The George
Putnam Fund
of Boston
ANNUAL REPORT
July 31, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* CDA/Wiesenberger ranked The George Putnam Fund of Boston's class A
shares 21 out of 264 (top 8%) and 10 out of 146 (top 7%) of all
balanced funds tracked for 1- and 3-year performance, as of 6/30/96.*
* As of June 30, 1996, The George Putnam Fund of Boston's class A shares
ranked in the top 12% (14 out of 125) of balanced funds tracked by
Lipper Analytical Services for 3-year performance.+
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
15 Portfolio holdings
30 Financial statements
*CDA/Wiesenberger is a mutual fund industry research firm whose rankings
are based on total return performance, vary over time, and do not
reflect the effects of sales charges. The fund's class A shares ranked
26 out of 80 (top 33%) and 8 out of 32 (top 25%) for 5- and 10-year
performance, respectively, as of 6/30/96. Performance of other share
classes will vary. Past performance is not indicative of future
results.
+Lipper is a mutual fund industry research firm whose rankings are based
on total return performance, vary over time, and do not reflect the
effects of sales charges. The fund's class A shares ranked 27 out of
247, 26 out of 67, and 6 out of 30 for l-, and 5-, and 10-year
performance, respectively, as of 6/30/96. Performance of other share
classes will vary. Past performance is not indicative of future
results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
The George Putnam Fund of Boston reaped the benefits of a sustained
rally in the stock and bond markets during much of the fiscal year ended
July 31, 1996. In the final months of the period, however, both markets
delivered stern reminders that such advances do not continue without
interruption.
Your fund's managers were able to sidestep much of the volatility in the
domestic bond market by concentrating fixed-income assets in the better-
performing high-yield bonds at home and in the more vibrant bond markets
abroad. Careful stock selection and the fund's value-oriented strategy
helped cushion the impact of the stock market's sharp decline in July.
With its time-tested balanced approach to investment management, the
fund thus was able to close its books on yet another year of solidly
positive results. In the report that follows, your fund's management
team discusses fiscal '96 performance and prospects for fiscal '97.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
September 18, 1996
Report from the Fund Managers
Edward P. Bousa, lead manager
Kenneth J. Taubes
Rosemary H. Thomsen
By maintaining its focus on a balanced strategy, The George Putnam Fund
of Boston held up well in a fiscal year marked by increasingly unsettled
financial markets. During the first half of the fiscal year that ended
on July 31, 1996, the fund took advantage of record highs and sustained
rallies in U.S. fixed-income and stock markets. In the second half, the
fund's diversification within both the stock and bond markets provided
strength as these markets began to falter. In the equity portion of the
fund's portfolio, solid stock selection and our value-oriented approach
helped cushion the blow of the market's sharp decline in July. The
fixed-income portion of the portfolio continued to benefit from foreign
holdings as well as the relative strength of high-yield bonds.
* HOLDINGS IN SEVERAL SECTORS STRENGTHEN EQUITY PORTFOLIO
One of the fundamentals of our investment strategy is identifying
undervalued companies that we believe are taking steps to improve
earnings. A good example in the fund's retail sector is Kmart Corp., an
international retailer with almost 2,400 outlets, including Builders
Square stores. Kmart recently made significant changes to its management
team and is expected to focus on improving customer frequency and
profitability in 1997. Dayton Hudson Corp., another of the fund's
profitable retail holdings, operates discount stores around the United
States and has recently worked to make cost reductions in many of its
divisions. While these stocks, along with others discussed in this
report, were viewed favorably at the end of the fiscal period, all
portfolio holdings are subject to review and adjustment in accordance
with the fund's investment strategy and may well vary in the future.
The consumer nondurables sector also proved profitable through the end
of the fiscal year. We believe this sector performed well because
investors were favoring industries with relatively predictable earnings,
such as tobacco and drug companies. One standout was American Home
Products Corp., which manufactures and markets prescription drugs and
over-the-counter medications. The company's recent success has been due
in part to thriving sales of new drugs such as Redux, for weight
management, and consumer health products like Centrum vitamins. Other
profitable stocks in the consumer nondurable area were Pharmacia &
Upjohn, Inc., an international pharmaceutical company, and Philip Morris
Cos., Inc. It is important to note that the fund's investment in Philip
Morris stock was significantly reduced shortly after the end of the
fiscal year and prior to recent events that had a negative impact on
Philip Morris stock, including tobacco litigation and the possibility of
FDA regulation. This decision was based on the stock's appreciation and
our value-oriented philosophy of selling into strength.
* INTERNATIONAL AND TECHNOLOGY STOCKS ALSO BOOST RETURNS
During fiscal 1996, we found more opportunities to invest in companies
that are headquartered overseas. These companies generally fit the same
profile as the U.S. companies in which the fund invests, with operations
and stock prices that we believe will improve in the years ahead.
Pilkington, for example, is headquartered in the United Kingdom and is a
leading manufacturer of glass products for housing and commercial and
industrial buildings in the United States and Europe. A more recent
addition to your fund's portfolio is Bayer, a German company whose
health-care division should be familiar to U.S. consumers; its products
include Bayer aspirin and Alka-Seltzer cold remedies.
[GRAPHIC 2 BAR HORIZONTAL BAR CHART OMITTED:
CHANGES IN PORTFOLIO COMPOSITION]
Top figures represents Portfolio Composition on 1/31/96
Bottom figures represents Portfolio Composition on 7/31/96
Common Stocks 58.9%
59.1%
U.S. government
and agency securities 23.2%
20.5%
Corporate bonds
and notes 9.4%
9.9%
Foreign government
bonds and notes 3.5%
2.6%
Collateralized
mortgage obligations 1.9%
1.9%
Convertible bonds
and notes 1.6%
1.1%
Convertible
preferred sotcks 0.9%
0.7%
Footnote reads:
*Based on net assets as of 7/31/96. Holdings will vary over time.
While calendar 1996 -- especially July -- was a difficult time for
technology companies, many of your fund's technology holdings offered
great value. Accordingly, we increased the allocation to a few large
technology companies that we believe have promising earnings prospects.
Texas Instruments, for example, has suffered from recent declines in its
semiconductor business but has a strong product line and a dominant
position in several new technology markets.
The overall decline in the semiconductor market also encouraged us to
invest in Intel Corp. and IBM at what we believed were bargain prices.
We remain optimistic that the technology sector, which represented about
4% of the fund's equity holdings at fiscal year's end, has the potential
to deliver strong returns over the long term.
The same factors that boosted utility stocks early in the fiscal year
brought weakness to the sector during the latter part of the period. The
rising-interest-rate environment of the past six months dampened the
performance of these holdings, which had performed well a year ago when
interest rates were declining. On a positive note, July proved a strong
month for utilities, bringing performance gains that helped offset the
sector's earlier losses.
* FOREIGN AND HIGH-YIELD BONDS SUPPORT FIXED-INCOME PORTFOLIO
In the first half of the fiscal year, the U.S. bond market was enjoying
one of the strongest periods in its history. Declining interest rates
and low inflation had created an extremely favorable environment for
fixed-income investments -- a situation we used to full advantage by
lengthening the duration of the portfolio. Duration is a measure of a
portfolio's sensitivity to interest-rate changes, and a longer duration
can be beneficial during a period of declining rates. Beginning in
February, however, the bond market began to weaken as signs of economic
strength emerged and investors became concerned about increasing
inflation. As interest rates rose, we took a more defensive stance by
shortening the duration.
[GRAPHIC CHART OMITTED: TOP 10 HOLDINGS]
Weyerhaeuser Co.
Forest products
Warner-Lambert Co.
Pharmaceuticals
IBM Corp.
Computer Services and software
TRW, Inc.
Conglomerates
NYNEX Corp.
Utilities
J.P. Morgan & Co., Inc.
Insurance and finance
Philip Morris Cos., Inc.
Tobacco, food products
Kimberly-Clark Corp.
Consumer nondurables
Texas Instruments, Inc.
Electronics and electrical equipment
Bell Atlantic Corp.
Utilities
These holdings represent 10.5% of the fund's assets as of 7/31/96.
Portfolio holdings will vary over time.
The strongest performance in your fund's fixed-income portfolio
continued to come from international holdings. The fund's overall
returns were enhanced by an increased exposure to foreign bonds, which
represented as much as 10% of the total bond portfolio during the fiscal
year's second half.
The fund's investments in Europe, specifically Italy and Germany, helped
to offset the declines in the U.S. market. Thanks to efforts on the part
of the Italian government to improve systemic financial problems,
Italy's bond market has become one of the world's strongest. The Italian
government appears committed to reining in public spending, reducing
budget deficits, and improving a volatile political environment. These
efforts, combined with a generally slow economy throughout Europe, have
resulted in exceptionally positive performance from Italian bonds. The
fund's German bond holdings benefited from that country's slowing
economy and declining interest rates.
The fund's high-yield corporate bond holdings also played a significant
role in neutralizing declines in U.S government securities. However,
after its lengthy run of strong performance, the high-yield sector began
to look less attractive. Toward the end of the period, we reduced the
portfolio position in this sector in favor of U.S. Treasuries. Other
corporate bond sectors that provided strength were the insurance and
energy industries. One of the fund's strongest bond positions was Parker
& Parsley, a large independent oil and gas producer. The value of these
bonds relative to Treasuries has increased as the company has continued
its efforts to reduce debt and further develop its drilling and
production capabilities. Stronger oil and gas prices have likewise
increased the value of the fund's energy bond holdings.
* REALISTIC OUTLOOK FOR THE COMING YEAR
We expect that the financial markets may experience more volatility in
the months ahead. But as the fund enters a new fiscal year, we remain
optimistic in our realization that down markets often mean the
opportunity to invest in quality stocks at bargain prices. We also
believe that despite market fluctuations, your fund will remain a solid,
balanced long-term investment choice.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 7/31/96, 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 7/31/96
Class A Class B Class M
(inception date) (11/5/37) (4/27/92) (12/1/94)
NAV POP NAV CDSC NAV POP
- -----------------------------------------------------------------------
1 year 14.75% 8.15% 13.97% 8.97% 14.26% 10.24%
- -----------------------------------------------------------------------
5 years 72.62 62.74 -- -- -- --
Annual average 11.54 10.23 -- -- -- --
- -----------------------------------------------------------------------
10 years 193.44 176.61 -- -- -- --
Annual average 11.37 10.71 -- -- -- --
- -----------------------------------------------------------------------
Life of class -- -- 54.70 52.70 35.42 30.71
Annual average -- -- 10.78 10.45 19.91 17.39
- -----------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 7/31/96
Standard &
Poor's Lehman Bros.
