The George
Putnam
Fund of
Boston
Item 1. Report to Stockholders:
- -------------------------------
The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
7-31-03
[GRAPHIC OMITTED: SCALES]
[SCALE LOGO OMITTED]
From the Trustees
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
We are pleased to bring you this report of positive performance for The
George Putnam Fund of Boston for the fiscal year ended July 31, 2003.
This good news is dampened somewhat by the fact that the fund's results
lagged those of its benchmark indexes and its Lipper category average.
You will find the details on the facing page.
The cause of the underperformance for the most part lies in the
lackluster performance of a few individual holdings, mainly in the
health-care and consumer staples sectors, and in the avoidance of some
well-performing communications equipment companies that did not meet the
management teams' selection criteria. Of more significance, in our view,
however, is the decision by management to position the portfolio not
only with existing market conditions in mind but also to take advantage
of the gathering economic recovery. In the following pages, the managers
discuss their strategy in detail and offer their view of prospects for
the fund in the months ahead.
While no one can make assurances in such matters, mounting evidence
suggests that better days lie ahead for equity investors. What we told
you at the midpoint of this fiscal year bears repeating here. We deeply
appreciate your continued confidence in Putnam and we firmly believe
that over the long haul your patience will be rewarded.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
September 17, 2003
Report from Fund Management
Fund highlights
* For the annual period ended July 31, 2003, The George Putnam Fund of
Boston's class A shares returned 8.06% at net asset value, and 1.82%
at public offering price.
* The fund underperformed its Putnam benchmark, the George Putnam Blended
Index, which is represented by 60% S&P 500/Barra Value Index and 40%
Lehman Aggregate Bond Index. The George Putnam Blended Index returned
10.65%.
* The fund also underperformed the S&P 500/Barra Value Index benchmark,
which returned 12.50%.
* The fund underperformed the Lipper Balanced Funds category average,
which was 8.21%.
* See the Performance summary on page 8 for complete fund performance,
comparative performance, and Lipper data.
Performance commentary
Stock performance improved in the second half of your fund's fiscal year
as investors demonstrated an increased appetite for risk. The fund
produced positive returns, but regrettably underperformed its benchmarks
and the Lipper Balanced Funds category average. We attribute the
underperformance primarily to declines in certain stocks within the
health-care and consumer staples sectors. Also, our decision to avoid
stocks of communications equipment companies hurt, as this group
significantly outperformed the market. However, we believed that these
stocks were of inferior quality and represented too much risk for the
portfolio. We believe our asset allocation decisions were beneficial
throughout the year. We also believe our strategy of targeting companies
that would benefit from increased corporate spending contributed
positively.
FUND PROFILE
The fund seeks to provide a balanced investment composed of a
well-diversified portfolio of stocks and bonds that produce both capital
growth and current income. The fund targets attractively priced stocks
of large, established, dividend-paying companies that are poised to
experience positive change and improved financial performance. The bond
portion is a diversified mix of investment-grade securities. The fund
may be appropriate for investors seeking current income and long-term
growth from a balanced investment.
Market overview
In general, equity valuations declined during three quarters of the
fund's fiscal period. Volatility remained high, reflecting an extreme
degree of uncertainty over world events. Speculation about the
possibility of war with Iraq, tensions in the Middle East, the prospects
of additional terrorist attacks in the United States, and economic
weakness fostered caution as the calendar year began. Investors were
driven primarily by fear and flocked to fixed-income investments in
search of greater stability. Across most sectors of the fixed-income
market, investments rose in value as demand soared. Bond yields, which
are inversely related to bond prices, dropped significantly. Businesses
reported lackluster profits and, in the face of tepid economic
indicators, were not in a spending mood. Yet, as the months wore on,
sentiment shifted perceptibly to the positive side. Continuing low
inflation, record low interest rates, the Federal Reserve Board's
stimulative monetary policy, and the taxpayer-friendly Jobs and Growth
Tax Relief Reconciliation Act of 2003 helped spur economic expansion.
Second quarter annualized GDP growth was a higher-than-expected 2.4%.
Uncertainty seemed to take a back seat as investors once again tested
the equities market. All of the major U.S. equity indexes posted gains
in the second quarter. As equities advanced, small-cap stocks beat
large-cap stocks by a wide margin. Growth stocks outperformed value
stocks, but not to a great degree. To date, the recovery has been
modest, and we believe that it is likely to remain so.
- --------------------------------------------------------------------
MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 7/31/03
- --------------------------------------------------------------------
Equities
- --------------------------------------------------------------------
S&P 500/Barra Value Index (value stocks) 12.50%
- --------------------------------------------------------------------
Russell 2000 Growth Index (small-company growth stocks) 27.97%
- --------------------------------------------------------------------
Russell 2000 Value Index (small-company value stocks) 18.62%
- --------------------------------------------------------------------
Russell 1000 Index (large-company stocks) 11.19%
- --------------------------------------------------------------------
Bonds
- --------------------------------------------------------------------
Lehman Aggregate Bond Index (broad bond market) 5.42%
- --------------------------------------------------------------------
JP Morgan Global High Yield Index (high-yield
corporate bonds) 22.23%
- --------------------------------------------------------------------
Lehman Government Bond Index (U.S. Treasury and agency
securities) 4.45%
- --------------------------------------------------------------------
These indexes provide an overview of performance in different market
sectors for the 12 months ended 7/31/03.
- --------------------------------------------------------------------
Strategy overview
We believe our asset allocation decisions contributed positively to the
fund's return. We actively manage the fund's allocations using a very
rigorous process. We rely on the expertise of Putnam's Global Asset
Allocation Team to help us determine the ideal stock/bond weighting for
the fund on an ongoing basis. While the fund's neutral position is 60%
stocks and 40% bonds, we adjust these percentages as conditions warrant.
Such flexibility enables us to take advantage of opportunities that
arise and to move toward a more defensive positioning when we deem it
appropriate. Our decision to increase the fund's equity portion to about
66% of the portfolio helped the fund to participate in the December and
January stock rallies. Having taken advantage of that midyear upswing,
we reduced the equity portion by the end of January. During the second
half of the fiscal year, we made numerous moves that helped the fund to
capitalize on market trends.
We were convinced that business spending would be the dominant force
behind the current economic expansion. Accordingly, the fund took
positions in stocks that we believed would benefit from increased
capital outlays. In fact, this strategy worked, as some of the biggest
contributors to performance included makers of computers, software, and
machinery.
[GRAPHIC OMITTED: horizontal bar chart PORTFOLIO COMPOSITION COMPARED]
PORTFOLIO COMPOSITION COMPARED
as of as of
1/31/03 7/31/03
Common stocks 61.4% 56.9%
U.S. government
and agency 14.0% 20.8%
Corporate bonds
and notes 12.7% 10.5%
Collateralized
mortgage obligations 7.2% 7.1%
Asset-backed
securities 3.7% 3.7%
Convertible and
preferred stocks 0.5% 0.6%
Other 0.5% 0.4%
Footnote reads:
This chart shows how the fund's weightings have changed over the past
six months. Weightings are shown as a percentage of market value,
excluding cash equivalents and including futures contracts. Holdings
will vary over time.
How fund holdings affected performance
The biggest positive contributor to fund performance, in terms of
sectors, was the consumer cyclical sector. Although the fund was
underweighted in this sector, relative to the S&P 500/Barra Value
benchmark, strong performance by selected media and lodging and tourism
stocks helped drive results. One key holding, Liberty Media, owns and
operates cable and satellite networks for broadcast television. It owns
the QVC network, BET, and the Discovery channel. It has grown through
numerous acquisitions, which makes it difficult for investors to
estimate its value. We established a position when our in-depth research
and analysis suggested that the conglomeration of assets was
undervalued. As the market realized the company deserved a higher
valuation, the stock advanced during the period.
Travel-related stocks suffered after the tragedy of September 11, as
many individuals and businesses curtailed travel plans. Corporate
cost-cutting further slashed the industry's earnings. We increased the
fund's exposure to the industry when stock valuations appeared very
attractive. Since then, many of the stocks have rebounded significantly.
Among them, Hilton Hotels and Royal Caribbean added to the fund's
return.
[GRAPHIC OMITTED: TOP 10 EQUITY HOLDINGS]
TOP 10 EQUITY HOLDINGS
1 Citigroup, Inc.
Financial
2 Exxon Mobil Corp.
Oil and gas
3 Altria Group, Inc.
Tobacco
4 Pfizer, Inc.
Pharmaceuticals
5 Hewlett-Packard Co.
Computers
6 Verizon Communications, Inc.
Regional Bells
7 Bank of America Corp.
Banking
8 US Bancorp
Banking
9 JPMorgan Chase & Co.
Investment banking and brokerage
10 SBC Communications, Inc.
Regional Bells
Footnote reads:
These holdings represent 16.7% of the fund's net assets as of 7/31/03 The
fund's holdings will change over time
The second-best-performing sector for the fund was technology. Since our
investment strategy favored companies that could benefit from corporate
spending, we established an overweight position in software. This
strategy proved effective, as Computer Associates International, Inc.
was the portfolio's top performer during the period. The company
designs, installs, and maintains business-related software that makes
data management more efficient, particularly in the areas of storage,
computing, and security. Computer Associates seemed to appreciate on the
mere absence of bad news as investor concern over management and
accounting issues began to abate and the stock's low price and
competitive market position came into focus. Another major contributor
was Hewlett-Packard, whose merger with Compaq Computer in 2002 created a
stronger, more diversified company. HP's range of products includes
printers, scanners, digital cameras, imaging devices, and computers. We
are confident that the integration of the two companies will ultimately
be successful, and the market has rewarded HP shareholders with a higher
stock price.
Weak performance by health-care and consumer staples stocks dampened the
fund's returns. In particular, positions in HCA-The Healthcare Company,
King Pharmaceuticals, and Abbott Laboratories disappointed. Fundamentals
deteriorated for HCA, and we closed out the position. We believe the
prospects for King and Abbott are more attractive and that they will
reward shareholders over the long term, so we continue to hold those
positions. Among the fund's consumer staples holdings, Altria and Kraft
Foods detracted from results. Altria (formerly Philip Morris) was dogged
by numerous anti-tobacco civil lawsuits throughout the year. Although
the company had a favorable court ruling at the end of the period, the
stock price declined overall as investors questioned Altria's ability to
pay steep settlement costs. We believe that individual states will do
what they can to prevent Altria's bankruptcy, and so we continue to hold
the stock. It pays a generous dividend and contributes to the fund's
total return. Kraft is a high-quality company with well-known brands,
but is under pressure from private label manufacturers to reduce its
prices. We are monitoring the situation carefully and may adjust our
position if we feel the company's fundamentals are becoming less
attractive.
On the bond side, Treasury yields fell further as the Fed lowered
short-term interest rates. Fixed-income returns were generally strong
across the board. BB-rated high-yield bonds returned in excess of 7% in
the second quarter of 2003, and the fund's overweight position in
high-yield bonds, particularly in the telecom and media sectors, helped
performance. Also helpful were the fund's allocations to
mortgage-backed, commercial mortgage-backed, and asset-backed
securities. These offer potentially significant incremental income
without the company-specific risks of corporate bonds. Treasury and
agency securities with maturities of five years or less were largely
eliminated from the portfolio, as their very low yields were not
attractive. Please note that all holdings discussed in this report are
subject to review in accordance with the fund's investment strategy and
may vary in the future.
OF SPECIAL INTEREST
As of February 2003, the fund's class A dividend rate was reduced from
$0.126 to $0.088 per share.
The dividend change reflects a significant decline in interest rates,
which lowered yields on the fund's fixed-income investments (about 33%
of the assets of the fund) during the year.
The fund's management teams
The fund is managed by the Putnam Large-Cap Value, Core Fixed-Income,
and Global Asset Allocation teams. The members of the Large-Cap Value
Team are Jeanne Mockard (Portfolio Leader), Mike Abata, Bartlett Geer,
David King, Deborah Kuenstner, Cole Lannum, Christopher Miller, and Hugh
Mullin. The members of the Core Fixed-Income Team are Jim Prusko
(Portfolio Member), Carl Bell, Rob Bloemker, Andrea Burke, Kevin Cronin,
Steve Horner, D. William Kohli, Michael Salm, John VanTassel, and David
Waldman. The members of the Global Asset Allocation Team are Jeff Knight
(Portfolio Member), Robert Kea, Robert Schoen, and Graham Spiers.
The outlook for your fund
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
teams' plans for responding to them.
Our near-term outlook for your fund is modestly positive. Certainly,
stock market returns have improved, as investors are demonstrating their
renewed interest in equities. The economy often lags the stock market,
but some economic indicators are looking more favorable. Companies have
streamlined their operations and are poised to benefit from increases in
demand and productivity. As always, we strive to invest in stocks of
high-quality dividend-paying companies with relatively low risk
profiles. The fund remains overweighted in a diversified group of
BB-rated fixed-income securities. We believe the trend in corporate debt
reduction will continue to benefit the high-yield sector. We anticipate
that growth and inflation may remain muted through 2003 and that the Fed
will refrain from raising short-term interest rates until 2004. Under
these conditions, we believe a balanced investment such as The George
Putnam Fund of Boston, which provides broad exposure to stocks and bonds
and has the flexibility to respond to market changes, is a prudent
approach to the pursuit of long-term investment returns. We remain
committed to helping you pursue your investment goals.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice.
Performance summary
This section provides information about your fund's performance during
its fiscal year, which ended July 31, 2003. In accordance with
regulatory requirements, we also include performance for the most
current calendar quarter-end. Performance should always be considered in
light of a fund's investment strategy. Past performance does not
indicate future results. More recent returns may be less or more than
those shown. Investment return and principal value will fluctuate and
you may have a gain or a loss when you sell your shares. A profile of
your fund's strategy appears on the first page of this report. See page
10 for definitions of some terms used in this section.
- ---------------------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 7/31/03
- ---------------------------------------------------------------------------------------------
Class A Class B Class C Class M Class R
(inception dates) (11/5/37) (4/27/92) (7/26/99) (12/1/94) (1/21/03)
NAV POP NAV CDSC NAV CDSC NAV POP NAV
- ---------------------------------------------------------------------------------------------
1 year 8.06% 1.82% 7.25% 2.25% 7.25% 6.25% 7.58% 3.81% 7.72%
- ---------------------------------------------------------------------------------------------
5 years 12.59 6.11 8.48 6.81 8.44 8.44 9.90 6.04 11.12
Annual average 2.40 1.19 1.64 1.33 1.63 1.63 1.91 1.18 2.13
- ---------------------------------------------------------------------------------------------
10 years 126.71 113.65 110.47 110.47 110.25 110.25 115.69 108.08 121.06
Annual average 8.53 7.89 7.73 7.73 7.71 7.71 7.99 7.60 8.26
- ---------------------------------------------------------------------------------------------
Annual average
(life of fund) 9.39 9.30 8.35 8.35 8.57 8.57 8.63 8.57 9.12
- ---------------------------------------------------------------------------------------------
Performance assumes reinvestment of distributions and does not account
for taxes. Returns at public offering price (POP) for class A and M
shares reflect a sales charge of 5.75% and 3.50%, respectively. Class B
share returns reflect the applicable contingent deferred sales charge
(CDSC), which is 5% in the first year, declining to 1% in the sixth
year, and is eliminated thereafter. Class C shares reflect a 1% CDSC the
first year that is eliminated thereafter. Class R share returns have no
initial sales charge or CDSC. Performance for class B, C, M, and R
shares before their inception is derived from the historical performance
of class A shares, adjusted for the applicable sales charge (or CDSC)
and higher operating expenses for such shares.
- --------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 7/31/03
- --------------------------------------------------------------------------------
S&P 500/ Lehman George Putnam Lipper Balanced
Barra Value Aggregate Bond Blended Funds category
Index Index Index average*
- --------------------------------------------------------------------------------
1 year 12.50% 5.42% 10.65% 8.21%
- --------------------------------------------------------------------------------
5 years 0.27 38.74 17.74 9.21
Annual average 0.05 6.77 3.32 1.66
- --------------------------------------------------------------------------------
10 years 147.70 92.81 132.68 110.35
Annual average 9.49 6.79 8.81 7.57
- --------------------------------------------------------------------------------
Annual average
(life of fund) -- + -- + -- + -- +
- --------------------------------------------------------------------------------
* Index and Lipper results should be compared to fund performance at net
asset value. Over the 1-, 5-, and 10-year periods ended 7/31/03, there
were 524, 338, and 106 funds, respectively, in this Lipper category.
+ The benchmarks were not in existence at the time of the fund's
inception. The S&P 500/Barra Value Index commenced 12/31/74. The Lehman
Aggregate Bond Index commenced 12/31/75. The George Putnam Blended Index
commenced 12/31/86. The Lipper Average commenced 12/31/59.
[GRAPHIC OMITTED: worm chart CHANGE IN THE VALUE OF A $10,000 INVESTMENT]
CHANGE IN THE VALUE OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment, 7/31/93 to 7/31/03
Fund's class A S&P 500/Barra Lehman Aggregate George Putnam
Date/year shares at POP Value Index Bond Index Blended Index
7/31/93 9,425 10,000 10,000 10,000
7/31/94 9,750 10,528 10,009 10,323
7/31/95 11,479 12,781 11,021 12,060
7/31/96 13,172 14,768 11,632 13,453
7/31/97 17,324 21,796 12,884 17,724
7/31/98 18,976 24,703 13,897 19,762
7/31/99 20,556 28,524 14,236 21,868
7/31/00 19,510 28,484 15,092 22,468
7/31/01 22,019 29,616 17,009 24,232
7/31/02 19,772 22,017 18,290 21,028
7/31/03 $21,365 $24,770 $19,281 $23,268
Footnote reads:
Past performance does not indicate future results. At the end of the
same time period, a $10,000 investment in the fund's class B and class C
shares would have been valued at $21,047 and $21,025, respectively, and
no contingent deferred sales charges would apply. A $10,000 investment
in the fund's class M shares would have been valued at $21,569 ($20,808
at public offering price). A $10,000 investment in the fund's class R
shares would have been valued at $22,106. See first page of performance
section for performance calculation method.
- ---------------------------------------------------------------------------------------
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 7/31/03
- ---------------------------------------------------------------------------------------
Class A Class B Class C Class M Class R
- ---------------------------------------------------------------------------------------
Distributions
(number) 5 5 5 5 2
- ---------------------------------------------------------------------------------------
Income $0.478 $0.366 $0.370 $0.402 $0.168
- ---------------------------------------------------------------------------------------
Capital gains -- -- -- -- --
- ---------------------------------------------------------------------------------------
Total $0.478 $0.366 $0.370 $0.402 $0.168
- ---------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP NAV
- ---------------------------------------------------------------------------------------
7/31/02 $15.02 $15.94 $14.87 $14.94 $14.87 $15.41 --
- ---------------------------------------------------------------------------------------
1/21/03* -- -- -- -- -- -- $15.05
- ---------------------------------------------------------------------------------------
7/31/03 $15.72 $16.68 $15.56 $15.63 $15.57 $16.13 $15.70
- ---------------------------------------------------------------------------------------
Current return
- ---------------------------------------------------------------------------------------
Current dividend
rate 1 2.24% 2.11% 1.59% 1.59% 1.80% 1.74% 2.09%
- ---------------------------------------------------------------------------------------
Current 30-day
SEC yield 2 1.90% 1.79% 1.15% 1.15% 1.40% 1.32% 1.65%
- ---------------------------------------------------------------------------------------
* Inception date of class R shares.
1 Most recent distribution, excluding capital gains, annualized and
divided by NAV or POP at end of period.
2 Based only on investment income, calculated using SEC guidelines.
- ----------------------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 6/30/03 (MOST RECENT CALENDAR QUARTER)
- ----------------------------------------------------------------------------------------------
Class A Class B Class C Class M Class R
(inception dates) (11/5/37) (4/27/92) (7/26/99) (12/1/94) (1/21/03)
NAV POP NAV CDSC NAV CDSC NAV POP NAV
- ----------------------------------------------------------------------------------------------
1 year 3.05% -2.89% 2.30% -2.69% 2.32% 1.32% 2.62% -0.98% 2.80%
- ----------------------------------------------------------------------------------------------
5 years 11.73 5.29 7.66 6.00 7.62 7.62 9.06 5.24 10.36
Annual average 2.24 1.04 1.49 1.17 1.48 1.48 1.75 1.03 1.99
- ----------------------------------------------------------------------------------------------
10 years 128.92 115.71 112.53 112.53 112.33 112.33 117.79 110.10 123.20
Annual average 8.63 7.99 7.83 7.83 7.82 7.82 8.09 7.71 8.36
- ----------------------------------------------------------------------------------------------
Annual average
(life of fund) 9.42 9.32 8.38 8.38 8.60 8.60 8.65 8.59 9.14
- ----------------------------------------------------------------------------------------------
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.
Net asset value (NAV) is the price, or value, of one share of a mutual
fund, without a sales charge. NAVs fluctuate with market conditions. The
NAV is calculated by dividing the net value of all the fund's assets by
the number of outstanding shares.
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.
Class A shares are generally subject to an initial sales charge and no
sales charge on redemption (except on certain redemptions of shares
bought without 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 (except on certain
redemptions of shares bought without an initial sales charge).
Class R shares are not subject to an initial sales charge or CDSC and
are available only to certain defined contribution plans.
Comparative indexes
George Putnam Blended Index is an unmanaged index administered by Putnam
Management, 60% of which is the Standard & Poor's 500/Barra Value Index
and 40% of which is the Lehman Aggregate Bond Index.
S&P 500/Barra Value Index is an unmanaged index of
capitalization-weighted stocks chosen for their value orientation.
