The George
Putnam
Fund of
Boston
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
1-31-00
[SCALE LOGO OMITTED]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The markets continued to provide their share of challenges and
opportunities as your fund closed its books on the first half of fiscal
2000. In the following report, the fund's managers discuss performance for
the period and prospects for the months ahead.
This is the last letter to you and the other shareholders of The George
Putnam Fund of Boston that I will be signing. After more than 30 years as
Chairman of the Trustees and President of the Putnam Funds, the time has
come for me to step aside. In June, John Hill will become Chairman. John
is currently an independent Trustee and has served on the board for the
past 14 years. In addition, my son, George Putnam, III, will take on the
role of President. I am confident that the leadership of the funds will be
in exceptionally strong hands.
I will become Chairman Emeritus, remain a Putnam shareholder, and stay in
close touch with the funds. It has been my privilege to serve you.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
March 15, 2000
Report from the Fund Managers
Edward P. Bousa
James M. Prusko
In the first half of The George Putnam Fund of Boston's 2000 fiscal year,
which began on August 1, 1999, there was a vast divergence in sector
performance throughout the stock market. While most sectors made only
modest gains, technology stocks experienced a rally of historic
proportions. For your fund, the period was a bit disappointing because our
selection strategy emphasizes undervalued stocks and many of these
declined during the period. Meanwhile, the bond portion of your fund,
which represented about a third of assets, struggled in the face of
steadily rising interest rates.
Total return for 6 months ended 1/31/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- ---------------------------------------------------------------------------
-6.07% -11.48% -6.43% -10.73% -6.39% -7.25% -6.25% -9.51%
- ---------------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods and explanation of performance calculation
methods begin on page 6.
* SECTORS DIVERGE WIDELY IN SEMIANNUAL PERIOD
During the past six months, strong economic growth continued around the
world and the United States completed its ninth consecutive year without a
recession. Growth in the United States was so strong that it caused fears
of inflation. The bond market weakened in response, and the Federal
Reserve Board raised interest rates two additional times, following an
initial rate increase in June 1999.
These conditions contributed to a divergence among market sectors.
Companies in the basic materials and energy sectors, for instance,
benefited from demand for their products, which are the raw materials of
industrial economies. Fortunately your fund had a sizable representation
of such stocks. An example is Minnesota Mining and Manufacturing (3M), a
diversified conglomerate with operations in 90 countries. 3M enjoyed an
impressive surge in revenues as global economic growth accelerated, and
its stock rallied during the period. Although this holding, as well as
others mentioned in this report, was 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.
[GRAPHIC OMITTED: horizontal bar chart COMPARATIVE PORTFOLIO COMPOSITION]
COMPARATIVE PORTFOLIO COMPOSITION*
1/31/2000 7/31/99
Common stocks 60.3% 60.9%
Corporate bonds
and notes 23.0% 18.2%
U.S. government
and agency securities 11.6% 15.8%
Foreign government
bonds and notes 0.3% 0.2%
Collateralized
mortgage obligations 3.2% 1.7%
Convertible and
preferred securities 0.4% 0.7%
Cash and other 1.8% 4.5%
Footnote reads:
*Based on percentage of net assets. The balances of the portfolio on dates
listed were invested in cash and short-term securities. Portfolio
allocation will vary over time.
At the same time, the Fed's efforts to pull in the reins on business and
consumer spending had a detrimental effect on other sectors in which the
fund had large positions. Rising short-term interest rates began to slow
construction activity, hurting holdings like Caterpillar (which we have
since sold), and diminished market enthusiasm for companies that sell
large consumer durables, such as home appliances and automobiles. The
rapid increase in short-term interest rates also began to raise doubts
regarding the earnings of large banks, which underperformed the broader
market in the period.
While short-term conditions influenced most sectors, the technology sector
became a world unto itself. In this world, investors are convinced that a
new industrial revolution is underway and believe that computers,
telecommunications, and the Internet can stimulate a huge jump in
productivity in the way that the steam engine issued in a new age of
machine-driven productivity. This conviction has caused the market to bid
the prices of most technology companies to stratospheric levels. Sticking
with our value discipline, we sold fund holdings benefiting from this
rally when we considered them no longer undervalued. When such high-priced
equities disappoint investors, they typically fall sharply. By avoiding
these risks, we strive to provide steadier, if somewhat less exciting,
performance over time.
* INTERNAL CHANGES BOOST NEW HOLDINGS
When we analyze stocks, we look for more than an attractive price. We want
to own companies that are undertaking positive changes that can keep them
competitive and increase their earnings in the future. One type of
positive change is embracing technology to cut costs or increase
productivity. Another type of change is organizational, such as a
restructuring, an acquisition, or a merger.
Hewlett-Packard provides an excellent example of a changing company. We
bought this stock during the semiannual period and it subsequently
performed quite well. Founded in the 1930s, Hewlett-Packard has remained
competitive over the decades thanks to its technological capabilities and
clever product strategies. In the 1980s and 1990s, Hewlett-Packard
shrewdly focused on making reliable computer printers and grew to dominate
this market, which has more attractive profit margins than the PC market.
Internet use has further increased demand for printers and other
peripherals. Another indication of Hewlett-Packard's willingness to change
was its decision to hire a new chief executive officer from outside the
company. Carly Fiorina, who spearheaded Lucent Technologies' Internet
strategy, is now positioning Hewlett-Packard to seize Internet
opportunities and the stock has already appreciated strongly.
"Some experts argue that investors should now focus on value funds because the
group has been out of favor."
- -- Individual Investor, November 1999
The heritage of The George Putnam Fund of Boston
The George Putnam Fund of Boston has helped define balanced investing for more
than 60 years. Launched in 1937, it was one of the first balanced funds,
investing in an array of stocks and bonds. The founder of what became Putnam
Investments wanted his namesake fund to provide shareholders a completely
diversified portfolio intended to achieve capital appreciation and provide
income in a variety of market conditions. His vision was a fund that offered a
balanced investment with stocks for growth, bonds for income, and cash for
stability. We still take this responsibility of stewardship very seriously,
recognizing that the money entrusted to our care represents not dollars alone
but past sacrifices and future hopes. This commitment to prudence continues to
underscore the management of the fund.
We also added BP Amoco during the period and though it lost ground in
January, it performed well in the fourth quarter. This company is the
product of one of the first cross-border mergers in the oil industry.
Management has been extremely aggressive in cutting costs. We were able to
add the stock at what we considered an attractive price when the company's
plans to acquire Atlantic Richfield (ARCO) encountered opposition from
federal regulators. We believe that the company will be well positioned
whether the ARCO acquisition is approved or not.
* INTEREST RATES BURDEN BONDS
The accelerating economy generally pushed down bond prices. Treasuries,
the bonds most sensitive to interest rates, continued to be the worst
performers in the fixed-income market as they were earlier in 1999.
Fortunately we had underweighted Treasuries while overweighting commercial
mortgage-backed bonds. Rising rates make mortgages relatively more
attractive because they diminish the risk that homeowners will pay off
their mortgages early through refinancing arrangements. With diminishing
prepayment risk, mortgage prices remained fairly firm.
The fund also had a slight overweighting in corporate bonds, which also
had an advantage over Treasuries. Early in the period, corporates
struggled a bit because many companies were issuing bonds to fill their
coffers in case of any Y2K problems. By the fourth quarter, however, these
concerns had abated, and with slower issuance, corporate bond prices
firmed. Our small position in high-yield corporate debt achieved perhaps
the best relative performance in the bond portfolio. Prices in this market
strengthened because of investor confidence in the many technology,
telecommunications, media, and cable television companies that issue
high-yield debt.
At the close of the period, we believe that the fundamental situation in
the bond market is positive. Long-term rates are falling in part because
the federal government is scaling down the public debt. Declining
long-term rates are good for the economy, and rising short-term rates help
to diminish fears of inflation.
* INVESTMENT CLIMATE APPEARS UPBEAT
We have described above many of the positive features of the securities we
own in the fund and the supportive economic background. We are confident
that these should translate into better performance for the fund in coming
months. Rising interest rates turned the past six months into an uphill
climb for the fund, but the road ahead seems more favorable. The companies
in the portfolio are achieving generally strong operating results. As the
economy slows and interest rates stabilize, it will take a lot of pressure
off many holdings, both stocks and bonds, and enable them to appreciate as
our analysis suggests they should. The fund's balanced approach is well
positioned to achieve a blend of capital growth and current income.
[GRAPHIC OMITTED: TOP 10 EQUITY HOLDINGS]
TOP 10 EQUITY HOLDINGS
Exxon Mobil
Oil and gas
SBC Communications
Telecommunications
AT&T
Telecommunications
Citigroup
Insurance and finance
Hewlett-Packard
Computers
Bell Atlantic
Telecommunications
IBM
Computers
GTE
Telecommunications
Fannie Mae
Financials
Bank of America
Financials
Footnote reads:
These holdings represent 13.2% of the fund's net assets as of 1/31/00.
Portfolio holdings will vary over time.
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 1/31/00, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
This section provides information about your fund's performance, which should
always be considered in light of its investment strategy. The George Putnam
Fund of Boston is designed for investors seeking capital growth and current
income.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 1/31/00
Class A Class B Class C Class M
(inception dates) (11/5/37) (4/27/92) (7/26/99) (12/1/94)
NAV POP NAV CDSC NAV CDSC NAV POP
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6 months -6.07% -11.48% -6.43% -10.73% -6.39% -7.25% -6.25% -9.51%
- -----------------------------------------------------------------------------------------------
1 year -3.12 -8.69 -3.81 -8.18 -3.78 -4.65 -3.57 -6.97
- -----------------------------------------------------------------------------------------------
5 years 93.61 82.43 86.43 84.43 86.49 86.49 88.78 82.15
Annual average 14.13 12.78 13.27 13.02 13.27 13.27 13.55 12.74
- -----------------------------------------------------------------------------------------------
10 years 200.89 183.69 179.23 179.23 179.08 179.08 185.62 175.62
Annual average 11.65 10.99 10.81 10.81 10.81 10.81 11.07 10.67
- -----------------------------------------------------------------------------------------------
Annual average
(life of fund) 9.77 9.66 8.71 8.71 8.94 8.94 8.98 8.92
- -----------------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 1/31/00
Standard & Lehman Bros.
Poor's 500 Govt./Corp. Consumer
Index Bond Index* price index
- ----------------------------------------------------------------------------
6 months 5.59% 0.37% 1.44%
- ----------------------------------------------------------------------------
1 year 10.35 -2.88 2.67
- ----------------------------------------------------------------------------
5 years 225.05 41.49 12.28
Annual average 26.59 7.19 2.34
- ----------------------------------------------------------------------------
10 years 442.42 111.91 32.73
Annual average 18.43 7.80 2.87
- ----------------------------------------------------------------------------
Annual average
(life of fund) 12.63 N/A 4.01
- ----------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A and class M
shares reflect the current maximum initial sales charges of 5.75% and
3.50%, respectively. Class B share returns for the 1-, 5-, 10-year and
life-of-fund periods reflect the applicable contingent deferred sales
charge (CDSC), which is 5% in the first year, declines to 1% in the sixth
year, and is eliminated thereafter. Returns shown for class B and class M
shares for periods prior to their inception are derived from the
historical performance of class A shares, adjusted to reflect both the
initial sales charge or CDSC, if any, currently applicable to each class
and in the case of class B and class M shares the higher operating
expenses applicable to such shares. For class C shares, returns for
periods prior to their inception are derived from the historical
performance of class A shares, adjusted to reflect both the CDSC currently
applicable to class C shares, which is 1% for the first year and is
eliminated thereafter, and the higher operating expenses applicable to
class C shares. All returns assume reinvestment of distributions at NAV.