(registered trademark) Govn't/Corp. Consumer
500 Index Bond Index Price Index
- -----------------------------------------------------------------------
1 year 16.47% 5.31% 2.95%
- -----------------------------------------------------------------------
5 years 89.22 48.70 15.27
Annual average 13.60 8.26 2.88
- -----------------------------------------------------------------------
10 years 268.20 123.21 43.38
Annual average 13.92 8.36 3.67
- -----------------------------------------------------------------------
Life of class B 72.92 36.41 12.54
Annual average 13.72 7.58 2.81
- -----------------------------------------------------------------------
Life of class M 47.21 18.05 4.88
Annual average 26.06 10.46 2.89
- -----------------------------------------------------------------------
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. CDSC for
class B shares assumes the applicable sales charge, with the maximum
being 5%.
[GRAPHIC WORM CHART OMITTED: GROWTH OF A $10,000 INVESTMENT]
Caption reads: Cumulative total return of a $10,000 investment
since 7/31/86
Starting value (Insert ending Total)
$9,425 Fund's class A shares at POP $27,661
$10,000 S & P 500 Index $36,820
$10,000 Consumer Price Index $14,338
(plot points for 10-year total return mountain chart)
S & P 500
Date/year Fund at POP Index CPI
- --------- ----------- ------ ------
7/31/86 9,425 10,000 10,000
7/31/87 11,749 13,936 10,393
7/31/88 11,118 12,304 10,822
7/31/89 13,603 16,216 11,361
7/31/90 14,400 17,251 11,909
7/31/91 16,024 19,458 12,438
7/31/92 18,216 21,941 12,831
7/31/93 19,790 23,848 13,187
7/31/94 20,475 25,085 13,553
7/31/95 24,105 31,614 13,927
7/31/96 27,661 36,820 14,338
Footnote reads:
Past performance is no assurance of future results. A $10,000
investment in the fund's class B shares at inception on 4/27/92
would have been valued at $15,470 on 7/31/96 ($15,270 with a
redemption at the end of the period). A $10,000 investment in
the fund's class M shares at inception on 12/1/94 would have
been valued at $13,542 at net asset value on 7/31/96 $13,071
at public offering price.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 7/31/96
Class A Class B Class M
- -----------------------------------------------------------------------
Distributions (number) 4 4 4
- -----------------------------------------------------------------------
Income $0.577 $0.471 $0.521
- -----------------------------------------------------------------------
Capital gains
- -----------------------------------------------------------------------
Long-term 0.210 0.210 0.210
- -----------------------------------------------------------------------
Short-term 0.418 0.418 0.418
- -----------------------------------------------------------------------
Total $1.205 $1.099 $1.149
- -----------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- -----------------------------------------------------------------------
7/31/95 $14.90 $15.81 $14.83 $14.84 $15.38
- -----------------------------------------------------------------------
7/31/96 15.82 16.79 15.74 15.74 16.31
- -----------------------------------------------------------------------
Current return NAV POP NAV NAV POP
- -----------------------------------------------------------------------
End of period
- -----------------------------------------------------------------------
Current dividend rate1 3.54% 3.34% 2.87% 3.20% 3.09%
- -----------------------------------------------------------------------
Current 30-day SEC yield2 4.33 4.08 3.58 3.80 3.67
- -----------------------------------------------------------------------
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.
TOTAL RETURN FOR PERIODS ENDED 6/30/96
(most recent calendar quarter)
Class A Class B Class M
(inception date) (11/5/37) (4/27/92) (12/1/94)
NAV POP NAV CDSC NAV POP
- -----------------------------------------------------------------------
1 year 19.07% 12.25% 18.20% 13.20% 18.41% 14.27%
- -----------------------------------------------------------------------
5 years 80.52 70.20 -- -- -- --
Annual average 12.54 11.22 -- -- -- --
- -----------------------------------------------------------------------
10 years 191.11 174.33 -- -- -- --
Annual average 11.28 10.62 -- -- -- --
- -----------------------------------------------------------------------
Life of class -- -- 57.84 55.84 38.17 33.36
Annual average -- -- 11.54 11.20 22.71 19.99
- -----------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment returns
and principal value will fluctuate so that an investor's shares, when
sold, may be worth more or less than their original cost.
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(registered trademark) Price Index is an unmanaged
list of common stocks that is frequently used as a general measure of
stock market performance. It assumes reinvestment of all distributions
and interest payments and does not take into account brokerage fees or
taxes. Securities in the fund do not match those in the index and
performance of the fund will differ. It is not possible to invest
directly in an index.
Consumer Price Index (CPI ) is a commonly used measure of inflation; it
does not represent an investment return.
Lehman Brothers Government/Corporate Bond Index is an unmanaged list of
publicly issued U.S. Treasury obligations, debt obligations or U.S.
government agencies (excluding mortgage-backed securities), and fixed-
rate, nonconvertible investment-grade corporate debt securities.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund
OTC Emerging Growth Fund
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
Intermediate U.S. Government Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds*
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
LIFESTAGESM FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments to help maximize your return and reduce your risk.
The three portfolios:
Putnam Asset Allocation: Balanced Portfolio
Putnam Asset Allocation: Conservative Portfolio
Putnam Asset Allocation: Growth Portfolio
MOST CONSERVATIVE
INVESTMENTS+
Putnam money market funds:
California Tax Exempt Money Market Fund
Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts++
* Not available in all states.
+ Relative to above.
++ Not offered by Putnam Investments. Certificates of deposit offer a
fixed rate of return and may be insured up to certain limits by
federal/state agencies. Savings accounts may also be insured up to
certain limits. Please call your financial advisor or Putnam at
1-800-225-1581 to obtain a prospectus for any Putnam fund. It
contains more complete information, including charges and expenses.
Please read it carefully before you invest or send money.
Report of independent accountants
To the Trustees and Shareholders of
The George Putnam Fund of Boston
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned, and the related statements
of operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of The
George Putnam Fund of Boston (the "fund") at July 31, 1996, and the
results of its operations, the changes in its net assets and the
financial highlights for the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements")
are the responsibility of the fund's management; our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of investments owned at July 31,
1996 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from
brokers were not received, provide a reasonable basis for the opinion
expressed above.
Price Waterhouse LLP
Boston, Massachusetts
September 17, 1996
<TABLE>
<CAPTION>
Portfolio of investments owned
July 31, 1996
COMMON STOCKS (59.1%) *
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Aerospace and Defense (0.8%)
- --------------------------------------------------------------------------------------------------------------------------------
181,000 Lockheed Martin Corp. $ 15,000,375
37,800 Northrop Grumman Corp. 2,598,750
---------------
17,599,125
Automotive (2.5%)
- --------------------------------------------------------------------------------------------------------------------------------
290,700 Echlin, Inc. 9,702,113
515,000 Ford Motor Co. 16,737,500
414,000 General Motors Corp. 20,182,500
192,000 Varity Corp. + 9,024,000
---------------
55,646,113
Basic Industrial Products (1.3%)
- --------------------------------------------------------------------------------------------------------------------------------
107,000 Ball Corp. 2,661,625
34,000 Caterpillar, Inc. 2,239,750
198,000 Deere (John) & Co. 7,078,500
248,600 Minnesota Mining & Manufacturing Co. 16,159,000
---------------
28,138,875
Building and Construction (0.2%)
- --------------------------------------------------------------------------------------------------------------------------------
1,450,000 Pilkington PLC (United Kingdom) 4,103,645
Business Equipment and Services (0.8%)
- --------------------------------------------------------------------------------------------------------------------------------
184,000 Dow Jones & Co., Inc. 7,199,000
210,300 Xerox Corp. 10,593,863
---------------
17,792,863
Chemicals (4.2%)
- --------------------------------------------------------------------------------------------------------------------------------
237,300 Bayer AG ADR (Germany) 7,975,512
105,000 Dow Chemical Co. 7,809,375
233,000 du Pont (E.I.) de Nemours & Co., Ltd. 18,814,750
310,000 Eastman Chemical Co. 16,197,500
360,000 Hoechst AG (Germany) 11,871,169
318,000 PPG Industries, Inc. 15,661,500
184,000 Union Carbide Corp. 7,728,000
226,000 Witco Chemical Corp. 6,554,000
---------------
92,611,806
Computer Services and Software (1.1%)
- --------------------------------------------------------------------------------------------------------------------------------
218,000 IBM Corp. 23,516,750
Conglomerates (2.5%)
- --------------------------------------------------------------------------------------------------------------------------------
196,000 General Motors Corp. Class H 11,172,000
241,000 Temple Inland, Inc. 11,417,375
260,000 TRW, Inc. 23,497,500
