-----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, GOBlB/hH1WmvYdqPfiBQWBxoe1lrTzrEqn4phGrjI4JwBNEZkfdmss1tc9fnQ7k/ 0P2Pb+ngUKkQ6Z4+IHpVnQ== 0000928816-99-000284.txt : 19990920 0000928816-99-000284.hdr.sgml : 19990920 ACCESSION NUMBER: 0000928816-99-000284 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990731 FILED AS OF DATE: 19990917 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: 99712990 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 ANNUAL REPORT ON PERFORMANCE AND OUTLOOK 7-31-99 [LOGO: BOSTON * LONDON * TOKYO] From the Chairman [GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM] [copyright] Karsh, Ottawa Dear Shareholder: The concept of balanced investing upon which my father founded his namesake fund in 1937 has rarely been tested as strongly as it was during the fiscal year that ended on July 31, 1999. It was a year of topsy-turvy markets when stocks of large, established companies outperformed stocks of small, fast- growing companies -- indeed, a period when bonds at times outperformed stocks. The George Putnam Fund of Boston, with its portfolio of carefully selected stocks and bonds, was able to maneuver relatively smoothly through the markets' turbulence. This success was due in part to the fund's strategy of balanced investing. But it was also due in no small measure to the skill of your fund's management team. The fund's managers, who have expertise in each of the fund's investment areas, are backed by one of the industry's most extensive research organizations. In the following report, the managers provide a detailed review of fiscal 1999 performance and discuss prospects for the fiscal year just begun. Respectfully yours, /S/GEORGE PUTNAM George Putnam Chairman of the Trustees September 15, 1999 Report from the Fund Managers Edward P. Bousa Krishna K. Memani James M. Prusko David L. Waldman Although The George Putnam Fund of Boston has been serving investors for more than 60 years, it would be fair to say that the fund's 1999 fiscal year, which ended July 31, 1999, ranks as one of the most memorable. Uncertainty in international markets caused historic levels of volatility for U.S. stocks and bonds. While this was a source of concern for investors, some degree of volatility is an inevitable aspect of investing. Your fund's balanced combination of stocks and bonds made its performance much smoother than the ups and downs of the general markets. Total return for 12 months ended 7/31/99 Class A Class B Class C Class M NAV POP NAV CDSC NAV CDSC NAV POP - -------------------------------------------------------------------------- 8.33% 2.09% 7.55% 2.64% 7.52% 6.54% 7.80% 4.01% - -------------------------------------------------------------------------- Past performance is no indication of future results. Performance information for longer periods begins on page 7. * MARKETS, FUND BOUNCE BACK FROM EARLY TURMOIL As you might recall from our semiannual update, U.S. stocks declined during the first half of the fiscal year and subsequently bounced back. As the fiscal year began on August 1, 1998, investors feared that corporate profits would shrink because of deteriorating economic demand in the rest of the world. Later in August, Russia announced a foreign debt restructuring and currency devaluation, which caused short-term losses for many U.S. banks with international operations. During the turmoil, the fund's bonds performed much better than stocks. U.S. Treasuries, which offered a safe haven, even rallied. Equity markets recovered when the Federal Reserve Board began to cut U.S. interest rates in September. Most stocks recouped their losses by the end of December and have risen strongly so far in 1999. [GRAPHIC OMITTED: horizontal bar chart COMPARATIVE PORTFOLIO COMPOSITION] COMPARATIVE PORTFOLIO COMPOSITION* 7/31/99 7/31/98 Common stocks 60.9% 62.0% Corporate bonds and notes 18.2% 17.8% U.S. government and agency securities 15.8% 13.2% Foreign government bonds and notes 0.2% 1.2% Collateralized mortgage obligations 1.7% 2.8% Convertible and preferred securities 0.7% 0.4% Cash and other 4.5% 2.4% Footnote reads: *Based on percentage of net assets. The balances of the portfolio on dates listed were invested in cash and short-term securities. Portfolio allocation will vary over time. In the second half of the fiscal year, stocks have risen strongly because corporations have achieved better earnings than expected. Meanwhile, bonds have struggled. In April and May, after a long period of underperformance, value sectors emerged to lead the market as investors became convinced the world economy was no longer deteriorating. The fund participated in the rally with significant holdings in economically sensitive sectors such as energy, basic materials, and transportation. At the same time, unfortunately, the outlook for stronger growth dealt a setback to bonds. Despite action by the Fed to raise rates a quarter of a percentage point in June, news of rising labor costs shook fixed-income markets in the final week of the period. * SURGE IN VALUE STOCKS PROPELS FUND We believe the surge in value stocks we have seen is indicative of the current positive fundamental conditions in this area of the market. Many companies have grown more efficient thanks to better capital discipline and productivity-enhancing technology and could profit handsomely from an economic upswing. If history is any guide, value stocks are still priced attractively in comparison to growth stocks and could have significant potential to appreciate further. Of course, our equity strategy does not rely on major shifts in the capital markets. We select stocks using fundamental analysis, looking for companies that are priced below their long-term worth and poised for positive changes that can increase profits in the future. For example, when new executives join a company, they usually have the goal of shaking up old ways and enhancing earnings. They introduce changes such as restructuring, merging, and new products that can enhance shareholder value. During fiscal 1999, positive changes in many holdings contributed to performance. Bank of America is in the process of merging with Nations Bank; the new entity has a progressive business plan and is positioned well in western and southern states with strong demographic growth characteristics. Another large holding, Exxon, one of the most efficient oil companies in the world, is merging with Mobil. The stock is benefiting from its growing market share and the rising price of oil. 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. "The true causes of the recent rally in manufacturing and goods-producing companies are productivity and profitability. Through considerable downsizing and restructuring, the "smoke-stack" companies are stronger than ever." - -- Individual Investor, August 1999 Although the fund held relatively few technology stocks, which tend to be expensive and volatile, we selected stocks that have performed quite well. Motorola is achieving better results in its cellular phone business. Apple, after rehiring one of its original founders, Steve Jobs, as interim CEO in 1997, has boosted sales with new products, such as the iMac and new technologies, such as the G3 computer chip. The company recently recorded its sixth consecutive profitable quarter after years of losses. In addition to these recent acquisitions, long-term holding IBM also appreciated by approximately 90% in the annual period. Making the case for value stocks Edward Bousa, lead manager of The George Putnam Fund of Boston, was featured in the June 14, 1999, issue of Barron's. In an article entitled "Playing the Bounce," he commented on the surge in value stocks during the spring of 1999 as forecasts for world economic growth were revised upward. Here is an excerpt: "The major message is that the absence of a negative is a positive. No one is saying for sure that Asia is back or about to boom. But it isn't getting worse. That's really important. When industries are under duress, like commodities, they adjust. They take capacity down. They cut costs. They get more efficient. If things stop getting worse, their earnings go up. If things get better, their earnings go up a lot. I really feel pretty good about the upside." Recent additions to the fund include Abbott Laboratories, which fell out of favor with many other health-care stocks in the spring of 1999. To restore its growth, Abbott recently hired a new CEO who has focused on raising the company's productivity. We also added Shaw Industries during the fiscal period. New management at Shaw, the country's premier carpeting manufacturer, has cut costs and focused on operational efficiency. The company's earnings in 1999's second quarter exceeded Wall Street estimates, helping the stock to rally strongly in July. Another new holding, Whirlpool, has corrected many weaknesses in its appliance division, resulting in improved stock performance. * BONDS PUNISHED BY STRONGER-THAN-EXPECTED ECONOMY The bond market experienced wide variations in performance during the year. Last summer, Treasury bonds soared in value because of their high credit quality, while below investment-grade corporate bonds experienced losses. This gap narrowed after the Fed eased monetary policy and the much-dreaded recession failed to materialize. In 1999, Treasuries and investment-grade bonds have suffered a gradual price decline as new fears of inflation have emerged. By the time the Fed raised rates in June, bond yields had risen by nearly one percentage point across the yield curve in comparison with late-1998 levels. [GRAPHIC OMITTED: TOP 10 EQUITY HOLDINGS] TOP 10 EQUITY HOLDINGS Bank of America Insurance and finance GTE Utilities Exxon Oil and gas Mobil Oil and gas Citigroup Insurance and finance Ameritech Utilities AT&T Utilities Royal Dutch Petroleum Oil and gas Bank One Insurance and finance Bristol-Myers Squibb Pharmaceuticals and biotechnology Footnote reads: These holdings represent 10.5% of the fund's net assets as of 7/31/99. Portfolio holdings will vary over time. These market conditions contributed to negative results for the bonds in your fund's portfolio. Corporate and mortgage-backed bonds, which the fund favors because of their more attractive levels of income, underperformed Treasuries during much of the fiscal year. Treasuries make up less than 25% of the fund's bond holdings. While we do not anticipate significant indications of inflation, we plan to remain defensive in coming months because the market is anticipating further rate increases from the Fed. Also the possibility of a temporary economic slowdown in the fourth quarter, perhaps made worse by Y2K jitters, could provide advantageous buying opportunities. For that reason, the fund currently favors somewhat higher-quality, more liquid bonds. * CAUTIOUS POSITIONING FOR REMAINDER OF 1999 We are generally optimistic about conditions for value stocks and bonds in the second half of 1999. At this point, with little evidence of price increases and an extremely vigilant monetary policy from the Fed, we do not believe the economy is vulnerable to inflation. Similarly we do not believe the Y2K computer bug will cause significant business disruptions. We remain cautious, nonetheless, because other investors might perceive both inflation and Y2K to be more dangerous than they are and these perceptions could cause volatility. For that reason, we are favoring somewhat higher quality bonds and emphasizing stocks with more steady revenues, especially those in consumer areas, while being highly selective in the technology sector. We believe this is the proper positioning for your fund, chosen by many shareholders as a cornerstone of their portfolios, as it moves toward the next century. 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 7/31/99, 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 growth and current income.
TOTAL RETURN FOR PERIODS ENDED 7/31/99 Class A Class B Class C Class M (inception dates) (11/5/37) (4/27/92) (7/26/99) (12/1/94) NAV POP NAV CDSC NAV CDSC NAV POP - -------------------------------------------------------------------------------------- 1 year 8.33% 2.09% 7.55% 2.64% 7.52% 6.54% 7.80% 4.01% - -------------------------------------------------------------------------------------- 5 years 110.83 98.77 103.18 101.18 103.04 103.04 105.48 98.23 Annual average 16.09 14.73 15.23 15.01 15.22 15.22 15.49 14.67 - -------------------------------------------------------------------------------------- 10 years 217.34 199.16 193.97 193.97 194.33 194.33 200.85 190.26 Annual average 12.24 11.58 11.39 11.39 11.40 11.40 11.64 11.24 - -------------------------------------------------------------------------------------- Annual average 9.96 9.86 8.90 8.90 9.14 9.14 9.18 9.11 (life of fund) - --------------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 7/31/99 Standard & Lehman Bros. Poor's Govt./Corp. Consumer 500 Index Bond Index* price index - ------------------------------------------------------------------- 1 year 20.20% 2.32% 2.14% - ------------------------------------------------------------------- 5 years 220.68 42.07 12.33 Annual average 26.25 7.28 2.35 - ------------------------------------------------------------------- 10 years 396.64 113.33 34.00 Annual average 17.39 7.87 2.97 - ------------------------------------------------------------------- Annual average 12.50 -- 4.02 (life of fund) - ------------------------------------------------------------------- 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-, 10-year 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. For class C shares, returns for periods prior to their inception are derived from the historical performance of class A shares, adjusted to reflect both the CDSC currently applicable to class C shares, which is 1% for the first year and is eliminated thereafter, and the higher operating expenses applicable to class C 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. [GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT] GROWTH OF A $10,000 INVESTMENT Cumulative