoco, Inc. (NON) 13,820,675 436,400 Elf Aquitane ADR (France) 23,838,350 425,000 Enron Corp. 28,050,000 935,400 Exxon Corp. 65,887,238 954,500 Halliburton Co. 28,336,719 616,000 Kerr-McGee Corp. 20,905,500 689,100 Mobil Corp. 60,425,456 405,000 Occidental Petroleum Corp. 6,100,313 1,082,500 Tosco Corp. 23,544,375 69,800 Williams Cos., Inc. 2,303,400 -------------- 352,807,451 Paper and Forest Products (0.7%) - -------------------------------------------------------------------------------------------------------------------------- 814,000 Weyerhaeuser Co. 44,057,750 Pharmaceuticals and Biotechnology (3.7%) - -------------------------------------------------------------------------------------------------------------------------- 1,018,000 American Home Products Corp. 59,743,875 455,600 Bristol-Myers Squibb Co. 58,402,225 363,000 Merck & Co., Inc. 53,270,250 1,017,170 Pharmacia & Upjohn, Inc. 58,487,275 -------------- 229,903,625 Photography (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 288,000 Eastman Kodak Co. 18,828,000 Publishing (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 268,000 McGraw-Hill, Inc. 28,977,500 REIT's (Real Estate Investment Trusts) (0.8%) - -------------------------------------------------------------------------------------------------------------------------- 631,600 Equity Residential Properties Trust 25,698,225 932,900 Starwood Hotels & Resorts Worldwide, Inc. 23,322,500 -------------- 49,020,725 Retail (2.0%) - -------------------------------------------------------------------------------------------------------------------------- 507,000 Albertsons, Inc. 30,927,000 668,800 Federated Department Stores, Inc. (NON) 27,964,200 466,000 May Department Stores Co. 28,134,750 149,200 Saks, Inc. (NON) 5,492,425 684,900 Sears, Roebuck & Co. 27,481,613 -------------- 119,999,988 Telecommunications (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 466,330 ALLTEL Corp. 30,107,431 Transportation (2.5%) - -------------------------------------------------------------------------------------------------------------------------- 1,242,300 Burlington Northern Santa Fe Corp. 43,014,638 485,600 Delta Air Lines, Inc. 26,495,550 380,300 FDX Corp. (NON) 31,065,756 945,100 Ryder System, Inc. 23,036,813 482,000 UAL Corp. (NON) 30,004,500 -------------- 153,617,257 Utilities (8.5%) - -------------------------------------------------------------------------------------------------------------------------- 781,400 American Telephone & Telegraph Co. 70,912,050 877,500 Ameritech Corp. 57,147,188 709,000 Bell Atlantic Corp. 42,540,000 356,000 Consolidated Natural Gas Co. 18,267,250 617,600 Duke Energy Corp. 38,175,400 584,500 Edison International 16,256,406 899,600 Entergy Corp. 26,481,975 1,093,300 GTE Corp. 73,797,750 1,036,600 OGE Energy Corp. 26,238,938 851,600 Potomac Electric Power Co. 19,852,925 923,402 SBC Communications, Inc. 49,863,708 990,000 Sempra Energy (NON) 22,770,000 400,300 Sprint Corp. 33,575,163 761,200 Western Resources, Inc. 23,930,225 -------------- 519,808,978 -------------- Total Common Stocks (cost $3,159,470,217) $3,570,560,784 CORPORATE BONDS AND NOTES (17.6%) (a) PRINCIPAL AMOUNT VALUE Advertising (0.1%) - -------------------------------------------------------------------------------------------------------------------------- $ 400,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 435,000 1,370,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 1,493,300 40,000 Lamar Advertising Co. company guaranty 8 5/8s, 2007 43,000 355,000 Outdoor Communications Inc. sr. sub. notes 9 1/4s, 2007 386,063 45,000 Outdoor Systems, Inc. sr. sub. notes 9 3/8s, 2006 48,600 850,000 Outdoor Systems, Inc. company guaranty 8 7/8s, 2007 918,000 -------------- 3,323,963 Aerospace and Defense (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 100,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 95,500 530,000 Aviation Sales Co. company guaranty 8 1/8s, 2008 524,700 570,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 9 7/8s, 2006 598,500 260,000 BE Aerospace, Inc. 144A sr. sub. notes 9 1/2s, 2008 275,600 180,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 177,300 500,000 Burke Industries, Inc. company guaranty 10s, 2007 485,000 115,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 117,300 6,100,000 Raytheon Co. deb. 7s, 2028 6,515,410 7,480,000 Raytheon Co notes 6.45s, 2002 7,701,109 340,000 Sequa Corp. sr. notes 9 5/8s, 1999 345,100 675,000 Sequa Corp. bonds 8 3/4s, 2001 686,813 -------------- 17,522,332 Agriculture (--%) - -------------------------------------------------------------------------------------------------------------------------- 255,740 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (acquired various dates from 9/17/96 to 4/7/97 cost $250,292) (PIK)(RES) 255,740 310,000 Purina Mills, Inc. sr. sub. notes 9s, 2010 303,800 -------------- 559,540 Apparel (--%) - -------------------------------------------------------------------------------------------------------------------------- 320,000 Sassco Fashions Ltd. sr. notes 12 3/4s, 2004 317,600 Automotive (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 251,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 265,433 40,000 Cambridge Industries, Inc. company guaranty Ser. B, 10 1/4s, 2007 32,000 6,760,000 Chrysler Corp. deb. Ser. B, 7.45s, 2097 7,895,004 1,940,000 Federal Mogul Corp. 144A notes 7 3/8s, 2006 1,931,289 4,310,000 Ford Motor Co. deb. 7.4s, 2046 4,864,611 52,000 Hawk Corp. sr. notes 10 1/4s, 2003 53,820 270,000 Hayes Lemmerz International, Inc. 144A company guaranty 8 1/4s, 2008 271,350 840,000 Hayes Wheels International, Inc. company guaranty Ser. B, 9 1/8s, 2007 882,000 1,510,000 Lear Corp. sub. notes 9 1/2s, 2006 1,664,775 1,260,000 Navistar International Corp. sr. notes Ser. B, 7s, 2003 1,275,750 550,000 Talon Automotive Group sr. sub. notes Ser. B, 9 5/8s, 2008 511,500 500,000 Walbro Corp. sr. notes Ser. B, 9 7/8s, 2005 495,000 -------------- 20,142,532 Banks (0.8%) - -------------------------------------------------------------------------------------------------------------------------- 145,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 146,450 40,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 43,241 4,015,000 Firstar Capital Trust I company guaranty Ser. B, 8.32s, 2026 4,467,531 4,640,000 Fuji JGB Inv. LLC 144A FLIRB bonds Ser. A, 9.87s, 2049 (Japan) 3,210,648 35,000 Greenpoint Capital Trust I company guaranty 9.1s, 2027 36,990 8,895,000 Merita Bank Ltd. sub. notes 6 1/2s, 2006 (Finland) 9,089,712 140,000 North Fork Capital Trust I company guaranty 8.7s, 2026 151,774 9,830,000 Peoples Bank Bridgeport sub. notes 7.2s, 2006 9,854,870 1,685,000 Peoples Heritage Capital Trust company guaranty Ser. B, 9.06s, 2027 1,752,299 90,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 91,606 3,750,000 Riggs National Corp. sub. deb. 8 1/2s, 2006 3,904,988 3,915,000 St. Paul Bancorp sr. notes 7 1/8s, 2004 4,020,079 2,195,000 State Street Institution 144A company guaranty 7.94s, 2026 2,467,509 4,450,000 Webster Capital Trust I 144A bonds 9.36s, 2027 4,761,233 5,090,000 Webster Financial Corp. sr. notes 8 3/4s, 2000 5,229,822 -------------- 49,228,752 Basic Industrial Products (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 2,000,000 American Standard Companies, Inc. sr. notes 7 3/8s, 2008 2,015,000 518,000 Ball Corp. company guaranty 7 3/4s, 2006 543,900 120,000 Koppers Industries, Inc. 144A company guaranty 9 7/8s, 2007 118,800 250,000 Newcor, Inc. company guaranty Ser. B, 9 7/8s, 2008 222,500 1,150,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 1,239,171 30,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 28,800 -------------- 4,168,171 Broadcasting (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 585,000 Affinity Group Holdings sr. notes 11s, 2007 590,850 800,000 American Radio Systems Corp. company guaranty 9s, 2006 870,000 400,000 Benedek Broadcasting sr. notes 11 7/8s, 2005 438,000 1,690,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 1,782,950 190,000 Capstar Broadcasting sr. disc. notes stepped-coupon zero % (12 3/4s, 2/1/02), 2009 (STP) 159,125 185,000 Chancellor Media Corp. sr. sub. notes 9 3/8s, 2004 195,638 2,190,000 Chancellor Media Corp. 144A sr. notes 8s, 2008 2,359,725 80,000 Citadel Broadcasting Co. sr. sub. notes 10 1/4s, 2007 88,100 625,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 646,875 640,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 617,600 45,000 Gray Communications Systems, Inc. sr. sub. notes 10 5/8s, 2006 47,813 115,000 Heritage Media Services Corp. sr. sub. notes 8 3/4s, 2006 121,900 1,125,000 Jacor Communications, Inc. company guaranty Ser. B, 8 3/4s, 2007 1,215,000 180,000 Pegasus Communications Corp. 144A sr. notes 9 3/4s, 2006 188,550 250,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 275,000 200,000 Sinclair Broadcasting Group, Inc. sr. sub. notes 10s, 2005 212,000 700,000 Sinclair Broadcasting Group, Inc. company guaranty 9s, 2007 721,000 150,000 Sinclair Broadcasting Group, Inc. sr. sub. notes 8 3/4s, 2007 151,500 700,000 Spanish Broadcasting Systems sr. notes 12 1/2s, 2002 780,500 100,000 Spanish Broadcasting Systems sr. notes Ser. B, 11s, 2004 107,000 -------------- 11,569,126 Building and Construction (--%) - -------------------------------------------------------------------------------------------------------------------------- 480,000 Albecca Inc. 144A sr. sub. notes 10 3/4s, 2008 436,800 60,000 Building Materials Corp. sr. notes Ser. B, 8 5/8s, 2006 61,200 340,000 Building Materials Corp. 144A sr. notes 8s, 2008 340,850 95,000 D.R. Horton Inc. company guaranty 10s, 2006 99,275 130,000 Jackson Products, Inc. company guaranty Ser. B, 9 1/2s, 2005 130,000 280,000 Morris Material Handling, Inc. company guaranty 9 1/2s, 2008 210,000 -------------- 1,278,125 Business Equipment and Services (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 500,000 Cendant Corp. notes 7 1/2s, 2000 507,725 280,000 Cex Holdings, Inc. company guaranty Ser. B, 9 5/8s, 2008 252,000 610,000 Iron Mountain, Inc. med. term notes company guaranty 10 1/8s, 2006 667,950 649,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 710,655 500,000 Production Resource Group sr. sub. notes 11 1/2s, 2008 490,000 1,020,000 U.S. Office Products Co. company guaranty 9 3/4s, 2008 726,750 800,000 Unicco Service Co. company guaranty Ser. B, 9 7/8s, 2007 784,000 75,000 United Stationer Supply, Inc. sr. sub. notes 8 3/8s, 2008 75,375 -------------- 4,214,455 Cable Television (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 100,000 Adelphia Communications Corp. sr. notes Ser. B, 10 1/4s, 2000 104,250 250,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007 277,500 43,875 Adelphia Communications Corp. sr. notes 9 1/2s, 2004 (PIK) 45,301 1,140,000 Adelphia Communications Corp. 144A sr. notes 8 3/8s, 2008 1,185,600 1,535,000 Century Communications Corp. sr. notes 9 1/2s, 2005 1,734,550 850,000 Century Communications Corp. sr. notes 8 7/8s, 2007 943,500 550,000 Century Communications Corp. sr. notes 8 3/4s, 2007 607,750 2,605,000 Comcast Corp. sr. sub. notes 9 1/2s, 2008 2,763,358 250,000 Comcast Corp. sr. sub. notes 9 3/8s, 2005 267,823 240,000 Comcast Corp. sr. notes sub. 9 1/8s, 2006 256,800 10,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2023 11,200 60,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2013 66,900 100,000 CSC Holdings, Inc. sr. sub. notes 9 1/4s, 2005 108,500 210,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 223,789 295,000 Diamond Cable Communication Co. sr. disc. notes stepped-coupon zero % (11 3/4s, 12/15/00), 2005 (United Kingdom) (STP) 229,363 1,670,000 Diamond Cable Communication Co. sr. disc. notes stepped-coupon zero % (10 3/4s, 2/15/02), 2007 (United Kingdom) (STP) 1,457,075 390,000 Jones Intercable, Inc. sr. sub. deb. 10 1/2s, 2008 425,100 363,000 Jones Intercable, Inc. sr. notes 9 5/8s, 2002 391,133 650,000 Jones Intercable, Inc. sr. notes 7 5/8s, 2008 689,000 1,250,000 Lenfest Communications, Inc. sr. sub. notes 10 1/2s, 2006 1,475,000 310,000 Lenfest Communications, Inc. sr. sub. notes 8 1/4s, 2008 327,050 765,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes stepped-coupon zero % (13 1/2s, 8/1/99), 2004 (STP) 772,650 100,000 Rogers Cablesystems Ltd. notes 11s, 2015 (Canada) 118,500 225,000 Rogers Cablesystems Ltd. sr. notes Ser. B, 10s, 2005 255,938 210,000 TeleWest Communications PLC 144A sr. notes 11 1/4s, 2008 (United Kingdom) 247,800 -------------- 14,985,430 Chemicals (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 5,040,000 Arco Chemical Co. deb. 9.8s, 2020 5,206,824 1,640,000 Equistar Chemicals LP notes 9 1/8s, 2002 1,711,930 7,330,000 Nova Chemicals Corp. deb. 7s, 2026 (Canada) 7,318,492 500,000 PCI Chemicals & Pharmaceuticals company guaranty 9 1/4s, 2007 (Canada) 377,500 640,000 Scotts Co. 144A sr. sub. notes 8 5/8s, 2009 659,200 50,000 Union Carbide Global Enterprises sr. sub. notes Ser. B, 12s, 2005 52,500 -------------- 15,326,446 Computer Services and Software (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 11,480,000 Dell Computer Corp. deb. 7.1s, 2028 11,947,466 670,000 IPC Information Systems sr. disc. notes stepped-coupon zero % (10 7/8s, 11/1/01), 2008 (STP) 432,150 370,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 381,100 800,000 PSINet, Inc. 144A sr. notes 11 1/2s, 2008 872,000 150,000 Unisys Corp. sr. notes 7 7/8s, 2008 157,500 360,000 Verio Inc. 144A sr. notes 11 1/4s, 2008 379,800 -------------- 14,170,016 Conglomerates (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 600,000 Axia, Inc. company guaranty 10 3/4s, 2008 609,000 3,030,000 Canadian Pacific Ltd. deb. 9.45s, 2021 (Canada) 3,998,146 -------------- 4,607,146 Consumer Durable Goods (--%) - -------------------------------------------------------------------------------------------------------------------------- 20,000 Hedstrom Holdings, Inc. sr. disc. notes stepped-coupon zero % (12s, 6/1/02), 2009 (STP) 8,000 570,000 Iron Age Corp. company guaranty 9 7/8s, 2008 490,200 110,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 105,600 -------------- 603,800 Consumer Non Durables (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 60,000 Amscan Holdings, Inc. sr. sub. notes 9 7/8s, 2007 54,600 160,000 Chattem, Inc. company guaranty Ser. B, 8 7/8s, 2008 164,000 20,000 Doane Products Co. 144A sr. sub. notes 9 3/4s, 2007 21,000 825,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 808,500 1,405,000 Philip Morris Cos., Inc. notes 7 1/2s, 2004 1,523,287 5,460,000 Philip Morris Cos., Inc. notes 7 1/4s, 2003 5,787,109 2,925,000 Philip Morris Cos., Inc. notes 7 1/8s, 2004 3,131,564 2,800,000 Philip Morris Cos., Inc. notes 6.8s, 2003 2,943,164 400,000 Revlon Consumer Products 144A sr. notes 9s, 2006 392,000 290,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 258,825 550,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 522,500 940,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 752,000 2,770,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2008 2,846,175 -------------- 19,204,724 Consumer Products (--%) - -------------------------------------------------------------------------------------------------------------------------- 35,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 34,650 170,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 171,700 85,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 91,800 -------------- 298,150 Consumer Services (--%) - -------------------------------------------------------------------------------------------------------------------------- 450,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 459,000 548,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 600,060 120,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 121,200 1,140,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 1,105,800 140,000 Host Marriott Travel Plaza sr. notes Ser. B, 9 1/2s, 2005 146,300 100,000 Isle of Capri Black Hawk LLC 1st mortgage Ser. B, 13s, 2004 108,500 300,000 Protection One, Inc. sr. disc. notes stepped-coupon zero % (13 5/8s, 6/30/00), 2005 (STP) 342,000 -------------- 2,882,860 Correctional Facilities (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 4,760,000 Avalon Communities, Inc. med. term notes 6 5/8s, 2004 4,789,750 Electronics and Electrical Equipment (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 70,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s, 2006 (Canada) 76,300 102,186 Cirent Semiconductor sr. sub. notes 10.22s, 2002 102,186 121,565 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 121,565 650,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 646,750 810,000 Diva Systems Corp. 144A sr. disc. notes stepped-coupon zero % (12 5/8s, 3/1/03), 2008 (STP) 259,200 1,319,370 Fairchild Semiconductor Corp. 144A sr. sub. notes 11.74s, 2008 (PIK) 1,187,433 1,270,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 1,270,000 490,000 Flextronics International Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 507,150 45,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 43,200 1,310,000 Metromedia Fiber Network, Inc. 144A sr. notes 10s, 2008 1,388,600 340,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 349,350 50,000 Viasystems Inc. sr. sub notes 9 3/4s, 2007 49,750 480,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 451,200 1,225,000 Wavetek Corp. company guaranty 10 1/8s, 2007 1,176,000 -------------- 7,628,684 Energy-related (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 5,990,000 CalEnergy, Inc. sr. notes 7.63s, 2007 6,474,531 500,000 Calpine Corp. sr. notes 7 7/8s, 2008 511,250 1,070,000 Gothic Production Corp. company guaranty Ser. B, 11 1/8s, 2005 829,250 6,295,000 KN Capital Trust III company guaranty 7.63s, 2028 6,043,200 300,000 Niagara Mohawk Power Corp. med. term notes 9.95s, 2000 314,064 1,000,000 Niagara Mohawk Power Corp. sr. notes Ser. G, 7 3/4s, 2008 1,103,560 270,000 Niagara Mohawk Power Corp. sr. notes Ser. F, 7 5/8s, 2005 285,274 540,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) 548,100 -------------- 16,109,229 Entertainment (1.3%) - -------------------------------------------------------------------------------------------------------------------------- 310,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 307,675 770,000 Argosy Gaming Co. company guaranty 13 1/4s, 2004 858,550 450,000 Aztar Corp. sr. sub. notes 11s, 2002 459,000 75,000 Casino America, Inc. sr. notes 12 1/2s, 2003 83,250 280,000 Cinemark USA, Inc. sr. sub. notes 9 5/8s, 2008 288,400 725,000 Cinemark USA, Inc. sr. sub. notes Ser. D, 9 5/8s, 2008 750,375 290,000 Circus Circus Enterprises, Inc. sr. sub. notes 9 1/4s, 2005 293,625 210,000 Circus Circus Enterprises, Inc. sr. notes 6.45s, 2006 190,619 350,000 Coast Hotels & Casinos, Inc. 1st mtge. company guaranty Ser. B, 13s, 2002 393,750 220,000 Empress River Casino sr. notes 10 3/4s, 2002 233,750 700,000 Harrahs Entertainment, Inc. company guaranty 7 7/8s, 2005 707,000 150,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 159,750 7,380,000 Mashantucket Pequot Tribe 144A bonds Ser. A, FSA, 6.57s, 2013 7,509,150 510,000 Mohegan Tribal Gaming Auth. sr. notes Ser. B, 13 1/2s, 2002 612,000 11,730,000 News America Holdings, Inc. deb. 7 3/4s, 2045 12,933,263 500,000 Paramount Communications, Inc. deb. 7 1/2s, 2023 509,690 980,000 Park Place Entertainment sr. sub. notes 7 7/8s, 2005 977,550 125,000 Players International Inc. sr. notes 10 7/8s, 2005 134,375 210,000 Premier Parks, Inc. sr. notes Ser. A, 12s, 2003 226,800 535,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 552,388 530,000 SFX Entertainment, Inc. 144A company guaranty Ser. B, 9 1/8s, 2008 543,250 510,000 SFX Entertainment Inc. 144A sr. sub. notes 9 1/8s, 2008 520,200 290,000 Silver Cinemas Inc. sr. sub. notes 10 1/2s, 2005 171,100 840,000 Six Flags Corp. sr. sub. notes 12 1/4s, 2005 932,400 575,000 Showboat Marina Casino 1st mtge. Ser. B, 13 1/2s, 2003 644,000 650,000 Sun International Hotels Ltd. company guaranty 9s, 2007 672,750 2,670,000 Time Warner Entertainment Inc. notes 8 7/8s, 2012 3,348,367 15,510,000 Time Warner Entertainment Inc. sr. notes 8 3/8s, 2033 19,275,363 350,000 Trump A.C. 1st mtge. 11 1/4s, 2006 320,250 1,000,000 United Artists Theatre 144A sr. sub. notes Ser. B, 9 3/4s, 2008 965,000 15,750,000 Viacom Intl., Inc. sr. notes 7 3/4s, 2005 17,280,743 5,085,000 Walt Disney Co. med. term notes 5.62s, 2008 5,029,065 -------------- 77,883,448 Environmental Control (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 1,630,000 Allied Waste Industries, Inc. 144A sr. notes 7 7/8s, 2009 1,682,975 2,120,000 Waste Management, Inc. notes 6 5/8s, 2002 2,173,721 4,300,000 WMX Technologies, Inc. notes 7.7s, 2002 4,565,138 -------------- 8,421,834 Food and Beverages (--%) - -------------------------------------------------------------------------------------------------------------------------- 65,000 Ameriserve Food Co. company guaranty 10 1/8s, 2007 54,925 645,000 Ameriserve Food Co. company guaranty 8 7/8s, 2006 606,300 50,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 54,625 370,000 Aurora Foods, Inc. 144A ser. sub. notes Ser. D, 9 7/8s, 2007 404,225 895,000 Canandaigua Wine Co. sr. sub. notes Ser. C, 8 3/4s, 2003 917,375 135,000 Fleming Companies, Inc. company guaranty Ser. B, 10 1/2s, 2004 126,900 150,000 Signature Brands Ltd. sr. sub. notes 13s, 2002 (Canada) 165,750 670,000 Stater Brothers Holdings 144A sr. sub. notes 9s, 2004 649,900 -------------- 2,980,000 Health Care (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 930,000 Columbia/HCA Healthcare Corp. med. term notes 9s, 2014 985,335 1,220,000 Columbia/HCA Healthcare Corp. med. term notes 8.7s, 2010 1,322,956 210,000 Columbia/HCA Healthcare Corp. deb. 8.36s, 2024 211,050 780,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 766,639 100,000 Columbia/HCA Healthcare Corp. notes 7s, 2007 97,053 185,000 Conmed Corp. company guaranty 9s, 2008 187,775 380,000 Extendicare Health Services, Inc. company guaranty 9.35s, 2007 362,900 1,105,000 Fresenius Medical Capital Trust II company guaranty 7.7/8s, 2008 (Germany) 1,096,713 265,000 Fresenius Medical Care Capital Trust I company guaranty Ser. D, 9s, 2006 (Germany) 277,256 610,000 Global Health Sciences company guaranty 11s, 2008 408,700 300,000 Hudson Respiratory Care, Inc. sr. sub. notes 9 1/8s, 2008 234,000 550,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007 519,750 830,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 780,200 1,870,000 Manor Care, Inc. sr. notes 7 1/2s, 2006 1,879,406 1,490,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 1,117,500 260,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-coupon Ser. B, zero % (10 1/2s, 11/1/02), 2007 (STP) 109,200 1,060,000 MedPartners, Inc. sr. notes 7 3/8s, 2006 906,650 1,455,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 1,294,950 175,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 154,000 160,000 Paragon Corp. Holdings, Inc. company guaranty Ser. B, 9 5/8s, 2008 132,800 450,000 Quorum Health Group, Inc. sr. sub. notes 8 3/4s, 2005 445,500 420,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 340,200 575,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s, 2008 460,000 700,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 731,500 1,825,000 Tenet Healthcare Corp. sr. notes 8s, 2005 1,879,750 -------------- 16,701,783 Insurance and Finance (5.7%) - -------------------------------------------------------------------------------------------------------------------------- 10,625,000 AFC Capital Trust company guaranty Ser. B, 8.207s, 2027 12,139,381 1,990,000 Allstate Financing II company guaranty 7.83s, 2045 2,251,705 1,500,000 AMBAC Indemnity Corp. deb. 9 3/8s, 2011 1,954,830 12,745,000 American General Institute 144A company guaranty 8 1/8s, 2046 14,995,767 3,500,000 Associates First Capital Corp. sub. deb. 8.15s, 2009 4,158,420 10,000,000 Associates First Capital Corp. sr. notes 6 1/4s, 2008 10,399,100 6,295,000 Bombardier Capital Inc. 144A notes 6s, 2002 6,301,925 795,000 Capital One Financial Corp. notes 7 1/4s, 2003 784,840 5,000,000 Citicorp sub. notes 6 3/8s, 2008 5,152,650 340,000 Colonial Capital I 144A company guaranty 8.92s, 2027 342,384 6,615,000 Countrywide Home Loan Corp. company guaranty 6.935s, 2007 6,969,564 80,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 64,000 6,700,000 Dime Bancorp, Inc. sr. notes 6 3/8s, 2001 6,695,511 1,775,000 DTI Holdings Inc. sr. disc. notes Ser. B, stepped-coupon zero % (12 1/2s, 03/01/03), 2008 (STP) 426,000 8,550,000 Executive Risk Capital Trust company guaranty Ser. B, 8.675s, 2027 8,367,372 5,650,000 Finova Capital Corp. notes 7.4s, 2007 6,100,305 6,250,000 Finova Capital Corp. notes 6 1/4s, 2002 6,357,813 6,045,000 First Citizens Bank Capital Trust I company guaranty 8.05s, 2028 6,165,900 1,880,000 First Financial Caribbean Corp. sr. notes 7.84s, 2006 1,855,692 2,035,000 Firstar Bank Milwaukee sr. bank notes 6 1/4s, 2002 2,090,515 9,215,000 Fleet National Bank sub. notes 5 3/4s, 2009 9,281,901 8,119,000 Ford Motor Credit Corp. sr. notes 6s, 2003 8,285,115 9,585,000 Ford Motor Credit Corp. sr. notes 5.8s, 2009 9,618,452 1,110,000 Ford Motor Credit Corp. notes 5 1/8s, 2001 1,103,851 14,445,000 General Motors Acceptance Corp. sr. unsub. 5.85s, 2009 14,589,450 2,625,000 Hartford Life, Inc. deb. 7.65s, 2027 3,001,058 4,745,000 Household Finance Corp. notes 6 1/2s, 2008 4,954,966 5,900,000 Household Finance Corp. sr. unsub. 5 7/8s, 2009 5,856,104 205,000 Investors Capital Trust I company guaranty Ser. B, 9.77s, 2027 213,713 11,410,000 Lehman Bros Holdings, Inc. notes 6 1/4s, 2003 11,407,946 4,625,000 Markel Capital Trust I company guaranty Ser. B, 8.71s, 2046 4,391,576 5,100,000 Merrill Lynch & Co., Inc. med. term notes 6.13s, 2003 5,198,379 4,205,000 Money Store, Inc. notes 8.05s, 2002 4,521,174 12,420,000 Morgan Stanley Dean Witter, Discover and Co. sr. unsub. 