The George
Putnam Fund
of Boston
SEMIANNUAL REPORT
January 31, 1998
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* The George Putnam Fund of Boston has delivered strong competitive
results, as evidenced by the rankings of balanced funds tracked by Lipper
Analytical Services. For the 5-year period ended January 31, 1998, the
fund's class A shares ranked in the top 12% of Lipper's balanced funds
category, or 13 out of 110 funds.*
* "Our equity strategy emphasizes large companies that we believe the
market has priced below their true value. This approach, combined with a
sizable stake in fixed-income securities, helps the fund to avoid much of
the volatility of the overall stock market."
-- Edward P. Bousa, co-manager
The George Putnam Fund of Boston
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
12 Portfolio holdings
37 Financial statements
*Lipper is an industry research firm whose rankings are based on total
return performance, vary overtime, and do not reflect the effects of sales
charges. The fund's class A shares ranked 119 and 12 out of 361 and 49 for
l- and 10-year performance, respectively, as of 1/31/98. Performance of
other share classes will vary. Past performance is not indicative of
future results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
It was back in 1937 that the possibility of unsettled markets, such as those
that prevailed during the past several months, prompted the creation of The
George Putnam Fund of Boston. With its portfolio divided between stocks and
bonds, the fund is designed to maintain a steady course during market ups and
downs. Thus it was well equipped to weather the eventful first half of its
current fiscal year, the six months ended January 31, 1998.
Recognizing that attractive investments are likely to arise from this period
of unsettled worldwide markets, your fund's managers have been focusing on
ways to seek maximum advantage from opportunities that might present
themselves in the months ahead. In the following report, the management team
discusses the economic and market environment during the fiscal year's first
half and offers its views on prospects for the second half.
I am pleased to announce the addition of Jeffrey Kobylarz to the team. Jeffrey
joined Putnam in 1993 as a senior credit analyst in the High Yield Bond Group.
He was previously with Dean Witter InterCapital and W.R. Huff Asset
Management. He has 11 years of investment industry experience.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
March 18, 1998
Report from the Fund Managers
Edward P. Bousa
Kenneth J. Taubes
Robert M. Paine
Jeffrey J. Kobylarz
The storms that plagued financial markets in the first half of The George
Putnam Fund of Boston's 1998 fiscal year provided another opportunity for the
fund to demonstrate the resiliency of its all-weather approach. With its
balanced combination of stocks and bonds, your fund has been able to withstand
virtually every type of market turmoil -- even problems that originate on the
other side of the globe.
The most dramatic event of the semiannual period -- which covers the six
months ended January 31, 1998 -- was a currency and debt crisis in several
Asian markets that quickly spread jitters around the world. On one day in
October, the Dow Jones Industrial Average recorded the greatest single-day
point loss in its history. While considerable volatility has continued to roil
the markets since then, many domestic large-company stocks and high-quality
bonds have rallied, enabling your fund to post competitive results for the
period. The fund's class A shares returned 3.29% at net asset value and -
2.67% at public offering price. For performance of other share classes over
longer periods of time and against the fund's benchmark indexes, please turn
to page 9.
* DOMESTIC FOCUS AND VALUE ORIENTATION SERVE FUND WELL IN MIDST OF TURBULENCE
Your fund's conservative philosophy and prudent diversification helped it to
maintain stability amid the recent turmoil. Throughout the period, your fund's
bond stake remained quite hardy. In fact, the nervous mood that prevailed
throughout the world's stock markets was generally good news for bonds in
developed countries. International investors moved capital to the U.S. bond
market, which offered high levels of credit quality and relatively attractive
yields.
Another source of strength was the portfolio's heavy emphasis on domestic
securities. Even this advantage diminished a bit in the fourth calendar
quarter, though, as investors worried that U.S. companies in the computer,
electronics, and automobile industries would have to cut prices if Asian
competitors flooded international markets with excess inventories.
Thanks to our focus on stocks of undervalued companies poised for positive
change, the equity portion of the fund was only minimally affected by these
problems. Investors seeking stability in tumultuous markets often turn to
companies that have relatively steady earnings and pay reliable dividends, the
sort of companies that your fund holds all the time. This demand helped to
support the prices of many of the fund's holdings. Conversely, the fund avoids
the more highly priced, highly leveraged growth companies that can experience
severe declines in a crisis.
We must admit that the portfolio suffered a bit as the fund's positions in
paper, chemical, and oil company stocks weakened. This weakening was a direct
result of the slower business activity in Asia; companies such as
Weyerhaeuser, Mobil, and British Petroleum had expected Asia to be a growth
engine. We have not given up on these industries, however, because we expect
that supply and demand fundamentals will improve for them during the second
half of 1998. 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.
[GRAPHIC OMITTED: horizontal bar chart COMPARATIVE PORTFOLIO COMPOSITION]
COMPARATIVE PORTFOLIO COMPOSITION*
7/31/97 1/31/98
Common stocks 64.6% 63.9%
U.S. government and agency securities 12.9% 12.0%
Corporate bonds and notes 12.9% 14.3%
Foreign government bonds and notes 3.9% 4.0%
Brady bonds+ 1.3% 0.5%
Collateralized mortgage obligations 0.9% 1.6%
Convertible and preferred securities 0.5% 0.6%
Cash and other 4.6% 5.4%
Footnote reads:
*Based on percentage of net assets. Portfolio allocation will vary over time.
+Brady bonds are U.S.-dollar denominated bonds of foreign governments whose
principal is collateralized by U.S. Treasury obligations.
* MARKET UNCERTAINTY PRODUCES ATTRACTIVE OPPORTUNITIES
Our value-oriented strategy keeps us constantly alert for companies selling at
unreasonably low prices, and the uncertainties of late 1997 presented us with
a number of new opportunities. For example, investors sold Caterpillar and
Texas Instruments, thinking that competitors in Asian countries with falling
currencies would gain a price advantage. We believed, on the other hand, that
both companies would be effective in retaining their customers and so we
established positions in their stocks at what we considered to be attractive
prices. The performance of the stocks in December and January was encouraging.
While these global companies, like others in the portfolio, face short-term
hardship in Asia, we believe they can emerge strengthened by acquiring Asian
operations at low prices.
The fund also benefited from the stability of its domestically focused
holdings, such as utility companies. Many of the regional Baby Bell operating
companies, for example, attracted investors in the fourth quarter thanks to
their substantial dividends. We also decided to add a smaller
telecommunications company, Cincinnati Bell. This company has an enticing
story of business change: it owns a growing subsidiary business performing
billing services for cellular-phone and cable television companies.
* UNCERTAIN INTERNATIONAL CLIMATE GOOD FOR BONDS
Your fund's fixed-income portion, which represented a little more than 30% of
assets during the period, did better than would have been expected based
solely on conditions in the United States. The U.S. economy in the second half
of 1997 grew rapidly, which usually causes worries of inflation. Surprisingly,
though, key inflation indicators showed stable or slightly falling prices.
Meanwhile, the Asian crisis prompted a flight of capital to bonds in the more
developed markets of North America and Europe. The United States, whose bonds
offered relatively higher yields than European bonds, experienced an
impressive rally that drove down interest rates on 30-year Treasury bonds by
roughly one half of 1%.
[GRAPHIC OMITTED: TOP 10 EQUITY HOLDINGS]
TOP 10 EQUITY HOLDINGS
American Home Products Corp.
Pharmaceuticals
Exxon Corp.
Oil and gas
E.I. du Pont de Nemours & Co., Inc. (Du Pont)
Chemicals
Merck & Co., Inc.
Pharmaceuticals
Baxter International, Inc.
Medical supplies and devices
Weyerhaeuser Co.
Paper and forest products
Bristol-Myers Squibb Co.
Pharmaceuticals
Mobil Corp.
Oil and gas
Intel Corp.
Electronics and electrical equipment
British Petroleum PLC
Oil and gas
Footnote reads:
These holdings represent 10.5% of the fund's net assets as of 1/31/98.
Portfolio holdings will vary over time.
We had positioned the bond portion of the portfolio at the beginning of the
period with a slightly cautious bias toward corporate and mortgage-backed
bonds. While these holdings performed well, they did not keep pace with more
interest-rate sensitive Treasuries. The investment-grade corporate holdings,
in many cases, were issues of multinational companies, some of which had
operations or markets in Asia. Deteriorating Asian business activity caused
pessimism about the multinationals' financial forecasts. The fund's smaller
position in lower-rated high-yield corporates, on the other hand, did quite
well. Companies that issue high-yield bonds are rarely affected by
international economic factors. Instead, thriving activity at home helped the
high-yield bonds to continue rallying.
* POSITIONED FOR MODERATE ECONOMIC CONDITIONS
We believe that the U.S. economy will continue to grow during 1998 but not
strongly enough to generate new inflationary pressures. In this sort of
environment, the Federal Reserve Board is unlikely either to raise or to lower
interest rates. These conditions should be favorable for mortgage-backed and
corporate bonds and neutral for Treasuries and the fund's small number of
international government bonds. Our focus will be on earning a respectable
yield in a stable bond market.
While concerns about earnings of U.S. companies with Asian competitors will
persist for months to come, at this point the effect of the Asian problems has
been mostly positive because it has helped to lower the price of oil and other
commodities and has brought down U.S. interest rates. All of these factors
have helped to contribute to a short-term rally for most U.S. stocks. We
remain cautious, however, because the negative effects from Asia may arrive
later this year. We believe the fund is positioned to avoid excessive
volatility. As it has been throughout its 60-year history, your fund remains
prepared to face a variety of market situations with a conservative strategy
and a portfolio diversified across a wide array of stocks and bonds.
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 1/31/98, there is no guarantee the fund will continue to hold
these securities in the future.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. The
George Putnam Fund of Boston is designed for investors seeking capital
appreciation and current income.
TOTAL RETURN FOR PERIODS ENDED 1/31/98
Class A Class B Class M
(inception date) (11/5/37) (4/27/92) (12/1/94)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 3.29% -2.67% 2.88% -1.87% 3.02% -0.57%
- ------------------------------------------------------------------------------
1 year 17.91 11.13 17.02 12.02 17.34 13.22
- ------------------------------------------------------------------------------
5 years 101.19 89.61 93.72 91.72 96.15 89.34
Annual average 15.01 13.65 14.14 13.90 14.42 13.62
- ------------------------------------------------------------------------------
10 years 253.95 233.54 226.54 226.54 234.20 222.62
Annual average 13.47 12.80 12.56 12.56 12.82 12.43
- ------------------------------------------------------------------------------
Annual average
(life of fund) 9.97 9.86 8.90 8.90 9.18 9.11
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 1/31/98
Standard & Lehman Bros.