total return of a $10,000 investment since 7/31/89 Lehman Bros. Fund's class A Govt./Corp. S&P 500 Consumer price Date shares at POP Bond Index Index index 7/31/89 9,425 10,000 10,000 10,000 7/31/90 9,977 10,623 10,650 10,482 7/31/91 11,103 11,710 12,009 10,949 7/31/92 12,622 13,541 13,545 11,294 7/31/93 13,712 15,035 14,727 11,608 7/31/94 14,187 15,016 15,487 11,929 7/31/95 16,701 16,536 19,531 12,259 7/31/96 19,166 17,414 22,767 12,621 7/31/97 25,206 19,293 34,637 12,902 7/31/98 27,610 20,848 41,317 13,119 7/31/99 $29,916 $21,333 $49,664 $13,400 Footnote reads: Past performance is no assurance of future results. At the end of the same time period, a $10,000 investment in the fund's class B or class C shares would have been valued at $29,397 and $29,433, respectively and no contingent deferred sales charges would apply; a $10,000 investment in the fund's class M shares would have been valued at $30,085 ($29,026 at public offering price). See first page of performance section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 7/31/99 Class A Class B Class C Class M - -------------------------------------------------------------------------------------- Distributions (number) 4 4 -- 4 - -------------------------------------------------------------------------------------- Income $0.549 $0.416 -- $0.457 - -------------------------------------------------------------------------------------- Capital gains Long-term 0.757 0.757 -- 0.757 - -------------------------------------------------------------------------------------- Short-term 0.493 0.493 -- 0.493 - -------------------------------------------------------------------------------------- Total $1.799 $1.666 -- $1.707 - -------------------------------------------------------------------------------------- Share value: NAV POP NAV NAV NAV POP - -------------------------------------------------------------------------------------- 7/31/98 $18.82 $19.97 $18.67 -- $18.67 $19.35 - -------------------------------------------------------------------------------------- 7/26/99* -- -- -- $18.76 -- -- - -------------------------------------------------------------------------------------- 7/31/99 18.49 19.62 18.33 18.49 18.33 18.99 - -------------------------------------------------------------------------------------- Current return (end of period) - -------------------------------------------------------------------------------------- Current dividend rate1 3.24% 3.06% 2.55% -- 2.79% 2.70% - -------------------------------------------------------------------------------------- Current 30-day SEC yield2 3.24 3.05 2.47 --** 2.73 2.57 - -------------------------------------------------------------------------------------- 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. *Inception date of class C shares. **Due to their brief performance history, no yield information is yet available for class C shares.
TOTAL RETURN FOR PERIODS ENDED 6/30/99 (most recent calendar quarter) Class A Class B Class C Class M (inception dates) (11/5/37) (4/27/92) (7/26/99) (12/1/94) NAV POP NAV CDSC NAV CDSC NAV POP - ---------------------------------------------------------------------------------------- 1 year 9.34% 3.03% 8.56% 3.61% 8.53% 7.54% 8.81% 4.99% - ---------------------------------------------------------------------------------------- 5 years 120.81 108.07 112.82 110.82 112.57 112.57 115.33 107.86 Annual average 17.17 15.78 16.31 16.09 16.28 16.28 16.58 15.76 - ---------------------------------------------------------------------------------------- 10 years 246.01 226.15 220.64 220.64 220.92 220.92 227.94 216.55 Annual average 13.22 12.55 12.36 12.36 12.37 12.37 12.61 12.21 - ---------------------------------------------------------------------------------------- Annual average 10.02 9.92 8.96 8.96 9.19 9.19 9.23 9.17 (life of fund) - ---------------------------------------------------------------------------------------- Past performance is no assurance of future results. More recent returns may be more or less than those shown. They 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 C shares are not subject to an initial sales charge and are subject to a contingent deferred sales charge only if the shares are redeemed during the first year. Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no sales charge on redemption. 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 or C shares and assumes redemption at the end of the period. Your fund's class B CDSC declines from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. The CDSC for class C shares is 1% for one year after purchase. Comparative benchmarks 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. Welcome to www.putnaminv.com Now you can use your PC to get up-to-date information about your funds, learn more about investing and retirement planning, and access market news and economic outlooks from Putnam. VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR: * the benefits of investing with Putnam * Putnam's money management philosophy * complete fund information, daily pricing and long-term performance * your current account value, portfolio value and transaction history * the latest on new funds and other Putnam news You can also read Putnam economist Dr. Robert Goodman's commentary and Putnam's Capital Markets outlook, search for a particular fund by name or objective, use our glossary to decode investment terms . . . and much more. The site can be accessed through any of the major online services (America Online, CompuServe, Prodigy) that offer web access. Of course, you can also access it via Netscape or Microsoft Internet Explorer, using an independent Internet service provider. New features will be added to the site regularly. So be sure to bookmark us at http://www.putnaminv.com A guide to the financial statements These sections of the report, preceded by the Report of independent accountants, constitute the fund's financial statements. The fund's portfolio lists all the fund's investments and their values as of the last day of the reporting period. Holdings are organized by asset type and industry sector, country, or state to show areas of concentration and diversification. Statement of assets and liabilities shows how the fund's net assets and share price is determined. All investment and non-investment assets are added together. Any unpaid expenses and other liabilities are subtracted from this total. The result is divided by the number of shares to determine the net asset value per share, which is calculated separately for each class of shares. (For funds with preferred shares, the amount subtracted from total assets includes the net assets allocated to remarketed preferred shares.) Statement of operations shows the fund's net investment gain or loss for the reporting period. This is determined by adding up all the fund's earnings -- from dividends and interest income -- and subtracting its operating expenses. This statement also lists any net gain or loss the fund realized on the sales of its holdings and -- for holdings that remain in the portfolio -- any change in unrealized gains or losses over the period. Statement of changes in net assets shows how the fund's net assets were affected by distributions to shareholders and by changes in the number of the fund's shares. It lists distributions and their sources (net investment income or realized capital gains) over the current reporting period and the most recent fiscal year-end. The distributions listed here may not match the sources listed in the Statement of operations because the distributions are determined on a tax basis and may be paid in a different period from the one in which they were earned. Financial highlights provide an overview of the fund's investment results, per-share distributions, expense ratios, net investment income ratios and portfolio turnover in one summary table, reflecting the five most recent reporting periods. In a semiannual report, the highlight table also includes the current reporting period. For open-ended funds, a separate table is provided for each share class. Report of independent accountants For the fiscal year ended July 31, 1999 To the Trustees and Shareholders of The George Putnam Fund of Boston In our opinion, the accompanying statement of assets and liabilities, including the fund's portfolio, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of The George Putnam Fund of Boston (the "fund") at July 31, 1999, and the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of investments owned at July 31, 1999 by correspondence with the custodian, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Boston, Massachusetts September 13, 1999
The fund's portfolio July 31, 1999 COMMON STOCKS (60.9%) (a) NUMBER OF SHARES VALUE Aerospace and Defense (1.1%) - -------------------------------------------------------------------------------------------------------------------------- 893,400 Boeing Co. $ 40,538,025 837,000 Lockheed Martin Corp. 29,138,063 -------------- 69,676,088 Agriculture (--%) - -------------------------------------------------------------------------------------------------------------------------- 22,025 PSF Holdings LLC Class A (NON) 264,300 Automotive (1.5%) - -------------------------------------------------------------------------------------------------------------------------- 850,500 Ford Motor Co. 41,355,563 553,000 General Motors Corp. 33,698,438 511,700 Lear Corp. (NON) 24,433,675 -------------- 99,487,676 Basic Industrial Products (2.0%) - -------------------------------------------------------------------------------------------------------------------------- 485,800 Caterpillar, Inc. 28,480,025 824,700 Dover Corp. 32,575,650 485,800 Minnesota Mining & Manufacturing Co. 42,720,038 1,029,500 Owens-Illinois, Inc. (NON) 25,673,156 -------------- 129,448,869 Banks (7.1%) - -------------------------------------------------------------------------------------------------------------------------- 1,273,526 Bank of America Corp. 84,530,288 1,103,236 Bank One Corp. 60,195,314 659,050 BankBoston Corp. 30,934,159 773,500 BB&T Corp. 27,265,875 1,038,700 Charter One Financial, Inc. 26,876,363 479,650 Chase Manhattan Corp. 36,873,094 289,000 Comerica, Inc. 16,039,500 238,500 Morgan (J.P.) & Co., Inc. 30,498,188 740,100 PNC Bank Corp. 39,132,788 743,750 Synovus Financial Corp. 13,619,922 1,031,200 U.S. Bancorp 32,096,100 1,068,700 Washington Mutual, Inc. 36,669,769 908,100 Wells Fargo Co. 35,415,900 -------------- 470,147,260 Building and Construction (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 560,300 Armstrong World Industries, Inc. 30,816,500 Business Equipment and Services (0.6%) - -------------------------------------------------------------------------------------------------------------------------- 765,000 Xerox Corp. 37,293,750 Chemicals (2.6%) - -------------------------------------------------------------------------------------------------------------------------- 348,600 Dow Chemical Co. 43,226,400 452,800 du Pont (E.I.) de Nemours & Co., Ltd. 32,629,900 1,400,300 Engelhard Corp. 31,244,194 465,100 PPG Industries, Inc. 27,731,588 698,900 Union Carbide Corp. 33,547,200 -------------- 168,379,282 Computer Services and Software (1.5%) - -------------------------------------------------------------------------------------------------------------------------- 407,200 Apple Computer, Inc. (NON) 22,675,950 513,600 Compaq Computer Corp. 12,326,400 612,700 Computer Associates International, Inc. 28,107,613 264,400 IBM Corp. 33,231,775 -------------- 96,341,738 Conglomerates (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 593,500 TRW, Inc. 31,715,156 Consumer Durable Goods (0.9%) - -------------------------------------------------------------------------------------------------------------------------- 1,113,350 Hasbro, Inc. 28,947,100 44 Mothers Work, Inc. (NON) 649 469,100 Whirlpool Corp. 33,628,606 -------------- 62,576,355 Consumer Non Durables (1.2%) - -------------------------------------------------------------------------------------------------------------------------- 1,213 Hedstrom Holdings, Inc. 144A (NON) 1,213 557,400 Kimberly-Clark Corp. 34,001,400 1,155,700 Philip Morris Cos., Inc. 43,049,825 -------------- 77,052,438 Consumer Products (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 589,700 Fortune Brands, Inc. 23,293,150 Consumer Services (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 100 AmeriKing, Inc. (NON) 4,000 1,663,200 Service Corp. International 26,403,300 -------------- 26,407,300 Electronics and Electrical Equipment (1.2%) - -------------------------------------------------------------------------------------------------------------------------- 551,700 Emerson Electric Co. 32,929,594 162,400 Micron Technology, Inc. (NON) 10,089,100 401,200 Motorola, Inc. 36,609,500 -------------- 79,628,194 Entertainment (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 789,800 Disney (Walt) Productions, Inc. 21,818,225 1,733 Fitzgerald Gaming Corp. (NON) 867 -------------- 21,819,092 Environmental Control (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 1,066,500 Republic Services, Inc. (NON) 21,529,969 Food and Beverages (3.4%) - -------------------------------------------------------------------------------------------------------------------------- 676,400 Heinz (H.J.) Co. 31,875,350 914,600 Kellogg Co. 31,839,513 1,411,400 Nabisco Group Holdings Corp. 26,463,750 1,499,000 Pepsi Bottling Group, Inc. (The) 35,413,875 1,574,500 Sara Lee Corp. 34,639,000 627,200 Seagram Co., Ltd. 32,183,200 1,094,900 SYSCO Corp. 35,789,544 -------------- 228,204,232 Forest Products (1.3%) - -------------------------------------------------------------------------------------------------------------------------- 829,200 Mead Corp. 33,997,200 794,200 Weyerhaeuser Co. 51,374,813 -------------- 85,372,013 Health Care (0.9%) - -------------------------------------------------------------------------------------------------------------------------- 980,600 Abbott Laboratories 42,104,513 1,490,900 HEALTHSOUTH Corp. (NON) 