The George
Putnam
Fund of
Boston
Item 1. Report to Stockholders:
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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
7-31-04
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
Over the past several months, Putnam has introduced a number of reforms
for the benefit of shareholders, including increasing the amount of
disclosure for our funds. We would like to call your attention to new
information now being included in shareholder reports. Following the
performance tables in the Performance Summary, you can find expense and
risk comparisons as well as portfolio turnover information for your
fund. The expense information lets you estimate the amount you have paid
for ongoing expenses such as management fees and distribution (or 12b-1)
fees and lets you compare these expenses with the average expense level
for your fund's peer group, as tracked by Lipper, an independent
fund-rating company. The risk comparison information illustrates your
fund's risk relative to similar funds as tracked by Morningstar, another
independent fund-rating company. The portfolio turnover information
explains how the rate at which a fund buys and sells portfolio
securities might affect its return and its taxable distributions to
shareholders. It also compares your fund's portfolio turnover rate with
its industry peers, as measured by Lipper. We believe all of this
information can be valuable to you and your financial advisor when you
make decisions about your financial program.
The period covered by this report was generally positive for the stock
market, although mixed signals from the economy caused volatility in
recent months. There were also significant variations in stock
performance, with small companies and value-style stocks leading large
companies and growth-style stocks. The George Putnam Fund of Boston
generated positive returns for the year but lagged its all-equity
benchmark, primarily because of its emphasis on high-quality stocks in a
market that favored lower-quality securities. Asset allocation decisions
were beneficial, and the bond portion of the fund helped reduce
volatility and enhance returns. On the following pages the fund's
management teams provide insight into their investment decisions, the
market environment in which they were operating, and their outlook for
the coming months.
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 15, 2004
Report from Fund Management
Fund highlights
* The George Putnam Fund of Boston's class A shares returned 9.77% at
net asset value (NAV), and 3.45% at public offering price (POP) for the
annual period ended July 31, 2004.
* This balanced fund invests in stocks and bonds. During the period, it
underperformed its all-stock benchmark, the S&P 500/Barra Value Index,
which returned 17.33%. The fund lagged because of its focus on
high-quality stocks, which underperformed higher-risk stocks.
* For the same reason, the fund underperformed its custom blended
benchmark, which comprises 60% S&P 500/Barra Value Index and 40% Lehman
Aggregate Bond Index. The Blended Index returned 12.39%.
* Based on performance at NAV, the fund outperformed its all-bond
benchmark, the Lehman Aggregate Bond Index, which returned 4.84%.
* Based on performance at NAV, the fund outperformed the average return
for Lipper's Balanced Funds category, which was 9.23%.
* See the Performance Summary beginning on page 7 for additional fund
performance, comparative performance, and Lipper data.
Performance commentary
We are pleased to report that your fund generated positive returns in
what was a challenging fiscal year. For much of the period, the market
favored small-cap stocks and lower-quality stocks, neither of which is a
focus of the fund. Also, the portfolio had less exposure to certain
outperforming stocks than its official benchmark, the S&P 500/Barra
Value Index, as well as its custom blended benchmark. However,
volatility was smoothed and overall performance was helped by the
portfolio's well-diversified bond positions and, in particular, by our
asset allocation decisions throughout the year. For example, in the
second quarter we reduced the bond exposure to 35% in anticipation of
the Federal Reserve Board raising short-term interest rates on June 30.
FUND PROFILE
The George Putnam Fund of Boston 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
The equities market advanced in the last five months of 2003 and then
moved within a narrow range for the remainder of the fund's fiscal year.
Events in Iraq and concerns about global terrorism created a blanket of
uncertainty that tempered investors' appetite for risk. Energy prices
rose as the increase in global demand was met with tight supply and
limited discovery of new resources. The price of a barrel of crude oil
rose by 43% to nearly $44, quite high by historical measures. To manage
inflationary pressures, the Federal Reserve Board raised the short-term
interest rate by 25 basis points (one quarter of a percentage point) on
the last day of June. On August 10, soon after the fund's 2005 fiscal
year began, the Fed raised rates by another 25 basis points. The pace of
corporate earnings growth in the United States has slowed, although it
is still continuing at what we consider a healthy pace. Year-over-year
comparisons of corporate earnings growth within the S&P 500 Index show a
downward-sloping trend line, which we believe is likely to continue
through 2004.
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MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 7/31/04
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Equities
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S&P 500/Barra Value Index (large-company value stocks) 17.33%
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Russell 2000 Growth Index (small-company growth stocks) 11.32%
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Russell 2000 Value Index (small-company value stocks) 22.83%
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Russell 1000 Index (large-company stocks) 13.03%
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Bonds
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Lehman Aggregate Bond Index (broad bond market) 4.84%
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JP Morgan Global High Yield Index (global high-yield
corporate bonds) 13.83%
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Lehman Government Bond Index (U.S. Treasury and agency
securities) 3.86%
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These indexes provide an overview of performance in different market
sectors for the 12 months ended 7/31/04.
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Strategy overview
Throughout the year, we actively managed the portfolio's asset
allocation between stocks and bonds and sought to earn a competitive
return while adhering to the fund's conservative value-oriented
investment style. For the equity portion of the portfolio, we continued
to seek what we believed were the best opportunities in large-cap value
stocks. We emphasized dividend-paying stocks, which, in our view, were
priced attractively. While this positioning may have contributed to the
fund's underperformance relative to the equity benchmark, we believe it
will be rewarded over time as the market comes to prize dividends more
highly. Dividend income often represents a larger portion of investors'
total return in a slower-growth environment, which, in our opinion,
appears to be taking shape.
To take advantage of an improving economy and to boost income, last year
we invested a small but significant portion of the fund in high-yield
corporate bonds. This allocation was diversified across many issuers in
many industries to minimize company-specific risk. The positions
performed well and contributed meaningfully to the fund's returns. We
gradually reduced the portfolio's high-yield bond exposure to zero by
the end of the fiscal year. In May, when it appeared that a rise in
short-term interest rates was imminent, we reduced the fund's bond
exposure to 35% of total portfolio market value by buying Treasury
futures, and took a 5% cash position, which reflected our view that
stocks did not appear particularly attractive relative to bonds. In
recent months, we shortened the duration of the fund's bond portfolio
(reduced its interest-rate sensitivity), anticipating that the Federal
Reserve Board would soon raise short-term interest rates, which it did,
on June 30. At the end of the reporting period, the fund's duration was
slightly shorter than that of the Lehman Aggregate Bond Index.
[GRAPHIC OMITTED: horizontal bar chart PORTFOLIO COMPOSITION COMPARED]
PORTFOLIO COMPOSITION COMPARED
as of 1/31/04 as of 7/31/04
Common stocks 60.9% 60.5%
U.S. government
and agency securities 24.3% 26.1%
Short-term
investments 14.9% 8.1%
Corporate bonds 10.2% 7.5%
Collateralized
mortgage obligations 5.0% 5.6%
Asset-backed
rsecurities 4.8% 5.4%
Convertible
preferred stocks 0.7% 0.6%
Other 0.5% 0.3%
Footnote reads:
This chart shows how the fund's top weightings have changed over the
last six months. Weightings are shown as a percentage of net assets.
Holdings will vary over time.
How fund holdings affected performance
Tyco International was among the portfolio's top performers during the
period. This Bermuda-based conglomerate operates many disparate
manufacturing and service businesses around the world, of which undersea
telecommunications systems, security and fire protection systems,
health-care and specialty products, and electronic components
manufacturing are just a few. Under the leadership of CEO Ed Breen, we
believe this conglomerate has now moved beyond the accounting, balance
sheet, and liquidity issues that were so troublesome in 2001 and 2002.
Strong cash flow has helped to reduce debt while restructuring and
divestitures have reduced the number of unprofitable operations. The
company now has strong operating leverage and earnings. Its stock price
rose nearly 70% during the year, and the fund still maintains a
relatively large position.
Shares of retailer J.C. Penney provided a strong return, indicating that
under the leadership of CEO Allen Questrom the company had made
significant progress overcoming its operating difficulties. The
nationwide retailer vastly improved its efficiency and same-store sales
results when it adopted a centralized inventory management system. Also,
the company benefited from divesting itself of the unprofitable Eckerd
Drug Store chain. Proceeds of the sale helped to reduce debt and a
portion was returned to shareholders. The company's fundamentals have
continued to improve and we have maintained a position. While our
outlook for this company is favorable, we are less certain about the
short-term prospects of retailers in general, because we believe
consumer spending may decrease in coming months.
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TOP EQUITY HOLDINGS
(Percent of fund's net assets as of 7/31/04)
1 Exxon Mobil Corp. (3.1%)
Oil and gas
2 Citigroup, Inc. (2.8%)
Banking
3 Bank of America Corp. (2.2%)
Banking
4 Hewlett-Packard Co. (1.6)
Computers
5 Altria Group, Inc. (1.5%)
Tobacco
6 U.S. Bancorp (1.5%)
Banking
7 JPMorgan Chase & Co. (1.4%)
Investment banking/brokerage
8 Pfizer, Inc. (1.4%)
Pharmaceuticals
9 Microsoft Corp. (1.4%)
Software
10 Tyco International, Ltd. (1.3%)
Conglomerates
Footnote reads:
The fund's holdings will change over time.
Edison International, which owns California's second-largest electric
utility, Southern California Edison, suffered as a result of the state's
energy crisis. Poor financial performance led to elimination of the
dividend, and the stock price fell precipitously. However, the Supreme
Court of California approved a rescue plan that enabled the utility to
generate free cash flow and repair its balance sheet. Thanks to more
stable natural gas prices and a more favorable regulatory situation, it is
making steady progress. Earnings have recovered dramatically, and Edison
has resumed payment of dividends on both its common and preferred
shares. The stock has done well. We recently took some profits, but we
are maintaining a fairly large position.
Shares of Boeing performed well during the period. In our opinion,
investors overreacted when financially troubled major airlines cancelled
orders for Boeing's commercial aircraft. However, a significant portion
of Boeing's business is defense related, and this segment flourished
during the period. Boeing's share price bounced back, and the portfolio
still owns its position.
Fund holdings that disappointed during the period included Union Pacific
Railroad, which cut its workforce too severely and, as a result,
sacrificed service quality at a time when demand for rail transport was
strong. The high price of gasoline has made railroads more attractive
than trucking. We believe the Union Pacific's troubles will be
short-lived, but it has taken the company longer than we expected to
resolve its service issues. The fund maintains a position.
Hewlett-Packard (HP) underperformed our expectations during the period,
even as it continued to find efficiencies from its merger with Compaq
computer. We believe the merger was a positive move for HP that will
ultimately reward shareholders. In our view, HP is poised to benefit
from a steady increase in capital spending by cash-rich companies. The
fund is retaining its position. In the midst of a slump in the
health-care sector, King Pharmaceuticals lost patent protection for one
of its most important products. This was made worse by the company's
faltering earnings. Taken together, these factors caused the stock price
to swoon. We have maintained a position and are monitoring the situation
closely. Subsequent to the end of the reporting period, King
Pharmaceuticals received an offer to be acquired by generic-drug firm,
Mylan Laboratories.