5 5/8s, 2004 12,362,495 620,000 Nationwide Credit Inc. sr. notes Ser. A, 10 1/4s, 2008 477,400 6,235,000 Newcourt Credit Group, Inc. 144A company guaranty 7 1/8s, 2003 6,223,528 3,235,000 Norwest Corp. med. term sr. notes Ser. J, 6 3/4s, 2027 3,393,030 1,970,000 Orange Cogen Funding 144A company guaranty 8.175s, 2022 2,101,399 2,000,000 Orion Capital Corp. sr. notes 9 1/8s, 2002 2,175,400 7,850,000 Paine Webber Group, Inc. sr. notes 6.55s, 2008 7,960,999 8,985,000 Paine Webber Group, Inc. sr. med. term notes 6.52s, 2005 9,007,463 5,825,000 Phoenix Home Life Mutual Insurance Co. 144A notes 6.95s, 2006 6,147,064 35,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 23,450 10,770,000 Provident Companies, Inc. bonds 7.405s, 2038 11,382,921 390,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 175,500 6,730,000 Prudential Insurance Co. 144A 6 7/8s, 2003 6,963,396 185,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 192,256 6,350,000 Salomon, Inc. sr. notes 7.3s, 2002 6,697,155 14,225,000 Salomon, Inc. sr. notes 6 3/4s, 2003 14,683,472 3,450,000 Salton Sea Funding Corp. company guaranty Ser. E, 8.3s, 2011 3,922,995 980,000 Sampoerna International Finance Co. 144A company guaranty 8 3/8s, 2006 (Indonesia) 499,800 10,745,000 Sears Roebuck Acceptance Corp. notes 6 1/2s, 2028 10,524,728 75,000 Sovereign Capital Trust company guaranty 9s, 2027 71,402 12,965,000 Sprint Capital Corp. company guaranty 6 1/8s, 2008 13,270,196 12,445,000 Sun Life Canada Capital Trust 144A 8.526s, 2049 13,529,084 8,015,000 TIG Capital Trust I 144A bonds 8.597s, 2027 8,514,014 5,345,000 Trenwick Capital Trust I company guaranty 8.82s, 2037 5,856,517 7,640,000 UNUM Corp. notes 6 3/4s, 2028 7,687,750 8,905,000 Zurich Capital Trust I 144A company guaranty 8.376s, 2037 10,019,283 -------------- 349,860,056 Lodging (--%) - -------------------------------------------------------------------------------------------------------------------------- 1,110,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 1,087,800 167,000 John Q Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 155,310 1,415,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 1,457,450 685,000 Raintree Resorts International, Inc. sr. notes Ser. B, 13s, 2004 342,500 -------------- 3,043,060 Medical Supplies and Devices (--%) - -------------------------------------------------------------------------------------------------------------------------- 265,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 270,300 150,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 164,250 175,000 Graphic Controls Corp. sr. sub. notes Ser. A, 12s, 2005 201,250 480,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 460,800 430,000 Mediq, Inc. deb. 13s, 2009 193,500 -------------- 1,290,100 Metals and Mining (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 1,100,000 AK Steel Corp. sr. notes 9 1/8s, 2006 1,177,000 360,000 Ameristeel Corp. company guaranty Ser. B, 8 3/4s, 2008 342,000 150,000 Anker Coal Group, Inc. sr. notes Ser. B, 9 3/4s, 2007 82,500 105,000 Armco, Inc. sr. notes 9s, 2007 108,675 620,000 Continental Global Group sr. notes Ser. B, 11s, 2007 530,100 70,000 Kaiser Aluminum & Chemical Corp. sr. notes Ser. B, 10 7/8s, 2006 68,950 260,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12 3/4s, 2003 252,200 760,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 630,800 740,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 680,800 220,000 WHX Corp. sr. notes 10 1/2s, 2005 198,000 -------------- 4,071,025 Oil and Gas (1.1%) - -------------------------------------------------------------------------------------------------------------------------- 2,000,000 Clark Refining & Marketing Inc. sr. sub. notes 8 7/8s, 2007 1,735,000 1,000,000 Cliffs Drilling Co. company guaranty Ser. B, 10 1/4s, 2003 1,040,000 9,860,000 Coastal Corp. bonds 6.95s, 2028 9,972,700 140,000 Coho Energy, Inc. sr. sub. notes 8 7/8s, 2007 114,800 470,000 Costilla Energy, Inc. sr. notes 10 1/4s, 2006 333,700 370,000 Eagle Geophysical, Inc. company guaranty Ser. B, 10 3/4s, 2008 236,800 3,150,000 Enron Corp. notes 6.4s, 2006 3,200,022 3,365,000 Express Pipeline Ltd. 144A sub. notes Ser. B, 7.39s, 2019 (Canada) 3,161,619 125,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 127,813 460,000 Gulf Canada Resources, Ltd. sr. notes 8 3/8s, 2005 (Canada) 456,550 3,205,000 Gulf Canada Resources, Ltd. sr. notes 8.35s, 2006 (Canada) 3,142,342 3,365,000 K N Energy, Inc. sr. notes 6.45s, 2003 3,394,881 11,195,000 Louis Dreyfus Natural Gas notes 6 7/8s, 2007 10,714,958 9,915,000 Norsk Hydro ASA notes 6.36s, 2009 (Norway) 10,014,150 390,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 380,250 630,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 595,350 7,590,000 Petro Geo-Services notes ADR 7 1/2s, 2007 (Norway) 7,854,739 3,000,000 Petro-Canada deb. 9 1/4s, 2021 (Canada) 3,722,280 15,000 Pogo Producing Co. sr. sub. notes Ser. B, 8 3/4s, 2007 13,575 975,000 Seagull Energy sr. sub notes 8 5/8s, 2005 945,750 40,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 40,200 6,285,000 Statoil 144A notes 6 1/2s, 2028 (Norway) 6,219,008 425,000 TransTexas Gas Corp. sr. sub. notes Ser. D, 13 3/4s, 2001 280,500 -------------- 67,696,987 Packaging and Containers (--%) - -------------------------------------------------------------------------------------------------------------------------- 100,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 100,250 90,000 Radnor Holdings Inc. sr. notes 10s, 2003 92,700 155,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 140,275 1,700,000 Riverwood International Corp. company guaranty 10 5/8s, 2007 1,717,000 450,000 Riverwood International Corp. company guaranty 10 1/4s, 2006 450,000 -------------- 2,500,225 Paper and Forest Products (--%) - -------------------------------------------------------------------------------------------------------------------------- 60,000 Boise Cascade Co. med. term notes Ser. A, 7.43s, 2005 59,223 200,000 Republic Group Inc. sr. sub. notes 9 1/2s, 2008 203,500 -------------- 262,723 Pharmaceuticals and Biotechnology (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 1,040,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 1,066,000 6,175,000 Monsanto Co. 144A deb. 6.6s, 2028 6,374,082 -------------- 7,440,082 Photography (--%) - -------------------------------------------------------------------------------------------------------------------------- 130,000 Panavision Inc. sr. disc. notes stepped-coupon zero % (9 5/8s, 2/1/02), 2006 (STP) 72,800 Publishing (--%) - -------------------------------------------------------------------------------------------------------------------------- 170,000 American Media Operation, Inc. sr. sub. notes 11 5/8s, 2004 174,250 180,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 182,700 100,000 Hollinger International Publishing, Inc. sr. sub. notes 9 1/4s, 2006 106,750 120,000 Perry-Judd company guaranty 10 5/8s, 2007 125,400 40,000 Von Hoffman Press Inc. 144A sr. sub. notes 10 3/8s, 2007 41,400 -------------- 630,500 Real Estate (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 8,490,000 EOP Operating L.P. notes 6.8s, 2009 8,483,972 2,190,000 EOP Operating L.P. sr. notes 6 3/4s, 2008 2,196,548 3,140,000 EOP Operating L.P. notes 6 3/8s, 2002 3,142,920 5,500,000 First Industrial L.P. notes 7.6s, 2007 5,448,355 -------------- 19,271,795 REIT's (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 4,920,000 Avalon Properties, Inc. notes 6 7/8s, 2007 4,957,097 4,670,000 Avalon Properties, Inc. notes 6 5/8s, 2005 4,660,567 8,540,000 Equity Residential Properties notes 6.63s, 2005 8,547,259 2,320,000 OMEGA Healthcare Investors, Inc. notes 6.95s, 2007 2,085,494 120,000 Tanger Properties Ltd. partnership gtd. notes 8 3/4s, 2001 119,819 -------------- 20,370,236 Retail (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 230,000 Eye Care Centers of America 144A sr. sub. notes 9 1/8s, 2008 216,200 13,685,000 Federated Department Stores, Inc. sr. notes 8 1/2s, 2003 15,147,379 190,000 Home Interiors & Gifts, Inc. company guaranty 10 1/8s, 2008 190,000 320,000 K mart Corp. notes 8 1/8s, 2006 340,800 680,000 K mart Corp. deb. 7.95s, 2023 681,700 310,000 K mart Corp. med. term notes 7.55s, 2004 309,805 150,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 156,000 1,000,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 960,000 695,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 583,800 230,000 Specialty Retailers, Inc. company guaranty Ser. B, 8 1/2s, 2005 204,700 230,000 William Carter Co. sr. sub. notes Ser. A, 10 3/8s, 2006 250,700 200,000 Zale Corp. sr. notes Ser. B, 8 1/2s, 2007 200,000 -------------- 19,241,084 Satellite Services (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 560,000 Golden Sky Systems 144A sr. sub. notes 12 3/8s, 2006 596,400 4,300,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero % (9 7/8s, 5/1/03), 2008 (STP) 2,322,000 17,405,000 TCI Communications Inc deb. 8 3/4s, 2015 22,100,521 3,620,000 TCI Communications Inc. sr. notes 7 1/8s, 2028 4,028,191 -------------- 29,047,112 Shipping (--%) - -------------------------------------------------------------------------------------------------------------------------- 1,380,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 1,283,400 Specialty Consumer Products (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 7,150,000 Tyco International Ltd. company guaranty 6 3/8s, 2005 7,405,970 8,385,000 Tyco International Ltd. company guaranty 6 1/4s, 2003 8,562,175 -------------- 15,968,145 Telecommunications (1.0%) - -------------------------------------------------------------------------------------------------------------------------- 7,450,000 AirTouch Communications, Inc. notes 6.65s, 2008 7,954,216 920,000 Allbritton Communications Co. sr. sub. notes Ser. B, 8 7/8s, 2008 947,600 6,715,000 AT&T Capital Corp. med. term notes 6.6s, 2005 6,443,915 2,000,000 Barak I.T.C. sr. disc. notes Ser. B, stepped-coupon zero % (12 1/2s, 11/15/02), 2007 (Israel) (STP) 1,020,000 1,430,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 1,079,650 620,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero % (8.94s, 8/15/03), 2008 (Canada) (STP) 350,300 370,000 CapRock Communications Corp. sr. notes Ser. B, 12s, 2008 370,000 400,000 Celcaribe S.A. sr. notes 13 1/2s, 2004 (Columbia) 308,000 250,000 Cencall Communications Corp. sr. disc. notes 10 1/8s, 2004 251,250 260,000 Charter Communications International, Inc. disc. Notes Ser. B, stepped-coupon zero % (14s, 3/15/01), 2007 (STP) 233,350 210,000 Colt Telecommunications Group PLC sr. disc. notes stepped-coupon zero %, (12s, 12/15/01), 2006 (United Kingdom) (STP) 178,500 790,000 Comcast Cellular Holdings sr. notes Ser. B, 9 1/2s, 2007 904,550 785,000 E. Spire Communications, Inc. sr. disc. notes stepped-coupon zero % (12 3/4s, 4/1/01), 2006 (STP) 439,600 100,101 Echostar Communications Corp. sr. notes 12 1/8s, 2004 115,366 1,000,000 Econophone, Inc. 144A notes stepped-coupon zero % (11s, 2/15/03), 2008 (STP) 490,000 140,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007 (United Kingdom) 147,000 180,000 Facilicom International sr. notes Ser. B, 10 1/2s, 2008 140,400 1,500,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 1,470,000 2,140,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 2,263,050 750,000 GST Telecommunications, Inc. company guaranty stepped-coupon zero % (13 7/8s, 15/15/00), 2005 (STP) 513,750 1,310,000 GST Telecommunications, Inc. 144A sr. disc. notes stepped-coupon zero % (10 1/2s, 5/1/03), 2008 (STP) 589,500 1,200,000 Hyperion Telecommunication Inc. sr. disc. notes Ser. B, stepped-coupon zero % (13s, 4/15/01), 2003 (STP) 912,000 1,075,000 Intermedia Communications, Inc. sr. disc. notes Ser. B, stepped-coupon zero % (11 1/4s, 7/15/02), 2007 (STP) 747,125 890,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 858,850 440,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 1/2s, 2008 423,500 3,650,000 International Cabletel, Inc. sr. notes Ser. B, stepped-coupon zero % (11 1/2s, 2/01/01), 2006 (STP) 3,102,500 370,000 IXC Communications, Inc. sr. sub. notes 9s, 2008 368,150 560,000 KMC Telecom Holdings, Inc. sr. disc. notes stepped-coupon zero % (12 1/2s, 2/15/03), 2008 (STP) 274,400 890,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon zero %, (11 7/8s, 10/15/02), 2007 (STP) 453,900 60,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 66,150 310,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 323,175 11,485,000 LCI International, Inc. sr. notes 7 1/4s, 2007 11,629,252 610,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 549,000 180,000 McCaw International Ltd sr. disc. notes stepped coupon zero % (13s, 4/15/02), 2007 (STP) 101,025 115,000 MetroNet Communications Corp. sr. disc. notes stepped-coupon zero % (10 3/4s, 11/1/02), 2007 (Canada) (STP) 82,800 600,000 MetroNet Communications Corp. sr. disc. stepped-coupon notes zero % (9.95s, 6/15/03), 2008 (Canada) (STP) 408,000 1,960,000 MetroNet Communications Corp. 144A sr. notes 10 5/8s, 2008 (Canada) 2,136,400 130,000 MJD Communications, Inc. notes Ser. B, FRN, 9.16s, 2008 124,800 205,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 233,188 1,250,000 NEXTEL