18,263,525 -------------- 60,368,038 Insurance and Finance (6.1%) - -------------------------------------------------------------------------------------------------------------------------- 1,105,100 Ace Ltd. 25,693,575 955,200 Allstate Corp. 33,909,600 552,000 American General Corp. 42,711,000 488,200 Chubb Corp. (The) 29,200,463 423,600 CIGNA Corp. 37,356,225 1,577,625 Citigroup, Inc. 70,302,914 562,600 Fannie Mae 38,819,400 543,500 Hartford Financial Services Group 29,349,000 207,900 Household International, Inc. 8,939,700 730,300 Paine Webber Group Inc. 29,212,000 799,200 Torchmark Corp. 26,273,700 667,200 UnumProvident Corp. 34,527,600 -------------- 406,295,177 Lodging (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 932,900 Starwood Hotels & Resorts Worldwide, Inc. 25,188,300 Medical Supplies and Devices (0.8%) - -------------------------------------------------------------------------------------------------------------------------- 483,700 Baxter International, Inc. 33,224,144 1,418,000 Bergen Brunswig Corp. Class A 22,688,000 -------------- 55,912,144 Metals and Mining (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 515,500 Alcoa Inc. 30,865,563 Oil and Gas (6.5%) - -------------------------------------------------------------------------------------------------------------------------- 514,900 Chevron, Inc. 46,984,625 1,062,300 Conoco, Inc. 27,686,194 714,500 El Paso Energy Corp. 25,588,031 379,000 Elf Aquitane ADR (France) 32,428,188 935,400 Exxon Corp. 74,247,375 1,007,700 Halliburton Co. 46,480,163 689,100 Mobil Corp. 70,460,475 1,001,600 Royal Dutch Petroleum Co. PLC ADR (Netherlands) 61,097,600 1,082,500 Tosco Corp. 28,550,938 1,097,900 Union Pacific Resources Group Inc. 19,556,344 -------------- 433,079,933 Pharmaceuticals and Biotechnology (2.7%) - -------------------------------------------------------------------------------------------------------------------------- 948,000 American Home Products Corp. 48,348,000 834,200 Bristol-Myers Squibb Co. 55,474,300 829,300 Monsanto Co. 32,446,363 823,170 Pharmacia & Upjohn, Inc. 44,296,836 -------------- 180,565,499 Publishing (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 618,400 McGraw-Hill, Inc. 31,461,100 REITs (Real Estate Investment Trust) (0.7%) - -------------------------------------------------------------------------------------------------------------------------- 733,900 Equity Office Properties Trust 18,439,238 708,600 Equity Residential Properties Trust 29,274,038 -------------- 47,713,276 Retail (2.2%) - -------------------------------------------------------------------------------------------------------------------------- 661,000 Albertsons, Inc. 32,843,438 771,200 Federated Department Stores, Inc. (NON) 39,572,200 1,028,600 Rite Aid Corp. 21,793,463 942,200 Saks, Inc. (NON) 21,670,600 684,900 Sears, Roebuck & Co. 27,738,450 -------------- 143,618,151 Specialty Consumer Products (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 983,436 Mattel, Inc. 23,110,746 Telecommunications (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 496,330 ALLTEL Corp. 35,642,698 Textiles (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 998,007 Shaw Industries, Inc. (NON) 21,020,522 Transportation (2.2%) - -------------------------------------------------------------------------------------------------------------------------- 1,167,533 Burlington Northern Santa Fe Corp. 37,361,056 298,900 CSX Corp. 14,477,969 566,200 Delta Air Lines, Inc. 33,759,675 669,200 FDX Corp. (NON) 29,988,525 444,800 UAL Corp. (NON) 28,217,000 -------------- 143,804,225 Utilities (9.5%) - -------------------------------------------------------------------------------------------------------------------------- 1,237,450 American Telephone & Telegraph Co. 64,270,059 932,800 Ameritech Corp. 68,327,600 829,000 Bell Atlantic Corp. 52,848,750 729,400 BellSouth Corp. 35,011,200 627,800 CiNergy Corp. 18,794,763 617,400 Consolidated Natural Gas Co. 38,664,675 891,600 DPL, Inc. 17,107,575 771,500 Duke Energy Corp. 40,841,281 423,300 Edison International 10,714,781 1,123,000 Entergy Corp. 34,040,938 1,121,200 GTE Corp. 82,618,425 1,325,600 OGE Energy Corp. 31,400,150 923,402 SBC Communications, Inc. 52,807,052 1,492,000 Sempra Energy 33,103,750 737,000 Texas Utilities Co. 31,276,437 761,200 Western Resources, Inc. 19,886,350 -------------- 631,713,786 -------------- Total Common Stocks (cost $3,594,084,605) $4,029,812,520 CORPORATE BONDS AND NOTES (18.2%) (a) PRINCIPAL AMOUNT VALUE Advertising (--%) - -------------------------------------------------------------------------------------------------------------------------- $ 110,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 117,150 355,000 Outdoor Communications Inc. sr. sub. notes 9 1/4s, 2007 365,650 45,000 Outdoor Systems, Inc. sr. sub. notes 9 3/8s, 2006 47,475 850,000 Outdoor Systems, Inc. company guaranty 8 7/8s, 2007 884,000 -------------- 1,414,275 Aerospace and Defense (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 100,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 90,500 530,000 Aviation Sales Co. company guaranty 8 1/8s, 2008 500,850 570,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 9 7/8s, 2006 578,550 260,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 262,600 12,080,000 Boeing Co. deb. 6 5/8s, 2038 10,586,308 7,480,000 Raytheon Co. notes 6.45s, 2002 7,448,883 6,640,000 Raytheon Co. deb. 6.4s, 2018 5,808,738 -------------- 25,276,429 Agriculture (--%) - -------------------------------------------------------------------------------------------------------------------------- 269,805 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 248,220 Airlines (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 6,415,000 Northwest Airlines Corp. pass-thru certificate Ser. 1999-1A, 6.81s, 2020 5,840,344 Apparel (--%) - -------------------------------------------------------------------------------------------------------------------------- 580,000 Fruit of the Loom 144A company guaranty 8 7/8s, 2006 464,000 Automotive (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 6,760,000 Chrysler Corp. deb. Ser. B, 7.45s, 2097 6,500,822 7,550,000 Delphi Automotive Systems Corp. deb. 7 1/8s, 2029 6,801,342 460,000 Dura Operating Corp. 144A sr. sub. notes 9s, 2009 442,750 1,940,000 Federal Mogul Corp. 144A notes 7 3/8s, 2006 1,812,988 4,310,000 Ford Motor Co. deb. 7.4s, 2046 4,096,224 180,000 Hayes Lemmerz International, Inc. company guaranty Ser. B, 8 1/4s, 2008 170,100 840,000 Hayes Wheels International, Inc. company guaranty Ser. B, 9 1/8s, 2007 842,100 1,510,000 Lear Corp. sub. notes 9 1/2s, 2006 1,551,525 1,260,000 Navistar International Corp. sr. notes Ser. B, 7s, 2003 1,228,500 550,000 Talon Automotive Group sr. sub. notes Ser. B, 9 5/8s, 2008 473,000 -------------- 23,919,351 Banks (1.5%) - -------------------------------------------------------------------------------------------------------------------------- 15,480,000 BankAmerica Corp. sr. notes 5 7/8s, 2009 14,024,106 10,470,000 Bank United unit Ser. A, 8s, 2009 10,090,463 8,515,000 Bayerische Hypo-und Vereinsbank 144A bonds 8.741s, 2031 8,284,244 6,105,000 Colonial Bank sub. notes 8s, 2009 5,751,521 7,700,000 Dresdner Funding Trust I 144A notes 8.151s, 2031 7,282,814 6,975,000 Imperial Bank sub. notes 8 1/2s, 2009 6,617,531 8,895,000 Merita Bank Ltd. sub. notes 6 1/2s, 2006 (Finland) 8,481,294 11,290,000 Peoples Bank-Bridgeport sub. notes 7.2s, 2006 10,479,830 1,685,000 Peoples Heritage Capital Trust company guaranty Ser. B, 9.06s, 2027 1,582,266 4,615,000 St. Paul Bancorp sr. notes 7 1/8s, 2004 4,482,457 9,175,000 Sovereign Bancorp, Inc. sr. notes 6 5/8s, 2001 9,093,618 2,195,000 State Street Institution 144A company guaranty 7.94s, 2026 2,180,272 5,345,000 Trenwick Capital Trust I company guaranty 8.82s, 2037 4,640,422 3,780,000 Webster Capital Trust I 144A bonds 9.36s, 2027 3,657,301 -------------- 96,648,139 Basic Industrial Products (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 2,000,000 American Standard Companies, Inc. sr. notes 7 3/8s, 2008 1,900,000 518,000 Ball Corp. company guaranty 7 3/4s, 2006 512,820 1,150,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 1,136,338 -------------- 3,549,158 Broadcasting (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 2,085,000 AMFM Inc. sr. sub. notes 9 3/8s, 2004 2,116,275 1,940,000 AMFM Inc. company guaranty 8s, 2008 1,881,800 1,690,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 1,747,038 6,550,000 CBS Corp. sr. notes 7.15s, 2005 6,459,872 625,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 634,375 640,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 620,800 1,125,000 Jacor Communications, Inc. company guaranty Ser. B, 8 3/4s, 2007 1,195,313 1,250,000 Lenfest Communications, Inc. sr. sub. notes 10 1/2s, 2006 1,437,500 310,000 Lenfest Communications, Inc. sr. sub. notes 8 1/4s, 2008 313,100 700,000 Sinclair Broadcast Group, Inc. company guaranty 9s, 2007 686,000 700,000 Spanish Broadcasting Systems sr. notes 12 1/2s, 2002 777,000 -------------- 17,869,073 Building and Construction (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 480,000 Albecca Inc. company guaranty 10 3/4s, 2008 369,600 500,000 Building Materials Corp. company guaranty 8s, 2008 465,000 2,790,000 D.R. Horton, Inc. company guaranty 8s, 2009 2,664,450 340,000 NCI Building Systems Inc. sr. sub. notes Ser. B, 9 1/4s, 2009 326,400 -------------- 3,825,450 Business Equipment and Services (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 280,000 Cex Holdings, Inc. company guaranty Ser. B, 9 5/8s, 2008 282,800 10,498,715 Federal Express Corp. pass-thru certificates Ser. 1998-1A, 6.72s, 2022 9,932,939 610,000 Iron Mountain, Inc. med. term notes company guaranty 10 1/8s, 2006 632,875 649,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 707,410 500,000 Production Resource Group sr. sub. notes 11 1/2s, 2008 495,000 1,020,000 U.S. Office Products Co. company guaranty 9 3/4s, 2008 576,300 800,000 Unicco Service Co. company guaranty Ser. B, 9 7/8s, 2007 768,000 -------------- 13,395,324 Cable Television (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 43,875 Adelphia Communications Corp. sr. notes 9 1/2s, 2004 (PIK) 45,191 740,000 Adelphia Communications Corp. sr. notes Ser. B, 8 3/8s, 2008 706,700 1,035,000 Century Communications Corp. sr. notes 9 1/2s, 2005 1,060,875 390,000 Century Communications Corp. sr. notes 8 3/4s, 2007 382,200 250,000 Comcast Corp. sr. sub. notes 9 3/8s, 2005 264,300 240,000 Comcast Corp. sr. notes sub. 9 1/8s, 2006 254,993 310,000 Charter Communications Holdings LLC 144A sr. disc. notes stepped-coupon zero % (9.92s, 4/1/04), 2011 (STP) 188,325 2,455,000 Charter Communications Holdings LLC 144A sr. notes 8 5/8s, 2009 2,341,456 1,370,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2013 1,438,500 210,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 195,122 295,000 Diamond Cable Communication Co. sr. disc. notes stepped-coupon zero % (11 3/4s, 12/15/00), 2005 (United Kingdom) (STP) 270,294 1,420,000 Diamond Cable Communication Co. sr. disc. notes stepped-coupon zero % (10 3/4s, 2/15/02), 2007 (United Kingdom) (STP) 1,150,200 390,000 Jones Intercable, Inc. sr. sub. deb. 10 1/2s, 2008 417,300 363,000 Jones Intercable, Inc. sr. notes 9 5/8s, 2002 391,132 650,000 Jones Intercable, Inc. sr. notes 7 5/8s, 2008 666,250 1,020,000 Lamar Media Corp. company guaranty 9 5/8s, 2006 1,030,200 100,000 Rogers Cablesystems Ltd. notes 11s, 2015 (Canada) 115,000 600,000 TeleWest Communications PLC 144A sr. disc. notes stepped-coupon zero %, (9 1/4s, 4/15/04), 2009 (United Kingdom) (STP) 387,000 -------------- 11,305,038 Chemicals (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 6,125,000 DSM NV 144A notes 6 1/4s, 2004 (Netherlands) 5,947,375 540,000 Equistar Chemicals LP notes 9 1/8s, 2002 543,969 660,000 ISP Holdings, Inc. sr. notes Ser. B, 9 3/4s, 2002 676,500 1,920,000 Lyondell Petrochemical Co. 144A sec. notes 9 5/8s, 2007 1,944,000 7,330,000 Nova Chemicals Corp. deb. 7s, 2026 (Canada) 7,212,720 500,000 PCI Chemicals & Pharmaceuticals company guaranty 9 1/4s, 2007 (India) 380,000 6,160,000 Rohm & Haas Co. 144A deb. 7.85s, 2029 6,188,706 170,000 Royster-Clark Inc. 144A 1st mtge 10 1/4s, 2009 166,600 640,000 Scotts Co 144A sr. sub. notes 8 5/8s, 2009 635,200 -------------- 23,695,070 Computer Services and Software (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 15,945,000 IBM Corp. deb. 7 1/8s, 2096 15,051,442 670,000 IPC Information Systems Inc. sr. disc. notes 10 7/8s, 2008 512,550 360,000 Verio Inc. sr. notes 11 1/4s, 2008 365,400 -------------- 15,929,392 Conglomerates (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 600,000 Axia, Inc. company guaranty 10 3/4s, 2008 570,000 3,030,000 Canadian Pacific Ltd. deb. 9.45s, 2021 (Canada) 3,430,839 6,030,000 TRW, Inc. 144A notes 7 3/4s, 2029 5,833,301 7,150,000 Tyco International Ltd. company guaranty 6 3/8s, 2005 6,928,636 8,385,000 Tyco International Ltd. company guaranty 6 1/4s, 2003 8,196,338 -------------- 24,959,114 Consumer Non Durables (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 825,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 829,125 10,450,000 Imperial Tobacco Global company guarantee 7 1/8s, 2009 9,870,234 1,405,000 Philip Morris Cos., Inc. notes 7 1/2s, 2004 1,432,173 5,460,000 Philip Morris Cos., Inc. notes 7 1/4s, 2003 5,527,759 2,925,000 Philip Morris Cos., Inc. notes 7 1/8s, 2004 2,930,821 2,800,000 Philip Morris Cos., Inc. notes 6.8s, 2003 2,782,584 400,000 Revlon Consumer Products sr. notes 9s, 2006 360,000 550,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 484,000 2,355,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2008 2,249,025 -------------- 26,465,721 Consumer Related (--%) - -------------------------------------------------------------------------------------------------------------------------- 1,230,000 Trairc Consumer Products, Inc. 144A sr. sub. notes 10 1/4s, 2009 1,193,100 Consumer Services (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 