Investment return and principal value will fluctuate so that an investor's
shares when redeemed may be worth more or less than their original cost.
*Inception date of index was 12/31/72, after the fund's inception.
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 1/31/00
Class A Class B Class C Class M
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distributions (number) 2 2 2 2
- ---------------------------------------------------------------------------------------
Income $0.300 $0.232 $0.281 $0.255
- ---------------------------------------------------------------------------------------
Capital gains
Long-term 1.060 1.060 1.060 1.060
- ---------------------------------------------------------------------------------------
Short-term 0.166 0.166 0.166 0.166
- ---------------------------------------------------------------------------------------
Total $1.526 $1.458 $1.507 $1.481
- ---------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- ---------------------------------------------------------------------------------------
7/31/99 $18.49 $19.62 $18.33 $18.49 $18.33 $18.99
- ---------------------------------------------------------------------------------------
1/31/00 15.91 16.88 15.76 15.87 15.77 16.34
- ---------------------------------------------------------------------------------------
Current return (end of period)
- ---------------------------------------------------------------------------------------
Current dividend rate1 3.77% 3.55% 2.94% 3.32% 3.25% 3.13%
- ---------------------------------------------------------------------------------------
Current 30-day
SEC yield2 3.75 3.53 3.00 3.00 3.25 3.06
- ---------------------------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided by NAV or POP at
end of period.
2Based on investment income, calculated using SEC guidelines.
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 12/31/99 (most recent calendar quarter)
Class A Class B Class C Class M
(inception dates) (11/5/37) (4/27/92) (7/26/99) (12/1/94)
NAV POP NAV CDSC NAV CDSC NAV POP
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6 months -6.22% -11.63% -6.63% -10.91% -6.58% -7.44% -6.50% -9.77%
- -----------------------------------------------------------------------------------------------
1 year 0.12 -5.64 -0.68 -5.18 -0.61 -1.51 -0.44 -3.92
- -----------------------------------------------------------------------------------------------
5 years 102.72 91.03 95.10 93.10 95.26 95.26 97.42 90.48
Annual average 15.18 13.82 14.30 14.07 14.32 14.32 14.57 13.75
- -----------------------------------------------------------------------------------------------
10 years 194.17 177.27 172.79 172.79 172.75 172.75 179.05 169.32
Annual average 11.39 10.74 10.56 10.56 10.55 10.55 10.81 10.41
- -----------------------------------------------------------------------------------------------
Annual average
(life of fund) 9.82 9.72 8.76 8.76 9.00 9.00 9.04 8.98
- -----------------------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns and principal value will fluctuate so that an investor's shares
when sold may be worth more or less than their original cost. See first
page of performance section for performance calculation method.
</TABLE>
Terms and definitions
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class C shares are not subject to an initial sales charge and are subject
to a contingent deferred sales charge only if the shares are redeemed
during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 5.75% maximum sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B or C shares and assumes redemption at the end of
the period. Your fund's class B CDSC declines from a 5% maximum during the
first year to 1% during the sixth year. After the sixth year, the CDSC no
longer applies. The CDSC for class C shares is 1% for one year after
purchase.
Comparative benchmarks
Standard & Poor's 500 Composite Stock Price 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.
A guide to the financial statements
These sections of the report constitute the fund's financial
statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed here
may not match the sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-end funds, a separate
table is provided for each share class.
<TABLE>
<CAPTION>
The fund's portfolio
January 31, 2000 (Unaudited)
COMMON STOCKS (60.3%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Aerospace and Defense (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
819,100 Boeing Co. $ 36,296,369
580,600 Raytheon Co. Class B 13,244,938
--------------
49,541,307
Airlines (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
344,800 Delta Air Lines, Inc. 15,968,550
411,900 FedEx Corp. (NON) 16,295,794
210,300 UAL Corp. (NON) 12,013,388
--------------
44,277,732
Automotive (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
729,300 Ford Motor Co. 36,282,675
222,900 General Motors Corp. 17,929,519
--------------
54,212,194
Banking (6.7%)
- --------------------------------------------------------------------------------------------------------------------------
1,173,126 Bank of America Corp. 56,823,291
460,236 Bank One Corp. 13,720,786
1,058,100 BB&T Corp. 29,759,063
1,079,700 Charter One Financial, Inc. 20,986,669
598,600 Chase Manhattan Corp. 48,149,888
710,900 Comerica, Inc. 31,412,894
148,400 Firstar Corp. 3,543,792
943,397 FleetBoston Financial Corp. 29,658,043
572,800 Mellon Financial Corp. 19,654,200
148,300 Morgan (J.P.) & Co., Inc. 18,213,094
733,900 National City Corp. 15,870,588
623,000 PNC Bank Corp. 29,904,000
910,550 Synovus Financial Corp. 17,300,450
877,000 U.S. Bancorp 19,458,438
601,900 Washington Mutual, Inc. 15,273,213
473,300 Wells Fargo Co. 18,932,000
--------------
388,660,409
Beverage (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
170,300 Anheuser-Busch Cos., Inc. 11,495,250
797,300 Fortune Brands, Inc. 23,121,700
1,298,400 Pepsi Bottling Group, Inc. (The) 26,860,650
--------------
61,477,600
Capital Goods (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
313,100 Eaton Corp. 22,367,081
Chemicals (3.1%)
- --------------------------------------------------------------------------------------------------------------------------
284,000 Dow Chemical Co. 33,086,000
316,948 du Pont (E.I.) de Nemours & Co., Ltd. 18,699,932
204,800 Eastman Chemical Co. 8,166,400
922,500 Engelhard Corp. 14,702,344
384,400 Minnesota Mining & Manufacturing Co. 35,989,450
488,100 Monsanto Co. 17,236,031
498,600 PPG Industries, Inc. 27,454,163
215,900 Praxair, Inc. 8,757,444
347,500 Rohm & Haas Co. 14,681,875
--------------
178,773,639
Commercial and Consumer Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
812,800 Service Corp. International 3,708,400
Computers (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
609,000 Hewlett-Packard Co. 65,924,250
539,500 IBM Corp. 60,525,156
--------------
126,449,406
Conglomerates (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
161,500 Tyco International Ltd. 6,904,125
Consumer Goods (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
551,900 Kimberly-Clark Corp. 34,183,306
Distribution (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
733,200 SYSCO Corp. 26,074,425
Electric Utilities (3.5%)
- --------------------------------------------------------------------------------------------------------------------------
661,500 Carolina Power & Light Co. 21,333,375
609,100 CiNergy Corp. 15,151,363
1,248,600 DPL, Inc. 23,957,513
818,400 Duke Energy Corp. 47,262,600
1,089,700 Entergy Corp. 27,174,394
1,286,200 OGE Energy Corp. 26,125,938
637,900 Pacific Gas & Electric Co. 13,993,931
44,700 Reliant Energy, Inc. 1,019,607
805,500 Texas Utilities Co. 28,494,563
--------------
204,513,284
Electrical Equipment (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
657,400 Emerson Electric Co. 36,198,088
Electronics (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
313,900 Motorola, Inc. 42,925,825
435,200 W W Grainger 20,862,400
--------------
63,788,225
Energy (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
544,400 Baker Hughes, Inc. 13,405,850
343,200 Halliburton Co. 12,355,200
--------------
25,761,050
Financial (3.2%)
- --------------------------------------------------------------------------------------------------------------------------
829,300 Associates First Capital Corp. 16,586,000
300,800 Capital One Financial Corp. 12,332,800
1,282,025 Citigroup, Inc. 73,636,311
948,400 Fannie Mae 56,844,725
136,200 Hartford Life, Inc. 5,541,638
672,900 Household International, Inc. 23,719,725
22,025 PSF Holdings LLC Class A (NON) 220,250
--------------
188,881,449
Food (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
804,800 Archer Daniels Midland Co. 9,456,400
332,200 General Mills, Inc. 10,360,488
511,300 Heinz (H.J.) Co. 19,013,969
1,240,000 Nabisco Group Holdings Corp. 10,695,000
1,138,700 Sara Lee Corp. 20,994,781
--------------
70,520,638
Gaming & Lottery (--%)
- --------------------------------------------------------------------------------------------------------------------------
1,733 Fitzgerald Gaming Corp. 433
Health Care Services (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
423,400 Baxter International, Inc. 27,044,675
278,700 CIGNA Corp. 19,996,725
1,446,600 HEALTHSOUTH Corp. (NON) 7,956,300
308,900 Mallinckrodt Inc. 8,900,181
--------------
63,897,881
Household Furniture and Appliances (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
211,200 Whirlpool Corp. 12,302,400
Insurance (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
230,100 AFLAC Inc. 9,994,969
786,100 Allstate Corp. 18,227,694
398,700 American General Corp. 24,495,131
409,600 AON Corp. 10,598,400
837,000 Hartford Financial Services Group 31,910,625
73,600 Lincoln National Corp. 2,718,600
707,100 Torchmark Corp. 17,810,081
470,200 UnumProvident Corp. 12,577,850
--------------
128,333,350
Investment Banking and Brokerage (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
574,810 Bear Stearns Companies, Inc. (The) 23,710,913
363,800 Franklin Resources, Inc. 12,983,113
216,600 Merrill Lynch & Co., Inc. 18,790,050
--------------
55,484,076
Lodging and Tourism (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
565,700 Marriott International, Inc. Class A 17,572,056
783,200 Starwood Hotels & Resorts Worldwide, Inc. 18,796,800
--------------
36,368,856
Machinery (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