Russell 2000 Growth Index is an unmanaged index of those companies in
the Russell 2000 Index chosen for their growth orientation.
Russell 2000 Value Index is an unmanaged index of those companies in the
Russell 2000 Index chosen for their value orientation.
Russell 1000 Index is an unmanaged index of the largest 1,000 companies
in the Russell 3000 Index.
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed-income securities.
JP Morgan Global High Yield Index is an unmanaged index used to mirror
the investable universe of the U.S. dollar global high-yield corporate
debt market of both developed and emerging markets.
Lehman Government Bond Index is an unmanaged index of U.S. Treasury and
agency securities.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper Inc. is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain
certain personal information such as account holders' addresses,
telephone numbers, Social Security numbers, and the names of their
financial advisors. We use this information to assign an account number
and to help us maintain accurate records of transactions and account
balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized
access to our computer systems and procedures to protect personal
information from unauthorized use.
Under certain circumstances, we share this information with outside
vendors who provide services to us, such as mailing and proxy
solicitation. In those cases, the service providers enter into
confidentiality agreements with us, and we provide only the information
necessary to process transactions and perform other services related to
your account. We may also share this information with our Putnam
affiliates to service your account or provide you with information about
other Putnam products or services. It is also our policy to share
account information with your financial advisor, if you've listed one on
your Putnam account.
If you would like clarification about our confidentiality policies or
have any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or
Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
preceded by the Independent Auditors' 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.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal year.
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.
Independent auditors' report
To the Trustees and Shareholders of
The George Putnam Fund of Boston
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio (except for bond ratings), and the
related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the
financial position of The George Putnam Fund of Boston (the "fund") at
July 31, 2003, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in
conformity with accounting principles generally accepted in the United
States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility
of the fund's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits
of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation of investments owned at
July 31, 2003 by correspondence with the custodian, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
September 11, 2003
The fund's portfolio
July 31, 2003
Common stocks (61.9%) (a)
Number of shares Value
Aerospace and Defense (1.9%)
- -------------------------------------------------------------------------------------------------------------------
1,018,000 Boeing Co. (The) $33,716,160
626,000 Lockheed Martin Corp. 32,764,840
330,100 Northrop Grumman Corp. 30,448,424
449,400 Raytheon Co. 13,796,580
350,100 Rockwell Collins, Inc. 9,113,103
-------------
119,839,107
Airlines (--%)
- -------------------------------------------------------------------------------------------------------------------
163,800 Southwest Airlines Co. 2,687,958
Banking (8.0%)
- -------------------------------------------------------------------------------------------------------------------
1,049,572 Bank of America Corp. 86,663,160
1,628,150 Bank of New York Co., Inc. (The) 49,039,878
236,950 BB&T Corp. 8,269,555
278,077 Charter One Financial, Inc. 9,043,064
706,950 Comerica, Inc. 34,272,936
144,600 Compass Bancshares, Inc. 4,886,034
303,600 FleetBoston Financial Corp. 9,438,924
66,600 M&T Bank Corp. 5,898,762
593,500 State Street Corp. 27,241,650
3,432,935 U.S. Bancorp 84,175,566
1,349,200 Wachovia Corp. 58,946,548
1,699,050 Washington Mutual, Inc. 67,078,494
392,630 Wells Fargo & Co. 19,839,594
678,050 Zions Bancorp 37,862,312
-------------
502,656,477
Beverage (0.4%)
- -------------------------------------------------------------------------------------------------------------------
543,200 Coca-Cola Enterprises, Inc. 9,261,560
666,100 Pepsi Bottling Group, Inc. (The) 14,640,878
-------------
23,902,438
Building Materials (0.3%)
- -------------------------------------------------------------------------------------------------------------------
779,690 Masco Corp. 19,001,045
Cable Television (0.6%)
- -------------------------------------------------------------------------------------------------------------------
133,800 Comcast Corp. Class A (NON) 3,920,340
2,920,020 Liberty Media Corp. Class A (NON) 32,383,022
-------------
36,303,362
Chemicals (1.7%)
- -------------------------------------------------------------------------------------------------------------------
397,300 Avery Dennison Corp. 21,438,308
1,207,000 Dow Chemical Co. (The) 42,607,100
333,700 Engelhard Corp. 8,769,636
568,650 PPG Industries, Inc. 32,111,666
-------------
104,926,710
Coal (0.1%)
- -------------------------------------------------------------------------------------------------------------------
166,000 Peabody Energy Corp. 5,094,540
Commercial and Consumer Services (--%)
- -------------------------------------------------------------------------------------------------------------------
110,000 Morrison Knudsen Corp. (NON) 9,625
269 Washington Group International, Inc. (NON) 6,190
-------------
15,815
Computers (2.6%)
- -------------------------------------------------------------------------------------------------------------------
284,600 Dell, Inc. (NON) 9,585,328
5,021,843 Hewlett-Packard Co. 106,312,416
356,730 IBM Corp. 28,984,313
301,500 Lexmark International, Inc. (NON) 19,347,255
-------------
164,229,312
Conglomerates (2.0%)
- -------------------------------------------------------------------------------------------------------------------
16,337 Berkshire Hathaway, Inc. Class B (NON) 39,257,811
496,200 General Electric Co. 14,111,928
457,400 Honeywell International, Inc. 12,935,272
3,131,960 Tyco International, Ltd. (Bermuda) 58,254,456
-------------
124,559,467
Consumer Finance (0.4%)
- -------------------------------------------------------------------------------------------------------------------
1,153,300 MBNA Corp. 25,707,057
Consumer Goods (1.0%)
- -------------------------------------------------------------------------------------------------------------------
603,350 Fortune Brands, Inc. 33,552,294
258,650 Kimberly-Clark Corp. 12,518,660
674,600 Newell Rubbermaid, Inc. 15,940,798
-------------
62,011,752
Electric Utilities (2.6%)
- -------------------------------------------------------------------------------------------------------------------
1,651,700 CenterPoint Energy, Inc. 13,329,219
150,100 Constellation Energy Group, Inc. 5,013,340
238,550 Dominion Resources, Inc. 14,336,855
611,792 DPL, Inc. 8,901,574
1,124,900 Edison International (NON) 18,459,609
338,000 Entergy Corp. 17,410,380
306,500 Exelon Corp. 17,614,555
675,150 FirstEnergy Corp. 23,285,924
5,932 Jasper Energy 144A (NON) 371
1,366,850 PG&E Corp. (NON) 29,318,933
395,380 Progress Energy, Inc. 16,107,781
-------------
163,778,541
Electrical Equipment (0.1%)
- -------------------------------------------------------------------------------------------------------------------
96,800 Emerson Electric Co. 5,198,160
Electronics (1.2%)
- -------------------------------------------------------------------------------------------------------------------
767,752 Celestica, Inc. (Canada) (NON) 11,769,638
710,250 Flextronics International, Ltd. (Singapore) (NON) 7,812,750
1,481,230 Intel Corp. 36,956,689
639,500 Motorola, Inc. 5,781,080
1,813,389 Solectron Corp. (NON) 9,266,418
76,730 W.W. Grainger, Inc. 3,775,116
-------------
75,361,691
Energy (0.6%)
- -------------------------------------------------------------------------------------------------------------------
894,300 GlobalSantaFe Corp. (Cayman Islands) 19,898,175
931,200 Halliburton Co. 20,644,704
-------------
40,542,879
Financial (5.4%)
- -------------------------------------------------------------------------------------------------------------------
173,850 CIT Group, Inc. 4,846,938
4,233,320 Citigroup, Inc. 189,652,736
2,039,315 Contifinancial Corp. Liquidating Trust Units 20,393
685,140 Fannie Mae 43,876,366
1,141,340 Freddie Mac 55,754,459
407,800 PMI Group, Inc. (The) 13,510,414
1,945,106 Travelers Property Casualty Corp. Class B 31,394,011
-------------
339,055,317
Food (0.8%)
- -------------------------------------------------------------------------------------------------------------------
63,600 General Mills, Inc. 2,917,332
461,750 H.J. Heinz Co. 15,727,205
1,040,300 Kraft Foods, Inc. Class A 28,930,743
330 PSF Group Holdings, Inc. 144A Class A (NON) 578,165
320,500 Sara Lee Corp. 5,990,145
-------------
54,143,590
Forest Products and Packaging (0.7%)
- -------------------------------------------------------------------------------------------------------------------
910,210 Abitibi-Consolidated, Inc. (Canada) 6,302,946
337,850 Boise Cascade Corp. 8,375,302
804,500 Smurfit-Stone Container Corp. 12,043,365
568,050 Sonoco Products Co. 12,951,540
63,600 Weyerhaeuser Co. 3,580,044
-------------
43,253,197
Gaming & Lottery (--%)
- -------------------------------------------------------------------------------------------------------------------
2,481 Fitzgeralds Gaming Corp. (NON) 25
Health Care Services (1.0%)
- -------------------------------------------------------------------------------------------------------------------
193,458 Anthem, Inc. (NON) 14,608,014
533,800 Cardinal Health, Inc. 29,225,550
391,900 CIGNA Corp. 18,333,082
1,828 Genesis Health Ventures, Inc. (NON) 38,845
1,383 Mariner Health Care, Inc. (NON) 10,373
-------------
62,215,864
Household Furniture and Appliances (0.5%)
- -------------------------------------------------------------------------------------------------------------------
464,140 Whirlpool Corp. 30,066,989
Insurance (2.7%)
- -------------------------------------------------------------------------------------------------------------------
1,266,700 ACE, Ltd. (Bermuda) 41,788,433
655,850 American International Group, Inc. 42,105,570
206,200 AON Corp. 4,959,110
162,400 MBIA, Inc. 8,220,688
688,250 Radian Group, Inc. 32,216,983
509,625 XL Capital, Ltd. Class A (Bermuda) 40,515,188
-------------
169,805,972
Investment Banking/Brokerage (1.7%)
- -------------------------------------------------------------------------------------------------------------------
2,256,200 JPMorgan Chase & Co. 79,079,810
487,700 Merrill Lynch & Co., Inc. 26,516,249
-------------
105,596,059
Lodging/Tourism (0.7%)
- -------------------------------------------------------------------------------------------------------------------
576,800 Hilton Hotels Corp. 8,421,280
1,249,500 Royal Caribbean Cruises, Ltd. 36,547,875
-------------
44,969,155
Machinery (0.6%)
- -------------------------------------------------------------------------------------------------------------------
708,450 Ingersoll-Rand Co. Class A (Bermuda) 38,426,328
Manufacturing (0.3%)
- -------------------------------------------------------------------------------------------------------------------
610,250 Dover Corp. 22,341,253
Media (1.0%)
- -------------------------------------------------------------------------------------------------------------------
997,200 AOL Time Warner, Inc. (NON) 15,386,796
2,247,300 Walt Disney Co. (The) 49,260,816
-------------
64,647,612
Medical Services (0.1%)
- -------------------------------------------------------------------------------------------------------------------
88,600 AmerisourceBergen Corp. 5,589,774
Office Equipment & Supplies (0.1%)
- -------------------------------------------------------------------------------------------------------------------
218,200 Pitney Bowes, Inc. 8,313,420
Oil & Gas (5.1%)
- -------------------------------------------------------------------------------------------------------------------
145,530 Apache Corp. 9,017,039
354,850 BP PLC ADR (United Kingdom) 14,744,018
348,000 Canadian Natural Resources, Ltd. (Canada) 13,182,240
1,263,923 ConocoPhillips 66,153,730
3,713,842 Exxon Mobil Corp. 132,138,498
281,200 Noble Corp. (Cayman Islands) (NON) 9,243,044
469,600 Royal Dutch Petroleum Co. ADR (Netherlands) 20,465,168
530,200 TotalFinaElf SA ADR (France) 39,022,720
565,500 Unocal Corp. 16,563,495
1,213 York Research Corp. 144A (NON) 76
-------------
320,530,028
Pharmaceuticals (5.1%)
- -------------------------------------------------------------------------------------------------------------------
1,428,100 Abbott Laboratories 56,052,925
172,000 Forest Laboratories, Inc. (NON) 8,235,360
409,300 Johnson & Johnson 21,197,647
2,019,200 King Pharmaceuticals, Inc. (NON) 30,409,152
1,136,900 Merck & Co., Inc. 62,847,832
3,234,323 Pfizer, Inc. 107,897,015
828,600 Wyeth 37,767,588
-------------
324,407,519
Photography/Imaging (0.4%)
- -------------------------------------------------------------------------------------------------------------------
2,374,098 Xerox Corp. (NON) 25,640,258
Publishing (0.1%)
- -------------------------------------------------------------------------------------------------------------------
84,550 Knight-Ridder, Inc. 5,802,667
Railroads (1.3%)
- -------------------------------------------------------------------------------------------------------------------
419,200 Canadian National Railway Co. (Canada) 21,819,360
1,002,951 Union Pacific Corp. 61,119,834
-------------
82,939,194
Real Estate (0.2%)
- -------------------------------------------------------------------------------------------------------------------
520,870 Equity Office Properties Trust (R) 14,448,934
Regional Bells (2.9%)
- -------------------------------------------------------------------------------------------------------------------
1,094,850 BellSouth Corp. 27,885,830
2,918,004 SBC Communications, Inc. 68,164,573
2,553,481 Verizon Communications, Inc. 89,014,348
-------------
185,064,751
Restaurants (0.5%)
- -------------------------------------------------------------------------------------------------------------------
1,494,400 Darden Restaurants, Inc. 27,960,224
272,800 McDonald's Corp. 6,277,128
-------------
34,237,352
Retail (2.6%)
- -------------------------------------------------------------------------------------------------------------------
190,000 CVS Corp. 5,698,100
310,000 Federated Department Stores, Inc. 12,403,100
1,543,350 JC Penney Co., Inc. (Holding Co.) 28,675,443
980,900 Limited, Inc. (The) 16,390,839
312,300 Lowe's Cos., Inc. 14,852,988
2,206,000 Office Depot, Inc. (NON) 36,619,600
806,250 TJX Cos., Inc. (The) 15,681,563
547,600 Wal-Mart Stores, Inc. 30,616,316
-------------
160,937,949
Software (2.0%)
- -------------------------------------------------------------------------------------------------------------------
1,081,100 BMC Software, Inc. (NON) 15,243,510
2,153,500 Computer Associates International, Inc. 54,806,575
1,846,800 Microsoft Corp. 48,755,520
348,300 PeopleSoft, Inc. (NON) 5,806,161
-------------
124,611,766
Technology Services (0.2%)
- -------------------------------------------------------------------------------------------------------------------
253,000 Fiserv, Inc. (NON) 9,877,120
Telecommunications (0.1%)
- -------------------------------------------------------------------------------------------------------------------
175,100 CenturyTel, Inc. 6,004,179
Textiles (0.1%)
- -------------------------------------------------------------------------------------------------------------------
141,400 Liz Claiborne, Inc. 4,868,402
Tobacco (1.7%)
- -------------------------------------------------------------------------------------------------------------------
2,729,248 Altria Group, Inc. 109,197,212
Waste Management (0.5%)
- -------------------------------------------------------------------------------------------------------------------
1,173,750 Republic Services, Inc. 28,404,750
-------------
Total Common stocks (cost $3,494,532,937) $3,901,212,947
U.S. government and agency obligations (16.1%) (a)
Principal amount Value
U.S. Government and Agency Mortgage Obligations (11.2%)
- -------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation
Pass-Through Certificates
$532,541 8 3/4s, with due dates from May 1, 2009 to June 1, 2009 $580,719
32,143 6s, May 1, 2017 33,200
123,422,436 Federal Home Loan Mortgage Corporation TBA, 4 1/2s, August 1, 2018 120,375,136
Federal National Mortgage Association Pass-Through Certificates
37,137 11s, with due dates from October 1, 2015 to March 1, 2016 41,733
8,012 8 3/4s, July 1, 2009 8,754
3,844,077 8s, with due dates from August 1, 2026 to June 1, 2028 4,173,867
1,018,220 7 1/2s, with due dates from October 1, 2025 to September 1, 2032 1,080,162
2,328,159 7 1/2s, with due dates from February 1, 2015 to April 1, 2016 2,495,253
3,994,877 7s, with due dates from July 1, 2025 to December 1, 2032 4,187,177
4,878,738 7s, with due dates from November 1, 2007 to January 1, 2015 5,182,924
4,546,303 6 1/2s, August 1, 2032 4,669,915
823,362 6 1/2s, with due dates from July 1, 2010 to May 1, 2011 867,358
683,315 6s, with due dates from December 1, 2013 to May 1, 2017 708,133
855,328 5 1/2s, with due dates from September 1, 2017 to January 1, 2018 872,021
201,410,900 Federal National Mortgage Association TBA, 5s, August 1, 2033 192,536,736
Government National Mortgage Association
Pass-Through Certificates
2,393,690 7s, with due dates from August 15, 2029 to January 15, 2032 2,512,410
10,187,279 6 1/2s, with due dates from October 15, 2028 to February 15, 2033 10,545,078
Government National Mortgage Association
22,256,000 TBA, 5 1/2s, August 1, 2033 22,075,281
351,614,000 TBA, 5s, August 1, 2033 337,000,922
-------------
709,946,779
U.S. Government and Agency Obligations (1.0%)
- -------------------------------------------------------------------------------------------------------------------
Fannie Mae
20,265,000 7 1/4s, May 15, 2030 23,318,875
32,111,000 7 1/4s, January 15, 2010 37,296,573
-------------