548,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 590,470 9,190,000 Hertz Corp. sr. notes 6 1/2s, 2006 8,775,439 1,740,000 Hertz Corp. notes 6 1/4s, 2009 1,599,791 3,040,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 2,774,000 300,000 Protection One, Inc. sr. disc. notes stepped-coupon zero %, (13 5/8s, 6/30/00), 2005 (STP) 336,000 2,020,000 Service Corp. International notes 6s, 2005 1,831,393 -------------- 15,907,093 Electronics and Electrical Equipment (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 820,000 Amkor Technologies, Inc. 144A sr. notes 9 1/4s, 2006 783,100 95,657 Cirent Semiconductor sr. sub. notes 10.22s, 2002 94,700 111,503 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 110,667 650,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 637,000 1,396,181 Fairchild Semiconductor Corp. 144A sr. sub. notes 11.74s, 2008 (PIK) 1,361,276 1,270,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 1,244,600 490,000 Flextronics International Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 482,650 980,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 989,800 340,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 346,800 1,225,000 Wavetek Corp. company guaranty 10 1/8s, 2007 1,078,000 -------------- 7,128,593 Energy-Related (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 1,070,000 Gothic Production Corp. company guaranty Ser. B, 11 1/8s, 2005 941,600 6,295,000 KN Capital Trust III company guaranty 7.63s, 2028 5,301,020 850,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) 837,250 -------------- 7,079,870 Entertainment (0.7%) - -------------------------------------------------------------------------------------------------------------------------- 310,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 286,750 340,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 311,100 450,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 443,250 1,330,000 Cinemark USA, Inc. sr. sub. notes Ser. D, 9 5/8s, 2008 (Mexico) 1,276,800 310,000 Circus Circus Enterprises, Inc. sr. notes 6.45s, 2006 277,751 1,900,000 Harrahs Entertainment, Inc. company guaranty 7 7/8s, 2005 1,814,500 230,000 Harrahs Entertainment, Inc. company guaranty 7 1/2s, 2009 219,298 860,000 Hollywood Casino Corp. 144A sec. notes 11 1/4s, 2007 869,675 730,000 Hollywood Park Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 715,400 350,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 339,500 1,160,000 International Game Technology 144A sr. notes 7 7/8s, 2004 1,119,400 2,910,000 ITT Corp. notes 6 3/4s, 2005 2,649,817 120,000 Mohegan Tribal Gaming, Auth. sr. sub. notes 8 3/4s, 2009 117,600 560,000 Mohegan Tribal Gaming, Auth. sr. notes 8 1/8s, 2006 546,000 430,000 Park Place Entertainment sr. sub. notes 7 7/8s, 2005 408,500 535,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 529,650 130,000 PX Escrow Corp. sr. disc. notes stepped-coupon zero % (9 5/8s, 2/1/02), 2006 (STP) 75,400 510,000 SFX Entertainment Inc. company guaranty 9 1/8s, 2008 490,875 530,000 SFX Entertainment, Inc. 144A company guaranty Ser. B, 9 1/8s, 2008 516,750 240,000 Sun International Hotels Ltd. company guaranty 9s, 2007 238,800 410,000 Sun International Hotels Ltd. sr. sub. notes 8 5/8s, 2007 407,950 2,670,000 Time Warner Entertainment Inc. notes 8 7/8s, 2012 2,972,671 16,185,000 Time Warner Entertainment sr. notes 8 3/8s, 2033 17,291,245 350,000 Trump A.C. 1st mtge. 11 1/4s, 2006 315,000 1,000,000 United Artists Theatre sr. sub. notes 9 3/4s, 2008 550,000 1,400,000 Viacom, Inc. sr. notes 7 3/4s, 2005 1,420,356 9,615,000 Walt Disney Co. med. term notes 5.62s, 2008 8,701,287 -------------- 44,905,325 Environmental Control (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 3,530,000 Allied Waste Industries, Inc. company guaranty Ser. B, 7 7/8s, 2009 3,238,775 2,120,000 Waste Management, Inc. notes 6 5/8s, 2002 2,110,736 4,300,000 WMX Technologies, Inc. notes 7.7s, 2002 4,409,091 -------------- 9,758,602 Food and Beverages (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 20,000 Doane Pet Care Co.sr. sub. notes 9 3/4s, 2007 20,500 9,715,000 Pepsi Bottling Group Inc. 144A sr. notes 7s, 2029 8,927,308 -------------- 8,947,808 Health Care (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 930,000 Columbia/HCA Healthcare Corp. med. term notes 9s, 2014 900,984 1,220,000 Columbia/HCA Healthcare Corp. med. term notes 8.7s, 2010 1,163,063 60,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 54,014 300,000 Hudson Respiratory Care, Inc. sr. sub. notes 9 1/8s, 2008 249,000 530,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007 339,200 420,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 264,600 260,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-coupon Ser. B, zero % (10 1/2s, 11/1/02), 2007 (STP) 20,800 1,280,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 153,600 1,455,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 931,200 450,000 Quorum Health Group, Inc. sr. sub. notes 8 3/4s, 2005 434,250 700,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 679,000 1,900,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 1,781,250 1,825,000 Tenet Healthcare Corp. sr. notes 8s, 2005 1,756,563 -------------- 8,727,524 Insurance and Finance (5.9%) - -------------------------------------------------------------------------------------------------------------------------- 280,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 259,305 920,000 Advanta Corp. med-term notes Ser. D, 6.92s, 2002 823,538 10,625,000 AFC Capital Trust company guaranty Ser. B, 8.207s, 2027 10,634,456 7,810,000 AFLAC Inc. sr. notes 6 1/2s, 2009 7,488,228 1,500,000 AMBAC Indemnity Corp. deb. 9 3/8s, 2011 1,731,390 12,745,000 American General Institute 144A company guaranty 8 1/8s, 2046 12,943,822 3,165,000 Associates Corp. deb. 6.95s, 2018 2,971,619 3,500,000 Associates First Capital Corp. sub. deb. 8.15s, 2009 3,693,445 6,295,000 Bombardier Capital Inc. 144A notes 6s, 2002 6,169,100 7,670,000 Capital One Financial Corp. notes 7 1/4s, 2006 7,350,238 795,000 Capital One Financial Corp. notes 7 1/4s, 2003 779,410 11,255,000 Citicorp sub. notes 6 3/8s, 2008 10,534,005 340,000 Colonial Capital II 144A company guaranty 8.92s, 2027 314,906 10,235,000 Conseco Financing Trust II company guaranty 8.7s, 2026 9,163,703 6,215,000 Conseco Inc. sr. notes Ser. B, 7.6s, 2001 6,200,519 4,970,000 Conseco Inc. med-term notes 6 1/2s, 2002 4,725,476 870,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 295,800 1,060,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 355,100 6,615,000 Countrywide Home Loan Corp. company guaranty 6.935s, 2007 6,455,446 4,100,000 Countrywide Home Loan Corp. company guaranty med term notes 6 1/4s, 2009 3,761,955 6,700,000 Dime Bancorp, Inc. sr. notes 6 3/8s, 2001 6,683,786 4,110,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 4,224,217 8,550,000 Executive Risk Capital Trust company guaranty Ser. B, 8.675s, 2027 8,620,880 5,650,000 Finova Capital Corp. notes 7.4s, 2007 5,657,119 6,250,000 Finova Capital Corp. notes 6 1/4s, 2002 6,167,875 9,225,000 Finova Capital Corp. med-term notes 6.11s, 2003 9,040,408 6,045,000 First Citizens Bank Capital Trust I company guaranty 8.05s, 2028 5,606,738 2,605,000 First Financial Caribbean Corp. sr. notes 7.84s, 2006 2,531,148 2,035,000 Firstar Bank Milwaukee sr. bank notes 6 1/4s, 2002 1,999,550 4,015,000 Firstar Capital Trust I company guaranty Ser. B, 8.32s, 2026 3,980,230 1,020,000 Ford Motor Credit Corp. notes 6.55s, 2002 1,013,370 8,119,000 Ford Motor Credit Corp. sr. notes 6s, 2003 7,913,670 7,845,000 Ford Motor Credit Corp. sr. notes 5.8s, 2009 7,052,733 14,445,000 General Motors Acceptance Corp. sr. unsub. 5.85s, 2009 13,034,735 2,625,000 Hartford Life, Inc. deb. 7.65s, 2027 2,571,844 9,380,000 Household Finance Corp. notes 6 1/2s, 2008 8,818,888 1,265,000 Household Finance Corp. sr. unsub. 5 7/8s, 2009 1,133,895 3,820,000 Household Netherlands N.V. company guaranty 6.2s, 2003 (Netherlands) 3,704,369 6,000,000 Lehman Brothers Holdings, Inc. notes 6 5/8s, 2004 5,836,980 6,225,000 Lehman Brothers Holdings, Inc. med. term notes 6.4s, 1999 6,230,042 11,410,000 Lehman Brothers Holdings, Inc. notes 6 1/4s, 2003 11,072,949 4,625,000 Markel Capital Trust I company guaranty Ser. B, 8.71s, 2046 4,094,790 13,600,000 Merey Sweeney L.P. 144A sr. notes 8.85s, 2019 13,668,000 5,100,000 Merrill Lynch & Co., Inc. med. term notes 6.13s, 2003 4,988,208 4,205,000 Money Store, Inc. notes 8.05s, 2002 4,335,649 6,235,000 Newcourt Credit Group, Inc. 144A company guaranty 7 1/8s, 2003 6,133,494 5,995,000 Newcourt Credit Group, Inc. 144A notes 6 7/8s, 2005 5,736,136 3,235,000 Norwest Corp. med. term sr. notes Ser. J, 6 3/4s, 2027 2,866,016 1,970,000 Orange Cogen Funding 144A company guaranty 8.175s, 2022 1,931,388 2,000,000 Orion Capital Corp. sr. notes 9 1/8s, 2002 2,096,540 7,850,000 Paine Webber Group, Inc. sr. notes 6.55s, 2008 7,334,334 8,985,000 Paine Webber Group, Inc. sr. med. term notes 6.52s, 2005 8,524,519 5,185,000 Presidential Life Corp. sr. notes 7 7/8s, 2009 4,977,600 10,770,000 Provident Companies, Inc. bonds 7.405s, 2038 9,830,964 390,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 (In default) (NON) 175,500 6,730,000 Prudential Insurance Co. 144A 6 7/8s, 2003 6,719,232 580,000 RBF Finance Co. company guaranty 11 3/8s, 2009 600,300 1,350,000 RBF Finance Co. company guaranty 11s, 2006 1,390,500 6,350,000 Salomon, Inc. sr. notes 7.3s, 2002 6,477,127 14,225,000 Salomon, Inc. sr. notes 6 3/4s, 2003 14,132,253 3,841,536 Salton Sea Funding Corp. company guaranty Ser. E, 8.3s, 2011 3,882,679 9,515,000 Sears Roebuck Acceptance Corp. notes 6 1/2s, 2028 8,188,894 1,230,000 Sears Roebuck Acceptance Corp. notes 6 1/4s, 2009 1,143,962 3,680,000 Sprint Capital Corp. company guaranty 6.9s, 2019 3,365,912 12,965,000 Sprint Capital Corp. company guaranty 6 1/8s, 2008 11,920,929 12,445,000 Sun Life Canada Capital Trust 144A 8.526s, 2049 12,552,898 8,015,000 TIG Capital Trust I 144A bonds 8.597s, 2027 7,534,661 4,580,000 Transamerica Capital III bonds 7 5/8s, 2037 4,402,250 1,035,000 Wilmington Trust Corp. sub. notes 6 5/8s, 2008 964,703 8,905,000 Zurich Capital Trust I 144A company guaranty 8.376s, 2037 8,964,396 -------------- 388,480,721 Lodging (--%) - -------------------------------------------------------------------------------------------------------------------------- 940,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 930,600 390,000 Starwood Hotels & Resorts notes 6 3/4s, 2003 366,920 -------------- 1,297,520 Medical Supplies and Devices (--%) - -------------------------------------------------------------------------------------------------------------------------- 265,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 254,400 480,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 417,600 -------------- 672,000 Metals and Mining (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 1,100,000 AK Steel Corp. sr. notes 9 1/8s, 2006 1,135,750 1,900,000 AK Steel Corp. 144A sr. notes 7 7/8s, 2009 1,843,000 360,000 Ameristeel Corp. company guaranty Ser. B, 8 3/4s, 2008 360,900 150,000 Anker Coal Group, Inc. sr. notes Ser. B, 9 3/4s, 2007 (In default) (NON) 69,000 620,000 Continental Global Group sr. notes Ser. B, 11s, 2007 514,600 760,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 642,200 740,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 725,200 -------------- 5,290,650 Oil and Gas (1.7%) - -------------------------------------------------------------------------------------------------------------------------- 5,360,000 Alliance Pipeline L.P. 144A sr. notes 7.77s, 2015 (Canada) 5,324,624 2,000,000 Clark Refining & Marketing Inc. sr. sub. notes 8 7/8s, 2007 1,715,000 1,000,000 Cliffs Drilling Co. company guaranty Ser. B, 10 1/4s, 2003 1,000,000 9,860,000 Coastal Corp. bonds 6.95s, 2028 8,742,172 5,935,000 Conoco, Inc. sr. notes 6.95s, 2029 5,491,834 3,125,000 El Paso Energy Corp. sr. notes 6 3/4s, 2009 2,956,031 3,150,000 Enron Corp. notes 6.4s, 2006 2,967,741 3,360,962 Express Pipeline Ltd. 144A sub. notes Ser. B, 7.39s, 2019 (Canada) 2,897,183 460,000 Gulf Canada Resources, Ltd. sr. notes 8 3/8s, 2005 (Canada) 451,274 3,205,000 Gulf Canada Resources, Ltd. sr. notes 8.35s, 2006 (Canada) 3,103,434 2,325,000 K N Energy, Inc. sr. notes 6.45s, 2003 2,270,177 11,195,000 Louis Dreyfus Natural Gas notes 6 7/8s, 2007 9,875,669 5,790,000 Maritimes & Northeast Pipeline 144A notes 7.7s, 2019 5,662,620 9,915,000 Norsk Hydro ASA notes 6.36s, 2009 (Norway) 9,166,120 390,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 393,900 630,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 611,100 1,095,000 Petro Geo-Services ADR notes 7 1/2s, 2007 (Norway) 1,083,787 9,595,000 Petro Geo-Services sr. notes 7 1/8s, 2028 (Norway) 8,435,060 12,000,000 Petro-Canada deb. 9 1/4s, 2021 (Canada) 13,545,840 975,000 Seagull Energy sr. sub notes 8 5/8s, 2005 957,938 6,175,000 Sonat, Inc. notes 7 5/8s, 2011 6,167,281 6,285,000 Statoil 144A notes 6 1/2s, 2028 (Norway) 5,574,984 12,425,000 Union Oil Company of California company guaranty 7 1/2s, 2029 11,959,063 -------------- 110,352,832 Packaging and Containers (--%) - -------------------------------------------------------------------------------------------------------------------------- 1,450,000 Packaging Corp. 144A sr. sub. notes 9 5/8s, 2009 1,486,250 190,000 Riverwood International Corp. company guaranty 10 5/8s, 2007 196,175 880,000 Riverwood International Corp. company guaranty 10 1/4s, 2006 893,200 -------------- 2,575,625 Paper and Forest Products (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 6,335,000 Abitibi-Consolidated Inc. deb. 8 1/2s, 2029 6,171,557 60,000 Boise Cascade Co. med. term notes Ser. A, 7.43s, 2005 56,632 620,000 Pacifica Papers, Inc. 144A sr. notes 10s, 2009 (Canada) 624,650 1,280,000 Tembec Industries, Inc. company guaranty 8 5/8s, 2009 (Canada) 1,283,200 -------------- 8,136,039 Pharmaceuticals and Biotechnology (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 1,040,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 1,019,200 