552,400 Dover Corp. 22,268,625
Manufacturing (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
500,100 Illinois Tool Works, Inc. 29,255,850
Media (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
686,700 Disney (Walt) Productions, Inc. 24,935,794
502,800 Seagram Co., Ltd. 29,193,825
--------------
54,129,619
Medical Technology (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
242,100 Becton, Dickson and Co. 6,339,994
Metals (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
255,800 Alcoa Inc. 17,826,063
Natural Gas Utilities (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
1,038,800 Sempra Energy 19,282,725
460,700 Williams Cos., Inc. 17,852,125
--------------
37,134,850
Oil & Gas (6.4%)
- --------------------------------------------------------------------------------------------------------------------------
633,700 BP Amoco PLC ADR (United Kingdom) 34,061,375
506,200 Chevron, Inc. 42,299,338
978,500 Conoco, Inc. 22,811,281
539,628 Conoco, Inc. Class B 12,714,985
1,853,537 Exxon Mobil Corp. 154,770,305
980,000 Royal Dutch Petroleum Co. PLC ADR (Netherlands) 53,961,250
624,500 Tosco Corp. 16,041,844
432,174 Total S.A. ADR (France) 26,902,832
1,046,800 Union Pacific Resources Group Inc. 11,514,800
--------------
375,078,010
Paper & Forest Products (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
843,400 Mead Corp. 31,416,650
842,900 Owens-Illinois, Inc. (NON) 15,435,606
162,000 Temple Inland, Inc. 9,061,875
723,500 Weyerhaeuser Co. 41,510,813
--------------
97,424,944
Pharmaceuticals (3.6%)
- --------------------------------------------------------------------------------------------------------------------------
1,262,300 Abbott Laboratories 41,182,538
1,001,900 American Home Products Corp. 47,151,919
685,100 Bristol-Myers Squibb Co. 45,216,600
246,000 Merck & Co., Inc. 19,387,875
968,270 Pharmacia & Upjohn, Inc. 45,508,690
258,900 Schering-Plough Corp. 11,391,600
--------------
209,839,222
Photography and Imaging (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
418,300 Eastman Kodak Co. 25,882,313
401,000 Xerox Corp. 8,370,875
--------------
34,253,188
Publishing (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
451,800 McGraw-Hill, Inc. 25,329,038
193,700 Tribune Co. 8,171,719
--------------
33,500,757
Railroads (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
1,112,033 Burlington Northern Santa Fe Corp. 26,758,294
246,600 CSX Corp. 7,213,050
--------------
33,971,344
Real Estate (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
712,100 Equity Office Properties Trust 18,203,056
687,600 Equity Residential Properties Trust (R) 28,535,400
--------------
46,738,456
Regional Bells (4.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,037,600 Bell Atlantic Corp. 64,266,350
1,064,400 BellSouth Corp. 50,093,325
784,600 GTE Corp. 57,520,988
2,097,600 SBC Communications, Inc. 90,459,000
--------------
262,339,663
Restaurants (--%)
- --------------------------------------------------------------------------------------------------------------------------
100 AmeriKing, Inc. (NON) 1,000
Retail (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
471,400 Albertsons, Inc. 14,436,625
462,500 CVS Corp. 16,158,594
807,400 Federated Department Stores, Inc. (NON) 33,608,025
44 Mothers Work, Inc. (NON) 440
489,100 Staples, Inc. (NON) 11,646,694
--------------
75,850,378
Software (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
222,900 BMC Software, Inc. (NON) 8,442,338
497,500 Computer Associates International, Inc. 34,172,031
--------------
42,614,369
Technology Services (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
398,100 Electronic Data Systems Corp. 26,921,513
Telecommunications (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
1,630,650 American Telephone & Telegraph Co. 86,016,788
1,095 Intermedia Communications, Inc. (NON) 47,085
231,300 Sprint Corp. 14,962,219
--------------
101,026,092
Telephone (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
481,530 ALLTEL Corp. 32,142,128
Textiles (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,291,607 Shaw Industries, Inc. 17,517,420
Tobacco (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
800,300 Philip Morris Cos., Inc. 16,756,281
Toys (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,270,750 Hasbro, Inc. 19,061,250
Trucks & Parts (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
167,600 Johnson Controls, Inc. 9,259,900
Waste Management (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,354,000 Waste Management, Inc. 23,695,000
--------------
Total Common Stocks (cost $3,471,945,162) $3,507,625,270
CORPORATE BONDS AND NOTES (23.0%) (a)
PRINCIPAL AMOUNT VALUE
Advertising (--%)
- --------------------------------------------------------------------------------------------------------------------------
$ 45,000 Outdoor Systems, Inc. sr. sub. notes 9 3/8s, 2006 $ 47,588
850,000 Outdoor Systems, Inc. company guaranty 8 7/8s, 2007 875,500
--------------
923,088
Aerospace and Defense (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 85,000
1,250,000 Argo-Tech Corp. company guaranty Ser. D, 8 5/8s, 2007 1,050,000
570,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 527,250
12,080,000 Boeing Co. deb. 6 5/8s, 2038 10,177,279
9,640,000 Litton Industries Inc. 144A notes 8s, 2009 9,481,808
15,720,000 Lockheed Martin Corp. bonds 8 1/2s, 2029 15,482,314
4,225,000 Raytheon Co notes 6.45s, 2002 4,079,280
6,640,000 Raytheon Co. deb. 6.4s, 2018 5,561,066
1,610,000 Sequa Corp. sr. notes 9s, 2009 1,513,400
--------------
47,957,397
Agriculture (--%)
- --------------------------------------------------------------------------------------------------------------------------
205,000 IMC Global, Inc. notes 7.4s, 2002 201,802
284,643 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 259,025
--------------
460,827
Airlines (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
16,815,000 Airbus Industries 144A 8.027s, 2020 16,632,053
9,840,000 Delta Air Lines, Inc. 144A deb. 8.3s, 2029 9,378,209
1,720,000 Northwest Airlines Inc. company guaranty 8.7s, 2007 1,573,043
1,360,000 Northwest Airlines Inc. company guaranty 8.52s, 2004 1,278,400
720,000 Northwest Airlines Inc. company guaranty 7 7/8s, 2008 600,199
6,409,580 Northwest Airlines Corp. pass-through certificate
Ser. 99-1A, 6.81s, 2020 5,682,413
660,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 422,400
--------------
35,566,717
Automotive (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
6,760,000 Chrysler Corp. deb. Ser. B, 7.45s, 2097 6,183,372
7,550,000 Delphi Automotive Systems Corp. deb. 7 1/8s, 2029 6,673,521
6,000,000 Federal Mogul Corp. notes 7 1/2s, 2009 5,213,160
1,940,000 Federal Mogul Corp. notes 7 3/8s, 2006 1,743,944
4,310,000 Ford Motor Co. deb. 7.4s, 2046 4,068,899
10,375,000 Ford Motor Co. bonds 6 5/8s, 2028 8,818,128
1,160,000 Ford Motor Credit Corp. notes 6.55s, 2002 1,134,515
180,000 Hayes Lemmerz International, Inc. company guaranty
Ser. B, 8 1/4s, 2008 159,300
1,510,000 Lear Corp. sub. notes 9 1/2s, 2006 1,506,225
1,260,000 Navistar International Corp. sr. notes Ser. B, 7s, 2003 1,197,000
550,000 Talon Automotive Group sr. sub. notes Ser. B, 9 5/8s, 2008 286,000
--------------
36,984,064
Banks (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
11,800,000 BankAmerica Corp. sr. notes 5 7/8s, 2009 10,379,752
1,808,000 Bank United Corp. 8 7/8s, 2007 1,667,500
10,470,000 Bank United Corp. notes Ser. A, 8s, 2009 9,480,790
8,515,000 Bayerische Hypo-und Vereinsbank 144A bonds 8.741s, 2031 8,466,720
6,105,000 Colonial Bank sub. notes 8s, 2009 5,495,599
7,700,000 Dresdner Funding Trust I 144A notes 8.151s, 2031 7,252,014
11,366,000 First Union Capital II company guaranty Ser. A, 7.95s, 2029 10,897,493
4,795,000 First Union Institute Capital I bonds 8.04s, 2026 4,517,801
2,035,000 Firstar Bank Milwaukee sr. bank notes 6 1/4s, 2002 1,972,098
6,975,000 Imperial Bank sub. notes 8 1/2s, 2009 6,419,093
8,895,000 Merita Bank Ltd. sub. notes 6 1/2s, 2006 (Finland) 8,317,092
10,325,000 NB Capital Trust IV company guaranty 8 1/4s, 2027 10,058,202
11,290,000 Peoples Bank-Bridgeport sub. notes 7.2s, 2006 10,409,041
705,000 Peoples Heritage Capital Trust company guaranty
Ser. B, 9.06s, 2027 656,122
9,550,000 Providian National Bank sr. notes 6 3/4s, 2002 9,290,813
3,810,000 Sovereign Bancorp Inc. sr. notes 10 1/2s, 2006 3,867,150
9,175,000 Sovereign Bancorp, Inc. sr. notes 6 5/8s, 2001 8,885,712
4,615,000 St. Paul Bancorp sr. notes 7 1/8s, 2004 4,410,556
3,780,000 Webster Capital Trust I 144A bonds 9.36s, 2027 3,508,256
--------------
125,951,804
Basic Industrial Products (--%)
- --------------------------------------------------------------------------------------------------------------------------
2,075,000 American Standard Companies, Inc. sr. notes 7 3/8s, 2008 1,888,250
518,000 Ball Corp. company guaranty 7 3/4s, 2006 494,690
--------------
2,382,940
Broadcasting (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
93,700 AMFM Inc. deb. 12 5/8s, 2006 (PIK) 106,350
75,800 Capstar Broadcasting sub. deb. 12s, 2009 (PIK) 85,654
1,690,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 1,715,350
2,085,000 Chancellor Media Corp. sr. sub. notes 9 3/8s, 2004 2,181,431
625,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 634,375
530,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 500,850
310,000 Lenfest Communications, Inc. sr. sub. notes 8 1/4s, 2008 310,555
700,000 Sinclair Broadcast Group, Inc. company guaranty 9s, 2007 626,500
--------------
6,161,065
Building and Construction (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
480,000 Albecca Inc. company guaranty 10 3/4s, 2008 345,600
500,000 Building Materials Corp. company guaranty 8s, 2008 443,750
3,320,000 D.R. Horton, Inc. company guaranty 8s, 2009 3,004,600
340,000 NCI Building Systems Inc. sr. sub. notes Ser. B, 9 1/4s, 2009 323,850
--------------
4,117,800
Business Equipment and Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
10,319,021 Federal Express Corp. pass-through certificates
Ser. 98-1A, 6.72s, 2022 9,138,422
610,000 Iron Mountain, Inc. med. term notes company guaranty
10 1/8s, 2006 619,150
649,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 691,185
711,000 Unicco Service Co. company guaranty Ser. B, 9 7/8s, 2007 668,340
--------------
11,117,097
Cable Television (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
