The George
Putnam Fund
of Boston
SEMIANNUAL REPORT
January 31, 1996
[GRAPHIC OMITTED: Putnam Scales Logo]
BOSTON * LONDON * TOKYO
Fund highlights
* "Put simply, The George Putnam Fund of Boston is beating its peers
like it never has before. It has scored some of the balanced group's
very best returns over the past two years."*
-- Morningstar Mutual Funds, January 19, 1996
* For the year ended January 31, 1996, The George Putnam Fund of Boston,
class A shares, were ranked 27 out of 237 balanced funds for total-
return performance -- placing them in the top 12% -- according to
Lipper Analytical Services. Over the same period, the fund's class M and
class B shares were ranked 36 and 41, respectively, out of 237 funds,
placing both share classes within the top 18% of balanced funds
tracked.+
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
12 Portfolio holdings
27 Financial statements
*For the year ended 12/31/94, the average total return of the 262
balanced funds tracked by Morningstar was -2.81% versus total returns at
net asset value (NAV) of -0.38% and -1.02% for The George Putnam Fund of
Boston's class A and class B shares, respectively. For the year ended
12/31/95, the average total return of the 299 balanced funds tracked by
Morningstar was 24.82% versus total returns at NAV of 30.12%, 29.07%,
and 29.34% for The George Putnam Fund of Boston's class A, class B, and
class M shares, respectively. Past performance is not indicative of
future results.
+Lipper rankings are based on total-return performance, vary over time,
and do not reflect the effects of sales charges. For periods ended
1/31/96, the fund's class A shares were ranked 21 out of 62 funds for 5-
year performance and 6 out of 31 funds for 10-year performance. The
fund's class B shares were ranked 21 out of 103 funds for 3-year
performance and were not ranked over periods exceeding 3 years. The
fund's class M shares were not ranked over periods exceeding 1 year.
Past performance is not indicative of future results.
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
From the Chairman
Dear Shareholder:
The first half of The George Putnam Fund of Boston's current fiscal year
fell squarely within one of the most exuberant market environments in
recent memory. The extent of the rise in both stocks and bonds, along
with management's adept positioning within those markets, is clearly
reflected in your fund's performance during the six months ended January
31, 1996.
Quite naturally, we are pleased with the results. However, as recent
events have demonstrated, favorable conditions like these do not last
indefinitely. It would be realistic to expect some moderation in the
pace of the advance and further corrections from time to time during the
second half of fiscal 1996. Putnam Management believes the prospect of a
slower economy still has the potential to cool equity investors' ardor a
bit.
As a result, financial markets may be in for some additional near-term
volatility. Nevertheless, your fund's management team believes both
stocks and bonds, on balance, may continue their upward course in 1996,
but at a more subdued pace than they enjoyed in 1995.
Respectfully yours,
/s/George Putnam
George Putnam
Chairman of the Trustees
March 20, 1996
Report from the Fund Managers
Edward P. Bousa, lead manager
Kenneth J. Taubes
Rosemary H. Thomsen
Maintaining a full complement of stocks in a strong bull market, along
with an advantageous positioning in the bond markets, The George Putnam
Fund of Boston posted a solid performance for the six months ended
January 31, 1996. Following our value-oriented stock-picking discipline,
we capitalized on opportunities in sectors such as public utilities,
consumer nondurables, and transportation. Minimal exposure to the
underperforming technology sector also helped the equity portfolio's
performance over the period. Longer maturities and exceptional results
from European holdings boosted the fund's overall fixed-income
component, which made up 38% of net assets at the end of the period.
(Please refer to the table on page 9 for complete performance details.)
* DECLINING INTEREST RATES AND REDUCED FEARS OF
DEREGULATION BOOST UTILITIES
Several factors combined to create a favorable backdrop for the electric
utility sector over the period. Chief among them were declining interest
rates coupled with investors' belief that the potentially negative
impact of rate deregulation was already reflected in the stocks' prices.
In addition, the anticipated passage of telecommunications deregulation
lifted the prices of the regional Bell operating companies (RBOCs) as
well as those of the principal long-distance carriers.
Major holdings such as Bell Atlantic, NYNEX, U.S. West, and Sprint rose
as Congress finalized legislation that will permit, among other things,
local and long-distance telephone providers to enter each other's
markets. President Clinton signed the legislation into law shortly after
the close of the fiscal period. Moreover, rapid growth of the Internet
has accelerated the demand for additional telephone lines -- a
development that has been particularly rewarding for the RBOCs.
* LIMITED TECHNOLOGY EXPOSURE PROVES BENEFICIAL
AS SECTOR UNDERPERFORMS
Following a powerful rally last summer, technology stocks generally
underperformed other market sectors during the period as investors took
profits and anticipated a slowdown in company earnings. Because many of
the companies that dominate this sector do not meet the price-to-
earnings and other valuation criteria that drive our stock-selection
process, your fund typically maintains very limited commitments to high-
technology stocks. The fund's negligible exposure to technology thus
proved fortuitous over the period and boosted performance relative to
competitors with larger technology weightings.
Nevertheless, given our emphasis on finding bargains and our desire to
buy globally competitive companies, we added a significant position in
IBM early in the fiscal year when the stock's price reached its recent
lows. We are enthusiastic about IBM's new CMOS mainframe technology,
which has been very well received by investors as well as by IBM's
customers. In addition, Big Blue's recent earnings have exceeded
expectations. As a result, the stock advanced from approximately $92 per
share in mid-September to nearly $109 per share when the fiscal period
ended.
[GRAPHIC OMITTED: TOP 10 EQUITY HOLDINGS (1/31/96)*
Weyerhaeuser Co.
Paper and forest products manufacturing
TRW, Inc.
Manufacturing of auto parts and accessories
Philip Morris Companies
Multinational tobacco, food, and beer
E. I. du Pont De Nemours & Co., Ltd.
Diversified manufacturing of chemicals and related materials
General Motors Corp.
Multinational automobile manufacturing
International Business Machines Corp.
Multinational computers, information systems, and services
Exxon Corp.
Exploration, production, and distribution of oil and natural gas
Bell Atlantic Corp.
Telecommunications
J. P. Morgan & Company
Multinational banking and finance
NYNEX Corp.
Telecommunications
Footnote reads:
* Top 10 holdings represent 11.2% of the fund's net assets. Portfolio
holdings will vary over time.]
* PROFITS FROM SUCCESSFUL HOLDINGS REDEPLOYED
Consumer nondurables -- which includes industries such as
pharmaceuticals, food, and beverages -- was the best-performing sector
over the fiscal first half. Consequently, we took profits on many long-
standing investments that had reached our price targets, including
Bristol Meyers Squibb, a former top-ten holding.
Likewise, investments in the transportation sector contributed
significantly, leading us to take profits on such holdings as Union
Pacific Corp., a major railroad operator and the fund's fourth largest
holding at the beginning of fiscal 1996. Consistent with our focus on
finding value-priced opportunities, we redeployed these profits into
industries that are currently out of favor, including retailers, paper
manufacturers, and automakers. For example, we added a significant
position in General Motors Corp.
GM is planning to introduce a large number of new models over the next
three years and, at the same time, has done a good job of keeping its
costs under control. Moreover, GM is the parent of publicly traded
Hughes Electronics (also owned by the fund), which has benefited from
its activity in the rapidly developing direct broadcast satellite (DBS)
market. So, while we cannot provide guarantees, we believe GM currently
offers the potential for attractive price gains, while Hughes may be in
the early stages of an exceptional growth opportunity with DBS.
* LONGER MATURITIES BOLSTER BOND PORTFOLIO AS
FED CUTS RATES
Declining interest rates across the entire maturity spectrum created an
extremely favorable environment for your fund's bond portfolio over the
period. Providing a further boost to market sentiment, the Federal
Reserve Board reduced the primary target for short-term bank-lending
rates in December and January, its first reductions in the federal funds
rate since July 1995. Your fund's emphasis on longer maturities served
it well as rates declined.
The positive tone in the U.S. market, combined with a generally stronger
dollar, set the pace for rallies in markets around the world. The fund's
foreign, mostly European, holdings -- which increased to approximately
7% of the overall bond portfolio at the end of the fiscal period --
proved very satisfactory as rates in much of Europe declined even more
than in the United States. For example, the fund's investments in Italy
performed extremely well as that country's government, despite frequent
turmoil, appears to be taking credible steps to reduce a sizable budget
deficit.
[GRPHIC OMITTED: Horzontal bar chart COMPARATIVE PORTFOLIO COMPOSITION*
7/31/95 1/31/96
------- -------
Common stocks 57.1% 58.9%
U.S. government and agency securities 19.1% 23.2%
Corporate bonds and notes 11.9% 9.4%
Foreign bonds 3.1% 3.5%
Convertible securities 2.6% 2.5%
Collateralized mortgage obligations 2.4% 1.9%
Footnote reads:
*Based on percentage of net assets. Balance of portfolio on dates listed
was invested in cash and short-term securities. Portfolio allocations
will vary over time.]
The fund's high-yield corporate holdings performed in line with
expectations. We shifted exposure away from cyclical industries, such as
chemicals and steel, and into sectors including telecommunications and
cable television. The appeal of these fast-growing industries in a
slowing economy lies in the fact that they are not overly sensitive to
the economy's ups and downs.
* CONCENTRATING ON STOCKS THAT MAY ALREADY
REFLECT ECONOMIC SLOWDOWN
Leading indicators depict an economy that may be slowing down. In such
an environment, we believe corporations are likely to have more
difficulty registering profit gains in 1996 compared with 1995. As a
result, we are focusing our stock-picking efforts on companies whose
stock prices, in our opinion, already reflect the economic slowdown.
High-quality retailers such as J.C. Penney and Dayton Hudson, paper
manufacturers such as Weyerhaeuser, and the automobile manufacturers all
fit this profile.
We currently plan to maintain the fund's exposure to overseas bond
markets. Notwithstanding their recent impressive rallies, most European
bond markets still offer greater value than their U.S. counterpart,
while most overseas economies remain comparatively weaker.
