The George
Putnam
Fund
of Boston
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
1-31-99
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* ". . .this fund appears to have what it takes to reach the upper
echelons of its peer group. . ."
-- Morningstar Mutual Funds, November 6, 1998
* "With The George Putnam Fund of Boston, risk controls go beyond the
mixing of stocks and bonds. The stocks are chosen for their attractive
prices and solid financial condition, and the bond portion is thoroughly
diversified. Each of these qualities helps to limit risk as we pursue
growth and income."
-- Edward Bousa, co-manager
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
37 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The first half of The George Putnam Fund of Boston's fiscal 1999 is an
instructive example of the value of maintaining a long-term investment
perspective. As the total return tables that follow the management report
suggest, the fund's performance during the six months ended January 31,
1999, was certainly not representative of its long-term results.
While one can never take past performance as an assurance of future
results, your fund's management team as well as most other investment
professionals believes that the volatility that has recently plagued the
markets eventually will ease as the markets resume their more stable
historic growth patterns. Meanwhile, the current environment provides an
excellent opportunity to add to selected portfolio holdings and to acquire
other investments that the fund's managers believe possess attractive
potential.
I am pleased to announce the addition of Krishna K. Memani to your fund's
management team. He joined Putnam in 1998 as managing director of the
Credit team within the Core Fixed Income Group. His 14 years of investment
experience include service with Morgan Stanley and Price Waterhouse.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
March 17, 1999
Report from the Fund Managers
Edward P. Bousa
James M. Prusko
David L. Waldman
Krishna K. Memani
In the first half of The George Putnam Fund of Boston's 1999 fiscal year,
which began on August 1, 1998, global capital markets experienced events
of historic significance, from currency devaluations in Russia and Brazil
to unprecedented action by the Federal Reserve Board to maintain investor
confidence. Thanks to its balanced portfolio of stocks and bonds and broad
diversity within these two asset classes, your fund experienced less
volatility than the major stock indexes. The period nevertheless marked a
departure from the steady ascent of security prices we had seen over the
previous three years. Consequently, the fund's class A shares posted a
modest gain of 5.04% at net asset value for the six months ended January
31, 1999 (they posted -1.01% at public offering price). For complete
performance information, including the returns of all share classes,
please turn to the performance tables on page 9.
* FUND PERFORMS WELL AMID OPENING VOLATILITY
As the fund's semiannual period began, many large-company stocks in the
United States had just reached all-time highs; similarly most sectors of
the bond market were humming along as interest rates fell to levels last
seen in the late 1960s. In August, however, the government of Russia shook
the world. To resolve a worsening fiscal situation, it devalued the ruble
and announced a rescheduling of its foreign debt payments. International
institutions suddenly turned intensely risk averse and began to restrict
the use of borrowed funds for investing. The result was heavy selling
pressure that lowered prices of securities around the world -- including
those in the United States. This situation persisted until September, when
the Federal Reserve Board reassured markets with the first of three
interest-rate reductions in consecutive months.
Although your fund experienced a sizable decline in August and September,
we still consider that it was well prepared for the volatility. With
approximately 35%-40% of its assets in bonds, its returns declined by a
lesser extent than did the equity indexes. Treasuries, which represented
roughly 10% of the overall portfolio, actually rallied during the crisis,
as investors bid more for their high credit quality. On the opposite end
of the credit spectrum, the fund's high-yield bonds performed poorly, as
demand in this sector evaporated. The fund's stock holdings did well on a
relative basis. Generally we select undervalued stocks of companies in
strong financial condition, the type of stocks that tend to attract
investors in periods of uncertainty. Utilities and food companies, in
particular, performed well during the downturn. In the recovery, however,
value stocks again lagged behind large growth companies, though we believe
that this long lasting trend may soon exhaust itself, leading to a period
when value stocks can become more competitive.
* SECTOR MOVES HELP PERFORMANCE
In executing our value equity strategy, we frequently buy stocks that have
become more attractively priced for short-term reasons. After all, our
search for qualities of "cheapness and change" often leads us to companies
undergoing attractive changes but with stock prices that are simply too
high for our value criteria. When industry factors make stocks cheaper, as
when low oil prices hurt all energy companies, we are able to take
advantage of what we see as a temporary weakness.
[GRAPHIC OMITTED: horizontal bar chart COMPARATIVE PORTFOLIO COMPOSITION]
COMPARATIVE PORTFOLIO COMPOSITION*
1/31/99 7/31/98
Common stocks 58.2% 62.0%
U.S. government
and agency securities 17.3% 13.2%
Corporate bonds
and notes 17.6% 17.8%
Foreign government
bonds and notes 0.3% 1.8%+
Collateralized
mortgage obligations 2.5% 2.8%
Convertible and
preferred securities 1.0% 0.4%
Cash and other 6.5% 2.4%
Footnotes read:
*Based on net assets as of 1/31/99 and 7/31/98. Holdings will vary over
time.
+Includes Brady bonds. Brady bonds are U.S.-dollar denominated bonds of
foreign governments whose principal is collateralized by U.S. Treasury
obligations.
For example, in August 1998, as equities in general sank, we added to
positions in financial and technology companies. We bought stocks such as
Sun Microsystems, which manufactures equipment for Internet service
providers. Thanks to persistent demand for computers and Internet
services, Sun rallied strongly by the end of the year and we have taken
profits.
Toward the end of the year we also began increasing the fund's stakes in
industrial and consumer cyclical companies. Investors were selling Colgate
Palmolive, a fund holding, because of its exposure to slowing global
economies, including Brazil. Because the company was introducing new
products and increasing its market share in many other countries, however,
we added to our position as the price declined.
We also added to telephone utilities, such as GTE, to energy companies,
such as Exxon and Duke Energy, and to transportation stocks, including
railroad Burlington Northern Santa Fe Corporation and several airlines. We
believe price declines in each of these industries are near their cyclical
lows and could reverse in late 1999.
GTE and Burlington Northern also stand out as leaders in their industries.
GTE is expanding as an Internet service provider and Burlington Northern
is the fastest-growing major railroad in the country. 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.
* FIXED-INCOME PORTION REDUCES RISK PROFILE
The fixed-income side of the portfolio remained at its usual weight --
approximately 35%-40% -- during the period. As we have mentioned in
previous reports, we manage the bonds with the goals of providing an
attractive level of income and offsetting some of the risks of equities.
Because of this income-oriented, low-risk strategy, investment-grade
corporate bonds and a variety of mortgage-backed securities account for a
majority of the bond holdings. We also keep approximately 20% of the bond
portion in Treasuries.
[GRAPHIC OMITTED: TOP 10 EQUITY HOLDINGS]
TOP 10 EQUITY HOLDINGS
BankAmerica Corp.
Insurance and finance
GTE Corp.
Utilities
Citigroup, Inc.
Insurance and finance
AT&T Corp.
Utilities
Philip Morris Cos., Inc.
Consumer nondurables
Exxon Corp.
Oil and gas
Mobil Corp.
Oil and gas
American Home Products Corp.
Pharmaceuticals and biotechnology
Pharmacia & Upjohn, Inc.
Pharmaceuticals and biotechnology
Bristol-Myers Squibb Co.
Pharmaceuticals and biotechnology
Footnote reads:
These holdings represent 11.2% of the fund's net assets as of 1/31/99.
Portfolio holdings will vary over time.
The smallest slice of your fund's fixed-income pie is devoted to
high-yield bonds. These holdings performed poorly during the August and
September turmoil. Subsequently we made a strategic decision to reduce the
high-yield allocation. Although this move sacrificed a bit of income, we
believe that further reducing the high yield bonds would reflect the
fund's overall aversion to risk better. Fortunately, during the financial
recovery of late 1998, high-yield bonds performed well and we were able to
sell into strength. Currently they account for about 10% of fixed-income
holdings, or a little more than 5% of the overall fund. To replace the
high yield bonds, we added to investment-grade corporates and mortgages.
The steady growth and slightly rising interest rates we anticipate in 1999
should be favorable for these sectors.
* MODEST ECONOMIC STRENGTH GOOD FOR FUND
As we enter the second half of the fund's fiscal year, we believe there is
greater calm in the financial markets than was the case last summer.
Institutions in general are using less borrowed money to buy securities
than they did a year ago. In addition, we believe that fewer risks, such
as currency devaluations, loom on the horizon. This type of environment
would be free of some of the worries that dogged the bond market in late
1998.
Although value stocks have lagged behind the overall market, we believe
they could get a lift if the Fed's easier monetary policy stimulates
faster economic growth in 1999. Whether this calm is brief or long
lasting, your fund, thanks to its diverse holdings in the stock and bond
markets, is well positioned to build on its 61-year-history of providing
shareholders with growth and income.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 1/31/99, 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
appreciation and current income.
TOTAL RETURN FOR PERIODS ENDED 1/31/99
Class A Class B Class M
(inception date) (11/5/37) (4/27/92) (12/1/94)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 5.04% -1.01% 4.63% -0.21% 4.81% 1.12%
- ------------------------------------------------------------------------------
1 year 11.39 4.99 10.57 5.57 10.87 6.98
- ------------------------------------------------------------------------------
5 years 98.56 87.12 91.31 89.31 93.53 86.79
Annual average 14.70 13.35 13.85 13.61 14.12 13.31
- ------------------------------------------------------------------------------
10 years 249.21 229.12 223.01 223.01 230.55 219.00
Annual average 13.32 12.65 12.44 12.44 12.70 12.30
- ------------------------------------------------------------------------------
Annual average
(life of fund) 9.99 9.89 8.93 8.93 9.20 9.14
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 1/31/99
Standard & Lehman Bros.
Poor's Govt./Corp. Consumer
500 Index Bond Index* Price Index
- ------------------------------------------------------------------------------
6 months 15.02% 5.74% 0.86%
- ------------------------------------------------------------------------------
1 year 32.49 8.71 1.86
- ------------------------------------------------------------------------------
5 years 196.13 41.14 12.59
Annual average 24.25 7.13 2.40
- ------------------------------------------------------------------------------
10 years 462.67 142.57 35.92
Annual average 18.86 9.27 3.12
- ------------------------------------------------------------------------------
Annual average
(life of fund) 12.53 N/A 4.03
- ------------------------------------------------------------------------------
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-, and 10-year
(where available) and life-of-fund periods reflect the applicable
contingent deferred sales charge (CDSC), which is 5% in the first year,
declines to 1% in the sixth year, and is eliminated thereafter. Returns
shown for class B and class M shares for periods prior to their inception
are derived from the historical performance of class A shares, adjusted to
reflect both the initial sales charge or CDSC , if any, currently
applicable to each class and in the case of class B and class M shares,
the higher operating expenses applicable to such shares. All returns
assume reinvestment of distributions at NAV. 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.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 1/31/99
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 2 2 2
- ------------------------------------------------------------------------------
Income $0.300 $0.233 $0.253
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term 0.757 0.757 0.757
- ------------------------------------------------------------------------------
Short-term 0.442 0.442 0.442
- ------------------------------------------------------------------------------
Total $1.499 $1.432 $1.452
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
7/31/98 $18.82 $19.97 $18.67 $18.67 $19.35
- ------------------------------------------------------------------------------
1/31/99 18.22 19.33 18.06 18.07 18.73
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 3.29% 3.10% 2.59% 2.81% 2.71%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 3.00 2.83 2.26 2.51 2.36
- ------------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2 Based on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 12/31/98
(most recent calendar quarter)
Class A Class B Class M
(inception date) (11/5/37) (4/27/92) (12/1/94)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 2.42% -3.49% 2.06% -2.66% 2.18% -1.41%
- ------------------------------------------------------------------------------
1 year 10.60 4.22 9.77 4.77 10.07 6.20
- ------------------------------------------------------------------------------
5 years 101.71 90.06 94.42 92.42 96.70 89.83
Annual average 15.07 13.70 14.22 13.99 14.49 13.68
- ------------------------------------------------------------------------------
10 years 263.16 242.33 236.00 236.00 243.71 231.62
Annual average 13.77 13.10 12.88 12.88 13.14 12.74
- ------------------------------------------------------------------------------
Annual average
(life of fund) 9.99 9.88 8.93 8.93 9.20 9.14
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns 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.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 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 shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year
to 1% during the sixth year. After the sixth year, the CDSC no longer
applies.