Poor's Govt./Corp. Consumer
500 Index Bond Index Price Index
- ------------------------------------------------------------------------------
6 months 3.56% 5.12% 0.69%
- ------------------------------------------------------------------------------
1 year 26.91 11.17 1.57
- ------------------------------------------------------------------------------
5 years 152.30 43.21 13.32
Annual average 20.34 7.45 2.53
- ------------------------------------------------------------------------------
10 years 410.03 135.20 39.67
Annual average 17.69 8.93 3.40
- ------------------------------------------------------------------------------
Returns for class A and class M shares reflect the current maximum initial
sales charges of 5.75% and 3.50%, respectively. Class B share returns for
the 1-, 5-, and 10-year (where available) and life-of-fund periods reflect
the applicable contingent deferred sales charge (CDSC), which is 5% in the
first year, declines to 1% in the sixth year, and is eliminated
thereafter. Returns shown for class B and class M shares for periods prior
to their inception are derived from the historical performance of class A
shares, adjusted to reflect both the initial sales charge or CDSC, if any,
currently applicable to each class and, in the case of class B and class M
shares, the higher operating expenses applicable to such shares. All
returns assume reinvestment of distributions at NAV and represent past
performance; they do not guarantee future results. Investment return and
principal value will fluctuate so that an investor's shares when redeemed
may be worth more or less than their original cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 1/31/98
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 2 2 2
- ------------------------------------------------------------------------------
Income $0.300 $0.234 $0.259
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term 0.782 0.782 0.782
- ------------------------------------------------------------------------------
Short-term 0.430 0.430 0.430
- ------------------------------------------------------------------------------
Total $1.512 $1.446 $1.471
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
7/31/97 $18.95 $20.11 $18.82 $18.82 $ 19.50
- ------------------------------------------------------------------------------
1/31/98 18.03 19.13 17.89 17.89 18.54
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 3.33% 3.14% 2.57% 2.91% 2.80%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 3.04 2.86 2.30 2.55 2.46
- ------------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2 Based on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 12/31/97
(most recent calendar quarter)
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 8.07% 1.87% 7.69% 2.71% 7.83% 4.06%
- ------------------------------------------------------------------------------
1 year 21.03 14.07 20.12 15.12 20.46 16.25
- ------------------------------------------------------------------------------
5 years 102.25 90.65 94.95 92.95 97.14 90.24
Annual average 15.13 13.78 14.28 14.05 14.54 13.73
- ------------------------------------------------------------------------------
10 years 268.08 246.84 239.75 239.75 247.63 235.34
Annual average 13.92 13.24 13.01 13.01 13.27 12.86
- ------------------------------------------------------------------------------
Annual average
life of fund 9.98 9.87 8.91 8.91 9.19 9.12
- ------------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment returns and
principal value will fluctuate so that an investor's shares, when sold,
may be worth more or less than their original cost. See first page of
performance section for performance calculation method.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales 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.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
Portfolio of investments owned
January 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS (63.9%) *
NUMBER OF SHARES VALUE
Aerospace and Defense (1.3%)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
700,000 Boeing Co. $ 33,293,750
196,000 Lockheed Martin Corp. 20,396,250
77,200 Northrop Grumman Corp. 9,466,650
--------------
63,156,650
Agriculture (--%)
- ------------------------------------------------------------------------------------------------------------
22,025 PSF Holdings LLC Class A + 660,750
Automotive (1.2%)
- ------------------------------------------------------------------------------------------------------------
794,900 Chrysler Corp. 27,672,456
526,000 Michelin Corp. Class B (France) 28,011,581
159,667 Midas, Inc. 2,564,646
--------------
58,248,683
Basic Industrial Products (2.8%)
- ------------------------------------------------------------------------------------------------------------
680,000 Caterpillar, Inc. 32,640,000
523,000 Cooper Industries, Inc. 27,751,688
452,200 Deere (John) & Co. 23,853,550
320,000 Dresser Industries, Inc. 11,440,000
479,000 Hussmann International, Inc. 6,526,375
372,000 Minnesota Mining & Manufacturing Co. 31,062,000
--------------
133,273,613
Broadcasting (0.5%)
- ------------------------------------------------------------------------------------------------------------
820,200 Comcast Corp. Class A 25,682,513
Building and Construction (--%)
- ------------------------------------------------------------------------------------------------------------
1,600 Terex Corp. Rights expiration date 5/15/00 + 32,000
Business Equipment and Services (2.0%)
- ------------------------------------------------------------------------------------------------------------
570,000 Hewlett-Packard Co. 34,200,000
581,400 Pitney Bowes, Inc. 26,671,725
428,500 Xerox Corp. 34,440,688
--------------
95,312,413
Chemicals (1.7%)
- ------------------------------------------------------------------------------------------------------------
892,000 du Pont (E.I.) de Nemours & Co., Ltd. 50,509,500
484,000 Eastman Chemical Co. 28,828,250
--------------
79,337,750
Computer Services and Software (1.2%)
- ------------------------------------------------------------------------------------------------------------
499,000 Computer Associates Intl., Inc. 26,540,563
334,000 IBM Corp. 32,961,625
--------------
59,502,188
Conglomerates (1.1%)
- ------------------------------------------------------------------------------------------------------------
458,000 Temple Inland, Inc. 25,419,000
541,900 TRW, Inc. 27,569,163
--------------
52,988,163
Consumer Non Durables (2.4%)
- ------------------------------------------------------------------------------------------------------------
389,000 Colgate-Palmolive Co. 28,494,250
1,213 Hedstrom Holdings, Inc. 144A 1,668
765,200 Kimberly-Clark Corp. 39,933,875
1,070,000 Philip Morris Cos., Inc. 44,405,000
--------------
112,834,793
Consumer Products (1.1%)
- ------------------------------------------------------------------------------------------------------------
686,100 Fortune Brands, Inc. 26,243,325
533,000 Lowe's Cos., Inc. 26,949,813
--------------
53,193,138
Consumer Services (--%)
- ------------------------------------------------------------------------------------------------------------
100 AmeriKing, Inc. + 5,000
Electronics and Electrical Equipment (3.4%)
- ------------------------------------------------------------------------------------------------------------
637,000 Emerson Electric Co. 38,538,500
574,000 Intel Corp. 46,494,000
220,000 Rockwell International Corp. 12,292,500
1,456,800 Siebe PLC (United Kingdom) 24,837,238
728,500 Texas Instruments, Inc. 39,794,313
--------------
161,956,551
Environmental Control (0.5%)
- ------------------------------------------------------------------------------------------------------------
641,700 Browning-Ferris Industries, Inc. 22,178,756
Food and Beverages (3.1%)
- ------------------------------------------------------------------------------------------------------------
642,000 Anheuser-Busch Cos., Inc. 28,849,875
455,000 General Mills, Inc. 33,869,063
469,900 Heinz (H.J.) Co. 26,050,081
405,000 Nabisco Holdings Corp. Class A 16,756,875
762,500 PepsiCo, Inc. 27,497,656
958,000 Whitman Corp. 15,926,750
--------------
148,950,300
Health Care (0.6%)
- ------------------------------------------------------------------------------------------------------------
577,000 United Healthcare Corp. 29,571,250
Insurance and Finance (12.4%)
- ------------------------------------------------------------------------------------------------------------
419,000 Ahmanson (H.F.) & Co. 24,432,938
659,600 American General Corp. 37,184,950
471,300 AON Corp. 26,304,431
716,000 Banc One Corp. 40,006,500
290,300 BankBoston Corp. 25,981,850
264,858 Bankers Trust New York Corp. [UPSIDE DOWN DELTA] 27,628,000
133,000 Beneficial Corp. 10,324,125
148,300 CIGNA Corp. 25,146,119
29,500 Citicorp 3,510,500
166,300 Crestar Financial Corp. 8,730,750
428,100 Federal National Mortgage Association 26,435,175
481,100 First Chicago NBD Corp. 35,902,088
786,100 First Union Corp. 37,781,931
150,000 Firstar Corp. 5,821,875
511,000 Fleet Financial Group, Inc. 36,600,375
357,600 Hartford Financial Services Group 32,184,000
372,500 KeyCorp 24,212,500
244,600 Morgan (J.P.) & Co., Inc. 24,750,463
582,000 NationsBank Corp. 34,920,000
663,000 Norwest Corp. 24,199,500
747,400 PNC Bank Corp. 38,537,813
407,500 Synovus Financial Corp. 13,422,031
394,000 Washington Mutual, Inc. 25,314,500
--------------
589,332,414
Medical Supplies and Devices (1.0%)
- ------------------------------------------------------------------------------------------------------------
857,700 Baxter International, Inc. 47,763,169
Metals and Mining (0.6%)
- ------------------------------------------------------------------------------------------------------------
465,000 Phelps Dodge Corp. 30,631,875
Oil and Gas (6.5%)
- ------------------------------------------------------------------------------------------------------------
510,600 Amoco Corp. 41,550,075
557,150 British Petroleum PLC ADR (United Kingdom) 44,746,109
569,600 Elf Aquitane ADR (France) 32,218,000
666,000 Enron Corp. 27,597,375
935,400 Exxon Corp. 55,480,913
699,100 Mobil Corp. 47,626,188
634,700 Sonat, Inc. 27,728,456
639,000 Total Corp. ADR (France) 33,148,125
--------------
310,095,241
Paper and Forest Products (1.2%)
- ------------------------------------------------------------------------------------------------------------
224,000 Chesapeake Corp. 7,588,000
957,000 Weyerhaeuser Co. 47,670,563
--------------
55,258,563
Pharmaceuticals (4.9%)
- ------------------------------------------------------------------------------------------------------------
649,000 American Home Products Corp. 61,938,938
478,000 Bristol-Myers Squibb Co. 47,650,625
456,400 Johnson & Johnson 30,550,275
424,000 Merck & Co., Inc. 49,714,000
1,131,270 Pharmacia & Upjohn, Inc. 43,483,191
--------------
233,337,029
Publishing (0.4%)
- ------------------------------------------------------------------------------------------------------------
244,400 McGraw-Hill, Inc. 17,062,175
REITs (Real Estate Investment Trust) (1.1%)
- ------------------------------------------------------------------------------------------------------------
395,000 Duke Realty Investments, Inc. 9,381,250
466,000 Starwood Lodging Trust 25,338,750
387,600 Equity Residential Properties Trust 19,816,050
--------------
54,536,050
Retail (1.3%)
- ------------------------------------------------------------------------------------------------------------
554,200 May Department Stores Co. 29,130,138
1,136,500 Toys "R" Us, Inc. + 30,472,406
--------------
59,602,544
Telecommunications (0.5%)
- ------------------------------------------------------------------------------------------------------------
705,000 Cincinnati Bell, Inc. 25,291,875
3,175 NEXTEL Communications, Inc. Class A + 86,717
--------------
25,378,592
Transportation (2.9%)
- ------------------------------------------------------------------------------------------------------------
378,100 Burlington Northern Santa Fe Corp. 32,800,175
300,000 Delta Air Lines, Inc. 34,237,500
390,000 FDX Corp. 25,374,375
556,800 Ryder System, Inc. 18,652,800
445,000 Union Pacific Corp. 26,700,000
--------------
137,764,850
Utilities (8.2%)
- ------------------------------------------------------------------------------------------------------------
591,400 American Telephone & Telegraph Co. 37,036,425
844,000 Ameritech Corp. 36,239,250
381,112 Bell Atlantic Corp. 35,276,680
589,000 BellSouth Corp. 35,671,313
213,265 Cinergy Corp. 7,357,643
649,999 Duke Power Co. 35,221,821
654,300 GTE Corp. 35,700,244
358,000 OGE Energy Corp. 18,727,875
580,200 Pacific Enterprises 20,923,463
486,600 Potomac Electric Power Co. 12,104,175
509,201 SBC Communications, Inc. 39,590,378
1,083,000 Southern Co. 26,330,438
535,000 Sprint Corp. 31,765,615
440,000 Texas Utilities Co. 18,095,000
--------------
390,040,320
--------------
Total Common Stocks (cost $2,537,017,145) $3,047,687,333
CORPORATE BONDS AND NOTES (14.3%) *
PRINCIPAL AMOUNT VALUE
Advertising (0.1%)
- ------------------------------------------------------------------------------------------------------------
$ 150,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 167,250
1,370,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 1,496,725
315,000 Lamar Advertising Co. company guaranty 8 5/8s, 2007 327,600
355,000 Outdoor Comunications, Inc. sr. sub. notes 9 1/4s, 2007 371,863
45,000 Outdoor Systems, Inc. sr. sub. notes 9 3/8s, 2006 48,263
850,000 Outdoor Systems, Inc. company guaranty 8 7/8s, 2007 894,625
1,125,000 Universal Outdoor, Inc. sr. sub. notes 9 3/4s, 2006 1,262,813
550,000 Universal Outdoor, Inc. sr. sub. notes Ser. B, 9 3/4s, 2006 617,375
--------------
5,186,514
Aerospace and Defense (0.3%)
- ------------------------------------------------------------------------------------------------------------
100,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 102,500
350,000 BE Aerospace sr. notes 9 3/4s, 2003 367,500
70,000 BE Aerospace sr. sub. notes Ser. B, 9 7/8s, 2006 75,250