78,000 United Technologies Corp. 8,784,750
---------------
54,871,625
Consumer Durable Goods (0.7%)
- --------------------------------------------------------------------------------------------------------------------------------
314,000 Whirlpool Corp. 15,464,500
Consumer Non Durables (3.7%)
- --------------------------------------------------------------------------------------------------------------------------------
392,000 American Brands, Inc. 17,836,000
171,200 Avon Products, Inc. 7,532,800
295,000 Kimberly-Clark Corp. 22,420,000
220,300 Philip Morris Cos., Inc. 23,048,882
322,800 RJR Nabisco Holdings Corp. 9,926,100
---------------
80,763,782
Electronics and Electrical Equipment (2.1%)
- --------------------------------------------------------------------------------------------------------------------------------
245,400 Eaton Corp. 13,681,050
130,000 General Electric Co. 10,708,750
493,000 Texas Instruments, Inc. 21,322,250
---------------
45,712,050
Energy-Related (0.1%)
- --------------------------------------------------------------------------------------------------------------------------------
195,000 Westcoast Energy, Inc. 3,022,500
Environmental Control (0.2%)
- --------------------------------------------------------------------------------------------------------------------------------
184,000 WMX Technologies, Inc. 5,451,000
Food and Beverages (2.0%)
- --------------------------------------------------------------------------------------------------------------------------------
173,000 Anheuser-Busch Cos., Inc. 12,931,750
325,500 Flowers Industries, Inc. 5,574,188
200,000 General Mills, Inc. 10,850,000
131,000 Nestle S.A. ADR (Switzerland) 7,499,750
287,300 Whitman Corporation 6,428,338
---------------
43,284,026
Forest Products (1.7%)
- --------------------------------------------------------------------------------------------------------------------------------
182,000 Chesapeake Corp. 4,277,000
220,000 Rayonier, Inc. 8,442,500
614,000 Weyerhaeuser Co. 25,634,500
---------------
38,354,000
Insurance and Finance (9.9%)
- --------------------------------------------------------------------------------------------------------------------------------
332,000 American General Corp. 11,537,000
183,000 AON Corp. 8,898,375
537,000 Banc One Corp. 18,593,625
190,058 Bankers Trust New York Corp. 13,660,419
180,000 Beneficial Corp. 9,720,000
46,000 CIGNA Corp. 4,899,000
270,000 CoreStates Financial Corp. 10,597,500
357,000 Fleet Financial Group, Inc. 14,458,500
200,000 Great Western Financial Corp. 4,750,000
70,000 Household International, Inc. 5,215,000
437,500 Keycorp 16,898,438
270,000 Morgan (J.P.) & Co., Inc. 23,220,000
242,500 NationsBank Corp. 20,824,688
269,000 Norwest Corp. 9,549,500
428,000 PNC Bank Corp. 12,465,500
146,000 SAFECO Corp. 5,027,875
233,000 St. Paul Cos., Inc. 12,057,750
259,000 Synovus Financial Corp. 5,924,625
679,000 USF&G Corp. 10,779,125
---------------
219,076,920
Medical Supplies and Devices (0.5%)
- --------------------------------------------------------------------------------------------------------------------------------
269,900 Baxter International, Inc. 11,234,588
Metals and Mining (0.7%)
- --------------------------------------------------------------------------------------------------------------------------------
55,800 Carpenter Technology Corp. 1,855,350
244,000 Phelps Dodge Corp. 14,335,000
---------------
16,190,350
Oil and Gas (4.9%)
- --------------------------------------------------------------------------------------------------------------------------------
217,000 Amoco Corp. 14,511,875
235,000 Chevron, Inc. 13,600,625
240,600 Exxon Corp. 19,789,350
159,000 Mobil Corp. 17,549,625
555,000 Occidental Petroleum Corp. 12,418,125
270,000 PanEnergy Corp. 8,572,500
189,000 Repsol S.A. ADS (Spain) 6,307,875
400,000 Total Corp. ADR (France) 14,300,000
---------------
107,049,975
Pharmaceuticals (2.7%)
- --------------------------------------------------------------------------------------------------------------------------------
165,000 American Home Products Corp. 9,363,750
140,000 Bristol-Myers Squibb Co. 12,127,500
345,270 Pharmacia & Upjohn, Inc. 14,242,385
442,800 Warner-Lambert Co. 24,132,600
---------------
59,866,235
Photography (1.2%)
- --------------------------------------------------------------------------------------------------------------------------------
251,000 Eastman Kodak Co. 18,730,875
173,000 Polaroid Corp. 7,309,250
---------------
26,040,125
Publishing (0.1%)
- --------------------------------------------------------------------------------------------------------------------------------
73,300 Times Mirror Co. Class A 3,032,788
Real Estate Investment Trusts (REIT's) (0.8%)
- --------------------------------------------------------------------------------------------------------------------------------
132,500 Duke Realty Investments, Inc. 3,941,875
166,700 Equity Residential Properties Trust 5,626,125
167,000 LTC Properties, Inc. 2,734,625
100,000 Nationwide Health Properties, Inc. 2,225,000
87,000 Storage USA, Inc. 2,914,500
---------------
17,442,125
Retail (3.5%)
- --------------------------------------------------------------------------------------------------------------------------------
250,000 American Stores Co. 9,312,500
573,300 Dayton Hudson Corporation 17,342,325
647,000 K mart Corp. 6,470,000
274,000 May Department Stores Co. 12,295,750
372,000 Penney (J.C.) Co., Inc. 18,507,000
476,000 Rite Aid Corp. 14,161,000
---------------
78,088,575
Telecommunications (0.3%)
- --------------------------------------------------------------------------------------------------------------------------------
275,000 MCI Communications Corp. 6,771,875
Transportation (2.3%)
- --------------------------------------------------------------------------------------------------------------------------------
151,900 Canadian National Railway Co. (Canada) 2,772,175
234,000 CSX Corp. 11,290,500
123,000 Delta Air Lines, Inc. 8,594,625
546,800 Ryder System, Inc. 14,558,550
212,200 Union Pacific Corp. 14,535,700
---------------
51,751,550
Utilities (8.2%)
- --------------------------------------------------------------------------------------------------------------------------------
355,000 Bell Atlantic Corp. 20,989,375
121,100 Central & South West Corp. 3,239,425
140,265 Cinergy Corp. 4,155,351
309,000 Dominion Resources, Inc. 11,626,125
257,000 Edison International 3,983,500
208,000 GTE Corp. 8,580,000
101,000 NIPSCO Industries, Inc. 3,774,875
521,000 NYNEX Corp. 23,379,875
208,000 Oklahoma Gas & Electric Co. 8,164,000
421,000 Pacific Enterprises 12,366,875
639,000 Pacific Gas & Electric Co. 12,620,250
274,000 Pacific Telesis Group 9,213,250
309,600 Potomac Electric Power Co. 7,469,100
155,000 Public Service Co. of Colorado 5,483,125
235,000 Public Service Enterprise Group, Inc. 6,139,375
394,000 SBC Communications, Inc. 19,256,750
315,300 Scana Corp. 8,158,388
210,000 Sprint Corp. 7,691,250
155,000 WICOR, Inc. 5,347,500
---------------
181,638,389
---------------
Total Common Stocks (cost $1,147,916,081) 1,304,516,155
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (20.5%) *
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Pass-Through Certificates (5%)
- --------------------------------------------------------------------------------------------------------------------------------
$ 2,947,054 Federal Home Loan Mortgage Association 8 3/4s, with various due dates
from May 1, 2009 to June 1, 2009 $ 3,052,942
Federal National Mortgage Association
286,697 11s, with various due dates from October 1, 2015 to March 1, 2016 319,934
164,473 8 3/4s, July 1, 2009 168,738
23,727,779 7s, with various due dates from February 1, 2024 to May 1, 2026 22,763,743
11,574,536 6s, Dwarf, with various due dates from January 1, 2009 to October 1, 2010 10,919,765
6,790,000 5.94s, December 12, 2005 6,278,645
Government National Mortgage Association
1,509 15s, September 15, 2011 1,850
53,967 7 1/2s, September 15, 2005 53,775
45,962,565 7s, with various due dates from March 15, 2026 to June 15, 2026 43,951,705
12,711,834 6 1/2s, with various due dates from November 15, 2025 to May 15, 2026 11,794,165
5,256,343 6 1/2s, Midget, with various due dates from February 1, 2009 to June 15, 2009 5,383,155
5,657,920 6s, Midget, with various due dates from August 15, 2008 to May 15, 2009 5,373,214
---------------
110,061,631
U.S. Treasury Obligations (15.5%)
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
23,580,000 11 7/8s, November 15, 2003 # 30,480,923
25,745,000 11 5/8s, November 15, 2004 33,577,144
1,475,000 11 1/8s, August 15, 2003 1,835,446
10,620,000 10 3/4s, August 15, 2005 13,412,741
18,595,000 8 7/8s, August 15, 2017 22,183,277
46,825,000 8 1/8s, August 15, 2019 52,173,352
U.S. Treasury Notes
6,230,000 9 1/4s, August 15, 1998 6,582,369
51,620,000 7 1/2s, May 15, 2002 53,829,852
31,890,000 7 1/4s, August 15, 2004 32,871,574
4,695,000 6 1/2s, May 31, 2001 4,680,305
59,845,000 6 3/8s, August 15, 2002 59,096,938
32,405,000 6 1/4s, April 30, 2001 31,989,892
---------------
342,713,813
---------------
Total U.S. Government and Agency Obligations (cost $456,551,087) $ 452,775,444
CORPORATE BONDS AND NOTES (9.9%) *
PRINCIPAL AMOUNT VALUE
Advertising (--%)
- --------------------------------------------------------------------------------------------------------------------------------
$300,000 Outdoor Systems, Inc. sr. notes 10 3/4s, 2003 $ 330,000
Aerospace and Defense (0.3%)
- --------------------------------------------------------------------------------------------------------------------------------
140,000 Alliant Techsystems, Inc. sr. sub. notes 11 3/4s, 2003 151,375
350,000 BE Aerospace sr. notes 9 3/4s, 2003 358,750
775,000 Howmet Corp. 144A sr. sub. notes 10s, 2003 815,688
818,000 K&F Industries Inc. sub. deb. 13 3/4s, 2001 842,540
4,800,000 Northrop Grumman Corp. notes 7s, 2006 4,608,000
---------------
6,776,353
Agriculture (0.1%)
- --------------------------------------------------------------------------------------------------------------------------------