COMPARATIVE BENCHMARKS
Standard & Poor's 500 Index* is an unmanaged list of common stocks that is
frequently used as a general measure of stock market performance.
Lehman Brothers Government/Corporate Bond Index* is an unmanaged list of
publicly issued U.S. Treasury obligations, debt obligations of U.S.
government agencies (excluding mortgage-backed securities), fixed-rate,
nonconvertible investment-grade corporate debt securities and U.S.
dollar-denominated SEC-registered nonconvertible debt issued by foreign
governmental entities or international agencies.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
WELCOME TO
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VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR:
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<TABLE>
<CAPTION>
Portfolio of investments owned
January 31, 1999 (Unaudited)
COMMON STOCKS (58.2%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Aerospace and Defense (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
559,700 Raytheon Co. Class B $ 31,308,219
Agriculture (--%)
- --------------------------------------------------------------------------------------------------------------------------
22,025 PSF Holdings LLC Class A (acquired various dates
from 5/20/94 to 8/25/94 cost $768,967) (NON) (RES) 280,819
Automotive (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
769,800 Ford Motor Co. 47,294,588
498,000 General Motors Corp. 44,695,500
--------------
91,990,088
Basic Industrial Products (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
810,200 Deere (John) & Co. 26,382,138
478,200 Minnesota Mining & Manufacturing Co. 37,120,275
925,700 Owens-Illinois, Inc. (NON) 27,076,725
--------------
90,579,138
Building and Construction (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
919,000 Sherwin Williams Co. 23,549,375
Business Equipment and Services (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
40,500 Pitney Bowes, Inc. 2,786,906
258,700 Xerox Corp. 32,078,800
--------------
34,865,706
Cable TV (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
807,000 MediaOne Group Inc. (NON) 45,242,438
Chemicals (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
320,600 Dow Chemical Co. 28,232,838
717,000 du Pont (E.I.) de Nemours & Co., Ltd. 36,701,438
440,400 Eastman Chemical Co. 17,891,250
--------------
82,825,526
Computer Services and Software (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
574,000 Apple Computer, Inc. 23,641,625
1,058,900 Compaq Computer Corp. 50,430,113
644,800 Computer Associates Intl., Inc. 32,643,000
301,000 IBM Corp. 55,158,250
--------------
161,872,988
Conglomerates (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
677,000 Allied-Signal, Inc. 26,403,000
96,000 Temple Inland, Inc. 5,478,000
--------------
31,881,000
Consumer Durable Goods (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
802,900 Hasbro, Inc. 29,857,844
44 Mothers Work, Inc. (NON) 550
--------------
29,858,394
Consumer Non Durables (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
402,300 Colgate-Palmolive Co. 32,360,006
1,213 Hedstrom Holdings, Inc. 144A 1,213
606,200 Kimberly-Clark Corp. 30,196,338
1,425,700 Philip Morris Cos., Inc. 67,007,900
199,000 Procter & Gamble Co. 18,084,125
--------------
147,649,582
Consumer Products (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
578,400 Fortune Brands, Inc. 19,231,800
Consumer Services (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
100 AmeriKing, Inc. (NON) 4,000
472,200 Tribune Co. 30,191,288
--------------
30,195,288
Electronics and Electrical Equipment (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
493,400 Emerson Electric Co. 28,709,713
461,700 Illinois Tool Works, Inc. 27,846,281
666,200 Motorola, Inc. 48,132,950
--------------
104,688,944
Entertainment (--%)
- --------------------------------------------------------------------------------------------------------------------------
1,733 Fitzgerald Gaming Corp. (NON) 867
Food and Beverages (3.3%)
- --------------------------------------------------------------------------------------------------------------------------
640,000 Anheuser-Busch Cos., Inc. 45,240,000
992,000 ConAgra, Inc. 32,240,000
465,900 Heinz (H.J.) Co. 26,235,994
666,800 Kellogg Co. 27,255,450
486,400 Nabisco Holdings Corp. Class A 20,459,200
1,358,000 Sara Lee Corp. 34,629,000
880,100 Whitman Corp. 17,161,950
--------------
203,221,594
Health Care (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,202,500 HEALTHSOUTH Corp. (NON) 16,308,906
Insurance and Finance (13.6%)
- --------------------------------------------------------------------------------------------------------------------------
722,600 Allstate Corp. 27,142,663
552,000 American General Corp. 39,364,500
200,000 American International Group, Inc. 20,587,500
1,093,236 Bank One Corp. 57,258,236
1,485,226 BankAmerica Corp. 99,324,489
720,750 BankBoston Corp. 26,622,703
672,300 Charter One Financial, Inc. 18,824,400
252,900 Chase Manhattan Corp. 19,457,494
492,400 CIGNA Corp. 40,561,450
1,312,550 Citigroup, Inc. 73,584,834
548,600 Fannie Mae 39,979,225
551,000 First Union Corp. 28,996,375
365,600 Hartford Financial Services Group 18,988,350
515,500 KeyCorp 16,431,563
350,000 Lincoln National Corp. 29,159,375
330,000 Mercantile Bancorp., Inc. 14,829,375
417,000 Merrill Lynch & Co., Inc. 31,692,000
198,300 Morgan (J.P.) & Co., Inc. 20,920,650
494,600 Morgan Stanley, Dean Witter, Discover and Co. 42,937,463
745,900 PNC Bank Corp. 38,180,756
636,250 Synovus Financial Corp. 15,906,250
494,000 The Equitable Companies, Inc. 34,456,500
82,000 U.S. Bancorp 2,762,375
887,800 Washington Mutual, Inc. 37,287,600
1,060,000 Wells Fargo Co. 37,033,750
--------------
832,289,876
Medical Supplies and Devices (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
642,700 Baxter International, Inc. 45,591,531
Oil and Gas (5.8%)
- --------------------------------------------------------------------------------------------------------------------------
600,600 BP Amoco PLC ADR (United Kingdom) 48,723,675
413,000 Chevron, Inc. 30,871,750
693,200 Conoco, Inc. (NON) 13,820,675
436,400 Elf Aquitane ADR (France) 23,838,350
425,000 Enron Corp. 28,050,000
935,400 Exxon Corp. 65,887,238
954,500 Halliburton Co. 28,336,719
616,000 Kerr-McGee Corp. 20,905,500
689,100 Mobil Corp. 60,425,456
405,000 Occidental Petroleum Corp. 6,100,313
1,082,500 Tosco Corp. 23,544,375
69,800 Williams Cos., Inc. 2,303,400
--------------
352,807,451
Paper and Forest Products (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
814,000 Weyerhaeuser Co. 44,057,750
Pharmaceuticals and Biotechnology (3.7%)
- --------------------------------------------------------------------------------------------------------------------------
1,018,000 American Home Products Corp. 59,743,875
455,600 Bristol-Myers Squibb Co. 58,402,225
363,000 Merck & Co., Inc. 53,270,250
1,017,170 Pharmacia & Upjohn, Inc. 58,487,275
--------------
229,903,625
Photography (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
288,000 Eastman Kodak Co. 18,828,000
Publishing (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
268,000 McGraw-Hill, Inc. 28,977,500
REIT's (Real Estate Investment Trusts) (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
631,600 Equity Residential Properties Trust 25,698,225
932,900 Starwood Hotels & Resorts Worldwide, Inc. 23,322,500
--------------
49,020,725
Retail (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
507,000 Albertsons, Inc. 30,927,000
668,800 Federated Department Stores, Inc. (NON) 27,964,200
466,000 May Department Stores Co. 28,134,750
149,200 Saks, Inc. (NON) 5,492,425
684,900 Sears, Roebuck & Co. 27,481,613
--------------
119,999,988
Telecommunications (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
466,330 ALLTEL Corp. 30,107,431
Transportation (2.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,242,300 Burlington Northern Santa Fe Corp. 43,014,638
485,600 Delta Air Lines, Inc. 26,495,550
380,300 FDX Corp. (NON) 31,065,756
945,100 Ryder System, Inc. 23,036,813
482,000 UAL Corp. (NON) 30,004,500
--------------
153,617,257
Utilities (8.5%)
- --------------------------------------------------------------------------------------------------------------------------
781,400 American Telephone & Telegraph Co. 70,912,050
877,500 Ameritech Corp. 57,147,188
709,000 Bell Atlantic Corp. 42,540,000
356,000 Consolidated Natural Gas Co. 18,267,250
617,600 Duke Energy Corp. 38,175,400
584,500 Edison International 16,256,406
899,600 Entergy Corp. 26,481,975
1,093,300 GTE Corp. 73,797,750
1,036,600 OGE Energy Corp. 26,238,938
851,600 Potomac Electric Power Co. 19,852,925
923,402 SBC Communications, Inc. 49,863,708
990,000 Sempra Energy (NON) 22,770,000
400,300 Sprint Corp. 33,575,163
761,200 Western Resources, Inc. 23,930,225
--------------
519,808,978
--------------
Total Common Stocks (cost $3,159,470,217) $3,570,560,784
CORPORATE BONDS AND NOTES (17.6%) (a)
PRINCIPAL AMOUNT VALUE
Advertising (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
$ 400,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 435,000
1,370,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 1,493,300
40,000 Lamar Advertising Co. company guaranty 8 5/8s, 2007 43,000
355,000 Outdoor Communications Inc. sr. sub. notes 9 1/4s, 2007 386,063
45,000 Outdoor Systems, Inc. sr. sub. notes 9 3/8s, 2006 48,600
850,000 Outdoor Systems, Inc. company guaranty 8 7/8s, 2007 918,000
--------------
3,323,963
Aerospace and Defense (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 95,500
530,000 Aviation Sales Co. company guaranty 8 1/8s, 2008 524,700
570,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 9 7/8s, 2006 598,500
260,000 BE Aerospace, Inc. 144A sr. sub. notes 9 1/2s, 2008 275,600
180,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 177,300
500,000 Burke Industries, Inc. company guaranty 10s, 2007 485,000
115,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 117,300
6,100,000 Raytheon Co. deb. 7s, 2028 6,515,410
7,480,000 Raytheon Co notes 6.45s, 2002 7,701,109
340,000 Sequa Corp. sr. notes 9 5/8s, 1999 345,100
675,000 Sequa Corp. bonds 8 3/4s, 2001 686,813
--------------
17,522,332
Agriculture (--%)
- --------------------------------------------------------------------------------------------------------------------------
255,740 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (acquired