115,000 K & F Industries, Inc. 144A sr. sub. notes 9 1/4s, 2007 121,469
11,985,000 Raytheon Co notes 6.45s, 2002 12,162,138
115,000 Sequa Corp. sr. notes 9 5/8s, 1999 119,600
105,000 Sequa Corp. bonds 8 3/4s, 2001 107,625
80,000 Tracor, Inc. sr. sub. notes 8 1/2s, 2007 83,200
--------------
13,139,282
Agriculture (0.1%)
- ------------------------------------------------------------------------------------------------------------
300,000 AGCO Corp. sr. sub. notes 8 1/2s, 2006 311,250
4,120,000 Potash Corp. of Saskatchewan notes 7 1/8s, 2007 (Cananda) 4,262,470
255,740 Premium Standard Farms, Inc. sr. secd. notes 11s, 2003 [2 DBL. DAGGERS] 276,199
--------------
4,849,919
Apparel (--%)
- ------------------------------------------------------------------------------------------------------------
320,000 Sassco Fashions Ltd. sr. notes 12 3/4s, 2004 339,200
Automotive (0.1%)
- ------------------------------------------------------------------------------------------------------------
111,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 123,210
40,000 Cambridge Industries, Inc. company guaranty
Ser. B, 10 1/4s, 2007 41,600
2,630,000 Chrysler Corp. deb. Ser. B, 7.45s, 2097 2,770,126
105,000 Delco Remy International, Inc. 144A sr. notes 8 5/8s, 2007 108,938
70,000 Hawk Corp. sr. notes 10 1/4s, 2003 76,125
840,000 Hayes Wheels International, Inc. company guaranty
Ser. B, 9 1/8s, 2007 880,950
800,000 Lear Corp. sub. notes 9 1/2s, 2006 893,000
--------------
4,893,949
Banks (1.7%)
- ------------------------------------------------------------------------------------------------------------
2,620,000 Abbey National First Capital PLC sub. notes 7.35s, 2049
(United Kingdom) 2,773,663
7,225,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 6,849,300
5,950,000 Advanta National Bank sr. notes 7.02s, 2001 5,971,301
145,000 Chevy Chase Savings Bank, Inc. sub. deb. 9 1/4s, 2005 150,800
5,330,000 Den Danske Bank 144A sub. notes 6.55s, 2003 (Denmark) 5,467,034
40,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 45,706
595,000 First Nationwide Holdings sr. sub. notes 10 5/8s, 2003 666,400
4,015,000 Firstar Capital Trust I company guaranty Ser. B, 8.32s, 2026 4,399,557
4,130,000 Greenpoint Bank sr. notes 6.7s, 2002 4,213,509
8,895,000 Merita Bank Ltd. sub. notes 6 1/2s, 2006 (Finland) 8,826,153
140,000 North Fork Capital Trust I company guaranty 8.7s, 2026 154,745
5,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 5,550
8,055,000 Peoples Bank Bridgeport sub. notes 7.2s, 2006 8,360,285
1,685,000 Peoples Heritage Capital Trust company guaranty Ser. B,
9.06s, 2027 1,880,561
90,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 96,799
3,750,000 Riggs National Corp. sub. deb. 8 1/2s, 2006 3,942,375
4,855,000 Sparbanken Sverige AB (Swedbank) 144A sub. 7 1/2s,
2006 (Sweden) 5,052,768
3,915,000 St. Paul Bancorp sr. notes 7 1/8s, 2004 4,040,632
2,000,000 State Development Bank of China deb. 12 1/2s, 1999 (China) 2,182,500
3,100,000 State Development Bank of China notes 7 3/8s, 2007 (China) 2,925,997
2,195,000 State Street Institution 144A company guaranty 7.94s, 2026 2,365,025
4,450,000 Webster Capital Trust I 144A bonds 9.36s, 2027 5,100,501
5,090,000 Webster Financial Corp. sr. notes 8 3/4s, 2000 5,376,567
--------------
80,847,728
Basic Industrial Products (--%)
- ------------------------------------------------------------------------------------------------------------
165,000 American Standard Companies, Inc. sr. notes 7 3/8s, 2008 164,588
175,000 Clark-Schwebel sr. notes 10 1/2s, 2006 192,500
90,000 Inter-City Products sr. notes 9 3/4s, 2000 92,250
120,000 Koppers Industries, Inc. 144A sr. sub. notes 9 7/8s, 2007 126,450
1,260,000 Navistar Intl. Corp. 144A sr. notes 7s, 2003 1,255,028
60,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 64,346
30,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 30,900
--------------
1,926,062
Broadcasting (0.2%)
- ------------------------------------------------------------------------------------------------------------
185,000 Acme Television/Finance 144A sr. disc. notes stepped-coupon
zero % (10 7/8s, 9/30/00), 2004 ++ 144,300
50,000 Affinity Group Holdings sr. sub. notes 11 1/2s, 2003 53,563
585,000 Affinity Group Holdings sr. notes 11s, 2007 631,800
10,000 Allbritton Communications Co. sr. sub. deb. 11 1/2s, 2004 10,513
240,000 Allbritton Communications Co. 144A sr. sub. notes 8 7/8s, 2008 240,000
800,000 American Radio Systems Corp. company guaranty 9s, 2006 854,000
202,000 Argyle Television Corp. sr. sub. notes 9 3/4s, 2005 227,250
400,000 Benedek Broadcasting sr. notes 11 7/8s, 2005 453,000
675,000 Benedek Communications Corp. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2006 ++ 533,250
650,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 667,875
190,000 Capstar Broadcasting sr. disc. notes stepped-coupon zero %
(12 3/4s, 2/1/02), 2009 ++ 138,700
80,000 Central European Media Enterprises Ltd. sr. notes 9 3/8s, 2004 81,600
185,000 Chancellor Media Corp. sr. sub. notes 9 3/8s, 2004 194,250
80,000 Citadel Broadcast 144A sr. sub. notes 10 1/4s, 2007 88,000
300,000 Commodore Media, Inc. sr. sub. notes stepped-coupon 7 1/2s,
(13 1/4s, 5/1/98), 2003 ++ 336,000
180,000 Facilicom International 144A sr. notes 10 1/2s, 2008 185,625
650,000 Fox/Liberty Networks LLC sr. disc. notes stepped-coupon
zero % (9 3/4s, 8/15/02), 2007 ++ 435,500
480,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 492,000
625,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 671,875
45,000 Gray Communications Systems, Inc. sr. sub. notes 10 5/8s, 2006 49,275
115,000 Heritage Media Services Corp. sr. sub. notes 8 3/4s, 2006 123,050
225,000 Jacor Communications, Inc. sr. sub. notes 10 1/8s, 2006 246,375
100,000 Jacor Communications, Inc. company guaranty 9 3/4s, 2006 108,000
925,000 Jacor Communications, Inc. company guaranty Ser. B,
8 3/4s, 2007 957,375
250,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 286,250
35,000 Radio One, Inc. company guaranty stepped-coupon Ser. B, 7s,
(12s, 5/15/00), 2004 ++ 35,350
200,000 Sinclair Broadcasting Group sr. sub. notes 10s, 2005 214,000
700,000 Sinclair Broadcast Group, Inc. company guaranty 9s, 2007 726,250
100,000 Spanish Broadcasting Systems sr. notes Ser. B, 11s, 2004 110,250
700,000 Spanish Broadcasting Systems sr. notes 12 1/2s, 2002 805,000
830,000 Sullivan Broadcasting sr. sub. notes 10 1/4s, 2005 896,400
85,000 TV Azteca S.A. de CV sr. notes 10 1/2s, 2007 (Mexico) 89,569
--------------
11,086,245
Building and Construction (0.1%)
- ------------------------------------------------------------------------------------------------------------
115,000 American Architectural Products Corp. 144A sr. notes
11 3/4s, 2007 118,881
175,000 Atrium Companies, Inc. sub. notes 10 1/2s, 2006 184,625
60,000 Building Materials Corp. sr. notes Ser. B, 8 5/8s, 2006 62,100
115,000 Congoleum Corp. sr. notes 9s, 2001 118,163
95,000 Continental Homes Holding Corp. sr. notes 10s, 2006 102,600
300,000 GS Superhighway Holdings 144A sr. notes 10 1/4s, 2007 273,000
3,300,000 Guangdong Enterprises 144A sr. notes 8 7/8s, 2007 (China) 2,610,399
200,000 M.D.C. Holdings, Inc. notes Ser. B, 11 1/8s, 2003 220,500
137,000 Terex Corp. sr. notes Ser. B, 13 1/4s, 2002 156,180
--------------
3,846,448
Business Equipment and Services (0.1%)
- ------------------------------------------------------------------------------------------------------------
115,000 Aramark Corp. sub. notes 8 1/2s, 2003 117,875
120,000 ATC Group Services, Inc. 144A sr. sub. notes 12s, 2008 123,000
70,000 Axiohm Transactions Solutions 144A sr. sub. notes 9 3/4s, 2007 71,050
170,000 Corporate Express, Inc. sr. sub. notes Ser. B, 9 1/8s, 2004 174,250
610,000 Iron Mountain, Inc. med. term notes company guaranty
10 1/8s, 2006 666,425
100,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 110,000
649,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 739,860
800,000 Unicco Service Co. 144A company guaranty 9 7/8s, 2007 814,000
45,000 Williams Scotsman, Inc. 144A sr. notes 9 7/8s, 2007 46,856
--------------
2,863,316
Cable Television (0.3%)
- ------------------------------------------------------------------------------------------------------------
100,000 Adelphia Communications Corp. sr. notes Ser. B, 10 1/4s, 2000 103,750
250,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007 272,500
261,875 Adelphia Communications Corp. sr. notes 9 1/2s, 2004 [2 DBL. DAGGERS] 269,731
10,000 Cablevision Systems Corp. sr. sub. deb. 9 7/8s, 2023 11,100
100,000 Cablevision Systems Corp. sr. sub. notes 9 1/4s, 2005 107,000
355,000 Century Communications Corp. sr. notes 9 1/2s, 2005 383,400
850,000 Century Communications Corp. sr. notes 8 7/8s, 2007 886,125
310,000 Century Communications Corp. 144A sr. disc. notes
zero %, 2008 131,750
605,000 Comcast Corp. sr. sub. notes 9 1/2s, 2008 645,644
250,000 Comcast Corp. sr. sub. notes 9 3/8s, 2005 268,828
240,000 Comcast Corp. sr. sub. notes 9 1/8s, 2006 254,400
4,825,000 Continental Cablevision, Inc. sr. deb. 9 1/2s, 2013 5,750,725
10,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (13 1/4s, 9/30/99), 2004
(United Kingdom) ++ 9,025
625,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) ++ 490,625
1,670,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) ++ 1,148,125
150,000 Heartland Wireless Communications, Inc. sr. notes Ser. B,
14s, 2004 56,625
1,010,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B,
zero % (11 1/2s, 2/01/01), 2006 ++ 810,525
390,000 Jones Intercable, Inc. sr. sub. deb. 10 1/2s, 2008 429,000
490,000 Lenfest Communications, Inc. 144A sr. sub. notes 8 1/4s, 2008 488,657
500,000 Marcus Cable Co. (L.P.) sr. deb. 11 7/8s, 2005 542,500
765,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes stepped-coupon
zero % (13 1/2s, 8/1/99), 2004 ++ 722,925
100,000 Rogers Cablesystems Ltd. notes 11s, 2015 118,000
5,000 Rogers Cablesystems Ltd. deb. 10 1/8s, 2012 5,525
225,000 Rogers Cablesystems Ltd. sr. notes Ser. B, 10s, 2005 253,125
50,000 Wireless One, Inc. sr. notes 13s, 2003 15,375
--------------
14,174,985
Cellular Communications (--%)
- ------------------------------------------------------------------------------------------------------------
80,000 Pronet, Inc. sr. sub. notes 11 7/8s, 2005 85,600
Chemicals (0.2%)
- ------------------------------------------------------------------------------------------------------------
220,000 Great Lakes Carbon Corp. sr. notes 10s, 2006 239,800
275,000 Huntsman Corp. 144A sr. sub. notes FRN 9.187s, 2007 280,500
1,640,000 Lyondell Petrochemical Co. notes 9 1/8s, 2002 1,813,807
150,000 NL Industries, Inc. sr. notes stepped-coupon zero %
(13s, 10/15/98), 2005 ++ 149,250
500,000 PCI Chemicals & Pharmaceuticals 144A sr. notes 9 1/4s,
2007 (Canada) 502,500
115,000 Pharmaceutical Fine Chemicals 144A sr. sub. notes 9 3/4s,
2007 (Switzerland) 118,738
3,775,000 Sociedad Quimica Y Minera de Chile S.A. 144A bonds 7.7s,
2006 (Chile) 3,925,623
125,000 Sovereign Specialty Chemical 144A sr. sub. notes 9 1/2s, 2007 131,563
135,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 ++ 84,375
705,000 Sterling Chemicals, Inc. sr. sub. notes Ser. A, 11 1/4s, 2007 726,150
100,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 88,000
125,000 Union Carbide Global Enterprises sr. sub. notes Ser. B, 12s, 2005 139,063
--------------
8,199,369
Computer Services and Software (--%)
- ------------------------------------------------------------------------------------------------------------
155,000 Computervision Corp. sr. sub. notes 11 3/8s, 1999 158,100
Conglomerates (--%)
- ------------------------------------------------------------------------------------------------------------
30,000 Cia Latino Americana 144A company guaranty 11 5/8s,
2004 (Argentina) 30,300
195,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes 13s, 1999 195,731
--------------
226,031
Consumer Durable Goods (--%)
- ------------------------------------------------------------------------------------------------------------
40,000 CLN Holdings, Inc. sr. disc. notes zero %, 2001 23,600
35,000 Foamex, L.P. company guaranty 9 7/8s, 2007 36,050
40,000 Hedstrom Corp. 144A 10s, 2007 41,100
20,000 Hedstrom Holdings, Inc. 144A sr. disc. notes zero %
(12s, 6/1/02), 2009 ++ 12,400
120,000 Remington Products Co. sr. sub. notes Ser. B, 11s, 2006 103,800
110,000 Sealy Mattress Co. 144A sr. sub. notes 9 7/8s, 2007 115,775
165,000 Selmer Co., Inc. sr. sub. notes 11s, 2005 180,675
--------------
513,400
Consumer Non Durables (0.1%)
- ------------------------------------------------------------------------------------------------------------
60,000 Amscan Holdings, Inc. 144A sr. sub. notes 9 7/8s, 2007 62,700
650,000 Carson, Inc. 144A sr. sub. notes 10 3/8s, 2007 650,000
220,000 Coty, Inc. Gtd. sr. sub. notes 10 1/4s, 2005 233,750
1,345,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 1,395,438
--------------
2,341,888
Consumer Products (0.3%)
- ------------------------------------------------------------------------------------------------------------
1,155,000 Philip Morris Cos., Inc. deb. 7 3/4s, 2027 1,238,449
1,405,000 Philip Morris Cos., Inc. notes 7 1/2s, 2004 1,480,786
2,925,000 Philip Morris Cos., Inc. notes 7 1/8s, 2004 3,022,724
2,800,000 Philip Morris Cos., Inc. notes 6.8s, 2003 2,875,040
200,000 Revlon Worldwide Corp. sr. disc. notes Ser. B, zero %, 2001 147,000
5,225,000 Sampoerna International Finance Co. 144A company guaranty
8 3/8s, 2006 (Indonesia) 2,978,250
--------------
11,742,249
Consumer Related (--%)
- ------------------------------------------------------------------------------------------------------------
35,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 36,925
Consumer Services (0.1%)
- ------------------------------------------------------------------------------------------------------------
450,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 486,000
300,000 Coinmach Corp. 144A sr. notes 11 3/4s, 2005 334,500
248,750 Coinmach Corp. sr. notes Ser. B, 11 3/4s, 2005 278,600