1,900,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 1,840,625 4,795,000 Monsanto Co. 144A deb. 6.6s, 2028 4,363,306 -------------- 7,223,131 Publishing (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 340,000 American Media Operation, Inc. 144A sr. sub. notes 10 1/4s, 2009 340,000 910,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 866,775 1,090,000 Garden State Newspapers 144A sr. sub. notes 8 5/8s, 2011 1,013,700 11,730,000 News America Holdings, Inc. deb. 7 3/4s, 2045 10,906,085 335,000 News America Holdings, Inc. deb. 7.7s, 2025 318,769 -------------- 13,445,329 Real Estate (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 8,490,000 EOP Operating L.P. notes 6.8s, 2009 7,881,776 2,190,000 EOP Operating L.P. sr. notes 6 3/4s, 2008 2,042,285 3,140,000 EOP Operating L.P. notes 6 3/8s, 2002 3,086,337 -------------- 13,010,398 REITs (Real Estate Investment Trust) (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 4,920,000 Avalon Properties, Inc. notes 6 7/8s, 2007 4,626,670 4,670,000 Avalon Properties, Inc. notes 6 5/8s, 2005 4,440,563 2,320,000 OMEGA Healthcare Investors, Inc. notes 6.95s, 2007 1,947,269 5,470,000 OMEGA Healthcare Investors, Inc. notes 6.95s, 2002 5,158,648 120,000 Tanger Properties Ltd. partnership gtd. notes 8 3/4s, 2001 119,909 -------------- 16,293,059 Restaurants (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 8,355,000 Tricon Global Restaurants, Inc. sr. notes 7.45s, 2005 8,155,984 Retail (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 13,685,000 Federated Department Stores, Inc. sr. notes 8 1/2s, 2003 14,311,089 320,000 K mart Corp. notes 8 1/8s, 2006 323,200 680,000 K mart Corp. deb. 7.95s, 2023 639,200 310,000 K mart Corp. med. term notes 7.55s, 2004 295,610 255,000 Kasper A.S.L. Ltd. sr. notes 12 3/4s, 2004 246,075 1,000,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 832,500 695,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 590,750 -------------- 17,238,424 Satellite Services (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 560,000 Golden Sky Systems company guaranty Ser. B, 12 3/8s, 2006 616,000 4,300,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero % (9 7/8s, 5/1/03), 2008 (STP) 2,499,375 17,405,000 TCI Communications Inc. deb. 8 3/4s, 2015 19,587,239 3,620,000 TCI Communications sr. notes 7 1/8s, 2028 3,448,919 -------------- 26,151,533 Shipping (--%) - -------------------------------------------------------------------------------------------------------------------------- 1,380,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 1,242,000 600,000 Pegasus Shipping 144A 11 7/8s, 2004 270,000 -------------- 1,512,000 Steel (--%) - -------------------------------------------------------------------------------------------------------------------------- 950,000 California Steel Industries 144A sr. notes 8 1/2s, 2009 914,375 2,015,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 2,075,450 -------------- 2,989,825 Telecommunications (0.6%) - -------------------------------------------------------------------------------------------------------------------------- 920,000 Allbritton Communications Co. sr. sub. notes Ser. B, 8 7/8s, 2008 883,200 7,265,000 AT&T Capital Corp. med. term notes 6.6s, 2005 6,909,814 1,430,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 1,329,900 1,750,000 Call-Net Enterprises Inc. sr. disc. notes stepped-coupon zero % (10.8s, 5/15/04), 2009 (Canada) (STP) 927,500 1,370,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero % (8.94s, 8/15/03), 2008 (Canada) (STP) 726,100 490,000 Call-Net Enterprises Inc. sr. notes 8s, 2008 (Canada) 411,600 370,000 CapRock Communications Corp. sr. notes Ser. B, 12s, 2008 379,250 280,000 CapRock Communications Corp. 144A sr. notes 11 1/2s, 2009 282,800 250,000 Cencall Communications Corp. sr. disc. notes 10 1/8s, 2004 253,750 1,490,000 Covad Communications Group Inc. sr. notes 12 1/2s, 2009 1,422,950 1,000,000 Econophone, Inc. 144A notes stepped-coupon zero % (11s, 2/15/03), 2008 (STP) 520,000 140,000 Exodus Communications, Inc. 144A sr. notes 11 1/4s, 2008 140,000 890,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 823,250 3,670,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 3,798,450 750,000 GST Telecommunications, Inc. company guaranty stepped-coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 637,500 1,200,000 Hyperion Telecommunications Corp., Inc. sr. disc. notes stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 (STP) 996,000 730,000 Hyperion Telecommunications Corp., Inc. sr. notes Ser. B, 12 1/4s, 2004 766,500 1,565,000 Intermedia Communications, Inc. sr. disc. notes stepped-coupon Ser. B, zero % (11 1/4s, 7/15/02), 2007 (STP) 1,087,675 260,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 234,000 3,105,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B, zero % (11 1/2s, 2/01/01), 2006 (STP) 2,790,619 310,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 305,350 610,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 536,800 1,290,000 McLeodUSA, Inc. sr. notes 8 1/8s, 2009 1,164,225 115,000 MetroNet Communications Corp. sr. disc. notes stepped-coupon zero % (10 3/4s, 11/1/02), 2007 (Canada) (STP) 93,080 690,000 Microcell Telecommunications sr. disc. notes stepped-coupon Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 565,800 1,250,000 NEXTEL Communications, Inc. sr. notes 12s, 2008 1,393,750 230,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon zero % (10.65s, 9/15/02), 2007 (STP) 169,050 1,250,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon zero % (9.95s, 2/15/03), 2008 (STP) 878,125 1,100,000 NEXTEL Communications, Inc. sr. disc. notes 9 3/4s, 2004 1,124,750 330,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon zero % (9 3/4s, 10/31/02), 2007 (STP) 235,950 840,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 890,400 640,000 NTL Communications Corp. sr. notes Ser. B, 11 1/2s, 2008 700,800 1,200,000 NTL Inc. sr. notes, stepped-coupon Ser. B, zero % (9 3/4s, 4/1/03), 2008 (United Kingdom) (STP) 822,000 1,380,000 Price Communications Wireless, Inc. 144A sr. notes 9 1/8s, 2006 1,407,600 1,000,000 Primus Telecommunications Group, Inc. sr. notes 11 3/4s, 2004 1,012,500 250,000 Primus Telecommunications Group, Inc. sr. notes Ser. B, 9 7/8s, 2008 237,500 1,440,000 Qwest Communications International, Inc. sr. disc. notes stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 1,123,056 190,000 Telecommunications Techniques, Inc. company guaranty 9 3/4s, 2008 182,875 280,000 Telehub Communications Corp. company guaranty stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 187,600 1,060,000 Time Warner Telecom Inc. sr. notes 9 3/4s, 2008 1,081,200 540,000 United International Holdings sr. disc. notes stepped-coupon Ser. B, zero % (10 3/4s, 2/15/03), 2008 (STP) 313,200 -------------- 39,746,469 Telephone Services (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 130,000 Long Distance International, Inc. sr. notes 12 1/4s, 2008 68,250 4,100,000 U S West, Inc. notes 5 5/8s, 2008 3,666,671 -------------- 3,734,921 Textiles (--%) - -------------------------------------------------------------------------------------------------------------------------- 380,000 Day International Group, Inc. company guaranty 9 1/2s, 2008 347,700 670,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 301,500 830,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 796,800 -------------- 1,446,000 Transportation (1.0%) - -------------------------------------------------------------------------------------------------------------------------- 9,070,000 Atlas Air, Inc. pass-through certificates Ser. 991A, 7.2s, 2019 8,550,289 1,905,000 Burlington Northern Santa Fe notes 6 3/8s, 2005 1,835,677 220,000 Calair LLC 144A company guaranty 8 1/8s, 2008 201,300 390,000 Canadian Airlines Corp. secd. notes 10s, 2005 (Canada) 280,800 590,000 Continental Airlines, Inc. sr. notes 9 1/2s, 2001 601,800 2,150,519 Continental Airlines, Inc. pass-through certificates Ser. 97CI, 7.42s, 2007 2,127,702 6,950,000 Continental Airlines, Inc. pass-through certificates Ser. 981C, 6.541s, 2008 6,679,645 11,885,000 Continental Airlines, Inc. pass-thru certificates Ser. 98-2, 6.32s, 2008 11,036,292 17,235,000 CSX Corp. deb. 7.95s, 2027 17,421,483 430,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s, 2003 (Greece) 404,200 270,000 Johnstown America Industries, Inc. sr. sub. notes 11 3/4s, 2005 279,450 290,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 282,750 1,000,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 865,000 10,520,000 United Air Lines Corp. deb. 9 3/4s, 2021 12,052,764 575,000 US Air Inc. pass-thru certificates Ser. 93-A2, 9 5/8s, 2003 584,614 -------------- 63,203,766 Utilities (1.1%) - -------------------------------------------------------------------------------------------------------------------------- 9,230,000 Aes Eastern Energy 144A pass-through certificates 9s, 2017 8,977,929 680,000 Applied Power Inc. sr. sub. notes 8 3/4s, 2009 659,600 3,840,000 Arizona Public Service Co. sr. notes 6 3/4s, 2006 3,735,091 1,300,000 Calpine Corp. sr. notes 8 3/4s, 2007 1,304,537 500,000 Calpine Corp. sr. notes 7 7/8s, 2008 475,000 1,900,000 Calpine Corp. sr. notes 7 3/4s, 2009 1,788,470 980,000 Cleveland Electric Illuminating Co. 1st mtge 6.86s, 2008 935,312 2,200,000 CMS Energy Corp. sr. notes 8 1/8s, 2002 2,209,196 4,695,000 CMS Energy Corp. pass-through certificates 7s, 2005 4,461,048 3,090,000 Connecticut Light & Power Co. 1st mtge. Ser. C, 7 3/4s, 2002 3,144,353 1,575,000 Edison Mission Energy 144A company guaranty 7.33s, 2008 1,559,392 5,030,000 GTE Corp. deb. 6.46s, 2008 4,790,371 220,000 Leviathan Gas Corp.144A sr. sub. notes 10 3/8s, 2009 225,500 1,069,330 Midland Funding Corp. I deb. Ser. C-94, 10.33s, 2002 1,119,310 255,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 290,358 300,000 Niagara Mohawk Power Corp. med. term notes 9.95s, 2000 (Philippines) 307,491 3,125,000 Niagara Mohawk Power Corp. sr. notes Ser. G, 7 3/4s, 2008 3,174,656 370,000 Niagara Mohawk Power Corp. sr. notes Ser. F, 7 5/8s, 2005 367,987 1,054,872 Northeast Utilities System notes Ser. A, 8.58s, 2006 1,068,174 2,424,026 Northeast Utilities System notes Ser. B, 8.38s, 2005 2,407,567 4,582,000 Public Service Co. of New Mexico deb. 10 1/4s, 2012 5,051,563 1,600,000 Public Service Co. of New Mexico sr. notes Ser. B, 7 1/2s, 2018 1,545,408 710,000 Public Service Co. of New Mexico sr. notes Ser. A, 7.1s, 2005 700,351 6,825,000 Southern Energy 144A sr. notes 7.9s, 2009 6,702,833 3,925,000 Texas New-Mexico Power Utilities 1st mtge. 9 1/4s, 2000 4,039,846 6,455,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 6,499,152 5,765,000 TXU Electrical Capital company guaranty 8.175s, 2037 5,561,774 -------------- 73,102,269 -------------- Total Corporate Bonds and Notes (cost $1,269,157,110) $1,202,510,508 U.S. GOVERNMENT AND AGENCY OBLIGATIONS (15.8%) (a) PRINCIPAL AMOUNT VALUE Agency Obligations (6.7%) - -------------------------------------------------------------------------------------------------------------------------- $ 1,447,791 Federal Home Loan Mortgage Association Pass-through Certificates 8 3/4s, with due dates from May 1, 2009 to June 1, 2009 $ 1,521,078 Federal Home Loan Mortgage Corp. Pass-through Certificates 4,851,580 7s, July 1, 2012 4,839,451 21,102,993 5 1/2s, with due dates from March 1, 2011 to July 1, 2011 19,778,701 Federal National Mortgage Association 17,122,027 8s, with due dates from August 1, 2026 to June 1, 2028 17,458,988 52,822,612 6 1/2s, with due dates from March 1, 2026 to February 15, 2029 50,313,536 932,464 6s, November 1, 2013 891,958 34,809,302 6s, Dwarf, with due dates from January 1, 2013 to December 1, 2013 33,297,184 7,083,000 5 1/8s, February 13, 2004 6,727,717 Federal National Mortgage Association Pass-through Certificates 132,666 11s, with due dates from October 1, 2015 to March 1, 2016 146,719 85,554 8 3/4s, July 1, 2009 88,976 1,544,716 8s, with due dates from November 1, 2024 to September 1, 2026 1,575,117 663,360 7s, June 1, 2011 661,078 10,976,944 7s, Dwarf, with due dates from February 1, 2008 to October 1, 2013 10,939,186 17,145,008 6 1/2s, with due dates from April 1, 2026 to November 1, 2028 16,330,620 4,741,569 6 1/2s, Dwarf, with due dates from July 1, 2010 to August 1, 2013 4,630,428 16,623,477 6s, Dwarf, with due dates from January 1, 2013 to October 1, 2013 15,901,352 Government National Mortgage Association 35,656,333 8s, with due dates from December 15, 2025 to January 15, 2029 36,369,461 15,799,333 7s, with due dates from January 15, 2023 to December 15, 2028 15,448,203 102,983,002 6 1/2s, with due dates from March 15, 2002 to May 15, 2029 97,807,978 Government National Mortgage Association Pass-through Certificates 737 15s, September 15, 2011 880 39,828,024 8s, with due dates from August 15, 2024 to February 15, 2028 40,624,587 19,857 7 1/2s, September 15, 2005 19,938 62,209,097 7s, with due dates from January 15, 2023 to June 15, 2028 60,693,510 10,971,137 6 1/2s, with due dates from June 15, 2023 to November 15, 2027 10,506,371 -------------- 446,573,017 U.S. Treasury Obligations (9.1%) - -------------------------------------------------------------------------------------------------------------------------- U.S. Treasury Bonds 1,220,000 11 7/8s, November 15, 2003 (SEG) 1,487,070 24,380,000 11 5/8s, November 15, 2004 (SEG) 30,478,901 13,530,000 5 1/4s, February 15, 2029 11,948,614 5,055,000 5 1/4s, November 15, 2028 4,410,488 U.S. Treasury Notes 2,375,000 6 1/8s, August 15, 2007 2,381,318 9,470,000 5 7/8s, February 15, 2004 9,472,936 3,100,000 5 3/4s, August 15, 2003 3,084,996 34,070,000 5 5/8s, May 15, 2008 33,101,049 14,935,000 5 5/8s, December 31, 2002 14,848,676 25,030,000 5 1/2s, May 15, 2009 24,279,100 94,655,000 5 1/2s, May 31, 2003 93,442,469 1,035,000 5 1/2s, March 31, 2003 1,023,191 1,760,000 5 3/8s, June 30, 2003 1,731,118 173,445,000 5 1/4s, May 15, 2004 169,542,488 21,070,000 5s, February 28, 2001 20,902,072 U.S. Treasury Notes 3,315,000 4 7/8s, March 31, 2001 3,278,237 4,840,000 4 3/4s, November 15, 2008 4,416,500 61,527,000 4 3/4s, February 