The George
Putnam
Fund of
Boston
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
7-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The concept of balanced investing upon which my father founded his
namesake fund in 1937 has rarely been tested as strongly as it was during
the fiscal year that ended on July 31, 1999. It was a year of topsy-turvy
markets when stocks of large, established companies outperformed stocks of
small, fast- growing companies -- indeed, a period when bonds at times
outperformed stocks. The George Putnam Fund of Boston, with its portfolio
of carefully selected stocks and bonds, was able to maneuver relatively
smoothly through the markets' turbulence.
This success was due in part to the fund's strategy of balanced investing.
But it was also due in no small measure to the skill of your fund's
management team. The fund's managers, who have expertise in each of the
fund's investment areas, are backed by one of the industry's most
extensive research organizations. In the following report, the managers
provide a detailed review of fiscal 1999 performance and discuss prospects
for the fiscal year just begun.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
September 15, 1999
Report from the Fund Managers
Edward P. Bousa
Krishna K. Memani
James M. Prusko
David L. Waldman
Although The George Putnam Fund of Boston has been serving investors for
more than 60 years, it would be fair to say that the fund's 1999 fiscal
year, which ended July 31, 1999, ranks as one of the most memorable.
Uncertainty in international markets caused historic levels of volatility
for U.S. stocks and bonds. While this was a source of concern for
investors, some degree of volatility is an inevitable aspect of investing.
Your fund's balanced combination of stocks and bonds made its performance
much smoother than the ups and downs of the general markets.
Total return for 12 months ended 7/31/99
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- --------------------------------------------------------------------------
8.33% 2.09% 7.55% 2.64% 7.52% 6.54% 7.80% 4.01%
- --------------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 7.
* MARKETS, FUND BOUNCE BACK FROM EARLY TURMOIL
As you might recall from our semiannual update, U.S. stocks declined
during the first half of the fiscal year and subsequently bounced back. As
the fiscal year began on August 1, 1998, investors feared that corporate
profits would shrink because of deteriorating economic demand in the rest
of the world. Later in August, Russia announced a foreign debt
restructuring and currency devaluation, which caused short-term losses for
many U.S. banks with international operations. During the turmoil, the
fund's bonds performed much better than stocks. U.S. Treasuries, which
offered a safe haven, even rallied. Equity markets recovered when the
Federal Reserve Board began to cut U.S. interest rates in September. Most
stocks recouped their losses by the end of December and have risen
strongly so far in 1999.
[GRAPHIC OMITTED: horizontal bar chart COMPARATIVE PORTFOLIO COMPOSITION]
COMPARATIVE PORTFOLIO COMPOSITION*
7/31/99 7/31/98
Common stocks 60.9% 62.0%
Corporate bonds
and notes 18.2% 17.8%
U.S. government
and agency
securities 15.8% 13.2%
Foreign government
bonds and notes 0.2% 1.2%
Collateralized
mortgage obligations 1.7% 2.8%
Convertible and
preferred securities 0.7% 0.4%
Cash and other 4.5% 2.4%
Footnote reads:
*Based on percentage of net assets. The balances of the portfolio on dates
listed were invested in cash and short-term securities. Portfolio
allocation will vary over time.
In the second half of the fiscal year, stocks have risen strongly because
corporations have achieved better earnings than expected. Meanwhile, bonds
have struggled. In April and May, after a long period of underperformance,
value sectors emerged to lead the market as investors became convinced the
world economy was no longer deteriorating. The fund participated in the
rally with significant holdings in economically sensitive sectors such as
energy, basic materials, and transportation. At the same time,
unfortunately, the outlook for stronger growth dealt a setback to bonds.
Despite action by the Fed to raise rates a quarter of a percentage point
in June, news of rising labor costs shook fixed-income markets in the
final week of the period.
* SURGE IN VALUE STOCKS PROPELS FUND
We believe the surge in value stocks we have seen is indicative of the
current positive fundamental conditions in this area of the market. Many
companies have grown more efficient thanks to better capital discipline
and productivity-enhancing technology and could profit handsomely from an
economic upswing. If history is any guide, value stocks are still priced
attractively in comparison to growth stocks and could have significant
potential to appreciate further.
Of course, our equity strategy does not rely on major shifts in the
capital markets. We select stocks using fundamental analysis, looking for
companies that are priced below their long-term worth and poised for
positive changes that can increase profits in the future. For example,
when new executives join a company, they usually have the goal of shaking
up old ways and enhancing earnings. They introduce changes such as
restructuring, merging, and new products that can enhance shareholder
value.
During fiscal 1999, positive changes in many holdings contributed to
performance. Bank of America is in the process of merging with Nations
Bank; the new entity has a progressive business plan and is positioned
well in western and southern states with strong demographic growth
characteristics. Another large holding, Exxon, one of the most efficient
oil companies in the world, is merging with Mobil. The stock is benefiting
from its growing market share and the rising price of oil. Although these
holdings, as well as others mentioned in this report, were viewed
favorably at the end of the reporting period, all are subject to review
and adjustment in accordance with the fund's investment strategy and may
vary in the future.
"The true causes of the recent rally in manufacturing and goods-producing
companies are productivity and profitability. Through considerable
downsizing and restructuring, the "smoke-stack" companies are stronger than
ever."
- -- Individual Investor, August 1999
Although the fund held relatively few technology stocks, which tend to be
expensive and volatile, we selected stocks that have performed quite well.
Motorola is achieving better results in its cellular phone business.
Apple, after rehiring one of its original founders, Steve Jobs, as interim
CEO in 1997, has boosted sales with new products, such as the iMac and new
technologies, such as the G3 computer chip. The company recently recorded
its sixth consecutive profitable quarter after years of losses. In
addition to these recent acquisitions, long-term holding IBM also
appreciated by approximately 90% in the annual period.
Making the case for value stocks
Edward Bousa, lead manager of The George Putnam Fund of Boston, was featured
in the June 14, 1999, issue of Barron's. In an article entitled "Playing the
Bounce," he commented on the surge in value stocks during the spring of 1999
as forecasts for world economic growth were revised upward. Here is an excerpt:
"The major message is that the absence of a negative is a positive. No one is
saying for sure that Asia is back or about to boom. But it isn't getting
worse. That's really important. When industries are under duress, like
commodities, they adjust. They take capacity down. They cut costs. They get
more efficient. If things stop getting worse, their earnings go up. If things
get better, their earnings go up a lot. I really feel pretty good about the
upside."
Recent additions to the fund include Abbott Laboratories, which fell out
of favor with many other health-care stocks in the spring of 1999. To
restore its growth, Abbott recently hired a new CEO who has focused on
raising the company's productivity. We also added Shaw Industries during
the fiscal period. New management at Shaw, the country's premier carpeting
manufacturer, has cut costs and focused on operational efficiency. The
company's earnings in 1999's second quarter exceeded Wall Street
estimates, helping the stock to rally strongly in July. Another new
holding, Whirlpool, has corrected many weaknesses in its appliance
division, resulting in improved stock performance.
* BONDS PUNISHED BY STRONGER-THAN-EXPECTED ECONOMY
The bond market experienced wide variations in performance during the
year. Last summer, Treasury bonds soared in value because of their high
credit quality, while below investment-grade corporate bonds experienced
losses. This gap narrowed after the Fed eased monetary policy and the
much-dreaded recession failed to materialize. In 1999, Treasuries and
investment-grade bonds have suffered a gradual price decline as new fears
of inflation have emerged. By the time the Fed raised rates in June, bond
yields had risen by nearly one percentage point across the yield curve in
comparison with late-1998 levels.
[GRAPHIC OMITTED: TOP 10 EQUITY HOLDINGS]
TOP 10 EQUITY HOLDINGS
Bank of America
Insurance and finance
GTE
Utilities
Exxon
Oil and gas
Mobil
Oil and gas
Citigroup
Insurance and finance
Ameritech
Utilities
AT&T
Utilities
Royal Dutch Petroleum
Oil and gas
Bank One
Insurance and finance
Bristol-Myers Squibb
Pharmaceuticals and biotechnology
Footnote reads:
These holdings represent 10.5% of the fund's net assets as of 7/31/99.
Portfolio holdings will vary over time.
These market conditions contributed to negative results for the bonds in
your fund's portfolio. Corporate and mortgage-backed bonds, which the fund
favors because of their more attractive levels of income, underperformed
Treasuries during much of the fiscal year. Treasuries make up less than
25% of the fund's bond holdings. While we do not anticipate significant
indications of inflation, we plan to remain defensive in coming months
because the market is anticipating further rate increases from the Fed.
Also the possibility of a temporary economic slowdown in the fourth
quarter, perhaps made worse by Y2K jitters, could provide advantageous
buying opportunities. For that reason, the fund currently favors somewhat
higher-quality, more liquid bonds.
* CAUTIOUS POSITIONING FOR REMAINDER OF 1999
We are generally optimistic about conditions for value stocks and bonds in
the second half of 1999. At this point, with little evidence of price
increases and an extremely vigilant monetary policy from the Fed, we do
not believe the economy is vulnerable to inflation. Similarly we do not
believe the Y2K computer bug will cause significant business disruptions.
We remain cautious, nonetheless, because other investors might perceive
both inflation and Y2K to be more dangerous than they are and these
perceptions could cause volatility. For that reason, we are favoring
somewhat higher quality bonds and emphasizing stocks with more steady
revenues, especially those in consumer areas, while being highly selective
in the technology sector. We believe this is the proper positioning for
your fund, chosen by many shareholders as a cornerstone of their
portfolios, as it moves toward the next century.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 7/31/99, 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 growth and
current income.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 7/31/99
Class A Class B Class C Class M
(inception dates) (11/5/37) (4/27/92) (7/26/99) (12/1/94)
NAV POP NAV CDSC NAV CDSC NAV POP
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 8.33% 2.09% 7.55% 2.64% 7.52% 6.54% 7.80% 4.01%
- --------------------------------------------------------------------------------------
5 years 110.83 98.77 103.18 101.18 103.04 103.04 105.48 98.23
Annual average 16.09 14.73 15.23 15.01 15.22 15.22 15.49 14.67
- --------------------------------------------------------------------------------------
10 years 217.34 199.16 193.97 193.97 194.33 194.33 200.85 190.26
Annual average 12.24 11.58 11.39 11.39 11.40 11.40 11.64 11.24
- --------------------------------------------------------------------------------------
Annual average 9.96 9.86 8.90 8.90 9.14 9.14 9.18 9.11
(life of fund)
- --------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 7/31/99
Standard & Lehman Bros.
Poor's Govt./Corp. Consumer
500 Index Bond Index* price index
- -------------------------------------------------------------------
1 year 20.20% 2.32% 2.14%
- -------------------------------------------------------------------
5 years 220.68 42.07 12.33
Annual average 26.25 7.28 2.35
- -------------------------------------------------------------------
10 years 396.64 113.33 34.00
Annual average 17.39 7.87 2.97
- -------------------------------------------------------------------
Annual average 12.50 -- 4.02
(life of fund)
- -------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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-, 10-year 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. For class C shares, returns for
periods prior to their inception are derived from the historical
performance of class A shares, adjusted to reflect both the CDSC currently
applicable to class C shares, which is 1% for the first year and is
eliminated thereafter, and the higher operating expenses applicable to
class C shares. All returns assume reinvestment of distributions at NAV.
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.
*Inception date of index was 12/31/72, after the fund's inception.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 7/31/89
Lehman Bros.