If the Fed continues to pursue an easier monetary policy with lower
short-term interest rates -- although this is far from certain at this
time -- we believe high-yield corporate bonds may respond positively.
While we cannot provide assurances, we believe the sector would begin to
anticipate a pickup in economic activity -- a development that could
strengthen the cash flows and the overall creditworthiness of high-yield
issuers. Nevertheless, given the current slow pace of growth, and the
renewed uncertainty over the Fed's monetary stance, ongoing vigilance
will be necessary.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 1/31/96, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. The George Putnam Fund of Boston is designed for investors
seeking capital appreciation and current income.
This section provides, at a glance, information about your fund's
performance. Total return shows how the value of the fund's shares
changed over time, assuming you held the shares through the entire
period and reinvested all distributions in the fund.
TOTAL RETURN FOR PERIODS ENDED 1/31/96
Class A Class B Class M
Inception dates (11/5/37) (4/27/92) (12/1/94)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
6 months 12.62% 6.14% 12.21% 7.21% 12.40% 8.45%
- ------------------------------------------------------------------------
1 year 29.62 22.14 28.60 23.60 28.87 24.35
- ------------------------------------------------------------------------
5 years 87.89 77.13 -- -- -- --
Annual average 13.44 12.11 -- -- -- --
- ------------------------------------------------------------------------
10 years 226.49 207.64 -- -- -- --
Annual average 12.56 11.89 -- -- -- --
- ------------------------------------------------------------------------
Life of class -- -- 52.31 49.31 33.21 28.58
Annual average -- -- 11.84 11.25 27.78 23.97
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 1/31/96
Standard Lehman Bros.
& Poor's Govt. /Corp Consumer
500 Index Bond Index Price Index
- ------------------------------------------------------------------------
6 months 14.49% 7.74% 1.25%
- ------------------------------------------------------------------------
1 year 38.56 17.72 2.73
- ------------------------------------------------------------------------
5 years 113.15 58.81 14.71
Annual average 16.34 9.69 2.78
- ------------------------------------------------------------------------
10 years 310.40 151.26 40.88
Annual average 15.16 9.65 3.49
- ------------------------------------------------------------------------
Life of class B 69.99 39.57 10.68
Annual average 15.16 9.27 2.74
- ------------------------------------------------------------------------
Life of class M 44.72 20.78 3.14
Annual average 37.15 17.51 2.68
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They do not take into
account any adjustment for taxes payable on reinvested distributions or,
for class A shares, distribution fees prior to implementation of the
class A distribution plan in 1990. Investment returns and net asset
value will fluctuate so that an investor's shares, when sold, may be
worth more or less than their original cost. POP assumes 5.75% maximum
sales charge for class A shares and 3.50% for class M shares, which
became effective 12/1/94. CDSC for class B shares assumes the applicable
sales charge, with the maximum being 5%.
TOTAL RETURN FOR PERIODS ENDED 12/31/95
(most recent calendar quarter)
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
6 months 12.37% 5.94% 11.95% 6.95% 12.06% 8.14%
- ------------------------------------------------------------------------
1 year 30.12 22.62 29.07 24.07 29.34 24.79
- ------------------------------------------------------------------------
5 years 90.57 79.59 -- -- -- --
Annual average 13.77 12.42 -- -- -- --
- ------------------------------------------------------------------------
10 years 222.48 203.97 -- -- -- --
Annual average 12.42 11.76 -- -- -- --
- ------------------------------------------------------------------------
Life of class -- -- 49.50 46.50 30.76 26.21
Annual average -- -- 11.55 10.93 28.18 24.05
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They do not take into
account any adjustment for taxes payable on reinvested distributions or,
for class A shares, distribution fees prior to implementation of the
class A distribution plan in 1990. Investment returns and net asset
value will fluctuate so that an investor's shares, when sold, may be
worth more or less than their original cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 1/31/96
Class A Class B Class M
- ------------------------------------------------------------------------
Distributions:
- ------------------------------------------------------------------------
Number 2 2 2
- ------------------------------------------------------------------------
Income $0.297 $0.243 $0.269
- ------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------
Long-term $ 0.210 $ 0.210 $ 0.210
- ------------------------------------------------------------------------
Short-term 0.418 0.418 0.418
- ------------------------------------------------------------------------
Total $0.925 $0.871 $0.897
- ------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------
7/31/95 $14.90 $15.81 $14.83 $14.84 $15.38
- ------------------------------------------------------------------------
1/31/96 15.80 16.76 15.72 15.73 16.30
- ------------------------------------------------------------------------
Current return NAV POP NAV NAV POP
- ------------------------------------------------------------------------
End of period
Current dividend rate1 3.97% 3.75% 3.28% 3.51% 3.39%
- ------------------------------------------------------------------------
Current 30-day SEC yield2 3.66 3.45 2.89 3.14 3.03
- ------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2 Based only on investment income, calculated using SEC guidelines.
TERMS AND DEFINITIONS
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the maximum 5.75% sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B shares and assumes redemption at the end of
the period. Your fund's CDSC declines from a 5% maximum during the first
year to 1% during the sixth year. After the sixth year, the CDSC no
longer applies.
COMPARATIVE BENCHMARKS
Standard & Poor's 500 Index is an unmanaged list of common stocks that
is frequently used as a general measure of stock market performance.*
Lehman Brothers Government/Corporate Bond Index is an unmanaged list of
publicly issued U.S. Treasury obligations, debt obligations of U.S.
government agencies (excluding mortgage-backed securities), and fixed-
rate, nonconvertible investment-grade corporate debt securities.*
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Index results assume reinvestment of all distributions and do not take
into account brokerage commisions or other costs. Securities in the
fund's portfolio do not match those in the indexes
and may pose different risks.
Our commitment to quality service
* CHOSE AWARD-WINNING SERVICE
Putnam Investor Services has won the DALBAR Quality Tested Service Seal
for the past six years. In 1995, over 146,000 tests of 56 shareholder
service components demonstrated that Putnam outperformed the industry
standard in every category.
HELP YOUR INVESTMENT GROW
Set up a systematic program for investing with as little as $25 a month
from a Putnam money market fund or from your checking or savings
account.*
* SWITCH FUNDS EASILY
You can move money from one account to another with the same class of
shares without a service charge. (This privilege is subject to change or
termination.)
* ACCESS YOUR MONEY QUICKLY
You can get checks sent regularly or redeem shares any business day at
the then-current net asset value, which may be more or less than the
original cost of the shares.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a
helpful Putnam representative.
To make an additional investment in this or any other Putnam fund,
contact your financial advisor or call our toll-free number:
1-800-225-1581.
* Regular investing of course, does not guarantee a profit or protect
against a loss in a declining market.
<TABLE>
<CAPTION>
Portfolio of investments owned
January 31, 1996 (Unaudited)
Common Stocks (58.9%)*
NUMBER OF SHARES VALUE
Aerospace and Defense (0.7%)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
176,000 Lockheed Martin Corp. $13,266,000
Automotive (2.8%)
- ------------------------------------------------------------------------------------------------------------
76,000 Chrysler Corp. 4,389,000
306,000 Ford Motor Co. 9,065,250
390,000 General Motors Corp. 20,523,750
147,000 General Motors Corp. Class H 8,379,000
258,000 Varity Corp. + 9,546,000
--------------
51,903,000
Basic Industrial Products (1.8%)
- ------------------------------------------------------------------------------------------------------------
110,000 Ball Corp. 3,121,250
165,000 Deere (John) & Co. 6,187,500
125,000 General Signal Corp. 4,218,750
178,000 Harnischfeger Industries, Inc. 6,029,750
207,600 Minnesota Mining & Manufacturing Co. 13,390,200
--------------
