The George
Putnam Fund
of Boston
SEMIANNUAL REPORT
January 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* For the 12 months ended January 31, 1997, The George Putnam Fund of Boston's
class A shares were ranked 58 out of 281 balanced funds for total return
performance, placing them in the top 21% of the category, according to Lipper
Analytical Services. Over the same period, the fund's class M and class B
shares were ranked 73 and 85, respectively, out of 281 funds, placing the
share classes within the top 26% and 31%, respectively, of balanced funds
tracked.*
* "George Putnam Fund of Boston's managers have upgraded an old classic. Since
managers Ken Taubes and Ed Bousa took over the fund in 1993 (Rosemary Thomsen
joined them in 1995), they have turned it from solid to sparkling."
-- Morningstar, October 25, 1996
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
33 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 1/31/97, the
fund's class A shares were ranked 11 out of 76 funds for 5-year performance
and 8 out of 36 funds for 10-year performance. The fund's class B shares were
ranked 24 out of 166 funds for 3-year performance and were not ranked over
periods exceeding 3 years. The fund's class M shares were not ranked over
periods exceeding 1 year. Past performance is not indicative of future
results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
I am pleased to note that during the first half of fiscal 1997 The George
Putnam Fund of Boston continued its tradition of delivering positive
performance from a portfolio of stocks and bonds. In fact, your fund
outperformed most of its peers by a comfortable margin during the period, as
reflected in the Lipper numbers on the facing page.
In my opinion, full credit for these results should go to your fund's
long-standing strategy of seeking out undervalued stocks of companies
undergoing positive changes. Careful selection of high-yield bonds and timely
adjustments to the average duration of the portfolio's fixed-income securities
also made significant contributions to the fund's performance during the
period.
Robert M. Paine joined your fund's management team during the fiscal period. A
member of Putnam's High Yield Bond Group since 1989, Bob has eight years of
investment experience. In the following report, the fund's managers discuss
first-half performance and prospects for the second half.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
March 19, 1997
Report from the Fund Managers
Edward P. Bousa, lead manager
Kenneth J. Taubes
Robert M. Paine
Rosemary H. Thomsen
The George Putnam Fund of Boston deftly stayed its course in the often
tumultuous scene that epitomized stock and bond markets over the six months
ended January 31, 1997. With the discipline and quiet persistence that have
become its trademark, your fund relied on its basic value equity investing
strategy -- emphasizing undervalued companies undergoing internal changes
ahead of their respective industries throughout the period -- to generate
solid performance. Additionally, we believe astute selection on the
fixed-income side of the portfolio provided shareholders with appreciation
potential as well as an attractive level of current income.
For the semiannual period, the fund's class A shares had a total return of
15.21% at net asset value and 8.55% at public offering price. This is
substantially ahead of the average 14.20% return for the balanced funds
tracked by Lipper Analytical Services for the period. For performance of other
share classes over longer periods of time and against the fund's benchmark
indexes, please turn to page 9.
* FUND BENEFITS AS MARKET FAVORS LARGE-CAP VALUE STOCKS
As the stock market has reached one record high after another, investors'
preference for large-capitalization stocks has increased. Large-capitalization
stocks, with their relative earnings stability and greater liquidity,
benefited from global expansion opportunities.
For example, IBM, one of your fund's key holdings, had been shunned for some
time in the belief that demand for mainframe computers had leveled off. The
company's earnings were expected to suffer now that its focus has lessened in
mainframes. As it turned out, the company's performance was better than
expected and IBM roared back to life to such an extent that The Wall Street
Journal called the stock a "panic buy."* During the period, the fund benefited
from its IBM position as well as its holdings in other strong technology
companies such as Texas Instruments, Hewlett Packard, and Motorola. While
these stocks, along with others discussed in this report, were viewed
favorably at the end of the fiscal period, all portfolio holdings are subject
to review and adjustment in accordance with the fund's investment strategy and
may vary in the future.
* ENERGY AND FINANCE SECTORS CONTRIBUTE TO PERFORMANCE AS UTILITIES FALTER
Energy and oil companies benefited from the continued strength of crude oil
prices and the improved efficiencies many were able to achieve from
restructurings. We found attractive value in foreign-based global energy
companies such as Total and Elf Aquitane. On the other hand, the fund
generally did not participate in the strong price appreciation of
service-oriented energy companies because we considered many of these firms
overvalued.
*The Wall Street Journal, November 22, 1996
TOP 10 EQUITY HOLDINGS (1/31/97)+
Exxon Corp.
Oil and gas
Mobil Corp.
Oil and gas
J.P. Morgan & Co., Inc.
Insurance and finance
Weyerhaeuser Co.
Paper and forest products
Minnesota Mining & Manufacturing
Basic industrial products
Amoco Corp.
Oil and gas
General Motors Corp.
Automotive
TRW, Inc.
Conglomerates
Kimberly-Clark Corp.
Consumer nondurables
Banc One Corp.
Insurance and finance
+ Top 10 holdings represent 10.7% of the fund's net assets. Portfolio
holdings will vary over time.
Financial sector stocks have enjoyed a prosperous year, riding on the momentum
of a relatively stable interest-rate environment and heightened financial
activity. The fund particularly benefited from its exposure to banking stocks
as industry consolidation and profits from traditional and nontraditional
banking businesses boosted performance. The fund benefited from its interest
in regional banks such as NationsBank, Banc One and PNC Bank Corp. Considering
regional banks to have lower inherent risk than money-center banks, we
structured our allocation accordingly, and thus the fund did not fully
participate in the growth of money-center banks over this period.
Unfortunately, positive trends were few and far between in the utility sector.
The market questioned the ability of many electric utilities to compete in a
newly deregulated marketplace. Additionally, although passage of the
Telecommunications Act of 1996 opened the door for increased competition, few
companies have yet been successful in taking advantage of the expanded
opportunities. In fact, stocks of the regional Bell operating companies
suffered as many companies stumbled in their first efforts to break into the
long-distance area of the market. Although the fund's utility position has not
been able to contribute to performance over this period, we believe that this
sector retains its potential for growth and that the companies we've selected
have the ability to meet the challenge of regulatory changes and broader
competition successfully.
* FIXED INCOME BECOMES IMPORTANT CONTRIBUTOR
Signs of increased economic activity and the inflationary expectations they
spawned dampened bond performance for much of calendar 1996. More recently,
however, U.S. fixed-income markets were buoyed by benign hourly-wage reports,
indicating that the economy's steady growth and the tight labor market did not
necessarily portend an increase in inflation. Consequently, as of this
writing, bond prices are generally higher -- and their yields generally lower
- -- than we saw at this time last year. The fund took advantage of this
positive trend by extending the duration of the portfolio's fixed-income
portion. Duration, measured in years, indicates a portfolio's potential
sensitivity to interest-rate changes. A longer duration can mean a more
volatile net asset value if rates change but also one more likely to
appreciate if rates decline.
[GRAPHIC OMIITED: horizontal bar chart COMPARATIVE PORTFOLIO COMPOSITION]
COMPARATIVE PORTFOLIO COMPOSITION*
7/31/96 1/31/97
Common stocks 59.1% 62.9%
US government and agency securities 20.5% 14.2%
Corporate bonds and notes 9.9% 12.8%
Foreign government bond and notes 2.6% 2.4%
Collateralized mortgage obligations 1.9% 1.3%
Convertible bonds and notes 1.1% 0.3%
Convertible preferred stocks 0.7% 0.5%
Footnote reads:
* Based on percentage of net assets. Balance of portfolio on dates listed was
invested in cash and short-term securities. Portfolio allocations will vary
over time.
Given the market uncertainties throughout the semiannual period, our
fixed-income asset allocation decisions represent the key to the fund's
successful performance. The high-yield bond sector, benefiting from strong
technical factors and improving credit quality, propelled the market, and our
emphasis on this sector served the fund well. Although they were a relatively
small part of the portfolio, emerging market bonds were also a positive force.
Additionally, in the investment-grade area, mortgage-backed securities also
performed well for the fund.
* GLOBALIZATION: A KEY ONGOING THEME
We believe our focus on globalization as an important theme in our investment
decisions has helped the fund greatly. Historically, it's been proved that
geographic expansion is the most cost-effective route toward meaningful
corporate growth because the development of additional distribution channels
is not as demanding as the development of new products or technologies.
This explains why so many major U.S. companies are taking advantage of the
opportunity to be pioneers in newer markets in Eastern Europe, Asia, and Latin
America. Some of the more attractive companies participating in this trend
include Colgate-Palmolive, Eastman Kodak, and 3M -- all fund holdings -- as
well as some of the largest energy companies and pharmaceutical firms.
* FUND'S STRATEGY MAY PROVIDE GREATER RELATIVE STABILITY IN UNCERTAIN MARKETS
No one can say with any certainty what lies ahead in some of these heady
markets. As far as the fund is concerned, on the equity side, we will continue
to focus on undervalued companies that are committed to improving productivity
and products faster than their competition. On the bond side, our outlook is
somewhat mixed, as we believe the Federal Reserve Board may still be inclined
to raise interest rates at the slightest hint of wage pressure in the economy.
As a result, we are proceeding somewhat defensively.
Since income will always make up a significant portion of your fund's total
return, any shift in stock market direction is likely to have less impact on
performance of this fund than it would on a pure stock fund. Because your fund
generally buys stocks with dividend yields higher than the market average and
maintains a sizable fixed-income component (typically 35%), you may be better
prepared to ride out any future market downturns than more aggressive equity
investors.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 1/31/97, there is no guarantee the fund will continue to hold
these securities in the future.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. The George Putnam Fund of Boston is designed for investors seeking
capital appreciation and current income.
This section provides, at a glance, information about your fund's performance.
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
TOTAL RETURN FOR PERIODS ENDED 1/31/97
Class A Class B Class M
Inception (11/5/37) (4/27/92) (12/1/94)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 15.21% 8.55% 14.69% 9.69% 14.87% 10.85%
- ------------------------------------------------------------------------------
1 year 17.39 10.66 16.49 11.49 16.77 12.68
- ------------------------------------------------------------------------------
5 years 88.03 77.19 -- -- -- --
Annual average 13.46 12.12 -- -- -- --
- ------------------------------------------------------------------------------
10 years 197.32 180.17 -- -- -- --
Annual average 11.51 10.85 -- -- -- --
- ------------------------------------------------------------------------------
Life of class -- -- 77.43 75.43 55.55 50.14
Annual average -- -- 12.77 12.51 22.58 20.6
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 1/31/97
Lehman Bros.