448,375 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003 [2 DBL. DAGGERS] 499,938
490,000 Fitzgeralds Gaming Corp. 144A company guaranty
12 1/4s, 2004 504,700
120,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 130,500
140,000 Host Marriott Travel Plaza sr. notes Ser. B, 9 1/2s, 2005 149,975
100,000 Isle of Capri Black Hawk LLC 1st mtge. Ser. B, 13s, 2004 101,500
80,000 Penn National Gaming, Inc. 144A sr. notes 10 5/8s, 2004 83,800
1,000,000 Perkins Family Restaurants L.P. 144A sr. notes 10 1/8s, 2007 1,050,000
500,000 Production Resource Group 144A sr. sub. notes 11 1/2s, 2008 505,000
--------------
4,124,513
Electronics and Electrical Equipment (0.1%)
- ------------------------------------------------------------------------------------------------------------
110,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s,
2006 (Canada) 117,150
126,767 Cirent Semiconductor sr. sub. notes 10.22s, 2002 129,619
134,534 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 137,898
125,000 Details, Inc. 144A sr. sub. notes 10s, 2005 132,500
650,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 659,750
120,000 Dobson Communications Corp. 11 3/4s, 2007 130,800
1,116,651 Fairchild Semiconductor Corp. sr. sub. notes 11.74s, 2008 [2 DBL. DAGGERS] 1,239,483
1,270,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 1,349,375
360,000 Flag Limited 144A sr. notes 8 1/4s, 2008 (Bermuda) 369,900
160,000 Flextronics Internationl Ltd. 144A sr. sub. notes 8 3/4s, 2007 162,000
45,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 46,688
200,000 International Semi-Tech. Corp. sr. secd. disc. notes
stepped-coupon zero % (11 1/2s, 8/15/00), 2003
(Canada) ++ 64,000
150,000 Motors and Gears, Inc. 144A sr. notes 10 3/4s, 2006 162,750
190,000 Motors and Gears, Inc. sr. notes Ser. B, 10 3/4s, 2006 206,150
85,000 Prestolite Electric, Inc. 144A sr. notes 9 5/8s, 2008 86,913
1,500,000 Unisys Corp. deb. 9 3/4s, 2016 1,560,000
100,000 Viasystems, Inc. sr. sub notes 9 3/4s, 2007 103,500
25,000 Wavetek Corp. company guaranty 10 1/8s, 2007 26,250
--------------
6,684,726
Energy-Related (0.3%)
- ------------------------------------------------------------------------------------------------------------
435,000 AES Corp. sr. sub. notes 8 3/8s, 2007 445,875
8,990,000 Calenergy, Inc. sr. notes 7.63s, 2007 9,210,165
175,000 Panda Global Energy Co. company guaranty 12 1/2s, 2004 157,500
3,350,000 Quezon Power Ltd. sr. notes 8.86s, 2017 (Philippines) 2,788,205
--------------
12,601,745
Entertainment (1.1%)
- ------------------------------------------------------------------------------------------------------------
1,070,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 1,123,500
140,000 Argosy Gaming Co. 1st mtge. 13 1/4s, 2004 152,250
450,000 Aztar Corp. sr. sub. notes 11s, 2002 465,188
75,000 Casino America, Inc. sr. notes 12 1/2s, 2003 83,250
725,000 Cinemark USA, Inc. notes 9 5/8s, 2008 764,875
400,000 Cinemark USA, Inc. sr. sub. notes 9 5/8s, 2008 425,000
350,000 Coast Hotels & Casinos, Inc. 1st mtge. company guaranty
Ser. B, 13s, 2002 402,500
220,000 Empress River Casino sr. notes 10 3/4s, 2002 238,700
700,000 Harvey Casino Resorts sr. sub. notes 10 5/8s, 2006 780,500
150,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 165,000
435,000 Lady Luck Gaming 1st mtge. 11 7/8s, 2001 448,050
510,000 Mohegan Tribal Gaming sr. secd. notes Ser. B, 13 1/2s, 2002 655,350
14,965,000 News America Holdings, Inc. deb. 7 3/4s, 2045 15,557,464
7,515,000 News America Holdings, Inc. deb. 7.7s, 2025 7,818,831
125,000 Players International, Inc. sr. notes 10 7/8s, 2005 135,625
210,000 Premier Parks, Inc. sr. notes Ser. A, 12s, 2003 234,150
390,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 273,000
750,000 Regal Cinemas, Inc. sr. sub. notes 8 1/2s, 2007 765,000
575,000 Showboat Marina Casino 1st mtge. Ser. B, 13 1/2s, 2003 691,438
840,000 Six Flags Corp. sr. sub. notes stepped-coupon zero %
(12 1/4s, 6/15/98), 2005 ++ 912,450
650,000 Sun International Hotels Ltd. company guaranty 9s, 2007 689,000
2,670,000 Time Warner Entertainment, Inc. notes 8 7/8s, 2012 3,123,419
12,535,000 Time Warner Entertainment, Inc. sr. notes 8 3/8s, 2033 14,397,826
660,000 Time Warner Entertainment, Inc. deb. 7 1/4s, 2008 691,119
350,000 Trump A.C. 1st mtge. 11 1/4s, 2006 364,000
1,750,000 Viacom International, Inc. sub. deb. 8s, 2006 1,793,750
--------------
53,151,235
Environmental Control (--%)
- ------------------------------------------------------------------------------------------------------------
160,000 Allied Waste Industries, Inc. sr. disc. notes stepped-coupon
zero % (11.3s, 6/1/02), 2007 ++ 116,800
Food and Beverages (0.1%)
- ------------------------------------------------------------------------------------------------------------
65,000 Ameriserve Food Co. company guaranty 10 1/8s, 2007 70,200
215,000 Ameriserve Food Co. company guaranty 8 7/8s, 2006 221,988
50,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 53,250
895,000 Canandaigua Wine Co. sr. sub. notes Ser. C, 8 3/4s, 2003 921,850
325,000 Chiquita Brands sr. notes 9 5/8s, 2004 343,688
75,000 Eagle Family Foods 144A sr. sub. notes 8 3/4s, 2008 75,563
135,000 Fleming Companies, Inc. 144A sr. sub. notes 10 1/2s, 2004 143,100
40,000 Packaged Ice, Inc. 144A sr. notes 9 3/4s, 2005 40,800
150,000 Signature Brands Ltd. sr. sub. notes 13s, 2002 (Canada) 162,000
100,000 Southern Foods Group 144A sr. sub. notes 9 7/8s, 2007 106,250
170,000 Stater Brothers sr. notes 11s, 2001 187,850
670,000 Stater Brothers 144A sr. sub. notes 9s, 2004 693,450
20,000 Windy Hill Pet Food Co. sr. sub. notes 9 3/4s, 2007 21,250
--------------
3,041,239
Health Care (0.3%)
- ------------------------------------------------------------------------------------------------------------
380,000 Extendicare, Inc. 144A sr. sub. notes 9.35s, 2007 399,475
230,000 Fisher Scientific International, Inc. 144A sr. sub. notes 9s, 2008 236,038
925,000 Genesis Eldercare 144A sr. sub. notes 9s, 2007 943,500
280,000 Genesis Health Ventures, Inc. sr. sub. notes 9 1/4s, 2006 293,300
200,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007 211,500
350,000 Integrated Health Services, Inc. 144A sr. sub. notes 9 1/4s, 2008 367,500
170,000 Magellan Health Services, Inc. sr. sub. deb. Ser. A, 11 1/4s, 2004 189,550
1,870,000 Manor Care, Inc. sr. notes 7 1/2s, 2006 1,860,818
500,000 MedPartners, Inc. sr. notes 7 3/8s, 2006 472,500
260,000 Merit Behavioral Care sr. sub. notes 11 1/2s, 2005 310,700
175,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 180,250
830,000 Paragon Health Networks, Inc. 144A sr. sub. notes 9 1/2s, 2007 867,350
450,000 Quorum Health Group, Inc. sr. sub. notes 8 3/4s, 2005 474,750
430,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 1/2s, 2007 451,500
1,200,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 1,258,500
3,825,000 Tenet Healthcare Corp. sr. notes 8s, 2005 3,954,094
--------------
12,471,325
Insurance and Finance (2.1%)
- ------------------------------------------------------------------------------------------------------------
105,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 99,750
3,720,000 AFC Capital Trust I company guaranty Ser. B, 8.207s, 2027 4,147,316
1,990,000 Allstate Financing II company guaranty 7.83s, 2045 2,100,405
1,500,000 AMBAC Indemnity Corp. deb. 9 3/8s, 2011 1,888,575
8,465,000 American General Institute 144A company guaranty
8 1/8s, 2046 9,349,931
340,000 Colonial Capital I 144A company guaranty 8.92s, 2027 370,175
4,740,000 Conseco, Inc. sr. notes 10 1/2s, 2004 5,728,195
80,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 76,800
110,000 Dine S.A. de C.V. 144A company guaranty 8 3/4s,
2007 (Luxembourg) 105,875
90,000 Dollar Financial Group, Inc. sr. notes Ser. A, 10 7/8s, 2006 98,100
120,000 Espirto Santo Centrais 144A sr. notes 10s, 2007 (Luxembourg) 115,200
7,250,000 Executive Risk Capital Trust company guaranty Ser. B,
8.675s, 2027 7,972,318
1,880,000 First Financial Caribbean Corp. sr. notes 7.84s, 2006 2,003,065
5,145,000 Firstar Bank Milwaukee sr. bank notes 6 1/4s, 2002 5,150,627
1,920,000 Greenpoint Capital Trust I company guaranty 9.1s, 2027 2,168,467
2,625,000 Hartford Life, Inc. deb. 7.65s, 2027 2,800,875
175,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 173,250
100,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 96,000
150,000 Intertek Finance PLC 144A sr. sub. notes 10 1/4s, 2006
(United Kingdom) 158,250
205,000 Investors Capital Trust I company guaranty Ser. B, 9.77s, 2027 227,038
6,225,000 Lehman Bros Holdings, Inc. med. term notes 6.4s, 1999 6,286,254
3,775,000 Markel Capital Trust I 8.71s, 2046 4,125,433
8,695,000 Money Store, Inc. notes 8.05s, 2002 8,885,421
110,000 Nationwide Credit, Inc. 144A sr. notes 10 1/4s, 2008 112,475
80,000 Netia Holdings B.V. 144A company guaranty 10 1/4s,
2007 (Poland) 80,200
50,000 Netia Holdings B.V. 144A company guaranty stepped-coupon
zero % (11 1/4s, 11/1/01), 2007 (Poland) ++ 33,000
70,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 77,000
2,000,000 Orion Capital Corp. sr. notes 9 1/8s, 2002 2,223,680
4,825,000 Phoenix Home Life Mutual Insurance Co. 144A notes
6.95s, 2006 4,977,663
35,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 35,438
150,000 Polytama International notes 11 1/4s, 2007 75,000
185,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 195,338
345,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 2003 370,865
6,350,000 Salomon, Inc. sr. notes 7.3s, 2002 6,622,098
3,195,000 Southern Investments Service Co. sr. notes 6.8s,
2006 (United Kingdom) 3,268,102
75,000 Sovereign Capital Trust company guaranty 9s, 2027 82,186
8,015,000 TIG Capital Trust I 144A bonds 8.597s, 2027 8,595,767
4,745,000 Trenwick Capital Trust I company guaranty 8.82s, 2037 5,062,441
2,385,000 USF&G Corp. 144A company guaranty 8.312s, 2046 2,722,001
130,000 Vicap S.A. 144A company guaranty 10 1/4s, 2002 (Mexico) 133,250
--------------
98,793,824
Lodging (--%)
- ------------------------------------------------------------------------------------------------------------
167,000 John Q Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 172,845
155,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 168,950
90,000 Prime Hospitality Corp. 1st mtge. 9 1/4s, 2006 96,300
--------------
438,095
Medical Supplies and Devices (--%)
- ------------------------------------------------------------------------------------------------------------
265,000 ALARIS Medical Inc. company guaranty 9 3/4s, 2006 280,900
150,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 167,250
175,000 Graphic Controls Corp. sr. sub. notes Ser. A, 12s, 2005 196,875
55,000 Imagyn Medical Technologies company guaranty 12 1/2s, 2004 33,000
480,000 Kinetic Concepts, Inc. 144A sr. sub. notes 9 5/8s, 2007 499,200
430,000 Wright Medical Technology, Inc. 144A notes Ser. C,
11 3/4s, 2000 430,000
--------------
1,607,225
Metals and Mining (0.2%)
- ------------------------------------------------------------------------------------------------------------
630,000 AK Steel Corp. sr. notes 9 1/8s, 2006 667,800
40,000 Altos Hornos De Mexico sr. notes 11 7/8s, 2004 (Mexico) 41,400
150,000 Anker Coal Group, Inc. 144A sr. notes 9 3/4s, 2007 154,500
105,000 Armco, Inc. sr. notes 9s, 2007 105,000
70,000 Bucyrus International, Inc. 9 3/4s, 2007 69,650
100,000 Continental Global Group sr. notes Ser. B, 11s, 2007 107,000
1,915,000 Freeport-McMoRan Copper & Gold Co., Inc. sr. notes
7 1/2s, 2006 1,636,674
320,000 Hylsa S.A. de C.V. 144A bonds 9 1/4s, 2007 (Mexico) 316,000
20,000 Maxxam Group Holdings, Inc. sr. notes Ser. B, 12s, 2003 21,700
3,765,000 Noranda, Inc. notes 7s, 2005 (Canada) 3,835,443
3,870,000 PT Alatief Freeport sr. notes 9 3/4s, 2001 (Netherlands) 3,703,590
250,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 266,250
--------------
10,925,007
Oil and Gas (0.9%)
- ------------------------------------------------------------------------------------------------------------
145,000 Abraxas Petroleum Corp. 144A sr. notes Ser. B, 11 1/2s, 2004 155,875
100,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 110,500
750,000 Benton Oil & Gas Co. 144A sr. notes 9 3/8s, 2007 774,375
100,000 Chesapeake Energy Corp. sr. notes 10 1/2s, 2002 106,625
95,000 CIA Naviera Perez Companc S.A. 144A bonds 9s,
2004 (Argentina) 96,425
140,000 Coho Energy, Inc. sr. sub. notes 8 7/8s, 2007 139,300
1,010,000 Costilla Energy, Inc. sr. notes 10 1/4s, 2006 1,050,400
55,000 Dailey Petroleum Services Corp. 144A company guaranty
9 3/4s, 2007 57,750
60,000 DI Industries, Inc. sr. notes 8 7/8s, 2007 62,850
3,365,000 Express Pipeline 144A sub. notes 7.39s, 2017 3,365,000
575,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 626,750
875,000 Gulf Canada Resources Ltd. sr. sub. notes 9 5/8s,
2005 (Canada) 949,375
3,205,000 Gulf Canada Resources, Ltd. sr. notes 8.35s, 2006 (Canada) 3,505,052
80,000 Newpark Resources, Inc. 144A sr. sub. notes 8 5/8s, 2007 82,400
150,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 157,875
200,000 Pacalta Resources Ltd. sr. notes Ser. B, 10 3/4s, 2004 (Canada) 198,000
750,000 Panaco, Inc. company guaranty Ser. B, 10 5/8s, 2004 757,500
155,000 Parker Drilling Corp. sr. notes Ser. B, 9 3/4s, 2006 167,013
2,720,000 Petro Geo-Services AS ADR notes 7 1/2s, 2007 (Norway) 2,920,301
3,000,000 Petro-Canada deb. 9 1/4s, 2021 (Canada) 3,857,580
200,000 Petsec Energy, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 203,000
7,920,000 Pioneer Natural Resources Co. bonds 7.2s, 2028 7,813,872
15,000 Pogo Producing Co. sr. sub. notes Ser. B, 8 3/4s, 2007 15,525
55,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 59,675
4,620,000 Saga Petroleum ASA deb. 7 1/4s, 2027 (Norway) 4,629,101
975,000 Seagull Energy sr. sub notes 8 5/8s, 2005 1,010,344
40,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 40,400
4,060,000 Sonat, Inc. notes 6 5/8s, 2008 4,084,360
90,000 Southwest Royalties, Inc. 144A company guaranty 10 1/2s, 2004 86,400
5,000 Texas Petrochemical Corp. sr. sub. notes 11 1/8s, 2006 5,475