32,947,450
Business Equipment and Services (2.5%)
- ------------------------------------------------------------------------------------------------------------
193,000 Dun & Bradstreet Corp. 12,545,000
188,000 IBM Corp. 20,445,000
99,100 Xerox Corp. 12,251,238
--------------
45,241,238
Chemicals (2.6%)
- ------------------------------------------------------------------------------------------------------------
270,000 du Pont (E.I.) de Nemours & Co. 20,756,250
30,000 Hoechst AG (Germany) 8,850,181
251,900 Union Carbide Corp. 10,611,288
259,000 Witco Chemical Corp. 8,223,250
--------------
48,440,969
Conglomerates (2.3%)
- ------------------------------------------------------------------------------------------------------------
241,000 Corning, Inc. 7,531,250
235,800 Ogden Corp. 5,482,350
282,000 TRW, Inc. 23,829,000
50,000 United Technologies Corp. 5,131,250
--------------
41,973,850
Consumer Durable Goods (0.3%)
- ------------------------------------------------------------------------------------------------------------
118,000 Whirlpool Corporation 6,416,250
Consumer Non Durables (3.5%)
- ------------------------------------------------------------------------------------------------------------
338,000 American Brands, Inc. 15,421,250
111,600 Avon Products, Inc. 8,816,400
107,000 Kimberly-Clark Corp. 8,626,875
225,000 Philip Morris Cos., Inc. 20,925,000
205,800 RJR Nabisco Holdings Corp. + 6,688,500
86,700 Springs Industries, Inc. Class A 3,468,000
--------------
63,946,025
Electronics and Electrical Equipment (2.1%)
- ------------------------------------------------------------------------------------------------------------
254,400 Eaton Corp. 14,755,200
56,000 Emerson Electric Co. 4,690,000
200,000 General Electric Co. 15,350,000
85,000 Intel Corp. 4,694,922
--------------
39,490,122
Energy-Related (0.2%)
- ------------------------------------------------------------------------------------------------------------
183,000 Westcoast Energy, Inc. 2,859,375
Environmental Control (0.5%)
- ------------------------------------------------------------------------------------------------------------
308,000 WMX Technologies, Inc. 9,201,500
Food and Beverages (1.0%)
- ------------------------------------------------------------------------------------------------------------
101,000 Anheuser-Busch Cos., Inc. 7,019,500
325,500 Flowers Industries, Inc. 4,312,875
121,000 Nestle S.A. ADR (Switzerland) 6,337,375
--------------
17,669,750
Forest Products (2.0%)
- ------------------------------------------------------------------------------------------------------------
162,000 Chesapeake Corp. 4,596,750
8,100 Crown Vantage, Inc. + 131,625
200,000 Rayonier, Inc. 7,250,000
534,000 Weyerhaeuser Co. 24,630,750
--------------
36,609,125
Health Care (0.6%)
- ------------------------------------------------------------------------------------------------------------
239,900 Baxter International, Inc. 10,915,450
Insurance and Finance (10.3%)
- ------------------------------------------------------------------------------------------------------------
168,000 AON Corp. 9,135,000
240,000 American General Corp. 9,060,000
139,000 BankAmerica Corp. 9,365,125
186,183 Bankers Trust New York Corp. 12,078,622
263,000 Beneficial Corp. 12,854,125
46,000 CIGNA Corp. 5,456,750
267,000 CoreStates Financial Corp. 10,680,000
357,000 Fleet Financial Group, Inc. 14,280,000
200,000 Household International, Inc. 12,975,000
129,000 ITT Hartford Group, Inc. + 6,466,126
345,500 Keycorp 12,697,125
227,000 Morgan (J.P.) & Co., Inc. 18,443,750
239,000 NationsBank Corp. 16,700,125
210,000 Norwest Corp. 7,218,750
398,000 PNC Bank Corp. 11,940,000
132,000 SAFECO Corp. 4,735,500
59,000 St. Paul Cos., Inc. 3,363,000
150,000 Synovus Financial Corp. 4,218,750
475,000 USF&G Corp. 7,600,000
--------------
189,267,748
Metals and Mining (0.8%)
- ------------------------------------------------------------------------------------------------------------
55,800 Carpenter Technology Corp. 2,120,400
198,000 Phelps Dodge Corp. 12,474,000
--------------
14,594,400
Oil and Gas (5.3%)
- ------------------------------------------------------------------------------------------------------------
168,000 Amoco Corp. 11,823,000
251,600 Exxon Corp. 20,190,900
96,600 Mobil Corp. 10,698,450
555,000 Occidental Petroleum Corp. 11,932,500
268,000 Panhandle Eastern Corp. 7,738,500
247,000 Phillips Petroleum Co. 8,058,375
204,200 Repsol S.A. ADS (Spain) 7,121,475
70,000 Royal Dutch Petroleum Co. PLC ADR (Netherlands) 9,730,000
281,000 Total Corp. ADR (France) 9,694,500
--------------
96,987,700
Pharmaceuticals (2.7%)
- ------------------------------------------------------------------------------------------------------------
102,000 American Home Products Corp. 10,404,000
150,000 Bristol-Myers Squibb Co. 13,275,000
231,570 Pharmacia & Upjohn, Inc. 9,696,994
182,000 Warner-Lambert Co. 17,062,500
--------------
50,438,494
Photography (1.3%)
- ------------------------------------------------------------------------------------------------------------
237,000 Eastman Kodak Co. 17,389,875
158,000 Polaroid Corp. 7,090,250
--------------
24,480,125
Publishing (0.5%)
- ------------------------------------------------------------------------------------------------------------
98,000 McGraw-Hill, Inc. 8,722,000
Real Estate (1.2%)
- ------------------------------------------------------------------------------------------------------------
132,500 Duke Realty Investments, Inc. 4,256,563
229,700 Equity Residential Properties Trust 7,063,275
103,500 Evans Withycombe Residential 2,264,063
167,000 LTC Properties, Inc. 2,734,625
63,100 Macerich Co. 1,238,338
50,000 Nationwide Health Properties, Inc. 2,125,000
87,000 Storage USA, Inc. 2,740,500
--------------
22,422,364
Retail (3.0%)
- ------------------------------------------------------------------------------------------------------------
211,000 Dayton Hudson Corporation 15,772,250
709,000 K mart Corp. 4,165,375
120,000 May Department Stores Co. 5,340,000
334,000 Melville Corporation 9,519,000
301,000 Penney (J.C.) Co., Inc. 14,749,000
157,000 Sears, Roebuck & Co. 6,515,500
--------------
56,061,125
Telecommunications (0.3%)
- ------------------------------------------------------------------------------------------------------------
197,000 MCI Communications Corp. 5,639,125
Transportation (2.0%)
- ------------------------------------------------------------------------------------------------------------
52,000 CSX Corp. 2,411,500
217,900 Canadian National Railway Co. + 3,840,488
52,000 Conrail, Inc. 3,679,000
546,800 Ryder System, Inc. 12,781,450
212,200 Union Pacific Corp. 14,137,825
--------------
36,850,263
Utilities (8.6%)
- ------------------------------------------------------------------------------------------------------------
91,000 American Telephone & Telegraph Co. 6,085,625
279,000 Bell Atlantic Corp. 19,216,125
120,265 Cinergy Corp. 3,743,248
52,900 Consolidated Natural Gas Co. 2,380,500
186,000 Dominion Resources, Inc. 7,974,750
139,000 Entergy Corp. 4,117,875
148,000 GTE Corp. 6,808,000
328,000 NYNEX Corp. 17,589,000
158,000 Oklahoma Gas & Electric Co. 6,636,000
267,000 Pacific Enterprises 7,409,250
101,400 Pacific Telesis Group 2,991,300
317,000 Potomac Electric Power Co. 8,559,000
155,000 Public Service Co. of Colorado 5,580,000
235,000 Public Service Enterprise Group, Inc. 7,343,750
59,000 SBC Communications, Inc. 3,340,875
227,000 SCE Corp. 4,199,500
276,300 Scana Corp. 7,563,713
264,000 Sprint Corp. 11,385,000
115,200 Telefonica de Espana SA ADR 5,083,200
215,000 Texas Utilities Co. 8,788,125
200,800 US West, Inc. 7,053,100
155,000 WICOR, Inc. 4,882,500
--------------
158,730,436
--------------
Total Common Stocks (cost $888,204,563) $1,085,073,884
U.S. Government and Agency Obligations (23.2%)* VALUE
PRINCIPAL AMOUNT
- ------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Association
Pass Through Certificates
$2,080,867 8 3/4s, June 1, 2009 $2,180,353
1,128,824 8 3/4s, May 1, 2009 1,182,793
Federal National Mortgage Association
Pass Through Certificates
334,570 11s, with various due dates from October 1, 2015
to March 1, 2016 379,526
169,643 8 3/4s, July 1, 2009 177,647
16,168,230 7s, with various due dates from February 1, 2024
to December 1, 2024 16,314,713
12,177,047 Dwarf, 6s, with various due dates from January 1, 2009
to October 1, 2010 12,081,823
18,930,000 TBA, 7s, March 16, 2026 19,101,506
6,790,000 Federal National Mortgage Association med. term notes,
5.94s, December 12, 2005 6,814,376
Government National Mortgage Association
Pass Through Certificates
1,521 15s, September 15, 2011 1,875
161,892 8s, with various due dates from December 15, 2016
to January 15, 2020 171,100
25,919,811 7 1/2s, with various due dates from September 15, 2005
to December 15, 2025 26,682,114
31,899,687 7s, with various due dates from January 15, 2023
to January 15, 2026 32,318,289
15,685,711 6 1/2s, with various due dates from November 15, 2023
to October 15, 2025 15,587,677
5,909,016 Midget, 6 1/2s, with various due dates from February 1, 2009