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.
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, Ronald Bukovac,
Bartlett Geer, David King, Deborah Kuenstner, Cole Lannum, George Maris,
Christopher Miller, and Hugh Mullin. The members of the Core
Fixed-Income Team are Kevin Cronin (Portfolio Member), Carl Bell, Rob
Bloemker, Andrea Burke, Steve Horner, D. William Kohli, Michael Salm,
John Van Tassel, and David Waldman. The members of the Global Asset
Allocation Team are Jeff Knight (Portfolio Member), Robert Kea, Bruce
MacDonald, and Robert Schoen.
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.
Looking forward, we believe the current very high oil prices are
unsustainable and, barring any world crises, will recede to lower
levels. This would be beneficial for markets as a whole. However, we
think commodity prices and interest rates will continue to rise
gradually. In our view, the pace of earnings growth will be more
moderate, but companies will continue to benefit from productivity
enhancements and an improving economy. We believe that corporations have
largely completed their debt reduction efforts. Therefore we expect to
see free cash flows used increasingly for stock buybacks, more generous
dividend payouts, and capital expenditures on new and profitable
endeavors. Accordingly, we are targeting stocks that we believe would
benefit from increased capital spending. In contrast, we see less
opportunity in consumer-oriented stocks this year. We expect consumer
spending will fall off as a result of higher gas prices, lack of tax
breaks, and decreased home-refinancing activity.
Presently, we see compelling value in larger-cap stocks. The portfolio's
average market capitalization may increase as we take advantage of some
of these opportunities. We believe higher-quality, dividend-paying
stocks are poised to outperform, which would be a positive for your
fund.
We feel it is always worthwhile to reiterate the role bonds play in this
portfolio and to assure investors that we actively manage the fund's
stock and bond allocations on a daily basis. Not only do bonds help to
manage the portfolio's overall volatility, but throughout the bear
market, they provided the bulk of the fund's returns. In the midst of a
recovering economy, when equities simply pause, experience a correction,
or respond to economic or market data such as a worse-than-expected
unemployment report, bonds help to cushion the impact on the portfolio.
The benefits of balanced investing have endured the test of time, and we
continue to believe that an actively managed portfolio of stocks and
bonds is one of the best ways to build wealth over the long term.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. This fund may have
a significant portion of its holdings in bonds. Mutual funds that invest
in bonds are subject to certain risks, including interest-rate risk,
credit risk, and inflation risk. As interest rates rise, the prices of
bonds fall. Long-term bonds are more exposed to interest-rate risk than
short-term bonds. Unlike bonds, bond funds have ongoing fees and
expenses. The fund invests some of its assets in midsize companies. Such
investments increase the risk of greater price fluctuations. Lower-rated
bonds may offer higher yields in return for more risk.
Performance summary
This section shows your fund's performance during its fiscal year, which
ended July 31, 2004. 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. Data represents past performance. Past performance does not
guarantee 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. For the most
recent month-end performance, please visit www.putnaminvestments.com.
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TOTAL RETURN FOR PERIODS ENDED 7/31/04
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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)
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NAV POP NAV CDSC NAV CDSC NAV POP NAV
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1 year 9.77% 3.45% 8.88% 3.88% 8.92% 7.92% 9.18% 5.39% 9.60%
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5 years 14.09 7.52 9.82 8.00 9.83 9.83 11.31 7.45 12.71
Annual average 2.67 1.46 1.89 1.55 1.89 1.89 2.17 1.45 2.42
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10 years 140.53 126.78 123.14 123.14 123.01 123.01 128.72 120.64 134.75
Annual average 9.17 8.53 8.36 8.36 8.35 8.35 8.63 8.24 8.91
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Annual average
(life of fund) 9.40 9.30 8.36 8.36 8.58 8.58 8.63 8.58 9.13
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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 (which
for class A shares does not reflect a reduction in sales charges that
went into effect on January 28, 2004; if this reduction had been in
place for all periods indicated, returns would have been higher). 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.
A 2% short-term trading fee will be applied to shares exchanged or sold
within 5 days of purchase.
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TOTAL RETURN FOR PERIODS ENDED 6/30/04 (MOST RECENT CALENDAR QUARTER)
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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)
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NAV POP NAV CDSC NAV CDSC NAV POP NAV
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1 year 10.48% 4.10% 9.60% 4.60% 9.63% 8.63% 9.89% 6.05% 10.25%
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5 years 12.90 6.39 8.68 6.87 8.70 8.70 10.15 6.30 11.56
Annual average 2.46 1.25 1.68 1.34 1.68 1.68 1.95 1.23 2.21
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10 years 149.29 134.91 131.29 131.29 131.09 131.09 137.18 128.95 143.21
Annual average 9.56 8.92 8.75 8.75 8.74 8.74 9.02 8.64 9.29
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Annual average
(life of fund) 9.43 9.34 8.40 8.40 8.61 8.61 8.67 8.61 9.16
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[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, 7/31/94 to 7/31/04
S&P 500/
Fund's class A Barra Value Lehman Aggregate George Putnam
Date shares at POP Index Bond Index Blended Index
7/31/94 9,425 10,000 10,000 10,000
7/31/95 11,100 12,140 11,011 11,683
7/31/96 12,737 14,028 11,621 13,032
7/31/97 16,752 20,703 12,872 17,170
7/31/98 18,349 23,465 13,884 19,144
7/31/99 19,878 27,094 14,223 21,184
7/31/00 18,866 27,056 15,078 21,766
7/31/01 21,292 28,131 16,993 23,474
7/31/02 19,120 20,913 18,273 20,371
7/31/03 20,660 23,528 19,263 22,541
7/31/04 $22,678 $27,606 $20,195 $25,333
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 $22,314 and $22,301, 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 $22,872 ($22,064
at public offering price). A $10,000 investment in the fund's class R
shares would have been valued at $23,475. See first page of performance
section for performance calculation method.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 7/31/04
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S&P 500/ Lehman George Putnam Lipper Balanced
Barra Value Aggregate Blended Funds category
Index Bond Index Index average*
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1 year 17.33% 4.84% 12.39% 9.23%
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5 years 1.89 41.99 19.58 8.36
Annual average 0.38 7.26 3.64 1.49
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10 years 176.06 101.95 153.33 123.17
Annual average 10.69 7.28 9.74 8.21
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Annual average
(life of fund) --+ --+ --+ --+
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Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 1-, 5-, and 10-year periods ended 7/31/04, there were 540,
364, and 138 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.
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PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 7/31/04
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Class A Class B Class C Class M Class R
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Distributions (number) 4 4 4 4 4
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Income $0.332 $0.205 $0.206 $0.250 $0.307
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Capital gains -- -- -- -- --
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Total $0.332 $0.205 $0.206 $0.250 $0.307
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Share value: NAV POP NAV NAV NAV POP NAV
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7/31/03 $15.72 $16.68 $15.56 $15.63 $15.57 $16.13 $15.70
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7/31/04 16.91 17.85* 16.73 16.81 16.74 17.35 16.89
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Current return
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Current dividend rate 1 1.85% 1.75% 1.08% 1.09% 1.36% 1.31% 1.63%
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Current 30-day
SEC yield 2 2.05 1.94 1.31 1.31 1.56 1.47 1.79
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* Reflects a reduction in sales charges that took effect on January 28,
2004.
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.
Understanding your
fund's expenses
As a mutual fund investor, you pay ongoing expenses, such as management
fees, distribution fees (12b-1 fees), and other expenses. Using the
information below, you can estimate how these expenses affect your
investment and compare them with the expenses of other funds. You may
also pay one-time transaction expenses, including sales charges (loads)
and redemption fees, which are not shown in this section and would have
resulted in higher total expenses. For more information, see your fund's
prospectus or talk to your financial advisor.
Review your fund's expenses
The table below shows the expenses you would have paid on a $1,000
investment in The George Putnam Fund of Boston from February 1, 2004, to
July 31, 2004. It also shows how much a $1,000 investment would be worth
at the close of the period, assuming actual returns and expenses.
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EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming actual returns for the 6 months ended 7/31/04
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Class A Class B Class C Class M Class R
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Expenses paid per $1,000* $5.06 $8.80 $8.80 $7.55 $6.31
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Ending value
(after expenses) $993.40 $988.90 $989.40 $990.20 $991.50
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* Expenses for each share class are calculated using the fund's
annualized expense ratio for each class, which represents the ongoing
expenses as a percentage of net assets for the six months ended 7/31/04.
The expense ratio may differ for each share class (see the table at the
bottom of the next page). Expenses are calculated by multiplying the
expense ratio by the average account value for the period; then
multiplying the result by the number of days in the period; and then
dividing that result by the number of days in the year.
Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended July
31, 2004, use the calculation method below. To find the value of your
investment on February 1, 2004, go to www.putnaminvestments.com and log
on to your account. Click on the "Transaction History" tab in your Daily
Statement and enter 02/01/2004 in both the "from" and "to" fields.
Alternatively, call Putnam at 1-800-225-1581.
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HOW TO CALCULATE THE EXPENSES YOU PAID
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Total
Value of your Expenses paid expenses
investment on 2/1/04 [DIV] $1,000 X per $1,000 = paid
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Example Based on a $10,000 investment in class A shares of your fund.
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$10,000 [DIV] $1,000 X $5.06 (see table above) = $50.60
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Comparing your fund's expenses with those of other funds
Using the SEC's method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines
to help investors assess fund expenses. Per these guidelines, the table
below shows your fund's expenses based on a $1,000 investment, assuming
a hypothetical 5% annualized return. You can use this information to
compare the ongoing expenses (but not transaction expenses or total
costs) of investing in the fund with those of other funds. All mutual
fund shareholder reports will provide this information to help you make
this comparison. Please note that you cannot use this information to
estimate your actual ending account balance and expenses paid during the
period.
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EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming a hypothetical 5% annualized return for the 6 months ended 7/31/04
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Class A Class B Class C Class M Class R
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Expenses paid per $1,000* $5.13 $8.92 $8.92 $7.66 $6.39
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Ending value
(after expenses) $1,020.06 $1,016.29 $1,016.29 $1,017.55 $1,018.80
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* Expenses for each share class are calculated using the fund's
annualized expense ratio for each class, which represents the ongoing
expenses as a percentage of net assets for the six months ended 7/31/04.
The expense ratio may differ for each share class (see the table at the
bottom of this page). Expenses are calculated by multiplying the expense
ratio by the average account value for the period; then multiplying the
result by the number of days in the period; and then dividing that
result by the number of days in the year.
Using industry averages to compare expenses
You can also compare your fund's expenses with industry averages, as
determined by Lipper, an independent fund-rating agency that ranks funds
relative to others that Lipper considers to have similar investment
styles or objectives. The expense ratio for each share class shown below
indicates how much of your fund's net assets have been used to pay
ongoing expenses during the period.