various dates from 9/17/96 to 4/7/97 cost $250,292) (PIK)(RES) 255,740
310,000 Purina Mills, Inc. sr. sub. notes 9s, 2010 303,800
--------------
559,540
Apparel (--%)
- --------------------------------------------------------------------------------------------------------------------------
320,000 Sassco Fashions Ltd. sr. notes 12 3/4s, 2004 317,600
Automotive (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
251,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 265,433
40,000 Cambridge Industries, Inc. company guaranty Ser. B,
10 1/4s, 2007 32,000
6,760,000 Chrysler Corp. deb. Ser. B, 7.45s, 2097 7,895,004
1,940,000 Federal Mogul Corp. 144A notes 7 3/8s, 2006 1,931,289
4,310,000 Ford Motor Co. deb. 7.4s, 2046 4,864,611
52,000 Hawk Corp. sr. notes 10 1/4s, 2003 53,820
270,000 Hayes Lemmerz International, Inc. 144A company guaranty
8 1/4s, 2008 271,350
840,000 Hayes Wheels International, Inc. company guaranty Ser. B,
9 1/8s, 2007 882,000
1,510,000 Lear Corp. sub. notes 9 1/2s, 2006 1,664,775
1,260,000 Navistar International Corp. sr. notes Ser. B, 7s, 2003 1,275,750
550,000 Talon Automotive Group sr. sub. notes Ser. B, 9 5/8s, 2008 511,500
500,000 Walbro Corp. sr. notes Ser. B, 9 7/8s, 2005 495,000
--------------
20,142,532
Banks (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
145,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 146,450
40,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 43,241
4,015,000 Firstar Capital Trust I company guaranty Ser. B, 8.32s, 2026 4,467,531
4,640,000 Fuji JGB Inv. LLC 144A FLIRB bonds Ser. A, 9.87s, 2049 (Japan) 3,210,648
35,000 Greenpoint Capital Trust I company guaranty 9.1s, 2027 36,990
8,895,000 Merita Bank Ltd. sub. notes 6 1/2s, 2006 (Finland) 9,089,712
140,000 North Fork Capital Trust I company guaranty 8.7s, 2026 151,774
9,830,000 Peoples Bank Bridgeport sub. notes 7.2s, 2006 9,854,870
1,685,000 Peoples Heritage Capital Trust company guaranty Ser. B,
9.06s, 2027 1,752,299
90,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 91,606
3,750,000 Riggs National Corp. sub. deb. 8 1/2s, 2006 3,904,988
3,915,000 St. Paul Bancorp sr. notes 7 1/8s, 2004 4,020,079
2,195,000 State Street Institution 144A company guaranty 7.94s, 2026 2,467,509
4,450,000 Webster Capital Trust I 144A bonds 9.36s, 2027 4,761,233
5,090,000 Webster Financial Corp. sr. notes 8 3/4s, 2000 5,229,822
--------------
49,228,752
Basic Industrial Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 American Standard Companies, Inc. sr. notes 7 3/8s, 2008 2,015,000
518,000 Ball Corp. company guaranty 7 3/4s, 2006 543,900
120,000 Koppers Industries, Inc. 144A company guaranty 9 7/8s, 2007 118,800
250,000 Newcor, Inc. company guaranty Ser. B, 9 7/8s, 2008 222,500
1,150,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 1,239,171
30,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 28,800
--------------
4,168,171
Broadcasting (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
585,000 Affinity Group Holdings sr. notes 11s, 2007 590,850
800,000 American Radio Systems Corp. company guaranty 9s, 2006 870,000
400,000 Benedek Broadcasting sr. notes 11 7/8s, 2005 438,000
1,690,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 1,782,950
190,000 Capstar Broadcasting sr. disc. notes stepped-coupon zero %
(12 3/4s, 2/1/02), 2009 (STP) 159,125
185,000 Chancellor Media Corp. sr. sub. notes 9 3/8s, 2004 195,638
2,190,000 Chancellor Media Corp. 144A sr. notes 8s, 2008 2,359,725
80,000 Citadel Broadcasting Co. sr. sub. notes 10 1/4s, 2007 88,100
625,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 646,875
640,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 617,600
45,000 Gray Communications Systems, Inc. sr. sub. notes 10 5/8s, 2006 47,813
115,000 Heritage Media Services Corp. sr. sub. notes 8 3/4s, 2006 121,900
1,125,000 Jacor Communications, Inc. company guaranty Ser. B,
8 3/4s, 2007 1,215,000
180,000 Pegasus Communications Corp. 144A sr. notes 9 3/4s, 2006 188,550
250,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 275,000
200,000 Sinclair Broadcasting Group, Inc. sr. sub. notes 10s, 2005 212,000
700,000 Sinclair Broadcasting Group, Inc. company guaranty 9s, 2007 721,000
150,000 Sinclair Broadcasting Group, Inc. sr. sub. notes 8 3/4s, 2007 151,500
700,000 Spanish Broadcasting Systems sr. notes 12 1/2s, 2002 780,500
100,000 Spanish Broadcasting Systems sr. notes Ser. B, 11s, 2004 107,000
--------------
11,569,126
Building and Construction (--%)
- --------------------------------------------------------------------------------------------------------------------------
480,000 Albecca Inc. 144A sr. sub. notes 10 3/4s, 2008 436,800
60,000 Building Materials Corp. sr. notes Ser. B, 8 5/8s, 2006 61,200
340,000 Building Materials Corp. 144A sr. notes 8s, 2008 340,850
95,000 D.R. Horton Inc. company guaranty 10s, 2006 99,275
130,000 Jackson Products, Inc. company guaranty Ser. B, 9 1/2s, 2005 130,000
280,000 Morris Material Handling, Inc. company guaranty 9 1/2s, 2008 210,000
--------------
1,278,125
Business Equipment and Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
500,000 Cendant Corp. notes 7 1/2s, 2000 507,725
280,000 Cex Holdings, Inc. company guaranty Ser. B, 9 5/8s, 2008 252,000
610,000 Iron Mountain, Inc. med. term notes company guaranty
10 1/8s, 2006 667,950
649,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 710,655
500,000 Production Resource Group sr. sub. notes 11 1/2s, 2008 490,000
1,020,000 U.S. Office Products Co. company guaranty 9 3/4s, 2008 726,750
800,000 Unicco Service Co. company guaranty Ser. B, 9 7/8s, 2007 784,000
75,000 United Stationer Supply, Inc. sr. sub. notes 8 3/8s, 2008 75,375
--------------
4,214,455
Cable Television (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Adelphia Communications Corp. sr. notes Ser. B, 10 1/4s, 2000 104,250
250,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007 277,500
43,875 Adelphia Communications Corp. sr. notes 9 1/2s, 2004 (PIK) 45,301
1,140,000 Adelphia Communications Corp. 144A sr. notes 8 3/8s, 2008 1,185,600
1,535,000 Century Communications Corp. sr. notes 9 1/2s, 2005 1,734,550
850,000 Century Communications Corp. sr. notes 8 7/8s, 2007 943,500
550,000 Century Communications Corp. sr. notes 8 3/4s, 2007 607,750
2,605,000 Comcast Corp. sr. sub. notes 9 1/2s, 2008 2,763,358
250,000 Comcast Corp. sr. sub. notes 9 3/8s, 2005 267,823
240,000 Comcast Corp. sr. notes sub. 9 1/8s, 2006 256,800
10,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2023 11,200
60,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2013 66,900
100,000 CSC Holdings, Inc. sr. sub. notes 9 1/4s, 2005 108,500
210,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 223,789
295,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) (STP) 229,363
1,670,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 1,457,075
390,000 Jones Intercable, Inc. sr. sub. deb. 10 1/2s, 2008 425,100
363,000 Jones Intercable, Inc. sr. notes 9 5/8s, 2002 391,133
650,000 Jones Intercable, Inc. sr. notes 7 5/8s, 2008 689,000
1,250,000 Lenfest Communications, Inc. sr. sub. notes 10 1/2s, 2006 1,475,000
310,000 Lenfest Communications, Inc. sr. sub. notes 8 1/4s, 2008 327,050
765,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes
stepped-coupon zero % (13 1/2s, 8/1/99), 2004 (STP) 772,650
100,000 Rogers Cablesystems Ltd. notes 11s, 2015 (Canada) 118,500
225,000 Rogers Cablesystems Ltd. sr. notes Ser. B, 10s, 2005 255,938
210,000 TeleWest Communications PLC 144A sr. notes 11 1/4s, 2008
(United Kingdom) 247,800
--------------
14,985,430
Chemicals (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
5,040,000 Arco Chemical Co. deb. 9.8s, 2020 5,206,824
1,640,000 Equistar Chemicals LP notes 9 1/8s, 2002 1,711,930
7,330,000 Nova Chemicals Corp. deb. 7s, 2026 (Canada) 7,318,492
500,000 PCI Chemicals & Pharmaceuticals company guaranty 9 1/4s,
2007 (Canada) 377,500
640,000 Scotts Co. 144A sr. sub. notes 8 5/8s, 2009 659,200
50,000 Union Carbide Global Enterprises sr. sub. notes Ser. B,
12s, 2005 52,500
--------------
15,326,446
Computer Services and Software (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
11,480,000 Dell Computer Corp. deb. 7.1s, 2028 11,947,466
670,000 IPC Information Systems sr. disc. notes stepped-coupon zero %
(10 7/8s, 11/1/01), 2008 (STP) 432,150
370,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 381,100
800,000 PSINet, Inc. 144A sr. notes 11 1/2s, 2008 872,000
150,000 Unisys Corp. sr. notes 7 7/8s, 2008 157,500
360,000 Verio Inc. 144A sr. notes 11 1/4s, 2008 379,800
--------------
14,170,016
Conglomerates (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
600,000 Axia, Inc. company guaranty 10 3/4s, 2008 609,000
3,030,000 Canadian Pacific Ltd. deb. 9.45s, 2021 (Canada) 3,998,146
--------------
4,607,146
Consumer Durable Goods (--%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 Hedstrom Holdings, Inc. sr. disc. notes stepped-coupon zero %
(12s, 6/1/02), 2009 (STP) 8,000
570,000 Iron Age Corp. company guaranty 9 7/8s, 2008 490,200
110,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 105,600
--------------
603,800
Consumer Non Durables (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 Amscan Holdings, Inc. sr. sub. notes 9 7/8s, 2007 54,600
160,000 Chattem, Inc. company guaranty Ser. B, 8 7/8s, 2008 164,000
20,000 Doane Products Co. 144A sr. sub. notes 9 3/4s, 2007 21,000
825,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 808,500
1,405,000 Philip Morris Cos., Inc. notes 7 1/2s, 2004 1,523,287
5,460,000 Philip Morris Cos., Inc. notes 7 1/4s, 2003 5,787,109
2,925,000 Philip Morris Cos., Inc. notes 7 1/8s, 2004 3,131,564
2,800,000 Philip Morris Cos., Inc. notes 6.8s, 2003 2,943,164
400,000 Revlon Consumer Products 144A sr. notes 9s, 2006 392,000
290,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 258,825
550,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 522,500
940,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 752,000
2,770,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2008 2,846,175
--------------
19,204,724
Consumer Products (--%)
- --------------------------------------------------------------------------------------------------------------------------
35,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 34,650
170,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 171,700
85,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 91,800
--------------
298,150