Fund's class A Govt./Corp. S&P 500 Consumer price
Date shares at POP Bond Index Index index
7/31/89 9,425 10,000 10,000 10,000
7/31/90 9,977 10,623 10,650 10,482
7/31/91 11,103 11,710 12,009 10,949
7/31/92 12,622 13,541 13,545 11,294
7/31/93 13,712 15,035 14,727 11,608
7/31/94 14,187 15,016 15,487 11,929
7/31/95 16,701 16,536 19,531 12,259
7/31/96 19,166 17,414 22,767 12,621
7/31/97 25,206 19,293 34,637 12,902
7/31/98 27,610 20,848 41,317 13,119
7/31/99 $29,916 $21,333 $49,664 $13,400
Footnote reads:
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B or class C shares
would have been valued at $29,397 and $29,433, respectively and no
contingent deferred sales charges would apply; a $10,000 investment in the
fund's class M shares would have been valued at $30,085 ($29,026 at public
offering price). See first page of performance section for performance
calculation method.
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 7/31/99
Class A Class B Class C Class M
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distributions (number) 4 4 -- 4
- --------------------------------------------------------------------------------------
Income $0.549 $0.416 -- $0.457
- --------------------------------------------------------------------------------------
Capital gains
Long-term 0.757 0.757 -- 0.757
- --------------------------------------------------------------------------------------
Short-term 0.493 0.493 -- 0.493
- --------------------------------------------------------------------------------------
Total $1.799 $1.666 -- $1.707
- --------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- --------------------------------------------------------------------------------------
7/31/98 $18.82 $19.97 $18.67 -- $18.67 $19.35
- --------------------------------------------------------------------------------------
7/26/99* -- -- -- $18.76 -- --
- --------------------------------------------------------------------------------------
7/31/99 18.49 19.62 18.33 18.49 18.33 18.99
- --------------------------------------------------------------------------------------
Current return (end of period)
- --------------------------------------------------------------------------------------
Current dividend rate1 3.24% 3.06% 2.55% -- 2.79% 2.70%
- --------------------------------------------------------------------------------------
Current 30-day
SEC yield2 3.24 3.05 2.47 --** 2.73 2.57
- --------------------------------------------------------------------------------------
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.
*Inception date of class C shares.
**Due to their brief performance history, no yield information is yet available for
class C shares.
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 6/30/99 (most recent calendar quarter)
Class A Class B Class C Class M
(inception dates) (11/5/37) (4/27/92) (7/26/99) (12/1/94)
NAV POP NAV CDSC NAV CDSC NAV POP
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 9.34% 3.03% 8.56% 3.61% 8.53% 7.54% 8.81% 4.99%
- ----------------------------------------------------------------------------------------
5 years 120.81 108.07 112.82 110.82 112.57 112.57 115.33 107.86
Annual average 17.17 15.78 16.31 16.09 16.28 16.28 16.58 15.76
- ----------------------------------------------------------------------------------------
10 years 246.01 226.15 220.64 220.64 220.92 220.92 227.94 216.55
Annual average 13.22 12.55 12.36 12.36 12.37 12.37 12.61 12.21
- ----------------------------------------------------------------------------------------
Annual average 10.02 9.92 8.96 8.96 9.19 9.19 9.23 9.17
(life of fund)
- ----------------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. 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.
</TABLE>
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 C shares are not subject to an initial sales charge and are subject
to a contingent deferred sales charge only if the shares are redeemed
during the first year.
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 5.75% maximum 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 or C shares and assumes redemption at the end of
the period. Your fund's class B 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. The CDSC for class C shares is 1% for one year after
purchase.
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.
Welcome to www.putnaminv.com
Now you can use your PC to get up-to-date information about your funds, learn
more about investing and retirement planning, and access market news and
economic outlooks from Putnam.
VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR:
* the benefits of investing with Putnam
* Putnam's money management philosophy
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* the latest on new funds and other Putnam news
You can also read Putnam economist Dr. Robert Goodman's commentary and
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The site can be accessed through any of the major online services (America
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Internet service provider.
New features will be added to the site regularly. So be sure to bookmark us
at http://www.putnaminv.com
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price is determined. All investment and non-investment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed here
may not match the sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-ended funds, a separate
table is provided for each share class.
Report of independent accountants
For the fiscal year ended July 31, 1999
To the Trustees and Shareholders of
The George Putnam Fund of Boston
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of The George Putnam Fund
of Boston (the "fund") at July 31, 1999, and the results of its
operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of investments owned at July 31, 1999 by correspondence with
the custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
September 13, 1999
<TABLE>
<CAPTION>
The fund's portfolio
July 31, 1999
COMMON STOCKS (60.9%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Aerospace and Defense (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
893,400 Boeing Co. $ 40,538,025
837,000 Lockheed Martin Corp. 29,138,063
--------------
69,676,088
Agriculture (--%)
- --------------------------------------------------------------------------------------------------------------------------
22,025 PSF Holdings LLC Class A (NON) 264,300
Automotive (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
850,500 Ford Motor Co. 41,355,563
553,000 General Motors Corp. 33,698,438
511,700 Lear Corp. (NON) 24,433,675
--------------
99,487,676
Basic Industrial Products (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
485,800 Caterpillar, Inc. 28,480,025
824,700 Dover Corp. 32,575,650
485,800 Minnesota Mining & Manufacturing Co. 42,720,038
1,029,500 Owens-Illinois, Inc. (NON) 25,673,156
--------------
129,448,869
Banks (7.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,273,526 Bank of America Corp. 84,530,288
1,103,236 Bank One Corp. 60,195,314
659,050 BankBoston Corp. 30,934,159
773,500 BB&T Corp. 27,265,875
1,038,700 Charter One Financial, Inc. 26,876,363
479,650 Chase Manhattan Corp. 36,873,094
289,000 Comerica, Inc. 16,039,500
238,500 Morgan (J.P.) & Co., Inc. 30,498,188
740,100 PNC Bank Corp. 39,132,788
743,750 Synovus Financial Corp. 13,619,922
1,031,200 U.S. Bancorp 32,096,100
1,068,700 Washington Mutual, Inc. 36,669,769
908,100 Wells Fargo Co. 35,415,900
--------------
470,147,260
Building and Construction (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
560,300 Armstrong World Industries, Inc. 30,816,500
Business Equipment and Services (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
765,000 Xerox Corp. 37,293,750
Chemicals (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
348,600 Dow Chemical Co. 43,226,400
452,800 du Pont (E.I.) de Nemours & Co., Ltd. 32,629,900
1,400,300 Engelhard Corp. 31,244,194
465,100 PPG Industries, Inc. 27,731,588
698,900 Union Carbide Corp. 33,547,200
--------------
168,379,282
Computer Services and Software (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
407,200 Apple Computer, Inc. (NON) 22,675,950
513,600 Compaq Computer Corp. 12,326,400
612,700 Computer Associates International, Inc. 28,107,613
264,400 IBM Corp. 33,231,775
--------------
96,341,738
Conglomerates (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
593,500 TRW, Inc. 31,715,156
Consumer Durable Goods (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
1,113,350 Hasbro, Inc. 28,947,100
44 Mothers Work, Inc. (NON) 649
469,100 Whirlpool Corp. 33,628,606
--------------
62,576,355
Consumer Non Durables (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,213 Hedstrom Holdings, Inc. 144A (NON) 1,213
557,400 Kimberly-Clark Corp. 34,001,400
1,155,700 Philip Morris Cos., Inc. 43,049,825
--------------
77,052,438
Consumer Products (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
589,700 Fortune Brands, Inc. 23,293,150
Consumer Services (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
100 AmeriKing, Inc. (NON) 4,000
1,663,200 Service Corp. International 26,403,300
--------------
26,407,300
Electronics and Electrical Equipment (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
551,700 Emerson Electric Co. 32,929,594
162,400 Micron Technology, Inc. (NON) 10,089,100
401,200 Motorola, Inc. 36,609,500
--------------
79,628,194
Entertainment (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
789,800 Disney (Walt) Productions, Inc. 21,818,225
1,733 Fitzgerald Gaming Corp. (NON) 867
--------------
21,819,092
Environmental Control (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,066,500 Republic Services, Inc. (NON) 21,529,969
Food and Beverages (3.4%)
- --------------------------------------------------------------------------------------------------------------------------
676,400 Heinz (H.J.) Co. 31,875,350
914,600 Kellogg Co. 31,839,513
1,411,400 Nabisco Group Holdings Corp. 26,463,750
1,499,000 Pepsi Bottling Group, Inc. (The) 35,413,875
1,574,500 Sara Lee Corp. 34,639,000
627,200 Seagram Co., Ltd. 32,183,200
1,094,900 SYSCO Corp. 35,789,544
--------------
228,204,232
Forest Products (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
829,200 Mead Corp. 33,997,200
794,200 Weyerhaeuser Co. 51,374,813
--------------
85,372,013
Health Care (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
980,600 Abbott Laboratories 42,104,513
1,490,900 HEALTHSOUTH Corp. (NON) 18,263,525
--------------
60,368,038
Insurance and Finance (6.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,105,100 Ace Ltd. 25,693,575