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EXPENSE RATIO COMPARISONS USING ANNUALIZED DATA
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Class A Class B Class C Class M Class R
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Your fund's annualized
expense ratio+ 1.01% 1.76% 1.76% 1.51% 1.26%
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Average annualized expense
ratio for Lipper
peer group++ 1.32% 2.07% 2.07% 2.07% 1.57%
- ------------------------------------------------------------------------------
+ For the fund's most recent fiscal half year; may differ from expense ratios
based on one-year data in the financial highlights.
++ For class A shares, expenses shown represent the average of the expenses
of front-end load funds viewed by Lipper as having the same investment
classification or objective as the fund, calculated in accordance with
Lipper's standard reporting methodology for comparing expenses within a
given universe. All Lipper data is for the most recent fiscal periods
available as of 6/30/04. For class B, C, M and R shares, Putnam has
adjusted the Lipper total expense average to reflect higher 12b-1 fees
incurred by these classes of shares. The peer group may include funds that
are significantly larger or smaller than the fund, which may limit the
comparability of the fund's expenses to the Lipper average.
Understanding your fund's
portfolio turnover
Putnam funds are actively managed by teams of experts who buy and sell
securities based on intensive analysis of companies, industries,
economies, and markets. Portfolio turnover is a measure of how often a
fund's managers buy and sell securities for your fund. A portfolio
turnover of 100%, for example, means that the managers sold and replaced
securities valued at 100% of a fund's assets within a one-year period.
Funds with high turnover may be more likely to generate capital gains
and dividends that must be distributed to shareholders as taxable
income. High turnover may also cause a fund to pay more brokerage
commissions and other transaction costs, which may detract from
performance.
Funds that invest in bonds may have higher turnover than funds that
invest only in stocks. Short-term bond funds tend to have higher
turnover than longer-term bond funds, because shorter-term bonds will
mature or be sold more frequently than longer-term bonds. You can use
the table below to compare your fund's turnover with the average
turnover for funds in its Lipper category.
- ------------------------------------------------------------------------------
TURNOVER COMPARISONS
percentage of holdings that change every year
- ------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------
The George Putnam
Fund of Boston 166% 121% 132% 333% 141%
- ------------------------------------------------------------------------------
Lipper Balanced Funds
category average 87% 82% 83% 85% 83%
- ------------------------------------------------------------------------------
Turnover data for the fund is calculated based on the fund's fiscal-year
period, which ends on July 31. Turnover data for the fund's Lipper
category is calculated based on the average of the turnover of each fund
in the category for its fiscal year ended during the indicated calendar
year, with the exception of 2004 data. Lipper data for 2004 represents
the average turnover for each fund in the category for its most recent
fiscal year and for which data is available as of 6/30/04.
Risk comparison
As part of new initiatives to enhance disclosure, we are including a
risk comparison to help you understand how your fund compares with other
funds. The comparison utilizes a risk measure developed by Morningstar,
an independent fund-rating agency. This risk measure is referred to as
the fund's Overall Morningstar Risk.
[GRAPHIC OMITTED: chart MORNINGSTAR [REGISTRATION MARK] RISK]
MORNINGSTAR [REGISTRATION MARK] RISK
Fund's Overall
Morningstar Risk 0.88
U.S. stock
fund average 3.75
0% INCREASING RISK 100%
Your fund's Overall Morningstar Risk is shown alongside that of the
average fund in its broad asset class, as determined by Morningstar. The
risk bar broadens the comparison by translating the fund's Overall
Morningstar Risk into a percentile, which is based on the fund's ranking
among all funds rated by Morningstar as of 6/30/04. A higher Overall
Morningstar Risk generally indicates that a fund's monthly returns have
varied more widely.
Morningstar determines a fund's Overall Morningstar Risk by assessing
variations in the fund's monthly returns -- with an emphasis on downside
variations -- over 3-, 5-, and 10-year periods, if available. Those
measures are weighted and averaged to produce the fund's Overall
Morningstar Risk. The information shown is provided for the fund's class
A shares only; information for other classes may vary. Overall
Morningstar Risk is based on historical data and does not indicate
future results. Morningstar does not purport to measure the risk
associated with a current investment in a fund, either on an absolute
basis or on a relative basis. Low Overall Morningstar Risk does not mean
that you cannot lose money on an investment in a fund. Copyright 2004
Morningstar, Inc. All Rights Reserved. The information contained herein
(1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is not warranted to be accurate,
complete, or timely. Neither Morningstar nor its content providers are
responsible for any damages or losses arising from any use of this
information.
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. NAV
is calculated by dividing the net assets of each class of shares by the
number of outstanding shares in the class.
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 (since reduced to 5.25%) 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 and Poor's 500/Barra Value
Index and 40% of which is the Lehman Aggregate Bond Index.
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 Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed-income securities.
Lehman Government Bond Index is an unmanaged index of U.S. Treasury and
agency securities.
Russell 1000 Index is an unmanaged index of the largest 1,000 companies
in the Russell 3000 Index.
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.
S&P 500/Barra Value Index is an unmanaged index of
capitalization-weighted stocks chosen for their value orientation.
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 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.
Proxy voting
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. The Putnam funds' proxy voting guidelines and
procedures, as well as information regarding how your fund voted proxies
relating to portfolio securities during the 12-month period ended June
30, 2004, are available on the Putnam Individual Investor Web site,
www.putnaminvestments.com/individual, and on the SEC's Web site,
www.sec.gov. If you have questions about finding forms on the SEC's Web
site, you may call the SEC at 1-800-SEC-0330. You may also obtain the
Putnam funds' proxy voting guidelines and procedures by calling Putnam's
Shareholder Services at 1-800-225-1581.
Fund portfolio holdings
For periods ending on or after July 9, 2004, the fund will file a
complete schedule of its portfolio holdings with the SEC for the first
and third quarters of each fiscal year on Form N-Q. Shareholders may
obtain the fund's Forms N-Q on the SEC's Web site at www.sec.gov. In
addition, the fund's Forms N-Q may be reviewed and copied at the SEC's
public reference room in Washington, D.C. You may call the SEC at
1-800-SEC-0330 for information about the SEC's Web site or the operation
of the public reference room.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
preceded by the Report of Independent Registered Public Accounting Firm,
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 the fund's net investment gain or loss, 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.
Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders of
The George Putnam Fund of Boston
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio and the related statements of operations
and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of The George
Putnam Fund of Boston (the "fund") at July 31, 2004, and the results of
its operations, the changes in its net assets and the financial
highlights for each of 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 the standards of the
Public Company Accounting Oversight Board (United States). Those
standards 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, 2004, by correspondence
with the custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
September 14, 2004
The fund's portfolio
July 31, 2004
Common stocks (60.5%) (a)
Number of shares Value
Aerospace and Defense (1.6%)
- -------------------------------------------------------------------------------
579,300 Boeing Co. (The) $29,399,475
684,700 Lockheed Martin Corp. 36,282,253
452,500 Northrop Grumman Corp. (S) 23,801,500
--------------
89,483,228
Airlines (0.1%)
- -------------------------------------------------------------------------------
334,800 Southwest Airlines Co. 4,844,556
Automotive (0.2%)
- -------------------------------------------------------------------------------
88,800 BorgWarner, Inc. (S) 4,190,472
166,000 Lear Corp. 9,151,580
--------------
13,342,052
Banking (9.8%)
- -------------------------------------------------------------------------------
1,431,460 Bank of America Corp. 121,688,415
1,095,300 Bank of New York Co., Inc. (The) 31,467,969
3,473,520 Citigroup, Inc. (SEG) 153,147,497
117,800 Compass Bancshares, Inc. 5,193,802
828,600 State Street Corp. 35,472,366
2,886,460 U.S. Bancorp 81,686,818
1,027,800 Wachovia Corp. (S) 45,541,818
86,800 Washington Mutual, Inc. 3,367,840
1,123,930 Wells Fargo & Co. 64,524,821
58,150 Zions Bancorp. 3,518,075
--------------
545,609,421
Beverage (0.6%)
- -------------------------------------------------------------------------------
363,700 Coca-Cola Co. (The) 15,951,882
715,100 Coca-Cola Enterprises, Inc. 14,588,040
--------------
30,539,922
Biotechnology (0.2%)
- -------------------------------------------------------------------------------
168,100 Amgen, Inc. (NON) 9,561,528
Broadcasting (0.5%)
- -------------------------------------------------------------------------------
756,200 Viacom, Inc. Class B 25,400,758
Building Materials (0.8%)
- -------------------------------------------------------------------------------
1,493,700 Masco Corp. (S) 45,169,488
Cable Television (0.5%)
- -------------------------------------------------------------------------------
254,700 Echostar Communications Corp. Class
A (NON) 7,060,284
1,966,400 Liberty Media Corp. Class A (NON) 16,675,072
19,664 Liberty Media International, Inc.
(NON) (S) 118,181
98,320 Liberty Media International, Inc.