60,615,448
U.S. Treasury Obligations (3.9%)
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
26,750,000 8s, November 15, 2021 34,963,079
22,060,000 6 1/4s, May 15, 2030 24,398,713
9,105,000 6 1/4s, August 15, 2023 9,997,008
U.S. Treasury Bonds
18,055,000 6 1/8s, August 15, 2029 (SEG) 19,593,196
25,745,000 6s, February 15, 2026 27,475,759
U.S. Treasury Notes
102,707,000 6 1/2s, February 15, 2010 118,265,467
10,415,000 3s, November 15, 2007 10,386,525
-------------
245,079,747
-------------
Total U.S. government and agency obligations
(cost $1,052,191,988) $1,015,641,974
Corporate bonds and notes (10.7%) (a)
Principal amount Value
Aerospace and Defense (0.2%)
- -------------------------------------------------------------------------------------------------------------------
$785,000 Boeing Co. (The) bonds 6 1/8s, 2033 $717,054
225,000 L-3 Communications Corp. company guaranty 7 5/8s, 2012 236,250
1,880,000 L-3 Communications Corp. 144A sr. sub. notes 6 1/8s, 2013 1,804,800
3,265,000 Lockheed Martin Corp. bonds 8 1/2s, 2029 4,005,724
1,115,000 Northrop Grumman Corp. company guaranty 7 1/8s, 2011 1,254,863
710,000 Raytheon Co. bonds 5 3/8s, 2013 699,709
1,890,000 Raytheon Co. notes 8.2s, 2006 2,149,729
1,330,000 Raytheon Co. notes 6.15s, 2008 1,446,307
-------------
12,314,436
Airlines (0.1%)
- -------------------------------------------------------------------------------------------------------------------
3,780,000 Continental Airlines, Inc. pass-through certificates Ser. 98-2,
6.32s, 2008 3,572,398
379,094 Continental Airlines, Inc. pass-through certificates Ser. 981A,
6.648s, 2017 358,244
363,848 US Air, Inc. pass-through certificates Ser. 93-A2, 9 5/8s,
2003 (In default) (NON) 145,539
-------------
4,076,181
Automotive (0.4%)
- -------------------------------------------------------------------------------------------------------------------
400,000 American Axle & Manufacturing, Inc. company guaranty 9 3/4s, 2009 430,500
1,815,000 DaimlerChrysler NA Holding Corp. company guaranty 8 1/2s, 2031 1,981,967
2,525,000 DaimlerChrysler NA Holding Corp. company guaranty 7.2s, 2009 2,749,791
2,785,000 DaimlerChrysler NA Holding Corp. company guaranty Ser. D,
3.4s, 2004 2,821,384
3,190,000 Dana Corp. notes 9s, 2011 3,437,225
1,410,000 Ford Motor Co. notes 7.45s, 2031 1,204,127
3,835,000 Ford Motor Credit Corp. notes 7 3/8s, 2009 3,914,154
1,295,000 General Motors Acceptance Corp. bonds 8s, 2031 1,194,871
3,735,000 General Motors Acceptance Corp. notes Ser. MTN, 5.36s, 2004 3,835,931
2,060,000 Lear Corp. company guaranty Ser. B, 8.11s, 2009 2,332,950
1,540,000 SPX Corp. sr. notes 6 1/4s, 2011 1,501,500
850,000 Visteon Corp. sr. notes 8 1/4s, 2010 875,281
-------------
26,279,681
Banking (1.1%)
- -------------------------------------------------------------------------------------------------------------------
1,000,000 Allfirst Financial, Inc. sub. notes 7.2s, 2007 1,110,054
405,000 Bank of New York Co., Inc. (The) sr. sub. notes FRN 3.4s, 2013 394,166
1,325,000 Bank One Corp. sub. debs. 8s, 2027 1,568,988
515,000 Bank One Corp. sub. debs. 7 5/8s, 2026 585,192
2,355,000 Bank One Corp. sub. notes 7.6s, 2007 2,659,094
7,190,000 Bank United Corp. notes Ser. A, 8s, 2009 8,356,743
350,000 Bank United Corp. sub. notes 8 7/8s, 2007 406,551
1,620,000 BankAmerica Corp. sr. notes 5 7/8s, 2009 1,760,253
2,165,000 Barclays Bank PLC 144A FRN 6.86s, 2049 (United Kingdom) 2,262,880
995,000 Capital One Bank notes 6 1/2s, 2013 928,928
385,000 Capital One Bank notes Ser. BKNT, 4 7/8s, 2008 386,458
470,000 Capital One Bank sr. notes Ser. BKNT, 6.7s, 2008 501,612
920,000 CBA Capital Trust I 144A bonds 5.805s, 2049 913,045
760,000 Colonial Bank sub. notes 9 3/8s, 2011 848,320
6,255,000 Colonial Bank sub. notes 8s, 2009 6,386,912
1,620,000 First Chicago NBD Corp. sub. notes 6 3/8s, 2009 1,812,998
3,760,000 First Union National Bank sub. notes 7.8s, 2010 4,425,625
410,000 FleetBoston Financial Corp. notes 7 1/4s, 2005 453,012
1,540,000 HSBC Capital Funding LP 144A bank guaranty FRB 4.61s, 2049 (Jersey) 1,399,506
2,300,000 HSBC Capital Funding LP 144A bank guaranty FRN 9.547s, 2049 (Jersey) 2,876,808
1,455,000 Merita Bank, Ltd. sub. notes 6 1/2s, 2006 (Finland) 1,580,159
1,095,000 National City Bank bonds 4 5/8s, 2013 1,041,045
3,605,000 National City Corp. sub. notes 7.2s, 2005 3,912,305
5,825,000 NB Capital Trust IV company guaranty 8 1/4s, 2027 6,250,458
7,190,000 Peoples Bank - Bridgeport sub. notes 7.2s, 2006 7,275,173
3,170,000 Royal Bank of Scotland Group PLC FRB 7.648s, 2031 (United Kingdom) 3,610,059
1,930,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 2,284,035
655,000 Sovereign Bank sub. notes 5 1/8s, 2013 633,115
1,270,000 Suncorp-Metway, Ltd. 144A FRN 3 1/2s, 2013 (Australia) 1,271,778
2,970,000 UBS AG/Jersey Branch FRN 4.065%, 2008 (United Kingdom) 2,962,575
-------------
70,857,847
Beverage (0.1%)
- -------------------------------------------------------------------------------------------------------------------
235,000 Constellation Brands, Inc. company guaranty 8 1/2s, 2009 239,700
390,000 Coors Brewing Co. company guaranty 6 3/8s, 2012 418,236
2,180,000 Diageo PLC company guaranty 8s, 2022 (United Kingdom) 2,607,369
2,605,000 PepsiAmericas, Inc. notes Ser. MTN, 3 7/8s, 2007 2,620,165
-------------
5,885,470
Broadcasting (0.2%)
- -------------------------------------------------------------------------------------------------------------------
1,960,000 British Sky Broadcasting PLC company guaranty 6 7/8s, 2009
(United Kingdom) 2,136,400
1,355,000 Chancellor Media Corp. company guaranty 8s, 2008 1,524,375
1,035,000 News America Holdings, Inc. debs. 7 3/4s, 2045 1,111,394
1,900,000 News America Holdings, Inc. debs. 7.7s, 2025 2,045,747
1,420,000 News America, Inc. sr. notes 6 5/8s, 2008 1,568,874
75,000 News America, Inc. 144A notes 4 3/4s, 2010 77,850
1,955,000 Viacom, Inc. company guaranty 7.7s, 2010 2,295,839
-------------
10,760,479
Building Materials (--%)
- -------------------------------------------------------------------------------------------------------------------
350,000 American Standard Cos., Inc. company guaranty 7 5/8s, 2010 387,625
1,155,000 Masco Corp. notes 6 3/4s, 2006 1,265,631
-------------
1,653,256
Cable Television (0.2%)
- -------------------------------------------------------------------------------------------------------------------
561,000 AT&T Broadband Corp. company guaranty 8 3/8s, 2013 660,431
1,120,000 Comcast Corp. company guaranty 6 1/2s, 2015 1,166,048
890,000 Comcast Corp. company guaranty 5.85s, 2010 926,236
310,000 Comcast Corp. notes 5.3s, 2014 296,553
1,305,000 Cox Communications, Inc. notes 7 3/4s, 2010 1,506,018
945,000 Cox Enterprises, Inc. 144A notes 8s, 2007 1,076,054
3,070,000 Jones Intercable, Inc. sr. notes 7 5/8s, 2008 3,437,052
1,575,000 Liberty Media Corp. debs. 8 1/4s, 2030 1,616,270
1,400,000 Rogers Cable Inc. 144A notes 6 1/4s, 2013 (Canada) 1,344,000
3,200,000 TCI Communications, Inc. debs. 7 7/8s, 2013 3,664,070
-------------
15,692,732
Chemicals (0.2%)
- -------------------------------------------------------------------------------------------------------------------
80,000 Airgas, Inc. company guaranty 9 1/8s, 2011 87,600
1,270,000 Avery Dennison Corp. notes 4 7/8s, 2013 1,238,541
1,315,000 Dow Chemical Co. (The) debs. 8.55s, 2009 1,499,818
2,800,000 Dow Chemical Co. (The) notes 5 3/4s, 2009 2,919,355
685,000 Eastman Chemical Co. notes 3 1/4s, 2008 651,156
1,628,000 Equistar Chemicals LP/Equistar Funding Corp. company guaranty
10 1/8s, 2008 1,628,000
697,000 Hercules, Inc. company guaranty 11 1/8s, 2007 808,520
117,000 ISP Chemco, Inc. company guaranty Ser. B, 10 1/4s, 2011 131,040
2,055,000 Lyondell Chemical Co. notes Ser. A, 9 5/8s, 2007 1,988,213
350,000 Lyondell Chemical Co. sec. notes Ser. B, 9 7/8s, 2007 339,500
680,000 Millenium America, Inc. company guaranty 9 1/4s, 2008 697,000
1,080,000 Millenium America, Inc. company guaranty 7s, 2006 1,058,400
730,000 Monsanto Co. notes 4s, 2008 722,482
590,000 Monsanto Co. sr. notes 7 3/8s, 2012 664,299
465,000 Praxair, Inc. notes 6 3/8s, 2012 510,120
-------------
14,944,044
Coal (--%)
- -------------------------------------------------------------------------------------------------------------------
1,505,000 Arch Western Finance, LLC 144A sr. notes 6 3/4s, 2013 1,482,425
Commercial and Consumer Services (--%)
- -------------------------------------------------------------------------------------------------------------------
1,600,000 Deluxe Corp. notes 5s, 2012 1,561,636
Computers (--%)
- -------------------------------------------------------------------------------------------------------------------
1,445,000 Hewlett-Packard Co. notes 5 1/2s, 2007 1,547,332
Conglomerates (0.1%)
- -------------------------------------------------------------------------------------------------------------------
2,280,000 Textron Financial Corp. notes 6s, 2009 2,382,705
425,000 Tyco International Group SA company guaranty 6 3/4s,
2011 (Luxembourg) 429,250
760,000 Tyco International Group SA company guaranty 6 3/8s,
2005 (Luxembourg) 782,800
1,255,000 Tyco International Group SA notes 6 3/8s, 2011 (Luxembourg) 1,242,450
-------------
4,837,205
Consumer Finance (0.2%)
- -------------------------------------------------------------------------------------------------------------------
720,000 Capital One Financial Corp. notes 7 1/4s, 2006 763,200
2,310,000 Countrywide Home Loans, Inc. company guaranty Ser. K, 5 5/8s, 2007 2,474,216
4,025,000 Household Finance Corp. notes 7s, 2012 4,467,468
1,820,000 Household Finance Corp. notes 6 3/4s, 2011 1,990,840
2,895,000 Household Finance Corp. sr. unsub. 5 7/8s, 2009 3,098,930
1,875,000 Wells Fargo Financial, Inc. notes 6 1/8s, 2006 2,028,298
-------------
14,822,952
Consumer Goods (0.1%)
- -------------------------------------------------------------------------------------------------------------------
1,385,000 Johnson (SC) & Son, Inc. 144A bonds 5 3/4s, 2033 1,266,195
935,000 Newell Rubbermaid, Inc. notes 4s, 2010 896,966
-------------
2,163,161
Containers (0.1%)
- -------------------------------------------------------------------------------------------------------------------
1,650,000 Ball Corp. 144A sr. notes 6 7/8s, 2012 1,650,000
1,283,000 Owens-Brockway Glass company guaranty 8 7/8s, 2009 1,334,320
750,000 Owens-Brockway Glass sr. sec. notes 8 3/4s, 2012 791,250
1,645,000 Sealed Air Corp. 144A notes 5 5/8s, 2013 1,573,051
-------------
5,348,621
Electric Utilities (1.2%)
- -------------------------------------------------------------------------------------------------------------------
485,000 AEP Texas Central Co. 144A notes 5 1/2s, 2013 483,924
2,015,000 Alabama Power Co. sr. notes Ser. S, 5 7/8s, 2022 1,928,779
275,000 American Electric Power Co., Inc. notes Ser. A, 6 1/8s, 2006 296,718
400,000 American Electric Power Co., Inc. sr. notes Ser. C, 5 3/8s, 2010 406,306
475,000 Appalachian Power Co. notes 3.6s, 2008 464,074
4,845,000 Arizona Public Service Co. sr. notes 6 3/4s, 2006 5,368,158
260,000 CenterPoint Energy Resources Corp. debs. 8.9s, 2006 296,058
1,025,000 CenterPoint Energy Resources Corp. notes 7 3/4s, 2011 1,117,696
1,570,000 Constellation Energy Group, Inc. notes 7.6s, 2032 1,687,659
1,020,000 Constellation Energy Group, Inc. notes 7s, 2012 1,114,602
920,000 Constellation Energy Group, Inc. sr. notes 6 1/8s, 2009 988,936
1,070,000 Consumers Energy Co. 144A 1st mtge. 4 1/4s, 2008 1,070,410
535,000 DPL, Inc. sr. notes 8 1/4s, 2007 593,779
1,590,000 DTE Energy Co. sr. notes 6 3/8s, 2033 1,455,336
1,155,000 Duke Capital Corp. sr. notes Ser. A, 6 1/4s, 2005 1,200,773
470,000 Duke Energy Corp. 144A 1st mtge. 3 3/4s, 2008 466,510
2,270,000 Exelon Corp. sr. notes 6 3/4s, 2011 2,499,486
1,450,000 Exelon Generation Co., LLC sr. notes 6.95s, 2011 1,594,437
5,300,000 FirstEnergy Corp. notes Ser. A, 5 1/2s, 2006 5,563,384
490,000 Florida Power & Light Co. 1st mtge. 5 5/8s, 2034 454,235
1,845,000 Monongahela Power Co. 1st mtge. 5s, 2006 1,794,263
3,465,000 National Rural Utilities Cooperative Finance Corp. coll. trust 6s, 2006 3,769,972
1,065,000 National Rural Utilities Cooperative Finance Corp. coll. trust 3 7/8s, 2008 1,068,966
1,650,000 National Rural Utilities Cooperative Finance Corp. coll. trust 3s, 2006 1,670,252
3,840,000 NiSource Finance Corp. company guaranty 7 7/8s, 2010 4,423,657
824 Northeast Utilities notes Ser. A, 8.58s, 2006 939
1,840,000 Northern States Power Co. mtge. Ser. B, 8s, 2012 2,196,664
2,385,000 Oncor Electric Delivery Co. sec. notes 6 3/8s, 2012 2,560,517
2,635,000 Pepco Holdings, Inc. notes 5 1/2s, 2007 2,736,740
585,000 Potomac Edison Co. 1st mtge. 8s, 2024 590,850
1,160,000 PP&L Capital Funding, Inc. company guaranty Ser. D, 8 3/8s, 2007 1,318,956
555,000 Progress Energy, Inc. sr. notes 6 3/4s, 2006 605,716
2,060,000 Progress Energy, Inc. sr. notes 6.55s, 2004 2,116,980
165,000 Progress Energy, Inc. sr. notes 6.05s, 2007 176,786
7,810,000 PSI Energy, Inc. 1st mtge. Ser. EEE, 6.65s, 2006 8,589,700
1,465,000 Public Service Electric & Gas Co. 1st mtge. FRN 6 3/8s, 2008 1,611,015
375,000 Public Services Company of Colorado sr. notes Ser. A, 6 7/8s, 2009 413,229
875,000 South Carolina Electric & Gas Co. 1st mtge. 5.3s, 2033 771,873
1,510,000 Southern California Edison Co. 144A 1st mtge. 8s, 2007 1,630,800
630,000 Southern Power Co. 144A bonds 4 7/8s, 2015 578,869
1,505,000 Tampa Electric Co. notes 6 7/8s, 2012 1,575,396
260,000 Teco Energy, Inc. notes 7s, 2012 244,400
300,000 Teco Energy, Inc. sr. notes 7 1/2s, 2010 292,500
225,000 TXU Energy Co. 144A notes 7s, 2013 236,242
1,170,000 Virginia Electric & Power Co. sr. notes 4 3/4s, 2013 1,128,645
653,000 Western Resources, Inc. sr. notes 9 3/4s, 2007 724,014
1,945,000 Wisconsin Electric Power notes 4 1/2s, 2013 1,853,276
950,000 XCEL Energy, Inc. 144A sr. notes 3.4s, 2008 910,495
-------------
74,642,972
Electronics (0.1%)
- -------------------------------------------------------------------------------------------------------------------
1,440,000 Arrow Electronics, Inc. notes 6 7/8s, 2013 1,355,904
290,000 Jabil Circuit, Inc. sr. notes 5 7/8s, 2010 284,628
390,000 Motorola, Inc. notes 7 5/8s, 2010 431,925
425,000 Motorola, Inc. notes 6 3/4s, 2006 453,688
-------------
2,526,145
Energy (0.1%)
- -------------------------------------------------------------------------------------------------------------------
548,000 BRL Universal Equipment sec. notes 8 7/8s, 2008 583,620
536,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 552,750
2,450,000 Transocean Sedco Forex, Inc. notes 6 5/8s, 2011 2,677,811
-------------
3,814,181
Financial (1.8%)
- -------------------------------------------------------------------------------------------------------------------
5,340,000 Ace INA Holdings, Inc. company guaranty 8.3s, 2006 6,099,530
1,980,000 Aegon NV notes 4 3/4s, 2013 (Netherlands) 1,863,726
840,000 American Express Co. notes 4 7/8s, 2013 811,561
6,320,000 ASIF Global Financing 144A notes 3.85s, 2007 6,357,434
1,525,000 Associates Corp. NA sr. notes Ser. 8, 7 3/8s, 2007 1,732,431
3,165,000 Associates First Capital Corp. debs. 6.95s, 2018 3,550,804
3,770,000 Associates First Capital Corp. sr. notes 6 1/4s, 2008 4,166,235
4,065,000 Associates First Capital Corp. sub. debs. 8.15s, 2009 4,693,843
1,250,000 AXA Financial, Inc. sr. notes 7 3/4s, 2010 1,452,876
2,125,000 CIT Group, Inc. sr. notes 5 1/2s, 2007 2,217,687
2,235,000 CIT Group, Inc. sr. notes Ser. MTN, 6 7/8s, 2009 2,391,894
1,555,000 CIT Group, Inc. sr. sub. notes 4 1/8s, 2006 1,594,359
1,925,000 Citigroup, Inc. debs. 6 5/8s, 2028 2,002,408
2,865,000 Citigroup, Inc. sub. notes 7 1/4s, 2010 3,271,813
1,610,000 Executive Risk Capital Trust company guaranty Class B, 8.675s, 2027 1,731,677
1,300,000 Fund American Cos., Inc. notes 5 7/8s, 2013 1,258,358
1,795,000 General Electric Capital Corp. company guaranty 7 7/8s, 2006 2,056,332
1,475,000 General Electric Capital Corp. notes Ser. A, 6 7/8s, 2010 1,663,399
565,000 General Electric Capital Corp. notes Ser. A, 6 3/4s, 2032 592,282
830,000 General Electric Capital Corp. notes Ser. A, 6s, 2012 873,059
3,115,000 General Electric Capital Corp. notes Ser. A, 4 5/8s, 2009 3,155,106
4,365,000 General Electric Capital Corp. notes Ser. A, 3.667s, 2006 4,356,485
1,340,000 General Electric Capital Corp. notes Ser. MTN, 3 1/4s, 2009 1,271,215
680,000 Hartford Financial Services Group, Inc. (The) notes 2 3/8s, 2006 668,916
770,000 Hartford Financial Services Group, Inc. (The) 144A notes 4 5/8s, 2013 717,332
1,335,000 Heller Financial, Inc. notes 8s, 2005 1,479,977
760,000 Heller Financial, Inc. notes 7 3/8s, 2009 880,109
1,470,000 ING Capital Funding Trust III company guaranty FRB 8.439s, 2010 1,741,691
1,590,000 International Lease Finance Corp. notes 2.95s, 2006 1,588,603
1,470,000 John Hancock Financial Services, Inc. sr. notes 5 5/8s, 2008 1,566,738
765,000 John Hancock Global Funding II 144A notes 7.9s, 2010 898,103
12,200,000 JP Morgan HYDI notes 6.4s, 2008 11,602,200
8,205,000 Liberty Mutual Insurance 144A notes 7.697s, 2097 5,586,858
1,180,000 Metlife, Inc. debs. 3.911s, 2005 1,218,585
465,000 Nationwide Financial Services, Inc. notes 5 5/8s, 2015 466,087
815,000 Nationwide Mutual Insurance Co. 144A notes 8 1/4s, 2031 910,187
11,025,000 Principal Financial Group 144A notes 7.95s, 2004 (Australia) 11,622,687
1,515,000 Principal Life Global Funding I 144A sec. notes 5 1/4s, 2013 1,498,306
865,000 Protective Life Corp. notes 4.3s, 2013 794,559
625,000 Prudential Financial, Inc. notes Ser. MTNB, 4 1/2s, 2013 574,530
2,185,000 Prudential Insurance Co. 144A notes 8.3s, 2025 2,538,752
1,585,000 St. Paul Co., Inc. (The) sr. notes 5 3/4s, 2007 1,671,408
1,125,000 State Street Capital Trust II FRN 1.79s, 2008 1,125,313
2,910,000 Sun Life Canada Capital Trust 144A company guaranty 8.526s, 2049 3,083,995
565,000 Travelers Property Casualty Corp. sr. notes 3 3/4s, 2008 562,143
620,000 XL Capital Europe PLC company guaranty 6 1/2s,
2012 (United Kingdom) 661,937
-------------
112,623,530
Food (0.4%)
- -------------------------------------------------------------------------------------------------------------------
1,230,000 Archer Daniels Midland Co. notes 5.935s, 2032 1,165,779
3,520,000 Campbell Soup Co. notes 6 3/4s, 2011 3,926,637
1,505,000 ConAgra, Inc. notes 7 7/8s, 2010 1,793,962
2,475,000 ConAgra, Inc. notes 6s, 2006 2,699,547
810,000 Dean Foods Co. sr. notes 8.15s, 2007 858,600
725,000 General Mills, Inc. notes 5 1/8s, 2007 772,582
1,375,000 Hormel Foods Corp. notes 6 5/8s, 2011 1,522,492
510,000 Kellogg Co. notes 6s, 2006 553,227