Consumer Services (--%)
- --------------------------------------------------------------------------------------------------------------------------
450,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 459,000
548,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 600,060
120,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 121,200
1,140,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 1,105,800
140,000 Host Marriott Travel Plaza sr. notes Ser. B, 9 1/2s, 2005 146,300
100,000 Isle of Capri Black Hawk LLC 1st mortgage Ser. B, 13s, 2004 108,500
300,000 Protection One, Inc. sr. disc. notes stepped-coupon zero %
(13 5/8s, 6/30/00), 2005 (STP) 342,000
--------------
2,882,860
Correctional Facilities (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
4,760,000 Avalon Communities, Inc. med. term notes 6 5/8s, 2004 4,789,750
Electronics and Electrical Equipment (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
70,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s, 2006
(Canada) 76,300
102,186 Cirent Semiconductor sr. sub. notes 10.22s, 2002 102,186
121,565 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 121,565
650,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 646,750
810,000 Diva Systems Corp. 144A sr. disc. notes stepped-coupon
zero % (12 5/8s, 3/1/03), 2008 (STP) 259,200
1,319,370 Fairchild Semiconductor Corp. 144A sr. sub. notes
11.74s, 2008 (PIK) 1,187,433
1,270,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 1,270,000
490,000 Flextronics International Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 507,150
45,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 43,200
1,310,000 Metromedia Fiber Network, Inc. 144A sr. notes 10s, 2008 1,388,600
340,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 349,350
50,000 Viasystems Inc. sr. sub notes 9 3/4s, 2007 49,750
480,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 451,200
1,225,000 Wavetek Corp. company guaranty 10 1/8s, 2007 1,176,000
--------------
7,628,684
Energy-related (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
5,990,000 CalEnergy, Inc. sr. notes 7.63s, 2007 6,474,531
500,000 Calpine Corp. sr. notes 7 7/8s, 2008 511,250
1,070,000 Gothic Production Corp. company guaranty Ser. B,
11 1/8s, 2005 829,250
6,295,000 KN Capital Trust III company guaranty 7.63s, 2028 6,043,200
300,000 Niagara Mohawk Power Corp. med. term notes 9.95s, 2000 314,064
1,000,000 Niagara Mohawk Power Corp. sr. notes Ser. G, 7 3/4s, 2008 1,103,560
270,000 Niagara Mohawk Power Corp. sr. notes Ser. F, 7 5/8s, 2005 285,274
540,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) 548,100
--------------
16,109,229
Entertainment (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
310,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 307,675
770,000 Argosy Gaming Co. company guaranty 13 1/4s, 2004 858,550
450,000 Aztar Corp. sr. sub. notes 11s, 2002 459,000
75,000 Casino America, Inc. sr. notes 12 1/2s, 2003 83,250
280,000 Cinemark USA, Inc. sr. sub. notes 9 5/8s, 2008 288,400
725,000 Cinemark USA, Inc. sr. sub. notes Ser. D, 9 5/8s, 2008 750,375
290,000 Circus Circus Enterprises, Inc. sr. sub. notes 9 1/4s, 2005 293,625
210,000 Circus Circus Enterprises, Inc. sr. notes 6.45s, 2006 190,619
350,000 Coast Hotels & Casinos, Inc. 1st mtge. company guaranty
Ser. B, 13s, 2002 393,750
220,000 Empress River Casino sr. notes 10 3/4s, 2002 233,750
700,000 Harrahs Entertainment, Inc. company guaranty 7 7/8s, 2005 707,000
150,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 159,750
7,380,000 Mashantucket Pequot Tribe 144A bonds Ser. A, FSA, 6.57s, 2013 7,509,150
510,000 Mohegan Tribal Gaming Auth. sr. notes Ser. B, 13 1/2s, 2002 612,000
11,730,000 News America Holdings, Inc. deb. 7 3/4s, 2045 12,933,263
500,000 Paramount Communications, Inc. deb. 7 1/2s, 2023 509,690
980,000 Park Place Entertainment sr. sub. notes 7 7/8s, 2005 977,550
125,000 Players International Inc. sr. notes 10 7/8s, 2005 134,375
210,000 Premier Parks, Inc. sr. notes Ser. A, 12s, 2003 226,800
535,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 552,388
530,000 SFX Entertainment, Inc. 144A company guaranty Ser. B,
9 1/8s, 2008 543,250
510,000 SFX Entertainment Inc. 144A sr. sub. notes 9 1/8s, 2008 520,200
290,000 Silver Cinemas Inc. sr. sub. notes 10 1/2s, 2005 171,100
840,000 Six Flags Corp. sr. sub. notes 12 1/4s, 2005 932,400
575,000 Showboat Marina Casino 1st mtge. Ser. B, 13 1/2s, 2003 644,000
650,000 Sun International Hotels Ltd. company guaranty 9s, 2007 672,750
2,670,000 Time Warner Entertainment Inc. notes 8 7/8s, 2012 3,348,367
15,510,000 Time Warner Entertainment Inc. sr. notes 8 3/8s, 2033 19,275,363
350,000 Trump A.C. 1st mtge. 11 1/4s, 2006 320,250
1,000,000 United Artists Theatre 144A sr. sub. notes Ser. B, 9 3/4s, 2008 965,000
15,750,000 Viacom Intl., Inc. sr. notes 7 3/4s, 2005 17,280,743
5,085,000 Walt Disney Co. med. term notes 5.62s, 2008 5,029,065
--------------
77,883,448
Environmental Control (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,630,000 Allied Waste Industries, Inc. 144A sr. notes 7 7/8s, 2009 1,682,975
2,120,000 Waste Management, Inc. notes 6 5/8s, 2002 2,173,721
4,300,000 WMX Technologies, Inc. notes 7.7s, 2002 4,565,138
--------------
8,421,834
Food and Beverages (--%)
- --------------------------------------------------------------------------------------------------------------------------
65,000 Ameriserve Food Co. company guaranty 10 1/8s, 2007 54,925
645,000 Ameriserve Food Co. company guaranty 8 7/8s, 2006 606,300
50,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 54,625
370,000 Aurora Foods, Inc. 144A ser. sub. notes Ser. D, 9 7/8s, 2007 404,225
895,000 Canandaigua Wine Co. sr. sub. notes Ser. C, 8 3/4s, 2003 917,375
135,000 Fleming Companies, Inc. company guaranty Ser. B, 10 1/2s, 2004 126,900
150,000 Signature Brands Ltd. sr. sub. notes 13s, 2002 (Canada) 165,750
670,000 Stater Brothers Holdings 144A sr. sub. notes 9s, 2004 649,900
--------------
2,980,000
Health Care (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
930,000 Columbia/HCA Healthcare Corp. med. term notes 9s, 2014 985,335
1,220,000 Columbia/HCA Healthcare Corp. med. term notes 8.7s, 2010 1,322,956
210,000 Columbia/HCA Healthcare Corp. deb. 8.36s, 2024 211,050
780,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 766,639
100,000 Columbia/HCA Healthcare Corp. notes 7s, 2007 97,053
185,000 Conmed Corp. company guaranty 9s, 2008 187,775
380,000 Extendicare Health Services, Inc. company guaranty 9.35s, 2007 362,900
1,105,000 Fresenius Medical Capital Trust II company guaranty 7.7/8s, 2008
(Germany) 1,096,713
265,000 Fresenius Medical Care Capital Trust I company guaranty Ser. D,
9s, 2006 (Germany) 277,256
610,000 Global Health Sciences company guaranty 11s, 2008 408,700
300,000 Hudson Respiratory Care, Inc. sr. sub. notes 9 1/8s, 2008 234,000
550,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007 519,750
830,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 780,200
1,870,000 Manor Care, Inc. sr. notes 7 1/2s, 2006 1,879,406
1,490,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 1,117,500
260,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-coupon
Ser. B, zero % (10 1/2s, 11/1/02), 2007 (STP) 109,200
1,060,000 MedPartners, Inc. sr. notes 7 3/8s, 2006 906,650
1,455,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 1,294,950
175,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 154,000
160,000 Paragon Corp. Holdings, Inc. company guaranty Ser. B,
9 5/8s, 2008 132,800
450,000 Quorum Health Group, Inc. sr. sub. notes 8 3/4s, 2005 445,500
420,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 340,200
575,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s, 2008 460,000
700,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 731,500
1,825,000 Tenet Healthcare Corp. sr. notes 8s, 2005 1,879,750
--------------
16,701,783
Insurance and Finance (5.7%)
- --------------------------------------------------------------------------------------------------------------------------
10,625,000 AFC Capital Trust company guaranty Ser. B, 8.207s, 2027 12,139,381
1,990,000 Allstate Financing II company guaranty 7.83s, 2045 2,251,705
1,500,000 AMBAC Indemnity Corp. deb. 9 3/8s, 2011 1,954,830
12,745,000 American General Institute 144A company guaranty
8 1/8s, 2046 14,995,767
3,500,000 Associates First Capital Corp. sub. deb. 8.15s, 2009 4,158,420
10,000,000 Associates First Capital Corp. sr. notes 6 1/4s, 2008 10,399,100
6,295,000 Bombardier Capital Inc. 144A notes 6s, 2002 6,301,925
795,000 Capital One Financial Corp. notes 7 1/4s, 2003 784,840
5,000,000 Citicorp sub. notes 6 3/8s, 2008 5,152,650
340,000 Colonial Capital I 144A company guaranty 8.92s, 2027 342,384
6,615,000 Countrywide Home Loan Corp. company guaranty
6.935s, 2007 6,969,564
80,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 64,000
6,700,000 Dime Bancorp, Inc. sr. notes 6 3/8s, 2001 6,695,511
1,775,000 DTI Holdings Inc. sr. disc. notes Ser. B, stepped-coupon zero %
(12 1/2s, 03/01/03), 2008 (STP) 426,000
8,550,000 Executive Risk Capital Trust company guaranty Ser. B,
8.675s, 2027 8,367,372
5,650,000 Finova Capital Corp. notes 7.4s, 2007 6,100,305
6,250,000 Finova Capital Corp. notes 6 1/4s, 2002 6,357,813
6,045,000 First Citizens Bank Capital Trust I company guaranty 8.05s, 2028 6,165,900
1,880,000 First Financial Caribbean Corp. sr. notes 7.84s, 2006 1,855,692
2,035,000 Firstar Bank Milwaukee sr. bank notes 6 1/4s, 2002 2,090,515
9,215,000 Fleet National Bank sub. notes 5 3/4s, 2009 9,281,901
8,119,000 Ford Motor Credit Corp. sr. notes 6s, 2003 8,285,115
9,585,000 Ford Motor Credit Corp. sr. notes 5.8s, 2009 9,618,452
1,110,000 Ford Motor Credit Corp. notes 5 1/8s, 2001 1,103,851
14,445,000 General Motors Acceptance Corp. sr. unsub. 5.85s, 2009 14,589,450
2,625,000 Hartford Life, Inc. deb. 7.65s, 2027 3,001,058
4,745,000 Household Finance Corp. notes 6 1/2s, 2008 4,954,966
5,900,000 Household Finance Corp. sr. unsub. 5 7/8s, 2009 5,856,104
205,000 Investors Capital Trust I company guaranty Ser. B, 9.77s, 2027 213,713
11,410,000 Lehman Bros Holdings, Inc. notes 6 1/4s, 2003 11,407,946
4,625,000 Markel Capital Trust I company guaranty Ser. B, 8.71s, 2046 4,391,576
5,100,000 Merrill Lynch & Co., Inc. med. term notes 6.13s, 2003 5,198,379
4,205,000 Money Store, Inc. notes 8.05s, 2002 4,521,174
12,420,000 Morgan Stanley Dean Witter, Discover and Co. sr. unsub.