Class A (NON) (S) 3,065,618
--------------
26,919,155
Capital Goods (0.1%)
- -------------------------------------------------------------------------------
101,200 Eaton Corp. 6,541,568
Chemicals (1.5%)
- -------------------------------------------------------------------------------
157,100 Avery Dennison Corp. (S) 9,515,547
1,006,700 Dow Chemical Co. (The) 40,157,263
267,700 Engelhard Corp. 7,870,380
408,100 PPG Industries, Inc. 24,057,495
--------------
81,600,685
Commercial and Consumer Services (0.3%)
- -------------------------------------------------------------------------------
2,477,860 Service Corp. International (NON) 15,734,411
Communications Equipment (0.1%)
- -------------------------------------------------------------------------------
341,600 Cisco Systems, Inc. (NON) 7,125,776
Computers (2.6%)
- -------------------------------------------------------------------------------
250,500 Dell, Inc. (NON) 8,885,235
4,422,681 Hewlett-Packard Co. 89,117,022
352,230 IBM Corp. 30,668,666
81,000 Lexmark International, Inc. (NON) 7,168,500
1,362,800 Sun Microsystems, Inc. (NON) 5,383,060
--------------
141,222,483
Conglomerates (2.9%)
- -------------------------------------------------------------------------------
8,987 Berkshire Hathaway, Inc. Class B
(NON) 26,008,378
1,400,700 General Electric Co. 46,573,275
468,200 Honeywell International, Inc. 17,609,002
2,249,660 Tyco International, Ltd. (Bermuda) (S) 69,739,460
--------------
159,930,115
Consumer Finance (0.6%)
- -------------------------------------------------------------------------------
78,600 Capital One Financial Corp. 5,448,552
91,350 Countrywide Financial Corp. 6,586,335
792,000 MBNA Corp. 19,554,480
246,000 Providian Financial Corp. (NON) 3,404,640
--------------
34,994,007
Consumer Goods (0.7%)
- -------------------------------------------------------------------------------
311,400 Colgate-Palmolive Co. 16,566,480
461,900 Procter & Gamble Co. 24,088,085
--------------
40,654,565
Electric Utilities (1.9%)
- -------------------------------------------------------------------------------
97,050 Dominion Resources, Inc. (S) 6,158,793
40,792 DPL, Inc. (S) 813,800
895,000 Edison International 23,986,000
185,000 Entergy Corp. 10,637,500
622,900 Exelon Corp. 21,739,210
989,950 PG&E Corp. (NON) (S) 28,253,173
132,580 Progress Energy, Inc. 5,586,921
90,200 Public Service Enterprise Group,
Inc. 3,517,800
146,600 Wisconsin Energy Corp. 4,713,190
--------------
105,406,387
Electrical Equipment (0.1%)
- -------------------------------------------------------------------------------
135,300 Emerson Electric Co. 8,212,710
Electronics (1.2%)
- -------------------------------------------------------------------------------
246,852 Celestica, Inc. (Canada) (NON) (S) 4,233,512
864,930 Intel Corp. 21,086,993
685,000 Micron Technology, Inc. (NON) (S) 9,268,050
1,246,700 Motorola, Inc. 19,859,931
1,358,289 Solectron Corp. (NON) (S) 7,470,590
383,800 Vishay Intertechnology, Inc. (NON) (S) 5,948,900
--------------
67,867,976
Energy (0.6%)
- -------------------------------------------------------------------------------
405,500 GlobalSantaFe Corp. (Cayman Islands)
(S) 11,110,700
553,300 Halliburton Co. (S) 17,567,275
180,000 Varco International, Inc. (NON) (S) 4,350,600
--------------
33,028,575
Financial (2.6%)
- -------------------------------------------------------------------------------
75,950 CIT Group, Inc. (S) 2,640,022
899,890 Fannie Mae 63,856,194
1,065,340 Freddie Mac (S) 68,512,015
161,700 PMI Group, Inc. (The) (S) 6,666,891
--------------
141,675,122
Food (0.7%)
- -------------------------------------------------------------------------------
251,900 Dean Foods Co. (NON) 9,315,262
423,800 General Mills, Inc. (S) 19,028,620
313,200 H.J. Heinz Co. 11,553,948
330 PSF Group Holdings, Inc. 144A Class A 495,570
--------------
40,393,400
Forest Products and Packaging (0.6%)
- -------------------------------------------------------------------------------
352,450 Boise Cascade Corp. 11,366,513
792,900 Smurfit-Stone Container Corp. (NON) (S) 14,755,869
346,950 Sonoco Products Co. 8,989,475
--------------
35,111,857
Gaming & Lottery (0.2%)
- -------------------------------------------------------------------------------
240,300 Harrah's Entertainment, Inc. 11,171,547
Health Care Services (0.8%)
- -------------------------------------------------------------------------------
315,500 Cardinal Health, Inc. 14,039,750
174,800 CIGNA Corp. (S) 10,839,348
211,500 Express Scripts, Inc. Class A (NON) 13,874,400
207,700 Medco Health Solutions, Inc. (NON) 6,293,310
--------------
45,046,808
Homebuilding (0.3%)
- -------------------------------------------------------------------------------
200,900 Lennar Corp. (S) 8,574,412
175,500 Pulte Homes, Inc. (S) 9,587,565
--------------
18,161,977
Household Furniture and Appliances (0.5%)
- -------------------------------------------------------------------------------
467,700 Whirlpool Corp. (S) 29,203,188
Insurance (2.9%)
- -------------------------------------------------------------------------------
1,092,800 ACE, Ltd. (Bermuda) 44,356,752
346,250 American International Group, Inc. 24,462,563
164,300 AON Corp. (S) 4,344,092
194,500 Axis Capital Holdings, Ltd.
(Bermuda) (S) 4,998,650
86,900 MBIA, Inc. 4,690,862
188,500 Old Republic International Corp. 4,390,165
250,500 Radian Group, Inc. 11,528,010
737,256 St. Paul Travelers Cos., Inc. (The) 27,330,080
69,600 Torchmark Corp. 3,638,688
93,800 Willis Group Holdings, Ltd.
(Bermuda) 3,264,240
416,525 XL Capital, Ltd. Class A (Bermuda) (S) 29,439,987
--------------
162,444,089
Investment Banking/Brokerage (2.0%)
- -------------------------------------------------------------------------------
2,151,300 JPMorgan Chase & Co. 80,308,029
97,600 Lehman Brothers Holdings, Inc. 6,841,760
278,800 Merrill Lynch & Co., Inc. 13,861,936
152,600 Morgan Stanley Dean Witter & Co. 7,527,758
--------------
108,539,483
Lodging/Tourism (0.2%)
- -------------------------------------------------------------------------------
721,200 Hilton Hotels Corp. (S) 12,858,996
Machinery (0.8%)
- -------------------------------------------------------------------------------
608,550 Ingersoll-Rand Co. Class A (Bermuda) 41,801,300
Manufacturing (0.1%)
- -------------------------------------------------------------------------------
206,450 Dover Corp. 8,191,936
Media (0.7%)
- -------------------------------------------------------------------------------
538,500 Fox Entertainment Group, Inc. Class
A (NON) 14,555,655
1,100,300 Walt Disney Co. (The) 25,405,927
--------------
39,961,582
Medical Technology (0.3%)
- -------------------------------------------------------------------------------
52,500 Baxter International, Inc. 1,578,675
94,400 C.R. Bard, Inc. (S) 5,210,880
112,400 Guidant Corp. 6,217,968
120,100 Medtronic, Inc. 5,965,367
--------------
18,972,890
Metals (0.2%)
- -------------------------------------------------------------------------------
405,000 Alcoa, Inc. 12,972,150
Office Equipment & Supplies (0.1%)
- -------------------------------------------------------------------------------
142,500 Pitney Bowes, Inc. 6,013,500
Oil & Gas (5.7%)
- -------------------------------------------------------------------------------
182,200 Amerada Hess Corp. (S) 15,186,370
400,500 BP PLC ADR (United Kingdom) 22,572,180
682,600 Chevron Texaco Corp. 65,290,690
3,723,392 ExxonMobil Corp. 172,393,050
190,200 Marathon Oil Corp. 7,164,834
217,400 Noble Corp. (Cayman Islands) (NON) 8,417,728
454,900 Unocal Corp. (S) 17,631,924
79,900 Valero Energy Corp. 5,986,108
--------------
314,642,884
Pharmaceuticals (3.7%)
- -------------------------------------------------------------------------------
1,414,400 Abbott Laboratories 55,656,640
260,900 Bristol-Myers Squibb Co. 5,974,610
190,400 Forest Laboratories, Inc. (NON) 9,575,216
746,700 Johnson & Johnson 41,270,109
1,255,700 King Pharmaceuticals, Inc. (NON) 14,176,853
2,435,640 Pfizer, Inc. 77,843,054
98,900 Wyeth 3,501,060
--------------
207,997,542
Photography/Imaging (0.5%)
- -------------------------------------------------------------------------------
1,834,648 Xerox Corp. (NON) (S) 25,428,221
Railroads (1.2%)
- -------------------------------------------------------------------------------
467,650 Canadian National Railway Co.
(Canada) 21,058,280
822,000 Union Pacific Corp. 46,311,480
--------------
67,369,760
Regional Bells (2.0%)
- -------------------------------------------------------------------------------
390,750 BellSouth Corp. 10,585,418
1,297,804 SBC Communications, Inc. 32,886,353
1,692,100 Verizon Communications, Inc. 65,213,534
--------------
108,685,305
Restaurants (0.7%)
- -------------------------------------------------------------------------------
385,500 Darden Restaurants, Inc. (S) 8,222,715
1,146,200 McDonald's Corp. 31,520,500
--------------
39,743,215
Retail (2.2%)
- -------------------------------------------------------------------------------
112,100 AutoZone, Inc. (NON) (S) 8,654,120
629,700 Home Depot, Inc. (The) 21,233,484
176,700 JC Penney Co., Inc. (Holding Co.) (S) 7,068,000
511,600 Limited Brands 10,457,104
411,800 Lowe's Cos., Inc. 20,062,896
1,725,900 Office Depot, Inc. (NON) (S) 28,304,760
1,714,700 Rite Aid Corp. (NON) (S) 8,419,177
286,300 Wal-Mart Stores, Inc. 15,176,763
--------------
119,376,304
Software (1.6%)
- -------------------------------------------------------------------------------
2,707,800 Microsoft Corp. 77,063,988
1,307,700 Oracle Corp. (NON) 13,743,927
--------------
90,807,915
Technology Services (0.5%)
- -------------------------------------------------------------------------------
335,000 Automatic Data Processing, Inc. 14,063,300
122,800 First Data Corp. 5,478,108
261,700 Fiserv, Inc. (NON) 8,965,842
--------------
28,507,250
Textiles (0.2%)
- -------------------------------------------------------------------------------
343,500 Liz Claiborne, Inc. 12,431,265
Tobacco (1.7%)
- -------------------------------------------------------------------------------
1,776,348 Altria Group, Inc. 84,554,165
117,300 R.J. Reynolds Tobacco Holdings, Inc. 8,439,735
--------------
92,993,900
Toys (0.4%)
- -------------------------------------------------------------------------------
1,282,700 Mattel, Inc. (S) 22,472,904
Waste Management (0.2%)
- -------------------------------------------------------------------------------
322,300 Republic Services, Inc. 9,217,780
--------------
Total Common stocks
(cost $2,778,184,822) $3,365,383,436
U.S. government and agency mortgage obligations (26.1%) (a)
Principal amount Value
U.S. Government Guaranteed Mortgage Obligations (--%)
- -------------------------------------------------------------------------------
Government National Mortgage
Association Pass-Through
Certificates
$750,171 7s, with due dates from August 15,
2029 to October 15, 2031 $802,719
5,409 5s, July 15, 2033 5,311
--------------
808,030
U.S. Government and Agency Mortgage Obligations (26.1%)
- -------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corporation
423,454 8 3/4s, with due dates from May 1,
2009 to June 1, 2009 451,839
Federal National Mortgage
Association
Pass-Through Certificates
24,371 11s, with due dates from October 1,
2015 to March 1, 2016 27,603
563,354 9s, with due dates from January 1,
2027 to July 1, 2032 611,339
6,905 8 3/4s, July 1, 2009 7,400
2,490,332 8s, with due dates from August 1,
2026 to July 1, 2033 2,696,290
3,124,032 7 1/2s, with due dates from October
1, 2025 to July 1, 2033 3,348,751
74,327,184 7s, with due dates from July 1, 2025
to April 1, 2034 78,641,727
2,693,754 7s, with due dates from November 1,
2007 to January 1, 2015 2,863,795
117,300,000 7s, TBA, August 15, 2034 123,916,447
434,655,970 6 1/2s, with due dates from June 1,
2023 to July 1, 2034 454,565,914
549,724 6 1/2s, with due dates from July 1,
2010 to May 1, 2011 582,602
11,000,000 6 1/2s, TBA, August 15, 2034 11,478,672
60,012 6s, December 1, 2033 61,643
367,079 6s, with due dates from December 1,
2013 to May 1, 2017 384,457
113,400,000 6s, TBA, September 15, 2034 115,880,625
117,300,000 6s, TBA, August 15, 2034 120,333,308
175,800,000 5 1/2s, TBA, August 15, 2034 176,198,292
612,589 5s, with due dates from March 1,
2019 to June 1, 2019 617,996
75,200,000 5s, TBA, August 15, 2019 75,722,873
102,331,220 4 1/2s, with due dates from August
1, 2033 to July 1, 2034 96,727,106
195,000,000 4 1/2s, TBA, August 15, 2034 184,137,896
41,759 4s, June 1, 2019 40,088
--------------
1,449,296,663
--------------
Total U.S. Government and Agency
Mortgage Obligations
(cost $1,441,987,170) $1,450,104,693
U.S. government agency obligations (0.8%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$38,135,000 Fannie Mae 7 1/4s, January 15, 2010 $43,627,779
--------------
Total U.S. Government Agency
Obligations (cost $43,062,595) $43,627,779
U.S. treasury obligations (0.1%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$1,450,000 U.S. Treasury Bonds 4 1/4s, November
15, 2013 $1,427,570
3,005,000 U.S. Treasury Notes 3 1/4s, August
15, 2008 2,982,932
--------------
Total U.S. Treasury Obligations
(cost $4,552,170) $4,410,502
Corporate bonds and notes (7.5%) (a)
Principal amount Value
Aerospace and Defense (0.2%)
- -------------------------------------------------------------------------------
$685,000 Boeing Co. (The) debs. 6 7/8s, 2043 $710,567
625,000 Litton Industries, Inc. sr. notes
8s, 2009 720,225
1,270,000 Lockheed Martin Corp. bonds 8 1/2s,
2029 1,615,346
1,115,000 Northrop Grumman Corp. company
guaranty 7 1/8s, 2011 1,254,183
205,000 Raytheon Co. bonds 5 3/8s, 2013 206,992
625,000 Raytheon Co. debs. 7s, 2028 674,834
2,275,000 Raytheon Co. debs. 6s, 2010 2,432,774
1,145,000 Raytheon Co. notes 8.3s, 2010 1,350,708
830,000 Raytheon Co. notes 4.850s, 2011 830,465
--------------
9,796,094
Airlines (0.1%)
- -------------------------------------------------------------------------------
4,215,000 Continental Airlines, Inc.