955,200 Allstate Corp. 33,909,600
552,000 American General Corp. 42,711,000
488,200 Chubb Corp. (The) 29,200,463
423,600 CIGNA Corp. 37,356,225
1,577,625 Citigroup, Inc. 70,302,914
562,600 Fannie Mae 38,819,400
543,500 Hartford Financial Services Group 29,349,000
207,900 Household International, Inc. 8,939,700
730,300 Paine Webber Group Inc. 29,212,000
799,200 Torchmark Corp. 26,273,700
667,200 UnumProvident Corp. 34,527,600
--------------
406,295,177
Lodging (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
932,900 Starwood Hotels & Resorts Worldwide, Inc. 25,188,300
Medical Supplies and Devices (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
483,700 Baxter International, Inc. 33,224,144
1,418,000 Bergen Brunswig Corp. Class A 22,688,000
--------------
55,912,144
Metals and Mining (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
515,500 Alcoa Inc. 30,865,563
Oil and Gas (6.5%)
- --------------------------------------------------------------------------------------------------------------------------
514,900 Chevron, Inc. 46,984,625
1,062,300 Conoco, Inc. 27,686,194
714,500 El Paso Energy Corp. 25,588,031
379,000 Elf Aquitane ADR (France) 32,428,188
935,400 Exxon Corp. 74,247,375
1,007,700 Halliburton Co. 46,480,163
689,100 Mobil Corp. 70,460,475
1,001,600 Royal Dutch Petroleum Co. PLC ADR (Netherlands) 61,097,600
1,082,500 Tosco Corp. 28,550,938
1,097,900 Union Pacific Resources Group Inc. 19,556,344
--------------
433,079,933
Pharmaceuticals and Biotechnology (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
948,000 American Home Products Corp. 48,348,000
834,200 Bristol-Myers Squibb Co. 55,474,300
829,300 Monsanto Co. 32,446,363
823,170 Pharmacia & Upjohn, Inc. 44,296,836
--------------
180,565,499
Publishing (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
618,400 McGraw-Hill, Inc. 31,461,100
REITs (Real Estate Investment Trust) (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
733,900 Equity Office Properties Trust 18,439,238
708,600 Equity Residential Properties Trust 29,274,038
--------------
47,713,276
Retail (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
661,000 Albertsons, Inc. 32,843,438
771,200 Federated Department Stores, Inc. (NON) 39,572,200
1,028,600 Rite Aid Corp. 21,793,463
942,200 Saks, Inc. (NON) 21,670,600
684,900 Sears, Roebuck & Co. 27,738,450
--------------
143,618,151
Specialty Consumer Products (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
983,436 Mattel, Inc. 23,110,746
Telecommunications (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
496,330 ALLTEL Corp. 35,642,698
Textiles (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
998,007 Shaw Industries, Inc. (NON) 21,020,522
Transportation (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,167,533 Burlington Northern Santa Fe Corp. 37,361,056
298,900 CSX Corp. 14,477,969
566,200 Delta Air Lines, Inc. 33,759,675
669,200 FDX Corp. (NON) 29,988,525
444,800 UAL Corp. (NON) 28,217,000
--------------
143,804,225
Utilities (9.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,237,450 American Telephone & Telegraph Co. 64,270,059
932,800 Ameritech Corp. 68,327,600
829,000 Bell Atlantic Corp. 52,848,750
729,400 BellSouth Corp. 35,011,200
627,800 CiNergy Corp. 18,794,763
617,400 Consolidated Natural Gas Co. 38,664,675
891,600 DPL, Inc. 17,107,575
771,500 Duke Energy Corp. 40,841,281
423,300 Edison International 10,714,781
1,123,000 Entergy Corp. 34,040,938
1,121,200 GTE Corp. 82,618,425
1,325,600 OGE Energy Corp. 31,400,150
923,402 SBC Communications, Inc. 52,807,052
1,492,000 Sempra Energy 33,103,750
737,000 Texas Utilities Co. 31,276,437
761,200 Western Resources, Inc. 19,886,350
--------------
631,713,786
--------------
Total Common Stocks (cost $3,594,084,605) $4,029,812,520
CORPORATE BONDS AND NOTES (18.2%) (a)
PRINCIPAL AMOUNT VALUE
Advertising (--%)
- --------------------------------------------------------------------------------------------------------------------------
$ 110,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 117,150
355,000 Outdoor Communications Inc. sr. sub. notes 9 1/4s, 2007 365,650
45,000 Outdoor Systems, Inc. sr. sub. notes 9 3/8s, 2006 47,475
850,000 Outdoor Systems, Inc. company guaranty 8 7/8s, 2007 884,000
--------------
1,414,275
Aerospace and Defense (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 90,500
530,000 Aviation Sales Co. company guaranty 8 1/8s, 2008 500,850
570,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 9 7/8s, 2006 578,550
260,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 262,600
12,080,000 Boeing Co. deb. 6 5/8s, 2038 10,586,308
7,480,000 Raytheon Co. notes 6.45s, 2002 7,448,883
6,640,000 Raytheon Co. deb. 6.4s, 2018 5,808,738
--------------
25,276,429
Agriculture (--%)
- --------------------------------------------------------------------------------------------------------------------------
269,805 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 248,220
Airlines (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
6,415,000 Northwest Airlines Corp. pass-thru certificate
Ser. 1999-1A, 6.81s, 2020 5,840,344
Apparel (--%)
- --------------------------------------------------------------------------------------------------------------------------
580,000 Fruit of the Loom 144A company guaranty 8 7/8s, 2006 464,000
Automotive (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
6,760,000 Chrysler Corp. deb. Ser. B, 7.45s, 2097 6,500,822
7,550,000 Delphi Automotive Systems Corp. deb. 7 1/8s, 2029 6,801,342
460,000 Dura Operating Corp. 144A sr. sub. notes 9s, 2009 442,750
1,940,000 Federal Mogul Corp. 144A notes 7 3/8s, 2006 1,812,988
4,310,000 Ford Motor Co. deb. 7.4s, 2046 4,096,224
180,000 Hayes Lemmerz International, Inc. company guaranty
Ser. B, 8 1/4s, 2008 170,100
840,000 Hayes Wheels International, Inc. company guaranty
Ser. B, 9 1/8s, 2007 842,100
1,510,000 Lear Corp. sub. notes 9 1/2s, 2006 1,551,525
1,260,000 Navistar International Corp. sr. notes Ser. B, 7s, 2003 1,228,500
550,000 Talon Automotive Group sr. sub. notes Ser. B, 9 5/8s, 2008 473,000
--------------
23,919,351
Banks (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
15,480,000 BankAmerica Corp. sr. notes 5 7/8s, 2009 14,024,106
10,470,000 Bank United unit Ser. A, 8s, 2009 10,090,463
8,515,000 Bayerische Hypo-und Vereinsbank 144A bonds 8.741s, 2031 8,284,244
6,105,000 Colonial Bank sub. notes 8s, 2009 5,751,521
7,700,000 Dresdner Funding Trust I 144A notes 8.151s, 2031 7,282,814
6,975,000 Imperial Bank sub. notes 8 1/2s, 2009 6,617,531
8,895,000 Merita Bank Ltd. sub. notes 6 1/2s, 2006 (Finland) 8,481,294
11,290,000 Peoples Bank-Bridgeport sub. notes 7.2s, 2006 10,479,830
1,685,000 Peoples Heritage Capital Trust company guaranty
Ser. B, 9.06s, 2027 1,582,266
4,615,000 St. Paul Bancorp sr. notes 7 1/8s, 2004 4,482,457
9,175,000 Sovereign Bancorp, Inc. sr. notes 6 5/8s, 2001 9,093,618
2,195,000 State Street Institution 144A company guaranty 7.94s, 2026 2,180,272
5,345,000 Trenwick Capital Trust I company guaranty 8.82s, 2037 4,640,422
3,780,000 Webster Capital Trust I 144A bonds 9.36s, 2027 3,657,301
--------------
96,648,139
Basic Industrial Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 American Standard Companies, Inc. sr. notes 7 3/8s, 2008 1,900,000
518,000 Ball Corp. company guaranty 7 3/4s, 2006 512,820
1,150,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 1,136,338
--------------
3,549,158
Broadcasting (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
2,085,000 AMFM Inc. sr. sub. notes 9 3/8s, 2004 2,116,275
1,940,000 AMFM Inc. company guaranty 8s, 2008 1,881,800
1,690,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 1,747,038
6,550,000 CBS Corp. sr. notes 7.15s, 2005 6,459,872
625,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 634,375
640,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 620,800
1,125,000 Jacor Communications, Inc. company guaranty
Ser. B, 8 3/4s, 2007 1,195,313
1,250,000 Lenfest Communications, Inc. sr. sub. notes 10 1/2s, 2006 1,437,500
310,000 Lenfest Communications, Inc. sr. sub. notes 8 1/4s, 2008 313,100
700,000 Sinclair Broadcast Group, Inc. company guaranty 9s, 2007 686,000
700,000 Spanish Broadcasting Systems sr. notes 12 1/2s, 2002 777,000
--------------
17,869,073
Building and Construction (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
480,000 Albecca Inc. company guaranty 10 3/4s, 2008 369,600
500,000 Building Materials Corp. company guaranty 8s, 2008 465,000
2,790,000 D.R. Horton, Inc. company guaranty 8s, 2009 2,664,450
340,000 NCI Building Systems Inc. sr. sub. notes Ser. B, 9 1/4s, 2009 326,400
--------------
3,825,450
Business Equipment and Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
280,000 Cex Holdings, Inc. company guaranty Ser. B, 9 5/8s, 2008 282,800
10,498,715 Federal Express Corp. pass-thru certificates
Ser. 1998-1A, 6.72s, 2022 9,932,939
610,000 Iron Mountain, Inc. med. term notes company guaranty
10 1/8s, 2006 632,875
649,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 707,410
500,000 Production Resource Group sr. sub. notes 11 1/2s, 2008 495,000
1,020,000 U.S. Office Products Co. company guaranty 9 3/4s, 2008 576,300
800,000 Unicco Service Co. company guaranty Ser. B, 9 7/8s, 2007 768,000
--------------
13,395,324
Cable Television (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
43,875 Adelphia Communications Corp. sr. notes 9 1/2s, 2004 (PIK) 45,191
740,000 Adelphia Communications Corp. sr. notes Ser. B, 8 3/8s, 2008 706,700
1,035,000 Century Communications Corp. sr. notes 9 1/2s, 2005 1,060,875
390,000 Century Communications Corp. sr. notes 8 3/4s, 2007 382,200
250,000 Comcast Corp. sr. sub. notes 9 3/8s, 2005 264,300
240,000 Comcast Corp. sr. notes sub. 9 1/8s, 2006 254,993
310,000 Charter Communications Holdings LLC 144A sr. disc. notes
stepped-coupon zero % (9.92s, 4/1/04), 2011 (STP) 188,325
2,455,000 Charter Communications Holdings LLC 144A sr. notes
8 5/8s, 2009 2,341,456
1,370,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2013 1,438,500
210,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 195,122
295,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) (STP) 270,294
1,420,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 1,150,200
390,000 Jones Intercable, Inc. sr. sub. deb. 10 1/2s, 2008 417,300
363,000 Jones Intercable, Inc. sr. notes 9 5/8s, 2002 391,132
650,000 Jones Intercable, Inc. sr. notes 7 5/8s, 2008 666,250
1,020,000 Lamar Media Corp. company guaranty 9 5/8s, 2006 1,030,200
100,000 Rogers Cablesystems Ltd. notes 11s, 2015 (Canada) 115,000
