THE GEORGE
PUTNAM FUND
OF BOSTON
[Artwork]
ANNUAL REPORT
July 31, 1995
[Putnam Logo]
Boston * London * Tokyo
<PAGE>
PERFORMANCE HIGHLIGHTS
The George Putnam Fund of Boston continued to outpace much of the competition
over the 12 months ended July 31, 1995. The fund's class A share total return
at net asset value placed in the top 30% of the 179 balanced funds tracked by
Lipper Analytical Services during the period, while the fund's class B share
total return ranked in the top 39%. *
FISCAL 1995 RESULTS AT A GLANCE
CLASS A CLASS B CLASS M
TOTAL RETURN: NAV POP NAV CDSC NAV POP
- -------------------------------------------------------------------------------
(change in value during period
plus reinvested distributions)
12 months ended 7/31/95 17.73% 11.00% 16.87% 11.87% -- --
- -------------------------------------------------------------------------------
Life of class M -- -- -- -- 18.52% 14.40%
- -------------------------------------------------------------------------------
CLASS A CLASS B CLASS M
SHARE VALUE: NAV POP NAV NAV POP
- -------------------------------------------------------------------------------
7/31/94 $13.52 $14.34 $13.46 -- --
12/1/94 (inception of
class M shares) -- -- -- $12.77 $13.23
7/31/95 $14.90 $15.81 $14.83 $14.84 $15.38
- -------------------------------------------------------------------------------
CAPITAL GAINS
LONG- SHORT-
DISTRIBUTIONS: NO. INCOME TERM TERM TOTAL
- -------------------------------------------------------------------------------
Class A 4 $0.560 $0.309 $0.012 $0.881
Class B 4 0.461 0.309 0.012 0.782
Class M 2 0.272 -- -- 0.272
- -------------------------------------------------------------------------------
CLASS A CLASS B CLASS M
CURRENT RETURN NAV POP NAV NAV POP
- -------------------------------------------------------------------------------
(End of period)
Current dividend rate (1) 3.76% 3.54% 3.13% 3.58% 3.46%
Current 30-day SEC yield (2) 4.24 3.99 3.48 3.71 3.58
- -------------------------------------------------------------------------------
Performance data represent past results, are no assurance of future results,
and will differ for each share class. For performance over longer periods,
see pages 8 and 9. POP assumes 5.75% maximum sales charge for class A shares
and 3.50% for class M shares, which became effective 12/1/94. CDSC assumes 5%
maximum contingent deferred sales charge. (1) Income portion of most recent
distribution, annualized and divided by NAV or POP at end of period. (2) Based
only on investment income, calculated using SEC guidelines.
* Rankings by Lipper Analytical Services, an independent mutual-fund industry
research organization, are based on total return performance, vary over time,
and do not reflect the effects of sales charges. The fund's class A and class
B shares ranked 54 and 69, respectively, out of 179 balanced funds for 1-year
performance through 7/31/95. Class A shares were ranked 32 out of 59 and 7
out of 28 balanced funds for 5- and 10-year performance, respectively, through
7/31/95. Class B shares were not ranked over 5- and 10-year periods. Class M
shares were not ranked over the 1-, 5-, and 10-year periods. Past performance
is not indicative of future results.
<PAGE>
FROM THE CHAIRMAN [PHOTOGRAPH OF GEORGE PUTNAM]
* (C) KARSH, OTTAWA
DEAR SHAREHOLDER:
THE ROBUST RISE IN THE U.S. STOCK AND BOND MARKETS SO FAR IN 1995 HAS BEGUN TO
MAKE SOME INVESTORS NERVOUS, WHILE OTHERS ANTICIPATE EVEN GREATER STRENGTH TO
COME. PUTNAM TAKES THE MIDDLE VIEW.
GIVEN THE STOCK MARKET'S SUSTAINED ADVANCE, INTERMITTENT PULLBACKS ARE CERTAINLY
POSSIBLE. MEANWHILE, THE BOND MARKET EXPERIENCED A MODEST CORRECTION DURING JU-
LY, BEFORE LEVELING OFF NEAR THE END OF THE MONTH. NEVERTHELESS, OVER THE LONG
TERM, WE BELIEVE THE ECONOMIC AND POLITICAL BACKDROP WILL CONTINUE TO BE FAVORA-
BLE FOR EQUITY AND FIXED-INCOME PERFORMANCE.
ALTHOUGH THE STRONG MARKET RALLY HAS TAKEN U.S. STOCKS TO THE HIGHER END OF
THEIR HISTORICAL VALUATION RANGE, WE BELIEVE THE INCREASED GLOBAL COMPETITIVE-
NESS OF U.S. COMPANIES WILL SUPPORT THESE HIGHER LEVELS OVER THE LONG TERM. THE
SUSTAINED DECLINE IN LONG-TERM INTEREST RATES THAT FUELED THE BOND-MARKET RISE
IN THE FIRST HALF OF 1995 PLATEAUED BY THE END OF JULY. BUT THE FEDERAL RESERVE
BOARD APPEARS TO HAVE CONCLUDED THAT SHORT-TERM RATES NEED NO FURTHER INCREASE,
A PLUS FOR BOND INVESTORS.
IN THE FOLLOWING REPORT, EDWARD BOUSA, KENNETH TAUBES, AND ROSEMARY THOMSEN, MA-
NAGERS OF THE GEORGE PUTNAM FUND OF BOSTON, REVIEW THE FUND'S PERFORMANCE DURING
THE FISCAL YEAR ENDED JULY 31, 1995, AND PRESENT THEIR VIEWS ON FISCAL 1996.
RESPECTFULLY YOURS,
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
SEPTEMBER 20, 1995
* (C) Copyright
<PAGE>
REPORT FROM THE FUND MANAGERS
EDWARD P. BOUSA, LEAD MANAGER
KENNETH J. TAUBES
ROSEMARY H. THOMSEN
A combination of timely asset allocation and judicious stock selection enabled
The George Putnam Fund of Boston to surpass most of its competition during the
fiscal year ended July 31, 1995. The fund's 17.73% and 16.87% total returns at
net asset value for class A and class B shares, respectively, eclipsed the
16.09% average return of the 179 balanced funds followed by Lipper Analytical
Services over the period.
We attribute this outperformance to four key factors. Substantial weightings in
stock-market sectors that either matched or exceeded the return of the overall
market -- such as those of raw materials producers and banks -- provided a major
boost to performance. The fund's fixed-income holdings advanced in tandem with
its equity investments. We largely avoided electric utility stocks, which lagged
the market by a significant margin. Finally, we kept the fund fully invested,
enabling it to participate in the powerful rallies that characterized much of
its 1995 fiscal year.
BASIC MATERIALS AND BANKS LEAD STOCK PORTFOLIO
Nearly 59% of the fund was invested in equities at the fiscal year's end. Hold-
ings in the basic (i.e., raw) materials sector were the top performers; the
stocks of companies producing various chemicals, papers, and metals advanced
strongly as these manufacturers were able to maintain higher wholesale prices
for their products.
In addition, we continued to focus on companies that we believe are undergoing
positive fundamental change. A prime example is Weyerhaeuser, a major manufactu-
rer of forest products. Along with naming a new president and introducing an am-
bitious cost-cutting program, the company has implemented a management system
known as "economic value added" (EVA).
Under the EVA system, managers must justify expenditures by demonstrating that
the return on investment has a high probability of exceeding the company's cost
of capital. The discipline of EVA is causing Weyerhaeuser to evaluate carefully
the effect each capital expenditure may have on the corporation's profitability.
<PAGE>
Holdings in the financial sector, chiefly large money center and superregional
banks, also provided a substantial boost to fund performance. J.P. Morgan, Ban-
kers Trust New York, and NationsBank, among others, benefited from falling inte-
rest rates, increasing loan volumes, and in the case of J.P. Morgan, increased
securities underwriting and trading revenues.
Given that electric utilities lagged the broader market considerably, our deci-
sion to largely avoid this sector proved correct. Despite declining interest ra-
tes during much of the fiscal year, electric-company stocks have not fully reco-
vered from calendar 1994's depressed levels. Future utility deregulation and the
threat of increasing competition have caused investors to discriminate more ca-
refully among the stronger and the weaker electric companies.
We maintained limited commitments to the high-technology sector over the fiscal
year. Although technology stocks have staged a powerful rally, many of the small
and medium-sized companies that dominate this sector do not meet the dividend
yield, price-to-book, and other valuation criteria that drive our stock-selec-
tion process. One of our principal goals in managing the fund is to generate
strong, competitive returns without
TOP 10 EQUITY HOLDINGS (7/31/95) *
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J.P. MORGAN & COMPANY
Multinational banking and finance
- -------------------------------------------------------------------------------
PHILIP MORRIS COMPANIES
Multinational tobacco, food, and beer
- -------------------------------------------------------------------------------
EXXON CORPORATION
Exploration, production, and distribution of oil and natural gas
- -------------------------------------------------------------------------------
UNION PACIFIC CORPORATION
Railroad
- -------------------------------------------------------------------------------
WEYERHAEUSER CORPORATION
Paper and forest products manufacturing
- -------------------------------------------------------------------------------
NYNEX CORPORATION
Telecommunications
- -------------------------------------------------------------------------------
BRISTOL-MYERS SQUIBB COMPANY
Pharmaceuticals, medical devices, and personal care products
- -------------------------------------------------------------------------------
SPRINT CORPORATION
Telecommunications
- -------------------------------------------------------------------------------
TRW, INC.
Auto parts manufacturing and credit information services
- -------------------------------------------------------------------------------
U.S. WEST, INC.
Telecommunications
- -------------------------------------------------------------------------------
* These holdings represent 11.4% of the fund's net assets. Portfolio holdings
will vary over time.