3,430,000 Transamerican Energy sr. disc. notes stepped-coupon Ser. B,
zero % (13s, 6/15/99), 2002 ++ 2,846,900
440,000 Transamerican Energy sr. notes Ser. B, 11 1/2s, 2002 448,250
425,000 TransTexas Gas Corp. sr. sub. notes Ser. D, 13 3/4s, 2001 476,000
185,000 Trico Marine Services, Inc. company guaranty Ser. B, 8 1/2s, 2005 187,775
35,000 Wiser Oil Co. company guaranty 9 1/2s, 2007 34,738
--------------
41,082,761
Packaging and Containers (--%)
- ------------------------------------------------------------------------------------------------------------
100,000 AEP Industries, Inc. 144A sr. sub. notes 9 7/8s, 2007 105,750
170,000 Huntsman Packaging Corp. 144A sr. sub. notes 9 1/8s, 2007 175,525
130,000 Innova S. De R.L. sr. notes 12 7/8s, 2007 (Mexico) 139,100
95,000 Norampac Inc. 144A sr. notes 9 1/2s, 2008 (Canada) 96,900
130,000 Radnor Holdings, Inc. 144A sr. notes Ser. B, 10s, 2003 137,150
90,000 Radnor Holdings, Inc. sr. notes 10s, 2003 94,500
155,000 Riverwood International Corp. company guranty 10 7/8s, 2008 153,450
450,000 Riverwood International Corp. company guaranty 10 1/4s, 2006 464,625
--------------
1,367,000
Paper and Forest Products (0.1%)
- ------------------------------------------------------------------------------------------------------------
135,000 APP International Finance Co. notes 11 3/4s, 2005 (Netherlands) 117,450
225,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 2003 239,625
510,000 Indah Kiat Financial Mauritius Ltd. company guaranty 10s,
2007 (Indonesia) 392,700
2,405,000 Pindo Deli Finance Mauritius Ltd. 144A company guaranty
10 3/4s, 2007 (India) 1,851,850
500,000 PT Pabrik Kertas Tjiwi Kimia 144A company guaranty 10s,
2004 (Indonesia) 385,000
145,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 139,925
500,000 Repap New Brunswick sr. notes 9 7/8s, 2000 (Canada) 510,000
--------------
3,636,550
Pharmaceuticals (--%)
- ------------------------------------------------------------------------------------------------------------
200,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 211,250
Publishing (--%)
- ------------------------------------------------------------------------------------------------------------
170,000 American Media Operation, Inc. sr. sub. notes 11 5/8s, 2004 185,300
180,000 Garden State Newspapers 144A sr. sub. notes 8 3/4s, 2009 185,400
65,000 Hollinger International Publishing, Inc. company guaranty
9 1/4s, 2007 69,550
100,000 Hollinger International Publishing, Inc. sr. sub. notes 9 1/4s, 2006 106,750
65,000 Hollinger International Publishing, Inc. company guaranty
8 5/8s, 2005 68,250
120,000 Perry-Judd 144A sr. sub. notes 10 5/8s, 2007 126,000
40,000 Von Hoffman Press, Inc. 144A sr. sub. notes 10 3/8s, 2007 43,400
--------------
784,650
REITs (Real Estate Investment Trust) (0.9%)
- ------------------------------------------------------------------------------------------------------------
4,920,000 Avalon Properties, Inc. notes 6 7/8s, 2007 4,937,958
4,670,000 Avalon Properties, Inc. notes 5 5/8s, 2005 4,675,838
5,500,000 First Industrial Realty Trust, Inc. notes 7.6s, 2007 5,828,625
1,685,000 Health Care Property Investors, Inc. sr. notes 6 1/2s, 2006 1,661,393
1,305,000 HMH Properties, Inc. company guaranty Ser. B, 8 7/8s,
2007 (Canada) 1,386,563
10,015,000 National Health Investors, Inc. bonds 7.3s, 2007 10,521,759
9,095,000 OMEGA Healthcare Investors, Inc. notes 6.95s, 2007 9,175,309
3,050,000 Sun Communities, Inc. sr. notes 7 5/8s, 2003 3,229,737
120,000 Tanger Properties (L.P.) gtd. notes 8 3/4s, 2001 125,990
--------------
41,543,172
Real Estate (0.3%)
- ------------------------------------------------------------------------------------------------------------
3,650,000 Chelsea GCA Realty, Inc. notes 7 1/4s, 2007 3,746,105
9,950,000 First Industrial LP med. term notes 7s, 2006 10,162,035
--------------
13,908,140
Retail (0.4%)
- ------------------------------------------------------------------------------------------------------------
1,200,000 Big 5 Corp. 144A sr. notes 10 7/8s, 2007 1,215,000
13,685,000 Federated Department Stores sr. notes 8 1/2s, 2003 15,078,407
350,000 Jitney-Jungle Stores company guaranty 12s, 2006 396,375
130,000 Johns Manville International Group sr. notes 10 7/8s, 2004 144,463
1,300,000 K mart Corp. deb. 7.95s, 2023 1,277,250
3,127,891 K mart Corp. stepped-coupon zero %, (10.45s, 8/1/09), 2021++ 1,083,032
150,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 160,500
155,000 Ralphs Grocery Co. company guaranty 10.45s, 2004 176,313
400,000 Ralphs Grocery Co. sr. notes 10.45s, 2004 456,000
695,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 562,950
60,000 Specialty Retailers, Inc. company guaranty Ser. B, 8 1/2s, 2005 60,750
85,000 William Carter Co. 144A sr. sub. notes 12s, 2008 91,163
230,000 William Carter Co. sr. sub. notes Ser. A, 10 3/8s, 2006 244,950
200,000 Zale Corp. 144A sr. notes 8 1/2s, 2007 202,500
--------------
21,149,653
Satellite Services (--%)
- ------------------------------------------------------------------------------------------------------------
140,000 Echostar DBS Corp. company guaranty 12 1/2s, 2002 155,750
205,000 Esat Holdings Ltd. 144A sr. notes stepped-coupon zero %
(12 1/2s, 2/01/02), 2007 (Ireland) ++ 151,188
200,000 Globalstar L.P. Capital 11 3/8s, 2004 204,000
230,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes 10 1/8s,
2004 (Mexico) 236,325
--------------
747,263
Specialty Consumer Products (--%)
- ------------------------------------------------------------------------------------------------------------
35,000 GFSI, Inc. sr. sub. notes Ser. B, 9 5/8s, 2007 36,575
220,000 Herff Jones, Inc. sr. sub. notes 11s, 2005 242,000
--------------
278,575
Telecommunications (1.0%)
- ------------------------------------------------------------------------------------------------------------
90,000 America Communication Services, Inc. 144A sr. notes
13 3/4s, 2007 108,450
120,000 Antenna TV S.A. 144A 9s, 2007 122,400
2,000,000 Barak ITC 144A sr. disc. notes stepped-coupon zero %
(12 1/2s, 11/15/02), 2007 (Israel) ++ 1,160,000
400,000 Celcaribe S.A. sr. notes stepped-coupon zero %
(13 1/2s, 3/15/98), 2004 ++ 413,000
1,155,000 Cellnet Data Systems, Inc. sr. disc. notes stepped-coupon Ser. AI,
zero % (14s, 10/1/02), 2007 ++ 577,500
250,000 Cencall Communications Corp. sr. disc. notes stepped-coupon
zero % (10 1/8s, 1/15/99), 2004 ++ 241,250
440,000 Centennial Cellular Corp. sr. notes 8 7/8s, 2001 455,400
9,610,000 Colt Telecommunications Group PLC sr. notes 8 7/8s,
2007 (United Kingdom) 5,699,913
150,000 Comcast Cellular Holdings sr. notes Ser. B, 9 1/2s, 2007 158,063
4,330,000 Compania Telecom Chile notes 7 5/8s, 2006 (Chile) 4,355,590
40,000 Consorcio Ecuatoriano notes 14s, 2002 (Ecuador) 40,800
140,000 Esprit Teleom Group PLC sr. notes 11 1/2s,
2007 (United Kingdom) 148,750
105,000 Fonorola, Inc. sr. notes 12 1/2s, 2002 (Canada) 117,600
490,000 Fox Kids Worldwide, Inc. 144A sr. discount notes
stepped-coupon zero % (10 1/4s, 11/1/02), 2007 ++ 301,350
930,000 Fox Kids Worldwide, Inc. 144A sr. notes 9 1/4s, 2007 925,350
500,000 Frontiervision Holdings LP sr. disc. notes stepped-coupon
zero % (11 7/8s, 9/15/01), 2007 ++ 382,500
105,000 Frontiervision Operating Partners L.P. sr. sub. notes 11s, 2006 117,338
105,000 FWT, Inc. 144A sr. sub. notes 9 7/8s, 2007 102,900
750,000 GST Telecommunications, Inc. company guaranty
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 ++ 622,500
300,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 5/1/01), 2006 ++ 228,000
210,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 2/1/01), 2006 ++ 163,800
1,525,000 Intermedia Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 1/4s, 7/15/02), 2007 ++ 1,117,063
350,000 Intermedia Communications, Inc. 144A sr. notes 8 1/2s, 2008 363,125
370,000 Iridium LLC/Capital Corp. company guaranty Ser. B, 14s, 2005 415,325
60,000 Iridium LLC/Capital Corp. 144A sr. notes 11 1/4s, 2005 61,350
60,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 66,450
10,165,000 LCI International, Inc. sr. notes 7 1/4s, 2007 10,568,144
180,000 McCaw International Ltd sr. discount notes stepped-coupon
zero % (13s, 4/15/02), 2007 ++ 114,300
195,000 McLeodUSA, Inc. sr. disc. notes stepped-coupon zero %
(10 1/2s, 3/1/02), 2007 ++ 147,225
115,000 Metronet Communications 144A sr. disc. notes zero %
(10 3/4s, 11/1/02), 2007 ++ 74,175
500,000 Metrocall, Inc. 144A sr. sub. notes 9 3/4s, 2007 497,500
1,150,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01),
2006 (Luxembourg) ++ 876,875
205,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 238,313
860,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (10.65s, 9/15/02), 2007 ++ 565,450
700,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (9 3/4s, 10/31/02), 2007 ++ 455,000
1,100,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (9 3/4s, 2/15/99), 2004 ++ 1,050,500
750,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (11 1/2s, 9/1/98), 2003 ++ 757,500
60,000 Northland Cable Television 144S sr. sub. notes 10 1/4s, 2007 64,350
315,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 344,925
600,000 Omnipoint Corp. sr. notes Ser. A, 11 5/8s, 2006 657,000
215,000 Orbcomm Global Capital Corp. sr. notes Ser. B, 14s, 2004 242,950
250,000 Paging Network, Inc. sr. sub. notes 10s, 2008 260,000
50,000 Pegasus Communications Corp. 144A sr. notes 9 5/8s, 2005 52,250
130,000 Pratama Datakom Asia BV 144A company guaranty 12 3/4s,
2005 (Indonesia) 58,500
400,000 Pricellular Wireless Corp. sr. notes 10 3/4s, 2004 441,000
300,000 Qwest Communications International, Inc. 144A sr. disc. ntoes
stepped-coupon zero % (9.47s, 10/15/02), 2007 ++ 211,875
510,000 RCN Corp. sr. disc. notes stepped-coupon zero %
(11 1/8s, 10/15/02), 2007 ++ 342,975
70,000 RCN Corp. sr. notes 10s, 2007 74,900
690,000 RCN Corp. 144A sr. disc. notes stepped-coupon zero %
(9.8s, 2/15/03), 2007 ++ 426,640
750,000 Rogers Cantel Mobile Communications, Inc. deb. 9 3/4s,
2016 (Canada) 817,500
100,000 Sprint Spectrum L.P. sr. notes 11s, 2006 114,750
110,000 Telesystem International Wireless, Inc. 144A sr. disc. notes
stepped-coupon zero % (10 1/2s, 11/1/02),
2007 (Canada) ++ 66,275
100,000 Transtel S.A. 144A pass through certificates 12 1/2s,
2007 (Colombia) 94,500
625,000 UIH Australia/Pacific sr. disc. notes stepped-coupon Ser. D,
zero % (14s, 5/15/01), 2006 (Australia) ++ 456,250
500,000 Winstar Equipment Corp. company guaranty 12 1/2s, 2004 581,250
9,340,000 WorldCom, Inc. notes 7 3/4s, 2007 10,080,288
--------------
49,198,927
Telephone Utilities (--%)
- ------------------------------------------------------------------------------------------------------------
750,000 BTI Telecom Corp. 144A sr. notes 10 1/2s, 2007 796,875
Textiles (--%)
- ------------------------------------------------------------------------------------------------------------
50,000 Glenoit Corp. 144A sr. sub. notes 11s, 2007 54,750
105,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 108,675
1,210,000 Polysindo International Eka company guaranty 13s,
2001 (Indonesia) 774,400
200,000 Polysindo International Finance company guaranty 11 3/8s,
2006 (Indonesia) 114,000
150,000 Tultex Corp. sr. notes 10 5/8s, 2005 157,125
140,000 Worldtex, Inc. 144A sr. notes 9 5/8s, 2007 145,950
--------------
1,354,900
Transportation (0.8%)
- ------------------------------------------------------------------------------------------------------------
55,000 Atlantic Express, Inc. 144A company guaranty 10 3/4s, 2004 58,850
75,000 Blue Bird Body Co. sr. sub. notes Ser. B, 10 3/4s, 2006 82,313
4,275,000 Burlington Northern Santa Fe notes 6 3/8s, 2005 4,287,398
25,000 Chemical Leaman Corp. sr. notes 10 3/8s, 2005 26,500
55,000 Coach USA, Inc. 144A company guaranty 9 3/8s, 2007 57,200
190,000 Consorcio/MCII Holdings sec. notes stepped-coupon zero %
(12s, 11/15/98), 2002 ++ 173,850
2,105,000 Continental Airlines, Inc. pass thru cert. Ser. 97CI, 7.42s, 2007 2,200,567
590,000 Continental Airlines, Inc. sr. notes 9 1/2s, 2001 637,200
5,755,000 CSX Corp. deb. 7.95s, 2027 6,459,757
430,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s, 2003 (Greece) 446,125
140,000 Hermes Europe Railtel 144A sr. notes 11 1/2s,
2007 (Netherlands) 156,800
150,000 International Shipholding Corp. sr. notes 9s, 2003 153,938
100,000 International Shipholding Corp. 144A sr. notes 7 3/4s, 2007 99,500
165,000 Johnstown America Industries, Inc. company guaranty Ser. C,
11 3/4s, 2005 183,975
290,000 Kitty Hawk, Inc. 144A sr. notes 9.95s, 2004 303,050
10,275,000 Norfolk Southern Corp. bonds 7.8s, 2027 11,510,363
8,430,000 Norfolk Southern Corp. bonds 7.05s, 2037 8,917,507
890,000 Offshore Logistics 144A sr. notes 7 7/8s, 2008 893,338
600,000 Pegasus Shipping 144A company guaranty 11 7/8s, 2004 594,000
2,000,000 Southwest Airlines Co. deb. 7 7/8s, 2007 2,220,440
30,000 TFM S.A. de CV 144A company guaranty 10 1/4s, 2007 (Mexico) 31,200
160,000 TFM S.A. de CV 144A company guaranty stepped-coupon
zero % (11 3/4s, 6/15/02), 2009 (Mexico) ++ 105,600
575,000 US Air, Inc. pass thru certificates Ser. 93-A2, 9 5/8s, 2003 621,000
149,000 Viking Star Shipping sr. secd. notes 9 5/8s, 2003 151,980
--------------
40,372,451
Utilities (2.0%)
- ------------------------------------------------------------------------------------------------------------
170,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 164,900
3,840,000 Arizona Public Service Co. sr. notes 6 3/4s, 2006 3,947,904
4,035,000 California Energy Corp. disc. notes 10 1/4s, 2005 4,344,767
175,000 California Energy Corp. sr. notes 9 7/8s, 2003 189,187
2,615,000 Citizens Utilities Co. bonds 7.68s, 2034 2,992,946
2,200,000 CMS Energy Corp. sr. notes 8 1/8s, 2002 2,267,760
5,520,000 CMS Energy Corp. pass through certificates 7s, 2005 5,368,200
4,140,000 Connecticut Light & Power Co. 1st mtge. Ser. A, 7 7/8s, 2001 4,203,218
3,090,000 Connecticut Light & Power Co. 1st mtge Ser. C, 7 3/4s, 2002 3,189,498
1,160,000 Edison Mission Energy 144A company guaranty 7.33s, 2008 1,227,315
4,741,000 EIP Funding-Public Service Co. of New Mexico deb.