750,000 Agco Corp. 144A sr. sub. notes 8 1/2s, 2006 744,375
1,000,000 PSF Finance (L.P.) sr. exch. notes 12 1/4s, 2004 (acquired various dates from
5/20/94 to 8/25/94, cost $1,005,469) (in default) + (double dagger) 600,000
---------------
1,344,375
Automotive (0.1%)
- --------------------------------------------------------------------------------------------------------------------------------
595,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 638,138
650,000 APS Holding, Inc. company guaranty 11 7/8s, 2006 682,500
85,000 Delco Remy International, Inc. 144A sr. sub notes 10 5/8s, 2006 85,213
340,000 Lear Corp. sub notes 9 1/2s, 2006 343,825
---------------
1,749,676
Banks (0.7%)
- --------------------------------------------------------------------------------------------------------------------------------
5,950,000 Advanta National Bank sr. notes 7.02s, 2001 5,858,965
3,305,000 Bangkok Bank Public Co. 144A sub. notes 8 1/4s, 2016 (Thailand) 3,288,145
250,000 Centerbank sub. notes 8 3/8s, 2002 261,250
700,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 659,750
5,000,000 Citicorp sub. notes 7 1/8, 2005 4,916,250
3,225,000 Den Danske Bank 144A sub. notes 6.55s, 2003 (Denmark) 3,078,908
1,125,000 First National Bank of Omaha sub. notes 7.32s, 2010 1,050,469
350,000 First Nationwide Holdings sr. sub. notes 9 1/8s, 2003 332,500
3,750,000 Riggs National Corp. sub. deb. 8 1/2s 2006 3,820,313
2,000,000 Society Bank & Trust notes 12 1/2s, 1999 2,297,500
---------------
25,564,050
Basic Industrial Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------------
750,000 Clark Schwebel Inc. 144A sr. notes 10 1/2s, 2006 770,625
800,000 Inter-City Products sr. notes 9 3/4s, 2000 762,000
---------------
1,532,625
Broadcasting (0.6%)
- --------------------------------------------------------------------------------------------------------------------------------
400,000 Adelphia Communications Corp. sr. notes 12 1/2s, 2002 411,000
325,000 Allbritton Communications sr. sub. deb. Ser. B, 9 3/4s, 2007 302,250
250,000 Argyle Television Corp. sr. sub. notes 9 3/4s, 2005 240,000
750,000 Benedek Broadcasting sr. notes 11 7/8s, 2005 802,500
500,000 Cablevision Systems Corp. sr. sub. reset deb. 10 3/4s, 2004 502,500
560,000 Chancellor Broadcasting Co. sr. sub. notes 9 3/8s, 2004 540,400
200,000 Comcast Corp. sr. sub. notes 9 1/2s, 2008 193,000
250,000 Commodore Media, Inc. sr. sub. notes stepped-coupon 7 1/2s, (13 1/4s,
5/1/98), 2003 ++ 257,500
3,200,000 Continental Cablevision, Inc. sr. deb. 9 1/2s, 2013 3,456,000
500,000 Diamond Cable Communication Co. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/30/99), 2004 (United Kingdom) ++ 360,000
250,000 Heritage Media Corp. sr. sub. notes 8 3/4s, 2006 233,750
1,315,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B, zero %
(11 1/2s, 2/01/01), 2006 ++ 756,125
65,000 Jacor Communications, Inc. sr. sub. notes 10 1/8s, 2006 65,325
575,000 Jones Intercable, Inc. sr. notes 9 5/8s, 2002 586,500
500,000 Lenfest Communicatons, Inc. 144A sr. sub. notes 10 1/2s, 2006 500,000
500,000 Lenfest Communications, Inc. sr. notes 8 3/8s, 2005 455,000
500,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes stepped-coupon zero % (13 1/2s,
8/1/99), 2004 ++ 360,000
255,000 Park Broadcasting, Inc. 144A sr. notes 11 3/4s, 2006 293,250
350,000 Paxson Communications Corp. 144A sr. sub. notes 11 5/8s, 2002 364,000
150,000 Rogers Cablesystem Ltd. deb. 10 1/8s, 2012 (Canada) 145,500
625,000 Rogers Cablesystems Ltd. sr. notes Ser. B, 10s, 2005 (Canada) 621,875
600,000 SFX Broadcasting, Inc. 144A sr. sub. notes 10 3/4s, 2006 603,000
400,000 Sullivan Broadcasting sr. sub. notes 10 1/4s, 2005 386,000
805,000 Telewest Communications PLC deb. stepped-coupon zero % (11s, 10/1/00),
2007 (United Kingdom) ++ 470,925
---------------
12,906,400
Building and Construction (0.1%)
- --------------------------------------------------------------------------------------------------------------------------------
400,000 American Standard, Inc. deb. 9 1/4s, 2016 399,000
275,000 Cemex SA 144A bonds 12/34s, 2006 (Mexico) 277,063
600,000 Continental Homes HOlding Corp. sr. notes 10s, 2004 570,000
300,000 Schuller International Corp. sr. notes 10 7/8s, 2004 324,000
970,000 Scotsman Group, Inc. sr. secd. notes 9 1/2s, 2000 967,575
350,000 Triangle Pacific Corp. sr. notes 10 1/2s, 2003 359,625
---------------
2,897,263
Business Equipment and Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------------
230,000 Aramark Corp. sub. notes 8 1/2s, 2003 227,700
325,000 Corporate Express, Inc. sr. sub. notes Ser. B, 9 1/8s, 2004 321,750
750,000 Lamar Advertising Co. sr. secd. notes 11s, 2003 780,000
130,000 Pierce Leahy Corp. 144A sr. sub. notes 11 1/8s, 2006 133,575
1,150,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 1,236,250
---------------
2,699,275
Chemicals (0.2%)
- --------------------------------------------------------------------------------------------------------------------------------
750,000 Arcadian Partner sr. notes 10 3/4s, 2005 810,000
300,000 Great Lakes Carbon Corp. sr. notes 10s, 2006 309,000
300,000 IMC Fertilizer Group, Inc. deb. 9.45s, 2011 310,500
1,640,000 Lyondell Petrochemical Co. notes 9 1/8s, 2002 1,764,006
65,000 Texas Petrochemical 144A sr. sub. notes 11 1/8s, 2006 66,788
500,000 Union Carbide Global Enterprises sr. sub. Ser. B, 12s, 2005 565,000
---------------
3,825,294
Conglomerates (0.1%)
- --------------------------------------------------------------------------------------------------------------------------------
350,000 ADT Ltd. sr. sub. notes 9 1/4s, 2003 365,750
710,000 Congoleum Corp. sr. notes 9s, 2001 674,500
350,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes 13s, 1999 350,000
---------------
1,390,250
Consumer Non Durables (--%)
- --------------------------------------------------------------------------------------------------------------------------------
330,000 Coty Inc. Gtd. sr. sub. notes 10 1/4s, 2005 341,963
500,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 500,000
---------------
841,963
Consumer Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------------
263,750 Coinmach Corp. sr. notes Ser. B, 11 3/4s, 2005 275,619
1,000,000 Host Marriott Travel Plazas sr. notes Ser. B, 9 1/2s, 2005 960,000
450,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 387,000
500,000 Specialty Retailers, Inc. sr. sub. notes 11s, 2003 513,750
500,000 Universal Outdoor, Inc. sub. deb. 11s, 2003 530,000
---------------
2,666,369
Electronics and Electrical Equipment (0.1%)
- --------------------------------------------------------------------------------------------------------------------------------
1,000,000 Amphenol Corp. sr. sub. notes 12 3/4s, 2002 1,095,000
500,000 International Semi-Tech. Corp. sr. secd. disc. notes stepped-coupon zero %
(11 1/2s, 8/15/00), 2003 (Canada) ++ 282,500
---------------
1,377,500
Entertainment (0.9%)
- --------------------------------------------------------------------------------------------------------------------------------
750,000 Act III Theatres, Inc. sr. sub. notes 11 7/8s, 2003 815,625
75,000 Alliance Gaming Corp. sr. notes 12 7/8s, 2003 73,500
175,000 Argosy Gaming Co. 144A 1st. mtge. 13 1/4s, 2004 170,625
250,000 Arizona Charlies Corp. 1st mtge. Ser. B, 12s, 2000 + 163,047
350,000 Bally Park Place Funding 1st mtge. 9 1/4s, 2004 370,125
750,000 Casino America, Inc. 1st mtge. 11 1/2s, 2001 810,000
770,000 Cinemark USA sr. notes 12s, 2002 844,113
250,000 Coast Hotels & Casinos, Inc. 1st mtge. 13s, 2002 270,000
185,000 Coleman Holdings Co. notes Ser. B, zero %, 1998 155,400
80,000 Eldorado Resorts LLC 144A sr. sub. notes 10 1/2s, 2006 80,200
350,000 Empress River Casino sr. notes 10 3/4s, 2002 374,500
500,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 487,500
500,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 500,000
6,240,000 News America Hldgs, Inc. deb. 7.7s, 2025 5,707,291
500,000 Players International Inc. sr. notes 10 7/8s, 2005 502,500
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
500,000 Stratosphere Corp. 1st mtge. 14 1/4s, 2002 458,750
6,120,000 Time Warner Entertainment Co. deb. 7 1/4s, 2008 5,709,960
300,000 Trump A.C. 1st. mtge. 11 1/4s, 2006 292,500
450,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 526,500
850,000 Viacom International, Inc. sub. deb. 8s, 2006 777,750
4,575,000 Viacom, Inc. sr. notes 7 3/4s, 2005 4,427,136
---------------
24,523,772
Food and Beverages (--%)
- --------------------------------------------------------------------------------------------------------------------------------
900,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 949,500
Health Care (0.3%)
- --------------------------------------------------------------------------------------------------------------------------------
2,320,000 Columbia Healthcare Corp. deb. 8.36s, 2024 2,451,938
250,000 Integrated Health Services sr. sub. notes 9 5/8s, 2002 248,125
1,000,000 Ivac Corp. sr. notes 9 1/4s, 2002 990,000
675,000 Magellan Health Services, Inc. sr. sub. deb. Ser. A, 11 1/4s, 2004 725,625
750,000 Merit Behavioral Care sr. sub. notes 11 1/2s, 2005 783,750
1,050,000 Paracelsus Healthcare Corp. sr. sub. notes 9 7/8s, 2003 1,092,000
150,000 Tenet Healthcare Corp. sr. notes 8 5/8s, 2003 153,000
276,000 Total Renal Care Holdings, Inc. sr. disc. notes stepped-coupon zero % (12s, 8/15/97), 2004 ++ 274,620
---------------
6,719,058
Insurance and Finance (0.4%)
- --------------------------------------------------------------------------------------------------------------------------------
625,000 AIM Management Group sr. secd. notes 9s, 2003 634,375
1,500,000 AMBAC Indemnity Corp. deb. 9 3/8s, 2011 1,739,940
150,000 American Life Holding Co. sr. sub. notes 11 1/4s, 2004 156,750
2,230,000 Conseco Inc. sr. notes 10 1/2s, 2004 2,535,510
350,000 Keystone Group, Inc. sr. secd. notes 9 3/4s, 2003 346,500
2,000,000 Orion Capital Corp. sr. notes 9 1/8s, 2002 2,168,600