to June 15, 2009 5,982,880
5,950,479 Midget, 6s, with various due dates from August 15, 2008
to May 15, 2009 5,928,165
12,970,000 TBA, 7s, March 16, 2026 13,140,166
15,715,000 TBA, 6 1/2s, March 16, 2026 15,616,781
23,580,000 U.S. Treasury Bonds 11 7/8s, November 15, 2003 32,894,100
25,745,000 U.S. Treasury Bonds 11 5/8s, November 15, 2004 36,380,774
13,440,000 U.S. Treasury Bonds 11 1/8s, August 15, 2003 18,020,083
10,620,000 U.S. Treasury Bonds 10 3/4s, August 15, 2005 14,579,242
18,825,000 U.S. Treasury Bonds 8 7/8s, August 15, 2017 25,043,086
23,870,000 U.S. Treasury Bonds 8 1/8s, August 15, 2019 29,792,624
5,078,000 U.S. Treasury Bonds 7 1/2s, November 15, 2024 6,038,859
77,255,000 U.S. Treasury Notes 7 1/4s, August 15, 2004 85,922,238
4,765,000 U.S. Treasury Notes 6 1/4s, May 31, 2000 4,951,121
--------------
Total U.S. Government and Agency Obligations
(cost $411,638,892) $427,283,911
Corporate Bonds and Notes (9.4%)*
PRINCIPAL AMOUNT VALUE
Advertising (--%)
- ------------------------------------------------------------------------------------------------------------
$300,000 Outdoor Systems, Inc. sr. notes, 10 3/4s, 2003 $303,000
Aerospace and Defense (0.2%)
- ------------------------------------------------------------------------------------------------------------
750,000 BE Aerospace sr. notes, 9 3/4s, 2003 787,500
700,000 Coltec Industries sr. notes, 9 3/4s, 2000 726,250
775,000 Howmet Corp. 144A sr. sub. notes, 10s, 2003 826,344
364,000 K&F Industries Inc. sub. deb., 13 3/4s, 2001 378,105
--------------
2,718,199
Agriculture (0.1%)
- ------------------------------------------------------------------------------------------------------------
1,000,000 PSF Finance (L.P.) sr. exch. notes, 12 1/4s, 2004 1,000,000
Automotive (0.1%)
- ------------------------------------------------------------------------------------------------------------
370,000 Aftermarket Technology Corp. sr. sub. notes Ser. D, 12s, 2004 402,375
325,000 Aftermarket Technology Corp. sr. sub. notes, 12s, 2004 353,438
350,000 Exide Corp. sr. notes, 10 3/4s, 2002 378,000
--------------
1,133,813
Basic Industrial Products (0.1%)
- ------------------------------------------------------------------------------------------------------------
250,000 Day International Group sr. sub. notes Ser. B, 11 1/8s, 2005 259,375
800,000 Inter-City Products sr. notes, 9 3/4s, 2000 596,000
--------------
855,375
Broadcasting (0.6%)
- ------------------------------------------------------------------------------------------------------------
400,000 Act III Broadcasting sr. notes, 10 1/4s, 2005 412,000
400,000 Adelphia Communications Corp. sr. notes, 12 1/2s, 2002 403,000
250,000 Argyle Television Corp. sr. sub. notes, 9 3/4s, 2005 251,250
350,000 CF Cable TV sr. notes, 9 1/8s, 2007 (Canada) 360,500
500,000 Cablevision Systems Corp. sr. sub. reset deb., 10 3/4s, 2004 531,250
300,000 Century Communications Corp. sr. notes, 9 1/2s, 2005 312,000
200,000 Comcast Corp. sr. sub. deb. 9 1/2s, 2008 212,000
500,000 Continental Cablevision, Inc. 144A sr. notes, 8.3s, 2006 503,125
1,315,000 International CableTel, Inc. 144A stepped-coupon zero %
(11 1/2s, 2/1/01), 2006 ++ 765,988
750,000 Jones Intercable, Inc. sr. sub. deb., 10 1/2s, 2008 832,500
575,000 Jones Intercable Inc. sr. notes, 9 5/8s, 2002 623,875
500,000 Lenfest Communications sr. notes, 8 3/8s, 2005 502,500
500,000 Marcus Cable Co. (L.P.) sr. disc. notes zero %, 2004 376,250
400,000 Paxson Communications Corp. 144A sr. sub. notes,
11 5/8s, 2002 420,000
150,000 Rogers Cablesystem Ltd. deb., 10 1/8s, 2012 (Canada) 162,375
350,000 SFX Broadcasting, Inc. sr. sub. notes, 11 3/8s, 2000 378,000
2,000,000 Tele-Communications, Inc. sr. deb, 9.8s, 2012 2,402,740
730,000 Telewest PLC deb. stepped-coupon zero % (11s, 10/1/00),
2007 (United Kingdom)++ 447,125
750,000 Young Broadcasting 144A sr. sub. notes, 9s, 2006 744,375
--------------
10,640,8539
Building and Construction (0.1%)
- ------------------------------------------------------------------------------------------------------------
400,000 American Standard, Inc. deb., 9 1/4s, 2016 421,000
310,000 Congoleum Corp. sr. notes, 9s, 2001 300,700
350,000 Scotsman Group, Inc. sr. secd. notes, 9 1/2s, 2000 357,000
500,000 Triangle Pacific Corp. sr. notes, 10 1/2s, 2003 535,000
--------------
1,613,700
Business Services (--%)
- ------------------------------------------------------------------------------------------------------------
425,000 Corporate Express, Inc. sr. sub notes, Ser. B, 9 1/8s, 2004 446,250
325,000 United Stationer Supply, Inc. sr. sub. notes, 12 3/4s, 2005 357,500
--------------
803,750
Chemicals (0.1%)
- ------------------------------------------------------------------------------------------------------------
400,000 Acetex Corp. 144A sr. notes, 9 3/4s, 2003 (Canada) 414,000
300,000 Arcadian Partner sr. notes, 10 3/4s, 2005 333,000
1,640,000 Lyondell Petrochemical Co. notes, 9 1/8s, 2002 1,879,866
--------------
2,626,866
Conglomerates (0.1%)
- ------------------------------------------------------------------------------------------------------------
500,000 ADT Ltd. sr. sub notes, 9 1/4s, 2003 537,500
350,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes,
13s, 1999 350,000
--------------
887,500
Consumer Durable Goods (--%)
- ------------------------------------------------------------------------------------------------------------
500,000 Selmer Co., Inc. sr. sub. notes, 11s, 2005 503,750
159,208 Simmons Mattress Corp. 144A deb., 8s, 2003 ++++ 160,800
--------------
664,550
Consumer Non Durables (--%)
- ------------------------------------------------------------------------------------------------------------
500,000 Playtex Family Products Corp. sr. sub. notes, 9s, 2003 461,250
Consumer Services (--%)
- ------------------------------------------------------------------------------------------------------------
263,750 Coinmach Corp. 144A sr. notes, 11 3/4s, 2005 270,344
Electronics (0.1%)
- ------------------------------------------------------------------------------------------------------------
1,000,000 Amphenol Corp. sr. sub. notes, 12 3/4s, 2002 1,135,000
Entertainment (0.4%)
- ------------------------------------------------------------------------------------------------------------
400,000 Alliance Entertainment Corp. sr. sub. notes, Ser. B,
11 1/4s, 2005 400,000
770,000 Cinemark USA sr. notes, 12s, 2002 839,300
500,000 Marvel Parent Holdings, Inc. sr. secd. disc. notes, 1998 367,500
350,000 Premier Parks, Inc. sr. notes, Ser. A, 12s, 2003 369,250
750,000 Six Flags Corp. sr. sub. notes stepped-coupon zero %
(12 1/4s, 6/15/98), 2005 ++ 637,500
625,000 Time Warner Inc. deb. 9.15s, 2023 703,000
4,000,000 Time Warner Inc. deb. 9 1/8s, 2013 4,463,680
150,000 Time Warner, Inc. notes, 8.18s, 2007 160,880
150,000 Time Warner, Inc. notes, 8.11s, 2006 159,711
75,000 Time Warner, Inc. notes, 7.975s, 2004 79,334
--------------
8,180,155
Environmental Control (--%)
- ------------------------------------------------------------------------------------------------------------
300,000 Allied Waste Industries sr. sub. notes, 12s, 2004 325,500
Food and Beverages (0.2%)
- ------------------------------------------------------------------------------------------------------------
1,000,000 Fresh Del Monte Produce Corp. NV 144A sr. notes,
10s, 2003 (Netherlands) 900,000
1,680,000 Secured Restaurants Trust deb., 10 1/4s, 2000 1,920,257
250,000 Stater Brothers sr. notes, 11s, 2001 251,250
--------------
3,071,507
Health Care (0.4%)
- ------------------------------------------------------------------------------------------------------------
600,000 Abbey Healthcare Group sr. sub. notes, 9 1/2s, 2002 645,000
2,320,000 Columbia Healthcare Corp. deb., 8.36s, 2024 2,634,035
500,000 Graphic Controls Corp. 144A sr. sub. notes, 12s, 2005 527,500
250,000 Integrated Health Services sr. sub. notes, 9 5/8s, 2002 262,500
675,000 Ivac Corp. sr. notes, 9 1/4s, 2002 707,063
300,000 McGaw, Inc. sr. notes, 10 3/8s, 1999 307,500
750,000 Merit Behavioral Care 144A sr. sub. notes, 11 1/2s, 2005 806,250
1,050,000 Paracelsus Healthcare Corp. sr. sub. notes, 9 7/8s, 2003 1,073,625
150,000 Tenet Healthcare Corp. sr. notes, 8 5/8s, 2003 160,875
--------------
7,124,348
Insurance and Finance (2.3%)
- ------------------------------------------------------------------------------------------------------------
375,000 AIM Management Group sr. secd. notes, 9s, 2003 395,625
1,500,000 AMBAC Indemnity Corp. deb., 9 3/8s, 2011 1,878,795
1,000,000 American Annuity Group, Inc. sr. sub. notes, 11 1/8s, 2003 1,090,000
3,000,000 American Financial Group sub. notes, 10 7/8s, 2011 3,590,400
150,000 American Life Holding Co. sr. sub. notes, 11 1/4s, 2004 159,000
1,245,000 BAT Capital Corp. 144A med. term notes, 6.19s, 2000 1,257,811
750,000 CCP Insurance sr. notes, 10 1/2s, 2004 878,438
250,000 Centerbank sub. notes, 8 3/8s, 2002 258,906
750,000 Chevy Chase Savings Bank Inc. sub. deb., 9 1/4s, 2005 772,500
5,000,000 Citicorp sub. notes, 7 1/8s, 2005 5,314,600
3,225,000 Den Danske Bank sub. notes 6.55s, 2003 (Denmark) 3,265,313
