The George
Putnam Fund
of Boston
ANNUAL REPORT
July 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* The George Putnam Fund of Boston's class A shares ranked 98 among the
317 balanced funds rated by Lipper Analytical Services for the 12 months
ended July 31, 1997, placing them in the top 31% of the funds rated.*
* "On the equity side, our primary focus remains on cheapness and change
as we seek out stocks we believe the market has undervalued. Globalization
and consolidation are themes that also continue to provide attractive
equity investment opportunities."
-- Edward Bousa, lead manager
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
14 Portfolio holdings
36 Financial statements
*Lipper rankings are based on total return performance, vary over time,
and do not reflect the effects of sales charges. For periods ended
7/31/97, the fund's class A shares placed 19 out of 89 funds for 5 years
and 12 out of 41 funds for 10 years. The fund's class B shares were ranked
127 out of 317 funds for 1-year performance, 40 out of 193 funds for 3
years, and 33 out of 89 funds for 5 years. The funds' s class M shares
were ranked 116 out of 317 funds for 1 year. The class B shares and
class M shares were not ranked over longer periods. Past performance
is not indicative of future results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
As The George Putnam Fund of Boston approaches its 60th birthday this coming
November 5, it would seem appropriate to mark the event with a tribute to the
enduring quality of the fund's founding philosophy. It was indeed a philosophy
- -- not an underlying principle or an investment strategy -- but a deeply held
conviction that led my father to introduce the fund in 1937.
The fund made its debut as the country was working its way out of the Great
Depression and investors were still getting over the shock of the market crash
of 1929. It was my father's belief that investors should diversify not only by
holding a variety of stocks but by holding bonds as well. Thus one of the
first balanced funds was introduced.
As you will see in the following report from management, your fund has just
added another year of positive performance. Furthermore, the management team
believes the fund is well positioned to extend the tradition into fiscal 1998.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
September 17, 1997
Report from the Fund Managers
Edward P. Bousa, lead manager
Kenneth J. Taubes
Robert M. Paine
The general economic environment that prevailed throughout The George Putnam
Fund of Boston's most recent fiscal year could not have been more favorable
for investing. Steady, moderate economic growth, low to declining inflation,
an accommodative monetary policy, and a generally optimistic mood among
investors set the stage for healthy returns, and your fund delivered them:
class A shares gained 31.52% at net asset value (23.92% at public offering
price) for the 12 months ended July 31, 1997. The results for other share
classes and longer periods can be found on the performance tables that begin
on page 9.
The results of the fund's portfolio of stocks and bonds, when compared against
its equity and fixed-income benchmarks, were similarly encouraging. All share
classes placed near the midpoint in the spread between the 52.11% return of
the Standard & Poor's 500(registered trademark) Index and the 10.79% return of
the Lehman Brothers Government/Corporate Bond Index. To deliver such returns
has been a guiding principle of the fund since its inception as one of the
first balanced funds in 1937.
* TECHNOLOGY, PHARMACEUTICALS, AND FINANCIAL SERVICES DROVE EQUITY MARKET
The equity market was exceptionally strong throughout the period and your fund
carried a full complement of stocks, ending fiscal 1997 at 65.1% of net
assets, slightly above the normal 60%/40% ratio of stocks to bonds. During the
year, technology was the best-performing sector, with such holdings as IBM,
Intel, and Hewlett Packard leading the portfolio. While these stocks, along
with others discussed in this report, were viewed favorably at the end of the
period, all portfolio holdings are subject to review and adjustment in
accordance with the fund's investment strategy and may vary in the future.
Pharmaceuticals such as American Home Products and Bristol-Myers Squibb also
helped support performance throughout the period, while paper stocks such as
Weyerhaeuser, one of the fund's larger holdings, did well during the second
half.
Financial services issues, especially banks such as Bankers Trust New York,
Fleet Financial, and NationsBank, were consistently strong throughout the
period in part because more discretionary income was being diverted into
savings and investments. On the other hand, the shift toward increased saving,
along with more restrained consumer purchasing in the durable goods area,
contributed to relatively weaker performance of such portfolio holdings as
Eastman Kodak, Tupperware, and Whirlpool.
Tobacco-related holdings were hurt somewhat by concern over how the court
settlement on smoking-related deaths would actually be resolved. In addition,
ongoing uncertainty over new deregulation rules and a milder-than-expected
winter adversely affected electric utilities.
* FOCUS ON CHEAPNESS AND CHANGE ENDURES
On the equity side, your fund continues to do exactly what it has been doing
over the past four years: focusing on what we call cheapness and change. We
seek out stocks we believe are undervalued by the market, and when we are
satisfied that the companies meet the fund's investment criteria, we purchase
them at what we believe are attractive valuations.
[GRAPHIC OMITTED: verticle bar chart COMPARATIVE PORTFOLIO COMPOSITION]
COMPARATIVE PORTFOLIO COMPOSITION*
7/31/96 7/31/97
Common stocks 59.1% 64.6%
U.S. government and agency securities 20.5% 13.0%
Corporate bonds and notes 9.9% 12.9%
Foreign government bonds and notes 2.6% 3.9%
Brady bonds 0.0% 1.3%
Collateralized mortgage obligations 1.9% 0.9%
Convertible preferred stocks 0.7% 0.4%
Convertible bonds and notes 1.1% 0.2%
Preferred stocks 0.1% 0.1%
Footnote reads:
*Based on percentage of net assets. Balances of portfolio on dates listed were
invested in cash and short-term securities. Portfolio allocation will vary
over time.
Often the stocks attract our attention because the market has overlooked
positive changes within the companies. These may include companies with new
managements that are increasing efficiency through such measures as cost
cutting or divestiture of less productive subsidiaries. They may include
companies that are increasing market share or successfully entering other
markets. In our search for such opportunities, we see top managements of more
than 300 companies each year, frequently through on-site visits by your fund's
managers and the appropriate Putnam industry analysts.
One of the trends we have focused on in recent years is toward globalization.
More U.S. companies are expanding their business and operations abroad, and
more of our attention is being focused on non-U.S. companies. We are also
seeing increased consolidation, and we seek to take advantage on both sides --
either by investing in companies that are acquiring other companies or by
investing in companies that appear to be attractive takeover candidates.
Examples of portfolio holdings that we believe are cheap and attractive
include Atlantic Richfield, a petroleum producer and marketer currently
undergoing positive changes that we expect will lead to increased earnings.
Dow Chemical has been operating well in its global chemical universe and we
believe its results will be increasingly favorable as world economies
strengthen. Similarly Crown Cork & Seal, a world leader in packaging, is
poised for dramatic increases in earnings. Finally Boeing has emerged as the
leader in the jet aircraft market, a position we believe will be strengthened
by its consolidation with McDonnell Douglas.
* FIXED-INCOME MARKET SHEDS FEAR OF ECONOMIC GROWTH TO POST SIZABLE RALLY
Judging by the course taken by the U.S. fixed-income markets during fiscal
1997, it appears that bond investors finally may have accepted the notion that
inflation can be stable to declining in a strong economic environment. The
Federal Reserve Board's quarter-point increase in short-term interest rates in
March seemed to give bond investors heart, for they failed to panic as the Fed
held rates steady thereafter in the face of continued economic growth.
Investors also seemed to be reassured by the substantial improvement in the
federal government's fiscal policy, especially since the final budget
legislation suggests that a balanced budget may be achievable within a year or
two. The result of this favorable mindset was a fairly sizable rally,
especially in long-term bonds.
TOP 10 EQUITY HOLDINGS (7/31/97)*
Bank One Corp.
Insurance and finance
Weyerhaeuser Co.
Paper and forest products
Mobil Corp.
Oil and gas
SBC Communications, Inc.
Utility
Exxon Corp.
Oil and gas
J.P. Morgan & Co., Inc.
Insurance and finance
Pharmacia & Upjohn, Inc.
Pharmaceuticals
IBM Corp.
Computer services and software
Fleet Financial Group, Inc.
Insurance and finance
Sprint Corp.
Utilities
Footnote reads:
* These holdings represent 10.9% of the fund's net assets.
Portfolio holdings will vary over time.
Performance in the high-yield sector of the market was even more dramatic.
Because these lower-rated securities are affected to a greater extent by
factors similar to those that affect stocks and less by changes in interest
rates, the strong equity market had a spillover effect. The fund benefited by
its weighting in high-yield bonds.
Since the fund was well hedged against the strong dollar, its international
holdings also did well, notably those of Australia, Italy, and Germany.
Generally low world interest rates, favorable credit terms, and the strong
dollar also enabled the emerging markets to do well, particularly those of
Russia and Bulgaria in Eastern Europe and Mexico and Argentina in Latin
America.
* OUTLOOK: CAUTIOUS OPTIMISM ON ALL FRONTS
We believe consumer spending is poised for a rebound this fall after the
modest slowdown it experienced during the spring and summer. Demand for
housing, durable goods, and commercial real estate has been stimulated by
lower interest rates. Consumer confidence is strong, unemployment remains low,
and purchasing power is high.
The stock market typically greets such vibrant economic prospects warmly, but
it is likely to respond somewhat harshly to earnings shortfalls and other
disappointments. Nevertheless we continue to find attractive values there. But
after the breathtaking advance in equities last year, we enter fiscal 1998
mindful of the potential for increased volatility.
How the bond market digests the unfolding economic trends remains to be seen,
but it typically turns increasingly reserved as the economy grows more
vibrant. Consequently we are maintaining our somewhat cautious view of the
fixed-income markets. Recent acquisitions of intermediate-term securities
position the fixed-income portion of the portfolio well for modestly rising
interest rates.
Of one thing we are certain: there will be no shortage of challenges in the
year ahead. But we remain as attentive as ever to new opportunities as they
present themselves.
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 7/31/97, there is no guarantee the fund will continue to hold
these securities in the future.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. The
George Putnam Fund of Boston is designed for investors seeking capital
appreciation and current income.
TOTAL RETURN FOR PERIODS ENDED 7/31/97
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 31.52% 23.92% 30.46% 25.46% 30.83% 26.26%
- ------------------------------------------------------------------------------
5 years 99.71 88.20 92.51 90.51 94.58 87.78
Annual average 14.84 13.48 14.00 13.76 14.24 13.43
- ------------------------------------------------------------------------------
10 years 209.65 191.82 185.45 185.45 192.02 181.79
Annual average 11.97 11.30 11.06 11.06 11.31 10.92
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 7/31/97
Standard & Lehman Bros.
Poor's Govt./Corp. Consumer
500 Index Bond Index Price Index
- ------------------------------------------------------------------------------
1 year 52.11% 10.79% 2.23%
- ------------------------------------------------------------------------------
5 years 155.27 42.47 14.23
Annual average 20.62 7.34 2.70
- ------------------------------------------------------------------------------
10 years 302.62 138.31 41.04
Annual average 14.94 9.07 3.50
- ------------------------------------------------------------------------------
Returns for class A and class M shares reflect the current maximum initial
sales charges of 5.75% for class A shares and 3.50% for class M shares.
One-, five-, and ten-year returns for class B shares reflect the
applicable contingent deferred sales charge (CDSC), which declines from a
5% maximum during the first year to 1% during the sixth year, and is
eliminated thereafter. Returns shown for class B and class M shares for
periods prior to their inception are derived from the historical
performance of class A shares, adjusted to reflect both the initial sales
charge or CDSC, if any, currently applicable to each class and, in the
case of class B and class M shares, the higher operating costs applicable
to such shares. All returns assume reinvestment of distributions at NAV
and represent past performance; they do not guarantee future results.
Investment return and principal value will fluctuate so that an investor's
shares when redeemed may be worth more or less than their original cost.
[GRAPHIC OMITTED: line chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 7/31/87
Fund's Consumer
class A shares S&P 500 Price
at POP Index Index
7/31/87 9424 10000 10000
7/31/88 8918 8832 10413
7/31/89 10911 11650 10931
7/31/90 11551 12402 11459
7/31/91 12854 13989 11968
7/31/92 14612 15773 12346
7/31/93 15875 17129 12689
7/31/94 16424 18013 13040
7/31/95 19336 22709 13401
7/31/96 22188 26468 13796
7/31/97 29182 40262 14104
Footnote reads:
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B shares would have been
valued at $28,545 and no contingent deferred sales charges would apply; a
$10,000 investment in the fund's class M shares would have been valued at
$29,202 ($28,179 at public offering price). See first page of performance
section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 7/31/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 4 4 4
- ------------------------------------------------------------------------------
Income $0.667 $0.552 $0.600
- ------------------------------------------------------------------------------
Capital gains:
- ------------------------------------------------------------------------------
Long term 0.680 0.680 0.680
- ------------------------------------------------------------------------------
Short term 0.229 0.229 0.229
- ------------------------------------------------------------------------------
Total $1.576 $1.461 $1.509
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
7/31/96 $15.82 $16.79 $15.74 $15.74 $16.31
- ------------------------------------------------------------------------------
7/31/97 18.95 20.11 18.82 18.82 19.50
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 3.17% 2.98% 2.57% 2.81% 2.71%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 3.04 2.87 2.32 2.54 2.45
- ------------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2 Based on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 6/30/97
(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 22.86% 15.83% 21.95% 16.95% 22.23% 17.97%
- ------------------------------------------------------------------------------
5 years 96.68 85.38 89.46 87.46 91.64 84.98
Annual average 14.49 13.14 13.63 13.39 13.89 13.09
- ------------------------------------------------------------------------------
10 years 204.10 186.61 180.24 180.24 186.58 176.60
Annual average 11.76 11.10 10.85 10.85 11.10 10.71
- ------------------------------------------------------------------------------
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. See first page of
performance section for performance calculation method.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales and a higher 12b-1 fee than
class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the maximum 5.75% sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year
to 1% during the sixth year. After the sixth year, the CDSC no longer
applies.