5 5/8s, 2004 12,362,495
620,000 Nationwide Credit Inc. sr. notes Ser. A, 10 1/4s, 2008 477,400
6,235,000 Newcourt Credit Group, Inc. 144A company guaranty
7 1/8s, 2003 6,223,528
3,235,000 Norwest Corp. med. term sr. notes Ser. J, 6 3/4s, 2027 3,393,030
1,970,000 Orange Cogen Funding 144A company guaranty 8.175s, 2022 2,101,399
2,000,000 Orion Capital Corp. sr. notes 9 1/8s, 2002 2,175,400
7,850,000 Paine Webber Group, Inc. sr. notes 6.55s, 2008 7,960,999
8,985,000 Paine Webber Group, Inc. sr. med. term notes 6.52s, 2005 9,007,463
5,825,000 Phoenix Home Life Mutual Insurance Co. 144A notes
6.95s, 2006 6,147,064
35,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 23,450
10,770,000 Provident Companies, Inc. bonds 7.405s, 2038 11,382,921
390,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 175,500
6,730,000 Prudential Insurance Co. 144A 6 7/8s, 2003 6,963,396
185,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 192,256
6,350,000 Salomon, Inc. sr. notes 7.3s, 2002 6,697,155
14,225,000 Salomon, Inc. sr. notes 6 3/4s, 2003 14,683,472
3,450,000 Salton Sea Funding Corp. company guaranty Ser. E, 8.3s, 2011 3,922,995
980,000 Sampoerna International Finance Co. 144A company guaranty
8 3/8s, 2006 (Indonesia) 499,800
10,745,000 Sears Roebuck Acceptance Corp. notes 6 1/2s, 2028 10,524,728
75,000 Sovereign Capital Trust company guaranty 9s, 2027 71,402
12,965,000 Sprint Capital Corp. company guaranty 6 1/8s, 2008 13,270,196
12,445,000 Sun Life Canada Capital Trust 144A 8.526s, 2049 13,529,084
8,015,000 TIG Capital Trust I 144A bonds 8.597s, 2027 8,514,014
5,345,000 Trenwick Capital Trust I company guaranty 8.82s, 2037 5,856,517
7,640,000 UNUM Corp. notes 6 3/4s, 2028 7,687,750
8,905,000 Zurich Capital Trust I 144A company guaranty 8.376s, 2037 10,019,283
--------------
349,860,056
Lodging (--%)
- --------------------------------------------------------------------------------------------------------------------------
1,110,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 1,087,800
167,000 John Q Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 155,310
1,415,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 1,457,450
685,000 Raintree Resorts International, Inc. sr. notes Ser. B, 13s, 2004 342,500
--------------
3,043,060
Medical Supplies and Devices (--%)
- --------------------------------------------------------------------------------------------------------------------------
265,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 270,300
150,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 164,250
175,000 Graphic Controls Corp. sr. sub. notes Ser. A, 12s, 2005 201,250
480,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 460,800
430,000 Mediq, Inc. deb. 13s, 2009 193,500
--------------
1,290,100
Metals and Mining (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,100,000 AK Steel Corp. sr. notes 9 1/8s, 2006 1,177,000
360,000 Ameristeel Corp. company guaranty Ser. B, 8 3/4s, 2008 342,000
150,000 Anker Coal Group, Inc. sr. notes Ser. B, 9 3/4s, 2007 82,500
105,000 Armco, Inc. sr. notes 9s, 2007 108,675
620,000 Continental Global Group sr. notes Ser. B, 11s, 2007 530,100
70,000 Kaiser Aluminum & Chemical Corp. sr. notes Ser. B,
10 7/8s, 2006 68,950
260,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12 3/4s, 2003 252,200
760,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 630,800
740,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 680,800
220,000 WHX Corp. sr. notes 10 1/2s, 2005 198,000
--------------
4,071,025
Oil and Gas (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Clark Refining & Marketing Inc. sr. sub. notes 8 7/8s, 2007 1,735,000
1,000,000 Cliffs Drilling Co. company guaranty Ser. B, 10 1/4s, 2003 1,040,000
9,860,000 Coastal Corp. bonds 6.95s, 2028 9,972,700
140,000 Coho Energy, Inc. sr. sub. notes 8 7/8s, 2007 114,800
470,000 Costilla Energy, Inc. sr. notes 10 1/4s, 2006 333,700
370,000 Eagle Geophysical, Inc. company guaranty Ser. B, 10 3/4s, 2008 236,800
3,150,000 Enron Corp. notes 6.4s, 2006 3,200,022
3,365,000 Express Pipeline Ltd. 144A sub. notes Ser. B, 7.39s, 2019
(Canada) 3,161,619
125,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 127,813
460,000 Gulf Canada Resources, Ltd. sr. notes 8 3/8s, 2005 (Canada) 456,550
3,205,000 Gulf Canada Resources, Ltd. sr. notes 8.35s, 2006 (Canada) 3,142,342
3,365,000 K N Energy, Inc. sr. notes 6.45s, 2003 3,394,881
11,195,000 Louis Dreyfus Natural Gas notes 6 7/8s, 2007 10,714,958
9,915,000 Norsk Hydro ASA notes 6.36s, 2009 (Norway) 10,014,150
390,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 380,250
630,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 595,350
7,590,000 Petro Geo-Services notes ADR 7 1/2s, 2007 (Norway) 7,854,739
3,000,000 Petro-Canada deb. 9 1/4s, 2021 (Canada) 3,722,280
15,000 Pogo Producing Co. sr. sub. notes Ser. B, 8 3/4s, 2007 13,575
975,000 Seagull Energy sr. sub notes 8 5/8s, 2005 945,750
40,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 40,200
6,285,000 Statoil 144A notes 6 1/2s, 2028 (Norway) 6,219,008
425,000 TransTexas Gas Corp. sr. sub. notes Ser. D, 13 3/4s, 2001 280,500
--------------
67,696,987
Packaging and Containers (--%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 100,250
90,000 Radnor Holdings Inc. sr. notes 10s, 2003 92,700
155,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 140,275
1,700,000 Riverwood International Corp. company guaranty 10 5/8s, 2007 1,717,000
450,000 Riverwood International Corp. company guaranty 10 1/4s, 2006 450,000
--------------
2,500,225
Paper and Forest Products (--%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 Boise Cascade Co. med. term notes Ser. A, 7.43s, 2005 59,223
200,000 Republic Group Inc. sr. sub. notes 9 1/2s, 2008 203,500
--------------
262,723
Pharmaceuticals and Biotechnology (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,040,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 1,066,000
6,175,000 Monsanto Co. 144A deb. 6.6s, 2028 6,374,082
--------------
7,440,082
Photography (--%)
- --------------------------------------------------------------------------------------------------------------------------
130,000 Panavision Inc. sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 (STP) 72,800
Publishing (--%)
- --------------------------------------------------------------------------------------------------------------------------
170,000 American Media Operation, Inc. sr. sub. notes 11 5/8s, 2004 174,250
180,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 182,700
100,000 Hollinger International Publishing, Inc. sr. sub. notes 9 1/4s, 2006 106,750
120,000 Perry-Judd company guaranty 10 5/8s, 2007 125,400
40,000 Von Hoffman Press Inc. 144A sr. sub. notes 10 3/8s, 2007 41,400
--------------
630,500
Real Estate (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
8,490,000 EOP Operating L.P. notes 6.8s, 2009 8,483,972
2,190,000 EOP Operating L.P. sr. notes 6 3/4s, 2008 2,196,548
3,140,000 EOP Operating L.P. notes 6 3/8s, 2002 3,142,920
5,500,000 First Industrial L.P. notes 7.6s, 2007 5,448,355
--------------
19,271,795
REIT's (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
4,920,000 Avalon Properties, Inc. notes 6 7/8s, 2007 4,957,097
4,670,000 Avalon Properties, Inc. notes 6 5/8s, 2005 4,660,567
8,540,000 Equity Residential Properties notes 6.63s, 2005 8,547,259
2,320,000 OMEGA Healthcare Investors, Inc. notes 6.95s, 2007 2,085,494
120,000 Tanger Properties Ltd. partnership gtd. notes 8 3/4s, 2001 119,819
--------------
20,370,236
Retail (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
230,000 Eye Care Centers of America 144A sr. sub. notes 9 1/8s, 2008 216,200
13,685,000 Federated Department Stores, Inc. sr. notes 8 1/2s, 2003 15,147,379
190,000 Home Interiors & Gifts, Inc. company guaranty 10 1/8s, 2008 190,000
320,000 K mart Corp. notes 8 1/8s, 2006 340,800
680,000 K mart Corp. deb. 7.95s, 2023 681,700
310,000 K mart Corp. med. term notes 7.55s, 2004 309,805
150,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 156,000
1,000,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 960,000
695,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 583,800
230,000 Specialty Retailers, Inc. company guaranty Ser. B, 8 1/2s, 2005 204,700
230,000 William Carter Co. sr. sub. notes Ser. A, 10 3/8s, 2006 250,700
200,000 Zale Corp. sr. notes Ser. B, 8 1/2s, 2007 200,000
--------------
19,241,084
Satellite Services (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
560,000 Golden Sky Systems 144A sr. sub. notes 12 3/8s, 2006 596,400
4,300,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 2,322,000
17,405,000 TCI Communications Inc deb. 8 3/4s, 2015 22,100,521
3,620,000 TCI Communications Inc. sr. notes 7 1/8s, 2028 4,028,191
--------------
29,047,112
Shipping (--%)
- --------------------------------------------------------------------------------------------------------------------------
1,380,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 1,283,400
Specialty Consumer Products (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
7,150,000 Tyco International Ltd. company guaranty 6 3/8s, 2005 7,405,970
8,385,000 Tyco International Ltd. company guaranty 6 1/4s, 2003 8,562,175
--------------
15,968,145
Telecommunications (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
7,450,000 AirTouch Communications, Inc. notes 6.65s, 2008 7,954,216
920,000 Allbritton Communications Co. sr. sub. notes Ser. B, 8 7/8s, 2008 947,600
6,715,000 AT&T Capital Corp. med. term notes 6.6s, 2005 6,443,915
2,000,000 Barak I.T.C. sr. disc. notes Ser. B, stepped-coupon zero %
(12 1/2s, 11/15/02), 2007 (Israel) (STP) 1,020,000
1,430,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 1,079,650
620,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(8.94s, 8/15/03), 2008 (Canada) (STP) 350,300
370,000 CapRock Communications Corp. sr. notes Ser. B, 12s, 2008 370,000
400,000 Celcaribe S.A. sr. notes 13 1/2s, 2004 (Columbia) 308,000
250,000 Cencall Communications Corp. sr. disc. notes 10 1/8s, 2004 251,250
260,000 Charter Communications International, Inc. disc. Notes Ser. B,
stepped-coupon zero % (14s, 3/15/01), 2007 (STP) 233,350
210,000 Colt Telecommunications Group PLC sr. disc. notes
stepped-coupon zero %, (12s, 12/15/01), 2006
(United Kingdom) (STP) 178,500
790,000 Comcast Cellular Holdings sr. notes Ser. B, 9 1/2s, 2007 904,550
785,000 E. Spire Communications, Inc. sr. disc. notes stepped-coupon
zero % (12 3/4s, 4/1/01), 2006 (STP) 439,600
100,101 Echostar Communications Corp. sr. notes 12 1/8s, 2004 115,366
1,000,000 Econophone, Inc. 144A notes stepped-coupon zero %
(11s, 2/15/03), 2008 (STP) 490,000
140,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 147,000
180,000 Facilicom International sr. notes Ser. B, 10 1/2s, 2008 140,400
1,500,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 1,470,000
2,140,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 2,263,050
750,000 GST Telecommunications, Inc. company guaranty
stepped-coupon zero % (13 7/8s, 15/15/00), 2005 (STP) 513,750
1,310,000 GST Telecommunications, Inc. 144A sr. disc. notes
stepped-coupon zero % (10 1/2s, 5/1/03), 2008 (STP) 589,500
1,200,000 Hyperion Telecommunication Inc. sr. disc. notes Ser. B,
stepped-coupon zero % (13s, 4/15/01), 2003 (STP) 912,000
1,075,000 Intermedia Communications, Inc. sr. disc. notes Ser. B,
stepped-coupon zero % (11 1/4s, 7/15/02), 2007 (STP) 747,125
890,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 858,850