1,125,000 First National Omaha sub. notes, 7.32s, 2010 1,161,900
900,000 First Nationwide 144A sr. sub. notes 9 1/8s, 2003 922,500
2,000,000 Goldman, Sachs & Co. 144A deb., 8s, 2013 2,150,460
4,815,000 Great Western Financial Corp. notes, 6 1/8s, 1998 4,895,844
350,000 Keystone Group, Inc. sr. secd. notes, 9 3/4s, 2003 341,250
250,000 Leucadia National sr. sub. notes, 10 3/8s, 2002 272,500
2,300,000 Midlantic Banks deb., 9 7/8s, 1999 2,618,159
2,000,000 Orion Capital Corp. sr. notes, 9 1/8s, 2002 2,266,660
570,000 Phoenix Re Corp. 9 3/4s, 2003 614,175
150,000 Primark Corp. sr. notes, 8 3/4s, 2000 156,188
450,000 Reliance Group Holdings, Inc. sr. notes, 9s, 2000 465,750
3,750,000 Riggs National Corp. sub. deb., 8 1/2s, 2006 4,031,250
2,000,000 Society Bank & Trust 12 1/2s, 1999 2,405,000
450,000 Terra Nova Insurance Holdings. sr. notes, 10 3/4s,
2005 (United Kingdom) 495,000
--------------
41,658,024
Lodging (0.1%)
- ------------------------------------------------------------------------------------------------------------
400,000 John Q. Hammons Hotels, Inc. 1st mtge., 8 7/8s, 2004 400,000
390,000 HMH Properties, Inc. sr. notes, 9 1/2s, 2005 402,188
500,000 La Quinta Motor Inns, Inc. deb., 9 1/4s, 2003 530,000
750,000 Prime Hospitality Corp. 1st mtge., 9 1/4s, 2006 750,938
--------------
2,083,126
Metals and Mining (0.2%)
- ------------------------------------------------------------------------------------------------------------
450,000 Great Lakes Carbon Corp. sr. notes, 10s, 2006 472,500
3,765,000 Noranda Inc. notes, 7s, 2005 (Canada) 3,893,198
--------------
4,365,698
Oil and Gas (1.2%)
- ------------------------------------------------------------------------------------------------------------
300,000 Chesapeake Energy Corp. sr. notes, 10 1/2s, 2002 316,500
300,000 Flores & Rucks, Inc. sr. notes, 13 1/2s, 2004 342,000
405,000 Gulf Canada Resources Ltd. sr. sub. notes, 9 5/8s,
2005 (Canada) 432,338
250,000 Maxus Energy Corp. global notes, 9 7/8s, 2002 255,000
400,000 Maxus Energy Corp. notes, 9 1/2s, 2003 396,000
100,000 Maxus Energy Corp. notes, 9 3/8s, 2003 101,000
4,710,000 Parker & Parsley Petro Co. sr. notes, 8 7/8s, 2005 5,303,696
3,000,000 Petro Canada deb., 9 1/4s, 2021 (Canada) 3,787,500
4,140,000 Petroliam Nasional Berhad 144A notes, 7 1/8s,
2005 (Malaysia) 4,383,225
750,000 Transtexas Gas Corp. sr. secd. notes, 11 1/2s, 2002 768,750
400,000 Triton Energy sr. sub. disc. notes stepped-coupon zero %
(9 3/4s, 12/15/96), 2000 ++ 382,000
4,930,000 Union Texas Petroleum med. term notes, 6.51s, 2002 4,970,673
--------------
21,438,682
Paper and Forest Products (0.2%)
- ------------------------------------------------------------------------------------------------------------
350,000 APP International Finance Co. notes, 11 3/4s,
2005 (Netherlands) 346,500
750,000 Doman Industries Ltd. sr. notes, 8 3/4s, 2004
(Canada) 712,500
425,000 Domtar, Inc. notes, 12s, 2001 (Canada) 502,563
250,000 Domtar, Inc. deb., 11 1/4s, 2017 (Canada) 265,938
750,000 Repap New Brunswick sr. notes, 10 5/8s, 2005 (Canada) 727,500
750,000 Stone Consolidated Corp. sr. notes, 10 1/4s, 2000 (Canada) 806,250
500,000 Stone Container Corp. sr. sub. notes, 9 7/8s, 2001 483,750
--------------
3,845,001
Publishing (0.1%)
- ------------------------------------------------------------------------------------------------------------
500,000 American Media Operation, Inc. sr. sub. notes, 11 5/8s, 2004 518,750
500,000 World Color Press sr. sub. notes, 9 1/8s, 2003 512,500
--------------
1,031,250
Real Estate (0.2%)
- ------------------------------------------------------------------------------------------------------------
4,255,000 Meditrust Inc. med. term notes, 7.30s, 2006 4,305,528
Recreation (0.2%)
- ------------------------------------------------------------------------------------------------------------
250,000 Arizona Charlies Corp. 1st mtge., Ser. B, 12s, 2000 162,500
750,000 Bally Park Place 1st mtge., 9 1/4s, 2004 768,750
250,000 Casino America, Inc. 1st mtge., 11 1/2s, 2001 246,250
250,000 Coast Hotels & Casinos Corp. 144A 1st mtge., 13s, 2002 244,375
900,000 Grand Casinos, Inc. 1st mtge., 10 1/8s, 2003 974,250
350,000 Lady Luck Gaming Corp. 1st mtge., Ser. B, 10 1/2s, 2001 290,500
500,000 Players International Inc. sr. notes, 10 7/8s, 2005 477,500
450,000 Trump Hotels Corp. sr. notes, 15 1/2s, 2005 497,250
750,000 Trump Plaza Funding, Inc. 1st mtge. notes, 10 7/8s, 2001 795,000
--------------
4,456,375
Retail (0.5%)
- ------------------------------------------------------------------------------------------------------------
400,000 Brylane (L.P.) sr. sub. notes, 10s, 2003 354,000
1,000,000 County Seat Stores Inc. sr. sub notes, 12s, 2002 700,000
750,000 Federated Department Stores sr. notes, 8 1/8s, 2002 755,625
770,000 Finlay Enterprises, Inc. sr. notes, 10 5/8s, 2003 743,050
500,000 Loehmanns' Holdings, Inc. sr. notes, 10 1/2s, 1997 495,000
525,000 Mother's Work, Inc. sr. notes, 12 5/8s, 2005 538,125
500,000 Revco D.S., Inc. sr. notes, 9 1/8s, 2000 537,500
1,000,000 Safeway, Inc. med. term notes, 8.57s, 2003 1,086,250
2,000,000 Sears, Roebuck & Co. med. term notes, 9.1s, 2012 2,474,460
740,000 Southland Corp. 1st priority sr. sub. deb., 5s, 2003 616,050
500,000 Waban, Inc. sr. sub. notes, 11s, 2004 515,000
--------------
8,815,060
Specialty Consumer Products (--%)
- ------------------------------------------------------------------------------------------------------------
715,000 Herff Jones, Inc. sr. sub. notes, 11s, 2005 772,200
Telecommunications (0.2%)
- ------------------------------------------------------------------------------------------------------------
425,000 Call-Net Enterprises sr. disc. notes stepped-coupon zero %
(13 1/4s, 12/1/99), 2004 ++ 310,250
500,000 Centennial Cellular Corp. sr. notes, 8 7/8s, 2001 496,250
250,000 Fonorola, Inc. sr. notes, 12 1/2s, 2002 (Canada) 270,000
250,000 Intermedia Communications of Florida sr. notes, Ser. B,
13 1/2s, 2005 292,500
490,000 MFS Communications sr. disc. notes stepped-coupon zero %
(9 3/8s, 1/15/99), 2004 ++ 388,325
700,000 MFS Communications sr. disc. notes stepped-coupon zero %
(8 7/8s, 1/1/01), 2006 ++ 460,250
425,000 Metrocall, Inc. sr. sub. notes, 10 3/8s, 2007 456,875
250,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (11 1/2s, 9/1/98), 2003 ++ 155,000
250,000 Rogers Cantel Mobile Inc. deb., 10 3/4s, 2001 263,125
--------------
3,092,575
Textiles (--%)
- ------------------------------------------------------------------------------------------------------------
500,000 Reeves Industries Inc. bonds, 11s, 2002 451,875
Transportation (0.6%)
- ------------------------------------------------------------------------------------------------------------
2,850,000 AMR Corp. deb., 9.73s, 2014 3,387,966
90,000 Blue Bird Body Co. sub. deb., Ser. B, 11 3/4s, 2002 93,600
4,275,000 Burlington Northern Santa Fe Corp. notes, 6 3/8s, 2005 4,288,210
450,000 Eletson Holdings, Inc. 1st. pfd. mtge. notes, 9 1/4s, 2003 452,250
450,000 International Shipholding Corp. sr. notes, 9s, 2003 459,000
2,000,000 Southwest Airlines Co. deb., 7 7/8s, 2007 2,205,880
500,000 Viking Star Shipping sr. secd. notes, 9 5/8s, 2003 525,000
--------------
11,411,906
Utilities (1.1%)
- ------------------------------------------------------------------------------------------------------------
4,060,000 Arkla, Inc. notes, 8 7/8s, 1999 4,374,366
2,615,000 Citizens Utilities Co. bonds, 7.68s, 2034 3,017,919
350,000 Cleveland Electric Illuminating Co. 1st mtge., Ser. B,
9 1/2s, 2005 364,875
500,000 First PV Funding deb., 10.15s, 2016 517,500
2,581,908 Midland Cogeneration Ventures deb., 10.33s, 2002 2,727,140
1,075,000 Niagara Mohawk Power Corp. med. term notes, 9.95s, 2000 1,053,500
250,000 Texas New Mexico Power deb., 12 1/2s, 1999 277,500
3,925,000 Texas New-Mexico Power 1st mtge., 9 1/4s, 2000 4,163,248
4,100,000 Texas Utilities Co. secd. lease fac. bonds, 7.46s, 2015 4,340,834
--------------
20,836,882
--------------
Total Corporate Bonds and Notes (cost $165,783,038) $172,379,892
<CAPTION>
Foreign Government Bonds and Notes (3.5%)* VALUE
PRINCIPAL AMOUNT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEM 16,705,000 Germany (Republic of) bonds, 6 7/8s, 2005 $11,975,393
ITL 8,500,000,000 Italy (Government of) bonds, 10 1/2s, 2000 5,555,366
USD 3,295,000 Italy (Republic of) global deb., 6 7/8s, 2023 3,185,507
NLG 28,645,000 Netherlands (Government of) deb., 6 3/4s, 2005 18,244,239
USD 1,790,000 Quebec (Government of) deb., 8 5/8s, 2005 2,062,062
DEM 11,800,000 Treuhandanstalt (Republic of Germany) 7 1/8s, 2003 8,613,572
GBP 4,670,000 United Kingdom Treasury bonds 8s, 2003 7,372,644
GBP 4,125,000 United Kingdom Treasury bonds 8s, 2000 6,569,173
--------------
Total Foreign Government Bonds and Notes
(cost $63,423,173) $63,577,956
<CAPTION>
COLLATERALIZED MORTGAGE OBLIGATIONS (1.9%)*
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$1,878,562 Chase Mortgage Finance Corp. Ser. 93-3, Class B1,
7.461s, 2024 $1,239,264
1,436,862 GE Capital Mortgage Services, Inc. Ser. 94-12,
Class B3, 6s, 2009 1,222,680
Housing Securities Inc.