COMPARATIVE BENCHMARKS
Standard & Poor's 500 Index* is an unmanaged list of common stocks that is
frequently used as a general measure of stock market performance.
Lehman Brothers Government/Corporate Bond Index* is an unmanaged list of
publicly issued U.S. Treasury obligations, debt obligations of U.S.
government agencies (excluding mortgage-backed securities), fixed-rate,
nonconvertible investment-grade corporate debt securities and U.S.
dollar-denominated SEC-registered nonconvertible debt issued by foreign
governmental entities or international agencies.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Footnote reads:
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take into account brokerage fees or taxes. Securities
in the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
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, 1997, 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, 1997 by correspondence with the
custodian and the application of alternative auditing procedures where
investments purchased were not yet received by the custodian, provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
September 16, 1997
Portfolio of investments owned
July 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS (64.6%) *
NUMBER OF SHARES VALUE
Aerospace and Defense (1.2%)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
281,200 Boeing Co. $ 16,538,075
220,000 Lockheed Martin Corp. 23,430,000
77,200 Northrop Grumman Corp. 8,887,650
--------------
48,855,725
Agriculture (--%)
- ------------------------------------------------------------------------------------------------------------
22,025 PSF Holdings LLC Class A [DBL. DAGGER] + 583,663
Automotive (2.2%)
- ------------------------------------------------------------------------------------------------------------
12,000 Bayerische Motoren Werke (BMW) AG (Germany) 9,769,565
696,000 Ford Motor Co. 28,449,000
465,000 General Motors Corp. 28,771,875
196,900 Lear Corp. + 9,426,588
172,000 Michelin Corp. Class B (France) 10,683,867
--------------
87,100,895
Basic Industrial Products (2.0%)
- ------------------------------------------------------------------------------------------------------------
413,000 Cooper Industries, Inc. 22,947,313
380,000 Deere (John) & Co. 21,612,500
379,000 Minnesota Mining & Manufacturing Co. 35,910,250
--------------
80,470,063
Broadcasting (0.4%)
- ------------------------------------------------------------------------------------------------------------
751,000 Comcast Corp. Class A 17,038,313
Building and Construction (0.2%)
- ------------------------------------------------------------------------------------------------------------
195,000 Masco Corp. 9,140,625
1,600 Terex Corp. Rights expiration date 5/15/00 32,000
--------------
9,172,625
Business Equipment and Services (1.7%)
- ------------------------------------------------------------------------------------------------------------
364,000 Deluxe Corp. 12,125,750
390,000 Hewlett-Packard Co. 27,324,375
360,400 Xerox Corp. 29,642,900
--------------
69,093,025
Chemicals (3.3%)
- ------------------------------------------------------------------------------------------------------------
423,300 Bayer AG ADR (Germany) 17,837,564
336,000 Dow Chemical Co. 31,920,000
180,000 du Pont (E.I.) de Nemours & Co., Ltd. 12,048,750
379,000 Eastman Chemical Co. 22,929,500
393,500 Hercules, Inc. 20,904,688
269,000 PPG Industries, Inc. 17,216,000
207,000 Witco Chemical Corp. 9,444,375
--------------
132,300,877
Computer Services and Software (1.8%)
- ------------------------------------------------------------------------------------------------------------
256,000 Computer Associates Intl., Inc. 17,424,000
374,000 IBM Corp. 39,550,500
495,000 NCR Corp. + 15,870,938
--------------
72,845,438
Conglomerates (1.7%)
- ------------------------------------------------------------------------------------------------------------
244,000 General Motors Corp. Class H 14,746,750
308,000 Temple Inland, Inc. 20,732,250
531,900 TRW, Inc. 31,116,150
--------------
66,595,150
Consumer Durable Goods (0.4%)
- ------------------------------------------------------------------------------------------------------------
355,100 Whirlpool Corp. 17,755,000
Consumer Non Durables (3.1%)
- ------------------------------------------------------------------------------------------------------------
307,000 Colgate-Palmolive Co. 23,255,250
419,100 Gallaher Group PLC (United Kingdom) + 7,517,606
601,200 Kimberly-Clark Corp. 30,473,325
770,000 Philip Morris Cos., Inc. 34,746,250
497,800 RJR Nabisco Holdings Corp. 16,334,063
376,000 Tupperware Corp. 13,066,000
--------------
125,392,494
Consumer Products (0.9%)
- ------------------------------------------------------------------------------------------------------------
459,100 Fortune Brands, Inc. 16,269,356
527,000 Lowe's Cos., Inc. 19,828,375
--------------
36,097,731
Consumer Services (--%)
- ------------------------------------------------------------------------------------------------------------
100 AmeriKing, Inc. + 5,000
Electronics and Electrical Equipment (2.5%)
- ------------------------------------------------------------------------------------------------------------
6,100 Eaton Corp. 550,906
446,900 Emerson Electric Co. 26,367,100
240,000 General Electric Co. 16,845,000
182,000 Intel Corp. 16,709,875
325,000 Rockwell International Corp. 21,328,125
1,040,100 Siebe PLC (United Kingdom) 18,702,562
--------------
100,503,568
Environmental Control (0.4%)
- ------------------------------------------------------------------------------------------------------------
437,000 Browning-Ferris Industries, Inc. 16,169,000
Food and Beverages (3.5%)
- ------------------------------------------------------------------------------------------------------------
587,000 Anheuser-Busch Cos., Inc. 25,204,313
248,000 Dole Food Co. 10,152,500
488,250 Flowers Industries, Inc. 8,513,859
412,000 General Mills, Inc. 28,479,500
200,000 Nabisco Holdings Corp. Class A 8,500,000
411,000 PepsiCo, Inc. 15,746,438
522,000 Sara Lee Corp. 22,870,125
61,000 The Quaker Oats Co. 3,122,438
772,000 Whitman Corp. 19,493,000
--------------
142,082,173
Health Care (0.1%)
- ------------------------------------------------------------------------------------------------------------
100,000 United Healthcare Corp. 5,700,000
Insurance and Finance (11.6%)
- ------------------------------------------------------------------------------------------------------------
384,000 Ahmanson (H.F.) & Co. 20,424,000
542,000 American General Corp. 28,861,500
475,500 AON Corp. 26,628,000
919,000 Banc One Corp. 51,578,875
324,000 Bank of New York Company, Inc. 15,734,250
234,290 Bankers Trust New York Corp. 23,707,219
177,000 Beneficial Corp. 12,832,500
42,500 CIGNA Corp. 8,478,750
22,100 First Chicago NBD Corp. 1,676,838
200,000 First Union Corp. 10,143,750
572,000 Fleet Financial Group, Inc. 38,824,500
78,200 Household International, Inc. 10,126,900
264,000 Huntington Bancshares, Inc. 7,524,000
272,500 KeyCorp 16,946,094
277,000 Mercantile Bancorpation, Inc. 19,545,813
358,000 Morgan (J.P.) & Co., Inc. 41,483,250
345,000 NationsBank Corp. 24,559,688
289,000 Norwest Corp. 18,225,063
92,400 Old Kent Financial Corp. 5,982,900
699,400 PNC Bank Corp. 31,997,550
84,000 Southtrust Corp. 3,958,500
388,500 Synovus Financial Corp. 10,950,844
716,000 USF&G Corp. 17,586,750
329,000 Wachovia Corp. 21,220,500
--------------
468,998,034
Medical Supplies and Devices (0.9%)
- ------------------------------------------------------------------------------------------------------------
616,400 Baxter International, Inc. 35,635,625
Metals and Mining (0.7%)
- ------------------------------------------------------------------------------------------------------------
116,000 Aluminum Co. of America 10,266,000
55,800 Carpenter Technology Corp. 2,650,500
527,000 Freeport-McMoRan Copper & Gold Co., Inc. Class A 14,360,750
--------------
27,277,250
Oil and Gas (6.6%)
- ------------------------------------------------------------------------------------------------------------
354,000 Amoco Corp. 33,276,000
300,000 Atlantic Richfield Co. 22,443,750
264,000 British Petroleum PLC ADR (United Kingdom) 21,763,500
500,900 Elf Aquitane ADR (France) 28,676,525
44,000 Ente Nazionale Idrocarburi S.P.A. (ENI) ADR (Italy) 2,587,750
708,000 Exxon Corp. 45,489,000
145,000 Kerr-McGee Corp. 9,080,625
615,000 Mobil Corp. 47,047,500
757,000 Occidental Petroleum Corp. 18,972,313
150,000 Sonat, Inc. 7,481,250
570,000 Total Corp. ADR (France) 28,749,375
--------------
265,567,588
Packaging and Containers (0.6%)
- ------------------------------------------------------------------------------------------------------------
493,700 Crown Cork & Seal Co., Inc. 24,962,706
Paper and Forest Products (1.8%)
- ------------------------------------------------------------------------------------------------------------
224,000 Chesapeake Corp. 7,560,000
90,000 International Paper Co. 5,040,000
215,000 Rayonier, Inc. 10,037,813
798,000 Weyerhaeuser Co. 49,675,500
--------------
72,313,313
Pharmaceuticals (3.2%)
- ------------------------------------------------------------------------------------------------------------
284,000 American Home Products Corp. 23,412,250
407,000 Bristol-Myers Squibb Co. 31,924,063
413,100 Glaxo Wellcome PLC ADR (United Kingdom) + 17,556,750
132,000 Merck & Co., Inc. 13,719,750
1,077,370 Pharmacia & Upjohn, Inc. 40,670,718
--------------
127,283,531
Photography (0.8%)
- ------------------------------------------------------------------------------------------------------------
280,000 Eastman Kodak Co. 18,760,000
259,000 Polaroid Corp. 15,410,500
--------------
34,170,500
Publishing (0.8%)
- ------------------------------------------------------------------------------------------------------------
467,000 McGraw-Hill, Inc. 31,668,438
REITs (Real Estate Investment Trusts) (0.8%)
- ------------------------------------------------------------------------------------------------------------
441,000 Beacon Properties Corp. 16,151,625
132,500 Duke Realty Investments, Inc. 5,887,969
206,700 Equity Residential Properties Trust 10,425,431
--------------
32,465,025
Retail (1.0%)
- ------------------------------------------------------------------------------------------------------------
150,000 Circuit City Stores, Inc. 5,437,500
708,000 K mart Corp. 8,407,500
442,000 Sears, Roebuck & Co. 27,984,125
--------------
41,829,125
Transportation (3.1%)
- ------------------------------------------------------------------------------------------------------------
177,000 Burlington Northern Santa Fe Corp. + 17,091,563
437,000 CSX Corp. 26,984,750
332,000 Delta Air Lines, Inc. 29,506,500
103,000 Norfolk Southern Corp. 11,407,250
556,800 Ryder System, Inc. 19,940,400
299,000 Union Pacific Corp. 21,434,563
--------------
126,365,026
Utilities (7.3%)
- ------------------------------------------------------------------------------------------------------------