S&P 500 Govt./Corp. Consumer
Index Bond Index Price Index
- ------------------------------------------------------------------------------
6 months 24.13% 4.75% 1.34%
- ------------------------------------------------------------------------------
1 year 26.33 2.39 3.04
- ------------------------------------------------------------------------------
5 years 119.41 43.73 15.21
Annual average 17.01 7.52 2.87
- ------------------------------------------------------------------------------
10 years 287.63 120.81 43.08
Annual average 14.51 8.24 3.65
- ------------------------------------------------------------------------------
Life of class B 114.57 42.90 14.05
Annual average 17.41 7.80 2.79
- ------------------------------------------------------------------------------
Life of class M 82.31 23.66 6.28
Annual average 31.86 10.28 2.85
- ------------------------------------------------------------------------------
Performance data represent past results, do not reflect future performance,
and will differ for each share class. They do not take into account any
adjustment for taxes payable on reinvested distributions or, for class A
shares, distribution fees prior to implementation of the class A distribution
plan in 1990. Investment returns and net asset value will fluctuate so that an
investor's shares, when sold, may be worth more or less than their original
cost. POP assumes 5.75% maximum sales charge for class A shares and 3.50% for
class M shares. CDSC for class B shares assumes the applicable sales charge,
with the maximum being 5%.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 1/31/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions: (Number) 2 2 2
- ------------------------------------------------------------------------------
Income $0.377 $0.320 $0.345
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term $0.680 $0.680 $0.680
- ------------------------------------------------------------------------------
Short-term 0.229 0.229 0.229
- ------------------------------------------------------------------------------
Total $1.286 $1.229 $1.254
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
7/31/96 $15.82 $16.79 $15.74 $15.74 $16.31
- ------------------------------------------------------------------------------
1/31/97 $16.88 $17.91 $16.77 $16.77 $17.38
- ------------------------------------------------------------------------------
Current return: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
End of period
- ------------------------------------------------------------------------------
Current dividend rate1 3.41% 3.22% 2.75% 3.04% 2.94%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 3.24% 3.05% 2.48% 2.72% 2.63%
- ------------------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided by NAV or
POP at end of period.
2Based only on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 12/31/96
(most recent calendar quarter)
Class A Class B Class M
Inception (11/5/37) (4/27/92) (12/1/94)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 9.71% 3.44% 9.32% 4.32% 9.42% 5.61%
- ------------------------------------------------------------------------------
1 year 16.25 9.54 15.42 10.42 15.63 11.58
- ------------------------------------------------------------------------------
5 years 80.41 70.02 -- -- -- --
Annual average 12.53 11.2 -- -- -- --
- ------------------------------------------------------------------------------
10 years 215.46 197.42 -- -- -- --
Annual average 12.18 11.52 -- -- -- --
- ------------------------------------------------------------------------------
Life of class -- -- 72.56 70.56 51.19 45.93
Annual average -- -- 12.36 12.08 21.87 19.82
- ------------------------------------------------------------------------------
Performance data represent past results, do not reflect future performance,
and will differ for each share class. They do not take into account any
adjustment for taxes payable on reinvested distributions or, for class A
shares, distribution fees prior to implementation of the class A distribution
plan in 1990. Investment returns and net asset value will fluctuate so that an
investor's shares, when sold, may be worth more or less than their original
cost.
TERMS AND DEFINITIONS
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee than
class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including any
initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance figures
shown here assume the maximum 5.75% sales charge for class A shares and 3.50%
for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of the
redemption of class B shares and assumes redemption at the end of the period.
Your fund's CDSC declines from a 5% maximum during the first year to 1% during
the sixth year. After the sixth year, the CDSC no longer applies.
COMPARATIVE BENCHMARKS
Standard & Poor's 500 Index* is an unmanaged list of common stocks that is
frequently used as a general measure of stock market performance.
Lehman Brothers Government/Corporate Bond Index* is an unmanaged list of
publicly issued U.S. Treasury obligations, debt obligations of U.S. government
agencies (excluding mortgage-backed securities), 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.
*The indexes assume reinvestment of all distributions and do not take into
account brokerage commissions or other costs. The fund's portfolio contains
securities that do not match those in the indexes. It is not possible to
invest in an index.
Portfolio of investments owned
January 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS (62.9%) *
NUMBER OF SHARES VALUE
<S> <C> <C> <C> <C>
Aerospace and Defense (0.5%)
- ---------------------------------------------------------------------------------------------------------
167,000 Lockheed Martin Corp. $ 15,364,000
Agriculture (--%)
- ---------------------------------------------------------------------------------------------------------
22,025 PSF Holdings LLC Class A 550,625
Automotive (2.3%)
- ---------------------------------------------------------------------------------------------------------
18,200 Bayerische Motoren Werke (BMW) AG (Germany) 11,646,312
202,000 Chrysler Corp. 7,044,750
636,000 Ford Motor Co. 20,431,500
511,000 General Motors Corp. 30,149,000
--------------
69,271,562
Basic Industrial Products (2.3%)
- ---------------------------------------------------------------------------------------------------------
324,000 Cooper Industries, Inc. 13,972,500
330,000 Deere (John) & Co. 14,107,500
371,000 Minnesota Mining & Manufacturing Co. 31,627,750
433,000 New Holland N.V. (Netherlands) 9,526,000
--------------
69,233,750
Broadcasting (0.2%)
- ---------------------------------------------------------------------------------------------------------
317,700 Cox Communications, Inc. Class A + 6,949,688
Building and Construction (--%)
- ---------------------------------------------------------------------------------------------------------
1,600 Terex Corp. Rights expiration date 5/15/00 4,800
Business Equipment and Services (2.0%)
- ---------------------------------------------------------------------------------------------------------
376,000 Deluxe Corp. 11,562,000
253,000 Hewlett-Packard Co. 13,314,125
197,000 Ikon Office Solutions, Inc. 8,692,625
459,400 Xerox Corp. 26,932,325
--------------
60,501,075
Chemicals (3.4%)
- ---------------------------------------------------------------------------------------------------------
399,300 Bayer AG ADR (Germany) 15,165,517
138,000 Dow Chemical Co. 10,643,250
197,000 du Pont (E.I.) de Nemours & Co., Ltd. 21,596,125
334,000 Eastman Chemical Co. 18,244,750
233,000 Imperial Chemical Industries PLC ADR (United Kingdom) 11,446,125
349,000 PPG Industries, Inc. 18,671,500
237,000 Witco Chemical Corp. 7,050,750
--------------
102,818,017
Computer Services and Software (1.3%)
- ---------------------------------------------------------------------------------------------------------
165,000 IBM Corp. 25,946,250
321,000 NCR Corp. + 12,157,875
--------------
38,104,125
Conglomerates (2.5%)
- ---------------------------------------------------------------------------------------------------------
244,000 General Motors Corp. Class H 14,884,000
210,000 ITT Industries, Inc. + 5,302,500
281,000 Temple Inland, Inc. 15,525,250
564,000 TRW, Inc. 28,623,000
156,000 United Technologies Corp. 10,881,000
--------------
75,215,750
Consumer Durable Goods (0.8%)
- ---------------------------------------------------------------------------------------------------------
457,000 Whirlpool Corp. 23,249,875
Consumer Non Durables (3.7%)
- ---------------------------------------------------------------------------------------------------------
399,000 American Brands, Inc. 20,349,000
129,200 Avon Products, Inc. 8,107,300
140,000 Colgate-Palmolive Co. 13,545,000
293,000 Kimberly-Clark Corp. 28,567,500
221,000 Philip Morris Cos., Inc. 26,271,375
412,800 RJR Nabisco Holdings Corp. 13,519,200
--------------
110,359,375
Electronics and Electrical Equipment (2.5%)
- ---------------------------------------------------------------------------------------------------------
232,000 Eaton Corp. 16,240,000
120,000 General Electric Co. 12,360,000
123,000 Motorola, Inc. 8,394,750
54,500 Rockwell International Corp. + 3,583,375
209,000 Siemens AG (Germany) 10,244,098
296,000 Texas Instruments, Inc. 23,199,000
--------------
74,021,223
Entertainment (0.3%)
- ---------------------------------------------------------------------------------------------------------
164,000 ITT Corp. + 9,368,500
Environmental Control (0.3%)
- ---------------------------------------------------------------------------------------------------------
230,000 WMX Technologies, Inc. 8,423,750
Food and Beverages (2.8%)
- ---------------------------------------------------------------------------------------------------------
393,000 Anheuser-Busch Cos., Inc. 16,702,500
248,000 Dole Food Co. 9,238,000
325,500 Flowers Industries, Inc. 6,957,563
280,000 General Mills, Inc. 18,970,000
325,000 Sara Lee Corp. 12,837,500
791,000 Whitman Corp. 18,193,000
--------------
82,898,563
Insurance and Finance (10.6%)
- ---------------------------------------------------------------------------------------------------------
446,000 American General Corp. 17,784,250
254,000 AON Corp. 16,414,750
610,000 Banc One Corp. 27,678,750
325,000 Bank of New York Company, Inc. 11,903,125