Communications, Inc. 144A sr. notes 12s, 2008 1,390,625 500,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon zero % (10.65s, 9/15/02), 2007 (STP) 341,250 1,310,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon zero % (9.95s, 2/15/03), 2008 (STP) 838,400 330,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon zero % (9 3/4s, 10/31/02), 2007 (STP) 214,500 1,100,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon zero % (9 3/4s, 2/15/99), 2004 (STP) 1,108,250 620,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 626,200 1,200,000 NTL Inc. sr. notes Ser. B, stepped-coupon zero % (9 3/4s, 4/1/03), 2008 (STP) (United Kingdom) 841,500 640,000 NTL Inc. 144A sr. notes 11 1/2s, 2008 (United Kingdom) 729,600 450,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 261,000 90,000 Price Communications Wireless, Inc. 144A sr. notes 9 1/8s, 2006 94,500 1,000,000 Primus Telecom Group sr. notes 11 3/4s, 2004 1,025,000 250,000 Primus Telecommunications Group, Inc. sr. notes Ser. B, 9 7/8s, 2008 233,750 1,440,000 Qwest Communications International, Inc. sr. disc. notes stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 1,152,000 250,000 Qwest Communications International, Inc. sr. disc. notes stepped-coupon zero % (8.29s, 2/1/03), 2008 (STP) 195,000 190,000 RCN Corp. sr. disc. notes stepped-coupon zero % (11 1/8s, 10/15/02), 2007 (STP) 110,200 180,000 RSL Communications, Ltd. company guaranty 9 1/8s, 2008 164,700 260,000 RSL Communications, Ltd. company guaranty, stepped-coupon zero % (10 1/8s, 3/1/03), 2008 (STP) 143,000 220,000 Sprint Spectrum L.P. sr. notes 11s, 2006 257,261 390,000 Startec Global Communications Corp. sr. notes 12s, 2008 351,000 190,000 Telecommunications Techniques, Inc. company guaranty 9 3/4s, 2008 188,100 1,060,000 Time Warner Telecom Inc. sr. notes 9 3/4s, 2008 1,134,200 540,000 United International Holdings sr. disc. notes Ser. B, stepped-coupon zero % (10 3/4s, 2/15/03), 2008 (STP) 361,800 -------------- 60,766,048 Telephone Services (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 630,000 Long Distance International, Inc. 144A sr. notes 12 1/4s, 2008 504,000 150,000 OnePoint Communications, Corp. 144A sr. notes 14 1/2s, 2008 78,000 4,100,000 U S West, Inc. notes 5 5/8s, 2008 4,135,301 270,000 Versatel Teleco sr. notes 13 1/4s, 2008 279,450 -------------- 4,996,751 Textiles (--%) - -------------------------------------------------------------------------------------------------------------------------- 380,000 Day International Group, Inc. company guaranty 9 1/2s, 2008 375,250 810,000 Galey & Lord Inc. company guaranty 9 1/8s, 2008 639,900 50,000 Glenoit Corp. company guaranty 11s, 2007 46,000 105,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 105,263 280,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 277,200 -------------- 1,443,613 Transportation (1.4%) - -------------------------------------------------------------------------------------------------------------------------- 9,655,000 Burlington Northern Santa Fe bonds 6 7/8s, 2027 10,261,913 1,905,000 Burlington Northern Santa Fe notes 6 3/8s, 2005 1,981,676 220,000 Calair LLC company guaranty 8 1/8s, 2008 213,950 390,000 Canadian Airlines Corp. sec. notes 10s, 2005 (Canada) 331,500 55,000 Coach USA, Inc. 144A company guaranty 9 3/8s, 2007 56,306 590,000 Continental Airlines, Inc. sr. notes 9 1/2s, 2001 619,500 1,510,519 Continental Airlines Inc., pass-through certificates Ser. 97CI, 7.42s, 2007 1,544,295 6,950,000 Continental Airlines, Inc. pass-through certificates Ser. 981C, 6.541s, 2008 6,798,143 11,885,000 Continental Airlines, Inc. pass thru certificates Ser. 98-2, 6.32s, 2008 11,885,000 17,235,000 CSX Corp. deb. 7.95s, 2027 20,137,546 430,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s, 2003 (Greece) 412,800 140,000 Hermes Europe Railtel 144A sr. notes 11 1/2s, 2007 (Netherlands) 154,000 150,000 International Shipholding Corp. sr. notes 9s, 2003 153,188 165,000 Johnstown America Industries, Inc. company guaranty Ser. C, 11 3/4s, 2005 175,313 290,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 290,000 155,000 MC Shipping, Inc. sr. notes Ser. B, 11 1/4s, 2008 89,900 190,000 MCII Holdings sec. notes 12s, 2002 162,450 8,430,000 Norfolk Southern Corp. bonds 7.05s, 2037 9,259,343 600,000 Pegasus Shipping 144A company guaranty Ser. A, 11 7/8s, 2004 519,000 1,000,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 740,000 9,385,000 Union Pacific Corp. deb. 6 1/4s, 2029 9,427,233 10,520,000 United Air Lines Corp. deb. 9 3/4s, 2021 12,701,112 575,000 US Air Inc. pass thru certificates Ser. 93-A2, 9 5/8s, 2003 613,594 -------------- 88,527,762 Utilities (1.1%) - -------------------------------------------------------------------------------------------------------------------------- 3,840,000 Arizona Public Service Co. sr. notes 6 3/4s, 2006 4,113,562 175,000 California Energy Corp. sr. notes 9 7/8s, 2003 195,900 1,300,000 Calpine Corp. sr. notes 8 3/4s, 2007 1,375,387 980,000 Cleveland Electric Illuminating Co. bonds 6.86s, 2008 1,009,400 2,200,000 CMS Energy Corp. sr. notes 8 1/8s, 2002 2,257,244 5,520,000 CMS Energy Corp. pass through certificates 7s, 2005 5,478,048 4,140,000 Connecticut Light & Power Co. 1st mtge. Ser. A, 7 7/8s, 2001 4,272,107 3,090,000 Connecticut Light & Power Co. 1st mtge. Ser. C, 7 3/4s, 2002 3,206,802 1,160,000 Edison Mission Energy 144A company guaranty 7.33s, 2008 1,231,885 110,000 El Paso Electric Co. 1st mtge. Ser. D, 8.9s, 2006 121,977 6,040,000 El Paso Electric Co. 1st mtge. Ser. B, 7 3/4s, 2001 6,254,118 3,745,000 Israel Electric Corp., Ltd. 144A sr. notes 7 1/4s, 2006 (Israel) 3,767,470 255,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 295,606 1,210,802 Midland Funding Corp. I deb. Ser. C-94, 10.33s, 2002 1,289,492 1,054,872 Northeast Utilities System notes Ser. A, 8.58s, 2006 1,127,531 3,065,129 Northeast Utilities System notes Ser. B, 8.38s, 2005 3,194,079 4,638,000 Public Service Co. of New Mexico deb. 10 1/4s, 2012 5,645,930 710,000 Public Service Co. of New Mexico sr. notes Ser. A, 7.1s, 2005 715,098 1,600,000 Public Service Co. of New Mexico sr. notes Ser. B, 7 1/2s, 2018 1,595,456 3,925,000 Texas New-Mexico Power Utilities 1st mtge. 9 1/4s, 2000 4,120,504 6,455,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 7,049,570 5,765,000 Texas Utilities Electric Capital Trust V company guaranty 8.175s, 2037 6,441,292 -------------- 64,758,458 -------------- Total Corporate Bonds and Notes (cost $1,065,168,387) $1,081,459,858 U.S. GOVERNMENT AND AGENCY OBLIGATIONS (17.3%) (a) PRINCIPAL AMOUNT VALUE U.S. Government and Agency Obligations (9.0%) - -------------------------------------------------------------------------------------------------------------------------- $ 1,688,615 Federal Home Loan Mortgage Association 8 3/4s, with due dates from May 1, 2009 to June 1, 2009 $ 1,792,043 Federal Home Loan Mortgage Corp. 5,739,791 7s, July 1, 2012 5,876,111 22,916,625 5 1/2s, with due dates from March 1, 2011 to July 1, 2011 22,645,885 Federal National Mortgage Association 23,420,000 6 1/2s, TBA, February 15, 2029 23,632,185 Federal National Mortgage Association Pass-through Certificates 150,862 11s, with due dates from October 1, 2015 to March 1, 2016 167,739 122,659 8 3/4s, July 1, 2009 129,099 802,212 7s, June 1, 2011 821,007 13,012,062 7s, Dwarf, with due dates from February 1, 2008 to October 1, 2013 13,316,933 74,453,548 6 1/2s, with due dates from April 1, 2024 to December 1, 2028 75,128,098 5,339,741 6 1/2s, Dwarf, with due dates from July 1, 2010 to August 1, 2013 5,424,802 1,050,730 6s, with due dates from June 1, 2013 to November 1, 2013 1,054,671 78,406,017 6s, Dwarf, with due dates from February 1, 2012 to December 1, 2013 78,700,044 6,790,000 5.94s, December 12, 2005 7,079,661 Government National Mortgage Association 36,630,000 6 1/2s, TBA, February 15, 2029 37,042,088 Government National Mortgage Association Pass-through Certificates 747 15s, September 15, 2011 889 51,034,135 8s, with due dates from June 15, 2024 to January 15, 2029 53,162,665 27,535 7 1/2s, September 15, 2005 28,698 165,598,854 7s, with due dates from January 15, 2024 to December 15, 2028 169,636,661 57,904,309 6 1/2s, with due dates from March 15, 2002 to December 15, 2028 58,555,050 -------------- 554,194,329 U.S. Treasury Obligations (8.3%) - -------------------------------------------------------------------------------------------------------------------------- U.S. Treasury Bonds 1,220,000 11 7/8s, November 15, 2003 (SEG) 1,590,002 24,380,000 11 5/8s, November 15, 2004 32,753,067 40,695,000 5 1/2s, August 15, 2028 42,672,370 U.S. Treasury Notes 3,100,000 5 3/4s, August 15, 2003 3,241,422 14,935,000 5 5/8s, December 31, 2002 15,453,095 U.S. Treasury Notes 94,655,000 5 1/2s, May 31, 2003 97,864,751 1,760,000 5 3/8s, June 30, 2003 1,813,346 88,495,000 4 3/4s, November 15, 2008 89,200,305 228,495,000 4 1/4s, November 15, 2003 225,746,205 -------------- 510,334,563 -------------- Total U.S. Government and Agency Obligations (cost $943,755,760) $1,064,528,892 COLLATERALIZED MORTGAGE OBLIGATIONS (2.5%) (a) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- Chase Mortgage Finance Corp. $ 1,528,243 Ser. 93-3, Class B13, 7.461s, 2024 $ 1,428,555 3,790,000 Ser. 98-S2, Class A14, 6 3/4s, 2028 3,824,347 2,139,706 Chase Mortgage Finance Corp. 144A Ser. 94-G, Class B2, 7s, 2025 2,110,285 Commercial Mortgage Acceptance Corp. 755,000 Ser. 97-ML1, Class D, 7.11s, 2030 761,606 11,325,000 Ser. 97-ML1, Class A3, 6.57s, 2007 11,861,168 4,010,000 Ser. 97-ML1, Class A2, 6.53s, 2007 4,171,653 14,200,000 Ser. 98-C2, Class A2, 6.03s, 2008 14,361,969 Criimi Mae Commercial Mortgage Trust 17,085,000 Ser. 98-C1, Class A2, 7s, 2011 16,593,806 6,750,000 Ser. 98-C1, Class B, 7s, 2011 6,286,992 First Union-Lehman Brothers Commercial Mortgage Co. 775,000 Ser. 97-C2, Class D, 7.12s, 2012 761,559 1,500,000 Ser. 97-C2, Class A3, 6.65s, 2008 1,580,273 6,000,000 Ser. 98-C2, Class A2, 6.56s, 2008 6,293,906 64,757,572 Ser. 97-C2, Interest Only (IO), 1.092s, 2027 5,294,437 GE Capital Mortgage Services, Inc. 1,206,306 Ser. 94-12, Class B3, 6s, 2009 1,077,382 5,000,000 Ser. 98, Class 2A4, 6 3/4s, 2028 5,056,650 GMAC Commercial Mortgage Securities Inc. 6,510,000 Ser. 98-C1, Class E, 7.153s, 2011 6,473,381 16,853,635 Ser. 98-C2, Class A2, 6.42s, 2008 17,532,389 GS Mortgage Securities Corp. II 2,940,000 Ser. 98-GLII, Class D, 7.191s, 2031 2,870,175 2,050,000 Ser. 98-C1, Class C, 6.91s, 2030 2,099,969 Housing Securities Inc. 788,243 Ser. 91-B, Class B6, 9s, 2006 787,750 1,273,811 Ser. 93-F, Class F9M2, 7s, 2023 1,228,830 238,971 Ser. 93-J, Class J4, 6.66s, 2009 230,084 128,564 Ser. 93-J, Class J5, 6.66s, 2009 106,547 212,028 Ser. 94-1, Class AB1, 6 1/2s, 2009 190,560 Morgan Stanley Capital I 3,000,000 Ser. 96-WF1, Class A2, 7.218s, 2006 3,203,438 1,670,000 Ser. 98-XL1, Class E, 6.989s, 2030 1,652,974 37,545,434 Nationslink Funding Corporation Ser. 98-2, Class X, IO 0.716s, 2023 1,666,079 Prudential Home Mortgage Securities 2,555,595 Ser. 92-25, Class B3, 8s, 2022 (In default) (NON) 2,568,373 891,229 Ser. 94-A, Class 4B, 7 1/2s, 2007 823,830 3,426,113 Ser. 94-A, Class 4B, 6.803s, 2024 3,332,965 Prudential Home Mortgage Securities 144A 295,989 Ser. 94-31, Class B3, 8s, 2009 281,605 1,603,323 Ser. 95-C, Class B1, 7.681s, 2001 1,600,066 1,151,587 Ser. 95-D, Class 5B, 7.54s, 2024 865,490 1,869,177 Ser. 93-E, Class 5B, 7.394s, 2023 1,594,641 3,312,698 Ser. 93-D, Class 2B, 7.108s, 2023 3,323,050 1,069,372 Ser. 94-D, Class B4, 6.312s, 2009 1,031,944 5,768,800 Residential Asset Securitization Trust Ser. 98-A12, Class A14, 8s, 2028 6,055,437 3,725,000 Residential Funding Mortgage Sec. I Ser. 98-S13, Class A21, 6 3/4s, 2028 3,768,359 Ryland Mortgage Securities Corp. 1,861,871 Ser. 94-7C, Class B1, 7.359s, 2025 1,859,544 1,311,653 Ser. 94-7C, Class B2, 7.359s, 2025 1,339,936 4,104,792 Securitized Asset Sales, Inc. Ser. 93-J, Class 2B, 6.808s, 2023 4,002,173 320,624 Travelers Mortgage Securities Corp. coll. oblig. Ser. 1, Class Z2, 12s, 2014 355,892 -------------- Total Collateralized Mortgage Obligations (cost $148,136,282) $ 152,310,069 ASSET-BACKED SECURITIES (0.4%) (a) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- $ 5,021,848 First Plus Ser. 98-ACl 8 1/2s, 2023 $ 5,131,701 7,605,206 Green Tree Recreational Equipment & Cons Ser. 97-B, Class A1, 6.55s, 2028 7,747,209 5,433,483 Green Tree Recreational Equipment & Cons. Ser. 98-A, Class A1 C, 6.18s, 2019 5,498,642 39,290,000 Lehman Manufactured Housing Ser. 98-1, Class 1 IO, 0.82s, 2028 1,556,252 7,051,937 Sassco Fashions Ser. 98-RF2 8.58s, 2028 7,547,776 -------------- Total Asset-Backed Securities (cost $27,634,934) $ 27,481,580 CONVERTIBLE BONDS AND NOTES (0.4%) (a) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- $ 500,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 $ 430,000 170,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 100,513 10,500,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 8,859,375 100,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 71,625 1,000,000 LAM