460,000 Kellogg Co. notes Ser. B, 6.6s, 2011 509,250
5,520,000 Kraft Foods, Inc. notes 4 5/8s, 2006 5,734,943
2,560,000 Tyson Foods, Inc. notes 8 1/4s, 2011 2,878,008
1,275,000 Tyson Foods, Inc. notes 7 1/4s, 2006 1,398,157
1,415,000 Unilever Capital Corp. bonds 5.9s, 2032 1,341,627
-------------
25,154,811
Forest Products and Packaging (0.2%)
- -------------------------------------------------------------------------------------------------------------------
31,000 Abitibi-Consolidated Finance LP company guaranty 7 7/8s, 2009 32,568
2,200,000 Abitibi-Consolidated, Inc. company guaranty 6.95s, 2006 (Canada) 2,262,612
1,640,000 Domtar, Inc. notes 7 7/8s, 2011 (Canada) 1,881,152
528,000 Georgia-Pacific Corp. bonds 7 3/4s, 2029 448,800
370,000 Georgia-Pacific Corp. notes 8 1/8s, 2011 364,450
245,000 Georgia-Pacific Corp. 144A sr. notes 8 7/8s, 2010 254,800
3,470,000 International Paper Co. notes 6 3/4s, 2011 3,782,529
753,000 Louisiana-Pacific Corp. sr. notes 8 7/8s, 2010 865,950
482,000 Louisiana-Pacific Corp. sr. sub. notes 10 7/8s, 2008 549,480
465,000 Packaging Corp. of America 144A notes 5 3/8s, 2013 452,257
1,995,000 Potlatch Corp. dep. notes FRN 12 1/2s, 2009 2,294,250
230,000 Smurfit Capital Funding PLC notes 6 3/4s, 2005 (Ireland) 235,175
2,030,000 Weyerhaeuser Co. notes 6 3/4s, 2012 2,162,470
-------------
15,586,493
Gaming & Lottery (0.1%)
- -------------------------------------------------------------------------------------------------------------------
710,000 Harrah's Entertainment, Inc. company guaranty 7 7/8s, 2005 764,138
935,000 International Game Technology sr. notes 8 3/8s, 2009 1,104,815
1,330,000 International Game Technology sr. notes 7 7/8s, 2004 1,388,435
600,000 MGM Mirage, Inc. company guaranty 9 3/4s, 2007 657,000
1,605,000 MGM Mirage, Inc. company guaranty 8 3/8s, 2011 1,757,475
1,320,000 Mohegan Tribal Gaming Authority sr. notes 8 1/8s, 2006 1,412,400
390,000 Mohegan Tribal Gaming Authority sr. sub. notes 8 3/8s, 2011 420,225
270,000 Mohegan Tribal Gaming Authority 144A sr. sub. notes 6 3/8s, 2009 265,275
740,000 Park Place Entertainment Corp. sr. notes 7 1/2s, 2009 795,500
705,000 Park Place Entertainment Corp. sr. sub. notes 9 3/8s, 2007 770,213
-------------
9,335,476
Health Care (0.1%)
- -------------------------------------------------------------------------------------------------------------------
1,620,000 HCA, Inc. notes Ser. MTN, , 2010 1,750,180
265,000 HCA, Inc. sr. notes 7 7/8s, 2011 277,262
530,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s,
2007 (In default) (NON) 11,263
280,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s,
2008 (In default) (NON) 6,300
-------------
2,045,005
Homebuilding (0.2%)
- -------------------------------------------------------------------------------------------------------------------
1,350,000 D.R. Horton, Inc. company guaranty 8s, 2009 1,451,250
490,000 D.R. Horton, Inc. sr. notes 6 7/8s, 2013 482,650
1,725,000 D.R. Horton, Inc. sr. notes 5 7/8s, 2013 1,587,000
775,000 K. Hovnanian Enterprises, Inc. company guaranty 9 1/8s, 2009 829,250
350,000 KB Home sr. sub. notes 7 3/4s, 2010 367,500
973,000 Lennar Corp. sr. notes 7 5/8s, 2009 1,106,986
1,115,000 NVR, Inc. sr. notes 5s, 2010 1,048,100
1,990,000 Pulte Homes, Inc. company guaranty 7 7/8s, 2011 2,274,256
2,370,000 Ryland Group, Inc. sr. notes 5 3/8s, 2008 2,346,300
407,000 Standard Pacific Corp. sr. notes 8 1/2s, 2007 416,158
940,000 Toll Corp. sr. sub. notes 8 1/4s, 2011 1,019,900
-------------
12,929,350
Investment Banking/Brokerage (0.3%)
- -------------------------------------------------------------------------------------------------------------------
2,120,000 Bear Stearns Cos., Inc. (The) notes 3s, 2006 2,140,132
1,610,000 Goldman Sachs Group, Inc. (The) notes 6 1/8s, 2033 1,519,301
770,000 Goldman Sachs Group, Inc. (The) notes 4 3/4s, 2013 725,756
1,620,000 Goldman Sachs Group, Inc. (The) notes 4 1/8s, 2008 1,636,098
4,410,000 JPMorgan Chase & Co. notes 5.35s, 2007 4,707,746
500,000 JPMorgan Chase & Co. sr. notes 3 5/8s, 2008 492,187
2,700,000 JPMorgan Chase & Co. sub. notes 5 3/4s, 2013 2,751,478
3,700,000 Lehman Brothers Holdings, Inc. notes 6 5/8s, 2006 4,057,513
1,700,000 Merrill Lynch & Co., Inc. notes Ser. B, 7.08s, 2005 1,853,881
540,000 Merrill Lynch & Co., Inc. notes Ser. B, 4 3/4s, 2009 544,120
1,270,000 Morgan Stanley Tracers notes 4 1/4s, 2010 1,236,786
-------------
21,664,998
Lodging/Tourism (0.1%)
- -------------------------------------------------------------------------------------------------------------------
1,995,000 Cendant Corp. notes 6 1/4s, 2010 2,101,451
445,000 Hilton Hotels Corp. notes 8 1/4s, 2011 487,275
465,000 Hilton Hotels Corp. notes 7 5/8s, 2012 495,225
1,010,000 ITT Corp. notes 6 3/4s, 2005 1,045,350
430,000 Starwood Hotels & Resorts Worldwide, Inc. company guaranty
7 7/8s, 2012 455,800
855,000 Starwood Hotels & Resorts Worldwide, Inc. company guaranty
7 3/8s, 2007 884,925
-------------
5,470,026
Machinery (--%)
- -------------------------------------------------------------------------------------------------------------------
1,270,000 John Deere Capital Corp. sr. notes Ser. D, 3 1/8s, 2005 1,287,808
Manufacturing (--%)
- -------------------------------------------------------------------------------------------------------------------
420,000 Bunge Ltd. Finance Corp. 144A notes 5 7/8s, 2013 419,138
Media (0.2%)
- -------------------------------------------------------------------------------------------------------------------
2,325,000 AOL Time Warner, Inc. bonds 7 5/8s, 2031 2,411,095
430,000 AOL Time Warner, Inc. notes 6 3/4s, 2011 462,246
2,600,000 AOL Time Warner, Inc. notes 5 5/8s, 2005 2,731,222
2,520,000 Time Warner, Inc. debs. 9.15s, 2023 2,930,861
915,000 Time Warner, Inc. notes 8.18s, 2007 1,043,512
1,805,000 Walt Disney Co. notes 5 3/8s, 2007 1,911,325
-------------
11,490,261
Medical Services (0.1%)
- -------------------------------------------------------------------------------------------------------------------
650,000 AmerisourceBergen Corp. company guaranty 7 1/4s, 2012 679,250
476,000 AmerisourceBergen Corp. sr. notes 8 1/8s, 2008 509,320
1,608,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 (In default) (NON) 24,120
1,446,000 Service Corp. International notes 6s, 2005 1,449,615
-------------
2,662,305
Metal Fabricators (--%)
- -------------------------------------------------------------------------------------------------------------------
735,000 Timken Co. notes 5 3/4s, 2010 743,591
Metals (0.1%)
- -------------------------------------------------------------------------------------------------------------------
3,175,000 Alcoa, Inc. notes 6 1/2s, 2011 3,485,782
1,205,000 Falconbridge, Ltd. bonds 5 3/8s, 2015 (Canada) 1,082,461
575,000 WMC Finance USA 144A bonds 6 1/4s, 2033 (Australia) 537,539
995,000 WMC Finance USA 144A notes 5 1/8s, 2013 (Australia) 955,500
-------------
6,061,282
Natural Gas Utilities (0.1%)
- -------------------------------------------------------------------------------------------------------------------
1,835,000 Duke Energy Field Services, LLC notes 7 7/8s, 2010 2,103,728
910,000 KeySpan Corp. notes 7 5/8s, 2010 1,073,718
1,860,000 Kinder Morgan, Inc. sr. notes 6 1/2s, 2012 1,994,421
545,000 National Fuel Gas Co. notes 5 1/4s, 2013 528,011
1,595,000 Sempra Energy notes 7.95s, 2010 1,818,810
1,000,000 Texas Eastern Transmission LP sr. notes 7s, 2032 1,032,856
590,000 TransCanada Pipelines, Ltd. notes 4s, 2013 (Canada) 533,854
-------------
9,085,398
Oil & Gas (0.4%)
- -------------------------------------------------------------------------------------------------------------------
630,000 Amerada Hess Corp. notes 5.9s, 2006 677,041
4,385,000 Conoco Funding Co. company guaranty 6.35s, 2011 4,809,503
765,000 Devon Energy Corp. sr. notes 2 3/4s, 2006 760,612
900,000 Devon Financing Corp. ULC company guaranty 7 7/8s, 2031 1,027,986
2,890,000 Louis Dreyfus Natural Gas Corp. notes 6 7/8s, 2007 3,217,674
1,140,000 MidAmerican Energy Holdings Co. sr. notes 4 5/8s, 2007 1,158,721
245,000 MidAmerican Energy Holdings Co. sr. notes 3 1/2s, 2008 237,233
1,780,000 Motiva Enterprises, LLC 144A sr. notes 5.2s, 2012 1,716,369
370,000 Newfield Exploration Co. sr. notes 7 5/8s, 2011 394,050
1,000,000 Nexen, Inc. notes 7 7/8s, 2032 (Canada) 1,126,360
1,910,000 Noble Affilitates, Inc. sr. notes 8s, 2027 2,103,277
775,000 Petro-Canada, Ltd. bonds 5.35s, 2033 (Canada) 658,069
595,000 Petro-Canada, Ltd. notes 4s, 2013 (Canada) 535,850
700,000 Pioneer Natural Resources Co. company guaranty 9 5/8s, 2010 845,250
2,935,000 Union Oil Company of California company guaranty 7 1/2s, 2029 3,196,975
1,134,000 Vintage Petroleum, Inc. sr. notes 8 1/4s, 2012 1,213,380
733,000 Westport Resources Corp. company guaranty 8 1/4s, 2011 780,645
839,000 XTO Energy, Inc. sr. notes 7 1/2s, 2012 910,315
-------------
25,369,310
Pharmaceuticals (0.1%)
- -------------------------------------------------------------------------------------------------------------------
2,935,000 American Home Products Corp. FRN 6.7s, 2011 3,246,970
845,000 Bayer Corp. 144A FRB 6.2s, 2008 908,967
620,000 Biovail Corp. sr. sub. notes 7 7/8s, 2010 (Canada) 641,700
-------------
4,797,637
Power Producers (--%)
- -------------------------------------------------------------------------------------------------------------------
717,431 York Power Funding 144A notes 12s, 2007 (Cayman Islands) (In default) (NON) 502,202
Railroads (0.2%)
- -------------------------------------------------------------------------------------------------------------------
3,485,000 Burlington Northern Santa Fe Corp. notes 7 1/8s, 2010 3,959,859
2,180,000 CSX Corp. notes 6 1/4s, 2008 2,388,774
1,040,000 CSX Corp. notes 4 7/8s, 2009 1,044,638
1,075,000 Norfolk Southern Corp. sr. notes 7 1/4s, 2031 1,153,723
2,015,000 Norfolk Southern Corp. sr. notes 6 3/4s, 2011 2,226,180
810,000 Union Pacific Corp. debs. 5 3/8s, 2033 694,410
2,055,000 Union Pacific Corp. notes 7 3/8s, 2009 2,350,573
885,000 Union Pacific Corp. notes 6 5/8s, 2008 979,788
-------------
14,797,945
Real Estate (0.3%)
- -------------------------------------------------------------------------------------------------------------------
3,535,000 Archstone-Smith Operating Trust notes 5s, 2007 (R) 3,673,271
650,000 Centerpoint Properties Trust notes Ser. MTN, 4 3/4s, 2010 630,236
1,320,000 Developers Diversified Realty Corp. 144A notes 4 5/8s, 2010 1,250,334
315,000 EOP Operating LP company guaranty 6 3/4s, 2012 342,731
1,540,000 EOP Operating LP sr. notes 7s, 2011 1,681,027
2,730,000 Franchise Finance Corp. of America sr. notes 8 3/4s, 2010 (R) 3,360,275
1,325,000 Hospitality Properties Trust notes 6 3/4s, 2013(R) 1,315,035
1,540,000 HRPT Properties Trust notes 6 1/2s, 2013 (R) 1,573,361
282,000 iStar Financial, Inc. sr. notes 8 3/4s, 2008 (R) 301,740
910,000 iStar Financial, Inc. sr. notes 7s, 2008 (R) 921,375
1,935,000 Mack-Cali Realty LP notes 7 3/4s, 2011 (R) 2,198,052
2,575,000 Tanger Properties, Ltd. company guaranty 7 7/8s, 2004 2,671,563
-------------
19,919,000
Regional Bells (0.2%)
- -------------------------------------------------------------------------------------------------------------------
200,000 Ameritech Capital Funding company guaranty 6 1/4s, 2009 218,484
1,020,000 Bellsouth Capital Funding notes 7 3/4s, 2010 1,203,925
2,140,000 Qwest Corp. 144A notes 8 7/8s, 2012 2,193,500
440,000 SBC Communications, Inc. notes 5 7/8s, 2012 461,895
2,380,000 Telus Corp. notes 8s, 2011 (Canada) 2,659,555
1,515,000 Telus Corp. notes 7 1/2s, 2007 (Canada) 1,656,648
2,705,000 Verizon Global Funding Corp. notes 7 1/4s, 2010 3,069,125
2,045,000 Verizon New England Inc. sr. notes 6 1/2s, 2011 2,222,077
670,000 Verizon Virginia Inc. debs. Ser. A, 4 5/8s, 2013 637,327
-------------
14,322,536
Restaurants (--%)
- -------------------------------------------------------------------------------------------------------------------
2,140,000 Yum! Brands, Inc. sr. notes 8 7/8s, 2011 2,407,500
60,000 Yum! Brands, Inc. sr. notes 7.65s, 2008 64,800
-------------
2,472,300
Retail (0.2%)
- -------------------------------------------------------------------------------------------------------------------
1,842,527 CVS Corp. 144A pass-through certificates 6.117s, 2013 1,896,871
1,150,000 Federated Department Stores sr. notes 8 1/2s, 2010 1,356,741
1,385,000 Fred Meyer, Inc. Holding Co. company guaranty 7.45s, 2008 1,563,671
1,333,000 JC Penney Co., Inc. notes 7.6s, 2007 1,352,995
1,130,000 Kroger Co. company guaranty 6.8s, 2011 1,225,496
1,355,000 Kroger Co. company guaranty 6 3/4s, 2012 1,462,896
1,065,000 Limited, Inc. (The) notes 6 1/8s, 2012 1,113,912
1,505,000 Safeway, Inc. notes 7 1/2s, 2009 1,693,187
1,138,000 Saks, Inc. company guaranty 8 1/4s, 2008 1,177,830
1,845,000 Sears Roebuck Acceptance FRN Ser. MTN, 3.28s, 2004 1,859,249
335,000 Sears Roebuck Acceptance FRN Ser. MTN, 3.18s, 2004 337,673
650,000 Sears Roebuck Acceptance Corp. bonds 7 1/2s, 2027 639,887
-------------
15,680,408
Shipping (--%)
- -------------------------------------------------------------------------------------------------------------------
11,184 Aran Shipping & Trading SA notes 8.3s, 2004 (Greece) (In default) (NON) 5,592
Technology (0.1%)
- -------------------------------------------------------------------------------------------------------------------
2,110,000 Eastman Kodak Co. notes Ser. MTNA, 3 5/8s, 2008 2,010,420
Technology Services (0.1%)
- -------------------------------------------------------------------------------------------------------------------
1,410,000 Electronic Data Systems Corp. 144A notes 6s, 2013 1,297,480
645,000 Fiserv, Inc. 144A notes 4s, 2008 639,792
1,465,000 Science Applications International Corp. 144A bonds 5 1/2s, 2033 1,224,470
-------------
3,161,742
Telecommunications (0.8%)
- -------------------------------------------------------------------------------------------------------------------
1,565,000 AT&T Corp. sr. notes 8s, 2031 1,655,265
1,705,000 AT&T Corp. sr. notes 7.8s, 2011 1,869,098
715,000 AT&T Wireless Services, Inc. sr. notes 8 3/4s, 2031 824,023
2,095,000 AT&T Wireless Services, Inc. sr. notes 7 7/8s, 2011 2,358,505
2,260,000 British Telecommunications PLC bonds 8 7/8s, 2030 (United Kingdom) 2,776,094
3,350,000 British Telecommunications PLC notes 8 3/8s, 2010 (United Kingdom) 4,002,889
4,415,000 Cingular Wireless, LLC sr. notes 5 5/8s, 2006 4,771,613
905,000 Citizens Communications Co. notes 9 1/4s, 2011 1,112,259
960,000 Citizens Communications Co. sr. notes 6 3/8s, 2004 994,979
2,025,000 Deutsche Telekom International Finance BV bonds 8s,
2010 (Netherlands) 2,386,078
2,435,000 Deutsche Telekom International Finance BV company guaranty 8 3/4s,
2030 (Netherlands) 2,880,094
1,540,000 Deutsche Telekom International Finance BV notes 5 1/4s, 2013
(Netherlands) 1,474,518
390,000 Eircom Funding 144A sr. sub. notes 8 1/4s, 2013 (Ireland) 397,800
1,450,000 France Telecom notes 10s, 2031 (France) 1,805,439
2,125,000 France Telecom notes 7 3/4s, 2011 (France) 2,525,456
505,000 Koninklijke (Royal) KPN NV sr. unsub. notes 8s, 2010 (Netherlands) 597,547
1,515,000 Sprint Capital Corp. company guaranty 8 3/4s, 2032 1,639,942
215,000 Sprint Capital Corp. company guaranty 7.9s, 2005 231,778
2,455,000 Sprint Capital Corp. company guaranty 7 5/8s, 2011 2,642,513
2,865,000 Sprint Capital Corp. company guaranty 6 7/8s, 2028 2,570,994
7,365,000 Verizon Wireless, Inc. notes 5 3/8s, 2006 7,948,910
1,090,000 Vodafone Group PLC bonds 6 1/4s, 2032 (United Kingdom) 1,057,311
1,235,000 Vodafone Group PLC notes 7 3/4s, 2010 (United Kingdom) 1,446,283
1,705,000 Vodafone Group PLC notes 7 5/8s, 2005 (United Kingdom) 1,846,051
-------------
51,815,439
Telephone (--%)
- -------------------------------------------------------------------------------------------------------------------
1,655,000 Telefonica Europe BV company guaranty 7 3/4s, 2010 (Netherlands) 1,943,031
Tobacco (0.1%)
- -------------------------------------------------------------------------------------------------------------------
2,620,000 Philip Morris Cos., Inc. notes 7.2s, 2007 2,710,146
2,820,000 Philip Morris Cos., Inc. notes 7 1/8s, 2004 2,915,119
600,000 R.J. Reynolds Tobacco Holdings, Inc. company guaranty 6 1/2s, 2007 561,000
-------------
6,186,265
Waste Management (0.1%)
- -------------------------------------------------------------------------------------------------------------------
2,245,000 Allied Waste North America, Inc. sr. notes 7 7/8s, 2013 2,289,900
4,000 Browning-Ferris Industries, Inc. debs. 7.4s, 2035 3,480
-------------
2,293,380
-------------
Total Corporate bonds and notes (cost $670,046,679) $677,047,435
Collateralized mortgage obligations (7.3%) (a)
Principal amount Value
- -------------------------------------------------------------------------------------------------------------------
Arc Net Interest Margin Trust
$623,381 Ser. 02-5A, Class A, 7 3/4s, 2032 $619,370
838,408 Ser. 02-2, Class A, 7 3/4s, 2032 837,012
Arc Net Interest Margin Trust 144A
839,120 Ser. 02-1A, Class A, 7 3/4s, 2032 838,976
62,619 Ser. 01-6A, Class A, 7 1/4s, 2031 62,395
Asset Securitization Corp.
2,000,000 Ser. 97-MD7, Class A1B, 7.41s, 2030 2,204,935
2,972,339 Ser. 95-MD4, Class A1, 7.1s, 2029 3,195,697
880,000 Ser. 96-MD6, Class A1B, 6.88s, 2029 890,962
4,670,500 Ser. 97-D5, Class A1C, 6 3/4s, 2043 5,153,430
2,790,580 Banc of America Commercial Mortgage, Inc. Ser. 00-2, Class A1,
7.02s, 2032 3,055,685
93,880,000 Bayview Financial Acquisition Trust Ser. 03-X, Class A1, Interest Only
(IO), 1.36s, 2006 1,452,206
11,341,000 Bear Stearns Asset Backed Securities, Inc. Ser. 03-AC1, Class A, IO,
5s, 2005 969,301
535,000 Bear Stearns Commercial Mortgage Securitization Corp. Ser. 02-TOP8,
Class X2, IO, 2.13s, 2038 57,691
Chase Commercial Mortgage Securities Corp.
3,011,241 Ser. 00-1, Class A1, 7.656s, 2032 3,207,198
1,333,937 Ser. 98-1, Class A1, 6.34s, 2030 1,389,379
4,937,500 Commercial Mortgage Acceptance Corp. Ser. 97-ML1, Class A3,
6.57s, 2007 5,366,445
98,300,187 Commercial Mortgage Asset Trust Ser. 99-C1, Class X, IO,
0.91s, 2020 5,713,207
2,548,673 Commercial Mortgage Pass-Through Certificates Ser. 00-C1,
Class A1, 7.206s, 2033 2,757,027
2,826,919 Countrywide Home Loan Ser. 98-A12, Class A14, 8s, 2028 2,879,670
1,939,519 Countrywide Mortgage Backed Securities, Inc. Ser. 93-C, Class A8,
6 1/2s, 2024 1,989,115
9,485,000 Criimi Mae Commercial Mortgage Trust Ser. 98-C1, Class A2, 7s, 2011 10,685,445
3,385,000 Criimi Mae Commercial Mortgage Trust 144A Ser. 98-C1,
Class B, 7s, 2011 3,465,308
CS First Boston Mortgage Securities Corp.