194,502 Bankers Trust New York Corp. 16,532,670
177,000 Beneficial Corp. 11,903,250
62,500 CIGNA Corp. 9,476,563
467,000 Fleet Financial Group, Inc. 25,218,000
259,000 Great Western Financial Corp. 8,190,875
374,500 Keycorp 19,614,438
316,000 Morgan (J.P.) & Co., Inc. 32,548,000
230,000 NationsBank Corp. 24,840,000
272,000 Norwest Corp. 12,954,000
531,000 PNC Bank Corp. 21,107,250
232,000 Salomon, Inc. 12,818,000
265,000 St. Paul Cos., Inc. 16,562,500
259,000 Synovus Financial Corp. 8,385,125
200,000 US Bancorp 9,112,500
735,000 USF&G Corp. 15,526,875
--------------
318,570,921
Medical Supplies and Devices (0.8%)
- ---------------------------------------------------------------------------------------------------------
502,400 Baxter International, Inc. 23,173,200
Metals and Mining (0.4%)
- ---------------------------------------------------------------------------------------------------------
55,800 Carpenter Technology Corp. 2,008,800
309,000 Freeport-McMoRan Copper & Gold Co., Inc. Class A 8,458,875
--------------
10,467,675
Oil and Gas (6.4%)
- ---------------------------------------------------------------------------------------------------------
354,000 Amoco Corp. 30,798,000
435,300 Elf Aquitane ADR (France) 21,112,050
389,000 Exxon Corp. 40,310,125
295,000 Mobil Corp. 38,718,750
663,000 Occidental Petroleum Corp. 16,906,500
296,000 PanEnergy Corp. 13,653,000
537,000 Total Corp. ADR (France) 23,158,125
283,000 YPF S.A. ADR (Argentina) 7,888,625
--------------
192,545,175
Packaging and Containers (0.5%)
- ---------------------------------------------------------------------------------------------------------
242,700 Crown Cork & Seal Co., Inc. 13,955,250
Paper and Forest Products (1.6%)
- ---------------------------------------------------------------------------------------------------------
214,000 Chesapeake Corp. 6,366,500
215,000 Rayonier, Inc. 8,035,625
98,500 Unisource Worldwide, Inc. + 2,142,375
709,000 Weyerhaeuser Co. 32,259,500
--------------
48,804,000
Pharmaceuticals (2.6%)
- ---------------------------------------------------------------------------------------------------------
208,000 American Home Products Corp. 13,182,000
140,000 Bristol-Myers Squibb Co. 17,780,000
701,270 Pharmacia & Upjohn, Inc. 26,122,308
270,200 Warner-Lambert Co. 21,751,100
--------------
78,835,408
Photography (1.1%)
- ---------------------------------------------------------------------------------------------------------
288,000 Eastman Kodak Co. 24,984,000
179,000 Polaroid Corp. 7,876,000
--------------
32,860,000
Real Estate Investment Trusts (REITs) (0.5%)
- ---------------------------------------------------------------------------------------------------------
132,500 Duke Realty Investments, Inc. 5,250,313
166,700 Equity Residential Properties Trust 7,168,100
167,000 LTC Properties, Inc. 3,026,875
--------------
15,445,288
Retail (2.4%)
- ---------------------------------------------------------------------------------------------------------
576,300 Dayton Hudson Corp. 21,683,288
647,000 K mart Corp. 7,197,875
500,000 May Department Stores Co. 22,250,000
505,000 Rite Aid Corp. 20,200,000
--------------
71,331,163
Telecommunications (0.6%)
- ---------------------------------------------------------------------------------------------------------
481,100 MCI Communications Corp. 16,898,638
Transportation (2.4%)
- ---------------------------------------------------------------------------------------------------------
278,000 CSX Corp. 13,483,000
292,000 Delta Air Lines, Inc. 23,068,000
200,000 Norfolk Southern Corp. 17,725,000
556,800 Ryder System, Inc. 15,868,800
--------------
70,144,800
Utilities (8.1%)
- ---------------------------------------------------------------------------------------------------------
354,000 Ameritech Corp. New 21,151,500
25,800 Baltimore Gas & Electric Co. 709,500
313,000 Bell Atlantic Corp. 21,049,250
401,000 BellSouth Corp. 17,794,375
134,400 Carolina Power & Light Co. 5,056,800
173,265 Cinergy Corp. 5,977,643
248,000 GTE Corp. 11,656,000
409,000 NYNEX Corp. 20,705,625
218,000 OGE Energy Corp. 9,292,250
572,000 Pacific Enterprises 17,231,500
353,000 Pacific Telesis Group 13,855,250
592,000 PG&E Corp. 13,468,000
301,600 Potomac Electric Power Co. 7,464,600
155,000 Public Service Co. of Colorado 6,045,000
406,000 SBC Communications, Inc. 22,279,250
468,300 Scana Corp. 12,234,338
661,000 Sprint Corp. 26,935,750
120,000 Veba (Vereinigte Elektrizitaets Bergwerks) AG (Germany) + 6,632,099
88,300 WICOR, Inc. 3,090,500
--------------
242,629,230
--------------
Total Common Stocks (cost $1,515,872,932) $1,881,995,426
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (14.2%) *
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Pass-Through Certificates (6.8%)
- ---------------------------------------------------------------------------------------------------------
Federal National Mortgage Association
$ 257,482 11s, with due dates from October 1, 2015 to
March 1, 2016 $ 290,713
2,912,961 8 3/4s, with due dates from May 1, 2009 to July 1, 2009 3,068,135
27,806,461 7s, with due dates from February 1, 2024 to
January 1, 2027 27,215,597
5,112,000 7s, TBA, February 16, 2027 5,003,370
10,962,302 6s, Dwarf, with due dates from January 1, 2009
to October 1, 2010 10,551,224
22,770,000 6s, Dwarf, TBA, February 16, 2012 21,916,125
6,790,000 5.94s, December 12, 2005 6,423,951
Government National Mortgage Association
1,495 15s, September 15, 2011 1,856
49,327 7 1/2s, September 15, 2005 50,110
42,981,000 7 1/2s, TBA, February 16, 2027 43,074,699
50,887,858 7s, with due dates from January 15, 2026 to
January 15, 2027 49,822,279
9,513,000 7s, TBA, February 16, 2027 9,313,798
14,188,566 6 1/2s, with due dates from November 15, 2025 to
May 15, 2026 13,523,425
5,145,912 6 1/2s, Midget, with due dates from February 1, 2009
to June 15, 2009 5,079,949
2,680,000 6 1/2s, TBA, February 16, 2027 2,560,238
5,322,110 6s, Midget, with due dates from August 15, 2008 to
May 15, 2009 5,144,145
--------------
203,039,614
U.S. Treasury Obligations (7.4%)
- ---------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
25,745,000 11 5/8s, November 15, 2004 33,754,012
10,620,000 10 3/4s, August 15, 2005 13,530,517
98,575,000 8 1/8s, August 15, 2019 112,391,272
U.S. Treasury Notes
23,580,000 11 7/8s, November 15, 2003 # 30,572,885
1,475,000 11 1/8s, August 15, 2003 1,842,600
25,085,000 6 1/2s, October 15, 2006 25,061,420
960,000 6 1/2s, August 15, 2005 960,902
4,375,000 6 1/8s, December 31, 2001 4,348,356
--------------
222,461,964
--------------
Total U.S. Government and Agency Obligations
(cost $431,504,273) $ 425,501,578
CORPORATE BONDS AND NOTES (12.8%) *
PRINCIPAL AMOUNT VALUE
Advertising (--%)
- ---------------------------------------------------------------------------------------------------------
$ 275,000 Adams Outdoor Advertising, L.P. sr. notes 10 3/4s, 2006 $ 294,250
195,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 199,388
45,000 Outdoor Systems, Inc. sr. sub. notes 9 3/8s, 2006 45,900
800,000 Universal Outdoor, Inc. sr. sub. notes 9 3/4s, 2006 820,000
--------------
1,359,538
Aerospace and Defense (0.1%)
- ---------------------------------------------------------------------------------------------------------
440,000 Alliant Techsystems, Inc. sr. sub. notes 11 3/4s, 2003 492,800
350,000 BE Aerospace sr. notes 9 3/4s, 2003 364,000
70,000 Hawk Corp. 144A sr. notes 10 1/4s, 2003 71,225
915,000 Howmet Corp. sr. sub. notes 10s, 2003 997,350
105,000 Sequa Corp. bonds 8 3/4s, 2001 105,000
235,000 Sequa Corp. sr. notes 9 5/8s, 1999 242,050
300,000 Wyman-Gordon Co. sr. notes 10 3/4s, 2003 318,000
--------------
2,590,425
Agriculture (--%)
- ---------------------------------------------------------------------------------------------------------
525,000 AGCO Corp. sr. sub. notes 8 1/2s, 2006 530,250
242,548 Premium Standard Farms, Inc. sr. secd. notes 11s, 2003 256,495
--------------
786,745
Automotive (0.1%)
- ---------------------------------------------------------------------------------------------------------
486,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 543,105
15,000 Aftermarket Technology Corp. sr. sub. notes, Ser. D 12s, 2004 16,763
300,000 APS Holding, Inc. company guaranty 11 7/8s, 2006 318,000
180,000 CSK Auto, Inc. 144A sr. sub. notes 11s, 2006 189,000
1,130,000 Daimler-Benz AG med. term notes company guaranty
7 3/8s, 2006 (Germany) 1,151,606
625,000 Exide Corp. sr. notes 10s, 2005 646,094
240,000 Harvard Industries Inc. sr. notes 11 1/8s, 2005 182,400
300,000 Key Plastics Corp. sr. notes 14s, 1999 319,500
390,000 Lear Corp. sub. notes 9 1/2s, 2006 409,500
40,000 Safelite Glass Corp. 144A sr. sub. notes 9 7/8s, 2006 41,100
--------------
3,817,068
Banks (1.9%)
- ---------------------------------------------------------------------------------------------------------
2,620,000 Abbey National PLC sub. notes 7.35s, 2049
(United Kingdom) 2,634,174
5,950,000 Advanta National Bank sr. notes 7.02s, 2001 5,945,121
3,800,000 Bangkok Bank Public Co. 144A sub. notes
8 3/8s, 2027 (Thailand) 3,800,000
3,305,000 Bangkok Bank Public Co. 144A sub. notes
8 1/4s, 2016 (Thailand) 3,329,821
695,000 Chevy Chase Savings Bank Inc. sub. deb.
9 1/4s, 2005 715,850
5,000,000 Citicorp sub. notes 7 1/8s, 2005 5,010,250
3,225,000 Den Danske Bank 144A sub. notes
6.55s, 2003 (Denmark) 3,138,602
4,015,000 Firstar Capital Trust I 144A bonds 8.32s, 2026 4,085,985
1,125,000 First National Bank of Omaha sub. notes 7.32s, 2010 1,087,785
350,000 First Nationwide Holdings sr. sub. notes 9 1/8s, 2003 358,750
535,000 First Nationwide Holdings 144A sr. sub. notes
10 5/8s, 2003 580,475
1,500,000 Merita Bank Ltd. sub. notes 6 1/2s, 2006 (Finland) 1,426,875
1,090,000 NationsBank Corp. sub. notes 7 1/4s, 2025 1,040,939
140,000 North Fork Bancorp, Inc. 144A bonds 8.7s, 2026 140,000
155,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 170,500
90,000 Ocwen Financial Corp. notes 11 7/8s, 2003 98,325
3,965,000 Peoples Bank Bridgeport sub. notes 7.2s, 2006 3,854,020
175,000 Peoples Heritage Capital Trust 144A company
guaranty 9.06s, 2027 175,875
335,000 Provident Capital Trust 144A jr. sub. notes 8.6s, 2026 340,025
90,000 Riggs Capital Trust 144A bonds 8 5/8s 90,000
3,750,000 Riggs National Corp. sub. deb. 8 1/2s, 2006 3,937,500
2,000,000 Society Bank & Trust notes 12 1/2s, 1999 2,275,600
1,795,000 Sparbanken Sverige AB (Swedbank) 144A sub. deb.