447,000 American Telephone & Telegraph Co. 16,455,188
442,000 Ameritech Corp. 29,807,375
208,000 Baltimore Gas & Electric Co. 5,785,000
334,000 Bell Atlantic Corp. 24,235,875
505,000 BellSouth Corp. 23,924,375
134,400 Carolina Power & Light Co. 4,788,000
213,265 CINergy Corp. 7,171,036
168,000 Dominion Resources, Inc. 6,174,000
540,999 Duke Power Co. 27,421,897
409,000 NYNEX Corp. 22,673,938
258,000 OGE Energy Corp. 11,803,500
622,000 Pacific Enterprises 20,798,125
331,600 Potomac Electric Power Co. 7,398,825
793,201 SBC Communications, Inc. 46,947,584
774,000 Sprint Corp. 38,313,000
--------------
293,697,718
--------------
Total Common Stocks (cost $1,991,125,704) $2,609,994,619
CORPORATE BONDS AND NOTES (12.9%) *
PRINCIPAL AMOUNT VALUE
Advertising (0.1%)
- ------------------------------------------------------------------------------------------------------------
$ 150,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 163,500
870,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 930,900
45,000 Outdoor Systems, Inc. sr. sub. notes 9 3/8s, 2006 47,588
850,000 Outdoor Systems, Inc. 144A sr. sub. notes 8 7/8s, 2007 875,500
550,000 Universal Outdoor, Inc sr. sub. notes Ser. B, 9 3/4s, 2006 572,000
300,000 Universal Outdoor, Inc. sr. sub. notes 9 3/4s, 2006 321,375
--------------
2,910,863
Aerospace and Defense (--%)
- ------------------------------------------------------------------------------------------------------------
350,000 BE Aerospace sr. notes 9 3/4s, 2003 367,500
70,000 BE Aerospace sr. sub. notes Ser. B, 9 7/8s, 2006 74,375
210,000 Howmet Corp. sr. sub. notes 10s, 2003 228,900
60,000 L-3 Communications Corp. 144A sr. sub. notes 10 3/8s, 2007 64,350
105,000 Sequa Corp. bonds 8 3/4s, 2001 106,050
115,000 Sequa Corp. sr. notes 9 5/8s, 1999 119,313
80,000 Tracor, Inc. sr. sub. notes 8 1/2s, 2007 82,600
180,000 Wyman-Gordon Co. sr. notes 10 3/4s, 2003 194,175
--------------
1,237,263
Agriculture (0.1%)
- ------------------------------------------------------------------------------------------------------------
300,000 AGCO Corp. sr. sub. notes 8 1/2s, 2006 311,250
4,120,000 Potash Corp. Saskatchewan notes 7 1/8s, 2007 (Canada) 4,240,634
255,739 Premium Standard Farms, Inc. sr. secd. notes 11s, 2003 [2 DBL. DAGGERS] 283,871
--------------
4,835,755
Apparel (--%)
- ------------------------------------------------------------------------------------------------------------
35,000 GFSI, Inc. 144A sr. sub. notes 9 5/8s, 2007 35,875
Automotive (0.1%)
- ------------------------------------------------------------------------------------------------------------
111,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 123,765
40,000 Cambridge Industries, Inc. 144A sr. sub. notes 10 1/4s, 2007 41,700
2,630,000 Chrysler Corp. deb. Ser. B, 7.45s, 2097 2,739,145
115,000 Harvard Industries, Inc. sr. notes 11 1/8s, 2005+ 42,550
70,000 Hawk Corp. sr. notes 10 1/4s, 2003 73,150
840,000 Hayes Wheels International, Inc. 144A sr. sub. notes
9 1/8s, 2007 858,900
300,000 Lear Corp. sub. notes 9 1/2s, 2006 328,500
95,000 Safety Component International, Inc. 144A sr. sub. notes
10 1/8s, 2007 96,900
30,000 Titan Wheel International Inc. sr. sub. notes 8 3/4s, 2007 31,275
--------------
4,335,885
Banks (2.0%)
- ------------------------------------------------------------------------------------------------------------
2,620,000 Abbey National First Capital PLC sub. notes 7.35s, 2049
(United Kingdom) 2,711,019
7,225,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 7,201,302
5,950,000 Advanta National Bank sr. notes 7.02s, 2001 5,915,788
145,000 Chevy Chase Savings Bank, Inc. sub. deb. 9 1/4s, 2005 146,088
3,225,000 Den Danske Bank 144A sub. notes 6.55s, 2003 (Denmark) 3,233,804
40,000 Dime Capital Trust I bank guarantyd Ser. A, 9.33s, 2027 43,871
595,000 First Nationwide Holdings sr. sub. notes 10 5/8s, 2003 658,963
4,015,000 Firstar Capital Trust I company guaranty Ser. B, 8.32s, 2026 4,296,211
4,130,000 Greenpoint Bank sr. notes 6.7s, 2002 4,194,531
1,920,000 Greenpoint Capital Trust I 144A company guaranty 9.1s, 2027 2,042,880
8,895,000 Merita Bank Ltd. sub. notes 6 1/2s, 2006 (Finland) 8,751,613
140,000 North Fork Capital Trust I company guaranty 8.7s, 2026 148,800
5,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 5,563
4,645,000 Peoples Bank Bridgeport sub. notes 7.2s, 2006 4,750,952
1,685,000 Peoples Heritage Capital Trust company guaranty
Ser. B, 9.06s, 2027 1,802,950
90,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 93,852
3,750,000 Riggs National Corp. sub. deb. 8 1/2s, 2006 3,909,375
4,865,000 Societe Generale 144A notes 7.85s, 2049 (France) 5,152,522
200,000 Sovereign Capital Trust 144A company guaranty 9s, 2027 211,738
4,855,000 Sparbanken Sverige AB (Swedbank) 144A
sub. 7 1/2s, 2006 (Sweden) 5,027,353
3,915,000 St. Paul Bancorp sr. notes 7 1/8s, 2004 3,961,080
2,000,000 State Development Bank of China deb. 12 1/2s, 1999 (China) 2,237,000
3,100,000 State Development Bank of China notes 7 3/8s, 2007 (China) 3,207,198
2,195,000 State Street Institution 144A company guaranty 7.94s, 2026 2,299,306
4,450,000 Webster Capital Trust I 144A bonds 9.36s, 2027 4,882,095
5,090,000 Webster Financial Corp. sr. notes 8 3/4s, 2000 5,194,345
--------------
82,080,199
Basic Industrial Products (--%)
- ------------------------------------------------------------------------------------------------------------
90,000 Astor Corp. 144A sr. sub. notes 10 1/2s, 2006 95,400
175,000 Clark-Schwebel sr. notes 10 1/2s, 2006 191,625
90,000 Inter-City Products sr. notes 9 3/4s, 2000 92,475
60,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 63,248
30,000 Roller Bearing Co. 144A sr. sub. notes 9 5/8s, 2007 30,975
15,000 W. R. Carpenter 144A sr. sub. notes 10 5/8s, 2007 15,300
--------------
489,023
Broadcasting (0.2%)
- ------------------------------------------------------------------------------------------------------------
50,000 Affinity Group Holdings sr. sub. notes 11 1/2s, 2003 53,750
585,000 Affinity Group Holdings 144A sr. notes 11s, 2007 625,950
10,000 Allbritton Communications Co. sr. sub. deb. 11 1/2s, 2004 10,500
290,000 Argyle Television Corp. sr. sub. notes 9 3/4s, 2005 307,400
275,000 Benedek Communications Corp. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2006 ++ 173,250
185,000 Chancellor Radio Broadcasting Corp. sr. sub. notes 9 3/8s, 2004 193,788
80,000 Citadel Broadcasting Co. 144A sr. sub. notes 10 1/4s, 2007 86,400
300,000 Commodore Media, Inc. sr. sub. notes stepped-coupon 7 1/2s,
(13 1/4s, 5/1/98), 2003 ++ 327,000
50,000 Granite Broadcasting Corp. sr. sub. deb. 12 3/4s, 2002 53,375
45,000 Gray Communications Systems, Inc. sr. sub. notes 10 5/8s, 2006 48,150
115,000 Heritage Media Services Corp. sr. sub. notes 8 3/4s, 2006 122,475
225,000 Jacor Communications, Inc. sr. sub. notes 10 1/8s, 2006 245,813
100,000 Jacor Communications, Inc. company guaranty 9 3/4s, 2006 107,500
925,000 Jacor Communications, Inc. 144A company guaranty
8 3/4s, 2007 952,750
220,000 Paxson Communications Corp. 144A sr. sub. notes
11 5/8s, 2002 240,350
250,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 277,500
35,000 Radio One Inc. 144A sr. sub. notes stepped-coupon 7s,
(12s, 5/1/00), 2004 ++ 32,725
260,000 SFX Broadcasting, Inc. sr. sub. notes Ser. B, 10 3/4s, 2006 291,200
200,000 Sinclair Broadcasting Group sr. sub. notes 10s, 2005 209,500
700,000 Sinclair Broadcasting Group, Inc. 144A sr. sub. notes 9s, 2007 696,500
100,000 Spanish Broadcasting Systems 144A sr. notes 11s, 2004 107,000
700,000 Spanish Broadcasting Systems stepped-coupon 7 1/2s, 2002 791,000
280,000 Sullivan Broadcasting sr. sub. notes 10 1/4s, 2005 294,000
85,000 TV Azteca SA De Cv 144A sr. notes 10 1/2s, 2007 (Mexico) 90,525
--------------
6,338,401
Building and Construction (0.1%)
- ------------------------------------------------------------------------------------------------------------
175,000 Atrium Companies, Inc. sub. notes 10 1/2s, 2006 182,438
60,000 Building Materials Corp. sr. notes Ser. B, 8 5/8s, 2006 62,550
115,000 Congoleum Corp. sr. notes 9s, 2001 118,450
95,000 Continental Homes Holding Corp. sr. notes 10s, 2006 99,513
3,300,000 Guangdong Enterprises 144A sr. notes
8 7/8s, 2007 (China) 3,483,546
205,000 Terex Corp. sr. notes Ser. B, 13 1/4s, 2002 233,700
90,000 Webb (Del E.) Corp. sr. sub. notes 9 3/4s, 2008 91,575
--------------
4,271,772
Business Equipment and Services (0.1%)
- ------------------------------------------------------------------------------------------------------------
115,000 Aramark Corp. sub. notes 8 1/2s, 2003 117,875
1,860,000 Boise Cascade Corp. deb. 7.35s, 2016 1,859,033
40,000 Coleman Escrow Corp. 144A sr. disc. notes zero %, 2001 23,600
170,000 Corporate Express, Inc. sr. sub. notes Ser. B, 9 1/8s, 2004 170,425
60,000 Iron Mountain, Inc. med. term notes company guaranty
10 1/8s, 2006 65,100
45,000 Loomis Fargo & Co. company guaranty 10s, 2004 45,225
100,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 111,500
149,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 166,135
45,000 Williams Scoutman, Inc. 144A sr.notes 9 7/8s, 2007 45,450
--------------
2,604,343
Cable Television (0.3%)
- ------------------------------------------------------------------------------------------------------------
100,000 Adelphia Communications Corp. sr. notes Ser. B, 10 1/4s, 2000 102,500
250,000 Adelphia Communications Corp. sr. notes 9 1/2s, 2004 [2 DBL. DAGGERS] 237,500
10,000 Cablevision Systems Corp. sr. sub. deb. 9 7/8s, 2023 10,550
100,000 Cablevision Systems Corp. sr. sub. notes 9 1/4s, 2005 104,500
355,000 Century Communications Corp. sr. notes 9 1/2s, 2005 371,863
605,000 Comcast Corp. sr. sub. notes 9 1/2s, 2008 646,594
250,000 Comcast Corp. sr. sub. notes 9 3/8s, 2005 265,938
240,000 Comcast Corp. sr. sub. 9 1/8s, 2006 255,600
4,825,000 Continental Cablevision, Inc. sr. deb. 9 1/2s, 2013 5,647,566
10,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (13 1/2s, 9/30/99), 2004
(United Kingdom) ++ 8,275
350,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) ++ 243,250
470,000 Diamond Cable Communication Co. 144A sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) ++ 279,650
150,000 Heartland Wireless Communications, Inc. sr. notes
Ser. B, 14s, 2004 66,375
1,010,000 International Cabletel, Inc. sr. notes stepped-coupon
Ser. B, zero % (11 1/2s, 2/01/01), 2006 ++ 722,150
390,000 Jones Intercable, Inc. sr. sub. deb. 10 1/2s, 2008 425,100
100,000 Jones Intercable, Inc. sr. notes 9 5/8s, 2002 107,375
690,000 Lenfest Communications, Inc. sr. notes 8 3/8s, 2005 696,900
500,000 Marcus Cable Co. (L.P.) sr. deb. 11 7/8s, 2005 545,000
215,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes stepped-
coupon zero % (13 1/2s, 8/1/99), 2004 ++ 191,350
100,000 Rogers Cablesystems Ltd. notes 11s, 2015 113,750
5,000 Rogers Cablesystems Ltd. deb. 10 1/8s, 2012 5,425
225,000 Rogers Cablesystems Ltd. sr. notes Ser. B, 10s, 2005 248,625