pass-through certificates Ser. 98-2,
6.32s, 2008 4,082,638
Automotive (0.3%)
- -------------------------------------------------------------------------------
2,525,000 DaimlerChrysler NA Holding Corp.
company guaranty 7.2s, 2009 2,774,301
2,785,000 DaimlerChrysler NA Holding Corp.
company guaranty Ser. D, 3.4s, 2004 2,798,389
2,120,000 Ford Motor Co. debs. 9.98s, 2047 2,506,590
3,835,000 Ford Motor Credit Corp. notes
7 3/8s, 2009 4,114,533
1,295,000 General Motors Acceptance Corp.
bonds 8s, 2031 1,314,992
755,000 General Motors Corp. debs. 8 3/8s,
2033 (S) 784,361
520,000 Lear Corp. company guaranty Ser. B,
8.11s, 2009 595,315
--------------
14,888,481
Banking (1.1%)
- -------------------------------------------------------------------------------
1,055,000 Allfirst Financial Inc. sub. notes
7.2s, 2007 1,155,703
705,000 Bank of America Corp. sub. notes
7.4s, 2011 803,653
405,000 Bank of New York Co., Inc. (The) sr.
sub. notes FRN 3.4s, 2013 391,840
2,355,000 Bank One Corp. sub. notes 7.6s, 2007 2,602,753
7,190,000 Bank United Corp. notes Ser. A, 8s,
2009 8,311,273
790,000 Barclays Bank PLC 144A FRN 6.86s,
2049 (United Kingdom) 828,942
545,000 Capital One Bank notes 6 1/2s, 2013 569,321
385,000 Capital One Bank notes Ser. BKNT,
4 7/8s, 2008 392,138
470,000 Capital One Bank sr. notes
Ser. BKNT, 6.7s, 2008 507,807
1,925,000 Citigroup, Inc. debs. 6 5/8s, 2028 2,044,548
2,865,000 Citigroup, Inc. sub. notes 7 1/4s,
2010 3,256,379
1,035,000 Countrywide Capital III company
guaranty Ser. B, 8.05s, 2027 1,164,767
375,000 Credit Suisse First Boston USA, Inc.
notes 6 1/8s, 2011 398,429
1,620,000 First Chicago NBD Corp. sub. notes
6 3/8s, 2009 1,786,387
3,815,000 First Union National Bank sub. notes
7.8s, 2010 4,435,273
935,000 Fleet Capital Trust V bank guaranty
FRN 2.534s, 2028 943,213
2,300,000 HSBC Capital Funding LP 144A bank
guaranty FRB 9.547s, 2049 (Jersey) 2,828,775
1,455,000 Merita Bank, Ltd. sub. notes 6 1/2s,
2006 (Finland) 1,532,738
1,095,000 National City Bank bonds 4 5/8s,
2013 1,050,500
985,000 National City Bank sub. notes
Ser. BKNT, 6 1/4s, 2011 1,083,714
5,540,000 NB Capital Trust IV company guaranty
8 1/4s, 2027 6,228,456
815,000 Nordea Bank Finland PLC sub. notes
6 1/2s, 2009 (Finland) 891,224
2,345,000 PNC Funding Corp. bonds 5 1/4s, 2015 2,286,391
1,200,000 Popular North America, Inc. sub.
notes 3 7/8s, 2008 1,180,468
80,000 Rabobank Capital Funding II 144A
bonds 5.26s, 2049 78,229
400,000 Royal Bank of Scotland Group PLC FRB
7.648s, 2049 (United Kingdom) 455,090
2,035,000 Sovereign Bancorp, Inc. sr. notes
10 1/2s, 2006 2,327,714
1,270,000 Suncorp-Metway, Ltd. 144A FRB
3 1/2s, 2013 (Australia) 1,229,564
3,020,000 UBS AG/Jersey Branch FRN 4.55s, 2008
(United Kingdom) 3,080,400
1,345,000 UBS Preferred Funding Trust I FRB
8.622s, 2049 1,600,268
1,830,000 Wachovia Corp. sub. notes 5 1/4s,
2014 1,808,534
1,010,000 Westpac Capital Trust III 144A sub.
notes FRN 5.819s, 2049 1,017,676
--------------
58,272,167
Beverage (0.1%)
- -------------------------------------------------------------------------------
760,000 Diageo PLC company guaranty 8s, 2022
(United Kingdom) 944,878
215,000 Grand Metro Investment Corp. company
guaranty 9s, 2011 274,625
1,380,000 Miller Brewing Co. 144A notes
5 1/2s, 2013 1,396,754
--------------
2,616,257
Broadcasting (0.1%)
- -------------------------------------------------------------------------------
1,355,000 Chancellor Media Corp. company
guaranty 8s, 2008 1,522,729
365,000 News America Holdings, Inc. company
guaranty 9 1/4s, 2013 461,536
75,000 News America, Inc. company guaranty
4 3/4s, 2010 75,253
1,420,000 News America, Inc. sr. notes 6 5/8s,
2008 1,540,017
--------------
3,599,535
Cable Television (0.3%)
- -------------------------------------------------------------------------------
525,000 AT&T Broadband Corp. company
guaranty 8 3/8s, 2013 622,410
1,305,000 Cox Communications, Inc. notes
7 3/4s, 2010 1,489,145
945,000 Cox Enterprises, Inc. 144A notes 8s,
2007 1,042,608
3,585,000 Jones Intercable, Inc. sr. notes
7 5/8s, 2008 3,962,199
615,000 Liberty Media Corp. bonds 7 7/8s,
2009 689,025
1,330,000 Liberty Media Corp. sr. notes 5.7s,
2013 1,308,624
1,400,000 Rogers Cable Inc. sec. notes 6 1/4s,
2013 (Canada) 1,348,679
1,115,000 TCI Communications, Inc. debs.
8 3/4s, 2015 1,357,171
2,175,000 TCI Communications, Inc. debs.
7 7/8s, 2013 2,500,904
1,380,000 USA Interactive notes 7s, 2013 1,500,823
--------------
15,821,588
Chemicals (0.2%)
- -------------------------------------------------------------------------------
1,270,000 Avery Dennison Corp. notes 4 7/8s,
2013 1,254,834
1,315,000 Dow Chemical Co. (The) debs. 8.55s,
2009 1,540,517
685,000 Dow Chemical Co. (The) notes 5 3/4s,
2009 721,806
1,510,000 Dow Chemical Co. (The) Pass Through
Trust 144A company guaranty 4.027s,
2009 1,437,695
685,000 Eastman Chemical Co. notes 3 1/4s,
2008 660,074
450,000 ICI Wilmington Inc. company guaranty
5 5/8s, 2013 444,985
1,150,000 ICI Wilmington Inc. company guaranty
4 3/8s, 2008 1,137,049
1,442,000 ISP Chemco, Inc. company guaranty
Ser. B, 10 1/4s, 2011 1,607,830
680,000 Millennium America, Inc. company
guaranty 9 1/4s, 2008 734,400
730,000 Monsanto Co. notes 4s, 2008 726,399
240,000 Monsanto Co. sr. notes 7 3/8s, 2012 273,908
465,000 Praxair, Inc. notes 6 3/8s, 2012 509,391
--------------
11,048,888
Coal (--%)
- -------------------------------------------------------------------------------
1,505,000 Arch Western Finance, LLC 144A sr.
notes 7 1/4s, 2013 1,527,575
Computers (--%)
- -------------------------------------------------------------------------------
695,000 SunGard Data Systems, Inc. bonds
4 7/8s, 2014 665,774
Conglomerates (0.1%)
- -------------------------------------------------------------------------------
1,775,000 Textron Financial Corp. notes 6s,
2009 1,923,887
1,375,000 Tyco International Group SA company
guaranty 7s, 2028 (Luxembourg) 1,476,853
1,770,000 Tyco International Group SA company
guaranty 6 3/4s, 2011 (Luxembourg) 1,940,816
--------------
5,341,556
Consumer Finance (0.2%)
- -------------------------------------------------------------------------------
445,000 Countrywide Home Loans, Inc. company
guaranty Ser. K, 5 5/8s, 2007 467,267
1,710,000 Countrywide Home Loans, Inc. company
guaranty Ser. MTNL, 4s, 2011 1,613,525
1,505,000 Household Finance Corp. notes 8s,
2010 1,755,074
4,025,000 Household Finance Corp. notes 7s,
2012 4,485,850
1,820,000 Household Finance Corp. notes
6 3/4s, 2011 2,004,939
--------------
10,326,655
Consumer Goods (--%)
- -------------------------------------------------------------------------------
1,385,000 Johnson (SC) & Son, Inc. 144A bonds
5 3/4s, 2033 1,318,016
Containers (--%)
- -------------------------------------------------------------------------------
845,000 Sealed Air Corp. 144A bonds 6 7/8s,
2033 862,658
800,000 Sealed Air Corp. 144A notes 5 5/8s,
2013 796,917
--------------
1,659,575
Electric Utilities (0.8%)
- -------------------------------------------------------------------------------
485,000 AEP Texas Central Co. sr. notes
Ser. D, 5 1/2s, 2013 490,384
275,000 American Electric Power Co., Inc.
notes Ser. A, 6 1/8s, 2006 288,837
400,000 American Electric Power Co., Inc.
sr. notes Ser. C, 5 3/8s, 2010 411,773
475,000 Appalachian Power Co. notes 3.6s,
2008 464,932
4,845,000 Arizona Public Services Co. sr.
notes 6 3/4s, 2006 5,179,121
480,000 Carolina Power & Light Co. 1st mtge.