7 1/2s, 2006 (Sweden) 1,787,353
2,400,000 State Development Bank of China deb. 7 3/8s, 2007 (China) 2,402,160
2,195,000 State Street Institution 144A company guaranty 7.94s, 2026 2,179,635
120,000 Webster Capital Trust I 144A bonds 9.36s, 2027 120,860
5,090,000 Webster Financial Corp. sr. notes 8 3/4s, 2000 5,261,024
--------------
55,987,504
Basic Industrial Products (--%)
- ---------------------------------------------------------------------------------------------------------
90,000 Astor Corp. 144A sr. sub. notes 10 1/2s, 2006 92,025
350,000 Clark-Schwebel sr. notes 10 1/2s, 2006 369,250
800,000 Inter-City Products sr. notes 9 3/4s, 2000 808,000
--------------
1,269,275
Broadcasting (0.2%)
- ---------------------------------------------------------------------------------------------------------
10,000 Allbritton Communications Co. sr. sub. deb. 11 1/2s, 2004 10,625
440,000 Argyle Television Corp. sr. sub. notes 9 3/4s, 2005 448,800
800,000 Chancellor Radio Broadcasting sr. sub. notes 9 3/8s, 2004 806,000
600,000 Commodore Media, Inc. sr. sub. notes stepped-coupon
7 1/2s, (13 1/4s, 5/1/98), 2003 ++ 633,000
350,000 Echostar Communications Corp. sr. disc. notes
stepped-coupon zero % (12 7/8s, 6/1/99), 2004 ++ 289,625
45,000 Gray Communications Systems, Inc. sr. sub. notes
10 5/8s, 2006 47,925
115,000 Heritage Media Corp. sr. sub. notes 8 3/4s, 2006 109,825
100,000 Jacor Communications Co. company guaranty
9 3/4s, 2006 103,000
815,000 Jacor Communications, Inc. sr. sub. notes 10 1/8s, 2006 851,675
124,000 New City Broadcasting Corp. sr. sub. notes 11 3/8s, 2003 137,330
165,000 Park Broadcasting, Inc. sr. notes Ser. B, 11 3/4s, 2004 199,650
200,000 Pegasus Media & Communications notes
Ser. B, 12 1/2s, 2005 220,000
60,000 SFX Broadcasting, Inc. sr. sub. notes Ser. B, 10 3/4s, 2006 63,600
425,000 Sinclair Broadcasting Group sr. sub. notes 10s, 2005 435,625
550,000 Sullivan Broadcasting sr. sub. notes 10 1/4s, 2005 554,125
--------------
4,910,805
Building and Construction (0.2%)
- ---------------------------------------------------------------------------------------------------------
175,000 Atrium Companies Inc. 144A sr. sub. notes 10 1/2s, 2006 179,813
60,000 Building Materials Corp. 144A sr. notes 8 5/8s, 2006 60,000
285,000 Cemex S.A. 144A bonds 12 3/4s, 2006 (Mexico) 325,969
90,000 Clark Material Handling Co. 144A sr. notes 10 3/4s, 2006 93,825
140,000 Congoleum Corp. sr. notes 9s, 2001 138,600
285,000 Continental Homes Holding Corp. sr. notes 10s, 2006 294,263
510,000 Ispat Mexicana 144A deb. 10 3/8s, 2001 (Mexico) 524,025
475,000 Schuller International Corp. sr. notes 10 7/8s, 2004 524,875
820,000 Scotsman Group, Inc. sr. secd. notes 9 1/2s, 2000 844,600
475,000 Terex Corp. sr. notes Ser. B, 13 1/4s, 2002 524,875
795,000 Triangle Pacific Corp. sr. notes 10 1/2s, 2003 852,638
90,000 Webb (Del E.) Corp. sr. sub. notes 9 3/4s, 2008 91,013
--------------
4,454,496
Business Equipment and Services (0.1%)
- ---------------------------------------------------------------------------------------------------------
115,000 Aramark Corp. sub. notes 8 1/2s, 2003 117,588
470,000 Corporate Express, Inc. sr. sub. notes Ser. B, 9 1/8s, 2004 479,400
150,000 Intertek Finance PLC 144A sr. sub. notes 10 1/4s, 2006
(United Kingdom) 157,500
60,000 Iron Mountain, Inc. company guaranty 10 1/8s, 2006 63,600
45,000 Loomis Fargo & Co. 144A sr. sub. notes 10s, 2004 45,900
930,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 1,020,675
600,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 666,000
--------------
2,550,663
Cable Television (0.5%)
- ---------------------------------------------------------------------------------------------------------
750,000 Adelphia Communications Corp. sr. notes 12 1/2s, 2002 768,750
155,000 Adelphia Communications Corp. notes Ser. B, 9 7/8s, 2005 145,700
155,000 Century Communications Corp. sr. notes 9 1/2s, 2005 158,488
235,000 Comcast Corp. sr. sub. notes 9 1/2s, 2008 240,875
4,825,000 Continental Cablevision, Inc. sr. deb. 9 1/2s, 2013 5,473,673
565,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) ++ 398,325
275,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (13 1/2s, 9/30/99), 2004
(United Kingdom) ++ 222,750
450,000 Heartland Wireless Communications, Inc. 144A sr. notes
14s, 2004 472,500
1,505,000 International Cabletel, Inc. sr. notes stepped-coupon
Ser. B, zero % (11 1/2s, 2/1/01), 2006 ++ 1,008,350
400,000 Jones Intercable, Inc. sr. sub. deb. 10 1/2s, 2008 432,000
575,000 Jones Intercable, Inc. sr. notes 9 5/8s, 2002 600,875
500,000 Lenfest Communications, Inc. sr. sub. notes 10 1/2s, 2006 530,000
500,000 Lenfest Communications, Inc. sr. notes 8 3/8s, 2005 480,000
125,000 Marcus Cable Co. (L.P.) sr. deb. 11 7/8s, 2005 133,750
1,250,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes
stepped-coupon zero % (13 1/2s, 8/1/99), 2004 ++ 1,031,250
150,000 Rogers Cablesystems Ltd. deb. 10 1/8s, 2012 (Canada) 156,000
50,000 Rogers Cablesystems Ltd. notes 11s, 2015 (Canada) 53,750
625,000 Rogers Cablesystems Ltd. sr. notes
Ser. B, 10s, 2005 (Canada) 659,375
1,055,000 Telewest Communications PLC deb. stepped-coupon
zero % (11s, 10/1/00), 2007 (United Kingdom) ++ 722,675
95,000 TV Filme, Inc. 144A sr. notes 12 7/8s, 2004 (Brazil) 96,069
585,000 Videotron Holdings. sr. disc. notes stepped-coupon
zero % (11s, 8/15/00), 2005 (United Kingdom) ++ 462,150
175,000 Wireless One, Inc. sr. notes 13s, 2003 172,813
--------------
14,420,118
Chemicals (0.4%)
- ---------------------------------------------------------------------------------------------------------
750,000 Arcadian Partner sr. notes 10 3/4s, 2005 819,375
80,000 Freedom Chemicals, Inc. 144A sr. sub. notes 10 5/8s, 2006 84,600
445,000 Great Lakes Carbon Corp. sr. notes 10s, 2006 471,700
810,000 Harris Chemical Corp. sr. sub. notes 10 3/4s, 2003 844,425
550,000 IMC Fertilizer Group, Inc. deb. 9.45s, 2011 649,000
1,640,000 Lyondell Petrochemical Co. notes 9 1/8s, 2002 1,777,793
3,380,000 Millennium America Inc. company guaranty 7 5/8s, 2026 3,250,647
250,000 NL Industries, Inc. sr. notes stepped-coupon zero %
(13s, 10/15/98), 2005 ++ 216,250
1,610,000 Sociedad Quimica Y Minera de Chile S.A. 144A
bonds 7.7s, 2006 (Chile) 1,642,200
525,000 Sterling Chemicals Holdings sr. disc. notes
stepped-coupon zero % (13 1/2s, 8/15/01), 2008 ++ 317,625
700,000 Union Carbide Global Enterprises sr. sub. Ser. B, 12s, 2005 801,500
--------------
10,875,115
Computer Services and Software (--%)
- ---------------------------------------------------------------------------------------------------------
225,000 Computervision Corp. sr. sub. notes 11 3/8s, 1999 232,875
265,000 Unisys Corp. sr. notes 11 3/4s, 2004 285,538
--------------
518,413
Conglomerates (--%)
- ---------------------------------------------------------------------------------------------------------
375,000 ADT Ltd. sr. sub. notes 9 1/4s, 2003 395,625
465,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes
13s, 1999 465,000
--------------
860,625
Consumer Durable Goods (--%)
- ---------------------------------------------------------------------------------------------------------
100,000 Remington Products Co. sr. sub. notes Ser. B, 11s, 2006 89,250
165,000 Selmer Co., Inc. sr. sub. notes 11s, 2005 178,200
--------------
267,450
Consumer Non Durables (--%)
- ---------------------------------------------------------------------------------------------------------
460,000 Coty Inc. gtd. sr. sub. notes 10 1/4s, 2005 499,100
75,000 E&S Holdings Corp. 144A sr. sub. notes 10 3/8s, 2006 78,469
180,000 Foamex (L.P.) Capital Corp. sr. sub. deb. 11 7/8s, 2004 194,850
600,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 615,000
--------------
1,387,419
Consumer Services (0.1%)
- ---------------------------------------------------------------------------------------------------------
70,000 AmeriKing Inc. sr. notes 10 3/4s, 2006 72,800
100,000 Cablevision Systems Corp. sr. sub. deb. 9 7/8s, 2023 97,000
513,750 Coinmach Corp. sr. notes Ser. B, 11 3/4s, 2005 559,345
580,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 604,650
490,000 Host Marriott Travel Plazas sr. notes Ser. B, 9 1/2s, 2005 509,600
90,000 Rose Hills Acquistion Corp. 144A sr. sub. notes
9 1/2s, 2004 92,700
325,000 Specialty Retailers, Inc. sr. sub. notes 11s, 2003 334,750
--------------
2,270,845
Electronics and Electrical Equipment (0.1%)
- ---------------------------------------------------------------------------------------------------------
775,000 Amphenol Corp. sr. notes 10.45s, 2001 843,316
110,000 Celestica International Ltd. 144A sr. sub. notes
10 1/2s, 2006 (India) 118,250
133,984 Cirent Semiconductor sr. sub. notes 10.22s, 2002 133,984
134,534 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 134,534
350,000 Health O Meter Products, Inc. sr. sub. notes 13s, 2002 382,375
625,000 International Semi-Tech. Corp. sr. secd. disc. notes
stepped-coupon zero % (11 1/2s, 8/15/00),
2003 (Canada) ++ 368,750
190,000 Motors and Gears Inc. 144A sr. notes Ser. A, 10 3/4s, 2006 195,700
--------------
2,176,909
Entertainment (0.8%)
- ---------------------------------------------------------------------------------------------------------
145,000 Alliance Gaming Corp. sr. notes 12 7/8s, 2003 155,150
425,000 Argosy Gaming Co. 1st mtge. 13 1/4s, 2004 354,875
375,000 Arizona Charlies Corp. 1st mtge. Ser. B, 12s, 2000 + 262,500
470,000 Casino America, Inc. sr. notes 12 1/2s, 2003 462,950
155,000 Casino Magic of Louisiana Corp. 144A 1st mtge. 13s, 2003 155,000
850,000 Coast Hotels & Casinos, Inc. company guaranty
Ser. B, 13s, 2002 945,625
475,000 Empress River Casino sr. notes 10 3/4s, 2002 510,625
625,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 640,625
325,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 316,875
685,000 Lady Luck Gaming 1st mtge. 11 7/8s, 2001 678,150
500,000 Mohegan Tribal Gaming sr. secd. notes,
Ser. B, 13 1/2s, 11/15/02 662,500
6,240,000 News America Holdings, Inc. deb. 7.7s, 2025 5,839,205
500,000 Players International Inc. sr. notes 10 7/8s, 2005 512,500
935,000 Premier Parks, Inc. sr. notes Ser. A, 12s, 2003 1,049,538
790,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 537,200
975,000 Six Flags Corp. sr. sub. notes stepped-coupon zero %
(12 1/4s, 6/15/98), 2005 ++ 933,563
295,000 Cinemark USA Inc. sr. sub. notes Ser. B, 9 5/8s, 2008 300,163
2,120,000 Time Warner Entertainment Co. notes 8 7/8s, 2012 2,304,673
6,120,000 Time Warner Entertainment Co. deb. 7 1/4s, 2008 5,954,882
475,000 Trump A.C. 1st mtge. 11 1/4s, 2006 458,375
625,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 715,625
1,350,000 Viacom International, Inc. sub. deb. 8s, 2006 1,309,500
--------------
25,060,099
Environmental Control (--%)
- ---------------------------------------------------------------------------------------------------------
195,000 Allied Waste Industries, Inc. 144A sr. sub. notes
10 1/4s, 2006 207,675
Food and Beverages (0.1%)
- ---------------------------------------------------------------------------------------------------------
445,000 Canandaigua Wine Co. 144A sr. sub. notes 8 3/4s, 2003 442,775
225,000 Chiquita Brands sr. notes 9 5/8s, 2004 231,750
580,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 623,500
1,585,000 RJR Nabisco, Inc. notes 8 3/4s, 2005 1,607,729
250,000 Specialty Foods Corp. sr. notes Ser. B, 10 1/4s, 2001 237,500
595,000 Stater Brothers sr. notes 11s, 2001 642,600
--------------
3,785,854
Health Care (0.4%)
- ---------------------------------------------------------------------------------------------------------
2,320,000 Columbia Healthcare Corp. deb. 8.36s, 2024 2,555,434
280,000 Genesis Health Ventures, Inc. 144A sr. sub. notes
9 1/4s, 2006 287,000
265,000 IMED Corp. sr. sub. notes 9 3/4s, 2006 270,300
525,000 Integrated Health Services sr. sub. notes 10 3/4s, 2004 559,125
115,000 Integrated Health Services sr. sub. notes 9 5/8s, 2002 118,450
315,000 Magellan Health Services, Inc. sr. sub. deb.