50,000 Wireless One, Inc. sr. notes 13s, 2003 32,750
--------------
11,328,586
Cellular Communications (--%)
- ------------------------------------------------------------------------------------------------------------
80,000 Pronet, Inc. sr. sub. notes 11 7/8s, 2005 77,400
Chemicals (0.3%)
- ------------------------------------------------------------------------------------------------------------
80,000 Freedom Chemicals, Inc. sr. sub. notes 10 5/8s, 2006 82,900
220,000 Great Lakes Carbon Corp. sr. notes 10s, 2006 235,400
275,000 Huntsman Corp. 144A sr. sub. notes FRN 9.187s, 2007 283,938
1,640,000 Lyondell Petrochemical Co. notes 9 1/8s, 2002 1,813,414
3,380,000 Millennium America, Inc. company guaranty 7 5/8s, 2026 3,456,523
150,000 NL Industries, Inc. sr. notes stepped-coupon zero %
(13s, 10/15/98), 2005 ++ 145,125
3,775,000 Sociedad Quimica Y Minera de Chile S.A. 144A bonds
7.7s, 2006 (Chile) 3,992,063
135,000 Sterling Chemicals Holdings sr. disc. notes stepped-
coupon zero % (13 1/2s, 8/15/01), 2008 ++ 92,475
130,000 Sterling Chemicals, Inc. sr. sub. notes Ser. A, 11 1/4s, 2007 140,400
100,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 101,125
125,000 Union Carbide Global Enterprises sr. sub. notes
Ser. B, 12s, 2005 142,969
--------------
10,486,332
Computer Services and Software (--%)
- ------------------------------------------------------------------------------------------------------------
225,000 Computervision Corp. sr. sub. notes 11 3/8s, 1999 198,000
60,000 DecisionOne Corp. sr. sub. notes 9 3/4s, 2007 61,500
--------------
259,500
Conglomerates (--%)
- ------------------------------------------------------------------------------------------------------------
30,000 Cia Latino Americana 144A company guaranty
11 5/8s, 2004 (Argentina) 31,875
390,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes
13s, 1999 391,463
--------------
423,338
Consumer Durable Goods (--%)
- ------------------------------------------------------------------------------------------------------------
150,000 Remington Products Co. sr. sub. notes Ser. B, 11s, 2006 130,500
165,000 Selmer Co., Inc. sr. sub. notes 11s, 2005 180,675
--------------
311,175
Consumer Non Durables (--%)
- ------------------------------------------------------------------------------------------------------------
220,000 Coty Inc. Gtd. sr. sub. notes 10 1/4s, 2005 237,600
75,000 E&S Holdings Corp. sr. sub. notes Ser. B, 10 3/8s, 2006 77,625
35,000 Foamex (L.P.) 144A sr. sub. notes 9 7/8s, 2007 35,525
245,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 253,575
--------------
604,325
Consumer Products (0.2%)
- ------------------------------------------------------------------------------------------------------------
40,000 Hedstrom Corp. 144A sr. sub. notes 10s, 2007 40,700
1,155,000 Philip Morris Cos., Inc. deb. 7 3/4s, 2027 1,204,145
200,000 Revlon Worldwide Corp. 144A sr. disc. notes zero %, 2001 143,000
5,225,000 Sampoerna International Finance Co. 144A
company guaranty 8 3/8s, 2006 (Indonesia) 5,511,905
--------------
6,899,750
Consumer Related (--%)
- ------------------------------------------------------------------------------------------------------------
35,000 French Fragrances, Inc. sr. notes Ser. B., 10 3/8s, 2007 36,269
Consumer Services (0.1%)
- ------------------------------------------------------------------------------------------------------------
420,000 AMC Entertainment, Inc. 144A sr. sub. notes 9 1/2s, 2009 430,500
70,000 AmeriKing, Inc. sr. notes 10 3/4s, 2006 74,200
450,000 Boyd Gaming Corp. 144A sr. sub. notes 9 1/2s, 2007 452,250
248,750 Coinmach Corp. sr. notes Ser. B, 11 3/4s, 2005 276,113
425,000 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003 [2 DBL. DAGGERS] 444,125
120,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 128,400
140,000 Host Marriott Travel Plaza sr. notes Ser. B, 9 1/2s, 2005 148,400
--------------
1,953,988
Electronics and Electrical Equipment (--%)
- ------------------------------------------------------------------------------------------------------------
110,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s, 2006
(Canada) 119,488
126,766 Cirent Semiconductor sr. sub. notes 10.22s, 2002 129,144
134,534 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 137,057
120,000 Dobson Communications Corp. 144A 11 3/4s, 2007 115,800
110,000 Fairchild Semiconductor Corp. 144A sr. sub. notes
11.74s, 2008 [2 DBL. DAGGERS] 114,950
120,000 Fairchild Semiconductor Corp. 144A sr. sub. notes
10 1/8s, 2007 127,200
45,000 HCC Industries, Inc. 144A sr. sub. notes 10 3/4s, 2007 47,700
200,000 International Semi-Tech. Corp. sr. secd. disc. notes
stepped-coupon zero %, (11 1/2s, 8/15/00) 2003
(Canada) ++ 128,000
190,000 Motors and Gears, Inc. sr. notes Ser. B, 10 3/4s, 2006 201,400
100,000 Viasystems Inc. 144A sr. sub. notes 9 3/4s, 2007 104,125
25,000 Wavetek Corp. 144A sr. sub. notes 10 1/8s, 2007 25,750
--------------
1,250,614
Energy-Related (0.1%)
- ------------------------------------------------------------------------------------------------------------
135,000 AES Corp. 144A sr. sub. notes 8 3/8s, 2007 137,471
175,000 Panda Global Energy Co. 144A sr. notes 12 1/2s, 2004 171,500
3,350,000 Quezon Power Ltd. sr. notes 8.86s, 2017 (Philippines) 3,479,813
--------------
3,788,784
Entertainment (1.0%)
- ------------------------------------------------------------------------------------------------------------
145,000 Alliance Gaming Corp. sr. notes 12 7/8s, 2003 170,738
125,000 Argosy Gaming Co. 1st mtge. 13 1/4s, 2004 123,438
450,000 Aztar Corp. sr. sub. notes 11s, 2002 464,625
75,000 Casino America, Inc. sr. notes 12 1/2s, 2003 79,500
400,000 Cinemark USA, Inc. notes 9 5/8s, 2008 409,000
725,000 Cinemark USA, Inc. sr. sub. notes 9 5/8s, 2008 744,938
350,000 Coast Hotels & Casinos, Inc. 1st. Mtge. company
guaranty Ser. B, 13s, 2002 392,000
220,000 Empress River Casino sr. notes 10 3/4s, 2002 236,500
400,000 Harvey Casino Resorts, sr. sub. notes, 10 5/8s, 2006 436,000
150,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 161,250
435,000 Lady Luck Gaming 1st mtge. 11 7/8s, 2001 432,825
510,000 Mohegan Tribal Gaming sr. secd. notes Ser. B, 13 1/2s, 2002 673,200
14,965,000 News America Holdings, Inc. deb. 7 3/4s, 2045 15,085,618
7,515,000 News America Holdings, Inc. deb. 7.7s, 2025 7,613,597
125,000 Players International, Inc. sr. notes 10 7/8s, 2005 131,875
210,000 Premier Parks, Inc. sr. notes Ser. A, 12s, 2003 234,150
390,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 315,900
225,000 Showboat Marina Casino 1st mtge. Ser. B, 13 1/2s, 2003 259,313
840,000 Six Flags Corp. sr. sub. notes stepped-coupon
zero % (12 1/4s, 6/15/98), 2005 ++ 867,300
650,000 Sun International Hotels Ltd. company guaranty 9s, 2007 672,750
2,670,000 Time Warner Entertainment, Inc. notes 8 7/8s, 2012 3,081,767
7,420,000 Time Warner Entertainment, Inc. deb. 7 1/4s, 2008 7,626,053
400,000 Trump A.C. 1st mtge. 11 1/4s, 2006 400,500
1,000,000 Viacom International, Inc. sub. deb. 8s, 2006 980,000
--------------
41,592,837
Environmental Control (--%)
- ------------------------------------------------------------------------------------------------------------
160,000 Allied Waste Industries, Inc. 144A sr. disc. notes
stepped-coupon zero % (11.3s, 6/1/02), 2007 ++ 105,200
Food and Beverages (0.1%)
- ------------------------------------------------------------------------------------------------------------
65,000 Ameriserve Food Co. 144A sr. sub. notes 10 1/8s, 2007 67,438
50,000 Aurora Foods, Inc. 144A sr. sub notes Ser. C, 9 7/8s, 2007 51,625
145,000 Canandaigua Wine Co. sr. sub. notes Ser. C, 8 3/4s, 2003 146,450
325,000 Chiquita Brands sr. notes 9 5/8s, 2004 348,438
45,000 Del Monte Corp. 144A sr. sub. notes 12 1/4s, 2007 49,331
135,000 Fleming Companies, Inc. 144A sr. sub. notes 10 1/2s, 2004 138,713
255,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 272,850
40,000 Marsh Supermarkets, Inc. 144A sr. sub. notes 8 7/8s, 2007 40,500
2,335,000 RJR Nabisco, Inc. notes 8 3/4s, 2005 2,473,886
150,000 Signature Brands Ltd. sr. sub. notes 13s, 2002 (Canada) 168,000
170,000 Stater Brothers sr. notes 11s, 2001 185,300
670,000 Stater Brothers 144A sr. sub. notes 9s, 2004 688,425
20,000 Windy Hill Pet Food Co. 144A sr.sub.notes 9 3/4s, 2007 20,600
--------------
4,651,556
Health Care (0.2%)
- ------------------------------------------------------------------------------------------------------------
2,320,000 Columbia Healthcare Corp. deb. 8.36s, 2024 2,673,058
280,000 Genesis Health Ventures, Inc. sr. sub. notes 9 1/4s, 2006 290,500
265,000 IMED Corp. sr. sub. notes 9 3/4s, 2006 274,938
425,000 Integrated Health Services, Inc. 144A sr. sub. notes 9 1/2s, 2007 450,500
170,000 Magellan Health Services, Inc. sr. sub. deb. Ser. A, 11 1/4s, 2004 189,550
260,000 Merit Behavioral Care sr. sub. notes 11 1/2s, 2005 286,000
175,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 176,750
155,000 Sun Healthcare Group Inc. 144A sr. sub. notes 9 1/2s, 2007 160,038
1,200,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 1,254,000
3,825,000 Tenet Healthcare Corp. sr. notes 8s, 2005 3,958,875
--------------
9,714,209
Insurance and Finance (2.0%)
- ------------------------------------------------------------------------------------------------------------
105,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 108,675
3,720,000 AFC Capital Trust I 144A bonds 8.207s, 2027 4,037,688
10,000 AIM Management Group sr. secd. notes 9s, 2003 10,514
1,990,000 Allstate Financing II company guaranty 7.83s, 2045 2,026,795
1,500,000 AMBAC Indemnity Corp. deb. 9 3/8s, 2011 1,858,335
90,000 Colonial Capital I 144A company guaranty 8.92s, 2027 94,247
4,740,000 Conseco Inc. sr. notes 10 1/2s, 2004 5,710,325
80,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 80,200
90,000 Dollar Financial Group Inc. sr. notes Ser. A, 10 7/8s, 2006 96,300
120,000 Espirto Santo Centrais 144A sr. notes 10s, 2007
(Luxembourg) 123,000
7,250,000 Executive Risk Capital Trust company guaranty
Ser. B, 8.675s, 2027 7,603,220
1,880,000 First Financial Caribbean Corp. sr. notes 7.84s, 2006 1,957,888
2,855,000 Ford Motor Credit Corp. notes 8.2s, 2002 3,064,414
510,000 Indah Kiat Financial Mauritius 144A
10s, 2007 (Indonesia) 505,538
75,000 Imperial Credit Capital Trust I 144A company
guaranty 10 1/4s, 2002 75,188
100,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 99,250
150,000 Intertek Finance PLC 144A sr. sub. notes
10 1/4s, 2006 (United Kingdom) 156,750
205,000 Investors Capital Trust I 144A company guaranty 9.77s, 2027 219,350
6,225,000 Lehman Bros Holdings, Inc. med. term notes 6.4s, 1999 6,247,784
3,775,000 Markel Capital Trust I 144A company guaranty 8.71s, 2046 4,018,016
6,445,000 Money Store, Inc. notes 8.05s, 2002 6,688,879
2,000,000 Orion Capital Corp. sr. notes 9 1/8s, 2002 2,217,760
40,000 Pacalta Resources Ltd. 144A sr. notes 10 3/4s, 2004 40,400
4,825,000 Phoenix Home Life Mutual Insurance Co.