765,000 Adelphia Communications Corp. sr. notes Ser. B,
8 3/8s, 2008 692,325
1,110,000 Century Communications Corp. sr. notes 9 1/2s, 2005 1,101,675
310,000 Charter Communications Holdings LLC sr. disc. notes
stepped-coupon zero % (9.92s, 4/1/04), 2011 (STP) 181,350
6,310,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2013 6,530,850
210,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 201,443
1,420,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 1,128,900
390,000 Jones Intercable, Inc. sr. sub. deb. 10 1/2s, 2008 409,500
363,000 Jones Intercable, Inc. sr. notes 9 5/8s, 2002 374,816
650,000 Jones Intercable, Inc. sr. notes 7 5/8s, 2008 615,973
1,020,000 Lamar Media Corp. company guaranty 9 5/8s, 2006 1,050,600
355,000 Lamar Media Corp. sr. sub. notes 9 1/4s, 2007 347,900
100,000 Rogers Cablesystems Ltd. notes 11s, 2015 (Canada) 112,500
600,000 TeleWest Communications PLC 144A sr. disc. notes
stepped-coupon zero %, (9 1/4, 4/15/04) 2009
(United Kingdom) (STP) 360,000
--------------
13,107,832
Chemicals (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
595,000 Equistar Chemicals LP notes 9 1/8s, 2002 590,115
660,000 ISP Holdings, Inc. sr. notes Ser. B, 9 3/4s, 2002 660,000
4,345,000 Lyondell Petrochemical Co. sec. notes Ser. B, 9 7/8s, 2007 4,279,825
1,920,000 Lyondell Petrochemical Co. notes Ser. A, 9 5/8s, 2007 1,896,000
4,795,000 Monsanto Co. 144A deb. 6.6s, 2028 4,278,051
7,330,000 Nova Chemicals Corp. deb. 7s, 2026 (Canada) 7,043,397
640,000 Scotts Co. 144A sr. sub. notes 8 5/8s, 2009 604,800
--------------
19,352,188
Computer Services and Software (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
15,945,000 IBM Corp. deb. 7 1/8s, 2096 14,662,703
360,000 Verio Inc. sr. notes 11 1/4s, 2008 377,100
--------------
15,039,803
Conglomerates (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
3,175,000 Canadian Pacific Ltd. deb. 9.45s, 2021 (Canada) 3,592,925
11,030,000 TRW, Inc. deb. 7 3/4s, 2029 10,529,900
7,150,000 Tyco International Ltd. company guaranty 6 3/8s, 2005 6,659,653
12,095,000 Tyco International Ltd. company guaranty 6 1/4s, 2003 11,466,302
--------------
32,248,780
Consumer Non Durables (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
825,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 835,313
10,450,000 Imperial Tobacco Global company guarantee 7 1/8s, 2009 9,440,635
775,000 Philip Morris Cos., Inc. notes 7 1/2s, 2004 755,013
5,460,000 Philip Morris Cos., Inc. notes 7 1/4s, 2003 5,316,238
2,925,000 Philip Morris Cos., Inc. notes 7 1/8s, 2004 2,803,057
2,800,000 Philip Morris Cos., Inc. notes 6.8s, 2003 2,668,064
400,000 Revlon Consumer Products sr. notes 9s, 2006 286,000
550,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 390,500
--------------
22,494,820
Consumer Services (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
548,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 564,440
9,190,000 Hertz Corp. sr. notes 6 1/2s, 2006 8,587,596
4,285,000 Hertz Corp. notes 6 1/4s, 2009 3,812,793
8,870,000 HMH Properties, Inc. company guaranty Ser. B,
7 7/8s, 2008 7,694,725
--------------
20,659,554
Electronics and Electrical Equipment (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,415,000 Amkor Technologies, Inc. sr. notes 9 1/4s, 2006 1,531,200
820,000 Amkor Technologies, Inc. 144A sr. notes 9 1/4s, 2006 787,200
650,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 643,500
490,000 Flextronics International Ltd. sr. sub. notes Ser. B,
8 3/4s, 2007 463,050
980,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 982,450
--------------
4,407,400
Energy-Related (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
10,345,000 KN Capital Trust III company guaranty 7.63s, 2028 8,879,114
5,550,000 Osprey Trust 144A sec. notes 8.31s, 2003 5,496,387
850,000 York Power Funding 144A notes 12s, 2007
(Cayman Islands) 875,500
--------------
15,251,001
Entertainment (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
310,000 Circus Circus Enterprises, Inc. sr. notes 6.45s, 2006 271,532
1,950,000 Harrahs Entertainment, Inc. company guaranty 7 7/8s, 2005 1,842,750
230,000 Harrahs Entertainment, Inc. company guaranty 7 1/2s, 2009 214,790
730,000 Hollywood Park, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 708,100
350,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 336,875
5,915,000 International Game Technology 144A sr. notes 8 3/8s, 2009 5,486,163
1,160,000 International Game Technology sr. notes 7 7/8s, 2004 1,099,100
2,910,000 ITT Corp. notes 6 3/4s, 2005 2,548,374
120,000 Mohegan Tribal Gaming, Auth. sr. sub. notes 8 3/4s, 2009 115,800
910,000 Mohegan Tribal Gaming, Auth. sr. notes 8 1/8s, 2006 869,050
840,000 Park Place Entertainment sr. notes 8 1/2s, 2006 828,240
510,000 SFX Entertainment Inc. company guaranty 9 1/8s, 2008 474,300
530,000 SFX Entertainment, Inc. 144A company guaranty Ser. B,
9 1/8s, 2008 496,875
240,000 Sun International Hotels Ltd. company guaranty 9s, 2007 222,000
260,000 Sun International Hotels Ltd. sr. sub. notes 8 5/8s, 2007 234,000
16,185,000 Time Warner Entertainment sr. notes 8 3/8s, 2033 16,425,509
1,000,000 United Artists Theatre sr. sub. notes 9 3/4s, 2008 80,000
5,375,000 Walt Disney Co. med. term notes 5.62s, 2008 4,669,746
--------------
36,923,204
Environmental Control (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
2,900,000 Allied Waste Industries, Inc. company guaranty Ser. B,
7 7/8s, 2009 2,494,000
7,524,000 Browning-Ferris Industries, Inc. deb. 7.4s, 2035 5,511,330
4,560,000 Waste Management, Inc. notes stepped-coupon zero %,
(7.7s, 10/1/02) 2002 (STP) 4,414,536
460,000 Waste Management, Inc. company guaranty 6 7/8s, 2009 399,234
2,250,000 Waste Management, Inc. notes 6 5/8s, 2002 2,129,783
--------------
14,948,883
Food and Beverages (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
7,490,000 Pepsi Bottling Group Inc. sr. notes Ser. B, 7s, 2029 6,707,894
Health Care (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
930,000 Columbia/HCA Healthcare Corp. med. term notes 9s, 2014 864,900
75,000 Columbia/HCA Healthcare Corp. med. term notes 8.85s, 2007 72,375
1,220,000 Columbia/HCA Healthcare Corp. med. term notes 8.7s, 2010 1,122,400
60,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 52,800
300,000 Hudson Respiratory Care, Inc. sr. sub. notes 9 1/8s, 2008 241,500
530,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/2s, 2007 (In default) (NON) 37,100
280,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/4s, 2008 (In default) (NON) 19,600
260,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-
coupon Ser. B, zero % (10 1/2s, 11/1/02), 2007
(In default) (NON) (STP) 1,300
1,280,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 (In default) (NON) 6,400
1,405,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 323,150
450,000 Quorum Health Group, Inc. sr. sub. notes 8 3/4s, 2005 428,625
1,300,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 1,244,750
2,000,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 1,845,000
1,825,000 Tenet Healthcare Corp. sr. notes 8s, 2005 1,738,313
--------------
7,998,213
Insurance and Finance (7.0%)
- --------------------------------------------------------------------------------------------------------------------------
2,660,000 Advanta Corp. notes Ser. C, 7.47s, 2001 2,525,936
280,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 262,335
1,890,000 Advanta Corp. notes Ser. C, 6.94s, 2001 1,790,227
925,000 Advanta Corp. notes Ser. D, 6.925s, 2002 843,008
920,000 Advanta Corp. med-term notes Ser. D, 6.92s, 2002 838,378
7,810,000 AFLAC Inc. sr. notes 6 1/2s, 2009 7,069,222
1,500,000 AMBAC Indemnity Corp. deb. 9 3/8s, 2011 1,662,465
12,745,000 American General Institute 144A company guaranty
8 1/8s, 2046 12,789,990
3,165,000 Associates Corp. deb. 6.95s, 2018 2,872,902
3,500,000 Associates First Capital Corp. sub. deb. 8.15s, 2009 3,577,770
9,690,000 Bear Stearns & Co., Inc. sr. unsecd. notes 7 5/8s, 2009 9,423,816
8,580,000 Bombardier Capital, Inc. 144A notes 7.3s, 2002 8,502,780
7,810,000 Capital One Financial Corp. notes 7 1/4s, 2006 7,305,624
795,000 Capital One Financial Corp. notes 7 1/4s, 2003 762,373
11,255,000 Citicorp sub. notes 6 3/8s, 2008 10,245,764
340,000 Colonial Capital II 144A company guaranty 8.92s, 2027 304,243
1,900,000 Conseco Financial Corp. sr. sub. notes 10 1/4s, 2002 1,960,477
10,235,000 Conseco Financing Trust II company guaranty 8.7s, 2026 9,006,288
10,225,000 Conseco Inc. notes 8 1/2s, 2002 10,255,164
4,970,000 Conseco Inc. med-term notes 6 1/2s, 2002 4,667,128
870,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 87,000
1,060,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 95,400
6,615,000 Countrywide Home Loan Corp. company guaranty
6.935s, 2007 6,282,067
9,765,000 Countrywide Home Loan Corp. company guaranty
med. term notes 6 1/4s, 2009 8,699,346
6,700,000 Dime Bancorp, Inc. sr. notes 6 3/8s, 2001 6,664,691
4,110,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 3,947,614
8,550,000 Executive Risk Capital Trust company guaranty Ser. B,
8.675s, 2027 8,532,644
5,655,000 Finova Capital Corp. notes 7.4s, 2007 5,492,362
6,250,000 Finova Capital Corp. notes 6 1/4s, 2002 6,014,000
9,225,000 Finova Capital Corp. med-term notes 6.11s, 2003 8,802,126
6,045,000 First Citizens Bank Capital Trust I company guaranty
8.05s, 2028 5,259,150
2,605,000 First Financial Caribbean Corp. sr. notes 7.84s, 2006 2,443,308
7,120,000 Firstar Capital Trust I company guaranty Ser. B, 8.32s, 2026 6,844,314
10,000,000 Ford Motor Credit Corp. notes 7 3/8s, 2009 9,664,600
7,845,000 Ford Motor Credit Corp. sr. notes 5.8s, 2009 6,817,070
970,000 Fremont General Corp. sr. notes Ser. B, 7.7s, 2004 834,510
9,620,000 Goldman Sachs Group, Inc. (The) notes Ser. B, 7.35s, 2009 9,239,240
7,825,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 6,962,842
2,625,000 Hartford Life, Inc. deb. 7.65s, 2027 2,539,268
12,510,000 Heller Financial Inc. 144A notes 7 3/8s, 2009 11,962,562
9,380,000 Household Finance Corp. notes 6 1/2s, 2008 8,591,048
1,265,000 Household Finance Corp. sr. unsub. 5 7/8s, 2009 1,105,521
6,000,000 Lehman Brothers Holdings, Inc. notes 6 5/8s, 2004 5,739,240
11,410,000 Lehman Brothers Holdings, Inc. notes 6 1/4s, 2003 10,882,516
6,905,000 Liberty Mutual Insurance 144A notes 7.697s, 2097 5,811,593
4,625,000 Markel Capital Trust I company guaranty Ser. B, 8.71s, 2046 3,924,544