Ser. A, 11 1/4s, 2004 347,288
900,000 Merit Behavioral Care sr. sub. notes 11 1/2s, 2005 976,500
525,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 509,250
330,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 334,538
150,000 Tenet Healthcare Corp. sr. notes 8 5/8s, 2003 156,000
4,160,000 Tenet Healthcare Corp. sr. notes 8s, 2005 4,160,000
--------------
10,273,885
Insurance and Finance (2.2%)
- ---------------------------------------------------------------------------------------------------------
130,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 132,600
625,000 AIM Management Group sr. secd. notes 9s, 2003 671,875
1,500,000 AMBAC Indemnity Corp. deb. 9 3/8s, 2011 1,785,090
90,000 Colonial Capital Trust I 144A company guaranty
8.92s, 2027 91,308
2,810,000 Conseco Inc. sr. notes 10 1/2s, 2004 3,314,817
820,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 836,400
2,905,000 Discover Credit Corp. med. term notes 9.07s, 2012 3,344,410
90,000 Dollar Financial Group Inc. 144A sr. notes
10 7/8s, 2006 93,600
4,600,000 Executive Risk Capital Trust 144A company guaranty
8 5/8s, 2027 4,600,000
1,880,000 First Financial Caribbean Corp. sr. notes 7.84s, 2006 1,883,553
6,615,000 Ford Motor Credit Corp. notes 8.2s, 2002 7,023,476
100,000 Imperial Credit Industries, Inc. 144A sr. notes 9 7/8s, 2007 102,000
205,000 Investors Capital Trust, Inc. PLC 144A deb. 9.77s, 2027
(United Kingdom) 205,000
6,225,000 Lehman Bros. Holdings, Inc. med. term notes 6.4s, 1999 6,183,915
3,775,000 Markel Capital Trust I 144A company guaranty
8.71s, 2046 3,832,833
110,000 Olympic Financial Ltd. sr. notes 13s, 2000 124,300
2,000,000 Orion Capital Corp. sr. notes 9 1/8s, 2002 2,199,300
100,000 Outsourcing Solutions Inc. 144A sr. sub. notes 11s, 2006 106,000
4,825,000 Phoenix Home Life Mutual Insurance Co.
144A notes 6.95s, 2006 4,702,735
325,000 Phoenix Re Corp. sr. notes 9 3/4s, 2003 350,269
575,000 Primark Corp. sr. notes 8 3/4s, 2000 588,656
535,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 551,050
255,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 2003 267,750
3,450,000 Salton Sea Funding Corp. company guaranty
Ser. E, 8.3s, 2011 3,557,123
5,225,000 Sampoerna International Finance Co. 144A company
guaranty 8 3/8s, 2006 (Indonesia) 5,278,452
3,195,000 Southern Investments Service Co. sr. notes 6.8s, 2006
(United Kingdom) 3,110,556
5,270,000 Tig Capital Trust I 144A bonds 8.597s, 2027 5,289,763
4,745,000 Trenwick Capital Trust I 144A bonds 8.82s, 2037 4,863,625
--------------
65,090,456
Lodging (--%)
- ---------------------------------------------------------------------------------------------------------
547,000 John Q Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 541,530
Medical Supplies and Devices (--%)
- ---------------------------------------------------------------------------------------------------------
150,000 Dade International, Inc. sr. sub. notes
Ser. B, 11 1/8s, 2006 162,000
625,000 Graphic Controls Corp. sr. sub. notes
Ser. A, 12s, 2005 692,188
250,000 Wright Medical Technology, Inc. sr. secd. notes
Ser. B, 10 3/4s, 2000 252,500
--------------
1,106,688
Metals and Mining (0.3%)
- ---------------------------------------------------------------------------------------------------------
180,000 AK Steel Corp. 144A sr. notes 9 1/8s, 2006 184,050
895,000 Maxxam Group Holdings Inc. 144A sr. notes 12s, 2003 915,138
3,765,000 Noranda Inc. notes 7s, 2005 (Canada) 3,696,477
3,870,000 PT Alatief Freeport sr. notes 9 3/4s, 2001 (Indonesia) 4,216,210
115,000 Renco Metals, Inc. sr. notes 11 1/2s, 2003 120,750
120,000 Royal Oak Mines Inc. company guaranty
Ser. B, 11s, 2006 (Canada) 118,800
265,000 WCI Steel, Inc. 144A sr. notes 10s, 2004 272,950
--------------
9,524,375
Motion Picture Distribution (--%)
- ---------------------------------------------------------------------------------------------------------
665,000 Act III Theatres, Inc. sr. sub. notes 11 7/8s, 2003 724,850
140,000 Cobb Theatres LLC company guaranty 10 5/8s, 2003 147,525
100,000 United Artists notes 11 1/2s, 2002 105,125
--------------
977,500
Oil and Gas (0.8%)
- ---------------------------------------------------------------------------------------------------------
145,000 Abraxas Petrolem Corp. 144A sr. notes 11 1/2s, 2004 156,600
250,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 276,875
100,000 Chesapeake Energy Corp. sr. notes 10 1/2s, 2002 108,125
150,000 Chesapeake Energy Corp. sr. notes 9 1/8s, 2006 154,875
95,000 CIA Naviera Perez Companc S.A. 144A bonds
9s, 2004 (Argentina) 95,000
50,000 Costilla Energy, Inc. sr. notes 10 1/4s, 2006 53,000
2,440,000 El Paso Natural Gas Co. deb. 7 1/2s, 2026 2,404,156
135,000 Flores & Rucks, Inc. sr. notes 13 1/2s, 2004 160,988
265,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 281,563
145,000 Forcenergy, Inc. sr. sub. notes 9 1/2s, 2006 150,800
3,205,000 Gulf Canada Resources, Ltd. sr. notes 8.35s, 2006
(Canada) 3,317,175
100,000 HS Resources, Inc. 144A sr. sub. notes 9 1/4s, 2006 102,000
3,920,000 Husky Oil Ltd. deb. 7.55s, 2016 (Canada) 3,874,097
130,000 Kelley Oil & Gas Corp. 144A sr. sub. notes 10 3/8s, 2006 137,800
250,000 Maxus Energy Corp. global notes 9 7/8s, 2002 260,000
150,000 Maxus Energy Corp. med. term notes 10.83s, 2004 164,250
550,000 Maxus Energy Corp. notes 9 1/2s, 2003 566,500
100,000 Maxus Energy Corp. notes 9 3/8s, 2003 104,250
155,000 Parker Drilling Co. 144A company guaranty 9 3/4s, 2006 162,750
3,000,000 Petro-Canada deb. 9 1/4s, 2021 (Canada) 3,574,140
1,915,000 Petroliam Nasional Berhad 144A notes
7 5/8s, 2026 (Malaysia) 1,923,369
4,140,000 Petroliam Nasional Berhad 144A notes
7 1/8s, 2005 (Malaysia) 4,140,207
65,000 Texas Petrochemical Corp. sr. sub. notes 11 1/8s, 2006 69,875
694,000 Transtexas Gas Corp. sr. disc. notes stepped-coupon
zero %, (13 1/4s, 12/16/01), 2003 ++ 437,220
435,000 Transtexas Gas Corp. sr. secd. notes 11 1/2s, 2002 477,413
550,000 Triton Energy sr. sub. disc. notes 9 3/4s, 2000 577,500
40,000 Vintage Petroleum, Inc. sr. sub. notes 8 5/8s, 2009 39,663
--------------
23,770,191
Packaging and Containers (0.1%)
- ---------------------------------------------------------------------------------------------------------
75,000 Amtrol, Inc. 144A sr. sub. notes 10 5/8s, 2006 77,625
75,000 Ivex Holdings Corp. sr. disc. deb. stepped-coupon zero %
(13 1/4s, 3/15/00), 2005 ++ 60,000
900,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 974,250
250,000 Owens Illinois, Inc. deb. 11s, 2003 278,125
165,000 Owens Illinois, Inc. sr. sub. notes 9 3/4s, 2004 174,075
105,000 Printpack, Inc. 144A sr. notes 9 7/8s, 2004 109,725
90,000 Radnor Holdings Corp. 144A sr. notes 10s, 2003 91,575
1,015,000 Riverwood International company guaranty 10 7/8s, 2008 877,975
90,000 US Can Corp. 144A sr. sub. notes 10 1/8s, 2006 94,500
--------------
2,737,850
Paper and Forest Products (0.2%)
- ---------------------------------------------------------------------------------------------------------
135,000 APP International Finance Co. notes 11 3/4s, 2005
(Netherlands) 146,644
975,000 Doman Industries Ltd. sr. notes 8 3/4s, 2004 (Canada) 921,375
300,000 Domtar, Inc. deb. 9 1/2s, 2016 (Canada) 321,750
365,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 2003 390,550
325,000 Rainy River Forest Products, Inc. sr. notes 10 3/4s, 2001
(Canada) 351,813
1,150,000 Repap New Brunswick sr. notes 10 5/8s, 2005
(Canada) 1,135,625
550,000 Stone Consolidated Corp. sr. notes 10 1/4s, 2000 (Canada) 581,625
500,000 Stone Container Corp. sr. notes 11 7/8s, 2016 (Canada) 535,000
--------------
4,384,382
Publishing (--%)
- ---------------------------------------------------------------------------------------------------------
925,000 American Media Operation, Inc. sr. sub. notes
11 5/8s, 2004 989,750
REITs (0.4%)
- ---------------------------------------------------------------------------------------------------------
1,015,000 American Health Properties, Inc. notes 7 1/2s, 2007 1,007,070
760,000 American Health Properties, Inc. notes 7.05s, 2002 754,063
1,685,000 Health Care Property Investors, Inc. sr. notes 6 1/2s, 2006 1,590,674
4,255,000 Meditrust med. term notes 7.3s, 2006 4,195,898
750,000 Prime Hospitality Corp. 1st mtge. 9 1/4s, 2006 757,500
3,050,000 Sun Communities, Inc. sr. notes 7 5/8s, 2003 3,099,837
645,000 Tanger Properties (L.P.) gtd. notes 8 3/4s, 2001 645,206
--------------
12,050,248
Retail (0.4%)
- ---------------------------------------------------------------------------------------------------------
470,000 Brylane (L.P.) sr. sub. notes 10s, 2003 486,450
3,035,000 Federated Department Stores sr. notes 8 1/2s, 2003 3,160,953
475,000 Finlay Enterprises, Inc. sr. notes 10 5/8s, 2003 503,500
325,000 Loehmanns, Inc. sr. notes 11 7/8s, 2003 351,000
725,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 768,500
350,000 Phar-Mor, Inc. sr. notes 11.72s, 2002 367,500
500,000 Safeway, Inc. med. term notes 8.57s, 2003 526,300
2,000,000 Sears, Roebuck & Co. med. term notes 9.1s, 2012 2,322,440
1,090,000 Southland Corp. 1st priority sr. sub. deb. 5s, 2003 893,800
300,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 229,500
120,000 Supermercados Norte 144A bonds 10 7/8s, 2004
(Argentina) 121,500
575,000 Waban, Inc. sr. sub. notes 11s, 2004 638,250
--------------
10,369,693
Specialty Consumer Products (--%)
- ---------------------------------------------------------------------------------------------------------
125,000 Genesco, Inc. sr. notes 10 3/8s, 2003 128,125
225,000 Herff Jones, Inc. sr. sub. notes 11s, 2005 239,625
320,000 Sassco Fashions Ltd. 144A notes 12 3/4s, 2003 315,200
--------------
682,950
Telecommunications (0.7%)
- ---------------------------------------------------------------------------------------------------------
4,810,000 360 Communications Co. sr. notes 7 1/2s, 2006 4,794,223
1,100,000 Arch Communications Group sr. disc.