570,000 Phoenix Re Corp. sr. notes 9 3/4s, 2003 592,800
775,000 Primark Corp. sr. notes 8 3/4s, 2000 779,844
450,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 448,875
---------------
9,403,194
Lodging (--%)
- --------------------------------------------------------------------------------------------------------------------------------
400,000 John Q Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 371,000
Medical Supplies and Devices (0.1%)
- --------------------------------------------------------------------------------------------------------------------------------
250,000 Dade International, Inc. 144A sr. sub. notes 11 1/8s, 2006 261,875
500,000 Graphic Controls Corp. sr. sub. notes Ser. A, 12s, 2005 526,250
825,000 Mediq, Inc. notes 12 1/8s, 1999 880,688
---------------
1,668,813
Metals and Mining (0.4%)
- --------------------------------------------------------------------------------------------------------------------------------
3,765,000 Noranda Inc. notes 7s, 2005 (Canada) 3,601,185
3,870,000 PT Alatief Freeport sr. notes 9 3/4s, 2001 (Netherlands) 4,160,985
115,000 Renco Metal , Inc. sr. notes 11 1/2s, 2003 117,300
---------------
7,879,470
Oil and Gas (0.7%)
- --------------------------------------------------------------------------------------------------------------------------------
250,000 Benton Oil & Gas 144A sr. notes 11 5/8s, 2003 263,125
100,000 Chesapeake Energy Corp. sr. notes 10 1/2s, 2002 105,000
250,000 Chesapeake Energy Corp. sr. notes 9 1/8s, 2006 245,000
300,000 Flores & Rucks, Inc. sr. notes 13 1/2s, 2004 345,000
250,000 Maxus Energy Corp. global notes 9 7/8s, 2002 247,500
400,000 Maxus Energy Corp. notes 9 1/2s, 2003 385,000
100,000 Maxus Energy Corp. notes 9 3/8s, 2003 96,500
4,710,000 Parker & Parsley Petro Co. sr. notes 8 7/8s, 2005 5,039,653
3,000,000 Petro-Canada deb. 9 1/4s, 2021 3,456,870
4,140,000 Petroliam Nasional Berhad 144A notes 7 1/8s, 2005 4,072,725
300,000 Transtexas Gas Corp. sr. secd. notes 11 1/2s, 2002 298,500
400,000 Triton Energy sr. sub. disc. notes stepped-coupon zero % (9 3/4s, 12/15/96), 2000 ++ 388,000
---------------
14,942,873
Packaging & Container (0.1%)
- --------------------------------------------------------------------------------------------------------------------------------
750,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 787,500
500,000 Owens Illinois, Inc. deb. 11s, 2003 538,750
750,000 Riverwood International company guranty 10 7/8s, 2008 731,250
---------------
2,057,500
Paper and Forest products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------------
750,000 Doman Industries Ltd. sr. notes 8 3/4s, 2004 (Canada) 675,000
250,000 Domtar, Inc. deb 11 1/4s, 2017 (Canada) 265,000
300,000 Domtar Inc. deb 9 1/2s, 2016 (Canada) 301,500
500,000 Rainy River Forest Products sr. notes 10 3/4s, 2001 (Canada) 526,250
750,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 714,375
500,000 Stone Container Corp. 144A sr. notes 11 7/8s, 2016 507,500
300,000 Stone Consolidated Corp. sr. notes 10 1/4s, 2000 310,125
---------------
3,299,750
Publishing (0.1%)
- --------------------------------------------------------------------------------------------------------------------------------
500,000 American Media Operation, Inc. sr. sub. notes 11 5/8s, 2004 507,500
1,000,000 Marvel Parent Holdings, Inc. sr. secd. disc. notes zero %, 1998 790,000
---------------
1,297,500
REIT's (0.4%)
- --------------------------------------------------------------------------------------------------------------------------------
1,685,000 Health Care Property Investors, Inc. sr. notes 6 1/2s, 2006 1,541,657
4,255,000 Meditrust med. term notes 7.3s, 2006 4,025,358
750,000 Prime Hospitality Corp. 1st mtge. 9 1/4s, 2006 731,250
3,050,000 Sun Communities, Inc. sr. notes 7 5/8s, 2003 3,012,241
425,000 Tanger Properities Ltd. Partnership Gtd. notes 8 3/4s, 2001 416,751
---------------
9,727,257
Retail (0.7%)
- --------------------------------------------------------------------------------------------------------------------------------
350,000 Brylane (L.P.) sr. sub. notes 10s, 2003 339,500
3,035,000 Federated Department Stores sr. notes 8 1/2s, 2003 3,050,175
370,000 Finlay Enterprises, Inc. sr. notes 10 5/8s, 2003 365,375
90,000 Guitar Center Management 144A sr. notes 11s, 2006 90,900
1,000,000 K Mart Funding Corp. notes 7.36s, 1998 935,000
3,520,000 Kroger Co. sr. notes 8.15s, 2006 3,528,800
265,000 Loehmanns, Inc. sr. notes 11 7/8s, 2003 273,613
525,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 557,813
350,000 Phar-Mor, Inc. sr. notes 11.72s, 2002 347,375
1,000,000 Safeway, Inc. med. term notes 8.57s, 2003 1,037,110
2,000,000 Sears, Roebuck & Co. med. term notes 9.1s, 2012 2,273,880
740,000 Southland Corp. 1st priority sr. sub. deb. 5s, 2003 577,200
250,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 182,500
250,000 Stater Brothers sr. notes 11s, 2001 260,000
500,000 Waban, Inc. sr. sub. notes 11s, 2004 520,000
---------------
14,339,241
Specialty Consumer Products (--%)
- --------------------------------------------------------------------------------------------------------------------------------
365,000 Herff Jones, Inc. sr. sub. notes 11s, 2005 377,775
Telecommunications (0.4%)
- --------------------------------------------------------------------------------------------------------------------------------
4,810,000 360 Communications Co. sr. notes 7 1/2s, 2006 4,589,077
725,000 Call-Net Enterprises sr. disc. notes stepped-coupon zero % (13 1/4s, 12/1/99), 2004 ++ 531,063
250,000 Fonorola, Inc. sr. notes 12 1/2s, 2002 (Canada) 270,000
600,000 Intercel, Inc. sr. disc. notes stepped-coupon zero % (12s, 5/1/01), 2006 ++ 325,500
250,000 Intermedia Communications of Florida sr. notes Ser. B, 13 1/2s, 2005 279,375
1,800,000 MFS Communications sr. disc. notes stepped-coupon zero % (8 7/8s, 1/1/01), 2006 ++ 1,057,500
490,000 MFS Communications sr. disc. notes stepped-coupon zero % (9 3/8s, 1/15/99), 2004 ++ 367,500
250,000 Milicom International Cellular 144A sr. disc. notes stepped-coupon zero % (13 1/2s,
6/01/00), 2006 (Luxembourg) ++ 123,750
650,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 685,750
250,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon zero % (11 1/2s, 9/1/98), 2003 ++ 162,500
860,000 Teleport Communications Group Inc. sr. disc. notes stepped-coupon zero % (11 1/8s,
7/1/01), 2007 ++ 473,000
---------------
8,865,015
Textiles (0.1%)
- --------------------------------------------------------------------------------------------------------------------------------
600,000 Day International Group, Inc. sr. sub. notes 11 1/8s, 2005 618,000
245,000 Polysindo International Finance company guaranty 11 3/8s, 2006 (Indonesia) 251,125
250,000 Tultex Corp. sr. notes 10 5/8s, 2005 257,500
---------------
1,126,625
Tobacco (0.1%)
- --------------------------------------------------------------------------------------------------------------------------------
3,210,000 Sampoerna International Finance Co. 144A company
guaranty 8 3/8s, 2006 (Indonesia) 3,223,803
Transportation (0.3%)
- --------------------------------------------------------------------------------------------------------------------------------
90,000 Blue Bird Body Co. sub. deb. Ser. B, 11 3/4s, 2002 92,700
4,275,000 Burlington Northern Santa Fe notes 6 3/8s, 2005 3,944,243
250,000 International Shipholding Corp. sr. notes 9s, 2003 240,000
450,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s, 2003 (Greece) 429,750
235,000 Greenwich Air Services, Inc. sr. notes 10 1/2s, 2006 236,175
535,000 MCII Holding (USA), Inc. bonds zero % , 2002 ++ 414,625
2,000,000 Southwest Airlines Co. deb. 7 7/8s, 2007 2,010,740
250,000 Viking Star Shipping sr. secd. notes 9 5/8s, 2003 253,438
---------------
7,621,671
Utilities (1.5%)
- --------------------------------------------------------------------------------------------------------------------------------
4,060,000 Arkla, Inc. notes 8 7/8s, 1999 4,250,455
2,615,000 Citizens Utilities Co. bonds 7.68s, 2034 2,804,954
350,000 Cleveland Electric Illuminating Co. 1st mtge. Ser. B, 9 1/2s, 2005 341,807
3,615,000 Connecticutt Yankee Atomic mtge. Ser. A, 12s, 2000 3,712,569
350,000 El Paso Electric Co. 1st mtge. Ser. D, 8.9s, 2006 346,500
6,040,000 El Paso Electric Co. 1st mtge. Ser. B, 7 3/4s, 2001 5,905,368
500,000 First PV Funding deb. 10.15s, 2016 526,250
250,000 First PV Funding deb. Ser. 86A, 10.3s, 2014 264,375
500,000 Long Island Lighting Co. refunding mtge. notes 9 3/4s, 2021 510,645
2,313,489 Midland Cogeneration Ventures deb. 10.33s, 2002 2,394,461
250,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 263,750
1,075,000 Niagara Mohawk Power Corp. med. term notes 9.95s, 2000 937,938
3,450,000 Salton Sea Funding Corp. 144A sr. notes 8.3s, 2011 3,450,000
250,000 Texas New Mexico Pwr. deb. 12 1/2s, 1999 269,705
3,925,000 Texas New-Mexico Power Utilities 1st mtge. 9 1/4s, 2000 4,047,225
4,100,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 3,989,300
34,015,302
---------------
Total Corporate Bonds and Notes (cost $220,614,595) $ 218,310,512
<CAPTION>
FOREIGN GOVERNMENT BONDS AND NOTES (2.6%) *
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AUD 16,359,000 Australia (Government of) bonds Ser. 400, 7s, 2000 $ 12,378,431
ITL 33,690,000,000 Italy (Government of) bonds 9 1/2s, 2001 22,789,611
ITL 13,000,000,000 Italy (Government of) deb. 10 1/2s, 2000 9,035,730
USD 5,815,000 Quebec (Government of) deb. 8 5/8s, 2005 6,237,518
ZAR 32,647,000 South Africa (Republic of) bonds Ser. 153, 13s, 2010 6,028,639
---------------
Total Foreign Government Bonds and Notes (cost $56,807,499) $ 56,469,929
<CAPTION>
COLLATERALIZED MORTGAGE OBLIGATIONS (1.9%) *
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 1,856,033 Chase Mortgage Finance Corp. Ser. 93-3, Class B13, 7.461s, 2024 $ 1,136,820
2,217,151 Chase Mortgage Finance Corp. Ser. 94-G, Class B2, 7s, 2025 2,008,253
1,400,368 GE Capital Mortgage Services, Inc. Ser. 94-12, Class B3, 6s, 2009 1,144,801
Housing Securities Inc.