19,424,558 Ser. 97-C2, Class A2, 6.52s, 2035 20,473,212
3,642,892 Ser. 01-CK3, Class A1, 5.26s, 2006 3,768,117
357,249 Ser. 01-CKN5, Class A1, 3.801s, 2006 362,552
2,865,000 CS First Boston Mortgage Securities Corp. 144A Ser. 01-CK1,
Class ACP, IO, 1.03s, 2035 122,658
14,159,702 DLJ Commercial Mortgage Corp. Ser. 00-CKP1, Class A1A,
6.93s, 2009 15,378,711
75,831,870 DLJ Commercial Mortgage Corp. 144A Ser. 00-CKP1, Class S, IO,
0.481s, 2010 4,307,969
Fannie Mae
5,611,271 Ser. 02-36, Class SJ, 17 3/8s, 2029 6,304,353
1,605 Ser. 92-15, Class L, IO, 8s, 2022 22,504
283,287 Ser. 03-W3, Class 1A3, 7 1/2s, 2042 307,674
4,362,909 Ser. 02-T19, Class A3, 7 1/2s, 2042 4,738,492
113,445 Ser. 03-W2, Class 1A3, 7 1/2s, 2042 123,211
8,070,490 Ser. 02-W4, Class A5, 7 1/2s, 2042 8,765,242
8,089,136 Ser. 01-T10, Class A2, 7 1/2s, 2041 8,785,494
5,013,664 Ser. 01-T12, Class A2, 7 1/2s, 2041 5,445,269
10,107,567 Ser. 01-T8, Class A1, 7 1/2s, 2041 10,977,682
10,202,783 Ser. 01-T7, Class A1, 7 1/2s, 2041 11,081,095
564,762 Ser. 01-T3, Class A1, 7 1/2s, 2040 613,380
1,665,325 Ser. 01-T1, Class A1, 7 1/2s, 2040 1,808,686
666,223 Ser. 99-T2, Class A1, 7 1/2s, 2039 723,575
6,408,331 Ser. 00-T6, Class A1, 7 1/2s, 2030 6,959,996
156,309 Ser. 01-T5, Class A3, 7 1/2s, 2030 169,765
13,790,016 Ser. 01-T4, Class A1, 7 1/2s, 2028 14,977,138
1,701,146 Ser. 02-W3, Class A5, 7 1/2s, 2028 1,847,590
12,157,724 Ser. 02-36, Class QH, IO, 6.95s, 2029 968,457
1,881,480 Ser. 02-27, Class SQ, IO, 6.9s, 2032 65,852
40,639,626 Ser. 03-22, IO, 6s, 2033 10,604,423
4,669,964 Ser. 332, Class 2, IO, 6s, 2033 1,249,215
11,979,099 Ser. 03-58, Class ID, IO, 6s, 2033 3,034,081
12,031,183 Ser. 03-63, Class IP, IO, 6s, 2033 2,799,130
12,410,000 Ser. 03-71, Class YS, IO, 5.98s, 2033 1,758,730
32,450,891 Ser. 329, Class 2, IO, 5 1/2s, 2032 9,339,756
48,300 Ser. 03-29, Class IG, IO, 5 1/2s, 2031 16,271
7,238,334 Ser. 03-42, Class JI, IO, 5 1/2s, 2028 1,067,654
7,261,826 Ser. 03-54, Class IY, IO, 5 1/2s, 2026 1,231,678
386,500 Ser. 03-17, Class PI, IO, 5 1/2s, 2025 55,318
38,737,951 Ser. 337, Class 2, IO, 5s, 2033 11,572,963
4,720,609 Ser. 03-16, Class IC, IO, 5s, 2015 895,342
11,726,113 Ser. 03-W3, Class 22, IO, 2.45s, 2042 348,119
57,031,235 Ser. 03-W6, Class 11, IO, 2.36s, 2042 1,627,785
19,577,339 Ser. 03-W10, Class 3, IO, 2.148s, 2043 1,235,820
37,041,845 Ser. 03-W10, Class 1, IO, 2.113s, 2043 2,430,871
51,077,290 Ser. 03-W6, Class 21, IO, 2.01s, 2042 1,056,122
136,163,164 Ser. 03-T2, Class 2, IO, 1.93s, 2042 4,701,884
5,808,682 Ser. 03-W10, Class 1A1, 1.701s, 2032 5,777,823
86,272,646 Ser. 03-W8, Class 12, IO, 1.649s, 2042 4,650,269
71,018,248 Ser. 03-W8, Class 11, IO, 1.157s, 2042 1,217,144
43,366,112 Ser. 03-49, Class SV, IO, 1s, 2033 1,605,901
11,497,889 Ser. 03-W3, Class 21, IO, 0.68s, 2042 244,876
37,423,557 Ser. 03-W6, Class 51, IO, 0.667s, 2042 731,834
95,733,382 Ser. 01-T12, Class IO, 0.57s, 2041 1,705,251
107,454,189 Ser. 03-W3, Class 1, IO, 0.44s, 2042 1,417,708
53,089,853 Ser. 03-W4, Class 3A, IO, 0.44s, 2042 779,757
72,951,577 Ser. 02-T1, IO, 0.42s, 2031 980,287
56,550,230 Ser. 03-W6, Class 3, IO, 0.365s, 2042 635,079
56,377,631 Ser. 03-W6, Class 23, IO, 0.352s, 2042 610,092
79,517,904 Ser. 03-W2, Class 1, IO, 0.074s, 2042 1,167,919
Federal Home Loan Mortgage Corp. Structured
Pass-Through Securities
1,586,527 Ser. T-42, Class A5, 7 1/2s, 2042 1,723,104
35,462,161 Ser. T-56, Class A, IO, 2.16s, 2043 1,246,717
42,850,204 Ser. T-56, Class 3, IO, 0.38s, 2043 528,932
45,361,501 Ser. T-56, Class 1, IO, 0.289s, 2043 411,089
47,432,820 Ser. T-56, Class 2, IO, 0.055s, 2043 118,582
19,220,000 FFCA Secured Lending Corp. 144A Ser. 00-1, Class A2, 7.77s, 2027 20,673,032
620,000 First Union National Bank Commercial Mortgage 144A Ser. 02-C1, IO,
0.96s, 2034 32,211
3,950,018 First Union-Chase Commercial Mortgage Ser. 99-C2, Class A1,
6.363s, 2031 4,191,038
First Union-Lehman Brothers Commercial Mortgage Trust II
6,670,000 Ser. 97-C1, Class A3, 7.38s, 2029 7,436,268
1,605,667 Ser. 97-C1, Class A2, 7.3s, 2029 1,646,937
Freddie Mac
460,497 Ser. 2028, Class SG, IO, 15.4s, 2023 7,483
12,881,616 Ser. 2437-SB, IO, 6.89s, 2032 1,143,243
3,509,322 Ser. 2422, Class IB, IO, 6 1/2s, 2028 119,536
10,207,021 Ser. 2469, Class SH, IO, 6.393s, 2032 816,562
2,977,251 Ser. 212, IO, 6s, 2031 565,678
7,242,381 Ser. 2581, Class IE, IO, 5 1/2s, 2025 1,647,642
21,336,341 Ser. 2579, Class DI, IO, 5 1/2s, 2023 4,429,129
6,981,900 Ser. 2553, Class IJ, IO, 5 1/2s, 2020 637,098
605,478 Ser. 2626, Class JS, IO, 5.49s, 2023 58,939
17,999,925 Ser. 2626, Class DI, IO, 5s, 2033 3,940,296
1,023,374 G-Force CDO, Ltd. FRB Ser. 01-1A, Class A, 1.7s, 2033 1,023,323
15,994,123 GE Capital Commercial Mortgage Corp. Ser. 01-3, Class X1, IO,
0.67s, 2038 675,050
5,621,882 General Growth Properties-Mall Properties Trust FRB Ser. 01-C1A,
Class D3, 3.357s, 2014 5,624,737
GMAC Commercial Mortgage Securities, Inc.
9,408,000 Ser. 97-C2, Class A2, 6.55s, 2007 9,666,720
17,842,138 Ser. 99-C1, Class X, IO, 0.65s, 2033 543,628
7,329,790 Ser. 98-C2, Class X, IO, 0.6s, 2035 217,603
GMAC Commercial Mortgage Securities, Inc. 144A
1,110,000 Ser. 03-C1, Class G, 4.817s, 2036 1,020,978
515,000 Ser. 02-C1, Class X2, IO, 0.891s, 2039 25,016
603,234 Government National Mortgage Association Ser. 98-2, Class EA,
Principal Only (PO), zero %, 2018 505,868
2,970,000 Granite Mortgages PLC FRN Ser. 01-1, Class 1C, 2.51s, 2041
(United Kingdom) 2,951,670
GS Mortgage Securities Corp. II
7,830,000 Ser. 01-LIB, Class A2, 6.615s, 2016 8,450,528
898,862 Ser. 98-GLII, Class A1, 6.312s, 2031 956,967
13,365,000 Holmes Financing PLC FRB Ser. 1, Class 2C, 2.256s, 2040 13,278,809
Housing Securities, Inc.
301,667 Ser. 93-F, Class F9M2, 7s, 2023 301,761
81,691 Ser. 94-1, Class AB1, 6 1/2s, 2009 80,134
450,000 JP Morgan Chase Commercial Mortgage Securities Corp. 144A
Ser. 02-C1, Class X2,IO, 0.239s, 2037 32,784
9,365,653 JP Morgan Commercial Mortgage Finance Corp. Ser. 00-C9,
Class A1, 7.59s, 2032 10,182,619
5,359,710 LB Commercial Conduit Mortgage Trust Ser. 98-C4, Class A1A,
5.87s, 2006 5,608,434
LB-UBS Commercial Mortgage Trust
10,057,921 Ser. 00-C3, Class A1, 7.95s, 2009 11,251,495
8,951,765 Ser. 00-C4, Class A1, 7.18s, 2009 9,910,045
LB-UBS Commercial Mortgage Trust 144A
1,485,000 Ser. 02-C4, Class XCP, IO, 1.696s, 2035 107,554
41,445,000 Ser. 03-C1, Class XCP, IO, 1.48s, 2036 2,761,436
27,389,000 Ser. 03-C5, Class XCP, IO, 1.358s, 2037 1,364,403
1,820,000 Lehman Brothers Floating Rate Commercial FRB 144A Ser. 03-C4,
Class A, 1.701s, 2015 1,820,000
7,813,401 Merit Securities Corp. FRB Ser. 11PA, Class 3A1, 1.72s, 2027 7,554,582
Merrill Lynch Mortgage Investors, Inc.
1,456,592 Ser. 97-C1, Class A2, 7.03s, 2029 1,463,157
297,503 Ser. 96-C2, Class A3, 6.96s, 2028 321,954
566,519 Ser. 98-C2, Class A1, 6.22s, 2030 585,639
34,008,263 Merrill Lynch Mortgage Trust 144A Ser. 02-MW1, Class XP, IO,
1.86s, 2034 2,476,227
Morgan Stanley Capital I
1,323,779 Ser. 99-CAM1, Class A2, 6.76s, 2032 1,431,512
4,579,274 Ser. 98-CF1, Class A1, 6.33s, 2032 4,795,358
Morgan Stanley Dean Witter Capital I
1,569,128 Ser. 00-LIF2, Class A1, 6.96s, 2033 1,719,472
52,110,000 Ser. 03-TOP9, Class X2, IO, 1.524s, 2036 4,110,656
2,877,454 Ser. 02-HQ, Class X1, IO, 0.6s, 2034 74,172
Morgan Stanley Dean Witter Capital I 144A
1,032,778 FRB Ser. 01-XLF, Class D, 2.64s, 2013 1,031,572
794,601 FRB Ser. 01-XLF, Class E, 2.59s, 2013 787,948
2,690,000 Nomura Asset Securities Corp. Ser. 96-MD5, Class A1B, 7.12s, 2039 2,930,770
85,384,000 Prudential Commercial Mortgage Trust 144A Ser. 03-PWR1,
Class X2, IO, 1.73s, 2036 6,964,133
420,628 Prudential Home Mortgage Securities Ser. 92-25, Class B3, 8s, 2022 421,004
900,000 Prudential Mortgage Capital Funding, LLC 144A IO, 0.82s, 2034 31,814
2,006,752 Residential Funding Mortgage Ser. 98-S13, Class A21, 6 3/4s, 2028 2,004,605
Ryland Mortgage Securities Corp.
498,457 Ser. 94-7C, Class B2, 7.36s, 2025 498,457
705,725 Ser. 94-7C, Class B1, 7.36s, 2025 719,511
41,999,735 Salomon Brothers Mortgage Securities VII 144A Ser. 00-C2,
Class X, IO, 0.833s, 2033 1,876,863
427,037 Sasco Arc Net Interest Margin Notes 144A Ser. 03-AM1, Class A,
7 3/4s, 2033 424,955
1,767,000 Starwood Asset Receivables Trust FRN Ser. 02-1A, Class F,
2.435s, 2020 1,768,060
Starwood Asset Receivables Trust 144A
650,000 FRB Ser. 03-1A, Class F, 2.2s, 2022 650,390
825,000 FRB Ser. 03-1A, Class E, 2.15s, 2022 825,495
865,000 FRB Ser. 03-1A, Class A2, 1.45s, 2022 865,519
1,343,000 Structured Asset Securities Corp. FRN Ser. 02-HF2, Class M3,
3.1s, 2032 1,142,285
10,869,178 Structured Asset Securities Corp. Ser. 98-RF3, Class A, IO, 6.1s, 2028 1,843,195
1,438,352 TIAA Commercial Real Estate Securitization Ser. 01-C1A, Class A1,
5.77s, 2016 1,511,618
9,366,509 TIAA Retail Commercial Mortgage Trust Ser. 99-1, Class A, 7.17s, 2032 10,265,669
-------------
Total Collateralized mortgage obligations (cost $443,723,776) $463,269,900
Asset-backed securities (3.8%) (a)
Principal amount Value
- -------------------------------------------------------------------------------------------------------------------
$6,157,000 ACE Securities Corp. Ser. 03-FM1, Class A, IO, 5 1/2s, 2005 $589,225
3,586,000 Advanta Mortgage Loan Trust Ser. 00-1, Class A4, 8.61s, 2028 3,906,499
9,142,906 AFC Home Equity Loan Trust Ser. 99-2, Class 1A, 1.51s, 2029 9,142,906
Ameriquest Mortgage Securities, Inc.
13,296,000 Ser. 03-6, Class S, IO, 5s, 2005 807,109
391,000 FRN Ser. 02-4, Class M4, 4.85s, 2033 329,093
560,000 FRN Ser. 03-AR3, Class M5, 4.85s, 2033 530,644
496,000 FRN Ser. 2003-1, Class M4, 4.18s, 2033 408,166
Amortizing Residential Collateral Trust
1,471,329 Ser. 02-BC3N, Class B2, 7s, 2032 1,457,395
21,171,818 Ser. 02-BC1, Class A, IO, 6s, 2005 872,212
33,361,364 Ser. 02-BC3, Class A, IO, 6s, 2005 1,861,091
35,492,182 Ser. 01-BC6, Class A, IO, 6s, 2004 991,702
39,115,636 Ser. 02-BC5, Class A, IO, 6s, 2004 1,752,596
32,011,364 Ser. 02-BC6, Class A, IO, 6s, 2004 1,260,366
35,590,909 Ser. 02-BC7, Class A, IO, 0.364s, 2004 1,575,019
8,855,000 Ser. 03-8, IO, 5s, 2006 657,927
826,000 FRB Ser. 03-8, 4.866s, 2011 690,206
1,465,000 FRN Ser. 02-BC1, Class M2, 2.2s, 2032 1,431,751
683,000 FRN Ser. 02-BC5, Class B, 3.35s, 2032 592,449
1,342,000 FRN Ser. 02-BC7, Class B3, 3.1s, 2032 1,149,454
560,170 AQ Finance NIM Trust Ser. 02-1, Class Note, 9 1/2s, 2032 558,595
Argent Securities, Inc.
47,750,000 Ser. 03-W2, Class A, IO, 1.24s, 2004 431,268
900,000 FRB Ser. 03-1, 4.87s, 2033 708,547
641,000 FRB Ser. 03-W2, 4.87s, 2033 510,373
Asset Backed Funding Certificates
833,930 Ser. 02-NC1, Class N1, 8.84s, 2032 831,845
1,457,000 FRN Ser. 02-OPT1, Class M3, 2 1/2s, 2032 1,449,260
433,757 Asset Backed Funding Corp. NIM Trust Ser. 02-WF1, 9.32s, 2032 433,757
1,872,933 Asset Backed Funding Corp. NIM Trust 144A Ser. 03-WF1, Class N1,
8.35s, 2032 1,872,933
Asset Backed Securities Corp.
13,807,000 Ser. 03-HE5, IO, 4s, 2013 812,611
794,000 FRB Ser. 03-HE5, 5.366s, 2033 690,393
Asset Backed Securities Corp. Home Equity Loan Trust
41,213,000 Ser. 02-HE1, Class A, IO, 5.05s, 2032 1,363,615
1,273,000 FRN Ser. 03-HE1, Class M4, 5.61s, 2033 1,134,909
931,000 FRN Ser. 03-HE3, Class M5, 5.11s, 2033 809,427
1,353,000 FRN Ser. 02-HE2, Class M2, 2.237s, 2032 1,326,588
7,219,000 Bank One Issuance Trust FRN Ser. 02-C1, Class C1, 2.07s, 2009 7,175,855
Bayview Financial Acquisition Trust
3,930,000 Ser. 02-CA, Class A, IO, 7.15s, 2004 192,816
19,736,000 Ser. 03-DA, IO, 4s, 2006 1,156,530
3,057,755 FRN Ser. 01-DA, Class M3, 2 1/2s, 2031 3,027,177
Bayview Financial Acquisition Trust 144A
11,102,000 Ser. 03-CA, Class A, IO, 4s, 2005 579,147
182,769,415 Ser. 02-X, Class A1, IO, 1.32s, 2005 2,084,714
3,365,918 Bear Stearns Asset Backed Securities, Inc. FRN Ser. 03-1, Class A1,
1.535s, 2042 3,365,918
2,715,000 Capital One Master Trust 144A FRN Ser. 01-5, Class C, 2.257s, 2009 2,596,997
Capital One Multi-Asset Execution Trust
570,000 FRB Ser. 02-C1, Class C1, 3.857s, 2010 577,743
3,698,000 FRN Ser. 03-A1, Class A1, 1.5s, 2009 3,716,272
850,000 CDC Mortgage Capital Trust FRB Ser. 03-HE3, Class B3, 1s, 2033 701,852
3,005,000 CDO Repackaging Trust Series 144A FRB Ser. 03-2, Class A,
5.18s, 2008 3,005,000
1,550,000 Chase Credit Card Master Trust FRN Ser. 01-1, Class C, 1.837s, 2007 1,543,288
716,763 Chase Funding Net Interest Margin Ser. 02-2, 8 1/2s, 2035 715,832
Chase Funding Net Interest Margin 144A
769,546 Ser. 03-3A, Class Note, 6 7/8s, 2036 769,469
1,882,426 Ser. 03-C1A, Class Note, 6 3/4s, 2036 1,882,238
Conseco Finance Securitizations Corp.
4,582,000 Ser. 02-1, Class M2, 9.546s, 2032 2,749,200
3,810,000 Ser. 01-4, Class B1, 9.4s, 2010 1,333,500
10,547,816 Ser. 02-2, Class A, IO, 8.5s, 2010 3,316,128
17,670,000 Ser. 00-4, Class A6, 8.31s, 2032 14,948,814
8,310,000 Ser. 01-04, Class A4, 7.36s, 2019 7,590,732
6,235,000 Ser. 01-3, Class A4, 6.91s, 2033 5,524,118
12,065,471 Ser. 02-1, Class A, 6.681s, 2032 11,800,413
32,032,255 Conseco Recreational Enthusiast Consumer Trust Ser. 01-A, Class AP,
IO, 5s, 2025 1,496,227
3,061,000 Consumer Credit Reference IDX Securities FRB Ser. 02-1A, Class A,
3.03s, 2007 3,023,717
Countrywide Asset-Backed Certificates
516,000 FRB Ser. 03-4, Class B, 4.62s, 2032 473,591
517,000 FRB Ser. 03-BC4, Class B, 4.62s, 2032 464,331
1,745,113 Credit-Based Asset Servicing and Securitization 144A Ser. 03-CB2N,
Class Note, 8.35s, 2033 1,745,113
1,515,000 CS First Boston Mortgage Securities Corp. FRN Ser. 02-1, Class M2,
2 1/2s, 2032 1,493,228
First Franklin Mortgage Loan Asset Backed Certificates
10,642,704 Ser. 02-FF3, Class A, IO, 7.58s, 2004 437,479
31,428,000 Ser. 03-FF3, Class A, IO, 6s, 2005 1,989,550
15,226,000 Ser. 03-FFB, Class A, IO, 6s, 2005 1,161,213
1,378,579 First Plus 144A Ser. 98-A, Class A, 8 1/2s, 2023 992,577
2,838,765 First Plus Home Loan Trust Ser. 97-3, Class B1, 7.79s, 2023 2,836,563
470,000 Goldentree Loan Opportunities II, Ltd. 144A FRN Ser. 2A, Class 4,
4.37s, 2015 (Cayman Islands) 467,650
Green Tree Financial Corp.