15, 2004 58,825,349 117,235,000 4 1/4s, November 15, 2003 110,145,800 -------------- 598,800,372 -------------- Total U.S. Government and Agency Obligations (cost $1,077,845,442) $1,045,373,389 COLLATERALIZED MORTGAGE OBLIGATIONS (1.7%) (a) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- $ 7,375,000 Commercial Mortgage Acceptance Corp. Ser. 97-ML1, Class A3, 6.57s, 2007 $ 7,060,410 Criimi Mae Commercial Mortgage Trust 17,085,000 Ser. 98-C1, Class A2, 7s, 2011 14,685,091 6,750,000 Ser. 98-C1, Class B, 7s, 2011 5,054,063 1,002,620 Fannie Mae Strip Ser. 301, Class 1, Principal Only (PO), zero %, 2029 634,470 26,417,081 First Union-Lehman Brothers Commercial Mortgage Co. Ser. 97-C2, Interest Only (IO), 1.916s, 2027 1,999,856 Freddie Mac 4,245,279 Ser. 2113, Class ZM, 6 1/2s, 2028 3,905,657 19,239,502 Ser. 1954, Class MG, IO, 6s, 2027 5,756,459 7,856,855 Freddie Mac Strip Ser. 203, PO, 0s, 2029 4,888,437 5,000,000 GE Capital Mortgage Services, Inc. Ser. 98-11, Class 2A4, 6 3/4s, 2028 4,743,750 7,788,000 GMAC Commercial Mortgage Securities Inc. Ser. 98-C1, Class E, 7.153s, 2011 7,341,103 2,940,000 GS Mortgage Securities Corp. II Ser. 98-GLII, Class D, 7.191s, 2031 2,700,206 Housing Securities Inc. 675,958 Ser. 91-B, Class B6, 9s, 2006 674,268 1,193,393 Ser. 93-F, Class F9M2, 7s, 2023 1,146,030 200,426 Ser. 94-1, Class AB1, 6 1/2s, 2009 177,377 Merrill Lynch Mortgage Investors, Inc. 4,839,500 Ser. 98-C2, Class A1, 6.22s, 2030 4,717,000 64,629,640 Ser. 98-C2, Class IO, 1.449s, 2030 4,756,338 Morgan Stanley Capital I 3,000,000 Ser. 96-WF1, Class A2, 7.218s, 2006 3,001,406 12,700,000 Ser. 99-CAM1, Class A3, 6.92s, 2008 12,491,641 Mortgage Capital Funding, Inc. 27,754,394 Ser. 97-MC2, Class X, IO, 1.367s, 2012 1,986,174 5,738,344 Ser. 98-MC1, Class A1, 6.417s, 2007 5,605,644 2,337,670 Prudential Home Mortgage Securities Ser. 92-25, Class B3, 8s, 2022 2,331,826 Prudential Home Mortgage Securities 144A 285,723 Ser. 94-31, Class B3, 8s, 2009 281,571 1,143,752 Ser. 95-D, Class 5B, 7.54s, 2024 1,053,681 5,768,800 Residential Asset Securitization Trust Ser. 98-A12, Class A14, 8s, 2028 5,880,571 3,725,000 Residential Funding Mortgage Sec. I Ser. 98-S13, Class A21, 6 3/4s, 2028 3,533,610 COLLATERALIZED MORTGAGE OBLIGATIONS PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- Ryland Mortgage Securities Corp. $ 1,826,993 Ser. 94-7C, Class B1, 7.359s, 2025 $ 1,752,200 1,294,069 Ser. 94-7C, Class B2, 7.359s, 2025 1,267,581 697,451 Sears Mortgage Securities Ser. 93-7, Class T7, 7s, 2007 701,363 157,733 Securitized Asset Sales, Inc. Mtge. Pass Thru Certificates Ser. 1994-3, Class B1, 6.11s, 2004 153,001 -------------- Total Collateralized Mortgage Obligations (cost $115,330,840) $ 110,280,784 CONVERTIBLE BONDS AND NOTES (0.4%) (a) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- $ 500,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 $ 480,000 500,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 408,125 1,000,000 LAM Research Corp. 144A cv. sub. notes 5s, 2002 960,000 18,400,000 Micron Technology, Inc. cv. sub. notes 7s, 2004 21,367,000 -------------- Total Convertible Bonds and Notes (cost $21,277,796) $ 23,215,125 ASSET-BACKED SECURITIES (0.3%) (a) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- $ 4,724,265 First Plus Ser. 98-A, Class A, 8 1/2s, 2023 $ 4,015,625 6,036,759 Green Tree Recreational Equipment & Cons. Ser. 97-B, Class A1, 6.55s, 2028 6,053,030 5,331,603 Green Tree Recreational Equipment & Cons. Ser. 98-A, Class A1C, 6.18s, 2019 5,286,826 39,290,000 Lehman Manufactured Housing Ser. 98-1, Class 1 IO, 0.82s, 2028 1,499,466 5,783,785 Structured Asset Security Corp. Ser. 98-RF2, 8.58s, 2028 6,004,292 -------------- Total Asset-Backed Securities (cost $24,393,921) $ 22,859,239 PREFERRED STOCKS (0.3%) (a) NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------------------------------------- 5,495 AmeriKing, Inc. $3.25 pfd. (PIK) $ 126,385 27,755 California Federal Bancorp Inc. Ser. A, $2.281 pfd. 721,630 758 Capstar Broadcasting, Inc. 144A $12.00 pfd. (PIK) 88,160 937 Capstar Communications, Inc. Ser. E, $12.625 cum. pfd. (PIK) 110,098 7,135 Centaur Funding Corp 144A 9.08% cum. pfd. (Cayman Islands) 7,391,005 16,637 CGA Group Ltd. 144A Ser. A, $13.75 pfd. (PIK) 457,518 6,155 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. (PIK) 332,370 3,225 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 364,730 265 Fresenius Medical Capital Trust I Ser. D, 9.00% company guaranty, pfd. (Germany) 261,025 1,105 Fresenius Medical Capital Trust II 7.875% company guaranty, pfd. (Germany) 1,022,125 90 Paxson Communications Corp. $13.25 cum. pfd. (PIK) 810,000 6,775 Webster Financial 7.375% pfd. 6,596,308 -------------- Total Preferred Stocks (cost $18,106,654) $ 18,281,354 FOREIGN GOVERNMENT BONDS AND NOTES (0.2%) (a) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- $ 1,605,000 Ontario (Province of) sr. unsub. 5 1/2s, 2008 (Canada) $ 1,455,061 16,135,000 Quebec (Province of) sr. unsub. 5 3/4s, 2009 (Canada) 14,614,760 -------------- Total Foreign Government Bonds and Notes (cost $17,569,986) $ 16,069,821 MUNICIPAL BOND (0.1%) (cost $7,374,062) (a) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- $ 7,380,000 Mashantucket Pequot Tribe 144A bonds Ser. A, Financial Security Assurance (FSA), 6.57s, 2013 $ 6,777,054 WARRANTS (--%) (a) (NON) EXPIRATION NUMBER OF WARRANTS DATE VALUE - -------------------------------------------------------------------------------------------------------------------------- 16,000 CGA Group Ltd. 144A 2/11/07 $ 320 685 Club Regina, Inc. 144A 12/1/04 685 210 Colt Telecommunications Group PLC 12/31/06 80,850 205 Esat Holdings, Inc. (Ireland) 2/1/07 14,350 250 Intermedia Communications 6/1/00 25,000 130 Long Distance International, Inc. 144A 4/13/08 260 180 McCaw International Ltd. 4/15/07 720 960 Powertel, Inc. 2/1/06 3,840 3,680 Rhythms Netcon 144A 5/15/08 457,166 280 Telehub Communications Corp. 7/31/05 8,400 625 UIH Australia/Pacific, Inc. 144A 5/15/06 18,750 270 Versatel Telecom B.V. 144A (Netherlands) 5/15/08 44,550 -------------- Total Warrants (cost $110,154) $ 654,891 CONVERTIBLE PREFERRED STOCKS (--%) (a) NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------------------------------------- 3,000 AMFM Inc. $3.00 cv. cum. pfd. $ 319,875 1,675 Chesapeake Energy Corp. $3.50 cum. cv. pfd. 54,647 -------------- Total Convertible Preferred Stocks (cost $406,236) $ 374,522 SHORT-TERM INVESTMENTS (4.2%) (a) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- $ 30,000,000 Asset Securitization Co-op Corp. effective yield of 5.16%, September 29, 1999 $ 29,746,300 25,062,000 Delaware Funding Corp. effective yield of 5.12%, August 16, 1999 25,001,406 50,000,000 Eureka Securitization Inc. effective yield of 5.12%, August 24, 1999 49,836,423 33,440,000 Falcon Asset Secur. Corp. effective yield of 5.1%, August 10, 1999 33,397,364 30,000,000 Federal Home Loan Banks effective yield of 4.84%, August 4, 1999 29,987,900 40,000,000 Wal-Mart Stores effective yield of 5.07%, August 16, 1999 39,904,044 67,552,000 Interest in $500,000,000 joint tri-party repurchase agreement dated July 31, 1999 with Lehman Brothers, Inc. due August 2, 1999 with respect to various U.S. Treasury obligations -- maturity value of $67,580,428 for an effective yield of 5.05% 67,552,000 -------------- Total Short-Term Investments (cost $275,425,437) $ 275,425,437 - -------------------------------------------------------------------------------------------------------------------------- Total Investments (cost $6,421,082,243) (b) $6,751,634,644 - -------------------------------------------------------------------------------------------------------------------------- (a) Percentages indicated are based on net assets of $6,617,232,030. (b) The aggregate identified cost on a tax basis is $6,425,024,108, resulting in gross unrealized appreciation and depreciation of $644,707,462 and $318,096,926, respectively, or net unrealized appreciation of $326,610,536. (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. (PIK) Income may be received in cash or additional securities at the discretion of the issuer. (SEG) A portion of these securities were pledged and segregated with the custodian to cover margin requirements for futures contracts at July 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 Depositary 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 Sell at July 31, 1999 Market Aggregate Face Delivery Unrealized Value Value Date Appreciation - ------------------------------------------------------------------------------- Euro Dollars $1,313,876 $1,270,335 9/15/99 $43,541 - ------------------------------------------------------------------------------- Futures Contracts Outstanding at July 31, 1999 Aggregate Face Expiration Unrealized Total Value Value Date Depreciation - ------------------------------------------------------------------------------- US Treasury 20 year Bonds (long) $15,865,688 $16,284,897 Sep-99 $(419,209) - ------------------------------------------------------------------------------- TBA Sales Commitments at July 31, 1999 (proceeds received $125,711,835) Principal Settlement Market Description Amount Date Value - ------------------------------------------------------------------------------- FNMA, 6 1/2s, September 2029 $65,594,000 Sept. 99 $62,478,285 GNMA, 6 1/2s, September, 2029 64,650,000 Sept. 99 61,291,327 - ------------------------------------------------------------------------------- $123,769,612 - ------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities July 31, 1999 Assets - ----------------------------------------------------------------------------------------------- Investments in securities, at value (identified cost $6,421,082,243) (Note 1) $6,751,634,644 - ----------------------------------------------------------------------------------------------- Cash 16,778 - ----------------------------------------------------------------------------------------------- Foreign currency (cost $1,740) 1,710 - ----------------------------------------------------------------------------------------------- Dividends, interest and other receivable 43,128,939 - ----------------------------------------------------------------------------------------------- Receivable for shares of the fund sold 30,962,336 - ----------------------------------------------------------------------------------------------- Receivable for securities sold 165,607,322 - ----------------------------------------------------------------------------------------------- Receivable for open forward currency contracts 43,541 - ----------------------------------------------------------------------------------------------- Total assets 6,991,395,270 Liabilities - ----------------------------------------------------------------------------------------------- Payable for variation margin 47,438 - ----------------------------------------------------------------------------------------------- Payable for securities purchased 204,237,470 - ----------------------------------------------------------------------------------------------- Payable for shares of the fund repurchased 33,363,592 - ----------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 8,039,047 - ----------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 1,517,525 - ----------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 55,633 - ----------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 11,877 - ----------------------------------------------------------------------------------------------- Payable for distribution fees (Note 2) 2,474,762 - ----------------------------------------------------------------------------------------------- TBA sale commitments at value (proceeds received $125,711,835) 123,769,612 - ----------------------------------------------------------------------------------------------- Other accrued expenses 646,284 - ----------------------------------------------------------------------------------------------- Total liabilities 374,163,240 - ----------------------------------------------------------------------------------------------- Net assets $6,617,232,030 Represented by - ----------------------------------------------------------------------------------------------- Paid-in capital (Notes 1 and 4) $5,830,381,567 - ----------------------------------------------------------------------------------------------- Undistributed net investment income (Note 1) 9,972,484 - ----------------------------------------------------------------------------------------------- Accumulated net realized gain on investments and foreign currency transactions (Note 1) 444,661,032 - ----------------------------------------------------------------------------------------------- Net unrealized appreciation of investments and assets and liabilities in foreign currencies 332,216,947 - ----------------------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $6,617,232,030 Computation of net asset value and offering price - ----------------------------------------------------------------------------------------------- Net asset value and redemption price per class A share ($3,937,263,867 divided by 212,964,282 shares) $18.49 - ----------------------------------------------------------------------------------------------- Offering price per class A share (100/94.25 of $18.49)* $19.62 - ----------------------------------------------------------------------------------------------- Net asset value and offering price per class B share ($1,641,515,100 divided by 89,577,909 shares)** $18.33 - ----------------------------------------------------------------------------------------------- Net asset value and offering price per class C share ($565,361 divided by 30,583 shares)** $18.49 - ----------------------------------------------------------------------------------------------- Net asset value and redemption price per class M share ($293,335,545 divided by 16,002,128 shares) $18.33 - ----------------------------------------------------------------------------------------------- Offering price per