<PAGE>
exposing the portfolio to the higher levels of volatility and market risk often
characteristic of fast-growing technology companies.
BOND PORTFOLIO ADDS TO FUND'S STRONG PERFORMANCE; FOREIGN HOLDINGS INCREASED
Anticipating a slowing economy and continuing mild inflation, and recognizing
the attractive price levels to which bonds had fallen, we positioned the fund to
benefit from the across-the-board bond-market rebound that began last November.
The bond-market's rally was buoyed by investors' expectations that the Federal
Reserve Board would ease its monetary policy to avoid choking off the economy's
moderating growth rate. These expectations were realized in July when the Fed
cut its target for short-term bank-lending rates to 5.75%.
Perhaps the most significant change in the bond portfolio was a recent increase
in foreign holdings. At the midpoint of the fiscal year, less than 1% of the
fund was invested in foreign bonds. As of July 31, fully 6% was committed inter-
nationally, with positions concentrated in the United Kingdom, Germany, and
France.
European bond markets underperformed their U.S. counterpart throughout 1994 and,
until recently, for much of calendar 1995. Given the U.S. market's pronounced
rebound, we believed the European markets offered significantly greater value.
Europe's export-driven economic recovery provided another reason to anticipate
stronger fixed-income performance abroad. Given the expectation of a further
slowdown in the U.S. economy, domestic demand for European products may weaken.
Should that occur, the pace of Europe's recovery would also likely slow, provi-
ding a favorable backdrop for bond-market performance. Interestingly, numerous
European bond markets outperformed the U.S. market in July.
Given the U.S. dollar's strength late in the fiscal year, we maintained dollar
hedges on the fund's foreign holdings, which benefit the fund when the dollar is
strengthening against foreign currencies. Such hedges prevent losses that would
otherwise occur when weaker currencies are exchanged for stronger dollars.
EQUITY APPROACH SOMEWHAT MORE DEFENSIVE; FINDING VALUE IN CORPORATE BONDS
In anticipation of continuing slow economic growth, we began to structure the
fund's equity holdings somewhat more defensively during the final quarter of the
fiscal year. We increased public
<PAGE>
[Bar Chart - Page 5]
TOP INDUSTRY SECTORS (7/31/95) *
- -------------------------------------------------------------------------------
Insurance and finance 11.9 %
Utilities 11.0 %
Oil and gas 5.8 %
Consumer nondurables 4.4 %
Transportantion 4.1 %
Chemicals 3.6 %
- -------------------------------------------------------------------------------
* Based on net assets as of 7/31/95. Holdings will vary over time.
utility holdings -- taking advantage of attractive prices resulting from sus-
tained weakness in the sector by adding telephone companies and selected elec-
tric utilities. Furthermore, we took profits on many holdings that had performed
well over the year.
At the same time, we began to increase corporate bond holdings selectively. Both
investment-grade and high-yield corporates underperformed U.S. Treasuries during
the fiscal year's final quarter as many market participants reduced their corpo-
rate holdings, fearing an economic recession. Consequently, we now believe the
corporate sector offers greater value than Treasuries.
While we expect the U.S. economy to proceed at a slow pace for the balance of
calendar 1995, we nevertheless believe that U.S. companies will continue to post
solid earnings. We expect, however, that most of this earnings growth will come
from overseas operations. We further believe that a marginally stronger dollar
- -- which is what we anticipate -- will not short-circuit these earnings. If the
dollar strengthens dramatically, however, overseas earnings will likely be redu-
ced. Furthermore, a moderately stronger dollar could benefit bonds by reinfor-
cing the notion that inflation is under control. (A stronger dollar makes U.S.
imports less expensive.) We will continue to monitor economic and corporate de-
velopments with a watchful eye toward risk.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed fa-
vorably as of 7/31/95, there is no guarantee the fund will continue to hold the-
se securities in the future. Foreign investments are subject to certain risks
related to currency fluctuations and political developments that are not present
with domestic investments.
<PAGE>
PERFORMANCE SUMMARY
This section provides, at a glance, information about your fund's performance.
Total return shows how the value of the fund's shares changed over time, assum-
ing you held the shares through the entire period and reinvested all distribu-
tions back into the fund. We show total return in two ways: on a cumulative
long-term basis and on average how the fund might have grown each year over va-
rying periods.
Performance should always be considered in light of a fund's investment strate-
gy. The George Putnam Fund of Boston is designed for investors seeking capital
appreciation and current income.
TOTAL RETURN FOR PERIODS ENDED 7/31/95
CLASS A CLASS B CLASS M
NAV POP NAV CDSC NAV POP
- -------------------------------------------------------------------------------
1 year 17.73% 11.00% 16.87% 11.87% -- --
- -------------------------------------------------------------------------------
5 years 67.39 57.74 -- -- -- --
Annual average 10.85 9.54 -- -- -- --
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10 years 230.36 211.26 -- -- -- --
Annual average 12.69 12.02 -- -- -- --
- -------------------------------------------------------------------------------
Life of class B -- -- 35.74 32.74 -- --
Annual average -- -- 9.83 9.08 -- --
- -------------------------------------------------------------------------------
Life of class M -- -- -- -- 18.52% 14.40%
- -------------------------------------------------------------------------------
TOTAL RETURNS FOR PERIOD ENDED 6/30/95
(MOST RECENT CALENDAR QUARTER)
CLASS A CLASS B CLASS M
NAV POP NAV CDSC NAV POP
- -------------------------------------------------------------------------------
1 year 18.29% 11.47% 17.42% 12.42% -- --
- -------------------------------------------------------------------------------
5 years 66.20 56.64 -- -- -- --
Annual average 10.69 9.39 -- -- -- --
- -------------------------------------------------------------------------------
10 years 222.14 203.65 -- -- -- --
Annual average 12.41 11.75 -- -- -- --
- -------------------------------------------------------------------------------
Life of class B -- -- 33.54 30.54 -- --
Annual average -- -- 9.52 8.74 -- --
- -------------------------------------------------------------------------------
Life of class M -- -- -- -- 16.68% 12.62%
- -------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 7/31/95
STANDARD & POOR'S LEHMAN BROS. CONSUMER
500 INDEX GOV'T/CORP BOND INDEX PRICE INDEX
- -------------------------------------------------------------------------------
1 year 26.07% 10.55% 2.76%
- -------------------------------------------------------------------------------
5 years 83.11 57.91 16.95
Annual average 12.86 9.55 3.18
- -------------------------------------------------------------------------------
10 years 306.34 161.96 41.47
Annual average 15.05 10.10 3.53
- -------------------------------------------------------------------------------
Life of class B 50.67 31.40 9.32
Annual average 13.41 8.74 2.77
- -------------------------------------------------------------------------------
Life of class M 26.01 12.53 1.87
- -------------------------------------------------------------------------------
Fund performance data do not take into account any adjustment for taxes payable
on reinvested distributions or, for class A shares, distribution fees prior to
implementation of the class A distribution plan in 1990. Effective 4/27/92, the
fund began offering class B shares and on 12/1/94, class M shares. Performance
data represent past results and will differ for each share class. Investment re-
turns and net asset value will fluctuate so an investor's shares, when sold, may
be worth more or less than their original cost.
<PAGE>
[Line Chart - Page 9]
GROWTH OF A $10,000 INVESTMENT
- -------------------------------------------------------------------------------
FUND'S CLASS A LEHMAN BROS. GOV'T/CORP
SHARES AT POP BOND INDEX S&P 500 INDEX
- -------------------------------------------------------------------------------
1985 $ 9425 $10000 $10000
1986 12172 12182 12833
1987 15170 12642 17884
1988 14356 13540 15790
1989 17565 15616 20811
1990 18594 16589 22138
1991 20691 18290 24972
1992 23522 21150 28158
1993 25554 23484 30605
1994 26438 23695 32192
1995 31126 26196 40634
- -------------------------------------------------------------------------------
Past performance is no assurance of future results. A $10,000 investment in the
fund's class B shares at inception on 4/27/92 would have been valued at $13,574
on 7/31/95 ($13,274 with a redemption at the end of the period). A $10,000 in-
vestment in the fund's class M shares at inception on 12/1/94 would have been
valued at $11,852 at net asset value as of 7/31/95 ($11,440 at the maximum
applicable sales charge of 3.50%).
TERMS AND DEFINITIONS
CLASS A SHARES are generally subject to an initial sales charge.
CLASS B SHARES may be subject to a sales charge upon redemption.
CLASS M SHARES have a lower initial sales charge and a higher 12b-1 fee than
class A shares and no sales charge on redemption.
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus any liabi-
lities, divided by the number of outstanding shares, not including any initial
or contingent deferred sales charge.
PUBLIC OFFERING PRICE (POP) is the price of a mutual fund share plus the maximum
sales charge levied at the time of purchase. POP performance figures shown here
assume the maximum 5.75% sales charge for class A shares and 3.50% for class M
shares.
CONTINGENT DEFERRED SALES CHARGE (CDSC) is a charge applied at the time of the
redemption of class B shares and assumes redemption at the end of the period.
Your fund's CDSC declines from a 5% maximum during the first year to 1% during
the sixth year. After the sixth year, the CDSC no longer applies.
COMPARATIVE BENCHMARKS
STANDARD & POOR'S 500 INDEX is an unmanaged list of common stocks that is fre-
quently used as a general measure of stock market performance. *
LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX is an unmanaged list of publi-
cly issued U.S. Treasury obligations, debt obligations of U.S. government agen-
cies (excluding mortgage-backed securities), and investment-grade corporate debt
securities. *
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation; it does not
represent an investment return.
* Index results assume reinvestment of all distributions and do not take into
account brokerage commissions or other costs. Securities in the fund's port-
folio do not match those in the indexes and may pose different risks.