notes stepped-coupon zero % (10 7/8s, 3/15/01),
2008 ++ 602,250
1,005,000 Call-Net Enterprises sr. disc. notes stepped-coupon
zero % (13 1/4s, 12/1/99), 2004 (Canada)++ 834,150
165,000 CCPR Services, Inc. 144A company guaranty 10s, 2007 165,206
250,000 Cencall Communications Corp. sr. disc. notes
stepped-coupon zero % (10 1/8s, 1/15/99), 2004 ++ 175,625
700,000 Centennial Cellular Corp. sr. notes 8 7/8s, 2001 686,000
910,000 Dial Call Communications, Inc. sr. disc. notes
Ser. B stepped-coupon zero % (10 1/4s, 12/15/98),
2005 ++ 639,275
1,825,000 Dial Call Communications, Inc. sr. disc. notes stepped-
coupon zero % (12 1/4s, 4/15/99), 2004 ++ 1,377,875
335,000 Fonorola, Inc. sr. notes 12 1/2s, 2002 (Canada) 366,825
105,000 Frontiervision Operating Partners L.P. sr. sub. notes
11s, 2006 108,150
330,000 Globo Communicacoes 144A company guaranty
10 1/2s, 2006 (Brazil) 336,600
700,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 5/1/01), 2006 ++ 444,500
1,000,000 Intermedia Communications, Inc. sr. disc. notes stepped-
coupon zero % (12 1/2s, 5/15/01), 2006 ++ 675,000
250,000 Intermedia Communications, Inc. sr. notes
Ser. B, 13 1/2s, 2005 284,375
520,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 442,000
2,300,000 MFS Communications sr. disc. notes stepped-coupon
zero % (8 7/8s, 1/1/01), 2006 ++ 1,690,500
1,490,000 MFS Communications sr. disc. notes stepped-coupon
zero % (9 3/8s, 1/15/99), 2004 ++ 1,300,025
850,000 Millicom International Cellular S.A. sr. disc. notes stepped-
coupon zero % (13 1/2s, 6/1/01), 2006 (Luxembourg) ++ 554,625
705,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 690,900
1,800,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (9 3/4s, 2/15/99), 2004 ++ 1,269,000
850,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (11 1/2s, 9/1/98), 2003 ++ 684,250
700,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 724,500
215,000 Orbcomm Global Capital Corp. sr. notes
Ser. B, 14s, 2004 218,763
325,000 Paging Network, Inc. sr. sub. notes 10s, 2008 326,625
600,000 Pricellular Wireless Corp. sr. notes 10 3/4s, 2004 628,500
80,000 Pronet, Inc. sr. sub. notes 11 7/8s, 2005 74,400
1,545,000 Teleport Communications Group Inc. sr. disc. notes
stepped-coupon zero % (11 1/8s, 7/1/01), 2007 ++ 1,058,325
85,000 TV Azteca, S.A. 144A sr. notes 10 1/2s, 2007 (Mexico) 85,000
--------------
21,237,467
Textiles (--%)
- ---------------------------------------------------------------------------------------------------------
75,000 Collins & Aikman Corp. 144A sr. sub. notes 10s, 2007 76,125
245,000 Polysindo International Finance company guaranty
11 3/8s, 2006 (Indonesia) 257,250
250,000 Tultex Corp. sr. notes 10 5/8s, 2005 268,125
--------------
601,500
Transportation (0.3%)
- ---------------------------------------------------------------------------------------------------------
55,000 Atlantic Express Transportation Corp. company guaranty
Ser. AI, 10 3/4s, 2004 56,513
115,000 Blue Bird Body Co. sr. sub. notes Ser. B, 10 3/4s, 2006 120,750
4,275,000 Burlington Northern Santa Fe notes 6 3/8s, 2005 4,072,835
785,000 Consorcio/MCII Holdings sec. notes stepped-coupon
zero % (12s, 11/15/98), 2002 ++ 667,250
550,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s,
2003 (Greece) 551,375
235,000 Greenwich Air Services, Inc. sr. notes 10 1/2s, 2006 251,450
350,000 International Shipholding Corp. sr. notes 9s, 2003 358,312
100,000 Newport News Shipbuilding 144A sr. notes 8 5/8s,
2006 103,000
90,000 Newport News Shipbuilding 144A sr. sub. notes
9 1/4s, 2006 93,600
2,000,000 Southwest Airlines Co. deb. 7 7/8s, 2007 2,105,060
300,000 Viking Star Shipping sr. secd. notes 9 5/8s, 2003 313,875
--------------
8,694,020
Utilities (2.4%)
- ---------------------------------------------------------------------------------------------------------
330,000 AES China Generating Co. sr. notes 10 1/8s, 2006
(China) 343,200
2,705,000 Arizona Public Service Co. sr. notes 6 3/4s, 2006 2,641,081
4,035,000 California Energy Corp. disc. notes 10 1/4s, 2005 4,317,450
2,615,000 Citizens Utilities Co. bonds 7.68s, 2034 2,850,324
1,195,000 Commonwealth Edison notes 7 3/8s, 2004 1,197,988
2,345,000 Connecticut Light & Power Co. 1st mtge.
Ser. A, 7 7/8s, 2001 2,373,750
1,160,000 Edison Mission Energy 144A company guaranty
7.33s, 2008 1,161,450
4,835,000 EIP Funding-Public Service Co. of New Mexico deb.
10 1/4s, 2012 5,310,426
6,040,000 El Paso Electric Co. 1st mtge. Ser. B, 7 3/4s, 2001 6,126,432
400,000 El Paso Electric Co. 1st mtge. Ser. D, 8.9s, 2006 417,836
200,000 Empresa Distribuidora Norte 144A notes 9 3/4s,
2001 (Argentina) 207,000
2,810,000 Enersis S.A. ADR notes 7.4s, 2016 (Chile) 2,731,713
2,970,000 Enersis S.A. ADR notes 6.6s, 2026 (Chile) 2,903,116
240,000 First PV Funding deb. 10.15s, 2016 254,400
183,000 First PV Funding deb. Ser. 86A, 10.3s, 2014 194,438
65,000 Hidro Pierda Aguila 144A bonds 10 5/8s, 2001
(Argentina) 67,925
1,620,000 Illinova Corp. notes 7 1/8s, 2004 1,609,940
3,745,000 Israel Electric Corp., Ltd. 144A sr. notes 7 1/4s, 2006
(Israel) 3,712,493
135,000 Long Island Lighting Co. deb. 9s, 2022 144,140
230,000 Long Island Lighting Co. refunding mtge. notes 9 3/4s,
2021 236,900
2,194,955 Midland Cogeneration Ventures deb. 10.33s, 2002 2,332,141
365,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 407,293
90,000 Niagara Mohawk Power Corp. 1st mtge. 7 3/4s, 2006 85,646
675,000 Niagara Mohawk Power Corp. med. term notes 9.95s,
2000 668,250
1,133,807 Northeast Utilities System notes Ser. A, 8.58s, 2006 1,075,983
4,194,667 Northeast Utilities System notes Ser. B, 8.38s, 2005 4,149,784
1,750,000 Ras Laffan Natural Gas 144A sec. notes 8.294s, 2014
(Qatar) 1,770,234
3,440,000 Ras Laffan Natural Gas 144A sec. notes 7.628s, 2006
(Qatar) 3,470,100
250,000 Texas New-Mexico Power Utilities deb. 12 1/2s, 1999 273,058
3,925,000 Texas New-Mexico Power Utilities 1st mtge. 9 1/4s, 2000 4,128,158
4,100,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 4,079,992
5,095,000 Texas Utilities Electric Capital Trust V company guaranty
8.175s, 2037 5,056,788
4,230,000 US West Capital Funding, Inc. company guaranty
6.95s, 2037 4,225,728
--------------
70,525,157
--------------
Total Corporate Bonds and Notes
(cost $376,078,262) $ 383,114,683
FOREIGN GOVERNMENT BONDS AND NOTES (2.4%) *
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
AUD 17,260,000 Australia (Government of) bonds 7 1/2s, 2005 $ 13,247,661
CAD 16,080,000 Canada (Government of) bonds 4s, 1999 11,859,731
USD 8,025,000 Quebec (Province of) deb. Ser. NN, 7 1/8s,
2024 7,567,094
USD 32,720,000 Bank of Foreign Economic Affairs of Russia
(Vnesheconombank) principal loan 144A
8s, 2020+##+++ 18,895,800
ZAR 41,480,000 South Africa (Republic of) bonds
Ser. 153, 13s, 2010 7,870,144
GBP 7,175,000 United Kingdom Exchequer foreign
government guaranty 9 3/4s, 1998 11,844,068
--------------
Total Foreign Government Bonds and Notes
(cost $70,455,174) $ 71,284,498
BRADY BONDS (1.6%) *
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
$ 12,176,500 Argentina (Republic of) FRB 6 5/8s, 2005 $ 10,928,409
20,520,000 United Mexican States FRB Ser. D, 6.352s, 2019 18,673,200
20,750,000 Venezuela (Government of) FRN 6 1/2s, 2007 18,752,813
--------------
Total Brady Bonds (cost $46,756,296) $ 48,354,422
COLLATERALIZED MORTGAGE OBLIGATIONS (1.3%) *
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
Chase Mortgage Finance Corp.
$ 1,842,286 Ser. 93-3, Class B13, 7.461s, 2024 $ 1,145,096
2,202,992 Ser. 94-G, Class B2, 7s, 2025 2,057,044
1,374,566 GE Capital Mortgage Services, Inc. Ser. 94-12, Class
B3, 6s, 2009 1,156,784
Housing Securities Inc.
1,568,563 Ser. 91-B, Class B6, 9s, 2006 1,566,848
1,369,695 Ser. 93-F, Class F9M2, 7s, 2023 1,259,692
272,536 Ser. 93-J, Class J4, 6.66s, 2009 234,977
147,601 Ser. 93-J, Class J5, 6.66s, 2009 106,226
240,450 Ser. 94-1, Class AB1, 6 1/2s, 2009 204,383
Prudential Home Mortgage Securities
2,965,885 Ser. 92-25, Class B3, 8s, 2022 + 2,875,054
1,218,852 Ser. 92-13, Class B3, 7 1/2s, 2007 1,090,682
1,628,220 Ser. 93-36, Class M, 7 1/4s, 2023 1,571,741
3,853,624 Ser. 93-D, Class 2B, 7.108s, 2023 3,532,087
2,030,446 Ser. 93-E, Class 5B, 7.393s, 2023 1,456,845
322,332 Ser. 94-31, Class B3, 8s, 2009 293,927
1,179,244 Ser. 95-D, Class 5B, 7.54s, 2024 862,322
Prudential Home Mortgage Securities 144A
3,486,575 Ser. 94-A, Class 4B, 6.802s, 2024 3,155,351
1,203,084 Ser. 94-D, Class B4, 6.312s, 2009 1,028,156
4,630,696 Ser. 95-C, Class B1, 7.815s, 2001 4,617,672
3,659,523 Residential Funding Mortgage Securities
Ser. 93-MZ3, Class A1, 6.97s, August 30, 2023 3,579,471
Ryland Mortgage Securities Corp.