144A notes 6.95s, 2006 4,863,600
125,000 Phoenix Re Corp. sr. notes 9 3/4s, 2003 133,750
35,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 35,175
150,000 Polytama International notes 11 1/4s, 2007 151,125
185,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 191,475
345,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 2003 363,975
6,350,000 Salomon, Inc. sr. notes 7.3s, 2002 6,533,833
2,905,000 Sears Roebuck Co. med. term notes 8.99s, 2012 3,484,141
3,195,000 Southern Investments Service Co. sr. notes
6.8s, 2006 (United Kingdom) 3,213,691
8,015,000 TIG Capital Trust I 144A bonds 8.597s, 2027 8,533,170
4,745,000 Trenwick Capital Trust I company guaranty 8.82s, 2037 4,989,035
130,000 Vicap SA. 144A company guaranty
10 1/4s, 2002 (Mexico) 135,525
--------------
79,669,011
Lodging (--%)
- ------------------------------------------------------------------------------------------------------------
167,000 John Q Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 168,670
155,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 165,850
90,000 Prime Hospitality Corp. 1st mtge. 9 1/4s, 2006 94,950
--------------
429,470
Medical Supplies and Devices (--%)
- ------------------------------------------------------------------------------------------------------------
150,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 169,125
175,000 Graphic Controls Corp. sr. sub. notes Ser. A, 12s, 2005 195,125
180,000 Wright Medical Technology, Inc. sr. secd. notes Ser. B,
10 3/4s, 2000 182,700
--------------
546,950
Metals and Mining (0.2%)
- ------------------------------------------------------------------------------------------------------------
180,000 AK Steel Corp. sr. notes 9 1/8s, 2006 189,900
40,000 Altos Hornos De Mexico 144A bonds 11 7/8s, 2004 (Mexico) 43,600
100,000 Continental Global Group 144A sr. notes Ser. A, 11s, 2007 106,000
20,000 Echo Bay Mines jr. sub. deb. 11s, 2027 (Canada) 18,600
10,000 Ispat Mexicana, S.A. 144A bonds 10 3/8s, 2001 (Brazil) 10,575
20,000 Maxxam Group Holdings, Inc. sr. notes Ser. B, 12s, 2003 21,200
3,765,000 Noranda, Inc. notes 7s, 2005 (Canada) 3,807,507
3,870,000 PT Alatief Freeport sr. notes 9 3/4s, 2001 (Netherlands) 4,256,807
110,000 Royal Oak Mines, Inc. company guaranty Ser. B,
11s, 2006 (Canada) 99,275
250,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 271,250
15,000 Wells Aluminum 144A notes 10 1/8s, 2005 15,675
--------------
8,840,389
Motion Picture Distribution (--%)
- ------------------------------------------------------------------------------------------------------------
715,000 Act III Theatres, Inc. sr. sub. notes 11 7/8s, 2003 773,988
140,000 Cobb Theatres LLC company guaranty 10 5/8s, 2003 154,700
100,000 United Artists notes 11 1/2s, 2002 104,500
--------------
1,033,188
Oil and Gas (0.8%)
- ------------------------------------------------------------------------------------------------------------
145,000 Abraxas Petroleum Corp. 144A sr. notes Ser. B, 11 1/2s, 2004 158,775
100,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 110,250
100,000 Chesapeake Energy Corp. sr. notes 10 1/2s, 2002 106,250
700,000 Chesapeake Energy Corp. sr. notes 9 1/8s, 2006 707,000
95,000 CIA Naviera Perez Companc S.A. 144A bonds
9s, 2004 (Argentina) 95,178
10,000 Costilla Energy, Inc. sr. notes 10 1/4s, 2006 10,400
60,000 DI Industries Inc. sr. notes 8 7/8s, 2007 60,300
2,440,000 El Paso Natural Gas Co. deb. 7 1/2s, 2026 2,561,488
575,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 612,375
5,000 Forcenergy, Inc. sr. sub. notes Ser. B, 8 1/2s, 2007 4,975
875,000 Gulf Canada Resources Ltd. sr. sub. notes
9 5/8s, 2005 (Canada) 951,563
3,205,000 Gulf Canada Resources, Ltd. sr. notes
8.35s, 2006 (Canada) 3,429,350
70,000 Kelley Oil & Gas Corp. sr. sub. notes Ser. B,
10 3/8s, 2006 73,675
255,000 Maxus Energy Corp. global notes 9 7/8s, 2002 269,025
55,000 Maxus Energy Corp. med. term notes 10.83s, 2004 63,368
125,000 Maxus Energy Corp. notes 9 1/2s, 2003 131,400
10,000 Maxus Energy Corp. notes 9 3/8s, 2003 10,725
150,000 Ocean Energy, Inc. 144A sr. sub. notes 8 7/8s, 2007 153,375
155,000 Parker Drilling Corp. sr. notes Ser. B, 9 3/4s, 2006 165,850
2,720,000 Petro Geo-Services AS ADR notes
7 1/2s, 2007 (Norway) 2,834,621
3,000,000 Petro-Canada deb. 9 1/4s, 2021 (Canada) 3,759,810
3,065,000 Petroliam Nasional Berhad 144A notes
7 5/8s, 2026 (Malaysia) 3,227,813
10,675,000 Petroliam Nasional Berhad 144A notes
7 1/8s, 2005 (Malaysia) 11,044,675
200,000 Petsec Energy, Inc. 144A sr. sud. notes 9 1/2s, 2007 202,000
15,000 Pogo Producing Co. 144A notes 8 3/4s, 2007 15,375
55,000 Pride Petroleum Services, Inc. 9 3/8s, 2007 58,575
975,000 Seagull Energy sr. sub notes 8 5/8s, 2005 1,016,438
40,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 40,050
5,000 Texas Petrochemical Corp. sr. sub. notes 11 1/8s, 2006 5,325
440,000 Transamerican Energy 144A sr. notes 11 1/2s, 2002 440,000
1,160,000 Transamerican Energy 144A sr. disc. notes stepped-coupon
zero % (13s, 6/15/00), 2002 ++ 904,800
425,000 TransTexas Gas Corp. sr. sub. notes
13 3/4s, 2003 482,375
185,000 Trico Marine Services, Inc. 144A sr. notes 8 1/2s, 2005 187,081
35,000 Wiser Oil Co. 144A sr. sub. notes 9 1/2s, 2007 35,175
--------------
33,929,435
Packaging and Containers (--%)
- ------------------------------------------------------------------------------------------------------------
130,000 Innova S. De R.L. 144A sr. notes 12 7/8s, 2007 (Mexico) 137,800
110,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 119,075
115,000 Owens Illinois, Inc. sr. sub. notes 9 3/4s, 2004 120,750
90,000 Radnor Holdings, Inc. sr.notes 10s, 2003 92,700
155,000 Riverwood International Corp. company guaranty
10 7/8s, 2008 147,638
450,000 Riverwood International Corp. company guaranty
10 1/4s, 2006 451,125
90,000 US Can Corp. company guaranty Ser. B, 10 1/8s, 2006 94,950
--------------
1,164,038
Paper and Forest Products (--%)
- ------------------------------------------------------------------------------------------------------------
135,000 APP International Finance Co. notes 11 3/4s, 2005
(Netherlands) 146,813
600,000 Domtar, Inc. deb. 9 1/2s, 2016 (Canada) 657,000
225,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 2003 240,750
500,000 PT Pabrik Kertas Tjiwi Kimia 144A company
guaranty 10s, 2004 (Indonesia) 504,375
145,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 137,750
--------------
1,686,688
Publishing (--%)
- ------------------------------------------------------------------------------------------------------------
170,000 American Media Operation, Inc. sr. sub. notes 11 5/8s, 2004 187,000
65,000 Hollinger International Publishing, Inc. company guaranty
9 1/4s, 2007 67,763
65,000 Hollinger International Publishing, Inc. company guaranty
8 5/8s, 2005 67,275
35,000 Sun Media Corp. 144A sr. sub. notes 9 1/2s, 2007 (Canada) 35,963
40,000 Von Hoffman Press Inc. 144A sr. sub. notes 10 3/8s, 2007 42,300
--------------
400,301
REITs (Real Estate Investment Trust) (0.7%)
- ------------------------------------------------------------------------------------------------------------
5,500,000 First Industrial Realty Trust, Inc. notes 7.6s, 2007 5,772,525
1,685,000 Health Care Property Investors, Inc. sr. notes 6 1/2s, 2006 1,645,992
880,000 HMH Properties, Inc. 144A sr. notes 8 7/8s, 2007 (Canada) 913,000
10,015,000 National Health Investors, Inc. bonds 7.3s, 8/1/07 10,259,116
7,695,000 Omega Healthcare Investors, Inc. notes, 6.95s, 2007 7,672,685
3,050,000 Sun Communities, Inc. sr. notes 7 5/8s, 2003 3,187,372
120,000 Tanger Properties (L.P.) gtd. notes 8 3/4s, 2001 124,644
--------------
29,575,334
Retail (0.5%)
- ------------------------------------------------------------------------------------------------------------
185,000 Brylane (L.P.) sr. sub. notes 10s, 2003 197,025
13,685,000 Federated Department Stores sr. notes 8 1/2s, 2003 14,968,790
130,000 Johns Manville International Group sr. notes 10 7/8s, 2004 145,763
150,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 156,000
85,000 Phar-Mor, Inc. sr. notes 11.72s, 2002 87,550
155,000 Ralphs Grocery Co. company guaranty 10.45s, 2004 170,500
2,000,000 Sears, Roebuck & Co. med. term notes 9.1s, 2012 2,418,720
40,000 Shoppers Food Warehouse 144A sr. notes 9 3/4s, 2004 41,200
455,000 Southland Corp. 1st priority sr. sub. deb. 5s, 2003 390,163
240,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 193,200
60,000 Specialty Retailers 144A company guaranty 8 1/2s, 2005 60,600
85,000 William Carter Co. 144A sr. sub. notes 12s, 2008 92,225
--------------
18,921,736
Satellite Services (--%)
- ------------------------------------------------------------------------------------------------------------
250,000 Capstar Broadcasting 144A sr. sub. notes 9 1/4s, 2007 256,875
190,000 Capstar Broadcasting 144A sr. disc. notes stepped-coupon
zero % (12 3/4s, 2/1/02), 2009 ++ 127,300
140,000 Echostar DBS Corp. 144A company guaranty 12 1/2s, 2002 142,100
95,000 TCI Satellite Entertainment 144A sr. sub. notes 10 7/8s, 2007 98,325
500,000 Winstar Equipment Corp. 144A company guaranty
12 1/2s, 2004 505,000
--------------
1,129,600
Specialty Consumer Products (--%)
- ------------------------------------------------------------------------------------------------------------
125,000 Genesco, Inc. sr. notes 10 3/8s, 2003 130,000
220,000 Herff Jones, Inc. sr. sub. notes 11s, 2005 242,000
320,000 Sassco Fashions Ltd. 144A notes 12 3/4s, 2004 339,200
--------------
711,200
Telecommunications (0.7%)
- ------------------------------------------------------------------------------------------------------------
90,000 America Communication Services, Inc. 144A
sr. notes 13 3/4s, 2007 95,400
100,000 Arch Communications Group sr. disc. notes stepped-
coupon zero % (10 7/8s, 3/15/01), 2008 ++ 60,000
125,000 Brooks Fiber Properties, Inc. 144A sr. notes 10s, 2007 132,500
250,000 Cencall Communications Corp. sr. disc. notes stepped-
coupon zero % (10 1/8s, 1/15/99), 2004 ++ 211,250
440,000 Centennial Cellular Corp. sr. notes 8 7/8s, 2001 444,400
150,000 Comcast Cellular 144A sr. notes 9 1/2s, 2007 156,375
40,000 Consorcio Ecuatoriano 144A notes 14s, 2002 (Ecuador) 43,300
105,000 Fonorola, Inc. sr. notes 12 1/2s, 2002 (Canada) 117,075
105,000 Frontiervision Operating Partners L.P. sr. sub. notes 11s, 2006 113,085
50,000 Grupo Iusacell S.A. 144A sr. notes 10s, 2004 (Mexico) 51,313
300,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 5/1/01), 2006 ++ 196,500
210,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 2/1/01), 2006 ++ 141,488
185,000 Intermedia Communications, Inc. sr. disc. notes stepped-
coupon zero % (12 1/2s, 5/15/01), 2006 ++ 137,825
1,525,000 Intermedia Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (11 1/4s, 7/15/02), 2007 ++ 976,000
370,000 Iridium LLC/Capital Corp. 144A sr. notes 14s, 2005 371,850
8,200,000 LCI International, Inc. sr. notes 7 1/4s, 6/15/07 8,390,240
195,000 McLeod, Inc. 144A sr. disc. notes stepped-coupon
zero % (10 1/2s, 3/1/02), 2007 ++ 129,675
209,184 MFS Communications sr. disc. notes stepped-
coupon zero % (9 3/8s, 1/15/99), 2004 ++ 227,287
110,686 MFS Communications sr. disc. notes stepped-coupon
zero %, (8 7/8s, 1/1/01), 2006 ++ 120,703
600,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/00), 2006
(Luxembourg) ++ 451,500
205,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 223,450
750,000 NEXTEL Communications, Inc. sr. disc. notes stepped-
coupon zero % (11 1/2s, 9/1/98), 2003 ++ 690,000
1,100,000 NEXTEL Communications, Inc. sr. disc. notes stepped-
coupon zero % (9 3/4s, 2/15/99), 2004 ++ 902,000
425,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 412,250
215,000 Orbcomm Global Capital Corp. sr. notes Ser. B, 14s, 2004 221,450
130,000 Pratama Datakom Asia BV 144A company guaranty
12 3/4s, 2005 (Indonesia) 129,675
400,000 Pricellular Wireless Corp. sr. notes 10 3/4s, 2004 424,000
100,000 Sprint Spectrum L.P. sr. notes 11s, 2006 112,250
340,000 Teleport Communications Group Inc. sr. disc. notes
stepped-coupon zero % (11 1/8s, 7/1/01), 2007 ++ 259,250
9,645,000 WorldCom, Inc. notes 7 3/4s, 2007 10,219,649
--------------
26,161,740
Textiles (--%)
- ------------------------------------------------------------------------------------------------------------
50,000 Glenoit Corp. 144A sr. sub. notes 11s, 2007 53,000
105,000 Polymer Group, Inc. 144A sr. sub. notes 9s, 2007 107,888
200,000 Polysindo International Finance company guaranty
11 3/8s, 2006 (Indonesia) 226,750
150,000 Tultex Corp. sr. notes 10 5/8s, 2005 164,438
--------------
552,076
Transportation (0.7%)
- ------------------------------------------------------------------------------------------------------------
55,000 Atlantic Express, Inc. 144A company guaranty 10 3/4s, 2004 58,025
75,000 Blue Bird Body Co. sr. sub. notes Ser. B, 10 3/4s, 2006 79,875
4,275,000 Burlington Northern Santa Fe notes 6 3/8s, 2005 4,196,682
25,000 Chemical Leaman Corp. 144A sr. notes 10 3/8s, 2005 25,875
55,000 Coach USA, Inc. company guaranty 9 3/8s, 2007 55,275
190,000 Consorcio/MCII Holdings sec. notes stepped-coupon
zero % (12s, 11/15/98), 2002 ++ 168,150
2,105,000 Continental Airlines, Inc. 144A bonds 7.42s, 2008 2,167,140
5,005,000 CSX Corp. 144A deb. 7.95s, 2027 5,493,088
430,000 Eletson Holdings, Inc. 1st pfd. mtge. notes
9 1/4s, 2003 (Greece) 435,375
150,000 International Shipholding Corp. sr. notes 9s, 2003 153,375
4,010,000 Norfolk Southern Corp. bonds 7.8s, 2027 4,373,747
6,325,000 Norfolk Southern Corp. bonds 7.05s, 2037 6,641,250
2,000,000 Southwest Airlines Co. deb. 7 7/8s, 2007 2,176,000
30,000 TFM SA DE CV 144A company guaranty
10 1/4s, 2007 (Mexico) 31,050
160,000 TFM SA DE CV 144A company guaranty stepped-coupon
zero % (11 3/4s, 6/15/02), 2009 ++ (Mexico) 98,800
149,000 Viking Star Shipping sr. secd. notes 9 5/8s, 2003 153,470
--------------
26,307,177
Utilities (2.3%)
- ------------------------------------------------------------------------------------------------------------
170,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 185,300
2,705,000 Arizona Public Service Co. sr. notes 6 3/4s, 2006 2,730,075
4,035,000 California Energy Corp. disc. notes 10 1/4s, 2005 4,396,899
2,615,000 Citizens Utilities Co. bonds 7.68s, 2034 2,943,261
2,200,000 CMS Energy Corp. sr. notes 8 1/8s, 2002 2,265,076
4,140,000 Connecticut Light & Power Co. 1st mtge. Ser. A,
7 7/8s, 2001 4,227,106
1,160,000 Edison Mission Energy 144A company guaranty
7.33s, 2008 1,193,512
4,789,000 EIP Funding-Public Service Co. of New Mexico deb.