1,996,327 Ser. 91-B, Class B6, 9s, 2006 2,007,557
286,671 Ser. 93-J, Class J4, 6.66s, 2009 244,297
155,997 Ser. 93-J, Class J5, 6.66s, 2009 113,098
253,038 Ser. 94-1, Class AB1, 6 1/2s, 2009 213,026
2,965,885 Prudential Home Loan Corp. Ser. 92-25, Class B3,
8s, 2002 2,343,049
Prudential Home Mortgage Securities
347,804 Ser. 94-31, Class B3, 8s, 2009 315,089
3,571,951 Ser. 93-B, Class 5B, 7.8366s, 2023 2,229,121
1,192,148 Ser. 95-D, Class 5B, 7.54s, 2025 767,445
1,288,924 Ser. 92-13, Class B3, 7 1/2s, 2007 1,104,648
2,034,798 Ser. 93-E, Class 5B, 7.3935s, 2023 1,163,332
1,647,433 Ser. 93-36, Class M, 7 1/4s, 2023 1,651,552
3,895,363 Ser. 93-D, Class 2B, 7.1082s, 2023 3,651,294
5,579,219 144A Ser. 95-C, Class B1, 7.8158s, 2001 5,675,111
3,528,428 144A Ser. 94-A, Class 4B, 6.8025s, 2024 3,356,417
1,271,643 144A Ser. 94-D, Class B4, 6.312s, 2009 1,058,643
1,419,461 Ryland Mortgage Securities Corp. Ser. 94-7C,
Class B2, 7.3586s, 2025 1,362,682
4,291,085 Securitized Asset Sales, Inc. Ser. 93-J, Class 2B,
6.8076s, 2023 4,113,408
687,293 Travelers Mortgage Securities Corp. Ser. 84-1,
12s, 2014 763,754
--------------
Total Collateralized Mortgage Obligations
(cost $33,229,367) $34,595,467
<CAPTION>
CONVERTIBLE BONDS AND NOTES (1.6%)*
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$4,600,000 ADT Operations Inc. cv. sub. notes, zero%, 2010 $2,173,500
575,000 Exide Corp. sr. sub. notes 2.9s, 2005 368,719
2,500,000 Liberty Property Trust cv. sub. deb. 8s, 2001 2,746,875
3,100,000 Magna International cv. sub. deb., 5s, 2002 3,146,500
9,400,000 Mitsubishi Bank Ltd. cv. trust guaranteed notes, 3s,
2002 (Japan) 10,551,500
700,000 Riverwood International Corp. sub. notes, 6 3/4s, 2003 789,250
11,000,000 Roche Holdings,144A Inc. cv. unsub. LYON (Liquid Yield
Option Notes), zero%, 2010 (Switzerland) 4,908,750
280,000 Toyota Motor Corp. cv. deb. 1.2s, 1998 3,131,890
1,200,000 Trenwick Group, Inc. cv. deb. 6s, 1999 1,368,000
1,119,000 WMX Technologies, Inc. cv. sub. notes 2s, 2005 973,530
--------------
Total Convertible Bonds and Notes
(cost $27,383,247) $30,158,514
CONVERTIBLE PREFERRED STOCKS (0.9%)*
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
65,000 Fieldcrest Cannon Ser. A, $3.00 cv. pfd. $2,786,875
421,000 Freeport McMoran Copper Co., Inc. stepped-coupon
$1.25 ($1.75, 8/1/96)++ 11,577,500
5,000 Granite Broadcasting $1.938 cv. pfd. 243,750
54,000 Pittston Mineral Corp. $3.125 cv. pfd. 1,944,000
--------------
Total Convertible Preferred Stocks
(cost $15,687,171) $16,552,125
ASSET-BACKED SECURITIES (--%)*(COST $786,773)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$795,976 Merrill Lynch Mortgage Investors Inc. Ser. 89-E,
Class A, 9.4s, 2009 $849,203
PREFERRED STOCKS (--%)*(cost $786,563)
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
7,500 K-III Communications Ser. B, $11.625 pfd. ++++ $783,750
UNITS(--%)*
NUMBER OF UNITS VALUE
- ------------------------------------------------------------------------------------------------------------
250 Fitzgerald Gaming Co. units 13s, 2002 $233,770
276,000 Total Renal Care Holdings, Inc. units sr. sub. disc.
notes stepped-coupon zero % (12s, 8/15/97), 2004 ++ 273,930
--------------
Total Units (cost $491,830) $507,700
WARRANTS (--%)*+(cost $2,500)
NUMBER OF WARRANTS VALUE
- ------------------------------------------------------------------------------------------------------------
250 Intermedia Communications 144A $5,000
SHORT-TERM INVESTMENTS (4.7%)*
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$25,000,000 Ciesco L.P., effective yield of 5.48%, February 2, 1996 $24,996,194
15,000,000 Corporate Asset Funding Co. Inc., effective yield of
5.32%, April 22, 1996 14,820,450
8,000,000 Federal National Mortgage Assn., effective yield of
5.11%, June 13, 1996 7,848,971
15,000,000 Ford Motor Credit Co., effective yield of 5.62%,
5-Feb-96 14,990,633
16,400,000 USAA Capital Corp., effective yield of 5.38%,
14-Mar-96 16,297,063
7,311,000 Interest in $942,854,000 joint repurchase agreement
dated January 31, 1996 with Morgan Stanley & Co. Inc.
due February 1, 1996 with respect to various U.S. Treasury
yield of 5.85% 7,312,188
--------------
Total Short-Term Investments (cost $86,265,499) $86,265,499
--------------
Total Investments (cost $1,693,682,616)*** $1,918,032,901
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $1,841,786,936.
+ Non-income producing security.
++++ Income may be received in cash or additional securities at the discretion of the issuer.
++ The interest or dividend rate shown parenthetically represent the new interest or dividend rate to be
paid and the date the fund will begin receiving interest or dividends at this rate.
*** The aggregate identified cost on a tax basis is $1,696,576,287, resulting in gross unrealized
appreciation and depreciation of $235,938,491 and $14,481,877, respectively, or net unrealized appreciation
of $221,456,614.
ADR or ADS after the name of a holding represents ownership of foreign securities on deposit with
various domestic custodian banks.
TBA after the name of a security represents to be announced securities (See Note 1 to Financial Statements).
<CAPTION>
- ------------------------------------------------------------------------------
TBA Sale Commitments Outstanding at January 31, 1996
(Proceeds receivable $74,467,594)
- ------------------------------------------------------------------------------
Principal Delivery Coupon Market
Agency Amount Month Rate Value
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GNMA $25,919,000 Feb. 99 7 1/2s $26,680,241
GNMA 31,899,000 Feb. 99 7s 32,317,515
GNMA 15,686,000 Feb. 99 6 1/2s 15,587,963
- ------------------------------------------------------------------------------
$74,585,719
- ------------------------------------------------------------------------------
144A after the name of a security represents those exempt from registration
under Rule 144A of the Securities Act of 1933. These securities may be resold
in transactions exempt from registration, normally to qualified institutional
buyers.
- ------------------------------------------------------------------------------
Forward Currency Contracts to Sell at January 31, 1996
(aggregate face value $56,931,482)
- ------------------------------------------------------------------------------
Unrealized
Market Aggregate Delivery Appreciation/
Value Face Value Date (Depreciation)
- ------------------------------------------------------------------------------
British Pounds $12,298,096 $12,522,534 3/13/96 $224,438
Deutschemarks 19,907,366 20,592,908 3/13/96 685,542
Italian Lira 5,341,060 5,276,587 3/13/96 (64,473)
Netherland Guilders 17,960,115 18,539,453 3/13/96 579,338
- ------------------------------------------------------------------------------
$1,424,845
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
January 31,1996 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $ 1,693,682,616) (Note 1) $1,918,032,901
- ---------------------------------------------------------------------------------------------------
Cash 744,341
- ---------------------------------------------------------------------------------------------------
Dividends and interest receivable 15,071,402
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 5,806,190
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 131,492,833
- ---------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 1,489,318
- ---------------------------------------------------------------------------------------------------
Total assets 2,072,636,985
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 151,599,291
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 940,366
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,494,917
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 1,723
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,126
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 536,704
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 1,116,097
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 64,473
- ---------------------------------------------------------------------------------------------------
TBA sales commitments, at value (premium received $74,467,594) 74,585,719
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 508,633
- ---------------------------------------------------------------------------------------------------
Total liabilities 230,850,049
- ---------------------------------------------------------------------------------------------------
Net assets $1,841,786,936
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in-capital (Note 4) $1,576,019,242
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 8,785,281
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 31,367,917
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 225,614,496
- ---------------------------------------------------------------------------------------------------
Total - Representing net assets applicable to
capital shares outstanding $1,841,786,936
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price of class A shares
($1,312,491,759 divided by 83,060,372 shares) $15.80
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $15.80)* $16.76
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price of class B shares
($314,904,178 divided by 20,029,795 shares)** $15.72
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price of class M shares
($21,568,273 divided by 1,371,147 shares) $15.73
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100 / 96.50 of $15.73)* $16.30
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price of
class Y shares ($192,822,726 divided by 12,187,328 shares) $15.82
- ---------------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the
offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred
sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended January 31,1996 (Unaudited)
<S> <C>
Investment Income
- ---------------------------------------------------------------------------------------------------
Interest $ 23,670,346
- ---------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $79,298) 16,476,990
- ---------------------------------------------------------------------------------------------------
Total investment income 40,147,336
Expenses:
- ---------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,853,599
- ---------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,122,278
- ---------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 20,471
- ---------------------------------------------------------------------------------------------------
Reports to shareholders 63,062
- ---------------------------------------------------------------------------------------------------
Auditing 30,229
- ---------------------------------------------------------------------------------------------------
Legal 9,382
- ---------------------------------------------------------------------------------------------------
Postage 54,815
- ---------------------------------------------------------------------------------------------------
Registration Fees 126,194
- ---------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,428,651
- ---------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,327,744
- ---------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 56,373
- ---------------------------------------------------------------------------------------------------
Administrative services (Note 2) 12,832
- ---------------------------------------------------------------------------------------------------
Other expenses 21,716
- ---------------------------------------------------------------------------------------------------
Total expenses 8,127,346
- ---------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (248,906)
- ---------------------------------------------------------------------------------------------------
Net expenses 7,878,440
- ---------------------------------------------------------------------------------------------------
Net investment income 32,268,896
- ---------------------------------------------------------------------------------------------------
Net realized gain on investments 68,065,242
- ---------------------------------------------------------------------------------------------------
Net realized gain on forward contracts and
foreign currency translation 751,261
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
TBA sale commitments during the period 85,413,522
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation on forward currency contracts
and foreign currency translation during the period 2,195,690
- ---------------------------------------------------------------------------------------------------
Net gain on investments 156,425,715
- ---------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $188,694,611
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
January 31 July 31
1996* 1995
<S> <C> <C>
- ------------------------------------------------------------------------------- -------------------
Increase in net assets
- ------------------------------------------------------------------------------- -------------------
Operations:
- ------------------------------------------------------------------------------- -------------------
Net investment income $ 32,268,896 $ 55,185,187
- ------------------------------------------------------------------------------- -------------------
Net realized gain on investments and
foreign currency transactions 68,816,503 29,434,191
- ------------------------------------------------------------------------------- -------------------
Net unrealized appreciation of investment transactions
and assets and liabilities in foreign currencies 87,609,212 121,774,937
- ------------------------------------------------------------------------------- -------------------
Net increase in net assets resulting from operations 188,694,611 206,394,315
- ------------------------------------------------------------------------------- -------------------
Distributions to shareholders
- ------------------------------------------------------------------------------- -------------------
From net investment income:
Class A (21,138,450) (38,735,859)
- ------------------------------------------------------------------------------- -------------------
Class B (3,980,422) (5,837,212)
- ------------------------------------------------------------------------------- -------------------
Class M (212,714) (50,170)
- ------------------------------------------------------------------------------- -------------------
Class Y (3,345,401) (3,750,110)
- ------------------------------------------------------------------------------- -------------------
From net realized gain on investments:
Class A (45,204,844) (21,876,638)
- ------------------------------------------------------------------------------- -------------------
Class B (10,876,061) (3,901,612)
- ------------------------------------------------------------------------------- -------------------
Class M (598,184) --
- ------------------------------------------------------------------------------- -------------------
Class Y (6,793,689) (1,862,529)
- ------------------------------------------------------------------------------- -------------------
Increase from capital share transactions (Note 4) 322,641,650 156,156,398
- ------------------------------------------------------------------------------- -------------------
Total increase in net assets 419,186,496 286,536,583
- ------------------------------------------------------------------------------- -------------------
Net assets
- ------------------------------------------------------------------------------- -------------------
Beginning of period 1,422,600,440 1,136,063,857
- ------------------------------------------------------------------------------- -------------------
End of period (including undistributed net investment
income of $8,785,281 and $5,193,372, respectively) $1,841,786,936 $1,422,600,440
- ------------------------------------------------------------------------------- -------------------
* Unaudited.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
(For a share outstanding throughout the period.)