1,963,636 Ser. 94-7C, Class B1, 7.358s, 2025 1,879,568
1,386,976 Ser. 94-7C, Class B2, 7.358s, 2025 1,301,590
4,268,646 Securitized Asset Sales, Inc. Ser. 93-J, Class
2B, 6.807s, 2023 3,935,158
529,005 Travelers Mortgage Securities Corp. coll. oblig.
Ser. 1, Class Z2, 12s, 2014 605,050
--------------
Total Collateralized Mortgage Obligations
(cost $37,781,792) $ 39,515,724
CONVERTIBLE PREFERRED STOCKS (0.5%) *
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------
421,000 Freeport-McMoRan Copper Co., Inc. $1.75 cv. pfd. $ 11,524,875
5,000 Granite Broadcasting $1.938 cv. pfd. 274,375
77,000 K mart Financing I $3.875 cv. pfd. 3,927,000
--------------
Total Convertible Preferred Stocks (cost $13,824,015) $ 15,726,250
CONVERTIBLE BONDS AND NOTES (0.3%) *
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
$ 155,000 Argosy Gaming cv. sub. notes 12s, 2001 $ 83,700
835,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 512,481
100,000 Integrated Device Technology, Inc. cv. sub. notes
5 1/2s, 2002 85,625
45,000 National Semiconductor cv. deb. 6 1/2s, 2002 44,381
400,000 Toyota Motor Corp. cv. deb. 1.2s, 1998 5,335,528
3,219,000 WMX Technologies, Inc. cv. sub. notes 2s, 2005 3,154,620
--------------
Total Convertible Bonds and Notes (cost $8,216,546) $ 9,216,335
PREFERRED STOCKS (0.2%) *
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------
750 American Radio Systems Corp. 144A $11.375 pfd. $ 74,625
13,159 Cablevision Systems Ser. M, $11.125 dep. shs. pfd. [2 DBL. DAGGERS] 1,200,759
30,000 California Federal Bancorp Inc. Ser. A, $2.28 pfd. 742,500
2,300 Chancellor Radio Broadcasting 144A $12.00 pfd. 230,863
6,310 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. 332,853
11,662 El Paso Electric Co. $11.40 pfd. [2 DBL. DAGGERS] 1,271,158
265 Fresenius Medical Care $9.00 trust pfd. 270,300
7,171 K-III Communications Ser. B, $11.625 pfd. [2 DBL. DAGGERS] 709,929
37,000 Public Service Co. of New Hampshire $2.65
1st mtge. pfd. 925,000
4,550 SFX Broadcasting, Inc. Ser. E, $12.625 pfd. [2 DBL. DAGGERS] 455,000
1,123 Time Warner Inc. Ser. M, $10.25 pfd. [2 DBL. DAGGERS] 1,227,086
--------------
Total Preferred Stocks (cost $7,468,719) $ 7,440,073
UNITS (--%)*
NUMBER OF UNITS VALUE
- ---------------------------------------------------------------------------------------------------------
100 AmeriKing, Inc. pfd. units zero %, 2008 $ 111,000
210 Colt Telecommunications Group PLC units
stepped-coupon zero % (12s, 12/15/01), 2006
(United Kingdom) ++ 130,725
205 Esat Holdings Ltd. 144A units stepped-coupon zero %
(12 1/2s, 2/1/02), 2007 (Ireland)++ 115,825
335 Fitzgerald Gaming Co. units 13s, 2002 268,000
30 Intercel, Inc. units stepped-coupon zero %
(12s, 2/1/01), 2006 ++ 204,750
5,870 Nextlink Communications 144A pfd. units zero %
(14s, 2/1/02), 2009 [2 DBL. DAGGERS]++ 294,234
495 Wireless One Inc. units stepped-coupon zero %
(13 1/2s, 8/1/01) 2006 ++ 240,075
--------------
Total Units (cost $1,372,269) $ 1,364,609
WARRANTS (--%)* +(cost $2500) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- ---------------------------------------------------------------------------------------------------------
250 Intermedia Communications, Inc. 144A 6/1/00 $ 8,750
SHORT-TERM INVESTMENTS (6.4%) *
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
30,000,000 Asset Securitization Coop. Corp. effective yield of 5.33%,
February 27, 1997 $ 29,884,517
30,000,000 Corporate Receivables Corp. effective yield of 5.36%,
April 18, 1997 29,659,267
25,000,000 Falcon Asset Securitization Corp. effective yield of
5.33%, February 6, 1997 24,981,493
25,000,000 Federal Home Loan Bank effective yield of 5.23%,
March 6, 1997 24,880,145
20,000,000 Fed Home Loan Mortgage Corp. effective yield of
5.33%, February 7, 1997 19,982,233
20,000,000 Preferred Receivables Funding Corp. effective yield
of 5.42%, February 19, 1997 19,945,799
43,358,000 Interest in $667,115,000 joint repurchase agreement
dated January 31, 1997 with UBS Securities due
February 3, 1997 with respect to various U.S.
Treasury obligations -- maturity value of $43,378,089
for an effective yield of 5.56% 43,364,696
--------------
Total Short-Term Investments (cost $192,712,809) $ 192,698,150
- ---------------------------------------------------------------------------------------------------------
Total Investments (cost $2,702,045,587)*** $3,076,220,498
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* Percentages indicated are based on net assets of $2,992,456,873.
*** The aggregate identified cost on a tax basis is $2,706,694,552,
resulting in gross unrealized appreciation and depreciation of
$393,764,054 and $24,238,108, respectively, or net unrealized
appreciation of $369,525,946.
+ 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.
+++ A portion of the income will be received in additional
securities.
[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
January 31, 1997.
## When-issued securities (Note 1).
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 (FRBs) and Floating Rate Notes
(FRNs) are the current interest rates shown at January 31, 1997, which
are subject to change based on the terms of the security.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Futures Contracts Outstanding at January 31, 1997
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bonds (Short) $16,715,625 $ 17,296,875 Mar 97 $ (581,250)
U.S. Treasury Bonds (Long) 36,311,172 36,094,434 Mar 97 (216,738)
- ----------------------------------------------------------------------------------------
$ (797,988)
- ----------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at January 31, 1997
(aggregate face value $52,827,611)
Market Aggregate Face Delivery Unrealized
Value Value Date Appreciation
- ----------------------------------------------------------------------------------------
Australian Dollars $13,145,847 $ 13,621,165 Mar 97 $ 475,318
British Pounds 11,439,888 11,650,175 Mar 97 210,287
Deutschemarks 22,060,852 23,466,968 Mar 97 1,406,116
Japanese Yen 40,518 46,962 Jul 97 6,444
Japanese Yen 3,510,535 4,042,341 Jan 98 531,806
- ----------------------------------------------------------------------------------------
$2,629,971
- ----------------------------------------------------------------------------------------
Forward Currency Contracts to Buy at January 31, 1997
(aggregate face value $38,704,752)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- ----------------------------------------------------------------------------------------
Canadian Dollars $16,416,580 $ 16,416,006 Mar 97 $ 574
Deutschemarks 22,206,966 22,288,746 Mar 97 (81,780)
- ----------------------------------------------------------------------------------------
$ (81,206)
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
January 31, 1997 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $2,702,045,587) (Note 1) $3,076,220,498
- ---------------------------------------------------------------------------------------------------
Cash 815,534
- ---------------------------------------------------------------------------------------------------
Dividends and interest receivable 19,611,786
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 16,512,270
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 70,481,634
- ---------------------------------------------------------------------------------------------------
Receivable for variation margin 14,031
- ---------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 2,641,839
- ---------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 591,005
- ---------------------------------------------------------------------------------------------------
Total assets 3,186,888,597
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 185,156,596
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 2,717,545
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 3,576,292
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 808,460
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 30,412
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 7,966
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 987,028
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 93,074
- ---------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 470,136
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 584,215
- ---------------------------------------------------------------------------------------------------
Total liabilities 194,431,724
- ---------------------------------------------------------------------------------------------------
Net assets $2,992,456,873
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $2,561,955,281
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 4,662,037
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign
currency transactions (Note 1) 49,915,403
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 375,924,152
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $2,992,456,873
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,976,817,686 divided by 117,103,355 shares) $ 16.88
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $16.88)* $ 17.91
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($629,663,899 divided by 37,538,167 shares)** $ 16.77
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($107,805,962 divided by 6,427,277 shares) $ 16.77
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $16.77)* $ 17.38
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($278,169,326 divided by 16,453,340 shares) $ 16.91
- ---------------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on
group sales the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended January 31, 1997 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Interest $ 36,088,099
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $5,547) 23,054,544
- --------------------------------------------------------------------------------------------------
Total investment income 59,142,643
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 6,762,584
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 3,293,491
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 50,831
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 11,885
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 2,165,199
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 2,659,856
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 293,424
- --------------------------------------------------------------------------------------------------
Reports to shareholders 71,525
- --------------------------------------------------------------------------------------------------
Registration fees 190,000
- --------------------------------------------------------------------------------------------------
Auditing 30,852
- --------------------------------------------------------------------------------------------------
Legal 17,813
- --------------------------------------------------------------------------------------------------
Postage 127,122
- --------------------------------------------------------------------------------------------------
Other 52,321
- --------------------------------------------------------------------------------------------------
Total expenses 15,726,903
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (594,697)
- --------------------------------------------------------------------------------------------------
Net expenses 15,132,206
- --------------------------------------------------------------------------------------------------
Net investment income 44,010,437
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 90,141,305
- --------------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 2,359,814
- --------------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (741,380)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 3,102,290
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures during the period 219,753,871
- --------------------------------------------------------------------------------------------------
Net gain on investments 314,615,900
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $358,626,337
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
January 31 July 31
1997* 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 44,010,437 $ 71,656,189
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 91,759,739 135,274,116
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 222,856,161 15,062,707
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 358,626,337 221,993,012
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (37,690,673) (45,601,237)
- ----------------------------------------------------------------------------------------------------------------------
Class B (9,853,014) (9,159,784)
- ----------------------------------------------------------------------------------------------------------------------
Class M (1,525,336) (712,551)
- ----------------------------------------------------------------------------------------------------------------------
Class Y (5,642,920) (7,086,721)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (92,386,950) (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) 620,452,814 688,998,591
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 784,869,151 784,987,282
- ----------------------------------------------------------------------------------------------------------------------
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 2,207,587,722 1,422,600,440
- ----------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $4,662,037 and $15,363,543, respectively) $2,992,456,873 $2,207,587,722
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
Six months December 1, 1994
ended Year (commencement
January 31 ended of operations)
(Unaudited) July 31 to July 31
------------------------------------------------------
1997 1996 1995
------------------------------------------------------
Class M
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $15.74 $14.84 $12.77
- ----------------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income .26 .55 .31
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 2.02 1.50 2.03
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.28 2.05 2.34
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (.34) (.52) (.27)
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (.91) (.63) --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (1.25) (1.15) (.27)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.77 $15.74 $14.84
- ----------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 14.87* 14.26 18.52
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $107,806 $49,541 $8,164
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .79* 1.50 .93
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 1.51* 3.50 2.53
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 109.55* 119.44 102.57
- ----------------------------------------------------------------------------------------------------------------------------
Average commission rate paid (d) $.0485
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Six months
ended
January 31
(Unaudited) Year ended July 31
------------------------------------------------------
1997 1996 1995
------------------------------------------------------
Class Y
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $15.85 $14.92 $13.54
- ----------------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income .31 .68 .66
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 2.06 1.50 1.63
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.37 2.18 2.29
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (.40) (.62) (.59)
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (.91) (.63) (.32)
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (1.31) (1.25) (.91)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.91 $15.85 $14.92
- ----------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 15.26* 15.09 18.00
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $278,169 $207,508 $153,597
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .41* .70 .66
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 1.91* 4.33 4.78
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 109.55* 119.44 102.57
- ----------------------------------------------------------------------------------------------------------------------------
Average commission rate paid (d) $.0485
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
April 1, 1994 Six months
(commencement ended
of operations) January 31 Year ended
to July 31 (Unaudited) July 31
------------------------------------------------------
1994 1997 1996
------------------------------------------------------
Class Y Class B
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 13.21 $ 15.74 $ 14.83
- ----------------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income .17 .23 .51
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .31 2.03 1.50
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .48 2.26 2.01
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (.15) (.32) (.47)