<PAGE>
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund Capital Appreciation Fund *
Diversified Equity Trust Europe Growth Fund
Global Growth Fund Health Sciences Trust
Investors Fund Natural Resources Trust
New Opportunities Fund OTC Emerging Growth Fund
Overseas Growth Fund Vista Fund
Voyager Fund Voyager Fund II
PUTNAM GROWTH AND INCOME FUNDS
Balanced Retirement Fund ^^^ Convertible Income-Growth Trust
Equity Income Fund The George Putnam Fund of Boston
The Putnam Fund for Growth and Income Growth and Income Fund II
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
Adjustable Rate U.S. Government Fund American Government Income Fund
Diversified Income Trust Federal Income Trust
Global Governmental Income Trust High Yield Advantage Fund
High Yield Trust Income Fund
Intermediate U.S. Government Income Fund Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE INCOME FUNDS
Intermediate Tax Exempt Fund Municipal Income Fund
Tax Exempt Income Fund Tax-Free High Yield Fund
Tax-Free Insured Fund
STATE TAX-FREE INCOME FUNDS +
Arizona, California, Florida, Massachusetts, Michigan,
Minnesota, New Jersey, New York, Ohio, and Pennsylvania
LIFESTAGE (SM) FUNDS
Putnam Asset Allocation Funds -- three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments to help
maximize your return and reduce your risk.
The three portfolios:
Putnam Asset Allocation: Balanced Portfolio
Putnam Asset Allocation: Conservative Portfolio
Putnam Asset Allocation: Growth Portfolio
MOST CONSERVATIVE INVESTMENTS ++
PUTNAM MONEY MARKET FUNDS:
California Tax Exempt Money Market Fund +
Money Market Fund
New York Tax Exempt Money Market Fund +
Tax Exempt Money Market Fund
CDs and savings accounts **
* Temporarily closed to new investors.
+ Not available in all states.
++ Relative to above.
^^^ Formerly Putnam Managed Income Trust.
** Not offered by Putnam Investments. Certificates of deposit offer a fixed
rate of return and may be insured, _up to certain limits, by federal/state
agencies. Savings accounts may also be insured up to certain limits.
Please call your financial advisor or Putnam at 1-800-225-1581 to obtain a
prospectus for any Putnam fund. It contains more complete information, in-
cluding charges and expenses. Read it carefully before you invest or send
money.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
For the Year Ended July 31, 1995
To the Trustees and Shareholders of
The George Putnam Fund of Boston
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments owned, and the related statements of operations and
of changes in net assets and the financial highlights present fairly, in all ma-
terial respects, the financial position of The George Putnam Fund of Boston at
July 31, 1995, and the results of its operations, the changes in its net assets,
and the financial highlights for the periods indicated, in conformity with gene-
rally accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the responsibi-
lity 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, 1995 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
September 19, 1995
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
July 31, 1995
COMMON STOCKS (57.1%)*
NUMBER OF SHARES VALUE
AEROSPACE AND DEFENSE (0.3%)
- -------------------------------------------------------------------------------
66,000 Boeing Co. $ 4,422,000
AUTOMOTIVE (1.6%)
- -------------------------------------------------------------------------------
127,000 Chrysler Corp. 6,191,250
94,900 Dana Corp. 2,799,550
450,000 Ford Motor Co. 12,993,750
----------------
21,984,550
BASIC INDUSTRIAL PRODUCTS (1.0%)
- -------------------------------------------------------------------------------
83,000 Ball Corp. 3,071,000
30,000 Deere (John) & Co. 2,696,250
115,000 Harnischfeger Industries, Inc. 4,312,500
80,000 Varity Corp. + 3,750,000
----------------
13,829,750
BUILDING AND CONSTRUCTION (0.1%)
- -------------------------------------------------------------------------------
17,200 Armstrong World Industries, Inc. 950,300
13,800 Stanley Works (The) 546,825
----------------
1,497,125
BUSINESS EQUIPMENT AND SERVICES (1.9%)
- -------------------------------------------------------------------------------
183,000 Dun & Bradstreet Corp. 10,293,750
42,000 IBM Corp. 4,572,750
101,100 Xerox Corp. 12,043,538
----------------
26,910,038
CHEMICALS (3.4%)
- -------------------------------------------------------------------------------
154,300 Dexter Corp. 3,683,928
189,000 du Pont (E.I.) de Nemours & Co., Ltd. 12,663,000
70,600 Eastman Chemical Co. 4,518,400
46,000 Grace (W.R.) & Co. 2,846,250
60,000 Olin Corp. 3,472,500
352,900 Union Carbide Corp. 12,263,275
259,000 Witco Chemical Corp. 8,417,500
----------------
47,864,853
CONGLOMERATES (1.6%)
- -------------------------------------------------------------------------------
240,500 Ogden Corp. 5,381,188
183,000 TRW, Inc. 13,656,375
50,000 United Technologies Corp. 4,200,000
----------------
23,237,563
CONSUMER DURABLE GOODS (0.3%)
- -------------------------------------------------------------------------------
75,000 Whirlpool Corporation 4,331,250
<PAGE>
COMMON STOCKS (Continued)
NUMBER OF SHARES VALUE
CONSUMER NON DURABLES (4.4%)
- -------------------------------------------------------------------------------
300,000 American Brands, Inc. $ 11,962,500
189,600 Avon Products, Inc. 12,892,800
175,000 Kimberly-Clark Corp. 11,090,625
265,000 Philip Morris Cos., Inc. 18,980,625
127,800 RJR Nabisco Holdings Corp. + 3,530,475
72,900 Springs Industries, Inc. Class A 2,861,325
71,200 Universal Corp. 1,530,800
----------------
62,849,150
CONSUMER SERVICES (0.7%)
- -------------------------------------------------------------------------------
167,000 Knight-Ridder, Inc. 9,393,750
ELECTRONICS AND ELECTRICAL EQUIPMENT (1.9%)
- -------------------------------------------------------------------------------
208,000 Eaton Corp. 11,622,000
200,000 General Electric Co. 11,800,000
91,000 Honeywell, Inc. 3,901,625
----------------
27,323,625
ENERGY-RELATED (0.1%)
- -------------------------------------------------------------------------------
100,000 Westcoast Energy, Inc. 1,512,500
ENVIRONMENTAL CONTROL (0.4%)
- -------------------------------------------------------------------------------
193,000 WMX Technologies, Inc. 6,031,250
FOOD AND BEVERAGES (1.3%)
- -------------------------------------------------------------------------------
83,000 Anheuser-Busch Cos., Inc. 4,616,875
75,000 Fleming Companies, Inc. 1,978,125
217,000 Flowers Industries, Inc. 3,987,375
54,000 Heinz (H.J.) Co. 2,342,250
121,000 Nestle S.A. ADR (Registered) (Switzerland) 6,171,000
----------------
19,095,625
FOREST PRODUCTS (1.7%)
- -------------------------------------------------------------------------------
81,000 James River Corp. 2,703,375
145,100 Potlatch Corp. 6,130,475
331,000 Weyerhaeuser Co. 15,474,250
----------------
24,308,100
HEALTH CARE (2.8%)
- -------------------------------------------------------------------------------
164,000 American Home Products Corp. 12,956,000
219,900 Baxter International, Inc. 8,191,275
214,000 Bristol-Myers Squibb Co. 14,819,500
100,600 Upjohn Co. 3,873,100
----------------
39,839,875
INSURANCE AND FINANCE (9.5%)
- -------------------------------------------------------------------------------
168,000 AON Corp. 6,363,000
157,000 Aetna Life & Casualty Co. 9,714,375
120,544 Allstate Corp. 3,767,000
214,000 American General Corp. 7,784,250
165,000 BankAmerica Corp. 8,910,000
72,921 Bankers Trust New York Corp. 4,703,405
<PAGE>
COMMON STOCKS (Continued)
NUMBER OF SHARES VALUE
INSURANCE AND FINANCE (Continued)
- -------------------------------------------------------------------------------
275,000 Beneficial Corp. $ 13,028,125
46,000 CIGNA Corp. 3,708,750
221,000 CoreStates Financial Corp. 8,066,500
23,000 Federal National Mortgage Assn. 2,153,375
107,000 First Union Corp. 5,229,625
185,000 Fleet Financial Group, Inc. 6,590,625
278,000 Morgan (J.P.) & Co., Inc. 20,328,750
60,000 National City Corp. 1,837,500
224,000 NationsBank Corp. 12,572,000
222,000 PNC Bank Corp. 5,466,750
120,200 Provident Life & Accident Insurance Co. Class B 2,809,675
98,000 SAFECO Corp. 5,733,000
110,000 Synovus Financial Corp. 2,653,750
121,000 Wilmington Trust Corp. 3,539,250
----------------
134,959,705
METALS AND MINING (0.6%)
- -------------------------------------------------------------------------------
114,000 Carpenter Technology Corp. 8,407,500
OIL AND GAS (5.0%)
- -------------------------------------------------------------------------------
140,000 Amoco Corp. 9,415,000
98,000 Chevron, Inc. 4,838,750
76,000 Enron Corp. 2,641,000