class M share (100/96.50 of $18.33)* $18.99 - ----------------------------------------------------------------------------------------------- Net asset value, offering price and redemption price per class Y share ($744,552,157 divided by 40,187,143 shares) $18.53 - ----------------------------------------------------------------------------------------------- * 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 Year ended July 31, 1999 Investment income: - ----------------------------------------------------------------------------------------------- Interest (net of foreign tax of $2,430) $164,486,178 - ----------------------------------------------------------------------------------------------- Dividends (net of foreign tax of $100,232) 77,462,168 - ----------------------------------------------------------------------------------------------- Total investment income 241,948,346 Expenses: - ----------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 28,883,413 - ----------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 10,624,866 - ----------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 70,487 - ----------------------------------------------------------------------------------------------- Administrative services (Note 2) 34,849 - ----------------------------------------------------------------------------------------------- Distribution fees -- Class A (Note 2) 9,297,224 - ----------------------------------------------------------------------------------------------- Distribution fees -- Class B (Note 2) 14,768,319 - ----------------------------------------------------------------------------------------------- Distribution fees -- Class C (Note 2) 39 - ----------------------------------------------------------------------------------------------- Distribution fees -- Class M (Note 2) 2,146,516 - ----------------------------------------------------------------------------------------------- Reports to shareholders 186,027 - ----------------------------------------------------------------------------------------------- Registration fees 371,705 - ----------------------------------------------------------------------------------------------- Auditing 112,868 - ----------------------------------------------------------------------------------------------- Legal 34,341 - ----------------------------------------------------------------------------------------------- Postage 552,588 - ----------------------------------------------------------------------------------------------- Other 419,635 - ----------------------------------------------------------------------------------------------- Total expenses 67,502,877 - ----------------------------------------------------------------------------------------------- Expense reduction (Note 2) (1,429,592) - ----------------------------------------------------------------------------------------------- Net expenses 66,073,285 - ----------------------------------------------------------------------------------------------- Net investment income 175,875,061 - ----------------------------------------------------------------------------------------------- Net realized gain on investments (Notes 1 and 3) 449,874,153 - ----------------------------------------------------------------------------------------------- Net realized gain on futures contracts (Notes 1) 1,222,493 - ----------------------------------------------------------------------------------------------- Net realized loss on foreign currency transactions (Note 1) (1,012,762) - ----------------------------------------------------------------------------------------------- Net unrealized depreciation of assets and liabilities in foreign currencies during the year (795,215) - ----------------------------------------------------------------------------------------------- Net unrealized depreciation of investments, futures contracts, and TBA sale commitments during the year (151,227,220) - ----------------------------------------------------------------------------------------------- Net gain on investments 298,061,449 - ----------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations $473,936,510 - ----------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets Year ended July 31 ------------------------------- 1999 1998 - --------------------------------------------------------------------------------------------------------------- Increase in net assets - --------------------------------------------------------------------------------------------------------------- Operations: - --------------------------------------------------------------------------------------------------------------- Net investment income $ 175,875,061 $ 140,876,649 - --------------------------------------------------------------------------------------------------------------- Net realized gain on investments and foreign currency transactions 450,083,884 454,484,734 - --------------------------------------------------------------------------------------------------------------- Net unrealized depreciation of investments and assets and liabilities in foreign currencies (152,022,435) (174,363,842) - --------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 473,936,510 420,997,541 - --------------------------------------------------------------------------------------------------------------- Distributions to shareholders: - --------------------------------------------------------------------------------------------------------------- From net investment income Class A (109,146,841) (93,857,434) - --------------------------------------------------------------------------------------------------------------- Class B (33,139,561) (26,582,497) - --------------------------------------------------------------------------------------------------------------- Class M (7,053,301) (6,420,081) - --------------------------------------------------------------------------------------------------------------- Class Y (17,057,113) (14,256,392) - --------------------------------------------------------------------------------------------------------------- From net realized gain on investments Class A (235,789,968) (173,044,314) - --------------------------------------------------------------------------------------------------------------- Class B (93,908,591) (63,051,883) - --------------------------------------------------------------------------------------------------------------- Class M (19,043,436) (14,653,375) - --------------------------------------------------------------------------------------------------------------- Class Y (31,362,904) (25,075,114) - --------------------------------------------------------------------------------------------------------------- Increase from capital share transactions (Note 4) 1,248,141,716 1,397,644,938 - --------------------------------------------------------------------------------------------------------------- Total increase in net assets 1,175,576,511 1,401,701,389 Net assets - --------------------------------------------------------------------------------------------------------------- Beginning of year 5,441,655,519 4,039,954,130 - --------------------------------------------------------------------------------------------------------------- End of year (including undistributed net investment income and distributions in excess of net investment income of $9,972,484 and $11,819,799, respectively) $6,617,232,030 $5,441,655,519 - --------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Financial highlights (For a share outstanding throughout the period) CLASS A - ------------------------------------------------------------------------------------------------------------------------------------ Per-share operating performance Year ended July 31 - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $18.82 $18.95 $15.82 $14.90 $13.52 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .57(c) .60 .60(c) .63 .63 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments .90 1.08 4.11 1.50 1.63 - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations 1.47 1.68 4.71 2.13 2.26 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income (.55) (.60) (.67) (.58) (.56) - ------------------------------------------------------------------------------------------------------------------------------------ From net realized gain on investments (1.25) (1.21) (.91) (.63) (.32) - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (1.80) (1.81) (1.58) (1.21) (.88) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $18.49 $18.82 $18.95 $15.82 $14.90 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total return at net asset value (%)(a) 8.33 9.53 31.52 14.75 17.73 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $3,937,264 $3,387,620 $2,607,562 $1,515,260 $1,036,674 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) .93 1.00 1.06 .95 .91 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 3.10 3.11 3.51 4.07 4.58 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 127.68 126.19 134.80 119.44 102.57 - ------------------------------------------------------------------------------------------------------------------------------------ + 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 B - ------------------------------------------------------------------------------------------------------------------------------------ Per-share operating performance Year ended July 31 - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $18.67 $18.82 $15.74 $14.83 $13.46 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .43(c) .46 .46(c) .51 .52 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments .90 1.07 4.08 1.50 1.63 - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations 1.33 1.53 4.54 2.01 2.15 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income (.42) (.47) (.55) (.47) (.46) - ------------------------------------------------------------------------------------------------------------------------------------ From net realized gain on investments (1.25) (1.21) (.91) (.63) (.32) - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (1.67) (1.68) (1.46) (1.10) (.78) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $18.33 $18.67 $18.82 $15.74 $14.83 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total return at net asset value (%)(a) 7.55 8.72 30.46 13.97 16.87 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $1,641,515 $1,305,897 $888,666 $435,278 $224,166 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) 1.68 1.75 1.81 1.71 1.66 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 2.35 2.37 2.74 3.31 3.81 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 127.68 126.19 134.80 119.44 102.57 - ------------------------------------------------------------------------------------------------------------------------------------ + 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 C - ------------------------------------------------------------------------------------------------------------------------------------ For the period Per-share July 26, 1999+ operating performance to July 31 - ------------------------------------------------------------------------------------------------------------------------------------ 1999 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $18.76 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income --(c) - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments (.27) - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations (.27) - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income -- - ------------------------------------------------------------------------------------------------------------------------------------ From net realized gain on investments -- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions -- - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $18.49 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total return at net asset value (%)(a) (1.44)* - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $565 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) .03* - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) (.03)* - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 127.68 - ------------------------------------------------------------------------------------------------------------------------------------ + 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 - ------------------------------------------------------------------------------------------------------------------------------------ For the period Per-share Dec. 1, 1995+ operating performance 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 .47(c) .51 .53(c) .55 .31 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments .90 1.06 4.06 1.50 2.03 - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations 1.37 1.57 4.59 2.05 2.34 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income (.46) (.51) (.60) (.52) (.27) - ------------------------------------------------------------------------------------------------------------------------------------ From net realized gain on investments (1.25) (1.21) (.91) (.63) -- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (1.71) (1.72) (1.51) (1.15) (.27) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $18.33 $18.67 $18.82 $15.74 $14.84 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total return at net asset value (%)(a) 7.80 8.98 30.83 14.26 18.52* - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $293,336 $276,962 $187,475 $49,541 $8,164 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) 1.43 1.50 1.56 1.50 .93* - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 2.61 2.62 3.05 3.50 2.53* - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 127.68 126.19 134.80 119.44 102.57 - ------------------------------------------------------------------------------------------------------------------------------------ + 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 - ------------------------------------------------------------------------------------------------------------------------------------ Per-share operating performance Year ended July 31 - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $18.85 $18.98 $15.85 $14.92 $13.54 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .62(c) .64 .64(c) .68 .66 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments .91 1.09 4.11 1.50 1.63 - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations 1.53 1.73 4.75 2.18 2.29 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income (.60) (.65) (.71) (.62) (.59) - ------------------------------------------------------------------------------------------------------------------------------------ From net realized gain on investments (1.25) (1.21) (.91) (.63) (.32) - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (1.85) (1.86) (1.62) (1.25) (.91) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $18.53 $18.85 $18.98 $15.85 $14.92 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total return at net asset value (%)(a) 8.63 9.79 31.78 15.09 18.00 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $744,552 $471,176 $356,251 $207,508 $153,597 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) .68 .75 .81 .70 .66 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 3.33 3.37 3.74 4.33 4.78 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 127.68 126.19 134.80 119.44 102.57 - ------------------------------------------------------------------------------------------------------------------------------------ + 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.