1,863,291 Ser. 91-B, ClassB6, 9s, 2006 1,863,873
1,379,327 Ser. 93-F, Class F9M2, 7s, 2023 1,239,024
279,095 Ser. 93-J, Class J4, 6.66s, 2009 235,530
151,875 Ser. 93-J, Class J5, 6.66s, 2009 106,312
246,492 Ser. 94-1, Class AB, 6 1/2s, 2009 204,974
2,965,885 Prudential Home Loan Corp. Ser. 92-25, Class B3, 8s, 2022 2,591,442
Prudential Home Mortgage Securities
1,184,411 Ser. 95-D, Class 5B, 7.54s, 2025 757,653
1,259,677 Ser. 92-13, Class B3, 7 1/2s, 2007 1,105,563
1,638,101 Ser. 93-36, Class M, 7 1/4s, 2023 1,530,601
3,503,047 Ser. 94-A, Class 4B, 6.802s, 2024 3,075,566
Prudential Home Mortgage Securities 144A
340,277 Ser. 94-31, Class B3, 8s, 2009 303,485
3,571,106 Ser. 93-B, Class 5B, 7.836s, 2023 2,273,232
5,078,085 Ser. 95-C, Class B1, 7.815s, 2001 5,047,934
2,030,446 Ser. 93-E, Class 5B, 7.393s, 2023 1,151,326
3,878,183 Ser. 93-D, Class 2B, 7.108s, 2023 3,508,543
1,231,597 Ser. 94-D, Class B4, 6.312s, 2009 994,514
3,732,628 Residential Funding Mortgage Securities Ser. 93-MZ3, Class A-1, 6.97s, 2023 3,600,820
1,987,210 Ryland Mortgage Securites Corp. Ser. 94-7C, Class B1, 7.359s, 2025 1,860,526
1,403,630 Ryland Mortgage Securities Corp. Ser. 94-7C, Class B2, 7.359s, 2025 1,265,022
4,284,184 Securitized Asset Sales, Inc. Ser. 93-J, Class 2B, 6.807s, 2023 3,819,618
601,790 Travelers Mortgage Securities Corp. coll. oblig. Ser. 1, Class Z2, 12s, 2014 670,243
---------------
Total Collateralized Mortgage Obligations (cost $41,039,026) $ 41,495,675
<CAPTION>
CONVERTIBLE BONDS AND NOTES (1.1%) *
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 575,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 $ 337,813
1,075,000 Hexcel Corp. cv. sub. notes 7s, 2003 1,252,375
3,100,000 Magna International cv. sub. deb. 5s, 2002 3,103,875
9,400,000 Mitsubishi Bank Ltd. cv. trust guaranteed notes, 3s, 2002 (Japan) 10,398,750
JPY 144,000,000 Sumitomo Bank International Finance NV cv. bank guaranteed 3/4s, 2001 (Japan) 1,430,553
JPY 400,000,000 Toyota Motor Corp. cv. deb. 1.2s, 1998 (Japan) 5,023,430
$ 3,219,000 WMX Technologies, Inc. cv. sub. notes 2s, 2005 2,768,340
---------------
Total Convertible Bonds and Notes (cost $22,711,793) $ 24,315,136
<CAPTION>
CONVERTIBLE PREFERRED STOCKS (0.7%) *
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
421,000 Freeport-McMoRan Copper Co., Inc. cv. pfd. $ 1.25, ($1.75, 8/1/96), stepped-coupon ++ $ 11,103,875
5,000 Granite Broadcasting $1.938, cv. pfd. 324,375
77,000 K mart Financing I $3.875, cv. pfd. 3,744,125
---------------
Total Convertible Preferred Stocks (cost $13,824,015) $ 15,172,375
PREFERRED STOCKS (0.1%) *
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------------
10,371 Cablevision Systems Corp. 144A Ser. L, $11.125, pfd. (2 double daggers) 965,799
1,450 El Paso Electric Co. $11.40, pfd 154,425
7,717 K-III Communications $11.625, pfd. (2 double daggers) 744,691
807 Time Warner, Inc. 144A Ser. K, $1.025, pfd.(2 double daggers) 800,948
---------------
Total Preferred Stocks (cost $2,802,915) $ 2,665,863
ASSET-BACKED SECURITIES (--%) *(cost $710,560)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------------
$ 718,872 Merrill Lynch Mortgage Investors, Inc. sr. notes 9.4s, 2009 $ 749,424
UNITS (--%) *(cost $233,770)
NUMBER OF UNITS VALUE
- --------------------------------------------------------------------------------------------------------------------------------
250 Fitzgerald Gaming Co. units 13s, 2002 $195,000
WARRANTS (--%) *(cost $2,500)
NUMBER OF WARRANTS VALUE
- --------------------------------------------------------------------------------------------------------------------------------
250 Intermedia Communications 144A + $ 10,000
SHORT-TERM INVESTMENTS (3.5%) *
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------------
$ 25,000,000 Federal Home Loan Mortgage Corp. effective yield of 5.25%, August 12, 1996 $ 24,959,896
20,000,000 Merrill Lynch & Co. Inc. effective yield of 5.35%, August 14, 1996 19,961,361
25,000,000 Sheffield Receivables Corp. effective yield of 5.35%, August 6, 1996 24,981,319
6,403,000 Interest in $500,000,000 joint repurchase agreement dated July 31, 1996
with Lehman Brothers Inc. due August 1, 1996 with respect to various
U.S. Treasury oligations -- maturity value of $6,404,005 for an
effective yield of 5.65% 6,404,005
---------------
Total Short-Term Investments (cost $76,306,581) $ 76,306,581
- --------------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,039,520,422)*** $ 2,192,982,094
- --------------------------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $2,207,587,722.
*** The aggregate identified cost on a tax basis is
$2,044,169,387, resulting in gross unrealized appreciation and
depreciation of $190,182,404 and $41,369,697, respectively,
or net unrealized appreciation of $148,812,707.
+ Non-income-producing security.
++ The interest or dividend rate and date shown parenthetically
represent the new interest or dividend rate to be paid and
the date the fund will begin receiving interest or dividend
income at this rate.
(double dagger) Restricted, excluding 144A securities, as to public resale.
The total market value of restricted securities held at
July 31, 1996 was $600,000 or less than 1.0% of
net assets.
(2 double daggers) Income may be received in cash or additional securities at
the discretion of the issuer.
# A portion of this security was pledged and segregated
with the custodian to cover margin requirements
for futures contracts at July 31, 1996. The market
value of this security is $1,128,492 or less than 1.0%
of net assets.
144A after the name of a security represents those exempt
from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional
buyers.
ADR or ADS after the name of a foreign holding
stands for American Depository Receipts or American
Depository Shares, respectively, representing
ownership of foreign securities on deposit with a
domestic custodian bank.
<CAPTION>
Forward Currency Contracts to Sell at July 31, 1996
(aggregate face value $48,222,912)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian Dollar $12,463,372 $12,467,087 9/18/96 $ 3,715
Italian Lira 32,125,437 31,620,560 9/18/96 (504,877)
Japanese Yen 4,080,647 4,042,341 1/28/98 (38,306)
Japanese Yen 47,333 46,962 7/28/97 (371)
Japanese Yen 46,127 45,962 1/28/97 (165)
- ------------------------------------------------------------------------------
$ (540,004)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Forward Currency Contracts to Buy at July 31, 1996
Aggregate Face Delivery Unrealized
Market Value Value Date Appreciation
- ------------------------------------------------------------------------------
Spanish Peseta $48,423 $47,082 9/18/96 $1,341
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Futures Contracts Outstanding at July 31, 1996
Aggregate Face Expiration Unrealized
Total Value Value Date Appreciation
- ------------------------------------------------------------------------------
U.S. Treasury
Bond Futures
(Long) $54,150,516 $53,989,156 Sept.-96 $161,360
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
July 31, 1996
<S> <C>
Assets
- -------------------------------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $2,039,520,422) (Note 1) $2,192,982,094
- -------------------------------------------------------------------------------------------------------------------------
Cash 2,257,109
- -------------------------------------------------------------------------------------------------------------------------
Dividends and interest receivable 19,496,799
- -------------------------------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 5,802,277
- -------------------------------------------------------------------------------------------------------------------------
Receivable for securities sold 3,015,266
- -------------------------------------------------------------------------------------------------------------------------
Receivable for variation margin 229,969
- -------------------------------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 5,056
- -------------------------------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 70,622
- -------------------------------------------------------------------------------------------------------------------------
Total assets 2,223,859,192
Liabilities
- -------------------------------------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 44,986
- -------------------------------------------------------------------------------------------------------------------------
Distributions payable to shareholders 277,374
- -------------------------------------------------------------------------------------------------------------------------
Payable for securities purchased 8,833,506
- -------------------------------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,482,226
- -------------------------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,050,589
- -------------------------------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 1,701,785
- -------------------------------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 5,878
- -------------------------------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,055
- -------------------------------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 710,214
- -------------------------------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 543,719
- -------------------------------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 28,776
- -------------------------------------------------------------------------------------------------------------------------
Other accrued expenses 590,362
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities 16,271,470
- -------------------------------------------------------------------------------------------------------------------------
Net assets $2,207,587,722
Represented by
- -------------------------------------------------------------------------------------------------------------------------
Paid-in-capital (Notes 1 and 4) $1,941,502,467
- -------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 15,363,543
- -------------------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions (Note 1) 97,653,721
- -------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and liabilities in foreign currencies 153,067,991
- -------------------------------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $2,207,587,722
- -------------------------------------------------------------------------------------------------------------------------
Computation of net asset value and offering price
Net asset value and redemption price of class A shares ($1,515,260,146 divided by 95,751,649 shares) $15.82
- -------------------------------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $15.82)* $16.79
- -------------------------------------------------------------------------------------------------------------------------
Net asset value and offering price of class B shares ($435,278,453 divided by 27,660,741 shares)** $15.74
- -------------------------------------------------------------------------------------------------------------------------
Net asset value and redemption price of class M shares ($49,541,466 divided by 3,147,719 shares) $15.74
- -------------------------------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.5 of $15.74)* $16.31
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price of class Y shares
($207,507,657 divided by 13,095,592 shares) $15.85
- -------------------------------------------------------------------------------------------------------------------------
* 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 statemets.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended July 31, 1996
<S> <C>
Investment Income:
- ------------------------------------------------------------------------------------------------------------
Interest $ 53,497,207
- ------------------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $323,767) 36,769,422
- ------------------------------------------------------------------------------------------------------------
Total investment income 90,266,629
Expenses:
- ------------------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 6,565,587
- ------------------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 5,219,713
- ------------------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 44,460
- ------------------------------------------------------------------------------------------------------------
Administrative services (Note 2) 25,297
- ------------------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 3,200,297
- ------------------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 3,215,925
- ------------------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 186,245
- ------------------------------------------------------------------------------------------------------------
Reports to shareholders 154,696
- ------------------------------------------------------------------------------------------------------------
Registration fees 252,864
- ------------------------------------------------------------------------------------------------------------
Auditing 69,229
- ------------------------------------------------------------------------------------------------------------
Legal 33,766
- ------------------------------------------------------------------------------------------------------------
Postage 368,192
- ------------------------------------------------------------------------------------------------------------
Other 40,832
- ------------------------------------------------------------------------------------------------------------
Total expenses 19,377,103
- ------------------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (766,663)
- ------------------------------------------------------------------------------------------------------------
Net expenses 18,610,440
- ------------------------------------------------------------------------------------------------------------
Net investment income 71,656,189
- ------------------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 133,226,205
- ------------------------------------------------------------------------------------------------------------
Net realized gain on forward currency contracts and
foreign currency translation (Note 1) 2,047,911
- ------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on forward currency contracts and foreign
currency translation during the year 258,313
- ------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures during the year 14,804,394
- ------------------------------------------------------------------------------------------------------------