600,000 TeleWest Communications PLC 144A sr. disc. notes
stepped-coupon zero %, (9 1/4s, 4/15/04), 2009
(United Kingdom) (STP) 387,000
--------------
11,305,038
Chemicals (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
6,125,000 DSM NV 144A notes 6 1/4s, 2004 (Netherlands) 5,947,375
540,000 Equistar Chemicals LP notes 9 1/8s, 2002 543,969
660,000 ISP Holdings, Inc. sr. notes Ser. B, 9 3/4s, 2002 676,500
1,920,000 Lyondell Petrochemical Co. 144A sec. notes 9 5/8s, 2007 1,944,000
7,330,000 Nova Chemicals Corp. deb. 7s, 2026 (Canada) 7,212,720
500,000 PCI Chemicals & Pharmaceuticals company guaranty
9 1/4s, 2007 (India) 380,000
6,160,000 Rohm & Haas Co. 144A deb. 7.85s, 2029 6,188,706
170,000 Royster-Clark Inc. 144A 1st mtge 10 1/4s, 2009 166,600
640,000 Scotts Co 144A sr. sub. notes 8 5/8s, 2009 635,200
--------------
23,695,070
Computer Services and Software (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
15,945,000 IBM Corp. deb. 7 1/8s, 2096 15,051,442
670,000 IPC Information Systems Inc. sr. disc. notes 10 7/8s, 2008 512,550
360,000 Verio Inc. sr. notes 11 1/4s, 2008 365,400
--------------
15,929,392
Conglomerates (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
600,000 Axia, Inc. company guaranty 10 3/4s, 2008 570,000
3,030,000 Canadian Pacific Ltd. deb. 9.45s, 2021 (Canada) 3,430,839
6,030,000 TRW, Inc. 144A notes 7 3/4s, 2029 5,833,301
7,150,000 Tyco International Ltd. company guaranty 6 3/8s, 2005 6,928,636
8,385,000 Tyco International Ltd. company guaranty 6 1/4s, 2003 8,196,338
--------------
24,959,114
Consumer Non Durables (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
825,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 829,125
10,450,000 Imperial Tobacco Global company guarantee 7 1/8s, 2009 9,870,234
1,405,000 Philip Morris Cos., Inc. notes 7 1/2s, 2004 1,432,173
5,460,000 Philip Morris Cos., Inc. notes 7 1/4s, 2003 5,527,759
2,925,000 Philip Morris Cos., Inc. notes 7 1/8s, 2004 2,930,821
2,800,000 Philip Morris Cos., Inc. notes 6.8s, 2003 2,782,584
400,000 Revlon Consumer Products sr. notes 9s, 2006 360,000
550,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 484,000
2,355,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2008 2,249,025
--------------
26,465,721
Consumer Related (--%)
- --------------------------------------------------------------------------------------------------------------------------
1,230,000 Trairc Consumer Products, Inc. 144A sr. sub. notes
10 1/4s, 2009 1,193,100
Consumer Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
548,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 590,470
9,190,000 Hertz Corp. sr. notes 6 1/2s, 2006 8,775,439
1,740,000 Hertz Corp. notes 6 1/4s, 2009 1,599,791
3,040,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 2,774,000
300,000 Protection One, Inc. sr. disc. notes stepped-coupon zero %,
(13 5/8s, 6/30/00), 2005 (STP) 336,000
2,020,000 Service Corp. International notes 6s, 2005 1,831,393
--------------
15,907,093
Electronics and Electrical Equipment (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
820,000 Amkor Technologies, Inc. 144A sr. notes 9 1/4s, 2006 783,100
95,657 Cirent Semiconductor sr. sub. notes 10.22s, 2002 94,700
111,503 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 110,667
650,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 637,000
1,396,181 Fairchild Semiconductor Corp. 144A sr. sub. notes
11.74s, 2008 (PIK) 1,361,276
1,270,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 1,244,600
490,000 Flextronics International Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 482,650
980,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 989,800
340,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 346,800
1,225,000 Wavetek Corp. company guaranty 10 1/8s, 2007 1,078,000
--------------
7,128,593
Energy-Related (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,070,000 Gothic Production Corp. company guaranty Ser. B,
11 1/8s, 2005 941,600
6,295,000 KN Capital Trust III company guaranty 7.63s, 2028 5,301,020
850,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) 837,250
--------------
7,079,870
Entertainment (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
310,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 286,750
340,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 311,100
450,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 443,250
1,330,000 Cinemark USA, Inc. sr. sub. notes Ser. D, 9 5/8s, 2008 (Mexico) 1,276,800
310,000 Circus Circus Enterprises, Inc. sr. notes 6.45s, 2006 277,751
1,900,000 Harrahs Entertainment, Inc. company guaranty 7 7/8s, 2005 1,814,500
230,000 Harrahs Entertainment, Inc. company guaranty 7 1/2s, 2009 219,298
860,000 Hollywood Casino Corp. 144A sec. notes 11 1/4s, 2007 869,675
730,000 Hollywood Park Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 715,400
350,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 339,500
1,160,000 International Game Technology 144A sr. notes 7 7/8s, 2004 1,119,400
2,910,000 ITT Corp. notes 6 3/4s, 2005 2,649,817
120,000 Mohegan Tribal Gaming, Auth. sr. sub. notes 8 3/4s, 2009 117,600
560,000 Mohegan Tribal Gaming, Auth. sr. notes 8 1/8s, 2006 546,000
430,000 Park Place Entertainment sr. sub. notes 7 7/8s, 2005 408,500
535,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 529,650
130,000 PX Escrow Corp. sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 (STP) 75,400
510,000 SFX Entertainment Inc. company guaranty 9 1/8s, 2008 490,875
530,000 SFX Entertainment, Inc. 144A company guaranty
Ser. B, 9 1/8s, 2008 516,750
240,000 Sun International Hotels Ltd. company guaranty 9s, 2007 238,800
410,000 Sun International Hotels Ltd. sr. sub. notes 8 5/8s, 2007 407,950
2,670,000 Time Warner Entertainment Inc. notes 8 7/8s, 2012 2,972,671
16,185,000 Time Warner Entertainment sr. notes 8 3/8s, 2033 17,291,245
350,000 Trump A.C. 1st mtge. 11 1/4s, 2006 315,000
1,000,000 United Artists Theatre sr. sub. notes 9 3/4s, 2008 550,000
1,400,000 Viacom, Inc. sr. notes 7 3/4s, 2005 1,420,356
9,615,000 Walt Disney Co. med. term notes 5.62s, 2008 8,701,287
--------------
44,905,325
Environmental Control (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
3,530,000 Allied Waste Industries, Inc. company guaranty
Ser. B, 7 7/8s, 2009 3,238,775
2,120,000 Waste Management, Inc. notes 6 5/8s, 2002 2,110,736
4,300,000 WMX Technologies, Inc. notes 7.7s, 2002 4,409,091
--------------
9,758,602
Food and Beverages (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 Doane Pet Care Co.sr. sub. notes 9 3/4s, 2007 20,500
9,715,000 Pepsi Bottling Group Inc. 144A sr. notes 7s, 2029 8,927,308
--------------
8,947,808
Health Care (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
930,000 Columbia/HCA Healthcare Corp. med. term notes 9s, 2014 900,984
1,220,000 Columbia/HCA Healthcare Corp. med. term notes 8.7s, 2010 1,163,063
60,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 54,014
300,000 Hudson Respiratory Care, Inc. sr. sub. notes 9 1/8s, 2008 249,000
530,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007 339,200
420,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 264,600
260,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-coupon
Ser. B, zero % (10 1/2s, 11/1/02), 2007 (STP) 20,800
1,280,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 153,600
1,455,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 931,200
450,000 Quorum Health Group, Inc. sr. sub. notes 8 3/4s, 2005 434,250
700,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 679,000
1,900,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 1,781,250
1,825,000 Tenet Healthcare Corp. sr. notes 8s, 2005 1,756,563
--------------
8,727,524
Insurance and Finance (5.9%)
- --------------------------------------------------------------------------------------------------------------------------
280,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 259,305
920,000 Advanta Corp. med-term notes Ser. D, 6.92s, 2002 823,538
10,625,000 AFC Capital Trust company guaranty Ser. B, 8.207s, 2027 10,634,456
7,810,000 AFLAC Inc. sr. notes 6 1/2s, 2009 7,488,228
1,500,000 AMBAC Indemnity Corp. deb. 9 3/8s, 2011 1,731,390
12,745,000 American General Institute 144A company guaranty
8 1/8s, 2046 12,943,822
3,165,000 Associates Corp. deb. 6.95s, 2018 2,971,619
3,500,000 Associates First Capital Corp. sub. deb. 8.15s, 2009 3,693,445
6,295,000 Bombardier Capital Inc. 144A notes 6s, 2002 6,169,100
7,670,000 Capital One Financial Corp. notes 7 1/4s, 2006 7,350,238
795,000 Capital One Financial Corp. notes 7 1/4s, 2003 779,410
11,255,000 Citicorp sub. notes 6 3/8s, 2008 10,534,005
340,000 Colonial Capital II 144A company guaranty 8.92s, 2027 314,906
10,235,000 Conseco Financing Trust II company guaranty 8.7s, 2026 9,163,703
6,215,000 Conseco Inc. sr. notes Ser. B, 7.6s, 2001 6,200,519
4,970,000 Conseco Inc. med-term notes 6 1/2s, 2002 4,725,476
870,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 295,800
1,060,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 355,100
6,615,000 Countrywide Home Loan Corp. company guaranty
6.935s, 2007 6,455,446
4,100,000 Countrywide Home Loan Corp. company guaranty med term
notes 6 1/4s, 2009 3,761,955
6,700,000 Dime Bancorp, Inc. sr. notes 6 3/8s, 2001 6,683,786
4,110,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 4,224,217
8,550,000 Executive Risk Capital Trust company guaranty Ser. B,
8.675s, 2027 8,620,880
5,650,000 Finova Capital Corp. notes 7.4s, 2007 5,657,119
6,250,000 Finova Capital Corp. notes 6 1/4s, 2002 6,167,875
9,225,000 Finova Capital Corp. med-term notes 6.11s, 2003 9,040,408
6,045,000 First Citizens Bank Capital Trust I company guaranty
8.05s, 2028 5,606,738
2,605,000 First Financial Caribbean Corp. sr. notes 7.84s, 2006 2,531,148
2,035,000 Firstar Bank Milwaukee sr. bank notes 6 1/4s, 2002 1,999,550
4,015,000 Firstar Capital Trust I company guaranty Ser. B, 8.32s, 2026 3,980,230
1,020,000 Ford Motor Credit Corp. notes 6.55s, 2002 1,013,370
8,119,000 Ford Motor Credit Corp. sr. notes 6s, 2003 7,913,670
7,845,000 Ford Motor Credit Corp. sr. notes 5.8s, 2009 7,052,733
14,445,000 General Motors Acceptance Corp. sr. unsub. 5.85s, 2009 13,034,735
2,625,000 Hartford Life, Inc. deb. 7.65s, 2027 2,571,844
9,380,000 Household Finance Corp. notes 6 1/2s, 2008 8,818,888
1,265,000 Household Finance Corp. sr. unsub. 5 7/8s, 2009 1,133,895
3,820,000 Household Netherlands N.V. company guaranty 6.2s, 2003
(Netherlands) 3,704,369
6,000,000 Lehman Brothers Holdings, Inc. notes 6 5/8s, 2004 5,836,980