440,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 1/2s, 2008 423,500
3,650,000 International Cabletel, Inc. sr. notes Ser. B, stepped-coupon
zero % (11 1/2s, 2/01/01), 2006 (STP) 3,102,500
370,000 IXC Communications, Inc. sr. sub. notes 9s, 2008 368,150
560,000 KMC Telecom Holdings, Inc. sr. disc. notes stepped-coupon
zero % (12 1/2s, 2/15/03), 2008 (STP) 274,400
890,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon zero %,
(11 7/8s, 10/15/02), 2007 (STP) 453,900
60,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 66,150
310,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 323,175
11,485,000 LCI International, Inc. sr. notes 7 1/4s, 2007 11,629,252
610,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 549,000
180,000 McCaw International Ltd sr. disc. notes stepped coupon zero %
(13s, 4/15/02), 2007 (STP) 101,025
115,000 MetroNet Communications Corp. sr. disc. notes
stepped-coupon zero % (10 3/4s, 11/1/02), 2007
(Canada) (STP) 82,800
600,000 MetroNet Communications Corp. sr. disc. stepped-coupon
notes zero % (9.95s, 6/15/03), 2008 (Canada) (STP) 408,000
1,960,000 MetroNet Communications Corp. 144A sr. notes
10 5/8s, 2008 (Canada) 2,136,400
130,000 MJD Communications, Inc. notes Ser. B, FRN, 9.16s, 2008 124,800
205,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 233,188
1,250,000 NEXTEL Communications, Inc. 144A sr. notes 12s, 2008 1,390,625
500,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (10.65s, 9/15/02), 2007 (STP) 341,250
1,310,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (9.95s, 2/15/03), 2008 (STP) 838,400
330,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (9 3/4s, 10/31/02), 2007 (STP) 214,500
1,100,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (9 3/4s, 2/15/99), 2004 (STP) 1,108,250
620,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 626,200
1,200,000 NTL Inc. sr. notes Ser. B, stepped-coupon zero %
(9 3/4s, 4/1/03), 2008 (STP) (United Kingdom) 841,500
640,000 NTL Inc. 144A sr. notes 11 1/2s, 2008 (United Kingdom) 729,600
450,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 261,000
90,000 Price Communications Wireless, Inc. 144A sr. notes 9 1/8s, 2006 94,500
1,000,000 Primus Telecom Group sr. notes 11 3/4s, 2004 1,025,000
250,000 Primus Telecommunications Group, Inc. sr. notes Ser. B,
9 7/8s, 2008 233,750
1,440,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 1,152,000
250,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (8.29s, 2/1/03), 2008 (STP) 195,000
190,000 RCN Corp. sr. disc. notes stepped-coupon zero %
(11 1/8s, 10/15/02), 2007 (STP) 110,200
180,000 RSL Communications, Ltd. company guaranty 9 1/8s, 2008 164,700
260,000 RSL Communications, Ltd. company guaranty, stepped-coupon
zero % (10 1/8s, 3/1/03), 2008 (STP) 143,000
220,000 Sprint Spectrum L.P. sr. notes 11s, 2006 257,261
390,000 Startec Global Communications Corp. sr. notes 12s, 2008 351,000
190,000 Telecommunications Techniques, Inc. company guaranty
9 3/4s, 2008 188,100
1,060,000 Time Warner Telecom Inc. sr. notes 9 3/4s, 2008 1,134,200
540,000 United International Holdings sr. disc. notes Ser. B,
stepped-coupon zero % (10 3/4s, 2/15/03), 2008 (STP) 361,800
--------------
60,766,048
Telephone Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
630,000 Long Distance International, Inc. 144A sr. notes 12 1/4s, 2008 504,000
150,000 OnePoint Communications, Corp. 144A sr. notes 14 1/2s, 2008 78,000
4,100,000 U S West, Inc. notes 5 5/8s, 2008 4,135,301
270,000 Versatel Teleco sr. notes 13 1/4s, 2008 279,450
--------------
4,996,751
Textiles (--%)
- --------------------------------------------------------------------------------------------------------------------------
380,000 Day International Group, Inc. company guaranty 9 1/2s, 2008 375,250
810,000 Galey & Lord Inc. company guaranty 9 1/8s, 2008 639,900
50,000 Glenoit Corp. company guaranty 11s, 2007 46,000
105,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 105,263
280,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 277,200
--------------
1,443,613
Transportation (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
9,655,000 Burlington Northern Santa Fe bonds 6 7/8s, 2027 10,261,913
1,905,000 Burlington Northern Santa Fe notes 6 3/8s, 2005 1,981,676
220,000 Calair LLC company guaranty 8 1/8s, 2008 213,950
390,000 Canadian Airlines Corp. sec. notes 10s, 2005 (Canada) 331,500
55,000 Coach USA, Inc. 144A company guaranty 9 3/8s, 2007 56,306
590,000 Continental Airlines, Inc. sr. notes 9 1/2s, 2001 619,500
1,510,519 Continental Airlines Inc., pass-through certificates Ser. 97CI,
7.42s, 2007 1,544,295
6,950,000 Continental Airlines, Inc. pass-through certificates Ser. 981C,
6.541s, 2008 6,798,143
11,885,000 Continental Airlines, Inc. pass thru certificates Ser. 98-2,
6.32s, 2008 11,885,000
17,235,000 CSX Corp. deb. 7.95s, 2027 20,137,546
430,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s, 2003 (Greece) 412,800
140,000 Hermes Europe Railtel 144A sr. notes 11 1/2s, 2007
(Netherlands) 154,000
150,000 International Shipholding Corp. sr. notes 9s, 2003 153,188
165,000 Johnstown America Industries, Inc. company guaranty Ser. C,
11 3/4s, 2005 175,313
290,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 290,000
155,000 MC Shipping, Inc. sr. notes Ser. B, 11 1/4s, 2008 89,900
190,000 MCII Holdings sec. notes 12s, 2002 162,450
8,430,000 Norfolk Southern Corp. bonds 7.05s, 2037 9,259,343
600,000 Pegasus Shipping 144A company guaranty Ser. A, 11 7/8s, 2004 519,000
1,000,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 740,000
9,385,000 Union Pacific Corp. deb. 6 1/4s, 2029 9,427,233
10,520,000 United Air Lines Corp. deb. 9 3/4s, 2021 12,701,112
575,000 US Air Inc. pass thru certificates Ser. 93-A2, 9 5/8s, 2003 613,594
--------------
88,527,762
Utilities (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
3,840,000 Arizona Public Service Co. sr. notes 6 3/4s, 2006 4,113,562
175,000 California Energy Corp. sr. notes 9 7/8s, 2003 195,900
1,300,000 Calpine Corp. sr. notes 8 3/4s, 2007 1,375,387
980,000 Cleveland Electric Illuminating Co. bonds 6.86s, 2008 1,009,400
2,200,000 CMS Energy Corp. sr. notes 8 1/8s, 2002 2,257,244
5,520,000 CMS Energy Corp. pass through certificates 7s, 2005 5,478,048
4,140,000 Connecticut Light & Power Co. 1st mtge. Ser. A, 7 7/8s, 2001 4,272,107
3,090,000 Connecticut Light & Power Co. 1st mtge. Ser. C, 7 3/4s, 2002 3,206,802
1,160,000 Edison Mission Energy 144A company guaranty 7.33s, 2008 1,231,885
110,000 El Paso Electric Co. 1st mtge. Ser. D, 8.9s, 2006 121,977
6,040,000 El Paso Electric Co. 1st mtge. Ser. B, 7 3/4s, 2001 6,254,118
3,745,000 Israel Electric Corp., Ltd. 144A sr. notes 7 1/4s, 2006 (Israel) 3,767,470
255,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 295,606
1,210,802 Midland Funding Corp. I deb. Ser. C-94, 10.33s, 2002 1,289,492
1,054,872 Northeast Utilities System notes Ser. A, 8.58s, 2006 1,127,531
3,065,129 Northeast Utilities System notes Ser. B, 8.38s, 2005 3,194,079
4,638,000 Public Service Co. of New Mexico deb. 10 1/4s, 2012 5,645,930
710,000 Public Service Co. of New Mexico sr. notes Ser. A, 7.1s, 2005 715,098
1,600,000 Public Service Co. of New Mexico sr. notes Ser. B, 7 1/2s, 2018 1,595,456
3,925,000 Texas New-Mexico Power Utilities 1st mtge. 9 1/4s, 2000 4,120,504
6,455,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 7,049,570
5,765,000 Texas Utilities Electric Capital Trust V company guaranty
8.175s, 2037 6,441,292
--------------
64,758,458
--------------
Total Corporate Bonds and Notes (cost $1,065,168,387) $1,081,459,858
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (17.3%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government and Agency Obligations (9.0%)
- --------------------------------------------------------------------------------------------------------------------------
$ 1,688,615 Federal Home Loan Mortgage Association 8 3/4s,
with due dates from May 1, 2009 to June 1, 2009 $ 1,792,043
Federal Home Loan Mortgage Corp.
5,739,791 7s, July 1, 2012 5,876,111
22,916,625 5 1/2s, with due dates from March 1, 2011 to July 1, 2011 22,645,885
Federal National Mortgage Association
23,420,000 6 1/2s, TBA, February 15, 2029 23,632,185
Federal National Mortgage Association
Pass-through Certificates
150,862 11s, with due dates from October 1, 2015 to March 1, 2016 167,739
122,659 8 3/4s, July 1, 2009 129,099
802,212 7s, June 1, 2011 821,007
13,012,062 7s, Dwarf, with due dates from February 1, 2008 to
October 1, 2013 13,316,933
74,453,548 6 1/2s, with due dates from April 1, 2024 to
December 1, 2028 75,128,098
5,339,741 6 1/2s, Dwarf, with due dates from July 1, 2010 to
August 1, 2013 5,424,802
1,050,730 6s, with due dates from June 1, 2013 to November 1, 2013 1,054,671
78,406,017 6s, Dwarf, with due dates from February 1, 2012 to
December 1, 2013 78,700,044
6,790,000 5.94s, December 12, 2005 7,079,661
Government National Mortgage Association
36,630,000 6 1/2s, TBA, February 15, 2029 37,042,088
Government National Mortgage Association
Pass-through Certificates
747 15s, September 15, 2011 889
51,034,135 8s, with due dates from June 15, 2024 to January 15, 2029 53,162,665
27,535 7 1/2s, September 15, 2005 28,698
165,598,854 7s, with due dates from January 15, 2024 to
December 15, 2028 169,636,661
57,904,309 6 1/2s, with due dates from March 15, 2002 to
December 15, 2028 58,555,050
--------------
554,194,329
U.S. Treasury Obligations (8.3%)
- --------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
1,220,000 11 7/8s, November 15, 2003 (SEG) 1,590,002
24,380,000 11 5/8s, November 15, 2004 32,753,067
40,695,000 5 1/2s, August 15, 2028 42,672,370
U.S. Treasury Notes
3,100,000 5 3/4s, August 15, 2003 3,241,422
14,935,000 5 5/8s, December 31, 2002 15,453,095
U.S. Treasury Notes
94,655,000 5 1/2s, May 31, 2003 97,864,751
1,760,000 5 3/8s, June 30, 2003 1,813,346
88,495,000 4 3/4s, November 15, 2008 89,200,305
228,495,000 4 1/4s, November 15, 2003 225,746,205
--------------
510,334,563
--------------
Total U.S. Government and Agency Obligations
(cost $943,755,760) $1,064,528,892
COLLATERALIZED MORTGAGE OBLIGATIONS (2.5%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
Chase Mortgage Finance Corp.
$ 1,528,243 Ser. 93-3, Class B13, 7.461s, 2024 $ 1,428,555
3,790,000 Ser. 98-S2, Class A14, 6 3/4s, 2028 3,824,347
2,139,706 Chase Mortgage Finance Corp. 144A Ser. 94-G,
Class B2, 7s, 2025 2,110,285
Commercial Mortgage Acceptance Corp.
755,000 Ser. 97-ML1, Class D, 7.11s, 2030 761,606
11,325,000 Ser. 97-ML1, Class A3, 6.57s, 2007 11,861,168
4,010,000 Ser. 97-ML1, Class A2, 6.53s, 2007 4,171,653
14,200,000 Ser. 98-C2, Class A2, 6.03s, 2008 14,361,969
Criimi Mae Commercial Mortgage Trust
17,085,000 Ser. 98-C1, Class A2, 7s, 2011 16,593,806
6,750,000 Ser. 98-C1, Class B, 7s, 2011 6,286,992
First Union-Lehman Brothers Commercial Mortgage Co.
775,000 Ser. 97-C2, Class D, 7.12s, 2012 761,559
1,500,000 Ser. 97-C2, Class A3, 6.65s, 2008 1,580,273
6,000,000 Ser. 98-C2, Class A2, 6.56s, 2008 6,293,906
64,757,572 Ser. 97-C2, Interest Only (IO), 1.092s, 2027 5,294,437
GE Capital Mortgage Services, Inc.
1,206,306 Ser. 94-12, Class B3, 6s, 2009 1,077,382
5,000,000 Ser. 98, Class 2A4, 6 3/4s, 2028 5,056,650
GMAC Commercial Mortgage Securities Inc.
6,510,000 Ser. 98-C1, Class E, 7.153s, 2011 6,473,381
16,853,635 Ser. 98-C2, Class A2, 6.42s, 2008 17,532,389
GS Mortgage Securities Corp. II
2,940,000 Ser. 98-GLII, Class D, 7.191s, 2031 2,870,175
2,050,000 Ser. 98-C1, Class C, 6.91s, 2030 2,099,969
Housing Securities Inc.