6 1/8s, 2033 478,021
1,290,000 Cleveland Electric Illuminating Co.
(The) 144A sr. notes 5.65s, 2013 1,289,103
2,410,000 Consumers Energy Co. 1st mtge.
Ser. B, 5 3/8s, 2013 2,398,063
735,000 Consumers Energy Co. bonds 6 1/4s,
2006 772,095
975,000 Dayton Power & Light Co. (The) 144A
1st mtge. 5 1/8s, 2013 943,545
775,000 Dominion Resources, Inc. sr. notes
8 1/8s, 2010 902,440
1,155,000 Duke Capital Corp. sr. notes Ser. A,
6 1/4s, 2005 1,192,084
1,945,000 Exelon Generation Co., LLC sr. notes
6.95s, 2011 (S) 2,147,949
1,055,000 Florida Power & Light Co. 1st mtge.
5.95s, 2033 1,058,541
490,000 Florida Power & Light Co. 1st mtge.
5 5/8s, 2034 469,537
515,000 Indianapolis Power & Light 144A 1st
mtge. 6.3s, 2013 535,370
2,185,000 Monongahela Power Co. 1st mtge. 5s,
2006 2,233,496
1,040,000 Nevada Power Co. 2nd mtge. 9s, 2013 1,159,600
1,355,000 NiSource Finance Corp. company
guaranty 7 7/8s, 2010 1,569,300
1,880,000 Northern States Power Co. mtge.
Ser. B, 8s, 2012 2,254,062
820,000 Oncor Electric Delivery Co. sec.
notes 7 1/4s, 2033 924,207
1,365,000 Oncor Electric Delivery Co. sec.
notes 6 3/8s, 2012 1,476,308
1,015,000 Pacific Gas & Electric Co. 1st mtge.
6.05s, 2034 976,313
550,000 Pacific Gas & Electric Co. 1st mtge.
4.8s, 2014 527,206
370,000 Pacific Gas & Electric Co. 1st.
mtge. 4.2s, 2011 355,194
1,020,000 PacifiCorp Sinking Fund 1st mtge.
5.45s, 2013 1,043,762
470,000 Panhandle Eastern Pipe Line sr.
notes 4.8s, 2008 470,999
825,000 Pepco Holdings, Inc. notes 5 1/2s,
2007 853,879
585,000 Potomac Edison Co. 1st mtge. 8s,
2024 588,575
1,396,633 Power Receivable Finance LLC 144A
sr. notes 6.29s, 2012 1,429,468
605,000 PP&L Capital Funding, Inc. company
guaranty Ser. D, 8 3/8s, 2007 675,799
165,000 Progress Energy, Inc. sr. notes
6.05s, 2007 174,222
570,000 Public Service Company of New Mexico
sr. notes 4.4s, 2008 569,109
1,465,000 Public Service Electric & Gas Co.
1st mtge. FRN 6 3/8s, 2008 1,575,147
375,000 Public Services Co. of Colorado sr.
notes Ser. A, 6 7/8s, 2009 416,007
510,000 Rochester Gas & Electric notes
6 3/8s, 2033 521,471
770,000 Southern California Edison Co. 1st
mtge. 6s, 2034 754,855
985,000 Southern California Edison Co. 1st
mtge. 5s, 2014 972,869
660,000 Tampa Electric Co. notes 6 7/8s,
2012 722,713
90,000 Westar Energy, Inc. 1st mtge. 6s,
2014 93,216
730,000 Western Energy, Inc. sr. notes Ser.
(a), 7 1/8s, 2009 791,383
560,000 Western Resources, Inc. 1st mtge.
7 7/8s, 2007 617,207
921,000 Western Resources, Inc. sr. notes
9 3/4s, 2007 1,049,241
--------------
43,817,403
Electronics (--%)
- -------------------------------------------------------------------------------
640,000 Jabil Circuit, Inc. sr. notes
5 7/8s, 2010 662,376
390,000 Motorola, Inc. notes 7 5/8s, 2010 443,971
--------------
1,106,347
Energy (--%)
- -------------------------------------------------------------------------------
548,000 BRL Universal Equipment sec. notes
8 7/8s, 2008 584,990
1,180,000 Schlumberger Technology Corp. 144A
notes 6 1/2s, 2012 1,294,808
--------------
1,879,798
Financial (1.1%)
- -------------------------------------------------------------------------------
1,310,000 Ace INA Holdings, Inc. company
guaranty 8.3s, 2006 1,435,270
4,774,000 ASIF Global Financing 144A notes
3.85s, 2007 4,798,777
1,525,000 Associates Corp. NA sr. notes Ser.
8, 7 3/8s, 2007 1,675,609
3,165,000 Associates First Capital Corp. debs.
6.95s, 2018 3,536,919
3,770,000 Associates First Capital Corp. sr.
notes 6 1/4s, 2008 4,073,466
4,065,000 Associates First Capital Corp. sub.
debs. 8.15s, 2009 4,715,640
1,250,000 AXA Financial, Inc. sr. notes
7 3/4s, 2010 1,442,116
1,015,000 CIT Group, Inc. sr. notes 7 3/4s,
2012 1,167,149
2,105,000 CIT Group, Inc. sr. notes 5s, 2014 2,020,836
1,545,000 Executive Risk Capital Trust company
guaranty Class B, 8.675s, 2027 1,726,922
1,300,000 Fund American Cos. Inc. notes
5 7/8s, 2013 1,305,739
565,000 General Electric Capital Corp. notes
Ser. A, 6 3/4s, 2032 616,909
830,000 General Electric Capital Corp. notes
Ser. A, 6s, 2012 886,127
1,340,000 General Electric Capital Corp. notes
Ser. MTN, 3 1/4s, 2009 1,284,098
955,000 General Electric Capital Corp. notes
Ser. MTNA, 6 1/8s, 2011 1,029,306
600,000 Greenpoint Capital Trust I company
guaranty 9.1s, 2027 678,595
890,000 Hartford Financial Services Group,
Inc. (The) sr. notes 7.9s, 2010 1,037,259
760,000 Heller Financial, Inc. notes 7 3/8s,
2009 867,472
1,585,000 International Lease Finance Corp.
notes 4.35s, 2008 1,592,595
1,470,000 John Hancock Financial Services,
Inc. sr. notes 5 5/8s, 2008 1,554,078
765,000 John Hancock Global Funding II 144A
notes 7.9s, 2010 891,627
8,205,000 Liberty Mutual Insurance 144A notes
7.697s, 2097 8,297,306
680,000 Metlife, Inc. sr. notes 6 1/8s, 2011 727,180
465,000 Nationwide Financial Services, Inc.
notes 5 5/8s, 2015 468,760
375,000 Nationwide Mutual Insurance Co. 144A
notes 8 1/4s, 2031 447,367
710,000 OneAmerica Financial Partners, Inc.
144A bonds 7s, 2033 709,020
1,515,000 Principal Life Global Funding I 144A
sec. notes 5 1/4s, 2013 1,517,382
865,000 Protective Life Corp. notes 4.3s,
2013 812,425
585,000 Prudential Financial, Inc. notes
Ser. MTNB, 4 1/2s, 2013 549,255
870,000 Prudential Insurance Co. 144A notes
8.3s, 2025 1,063,043
1,585,000 St. Paul Co., Inc. (The) sr. notes
5 3/4s, 2007 1,662,119
935,000 State Street Capital Trust II FRN
1 3/4s, 2008 940,743
1,100,000 Steers Delaware Business Trust 144A
notes 5.565s, 2005 1,155,000
2,115,000 Sun Life Canada Capital Trust 144A
company guaranty 8.526s, 2049 2,356,044
565,000 Travelers Property Casualty Corp.
sr. notes 3 3/4s, 2008 562,247
620,000 XL Capital Europe PLC company
guaranty 6 1/2s, 2012 (United
Kingdom) 668,088
--------------
60,272,488
Food (0.3%)
- -------------------------------------------------------------------------------
1,465,000 Archer Daniels Midland Co. debs.
8 1/8s, 2012 1,771,104
2,070,000 Cadbury Schweppes US Finance LLC
144A notes 3 7/8s, 2008 2,042,933
1,130,000 ConAgra Foods, Inc. notes 7 7/8s,
2010 1,317,642
690,000 ConAgra Foods, Inc. notes 6 3/4s,
2011 761,678
1,375,000 Hormel Foods Corp. notes 6 5/8s,
2011 1,519,686
5,245,000 Kraft Foods, Inc. notes 4 5/8s, 2006 5,378,071
390,000 Tyson Foods, Inc. notes 8 1/4s, 2011 451,741
150,000 Tyson Foods, Inc. notes 7 1/4s, 2006 160,994
--------------
13,403,849
Forest Products and Packaging (--%)
- -------------------------------------------------------------------------------
745,000 Georgia-Pacific Corp. sr. notes 8s,
2014 826,950
590,000 Weyerhaeuser Co. debs. 7 1/8s, 2023 628,510
705,000 Weyerhaeuser Co. notes 6 3/4s, 2012 770,796
--------------
2,226,256
Gaming & Lottery (--%)
- -------------------------------------------------------------------------------
810,000 GTECH Holdings Corp. notes 4 3/4s,
2010 800,458
535,000 Park Place Entertainment Corp. sr.
notes 7 1/2s, 2009 583,150
505,000 Park Place Entertainment Corp. sr.