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments -- (.91) (.63)
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.15) (1.23) (1.10)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.54 $ 16.77 $15.74
- ----------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 3.65* 14.69* 13.97
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $71,566 $629,664 $435,278
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .25* .91* 1.71
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 1.34* 1.40* 3.31
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 100.69 109.55* 119.44
- ----------------------------------------------------------------------------------------------------------------------------
Average commission rate paid (d) $.0485
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Year ended July 31
------------------------------------------------------
1995 1994 1993
------------------------------------------------------
Class B
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $13.46 $14.19 $14.22
- ----------------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income .52 .50 .56
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.63 (.12) .48
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.15 .38 1.04
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (.46) (.49) (.59)
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (.32) (.62) (.48)
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.78) (1.11) (1.07)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.83 $13.46 $14.19
- ----------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 16.87 2.70 7.87
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $224,166 $151,327 $81,983
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.66 1.71 1.66
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 3.81 3.39 3.43
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 102.57 100.69 89.22
- ----------------------------------------------------------------------------------------------------------------------------
Average commission rate paid (d)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
April 27, 1992 Six months
(commencement ended
of operations) January 31 Year ended
to July 31 (Unaudited) July 31
------------------------------------------------------
1992 1997 1996
------------------------------------------------------
Class B Class A
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 13.73 $ 15.82 $ 14.90
- ----------------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income .13(c) .30 .63
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .53 2.05 1.50
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .66 2.35 2.13
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (.17) (.38) (.58)
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments -- (.91) (.63)
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.17) (1.29) (1.21)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.22 $16.88 $15.82
- ----------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 4.99* 15.21* 14.75
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $11,946 $1,976,818 $1,515,260
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .55* .54* .95
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) .84* 1.78* 4.07
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 78.90 109.55* 119.44
- ----------------------------------------------------------------------------------------------------------------------------
Average commission rate paid (d) $ .0485
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Year ended July 31
------------------------------------------------------
1995 1994 1993
------------------------------------------------------
Class A
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $13.52 $14.24 $14.24
- -----------------------------------------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income .63 .59 .62
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.63 (.11) .52
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.26 .48 1.14
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (.56) (.58) (.66)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (.32) (.62) (.48)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.88) (1.20) (1.14)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.90 $13.52 $14.24
- -----------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 17.73 3.46 8.64
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $1,036,674 $913,171 $772,540
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .91 .95 .90
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 4.58 4.15 4.34
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 102.57 100.69 89.22
- -----------------------------------------------------------------------------------------------------------------------------
Average commission rate paid (d)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Year ended
July 31
-----------------------
1992
-----------------------
Class A
- ------------------------------------------------------------------------------------
<S> <C>
- ------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.52
- ------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------
Net investment income .64
- ------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.12
- ------------------------------------------------------------------------------------
Total from investment operations 1.76
- ------------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------------
Net investment income (.68)
- ------------------------------------------------------------------------------------
Net realized gain (loss) on investments (.36)
- ------------------------------------------------------------------------------------
Total distributions (1.04)
- ------------------------------------------------------------------------------------
Net asset value, end of period $ 14.24
- ------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 13.68
- ------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $622,129
- ------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.06
- ------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 4.62
- ------------------------------------------------------------------------------------
Portfolio turnover (%) 78.90
- ------------------------------------------------------------------------------------
Average commission rate paid (d)
- ------------------------------------------------------------------------------------
* 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 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
January 31, 1997 (Unaudited)
Note 1
Significant accounting policies
The fund is registered under the Investment Company Act of 1940, as amended,
as a diversified, open-end management investment company. The fund seeks to
provide a balanced investment composed of a well-diversified portfolio of
stocks and bonds which will produce both capital growth and current income.
The fund offers class A, class B, class M and class Y shares. Class A shares
are sold with a maximum front-end sales charge of 5.75%. Class B shares, which
convert to class A shares after 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 and class B 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 long-term corporate bonds and notes; such investments are stated at
fair value on the basis of valuations furnished by a pricing service, approved
by the Trustees, which determines valuations for normal, institutional size
trading units of such securities using methods based on market transactions
for comparable securities and various relationships between securities which
are generally recognized by institutional traders.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam Management.
These balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value of
which at the time of purchase is required to be in an amount at least equal to
the resale price, including accrued interest. Putnam Management is responsible
for determining that the value of these underlying securities is at all times
at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis. Dividend income
is recorded on the ex-dividend date except that certain dividends from foreign
securities are recorded as soon as the fund is informed of the ex-dividend
date. Discounts on zero coupon, original issue, stepped-coupon 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 the trade date; interest income is accrued based
on the terms of the security. Losses may arise due to changes in the market
value of the underlying securities or if the counterparty does not perform
under the contract.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities, currency
holdings, 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 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) Federal taxes It is the policy of the fund to distribute all of its taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986. Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation on securities held and for excise tax
on income and capital gains.
J) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date. Capital
gain distributions, if any, are recorded on the ex-dividend date and paid
annually. The amount and character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. 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.
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 and 0.425% of the next $5
billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion, and
0.38% of any amount thereafter.
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a wholly-owned subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the six months ended January 31, 1997, fund expenses were reduced by
$594,697 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 $2,550 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of the
Trustees receive additional fees for attendance at certain committee meetings.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows the
Trustees to defer the receipt of all or a portion of Trustees Fees payable on
or after July 1, 1995. The deferred fees remain in the fund and are invested
in certain Putnam funds until distribution in accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "PensionPlan") 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 six months ended January 31, 1997, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $760,990 and $31,497 from the sale
of class A and class M shares, respectively and $282,369 in contingent
deferred sales charges from redemptions of class B shares. A deferred sales
charge of up to 1% is assessed on certain redemptions of class A shares. For
the six months ended January 31, 1997, Putnam Mutual Funds Corp., acting as
underwriter received $10,680 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended January 31, 1997, purchases and sales of
investment securities other than U.S. government obligations and short-term
investments aggregated $1,183,910,320 and $696,050,102, respectively.
Purchases and sales of U.S. government obligations aggregated $547,888,248 and
$579,153,279, respectively. In determining the net gain or loss on securities
sold, the cost of securities has been determined on the identified cost basis.
Note 4
Capital shares
At January 31, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
January 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 23,394,968 $ 385,486,122
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 7,182,726 116,726,427
- ------------------------------------------------------------
30,577,694 502,212,549
Shares
repurchased (9,225,988) (152,255,041)
- ------------------------------------------------------------
Net increase 21,351,706 $ 349,957,508
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Six months ended
January 31, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 9,497,398 $155,959,526
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,256,209 36,490,940
- ------------------------------------------------------------
11,753,607 192,450,466
Shares
repurchased (1,876,181) (30,821,786)
- ------------------------------------------------------------
Net increase 9,877,426 $161,628,680
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Six months ended
January 31, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 3,200,072 $52,616,514
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 348,522 5,633,629
- ------------------------------------------------------------
3,548,594 58,250,143
Shares
repurchased (269,036) (4,421,323)
- ------------------------------------------------------------
Net increase 3,279,558 $53,828,820
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Six months ended
January 31, 1997
- ------------------------------------------------------------
Class Y Shares Amount
- ------------------------------------------------------------
Shares sold 3,463,721 $57,172,463
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,177,384 19,145,059
- ------------------------------------------------------------
4,641,105 76,317,522
Shares
repurchased (1,283,357) (21,279,716)
- ------------------------------------------------------------
Net increase 3,357,748 $55,037,806
- ------------------------------------------------------------
Year ended
July 31, 1995
- ------------------------------------------------------------
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
- ------------------------------------------------------------
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund *
Health Sciences Trust
International Growth Fund +
International New Opportunities Fund
Investors Fund
New Opportunities Fund
OTC Emerging Growth Fund [DBL. DAGGER]
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
Intermediate U.S. Government
Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
LIFESTAGESM FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments to help maximize your return and reduce your risk.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
MOST CONSERVATIVE
INVESTMENTS **
Putnam money market funds: ++
California Tax Exempt Money Market Fund
Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts [2 DBL. DAGGERS]
* Formerly Natural Resources Fund
+ Formerly Overseas Growth Fund
[DBL. DAGGER] Not available in all states.
[SECTION MARK] Relative to above.
++ An investment in a money market fund is neither insured
nor guaranteed by the U.S. government. These funds are
managed to maintain a price of $1.00 per share, although
there is no assurance that this price will be maintained
in the future.
[2 DBL. DAGGERS] Not offered by Putnam Investments. Certificates of
deposit offer a fixed rate of return and may be insured
up to certain limits by federal/state agencies. Savings
accounts may also be insured up to certain limits.
Please call your financial advisor or Putnam at 1-800-
225-1581 to obtain a prospectus for any Putnam fund. It
contains more complete information, including charges
and expenses. Please read it carefully before you invest
or send money.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Peter Carman
Vice President
Brett C. Browchuk
Vice President
Thomas V. Reilly
Vice President
Edward P. Bousa
Vice President and Fund Manager
Kenneth J. Taubes
Vice President and Fund Manager
Rosemary H. Thomsen
Vice President and Fund Manager
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, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
31265-001/880/242
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ------------------------------------------------------------------------
The George Putnam Fund of Boston
Supplement to Semiannual Report dated 1/31/97
The following information has been prepared to provide class Y
shareholders with a performance overview specific to their holdings.
Class Y shares are offered exclusively to defined contribution plans
investing $250 million or more in one or more of Putnam's funds or
private accounts. Performance of class Y shares, which incur neither a
front-end load, distribution fee, nor contingent deferred sales charge,
will differ from performance of class A, B, and M shares, which are
discussed more extensively in the semiannual report.
SEMIANNUAL RESULTS AT A GLANCE
- ------------------------------------------------------------------------
Total return: NAV
Six months ended 1/31/96 15.33%
One year ended 1/31 /96 17.72
Life of class (since 3/31/94) 62.34
Annual average 18.60
- ------------------------------------------------------------------------
Share value: NAV
7/31/96 $15.85
1/31/96 16.91
- ------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
7/31/96 - 1/31/96 3 $0.397 $0.909 $1.306
- ------------------------------------------------------------------------
Please note that past performance does not indicate future results.
Investment return and principal value will fluctuate so your shares,
when redeemed, may be worth more or less than their original cost. See
full report for information on comparative benchmarks. If you have
questions, please consult your fund prospectus or call Putnam toll free
at 1-800-752-9894.