254,600 Exxon Corp. 18,458,500
68,100 Imperial Oil Ltd. 2,443,088
71,600 Mobil Corp. 6,998,900
144,000 Occidental Petroleum Corp. 3,240,000
185,000 Phillips Petroleum Co. 6,544,375
123,200 Repsol S.A. ADS (Spain) 4,111,800
34,000 Royal Dutch Petroleum Co. PLC ADR (Netherlands) 4,318,000
246,000 Total Corp. ADS (France) 7,656,750
----------------
70,666,163
PHARMACEUTICALS (0.8%)
- -------------------------------------------------------------------------------
134,000 Warner-Lambert Co. 11,256,000
PHOTOGRAPHY (1.3%)
- -------------------------------------------------------------------------------
232,000 Eastman Kodak Co. 13,369,000
132,000 Polaroid Corp. 5,659,500
----------------
19,028,500
PUBLISHING (0.6%)
- -------------------------------------------------------------------------------
110,000 McGraw-Hill, Inc. 8,456,250
REAL STATE (1.3%)
- -------------------------------------------------------------------------------
132,500 Duke Realty Investments, Inc. 3,792,813
179,700 Equity Residential Properties Trust 5,301,150
103,500 Evans Withycombe Residential 1,992,375
30,100 Health Care Inc. 613,288
167,000 LTC Properties, Inc. 2,338,000
50,000 Nationwide Health Properties, Inc. 1,981,250
87,000 Storage USA, Inc. 2,501,250
----------------
18,520,126
<PAGE>
COMMON STOCKS (Continued)
NUMBER OF SHARES VALUE
RETAIL (2.0%)
- -------------------------------------------------------------------------------
423,000 K mart Corp. $ 6,662,250
192,000 Melville Corporation 6,912,000
206,000 Penney (J.C.) Co., Inc. 9,965,250
157,000 Sears, Roebuck & Co. 5,122,125
----------------
28,661,625
TELECOMMUNICATIONS (0.2%)
- -------------------------------------------------------------------------------
137,000 MCI Communications Corp. 3,288,000
TRANSPORTATION (3.2%)
- -------------------------------------------------------------------------------
155,000 Conrail, Inc. 9,571,250
192,700 Consolidated Freightways, Inc. 4,600,713
56,000 Norfolk Southern Corp. 4,067,000
413,800 Ryder System, Inc. 10,293,275
262,200 Union Pacific Corp. 17,075,775
----------------
45,608,013
UTILITIES (9.1%)
- -------------------------------------------------------------------------------
229,000 American Telephone & Telegraph Co. 12,079,750
166,000 Bell Atlantic Corp. 9,503,500
131,000 BellSouth Corp. 8,875,250
91,265 Cinergy Corp. 2,372,890
172,000 Consolidated Natural Gas Co. 6,450,000
139,000 Entergy Corp. 3,301,250
119,000 Frontier Corp. 3,198,125
373,000 NYNEX Corp. 15,386,250
190,000 Pacific Enterprises 4,583,750
224,000 Pacific Telesis Group 6,328,000
210,000 Potomac Electric Power Co. 4,357,500
155,000 Public Service Co. of Colorado 4,901,875
237,000 Scana Corp. 5,125,125
146,000 Shandong Huaneng Power ADR (China) 1,222,750
405,000 Sprint Corp. 13,871,250
320,000 Texas Utilities Co. 10,840,000
315,000 US West, Inc. 13,505,625
126,000 WICOR, Inc. 3,559,500
----------------
129,462,390
----------------
TOTAL COMMON STOCKS (cost $690,258,963) $812,745,276
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (19.1%)*
PRINCIPAL AMOUNT VALUE
$ 3,581,444 Federal Home Loan Mortgage Association 8 3/4s, with
various due dates to June 1, 2009 $ 3,673,200
Federal National Mortgage Association
381,086 11s, with various due dates to March 1, 2016 423,242
190,436 8 3/4s, July 1, 2009 196,684
16,827,336 7s, with various due dates to December 1, 2024 16,417,090
12,781,544 6s, Dwarfs, October 1, 2009 12,298,146
Government National Mortgage Association
1,533 15s, September 15, 2011 1,755
172,280 8s, with various due dates to January 15, 2020 177,552
<PAGE>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (Continued)
PRINCIPAL AMOUNT VALUE
$15,989,601 7 1/2s, with various due dates to September 15,
2023 $ 15,980,100
24,500,000 7s, TBA, August 14, 2025 +++ 23,910,285
2,844,896 7s, with various due dates to May 15, 2024 2,776,420
6,152,832 6 1/2s, Midgets, with various due dates to June 15,
2009 6,047,068
6,311,037 6s, Midgets, with various due dates to May 15, 2009 6,088,132
3,270,000 U.S. Treasury Bonds 11 5/8s, November 15, 2004 4,425,226
13,440,000 U.S. Treasury Bonds 11 1/8s, August 15, 2003 17,333,434
18,825,000 U.S. Treasury Bonds 8 7/8s, August 15, 2017 22,942,969
28,815,000 U.S. Treasury Bonds 8 1/8s, August 15, 2019 32,745,654
18,845,000 U.S. Treasury Bonds 7 1/2s, November 15, 2024 20,296,630
21,305,000 U.S. Treasury Notes 7 3/4s, January 31, 2000 22,589,905
24,880,000 U.S. Treasury Notes 5s, January 31, 1999 24,024,626
14,155,000 U.S. Treasury Strip zero %, May 15, 2003 8,617,422
13,910,000 U.S. Treasury Strip zero %, February 15, 2003 8,616,410
30,440,000 U.S. Treasury Strip zero %, November 15, 2000 21,989,552
----------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(cost $261,139,811) $271,571,502
CORPORATE BONDS AND NOTES (9.3%)*
PRINCIPAL AMOUNT VALUE
ADVERTISING (--%)
- -------------------------------------------------------------------------------
$ 300,000 Outdoor Systems, Inc. sr. notes 10 3/4s, 2003 $ 289,500
AEROSPACE AND DEFENSE (0.1%)
- -------------------------------------------------------------------------------
750,000 BE Aerospace sr. notes, 9 3/4s, 2003 757,500
700,000 Coltec Industries sr. note 9 3/4s, 2000 724,500
----------------
1,482,000
AGRICULTURE (0.1%)
- -------------------------------------------------------------------------------
1,000,000 PSF Finance (L.P.) sr. notes 12 1/4s, 2004 1,031,750
AUTOMOTIVE (--%)
- -------------------------------------------------------------------------------
350,000 Lear Seating Corp. sr. sub. notes 11 1/4s, 2000 365,750
BUILDING AND CONSTRUCTION (--%)
- -------------------------------------------------------------------------------
300,000 Walter Industries Inc. sr. notes Ser. B, 12.19s, 2000 304,500
CHEMICALS (0.2%)
- -------------------------------------------------------------------------------
480,000 G-I Holdings, Inc. sr. disc. notes zero %, 1998 340,800
1,640,000 Lyondell Petrochemical Co. notes 9 1/8s, 2002 1,807,165
800,000 OSI Specialties Inc. sr. sub. notes 9 1/4s, 2003 820,000
----------------
2,967,965
COMPUTER EQUIPMENT (--%)
- -------------------------------------------------------------------------------
475,000 Computervision Corp. sr. notes 10 7/8s, 1997 486,875
CONGLOMERATES (0.1%)
- -------------------------------------------------------------------------------
500,000 ADT Ltd. sr. sub. notes 9 1/4s, 2003 512,500
400,000 Huntsman Corp. 1st mtge. 10 5/8s, 2001 426,000
350,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes
13s, 1999 350,438
----------------
1,288,938
<PAGE>
CORPORATE BONDS AND NOTES (Continued)
PRINCIPAL AMOUNT VALUE
CONSUMER DURABLE GOODS (--%)
- -------------------------------------------------------------------------------
$ 159,209 Simmons Mattress Corp. 144A deb. 8s, 2003 +* $ 158,412
CONSUMER NON DURABLES (--%)
- -------------------------------------------------------------------------------
500,000 Playtex Family Products Corp. sr. sub. notes 9s, 2003 475,000
ELECTRONICS AND ELECTRICAL EQUIPMENT (0.1%)
- -------------------------------------------------------------------------------
1,000,000 Amphenol Corp. 144A sr. sub. notes 12 3/4s, 2002 1,135,000
ENTERTAINMENT (1.0%)
- -------------------------------------------------------------------------------
250,000 Arizona Charlies Corp. 1st mtge. Ser. B, 12s, 2000 195,000
500,000 Cablevision Systems Corp. sr. sub. deb. 10 3/4s, 2004 537,500
250,000 Casino America, Inc. 1st mtge. deb. 11 1/2s, 2001 261,250
300,000 Century Communications Corp. sr. notes 9 1/2s, 2005 303,750
500,000 Harrahs Operation Inc. sr. sub. notes 10 7/8s, 2002 538,750
175,000 Insight Communications Co. sr. sub. notes stepped-coupon
8 1/4s (11 1/4s, 3/1/97), 2000 ++ 176,750
325,000 Jones Intercable Inc. sr. notes 9 5/8s, 2002 341,250
500,000 Marvel Parent Holdings, Inc. sr. secd. disc. notes
zero %, 1998 352,500
4,075,000 News America Hldgs, Inc. sr. notes 12s, 2001 4,582,134
2,000,000 Tele-Communications, Inc. sr. deb. 9.8s, 2012 2,210,800
4,000,000 Time Warner Inc. deb. 9 1/8s, 2013 4,143,440
500,000 Time Warner Inc. notes zero %, 2002 (exchangeable
for various notes on 8/15/95) 493,125
----------------
14,136,249
FOOD AND BEVERAGES (0.2%)
- -------------------------------------------------------------------------------
1,000,000 Safeway, Inc. med. term notes 8.57s, 2003 1,037,500
1,692,000 Secured Restaurants Trust deb. 10 1/4s, 2000 1,878,577
250,000 Stater Brothers sr. notes 11s, 2001 247,500
----------------
3,163,577
FOREST PRODUCTS (0.1%)
- -------------------------------------------------------------------------------
350,000 Gaylord Container Corp. sr. sub. disc. deb.