10 1/4s, 2012 5,541,352
110,000 El Paso Electric Co. 1st mtge. Ser. D, 8.9s, 2006 120,171
6,040,000 El Paso Electric Co. 1st mtge. Ser. B, 7 3/4s, 2001 6,191,846
10,655,000 Enersis S.A. ADR notes 7.4s, 2016 (Chile) 10,859,683
2,970,000 Enersis S.A. ADR notes 6.6s, 2026 (Chile) 2,972,168
177,000 First PV Funding Corp. deb. Ser. 86A, 10.3s, 2014 192,296
88,000 First PV Funding Corp. deb. 10.15s, 2016 93,923
3,265,000 Illinova Corp. sr. notes 7 1/8s, 2004 3,331,312
3,745,000 Israel Electric Corp., Ltd. 144A sr. notes 7 1/4s, 2006 (Israel) 3,841,434
135,000 Long Island Lighting Co. deb. 9s, 2022 152,464
1,524,618 Midland Cogeneration Ventures deb. 10.33s, 2002 1,631,341
255,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 305,130
300,000 Niagara Mohawk Power Corp. med. term notes 9.95s, 2000 300,393
5,000 Niagara Mohawk Power Corp. 1st mtge. 7 3/4s, 2006 5,145
50,000 Niagara Mohawk Power Corp. 1st mtge. 5 7/8s, 2002 47,621
1,133,807 Northeast Utilities System notes Ser. A, 8.58s, 2006 1,139,363
3,524,898 Northeast Utilities System notes Ser. B, 8.38s, 2005 3,526,555
1,970,000 Orange Cogen Funding 144A company guaranty 8.175s, 2022 2,103,783
2,400,000 Ras Laffan Natural Gas 144A sec. notes 8.294s, 2014 (Qatar) 2,635,848
4,390,000 Ras Laffan Natural Gas 144A sec. notes 7.628s, 2006 (Qatar) 4,592,335
3,450,000 Salton Sea Funding Corp. company guaranty Ser. E, 8.3s, 2011 3,715,926
3,925,000 Texas New-Mexico Power Utilities 1st mtge. 9 1/4s, 2000 4,187,779
4,100,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 4,270,519
5,095,000 Texas Utilities Electric Capital Trust V company guaranty
8.175s, 2037 5,385,007
5,580,000 US West Capital Funding, Inc. company guaranty 6.95s, 2037 5,759,509
--------------
$ 90,844,132
--------------
Total Corporate Bonds and Notes (cost $502,520,803) $ 524,525,707
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (12.9%) *
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Pass-Through Certificates (7.8%)
- ------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.
$ 2,433,330 8 3/4s, with due dates from May 1, 2009 to June 1, 2009 $ 2,560,302
65,069,189 8 1/2s, with due dates from June 1, 2026 to June 15, 2027 67,874,997
15,481,881 7 1/2s, with due dates from May 1, 2027 to June 1, 2027 15,757,616
27,657,846 5 1/2s, with due dates from March 1, 2011 to July 1, 2011 26,577,257
Federal National Mortgage Association
228,829 11s, with due dates from October 1, 2015 to March 1, 2016 258,077
148,020 8 3/4s, July 1, 2009 154,588
86,378,391 7s, with due dates from February 1, 2024 to June 15, 2027 86,235,124
27,820,000 6 1/2s, TBA, September 16, 2027 27,285,811
6,790,000 5.94s, December 12, 2005 6,627,651
Government National Mortgage Association
1,264 15s, September 15, 2011 1,551
7,175,000 8 1/2s, TBA, September 16, 2027 7,486,664
42,318,918 7 1/2s, with due dates from September 15, 2005 to
February 15, 2027 43,046,401
34,611,412 7s, with due dates from January 15, 2026 to April 15, 2027 34,665,418
--------------
318,531,457
U.S. Treasury Obligations (5.1%)
- ------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
23,580,000 11 7/8s, November 15, 2003 # 30,779,210
36,845,000 11 5/8s, November 15, 2004 48,900,316
1,475,000 11 1/8s, August 15, 2003 1,856,420
9,959,000 10 3/4s, August 15, 2005 12,903,080
20,300,000 8 1/8s, August 15, 2019 24,461,500
8,100,000 6 5/8s, February 15, 2027 8,456,886
U.S. Treasury Notes
5,065,000 6 5/8s, May 15, 2007 5,292,925
52,395,000 6 3/8s, April 30, 1999 52,968,201
13,225,000 6 1/4s, February 15, 2007 13,425,491
6,315,000 6 1/4s, June 30, 2002 6,405,747
--------------
205,449,776
--------------
Total U.S. Government and Agency Obligations
(cost $517,040,617) $ 523,981,233
FOREIGN GOVERNMENT BONDS AND NOTES (3.9%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
AUD 64,565,000 Australia (Government of) bonds Ser. 705,
7 1/2s, 2005 $ 51,860,325
USD 34,570,000 Bank of Foreign Economic Affairs of Russia
(Vnesheconombank) principal loan
FRN 2020 +##+++ 24,199,000
DEM 43,010,000 Germany (Federal Republic of) bonds
Ser. 97, 6 1/2s, 2027 24,274,937
DKK 36,630,000 Denmark (Government of) bonds 8s, 2006 5,966,826
USD 13,080,000 Quebec (Province of) deb. Ser. NN, 7 1/8s, 2024 13,110,738
ZAR 96,377,000 South Africa (Republic of) bonds Ser. 153, 13s, 2010 19,626,547
GBP 9,960,000 United Kingdom Treasury bonds, 8s, 2021 18,507,870
--------------
Total Foreign Government Bonds and Notes
(cost $154,259,005) $ 157,546,243
BRADY BONDS (1.3%) * [DIAMOND]
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
56,480 Argentina (Republic of) deb. 6 3/4s, 2005 $ 53,727
15,023,434 Brazil (Republic of) "C" Bond 8s, 2014 +++ 12,694,802
22,595,000 Bulgaria (Republic of) IAB Ser. PDI, 6.688s, 2011 17,511,125
21,610,000 Government of Mexico disc. notes Ser. C, 6.82s, 2019 20,434,956
--------------
Total Brady Bonds (cost $48,630,764) $ 50,694,610
COLLATERALIZED MORTGAGE OBLIGATIONS (0.9%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
Chase Mortgage Finance Corp.
$ 1,822,982 Ser. 93-3, Class B13, 7.461s, 2024 $ 1,465,791
2,190,513 Ser. 94-G, Class B13, 7s, 2025 2,117,953
1,321,161 GE Capital Mortgage Services, Inc. Ser. 94-12, Class B3, 6s, 2009 1,189,871
Housing Securities Inc.
1,347,139 Ser. 91-B, Class B6, 9s, 2006 1,345,455
1,361,281 Ser. 93-F, Class F9M2, 7s, 2023 1,316,826
262,996 Ser. 93-J, Class J4, 6.66s, 2009 246,888
143,114 Ser. 93-J, Class J5, 6.66s, 2009 118,024
232,900 Ser. 94-1, Class AB1, 6 1/2s, 2009 216,669
Prudential Home Mortgage Securities 144A
2,965,885 Ser. 92-25, Class B3, 8s, 2022 + 2,881,079
3,827,658 Ser. 93-D, Class 2B, 7.108s, 2023 3,794,166
2,030,446 Ser. 93-E, Class 5B, 7.393s, 2023 1,513,634
323,785 Ser. 94-31, Class B3, 8s, 2009 318,220
1,171,688 Ser. 95-D, Class 5B, 7.54s, 2025 904,031
4,240,942 Ser. 95-C, Class B1, 7.815s, 2001 4,240,942
Prudential Home Mortgage Securities
1,183,219 Ser. 92-13, Class B3, 7 1/2s, 2007 1,065,267
3,476,120 Ser. 94-A, Class 4B, 6.802s, 2024 3,319,151
1,173,176 Ser. 94-D, Class B4, 6.312s, 2009 1,036,245
Ryland Mortgage Securities Corp.