10 1/4s, 2012 5,594,664
110,000 El Paso Electric Co. 1st mtge. Ser. D, 8.9s, 2006 122,442
6,040,000 El Paso Electric Co. 1st mtge. Ser. B, 7 3/4s, 2001 6,203,503
10,655,000 Enersis S.A. notes 7.4s, 2016 (Chile) 9,934,296
2,970,000 Enersis S.A. notes 6.6s, 2026 (Chile) 2,889,721
171,000 First PV Funding Corp. deb. Ser. 86A, 10.3s, 2014 188,199
70,000 First PV Funding Corp. deb. 10.15s, 2016 74,428
3,265,000 Illinova Corp. sr. notes 7 1/8s, 2004 3,385,642
3,745,000 Israel Electric Corp., Ltd. 144A sr. notes 7 1/4s, 2006 (Israel) 3,875,026
135,000 Long Island Lighting Co. deb. 9s, 2022 152,392
1,524,618 Midland Cogeneration Ventures LP deb. 10.33s, 2002 1,658,846
255,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 309,871
300,000 Niagara Mohawk Power Corp. med. term notes 9.95s, 2000 302,250
1,133,807 Northeast Utilities System notes Ser. A, 8.58s, 2006 1,142,935
3,524,898 Northeast Utilities System notes Ser. B, 8.38s, 2005 3,613,267
1,970,000 Orange Cogen Funding 144A company guaranty 8.175s, 2022 2,146,315
3,450,000 Salton Sea Funding Corp. company guaranty Ser. E, 8.3s, 2011 3,810,525
3,925,000 Texas New-Mexico Power Utilities 1st mtge. 9 1/4s, 2000 4,193,038
6,455,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 6,680,021
5,095,000 Texas Utilities Electric Capital Trust V company guaranty
8.175s, 2037 5,324,377
5,580,000 US West Capital Funding, Inc. company guaranty 6.95s, 2037 5,806,827
--------------
95,304,280
--------------
Total Corporate Bonds and Notes
(cost $653,542,618) $ 682,149,391
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (12.0%) *
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (7.3%)
- ------------------------------------------------------------------------------------------------------------
$ 15,632,000 Federal Home Loan Mortgage Association 6 1/2s, TBA,
February 16, 2028 $ 15,587,918
2,276,107 Federal Home Loan Mortgage Association Pass-through
Certificates 8 3/4s, with due dates from May 1, 2009 to
June 1, 2009 2,399,859
Federal Home Loan Mortgage Corp.
9,088,423 8 1/2s, with due dates from July 1, 2025 to
September 1, 2027 9,471,778
18,401,206 7s, with due dates from December 1, 2002 to
November 1, 2012 18,789,158
26,229,054 5 1/2s, with due dates from March 1, 2011 to July 1, 2011 25,543,418
Federal National Mortgage Association
400,000 7s, Dwarf, TBA, February 15, 2013 407,872
19,965,000 6 1/2s, TBA, February 16, 2028 19,871,364
6,790,000 5.94s, December 12, 2005 6,850,499
Federal National Mortgage Association Pass-through Certificates
200,980 11s, with due dates from October 1, 2015 to March 1, 2016 229,118
143,205 8 3/4s, July 1, 2009 149,739
12,389,858 7s, Dwarf, February 1, 2012 12,633,691
27,867,096 6 1/2s, with due dates from August 1, 2025 to
September 1, 2027 27,736,408
Government National Mortgage Association
34,228,000 7s, TBA, February 16, 2028 34,741,420
10,600,000 5 1/2s, TBA, March 15, 2028 10,656,286
Government National Mortgage Association
Adjustable Rate Mortgages
9,352,915 7 3/8s, with due dates from April 20, 2023 to May 20, 2024 9,684,484
30,900,652 7s, with due dates from July 20, 2023 to September 20, 2024 31,833,928
17,557,587 5 1/2s, October 20, 2027 17,700,330
Government National Mortgage Association
Pass-through Certificates
1,055 15s, September 15, 2011 1,290
649 8 1/2s, July 15, 2027 684
47,823,654 7 1/2s, with due dates from September 15, 2005 to
October 15, 2027 48,997,958
53,289,231 7s, with due dates from September 20, 2024 to
November 15, 2027 54,088,876
--------------
347,376,078
U.S. Treasury Obligations (4.7%)
- ------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
23,580,000 11 7/8s, November 15, 2003 [2 DBL. DAGGERS] 30,970,915
34,045,000 11 5/8s, November 15, 2004 45,657,409
1,475,000 11 1/8s, August 15, 2003 1,869,327
5,000,000 10 3/4s, August 15, 2005 6,580,450
495,000 6 3/8s, August 15, 2027 531,353
6,180,000 6 1/8s, November 15, 2027 6,461,963
U.S. Treasury Notes
13,425,000 7s, July 15, 2006 14,702,523
12,089,000 6 1/8s, August 15, 2007 12,623,576
6,288,000 6s, July 31, 2002 6,431,429
24,365,000 5 3/4s, November 30, 2002 24,703,917
51,365,000 5 5/8s, December 31, 2002 51,846,290
23,420,000 5 5/8s, December 31, 1999 23,540,847
--------------
225,919,999
--------------
Total U.S. Government and Agency Obligations
(cost $569,396,175) $ 573,296,077
FOREIGN GOVERNMENT BONDS AND NOTES (4.0%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
ARP 6,570,000 Argentina (Republic of) bonds Ser. PROI,
FRB 3.47s, 2007 $ 5,956,445
ARP 6,262,000 Argentina (Republic of) bonds Ser. PRE 1,
FRB 3.07s, 2001 6,060,909
FRF 97,070,000 France (Government of) deb. 6 3/4s, 2003 17,495,082
FRF 267,800,000 France (Government of) bonds 5 1/2s, 2007 45,077,411
DEM 41,875,000 Germany (Federal Republic of) bonds Ser. 97,
6 1/2s, 2027 25,569,548
NZD 20,534,000 New Zealand (Government of) bonds 8s, 2004 12,681,480
USD 9,733,000 Peru (Government of) 144A Ser. US, 4s, 2017 6,375,115
USD 13,080,000 Quebec (Province of) deb. Ser. NN, 7 1/8s, 2024 13,563,306
ZAR 142,458,000 South Africa (Republic of) bonds Ser. 153, 13s, 2010 27,962,961
GBP 17,215,000 United Kingdom Treasury bonds 7 1/4s, 2007 30,585,951
--------------
Total Foreign Government Bonds and Notes
(cost $191,493,403) $ 191,328,208
COLLATERALIZED MORTGAGE OBLIGATIONS (1.6%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
Chase Mortgage Finance Corp.
$ 1,766,329 Ser. 93-3, Class B13, 7.461s, 2024 $ 1,465,205
2,177,330 Ser. 94-G, Class B13, 7s, 2025 2,162,361
Commercial Mortgage Acceptance Corp.
2,635,000 Ser. 97-ML1, Class D, 7.11s, 2030 2,637,882
11,125,000 6.57s, 2030 11,523,720
4,010,000 Ser. 97-ML1, Class A2, 6.53s, 2030 4,107,744
First Union-Lehman Brothers Commercial Mortgage
4,390,000 Ser. 97-C2, Class D, 7.12s, 2012 4,469,569
6,740,000 Ser. 97-C2, Class A3, 6.65s, 2008 6,923,244
5,160,000 Freddie Mac Ser. 25, Class B, 6 1/2s, 2008 5,237,400
1,279,029 GE Capital Mortgage Services, Inc. 144A Ser. 94-12, Class B3,
6s, 2009 1,147,129
5,090,000 GMAC Commercial Mortgage Securities Inc. Ser. 97-C2,
Class A1, 6.45s, 2029 5,196,572
Housing Securities, Inc.
1,181,036 Ser. 91-B, Class B6, 9s, 2006 1,189,894
1,348,730 Ser. 93-F, Class F9M2, 7s, 2023 1,342,829
254,417 Ser. 93-J, Class J4, 6.66s, 2009 242,571
138,446 Ser. 93-J, Class J5, 6.66s, 2009 117,160
225,138 Ser. 94-1, Class AB1, 6 1/2s, 2009 212,755
Prudential Home Mortgage Securities
1,107,829 Ser. 94-A, Class 4B, 7 1/2s, 2007 1,028,723
1,132,382 Ser. 94-D, Class B4, 6.312s, 2009 1,079,478
Prudential Home Mortgage Securities 144A
2,965,885 Ser. 92-25, Class B3, 8s, 2022 + 2,904,713
3,683,150 Ser. 95-C, Class B1, 7.815s, 2001 3,685,452
1,164,699 Ser. 95-D, Class 5B, 7.54s, 2025 890,996
2,030,446 Ser. 93-E, Class 5B, 7.393s, 2023 1,599,611
3,750,074 Ser. 93-D, Class 2B, 7.108s, 2023 3,798,709
3,458,756 Ser. 94-A, Class 4B, 6.802s, 2024 3,402,552
314,959 Prudential Home Mortgage Securities 144A Ser. 94-31,
Class B3, 8s, 2009 319,536
Ryland Mortgage Securities Corp.