stepped-coupon zero % (12 3/4s, 5/15/96), 2005 ++ 354,375
500,000 Stone Container Corp. sr. sub. notes 9 7/8s, 2001 502,500
----------------
856,875
HEALTH CARE (0.4%)
- -------------------------------------------------------------------------------
2,320,000 Columbia Healthcare Corp. deb. 8.36s, 2024 2,472,122
300,000 Continental Medical Systems Inc. sr. sub. notes,
Ser. B, 10 3/8s, 2003 318,000
250,000 Integrated Health Services 144A sr. sub. notes
9 5/8s, 2002 254,375
1,250,000 McGaw, Inc. sr. notes 10 3/8s, 1999 1,296,875
250,000 Multicare Cos., Inc. sr. sub. notes 12 1/2s, 2002 282,500
1,050,000 Paracelsus Healthcare Corp. sr. sub. notes 9 7/8s,
2003 1,060,500
----------------
5,684,372
<PAGE>
CORPORATE BONDS AND NOTES (Continued)
PRINCIPAL AMOUNT VALUE
INSURANCE AND FINANCE (2.4%)
- -------------------------------------------------------------------------------
$ 375,000 AIM Management Group sr. secd. notes 9s, 2003 $ 371,250
1,500,000 AMBAC Inc. deb. 9 3/8s, 2011 1,734,915
1,000,000 American Annuity Group, Inc. sr. sub. notes
11 1/8s, 2003 1,040,000
3,000,000 American Financial Group sub. notes 10 7/8s, 2011 2,997,480
1,245,000 BAT Capital Corp. 144A med. term notes 6.19s, 2000 1,209,530
750,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 731,250
500,000 Comdata Network, Inc. sr. notes 12 1/2s, 1999 545,625
5,200,000 Crestar Financial Corp. sub. notes 8 3/4s, 2004 5,681,000
2,000,000 Goldman, Sachs & Co. deb. 144A, 8s, 2013 1,995,080
4,815,000 Great Western Financial Corp. notes 6 1/8s, 1998 4,769,065
350,000 Keystone Group, Inc. sr. secd. notes 9 3/4s, 2003 353,500
250,000 Leucadia National sr. sub. notes 10 3/8s, 2002 272,813
2,300,000 Midlantic Banks deb., 9 7/8s, 1999 2,535,382
2,000,000 Orion Capital Corp. sr. notes 9 1/8s, 2002 2,175,860
800,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 712,000
570,000 Phoenix RE Corp. 9 3/4s, 2003 609,900
350,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 346,500
3,750,000 Riggs National Corp. sub. deb. 8 1/2s, 2006 3,787,500
2,000,000 Society Bank & Trust 12 1/2s, 1999 2,387,500
----------------
34,256,150
LODGING (0.1%)
- -------------------------------------------------------------------------------
250,000 HMH Properties Inc. 144A sr. notes 9 1/2s, 2005 245,000
400,000 John Q. Hammons Hotels 1st mtge. notes 8 7/8s, 2004 382,000
500,000 La Quinta Motor Inns, Inc. deb. 9 1/4s, 2003 518,750
----------------
1,145,750
MOTION PICTURE DISTRIBUTION (0.1%)
- -------------------------------------------------------------------------------
400,000 AMC Entertainment, Inc. sr. sub. deb. 12 5/8s, 2002 446,000
770,000 Cinemark USA, Inc. sr. notes 12s, 2002 839,300
----------------
1,285,300
OIL AND GAS (0.8%)
- -------------------------------------------------------------------------------
300,000 Chesapeake Energy Corp. 144A sr. notes 10 1/2s, 2002 297,000
1,500,000 Occidental Petroleum Corp. sr. notes 11 3/4s, 2011 1,616,355
4,710,000 Parker & Parsley Petro Co. sr. notes 8 7/8s, 2005 4,957,181
350,000 Trans Texas Gas Corp. sr. secd. notes 11 1/2s, 2002 364,000
3,930,000 Union Texas Petroleum sr. note 8 3/8s, 2005 4,119,131
----------------
11,353,667
PUBLISHING (0.1%)
- -------------------------------------------------------------------------------
160,000 General Media Corp. sr. secd. notes 10 5/8s, 2000 126,400
500,000 World Color Press sr. sub. notes 9 1/8s, 2003 495,000
----------------
621,400
<PAGE>
CORPORATE BONDS AND NOTES (Continued)
PRINCIPAL AMOUNT VALUE
RETAIL (0.6%)
- -------------------------------------------------------------------------------
$ 1,000,000 County Seat Stores Inc. sr. sub. notes 12s, 2002 $ 990,000
4,087,000 K mart Corp. pass-thru certificate Ser. 95-K3,
8.54s, 2015 4,046,130
600,000 Loehmanns' Holdings, Inc. sr. sub. notes 13 3/4s,
1999 588,000
500,000 Revco D.S., Inc. sr. notes 9 1/8s, 2000 509,225
2,000,000 Sears, Roebuck & Co. med. term notes 9.1s, 2012 2,277,620
500,000 Service Merchandise Co., Inc. sr. sub. deb. 8 3/8s,
2001 460,000
----------------
8,870,975
TELECOMMUNICATIONS (0.1%)
- -------------------------------------------------------------------------------
500,000 Centennial Cellular Corp. sr. notes 8 7/8s, 2001 475,000
750,000 Comcast Cellular Corp. sr. participating notes Ser.
A, zero %, 2000 551,250
250,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (11 1/2s, 9/1/98), 2003 ++ 151,250
250,000 Rogers Cantel Mobile Inc. deb. 10 3/4s, 2001 260,625
----------------
1,438,125
TEXTILES (--%)
- -------------------------------------------------------------------------------
500,000 Reeves Industries Inc. bonds 11s, 2002 526,250
TRANSPORTATION (0.9%)
- -------------------------------------------------------------------------------
2,850,000 AMR Corp. deb. 9.73s, 2014 3,137,765
1,000,000 Blue Bird Body Co. sub. deb. Ser. B, 11 3/4s, 2002 1,027,500
2,000,000 Southwest Airlines Co. deb. 7 7/8s, 2007 2,089,540
2,675,000 United Air Lines, Inc. coll. bond, Ser. 91-C,
10.36s, 2012 3,033,076
1,000,000 United Air Lines, Inc. coll. bond, Ser. 91-E,
10.36s, 2012 1,133,620
750,000 United Air Lines, Inc. deb. Ser. 91-B2, 10 1/8s, 2015 820,583
500,000 Viking Star Shipping sr. secd. notes 9 5/8s, 2003 496,250
350,000 Westinghouse Air Brake Co. sr. notes 9 3/8s, 2005 363,125
----------------
12,101,459
UTILITIES (1.9%)
- -------------------------------------------------------------------------------
4,060,000 Arkla, Inc. notes 8 7/8s, 1999 4,242,700
2,460,000 Citizens Utilities Co. bonds 7.68s, 2034 2,653,135
350,000 Cleveland Electric Illuminating Co. Ser. B, 1st mtge.
9 1/2s, 2005 345,188
250,000 First PV Funding Corp. deb. 10.15s, 2016 254,063
2,225,000 Gulf States Utilities Co. 1st mtge. 8.7s, 2024 2,274,306
1,615,000 Long Island Lighting Co. Ser. P, 5 1/4s, 1996 1,603,889
637,549 Midland Cogeneration Ventures deb. 10.33s, 2002 666,239
3,460,000 Public Service Co. of New Hampshire deb. 15.23s, 2000 4,000,625
3,925,000 Texas New-Mexico Pwr. Utilities 1st mtge. 9 1/4s, 2000 4,132,122
4,100,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 4,064,002
2,850,000 Toledo Edison med. term. notes 1st mtge. Ser. A,
7.82s, 2003 2,684,615
----------------
26,920,884
----------------
TOTAL CORPORATE BONDS AND NOTES (cost $130,732,265) $ 132,346,723
<PAGE>
FOREIGN GOVERNMENT BONDS AND NOTES (3.1%)*
PRINCIPAL AMOUNT VALUE
FRF 19,670,000 France (Government of) deb. 8 1/2s, 2002 $ 4,424,988
FRF 56,936,000 France (Government of) OAT deb. 8 1/2s, 2003 12,808,395
FRF 20,860,000 France (Government of) BTAN 7s, 1999 4,408,948
DEM 11,800,000 Treuhandanstalt (Republic of Germany Guarantee)
7 1/8s, 2003 8,716,733
GBP 8,849,000 United Kingdom Treasury notes 7s, 2001 13,438,370
TOTAL FOREIGN GOVERNMENT BONDS AND NOTES
(cost $41,993,014) $ 43,797,434
COLLATERALIZED MORTGAGE OBLIGATIONS (2.4%)*
PRINCIPAL AMOUNT VALUE
$ 1,891,396 Chase Mortgage Finance Corp. Ser. 93-3, Class B13,
7.461s, 2024 $ 1,189,215
Housing Securities Inc.
2,094,194 Ser. 91-B, Class B6, 9s, 2006 2,058,854
293,933 Ser. 93-J, Class J4, 6.66s, 2009 229,957
159,948 Ser. 93-J, Class J5, 6.66s, 2009 108,565
259,322 Ser. 94-1, Class AB1, 6 1/2s, 2009 201,946
6,791,828 Nationsbank of Texas N.A. 144A secd. notes, Ser.
95-1, 7.7s, August 25, 1999 6,807,877
2,965,884 Prudential Home Loan Corp. Ser. 92-25, Class B3,
8s, 2022 2,391,244
Prudential Home Mortgage Securities
354,853 Ser. 94-31, Class B3, 8s, 2009 296,796
5,710,000 144A Ser. 95-C, Class B1, 7.84s, 2001 5,711,784
3,572,520 Ser. 93-B, Class 5B, 7.8366s, 2023 2,209,380
1,220,000 Ser. 95-D, Class B5, 7.539s, 2026 765,550
1,320,016 Ser. 92-13, Class B3, 7 1/2s, 2007 1,124,902
2,038,385 Ser. 93-E, Class 5B, 7.3935s, 2023 1,170,797
1,656,306 Ser. 93-36, Class M, 7 1/4s, 2023 1,583,325
3,908,899 Ser. 93-D, Class 2B, 7.1082s, 2023 3,502,740
3,538,513 144A Ser. 94-A Class 4B, 6.8s, 2024 3,147,618
1,291,869 144A Ser. 94-D Class 4B, 6.312s, 2009 1,041,569
757,766 Travelers Mortgage Security Corp. Ser. 84-1, 12s,
2014 838,279
----------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(cost $33,757,275) $ 34,380,398
<PAGE>
YANKEE BONDS AND NOTES (2.4%)*
PRINCIPAL AMOUNT VALUE
$ 500,000 Banco Rio De La Plata notes, 8 3/4s, 2003 $ 381,250
2,700,000 British Columbia Hydro & Power Auth. deb.