6,225,000 Lehman Brothers Holdings, Inc. med. term notes 6.4s, 1999 6,230,042
11,410,000 Lehman Brothers Holdings, Inc. notes 6 1/4s, 2003 11,072,949
4,625,000 Markel Capital Trust I company guaranty Ser. B, 8.71s, 2046 4,094,790
13,600,000 Merey Sweeney L.P. 144A sr. notes 8.85s, 2019 13,668,000
5,100,000 Merrill Lynch & Co., Inc. med. term notes 6.13s, 2003 4,988,208
4,205,000 Money Store, Inc. notes 8.05s, 2002 4,335,649
6,235,000 Newcourt Credit Group, Inc. 144A company guaranty
7 1/8s, 2003 6,133,494
5,995,000 Newcourt Credit Group, Inc. 144A notes 6 7/8s, 2005 5,736,136
3,235,000 Norwest Corp. med. term sr. notes Ser. J, 6 3/4s, 2027 2,866,016
1,970,000 Orange Cogen Funding 144A company guaranty 8.175s, 2022 1,931,388
2,000,000 Orion Capital Corp. sr. notes 9 1/8s, 2002 2,096,540
7,850,000 Paine Webber Group, Inc. sr. notes 6.55s, 2008 7,334,334
8,985,000 Paine Webber Group, Inc. sr. med. term notes 6.52s, 2005 8,524,519
5,185,000 Presidential Life Corp. sr. notes 7 7/8s, 2009 4,977,600
10,770,000 Provident Companies, Inc. bonds 7.405s, 2038 9,830,964
390,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 (In default) (NON) 175,500
6,730,000 Prudential Insurance Co. 144A 6 7/8s, 2003 6,719,232
580,000 RBF Finance Co. company guaranty 11 3/8s, 2009 600,300
1,350,000 RBF Finance Co. company guaranty 11s, 2006 1,390,500
6,350,000 Salomon, Inc. sr. notes 7.3s, 2002 6,477,127
14,225,000 Salomon, Inc. sr. notes 6 3/4s, 2003 14,132,253
3,841,536 Salton Sea Funding Corp. company guaranty Ser. E, 8.3s, 2011 3,882,679
9,515,000 Sears Roebuck Acceptance Corp. notes 6 1/2s, 2028 8,188,894
1,230,000 Sears Roebuck Acceptance Corp. notes 6 1/4s, 2009 1,143,962
3,680,000 Sprint Capital Corp. company guaranty 6.9s, 2019 3,365,912
12,965,000 Sprint Capital Corp. company guaranty 6 1/8s, 2008 11,920,929
12,445,000 Sun Life Canada Capital Trust 144A 8.526s, 2049 12,552,898
8,015,000 TIG Capital Trust I 144A bonds 8.597s, 2027 7,534,661
4,580,000 Transamerica Capital III bonds 7 5/8s, 2037 4,402,250
1,035,000 Wilmington Trust Corp. sub. notes 6 5/8s, 2008 964,703
8,905,000 Zurich Capital Trust I 144A company guaranty 8.376s, 2037 8,964,396
--------------
388,480,721
Lodging (--%)
- --------------------------------------------------------------------------------------------------------------------------
940,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 930,600
390,000 Starwood Hotels & Resorts notes 6 3/4s, 2003 366,920
--------------
1,297,520
Medical Supplies and Devices (--%)
- --------------------------------------------------------------------------------------------------------------------------
265,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 254,400
480,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 417,600
--------------
672,000
Metals and Mining (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,100,000 AK Steel Corp. sr. notes 9 1/8s, 2006 1,135,750
1,900,000 AK Steel Corp. 144A sr. notes 7 7/8s, 2009 1,843,000
360,000 Ameristeel Corp. company guaranty Ser. B, 8 3/4s, 2008 360,900
150,000 Anker Coal Group, Inc. sr. notes Ser. B, 9 3/4s, 2007
(In default) (NON) 69,000
620,000 Continental Global Group sr. notes Ser. B, 11s, 2007 514,600
760,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 642,200
740,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 725,200
--------------
5,290,650
Oil and Gas (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
5,360,000 Alliance Pipeline L.P. 144A sr. notes 7.77s, 2015 (Canada) 5,324,624
2,000,000 Clark Refining & Marketing Inc. sr. sub. notes 8 7/8s, 2007 1,715,000
1,000,000 Cliffs Drilling Co. company guaranty Ser. B, 10 1/4s, 2003 1,000,000
9,860,000 Coastal Corp. bonds 6.95s, 2028 8,742,172
5,935,000 Conoco, Inc. sr. notes 6.95s, 2029 5,491,834
3,125,000 El Paso Energy Corp. sr. notes 6 3/4s, 2009 2,956,031
3,150,000 Enron Corp. notes 6.4s, 2006 2,967,741
3,360,962 Express Pipeline Ltd. 144A sub. notes
Ser. B, 7.39s, 2019 (Canada) 2,897,183
460,000 Gulf Canada Resources, Ltd. sr. notes 8 3/8s, 2005
(Canada) 451,274
3,205,000 Gulf Canada Resources, Ltd. sr. notes 8.35s, 2006 (Canada) 3,103,434
2,325,000 K N Energy, Inc. sr. notes 6.45s, 2003 2,270,177
11,195,000 Louis Dreyfus Natural Gas notes 6 7/8s, 2007 9,875,669
5,790,000 Maritimes & Northeast Pipeline 144A notes 7.7s, 2019 5,662,620
9,915,000 Norsk Hydro ASA notes 6.36s, 2009 (Norway) 9,166,120
390,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 393,900
630,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 611,100
1,095,000 Petro Geo-Services ADR notes 7 1/2s, 2007 (Norway) 1,083,787
9,595,000 Petro Geo-Services sr. notes 7 1/8s, 2028 (Norway) 8,435,060
12,000,000 Petro-Canada deb. 9 1/4s, 2021 (Canada) 13,545,840
975,000 Seagull Energy sr. sub notes 8 5/8s, 2005 957,938
6,175,000 Sonat, Inc. notes 7 5/8s, 2011 6,167,281
6,285,000 Statoil 144A notes 6 1/2s, 2028 (Norway) 5,574,984
12,425,000 Union Oil Company of California company guaranty
7 1/2s, 2029 11,959,063
--------------
110,352,832
Packaging and Containers (--%)
- --------------------------------------------------------------------------------------------------------------------------
1,450,000 Packaging Corp. 144A sr. sub. notes 9 5/8s, 2009 1,486,250
190,000 Riverwood International Corp. company guaranty
10 5/8s, 2007 196,175
880,000 Riverwood International Corp. company guaranty
10 1/4s, 2006 893,200
--------------
2,575,625
Paper and Forest Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
6,335,000 Abitibi-Consolidated Inc. deb. 8 1/2s, 2029 6,171,557
60,000 Boise Cascade Co. med. term notes Ser. A, 7.43s, 2005 56,632
620,000 Pacifica Papers, Inc. 144A sr. notes 10s, 2009 (Canada) 624,650
1,280,000 Tembec Industries, Inc. company guaranty 8 5/8s, 2009
(Canada) 1,283,200
--------------
8,136,039
Pharmaceuticals and Biotechnology (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,040,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 1,019,200
1,900,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 1,840,625
4,795,000 Monsanto Co. 144A deb. 6.6s, 2028 4,363,306
--------------
7,223,131
Publishing (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
340,000 American Media Operation, Inc. 144A sr. sub. notes
10 1/4s, 2009 340,000
910,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 866,775
1,090,000 Garden State Newspapers 144A sr. sub. notes 8 5/8s, 2011 1,013,700
11,730,000 News America Holdings, Inc. deb. 7 3/4s, 2045 10,906,085
335,000 News America Holdings, Inc. deb. 7.7s, 2025 318,769
--------------
13,445,329
Real Estate (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
8,490,000 EOP Operating L.P. notes 6.8s, 2009 7,881,776
2,190,000 EOP Operating L.P. sr. notes 6 3/4s, 2008 2,042,285
3,140,000 EOP Operating L.P. notes 6 3/8s, 2002 3,086,337
--------------
13,010,398
REITs (Real Estate Investment Trust) (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
4,920,000 Avalon Properties, Inc. notes 6 7/8s, 2007 4,626,670
4,670,000 Avalon Properties, Inc. notes 6 5/8s, 2005 4,440,563
2,320,000 OMEGA Healthcare Investors, Inc. notes 6.95s, 2007 1,947,269
5,470,000 OMEGA Healthcare Investors, Inc. notes 6.95s, 2002 5,158,648
120,000 Tanger Properties Ltd. partnership gtd. notes 8 3/4s, 2001 119,909
--------------
16,293,059
Restaurants (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
8,355,000 Tricon Global Restaurants, Inc. sr. notes 7.45s, 2005 8,155,984
Retail (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
13,685,000 Federated Department Stores, Inc. sr. notes 8 1/2s, 2003 14,311,089
320,000 K mart Corp. notes 8 1/8s, 2006 323,200
680,000 K mart Corp. deb. 7.95s, 2023 639,200
310,000 K mart Corp. med. term notes 7.55s, 2004 295,610
255,000 Kasper A.S.L. Ltd. sr. notes 12 3/4s, 2004 246,075
1,000,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 832,500
695,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 590,750
--------------
17,238,424
Satellite Services (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
560,000 Golden Sky Systems company guaranty Ser. B, 12 3/8s, 2006 616,000
4,300,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 2,499,375
17,405,000 TCI Communications Inc. deb. 8 3/4s, 2015 19,587,239
3,620,000 TCI Communications sr. notes 7 1/8s, 2028 3,448,919
--------------
26,151,533
Shipping (--%)
- --------------------------------------------------------------------------------------------------------------------------
1,380,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 1,242,000
600,000 Pegasus Shipping 144A 11 7/8s, 2004 270,000
--------------
1,512,000
Steel (--%)
- --------------------------------------------------------------------------------------------------------------------------
950,000 California Steel Industries 144A sr. notes 8 1/2s, 2009 914,375
2,015,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 2,075,450
--------------
2,989,825
Telecommunications (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
920,000 Allbritton Communications Co. sr. sub. notes
Ser. B, 8 7/8s, 2008 883,200
7,265,000 AT&T Capital Corp. med. term notes 6.6s, 2005 6,909,814
1,430,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 1,329,900
1,750,000 Call-Net Enterprises Inc. sr. disc. notes stepped-coupon zero %
(10.8s, 5/15/04), 2009 (Canada) (STP) 927,500
1,370,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(8.94s, 8/15/03), 2008 (Canada) (STP) 726,100
490,000 Call-Net Enterprises Inc. sr. notes 8s, 2008 (Canada) 411,600
370,000 CapRock Communications Corp. sr. notes Ser. B, 12s, 2008 379,250
280,000 CapRock Communications Corp. 144A sr. notes 11 1/2s, 2009 282,800
250,000 Cencall Communications Corp. sr. disc. notes 10 1/8s, 2004 253,750
1,490,000 Covad Communications Group Inc. sr. notes 12 1/2s, 2009 1,422,950
1,000,000 Econophone, Inc. 144A notes stepped-coupon zero %
(11s, 2/15/03), 2008 (STP) 520,000
140,000 Exodus Communications, Inc. 144A sr. notes 11 1/4s, 2008 140,000
890,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 823,250
3,670,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 3,798,450
750,000 GST Telecommunications, Inc. company guaranty
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 637,500
1,200,000 Hyperion Telecommunications Corp., Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 (STP) 996,000
730,000 Hyperion Telecommunications Corp., Inc. sr. notes Ser. B,
12 1/4s, 2004 766,500
1,565,000 Intermedia Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 1/4s, 7/15/02), 2007 (STP) 1,087,675
260,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 234,000
3,105,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B,