Net gain on investments 150,336,823
- ------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $221,993,012
- ------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended July 31
----------------------------------
1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ------------------------------------------------------------------------------------------------------------------
Operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income $71,656,189 $55,185,187
- ------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency transactions 135,274,116 29,434,191
- ------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and liabilities
in foreign currencies 15,062,707 121,774,937
- ------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 221,993,012 206,394,315
- ------------------------------------------------------------------------------------------------------------------
Distributions to shareholders
- ------------------------------------------------------------------------------------------------------------------
From net investment income:
Class A (45,601,237) (38,735,859)
- ------------------------------------------------------------------------------------------------------------------
Class B (9,159,784) (5,837,212)
- ------------------------------------------------------------------------------------------------------------------
Class M (712,551) (50,170)
- ------------------------------------------------------------------------------------------------------------------
Class Y (7,086,721) (3,750,110)
- ------------------------------------------------------------------------------------------------------------------
From net realized gain on investments:
Class A (45,185,859) (21,876,638)
- ------------------------------------------------------------------------------------------------------------------
Class B (10,868,927) (3,901,612)
- ------------------------------------------------------------------------------------------------------------------
Class M (596,616) --
- ------------------------------------------------------------------------------------------------------------------
Class Y (6,792,626) (1,862,529)
- ------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 688,998,591 156,156,398
- ------------------------------------------------------------------------------------------------------------------
Total increase in net assets 784,987,282 286,536,583
- ------------------------------------------------------------------------------------------------------------------
Net assets
- ------------------------------------------------------------------------------------------------------------------
Beginning of year 1,422,600,440 1,136,063,857
- ------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of
$15,363,543 and $5,193,372, respectively) $2,207,587,722 $1,422,600,440
- ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
December 1, 1994
Year (commencement
ended of operations) Year ended
July 31 to July 31 July 31
----------------------------------------------------
1996 1995 1996
----------------------------------------------------
Class M
----------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $14.84 $12.77 $14.92
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .55 .31 .68
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.50 2.03 1.50
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.05 2.34 2.18
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (.52) (.27) (.62)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (.63) -- (.63)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (1.15) (.27) (1.25)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.74 $14.84 $15.85
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 14.26 18.52(c) 15.09
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $49,541 $8,164 $207,508
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.50 .93(c) .70
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 3.50 2.53(c) 4.33
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 119.44 102.57 119.44
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
April 1, 1994
(commencement
Year ended of operations)
July 31 to July 31
----------------------------------------------------
1995 1994 1996
----------------------------------------------------
Class Y Class B
----------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $13.54 $13.21 $14.83
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .66 .17 .51
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.63 .31 1.50
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.29 .48 2.01
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (.59) (.15) (.47)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (.32) -- (.63)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.91) (.15) (1.10)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.92 $13.54 $15.74
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 18.00 3.65(c) 13.97
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $153,597 $71,566 $435,278
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .66 .25(c) 1.71
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 4.78 1.34(c) 3.31
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 102.57 100.69 119.44
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Year ended
----------------------------------------------------
1995 1994 1993
----------------------------------------------------
Class B
----------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $13.46 $14.19 $14.22
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .52 .50 .56
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.63 (.12) .48
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.15 .38 1.04
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (.46) (.49) (.59)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (.32) (.62) (.48)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.78) (1.11) (1.07)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.83 $13.46 $14.19
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 16.87 2.70 7.87
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $224,166 $151,327 $81,983
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.66 1.71 1.66
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 3.81 3.39 3.43
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 102.57 100.69 89.22
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
April 27, 1992
(commencement
of operations)
to July 31 Year ended July 31
----------------------------------------------------
1992 1996 1995
----------------------------------------------------
----------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $13.73 $14.90 $13.52
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .13(d) .63 .63
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .53 1.50 1.63
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .66 2.13 2.26
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (.17) (.58) (.56)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments -- (.63) (.32)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.17) (1.21) (.88)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.22 $15.82 $14.90
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 4.99(c) 14.73 17.73
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $11,946 $1,515,260 $1,036,674
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .55(c) .95 .91
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) .84(c) 4.07 4.58
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 78.90 119.44 102.57
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Year ended July 31
----------------------------------------------------
1994 1993 1992
----------------------------------------------------
Class A
----------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $14.24 $14.24 $13.52
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .59 .62 .64
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.11) .52 1.12
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .48 1.14 1.76
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (.58) (.66) (.68)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (.62) (.48) (.36)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (1.20) (1.14) (1.04)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.52 $14.24 $14.24
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 3.46 8.64 13.68
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $913,171 $772,540 $662,129
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .95 .90 1.06
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 4.15 4.34 4.62
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 100.69 89.22 78.90
- ---------------------------------------------------------------------------------------------------------------------------
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the ended July 31, 1996 includes amounts paid through
brokerage service and expense offset arrangements. Prior period ratios exclude these amounts. (See Note 2).
(c) Not annualized.
(d) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the period.
</TABLE>
Notes to financial statements
July 31, 1996
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 approximately 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 higher than class A
shares but lower than class B shares. Class Y shares, which are sold at
net asset value, are generally subject to the same expenses as class A,
class B, and class M shares, but do not bear a distribution fee. Class Y
shares are sold to defined contribution plans that initially invest at
least $250 million 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 that fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies followed
by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally
accepted accounting principles and requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities. Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined using
the last reported sale price, or, if no sales are reported -- as in the
case of some securities traded over-the-counter -- the last reported bid
price. Short-term investments having remaining maturities of 60 days or
less are stated at amortized cost, which approximates market value, and
other investments including restricted securities are stated at fair
value following procedures approved by the Trustees. Market quotations
are not considered to be readily available for certain debt obligations;
such investments are stated at fair value on the basis of valuations
furnished by a pricing service, approved by the Trustees or dealers,
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 Investments, 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 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 the resale
price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed).
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date except that certain dividends from
foreign securities are recorded as soon as the fund is informed of the
ex-dividend date. Discounts on zero coupon bonds, original issue,
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) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices
supplied by dealers.
H) 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 on securities held and for excise tax on income and capital
gains.
I) 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. These
differences include treatment of losses on wash sale transactions,
market discount, amortizaton of bond premium, and realized and
unrealized gains and losses on foward foreign currency contracts.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. For the year ended July 31,
1996, the fund reclassified $1,074,275 to increase undistributed net
investment income and $873,716 to decrease paid-in-capital, with a
decrease to accumulated net realized gain on investments of $200,559.
The calculation of net investment income per share in the financial
highlights table excludes these adjustments.
Note 2
Management fee, administrative services, and other transactions
Compensation of Putnam Management for management and investment advisory
services is paid quarterly based on the average net assets of the fund
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 to reduction in any
year to the extent that expenses (exclusive of brokerage, interest,
taxes, 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 July 11, 1996 the shareholders approved a proposal to increase fees
payable to Putnam Management under the fund's managements contract.
Management fees will be paid thereafter at an 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.
As part of the custodian contract between the subcustodian bank and
PFTC, the subcustodian bank has a lien on the securities of the fund to
the extent permitted by the funds investment restrictions to cover any
advances made by the subcustodian bank for the settlement of securities
purchased by the fund. At July 31, 1996, the payable to the subcustodian
bank represents the amount due for a cash advance for the settlement of
a forward currency contract.
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.
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 year ended July 31, 1996, fund expenses were reduced by $766,663
under expense offset arrangements with PFTC and brokerage service
arrangements. Investor servicing and custodian fees reported in the
Statement of operations exclude these credits. The fund could have
invested a portion of the assets utilized in connection with the expense
offset arrangements in an income producing asset if it had not entered
into such arrangements.
Trustees of the fund receive an annual Trustees fee of $2,640 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 invested in the fund or in other Putnam funds until distribution in
accordance with the Plan.
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 year ended July 31, 1996, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $973,355 and $40,833 from the
sale of class A and class M shares, respectively and $381,376 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 year ended July 31, 1996, Putnam Mutual Funds
Corp., acting as underwriter received $12,744 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended July 31, 1996, purchases and sales of investment
securities other than U.S. government obligations and short-term
investments aggregated $ 1,442,090,824 and $1,030,147,813,
respectively. Purchases and sales of U.S. government obligations
aggregated $1,166,204,437 and $976,056,952, respectively. In determining
the net gain or loss on securities sold, the cost of securities has been
determined on the identified cost basis.