Research Corp. 144A cv. sub. notes 5s, 2002 885,000 8,050,000 Micron Technology, Inc. cv. sub. notes 7s, 2004 10,525,375 8,810,000 Western Digital Corp. 144A cv. sub. deb. zero %, 2018 2,653,974 -------------- Total Convertible Bonds and Notes (cost $21,516,364) $ 23,525,862 CONVERTIBLE PREFERRED STOCKS (0.3%) (a) NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------------------------------------- 3,000 Chancellor Media Corp. $3.00 cv. cum. pfd. $ 348,375 1,675 Chesapeake Energy Corp. 144A $3.50 cv. cum. pfd. 17,169 141,100 El Paso Energy Capital Trust $2.375 cv. pfd. 6,772,800 209,000 K mart Financing $3.875 cum. cv. pfd. 13,114,750 -------------- Total Convertible Preferred Stocks (cost $18,723,071) $ 20,253,094 PREFERRED STOCKS (0.3%) (a) NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------------------------------------- 5,159 AmeriKing, Inc. $3.25 pfd. (PIK) $ 136,714 38 Anvil Holdings Ser. B, $3.25 pfd. (PIK) 380 27,755 California Federal Bancorp Inc. Ser. A, $2.281 pfd. 728,569 676 Capstar Broadcasting Inc. 144A $12.00 pfd. (PIK) 79,768 882 Capstar Communications, Inc. Ser. E, $12.625 cum. pfd. (PIK) 105,840 7,135 Centaur Funding Corp 144A $9.08 pfd. 8,133,686 16,637 CGA Group Ltd. 144A Ser. A, $13.75 pfd. (PIK) 465,836 6,155 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. (PIK) 307,750 3,054 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 352,737 156 El Paso Electric Co. $11.40 pfd (PIK) 16,458 7,466 Nextlink Communications, Inc. 144A $7.00 cum. pfd. (PIK) 369,567 81 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 704,700 12,371 Public Service Co. of New Hampshire $2.651 1st mtge. pfd. 321,646 78,024 TCR Holding Corp. 0.00%, pfd. 4,369 6,775 Webster Financial $7.375 pfd. 6,512,470 -------------- Total Preferred Stocks (cost $17,442,254) $ 18,240,490 FOREIGN GOVERNMENT BONDS AND NOTES (0.3%) (a) (cost $15,974,428) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- $ 14,750,000 Quebec (Province of) deb. Ser. NN, 7 1/8s, 2024 $ 16,194,763 WARRANTS (--%) (a) (NON) EXPIRATION NUMBER OF WARRANTS DATE VALUE - -------------------------------------------------------------------------------------------------------------------------- 16,000 CGA Group Ltd. 144A 1/1/04 $ 320 685 Club Regina, Inc. 144A 12/1/04 685 210 Colt Telecommunications Group PLC 12/31/06 115,500 2,430 Diva Systems Corp. 3/1/08 36,450 8,875 DTI Holdings Inc. 3/1/08 444 1,110 Epic Resorts 6/15/05 11 205 Esat Holdings, Inc. (Ireland) 2/1/07 13,838 250 Intermedia Communications 6/1/00 8,813 560 KMC Telecom Holdings, Inc. 4/15/08 1,400 470 Knology Holdings, Inc. 144A 10/15/07 705 630 Long Distance International, Inc. 144A 4/13/08 1,575 180 McCaw International Ltd. 4/15/07 720 430 Mediq Inc. 144A 6/1/09 4 150 Onepoint Communications, Inc. 6/1/08 150 450 Pathnet, Inc. 144A 4/15/08 4,500 960 Powertel, Inc. 2/1/06 3,840 3,680 Rhythms Netcon 144A 5/15/08 73,600 390 STARTEC Global Communications Corp. 5/15/08 390 625 UIH Australia/Pacific, Inc. 144A 5/15/06 625 270 Versatel Teleco 144A 5/15/08 2,700 -------------- Total Warrants (cost $126,634) $ 266,270 SHORT-TERM INVESTMENTS (6.1%) (a) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- $ 50,000,000 Associates Corp. of North America effective yield of 4.8%, February 1, 1999 $ 49,980,000 25,000,000 Corporate Receivables Corp. effective yield of 5.28%, February 10, 1999 24,967,000 50,000,000 Federal National Mortgage Association effective yield of 5.04%, February 19, 1999 49,874,000 6,225,000 Lehman Bros Holdings, Inc. med. term notes 6.4s, 1999 6,272,746 50,000,000 Metlife Funding Inc. effective yield of 4.81%, March 2, 1999 49,806,264 50,000,000 National Australia Funding (DE) Inc. effective yield of 5.17%, February 2, 1999 49,959,583 30,000,000 National Rural Utilities Cooperative Finance Corp. effective yield of 5.04%, March 29, 1999 29,776,000 25,000,000 Sheffield Receivables Corp. effective yield of 4.87%, February 11, 1999 24,966,181 2,000,000 Society Bank & Trust notes 12 1/2s, July 15, 1999 2,060,000 30,000,000 Windmill Funding Corp. effective yield of 4.86%, March 24, 1999 29,793,450 9,140,000 Interest in $650,000,000 joint repurchase agreement dated January 29, 1999 with Goldman Sachs & Co. due February 1, 1999 with respect to various U.S. Treasury obligations -- maturity value of $9,143,587 for an effective yield of 4.71% 9,140,000 45,374,000 Interest in $308,920,000 joint repurchase agreement dated January 29, 1999 with Credit Suisse First Boston due February 1, 1999 with respect to various U.S. Treasury obligations -- maturity value of $45,391,696 for an effective yield of 4.68% 45,374,000 -------------- Total Short-Term Investments (cost $362,853,557) $ 371,969,224 - -------------------------------------------------------------------------------------------------------------------------- Total Investments (cost $5,780,801,888) (b) $6,346,790,886 - -------------------------------------------------------------------------------------------------------------------------- (a) Percentages indicated are based on net assets of $6,136,695,989. (b) The aggregate identified cost on a tax basis is $5,783,328,968, resulting in gross unrealized appreciation and depreciation of $794,591,445 and $231,129,527, respectively, or net unrealized appreciation of $563,461,918. (NON) Non-income-producing security. (STP) The interest rate and date shown parenthetically represent the new interest rate to be paid and the date the fund will begin receiving interest at this rate. (RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at January 31, 1999 was $536,559 or less than 0.1% of net assets. (PIK) Income may be received in cash or additional securities at the discretion of the issuer. (SEG) This security was pledged and segregated with the custodian to cover margin requirements for futures contracts January 31, 1999. 144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. ADR after the name of a foreign holding stands for American Depository Receipts representing ownership of foreign securities on deposit with a domestic custodian bank. TBA after the name of a security represents to be announced securities (Note 1). - ------------------------------------------------------------------------------- Forward Currency Contracts to Buy at January 31, 1999 (Unaudited) Aggregate Face Delivery Unrealized Market Value Value Date Depreciation - ------------------------------------------------------------------------------- Deutschemarks $66,537,560 $68,501,951 2/17/99 $(1,964,391) - ------------------------------------------------------------------------------- Forward Currency Contracts to Sell at January 31, 1999 (Unaudited) Market Aggregate Face Delivery Unrealized Value Value Date Appreciation - ------------------------------------------------------------------------------- Deutschemarks $65,145,028 $67,055,637 2/17/99 $1,910,609 - ------------------------------------------------------------------------------- Futures Contracts Outstanding at January 31, 1999 (Unaudited) Aggregate Face Expiration Unrealized Total Value Value Date Appreciation - ------------------------------------------------------------------------------- U.S. Treasury 20 year Bonds (long) $33,792,000 $33,703,428 Mar-99 $88,572 - ------------------------------------------------------------------------------- TBA Sales Commitments at January 31, 1999 (Unaudited) (premium received $41,238,300) Principal Settlement Market Unrealized Description Amount Date Value Appreciation - ------------------------------------------------------------------------------- GNMA, 6 1/2s, February 2029 $40,753,000 Feb-99 $41,211,471 $26,829 - ------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities January 31, 1999 (Unaudited) Assets - ----------------------------------------------------------------------------------------------- Investments in securities, at value (identified cost $5,780,801,888) (Note 1) $6,346,790,886 - ----------------------------------------------------------------------------------------------- Dividends, interest and other receivables 36,906,822 - ----------------------------------------------------------------------------------------------- Receivable for shares of the fund sold 17,747,446 - ----------------------------------------------------------------------------------------------- Receivable for securities sold 145,451,798 - ----------------------------------------------------------------------------------------------- Receivable for variation margin 49,500 - ----------------------------------------------------------------------------------------------- Receivable for open forward currency contracts 1,910,609 - ----------------------------------------------------------------------------------------------- Receivable for closed forward currency contracts 114,890 - ----------------------------------------------------------------------------------------------- Total assets 6,548,971,951 Liabilities - ----------------------------------------------------------------------------------------------- Payable to subcustodian (Note 2) 5,051,717 - ----------------------------------------------------------------------------------------------- Payable for securities purchased 342,772,617 - ----------------------------------------------------------------------------------------------- Payable for shares of the fund repurchased 10,501,782 - ----------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 7,110,061 - ----------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 790,247 - ----------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 75,789 - ----------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 2,765 - ----------------------------------------------------------------------------------------------- Payable for distribution fees (Note 2) 2,249,325 - ----------------------------------------------------------------------------------------------- Payable for open forward currency contracts 1,964,391 - ----------------------------------------------------------------------------------------------- Payable for closed forward currency contracts 84,496 - ----------------------------------------------------------------------------------------------- TBA sale commitments at value (proceeds received $41,238,300) 41,211,471 - ----------------------------------------------------------------------------------------------- Other accrued expenses 461,301 - ----------------------------------------------------------------------------------------------- Total liabilities 412,275,962 - ----------------------------------------------------------------------------------------------- Net assets $6,136,695,989 Represented by - ----------------------------------------------------------------------------------------------- Paid-in capital (Notes 1 and 4) $5,435,414,410 - ----------------------------------------------------------------------------------------------- Distributions in excess of net investment income (Note 1) (11,278,128) - ----------------------------------------------------------------------------------------------- Accumulated net realized gain on investments and foreign currency transactions (Note 1) 146,429,466 - ----------------------------------------------------------------------------------------------- Net unrealized appreciation of investments and assets and liabilities in foreign currencies 566,130,241 - ----------------------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $6,136,695,989 Computation of net asset value and offering price - ----------------------------------------------------------------------------------------------- Net asset value and redemption price per class A share ($3,822,527,007 divided by 209,814,226 shares) $18.22 - ----------------------------------------------------------------------------------------------- Offering price per class A share (100/94.25 of $18.22)* $19.33 - ----------------------------------------------------------------------------------------------- Net asset value and offering price per class B share ($1,495,483,710 divided by 82,793,968 shares)** $18.06 - ----------------------------------------------------------------------------------------------- Net asset value and redemption price per class M share ($282,798,232 divided by 15,653,495 shares) $18.07 - ----------------------------------------------------------------------------------------------- Offering price per class M share (100/96.5 of $18.07)* $18.73 - ----------------------------------------------------------------------------------------------- Net asset value, offering price and redemption price per class Y share ($535,887,040 divided by 29,354,824 shares) $18.26 - ----------------------------------------------------------------------------------------------- * On single retail sales of less than $50,000. On sales of $50,000 more and on group sales the offering price is reduced. ** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. The accompanying notes are an integral part of these financial statements.