15 1/2s, 2011 3,098,250
1,400,000 British Columbia Hydro & Power Auth. deb. 15s, 2011 1,552,250
350,000 CF Cable TV sr. notes 9 1/8s, 2007 350,875
3,225,000 Den Danske Bank 144A sub. notes 6.55s, 2003 3,047,625
450,000 Eletson Holdings, Inc. mtge. notes 9 1/4s, 2003 432,000
2,000,000 Ford Capital BV deb. 9s, 1998 2,134,520
1,000,000 Fresh Del Monte Produce Corp. 144A sr. notes, Ser.
B, 10s, 2003 830,000
150,000 Grupo Industrial Durango notes 12s, 2001 129,000
350,000 Gulf Canada Resources Ltd. sr. sub. notes 9 5/8s,
2005 353,500
3,765,000 Noranda Inc. notes 7s, 2005 3,675,468
2,000,000 Nova Scotia (Province of) Canada deb. 9 1/4s, 2020 2,282,500
<PAGE>
YANKEE BONDS AND NOTES (Continued)
PRINCIPAL AMOUNT VALUE
$ 3,000,000 Petro Canada deb. 9 1/4s, 2021 $ 3,495,000
350,000 Plitt Theatres, Inc. sr. sub. notes 10 7/8s, 2004 350,875
6,265,000 Quebec (Province of) deb. 8 5/8s, 2005 6,856,353
11,000,000 Roche Holdings, Inc. cv. unsub. LYON (Liquid Yield
Option Notes) zero %, 2010 4,379,375
350,000 Terra Nova Holdings sr. notes 10 3/4s, 2005 364,000
----------------
TOTAL YANKEE BONDS AND NOTES (cost $33,753,519) $ 33,712,841
CONVERTIBLE PREFERRED STOCKS (1.4%)*
NUMBER OF SHARES VALUE
81,000 Ashland, Inc. $3.125, cv. pfd.` $ 4,556,250
65,000 Fieldcrest Cannon Ser. A, $3.00, cv. pfd. 3,380,000
385,000 Freeport-McMoRan Copper Co., Inc. stepped-coupon
$1.25 ($1.75, 8/1/96) ++ 9,865,625
54,000 Pittston Mineral Corp. $6.25, cv. pfd. 1,890,000
----------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(cost $19,252,415) $ 19,691,875
CONVERTIBLE BONDS AND NOTES (1.2%)*
PRINCIPAL AMOUNT VALUE
$ 4,600,000 ADT Operations Inc. cv. sub. notes zero %, 2010 $ 1,840,000
3,800,000 AMR Corp. cv. sub. deb. 6 1/8s, 2024 3,971,000
7,800,000 Comcast Corp. cv. notes 1 1/8s, 2007 3,802,500
7,200,000 Hollinger, Inc. cv. LYON zero %, 2013 2,187,000
2,900,000 Liberty Property Trust cv. sub. deb. 8s, 2001 2,968,875
1,200,000 Trenwick Group, Inc. cv. deb. 6s, 1999 1,254,000
1,119,000 WMX Technologies, Inc. cv. sub. notes 2s, 2005 1,018,290
----------------
TOTAL CONVERTIBLE BONDS AND NOTES
(cost $15,644,410) $ 17,041,665
EUROBONDS (0.2%)* (cost $2,776,000)
PRINCIPAL AMOUNT VALUE
$ 3,500,000 Banco National Mexicana cv. Company Guaranty
7s, 1999 $ 2,782,500
ASSET-BACKED SECURITIES (0.1%)* (cost $870,966)
PRINCIPAL AMOUNT VALUE
$ 881,153 Merrill Lynch Mortgage Investors Inc. sr. notes
9.4s, 2009 $ 926,312
UNITS (--%)* (cost $300,000)
NUMBER OF UNITS VALUE
300 Decorative Home Accents 144A units 13s, 2002 $ 300,750
WARRANTS (--%)*+ (cost $2,500)
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
250 General Media Corp. 144A 12/31/00 $ 2,500
<PAGE>
SHORT-TERM INVESTMENTS (4.2%)*
PRINCIPAL AMOUNT VALUE
$20,000,000 Ciesco L.P. 5.68s, September 18, 1995 $ 19,848,533
6,000,000 Federal Home Loan Mortgage Corp. 5.58s,
September 5, 1995 5,967,450
19,075,000 Federal National Mortgage Assn. 5.88s,
August 14, 1995 19,034,497
15,000,000 Preferred Receivables Funding Corp. 5.72s,
August 16, 1995 14,964,250
250,000 Interest in $672,198,000 joint repurchase agreement
dated July 31, 1995 with Morgan (J.P.) & Co., Inc.
due August 1, 1995 with respect to various U.S.
Treasury obligations -- maturity value of $250,040
for an effective yield of 5.8% 250,040
----------------
TOTAL SHORT-TERM INVESTMENTS (cost $60,064,770) $ 60,064,770
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $1,290,545,908)*** $1,429,364,546
- -------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $1,422,600,440, which
correspond to a net asset value per class A share, class B share, class M
share and class Y share of $14.90, $14.83, $14.84 and $14.92, respectively.
+ Non-income-producing security.
++ The interest or dividend rate and date shown parenthetically represent the
new interest or dividend rate to be paid and the date the fund will begin
receiving interest or dividends at this rate.
+++ TBA's are mortgage backed securities traded under delayed delivery commit-
ments, settling after July 31, 1995. Although the unit price for the trades
has been established, the principal value has not been finalized. However,
the amount of the commitments will not fluctuate more than 2% from the prin-
cipal amount. Income on the securities will not be earned until settlement
date. The cost of TBA purchases held at July 31, 1995 was $24,163,125.
+* Income may be received in cash or additional securities at the discretion
of the issuer.
*** The aggregate identified cost for federal income tax purposes is
$1,291,334,170, resulting in gross unrealized appreciation and depreciation
of $151,448,108 and $13,417,732, respectively, or net unrealized apprecia-
tion of $138,030,376.
ADR or ADS after the name of a holding stands for American Depository
Receipt or American Depository Shares, respectively, representing ownership
of foreign securities on deposit with a domestic custodian bank.
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 re-
sold in transactions exempt from registration, normally to qualified insti-
tutional buyers.