1,938,888 Ser. 94-7C, Class B1, 7.358s, 2025 1,929,194
1,369,493 Ser. 94-7C, Class B2, 7.358s, 2025 1,409,722
4,261,005 Securitized Asset Sales, Inc. Ser. 93-J, Class 2B, 6.807s, 2023 4,080,578
471,331 Travelers Mortgage Securities Corp. coll. oblig. Ser. 1,
Class Z2, 12s, 2014 542,619
--------------
Total Collateralized Mortgage Obligations (cost $31,867,521) $ 35,052,325
CONVERTIBLE PREFERRED STOCKS (0.4%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
421,000 Freeport-McMoRan Copper Co., Inc. $1.75 cv. pfd. $ 11,498,563
5,000 Granite Broadcasting $1.938 cv. pfd. 297,813
77,000 K mart Financing I $3.875 cv. pfd. 4,196,500
--------------
Total Convertible Preferred Stocks (cost $13,824,015) $ 15,992,876
ASSET-BACKED SECURITIES (0.3%) * (cost $10,472,252)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
10,545,576 Railcar Leasing L.L.C. Ser. 1, Class A1, 6 3/4s, 2006 $ 10,703,760
CONVERTIBLE BONDS AND NOTES (0.2%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 140,000 APP Global Finance (V) Ltd. 144A cv. sec. 2s, 2000
(United Kingdom) $ 138,950
160,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 101,800
100,000 Integrated Device Technology, Inc. cv. sub. notes
5 1/2s, 2002 87,500
45,000 National Semiconductor Corp. cv. deb. 6 1/2s, 2002 48,206
JPY 400,000,000 Toyota Motor Corp. cv. deb. 1.2s, 1998 (Japan) 6,329,115
--------------
Total Convertible Bonds and Notes (cost $4,881,286) $ 6,705,571
MUNICIPAL BONDS AND NOTES (0.1%) * (cost $5,410,000)
PRINCIPAL AMOUNT RATING VALUE
- ------------------------------------------------------------------------------------------------------------
$ 5,410,000 NJ Econ. Dev. Auth. Rev. Bonds, Ser. A, MBIA,
7.425s, 2/15/29 Aaa $ 5,780,477
PREFERRED STOCKS (0.1%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
4,000 AmeriKing, Inc. $3.25 cum. pfd. [2 DBL. DAGGERS] $ 112,000
2,522 Cablevision Systems Corp. Ser. M, $11.125 dep. shs. cum. pfd. [2 DBL. DAGGERS] 266,702
27,755 California Federal Bancorp, Inc. Ser. A, $2.28 pfd. 728,569
1,500 California Federal Bancorp, Inc. Ser. B, $10.625 cum. pfd. 163,875
600 Capstar Broadcasting, Inc. 144A $12.00 pfd. 63,150
2,190 Chancellor Radio Broadcasting 144A $12.00 pfd. 251,850
6,155 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. 329,293
4,806 El Paso Electric Co. $11.40 cum. pfd [2 DBL. DAGGERS] 533,466
265 Fresenius Medical Care $9.00 trust pfd. 274,938
5,870 Nextlink Communications, Inc. $7.00 cum. pfd. 337,525
16,494 Public Service Co. of New Hampshire $2.65 1st mtge. cum. pfd. 408,225
1,470 SFX Broadcasting, Inc. Ser. E, $12.625 cum. pfd. [2 DBL. DAGGERS] 170,520
1,250 Time Warner, Inc. Ser. M, 10.25% pfd. [2 DBL. DAGGERS] 1,425,000
--------------
Total Preferred Stocks (cost $4,808,973) $ 5,065,113
UNITS (--%)*
NUMBER OF UNITS VALUE
- ------------------------------------------------------------------------------------------------------------
210 Colt Telecommunications Group PLC units stepped-coupon
zero % (12s, 12/15/01), 2006 (United Kingdom) ++ $ 138,600
205,000 Esat Holdings Ltd. 144A sr. notes stepped-coupon
zero % (12 1/2s, 2/1/02), 2007 ++ 125,050
220 Fitzgerald Gaming Co. units 13s, 2002 202,400
200,000 Globalstar L.P. Capital 144A sr. notes 11 3/8s, 2004 191,000
20 Hedstrom Holdings, Inc. units stepped-coupon
zero % (12s, 6/1/02), 2009 ++ 12,350
180 McCaw International Ltd. 144A units stepped-coupon
zero % (13s, 4/15/02), 2007 ++ 99,000
70 Stone Container Corp. units sr. sub. 12 1/4s, 2002 72,800
45 Wireless One, Inc. units stepped-coupon zero %
(13 1/2s, 8/1/01), 2006 ++ 11,250
--------------
Total Units (cost $815,998) $ 852,450
WARRANTS (--%) EXPIRATION
NUMBER OF WARRANTS + DATE VALUE
- ------------------------------------------------------------------------------------------------------------
205 Esat Holdings Warrant 9/9/99 $ 4,100
200 Globalstar Telecom 144A 2/15/04 12,000
250 Intermedia Communications 144A 6/1/00 12,500
5,870 Nextlink Communications, Inc. 2/1/09 59
960 Powertel, Inc. 2/1/06 6,912
--------------
Total Warrants (cost $26,004) $ 35,571
PURCHASE OPTIONS OUTSTANDING (--%) EXPIRATION
(cost $1,393,375 DATE/STRIKE
NUMBER OF CONTRACTS PRICE VALUE
- ------------------------------------------------------------------------------------------------------------
113,600 U.S. Treasury Note Sep. 97/
4/13/04 $ 20,948
SHORT-TERM INVESTMENTS (4.0%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
25,000,000 Banc One Corp. effective yield of 5 1/2%, August 27, 1997 $ 24,900,694
25,000,000 Falcon Asset Securitization Corp. effective yield of 5.53%,
September 5, 1997 24,865,590
25,000,000 Federal Home Loan Bank effective yield of 5.38%,
August 1, 1997 25,000,000
25,000,000 General Electric Capital Corp. effective yield of 5.54%,
August 18, 1997 24,934,597
25,000,000 Preferred Receivables Funding Corp. effective yield of 5.52%,
September 10, 1997 24,846,667
37,185,000 Interest in $204,956,000 joint repurchase agreement dated
July 31, 1997 with UBS Securities due August 1, 1997 with
respect to various U.S. Treasury obligations -- maturity
value of $37,190,950 for an effective yield of 5.76% 37,190,950
--------------
Total Short-Term Investments (cost $161,738,498) $ 161,738,498
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $3,448,814,815) *** $4,108,690,001
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $4,039,954,130.
*** The aggregate identified cost on a tax basis is $3,451,948,443,
resulting in gross unrealized appreciation and depreciation of
$680,781,553 and $24,039,995, respectively, or net unrealized
appreciation of $656,741,558.
+ Non-income-producing security.
++ The interest rate and date shown parenthetically represent the
new interest rate to be paid and the date the fund will begin receiving
interest at this rate.
+++ Portion of the income will be received in additional securities.
[DOUBLE DAGGER] Restricted, excluding 144A securities as to public resale. The
total market value of restricted securities held at July 31, 1997 was
583,663 or less than 0.1% of the net assets.
[2 DBL 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,
1997.
## When-issued securities (Note 1).
[DIAMOND] Brady bonds are foreign bonds collateralized by the U.S.
Government. The rates are floating and are current rates at July 31,
1997.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
ADR after the name of a foreign holding stands for American
Depository Receipts, representing ownership of foreign securities on
deposit with a domestic custodian bank.
TBA after the name of a security represents to be announced
securities (Note 1).
The rate shown on Floating Rate Bonds (FRB) and Floating Rate Notes
(FRN) are the current interest rates shown at July 31,1997 which are
subject to change based on the terms of the security.
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Forward Currency Contracts to Buy at July 31, 1997
(aggregate face value $132,319,346)
Aggregate Face Delivery Unrealized
Market Value Value Date Depreciation
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Australian Dollars $ 4,465,921 $ 4,675,624 Sep 97 $ (209,703)
Canadian Dollar 6,527,406 6,544,493 Sep 97 (17,087)
Deutschemarks 40,483,616 42,331,643 Sep 97 (1,848,027)
Italian Lira 30,602,751 32,410,475 Sep 97 (1,807,724)
Japanese Yen 32,229,211 34,165,237 Sep 97 (1,936,026)
Polish Zloty 9,805,402 10,601,408 Jun 98 (796,006)
Venezuelan Bolivar 1,583,066 1,590,466 Jun 98 (7,400)
- -----------------------------------------------------------------------------------------
(6,621,973)
- -----------------------------------------------------------------------------------------
<CAPTION>
Forward Currency Contracts to Sell at July 31, 1997
(aggregate face value $210,744,215)
Market Aggregate Face Delivery Unrealized
Value Value Date Appreciation
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian Dollars 50,247,126 50,578,990 Sep 97 $ 331,864
British Pounds 12,203,284 12,393,923 Sep 97 190,639
Danish Krone 5,872,698 6,395,926 Sep 97 523,228
Deutschemarks 67,795,682 71,085,228 Sep 97 3,289,546
Italian Lira 30,142,872 32,385,971 Sep 97 2,243,099
Japanese Yen 3,505,026 4,042,341 Jan 98 537,315
Japanese Yen 31,749,907 33,861,836 Sep 97 2,111,929
- -----------------------------------------------------------------------------------------
9,227,620
- -----------------------------------------------------------------------------------------
<CAPTION>
Futures Contracts Outstanding at July 31, 1997
(aggregate face value $214,254,699)
Unrealized
Aggregate Face Expiration Appreciation/
Total Value Value Date (Depreciation)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Japanese Government
10 year Bonds (long) $ 35,213,930 $ 34,901,543 Sep 97 $ 312,387
US Treasury 20 year Bonds
(long) 14,827,250 14,620,875 Sep 97 206,375
US Treasury 5 year Notes
(short) 115,975,219 113,214,422 Sep 97 (2,760,797)
US Treasury 10 year Notes
(short) 53,058,000 51,517,859 Sep 97 (1,540,141)
- -----------------------------------------------------------------------------------------
(3,782,176)
- -----------------------------------------------------------------------------------------
<CAPTION>
TBA Sale Commitments at July 31, 1997
(proceeds receivable $66,674,935)
Principal Settlement Market
Description Amount Date Value
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
FNMA, 7s, August, 2027 32,084,841 August-97 $32,086,545
GNMA, 7s, August, 2027 34,664,993 August-97 34,664,993
- -----------------------------------------------------------------------------------------
$66,751,538
- -----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
July 31, 1997
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $3,448,814,815) (Note 1) 4,108,690,001
- ---------------------------------------------------------------------------------------------------
Cash 4,652,322
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 23,434,722
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 13,060,954
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 149,024,356
- ---------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 9,244,078
- ---------------------------------------------------------------------------------------------------
Total assets 4,308,106,433
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable to subcustodian 248,181
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 180,030,624
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 4,118,364
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 4,496,705
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 1,345,591
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 31,535
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,926
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,378,733
- ---------------------------------------------------------------------------------------------------
Payable for variation margin 8,183
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 6,638,431
- ---------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 2,219,892
- ---------------------------------------------------------------------------------------------------
TBA sale commitments at value (proceeds receivable $66,674,935) 66,751,538
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 881,600
- ---------------------------------------------------------------------------------------------------
Total liabilities 268,152,303
- ---------------------------------------------------------------------------------------------------
Net assets $4,039,954,130
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $3,184,655,167
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 4,134,739
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 192,561,000
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and liabilities in
foreign currencies 658,603,224
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $4,039,954,130
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($2,607,561,735 divided by 137,611,000 shares) $18.95
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $18.95)* $20.11
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($888,666,410 divided by 47,221,035 shares)** $18.82
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($187,475,235 divided by 9,963,033 shares) $18.82
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $18.82)* $19.50
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($356,250,750 divided by 18,772,462 shares) $18.50
- ---------------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the
offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred
sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended July 31, 1997
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Interest $ 82,242,974
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $175,399) 53,722,731
- --------------------------------------------------------------------------------------------------
Total investment income 135,965,705
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 15,175,880
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 8,231,323
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 69,642
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 33,624
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 4,929,719
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 6,334,918
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 837,163
- --------------------------------------------------------------------------------------------------
Reports to shareholders 114,784
- --------------------------------------------------------------------------------------------------
Registration fees 379,396
- --------------------------------------------------------------------------------------------------
Auditing 68,118
- --------------------------------------------------------------------------------------------------
Legal 43,539
- --------------------------------------------------------------------------------------------------
Postage 188,202
- --------------------------------------------------------------------------------------------------
Other 111,700
- --------------------------------------------------------------------------------------------------
Total expenses 36,518,008
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (1,270,541)
- --------------------------------------------------------------------------------------------------
Net expenses 35,247,467
- --------------------------------------------------------------------------------------------------
Net investment income 100,718,238
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 232,561,032
- --------------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 1,727,083
- --------------------------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 240,700
- --------------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (5,050,780)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year 3,141,878
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures, and
TBA sale commitments during the year 502,393,355
- --------------------------------------------------------------------------------------------------
Net gain on investments 735,013,268
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 835,731,506
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended July 31
--------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 100,718,238 $ 71,656,189
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 229,478,035 135,274,116
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 505,535,233 15,062,707
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 835,731,506 221,993,012
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (73,837,380) (45,601,237)
- ----------------------------------------------------------------------------------------------------------------------
Class B (19,404,724) (9,159,784)
- ----------------------------------------------------------------------------------------------------------------------
Class M (3,535,939) (712,551)
- ----------------------------------------------------------------------------------------------------------------------
Class Y (11,248,863) (7,086,721)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (92,386,949) (45,185,859)
- ----------------------------------------------------------------------------------------------------------------------
Class B (29,105,446) (10,868,927)
- ----------------------------------------------------------------------------------------------------------------------
Class M (4,503,492) (596,616)
- ----------------------------------------------------------------------------------------------------------------------
Class Y (13,502,169) (6,792,626)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 1,244,159,864 688,998,591
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 1,832,366,408 784,987,282
- ----------------------------------------------------------------------------------------------------------------------
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 2,207,587,722 1,422,600,440
- ----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $4,134,739 and $15,363,543, respectively) 4,039,954,130 2,207,587,722
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended July 31
- -----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $15.82 $14.90 $13.52 $14.24 $14.24
- -----------------------------------------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income .60(c) .63 .63 .59 .62
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 4.11 1.50 1.63 (.11) .52
- -----------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 4.71 2.13 2.26 .48 1.14
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------------
From net
investment income (.67) (.58) (.56) (.58) (.66)
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.91) (.63) (.32) (.62) (.48)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (1.58) (1.21) (.88) (1.20) (1.14)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.95 $15.82 $14.90 $13.52 $14.24
- -----------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 31.52 14.75 17.73 3.46 8.64
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,607,562 $1,515,260 $1,036,674 $913,171 $772,540
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.06 .95 .91 .95 .90
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.51 4.07 4.58 4.15 4.34
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 134.80 119.44 102.57 100.69 89.22
- -----------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (d) $.0499
- -----------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(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 period ended July 31, 1996 and thereafter includes