16,750,000 Ser. 99-5, Class A5, 7.86s, 2031 14,263,962
577,000 Ser. 99-3, 6.16s, 2031 586,016
786,000 GSAMP Trust FRN Ser. 03-HE1, Class B2, 3.22s, 2033 685,539
Home Equity Asset Trust
1,441,690 Ser. 02-1N, Class A, 8s, 2032 1,416,460
1,160,000 FRN Ser. 03-4, Class B3, 5.6s, 2033 1,029,676
1,370,000 LBAHC Ser. 03-4, 6.535s, 2033 1,370,000
39,132,499 Lehman Manufactured Housing Ser. 98-1, Class 1, IO, 0.81s, 2028 641,478
5,220,000 LNR CDO, Ltd. Ser. 02-1A, Class FFL, 3.85s, 2037 4,820,148
2,585,000 LNR CDO, Ltd. 144A FRB Ser. 03-1A, Class EFL, 4.119s, 2036
(Cayman Islands) 2,585,000
Long Beach Mortgage Loan Trust
1,162,000 FRB Ser. 03-4, 5.11s, 2033 980,619
848,000 FRN Ser. 03-3, Class M4, 4.6s, 2033 692,180
Madison Avenue Manufactured Housing Contract
234,631,221 Ser. 02-A, IO, 0.03s, 2032 2,786,246
4,059,503 FRN Ser. 02-A, Class B1, 4.35s, 2032 2,638,677
3,385,682 Marriott Vacation Club Owner Trust 144A FRB Ser. 02-1A, Class A1,
1.8s, 2010 3,385,682
456,000 Mastr Asset-Backed Securities Trust FRB Ser. 03-NC1, 5.12s, 2033 375,630
Mid-State Trust
1,323,022 Ser. 11, Class B, 8.221s, 2038 1,227,413
2,123,338 Ser. 10, Class B, 7.54s, 2036 1,845,894
Morgan Stanley Capital I
585,000 Ser. 02-HE3, Class B2, 6s, 2032 498,038
1,039,000 FRN Ser. 03-HE1, Class B3, 5.07s, 2033 846,785
Morgan Stanley Dean Witter Capital I
6,151,000 FRN Ser. 01-NC4, Class B1, 3.6s, 2032 5,746,904
1,470,000 FRN Ser. 01-NC3, Class B1, 3.55s, 2031 1,382,063
1,965,000 FRN Ser. 02-AM2, Class B1, 3.35s, 2032 1,735,944
6,610,000 FRN Ser. 02-HE1, Class B1, 2.9s, 2032 6,091,747
537,294 Morgan Stanley Dean Witter Capital I 144A Ser. 01-NC4N, Class Note,
8 1/2s, 2032 536,651
449,628 NC Finance Trust Ser. 02-1, 9 1/4s, 2032 447,379
New Century Home Equity Loan Trust
231,764 NNIMS 144A Ser. 03-N1, 7.385s, 2005 231,764
1,203,000 FRN Ser. 03-3, Class M6, 4.77s, 2033 1,006,808
1,455,000 FRN Ser. 03-2, Class M4, 4.7s, 2033 1,240,388
Option One Mortgage Loan Trust
865,000 FRN Ser. 03-4, Class M6, 4.85s, 2033 765,660
581,000 FRB Ser. 03-5, 4.618s, 2033 508,647
1,292,000 FRN Ser. 03-3, Class M6, 4.6s, 2033 1,141,250
676,000 FRN Ser. 02-6, Class M4, 4.1s, 2032 615,589
1,156,756 Option One Mortgage Securities Corp. Ser. 02-2A, Class CFTS,
8.83s, 2032 1,156,756
Option One Mortgage Securities Corp. 144A
1,150,000 Ser. 03-5, 6.9s, 2033 1,150,000
670,307 Ser. 02-1, Class CTFS, 6 3/4s, 2032 667,476
178,242 Option One Mortgage Securities Corp. NIM Trust 144A Ser. 03-2B,
Class N1, 7.63s, 2033 (Cayman Islands) 178,186
Pass-Through Amortizing Credit Card Trust
2,874,580 Ser. 02-1A, Class A4FL, 6.601s, 2012 2,864,145
1,710,988 Ser. 02-1A, Class A3FL, 4.101s, 2012 1,704,777
11,723,280 Residential Asset Securities Corp. Ser. 02-KS6, Class A, IO, 4 1/2s, 2005 444,371
Residential Funding Mortgage Securities II
35,477,007 Ser. 03-HS1, Class AI, IO, 5 1/2s, 2033 1,993,808
11,099,000 Ser. 03-HS2, Class AI, IO, 5 1/2s, 2005 674,611
Sasco Arc Net Interest Margin Notes 144A
611,314 Ser. 03-3, Class A, 7 3/4s, 2033 608,245
1,545,497 Ser. 03-BC2A, Class A, 7 3/4s, 2033 1,541,006
1,734,719 Ser. 03-4, Class A, 7 1/2s, 2033 1,732,895
217,278 Ser. 03-5, Class A, 7.35s, 2033 217,214
470,000 SCF III Class A2, 2.316s, 2038 470,000
555,000 SHARP 144A Ser. 03-TC1N, 7 3/4s, 2033 555,000
Structured Asset Investment Loan Trust
176,563 Ser. 03-BC1A, Class A, 7 3/4s, 2033 175,705
55,158,000 Ser. 03-BC2, Class A, IO, 6s, 2005 3,389,675
48,537,000 Ser. 03-BC6, Class A, IO, 6s, 2005 3,332,376
32,626,000 Ser. 03-BC3, Class A, IO, 6s, 2004 1,737,215
14,768,000 Ser. 03-BC4, Class A, IO, 6s, 2004 780,120
26,950,000 Ser. 03-BC5, Class A, IO, 6s, 2004 1,423,634
870,000 FRN Ser. 03-BC5, Class B, 4.82s, 2033 798,905
1,208,000 FRN Ser. 03-BC4, Class B, 4.6s, 2033 1,102,488
1,263,000 Ser. 03-BC7, Class B, 4.116s, 2033 1,125,069
1,084,000 FRB Ser. 03-BC6, Class B, 4.1s, 2033 975,127
Structured Asset Securities Corp.
27,156,273 Ser. 02-BC10, Class A, IO, 6s, 2004 1,422,990
24,575,727 Ser. 02-BC9, Class A, IO, 6s, 2004 1,326,500
19,691,182 Ser. 02-BC1, Class A, IO, 6s, 2004 1,062,852
628,937 Xerox Equipment Lease Owner Trust FRB Ser. 01-1, Class A,
3.107s, 2008 629,133
-------------
Total Asset-backed securities (cost $260,632,172) $239,241,439
Convertible preferred stocks (0.6%) (a)
Number of shares Value
- -------------------------------------------------------------------------------------------------------------------
200,700 CenterPoint Energy, Inc. 2.00% cv. pfd. $6,246,788
140,250 Ford Motor Company Capital Trust II $3.25 cum. cv. pfd. 6,135,938
54,125 Hartford Financial Services Group, Inc. (The) $3.50 cv. pfd. 2,990,406
140,000 Hartford Financial Services Group, Inc. (The) $3.00 cv. pfd. 7,472,500
153,751 Xerox Corp. 6.25% cv. pfd. 16,355,263
-------------
Total Convertible preferred stocks (cost $37,132,386) $39,200,895
Convertible bonds and notes (0.4%) (a)
Principal amount Value
- -------------------------------------------------------------------------------------------------------------------
$4,387,000 Freeport-McMoRan Copper & Gold, Inc. cv. sr. notes 8 1/4s, 2006 $8,472,394
5,456,000 Rite Aid Corp. cv. notes 4 3/4s, 2006 5,742,440
10,787,000 Service Corp. International cv. sub. notes 6 3/4s, 2008 11,178,029
-------------
Total Convertible bonds and notes (cost $20,612,047) $25,392,863
Municipal bonds and notes (--%) (a)
Principal amount Rating (RAT) Value
- -------------------------------------------------------------------------------------------------------------------
$2,765,000 IL State G.O. Bonds, 5.1s, 6/1/33 Aa3 $2,339,881
1,120,000 NJ State Tpk. Auth. Rev. Bonds, Ser. B, AMBAC,
4.252s, 1/1/16 Aaa 1,032,461
-------------
Total Municipal bonds and notes (cost $3,885,000) $3,372,342
Expiration
Purchased options outstanding (--%) (a) (cost $49,684) date/
Contract amount strike price Value
- -------------------------------------------------------------------------------------------------------------------
25,121 Forest Laboratories, Inc. (Put) Sep-03/$42.68 $39,442
Warrants (--%) (a) (NON) Expiration
Number of warrants date Value
- -------------------------------------------------------------------------------------------------------------------
167 Washington Group International, Inc. Ser. A 1/25/06 $526
190 Washington Group International, Inc. Ser. B 1/25/06 437
103 Washington Group International, Inc. Ser. C 1/25/06 227
-------------
Total Warrants (cost $7,448) $1,190
Preferred stocks (--%) (a) (cost $--)
Number of shares Value
- -------------------------------------------------------------------------------------------------------------------
7 NTL Europe, Inc. Ser. A, zero % cum. pfd. $25
Short-term investments (9.6%) (a)
Principal amount Value
- -------------------------------------------------------------------------------------------------------------------
$5,253,200 Short-term investments held as collateral for loaned
securities with yields ranging from 0.91% to 1.23% and
due dates ranging from August 1,2003 to September 19,
2003 (d) $5,251,300
597,176,609 Short-term investments held in Putnam commingled
cash account with yields ranging from 1.00% to 1.24% and
due dates ranging from August 1, 2003 to September 25,
2003 (d) 597,176,609
2,000,000 U.S. Treasury Bills zero %, November 6, 2003 (SEG) 1,994,086
--------------
Total Short-term investments (cost $604,421,995) $604,421,995
- -------------------------------------------------------------------------------------------------------------------
Total Investments (cost $6,587,236,112) $6,968,842,447
- -------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $6,304,586,212.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at July 31, 2003 for the securities
listed. Ratings are generally ascribed to securities at the time of
issuance. While the agencies may from time to time revise such ratings,
they undertake no obligation to do so, and the ratings do not
necessarily represent what the agencies would ascribe to these
securities at July 31, 2003. Securities rated by Putnam are indicated by
"/P" and are not publicly rated. Ratings are not covered by the
Independent Auditors' Report.
(NON) Non-income-producing security.
(SEG) Either a portion or all of these securities were pledged and
segregated with the custodian to cover margin requirements for futures
contracts at July 31, 2003.
(R) Real Estate Investment Trust.
(d) See Note 1 to the financial statements.
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 custodian bank.
TBA after the name of a security represents to be announced
securities (Note 1).
AMBAC represents AMBAC Indemnity Corporation.
G.O. Bonds represent General Obligation Bonds.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate
Notes (FRN) are the current interest rates shown at July 31, 2003.
Forward currency contracts to buy at July 31, 2003
(aggregate face value $2,395,541)
Market Aggregate face Delivery Unrealized
value value date depreciation
- ------------------------------------------------------------------------------
Euro $2,302,412 $2,395,541 9/17/03 $(93,129)
- ------------------------------------------------------------------------------
Futures contracts outstanding at July 31, 2003
Unrealized
Market Aggregate face Expiration appreciation/
value value date (depreciation)
- ------------------------------------------------------------------------------
Euro 90 day (Long) $69,492,275 $69,859,713 Sep-06 $(367,438)
Euro 90 day
(Short) 71,561,587 71,839,812 Sep-04 278,225
Euro 90 day (Long) 40,183,975 40,488,893 Jun-06 (304,918)
Euro 90 day
(Short) 41,447,250 41,613,419 Jun-04 166,169
S&P 500 Index
(Short) 217,646,000 220,183,260 Sep-03 2,537,260
U.S. Treasury Bond
(Long) 18,167,500 20,471,075 Sep-03 (2,303,575)
U.S. Treasury Note
5yr (Long) 312,720,703 326,136,804 Sep-03 (13,416,101)
U.S. Treasury Note
10yr (Short) 1,548,750 1,657,081 Sep-03 108,331
- ------------------------------------------------------------------------------
$(13,302,047)
- ------------------------------------------------------------------------------
Written options outstanding at July 31, 2003
(premiums received $15,324)
Expiration
Contract date/ Market
amount strike price value
- ------------------------------------------------------------------------------
25,121 Forest Laboratories, Inc. (Put) Sep-03/$40.28 $13,817
- ------------------------------------------------------------------------------
TBA sale commitments outstanding at July 31, 2003
(proceeds receivable $217,341,935)
Principal Settlement Market
Agency amount date value
- ------------------------------------------------------------------------------
FNMA, 7s,August 1,
2033 $3,995,000 8/13/03 $4,187,259
FNMA, 6 1/2s,August 1,
2033 4,546,000 8/13/03 4,678,107
FNMA, 5s,August 1,
2033 176,422,000 8/13/03 168,648,847
GNMA, 5
1/2s,August 1,
2033 22,256,000 8/20/03 22,075,281
GNMA, 5s,August 1,
2033 10,080,000 8/20/03 9,661,075
- ------------------------------------------------------------------------------
$209,250,569
- ------------------------------------------------------------------------------
Swap contracts outstanding at July 31, 2003
Notional Termination Unrealized
amount date depreciation
- ------------------------------------------------------------------------------
Agreement with
Lehman Brothers
Special
Financing, Inc.
dated February
27, 2003 to
receive (pay)
monthly the
notional amount
multiplied by the
return of the
Lehman Brothers
CMBS Investment
Grade Rate Index
and pay monthly
the notional
amount multiplied
by the one month
USD-LIBOR-BBA
adjusted by a
specified spread. $7,629,725 8/1/03 $(381,301)
Agreement with
Morgan Stanley
Capital Services,
Inc. dated
October 31, 2002
to pay monthly
the notional
amount multiplied
by the one month
USD-LIBOR-BBA
minus a specified
spread and
receive (pay)
monthly the
notional amount
multiplied by the
return of the
Lehman Brothers
CMBS Investment
Grade Index. 11,669,942 11/1/03 (254,395)
- ------------------------------------------------------------------------------
$(635,696)
- ------------------------------------------------------------------------------
Credit default contracts outstanding at July 31, 2003
(premiums received $201,180)
Notional Market
amount value
- ------------------------------------------------------------------------------
Agreement with
Merrill Lynch
International
effective June
26, 2003,
maturing on
September 20,
2008, to receive
a premium equal
to 11.088% times
the notional
amount. Upon a
credit default
event of The Gap,
Inc. 5.75% due
3/15/09 the fund
makes a payment
of the
proportional
notional amount
times the
difference
between the par
value and the
then-market value
of The Gap, Inc.
5.75%, 2009. $1,350,000 $151,740
Agreement with
Merrill Lynch
International
effective May 1,
2003, maturing on
June 20, 2008, to
receive a premium
equal to 7.801%
times the
notional amount.
Upon a credit
default event of
Liberty Media
Corp 7.875% due
7/15/09 the fund
makes a payment
of the
proportional
notional amount
times the
difference
between the par
value and the
then-market value
of Liberty Media
Corp. 7.875%,
2009. 660,000 65,320
- ------------------------------------------------------------------------------
$217,060
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities
July 31, 2003
Assets
- -------------------------------------------------------------------------------------------
Investments in securities, at value, including $4,926,347 of
securities on loan (identified cost $6,587,236,112) (Note 1) $6,968,842,447
- -------------------------------------------------------------------------------------------
Dividends, interest and other receivables 34,595,272
- -------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 7,910,855
- -------------------------------------------------------------------------------------------
Receivable for securities sold 265,614,172
- -------------------------------------------------------------------------------------------
Total assets 7,276,962,746
Liabilities
- -------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 1,172,404
- -------------------------------------------------------------------------------------------
Payable for variation margin (Note 1) 2,737,016
- -------------------------------------------------------------------------------------------
Payable for securities purchased 732,272,709
- -------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 8,082,309
- -------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 7,586,987
- -------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 2,124,472
- -------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 292,928
- -------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,995
- -------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 2,168,421
- -------------------------------------------------------------------------------------------
Credit default contracts outstanding, at value
(premiums received $201,180) (Note 1) 217,060
- -------------------------------------------------------------------------------------------
Written options outstanding, at value
(premiums received $15,324) (Note 1) 13,817
- -------------------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 93,129
- -------------------------------------------------------------------------------------------
Payable for open swap contracts (Note 1) 635,696
- -------------------------------------------------------------------------------------------
TBA sale commitments, at value
(proceeds receivable $217,341,935) (Note 1) 209,250,569
- -------------------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 5,251,300
- -------------------------------------------------------------------------------------------
Other accrued expenses 474,722
- -------------------------------------------------------------------------------------------
Total liabilities 972,376,534
- -------------------------------------------------------------------------------------------
Net assets $6,304,586,212
Represented by
- -------------------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $6,582,461,306
- -------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 20,229,226
- -------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (673,757,958)
- -------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies (Note 5) 375,653,638
- -------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares
outstanding $6,304,586,212
Computation of net asset value and offering price
- -------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($3,784,601,197 divided by 240,708,754 shares) $15.72
- -------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $15.72)* $16.68
- -------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,308,604,728 divided by 84,102,984 shares)** $15.56
- -------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($91,282,006 divided by 5,840,806 shares)** $15.63
- -------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($239,662,110 divided by 15,390,378 shares) $15.57
- -------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $15.57)* $16.13
- -------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class R share
($1,055 divided by 67 shares) $15.70
- -------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($880,435,116 divided by 55,852,037 shares) $15.76
- -------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000
or more and on group sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
Statement of operations
Year ended July 31, 2003
Investment income:
- -------------------------------------------------------------------------------------------
Interest $118,113,213
- -------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $494,807) 84,540,170
- -------------------------------------------------------------------------------------------
Securities lending 70,198
- -------------------------------------------------------------------------------------------
Total investment income 202,723,581
Expenses:
- -------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 28,030,438
- -------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 11,394,076
- -------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 114,542
- -------------------------------------------------------------------------------------------
Administrative services (Note 2) 46,734
- -------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 8,792,306
- -------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 12,274,410
- -------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 761,800
- -------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 1,724,366
- -------------------------------------------------------------------------------------------
Distribution fees -- Class R (Note 2) 3
- -------------------------------------------------------------------------------------------
Other 3,564,975
- -------------------------------------------------------------------------------------------
Total expenses 66,703,650
- -------------------------------------------------------------------------------------------
Expense reduction (Note 2) (1,202,094)
- -------------------------------------------------------------------------------------------
Net expenses 65,501,556
- -------------------------------------------------------------------------------------------
Net investment income 137,222,025
- -------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (267,761,626)
- -------------------------------------------------------------------------------------------
Net realized gain on swap contracts (Note 1) 1,765,626
- -------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (47,363,185)
- -------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 192,205
- -------------------------------------------------------------------------------------------
Net realized loss on credit default contracts (Note 1) (1,766,221)
- -------------------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 162,056
- -------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (91,947)
- -------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures
contracts, swap contracts, credit default contracts, written
options and TBA sale commitments during the year (Note 5) 666,781,703
- -------------------------------------------------------------------------------------------
Net gain on investments 351,918,611
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $489,140,636
- -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
Year ended July 31
Increase (decrease) in net assets 2003 2002
- -------------------------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------------------------
Net investment income $137,222,025 $140,699,392
- -------------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign
currency transactions (314,771,145) (254,860,960)
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments
and assets and liabilities in foreign currencies (Note 5) 666,689,756 (476,075,075)
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 489,140,636 (590,236,643)
- -------------------------------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
From net investment income
Class A (107,895,962) (93,554,631)
- -------------------------------------------------------------------------------------------------------
Class B (29,270,787) (25,375,139)
- -------------------------------------------------------------------------------------------------------
Class C (1,730,918) (1,012,139)
- -------------------------------------------------------------------------------------------------------
Class M (6,195,401) (6,060,338)
- -------------------------------------------------------------------------------------------------------
Class R (11) --
- -------------------------------------------------------------------------------------------------------
Class Y (26,338,433) (24,394,192)
- -------------------------------------------------------------------------------------------------------
From net realized long-term gain on investments
- -------------------------------------------------------------------------------------------------------
Class A -- (3,746,955)
- -------------------------------------------------------------------------------------------------------
Class B -- (1,309,539)
- -------------------------------------------------------------------------------------------------------
Class C -- (60,749)
- -------------------------------------------------------------------------------------------------------
Class M -- (283,353)
- -------------------------------------------------------------------------------------------------------
Class Y -- (900,886)
- -------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Notes 4 and 5) 919,964,935 379,554,444
- -------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 1,237,674,059 (367,380,120)
Net assets
- -------------------------------------------------------------------------------------------------------
Beginning of year 5,066,912,153 5,434,292,273
- -------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of
$20,229,226 and $57,224,555, respectively) $6,304,586,212 $5,066,912,153
- -------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS A
- -------------------------------------------------------------------------------------------------
Per-share Year ended July 31
operating performance 2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.02 $17.24 $15.77 $18.49 $18.82
- -------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------
Net investment income (a) .37 .45 .52 .55 .57
- -------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .81 (2.17) 1.49 (1.44) .90
- -------------------------------------------------------------------------------------------------
Total from
investment operations 1.18 (1.72) 2.01 (.89) 1.47
- -------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------
From net
investment income (.48) (.48) (.53) (.58) (.55)
- -------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.02) (.01) (1.25) (1.25)
- -------------------------------------------------------------------------------------------------
Total distributions (.48) (.50) (.54) (1.83) (1.80)
- -------------------------------------------------------------------------------------------------
Net asset value,
end of period $15.72 $15.02 $17.24 $15.77 $18.49
- -------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 8.06 (10.20) 12.86 (5.09) 8.33
- -------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,784,601 $2,990,984 $3,176,287 $3,030,281 $3,937,264
- -------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .99 .96 .92 .93 .93
- -------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.50 2.75 3.11 3.32 3.10
- -------------------------------------------------------------------------------------------------
Portfolio turnover (%) 121.38 (d)(e) 131.89 (d) 333.46 140.92 127.68
- -------------------------------------------------------------------------------------------------
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through brokerage service and expense offset
arrangements (Note 2).
(d) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
(e) Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam Balanced Fund and Putnam Balanced Retirement Fund
(Note 5).
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS B
- -------------------------------------------------------------------------------------------------
Per-share Year ended July 31
operating performance 2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $14.87 $17.07 $15.62 $18.33 $18.67
- -------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------
Net investment income (a) .26 .33 .39 .42 .43
- -------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .80 (2.15) 1.48 (1.43) .90
- -------------------------------------------------------------------------------------------------
Total from
investment operations 1.06 (1.82) 1.87 (1.01) 1.33
- -------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------
From net
investment income (.37) (.36) (.41) (.45) (.42)
- -------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.02) (.01) (1.25) (1.25)
- -------------------------------------------------------------------------------------------------
Total distributions (.37) (.38) (.42) (1.70) (1.67)
- -------------------------------------------------------------------------------------------------
Net asset value,
end of period $15.56 $14.87 $17.07 $15.62 $18.33
- -------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 7.25 (10.86) 12.02 (5.82) 7.55
- -------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,308,605 $1,068,667 $1,199,676 $1,175,947 $1,641,515
- -------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.74 1.71 1.67 1.68 1.68
- -------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.75 2.00 2.36 2.57 2.35
- -------------------------------------------------------------------------------------------------
Portfolio turnover (%) 121.38 (d)(e) 131.89 (d) 333.46 140.92 127.68
- -------------------------------------------------------------------------------------------------
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through brokerage service and expense offset
arrangements (Note 2).