1,912,689 Ser. 94-7C, Class B1, 7.358s, 2025 1,916,275
1,351,061 Ser. 94-7C, Class B2, 7.358s, 2025 1,354,017
4,243,254 Securitized Asset Sales, Inc. Ser. 93-J, Class 2B, 6.807s, 2023 4,203,473
418,424 Travelers Mortgage Securities Corp. coll. oblig. Ser. 1, Class Z2,
12s, 2014 483,019
--------------
Total Collateralized Mortgage Obligations
(cost $70,726,838) $ 74,642,589
BRADY BONDS (0.5%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 56,480 Argentina (Republic of) deb. FRB 6.688s, 2005 $ 50,550
68,850 Brazil (Government of) Ser. EI-L, FRB 6.688s, 2006 58,695
7,398,000 Philippines (Government of) Ser. B, FRB 6 1/2s, 2017 6,362,280
3,050,000 Poland (Government of) bonds Ser. PDI, stepped-coupon 4s
(5s, 10/1/98), 2014 ++ 2,661,125
17,160,000 United Mexican States Ser. C, FRB 6.719s, 2019 15,958,800
--------------
Total Brady Bonds (cost $24,925,126) $ 25,091,450
CONVERTIBLE PREFERRED STOCKS (0.3%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
421,000 Freeport-McMoRan Copper Co., Inc. $1.75 cv. pfd. $ 8,867,313
5,000 Granite Broadcasting $1.938 cv. pfd. 275,625
77,000 K mart Financing I $3.875 cv. pfd. 3,965,500
--------------
Total Convertible Preferred Stocks (cost $13,824,015) $ 13,108,438
PREFERRED STOCKS (0.3%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
4,541 AmeriKing, Inc. $3.25 pfd. [2 DBL. DAGGERS] $ 122,607
34 Anvil Holdings Ser. B, $3.25 pfd. [2 DBL. DAGGERS] 816
2,664 Cablevision Systems Corp. Ser. M, $11.125 dep. shs. pfd. [2 DBL. DAGGERS] 307,026
27,755 California Federal Bancorp, Inc. Ser. A, $2.281 pfd. 738,977
1,500 California Federal Bancorp, Inc. Ser. B, $10.625 cum. pfd. 163,500
600 Capstar Broadcasting, Inc. $12.00 pfd. 68,100
16,637 CGA Group Ltd. 144A Ser. A, $13.75 pfd. [2 DBL. DAGGERS] 449,199
2,318 Chancellor Media Corp. $12.00 pfd. [2 DBL. DAGGERS] 274,104
6,155 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. 313,905
140 Echostar Communications Corp. 12.125% pfd. 153,300
5,082 El Paso Electric Co. $11.40 pfd [2 DBL. DAGGERS] 551,397
265 Fresenius Medical Care AG Ser. D, $9.00 pfd. (Germany) 283,550
6,736 Nextlink Communications, Inc. $7.00 cum. pfd. [2 DBL. DAGGERS] 417,632
16,494 Public Service Co. of New Hampshire Ser. A $2.65 cum. pfd. 428,844
1,562 SFX Broadcasting, Inc. Ser. E, $12.625 pfd. [2 DBL. DAGGERS] 182,754
1,314 Time Warner, Inc. Ser. M, 10.25% pfd. 1,511,100
6,775 Webster Financial Ser A., 7.375% cum. pfd. 7,047,334
--------------
Total Preferred Stocks (cost $12,274,627) $ 13,014,145
ASSET-BACKED SECURITIES (0.2%)* (cost $10,253,030)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$10,324,819 Railcar Leasing L.L.C. Ser. 1, Class A1, 6 3/4s, 2006 $ 10,608,752
MUNICIPAL BONDS AND NOTES (0.1%)* (cost $5,410,000)
PRINCIPAL AMOUNT RATING** VALUE
- ------------------------------------------------------------------------------------------------------------
$ 5,410,000 NJ Econ. Dev. Auth. Municipal Bond Investors
Assurance Corporation Rev. Bonds, Ser. A,
7.425s, 2029 Aaa $ 6,019,112
CONVERTIBLE BONDS AND NOTES (0.1%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 1,140,000 APP Global Finance (V) Ltd. 144A cv. sec. 2s, 2000
(United Kingdom) $ 951,900
500,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 445,000
2,160,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 1,447,200
100,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 85,000
1,000,000 Lam Research Corp. 144a cv. sub. notes 5s, 2002 808,750
45,000 National Semiconductor Corp. 144A cv. deb. 6 1/2s, 2002 45,506
--------------
Total Convertible Bonds and Notes (cost $3,924,381) $ 3,783,356
UNITS (0.1%) *
NUMBER OF UNITS VALUE
- ------------------------------------------------------------------------------------------------------------
550 Allegiance Telecom, Inc. units stepped-coupon zero %
(11 3/4s, 2/15/03), 2008 ++ $ 310,750
685 Club Regina/CS Resorts 144A units 13s, 2004 705,550
210 Colt Telecommunications Group PLC units stepped-coupon
zero % (12s, 12/15/01), 2006 (United Kingdom) ++ 168,000
560 KMC Telecom Holding, Inc. 144A units stepped-coupon zero %
(12 1/2s, 2/15/03), 2008 ++ 319,200
470 Knology Holdings, Inc. 144A units stepped-coupon zero %
(11 7/8s, 10/15/02), 2007 ++ 263,200
70 Stone Container Corp. units sr. sub. 12 1/4s, 2002 71,750
310 Transamerican Refining units 16s, 2003 322,400
115,000 United Defense Industries, Inc. 144A units sr. sub. notes
8 3/4s, 2007 117,300
580,000 United Intl. Holdings, Inc. 144A units stepped-coupon zero %
(10 3/4s, 2/15/03), 2008 ++ 342,600
--------------
Total Units (cost $2,535,408) $ 2,620,750
WARRANTS (--%) + EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- ------------------------------------------------------------------------------------------------------------
1,155 Cellnet Data Systems, Inc. 9/15/07 $ 127
16,000 CGA Group Ltd. 144A 1/1/04 160
205 Esat Holdings, Inc. (Ireland) 9/9/99 7,175
1,732 Fitzgeralds Gaming Co. 144A 3/15/99 17
200 Globalstar Telecom 144A 2/15/04 25,000
250 Intermedia Communications 6/1/00 26,125
180 McCaw International Ltd. 4/15/07 54
5,870 Nextlink Communications, Inc. 144A 2/1/09 59
960 Powertel, Inc. 2/1/06 7,200
55 Urohealth Systems, Inc. 4/10/04 1
--------------
Total Warrants (cost $43,856) $ 65,918
SHORT-TERM INVESTMENTS (4.9%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 25,000,000 Federal National Mortgage Association effective
yield of 5.59%, March 24, 1998 $ 24,802,021
25,000,000 Ford Motor Credit Corp. effective yield of 5 1/2%,
April 3, 1998 24,767,014
25,000,000 General Electric Capital Corp. effective yield of
5 3/4%, February 23, 1998 24,912,153
25,000,000 Merrill Lynch & Co., Inc. effective yield of 5.74%,
March 17, 1998 24,824,611
8,000,000 Preferred Receivables Funding Corp. effective yield
of 5.85%, February 25, 1998 7,968,800
30,000,000 Scotiabanc, Inc. effective yield of 5.76%,
February 20, 1998 29,908,800
TRL 1,254,980,000,000 Turkey Treasury bills zero %, July 29,1998 3,692,130
TRL 1,047,830,000,000 Turkey Treasury bills zero %, June 4, 1998 3,541,780
TRL 635,510,000,000 Turkish Treasury bills zero %, March 18, 1998 2,558,294
$ 88,487,000 Interest in $750,000,000 joint repurchase agreement
dated January 30, 1998 with Goldman Sachs due
February 2, 1998 with respect to various
U.S. Treasury obligations -- maturity value of
$88,528,220 for an effective yield of 5.59% 88,514,480
--------------
Total Short-Term Investments (cost $235,568,269) $ 235,490,083
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $4,330,934,891) *** $4,878,905,602
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $4,767,632,846.
** The Standard & Poor's rating indicated is believed to be the most recent ratings available at
January 31, 1998 for the securities listed. Ratings are generally ascribed to securities at the time of
issuance. While the agencies may from time to time revise such ratings, they undertake no obligation to
do so, and the ratings do not necessarily represent what the agencies would ascribe to these securities
at January 31, 1998. Securities rated by Putnam are indicated by "/P" and are not publicly rated.
*** The aggregate identified cost on a tax basis is $4,334,068,519, resulting in gross unrealized
appreciation and depreciation of $606,104,421 and $61,267,338, respectively, or net unrealized
appreciation of $544,837,083.
+ 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.
++++ Income may be received in cash or additional securities at the discretion of the issuer.
# A portion of this was pledged and segregated with the custodian to cover margin requirements
for futures contracts January 31, 1998.
[UPSIDE DOWN DELTA] This entity provides subcustodian services to the fund.
144A after the name of a security represents those exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
ADR after the name of a foreign holding stands for American Depository Receipts representing
ownership of foreign securities on deposit with a domestic custodian bank.
TBA after the name of a security represents to be announced securities (Note 1).
The rate shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current
interest rates shown at January 31, 1998, which are subject to change based on the terms of the security.
<CAPTION>
- ----------------------------------------------------------------------------------------
Forward Currency Contracts to Buy at January 31, 1998
(aggregate face value $121,285,038)
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deutschemarks $69,061,025 $70,996,734 Mar 98 $(1,935,709)
Indonesian Rupiah 1,976,603 6,307,051 Jun 98 (4,330,448)
Japanese Yen 28,052,350 27,729,235 Mar 98 323,115
Mexican Peso 4,157,085 4,038,806 May 98 118,279
Philippines Peso 2,662,854 3,426,551 Mar 98 (763,697)
Swiss Francs 7,330,415 7,626,534 Mar 98 (296,119)
Venezuelan Bolivar 1,094,355 1,160,127 Jun 98 (65,772)
- ----------------------------------------------------------------------------------------
$(6,950,351)
- ----------------------------------------------------------------------------------------
<CAPTION>
Forward Currency Contracts to Sell at January 31, 1998
(aggregate face value $262,462,943)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
British Pounds $ 30,994,526 $ 30,802,837 Mar 98 $ (191,689)
Deutschemarks 101,525,101 104,949,493 Mar 98 3,424,392
French Franc 61,858,860 63,983,091 Mar 98 2,124,231
Japanese Yen 28,643,959 28,326,710 Mar 98 (317,249)
New Zealand Dollar 13,191,006 13,654,947 Mar 98 463,941
South African Rand 13,965,629 13,897,916 Mar 98 (67,713)
Swiss Franc 6,593,812 6,847,949 Mar 98 254,137
- ----------------------------------------------------------------------------------------
$5,690,050
- ----------------------------------------------------------------------------------------
<CAPTION>
Futures Contracts Outstanding at January 31, 1998
Unrealized
Aggregate Face Expiration Appreciation/
Total Value Value Date (Depreciation)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
US Treasury 10 year
Bonds (long) $ 25,131,844 $ 24,629,971 Mar 98 $ 501,873
US Treasury 20 year
Bonds (long) 53,926,031 52,437,656 Mar 98 1,488,375
US Treasury 5 year
Notes (short) 155,605,815 153,808,824 Mar 98 (1,796,991)
- ----------------------------------------------------------------------------------------
$ 193,257
- ----------------------------------------------------------------------------------------
<CAPTION>
TBA Sale Commitments at January 31, 1998
(proceeds receivable $29,393,254)
Principal Settlement Market
Description Amount Date Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
FHLMC, 8.5s, February, 2028 $ 9,088,000 Feb 99 $ 9,471,332
FNMA, 6.5s, February, 2028 19,913,000 Feb 99 19,819,608
- ----------------------------------------------------------------------------------------
$29,290,940
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
January 31, 1998 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $4,330,934,891) (Note 1) $4,878,905,602
- ---------------------------------------------------------------------------------------------------
Cash 4,897,610
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 27,114,630
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 16,322,147
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 102,705,522
- ---------------------------------------------------------------------------------------------------
Receivable for variation margin 57,498
- ---------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 6,708,095
- ---------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 1,417,437
- ---------------------------------------------------------------------------------------------------
Total assets 5,038,128,541
Liabilities
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 248,655
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 203,575,756
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 10,840,104
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 5,487,937
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 1,780,739
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 31,521
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,826
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,662,621
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 7,968,396
- ---------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 9,160,293
- ---------------------------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable $29,393,254) (Note 1) 29,290,940
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 445,907
- ---------------------------------------------------------------------------------------------------
Total liabilities 270,495,695
- ---------------------------------------------------------------------------------------------------
Net assets $4,767,632,846
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $4,112,441,254
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 2,276,478
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 105,934,223
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 546,980,891
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $4,767,632,846
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($3,041,714,536 divided by 168,741,230 shares) $18.03
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $18.03)* $19.13
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,058,350,337 divided by 59,161,748 shares)** $17.89
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($244,729,505 divided by 13,682,622 shares) $17.89
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $17.89)* $18.54
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($422,838,468 divided by 23,418,125 shares) $18.06
- ---------------------------------------------------------------------------------------------------
* 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, 1998 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $168,497) $ 31,387,151
- --------------------------------------------------------------------------------------------------
Interest 55,490,065
- --------------------------------------------------------------------------------------------------
Total investment income 86,877,216
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 10,747,956
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 5,525,731
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 29,388
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 17,070
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 3,444,259
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 4,851,742
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 801,303
- --------------------------------------------------------------------------------------------------
Reports to shareholders 121,933
- --------------------------------------------------------------------------------------------------
Registration fees 287,816
- --------------------------------------------------------------------------------------------------
Auditing 47,818
- --------------------------------------------------------------------------------------------------
Legal 17,256
- --------------------------------------------------------------------------------------------------
Postage 121,602
- --------------------------------------------------------------------------------------------------
Other 105,027
- --------------------------------------------------------------------------------------------------
Total expenses 26,118,901
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (560,447)
- --------------------------------------------------------------------------------------------------
Net expenses 25,558,454
- --------------------------------------------------------------------------------------------------
Net investment income 61,318,762
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 198,014,170
- --------------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (199,754)
- --------------------------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 113,337
- --------------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (8,729,847)
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the period (3,872,209)
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments, futures,
and TBA sale commitments during the period (107,750,124)
- --------------------------------------------------------------------------------------------------
Net gain on investments 77,575,573
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $138,894,335
- --------------------------------------------------------------------------------------------------
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
1998* 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 61,318,762 $ 100,718,238
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments
and foreign currency transactions 189,197,906 229,478,035
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments
and assets and liabilities in foreign currencies (111,622,333) 505,535,233
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 138,894,335 835,731,506
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (42,244,192) (73,837,380)
- ----------------------------------------------------------------------------------------------------------------------
Class B (11,690,658) (19,404,724)
- ----------------------------------------------------------------------------------------------------------------------
Class M (2,851,549) (3,535,939)
- ----------------------------------------------------------------------------------------------------------------------
Class Y (6,390,624) (11,248,863)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (173,044,313) (92,386,949)
- ----------------------------------------------------------------------------------------------------------------------
Class B (63,051,881) (29,105,446)
- ----------------------------------------------------------------------------------------------------------------------
Class M (14,653,375) (4,503,492)
- ----------------------------------------------------------------------------------------------------------------------
Class Y (25,075,114) (13,502,169)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 927,786,087 1,244,159,864
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 727,678,716 1,832,366,408
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 4,039,954,130 2,207,587,722
- ----------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $2,276,478 and $4,134,739, respectively) $4,767,632,846 $4,039,954,130
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share January 31
operating performance (Unaudited) Year ended July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $18.95 $15.82 $14.90 $13.52 $14.24 $14.24
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .29 .60(c) .63 .63 .59 .62
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .30 4.11 1.50 1.63 (.11) .52
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .59 4.71 2.13 2.26 .48 1.14
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.30) (.67) (.58) (.56) (.58) (.66)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.21) (.91) (.63) (.32) (.62) (.48)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.51) (1.58) (1.21) (.88) (1.20) (1.14)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.03 $18.95 $15.82 $14.90 $13.52 $14.24
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 3.29* 31.52 14.75 17.73 3.46 8.64
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,041,715 $2,607,562 $1,515,260 $1,036,674 $913,171 $772,540
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .52* 1.06 .95 .91 .95 .90
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.52* 3.51 4.07 4.58 4.15 4.34
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 66.21* 134.80 119.44 102.57 100.69 89.22
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (d) $.0507 $.0499
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended July 31, 1996 and thereafter includes
amounts paid through brokerage service and expense offset arrangements. Prior period ratios exclude
these amounts. (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
(d) Average commission rate paid on security trades is required for fiscal periods beginning on or
after September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share January 31
operating performance (Unaudited) Year ended July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $18.82 $15.74 $14.83 $13.46 $14.19 $14.22
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .22 .46(c) .51 .52 .50 .56
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .29 4.08 1.50 1.63 (.12) .48
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .51 4.54 2.01 2.15 .38 1.04
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.23) (.55) (.47) (.46) (.49) (.59)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.21) (.91) (.63) (.32) (.62) (.48)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.44) (1.46) (1.10) (.78) (1.11) (1.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $17.89 $18.82 $15.74 $14.83 $13.46 $14.19
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 2.88* 30.46 13.97 16.87 2.70 7.87
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,058,350 $888,666 $435,278 $224,166 $151,327 $81,983
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .90* 1.81 1.71 1.66 1.71 1.66
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.14* 2.74 3.31 3.81 3.39 3.43
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 66.21* 134.80 119.44 102.57 100.69 89.22
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (d) $.0507 $.0499
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended July 31, 1996 and thereafter includes
amounts paid through brokerage service and expense offset arrangements. Prior period ratios exclude
these amounts. (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
(d) Average commission rate paid on security trades is required for fiscal periods beginning on or
after September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share January 31 Dec. 1, 1994+
operating performance (Unaudited) Year ended July 31 to July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $18.82 $15.74 $14.84 $12.77
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .25 .53(c) .55 .31
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .29 4.06 1.50 2.03
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .54 4.59 2.05 2.34
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.26) (.60) (.52) (.27)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.21) (.91) (.63) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.47) (1.51) (1.15) (.27)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $17.89 $18.82 $15.74 $14.84
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 3.02* 30.83 14.26 18.52*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $244,730 $187,475 $49,541 $8,164
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .77* 1.56 1.50 .93*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.27* 3.05 3.50 2.53*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 66.21* 134.80 119.44 102.57
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (d) $.0507 $.0499
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended July 31, 1996 and thereafter includes
amounts paid through brokerage service and expense offset arrangements. Prior period ratios exclude
these amounts. (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
(d) Average commission rate paid on security trades is required for fiscal periods beginning on or
after September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS Y
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share January 31 April 1, 1994+
operating performance (Unaudited) Year ended July 31 to July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $18.98 $15.85 $14.92 $13.54 $13.21
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .31 .64(c) .68 .66 .17
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .30 4.11 1.50 1.63 .31
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .61 4.75 2.18 2.29 .48
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.32) (.71) (.62) (.59) (.15)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.21) (.91) (.63) (.32) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.53) (1.62) (1.25) (.91) (.15)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.06 $18.98 $15.85 $14.92 $13.54
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 3.41* 31.78 15.09 18.00 3.65*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $422,838 $356,251 $207,508 $153,597 $71,566
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .40* .81 .70 .66 .25*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.65* 3.74 4.33 4.78 1.34*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 66.21* 134.80 119.44 102.57 100.69
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (d) $.0507 $.0499
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended July 31, 1996 and thereafter includes
amounts paid through brokerage service and expense offset arrangements. Prior period ratios exclude
these amounts. (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
(d) Average commission rate paid on security trades is required for fiscal periods beginning on or
after September 1, 1995.