Note 4
Capital shares
At July 31, 1996, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended
July 31, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 34,625,208 $544,315,852
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 5,118,269 78,116,977
- ----------------------------------------------------
39,743,477 622,432,829
Shares
repurchased (13,576,096) (213,268,263)
- ----------------------------------------------------
Net increase 26,167,381 $409,164,566
- ----------------------------------------------------
Year ended
July 31, 1995
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 13,146,606 $180,553,042
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,834,615 50,531,572
- ----------------------------------------------------
16,981,221 231,084,614
Shares
repurchased (14,933,076) (206,639,360)
- ----------------------------------------------------
Net increase 2,048,145 $ 24,445,254
- ----------------------------------------------------
Year ended
July 31, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 14,194,836 $222,056,702
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,222,091 18,574,383
- ----------------------------------------------------
15,416,927 240,631,085
Shares
repurchased (2,872,681) (44,815,677)
- ----------------------------------------------------
Net increase 12,544,246 $195,815,408
- ----------------------------------------------------
Year ended
July 31, 1995
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 5,418,159 $74,481,040
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 682,650 8,962,991
- ----------------------------------------------------
6,100,809 83,444,031
Shares
repurchased (2,223,649) (30,300,283)
- ----------------------------------------------------
Net increase 3,877,160 $53,143,748
- ----------------------------------------------------
Year ended
July 31, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 2,783,402 $43,645,026
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 81,817 1,254,544
- ----------------------------------------------------
2,865,219 44,899,570
Shares
repurchased (267,504) (4,203,507)
- ----------------------------------------------------
Net increase 2,597,715 $40,696,063
- ----------------------------------------------------
December 1, 1994
(commencement of
operations) to
July 31, 1995
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 593,067 $8,359,665
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,587 49,999
- ----------------------------------------------------
596,654 8,409,664
Shares
repurchased (46,650) (638,771)
- ----------------------------------------------------
Net increase 550,004 $7,770,893
- ----------------------------------------------------
Year ended
July 31, 1996
- ----------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------
Shares sold 4,154,040 $64,937,258
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 908,731 13,879,347
- ----------------------------------------------------
5,062,771 78,816,605
Shares
repurchased (2,265,107) (35,494,051)
- ----------------------------------------------------
Net increase 2,797,664 $43,322,554
- ----------------------------------------------------
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
- ----------------------------------------------------
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, the fund hereby
designates $0.21 per share (or if different, the amount necessary to
offset net capital gain earned by the fund) for all classes as capital
gain dividends for its taxable year ended July 31, 1996.
The fund has designated 32.82% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 1997 will show the tax status of
all distributions paid to your account in calendar 1996.
Results of July 11, 1996 shareholder meeting
An annual meeting of shareholders of the fund was held on July 11, 1996.
At the meeting, each of the nominees for Trustee was elected, as
follows:
Votes for Votes withheld
- ---------------------------------------------------------
Jameson Adkins Baxter 76,563,279 1,460,181
Hans H. Estin 75,931,426 2,092,033
John A. Hill 76,573,748 1,449,712
Elizabeth T. Kennan 75,903,019 2,093,441
Lawrence J. Lasser 75,950,671 2,072,789
Robert E. Patterson 76,573,934 1,449,526
Donald S. Perkins 76,553,311 1,470,148
William F. Pounds 75,935,487 2,087,972
George Putnam 76,573,225 1,450,234
George Putnam, III 75,930,781 2,092,679
E. Shapiro 76,480,215 1,543,244
A.J.C. Smith 76,559,853 1,463,606
W. Nicholas Thorndike 76,545,509 1,477,941
A proposal to ratify Price Waterhouse LLP as auditors of the fund was
approved as follows: 75,882,926 votes for, and 584,800 votes against,
with 1,557,135 abstentions and non-broker votes.
A proposal to approve of management fee increase was approved as
follows: 52,402,428 votes for, and 22,883,805 votes against, with
2,736,227 abstentions and non-broker votes.
A proposal to amend the fund's Agreement and Declaration of Trust with
respect to the fund's permitted investments was approved as follows:
65,000,161 votes for, and 9,977,307 votes against, with 3,044,994
abstentions and non-broker votes.
A proposal to amend the fund's Agreement and Declaration of Trust with
respect to diversification of investments was voted as follows:
62,338,585 votes for, and 12,820,824 votes against, with 2,863,051
abstentions and non-broker votes.
A proposal to amend the fund's Agreement and Declaration of Trust with
respect to investments in issuers that have been in operation for less
than three years was approved as follows: 65,254,963 votes for, and
10,666,062 votes against, with 3,293,518 abstentions and non-broker
votes.
A proposal to amend the fund's Agreement and Declaration of Trust with
respect to purchase of certain illiquid securities was voted as follows:
60,642,829 votes for, and 14,086,122 votes against, with 3,293,518
abstentions and non-broker votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in securities of issuers in which management
of the fund or Putnam Investment Management, Inc. owns securities was
approved as follows: 63,990,613 votes for, and 10,999,302 votes against,
with 3,032,545 abstentions and non-broker votes.
A proposal to amend the fund's Agreement and Declaration of Trust with
respect to investments in securities of issuers in which management of
the fund or Putnam Investment Management, Inc. owns securities was
approved as follows: 63,990,613 votes for, and 10,999,302 votes against,
with 3,032,545 abstentions and non-broker votes.
A proposal to amend the fund's Agreement and Declaration of Trust with
respect to owning 10% of the securities of a single issuer was voted as
follows: 67,785,929 votes for, and 12,501,723 votes against, with
3,124,579 abstentions and non-broker votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in real estate was voted as follows: 62,453,685
votes for, and 12,931,859 votes against, with 3,026,778 abstentions and
non-broker votes.
A proposal to amend the Agreement and Declaration of Trust with respect
to margin transactions was voted as follows: 63,609,243 votes for, and
11,584,415 votes against, with 3,218,665 abstentions and non-broker
votes.
A proposal to amend the fund's fundamental investment restrictions with
respect to making loans by purchasing securities was approved as follows
65,891,346 votes for, and 9,237,589 votes against, with 3,283,839
abstentions and non-broker votes.
A proposal to amend the fund's Agreement and Declaration of Trust with
respect to making loans through repurchase agreements and securities
loans was voted as follows: 62,187,879 votes for, 12,973,586 votes
against, and 3,250,769 abstentions and non-broker votes.
A proposal to amend the fund's fundamental investment restriction with
respect to concentrations of its assets was approved as follows:
66,479,778 votes for, and 8,915,682 votes against, with 3,016,773
abstentions and non-broker votes.
A proposal to amend the fund's Agreement and Declaration of Trust with
respect to pledge assets was approved as follows: 63,325,585 votes for,
11,765,483 votes against, 3,321,166 abstentions and non-broker votes.
A proposal to amend the fund's Agreement and Declaration of Trust and
eliminate the fund's fundamental investment restrictions with respect to
borrowing was approved as follows: 63,510,550 votes for, and 11,611,148
votes against, with 3,290,533 abstentions and non-broker votes.
A proposal to amend the fund's Agreement and Declaration of Trust and
eliminate the fund's fundamental investment restrictions with respect to
short sales was approved as follows: 63,792,154 votes for, and
11,421,243 votes against, with 3,198,913 abstentions and non-broker
votes.
A proposal to eliminate the fund's fundamental investment restriction
prohibiting the fund from investing in investment companies if
prohibited by German law was approved as follows: 67,200,094 votes for,
and 7,777,930 votes against, with 3,434,210 abstentions and non-broker
votes. All tabulations are rounded to nearest whole number.
The following proposals were adjourned to a meeting held on July 31,
1996: amend the fund's Agreement and Declaration of Trust with respect
to diversification of investments, amend the fund's Agreement and
Declaration of Trust with respect to purchase of certain illiquid
securities, amend the fund's Agreement and Declaration of Trust with
respect to owning 10% of the securities of a single issuer, amend the
fund's fundamental investment restriction with respect to investments in
real estate, and amend the fund's Agreement and Declaration of Trust
with respect to making loans through repurchase agreements and
securities loans.
Results of July 31, 1996 shareholder meeting
An annual meeting of shareholders of the fund was held on July 31, 1996.
Voting was as follows:
A proposal to amend the fund's Agreement and Declaration of Trust with
respect to diversification of investments was approved as follows:
67,143,275 votes for, and 13,384,701 votes against, with 3,033,094
abstentions and non-broker votes.
A proposal to amend the fund's Agreement and Declaration of Trust with
respect to purchase of certain illiquid securities was approved as
follows: 65,390,479 votes for, and 15,134,667 votes against, with
3,485,933 abstentions and non-broker votes.
A proposal to amend the fund's Agreement and Declaration of Trust with
respect to owning 10% of the securities of a single issuer was approved
as follows: 67,582,484 votes for, and 13,502,384 votes against, with
3,315,973 abstentions and non-broker votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in real estate was approved as follows:
67,211,945 votes for, and 13,930,764 votes against, with 38,258,223
abstentions and non-broker votes.
A proposal to amend the fund's Agreement and Declaration of Trust with
respect to making loans through repurchase agreements and securities
loans was approved as follows: 67,131,856 votes for, and 13,814,867
votes against, with 3,454,122 abstentions and non-broker votes. All
tabulations are rounded to nearest whole number.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
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
Peter Carman
Vice President
Brett C. Browchuck
Vice President
Thomas V. Reilly
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
the principal amount invested.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- ------------------
27083-001/880/242 9/96
PUTNAM INVESTMENTS [LOGO]
- --------------------------------------------------------------------------
The George Putnam Fund of Boston
Supplement to Annual Report dated 7/31/96
The following information has been prepared to provide class Y shareholders
with a performance overview specific to their holdings. Class Y shares are
offered exclusively to defined contribution plans investing $250 million or
more in one or more of Putnam's funds or private accounts. Performance of
class Y shares, which incur neither a front-end load, distribution fee, nor
contingent deferred sales charge, will differ from performance of class A, B,
and M shares, which are discussed more extensively in the semiannual report.
ANNUAL RESULTS AT A GLANCE
- --------------------------------------------------------------------------
Total return: NAV
Six months ended 7/31/96 2.07%
One year ended 7/31/96 15.09
Life of class (since 4/1/94) 40.76
Annual average 15.73
- --------------------------------------------------------------------------
Share value: NAV
7/31/95 $14.92
7/31/96 15.85
- --------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
4 0.615 $0.628 $1.243
- --------------------------------------------------------------------------
Current return (end of period) Total
Current dividend rate1 3.79%
Current 30-day SEC yield2 4.56
1Income portion of most recent distribution, annualized and divided by NAV at
end of period.
2Based only on investment income, calculated using SEC guidelines.
Please note that past performance does not indicate future results.
Investment return and principal value will fluctuate so your shares, when
redeemed, may be worth more or less than their original cost. See full report
for information on comparative benchmarks. If you have questions, please
consult your fund prospectus or call Putnam toll free at 1-800-752-9894.