zero % (11 1/2s, 2/01/01), 2006 (STP) 2,790,619
310,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 305,350
610,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 536,800
1,290,000 McLeodUSA, Inc. sr. notes 8 1/8s, 2009 1,164,225
115,000 MetroNet Communications Corp. sr. disc. notes
stepped-coupon zero % (10 3/4s, 11/1/02), 2007
(Canada) (STP) 93,080
690,000 Microcell Telecommunications sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 565,800
1,250,000 NEXTEL Communications, Inc. sr. notes 12s, 2008 1,393,750
230,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (10.65s, 9/15/02), 2007 (STP) 169,050
1,250,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (9.95s, 2/15/03), 2008 (STP) 878,125
1,100,000 NEXTEL Communications, Inc. sr. disc. notes 9 3/4s, 2004 1,124,750
330,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (9 3/4s, 10/31/02), 2007 (STP) 235,950
840,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 890,400
640,000 NTL Communications Corp. sr. notes Ser. B, 11 1/2s, 2008 700,800
1,200,000 NTL Inc. sr. notes, stepped-coupon Ser. B, zero %
(9 3/4s, 4/1/03), 2008 (United Kingdom) (STP) 822,000
1,380,000 Price Communications Wireless, Inc. 144A sr. notes
9 1/8s, 2006 1,407,600
1,000,000 Primus Telecommunications Group, Inc. sr. notes 11 3/4s, 2004 1,012,500
250,000 Primus Telecommunications Group, Inc. sr. notes Ser. B,
9 7/8s, 2008 237,500
1,440,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 1,123,056
190,000 Telecommunications Techniques, Inc. company guaranty
9 3/4s, 2008 182,875
280,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 187,600
1,060,000 Time Warner Telecom Inc. sr. notes 9 3/4s, 2008 1,081,200
540,000 United International Holdings sr. disc. notes stepped-coupon
Ser. B, zero % (10 3/4s, 2/15/03), 2008 (STP) 313,200
--------------
39,746,469
Telephone Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
130,000 Long Distance International, Inc. sr. notes 12 1/4s, 2008 68,250
4,100,000 U S West, Inc. notes 5 5/8s, 2008 3,666,671
--------------
3,734,921
Textiles (--%)
- --------------------------------------------------------------------------------------------------------------------------
380,000 Day International Group, Inc. company guaranty 9 1/2s, 2008 347,700
670,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 301,500
830,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 796,800
--------------
1,446,000
Transportation (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
9,070,000 Atlas Air, Inc. pass-through certificates Ser. 991A, 7.2s, 2019 8,550,289
1,905,000 Burlington Northern Santa Fe notes 6 3/8s, 2005 1,835,677
220,000 Calair LLC 144A company guaranty 8 1/8s, 2008 201,300
390,000 Canadian Airlines Corp. secd. notes 10s, 2005 (Canada) 280,800
590,000 Continental Airlines, Inc. sr. notes 9 1/2s, 2001 601,800
2,150,519 Continental Airlines, Inc. pass-through certificates Ser. 97CI,
7.42s, 2007 2,127,702
6,950,000 Continental Airlines, Inc. pass-through certificates Ser. 981C,
6.541s, 2008 6,679,645
11,885,000 Continental Airlines, Inc. pass-thru certificates Ser. 98-2,
6.32s, 2008 11,036,292
17,235,000 CSX Corp. deb. 7.95s, 2027 17,421,483
430,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s, 2003
(Greece) 404,200
270,000 Johnstown America Industries, Inc. sr. sub. notes 11 3/4s, 2005 279,450
290,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 282,750
1,000,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 865,000
10,520,000 United Air Lines Corp. deb. 9 3/4s, 2021 12,052,764
575,000 US Air Inc. pass-thru certificates Ser. 93-A2, 9 5/8s, 2003 584,614
--------------
63,203,766
Utilities (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
9,230,000 Aes Eastern Energy 144A pass-through certificates 9s, 2017 8,977,929
680,000 Applied Power Inc. sr. sub. notes 8 3/4s, 2009 659,600
3,840,000 Arizona Public Service Co. sr. notes 6 3/4s, 2006 3,735,091
1,300,000 Calpine Corp. sr. notes 8 3/4s, 2007 1,304,537
500,000 Calpine Corp. sr. notes 7 7/8s, 2008 475,000
1,900,000 Calpine Corp. sr. notes 7 3/4s, 2009 1,788,470
980,000 Cleveland Electric Illuminating Co. 1st mtge 6.86s, 2008 935,312
2,200,000 CMS Energy Corp. sr. notes 8 1/8s, 2002 2,209,196
4,695,000 CMS Energy Corp. pass-through certificates 7s, 2005 4,461,048
3,090,000 Connecticut Light & Power Co. 1st mtge. Ser. C, 7 3/4s, 2002 3,144,353
1,575,000 Edison Mission Energy 144A company guaranty 7.33s, 2008 1,559,392
5,030,000 GTE Corp. deb. 6.46s, 2008 4,790,371
220,000 Leviathan Gas Corp.144A sr. sub. notes 10 3/8s, 2009 225,500
1,069,330 Midland Funding Corp. I deb. Ser. C-94, 10.33s, 2002 1,119,310
255,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 290,358
300,000 Niagara Mohawk Power Corp. med. term notes 9.95s, 2000
(Philippines) 307,491
3,125,000 Niagara Mohawk Power Corp. sr. notes Ser. G, 7 3/4s, 2008 3,174,656
370,000 Niagara Mohawk Power Corp. sr. notes Ser. F, 7 5/8s, 2005 367,987
1,054,872 Northeast Utilities System notes Ser. A, 8.58s, 2006 1,068,174
2,424,026 Northeast Utilities System notes Ser. B, 8.38s, 2005 2,407,567
4,582,000 Public Service Co. of New Mexico deb. 10 1/4s, 2012 5,051,563
1,600,000 Public Service Co. of New Mexico sr. notes Ser. B, 7 1/2s, 2018 1,545,408
710,000 Public Service Co. of New Mexico sr. notes Ser. A, 7.1s, 2005 700,351
6,825,000 Southern Energy 144A sr. notes 7.9s, 2009 6,702,833
3,925,000 Texas New-Mexico Power Utilities 1st mtge. 9 1/4s, 2000 4,039,846
6,455,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 6,499,152
5,765,000 TXU Electrical Capital company guaranty 8.175s, 2037 5,561,774
--------------
73,102,269
--------------
Total Corporate Bonds and Notes (cost $1,269,157,110) $1,202,510,508
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (15.8%) (a)
PRINCIPAL AMOUNT VALUE
Agency Obligations (6.7%)
- --------------------------------------------------------------------------------------------------------------------------
$ 1,447,791 Federal Home Loan Mortgage Association Pass-through
Certificates 8 3/4s, with due dates from May 1, 2009 to
June 1, 2009 $ 1,521,078
Federal Home Loan Mortgage Corp. Pass-through Certificates
4,851,580 7s, July 1, 2012 4,839,451
21,102,993 5 1/2s, with due dates from March 1, 2011 to July 1, 2011 19,778,701
Federal National Mortgage Association
17,122,027 8s, with due dates from August 1, 2026 to June 1, 2028 17,458,988
52,822,612 6 1/2s, with due dates from March 1, 2026 to
February 15, 2029 50,313,536
932,464 6s, November 1, 2013 891,958
34,809,302 6s, Dwarf, with due dates from January 1, 2013 to
December 1, 2013 33,297,184
7,083,000 5 1/8s, February 13, 2004 6,727,717
Federal National Mortgage Association
Pass-through Certificates
132,666 11s, with due dates from October 1, 2015 to
March 1, 2016 146,719
85,554 8 3/4s, July 1, 2009 88,976
1,544,716 8s, with due dates from November 1, 2024 to
September 1, 2026 1,575,117
663,360 7s, June 1, 2011 661,078
10,976,944 7s, Dwarf, with due dates from February 1, 2008 to
October 1, 2013 10,939,186
17,145,008 6 1/2s, with due dates from April 1, 2026 to
November 1, 2028 16,330,620
4,741,569 6 1/2s, Dwarf, with due dates from July 1, 2010 to
August 1, 2013 4,630,428
16,623,477 6s, Dwarf, with due dates from January 1, 2013 to
October 1, 2013 15,901,352
Government National Mortgage Association
35,656,333 8s, with due dates from December 15, 2025 to
January 15, 2029 36,369,461
15,799,333 7s, with due dates from January 15, 2023 to
December 15, 2028 15,448,203
102,983,002 6 1/2s, with due dates from March 15, 2002 to
May 15, 2029 97,807,978
Government National Mortgage Association
Pass-through Certificates
737 15s, September 15, 2011 880
39,828,024 8s, with due dates from August 15, 2024 to
February 15, 2028 40,624,587
19,857 7 1/2s, September 15, 2005 19,938
62,209,097 7s, with due dates from January 15, 2023 to June 15, 2028 60,693,510
10,971,137 6 1/2s, with due dates from June 15, 2023 to
November 15, 2027 10,506,371
--------------
446,573,017
U.S. Treasury Obligations (9.1%)
- --------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
1,220,000 11 7/8s, November 15, 2003 (SEG) 1,487,070
24,380,000 11 5/8s, November 15, 2004 (SEG) 30,478,901
13,530,000 5 1/4s, February 15, 2029 11,948,614
5,055,000 5 1/4s, November 15, 2028 4,410,488
U.S. Treasury Notes
2,375,000 6 1/8s, August 15, 2007 2,381,318
9,470,000 5 7/8s, February 15, 2004 9,472,936
3,100,000 5 3/4s, August 15, 2003 3,084,996
34,070,000 5 5/8s, May 15, 2008 33,101,049
14,935,000 5 5/8s, December 31, 2002 14,848,676
25,030,000 5 1/2s, May 15, 2009 24,279,100
94,655,000 5 1/2s, May 31, 2003 93,442,469
1,035,000 5 1/2s, March 31, 2003 1,023,191
1,760,000 5 3/8s, June 30, 2003 1,731,118
173,445,000 5 1/4s, May 15, 2004 169,542,488
21,070,000 5s, February 28, 2001 20,902,072
U.S. Treasury Notes
3,315,000 4 7/8s, March 31, 2001 3,278,237
4,840,000 4 3/4s, November 15, 2008 4,416,500
61,527,000 4 3/4s, February 15, 2004 58,825,349
117,235,000 4 1/4s, November 15, 2003 110,145,800
--------------
598,800,372
--------------
Total U.S. Government and Agency Obligations
(cost $1,077,845,442) $1,045,373,389
COLLATERALIZED MORTGAGE OBLIGATIONS (1.7%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 7,375,000 Commercial Mortgage Acceptance Corp. Ser. 97-ML1,
Class A3, 6.57s, 2007 $ 7,060,410
Criimi Mae Commercial Mortgage Trust
17,085,000 Ser. 98-C1, Class A2, 7s, 2011 14,685,091
6,750,000 Ser. 98-C1, Class B, 7s, 2011 5,054,063
1,002,620 Fannie Mae Strip Ser. 301, Class 1, Principal Only (PO),
zero %, 2029 634,470
26,417,081 First Union-Lehman Brothers Commercial Mortgage Co.
Ser. 97-C2, Interest Only (IO), 1.916s, 2027 1,999,856
Freddie Mac
4,245,279 Ser. 2113, Class ZM, 6 1/2s, 2028 3,905,657
19,239,502 Ser. 1954, Class MG, IO, 6s, 2027 5,756,459
7,856,855 Freddie Mac Strip Ser. 203, PO, 0s, 2029 4,888,437
5,000,000 GE Capital Mortgage Services, Inc. Ser. 98-11, Class 2A4,
6 3/4s, 2028 4,743,750
7,788,000 GMAC Commercial Mortgage Securities Inc. Ser. 98-C1,
Class E, 7.153s, 2011 7,341,103
2,940,000 GS Mortgage Securities Corp. II Ser. 98-GLII, Class D,
7.191s, 2031 2,700,206
Housing Securities Inc.
675,958 Ser. 91-B, Class B6, 9s, 2006 674,268
1,193,393 Ser. 93-F, Class F9M2, 7s, 2023 1,146,030
200,426 Ser. 94-1, Class AB1, 6 1/2s, 2009 177,377
Merrill Lynch Mortgage Investors, Inc.
4,839,500 Ser. 98-C2, Class A1, 6.22s, 2030 4,717,000
64,629,640 Ser. 98-C2, Class IO, 1.449s, 2030 4,756,338
Morgan Stanley Capital I
3,000,000 Ser. 96-WF1, Class A2, 7.218s, 2006 3,001,406
12,700,000 Ser. 99-CAM1, Class A3, 6.92s, 2008 12,491,641
Mortgage Capital Funding, Inc.