sub. notes 9 3/8s, 2007 553,606
--------------
1,937,214
Health Care (--%)
- -------------------------------------------------------------------------------
695,000 HCA, Inc. sr. notes 7 7/8s, 2011 769,654
495,000 HCA, Inc. sr. notes 6.95s, 2012 521,479
--------------
1,291,133
Homebuilding (0.1%)
- -------------------------------------------------------------------------------
1,350,000 D.R. Horton, Inc. company guaranty
8s, 2009 1,505,250
490,000 D.R. Horton, Inc. sr. notes 6 7/8s,
2013 508,375
840,000 D.R. Horton, Inc. sr. notes 5 7/8s,
2013 817,950
1,867,000 K. Hovnanian Enterprises, Inc. sr.
notes 6 1/2s, 2014 1,768,983
20,000 Lennar Corp. company guaranty
Ser. B, 9.95s, 2010 22,225
973,000 Lennar Corp. sr. notes 7 5/8s, 2009 1,085,041
1,990,000 Pulte Homes, Inc. company guaranty
7 7/8s, 2011 2,261,052
--------------
7,968,876
Investment Banking/Brokerage (0.2%)
- -------------------------------------------------------------------------------
2,365,000 Bear Stearns Cos., Inc. (The) notes
7.8s, 2007 (S) 2,638,555
770,000 Goldman Sachs Group, Inc. (The)
notes 4 3/4s, 2013 731,759
2,700,000 JPMorgan Chase & Co. sub. notes
5 3/4s, 2013 2,776,475
540,000 Merrill Lynch & Co., Inc. notes
Ser. B, 4 3/4s, 2009 546,749
1,365,000 Morgan Stanley Tracers notes 4 1/4s,
2010 1,336,110
--------------
8,029,648
Lodging/Tourism (0.1%)
- -------------------------------------------------------------------------------
2,015,000 Cendant Corp. notes 6 1/4s, 2010 2,171,177
1,015,000 Cendant Corp. sr. notes 7 3/8s, 2013 1,145,198
900,000 Hilton Hotels Corp. notes 8 1/4s,
2011 1,014,750
465,000 Hilton Hotels Corp. notes 7 5/8s,
2012 513,244
621,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 3/8s, 2007 655,155
--------------
5,499,524
Machinery (--%)
- -------------------------------------------------------------------------------
1,720,000 Kennametal, Inc. sr. notes 7.2s,
2012 1,833,744
Manufacturing (--%)
- -------------------------------------------------------------------------------
265,000 Bunge Ltd. Finance Corp. company
guaranty 7.8s, 2012 304,217
905,000 Bunge Ltd. Finance Corp. company
guaranty 4 3/8s, 2008 897,935
420,000 Bunge Ltd. Finance Corp. notes
5 7/8s, 2013 425,801
--------------
1,627,953
Media (0.1%)
- -------------------------------------------------------------------------------
960,000 AOL Time Warner, Inc. bonds 7 5/8s,
2031 1,056,152
4,090,000 Time Warner, Inc. debs. 9 1/8s, 2013 5,029,142
915,000 Time Warner, Inc. notes 8.18s, 2007 1,023,513
--------------
7,108,807
Metals (0.1%)
- -------------------------------------------------------------------------------
2,750,000 Alcoa, Inc. notes 6 1/2s, 2011 3,024,604
1,205,000 Falconbridge, Ltd. bonds 5 3/8s,
2015 (Canada) 1,152,395
575,000 WMC Finance USA company guaranty
6 1/4s, 2033 (Australia) 557,412
995,000 WMC Finance USA company guaranty
5 1/8s, 2013 (Australia) 967,450
--------------
5,701,861
Natural Gas Utilities (0.1%)
- -------------------------------------------------------------------------------
260,000 CenterPoint Energy Resources Corp.
debs. 8.9s, 2006 291,529
1,060,000 CenterPoint Energy Resources Corp.
notes 7 3/4s, 2011 1,208,283
2,440,000 Duke Energy Field Services, LLC
notes 7 7/8s, 2010 2,810,202
1,860,000 Kinder Morgan, Inc. sr. notes
6 1/2s, 2012 1,982,539
545,000 National Fuel Gas Co. notes 5 1/4s,
2013 541,853
--------------
6,834,406
Oil & Gas (0.3%)
- -------------------------------------------------------------------------------
750,000 Amerada Hess Corp. notes 7 3/8s,
2009 821,282
290,000 Amerada Hess Corp. unsub notes
6.65s, 2011 310,995
935,000 Anadarko Finance Co. company
guaranty Ser. B, 6 3/4s, 2011 1,035,445
3,130,000 Conoco Funding Co. company guaranty
6.35s, 2011 3,423,657
1,230,000 Kerr-McGee Corp. company guaranty
6 7/8s, 2011 1,336,222
1,140,000 MidAmerican Energy Holdings Co. sr.
notes 4 5/8s, 2007 1,156,466
245,000 MidAmerican Energy Holdings Co. sr.
notes 3 1/2s, 2008 237,379
1,780,000 Motiva Enterprises, LLC 144A sr.
notes 5.2s, 2012 1,788,248
1,140,000 Ocean Energy, Inc. company guaranty
7 1/4s, 2011 1,260,527
820,000 Petro-Canada, Ltd. bonds 5.35s, 2033
(Canada) 711,344
1,525,000 Phillips Petroleum Co. notes 8 3/4s,
2010 1,852,648
320,000 XTO Energy, Inc. sr. notes 7 1/2s,
2012 364,372
--------------
14,298,585
Pharmaceuticals (0.1%)
- -------------------------------------------------------------------------------
2,935,000 American Home Products Corp. notes
6.95s, 2011 3,150,497
845,000 Bayer Corp. 144A FRB 6.2s, 2008 903,339
860,000 Hospira, Inc. 144A notes 4.95s, 2009 869,574
--------------
4,923,410
Power Producers (--%)
- -------------------------------------------------------------------------------
175,300 York Power Funding 144A notes 12s,
2007 (Cayman Islands) (In default)
(NON) 18
Railroads (0.1%)
- -------------------------------------------------------------------------------
955,000 CSX Corp. notes 6 3/4s, 2011 1,042,760
385,000 CSX Corp. notes 6 1/4s, 2008 412,910
2,310,000 Norfolk Southern Corp. notes 7.05s,
2037 2,496,006
115,000 Norfolk Southern Corp. sr. notes
6 3/4s, 2011 126,599
1,025,000 Union Pacific Corp. notes 7 3/8s,
2009 1,158,562
150,000 Union Pacific Corp. notes 6.65s,
2011 164,785
885,000 Union Pacific Corp. notes 6 5/8s,
2008 958,303
--------------
6,359,925
Real Estate (0.4%)
- -------------------------------------------------------------------------------
3,535,000 Archstone-Smith Operating Trust
notes 5s, 2007 (R) 3,635,063
650,000 CenterPoint Properties Trust notes
Ser. MTN, 4 3/4s, 2010 640,978
660,000 Colonial Properties Trust notes
6 1/4s, 2014 672,454
1,320,000 Developers Diversified Realty Corp.
notes 4 5/8s, 2010 1,291,229
1,835,000 Equity One, Inc. company guaranty
3 7/8s, 2009 1,755,243
2,850,000 Franchise Finance Corp. of America
sr. notes 8 3/4s, 2010 (R) 3,518,445
670,000 Heritage Property Investment Trust
144A notes 5 1/8s, 2014 633,955
1,690,000 Hospitality Properties Trust notes
6 3/4s, 2013 (R) 1,770,888
530,000 HRPT Properties Trust bonds 5 3/4s,
2014 (R) 518,651
525,000 HRPT Properties Trust notes 6 1/4s,
2016 527,572
200,000 iStar Financial, Inc. sr. notes
8 3/4s, 2008 (R) 225,000
1,050,000 iStar Financial, Inc. sr. notes 7s,
2008 (R) 1,113,000
680,000 iStar Financial, Inc. sr. notes 6s,
2010 (R) 681,700
1,375,000 Kimco Realty Corp. notes Ser. MTNC,
5.19s, 2013 1,353,413
445,000 Rouse Co. (The) notes 5 3/8s, 2013 435,924
510,000 Rouse Co. (The) notes 3 5/8s, 2009 488,498
2,575,000 Tanger Properties, Ltd. company
guaranty 7 7/8s, 2004 2,590,943
1,045,000 Vornado Realty Trust notes 4 3/4s,
2010 1,021,998
--------------
22,874,954
Regional Bells (0.1%)
- -------------------------------------------------------------------------------
200,000 Ameritech Capital Funding company
guaranty 6 1/4s, 2009 213,955
1,020,000 Bellsouth Capital Funding notes
7 3/4s, 2010 1,168,773
440,000 SBC Communications, Inc. notes
5 7/8s, 2012 456,988
3,130,000 Verizon New England Inc. sr. notes
6 1/2s, 2011 3,373,793
670,000 Verizon Virginia Inc. debs. Ser. A,
4 5/8s, 2013 633,308
--------------
5,846,817
Restaurants (--%)
- -------------------------------------------------------------------------------
580,000 Yum! Brands, Inc. sr. notes 8 7/8s,
2011 705,345
Retail (0.2%)
- -------------------------------------------------------------------------------
1,770,029 CVS Corp. 144A pass-through
certificates 6.117s, 2013 1,855,753
805,000 Federated Department Stores, Inc.
sr. notes 6 5/8s, 2011 881,395
1,385,000 Fred Meyer, Inc. Holding Co. company
guaranty 7.45s, 2008 1,539,482
1,333,000 JC Penney Co., Inc. notes 7.6s, 2007 1,439,640
275,000 Kroger Co. company guaranty 6 3/4s,
2012 300,774
540,000 May Department Stores Co. 144A notes
5 3/4s, 2014 541,669
725,000 Nordstrom, Inc. debs. 6.95s, 2028 769,492
1,190,000 RadioShack Corp. notes 7 3/8s, 2011 1,350,863
--------------
8,679,068
Shipping (--%)
- -------------------------------------------------------------------------------
1,275,000 FedEx Corp. 144A notes 2.65s, 2007 1,244,325
Software (--%)
- -------------------------------------------------------------------------------
460,000 Computer Associates International,
Inc. sr. notes Ser. B, 6 3/8s, 2005 472,190
Technology Services (--%)
- -------------------------------------------------------------------------------
645,000 Fiserv, Inc. notes 4s, 2008 644,407
Telecommunications (0.6%)
- -------------------------------------------------------------------------------
715,000 AT&T Wireless Services, Inc. sr.
notes 8 3/4s, 2031 889,968
3,125,000 AT&T Wireless Services, Inc. sr.
notes 7 7/8s, 2011 (S) 3,591,694
1,465,000 Cingular Wireless, LLC sr. notes
5 5/8s, 2006 1,534,022
1,405,000 Deutsche Telekom International
Finance BV bonds 8 1/2s, 2010
(Netherlands) 1,657,137
1,235,000 Deutsche Telekom International
Finance BV company guaranty 8 3/4s,
2030 (Netherlands) 1,529,189
1,540,000 Deutsche Telekom International
Finance BV notes 5 1/4s,
2013 (Netherlands) 1,525,225
540,000 France Telecom notes 9 1/2s, 2031
(France) 687,550
3,345,000 France Telecom notes 7 3/4s, 2011
(France) 3,902,839
1,085,000 Koninklijke (Royal) KPN NV sr.