amounts paid through brokerage service and expense offset arrangements. Prior period ratios exclude
these amounts. (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
(d) Average commission rate paid on security trades is required for fiscal periods beginning on or
after September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- -----------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended July 31
- -----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $15.74 $14.83 $13.46 $14.19 $14.22
- -----------------------------------------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income .46(c) .51 .52 .50 .56
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 4.08 1.50 1.63 (.12) .48
- -----------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 4.54 2.01 2.15 .38 1.04
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------------
From net
investment income (.55) (.47) (.46) (.49) (.59)
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.91) (.63) (.32) (.62) (.48)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (1.46) (1.10) (.78) (1.11) (1.07)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.82 $15.74 $14.83 $13.46 $14.19
- -----------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 30.46 13.97 16.87 2.70 7.87
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $888,666 $435,278 $224,166 $151,327 $81,983
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.81 1.71 1.66 1.71 1.66
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.74 3.31 3.81 3.39 3.43
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 134.80 119.44 102.57 100.69 89.22
- -----------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (d) $.0499
- -----------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(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 period ended July 31, 1996 and thereafter includes
amounts paid through brokerage service and expense offset arrangements. Prior period ratios exclude
these amounts. (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
(d) Average commission rate paid on security trades is required for fiscal periods beginning on or
after September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- -------------------------------------------------------------------------------------------------------------------
For the period
Per-share Dec. 1, 1994+
operating performance Year ended July 31 to July 31
- -------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $15.74 $14.84 $12.77
- -------------------------------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------------------------------
Net investment income .53 (c) .55 .31
- -------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 4.06 1.50 2.03
- -------------------------------------------------------------------------------------------------------------------
Total from
investment operations 4.59 2.05 2.34
- -------------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------------
From net
investment income (.60) (.52) (.27)
- -------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.91) (.63) --
- -------------------------------------------------------------------------------------------------------------------
Total distributions (1.51) (1.15) (.27)
- -------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.82 $15.74 $14.84
- -------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 30.83 14.26 18.52*
- -------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $187,475 $49,541 $8,164
- -------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.56 1.50 .93*
- -------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.05 3.50 2.53*
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 134.80 119.44 102.57
- -------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (d) $.0499
- -------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(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 period ended July 31, 1996 and thereafter includes
amounts paid through brokerage service and expense offset arrangements. Prior period ratios exclude
these amounts. (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
(d) Average commission rate paid on security trades is required for fiscal periods beginning on or
after September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS Y
- -----------------------------------------------------------------------------------------------------------------------
For the period
Per-share April 1, 1994+
operating performance Year ended July 31 to July 31
- -----------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $15.85 $14.92 $13.54 $13.21
- -----------------------------------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------------------------------
Net investment income .64(c) .68 .66 .17
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 4.11 1.50 1.63 .31
- -----------------------------------------------------------------------------------------------------------------------
Total from
investment operations 4.75 2.18 2.29 .48
- -----------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------
From net
investment income (.71) (.62) (.59) (.15)
- -----------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.91) (.63) (.32) --
- -----------------------------------------------------------------------------------------------------------------------
Total distributions (1.62) (1.25) (.91) (.15)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.98 $15.85 $14.92 $13.54
- -----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 31.78 15.09 18.00 3.65*
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $356,251 $207,508 $153,597 $71,566
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .81 .70 .66 .25*
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.74 4.33 4.78 1.34*
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 134.80 119.44 102.57 100.69
- -----------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (d) $.0499
- -----------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(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 period ended July 31, 1996 and thereafter includes
amounts paid through brokerage service and expense offset arrangements. Prior period ratios exclude
these amounts. (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
(d) Average commission rate paid on security trades is required for fiscal periods beginning on or
after September 1, 1995.
</TABLE>
Notes to financial statements
July 31, 1997
Note 1
Significant accounting policies
The George Putnam Fund of Boston (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund seeks to provide a balanced investment
composed of a well-diversified portfolio of stocks and bonds which will
produce both capital growth and current income.
The fund offers class A, class B, class M and class Y shares. Class A shares
are sold with a maximum front-end sales charge of 5.75%. Class B shares, which
convert to class A shares after approximately eight years, do not pay a
front-end sales charge but pay a higher ongoing distribution fee than class A
shares, and 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 shares, class B shares and class M shares, but do not bear
a distribution fee. Class Y shares are sold to defined contribution plans that
initially invest 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. Securities
quoted in foreign currencies are translated into U.S. dollars at the current
exchange rate. Short-term investments having remaining maturities of 60 days
or less are stated at amortized cost, which approximates market value, and
other investments are stated at fair value following procedures approved by
the Trustees. Market quotations are not considered to be readily available for
certain 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 and certain other accounts managed by Putnam Investment
Management, Inc. ("Putnam Management"). These balances may be invested in one
or more repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value of
which at the time of purchase is required to be in an amount at least equal to
the resale price, including accrued interest. Putnam Management, the Fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc., 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 discounts, stepped-coupon
bonds and payment in kind bonds are accreted according to the effective yield
method. Securities purchased or sold on a when-issued or delayed delivery
basis may be settled a month or more after trade date; interest income is
accrued based on the terms of the security. Losses may arise due to changes in
the market value of the underlying securities or if the counterparty does not
perform under the contract.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities, currency
holdings, 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) TBA purchase commitments The fund may enter into "TBA" (to be announced)
purchase commitments to purchase securities for a fixed unit price at a future
date beyond customary settlement time. Although the unit price has been
established, the principal value has not been finalized. However, the amount
of the commitments will not fluctuate more than 1.0% from the principal
amount. The fund holds, and maintains until settlement date, cash or
high-grade debt obligations in an amount sufficient to meet the purchase
price, or the fund may enter into offsetting contracts for the forward sale of
other securities it owns. Income on the securities will not be earned until
settlement date. TBA purchase commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in the value of the fund's other assets. Unsettled TBA
purchase commitments are valued at the current market value of the underlying
securities, according to the procedures described under "Security valuation"
above.
Although the fund will generally enter into TBA purchase commitments with the
intention of acquiring securities for their portfolio or for delivery pursuant
to options contracts it has entered into, the fund may dispose of a commitment
prior to settlement if Putnam Management deems it appropriate to do so.
I) TBA sale commitments The fund may enter into TBA sale commitments to hedge
its portfolio positions or to sell mortgage-backed securities it owns under
delayed delivery arrangements. Proceeds of TBA sale commitments are not
received until the contractual settlement date. During the time a TBA sale
commitment is outstanding, equivalent deliverable securities, or an offsetting
TBA purchase commitment deliverable on or before the sale commitment date, are
held as "cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of the
underlying securities, generally according to the procedures described under
"Security valuation" above. The contract is "marked-to-market" daily and the
change in market value is recorded by a fund as an unrealized gain or loss. If
the TBA sale commitment is closed through the acquisition of an offsetting
purchase commitment, the fund realizes a gain or loss. If the fund delivers
securities under the commitment, the fund realizes a gain or a loss from the
sale of the securities based upon the unit price established at the date the
commitment was entered into.
J) Federal taxes It is the policy of the fund to distribute all of its taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
K) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date. Capital
gain distributions, if any, are recorded on the ex-dividend date and paid at
least annually. The amount and character of income and gains to be distributed
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles.
These differences include treatment of market discount, amortization of bond
premium, paydown gains and losses on mortgage backed securities, non-taxable
dividends, realized and unrealized gains and losses on certain future
contracts, losses on wash sale transactions, post October loss deferrals,
defaulted bond interest and foreign currency gains and losses.
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, 1997, the fund
reclassified $3,920,136 to decrease undistributed net investment income and
$1,007,164 to decrease paid-in-capital, with an increase to accumulated net
realized gain on investments of $4,927,300. 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 0.65% 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 fund's investment restrictions to cover any advances made by
the subcustodian bank for the settlement of securities purchased by the fund.
At July 31, 1997, the payable to the subcustodian bank represents the amount
due for cash advance for the settlement of a security purchased.
The fund reimburses Putnam Management 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, 1997, fund expenses were reduced by $1,270,541
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 $2,493 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of the
Trustees receive additional fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Plan") which allows the
Trustees to defer the receipt of all or a portion of Trustees Fees payable on
or after July 1, 1995. The deferred fees remain in the fund and are invested
in certain Putnam funds until distribution in accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to compensate
Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments
Inc., for services provided and expenses incurred by it in distributing shares
of the fund. The Plans provide for payments by the fund to Putnam Mutual Funds
Corp. at an annual rate up to 0.35%, 1.00% and 1.00% of the average net assets
attributable to class A, class B and class M shares, respectively. The
Trustees have approved payment by the fund 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, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $1,590,536 and $71,377 from the sale
of class A and class M shares, respectively and $740,195 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, 1997, Putnam Mutual Funds Corp., acting as underwriter
received $13,836 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended July 31, 1997, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $2,809,285,635 and $1,839,416,224, respectively. Purchases and
sales of U.S. government obligations aggregated $2,101,617,703 and
$2,048,557,915, respectively. In determining the net gain or loss on
securities sold, the cost of securities has been determined on the identified
cost basis.
Written option transactions during the year are summarized as follows:
Contract Premiums
Amounts Received
- ------------------------------------------------------------
Written options
outstanding at
beginning of year $ -- $ --
- ------------------------------------------------------------
Options opened 24,070,000 369,475
- ------------------------------------------------------------
Options closed 24,070,000 (369,475)
- ------------------------------------------------------------
Written options
outstanding at
end of year $ -- $ --
- ------------------------------------------------------------
Note 4
Capital shares
At July 31, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended
July 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 57,561,340 $ 980,905,251
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 9,015,602 148,378,857
- ------------------------------------------------------------
66,576,942 1,129,284,108
Shares
repurchased (24,717,591) (422,352,583)
- ------------------------------------------------------------
Net increase 41,859,351 $ 706,931,525
- ------------------------------------------------------------
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, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 21,764,323 $368,267,529
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,767,490 45,275,666
- ------------------------------------------------------------
24,531,813 413,543,195
Shares
repurchased (4,971,519) (84,322,499)
- ------------------------------------------------------------
Net increase 19,560,294 $329,220,696
- ------------------------------------------------------------
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, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 7,413,996 $125,678,090
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 457,088 7,498,922
- ------------------------------------------------------------
7,871,084 133,177,012
Shares
repurchased (1,055,770) (18,153,890)
- ------------------------------------------------------------
Net increase 6,815,314 $115,023,122
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Year ended
July 31, 1997
- ------------------------------------------------------------
Class Y Shares Amount
- ------------------------------------------------------------
Shares sold 8,877,256 $150,219,737
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,501,670 24,753,440
- ------------------------------------------------------------
10,378,926 174,973,177
Shares
repurchased (4,702,056) (81,988,656)
- ------------------------------------------------------------
Net increase 5,676,870 $ 92,984,521
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, the Fund hereby
designates $.68 per share (or if different, the amount necessary to
offset net capital gain earned by the Fund) (for all classes of shares)
as capital gain dividends for its taxable year ended July 31, 1997.
The fund has designated 28.88% of the distributions from net
investment income as qualifying for the dividends received deduction
for corporations.
The Form 1099 you receive in January 1998 will show the tax status
of all distributions paid to your account in calendar 1997.
Fund information
INVESTMENT MANAGER
Butane Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Butane Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Butane 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
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
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Thomas V. Reilly
Vice President
Edward P. Bousa
Vice President and Fund Manager
Kenneth J. Taubes
Vice President and Fund Manager
Robert M. Paine
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. You can also learn more at Putnam
Investments' website: http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution, are not insured by the Federal Deposit
Insurance Corporation (FDIC), the Federal Reserve Board or any other agency,
and involve risk, including the possible loss of principal amount invested.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachsetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
AN001-35881-001/880/242/505 9/97