788,243 Ser. 91-B, Class B6, 9s, 2006 787,750
1,273,811 Ser. 93-F, Class F9M2, 7s, 2023 1,228,830
238,971 Ser. 93-J, Class J4, 6.66s, 2009 230,084
128,564 Ser. 93-J, Class J5, 6.66s, 2009 106,547
212,028 Ser. 94-1, Class AB1, 6 1/2s, 2009 190,560
Morgan Stanley Capital I
3,000,000 Ser. 96-WF1, Class A2, 7.218s, 2006 3,203,438
1,670,000 Ser. 98-XL1, Class E, 6.989s, 2030 1,652,974
37,545,434 Nationslink Funding Corporation Ser. 98-2, Class X,
IO 0.716s, 2023 1,666,079
Prudential Home Mortgage Securities
2,555,595 Ser. 92-25, Class B3, 8s, 2022 (In default) (NON) 2,568,373
891,229 Ser. 94-A, Class 4B, 7 1/2s, 2007 823,830
3,426,113 Ser. 94-A, Class 4B, 6.803s, 2024 3,332,965
Prudential Home Mortgage Securities 144A
295,989 Ser. 94-31, Class B3, 8s, 2009 281,605
1,603,323 Ser. 95-C, Class B1, 7.681s, 2001 1,600,066
1,151,587 Ser. 95-D, Class 5B, 7.54s, 2024 865,490
1,869,177 Ser. 93-E, Class 5B, 7.394s, 2023 1,594,641
3,312,698 Ser. 93-D, Class 2B, 7.108s, 2023 3,323,050
1,069,372 Ser. 94-D, Class B4, 6.312s, 2009 1,031,944
5,768,800 Residential Asset Securitization Trust Ser. 98-A12, Class A14,
8s, 2028 6,055,437
3,725,000 Residential Funding Mortgage Sec. I Ser. 98-S13, Class A21,
6 3/4s, 2028 3,768,359
Ryland Mortgage Securities Corp.
1,861,871 Ser. 94-7C, Class B1, 7.359s, 2025 1,859,544
1,311,653 Ser. 94-7C, Class B2, 7.359s, 2025 1,339,936
4,104,792 Securitized Asset Sales, Inc. Ser. 93-J, Class 2B, 6.808s, 2023 4,002,173
320,624 Travelers Mortgage Securities Corp. coll. oblig. Ser. 1, Class Z2,
12s, 2014 355,892
--------------
Total Collateralized Mortgage Obligations
(cost $148,136,282) $ 152,310,069
ASSET-BACKED SECURITIES (0.4%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 5,021,848 First Plus Ser. 98-ACl 8 1/2s, 2023 $ 5,131,701
7,605,206 Green Tree Recreational Equipment & Cons Ser. 97-B, Class A1,
6.55s, 2028 7,747,209
5,433,483 Green Tree Recreational Equipment & Cons. Ser. 98-A, Class A1
C, 6.18s, 2019 5,498,642
39,290,000 Lehman Manufactured Housing Ser. 98-1, Class 1 IO,
0.82s, 2028 1,556,252
7,051,937 Sassco Fashions Ser. 98-RF2 8.58s, 2028 7,547,776
--------------
Total Asset-Backed Securities (cost $27,634,934) $ 27,481,580
CONVERTIBLE BONDS AND NOTES (0.4%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 500,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 $ 430,000
170,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 100,513
10,500,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 8,859,375
100,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 71,625
1,000,000 LAM Research Corp. 144A cv. sub. notes 5s, 2002 885,000
8,050,000 Micron Technology, Inc. cv. sub. notes 7s, 2004 10,525,375
8,810,000 Western Digital Corp. 144A cv. sub. deb. zero %, 2018 2,653,974
--------------
Total Convertible Bonds and Notes (cost $21,516,364) $ 23,525,862
CONVERTIBLE PREFERRED STOCKS (0.3%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
3,000 Chancellor Media Corp. $3.00 cv. cum. pfd. $ 348,375
1,675 Chesapeake Energy Corp. 144A $3.50 cv. cum. pfd. 17,169
141,100 El Paso Energy Capital Trust $2.375 cv. pfd. 6,772,800
209,000 K mart Financing $3.875 cum. cv. pfd. 13,114,750
--------------
Total Convertible Preferred Stocks (cost $18,723,071) $ 20,253,094
PREFERRED STOCKS (0.3%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
5,159 AmeriKing, Inc. $3.25 pfd. (PIK) $ 136,714
38 Anvil Holdings Ser. B, $3.25 pfd. (PIK) 380
27,755 California Federal Bancorp Inc. Ser. A, $2.281 pfd. 728,569
676 Capstar Broadcasting Inc. 144A $12.00 pfd. (PIK) 79,768
882 Capstar Communications, Inc. Ser. E, $12.625 cum. pfd. (PIK) 105,840
7,135 Centaur Funding Corp 144A $9.08 pfd. 8,133,686
16,637 CGA Group Ltd. 144A Ser. A, $13.75 pfd. (PIK) 465,836
6,155 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. (PIK) 307,750
3,054 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 352,737
156 El Paso Electric Co. $11.40 pfd (PIK) 16,458
7,466 Nextlink Communications, Inc. 144A $7.00 cum. pfd. (PIK) 369,567
81 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 704,700
12,371 Public Service Co. of New Hampshire $2.651 1st mtge. pfd. 321,646
78,024 TCR Holding Corp. 0.00%, pfd. 4,369
6,775 Webster Financial $7.375 pfd. 6,512,470
--------------
Total Preferred Stocks (cost $17,442,254) $ 18,240,490
FOREIGN GOVERNMENT BONDS AND NOTES (0.3%) (a) (cost $15,974,428)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 14,750,000 Quebec (Province of) deb. Ser. NN, 7 1/8s, 2024 $ 16,194,763
WARRANTS (--%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
16,000 CGA Group Ltd. 144A 1/1/04 $ 320
685 Club Regina, Inc. 144A 12/1/04 685
210 Colt Telecommunications Group PLC 12/31/06 115,500
2,430 Diva Systems Corp. 3/1/08 36,450
8,875 DTI Holdings Inc. 3/1/08 444
1,110 Epic Resorts 6/15/05 11
205 Esat Holdings, Inc. (Ireland) 2/1/07 13,838
250 Intermedia Communications 6/1/00 8,813
560 KMC Telecom Holdings, Inc. 4/15/08 1,400
470 Knology Holdings, Inc. 144A 10/15/07 705
630 Long Distance International, Inc. 144A 4/13/08 1,575
180 McCaw International Ltd. 4/15/07 720
430 Mediq Inc. 144A 6/1/09 4
150 Onepoint Communications, Inc. 6/1/08 150
450 Pathnet, Inc. 144A 4/15/08 4,500
960 Powertel, Inc. 2/1/06 3,840
3,680 Rhythms Netcon 144A 5/15/08 73,600
390 STARTEC Global Communications Corp. 5/15/08 390
625 UIH Australia/Pacific, Inc. 144A 5/15/06 625
270 Versatel Teleco 144A 5/15/08 2,700
--------------
Total Warrants (cost $126,634) $ 266,270
SHORT-TERM INVESTMENTS (6.1%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 50,000,000 Associates Corp. of North America effective yield of 4.8%,
February 1, 1999 $ 49,980,000
25,000,000 Corporate Receivables Corp. effective yield of 5.28%,
February 10, 1999 24,967,000
50,000,000 Federal National Mortgage Association effective yield of 5.04%,
February 19, 1999 49,874,000
6,225,000 Lehman Bros Holdings, Inc. med. term notes 6.4s, 1999 6,272,746
50,000,000 Metlife Funding Inc. effective yield of 4.81%, March 2, 1999 49,806,264
50,000,000 National Australia Funding (DE) Inc. effective yield of 5.17%,
February 2, 1999 49,959,583
30,000,000 National Rural Utilities Cooperative Finance Corp.
effective yield of 5.04%, March 29, 1999 29,776,000
25,000,000 Sheffield Receivables Corp. effective yield of 4.87%,
February 11, 1999 24,966,181
2,000,000 Society Bank & Trust notes 12 1/2s, July 15, 1999 2,060,000
30,000,000 Windmill Funding Corp. effective yield of 4.86%,
March 24, 1999 29,793,450
9,140,000 Interest in $650,000,000 joint repurchase agreement dated
January 29, 1999 with Goldman Sachs & Co. due
February 1, 1999 with respect to various U.S. Treasury
obligations -- maturity value of $9,143,587 for an effective
yield of 4.71% 9,140,000
45,374,000 Interest in $308,920,000 joint repurchase agreement dated
January 29, 1999 with Credit Suisse First Boston due
February 1, 1999 with respect to various U.S. Treasury
obligations -- maturity value of $45,391,696 for an effective
yield of 4.68% 45,374,000
--------------
Total Short-Term Investments (cost $362,853,557) $ 371,969,224
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $5,780,801,888) (b) $6,346,790,886
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $6,136,695,989.
(b) The aggregate identified cost on a tax basis is $5,783,328,968, resulting in gross unrealized appreciation and
depreciation of $794,591,445 and $231,129,527, respectively, or net unrealized appreciation of $563,461,918.
(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.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities
held at January 31, 1999 was $536,559 or less than 0.1% of net assets.
(PIK) Income may be received in cash or additional securities at the discretion of the issuer.
(SEG) This security was pledged and segregated with the custodian to cover margin requirements for futures
contracts January 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 Depository Receipts representing ownership of
foreign securities on deposit with a domestic custodian bank.
TBA after the name of a security represents to be announced securities (Note 1).