Statement of operations Six months ended January 31, 1999 (Unaudited) Investment income: - ----------------------------------------------------------------------------------------------- Dividends $ 36,869,158 - ----------------------------------------------------------------------------------------------- Interest (net of foreign tax of $2,430) 79,021,830 - ----------------------------------------------------------------------------------------------- Total investment income 115,890,988 Expenses: - ----------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 13,570,049 - ----------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 4,949,703 - ----------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 35,179 - ----------------------------------------------------------------------------------------------- Administrative services (Note 2) 16,829 - ----------------------------------------------------------------------------------------------- Distribution fees -- Class A (Note 2) 4,394,162 - ----------------------------------------------------------------------------------------------- Distribution fees -- Class B (Note 2) 6,847,868 - ----------------------------------------------------------------------------------------------- Distribution fees -- Class M (Note 2) 1,052,937 - ----------------------------------------------------------------------------------------------- Reports to shareholders 77,535 - ----------------------------------------------------------------------------------------------- Registration fees 255,154 - ----------------------------------------------------------------------------------------------- Auditing 55,487 - ----------------------------------------------------------------------------------------------- Legal 12,110 - ----------------------------------------------------------------------------------------------- Postage 264,420 - ----------------------------------------------------------------------------------------------- Other 207,726 - ----------------------------------------------------------------------------------------------- Total expenses 31,739,159 - ----------------------------------------------------------------------------------------------- Expense reduction (Note 2) (709,064) - ----------------------------------------------------------------------------------------------- Net expenses 31,030,095 - ----------------------------------------------------------------------------------------------- Net investment income 84,860,893 - ----------------------------------------------------------------------------------------------- Net realized gain on investments (Notes 1 and 3) 122,701,234 - ----------------------------------------------------------------------------------------------- Net realized gain on futures contracts (Notes 1) 1,874,058 - ----------------------------------------------------------------------------------------------- Net realized loss on foreign currency transactions (Note 1) (875,177) - ----------------------------------------------------------------------------------------------- Net unrealized depreciation of assets and liabilities in foreign currencies during the period (910,905) - ----------------------------------------------------------------------------------------------- Net unrealized appreciation of investments, futures contracts, and TBA sale commitments during the period 82,801,764 - ----------------------------------------------------------------------------------------------- Net gain on investments 205,590,974 - ----------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations $290,451,867 - ----------------------------------------------------------------------------------------------- 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 ------------------------------- 1999* 1998 - --------------------------------------------------------------------------------------------------------------- Increase in net assets - --------------------------------------------------------------------------------------------------------------- Operations: - --------------------------------------------------------------------------------------------------------------- Net investment income $ 84,860,893 $ 140,876,649 - --------------------------------------------------------------------------------------------------------------- Net realized gain on investments and foreign currency transactions 123,700,115 454,484,734 - --------------------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investments and assets and liabilities in foreign currencies 81,890,859 (174,363,842) - --------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 290,451,867 420,997,541 - --------------------------------------------------------------------------------------------------------------- Distributions to shareholders: - --------------------------------------------------------------------------------------------------------------- From net investment income Class A (55,437,230) (93,857,434) - --------------------------------------------------------------------------------------------------------------- Class B (17,017,510) (26,582,497) - --------------------------------------------------------------------------------------------------------------- Class M (3,789,389) (6,420,081) - --------------------------------------------------------------------------------------------------------------- Class Y (8,075,093) (14,256,392) - --------------------------------------------------------------------------------------------------------------- From net realized gain on investments Class A (226,174,800) (173,044,314) - --------------------------------------------------------------------------------------------------------------- Class B (90,083,420) (63,051,883) - --------------------------------------------------------------------------------------------------------------- Class M (18,265,793) (14,653,375) - --------------------------------------------------------------------------------------------------------------- Class Y (30,082,203) (25,075,114) - --------------------------------------------------------------------------------------------------------------- Increase from capital share transactions (Note 4) 853,514,041 1,397,644,938 - --------------------------------------------------------------------------------------------------------------- Total increase in net assets 695,040,470 1,401,701,389 Net assets - --------------------------------------------------------------------------------------------------------------- Beginning of period 5,441,655,519 4,039,954,130 - --------------------------------------------------------------------------------------------------------------- End of period (including distributions in excess of net investment income of $11,278,128 and $11,819,799, respectively) $6,136,695,989 $5,441,655,519 - --------------------------------------------------------------------------------------------------------------- * Unaudited The accompanying notes are an integral part of these financial statements.
Financial highlights (For a share outstanding throughout the period) CLASS A - ------------------------------------------------------------------------------------------------------------------------------------ Six months ended Per-share January 31 operating performance (Unaudited) Year ended July 31 - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $18.82 $18.95 $15.82 $14.90 $13.52 $14.24 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .29(c) .60 .60(c) .63 .63 .59 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments .61 1.08 4.11 1.50 1.63 (.11) - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations .90 1.68 4.71 2.13 2.26 .48 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income (.30) (.60) (.67) (.58) (.56) (.58) - ------------------------------------------------------------------------------------------------------------------------------------ From net realized gain on investments (1.20) (1.21) (.91) (.63) (.32) (.62) - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (1.50) (1.81) (1.58) (1.21) (.88) (1.20) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $18.22 $18.82 $18.95 $15.82 $14.90 $13.52 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total return at net asset value (%)(a) 5.04* 9.53 31.52 14.75 17.73 3.46 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $3,822,527 $3,387,620 $2,607,562 $1,515,260 $1,036,674 $913,171 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) .47* 1.00 1.06 .95 .91 .95 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 1.61* 3.11 3.51 4.07 4.58 4.15 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 66.91* 126.19 134.80 119.44 102.57 100.69 - ------------------------------------------------------------------------------------------------------------------------------------ + Commencement of operations. * Not annualized. (a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) The ratio of expenses to average net assets for the period ended July 31, 1996 and thereafter includes amounts paid through brokerage service and expense offset arrangements. Prior period ratios exclude these amounts. (Note 2). (c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period.
Financial highlights (For a share outstanding throughout the period) CLASS B - ------------------------------------------------------------------------------------------------------------------------------------ Six months ended Per-share January 31 operating performance (Unaudited) Year ended July 31 - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $18.67 $18.82 $15.74 $14.83 $13.46 $14.19 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .22(c) .46 .46(c) .51 .52 .50 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments .60 1.07 4.08 1.50 1.63 (.12) - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations .82 1.53 4.54 2.01 2.15 .38 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income (.23) (.47) (.55) (.47) (.46) (.49) - ------------------------------------------------------------------------------------------------------------------------------------ From net realized gain on investments (1.20) (1.21) (.91) (.63) (.32) (.62) - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (1.43) (1.68) (1.46) (1.10) (.78) (1.11) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $18.06 $18.67 $18.82 $15.74 $14.83 $13.46 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total return at net asset value (%)(a) 4.63* 8.72 30.46 13.97 16.87 2.70 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $1,495,484 $1,305,897 $888,666 $435,278 $224,166 $151,327 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) .85* 1.75 1.81 1.71 1.66 1.71 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 1.24* 2.37 2.74 3.31 3.81 3.39 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 66.91* 126.19 134.80 119.44 102.57 100.69 - ------------------------------------------------------------------------------------------------------------------------------------ + Commencement of operations. * Not annualized. (a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) The ratio of expenses to average net assets for the period ended July 31, 1996 and thereafter includes amounts paid through brokerage service and expense offset arrangements. Prior period ratios exclude these amounts. (Note 2). (c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period.
Financial highlights (For a share outstanding throughout the period) CLASS M - ------------------------------------------------------------------------------------------------------------------------------------ Six months ended For the period Per-share January 31 Dec. 1, 1994+ operating performance (Unaudited) Year ended July 31 to July 31 - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $18.67 $18.82 $15.74 $14.84 $12.77 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .24(c) .51 .53(c) .55 .31 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments .61 1.06 4.06 1.50 2.03 - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations .85 1.57 4.59 2.05 2.34 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income (.25) (.51) (.60) (.52) (.27) - ------------------------------------------------------------------------------------------------------------------------------------ From net realized gain on investments (1.20) (1.21) (.91) (.63) -- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (1.45) (1.72) (1.51) (1.15) (.27) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $18.07 $18.67 $18.82 $15.74 $14.84 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total return at net asset value (%)(a) 4.81* 8.98 30.83 14.26 18.52* - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $282,798 $276,962 $187,475 $49,541 $8,164 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) .72* 1.50 1.56 1.50 .93* - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 1.37* 2.62 3.05 3.50 2.53* - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 66.91* 126.19 134.80 119.44 102.57 - ------------------------------------------------------------------------------------------------------------------------------------ + Commencement of operations. * Not annualized. (a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) The ratio of expenses to average net assets for the period ended July 31, 1996 and thereafter includes amounts paid through brokerage service and expense offset arrangements. Prior period ratios exclude these amounts. (Note 2). (c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period.