27,754,394 Ser. 97-MC2, Class X, IO, 1.367s, 2012 1,986,174
5,738,344 Ser. 98-MC1, Class A1, 6.417s, 2007 5,605,644
2,337,670 Prudential Home Mortgage Securities Ser. 92-25, Class B3,
8s, 2022 2,331,826
Prudential Home Mortgage Securities 144A
285,723 Ser. 94-31, Class B3, 8s, 2009 281,571
1,143,752 Ser. 95-D, Class 5B, 7.54s, 2024 1,053,681
5,768,800 Residential Asset Securitization Trust Ser. 98-A12, Class A14,
8s, 2028 5,880,571
3,725,000 Residential Funding Mortgage Sec. I Ser. 98-S13, Class A21,
6 3/4s, 2028 3,533,610
COLLATERALIZED MORTGAGE OBLIGATIONS
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
Ryland Mortgage Securities Corp.
$ 1,826,993 Ser. 94-7C, Class B1, 7.359s, 2025 $ 1,752,200
1,294,069 Ser. 94-7C, Class B2, 7.359s, 2025 1,267,581
697,451 Sears Mortgage Securities Ser. 93-7, Class T7, 7s, 2007 701,363
157,733 Securitized Asset Sales, Inc. Mtge. Pass Thru Certificates
Ser. 1994-3, Class B1, 6.11s, 2004 153,001
--------------
Total Collateralized Mortgage Obligations
(cost $115,330,840) $ 110,280,784
CONVERTIBLE BONDS AND NOTES (0.4%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 500,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 $ 480,000
500,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 408,125
1,000,000 LAM Research Corp. 144A cv. sub. notes 5s, 2002 960,000
18,400,000 Micron Technology, Inc. cv. sub. notes 7s, 2004 21,367,000
--------------
Total Convertible Bonds and Notes (cost $21,277,796) $ 23,215,125
ASSET-BACKED SECURITIES (0.3%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 4,724,265 First Plus Ser. 98-A, Class A, 8 1/2s, 2023 $ 4,015,625
6,036,759 Green Tree Recreational Equipment & Cons. Ser. 97-B,
Class A1, 6.55s, 2028 6,053,030
5,331,603 Green Tree Recreational Equipment & Cons. Ser. 98-A,
Class A1C, 6.18s, 2019 5,286,826
39,290,000 Lehman Manufactured Housing Ser. 98-1, Class 1 IO,
0.82s, 2028 1,499,466
5,783,785 Structured Asset Security Corp. Ser. 98-RF2, 8.58s, 2028 6,004,292
--------------
Total Asset-Backed Securities (cost $24,393,921) $ 22,859,239
PREFERRED STOCKS (0.3%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
5,495 AmeriKing, Inc. $3.25 pfd. (PIK) $ 126,385
27,755 California Federal Bancorp Inc. Ser. A, $2.281 pfd. 721,630
758 Capstar Broadcasting, Inc. 144A $12.00 pfd. (PIK) 88,160
937 Capstar Communications, Inc. Ser. E, $12.625 cum. pfd. (PIK) 110,098
7,135 Centaur Funding Corp 144A 9.08% cum. pfd. (Cayman Islands) 7,391,005
16,637 CGA Group Ltd. 144A Ser. A, $13.75 pfd. (PIK) 457,518
6,155 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. (PIK) 332,370
3,225 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 364,730
265 Fresenius Medical Capital Trust I Ser. D, 9.00% company
guaranty, pfd. (Germany) 261,025
1,105 Fresenius Medical Capital Trust II 7.875% company guaranty,
pfd. (Germany) 1,022,125
90 Paxson Communications Corp. $13.25 cum. pfd. (PIK) 810,000
6,775 Webster Financial 7.375% pfd. 6,596,308
--------------
Total Preferred Stocks (cost $18,106,654) $ 18,281,354
FOREIGN GOVERNMENT BONDS AND NOTES (0.2%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 1,605,000 Ontario (Province of) sr. unsub. 5 1/2s, 2008 (Canada) $ 1,455,061
16,135,000 Quebec (Province of) sr. unsub. 5 3/4s, 2009 (Canada) 14,614,760
--------------
Total Foreign Government Bonds and Notes
(cost $17,569,986) $ 16,069,821
MUNICIPAL BOND (0.1%) (cost $7,374,062) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 7,380,000 Mashantucket Pequot Tribe 144A bonds Ser. A,
Financial Security Assurance (FSA), 6.57s, 2013 $ 6,777,054
WARRANTS (--%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
16,000 CGA Group Ltd. 144A 2/11/07 $ 320
685 Club Regina, Inc. 144A 12/1/04 685
210 Colt Telecommunications Group PLC 12/31/06 80,850
205 Esat Holdings, Inc. (Ireland) 2/1/07 14,350
250 Intermedia Communications 6/1/00 25,000
130 Long Distance International, Inc. 144A 4/13/08 260
180 McCaw International Ltd. 4/15/07 720
960 Powertel, Inc. 2/1/06 3,840
3,680 Rhythms Netcon 144A 5/15/08 457,166
280 Telehub Communications Corp. 7/31/05 8,400
625 UIH Australia/Pacific, Inc. 144A 5/15/06 18,750
270 Versatel Telecom B.V. 144A (Netherlands) 5/15/08 44,550
--------------
Total Warrants (cost $110,154) $ 654,891
CONVERTIBLE PREFERRED STOCKS (--%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
3,000 AMFM Inc. $3.00 cv. cum. pfd. $ 319,875
1,675 Chesapeake Energy Corp. $3.50 cum. cv. pfd. 54,647
--------------
Total Convertible Preferred Stocks (cost $406,236) $ 374,522
SHORT-TERM INVESTMENTS (4.2%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 30,000,000 Asset Securitization Co-op Corp. effective yield of 5.16%,
September 29, 1999 $ 29,746,300
25,062,000 Delaware Funding Corp. effective yield of 5.12%,
August 16, 1999 25,001,406
50,000,000 Eureka Securitization Inc. effective yield of 5.12%,
August 24, 1999 49,836,423
33,440,000 Falcon Asset Secur. Corp. effective yield of 5.1%,
August 10, 1999 33,397,364
30,000,000 Federal Home Loan Banks effective yield of 4.84%,
August 4, 1999 29,987,900
40,000,000 Wal-Mart Stores effective yield of 5.07%,
August 16, 1999 39,904,044
67,552,000 Interest in $500,000,000 joint tri-party repurchase
agreement dated July 31, 1999 with Lehman Brothers, Inc.
due August 2, 1999 with respect to various U.S. Treasury
obligations -- maturity value of $67,580,428 for an effective
yield of 5.05% 67,552,000
--------------
Total Short-Term Investments (cost $275,425,437) $ 275,425,437
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $6,421,082,243) (b) $6,751,634,644
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $6,617,232,030.
(b) The aggregate identified cost on a tax basis is $6,425,024,108, resulting in gross unrealized appreciation and
depreciation of $644,707,462 and $318,096,926, respectively, or net unrealized appreciation of $326,610,536.
(NON) Non-income-producing security.
(STP) 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.
(PIK) Income may be received in cash or additional securities at the discretion of the issuer.
(SEG) A portion of these securities were pledged and segregated with the custodian to cover margin requirements for
futures contracts at July 31, 1999.
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 Depositary 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).
- -------------------------------------------------------------------------------
Forward Currency Contracts to Sell at July 31, 1999
Market Aggregate Face Delivery Unrealized
Value Value Date Appreciation
- -------------------------------------------------------------------------------
Euro Dollars $1,313,876 $1,270,335 9/15/99 $43,541
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at July 31, 1999
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- -------------------------------------------------------------------------------
US Treasury
20 year Bonds (long) $15,865,688 $16,284,897 Sep-99 $(419,209)
- -------------------------------------------------------------------------------
TBA Sales Commitments at July 31, 1999
(proceeds received $125,711,835)
Principal Settlement Market
Description Amount Date Value
- -------------------------------------------------------------------------------
FNMA, 6 1/2s,
September 2029 $65,594,000 Sept. 99 $62,478,285
GNMA, 6 1/2s,
September, 2029 64,650,000 Sept. 99 61,291,327
- -------------------------------------------------------------------------------
$123,769,612
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
July 31, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $6,421,082,243) (Note 1) $6,751,634,644
- -----------------------------------------------------------------------------------------------
Cash 16,778
- -----------------------------------------------------------------------------------------------
Foreign currency (cost $1,740) 1,710
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivable 43,128,939
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 30,962,336
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 165,607,322
- -----------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 43,541
- -----------------------------------------------------------------------------------------------
Total assets 6,991,395,270
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for variation margin 47,438
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 204,237,470
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 33,363,592
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 8,039,047
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 1,517,525
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 55,633
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 11,877
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 2,474,762
- -----------------------------------------------------------------------------------------------
TBA sale commitments at value (proceeds received $125,711,835) 123,769,612
- -----------------------------------------------------------------------------------------------
Other accrued expenses 646,284
- -----------------------------------------------------------------------------------------------
Total liabilities 374,163,240
- -----------------------------------------------------------------------------------------------
Net assets $6,617,232,030
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $5,830,381,567
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 9,972,484
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 444,661,032
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 332,216,947
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $6,617,232,030
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($3,937,263,867 divided by 212,964,282 shares) $18.49
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $18.49)* $19.62
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,641,515,100 divided by 89,577,909 shares)** $18.33
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($565,361 divided by 30,583 shares)** $18.49
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($293,335,545 divided by 16,002,128 shares) $18.33
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $18.33)* $18.99
- -----------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($744,552,157 divided by 40,187,143 shares) $18.53
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 more and on group
sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended July 31, 1999
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest (net of foreign tax of $2,430) $164,486,178
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $100,232) 77,462,168
- -----------------------------------------------------------------------------------------------
Total investment income 241,948,346
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 28,883,413
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 10,624,866
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 70,487
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 34,849
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 9,297,224
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 14,768,319
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 39
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 2,146,516
- -----------------------------------------------------------------------------------------------
Reports to shareholders 186,027
- -----------------------------------------------------------------------------------------------
Registration fees 371,705
- -----------------------------------------------------------------------------------------------
Auditing 112,868
- -----------------------------------------------------------------------------------------------
Legal 34,341
- -----------------------------------------------------------------------------------------------
Postage 552,588
- -----------------------------------------------------------------------------------------------
Other 419,635
- -----------------------------------------------------------------------------------------------
Total expenses 67,502,877
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (1,429,592)
- -----------------------------------------------------------------------------------------------
Net expenses 66,073,285
- -----------------------------------------------------------------------------------------------
Net investment income 175,875,061
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 449,874,153
- -----------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Notes 1) 1,222,493
- -----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (1,012,762)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (795,215)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments, futures contracts,
and TBA sale commitments during the year (151,227,220)
- -----------------------------------------------------------------------------------------------
Net gain on investments 298,061,449
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $473,936,510
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended July 31
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 175,875,061 $ 140,876,649
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 450,083,884 454,484,734
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (152,022,435) (174,363,842)
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 473,936,510 420,997,541
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (109,146,841) (93,857,434)
- ---------------------------------------------------------------------------------------------------------------
Class B (33,139,561) (26,582,497)
- ---------------------------------------------------------------------------------------------------------------
Class M (7,053,301) (6,420,081)
- ---------------------------------------------------------------------------------------------------------------
Class Y (17,057,113) (14,256,392)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (235,789,968) (173,044,314)
- ---------------------------------------------------------------------------------------------------------------
Class B (93,908,591) (63,051,883)
- ---------------------------------------------------------------------------------------------------------------
Class M (19,043,436) (14,653,375)
- ---------------------------------------------------------------------------------------------------------------
Class Y (31,362,904) (25,075,114)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 1,248,141,716 1,397,644,938
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 1,175,576,511 1,401,701,389
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 5,441,655,519 4,039,954,130
- ---------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income
and distributions in excess of net investment income
of $9,972,484 and $11,819,799, respectively) $6,617,232,030 $5,441,655,519
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $18.82 $18.95 $15.82 $14.90 $13.52
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .57(c) .60 .60(c) .63 .63
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .90 1.08 4.11 1.50 1.63
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.47 1.68 4.71 2.13 2.26
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.55) (.60) (.67) (.58) (.56)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.25) (1.21) (.91) (.63) (.32)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.80) (1.81) (1.58) (1.21) (.88)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.49 $18.82 $18.95 $15.82 $14.90
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 8.33 9.53 31.52 14.75 17.73
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,937,264 $3,387,620 $2,607,562 $1,515,260 $1,036,674
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .93 1.00 1.06 .95 .91
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.10 3.11 3.51 4.07 4.58
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 127.68 126.19 134.80 119.44 102.57
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $18.67 $18.82 $15.74 $14.83 $13.46
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .43(c) .46 .46(c) .51 .52
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .90 1.07 4.08 1.50 1.63
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.33 1.53 4.54 2.01 2.15
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.42) (.47) (.55) (.47) (.46)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.25) (1.21) (.91) (.63) (.32)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.67) (1.68) (1.46) (1.10) (.78)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.33 $18.67 $18.82 $15.74 $14.83
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 7.55 8.72 30.46 13.97 16.87
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,641,515 $1,305,897 $888,666 $435,278 $224,166
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.68 1.75 1.81 1.71 1.66
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.35 2.37 2.74 3.31 3.81
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 127.68 126.19 134.80 119.44 102.57
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share July 26, 1999+
operating performance to July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $18.76
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income --(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.27)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.27)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.49
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (1.44)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $565
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .03*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (.03)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 127.68
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Dec. 1, 1995+
operating performance Year ended July 31 to July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $18.67 $18.82 $15.74 $14.84 $12.77
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .47(c) .51 .53(c) .55 .31
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .90 1.06 4.06 1.50 2.03
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.37 1.57 4.59 2.05 2.34
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.46) (.51) (.60) (.52) (.27)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.25) (1.21) (.91) (.63) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.71) (1.72) (1.51) (1.15) (.27)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.33 $18.67 $18.82 $15.74 $14.84
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 7.80 8.98 30.83 14.26 18.52*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $293,336 $276,962 $187,475 $49,541 $8,164
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.43 1.50 1.56 1.50 .93*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.61 2.62 3.05 3.50 2.53*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 127.68 126.19 134.80 119.44 102.57
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS Y
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $18.85 $18.98 $15.85 $14.92 $13.54
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .62(c) .64 .64(c) .68 .66
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .91 1.09 4.11 1.50 1.63
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.53 1.73 4.75 2.18 2.29
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.60) (.65) (.71) (.62) (.59)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.25) (1.21) (.91) (.63) (.32)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.85) (1.86) (1.62) (1.25) (.91)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.53 $18.85 $18.98 $15.85 $14.92
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 8.63 9.79 31.78 15.09 18.00
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $744,552 $471,176 $356,251 $207,508 $153,597
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .68 .75 .81 .70 .66
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.33 3.37 3.74 4.33 4.78
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 127.68 126.19 134.80 119.44 102.57
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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.