13,600,000 Merey Sweeney L.P. 144A sr. notes 8.85s, 2019 13,655,760
5,100,000 Merrill Lynch & Co., Inc. med. term notes 6.13s, 2003 4,904,058
4,205,000 Money Store, Inc. notes 8.05s, 2002 4,253,400
6,235,000 Newcourt Credit Group Inc. company guaranty Ser. A,
7 1/8s, 2003 6,135,427
13,395,000 Newcourt Credit Group Inc. company guaranty 6 7/8s, 2005 12,926,711
3,240,000 Norwest Corp. med. term sr. notes Ser. J, 6 3/4s, 2027 2,814,944
2,095,000 Orange Cogen Funding 144A company guaranty
8.175s, 2022 1,987,946
8,985,000 Paine Webber Group, Inc. sr. med. term notes 6.52s, 2005 8,367,281
5,185,000 Presidential Life Corp. sr. notes 7 7/8s, 2009 4,744,275
9,580,000 Principal Financial Group 144A notes 7.95s, 2004 9,530,184
15,700,000 Provident Companies, Inc. bonds 7.405s, 2038 13,312,658
580,000 RBF Finance Co. company guaranty 11 3/8s, 2009 616,250
1,350,000 RBF Finance Co. company guaranty 11s, 2006 1,437,750
5,195,000 Safeco Capital Trust I company guaranty 8.072s, 2037 4,607,446
8,225,000 Salomon, Inc. sr. notes 6 3/4s, 2003 8,047,505
3,627,192 Salton Sea Funding Corp. company guaranty Ser. E, 8.3s, 2011 3,466,617
9,515,000 Sears Roebuck Acceptance Corp. notes 6 1/2s, 2028 7,571,942
4,730,000 Sprint Capital Corp. company guaranty 6.9s, 2019 4,225,546
19,695,000 Sprint Capital Corp. company guaranty 6 1/8s, 2008 17,597,089
2,195,000 State Street Institution 144A company guaranty 7.94s, 2026 2,081,343
12,445,000 Sun Life Canada Capital Trust 144A 8.526s, 2049 11,551,449
8,015,000 TIG Capital Trust I 144A bonds 8.597s, 2027 7,224,801
3,655,000 TIG Holdings, Inc. notes 8 1/8s, 2005 3,360,188
5,345,000 Trenwick Capital Trust I company guaranty 8.82s, 2037 4,224,367
1,035,000 Wilmington Trust Corp. sub. notes 6 5/8s, 2008 923,044
--------------
409,472,447
Lodging (--%)
- --------------------------------------------------------------------------------------------------------------------------
940,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 893,000
390,000 Starwood Hotels & Resorts notes 6 3/4s, 2003 359,342
--------------
1,252,342
Medical Supplies and Devices (--%)
- --------------------------------------------------------------------------------------------------------------------------
265,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 228,563
480,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 360,000
--------------
588,563
Metals and Mining (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,500,000 AK Steel Corp. sr. notes 9 1/8s, 2006 1,475,625
6,485,000 AK Steel Corp. company guaranty 7 7/8s, 2009 5,836,500
120,000 Anker Coal Group, Inc. 144A sec. notes 14 1/4s, 2007 (PIK) 87,600
440,000 California Steel Industries sr. notes Ser. B, 8 1/2s, 2009 414,700
620,000 Continental Global Group sr. notes Ser. B, 11s, 2007 318,525
760,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 342,000
2,015,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 2,060,338
450,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 461,250
--------------
10,996,538
Oil and Gas (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
5,715,000 Alliance Pipeline L.P. 144A sr. notes 7.77s, 2015 (Canada) 5,458,397
11,860,000 Amerada Hess Corp. bonds 7 7/8s, 2029 11,594,929
1,000,000 Cliffs Drilling Co. company guaranty Ser. B, 10 1/4s, 2003 1,002,500
9,860,000 Coastal Corp. bonds 6.95s, 2028 8,627,697
3,509,376 Express Pipeline Ltd. 144A sub. notes Ser. B, 7.39s,
2019 (Canada) 2,900,745
460,000 Gulf Canada Resources, Ltd. sr. notes 8 3/8s, 2005 (Canada) 437,359
3,210,000 Gulf Canada Resources, Ltd. sr. notes 8.35s, 2006 (Canada) 3,073,575
2,430,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 2,502,900
11,195,000 Louis Dreyfus Natural Gas notes 6 7/8s, 2007 10,005,979
5,790,000 Maritimes & Northeast Pipeline 144A notes 7.7s, 2019 5,580,981
9,915,000 Norsk Hydro ASA notes 6.36s, 2009 (Norway) 8,931,333
630,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 601,650
490,000 Parker and Parsley Inc. sr. notes 8 1/4s, 2007 454,553
1,105,000 Petro Geo-Services ADR notes 7 1/2s, 2007 (Norway) 1,068,060
9,595,000 Petro Geo-Services sr. notes 7 1/8s, 2028 (Norway) 8,398,504
12,000,000 Petro-Canada deb. 9 1/4s, 2021 (Canada) 13,406,160
3,690,000 Port Arthur Finance Corp. 144A sec. notes 12 1/2s, 2009 3,505,500
2,000,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 1,970,000
1,365,000 Seagull Energy sr. sub notes 8 5/8s, 2005 1,337,700
6,175,000 Sonat, Inc. notes 7 5/8s, 2011 6,020,131
12,425,000 Union Oil Company of California company guaranty
7 1/2s, 2029 11,631,167
3,470,000 Yosemite Sec Trust I 144A bonds 8 1/4s, 2004 3,409,796
--------------
111,919,616
Packaging and Containers (--%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 Riverwood International Corp. company guaranty
10 1/4s, 2006 995,000
Paper and Forest Products (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
5,880,000 Abitibi-Consolidated Inc. deb. 8 1/2s, 2029 5,741,761
60,000 Boise Cascade Co. med. term notes Ser. A, 7.43s, 2005 56,287
6,450,000 Georgia Pacific Corp. bonds 7 3/4s, 2029 6,214,898
1,150,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 1,099,653
430,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 432,150
2,455,000 Tembec Industries, Inc. company guaranty 8 5/8s,
2009 (Canada) 2,381,350
--------------
15,926,099
Pharmaceuticals and Biotechnology (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,040,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 993,200
1,900,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 1,757,500
--------------
2,750,700
Publishing (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
910,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B,
8 3/4s, 2009 828,100
14,935,000 News America Holdings, Inc. deb. 7 3/4s, 2045 13,814,576
335,000 News America Holdings, Inc. deb. 7.7s, 2025 315,627
--------------
14,958,303
Real Estate (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
8,230,000 EOP Operating L.P. notes 6.8s, 2009 7,473,992
2,630,000 EOP Operating L.P. sr. notes 6 3/4s, 2008 2,401,190
3,375,000 EOP Operating L.P. notes 6 3/8s, 2002 3,280,466
--------------
13,155,648
REITs (Real Estate Investment Trusts) (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
4,920,000 Avalon Properties, Inc. notes 6 7/8s, 2007 4,532,402
4,670,000 Avalon Properties, Inc. notes 6 5/8s, 2005 4,399,654
2,320,000 OMEGA Healthcare Investors, Inc. notes 6.95s, 2007 1,791,504
5,470,000 OMEGA Healthcare Investors, Inc. notes 6.95s, 2002 4,948,436
2,235,000 Tanger Properties Ltd. partnership gtd. notes 8 3/4s, 2001 2,208,448
2,575,000 Tanger Properties Ltd. company guaranty 7 7/8s, 2004 2,350,795
--------------
20,231,239
Restaurants (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
7,400,000 Tricon Global Restaurants, Inc. sr. notes 7.65s, 2008 6,854,620
Retail (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
13,690,000 Federated Department Stores, Inc. sr. notes 8 1/2s, 2003 14,008,156
7,480,000 K mart Corp. notes 8 3/8s, 2004 7,385,378
320,000 K mart Corp. notes 8 1/8s, 2006 315,354
680,000 K mart Corp. deb. 7.95s, 2023 593,803
310,000 K mart Corp. med. term notes 7.55s, 2004 287,813
255,000 Kasper A.S.L. Ltd. sr. notes 12 3/4s, 2004 191,250
6,726,000 Saks, Inc. company guaranty 8 1/4s, 2008 6,451,579
--------------
29,233,333
Satellite Services (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
3,900,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 2,145,000
17,405,000 TCI Communications Inc. deb. 8 3/4s, 2015 19,103,728
4,570,000 TCI Communications Inc. sr. notes 7 1/8s, 2028 4,180,682
--------------
25,429,410
Shipping (--%)
- --------------------------------------------------------------------------------------------------------------------------
1,380,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 1,228,200
600,000 Pegasus Shipping 144A 11 7/8s, 2004 (In default) (NON) 216,000
--------------
1,444,200
Supermarkets (--%)
- --------------------------------------------------------------------------------------------------------------------------
1,850,000 Southland Corp. sr. sub. deb. 5s, 2003 1,586,375
695,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 568,163
--------------
2,154,538
Telecommunications (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
920,000 Allbritton Communications Co. sr. sub. notes Ser. B,
8 7/8s, 2008 867,100
7,265,000 AT&T Capital Corp. med. term notes 6.6s, 2005 6,908,942
840,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 764,400
910,000 Call-Net Enterprises Inc. sr. disc. notes stepped-coupon
zero % (10.8s, 5/15/04), 2009 (Canada) (STP) 445,900
1,200,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon
zero % (8.94s, 8/15/03), 2008 (Canada) (STP) 615,000
440,000 Call-Net Enterprises Inc. sr. notes 8s, 2008 (Canada) 343,200
70,000 Clearnet Communications, Inc. sr. disc. notes stepped-coupon
zero % (14 3/4s, 12/15/00), 2005 (STP) 69,300
1,330,000 Covad Communications Group Inc. sr. notes 12 1/2s, 2009 1,369,900
140,000 Exodus Communications, Inc. sr. notes 11 1/4s, 2008 144,900
890,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 809,900
3,670,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 3,550,725
4,465,000 Global Crossing Holdings Ltd. 144A sr. notes 9 1/2s, 2009 4,275,238
750,000 GST Telecommunications, Inc. company guaranty stepped-
coupon zero % (13 7/8s, 15/15/00), 2005 (STP) 585,000
2,680,000 Hyperion Telecommunications Corp., Inc. sr. notes Ser. B,
12 1/4s, 2004 2,847,500
1,565,000 Intermedia Communications, Inc. sr. disc. notes stepped-
coupon Ser. B, zero % (11 1/4s, 7/15/02), 2007 (STP) 1,185,488
610,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 457,500
1,290,000 McLeodUSA, Inc. sr. notes 8 1/8s, 2009 1,167,450
690,000 Microcell Telecommunications sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 614,100
1,250,000 NEXTEL Communications, Inc. sr. notes 12s, 2008 1,375,000
7,963,000 NEXTEL Communications, Inc. 144A sr. notes 9 3/8s, 2009 7,644,480
1,335,000 NTL Communications Corp. sr. notes Ser. B, 11 1/2s, 2008 1,415,100
1,200,000 NTL Inc. sr. notes, stepped-coupon Ser. B, zero %
(9 3/4s, 4/1/03), 2008 (United Kingdom) (STP) 816,000
2,555,000 Price Communications Wireless, Inc. 144A sr. notes
9 1/8s, 2006 2,561,388
1,000,000 Primus Telecommunications Group, Inc. sr. notes 12 3/4s, 2009 1,030,000
1,110,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 892,829