</TABLE>
Notes to financial statements
January 31, 1998 (Unaudited)
Note 1
Significant accounting policies
The George Putnam Fund of Boston (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund seeks to provide a balanced investment
composed of a well-diversified portfolio of stocks and bonds which will
produce both capital growth and current income.
The fund offers class A, class B, class M and class Y shares. Class A shares
are sold with a maximum front-end sales charge of 5.75%. Class B shares, which
convert to class A shares after approximately eight years, do not pay a
front-end sales charge but pay a higher ongoing distribution fee than class A
shares, and may be subject to a contingent deferred sales charge, if those
shares are redeemed within six years of purchase. Class M shares are sold with
a maximum front end sales charge of 3.50% and pay an ongoing distribution fee
that is higher than class A shares but lower than class B shares. Class Y
shares, which are sold at net asset value, are generally subject to the same
expenses as class A shares, class B shares, and class M shares, but do not
bear a distribution fee. Class Y shares are sold to defined contribution plans
that initially invest at least $250 million in a combination of Putnam Funds
and other accounts managed by affiliates of Putnam Investment Management, Inc.
("Putnam Management"), the fund's manager, a wholly-owned subsidiary of Putnam
Investments, Inc.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class (including
the distribution fees applicable to such class). Each class votes as a class
only with respect to its own distribution plan or other matters on which a
class vote is required by law or determined by the Trustees. Shares of each
class would receive their pro-rata share of the net assets of the fund, if
that fund were liquidated. In addition, the Trustees declare separate
dividends on each class of shares.
The following is a summary of significant accounting policies followed by the
fund in the preparation of its financial statements. The preparation of
financial statements is in conformity with generally accepted accounting
principles and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities. Actual results could
differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported -- as in the case of some
securities traded over-the-counter -- the last reported bid price. Securities
quoted in foreign currencies are translated into U.S. dollars at the current
exchange rate. Short-term investments having remaining maturities of 60 days
or less are stated at amortized cost, which approximates market value, and
other investments are stated at fair value following procedures approved by
the Trustees. Market quotations are not considered to be readily available for
certain debt obligations, such investments are stated at fair value on the
basis of valuations furnished by a pricing service, approved by the Trustees
or dealers, which determines valuations for normal, institutional size trading
units of such securities using methods based on market transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam 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 bonds, original issue discount bonds,
stepped-coupon bonds and payment in kind bonds are accreted according to the
yield-to-maturity basis. Any premium resulting from the purchase of securities
in excess of maturity value is amortized on a yield-to-maturity basis.
Securities purchased or sold on a when-issued or forward commitment 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 gains and losses 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 appreciation and
depreciation of assets and liabilities in foreign currencies arise from
changes in the value of open forward currency contracts and assets and
liabilities other than investments at the period end, resulting from changes
in the exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell currencies
at a set price on a future date, to protect against a decline in value
relative to the U.S. dollar of the currencies in which its portfolio
securities are denominated or quoted (or an increase in the value of a
currency in which securities a fund intends to buy are denominated, when a
fund holds cash reserves and short-term investments). The U.S. dollar value of
forward currency contracts is determined using current 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. 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. Realized gains and losses on purchased
options are included in realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices established
by the exchange on which they trade. Exchange traded options are valued at the
last sale price, or if no sales are reported, the last bid price for purchased
options and the last ask price for written options. Options traded
over-the-counter are valued using prices supplied by dealers.
H) TBA purchase commitments The fund may enter into "TBA" (to be announced)
purchase commitments to purchase securities for a fixed unit price at a future
date beyond customary settlement time. Although the unit price has been
established, the principal value has not been finalized. However, the amount
of the commitments will not fluctuate more than 1.0% from the principal
amount. The fund holds, and maintains until settlement date, cash or
high-grade debt obligations in an amount sufficient to meet the purchase
price, or the fund may enter into offsetting contracts for the forward sale of
other securities it owns. Income on the securities will not be earned until
settlement date. TBA purchase commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in the value of the fund's other assets. Unsettled TBA
purchase commitments are valued at the current market value of the underlying
securities, according to the procedures described under "Security valuation"
above.
Although the fund will generally enter into TBA purchase commitments with the
intention of acquiring securities for their portfolio or for delivery pursuant
to options contracts it has entered into, the fund may dispose of a commitment
prior to settlement if Putnam Management deems it appropriate to do so.
I) TBA sale commitments The fund may enter into TBA sale commitments to hedge
its portfolio positions or to sell mortgage-backed securities it owns under
delayed delivery arrangements. Proceeds of TBA sale commitments are not
received until the contractual settlement date. During the time a TBA sale
commitment is outstanding, equivalent deliverable securities, or an offsetting
TBA purchase commitment deliverable on or before the sale commitment date, are
held as "cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of the
underlying securities, generally according to the procedures described under
"Security valuation" above. The contract is "marked-to-market" daily and the
change in market value is recorded by the fund as an unrealized gain or loss.
If the TBA sale commitment is closed through the acquisition of an offsetting
purchase commitment, the fund realizes a gain or loss. If the fund delivers
securities under the commitment, the fund realizes a gain or a loss from the
sale of the securities based upon the unit price established at the date the
commitment was entered into.
J) Line of credit The fund has entered into a committed line of credit with
certain banks. This line of credit agreement includes restrictions that the
fund maintain an asset coverage ratio of at least 300% and borrowings must not
exceed prospectus limitations. For the period ended January 31, 1998, the fund
had no borrowings against the line of credit.
K) Federal taxes It is the policy of the fund to distribute all of its taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
L) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date. Capital
gain distributions, if any, are recorded on the ex-dividend date and paid at
least annually. The amount and character of income and gains to be distributed
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. 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 the following annual rates: 0.65% of the first
$500 million of average net assets, 0.55% of the next $500 million, 0.50% of
the next $500 million, 0.45% of the next $5 billion, 0.425% of the next $5
billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion, and
0.38% thereafter.
The fund reimburses Putnam Management an allocated amount 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 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, 1998, fund expenses were reduced by
$560,447 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.
Each Trustee of the fund receives an annual Trustee fee, of which $2,870 has
been allocated to the fund, and an additional fee for each Trustee's meeting
attended. Trustees who are not interested persons of Putnam Management and who
serve on committees of the Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral 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
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to compensate
Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments
Inc., for services provided and expenses incurred by it in distributing shares
of the fund. The Plans provide for payments by the fund to Putnam Mutual Funds
Corp. at an annual rate up to 0.35%, 1.00% and 1.00% of the average net assets
attributable to class A, class B and class M shares, respectively. The
Trustees currently limit payment by the fund to 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, 1998, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $897,990 and $37,406 from the sale
of class A and class M shares, respectively and $524,143 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, 1998, Putnam Mutual Funds Corp., acting as
underwriter received $11,057 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended January 31, 1998, purchases and sales of
investment securities other than U.S. government obligations and short-term
investments aggregated $2,197,497,826 and $1,590,736,508 respectively.
Purchases and sales of U.S. government obligations aggregated $1,192,085,363
and $1,142,201,752, respectively. In determining the net gain or loss on
securities sold, the cost of securities has been determined on the identified
cost basis.
Written option transactions during the year are summarized as follows:
Contract Premiums
Amounts Received
- ------------------------------------------------------------
Written options
outstanding at
beginning of period $ -- $ --
- ------------------------------------------------------------
Options opened 35,700,000 113,337
- ------------------------------------------------------------
Options expired 35,700,000 113,337
- ------------------------------------------------------------
Written options
outstanding at
end of period $ -- $ --
- ------------------------------------------------------------
Note 4
Capital shares
At January 31, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
January 31, 1998
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 39,262,824 $716,774,390
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 11,158,118 198,572,607
- ------------------------------------------------------------
50,420,942 915,346,997
Shares
repurchased (19,290,712) (355,753,048)
- ------------------------------------------------------------
Net increase 31,130,230 $559,593,949
- ------------------------------------------------------------
Year ended
July 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 57,561,340 $980,905,251
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 9,015,602 148,378,857
- ------------------------------------------------------------
66,576,942 1,129,284,108
Shares
repurchased (24,717,591) (422,352,583)
- ------------------------------------------------------------
Net increase 41,859,351 $706,931,525
- ------------------------------------------------------------
Six months ended
January 31, 1998
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 12,312,776 $224,238,114
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,965,244 70,105,148
- ------------------------------------------------------------
16,278,020 294,343,262
Shares
repurchased (4,337,307) (78,909,945)
- ------------------------------------------------------------
Net increase 11,940,713 $215,433,317
- ------------------------------------------------------------
Year ended
July 31, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 21,764,323 $368,267,529
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,767,490 45,275,666
- ------------------------------------------------------------
24,531,813 413,543,195
Shares
repurchased (4,971,519) (84,322,499)
- ------------------------------------------------------------
Net increase 19,560,294 $329,220,696
- ------------------------------------------------------------
Six months ended
January 31, 1998
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 4,017,322 $73,774,984
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 922,230 16,286,164
- ------------------------------------------------------------
4,939,552 90,061,148
Shares
repurchased (1,219,963) (22,277,417)
- ------------------------------------------------------------
Net increase 3,719,589 $67,783,731
- ------------------------------------------------------------
Year ended
July 31, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 7,413,996 $125,678,090
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 457,088 7,498,922
- ------------------------------------------------------------
7,871,084 133,177,012
Shares
repurchased (1,055,770) (18,153,890)
- ------------------------------------------------------------
Net increase 6,815,314 $115,023,122
- ------------------------------------------------------------
Six months ended
January 31, 1998
- ------------------------------------------------------------
Class Y Shares Amount
- ------------------------------------------------------------
Shares sold 4,986,195 $92,296,230
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,764,464 31,465,738
- ------------------------------------------------------------
6,750,659 123,761,968
Shares
repurchased (2,104,996) (38,786,878)
- ------------------------------------------------------------
Net increase 4,645,663 $84,975,090
- ------------------------------------------------------------
Year ended
July 31, 1997
- ------------------------------------------------------------
Class Y Shares Amount
- ------------------------------------------------------------
Shares sold 8,877,256 $150,219,737
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,501,670 24,753,440
- ------------------------------------------------------------
10,378,926 174,973,177
Shares
repurchased (4,702,056) (81,988,656)
- ------------------------------------------------------------
Net increase 5,676,870 $ 92,984,521
- ------------------------------------------------------------
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
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Thomas V. Reilly
Vice President
Edward P. Bousa
Vice President and Fund Manager
Kenneth J. Taubes
Vice President and Fund Manager
Robert M. Paine
Vice President and Fund Manager
Jeffrey J. Kobylarz
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
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 the principal amount
invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
SA021 40524-001/880/242 3/98
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
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The George Putnam Fund of Boston
Supplement to Semiannual Report dated January 31, 1998
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.
RESULTS AT A GLANCE
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Total return for periods ended 1/31/98: NAV
6 months 3.41%
1 year 18.16
5 years 103.30
Annual average 15.25
10 years 257.67
Annual average 13.59
Life of fund (since class A inception,11/5/37)
Annual average 9.99
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Share value: NAV
7/31/97 $18.98
1/31/98 $18.06
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Distributions: No. Income Capital gains Total
2 0.323 Short term 0.430 Long term 0.782 1.535
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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.