</TABLE>
Notes to financial statements
July 31, 1999
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 C, class M and class Y shares.
Effective July 26, 1999, the fund began offering class C 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 are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class C
shares are subject to the same fees and expenses as class B shares, except
that class C shares have a one-year 1.00% contingent deferred sales charge
and do not convert to class A shares. 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 and
class C shares. Class Y shares, which are sold at net asset value, are
generally subject to the same expenses as class A, class B, class C and
class M shares, but do not bear a distribution fee. Class Y shares are
sold to defined contribution plans that invest at least $150 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 consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally
accepted accounting principles and requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities. Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported -- as in the case of
some securities traded over-the-counter -- the last reported bid price.
Securities quoted in foreign currencies are translated into U.S. dollars
at the current exchange rate. Short-term investments having remaining
maturities of 60 days or less are stated at amortized cost, which
approximates market value, and other investments are stated at fair value
following procedures approved by the Trustees. Market quotations are not
considered to be readily available for certain long-term corporate bonds
and notes; such investments are stated at fair value on the basis of
valuations furnished by a pricing service, approved by the Trustees, which
determines valuations for normal, institutional size trading units of such
securities using methods based on market transactions for comparable
securities and various relationships between securities which are
generally recognized by institutional traders.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Management. These balances may be invested in one or more
repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the market
value of which at the time of purchase is required to be in an amount at
least equal to the resale price, including accrued interest. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. 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). Gains or losses on securities sold are determined on
the identified cost basis. 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. Securities
purchased or sold on a 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, and 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 realized 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 year ended July
31, 1999, 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. These
differences include temporary and permanent differences of losses on wash
sales transactions, foreign currency gains and losses, nontaxable
dividends, defaulted bond interest, unrealized gains and losses on certain
futures contracts, paydown gains and losses on mortgage backed securities,
market discount and interest on payment-in-kind securities.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. For the year ended July 31,
1999, the fund reclassified $12,314,038 to increase undistributed net
investment income and $339,482 to increase paid-in-capital, with a
decrease to accumulated net realized gains and losses of $12,653,520. The
calculation of net investment income per share in the financial highlights
table excludes these adjustments.
Note 2
Management fee, administrative
services, and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
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 and 0.425% of the next
$5 billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion
and 0.38% 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 year ended July 31, 1999, fund expenses were reduced by $1,429,592
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 $3,551
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
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, class C 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%,
1.00% and 1.00% of the average net assets attributable to class A, class
B, class C and class M shares, respectively. The Trustees have approved
payment by the fund to an annual rate of 0.25%, 1.00%, 1.00% and 0.75% of
the average net assets attributable to class A, class B, class C and class
M shares, respectively.
For the year ended July 31, 1999, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $2,231,597 and $69,715 from the
sale of class A and class M shares, respectively and $2,364,147 and no
monies in contingent deferred sales charges from redemptions of class B
and class C shares, respectively. A deferred sales charge of up to 1% is
assessed on certain redemptions of class A shares. For the year ended July
31, 1999, Putnam Mutual Funds Corp., acting as underwriter received
$29,132 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended July 31, 1999, purchases and sales of investment
securities other than U.S. government obligations and short-term
investments aggregated $5,207,299,011 and $4,623,046,481, respectively.
Purchases and sales of U.S. government obligations aggregated
$3,035,467,033 and $2,772,337,934, respectively.
Note 4
Capital shares
At July 31, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended July 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 71,350,723 $1,305,654,213
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 17,951,127 321,277,356
- -----------------------------------------------------------------------------
89,301,850 1,626,931,569
Shares
repurchased (56,386,152) (1,037,171,935)
- -----------------------------------------------------------------------------
Net increase 32,915,698 $ 589,759,634
- -----------------------------------------------------------------------------
Year ended July 31, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 68,382,912 $1,271,076,297
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 13,629,619 245,136,594
- -----------------------------------------------------------------------------
82,012,531 1,516,212,891
Shares
repurchased (39,574,947) (742,732,518)
- -----------------------------------------------------------------------------
Net increase 42,437,584 $ 773,480,373
- -----------------------------------------------------------------------------
Year ended July 31, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 32,951,628 $ 598,596,843
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,725,747 119,388,554
- -----------------------------------------------------------------------------
39,677,375 717,985,397
Shares
repurchased (20,061,741) (363,849,605)
- -----------------------------------------------------------------------------
Net increase 19,615,634 $ 354,135,792
- -----------------------------------------------------------------------------
Year ended July 31, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 27,640,494 $ 514,329,289
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,702,492 83,884,848
- -----------------------------------------------------------------------------
32,342,986 598,214,137
Shares
repurchased (9,601,746) (178,587,762)
- -----------------------------------------------------------------------------
Net increase 22,741,240 $ 419,626,375
- -----------------------------------------------------------------------------
Year ended July 31, 1999
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 30,583 $ 571,827
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
30,583 571,827
Shares
repurchased -- --
- -----------------------------------------------------------------------------
Net increase 30,583 $ 571,827
- -----------------------------------------------------------------------------
Year ended July 31, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 5,924,357 $107,923,821
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,446,021 25,658,426
- -----------------------------------------------------------------------------
7,370,378 133,582,247
Shares
repurchased (6,206,656) (112,934,440)
- -----------------------------------------------------------------------------
Net increase 1,163,722 $ 20,647,807
- -----------------------------------------------------------------------------
Year ended July 31, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 7,042,764 $130,939,053
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,109,311 19,785,710
- -----------------------------------------------------------------------------
8,152,075 150,724,763
Shares
repurchased (3,276,702) (60,912,495)
- -----------------------------------------------------------------------------
Net increase 4,875,373 $ 89,812,268
- -----------------------------------------------------------------------------
Year ended July 31, 1999
- -----------------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------------
Shares sold 21,650,266 $402,853,725
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,696,088 48,420,017
- -----------------------------------------------------------------------------
24,346,354 451,273,742
Shares
repurchased (9,159,570) (168,247,086)
- -----------------------------------------------------------------------------
Net increase 15,186,784 $283,026,656
- -----------------------------------------------------------------------------
Year ended July 31, 1998
- -----------------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------------
Shares sold 9,280,297 $173,998,943
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,181,250 39,331,506
- -----------------------------------------------------------------------------
11,461,547 213,330,449
Shares
repurchased (5,233,650) (98,604,527)
- -----------------------------------------------------------------------------
Net increase 6,227,897 $114,725,922
- -----------------------------------------------------------------------------
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the Fund
hereby designates $380,287,549 as 20% capital gain, for its taxable year
ended July 31, 1999.
The fund has designated 31.56% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds. Please
call your financial advisor or Putnam at 1-800-225-1581 to obtain a prospectus
for any Putnam fund. It contains more complete information, including charges
and expenses. Please read it carefully before you invest or send money.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
TAX-FREE INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey,
New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK]**
California, New York
ASSET ALLOCATION FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Putnam Diversified Income Trust II
[DBL. DAGGER] Closed to new investors. Some exceptions may apply. Contact
Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
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
Anthony I. Kreisel
Vice President
Edward P. Bousa
Vice President and Fund Manager
James M. Prusko
Vice President and Fund Manager
David L. Waldman
Vice President and Fund Manager
Krishna K. Memani
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
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' Web site: 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
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
AN021-54562 001/880/242/505/ 9/99
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
The George Putnam Fund of Boston
Supplement to Annual Report dated 7/31/99
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 $150 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 annual report.
ANNUAL RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return for periods ended 7/31/99 NAV
1 year 8.63%
5 years 113.44
Annual average 16.37
10 years 221.93
Annual average 12.40
Life of fund (since class A inception, 11/5/37) 9.99
(annual average)
Share value: NAV
7/31/98 $18.85
7/31/99 $18.53
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
4 $0.594 Short 0.493 Long 0.757 $1.844
- ----------------------------------------------------------------------------
Please note that past performance does not indicate future results. Returns
shown for class Y shares for periods prior to their inception are derived
from the historical performance of class A shares, adjusted to reflect the
initial sales charge currently applicable to class A shares. These returns
have not been adjusted to reflect differences in operating expenses which,
for class Y shares, are lower than the operating expenses applicable to
class A shares. All returns assume reinvestment of distributions at net
asset value. 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.