Notes to financial statements July 31, 1999 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 C, class M and class Y shares. Effective July 26, 1999, the fund began offering class C shares. Class A shares are sold with a maximum front-end sales charge of 5.75%. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge but pay a higher ongoing distribution fee than class A shares, and are subject to a contingent deferred sales charge, if those shares are redeemed within six years of purchase. Class C shares are subject to the same fees and expenses as class B shares, except that class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. Class M shares are sold with a maximum front end sales charge of 3.50% and pay an ongoing distribution fee that is higher than class A shares but lower than class B shares and class C shares. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C and class M shares, but do not bear a distribution fee. Class Y shares are sold to defined contribution plans that invest at least $150 million in a combination of Putnam funds and other accounts managed by affiliates of Putnam Investment Management, 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). Gains or losses on securities sold are determined on the identified cost basis. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recorded as soon as the fund is informed of the ex-dividend date. 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 year ended July 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. These differences include temporary and permanent differences of losses on wash sales transactions, foreign currency gains and losses, nontaxable dividends, defaulted bond interest, unrealized gains and losses on certain futures contracts, paydown gains and losses on mortgage backed securities, market discount and interest on payment-in-kind securities. 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. For the year ended July 31, 1999, the fund reclassified $12,314,038 to increase undistributed net investment income and $339,482 to increase paid-in-capital, with a decrease to accumulated net realized gains and losses of $12,653,520. The calculation of net investment income per share in the financial highlights table excludes these adjustments. 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 and 0.425% of the next $5 billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion and 0.38% thereafter. The fund reimburses Putnam Management an allocated amount for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees. Custodial functions for the fund's assets are provided by Putnam Fiduciary Trust Company (PFTC) a subsidiary of Putnam Investments, Inc. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. For the year ended July 31, 1999, fund expenses were reduced by $1,429,592 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 $3,551 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 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, class C and class M shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam 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%, 1.00% and 1.00% of the average net assets attributable to class A, class B, class C and class M shares, respectively. The Trustees have approved payment by the fund to an annual rate of 0.25%, 1.00%, 1.00% and 0.75% of the average net assets attributable to class A, class B, class C and class M shares, respectively. For the year ended July 31, 1999, Putnam Mutual Funds Corp., acting as underwriter received net commissions of $2,231,597 and $69,715 from the sale of class A and class M shares, respectively and $2,364,147 and no monies in contingent deferred sales charges from redemptions of class B and class C shares, respectively. A deferred sales charge of up to 1% is assessed on certain redemptions of class A shares. For the year ended July 31, 1999, Putnam Mutual Funds Corp., acting as underwriter received $29,132 on class A redemptions. Note 3 Purchase and sales of securities During the year ended July 31, 1999, purchases and sales of investment securities other than U.S. government obligations and short-term investments aggregated $5,207,299,011 and $4,623,046,481, respectively. Purchases and sales of U.S. government obligations aggregated $3,035,467,033 and $2,772,337,934, respectively. Note 4 Capital shares At July 31, 1999, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: Year ended July 31, 1999 - ----------------------------------------------------------------------------- Class A Shares Amount - ----------------------------------------------------------------------------- Shares sold 71,350,723 $1,305,654,213 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 17,951,127 321,277,356 - ----------------------------------------------------------------------------- 89,301,850 1,626,931,569 Shares repurchased (56,386,152) (1,037,171,935) - ----------------------------------------------------------------------------- Net increase 32,915,698 $ 589,759,634 - ----------------------------------------------------------------------------- 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 - ----------------------------------------------------------------------------- Year ended July 31, 1999 - ----------------------------------------------------------------------------- Class B Shares Amount - ----------------------------------------------------------------------------- Shares sold 32,951,628 $ 598,596,843 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 6,725,747 119,388,554 - ----------------------------------------------------------------------------- 39,677,375 717,985,397 Shares repurchased (20,061,741) (363,849,605) - ----------------------------------------------------------------------------- Net increase 19,615,634 $ 354,135,792 - ----------------------------------------------------------------------------- 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 - ----------------------------------------------------------------------------- Year ended July 31, 1999 - ----------------------------------------------------------------------------- Class C Shares Amount - ----------------------------------------------------------------------------- Shares sold 30,583 $ 571,827 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions -- -- - ----------------------------------------------------------------------------- 30,583 571,827 Shares repurchased -- -- - ----------------------------------------------------------------------------- Net increase 30,583 $ 571,827 - ----------------------------------------------------------------------------- Year ended July 31, 1999 - ----------------------------------------------------------------------------- Class M Shares Amount - ----------------------------------------------------------------------------- Shares sold 5,924,357 $107,923,821 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 1,446,021 25,658,426 - ----------------------------------------------------------------------------- 7,370,378 133,582,247 Shares repurchased (6,206,656) (112,934,440) - ----------------------------------------------------------------------------- Net increase 1,163,722 $ 20,647,807 - ----------------------------------------------------------------------------- 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 - ----------------------------------------------------------------------------- Year ended July 31, 1999 - ----------------------------------------------------------------------------- Class Y Shares Amount - ----------------------------------------------------------------------------- Shares sold 21,650,266 $402,853,725 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 2,696,088 48,420,017 - ----------------------------------------------------------------------------- 24,346,354 451,273,742 Shares repurchased (9,159,570) (168,247,086) - ----------------------------------------------------------------------------- Net increase 15,186,784 $283,026,656 - ----------------------------------------------------------------------------- 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 - ----------------------------------------------------------------------------- Federal tax information (Unaudited) Pursuant to Section 852 of the Internal Revenue Code, as amended, the Fund hereby designates $380,287,549 as 20% capital gain, for its taxable year ended July 31, 1999. The fund has designated 31.56% of the distributions from net investment income as qualifying for the dividends received deduction for corporations. The Form 1099 you receive in January 2000 will show the tax status of all distributions paid to your account in calendar 1999. The Putnam family of funds The following is a complete list of Putnam's open-end mutual funds. Please call your financial advisor or Putnam at 1-800-225-1581 to obtain a prospectus for any Putnam fund. It contains more complete information, including charges and expenses. Please read it carefully before you invest or send money. GROWTH FUNDS Asia Pacific Growth Fund Capital Appreciation Fund [DBL. DAGGER] Capital Opportunities Fund Diversified Equity Trust Europe Growth Fund Global Growth Fund Global Natural Resources Fund Growth Opportunities Fund Health Sciences Trust International Growth Fund International New Opportunities Fund Investors Fund New Opportunities Fund [DBL. DAGGER] OTC & Emerging Growth Fund Research Fund Vista Fund Voyager Fund Voyager Fund II GROWTH AND INCOME FUNDS Balanced Retirement Fund Convertible Income-Growth Trust Equity Income Fund The George Putnam Fund of Boston Global Growth and Income Fund The Putnam Fund for Growth and Income Growth and Income Fund II International Growth and Income Fund New Value Fund Utilities Growth and Income Fund INCOME FUNDS American Government Income Fund Diversified Income Trust Global Governmental Income Trust High Yield Advantage Fund [DBL. DAGGER] High Yield Trust [DBL. DAGGER] High Yield Trust II Income Fund Intermediate U.S. Government Income Fund Money Market Fund ** Preferred Income Fund Strategic Income Fund * U.S. Government Income Trust TAX-FREE INCOME FUNDS Municipal Income Fund Tax Exempt Income Fund Tax Exempt Money Market Fund** Tax-Free High Yield Fund Tax-Free Insured Fund State tax-free income funds [SECTION MARK] Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey, New York, Ohio and Pennsylvania State tax-free money market funds [SECTION MARK]** California, New York ASSET ALLOCATION FUNDS Putnam Asset Allocation Funds--three investment portfolios that spread your money across a variety of stocks, bonds, and money market investments. The three portfolios: Asset Allocation: Balanced Portfolio Asset Allocation: Conservative Portfolio Asset Allocation: Growth Portfolio * Formerly Putnam Diversified Income Trust II [DBL. DAGGER] Closed to new investors. Some exceptions may apply. Contact Putnam for details. [SECTION MARK] Not available in all states. ** An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the funds seek to preserve your investment at $1.00 per share, it is possible to lose money by investing in the fund. Check your account balances and current performance at www.putnaminv.com. Fund information WEB SITE www.putnaminv.com 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 INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP 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 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 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' Web site: 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 - --------------------- BULK RATE U.S. POSTAGE PAID PUTNAM INVESTMENTS - --------------------- For account balances, economic forecasts, and the latest on Putnam funds, visit www.putnaminv.com AN021-54562 001/880/242/505/ 9/99 PUTNAM INVESTMENTS [SCALE LOGO OMITTED] - ---------------------------------------------------------------------------- The George Putnam Fund of Boston Supplement to Annual Report dated 7/31/99 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 7/31/99 NAV 1 year 8.63% 5 years 113.44 Annual average 16.37 10 years 221.93 Annual average 12.40 Life of fund (since class A inception, 11/5/37) 9.99 (annual average) Share value: NAV 7/31/98 $18.85 7/31/99 $18.53 - ---------------------------------------------------------------------------- Distributions: No. Income Capital gains Total 4 $0.594 Short 0.493 Long 0.757 $1.844 - ---------------------------------------------------------------------------- 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-----