(d) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
(e) Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam Balanced Fund and Putnam Balanced Retirement Fund
(Note 5).
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS C
- -------------------------------------------------------------------------------------------------
For the
period
July 26, 1999+
Per-share Year ended July 31 to July 31
operating performance 2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $14.94 $17.16 $15.71 $18.49 $18.76
- -------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------
Net investment income (loss)(a) .26 .33 .39 .42 -- (f)
- -------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .80 (2.16) 1.49 (1.44) (.27)
- -------------------------------------------------------------------------------------------------
Total from
investment operations 1.06 (1.83) 1.88 (1.02) (.27)
- -------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------
From net
investment income (.37) (.37) (.42) (.51) --
- -------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.02) (.01) (1.25) --
- -------------------------------------------------------------------------------------------------
Total distributions (.37) (.39) (.43) (1.76) --
- -------------------------------------------------------------------------------------------------
Net asset value,
end of period $15.63 $14.94 $17.16 $15.71 $18.49
- -------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 7.25 (10.88) 12.02 (5.82) (1.44)*
- -------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $91,282 $53,186 $37,453 $20,642 $565
- -------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.74 1.71 1.67 1.68 .03*
- -------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) 1.73 1.99 2.32 2.60 (.03)*
- -------------------------------------------------------------------------------------------------
Portfolio turnover (%) 121.38 (d)(e) 131.89 (d) 333.46 140.92 127.68
- -------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through brokerage service and expense offset
arrangements (Note 2).
(d) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
(e) Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam Balanced Fund and Putnam Balanced Retirement Fund
(Note 5).
(f) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS M
- -------------------------------------------------------------------------------------------------
Per-share Year ended July 31
operating performance 2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $14.87 $17.08 $15.63 $18.33 $18.67
- -------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------
Net investment income (a) .30 .37 .43 .46 .47
- -------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .80 (2.16) 1.48 (1.42) .90
- -------------------------------------------------------------------------------------------------
Total from
investment operations 1.10 (1.79) 1.91 (.96) 1.37
- -------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------
From net
investment income (.40) (.40) (.45) (.49) (.46)
- -------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.02) (.01) (1.25) (1.25)
- -------------------------------------------------------------------------------------------------
Total distributions (.40) (.42) (.46) (1.74) (1.71)
- -------------------------------------------------------------------------------------------------
Net asset value,
end of period $15.57 $14.87 $17.08 $15.63 $18.33
- -------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 7.58 (10.69) 12.31 (5.52) 7.80
- -------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $239,662 $222,176 $252,802 $223,246 $293,336
- -------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.49 1.46 1.42 1.43 1.43
- -------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.02 2.25 2.60 2.82 2.61
- -------------------------------------------------------------------------------------------------
Portfolio turnover (%) 121.38 (d)(e) 131.89 (d) 333.46 140.92 127.68
- -------------------------------------------------------------------------------------------------
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through brokerage service and expense offset
arrangements (Note 2).
(d) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
(e) Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam Balanced Fund and Putnam Balanced Retirement Fund
(Note 5).
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS R
- --------------------------------------------
For the
period
January 21,
2003+
Per-share to July 31
operating performance 2003
- --------------------------------------------
Net asset value,
beginning of period $15.05
- --------------------------------------------
Investment operations:
- --------------------------------------------
Net investment income (a) .17
- --------------------------------------------
Net realized and unrealized
gain on investments .65
- --------------------------------------------
Total from
investment operations .82
- --------------------------------------------
Less distributions:
- --------------------------------------------
From net
investment income (.17)
- --------------------------------------------
Total distributions (.17)
- --------------------------------------------
Net asset value,
end of period $15.70
- --------------------------------------------
Total return at
net asset value (%)(b) 5.52*
- --------------------------------------------
Ratios and supplemental data
- --------------------------------------------
Net assets, end of period
(in thousands) $1
- --------------------------------------------
Ratio of expenses to
average net assets (%)(c) .65*
- --------------------------------------------
Ratio of net investment income
to average net assets (%) 1.18*
- --------------------------------------------
Portfolio turnover (%) 121.38 (d)(e)
- --------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through brokerage service and expense offset
arrangements (Note 2).
(d) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
(e) Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam Balanced Fund and Putnam Balanced Retirement Fund
(Note 5).
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS Y
- -------------------------------------------------------------------------------------------------
Per-share Year ended July 31
operating performance 2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.05 $17.28 $15.80 $18.53 $18.85
- -------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------
Net investment income (a) .41 .49 .56 .60 .62
- -------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .82 (2.17) 1.50 (1.46) .91
- -------------------------------------------------------------------------------------------------
Total from
investment operations 1.23 (1.68) 2.06 (.86) 1.53
- -------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------
From net
investment income (.52) (.53) (.57) (.62) (.60)
- -------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.02) (.01) (1.25) (1.25)
- -------------------------------------------------------------------------------------------------
Total distributions (.52) (.55) (.58) (1.87) (1.85)
- -------------------------------------------------------------------------------------------------
Net asset value,
end of period $15.76 $15.05 $17.28 $15.80 $18.53
- -------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 8.38 (10.01) 13.18 (4.89) 8.63
- -------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $880,435 $731,900 $768,075 $621,363 $744,552
- -------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .74 .71 .67 .68 .68
- -------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.76 3.00 3.35 3.57 3.33
- -------------------------------------------------------------------------------------------------
Portfolio turnover (%) 121.38 (d)(e) 131.89 (d) 333.46 140.92 127.68
- -------------------------------------------------------------------------------------------------
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through brokerage service and expense offset
arrangements (Note 2).
(d) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
(e) Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam Balanced Fund and Putnam Balanced Retirement Fund
(Note 5).
The accompanying notes are an integral part of these financial statements.
Notes to financial statements
July 31, 2003
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 comprised 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, class R and class Y
shares. The fund began offering class R shares on January 21, 2003.
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, class M and class R 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 and Class R shares but lower than class B and
class C shares. Class R shares are sold without a front-end sales charge
and pay an ongoing distribution fee that is higher than class A shares,
but lower than class B, class C and class M shares. Class R shares are
offered to qualified employee-benefit plans. Class Y shares, which are
sold at net asset value, are generally subject to the same expenses as
class A, class B, class C, class M and class R shares, but do not bear a
distribution fee. Class Y shares are sold to certain eligible purchasers
including certain defined contribution plans (including corporate IRAs),
bank trust departments and trust companies.
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 the 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 accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in 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 valued at the last reported sales price on their
principal exchange, or official closing price for certain markets. If no
sales are reported -- as in the case of some securities traded
over-the-counter -- a security is valued at its last reported bid price.
Market quotations are not considered to be readily available for certain
debt obligations; such investments are valued at market value on the
basis of valuations furnished by an independent pricing service or
dealers, approved by the Trustees. Such services or dealers determine
valuations for normal institutional-size trading units of such
securities using methods based on market transactions for comparable
securities and various relationships, generally recognized by
institutional traders, between securities. For foreign investments, if
trading or events occurring in other markets after the close of the
principal exchange in which the securities are traded are expected to
materially affect the value of the investments, then those investments
are valued, taking into consideration these events, at their fair value
following procedures approved by the Trustees. 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 valued at amortized cost, which approximates fair
value. Other investments, including restricted securities, are valued at
fair value following procedures approved by the Trustees. Such
valuations and procedures are reviewed periodically by the Trustees.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending arrangements,
into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam
Investment Management, LLC ("Putnam Management"), the fund's manager, an
indirect wholly-owned subsidiary of Putnam, LLC. These balances may be
invested in issuers of high-grade short-term investments having
maturities of up to 397 days for collateral received under security
lending arrangements and up to 90 days for other cash investments.
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 recorded 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
recognized on the ex-dividend date except that certain dividends from
foreign securities are recognized as soon as the fund is informed of the
ex-dividend date. Non-cash dividends, if any, are recorded at the fair
market value of the securities received.
All premiums/discounts are amortized/accreted on a yield-to-maturity basis.
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 earned 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, currency gains and losses realized
between the trade and settlement dates on securities transactions 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 buy and sell forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date. These contracts are used 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. Forward currency contracts outstanding at
period end are listed after The fund's portfolio.
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. The fund and the broker
agree to exchange an amount of cash equal to the daily fluctuation in
the value of the futures contract. Such receipts or payments are known
as "variation margin." 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. Futures and written option contracts outstanding at period end
are listed after The fund's portfolio.
H) Total return swap contracts The fund may enter into total return swap
contracts, which are arrangements to exchange a market linked return for
an interest payment, both based on a notional principal amount. To the
extent that the total return of the security or index underlying the
transaction exceeds or falls short of the offsetting interest rate
obligation, the fund will receive a payment from or make a payment to
the counterparty, respectively. Total return swap contracts are marked
to market daily based upon quotations from market makers and the change,
if any, is recorded as unrealized gain or loss. Payments received or
made at the end of the measurement period are recorded as realized gains
or losses. The fund could be exposed to credit or market risk due to
unfavorable changes in the fluctuation of interest rates or in the price
of the underlying security or index, the possibility that there is no
liquid market for these agreements or that the counterparty may default
on its obligation to perform. Total return swap contracts outstanding at
period end are listed after The fund's portfolio.
I) Interest rate swap contracts The fund may enter into interest rate
swap contracts, which are arrangements between two parties to exchange
cash flows based on a notional principal amount, to manage the fund's
exposure to interest rates. Interest rate swap contracts are marked to
market daily based upon quotations from market makers and the change, if
any, is recorded as unrealized gain or loss. Payments made or received
are recognized as part of interest income. A portion of the payments
received or made upon early termination are recognized as realized gain
or loss. The fund could be exposed to credit or market risk due to
unfavorable changes in the fluctuation of interest rates or if the
counterparty defaults on its obligation to perform. Interest rate swap
contracts outstanding at period end are listed after The fund's
portfolio.
J) Credit default contracts The fund may enter into credit default
contracts where one party, the protection buyer, makes an upfront
payment to a counter party, the protection seller, in exchange for the
right to receive a contingent payment as a result of a credit event
related to a specified security or index. The upfront payment received
by the fund, as the protection seller, is recorded as a liability on the
fund's books. The credit default contracts are marked to market daily
based upon quotations from market makers and the change, if any, is
recorded as unrealized gain or loss. Payments received or made as a
result of a credit event or termination of the contract are recognized,
net of a proportional amount of the upfront payment, as realized gains
or losses. In addition to bearing the risk that the credit event will
occur, the fund could be exposed to market risk due to unfavorable
changes in interest rates or in the price of the underlying security or
index, the possibility that the fund may be unable to close out its
position at the same time or at the same price as if it had purchased
comparable publicly traded securities or that the counterparty may
default on its obligation to perform. Credit default contracts
outstanding at period end are listed after The fund's portfolio.
K) TBA purchase commitments The fund may enter into "TBA" (to be
announced) 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 significantly differ
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 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 its 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.
L) 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. TBA sale commitments outstanding at period
end are listed after The fund's portfolio.
M) Security lending The fund may lend securities, through its agents, to
qualified borrowers in order to earn additional income. The loans are
collateralized by cash and/or securities in an amount at least equal to
the market value of the securities loaned. The market value of
securities loaned is determined daily and any additional required
collateral is allocated to the fund on the next business day. The risk
of borrower default will be borne by the fund's agents; the fund will
bear the risk of loss with respect to the investment of the cash
collateral. Income from securities lending is included in investment
income on the Statement of operations. At July 31, 2003, the value of
securities loaned amounted to $4,926,347. The fund received cash
collateral of $5,251,300, which is pooled with collateral of other
Putnam funds into 30 issuers of high-grade short-term investments.
N) Line of credit During the period, the fund was entered into a
committed line of credit with certain banks. The line of credit
agreement included restrictions that the fund maintains an asset
coverage ratio of at least 300% and borrowings must not exceed
prospectus limitations. For the year ended July 31, 2003, the fund had
no borrowings against the line of credit. Effective August 6, 2003, the
fund will no longer participate in a committed line of credit.
O) 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.
At July 31, 2003, the fund had a capital loss carryover of $418,373,972
available to the extent allowed by tax law to offset future net capital
gains, if any. As a result of the September 23, 2002 merger, the fund
acquired $60,733,776 in capital loss carryovers. This amount includes
$13,962,630 of capital loss carryovers acquired in connection with the
fund's acquisition of Putnam Balanced Retirement Fund and $46,771,146 of
capital loss carryovers that were acquired in connection with the fund's
acquisition of Putnam Balanced Fund. The amount of the carryover and the
expiration dates are:
Loss Carryover Expiration
- --------------------------------
$711,962 July 31, 2009
118,009,857 July 31, 2010
299,652,153 July 31, 2011
Pursuant to federal income tax regulations applicable to regulated
investment companies, the fund has elected to defer to its fiscal year
ending July 31, 2004, $133,505,182 of losses recognized during the
period November 1, 2002 to July 31, 2003 a portion of which could be
limited by Section 381.
P) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the
ex-dividend date and paid at least annually. The amount and character of
income and gains to be distributed are determined in accordance with
income tax regulations, which may differ from generally accepted
accounting principles. These differences include temporary and permanent
differences of losses on wash sale transactions, post-October loss
deferrals, nontaxable dividends, defaulted bond interest, realized and
unrealized gains and losses on certain futures contracts, market
discount and straddle loss deferrals. Reclassifications are made to the
fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. For the year ended July 31, 2003, the fund reclassified
$2,785,842 to decrease undistributed net investment income and
$74,320,269 to increase paid-in-capital, with an increase to accumulated
net realized losses of $71,534,427.
The tax basis components of distributable earnings and the federal tax
cost as of period end were as follows:
Unrealized appreciation $505,558,838
Unrealized depreciation (258,820,080)
------------------
Net unrealized appreciation 246,738,758
Undistributed ordinary income 19,691,420
Capital loss carryforward (418,373,972)
Post-October loss (133,505,182)
Cost for federal income
tax purposes $6,722,103,689
Note 2
Management fee, administrative
services and other transactions
Putnam Management is paid for management and investment advisory
services 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, LLC. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
Under the subcustodian contract between the subcustodian bank and PFTC,
the subcustodian bank has a lien on the securities of the fund to the
extent permitted by the fund's investment restrictions to cover any
advances made by the subcustodian bank for the settlement of securities
purchased by the fund. At July 31, 2003, the payable to the subcustodian
bank represents the amount due for cash advanced for the settlement of a
security purchased.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. The fund also reduced expenses through
brokerage service arrangements. For the year ended July 31, 2003, the
fund's expenses were reduced by $1,202,094 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $4,350 has been allocated to the fund, and an additional fee for
each Trustees meeting attended. Trustees receive additional fees for
attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan"),
which allows the Trustees to defer the receipt of all or a portion of
Trustees fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a 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, class M and class R shares pursuant to
Rule 12b-1 under the Investment Company Act of 1940. The purpose of the
Plans is to compensate Putnam Retail Management, a wholly-owned
subsidiary of Putnam, LLC and Putnam Retail Management GP, 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 Retail
Management at an annual rate up to 0.35%, 1.00%, 1.00%, 1.00% and 1.00%
of the average net assets attributable to class A, class B, class C,
class M and class R shares, respectively. The Trustees have approved
payment by the fund at the annual rates of 0.25%, 1.00%, 1.00%, 0.75%
and 0.50% of the average net assets attributable to class A, class B,
class C, class M and class R shares, respectively.
For the year ended July 31, 2003, Putnam Retail Management, acting as
underwriter, received net commissions of $953,001 and $17,833 from the
sale of class A and class M shares, respectively, and received
$2,091,859 and $8,111 in contingent deferred sales charges from
redemptions of class B and class C shares, respectively. A deferred
sales charge of up to 1.00% and 0.65% is assessed on certain redemptions
of class A and class M shares, respectively. For the year ended July 31,
2003, Putnam Retail Management, acting as underwriter, received $12,889
and no monies on class A and class M redemptions, respectively.
Note 3
Purchases and sales of securities
During the year ended July 31, 2003, cost of purchases and proceeds from
sales of investment securities other than U.S. government obligations
and short-term investments aggregated $5,664,100,553 and $5,591,816,308,
respectively. Purchases and sales of U.S. government obligations
aggregated $1,981,023,795 and $2,092,123,561, respectively.
Written options during the year are summarized as follows:
Contract Premiums
Amounts Received
- ---------------------------------------------------------------------------
Written options
outstanding at
beginning of year -- $--
- ---------------------------------------------------------------------------
Options opened 1,540,654 697,708
Options exercised (1,147,224) (520,328)
Options expired (368,309) (162,056)
Options closed -- --
- ---------------------------------------------------------------------------
Written options
outstanding at
end of year 25,121 $15,324
- ---------------------------------------------------------------------------
Note 4
Capital shares
At July 31, 2003, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended July 31, 2003
- ---------------------------------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------------------------------
Shares sold 56,893,872 $849,636,705
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,611,050 98,441,412
- ---------------------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam Balanced Fund 5,510,707 78,454,369
- ---------------------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam Balanced
Retirement Fund 36,618,830 521,331,845
- ---------------------------------------------------------------------------
105,634,459 1,547,864,331
Shares repurchased (64,088,705) (949,329,152)
- ---------------------------------------------------------------------------
Net increase 41,545,754 $598,535,179
- ---------------------------------------------------------------------------
Year ended July 31, 2002
- ---------------------------------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------------------------------
Shares sold 63,407,064 $1,035,048,453
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 5,308,781 88,208,090
- ---------------------------------------------------------------------------
68,715,845 1,123,256,543
Shares repurchased (53,788,195) (869,198,197)
- ---------------------------------------------------------------------------
Net increase 14,927,650 $254,058,346
- ---------------------------------------------------------------------------
Year ended July 31, 2003
- ---------------------------------------------------------------------------
Class B Shares Amount
- ---------------------------------------------------------------------------
Shares sold 16,149,786 $237,706,103
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1,840,131 27,227,335
- ---------------------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam Balanced Fund 1,154,490 16,293,350
- ---------------------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam Balanced
Retirement Fund 14,223,453 200,736,033
- ---------------------------------------------------------------------------
33,367,860 481,962,821
Shares repurchased (21,153,997) (307,917,883)
- ---------------------------------------------------------------------------
Net increase 12,213,863 $174,044,938
- ---------------------------------------------------------------------------
Year ended July 31, 2002
- ---------------------------------------------------------------------------
Class B Shares Amount
- ---------------------------------------------------------------------------
Shares sold 18,539,167 $298,183,784
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1,512,042 24,915,400
- ---------------------------------------------------------------------------
20,051,209 323,099,184
Shares repurchased (18,434,782) (295,116,527)
- ---------------------------------------------------------------------------
Net increase 1,616,427 $27,982,657
- ---------------------------------------------------------------------------
Year ended July 31, 2003
- ---------------------------------------------------------------------------
Class C Shares Amount
- ---------------------------------------------------------------------------
Shares sold 2,469,236 $36,842,084
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 107,929 1,603,699
- ---------------------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam Balanced Fund 206,343 2,926,165
- ---------------------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam Balanced
Retirement Fund 1,118,461 15,861,018
- ---------------------------------------------------------------------------
3,901,969 57,232,966
Shares repurchased (1,621,481) (23,883,301)
- ---------------------------------------------------------------------------
Net increase 2,280,488 $33,349,665
- ---------------------------------------------------------------------------
Year ended July 31, 2002
- ---------------------------------------------------------------------------
Class C Shares Amount
- ---------------------------------------------------------------------------
Shares sold 1,947,563 $31,654,322
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 60,779 1,005,624
- ---------------------------------------------------------------------------
2,008,342 32,659,946
Shares repurchased (630,286) (10,053,312)
- ---------------------------------------------------------------------------
Net increase 1,378,056 $22,606,634
- ---------------------------------------------------------------------------
Year ended July 31, 2003
- ---------------------------------------------------------------------------
Class M Shares Amount
- ---------------------------------------------------------------------------
Shares sold 2,958,968 $43,759,073
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 410,989 6,080,663
- ---------------------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam Balanced Fund 49,611 700,183
- ---------------------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam Balanced
Retirement Fund 1,163,340 16,418,669
- ---------------------------------------------------------------------------
4,582,908 66,958,588
Shares repurchased (4,130,141) (60,618,953)
- ---------------------------------------------------------------------------
Net increase 452,767 $6,339,635
- ---------------------------------------------------------------------------
Year ended July 31, 2002
- ---------------------------------------------------------------------------
Class M Shares Amount
- ---------------------------------------------------------------------------
Shares sold 3,306,277 $54,001,778
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 379,378 6,250,860
- ---------------------------------------------------------------------------
3,685,655 60,252,638
Shares repurchased (3,549,172) (57,173,576)
- ---------------------------------------------------------------------------
Net increase 136,483 $3,079,062
- ---------------------------------------------------------------------------
For the period January 21, 2003
(commencement of operations) to
July 31, 2003
- ---------------------------------------------------------------------------
Class R Shares Amount
- ---------------------------------------------------------------------------
Shares sold 65 $1,000
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 2 11
- ---------------------------------------------------------------------------
67 1,011
Shares repurchased -- --
- ---------------------------------------------------------------------------
Net increase 67 $1,011
- ---------------------------------------------------------------------------
Year ended July 31, 2003
- ---------------------------------------------------------------------------
Class Y Shares Amount
- ---------------------------------------------------------------------------
Shares sold 13,589,658 $204,021,187
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1,762,486 26,338,433
- ---------------------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam Balanced Fund 1,599,557 22,813,715
- ---------------------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam Balanced
Retirement Fund 295,174 4,209,928
- ---------------------------------------------------------------------------
17,246,875 257,383,263
Shares repurchased (10,018,455) (149,688,756)
- ---------------------------------------------------------------------------
Net increase 7,228,420 $107,694,507
- ---------------------------------------------------------------------------
Year ended July 31, 2002
- ---------------------------------------------------------------------------
Class Y Shares Amount
- ---------------------------------------------------------------------------
Shares sold 15,052,339 $248,928,434
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1,519,669 25,295,078
- ---------------------------------------------------------------------------
16,572,008 274,223,512
Shares repurchased (12,397,021) (202,395,767)
- ---------------------------------------------------------------------------
Net increase 4,174,987 $71,827,745
- ---------------------------------------------------------------------------
At July 31, 2003, Putnam, LLC owned 67 class R shares of the fund (100%
of class R shares outstanding), valued at $1,055.