FORWARD CURRENCY CONTRACTS TO SELL AT JULY 31, 1995
MARKET AGGREGATE DELIVERY UNREALIZED
VALUE FACE VALUE DATE DEPRECIATION
British Pounds $12,983,565 $12,961,921 9/13/95 $ (21,644)
Deutschemarks 8,321,675 8,227,207 9/13/95 (94,468)
French Francs 22,202,525 21,483,621 9/13/95 (718,904)
---------------------------------------------------------------
$43,507,765 $42,672,749 $(835,016)
---------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1995
ASSETS
- -------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,290,545,908) (Note 1) $1,429,364,546
- -------------------------------------------------------------------------------
Cash 9,149,367
- -------------------------------------------------------------------------------
Dividends, interest and other receivables 11,077,361
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 4,836,295
- -------------------------------------------------------------------------------
Receivable for securities sold 25,210,758
- -------------------------------------------------------------------------------
TOTAL ASSETS 1,479,638,327
LIABILITIES
- -------------------------------------------------------------------------------
Payable for securities purchased 51,820,691
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,160,613
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,272,030
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,339
- -------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 380
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 1,113,112
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 407,433
- -------------------------------------------------------------------------------
Payable for open forward contracts 835,016
- -------------------------------------------------------------------------------
Other accrued expenses 426,273
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 57,037,887
- -------------------------------------------------------------------------------
NET ASSETS $1,422,600,440
REPRESENTED BY
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,253,377,592
- -------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 5,193,372
- -------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign
currency transactions (Notes 1 and 3) 26,024,192
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies (Note 1) 138,005,284
- -------------------------------------------------------------------------------
TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO
CAPITAL SHARES OUTSTANDING $1,422,600,440
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- -------------------------------------------------------------------------------
Net asset value and redemption price of class A shares
($1,036,673,678 divided by 69,584,268 shares) $14.90
- -------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $14.90) * $15.81
- -------------------------------------------------------------------------------
Net asset value and offering price of class B shares
($224,165,548 divided by 15,116,495 shares) ** $14.83
- -------------------------------------------------------------------------------
Net asset value and redemption price of class M shares
($8,164,046 divided by 550,004 shares) $14.84
- -------------------------------------------------------------------------------
Offering price per class M share (100/96.5 of $14.84) * $15.38
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price of
class Y shares ($153,597,168 divided by 10,297,928 shares) $14.92
- -------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more
and on group sales the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF OPERATIONS
Year ended July 31, 1995
INVESTMENT INCOME:
- -------------------------------------------------------------------------------
Interest $ 37,929,906
- -------------------------------------------------------------------------------
Dividends (net of foreign tax of $144,269) 29,555,465
- -------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 67,485,371
- -------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,618,445
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 3,077,548
- -------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 39,111
- -------------------------------------------------------------------------------
Reports to shareholders 94,149
- -------------------------------------------------------------------------------
Auditing 63,625
- -------------------------------------------------------------------------------
Legal 27,637
- -------------------------------------------------------------------------------
Postage 115,258
- -------------------------------------------------------------------------------
Registration fees 25,143
- -------------------------------------------------------------------------------
Administrative services (Note 2) 31,254
- -------------------------------------------------------------------------------
Distribution fees -- class A (Note 2) 2,395,857
- -------------------------------------------------------------------------------
Distribution fees -- class B (Note 2) 1,784,739
- -------------------------------------------------------------------------------
Distribution fees -- class M (Note 2) 13,891
- -------------------------------------------------------------------------------
Other expenses 13,527
- -------------------------------------------------------------------------------
TOTAL EXPENSES 12,300,184
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME 55,185,187
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 29,229,455
- -------------------------------------------------------------------------------
Net realized gain on forward currency contracts and foreign
currency translation (Note 1) 204,736
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 122,588,291
- -------------------------------------------------------------------------------
Net unrealized depreciation on forward currency contracts and
foreign currency translation during the year (813,354)
- -------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS 151,209,128
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 206,394,315
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED JULY 31
1995 1994
- -------------------------------------------------------------------------------
INCREASE IN NET ASSETS
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $ 55,185,187 $ 39,558,384
- -------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions 29,434,191 44,582,928
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments and assets and liabilities
in foreign currencies 121,774,937 (52,949,946)
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 206,394,315 31,191,366
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Class A (38,735,859) (34,643,598)
Class B (5,837,212) (3,998,103)
Class M (50,170) --
Class Y (3,750,110) (8,999)
- -------------------------------------------------------------------------------
From net realized gain on investments:
Class A (21,876,638) (35,593,950)
Class B (3,901,612) (4,555,816)
Class Y (1,862,529) --
- -------------------------------------------------------------------------------
Increase from capital share transactions
(Note 4) 156,156,398 329,150,086
- -------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 286,536,583 281,540,986
- -------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------
Beginning of year 1,136,063,857 854,522,871
- -------------------------------------------------------------------------------
END OF YEAR (including undistributed net
investment income of $5,193,372 and $0,
respectively) $1,422,600,440 $1,136,063,857
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
DECEMBER 1, 1994 APRIL 1, 1994
(COMMENCEMENT YEAR (COMMENCEMENT
OF OPERATIONS) ENDED OF OPERATIONS)
TO JULY 31 JULY 31 TO JULY 31 YEAR ENDED JULY 31
1995 1995 1994 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS M CLASS Y CLASS B
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $12.77 $13.54 $13.21 $13.46 $14.19 $14.22
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net investment income .31 .66 .17 .52 .50 .56
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 2.03 1.63 .31 1.63 (.12) .48
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 2.34 2.29 .48 2.15 .38 1.04
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (.27) (.59) (.15) (.46) (.49) (.59)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)
on investments -- (.32) -- (.32) (.62) (.48)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.27) (.91) (.15) (.78) (1.11) (1.07)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.84 $14.92 $13.54 $14.83 $13.46 $14.19
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%) (a) 18.52(b) 18.00 3.65(b) 16.87 2.70 7.87
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(in thousands) $8,164 $153,597 $71,566 $224,166 $151,327 $81,983
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) .93(b) .66 .25(b) 1.66 1.71 1.66
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment
income (loss) to average
net assets (%) 2.53(b) 4.78 1.34(b) 3.81 3.39 3.43
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 102.57 102.57 100.69 102.57 100.69 89.22
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
* Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during
the period.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Not annualized.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (Continued)
(For a share outstanding throughout the period)
APRIL 27, 1992
(COMMENCEMENT
OF OPERATIONS)
TO JULY 31 YEAR ENDED JULY 31
1992 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $13.73 $13.52 $14.24 $14.24 $13.52 $13.39
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net investment income .13 * .63 .59 .62 .64 .69
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .53 1.63 (.11) .52 1.12 .64
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .66 2.26 .48 1.14 1.76 1.33
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (.17) (.56) (.58) (.66) (.68) (.68)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)
on investments -- (.32) (.62) (.48) (.36) (.52)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.17) (.88) (1.20) (1.14) (1.04) (1.20)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.22 $14.90 $13.52 $14.24 $14.24 $13.52
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%) (a) 4.99(b) 17.73 3.46 8.64 13.68 11.28
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(in thousands) $11,946 $1,036,674 $913,171 $772,540 $622,129 $479,287
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) .55(b) .91 .95 .90 1.06 .94
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment
income (loss) to average
net assets (%) .84(b) 4.58 4.15 4.34 4.62 5.42
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 78.90 102.57 100.69 89.22 78.90 64.98
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
July 31, 1995
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The fund is registered under the Investment Company Act of 1940, as amended, as
a diversified, open-end management investment company. The fund seeks to provide
a balanced investment composed of a well-diversified portfolio of stocks and
bonds which will produce both capital growth and current income.
The fund offers class A, class B, class M and class Y shares. The fund commenced
its public offering of class M shares on December 1, 1994. Class A shares are
sold with a maximum front-end sales charge of 5.75%. Class B shares do not pay
a front-end sales charge, but pay a higher ongoing distribution fee than class
A shares, and may be subject to a contingent deferred sales charge if those sha-
res are redeemed within six years of purchase. Class M shares are sold with a
maximum front-end sales charge of 3.50% and pay ongoing distribution fees that
are lower than class B shares and higher than class A shares. Class Y shares,
which are sold at net asset value, are generally subject to the same expenses
as class A shares, class B shares and class M shares, but do not bear a distri-
bution fee. Class Y shares are sold to defined contribution plans that initially
invest, or intend to invest, a specified amount in a combination of Putnam
funds. Expenses of the funds 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 on-
ly with respect to its own distribution plan or other matters on which a class
vote is required by law or determined by the Trustees. Shares of each class
would receive their pro-rata share of the net assets of the fund, if the fund
were liquidated. In addition, the Trustees declare separate dividends on each
class of shares.
The following is a summary of significant accounting policies consistently fo-
llowed by the fund in the preparation of its financial statements. The policies
are in conformity with generally accepted accounting principles.
A) SECURITY VALUATION Investments for which market quotations are readily avail-
able are stated at market value, which is determined using the last reported sa-
le price, or, if no sales are reported -- as in the case of some securities tra-
ded over-the-counter -- the last reported bid price, except that certain U.S.
government obligations are stated at the mean between the last reported bid and
asked prices. 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 Trus-
tees. 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 compa-
rable securities and various relationships between securities which are gene-
rally recognized by institutional traders.
<PAGE>
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 compa-
nies managed by Putnam Investment Management, Inc., ("Putnam Management") the
fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc., and cer-
tain other accounts. These balances may be invested in one or more repurchase
agreements and/or short-term money market instruments.
C) REPURCHASE AGREEMENTS The fund, and 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. The fund's Manager 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). In-
terest income is recorded on the accrual basis and dividend income is recorded
on the ex-dividend date, except that certain dividends from foreign securities
are recorded as soon as the fund is informed of the ex-dividend date.
Discount on zero coupon bonds, original issue discount bonds, payment-in-kind
bonds and stepped-coupon bonds is accreted according to the effective yield
method.
E) FOREIGN CURRENCY TRANSLATION The accounting records of the fund are maintai-
ned in U.S. dollars. The market value of foreign securities, currency holdings,
other assets and liabilities are recorded in the books and records of the fund
after translation to U.S. dollars based on the exchange rates on that day. The
cost of each security is determined using historical exchange rates. Income and
withholding taxes are translated at prevailing exchange rates when accrued or
incurred. The fund does not isolate that portion of realized or unrealized gains
or losses resulting from changes in the foreign exchange rate on investments
from fluctuations arising from changes in the market prices of the securities.
Such fluctuations are included with the net realized and unrealized gain or loss
on investments. Net realized gains and losses on foreign currency transactions
represent net exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies and the difference between the amount of in-
vestment income and foreign withholding taxes recorded on the fund's books and
the U.S. dollar equivalent amounts actually received or paid.
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 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 chan-
ges unfavorably. In addition, the fund could be exposed to risks if the counter-
parties to the contracts are unable to meet the terms of their
<PAGE>
contracts or if the fund is unable to enter into a closing position. The maximum
potential loss from forward currency contracts is the aggregate face value in
U.S. dollars at the time the contract was opened; however, management believes
the likelihood of such a loss to be remote.
G) FEDERAL TAXES It is the policy of the fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the In-
ternal 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. Therefo-
re, no provision has been made for federal taxes on income, capital gains or un-
realized appreciation of securities held and excise tax on income and capital
gains.
H) DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders are recorded by
the fund on the ex-dividend date.
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Reclassifications are made to the fund's capital accoun-
ts to reflect income and gains available for distribution (or available capital
loss carryovers) under income tax regulations. These differences include losses
on wash sale transactions, amortization of bond premiums and realized and unrea-
lized gains and losses on forward foreign currency contracts. For the year ended
July 31, 1995, the fund reclassified $1,618,464 to decrease undistributed net
investment income, $1,760,510 to increase accumulated net realized gain on in-
vestments and $142,046 to decrease paid-in capital. The calculation of net in-
vestment income per share in the financial highlights table excludes these ad-
justments.
I) TBA PURCHASE COMMITMENTS The fund may enter into "TBA" (to be announced) pur-
chase 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. 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 they own. TBA purchase commitments may be con-
sidered 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. Unse-
ttled TBA purchase commitments are valued at the current market value of the
underlying securities, generally according to the procedures described under
"Security valuation" above.
Although the fund will generally enter into TBA purchase commitments with the
intention of acquiring securities for its 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.