Financial highlights (For a share outstanding throughout the period) CLASS Y - ------------------------------------------------------------------------------------------------------------------------------------ Six months ended For the period Per-share January 31 April 1, 1994+ operating performance (Unaudited) Year ended July 31 to July 31 - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $18.85 $18.98 $15.85 $14.92 $13.54 $13.21 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .31(c) .64 .64(c) .68 .66 .17 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments .62 1.09 4.11 1.50 1.63 .31 - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations .93 1.73 4.75 2.18 2.29 .48 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income (.32) (.65) (.71) (.62) (.59) (.15) - ------------------------------------------------------------------------------------------------------------------------------------ From net realized gain on investments (1.20) (1.21) (.91) (.63) (.32) -- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (1.52) (1.86) (1.62) (1.25) (.91) (.15) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $18.26 $18.85 $18.98 $15.85 $14.92 $13.54 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total return at net asset value (%)(a) 5.21* 9.79 31.78 15.09 18.00 3.65* - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $535,887 $471,176 $356,251 $207,508 $153,597 $71,566 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) .35* .75 .81 .70 .66 .25* - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 1.74* 3.37 3.74 4.33 4.78 1.34* - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 66.91* 126.19 134.80 119.44 102.57 100.69 - ------------------------------------------------------------------------------------------------------------------------------------ + Commencement of operations. * Not annualized. (a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) The ratio of expenses to average net assets for the period ended July 31, 1996 and thereafter includes amounts paid through brokerage service and expense offset arrangements. Prior period ratios exclude these amounts. (Note 2). (c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period.
Notes to financial statements January 31, 1999 (Unaudited) Note 1 Significant accounting policies The George Putnam Fund of Boston (the "fund") is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The fund seeks to provide a balanced investment composed of a well-diversified portfolio of stocks and bonds which will produce both capital growth and current income. The fund offers class A, class B, class M and class Y shares. Class A shares are sold with a maximum front-end sales charge of 5.75%. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge but pay a higher ongoing distribution fee than class A shares, and are subject to a contingent deferred sales charge, if those shares are redeemed within six years of purchase. Class M shares are sold with a maximum front end sales charge of 3.50% and pay an ongoing distribution fee that is higher than class A shares but lower than class B shares. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A shares, class B and class M shares, but do not bear a distribution fee. Class Y shares are sold to defined contribution plans that invest at least $150 million in a combination of Putnam Funds and other accounts managed by affiliates of Putnam Investment Management, Inc. ("Putnam Management"), the fund's manager, a wholly owned subsidiary of Putnam Investments, Inc. Expenses of the fund are borne pro-rata by the holders of each class of shares, except that each class bears expenses unique to that class (including the distribution fees applicable to such class). Each class votes as a class only with respect to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. Shares of each class would receive their pro-rata share of the net assets of the fund, if that fund were liquidated. In addition, the Trustees declare separate dividends on each class of shares. The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with generally accepted accounting principles and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Actual results could differ from those estimates. A) Security valuation Investments for which market quotations are readily available are stated at market value, which is determined using the last reported sale price, or, if no sales are reported -- as in the case of some securities traded over-the-counter -- the last reported bid price. Securities quoted in foreign currencies are translated into U.S. dollars at the current exchange rate. Short-term investments having remaining maturities of 60 days or less are stated at amortized cost, which approximates market value, and other investments are stated at fair value following procedures approved by the Trustees. Market quotations are not considered to be readily available for certain long-term corporate bonds and notes; such investments are stated at fair value on the basis of valuations furnished by a pricing service, approved by the Trustees, which determines valuations for normal, institutional size trading units of such securities using methods based on market transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. B) Joint trading account Pursuant to an exemptive order issued by the Securities and Exchange Commission, the fund may transfer uninvested cash balances into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Management. These balances may be invested in one or more repurchase agreements and/or short-term money market instruments. C) Repurchase agreements The fund, or any joint trading account, through its custodian, receives delivery of the underlying securities, the market value of which at the time of purchase is required to be in an amount at least equal to the resale price, including accrued interest. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the fund and the counterparty. Putnam Management is responsible for determining that the value of these underlying securities is at all times at least equal to the resale price, including accrued interest. D) Security transactions and related investment income Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recorded as soon as the fund is informed of the ex-dividend date. Discounts on zero coupon bonds, original issue discount bonds, stepped-coupon bonds and payment in kind bonds are accreted according to the yield-to-maturity basis. Securities purchased or sold on a forward commitment or delayed delivery basis may be settled a month or more after the trade date; interest income is accrued based on the terms of the security. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract. E) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, and other assets and liabilities are recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when accrued or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on closed forward currency contracts, disposition of foreign currencies and the difference between the amount of investment income and foreign withholding taxes recorded on the fund's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign currencies arise from changes in the value of open forward currency contracts and assets and liabilities other than investments at the period end, resulting from changes in the exchange rate. F) Forward currency contracts The fund may engage in forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date, to protect against a decline in value relative to the U.S. dollar of the currencies in which its portfolio securities are denominated or quoted (or an increase in the value of a currency in which securities a fund intends to buy are denominated, when a fund holds cash reserves and short-term investments). The U.S. dollar value of forward currency contracts is determined using current forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is "marked to market" daily and the change in market value is recorded as an unrealized gain or loss. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. G) Futures and options contracts The fund may use futures and options contracts to hedge against changes in the values of securities the fund owns or expects to purchase. The fund may also write options on securities it owns or in which it may invest to increase its current returns. The potential risk to the fund is that the change in value of futures and options contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts, or if the counterparty to the contract is unable to perform. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. Exchange traded options are valued at the last sale price, or if no sales are reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by dealers. H) TBA purchase commitments The fund may enter into "TBA" (to be announced) purchase commitments to purchase securities for a fixed unit price at a future date beyond customary settlement time. Although the unit price has been established, the principal value has not been finalized. However, the amount of the commitments will not fluctuate more than 1.0% from the principal amount. The fund holds, and maintains until settlement date, cash or high-grade debt obligations in an amount sufficient to meet the purchase price, or the fund may enter into offsetting contracts for the forward sale of other securities it owns. Income on the securities will not be earned until settlement date. TBA purchase commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date, which risk is in addition to the risk of decline in the value of the fund's other assets. Unsettled TBA purchase commitments are valued at the current market value of the underlying securities, according to the procedures described under "Security valuation" above. Although the fund will generally enter into TBA purchase commitments with the intention of acquiring securities for their portfolio or for delivery pursuant to options contracts it has entered into, the fund may dispose of a commitment prior to settlement if Putnam Management deems it appropriate to do so. I) TBA sale commitments The fund may enter into TBA sale commitments to hedge its portfolio positions or to sell mortgage-backed securities it owns under delayed delivery arrangements. Proceeds of TBA sale commitments are not received until the contractual settlement date. During the time a TBA sale commitment is outstanding, equivalent deliverable securities, or an offsetting TBA purchase commitment deliverable on or before the sale commitment date, are held as "cover" for the transaction. Unsettled TBA sale commitments are valued at the current market value of the underlying securities, generally according to the procedures described under "Security valuation" above. The contract is "marked-to-market" daily and the change in market value is recorded by the fund as an unrealized gain or loss. If the TBA sale commitment is closed through the acquisition of an offsetting purchase commitment, the fund realizes a gain or loss. If the fund delivers securities under the commitment, the fund realizes a gain or a loss from the sale of the securities based upon the unit price established at the date the commitment was entered into. J) Line of credit The fund has entered into a committed line of credit with certain banks. This line of credit agreement includes restrictions that the fund maintain an asset coverage ratio of at least 300% and borrowings must not exceed prospectus limitations. For the six months ended January 31, 1999 the fund had no borrowings against the line of credit. K) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Internal Revenue Code of 1986, as amended. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains. L) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Capital gain distributions, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Reclassifications are made to the fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. Note 2 Management fee, administrative services, and other transactions Compensation of Putnam Management, for management and investment advisory services is paid quarterly based on the average net assets of the fund. Such fee is based on the following annual rates: 0.65% of the first $500 million of average net assets, 0.55% of the next $500 million, 0.50% of the next $500 million, 0.45% of the next $5 billion, 0.425% of the next $5 billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion, and 0.38% thereafter. As part of the subcustodian contract between the subcustodian bank and Putnam Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam Investments, Inc., the subcustodian bank has a lien on the securities of the fund to the extent permitted by the fund's investment restrictions to cover any advances made by the subcustodian bank for the settlement of securities purchased by the fund. At January 31, 1999, the payable to the subcustodian bank represents the amount due for cash advance for the settlement of a security purchased. The fund reimburses Putnam Management an allocated amount for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees. Custodial functions for the fund's assets are provided by PFTC. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. For the six months ended January 31, 1999, fund expenses were reduced by $709,064 under expense offset arrangements with PFTC and brokerage service arrangements. Investor servicing and custodian fees reported in the Statement of operations exclude these credits. The fund could have invested a portion of the assets utilized in connection with the expense offset arrangements in an income producing asset if it had not entered into such arrangements. Each Trustee of the fund receives an annual Trustee fee, of which $3,380 has been allocated to the fund, 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 has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which allows the Trustees to defer the receipt of all or a portion of Trustees Fees payable on or after July 1, 1995. The deferred fees remain in the fund and are invested in certain Putnam funds until distribution in accordance with the Deferral Plan. The fund has adopted an unfunded noncontributory defined benefit pension plan (the "Pension Plan") covering all Trustees of the fund who have served as Trustee for at least five years. Benefits under the Pension Plan are equal to 50% of the Trustee's average total retainer and meeting fees for the three years preceding retirement. Pension expense for the fund is included in Compensation of Trustees in the Statement of operations. Accrued pension liability is included in Payable for compensation of Trustees in the Statement of assets and liabilities. The fund has adopted distribution plans (the "Plans") with respect to its class A, class B and class M shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments Inc., for services provided and expenses incurred by it in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%, 1.00% and 1.00% of the average net assets attributable to class A, class B and class M shares, respectively. The Trustees have approved payment by the fund to 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, 1999, Putnam Mutual Funds Corp., acting as underwriter received net commissions of $1,042,337 and $33,832 from the sale of class A and class M shares, respectively and $999,389 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, 1999, Putnam Mutual Funds Corp., acting as underwriter received $12,980 on class A redemptions. Note 3 Purchase and sales of securities During the six months ended January 31, 1999, purchases and sales of investment securities other than U.S. government obligations and short-term investments aggregated $2,694,289,127 and $2,391,839,007, respectively. Purchases and sales of U.S. government obligations aggregated $1,317,476,871 and $1,218,076,972, 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, 1999, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: Six months ended January 31, 1999 - ----------------------------------------------------------------------------- Class A Shares Amount - ----------------------------------------------------------------------------- Shares sold 36,453,501 $ 655,769,937 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 14,831,078 263,559,286 - ----------------------------------------------------------------------------- 51,284,579 919,329,223 Shares repurchased (21,518,937) (388,022,581) - ----------------------------------------------------------------------------- Net increase 29,765,642 $ 531,306,642 - ----------------------------------------------------------------------------- Year ended July 31, 1998 - ----------------------------------------------------------------------------- Class A Shares Amount - ----------------------------------------------------------------------------- Shares sold 68,382,912 $1,271,076,297 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 13,629,619 245,136,594 - ----------------------------------------------------------------------------- 82,012,531 1,516,212,891 Shares repurchased (39,574,947) (742,732,518) - ----------------------------------------------------------------------------- Net increase 42,437,584 $ 773,480,373 - ----------------------------------------------------------------------------- Six months ended January 31, 1999 - ----------------------------------------------------------------------------- Class B Shares Amount - ----------------------------------------------------------------------------- Shares sold 16,655,486 $ 298,447,414 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 5,717,688 100,866,307 - ----------------------------------------------------------------------------- 22,373,174 399,313,721 Shares repurchased (9,541,481) (169,944,328) - ----------------------------------------------------------------------------- Net increase 12,831,693 $ 229,369,393 - ----------------------------------------------------------------------------- Year ended July 31, 1998 - ----------------------------------------------------------------------------- Class B Shares Amount - ----------------------------------------------------------------------------- Shares sold 27,640,494 $ 514,329,289 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 4,702,492 83,884,848 - ----------------------------------------------------------------------------- 32,342,986 598,214,137 Shares repurchased (9,601,746) (178,587,762) - ----------------------------------------------------------------------------- Net increase 22,741,240 $ 419,626,375 - ----------------------------------------------------------------------------- Six months ended January 31, 1999 - ----------------------------------------------------------------------------- Class M Shares Amount - ----------------------------------------------------------------------------- Shares sold 2,786,778 $ 49,920,729 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 1,231,128 21,712,483 - ----------------------------------------------------------------------------- 4,017,906 71,633,212 Shares repurchased (3,202,817) (57,418,682) - ----------------------------------------------------------------------------- Net increase 815,089 $ 14,214,530 - ----------------------------------------------------------------------------- Year ended July 31, 1998 - ----------------------------------------------------------------------------- Class M Shares Amount - ----------------------------------------------------------------------------- Shares sold 7,042,764 $130,939,053 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 1,109,311 19,785,710 - ----------------------------------------------------------------------------- 8,152,075 150,724,763 Shares repurchased (3,276,702) (60,912,495) - ----------------------------------------------------------------------------- Net increase 4,875,373 $ 89,812,268 - ----------------------------------------------------------------------------- Six months ended January 31, 1999 - ----------------------------------------------------------------------------- Class Y Shares Amount - ----------------------------------------------------------------------------- Shares sold 6,608,252 $119,864,151 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 2,142,783 38,157,296 - ----------------------------------------------------------------------------- 8,751,035 158,021,447 Shares repurchased (4,396,570) (79,397,971) - ----------------------------------------------------------------------------- Net increase 4,354,465 $ 78,623,476 - ----------------------------------------------------------------------------- Year ended July 31, 1998 - ----------------------------------------------------------------------------- Class Y Shares Amount - ----------------------------------------------------------------------------- Shares sold 9,280,297 $173,998,943 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 2,181,250 39,331,506 - ----------------------------------------------------------------------------- 11,461,547 213,330,449 Shares repurchased (5,233,650) (98,604,527) - ----------------------------------------------------------------------------- Net increase 6,227,897 $114,725,922 - ----------------------------------------------------------------------------- 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 John A. Hill, Vice Chairman Jameson Adkins Baxter Hans H. Estin Ronald J. Jackson Paul L. Joskow Elizabeth T. Kennan Lawrence J. Lasser John H. Mullin III Robert E. Patterson Donald S. Perkins George Putnam, III A.J.C. Smith W. Thomas Stephens W. Nicholas Thorndike OFFICERS George Putnam President Charles E. Porter Executive Vice President Patricia C. Flaherty Senior Vice President John D. Hughes Senior Vice President and Treasurer Lawrence J. Lasser Vice President Gordon H. Silver Vice President Ian C. Ferguson Vice President Brett C. Browchuk Vice President Thomas V. Reilly Vice President Anthony I. Kreisel Vice President Edward P. Bousa Vice President and Fund Manager James M. Prusko Vice President and Fund Manager David L. Waldman Vice President and Fund Manager Krishna K. Memani Vice President and Fund Manager Richard A. Monaghan Vice President John R. Verani Vice President Beverly Marcus Clerk and Assistant Treasurer This report is for the information of shareholders of The George Putnam Fund of Boston. It may also be used as sales literature when preceded or accompanied by the current prospectus, which gives details of sales charges, investment objectives, and operating policies of the fund, and the most recent copy of Putnam's Quarterly Performance Summary. For more information or to request a prospectus, call toll free: 1-800-225-1581. You can also learn more at Putnam Investments' website: http://www.putnaminv.com. Shares of mutual funds are not deposits or obligations of, or guaranteed or endorsed by, any financial institution; are not insured by the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board, or any other agency; and involve risk, including the possible loss of the principal amount invested. [LOGO OMITTED] PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 www.putnaminv.com - --------------------- BULK RATE U.S. POSTAGE PAID PUTNAM INVESTMENTS - --------------------- SA021 49940 001/880/242/ 3/99 PUTNAM INVESTMENTS [SCALE LOGO OMITTED] - -------------------------------------------------------------------------- The George Putnam Fund of Boston Supplement to Semiannual Report dated 1/31/99 The following information has been prepared to provide class Y shareholders with a performance overview specific to their holdings. Class Y shares are offered exclusively to defined contribution plans investing $150 million or more in one or more of Putnam's funds or private accounts. Performance of class Y shares, which incur neither a front-end load, distribution fee, nor contingent deferred sales charge, will differ from performance of class A, B, and M shares, which are discussed more extensively in the annual report. ANNUAL RESULTS AT A GLANCE - -------------------------------------------------------------------------- Total return for periods ended 1/31/99 NAV 6 months 5.21% 1 year 11.71 5 years 101.21 Annual average 15.01 10 years 253.88 Annual average 13.47 Life of fund, annual average (since class A inception 11/15/37) 10.02 - -------------------------------------------------------------------------- Share value: NAV 7/31/98 $18.85 1/31/99 $18.26 Current dividend rate 3.58% Current 30-day SEC yield 3.16% - -------------------------------------------------------------------------- Distributions: No. Income Capital gains Total 2 $0.323 $1.199 $1.522 - -------------------------------------------------------------------------- Please note that past performance does not indicate future results. Returns shown for class Y shares for periods prior to their inception are derived from the historical performance of class A shares, adjusted to reflect the initial sales charge currently applicable to class A shares. These returns have not been adjusted to reflect differences in operating expenses which, for class Y shares, are lower than the operating expenses applicable to class A shares. All returns assume reinvestment of distributions at net asset value. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. See full report for information on comparative benchmarks. If you have questions, please consult your fund prospectus or call Putnam toll free at 1-800-752-9894. -----END PRIVACY-ENHANCED MESSAGE-----