- ------------------------------------------------------------------------------------------------------
December 1, 1994
(commencement Year
Six months of operations) Six months ended
ended Jan. 31 to July 31 ended Jan. 31 July 31
- ------------------------------------------------------------------------------------------------------
1996* 1995 1996* 1995
- ------------------------------------------------------------------------------------------------------
Class M Class Y
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $14.84 $12.77 $14.92 $13.54
- ------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------
Net investment income .28 .31 .34 .66
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.51 2.03 1.51 1.63
- ------------------------------------------------------------------------------------------------------
Total from investment operations 1.79 2.34 1.85 2.29
- ------------------------------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------------------------------
Net investment income (.27) (.27) (.32) (.59)
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss)
on investments (.63) -- (.63) (.32)
- ------------------------------------------------------------------------------------------------------
Total distributions (.90) (.27) (.95) (.91)
- ------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.73 $14.84 $15.82 $14.92
- ------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 12.40(b) 18.52(b) 12.75(b) 18.00
- ------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $21,568 $8,164 $192,823 $153,597
- ------------------------------------------------------------------------------------------------------
Ratio of expenses
to average net assets (%)(c) .75(b) .93(b) .34(b) .66
- ------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) 1.79(b) 2.53(b) 2.22(b) 4.78
- ------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 54.10(b) 102.57 54.10(b) 102.57
- ------------------------------------------------------------------------------------------------------
<CAPTION>
Financial Highlights (Continued)
(For a share outstanding throughout the period.)
- -----------------------------------------------------------------------------------------------------
April 1, 1994
(commencement Six months
of operations) ended Year
to July 31 Jan. 31 ended July 31
- -----------------------------------------------------------------------------------------------------
1994 1996* 1995 1994
- -----------------------------------------------------------------------------------------------------
Class B
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $13.21 $14.83 $13.46 $14.19
- -----------------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------------
Net investment income .17 .26 .52 .50
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .31 1.50 1.63 (.12)
- -----------------------------------------------------------------------------------------------------
Total from investment operations .48 1.76 2.15 .38
- -----------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------
Net investment income (.15) (.24) (.46) (.49)
- -----------------------------------------------------------------------------------------------------
Net realized gain (loss)
on investments -- (.63) (.32) (.62)
- -----------------------------------------------------------------------------------------------------
Total distributions (.15) (.87) (.78) (1.11)
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $13.54 $15.72 $14.83 $13.46
- -----------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 3.65(b) 12.21(b) 16.87 2.70
- -----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $71,566 $314,904 $224,166 $151,327
- -----------------------------------------------------------------------------------------------------
Ratio of expenses
to average net assets (%)(c) .25(b) .84(b) 1.66 1.71
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) 1.34(b) 1.71(b) 3.81 3.39
- -----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 100.69 54.10(b) 102.57 100.69
- -----------------------------------------------------------------------------------------------------
<CAPTION>
Financial Highlights (Continued)
(For a share outstanding throughout the period.)
- -----------------------------------------------------------------------------------------------------
April 27, 1992
(commencement Six months
of operations) ended
to July 31 Jan. 31
- -----------------------------------------------------------------------------------------------------
1993 1992 1996* 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $14.22 $13.73 $14.90 $13.52
- -----------------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------------
Net investment income .56 .13** .32 .63
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .48 .53 1.51 1.63
- -----------------------------------------------------------------------------------------------------
Total from investment operations 1.04 .66 1.83 2.26
- -----------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------
Net investment income (.59) (.17) (.30) (.56)
- -----------------------------------------------------------------------------------------------------
Net realized gain (loss)
on investments (.48) -- (.63) (.32)
- -----------------------------------------------------------------------------------------------------
Total distributions (1.07) (.17) (.93) (.88)
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $14.19 $14.22 $15.80 $14.90
- -----------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 7.87 4.99(b) 12.62(b) 17.73
- -----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $81,983 $11,946 $1,312,492 $1,036,674
- -----------------------------------------------------------------------------------------------------
Ratio of expenses
to average net assets (%)(c) 1.66 .55(b) .46(b) .91
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) 3.43 .84(b) 2.10(b) 4.58
- -----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 89.22 78.90 54.10(b) 102.57
- -----------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- -----------------------------------------------------------------------------------------------------
Year ended July 31
- -----------------------------------------------------------------------------------------------------
1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $14.24 $14.24 $13.52 $13.39
- -----------------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------------
Net investment .59 .62 .64 .69
income
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.11) .52 1.12 .64
- -----------------------------------------------------------------------------------------------------
Total from investment operations .48 1.14 1.76 1.33
- -----------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------
Net investment income (.58) (.66) (.68) (.68)
- -----------------------------------------------------------------------------------------------------
Net realized gain (loss)
on investments (.62) (.48) (.36) (.52)
- -----------------------------------------------------------------------------------------------------
Total distributions (1.20) (1.14) (1.04) (1.20)
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $13.52 $14.24 $14.24 $13.52
- -----------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 3.46 8.64 13.68 11.28
- -----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $913,171 $772,540 $622,129 $479,287
- -----------------------------------------------------------------------------------------------------
Ratio of expenses
to average net assets (%)(c) .95 .90 1.06 .94
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) 4.15 4.34 4.62 5.42
- -----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 100.69 89.22 78.90 64.98
- -----------------------------------------------------------------------------------------------------
See page 32 for Notes to the Financial highlights.
* Unaudited.
** Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the period.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Not annualized.
(c) The ratio of expenses to average net assets for the period ended January 31, 1996 includes amounts paid through
brokerage service and expense offset arrangements. Prior period ratios exclude these amounts. (See Note 2).
</TABLE>
Notes to financial statements
January 31, 1996 (Unaudited)
Note 1
Significant accounting policies
The fund is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. The
fund seeks to provide a balanced investment composed of a well-
diversified portfolio of stocks and bonds which will produce both
capital growth and current income.
The fund offers class A, class B, class M and class Y shares. Class A
shares are sold with a maximum front-end sales charge of 5.75%. Class B
shares, which convert to class A shares after eight years, do not pay a
front-end sales charge but pay a higher ongoing distribution fee than
class A shares, and may be subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class
M shares are sold with a maximum front-end sales charge of 3.50% and pay
an ongoing distribution fee that is lower than class B shares and higher
than class A shares. Class Y shares, which are sold at net asset value,
are generally subject to the same expenses as class A shares, class B
shares and class M shares, but do not bear a distribution fee. Class Y
shares are sold to defined contribution plans that initially invest in a
combination of Putnam funds.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies followed
by the fund in the preparation of its financial statements. The
preparation of financial statements are in conformity with generally
accepted accounting principles and requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities. Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined using
the last reported sale price, or, if no sales are reported -- as in the
case of some securities traded over-the-counter -- the last reported bid
price. Short-term investments having remaining maturities of 60 days or
less are stated at amortized cost, which approximates market value, and
other investments are stated at fair value following procedures approved
by the Trustees. Market quotations are not considered to be readily
available for certain long-term corporate bonds and notes; such
investments are stated at fair value on the basis of valuations
furnished by a pricing service, approved by the Trustees, which
determines valuations for normal, institutional size trading units of
such securities using methods based on market transactions for
comparable securities and various relationships between securities which
are generally recognized by institutional traders.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances into a joint trading account, along with the cash of other
registered investment companies managed by Putnam Investment Management,
Inc. ("Putnam Management"), the fund's manager, a wholly-owned
subsidiary of Putnam Invesments, Inc. and certain other accounts. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to 102% of the resale price, including accrued
interest. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to
102% of the resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Interest income is recorded on the accrual basis
and dividend income is recorded on the
ex-dividend date except that certain dividends from foreign securities
are recorded as soon as the fund is informed of the ex-dividend date.