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Management for management and investment advisory servi-
ces is paid quarterly based on the average net assets of the fund for the quar-
ter. Such fee is based on an annual rate of 0.60% of the first $100 million of
average net assets, 0.50% of the next $100 million, 0.40% of the next $300 mi-
llion, 0.325% of the next $500 million and 0.30% of any amount over $1.0 bi-
llion, subject to reduction in any year to the extent that
<PAGE>
expenses (exclusive of brokerage, interest, taxes, and distribution fees and ex-
traordinary expenses) of the fund exceed 2.5% of the first $30 million of avera-
ge net assets, 2.0% of the next $70 million and 1.5% of any amount over $100 mi-
llion and by the amount of certain brokerage commissions and fees (less expen-
ses) received by affiliates of the Manager on the fund's portfolio transactions.
The fund also reimburses the Manager for the compensation and related expenses
of certain officers of the fund and their staff who provide administrative ser-
vices to the fund. The aggregate amount of all such reimbursements is determined
annually by the Trustees.
Trustees of the fund receive an annual Trustee's fee of $2,500 and an additional
fee for each Trustees' meeting attended. Trustees who are not interested persons
of the Manager and who serve on committees of the Trustees receive additional
fees for attendance at certain committee meetings.
Custodial functions for the fund are provided by Putnam Fiduciary Trust Company
(PFTC), a wholly-owned subsidiary of Putnam Investments, Inc. Investor servicing
agent functions are provided by Putnam Investor Services, a division of PFTC.
Investor servicing and custodian fees reported in the Statement of operations
for the year ended July 31, 1995 have been reduced by credits allowed by PFTC,
which amounted to $1,148,706.
The fund has adopted distribution plans (the "Plans") with respect to its class
A, class B and class M shares pursuant to Rule 12b-1 under the Investment Compa-
ny 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 provi-
ded and expenses incurred by it in distributing shares of the fund. The Plans
provide for payments by the fund to Putnam Mutual Funds Corp. at an annual rate
up to 0.35%, 1.00% and 1.00% of the average net assets attributable to class A,
class B and class M shares, respectively. The Trustees have approved payment by
the fund at an annual rate of 0.25%, 1.00% and 0.75% of the average net assets
attributable to class A, class B and class M shares, respectively.
For the year ended July 31, 1995, Putnam Mutual Funds Corp., acting as underwri-
ter received net commissions of $299,871 from the sale of class A shares, $9,902
from the sale of class M shares and $388,691 in contingent deferred sales char-
ges from redemptions of class B shares. A deferred sales charge of up to 1% is
assessed on certain redemptions of class A shares purchased as part of an in-
vestment of $1 million or more. For the year ended July 31, 1995, Putnam Mutual
Funds Corp., acting as underwriter received $6,203 on class A redemptions.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the year ended July 31, 1995, purchases and sales of investment securi-
ties other than U.S. government obligations and short-term investments aggrega-
ted $700,876,038 and $619,894,753, respectively. Purchases and sales of U.S. go-
vernment obligations aggregated $648,539,281 and $580,240,771, respectively. In
determining the net gain or loss on securities sold, the cost of securities has
been determined on the identified cost basis.
NOTE 4
CAPITAL SHARES
At July 31, 1995, there was an unlimited number of shares of beneficial interest
authorized divided into four classes, class A, class B, class M and class Y ca-
pital shares. Transactions in capital shares were as follows:
<PAGE>
YEAR ENDED JULY 31, 1995
CLASS A SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 13,146,606 $180,553,042
- -------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 3,834,615 50,531,572
- -------------------------------------------------------------------------------
16,981,221 231,084,614
- -------------------------------------------------------------------------------
Shares repurchased (14,933,076) (206,639,360)
- -------------------------------------------------------------------------------
NET INCREASE 2,048,145 $ 24,445,254
- -------------------------------------------------------------------------------
YEAR ENDED JULY 31, 1994
CLASS A SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 18,507,700 $254,803,372
- -------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 4,168,794 57,253,138
- -------------------------------------------------------------------------------
22,676,494 312,056,510
- -------------------------------------------------------------------------------
Shares repurchased (9,401,901) (129,535,680)
- -------------------------------------------------------------------------------
NET INCREASE 13,274,593 $182,520,830
- -------------------------------------------------------------------------------
YEAR ENDED JULY 31, 1995
CLASS B SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 5,418,159 $74,481,040
- -------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 682,650 8,962,991
- -------------------------------------------------------------------------------
6,100,809 83,444,031
- -------------------------------------------------------------------------------
Shares repurchased (2,223,649) (30,300,283)
- -------------------------------------------------------------------------------
NET INCREASE 3,877,160 $53,143,748
- -------------------------------------------------------------------------------
YEAR ENDED JULY 31, 1994
CLASS B SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 6,533,139 $90,371,150
- -------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 586,214 8,011,100
- -------------------------------------------------------------------------------
7,119,353 98,382,250
- -------------------------------------------------------------------------------
Shares repurchased (1,659,029) (22,728,694)
- -------------------------------------------------------------------------------
NET INCREASE 5,460,324 $75,653,556
- -------------------------------------------------------------------------------
DECEMBER 1, 1994
(COMMENCEMENT OF
OPERATIONS) TO
JULY 31, 1995
CLASS M SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 593,067 $8,359,665
- -------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 3,587 49,999
- -------------------------------------------------------------------------------
596,654 8,409,664
- -------------------------------------------------------------------------------
Shares repurchased (46,650) (638,771)
- -------------------------------------------------------------------------------
NET INCREASE 550,004 $7,770,893
- -------------------------------------------------------------------------------
YEAR ENDED JULY 31, 1995
CLASS Y SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 5,778,282 $81,698,558
- -------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 423,222 5,612,640
- -------------------------------------------------------------------------------
6,201,504 87,311,198
- -------------------------------------------------------------------------------
Shares repurchased (1,188,113) (16,514,695)
- -------------------------------------------------------------------------------
NET INCREASE 5,013,391 $70,796,503
- -------------------------------------------------------------------------------
APRIL 1, 1994
(COMMENCEMENT OF
OPERATIONS) TO
JULY 31, 1994
CLASS Y SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 5,361,674 $72,013,488
- -------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 685 8,999
- -------------------------------------------------------------------------------
5,362,359 72,022,487
- -------------------------------------------------------------------------------
Shares repurchased (77,822) (1,046,787)
- -------------------------------------------------------------------------------
NET INCREASE 5,284,537 $70,975,700
- -------------------------------------------------------------------------------
<PAGE>
FEDERAL TAX INFORMATION
(Unaudited)
Pursuant to section 852 of the Internal Revenue Code, the fund hereby designates
$.309 per share (or if different, the amount necessary to offset net capital
gain earned by the fund) for share classes A, B and Y as capital gain dividends
for its taxable year ended July 31, 1995.
The fund has designated 38.58% of the distributions from net investment income
as qualifying for the dividends received deduction for corporations.
The Form 1099 you receive in January 1996 will show the status of all distribu-
tions paid to your account in calendar 1995.
<PAGE>
OUR COMMITMENT TO QUALITY SERVICE
CHOOSE AWARD-WINNING SERVICE.
Putnam Investor Services has won the DALBAR Quality Tested Service Seal every
year since the award's 1990 inception. DALBAR, an independent research firm,
ran more than 80,000 tests of 55 shareholder service components. In every cate-
gory, Putnam outperformed the industry standard.
HELP YOUR INVESTMENT GROW.
Set up a systematic program for investing with as little as $25 a month from a
Putnam fund or from your checking or savings account. *
SWITCH FUNDS EASILY.
You can move money from one account to another with the same class of shares
without a service charge. (This privilege is subject to change or termination.)
ACCESS YOUR MONEY QUICKLY.
You can get checks sent regularly or redeem shares any business day at the then-
current net asset value, which may be more or less than the original cost of the
shares.
For details about any of these or other services, contact your financial advisor
or call the toll-free number shown below and speak with a helpful Putnam repre-
sentative.
To make an additional investment in this or any other Putnam fund, contact your
financial advisor or call our toll-free number: 1-800-225-1581.
* Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market. Investors should consider their ability to con-
tinue purchasing shares during periods of low price levels.
<PAGE>
FUND INFORMATION
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
TRUSTEES
George Putnam, Chairman William F. Pounds, Vice Chairman
Jameson Adkins Baxter Hans H. Estin
John A. Hill Elizabeth T. Kennan
Lawrence J. Lasser Robert E. Patterson
Donald S. Perkins George Putnam, III
Eli Shapiro A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam Charles E. Porter
President Executive Vice President
Patricia C. Flaherty Lawrence J. Lasser
Senior Vice President Vice President
Gordon H. Silver Peter Carman
Vice President Vice President
Brett Browchuk Thomas V. Reilly
Vice President Vice President
Edward P. Bousa Kenneth J. Taubes
Vice President and Fund Manager Vice President and Fund Manager
Rosemary H. Thomsen William N. Shiebler
Vice President and Fund Manager Vice President
John R. Verani Paul M. O'Neil
Vice President Vice President
John D. Hughes Beverly Marcus
Vice President and Treasurer Clerk and Assistant Treasurer
This report is for the information of shareholders of The George Putnam Fund of
Boston. It may also be used as sales literature when preceded or accompanied by
the current prospectus, which gives details of sales charges, investment objec-
tives and operating policies of the fund, and the most recent copy of Putnam's
Quarterly Performance Summary. For more information, or to request a prospectus,
call toll free: 1-800-225-1581.
SHARES OF MUTUAL FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION (FDIC), THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY,
AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
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PUTNAM INVESTMENTS Bulk Rate
U.S. Postage
THE PUTNAM FUNDS PAID
One Post Office Square Putnam
Boston, Massachusetts 02109 Investments
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19841-001/880/242
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(9) The double dagger symbol has been replaced by ++
(10) The double/double dagger symbol has been replaced by +*
(11) The triple dagger symbol has been replaced by +++
(12) The section symbol has been replaced by ^^^