190,000 Telecommunications Techniques, Inc. company guaranty
9 3/4s, 2008 172,900
280,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 14,000
8,955,000 Williams Communications Group Inc. sr. notes 10 7/8s, 2009 9,223,650
--------------
52,166,890
Telephone Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
130,000 Long Distance International, Inc. sr. notes 12 1/4s, 2008
(In default) (NON) 65,000
4,100,000 U S West, Inc. notes 5 5/8s, 2008 3,499,883
686,000 Viatel, Inc. 144A sr. notes 11 1/2s, 2009 655,130
--------------
4,220,013
Textiles (--%)
- --------------------------------------------------------------------------------------------------------------------------
380,000 Day International Group, Inc. company guaranty
9 1/2s, 2008 315,400
670,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 221,100
--------------
536,500
Transportation (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
8,970,075 Atlas Air, Inc. pass-through certificates Ser. 991A, 7.2s, 2019 7,976,639
1,905,000 Burlington Northern Santa Fe notes 6 3/8s, 2005 1,777,384
220,000 Calair LLC 144A company guaranty 8 1/8s, 2008 202,675
2,048,783 Continental Airlines, Inc. pass-through certificates Ser. 97CI,
7.42s, 2007 1,985,844
2,758,389 Continental Airlines, Inc. pass-through certificates
Ser. 974C, 6.8s, 2009 2,585,962
6,373,613 Continental Airlines, Inc. pass-through certificates
Ser. 981C, 6.541s, 2009 5,978,130
11,885,000 Continental Airlines, Inc. pass-through certificates
Ser. 98-2, 6.32s, 2008 10,629,112
16,050,000 CSX Corp. deb. 7.95s, 2027 15,923,205
430,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s,
2003 (Greece) 395,600
270,000 Johnstown America Industries, Inc. sr. sub. notes
11 3/4s, 2005 273,375
13,470,000 United Air Lines Corp. deb. 9 3/4s, 2021 14,794,370
575,000 US Air Inc. pass-through certificates Ser. 93-A2,
9 5/8s, 2003 557,031
--------------
63,079,327
Utilities (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
3,840,000 Arizona Public Service Co. sr. notes 6 3/4s, 2006 3,617,280
1,300,000 Calpine Corp. sr. notes 8 3/4s, 2007 1,291,238
500,000 Calpine Corp. sr. notes 7 7/8s, 2008 476,801
1,900,000 Calpine Corp. sr. notes 7 3/4s, 2009 1,786,000
6,405,000 CILCORP, Inc. sr. notes 8.7s, 2009 6,353,504
980,000 Cleveland Electric Illuminating Co. 1st mtge 6.86s, 2008 884,411
2,200,000 CMS Energy Corp. sr. notes 8 1/8s, 2002 2,160,070
4,695,000 CMS Energy Corp. pass-through certificates 7s, 2005 4,330,527
100,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 93,000
1,675,000 Edison Mission Energy 144A company guaranty 7.33s, 2008 1,575,438
5,030,000 GTE Corp. deb. 6.46s, 2008 4,648,877
906,623 Midland Funding Corp. I deb. Ser. C-94, 10.33s, 2002 931,347
255,000 Midland Funding Corp. II deb. Ser. A, 11 3/4s, 2005 272,396
3,330,000 Niagara Mohawk Power Corp. sr. notes Ser. G, 7 3/4s, 2008 3,283,846
889,820 Northeast Utilities System notes Ser. A, 8.58s, 2006 884,704
2,424,026 Northeast Utilities System notes Ser. B, 8.38s, 2005 2,409,288
4,523,000 Public Service Co. of New Mexico deb. 10 1/4s, 2012 4,709,664
1,640,000 Public Service Co. of New Mexico sr. notes Ser. B,
7 1/2s, 2018 1,525,134
710,000 Public Service Co. of New Mexico sr. notes Ser. A, 7.1s, 2005 677,858
6,825,000 Southern Energy 144A sr. notes 7.9s, 2009 6,572,270
3,925,000 Texas New-Mexico Power Utilities 1st mtge. 9 1/4s, 2000 3,978,145
6,455,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 6,197,639
11,435,000 TXU Electrical Capital company guaranty 8.175s, 2037 10,606,306
--------------
69,265,743
--------------
Total Corporate Bonds and Notes (cost $1,429,954,006) $1,337,393,440
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (11.6%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (9.0%)
- --------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Association
pass-through certificates
$ 1,244,784 8 3/4s, with due dates from May 1, 2009 to June 1, 2009 $ 1,273,178
4,431,545 7s, July 1, 2012 4,326,295
19,688,473 5 1/2s, with due dates from March 1, 2011 to July 1, 2011 17,974,632
Federal Home Loan Mortgage Corporation
13,350,000 6 7/8s, January 15, 2005 13,166,438
3,127,000 6 1/2s,TBA, February 15, 2029 2,904,201
41,685,000 6s, TBA, February 15, 2029 37,536,092
Federal National Mortgage Association
3,127,000 6 1/2s, TBA, February 15, 2029 2,902,263
Federal National Mortgage Association
pass-through certificates
115,561 11s, with due dates from October 1, 2015 to March 1, 2016 125,961
74,176 8 3/4s, July 1, 2009 75,612
19,109,658 8s, with due dates from November 1, 2024 to
November 1, 2029 19,061,883
38,252,459 7 1/2s, with due dates from November 25, 2023 to
November 1, 2029 37,627,811
32,050,314 7 1/2s, Interest Only (IO), November 25, 2023 10,010,093
50,632,477 7s, with due dates from April 1, 2009 to January 1, 2030 48,354,470
13,104,000 6 5/8s, September 15, 2009 12,459,021
116,248,513 6 1/2s, with due dates from July 1, 2010 to
November 1, 2029 111,066,046
9,800,000 6s, May 1, 2029 8,816,864
1,070,863 5 1/2s, August 15, 2014 976,488
7,083,000 5 1/8s, February 13, 2004 6,569,483
Government National Mortgage Association
pass-through certificates
725 15s, September 15, 2011 851
10,182,447 8 1/2s, with due dates from October 15, 2017 to
November 15, 2017 10,410,037
65,759,450 8s, with due dates from August 15, 2024 to
December 15, 2027 65,615,437
18,193 7 1/2s, September 15, 2005 17,891
73,440,924 7s, with due dates from January 15, 2023 to
December 15, 2028 70,183,543
44,015,724 6 1/2s, with due dates from March 15, 2002 to
June 15, 2029 40,680,649
--------------
522,135,239
U.S. Treasury Obligations (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
14,590,000 U.S. Treasury Bonds 6 1/8s, August 15, 2029 13,887,783
U.S. Treasury Notes
121,860,000 6 1/8s, December 31, 2001 120,698,674
19,680,000 5 7/8s, November 30, 2001 (SEG) 19,418,650
--------------
154,005,107
--------------
Total U.S. Government and Agency Obligations
(cost $693,899,698) $ 676,140,346
COLLATERALIZED MORTGAGE OBLIGATIONS (3.2%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 1,651,898 Chase Manhattan Bank-First Union National Ser. 99-1,
Class A1, 7.134s, 2007 $ 1,613,246
Commercial Mortgage Asset Trust
4,148,000 Ser. 99-C1, Class A4, 6.975s, 2013 3,812,271
107,261,050 144A Ser. 99-C1, Class X, IO, 1.157s, 2020 6,624,208
Commercial Mortgage Acceptance Corp.
1,325,000 Ser. 97-ML1, Class A3, 6.57s, 2007 1,229,559
2,804,000 Ser. 98-C2, Class A2, 6.03s, 2008 2,508,266
4,920,000 Countrywide Home Loan Ser. 98-3, Class A5, 6 3/4s, 2028 4,508,719
6,795,000 Countrywide Mortgage Backed Securities, Inc. Ser. 93-C,
Class A8, 6 1/2s, 2024 5,918,921
Criimi Mae Commercial Mortgage Trust
16,065,000 Ser. 98-C1, Class A2, 7s, 2011 13,512,171
5,400,000 Ser. 98-C1, Class B, 7s, 2011 4,060,125
CS First Boston Mortgage Securities Corp.
4,945,000 Ser. 99-C1, Class E, 8.182s, 2009 4,790,469
1,550,000 Ser. 99-C1, Class F, 8.182s, 2009 1,418,250
DLJ Commercial Mortgage Corp.
4,053,000 Ser. 99-CG3, Class A1B, 7.34s, 2009 3,922,544
6,276,802 Ser. 99-CG3, Class A1A, 7.12s, 2008 6,140,478
4,630,235 Ser. 98-CG1, Class A1A, 6.11s, 2007 4,369,423
Fannie Mae
45,165 Ser. 92-184, Class J, IO, 11.46s, 2022 1,824,669
32,788 Ser. 92-181, Class PJ, IO, 10.075s, 2022 1,144,307
17,086,473 Ser. 99-51, Class S, IO, 3.219s, 2029 1,238,769
7,704,704 Ser. 00-4, Class SX, 7.22s, August 25, 2023 6,548,999
Fannie Mae Strip
426,257 Ser. 302, Class 2, IO, 6s, 2029 139,333
5,607,992 Ser. 304, Class 2, IO, 6s, 2028 1,633,328
966,286 Ser. 301, Class 1, Principal Only (PO), zero %, 2029 579,772
Freddie Mac
1,883,565 Ser. 2113, Class ZM, 6 1/2s, 2028 1,695,209
1,226,944 Freddie Mac Strip, Ser. 176, PO, zero %, 2026 781,985
5,000,000 GE Capital Mortgage Services, Inc. Ser. 98-11, Class 2A4,
6 3/4s, 2028 4,502,100
General Growth Properties-Homart
1,520,000 Ser. 99-C1, Class F, 8.14s, 2003 1,520,000
1,325,000 Ser. 99-C1, Class G, 8.39s, 2003 1,325,000
6,621,000 General Growth Properties-Ivanhoe Ser. 1999, Class F,
8.39s, 2004 6,621,000
GS Mortgage Securities Corp. II
2,940,000 Ser. 98-GLII, Class D, 7.191s, 2031 2,609,020
2,066,283 Ser. 98-GLII, Class A1, 6.312s, 2031 1,969,830
Housing Securities Inc.
418,055 Ser. 91-B, Class B6, 9s, 2006 415,964
1,151,398 Ser. 93-F, Class F9M2, 7s, 2023 1,070,440
187,273 Ser. 94-1, Class AB1, 6 1/2s, 2009 155,961
LB Commercial Conduit Mortgage Trust Ser.
3,495,000 Ser. 99-C2, Class B, 7.425s, 2009 3,379,501
4,198,837 Ser. 99-C2, Class A1, 7.105s, 2008 4,101,083
3,723,000 Ser. 99-C1, Class A2, 6.78s, 2009 3,485,659
Merrill Lynch Mortgage Investors, Inc.
3,465,000 Ser. 96-C2, Class E, 6.96s, 2028 2,869,453
4,659,177 Ser. 98-C2, Class A1, 6.22s, 2030 4,458,978
53,175,938 Ser. 98-C2, Class IO, 1.076s, 2030 3,697,389
Morgan Stanley Capital I
4,260,000 Ser. 98-XL1, Class A3, 6.48s, 2030 3,927,853
275,772 Ser. 98-WF1, Class A1, 6 1/4s, 2007 263,793
3,000,000 Ser. 96-WF1, Class A2, 7.218s, 2006 2,960,625
2,405,112 Ser. 98-HF1, Class A1, 6.19s, 2007 2,291,997
6,330,000 Ser. 99-CAM1, Class A3, 6.92s, 2008 6,055,041
Mortgage Capital Funding, Inc.
2,083,259 Ser. 97-MC2, Class A1, 6.53s, 2007 2,003,834
27,576,266 Ser. 97-MC2, Class X, IO, 0.817s, 2012 1,839,854
5,296,927 Ser. 98-MC1, Class A1, 6.417s, 2007 5,063,738
2,024,364 Prudential Home Mortgage Securities Ser. 92-25,
Class B3, 8s, 2022 1,909,228
Prudential Home Mortgage Securities 144A
271,133 Ser. 94-31, Class B3, 8s, 2009 260,373
1,133,057 Ser. 95-D, Class 5B, 7.54s, 2024 1,006,650
5,768,800 Residential Asset Securitization Trust Ser. 98-A12,
Class A14, 8s, 2028 5,741,759
3,725,000 Residential Funding Mortgage Sec. I Ser. 98-S13,
Class A21, 6 3/4s, 2028 3,395,896
Ryland Mortgage Securities Corp.
1,775,075 Ser. 94-7C, Class B1, 7.359s, 2025 1,685,766
1,253,766 Ser. 94-7C, Class B2, 7.359s, 2025 1,187,552
641,546 Sears Mortgage Securities Ser. 93-7, Class T7, 7s, 2007 636,606
Structured Asset Security Corp.
24,624,811 Ser. 98-RF3, IO, 3.152s, 2028 4,966,499
5,203,331 Ser. 98-RF2, 8.58s, 2028 5,260,242
17,307,480 TIAA Retail Commercial Mortgage Trust Ser. 99-1,
ClassA, 7.17s, 2008 16,807,186
--------------
Total Collateralized Mortgage Obligations
(cost $197,054,586) $ 189,460,891
PREFERRED STOCKS (0.4%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
5,857 AmeriKing, Inc. $3.25 pfd. (PIK) $ 81,999
27,755 California Federal Bancorp Inc. Ser. A, $2.281 pfd. 645,304
9,400 Centaur Funding Corp. 144A 9.08% cum. pfd.