Discounts on zero coupon bonds, original issue, stepped-coupon bonds and
payment in kind bonds are accreted according to the effective yield
method.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such fluctuations are included with the net realized
and unrealized gain or loss on investments. Net realized gains and
losses on foreign currency transactions represent net exchange gains or
losses on closed forward currency contracts, disposition of foreign
currencies and the difference between the amount of investment income
and foreign withholding taxes recorded on the fund's books and the U.S.
dollar equivalent amounts actually received or paid. Net unrealized
gains and losses on foreign currency transactions arise from changes in
the value of open forward currency contracts and assets and liabilities
other than investments at the period end, resulting from changes in the
exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a decline
in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of a currency in which securities a fund intends to buy are
denominated, when a fund holds cash reserves and short-term
investments). The U.S. dollar value of forward currency contracts is
determined using forward currency exchange rates supplied by a quotation
service. The market value of the contract will fluctuate with changes in
currency exchange rates. The contract is "marked-to-market" daily and
the change in market value is recorded as an unrealized gain or loss.
When the contract is closed, the fund records a realized gain or loss
equal to the difference between the value of the contract at the time it
was opened and the value at the time it was closed. The fund could be
exposed to risk if the value of the currency changes unfavorably, if the
counterparties to the contracts are unable to meet the terms of their
contracts or if the fund is unable to enter into a closing position.
G) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation of securities held and for excise tax on income and capital
gains.
H) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid annually. The amount and character of income and gains to be
distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
I) TBA purchase commitments The fund may enter into "TBA" (to be
announced) purchase commitments to purchase securities for a fixed unit
price at a future date beyond customary settlement time. Although the
unit price has been established, the principal value has not been
finalized. However, the amount of the commitments will not fluctuate
more than 2.0% from the principal amount. The fund holds, and maintains
until settlement date, cash or high-grade debt obligations in an amount
sufficient to meet the purchase price, or the fund may enter into
offsetting contracts for the forward sale of other securities it owns.
Income on the securities will not be earned until settlement date. TBA
purchase commitments may be considered securities in themselves, and
involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to the
risk of decline in the value of the fund's other assets. Unsettled TBA
purchase commitments are valued at the current market value of the
underlying securities, generally according to the procedures described
under "Security valuation" above.
Although the fund will generally enter into TBA purchase commitments
with the intention of acquiring securities for their portfolio or for
delivery pursuant to options contracts it has entered into, the fund may
dispose of a commitment prior to settlement if Putnam Management deems
it appropriate to do so.
TBA sale commitments The fund may enter into TBA sale commitments to
hedge its portfolio positions or to sell mortgage-backed securities it
owns under delayed delivery arrangements. Proceeds of TBA sale
commitments are not received until the contractual settlement date.
During the time a TBA sale commitment is outstanding, equivalent
deliverable securities, or an offsetting TBA purchase commitment
deliverable on or before the sale commitment date, are held as "cover"
for the transaction.
Unsettled TBA sale commitments are valued at the current market value of
the underlying securities, generally according to the procedures
described under "Security valuation" above. The contract is "marked-to-
market" daily and the change in market value is recorded by a fund as an
unrealized gain or loss. If the TBA sale commitment is closed through
the acquisition of an offsetting purchase commitment, the fund realizes
a gain or loss on the underlying security. If the fund delivers
securities under the commitment, the fund realizes a gain or a loss from
the sale of the securities based upon the unit price established at the
date the commitment was entered into.
Note 2
Management fee, administrative
services, and
other transactions
Compensation of Putnam Management for management and investment advisory
services is paid quarterly based on the average net assets of the fund
for the quarter. Such fee is based on an annual rate of 0.60% of the
first $100 million of average net assets, 0.50% of the next $100
million, 0.40% of the next $300 million, 0.325% of the next $500 million
and 0.30% of any amount over $1.0 billion, subject under current law, to
reduction in any year to the extent that expenses (exclusive of
brokerage, interest, taxes, and distribution fees and extraordinary
expenses) of the fund exceed 2.5% of the first $30 million of average
net assets, 2.0% of the next $70 million and 1.5% of any amount over
$100 million and by the amount of certain brokerage commissions and fees
(less expenses) received by affiliates of the Manager on the fund's
portfolio transactions.
On January 5, 1996, the Trustees approved a proposal to increase fees
payable to Putnam Management under the fund's Management Contract. The
proposed increase is subject to shareholder approval and will be
submitted to shareholders at a meeting scheduled to be held on July 11,
1996. If approved at the meeting, management fees would thereafter be
paid at the annual rate of 0.65% of the first $500 million of average
net assets, 0.55% of the next $500 million, 0.50% of the next $500
million, 0.45% of the next $5 billion, 0.425% of the next $5 billion,
0.405% of the next $5 billion, 0.39% of the next $5 billion, and 0.38%
of any amount thereafter.
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Trustees of the fund receive an annual Trustees fee of $2,530 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows
the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund
and are invested in the fund or in other Putnam funds until distribution
in accordance with the Plan.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc.. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the six months ended January 31, 1996, fund expenses were reduced by
$248,906 under expense offset arrangements with PFTC and brokerage
service arrangements. Investor servicing and custodian fees reported in
the Statement of operations exclude these credits. The fund could have
invested the assets utilized in connection with the expense offset
arrangements in an income producing asset if it had not entered into
such arrangements.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Plans provide for payments by
the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%,
1.00%, and 1.00% of the average net assets attributable to class A,
class B, and class M shares, respectively. The Trustees have approved
payment by the fund at an annual rate of 0.25%, 1.00%, and 0.75% of the
average net assets attributable to class A, class B and class M shares,
respectively.
For the six months ended January 31, 1996, Putnam Mutual Funds Corp.,
acting as underwriter, received net commissions of $316,557 and $13,953
from the sale of class A and class M shares, respectively, and received
$140,606 in contingent deferred sales charges from redemptions of class
B shares. A deferred sales charge of up to 1% is assessed on certain
redemptions of class A shares. For the six months ended January 31,
1996, Putnam Mutual Funds Corp., acting as underwriter received $8,152
on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended January 31, 1996, purchases and sales of
investment securities other than U.S. government obligations and short-
term investments aggregated $646,756,070 and $551,014,989, respectively.
Purchases and sales of U.S. government obligations aggregated
$399,946,734 and $262,768,272, respectively. In determining the net gain
or loss on securities sold, the cost of securities
has been determined on the identified cost basis.
Note 4
Capital shares
At January 31, 1996, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended
January 31, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 14,758,071 $227,348,259
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,824,843 57,388,279
- ----------------------------------------------------
18,582,914 284,736,538
Shares
repurchased (5,106,810) (78,423,374)
- ----------------------------------------------------
Net increase 13,476,104 $206,313,164
- ----------------------------------------------------
Year ended
July 31, 1995
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 13,146,606 $180,553,042
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,834,615 50,531,572
- ----------------------------------------------------
16,981,221 231,084,614
Shares
repurchased (14,933,076) (206,639,360)
- ----------------------------------------------------
Net increase 2,048,145 $24,445,254
- ----------------------------------------------------
Six months ended
January 31, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 5,212,315 $79,756,032
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 925,096 13,845,749
- ----------------------------------------------------
6,137,411 93,601,781
Shares
repurchased (1,224,111) (18,711,445)
- ----------------------------------------------------
Net increase 4,913,300 $74,890,336
- ----------------------------------------------------
Year ended
July 31, 1995
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 5,418,159 $74,481,040
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 682,650 8,962,991
- ----------------------------------------------------
6,100,809 83,444,031
Shares
repurchased (2,232,649) (30,300,283)
- ----------------------------------------------------
Net increase 3,877,160 $53,143,748
- ----------------------------------------------------
Six months ended
January 31, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 831,718 $12,731,479
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 51,926 777,807
- ----------------------------------------------------
883,644 13,509,286
Shares
repurchased (62,501) (956,307)
- ----------------------------------------------------
Net increase 821,143 $12,552,979
- ----------------------------------------------------
December 1, 1994
(commencement of
operations) to
July 31, 1995
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 593,067 $8,359,665
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,587 49,999
- ----------------------------------------------------
596,654 8,409,664
Shares
repurchased (46,650) (638,771)
- ----------------------------------------------------
Net increase 550,004 $7,770,893
- ----------------------------------------------------
Six months ended
January 31, 1996
- ----------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------
Shares sold 2,253,916 $34,711,736
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 674,829 10,141,090
- ----------------------------------------------------
2,928,745 44,852,826
- ----------------------------------------------------
Shares
repurchased (1,039,345) (15,967,655)
- ----------------------------------------------------
Net increase 1,889,400 $28,885,171
- ----------------------------------------------------
Year ended
July 31, 1995
- ----------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------
Shares sold 5,778,282 $81,698,558
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 423,222 5,612,640
- ----------------------------------------------------
6,201,504 87,311,198
- ----------------------------------------------------
Shares
repurchased (1,188,113) (16,514,695)
- ----------------------------------------------------
Net increase 5,013,391 $70,796,503
- ----------------------------------------------------
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Edward P. Bousa
Vice President and Fund Manager
Kenneth J. Taubes
Vice President and Fund Manager
Rosemary H. Thomsen
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of The George Putnam
Fund of Boston. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and
the most recent copy of Putnam's Quarterly Performance Summary. For more
information, or to request a prospectus, call toll free: 1-800-225-1581.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution, are not insured by the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board
or any other agency, and involve risk, including the possible loss of
principal amount invested.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston Massachusetts, 02109
23298-001/880/242
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