Note 5
Acquisition of Putnam Balanced
Fund and Putnam Balanced Retirement Fund
On September 23, 2002, the fund issued the following shares to acquire
the net assets of Putnam Balanced Fund and Putnam Balanced Retirement
Fund in a tax-free exchange approved by the shareholders.
Shares Shares
Issued Exchanged
- ---------------------------------------------------------------------------
Putnam Balanced Fund
Class A 5,510,707 9,462,721
Class B 1,154,490 1,970,031
Class C 206,343 353,307
Class M 49,611 84,332
Class Y 1,599,557 2,752,898
- ---------------------------------------------------------------------------
Putnam Balanced Retirement Fund
Class A 36,618,830 55,745,386
Class B 14,223,453 21,678,937
Class C 1,118,461 1,705,371
Class M 1,163,340 1,766,568
Class Y 295,174 450,232
- ---------------------------------------------------------------------------
The net assets of the fund, Putnam Balanced Fund and Putnam Balanced
Retirement Fund on September 20, 2002, valuation date, were
$4,894,295,298, $121,187,782 and $758,557,493, respectively. On
September 20, 2002, Putnam Balanced Fund had unrealized depreciation of
$6,934,989 and Putnam Balanced Retirement Fund had unrealized
depreciation of $31,608,849, respectively. The aggregate net assets of
the fund immediately following the acquisition were $5,774,040,573.
Federal tax information
(Unaudited)
The fund has designated 57.36% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
For its tax year ended July 31, 2003, the fund hereby designates 35.95%,
or the maximum amount allowable, of its net taxable income as qualified
dividends taxed at individual net capital gain rates.
The Form 1099 you receive in January 2004 will show the tax status of
all distributions paid to your account in calendar 2003.
About the Trustees
Jameson A. Baxter (9/6/43), Trustee since 1994
President, Baxter Associates, Inc. (a consulting and private investments firm)
Director of ASHTA Chemicals, Inc., Banta Corporation (a printing and
digital imaging firm), Ryerson Tull, Inc. (a steel service corporation),
Advocate Health Care, and the National Center for Nonprofit Boards.
Chairman Emeritus of the Board of Trustees, Mount Holyoke College. Until
2002, Mrs. Baxter was a director of Intermatic Corporation, a
manufacturer of energy control products. Also held various positions in
investment banking and corporate finance, including Vice President and
principal of the Regency Group and Vice President and consultant to
First Boston Corp.
Charles B. Curtis (4/27/40), Trustee since 2001
President and Chief Operating Officer, Nuclear Threat Initiative (a
private foundation dealing with national security issues), also serves
as Senior Advisor to the United Nations Foundation
Member of the Council on Foreign Relations and the Trustee Advisory
Council of the Applied Physics Laboratory at Johns Hopkins University.
Until 2003, Mr. Curtis was a member of the Electric Power Research
Institute Advisory Council, and the University of Chicago Board of
Governors for Argonne National Laboratory. Prior to 2002, Mr. Curtis was
a member of the Board of Directors of the Gas Technology Institute and
the Board of Directors of the Environment and Natural Resources Program
Steering Committee, John F. Kennedy School of Government, Harvard
University. Until 2001, Mr. Curtis was a Member of the Department of
Defense's Policy Board and Director of EG&G Technical Services, Inc.
(fossil energy research and development support). Prior to May 1997, Mr.
Curtis was Deputy Secretary of Energy. He served as Chairman of the
Federal Energy Regulatory Commission from 1977 to 1987 and has held
positions on the staff of the U.S. House of Representatives, the U.S.
Treasury Department, and the Securities and Exchange Commission. Mr.
Curtis is also a lawyer with over 15 years of experience.
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Vice-Chairman and Managing Director, First Reserve Corporation (a
registered investment advisor investing in companies in the world-wide
energy industry on behalf of institutional investors)
Director of Devon Energy Corporation (formerly known as Snyder Oil
Corporation), TransMontaigne Oil Company, Continuum Health Partners of
New York, Sarah Lawrence College, and various private compa nies owned
by First Reserve Corporation. Trustee of TH Lee, Putnam Investment Trust
(a closed-end investment company). Prior to acquiring First Reserve in
1983, Mr. Hill held executive positions with several advisory firms and
various positions with the federal government, including Associate
Director of the Office of Manage ment and Budget and Deputy Director of
the Federal Energy Administration.
Ronald J. Jackson (12/17/43), Trustee since 1996
Private investor
Former Chairman, President, and Chief Executive Officer of Fisher-Price,
Inc. (a toy manufacturer). Previously served as President and Chief
Executive Officer of Stride-Rite, Inc. and Kenner Parker Toys. Also held
financial and marketing positions with General Mills, Parker Brothers,
and Talbots. President of the Kathleen and Ronald J. Jackson Foundation
(charitable trust). Member of the Board of Overseers of WGBH (public
television and radio). Member of the Board of Overseers of the Peabody
Essex Museum.
Paul L. Joskow (6/30/47), Trustee since 1997
Elizabeth and James Killian Professor of Economics and Management and
Director of the Center for Energy and Environmental Policy Research,
Massachusetts Institute of Technology
Director, National Grid Transco (formerly National Grid Group, a
UK-based holding company with interests in electric and gas transmission
and distribution and telecommunications infrastructure), and the
Whitehead Institute for Biomedical Research (a non-profit research
institution). President of the Yale University Council. Prior to
February 2002, March 2000, and September 1998, Dr. Joskow was a Director
of State Farm Indemnity Company (an automobile insurance company),
Director of New England Electric System (a public utility holding
company) and a consultant to National Economic Research Associates,
respectively.
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Chairman, Cambus-Kenneth Bloodstock (a limited liability company
involved in thoroughbred horse breeding and farming), President Emeritus
of Mount Holyoke College
Director, Northeast Utilities, and Talbots (a distributor of women's
apparel). Trustee of Centre College. Prior to 2001, Dr. Kennan was a
member of the Oversight Committee of Folger Shakespeare Library. Prior
to September 2000, June 2000, and November 1999, Dr. Kennan was a
Director of Chastain Real Estate, Bell Atlantic, and Kentucky Home Life
Insurance, respectively. Prior to 1995, Dr. Kennan was a Trustee of
Notre Dame University. For 12 years, she was on the faculty of Catholic
University.
John H. Mullin, III (6/15/41), Trustee since 1997
Chairman and CEO of Ridgeway Farm (a limited liability company engaged
in timber and farming)
Director Alex. Brown Realty, Inc., Sonoco Products, Inc. (a packaging
company), The Liberty Corporation (a company engaged in the broadcasting
industry), and Progress Energy, Inc. (a utility company, formerly known
as Carolina Power & Light). Trustee Emeritus of Washington & Lee
University. Prior to October 1997, January 1998, and May 2001, Mr.
Mullin was a Director of Dillon, Read & Co. Inc., The Ryland Group,
Inc., and Graphic Packaging International Corp., respectively.
Robert E. Patterson (3/15/45), Trustee since 1984
Senior Partner of Cabot Properties, L.P. and Chairman of Cabot Properties, Inc.
Chairman of the Joslin Diabetes Center, Trustee of SEA Education
Association, and Director of Brandywine Trust Company (a trust company).
Prior to February 1998, Mr. Patterson was Executive Vice President and
Director of Acquisitions of Cabot Partners Limited Partnership. Prior to
December 2001, Mr. Patterson was President and Trustee of Cabot
Industrial Trust (publicly traded real estate investment trust). Prior
to 1990, Mr. Patterson was Executive Vice President of Cabot, Cabot &
Forbes Realty Advisors, the predecessor of Cabot Partners, and prior to
that was Senior Vice President of the Beal Companies.
W. Thomas Stephens (9/2/42), Trustee since 1997
Corporate Director
Director of Xcel Energy Incorporated (public utility company),
TransCanada Pipelines, Norske Canada, Inc. (paper manufacturer), and
Qwest Communications (communications company). Until 2003, Mr. Stephens
was a Director of Mail-Well, a printing and envelope company. Prior to
July 2001 and October 1999, Mr. Stephens was Chairman of Mail-Well and
MacMillan-Bloedel (forest products company). Prior to 1996, Mr. Stephens
was Chairman and Chief Executive Officer of Johns Manville.
W. Nicholas Thorndike (3/28/33), Trustee since 1992
Director of various corporations and charitable organizations, including
Courier Corporation (a book manufacturer and publisher) and Providence
Journal Co. (a newspaper publisher)
Trustee of Northeastern University and Honorary Trustee of Massachusetts
General Hospital. Prior to September 2000, April 2000, and December
2001, Mr. Thorndike was a Director of Bradley Real Estate, Inc., a
Trustee of Eastern Utilities Associates, and a Trustee of Cabot
Industrial Trust, respec tively. Previously served as Chairman of the
Board and managing partner of Wellington Management/Thorndike Doran
Paine & Lewis, and Chairman and Director of Ivest Fund.
Lawrence J. Lasser* (11/1/42), Trustee since 1992 and Vice President since 1981
President and Chief Executive Officer of Putnam Investments and Putnam
Management
Director of Marsh & McLennan Companies, Inc. and the United Way of
Massachusetts Bay. Member of the Board of Governors of the Investment
Company Institute, Trustee of the Museum of Fine Arts, Boston, a Trustee
and Member of the Finance and Executive Committees of Beth Israel
Deaconess Medical Center, Boston, and a Member of the CareGroup Board of
Managers Investment Committee, the Council on Foreign Relations, and the
Commercial Club of Boston.
George Putnam, III* (8/10/51), Trustee since 1984 and President since 2000
President, New Generation Research, Inc. (a publisher of financial
advisory and other research services relating to bankrupt and distressed
companies) and New Generation Advisers, Inc. (a registered investment
adviser)
Director of The Boston Family Office, L.L.C. (registered investment
advisor), Trustee of St. Mark's School, and Trustee of Shore Country Day
School. Until 2002, Mr. Putnam was a Trustee of the SEA Education
Association. Previously, Mr. Putnam was an attorney with the firm of
Dechert Price & Rhoads.
A.J.C. Smith* (4/13/34), Trustee since 1986
Director of Marsh & McLennan Companies, Inc.
Director of Trident Corp. (a limited partnership with over 30
institutional investors). Trustee of the Carnegie Hall Society, the
Educational Broadcasting Corporation and the National Museums of
Scotland. Chairman of the Central Park Conservancy. Member of the Board
of Overseers of the Joan and Sanford I. Weill Graduate School of Medical
Sciences of Cornell University. Fellow of the Faculty of Actuaries in
Edinburgh, the Canadian Institute of Actuaries, and the Conference of
Actuaries. Associate of the Society of Actuaries. Member of the American
Actuaries, the International Actuarial Association and the International
Association of Consulting Actuaries. Prior to May 2000 and November
1999, Mr. Smith was Chairman and CEO, respectively, of Marsh & McLennan
Companies, Inc.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of July 31, 2003, there were 104 Putnam Funds.
Each Trustee serves for an indefinite term, until his or her resignation,
death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as defined
in the Investment Company Act of 1940) of the fund, Putnam Management,
Putnam Retail Management or Marsh & McLennan Companies, Inc., the parent
company of Putnam, LLC and its affiliated companies. Messrs. Putnam, III,
Lasser and Smith are deemed "interested persons" by virtue of their
positions as officers or shareholders of the fund or Putnam Management,
Putnam Retail Management or Marsh & McLennan Companies, Inc. George Putnam,
III is the President of your fund and each of the other Putnam funds.
Lawrence J. Lasser is the President and Chief Executive Officer of Putnam
Investments and Putnam Management. Mr. Lasser and Mr. Smith serve as
Directors of Marsh & McLennan Companies, Inc.
Officers
In addition to George Putnam, III, the other officers of the fund are shown
below:
Charles E. Porter (7/26/38)
Executive Vice President, Treasurer and
Principal Financial Officer
Since 1989
Managing Director, Putnam Investments
and Putnam Management
Patricia C. Flaherty (12/1/46)
Senior Vice President
Since 1993
Senior Vice President, Putnam Investments and
Putnam Management
Karnig H. Durgarian (1/13/56)
Vice President and Principal Executive Officer
Since 2002
Senior Managing Director, Putnam Investments
Steven D. Krichmar (6/27/58)
Vice President and Principal Financial Officer
Since 2002
Managing Director, Putnam Investments. Prior to
July 2001, Partner, PricewaterhouseCoopers LLP
Michael T. Healy (1/24/58)
Assistant Treasurer and Principal
Accounting Officer
Since 2000
Managing Director, Putnam Investments
Beth S. Mazor (4/6/58)
Vice President
Since 2002
Senior Vice President, Putnam Investments
Gordon H. Silver (7/3/47)
Vice President
Since 1990
Senior Managing Director, Putnam Investments,
Putnam Management and Putnam Retail
Management
Mark C. Trenchard (6/5/62)
Vice President
Since 2002
Senior Vice President, Putnam Investments
William H. Woolverton (1/17/51)
Vice President and Chief Legal Officer
Since 2003
Managing Director, Putnam Investments,
Putnam Management and Putnam Retail
Management
Judith Cohen (6/7/45)
Clerk and Assistant Treasurer
Since 1993
Clerk and Assistant Treasurer, The Putnam Funds
The address of each Officer is One Post Office Square,
Boston, MA 02109.
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
Discovery Growth Fund
Growth Opportunities Fund
Health Sciences Trust
International New Opportunities Fund
New Opportunities Fund
OTC & Emerging Growth Fund
Small Cap Growth Fund
Vista Fund
Voyager Fund
Blend Funds
Capital Appreciation Fund
Capital Opportunities Fund
Europe Equity Fund
Global Equity Fund
Global Natural Resources Fund
International Capital Opportunities Fund
International Equity Fund
Investors Fund
Research Fund
Tax Smart Equity Fund
Utilities Growth and Income Fund
Value Funds
Classic Equity Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
International Growth and Income Fund
Mid Cap Value Fund
New Value Fund
Small Cap Value Fund*
Income Funds
American Government Income Fund
Diversified Income Trust
Global Income Trust
High Yield Advantage Fund*
High Yield Trust
Income Fund
Intermediate U.S. Government Income Fund
Money Market 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
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds+
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
* Closed to new investors.
+ 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.putnaminvestments.com.
Services for shareholders
Investor services
Help your investment grow Set up a program for systematic investing
with as little as $25 a month from a Putnam fund or from your own
savings or checking account. (Regular investing does not guarantee a
profit or protect against loss in a declining market.)
Switch funds easily You can move money from one Putnam fund to another
within the same class of shares without a service charge. (This
privilege is subject to change or termination.)
Access your money easily You can have checks sent regularly or redeem
shares any business day at the then-current net asset value, which may
be more or less than the original cost of the shares. Class B and class
C shares carry a sales charge that is applied to certain withdrawals.
How to buy additional shares You may buy shares through your financial
advisor or directly from Putnam. To open an account by mail, send a
check made payable to the name of the fund along with a completed fund
application. To add to an existing account, complete the investment
slip found at the top of your Confirmation of Activity statement and
return it with a check payable to your fund.
For more information
Visit www.putnaminvestments.com A secure section of our Web site
contains complete information on your account, including balances and
transactions, updated daily. You may also conduct transactions, such as
exchanges, additional investments, and address changes. Log on today to
get your password.
Use our toll-free number 1-800-225-1581 Ask a helpful Putnam
representative or your financial advisor for details about any of these
or other services, or see your prospectus.
Fund information
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 years ago, Putnam Investments
was built around the concept that a balance between risk and reward is
the hallmark of a well-rounded financial program. We presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary Trust Company
Legal Counsel
Ropes & Gray LLP
Independent Auditors
PricewaterhouseCoopers LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
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, III
President
Charles E. Porter
Executive Vice President, Treasurer and
Principal Financial Officer
Patricia C. Flaherty
Senior Vice President
Karnig H. Durgarian
Vice President and Principal Executive Officer
Steven D. Krichmar
Vice President and Principal Financial Officer
Michael T. Healy
Assistant Treasurer and Principal Accounting Officer
Beth S. Mazor
Vice President
Gordon H. Silver
Vice President
Mark C. Trenchard
Vice President
William H. Woolverton
Vice President and Chief Legal Officer
Judith Cohen
Clerk and Assistant Treasurer
This report is for the information of shareholders of The George Putnam
Fund of Boston. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and
the most recent copy of Putnam's Quarterly Performance Summary and
Putnam's Quarterly Ranking Summary. For more information or to request a
prospectus, call toll free: 1-800-225-1581. The fund's Statement of
Additional Information contains additional information about the fund's
Trustees and is available without charge upon request by calling
1-800-225-1581.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
Call 1-800-225-1581 or visit our Web site www.putnaminvestments.com.
AN021-203375 001/880/2NE/242/22E 9/03
Not FDIC Insured, May Lose Value, No Bank Guarantee
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
The George Putnam Fund of Boston
Supplement to Annual Report dated 7/31/03
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 clients that meet the
eligibility requirements specified in the fund's prospectus for such
shares. Performance of class Y shares, which do not incur a front-end
load, a distribution fee, or a contingent deferred sales charge, will
differ from the performance of class A, B, C, M, and R shares, which are
discussed more extensively in the annual report.
RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return for periods ended 7/31/03
NAV
1 year 8.38%
5 years 14.04
Annual average 2.66
10 years 132.30
Annual average 8.79
Life of fund (since class A inception, 11/5/37)
Annual average 9.43
Share value: NAV
7/31/02 $15.05
7/31/03 $15.76
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
5 $0.515 -- $0.515
- ----------------------------------------------------------------------------
Please note that past performance is not indicative of future results.
More recent returns may be more or less than those shown. Returns shown
for class Y shares for periods prior to their inception are derived from
the historical performance of class A shares, and are not 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, typically 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.
Item 2. Code of Ethics:
- -----------------------
All officers of the Fund, including its principal executive, financial and
accounting officers, are employees of Putnam Investment Management, LLC,
the Fund's investment manager. As such they are subject to a comprehensive
Code of Ethics adopted and administered by Putnam Investments which is
designed to protect the interests of the firm and its clients. The Fund
has adopted a Code of Ethics which incorporates the Code of Ethics of
Putnam Investments with respect to all of its officers and Trustees who are
employees of Putnam Investment Management, LLC. For this reason, the Fund
has not adopted a separate code of ethics governing its principal
executive, financial and accounting officers.
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
The Funds' Audit and Pricing Committee is comprised solely of Trustees
who are "independent" (as such term has been defined by the Securities
and Exchange Commission ("SEC") in regulations implementing Section 407
of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe
that each of the members of the Audit and Pricing Committee also possess
a combination of knowledge and experience with respect to financial
accounting matters, as well as other attributes, that qualify them for
service on the Committee. In addition, the Trustees have determined
that all members of the Funds' Audit and Pricing Committee meet the
financial literacy requirements of the New York Stock Exchange's rules
and that Mr. Patterson and Mr. Stephens qualify as "audit committee
financial experts" (as such term has been defined by the Regulations)
based on their review of their pertinent experience and education.
Certain other Trustees, although not on the Audit and Pricing Committee,
would also qualify as "audit committee financial experts." The SEC has
stated that the designation or identification of a person as an audit
committee financial expert pursuant to this Item 3 of Form N-CSR does
not impose on such person any duties, obligations or liability that are
greater than the duties, obligations and liability imposed on such
person as a member of the Audit and Pricing Committee and the Board of
Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
Not applicable
Items 5-6. [Reserved]
- ---------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. [Reserved]
- ------------------
Item 9. Controls and Procedures:
- --------------------------------
(a) The registrant's principal executive officer and principal financial
officers have concluded, based on their evaluation of the effectiveness
of the design and operation of the registrant's disclosure controls and
procedures as of a date within 90 days of the filing date of this report
on Form N-CSR, that the design and operation of such procedures are
effective to provide reasonable assurance that information required to
be disclosed by the investment company in the reports that it files or
submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized, and reported within the time periods specified in
the Commission's rules and forms.
(b) Changes in internal control over financial reporting:
Not applicable
Item 10. Exhibits:
- ------------------
(a) The Code of Ethics of The Putnam Funds, which incorporates the
Code of Ethics of Putnam Investments, is filed herewith.
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act of 2002
are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: September 26, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Karnig H. Durgarian
---------------------------
Karnig H. Durgarian
Principal Executive Officer
Date: September 26, 2003
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Financial Officer
Date: September 26, 2003
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: September 26, 2003