(Cayman Islands) 9,756,072
16,637 CGA Group Ltd. 144A Ser. A, $13.75 pfd. (PIK) 449,199
6,155 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. (PIK) 332,370
3,406 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 368,700
265 Fresenius Medical Capital Trust I Ser. D, 9.00% company
guaranty, pfd. (Germany) 257,050
2,245 Fresenius Medical Capital Trust II 7.875% company
guaranty, pfd. (Germany) 2,031,725
95 Paxson Communications Corp. $13.25 cum. pfd. (PIK) 978,500
6,775 Webster Financial 7.375% pfd. 6,537,875
--------------
Total Preferred Stocks (cost $21,496,424) $ 21,438,794
ASSET-BACKED SECURITIES (0.4%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 1,960,000 Chase Credit Card Master Trust Ser. 96-4, Class A,
5.911s, 2006 $ 1,955,100
4,801,090 First Plus Ser. 98-A, Class A, 8 1/2s, 2023 3,600,817
5,700,000 Greenpoint Manufactured Housing Ser. 99-5, Class B,
9.9s, 2029 5,309,906
4,947,118 Green Tree Recreational Equipment & Cons. Ser. 97-B,
Class A1, 6.55s, 2028 4,872,525
4,239,372 Green Tree Recreational Equipment & Cons. Ser. 98-A,
Class A1C, 6.18s, 2019 4,130,241
39,290,000 Lehman Manufactured Housing Ser. 98-1,
Class 1, IO, 0.82s, 2028 1,322,784
--------------
Total Asset-Backed Securities (cost $23,200,773) $ 21,191,373
FOREIGN GOVERNMENT BONDS AND NOTES (0.3%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 1,605,000 Ontario (Province of) sr. unsub. 5 1/2s, 2008 (Canada) $ 1,397,153
16,135,000 Quebec (Province of) sr. unsub. 5 3/4s, 2009 (Canada) 14,079,562
--------------
Total Foreign Government Bonds and Notes
(cost $17,569,986) $ 15,476,715
MUNICIPAL BOND (0.1%) (a) (cost $7,374,195)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 7,380,000 Mashantucket Pequot Tribe 144A bonds Ser. A, Financial
Security Assurance (FSA), 6.57s, 2013 $ 6,426,504
CONVERTIBLE BONDS AND NOTES (--%) (a) (cost $392,658)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$500,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 $ 387,500
WARRANTS (--%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
16,000 CGA Group Ltd. 144A 2/11/07 $ 160
685 Club Regina, Inc. 144A 12/1/04 685
205 Esat Holdings, Inc. (Ireland) 2/1/07 46,125
130 Long Distance International, Inc. 144A 4/13/08 260
180 McCaw International Ltd. 4/15/07 810
960 Powertel, Inc. 2/1/06 4,320
280 Telehub Communications Corp. 7/31/05 140
625 UIH Australia/Pacific, Inc. 144A 5/15/06 18,750
270 Versatel Telecom B.V. 144A (Netherlands) 5/15/08 114,750
--------------
Total Warrants (cost $104,042) $ 186,000
CONVERTIBLE PREFERRED STOCKS (--%) (a) (cost $83,750)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
1,675 Chesapeake Energy Corp. $3.50 cum. cv. pfd. $ 51,925
SHORT-TERM INVESTMENTS (1.3%) (a) (cost $76,292,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$76,292,000 Interest in $650,000,000 joint tri-party repurchase
agreement dated January 31, 2000 with Goldman
Sachs & Co. due February 1, 2000 with respect
to various U.S. Treasury obligations -- maturity value
of $76,304,080 for an effective yield of 5.70% $ 76,292,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $5,939,367,280) (b) $5,852,070,758
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $5,817,689,171.
(b) The aggregate identified cost on a tax basis is $5,943,309,145, resulting in gross unrealized appreciation and
depreciation of $433,167,203 and $524,405,590, respectively, or net unrealized depreciation of $91,238,387.
(NON) Non-income-producing security.
(STP) The interest rate and date shown parenthetically represent the new interest rate to be paid and the date the fund
will begin receiving interest at this rate.
(PIK) Income may be received in cash or additional securities at the discretion of the issuer.
(SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for futures
contracts January 31, 2000.
(R) Real Estate Investment Trust.
144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from registration, normally to qualified
institutional buyers.
ADR after the name of a foreign holding stands for American Depositary Receipts representing ownership of foreign
securities on deposit with a domestic custodian bank.
TBA after the name of a security represents to be announced securities (Note 1).
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at January 31, 2000
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- -------------------------------------------------------------------------------
US Treasury 20 year
Bonds (short) $9,775,188 $ 9,739,184 Mar-00 $ (36,004)
- -------------------------------------------------------------------------------
TBA Sales Commitments at January 31, 2000
(proceeds received $40,320,866)
Principal Settlement Market
Description Amount Date Value
- -------------------------------------------------------------------------------
FNMA, 7 1/2s, February 2030 $38,252,460 2/24/00 $37,332,106
FNMA, 6 1/2s, February 2030 3,127,000 2/24/00 2,902,262
- -------------------------------------------------------------------------------
$40,234,368
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
January 31, 2000 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $5,939,367,280) (Note 1) $5,852,070,758
- -----------------------------------------------------------------------------------------------
Cash 124,079
- -----------------------------------------------------------------------------------------------
Foreign currency (cost $1,740) 1,549
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 42,858,014
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 8,012,936
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 223,416,151
- -----------------------------------------------------------------------------------------------
Receivable for variation margin 76,188
- -----------------------------------------------------------------------------------------------
Total assets 6,126,559,675
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 14,518
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 237,803,204
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 20,147,854
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 7,470,856
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 797,638
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 57,528
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,656
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 2,142,701
- -----------------------------------------------------------------------------------------------
TBA sale commitments at value (proceeds received $40,320,866) 40,234,368
- -----------------------------------------------------------------------------------------------
Other accrued expenses 199,181
- -----------------------------------------------------------------------------------------------
Total liabilities 308,870,504
- -----------------------------------------------------------------------------------------------
Net assets $5,817,689,171
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $5,971,430,832
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 5,798,872
- -----------------------------------------------------------------------------------------------
Distributions in excess of net realized gains on investments and foreign
currency transactions (Note 1) (72,292,750)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (87,247,783)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $5,817,689,171
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($3,420,342,780 divided by 214,932,029 shares) $15.91
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $15.91)* $16.88
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,397,395,672 divided by 88,657,076 shares)** $15.76
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($13,660,765 divided by 860,909 shares)** $15.87
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($253,974,760 divided by 16,109,288 shares) $15.77
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $15.77)* $16.34
- -----------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($732,315,194 divided by 45,916,987 shares) $15.95
- -----------------------------------------------------------------------------------------------
* 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, 2000 (Unaudited)
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest $ 88,733,002
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $175,280) 42,444,576
- -----------------------------------------------------------------------------------------------
Total investment income 131,177,578
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 15,171,597
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 4,945,357
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 44,818
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 16,490
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 4,659,379
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 7,860,975
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 40,818
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 1,058,591
- -----------------------------------------------------------------------------------------------
Reports to shareholders 69,262
- -----------------------------------------------------------------------------------------------
Registration fees 20,501
- -----------------------------------------------------------------------------------------------
Auditing 48,195
- -----------------------------------------------------------------------------------------------
Legal 7,888
- -----------------------------------------------------------------------------------------------
Postage 310,853
- -----------------------------------------------------------------------------------------------
Other 295,081
- -----------------------------------------------------------------------------------------------
Total expenses 34,549,805
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (896,398)
- -----------------------------------------------------------------------------------------------
Net expenses 33,653,407
- -----------------------------------------------------------------------------------------------
Net investment income 97,524,171
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (77,469,081)
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Notes 1) (763,096)
- -----------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 32,947
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the period (143,287)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments, futures contracts,
and TBA sale commitments during the period (419,321,443)
- -----------------------------------------------------------------------------------------------
Net loss on investments (497,663,960)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(400,139,789)
- -----------------------------------------------------------------------------------------------
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
2000* 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 97,524,171 $ 175,875,061
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions (78,199,230) 450,083,884
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (419,464,730) (152,022,435)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (400,139,789) 473,936,510
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (63,142,139) (109,146,841)
- ---------------------------------------------------------------------------------------------------------------
Class B (20,790,100) (33,139,561)
- ---------------------------------------------------------------------------------------------------------------
Class C (93,366) --
- ---------------------------------------------------------------------------------------------------------------
Class M (4,087,179) (7,053,301)
- ---------------------------------------------------------------------------------------------------------------
Class Y (13,584,999) (17,057,113)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (255,471,738) (235,789,968)
- ---------------------------------------------------------------------------------------------------------------
Class B (108,925,775) (93,908,591)
- ---------------------------------------------------------------------------------------------------------------
Class C (691,649) --
- ---------------------------------------------------------------------------------------------------------------
Class M (19,525,964) (19,043,436)
- ---------------------------------------------------------------------------------------------------------------
Class Y (54,139,426) (31,362,904)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 141,049,265 1,248,141,716
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (799,542,859) 1,175,576,511
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 6,617,232,030 5,441,655,519
- ---------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $5,798,872 and $9,972,484, respectively) $5,817,689,171 $6,617,232,030
- ---------------------------------------------------------------------------------------------------------------
* 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
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $18.49 $18.82 $18.95 $15.82 $14.90 $13.52
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .28(c) .57(c) .60 .60(c) .63 .63
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.33) .90 1.08 4.11 1.50 1.63
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (1.05) 1.47 1.68 4.71 2.13 2.26
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.30) (.55) (.60) (.67) (.58) (.56)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.23) (1.25) (1.21) (.91) (.63) (.32)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.53) (1.80) (1.81) (1.58) (1.21) (.88)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $15.91 $18.49 $18.82 $18.95 $15.82 $14.90
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (6.07)* 8.33 9.53 31.52 14.75 17.73
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,420,343 $3,937,264 $3,387,620 $2,607,562 $1,515,260 $1,036,674
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .46* .93 1.00 1.06 .95 .91
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.63* 3.10 3.11 3.51 4.07 4.58
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 73.20* 127.68 126.19 134.80 119.44 102.57
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended July 31, 1996 and thereafter includes amounts paid through
brokerage service and expense offset arrangements. Prior period ratios exclude these amounts. (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during
the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share January 31
operating performance (Unaudited) Year ended July 31
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $18.33 $18.67 $18.82 $15.74 $14.83 $13.46
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .21(c) .43(c) .46 .46(c) .51 .52
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.32) .90 1.07 4.08 1.50 1.63
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (1.11) 1.33 1.53 4.54 2.01 2.15
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.23) (.42) (.47) (.55) (.47) (.46)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.23) (1.25) (1.21) (.91) (.63) (.32)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.46) (1.67) (1.68) (1.46) (1.10) (.78)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $15.76 $18.33 $18.67 $18.82 $15.74 $14.83
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (6.43)* 7.55 8.72 30.46 13.97 16.87
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,397,396 $1,641,515 $1,305,897 $888,666 $435,278 $224,166
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .83* 1.68 1.75 1.81 1.71 1.66
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.26* 2.35 2.37 2.74 3.31 3.81
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 73.20* 127.68 126.19 134.80 119.44 102.57
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended July 31, 1996 and thereafter includes amounts paid through
brokerage service and expense offset arrangements. Prior period ratios exclude these amounts. (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during
the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share January 31 July. 26, 1999+
operating performance (Unaudited) to July 31
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $18.49 $18.76
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .21(c) --(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.32) (.27)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (1.11) (.27)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.28) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.23) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.51) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $15.87 $18.49
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (6.39)* (1.44)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $13,661 $565
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .83* .03*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.28* (.03)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 73.20* 127.68
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended July 31, 1996 and thereafter includes amounts paid through
brokerage service and expense offset arrangements. Prior period ratios exclude these amounts. (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during
the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share January 31 Dec. 1, 1994+
operating performance (Unaudited) Year ended July 31 to July 31
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $18.33 $18.67 $18.82 $15.74 $14.84 $12.77
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .24(c) .47(c) .51 .53(c) .55 .31
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.32) .90 1.06 4.06 1.50 2.03
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (1.08) 1.37 1.57 4.59 2.05 2.34
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.25) (.46) (.51) (.60) (.52) (.27)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.23) (1.25) (1.21) (.91) (.63) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.48) (1.71) (1.72) (1.51) (1.15) (.27)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $15.77 $18.33 $18.67 $18.82 $15.74 $14.84
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (6.25)* 7.80 8.98 30.83 14.26 18.52*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $253,975 $293,336 $276,962 $187,475 $49,541 $8,164
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .71* 1.43 1.50 1.56 1.50 .93*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.38* 2.61 2.62 3.05 3.50 2.53*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 73.20* 127.68 126.19 134.80 119.44 102.57
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended July 31, 1996 and thereafter includes amounts paid through
brokerage service and expense offset arrangements. Prior period ratios exclude these amounts. (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during
the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS Y
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share January 31
operating performance (Unaudited) Year ended July 31
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $18.53 $18.85 $18.98 $15.85 $14.92 $13.54
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .30(c) .62(c) .64 .64(c) .68 .66
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.33) .91 1.09 4.11 1.50 1.63
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (1.03) 1.53 1.73 4.75 2.18 2.29
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.32) (.60) (.65) (.71) (.62) (.59)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.23) (1.25) (1.21) (.91) (.63) (.32)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.55) (1.85) (1.86) (1.62) (1.25) (.91)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $15.95 $18.53 $18.85 $18.98 $15.85 $14.92
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (5.93)* 8.63 9.79 31.78 15.09 18.00
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $732,315 $744,552 $471,176 $356,251 $207,508 $153,597
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .33* .68 .75 .81 .70 .66
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.76* 3.33 3.37 3.74 4.33 4.78
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 73.20* 127.68 126.19 134.80 119.44 102.57
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended July 31, 1996 and thereafter includes amounts paid through
brokerage service and expense offset arrangements. Prior period ratios exclude these amounts. (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during
the period.