- -------------------------------------------------------------------------------
Forward Currency Contracts to Buy at January 31, 1999 (Unaudited)
Aggregate Face Delivery Unrealized
Market Value Value Date Depreciation
- -------------------------------------------------------------------------------
Deutschemarks $66,537,560 $68,501,951 2/17/99 $(1,964,391)
- -------------------------------------------------------------------------------
Forward Currency Contracts to Sell at January 31, 1999 (Unaudited)
Market Aggregate Face Delivery Unrealized
Value Value Date Appreciation
- -------------------------------------------------------------------------------
Deutschemarks $65,145,028 $67,055,637 2/17/99 $1,910,609
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at January 31, 1999 (Unaudited)
Aggregate Face Expiration Unrealized
Total Value Value Date Appreciation
- -------------------------------------------------------------------------------
U.S. Treasury 20 year
Bonds (long) $33,792,000 $33,703,428 Mar-99 $88,572
- -------------------------------------------------------------------------------
TBA Sales Commitments at January 31, 1999 (Unaudited)
(premium received $41,238,300)
Principal Settlement Market Unrealized
Description Amount Date Value Appreciation
- -------------------------------------------------------------------------------
GNMA, 6 1/2s,
February 2029 $40,753,000 Feb-99 $41,211,471 $26,829
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
January 31, 1999 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $5,780,801,888) (Note 1) $6,346,790,886
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 36,906,822
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 17,747,446
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 145,451,798
- -----------------------------------------------------------------------------------------------
Receivable for variation margin 49,500
- -----------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 1,910,609
- -----------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 114,890
- -----------------------------------------------------------------------------------------------
Total assets 6,548,971,951
Liabilities
- -----------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 5,051,717
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 342,772,617
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 10,501,782
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 7,110,061
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 790,247
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 75,789
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,765
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 2,249,325
- -----------------------------------------------------------------------------------------------
Payable for open forward currency contracts 1,964,391
- -----------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 84,496
- -----------------------------------------------------------------------------------------------
TBA sale commitments at value (proceeds received $41,238,300) 41,211,471
- -----------------------------------------------------------------------------------------------
Other accrued expenses 461,301
- -----------------------------------------------------------------------------------------------
Total liabilities 412,275,962
- -----------------------------------------------------------------------------------------------
Net assets $6,136,695,989
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $5,435,414,410
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (11,278,128)
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 146,429,466
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 566,130,241
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $6,136,695,989
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($3,822,527,007 divided by 209,814,226 shares) $18.22
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $18.22)* $19.33
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,495,483,710 divided by 82,793,968 shares)** $18.06
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($282,798,232 divided by 15,653,495 shares) $18.07
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.5 of $18.07)* $18.73
- -----------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($535,887,040 divided by 29,354,824 shares) $18.26
- -----------------------------------------------------------------------------------------------
* 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
Six months ended January 31, 1999 (Unaudited)
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends $ 36,869,158
- -----------------------------------------------------------------------------------------------
Interest (net of foreign tax of $2,430) 79,021,830
- -----------------------------------------------------------------------------------------------
Total investment income 115,890,988
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 13,570,049
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 4,949,703
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 35,179
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 16,829
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 4,394,162
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 6,847,868
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 1,052,937
- -----------------------------------------------------------------------------------------------
Reports to shareholders 77,535
- -----------------------------------------------------------------------------------------------
Registration fees 255,154
- -----------------------------------------------------------------------------------------------
Auditing 55,487
- -----------------------------------------------------------------------------------------------
Legal 12,110
- -----------------------------------------------------------------------------------------------
Postage 264,420
- -----------------------------------------------------------------------------------------------
Other 207,726
- -----------------------------------------------------------------------------------------------
Total expenses 31,739,159
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (709,064)
- -----------------------------------------------------------------------------------------------
Net expenses 31,030,095
- -----------------------------------------------------------------------------------------------
Net investment income 84,860,893
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 122,701,234
- -----------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Notes 1) 1,874,058
- -----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (875,177)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the period (910,905)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures contracts,
and TBA sale commitments during the period 82,801,764
- -----------------------------------------------------------------------------------------------
Net gain on investments 205,590,974
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $290,451,867
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
January 31 July 31
-------------------------------
1999* 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 84,860,893 $ 140,876,649
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 123,700,115 454,484,734
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments
and assets and liabilities in foreign currencies 81,890,859 (174,363,842)
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 290,451,867 420,997,541
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (55,437,230) (93,857,434)
- ---------------------------------------------------------------------------------------------------------------
Class B (17,017,510) (26,582,497)
- ---------------------------------------------------------------------------------------------------------------
Class M (3,789,389) (6,420,081)
- ---------------------------------------------------------------------------------------------------------------
Class Y (8,075,093) (14,256,392)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (226,174,800) (173,044,314)
- ---------------------------------------------------------------------------------------------------------------
Class B (90,083,420) (63,051,883)
- ---------------------------------------------------------------------------------------------------------------
Class M (18,265,793) (14,653,375)
- ---------------------------------------------------------------------------------------------------------------
Class Y (30,082,203) (25,075,114)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 853,514,041 1,397,644,938
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 695,040,470 1,401,701,389
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 5,441,655,519 4,039,954,130
- ---------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess
of net investment income of $11,278,128 and
$11,819,799, respectively) $6,136,695,989 $5,441,655,519
- ---------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share January 31
operating performance (Unaudited) Year ended July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $18.82 $18.95 $15.82 $14.90 $13.52 $14.24
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .29(c) .60 .60(c) .63 .63 .59
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .61 1.08 4.11 1.50 1.63 (.11)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .90 1.68 4.71 2.13 2.26 .48
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.30) (.60) (.67) (.58) (.56) (.58)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.20) (1.21) (.91) (.63) (.32) (.62)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.50) (1.81) (1.58) (1.21) (.88) (1.20)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.22 $18.82 $18.95 $15.82 $14.90 $13.52
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 5.04* 9.53 31.52 14.75 17.73 3.46
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,822,527 $3,387,620 $2,607,562 $1,515,260 $1,036,674 $913,171
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .47* 1.00 1.06 .95 .91 .95
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.61* 3.11 3.51 4.07 4.58 4.15
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 66.91* 126.19 134.80 119.44 102.57 100.69
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share January 31
operating performance (Unaudited) Year ended July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $18.67 $18.82 $15.74 $14.83 $13.46 $14.19
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .22(c) .46 .46(c) .51 .52 .50
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .60 1.07 4.08 1.50 1.63 (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .82 1.53 4.54 2.01 2.15 .38
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.23) (.47) (.55) (.47) (.46) (.49)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.20) (1.21) (.91) (.63) (.32) (.62)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.43) (1.68) (1.46) (1.10) (.78) (1.11)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.06 $18.67 $18.82 $15.74 $14.83 $13.46
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 4.63* 8.72 30.46 13.97 16.87 2.70
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,495,484 $1,305,897 $888,666 $435,278 $224,166 $151,327
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .85* 1.75 1.81 1.71 1.66 1.71
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.24* 2.37 2.74 3.31 3.81 3.39
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 66.91* 126.19 134.80 119.44 102.57 100.69
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share January 31 Dec. 1, 1994+
operating performance (Unaudited) 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 .24(c) .51 .53(c) .55 .31
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .61 1.06 4.06 1.50 2.03
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .85 1.57 4.59 2.05 2.34
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.25) (.51) (.60) (.52) (.27)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.20) (1.21) (.91) (.63) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.45) (1.72) (1.51) (1.15) (.27)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.07 $18.67 $18.82 $15.74 $14.84
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 4.81* 8.98 30.83 14.26 18.52*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $282,798 $276,962 $187,475 $49,541 $8,164
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .72* 1.50 1.56 1.50 .93*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.37* 2.62 3.05 3.50 2.53*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 66.91* 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share January 31 April 1, 1994+
operating performance (Unaudited) Year ended July 31 to July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $18.85 $18.98 $15.85 $14.92 $13.54 $13.21
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .31(c) .64 .64(c) .68 .66 .17
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .62 1.09 4.11 1.50 1.63 .31
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .93 1.73 4.75 2.18 2.29 .48
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.32) (.65) (.71) (.62) (.59) (.15)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.20) (1.21) (.91) (.63) (.32) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.52) (1.86) (1.62) (1.25) (.91) (.15)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.26 $18.85 $18.98 $15.85 $14.92 $13.54
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 5.21* 9.79 31.78 15.09 18.00 3.65*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $535,887 $471,176 $356,251 $207,508 $153,597 $71,566
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .35* .75 .81 .70 .66 .25*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.74* 3.37 3.74 4.33 4.78 1.34*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 66.91* 126.19 134.80 119.44 102.57 100.69
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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
January 31, 1999 (Unaudited)
Note 1
Significant accounting policies
The George Putnam Fund of Boston (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund seeks to provide a balanced
investment composed of a well-diversified portfolio of stocks and bonds
which will produce both capital growth and current income.
The fund offers class A, class B, class M and class Y shares. Class A
shares are sold with a maximum front-end sales charge of 5.75%. Class B
shares, which convert to class A shares after approximately eight years,
do not pay a front-end sales charge but pay a higher ongoing distribution
fee than class A shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class M
shares are sold with a maximum front end sales charge of 3.50% and pay an
ongoing distribution fee that is higher than class A shares but lower than
class B shares. Class Y shares, which are sold at net asset value, are
generally subject to the same expenses as class A shares, class B 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). 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 six months
ended January 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.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations.
Note 2
Management fee, administrative
services, and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
Such fee is based on the following annual rates: 0.65% of the first $500
million of average net assets, 0.55% of the next $500 million, 0.50% of
the next $500 million, 0.45% of the next $5 billion, 0.425% of the next $5
billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion, and
0.38% thereafter.
As part of the subcustodian contract between the subcustodian bank and
Putnam Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc., the subcustodian bank has a lien on the securities of
the fund to the extent permitted by the fund's investment restrictions to
cover any advances made by the subcustodian bank for the settlement of
securities purchased by the fund. At January 31, 1999, the payable to the
subcustodian bank represents the amount due for cash advance for the
settlement of a security purchased.
The fund reimburses Putnam Management 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 PFTC. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the six months ended January 31, 1999, fund expenses were reduced by
$709,064 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 $3,380
has been allocated to the fund, and an additional fee for each Trustee's
meeting attended. Trustees who are not interested persons of Putnam
Management and who serve on committees of the Trustees receive additional
fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
in the fund and are invested in certain Putnam funds until distribution in
accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as Trustee for at least five years. Benefits under the Pension Plan
are equal to 50% of the Trustee's average total retainer and meeting fees
for the three years preceding retirement. Pension expense for the fund is
included in Compensation of Trustees in the Statement of operations.
Accrued pension liability is included in Payable for compensation of
Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to compensate
Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments
Inc., for services provided and expenses incurred by it in distributing
shares of the fund. The Plans provide for payments by the fund to Putnam
Mutual Funds Corp. at an annual rate up to 0.35%, 1.00% and 1.00% of the
average net assets attributable to class A, class B and class M shares,
respectively. The Trustees have approved payment by the fund to an annual
rate of 0.25%, 1.00% and 0.75% of the average net assets attributable to
class A, class B and class M shares, respectively.
For the six months ended January 31, 1999, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $1,042,337 and $33,832
from the sale of class A and class M shares, respectively and $999,389 in
contingent deferred sales charges from redemptions of class B shares. A
deferred sales charge of up to 1% is assessed on certain redemptions of
class A shares. For the six months ended January 31, 1999, Putnam Mutual
Funds Corp., acting as underwriter received $12,980 on class A
redemptions.
Note 3
Purchase and sales of securities
During the six months ended January 31, 1999, purchases and sales of
investment securities other than U.S. government obligations and
short-term investments aggregated $2,694,289,127 and $2,391,839,007,
respectively. Purchases and sales of U.S. government obligations
aggregated $1,317,476,871 and $1,218,076,972, respectively. In determining
the net gain or loss on securities sold, the cost of securities has been
determined on the identified cost basis.
Note 4
Capital shares
At January 31, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
January 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 36,453,501 $ 655,769,937
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 14,831,078 263,559,286
- -----------------------------------------------------------------------------
51,284,579 919,329,223
Shares
repurchased (21,518,937) (388,022,581)
- -----------------------------------------------------------------------------
Net increase 29,765,642 $ 531,306,642
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Six months ended
January 31, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 16,655,486 $ 298,447,414
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 5,717,688 100,866,307
- -----------------------------------------------------------------------------
22,373,174 399,313,721
Shares
repurchased (9,541,481) (169,944,328)
- -----------------------------------------------------------------------------
Net increase 12,831,693 $ 229,369,393
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Six months ended
January 31, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,786,778 $ 49,920,729
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,231,128 21,712,483
- -----------------------------------------------------------------------------
4,017,906 71,633,212
Shares
repurchased (3,202,817) (57,418,682)
- -----------------------------------------------------------------------------
Net increase 815,089 $ 14,214,530
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Six months ended
January 31, 1999
- -----------------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------------
Shares sold 6,608,252 $119,864,151
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,142,783 38,157,296
- -----------------------------------------------------------------------------
8,751,035 158,021,447
Shares
repurchased (4,396,570) (79,397,971)
- -----------------------------------------------------------------------------
Net increase 4,354,465 $ 78,623,476
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
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
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Thomas V. Reilly
Vice President
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
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of The George Putnam
Fund of Boston. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and
the most recent copy of Putnam's Quarterly Performance Summary. For more
information or to request a prospectus, call toll free: 1-800-225-1581.
You can also learn more at Putnam Investments' website:
http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution; are not insured by the Federal
Deposit Insurance Corporation (FDIC), the Federal Reserve Board, or any
other agency; and involve risk, including the possible loss of the
principal amount invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
www.putnaminv.com
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
SA021 49940 001/880/242/ 3/99
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- --------------------------------------------------------------------------
The George Putnam Fund of Boston
Supplement to Semiannual Report dated 1/31/99
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 1/31/99 NAV
6 months 5.21%
1 year 11.71
5 years 101.21
Annual average 15.01
10 years 253.88
Annual average 13.47
Life of fund, annual average
(since class A inception 11/15/37) 10.02
- --------------------------------------------------------------------------
Share value: NAV
7/31/98 $18.85
1/31/99 $18.26
Current dividend rate 3.58%
Current 30-day SEC yield 3.16%
- --------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
2 $0.323 $1.199 $1.522
- --------------------------------------------------------------------------
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.