</TABLE>
Notes to financial statements
January 31, 2000 (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 C, 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 C shares are subject to the same fees and expenses as
class B shares, except that class C shares have a one-year 1.00%
contingent deferred sales charge and do not convert to class A shares.
Class M shares are sold with a maximum front end sales charge of 3.50% and
pay an ongoing distribution fee that is higher than class A shares but
lower than class B and class C shares. Class Y shares, which are sold at
net asset value, are generally subject to the same expenses as class A,
class B, class C and class M shares, but do not bear a distribution fee.
Class Y shares are sold to defined contribution plans that invest at least
$150 million in a combination of Putnam funds and other accounts managed
by affiliates of Putnam Investment Management, Inc. ("Putnam Management"),
the fund's manager, a wholly owned subsidiary of Putnam Investments, Inc.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if that fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally
accepted accounting principles and requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period.
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 sales price on its principal exchange, 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. Market quotations are not
considered to be readily available for certain debt obligations; such
investments are stated at fair value on the basis of valuations furnished
by a pricing service or dealers, approved by the Trustees, which determine
valuations for normal institutional-size trading units of such securities
using methods based on market transactions for comparable securities and
variable relationships between securities that are generally recognized by
institutional traders.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Management. These balances may be invested in one or more
repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the market
value of which at the time of purchase is required to be in an amount at
least equal to the resale price, including accrued interest. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Gains or losses on securities sold are determined on
the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date except that certain dividends from
foreign securities are recorded as soon as the fund is informed of the
ex-dividend date. Discounts on zero coupon bonds, original issue discount
bonds, stepped-coupon bonds and payment in kind bonds are accreted
according to the yield-to-maturity basis. Securities purchased or sold on
a forward commitment or delayed delivery basis may be settled a month or
more after the trade date; interest income is accrued based on the terms
of the security. Losses may arise due to changes in the market value of
the underlying securities or if the counterparty does not perform under
the contract.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The fund
does not isolate that portion of realized or unrealized gains or losses
resulting from changes in the foreign exchange rate on investments from
fluctuations arising from changes in the market prices of the securities.
Such gains and losses are included with the net realized and unrealized
gain or loss on investments. Net realized gains and losses on foreign
currency transactions represent net realized exchange gains or losses on
closed forward currency contracts, disposition of foreign currencies and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized appreciation
and depreciation of assets and liabilities in foreign currencies arise
from changes in the value of open forward currency contracts and assets
and liabilities other than investments at the period end, resulting from
changes in the exchange rate. Investments in foreign securities involve
certain risks, including those related to economic instability,
unfavorable political developments, and currency fluctuations, not present
with domestic investments.
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 0.01%
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, 2000, 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.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the six months ended January 31, 2000, fund expenses were reduced by
$896,398 under expense offset arrangements with PFTC and broker 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 $3,524
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, class C and class M shares pursuant to Rule 12b-1 under
the Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam
Investments Inc., for services provided and expenses incurred by it in
distributing shares of the fund. The Plans provide for payments by the
fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%, 1.00%,
1.00% and 1.00% of the average net assets attributable to class A, class
B, class C and class M shares, respectively. The Trustees have approved
payment by the fund to an annual rate of 0.25%, 1.00%, 1.00% and 0.75% of
the average net assets attributable to class A, class B, class C and class
M shares respectively.
For the six months ended January 31, 2000, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $677,941 and $17,281
from the sale of class A and class M shares, respectively and $1,717,852
and $6,450 in contingent deferred sales charges from redemptions of class
B shares and class C, respectively. A deferred sales charge of up to 1% is
assessed on certain redemptions of class A shares. For the six months
ended January 31, 2000, Putnam Mutual Funds Corp., acting as underwriter
received $50,052 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended January 31, 2000, cost of purchases and
proceeds from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $1,296,513,102 and
$1,666,660,888, respectively. Purchases and sales of U.S. government
obligations aggregated $3,188,406,946 and $3,025,567,742, respectively.
Note 4
Capital shares
At January 31, 2000, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended January 31, 2000
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 27,002,749 $ 463,485,917
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 17,764,442 297,950,375
- -----------------------------------------------------------------------------
44,767,191 761,436,292
Shares
repurchased (42,799,444) (727,351,279)
- -----------------------------------------------------------------------------
Net increase 1,967,747 $ 34,085,013
- -----------------------------------------------------------------------------
Year ended July 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 71,350,723 $ 1,305,654,213
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 17,951,127 321,277,356
- -----------------------------------------------------------------------------
89,301,850 1,626,931,569
Shares
repurchased (56,386,152) (1,037,171,935)
- -----------------------------------------------------------------------------
Net increase 32,915,698 $ 589,759,634
- -----------------------------------------------------------------------------
Six months ended January 31, 2000
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 9,563,366 $ 164,701,146
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 7,377,147 122,491,588
- -----------------------------------------------------------------------------
16,940,513 287,192,734
Shares
repurchased (17,861,346) (298,757,771)
- -----------------------------------------------------------------------------
Net decrease (920,833) $ (11,565,037)
- -----------------------------------------------------------------------------
Year ended July 31, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 32,951,628 $ 598,596,843
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,725,747 119,388,554
- -----------------------------------------------------------------------------
39,677,375 717,985,397
Shares
repurchased (20,061,741) (363,849,605)
- -----------------------------------------------------------------------------
Net increase 19,615,634 $ 354,135,792
- -----------------------------------------------------------------------------
Six months ended January 31, 2000
- -----------------------------------------------------------------------------
Class C Shares Shares
- -----------------------------------------------------------------------------
Shares sold 885,312 $ 15,267,853
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 45,922 763,605
- -----------------------------------------------------------------------------
931,234 16,031,458
Shares
repurchased (100,908) (1,667,133)
- -----------------------------------------------------------------------------
Net increase 830,326 $ 14,364,325
- -----------------------------------------------------------------------------
Year ended July 31, 1999
- -----------------------------------------------------------------------------
Class C Shares Shares
- -----------------------------------------------------------------------------
Shares sold 30,583 $ 571,827
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
30,583 571,827
Shares
repurchased -- --
- -----------------------------------------------------------------------------
Net increase 30,583 $ 571,827
- -----------------------------------------------------------------------------
Six months ended January 31, 2000
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,009,288 $ 34,693,082
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,404,424 23,332,576
- -----------------------------------------------------------------------------
3,413,712 58,025,658
Shares
repurchased (3,306,552) (55,618,850)
- -----------------------------------------------------------------------------
Net increase 107,160 $ 2,406,808
- -----------------------------------------------------------------------------
Year ended July 31, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 5,924,357 $ 107,923,821
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,446,021 25,658,426
- -----------------------------------------------------------------------------
7,370,378 133,582,247
Shares
repurchased (6,206,656) (112,934,440)
- -----------------------------------------------------------------------------
Net increase 1,163,722 $ 20,647,807
- -----------------------------------------------------------------------------
Six months ended January 31, 2000
- -----------------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------------
Shares sold 10,845,039 $ 188,658,384
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,031,076 67,724,425
- -----------------------------------------------------------------------------
14,876,115 256,382,809
Shares
repurchased (9,146,271) (154,624,653)
- -----------------------------------------------------------------------------
Net increase 5,729,844 $ 101,758,156
- -----------------------------------------------------------------------------
Year ended July 31, 1999
- -----------------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------------
Shares sold 21,650,266 $ 402,853,725
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,696,088 48,420,017
- -----------------------------------------------------------------------------
24,346,354 451,273,742
Shares
repurchased (9,159,570) (168,247,086)
- -----------------------------------------------------------------------------
Net increase 15,186,784 $ 283,026,656
- -----------------------------------------------------------------------------
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds. Please
call your financial advisor or Putnam at 1-800-225-1581 to obtain a prospectus
for any Putnam fund. It contains more complete information, including charges
and expenses. Please read it carefully before you invest or send money.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Europe Growth Fund
Global Equity Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Century Growth Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Tax Smart Equity Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Small Cap Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
TAX-FREE INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey,
New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK] **
California, New York
ASSET ALLOCATION FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Putnam Diversified Income Trust II
[DBL. DAGGER] Closed to new investors. Some exceptions may apply. Contact
Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Thomas V. Reilly
Vice President
Deborah F. Kuenstner
Vice President
Edward P. Bousa
Vice President and Fund Manager
James M. Prusko
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
This report is for the information of shareholders of The George Putnam
Fund of Boston. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and
the most recent copy of Putnam's Quarterly Performance Summary. For more
information or to request a prospectus, call toll free: 1-800-225-1581.
You can also learn more at Putnam Investments' Web site: www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution; are not insured by the Federal
Deposit Insurance Corporation (FDIC), the Federal Reserve Board, or any
other agency; and involve risk, including the possible loss of the
principal amount invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
SA021-58955 001/880/242/505 3/00
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ---------------------------------------------------------------------------
The George Putnam Fund of Boston
Supplement to Semiannual Report dated 1/31/00
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 semiannual
report.
ANNUAL RESULTS AT A GLANCE
- ---------------------------------------------------------------------------
Total return for periods ended 1/31/00 NAV
6 months -5.93%
1 year -2.87
5 years 96.05
Annual average 14.41
10 years 243.70
Annual average 11.88
Life of fund (since class A inception, 11/5/37) 33477.15
(annual average) 9.80
Share value: NAV
7/31/99 $18.53
1/31/00 $15.95
Current dividend rate 4.04%
Current 30-day SEC yield 4.00%
- ---------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
2 $0.323 Short 0.166 Long 1.06 $1.549
- ---------------------------------------------------------------------------
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.