unsub. notes 8 3/8s, 2030
(Netherlands) 1,335,109
2,455,000 Sprint Capital Corp. company
guaranty 7 5/8s, 2011 2,756,938
1,445,000 Sprint Capital Corp. company
guaranty 6 7/8s, 2028 1,438,038
1,090,000 Sprint Capital Corp. company
guaranty 6 1/8s, 2008 1,154,654
1,460,000 Telecom Italia Capital 144A company
guaranty 6 3/8s, 2033 (Luxembourg) (S) 1,436,993
1,165,000 Telecom Italia Capital 144A company
guaranty 5 1/4s, 2013 (Luxembourg) 1,142,409
1,610,000 Telecom Italia Capital 144A company
guaranty 4s, 2008 (Luxembourg) (S) 1,591,152
775,000 United States Cellular Corp. notes
6.7s, 2033 742,852
3,315,000 Verizon Wireless, Inc. notes 5 3/8s,
2006 3,474,180
725,000 Vodafone Group PLC notes 7 7/8s,
2030 (United Kingdom) 870,605
1,005,000 Vodafone Group PLC notes 7 3/4s,
2010 (United Kingdom) 1,158,975
--------------
32,419,529
Telephone (--%)
- -------------------------------------------------------------------------------
1,655,000 Telefonica Europe BV company
guaranty 7 3/4s, 2010 (Netherlands) 1,912,243
Waste Management (0.1%)
- -------------------------------------------------------------------------------
1,540,000 Allied Waste North America, Inc. sr.
notes 7 7/8s, 2013 1,611,225
1,245,000 Waste Management, Inc. sr. notes
7 3/8s, 2010 1,409,469
--------------
3,020,694
--------------
Total Corporate bonds and notes
(cost $405,788,978) $414,905,616
Collateralized mortgage obligations (5.6%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$129,400,242 Banc of America Large Loan 144A Ser.
03-BBA2, Class X1A, Interest only
(IO), 0.806s, 2015 $1,036,213
12,069,695 Bayview Commercial Asset Trust 144A
Ser. 04-2, IO, 0.72s, 2034 958,334
1,931,000 Bear Stearns Alternate Trust Ser.
04-9, Class 1A1, 5.16s, 2007 1,967,206
Bear Stearns Commercial
Mortgage Securitization Corp. 144A
1,070,000 Ser. 04-ESA, Class K, 3.88s, 2016 1,070,000
793,000 Ser. 04-HS2A, Class G, 2.78s, 2016 793,000
2,827,124 Chase Commercial Mortgage Securities
Corp. Ser. 00-1, Class A1, 7.656s,
2032 2,885,985
4,937,500 Commercial Mortgage Acceptance Corp.
Ser. 97-ML1, Class A3, 6.57s, 2030 5,271,553
9,485,000 Criimi Mae Commercial Mortgage Trust
Ser. 98-C1, Class A2, 7s, 2011 10,119,309
3,385,000 Criimi Mae Commercial Mortgage Trust
144A Ser. 98-C1, Class B, 7s, 2033 3,509,960
1,124,000 CS First Boston Mortgage Securities
Corp. 144A FRB Ser. 03-TF2A, Class
L, 5.38s, 2014 1,116,083
444,188 DLJ Commercial Mortgage Corp. Ser.
98-CF2, Class B3, 6.04s, 2031 437,872
1,000,000 DLJ Mortgage Acceptance Corp. 144A
Ser. 97-CF1, Class A3, 7.76s, 2030 1,087,197
Fannie Mae
4,113,692 Ser. 346, Class 2, IO, 5.5s, 2033 1,077,273
3,236,690 Ser. 04-10, Class QC, 22.8s, 2031 3,863,166
1,825,908 Ser. 02-36, Class SJ, 16 1/2s, 2029 2,000,975
4,117,530 Ser. 04-4, Class QM, 11.3s, 2033 3,998,507
Fannie Mae
16,421,707 Ser. 329, Class 2, IO, 5.5s, 2033 4,110,567
1,434,452 Ser. 04-T3, Class PT1, 10.368s, 2044 1,651,037
653,470 Ser. 03-W6, Class PT1, 9.437s, 2042 742,007
4,319,501 Ser. 04-W8, Class 3A, 7 1/2s, 2044 4,658,528
152,001 Ser. 04-T3, Class 1A4, 7 1/2s, 2044 163,932
5,408,019 Ser. 04-W9, Class 2A3, 7 1/2s, 2044 5,832,481
93,473 Ser. 02-T18, Class A4, 7 1/2s, 2042 100,810
2,388,645 Ser. 03-W3, Class 1A3, 7 1/2s, 2042 2,576,124
2,408,113 Ser. 02-T16, Class A3, 7 1/2s, 2042 2,597,120
3,015,702 Ser. 02-T19, Class A3, 7 1/2s, 2042 3,252,398
6,165,683 Ser. 03-W2, Class 1A3, 7 1/2s, 2042 6,649,613
636,739 Ser. 02-T12, Class A3, 7 1/2s, 2042 686,715
6,752,949 Ser. 02-W4, Class A5, 7 1/2s, 2042 7,282,972
620,937 Ser. 02-W1, Class 2A, 7 1/2s, 2042 669,672
1,768,336 Ser. 02-14, Class A2, 7 1/2s, 2042 1,907,128
5,282,447 Ser. 01-T10, Class A2, 7 1/2s, 2041 5,697,053
1,034,597 Ser. 02-T4, Class A3, 7 1/2s, 2041 1,115,800
9,375,072 Ser. 02-T6, Class A2, 7 1/2s, 2041 10,110,899
3,313,430 Ser. 01-T12, Class A2, 7 1/2s, 2041 3,573,494
3,821,835 Ser. 01-T8, Class A1, 7 1/2s, 2041 4,121,802
6,708,811 Ser. 01-T7, Class A1, 7 1/2s, 2041 7,235,370
376,890 Ser. 01-T3, Class A1, 7 1/2s, 2040 406,472
1,477,588 Ser. 01-T1, Class A1, 7 1/2s, 2040 1,593,560
457,483 Ser. 99-T2, Class A1, 7 1/2s, 2039 493,389
1,365,462 Ser. 02-T1, Class A3, 7 1/2s, 2031 1,472,634
4,227,107 Ser. 00-T6, Class A1, 7 1/2s, 2030 4,558,883
99,043 Ser. 01-T5, Class A3, 7 1/2s, 2030 106,817
1,955,643 Ser. 02-W7, Class A5, 7 1/2s, 2029 2,109,137
9,081,800 Ser. 01-T4, Class A1, 7 1/2s, 2028 9,794,609
3,082,974 Ser. 02-W3, Class A5, 7 1/2s, 2028 3,324,949
38,597,146 Ser. 03-W6, Class 3, IO, 0.367s,
2042 402,291
27,822,065 Ser. 03, Class PK, IO, 5.5s, 2026 2,051,877
31,438,361 Ser. 03-W6, Class 21, IO, 1.416s,
2042 237,120
28,445,758 Ser. 338, Class 2, IO, 5.5s, 2033 7,413,676
4,720,609 Ser. 03-16, Class IC, IO, 5s, 2015 904,174
369,332 Ser. 03-17, IO, 5.5s, 2025 31,162
20,938,373 Ser. 03-W12, Class 2, IO, 2.228s,
2043 1,337,848
41,131,025 Ser. 03-W6, Class 23, IO, 0.352s,
2042 412,934
56,519,192 Ser. 03-W2, Class 1, IO, 0.471s,
2042 750,488
6,174,936 Ser. 343, Class 29, IO, 5s, 2033 1,046,844
29,602,551 Ser. 03-49, Class SV, IO, 1s, 2033 1,077,716
15,685,387 Ser. 03-W10, Class 3, IO, 2.003s,
2043 911,713
10,350,378 Ser. 01-79, Class BI, IO, 0.348s,
2045 94,249
62,707,417 Ser. 03-W10, Class 1, IO, 2.016s,
2043 3,644,869
33,957,099 Ser. 03-W6, Class 11, IO, 1.084s,
2042 520,214
26,909,967 Ser. 03-W6, Class 51, IO, 0.672s,
2042 502,521
8,214,761 Ser. 03-W3, Class 2IO1, IO, 0.674s,
2042 170,130
6,648,418 Ser. 03-W3, Class 2IO2, IO, 1.698s,
2042 102,001
21,416,182 Ser. 02-T4, IO, 0.45s, 2041 245,883
51,440,304 Ser. 02-T1, IO, 0.422s, 2031 555,672
3,956,124 Ser. 02-36, Class QH, IO, 6.6s, 2029 248,035
Fannie Mae
4,529,221 Ser. 03-42, Class JI, IO, 5 1/2s,
2028 362,549
7,084,796 Ser. 03-54, Class IY, IO, 5 1/2s,
2026 850,176
62,171,667 Ser. 01-T12, Class IO, 0.572s, 2041 956,890
10,123,184 Ser. 348, Class 4, IO, 5s, 2034 2,589,320
16,535,463 Ser. 345, Class 3, IO, 5s, 2033 4,464,575
11,911,710 Ser. 03-31, Class IM, IO, 5.75s,
2032 1,453,598
7,883,136 Ser. 03-8, Class IP, IO, 5 1/2s,
2028 771,759
5,319,272 Ser. 03-6, Class IB, IO, 5 1/2s,
2022 348,994
722 Ser. 92-15, Class L, IO, 5s, 2022 8,866
48,300 Ser. 03-29, Class IG, IO, 5 1/2s,
2031 15,954
16,614,759 Ser. 03-118, Class SF, IO, 6.65s,
2033 2,432,659
18,841,464 Ser. 03-W17, Class 12, IO, 1.162s,
2033 626,210
2,070,348 Ser. 03-W10, Class 1A1, 1.701s, 2032 2,065,172
45,700,611 Ser. 03-W8, Class 11, IO, 1.237s,
2042 407,031
37,967,942 Ser. 03-W4, Class 3A, IO, 0.292s,
2042 415,274
6,242,187 Ser. 03-24, Class UI, IO, 5s, 2031 1,236,002
70,723,523 Ser. 03-W3, Class 1, IO, 0.438s,
2042 864,650
98,265,979 Ser. 03-T2, Class 2, IO, 1.1s, 2042 2,506,969
23,492,259 Ser. 03-22, IO, 6s, 2033 5,735,400
6,738,928 Ser. 03-58, Class ID, IO, 6s, 2033 1,544,689
66,245,820 Ser. 03-W8, Class 12, IO, 1.643s,
2042 3,220,799
1,198,367 Federal Home Loan Mortgage Corp.
Structured Pass-Through Securities
Ser. 212, IO, 2 1/2s, 2031 262,790
Federal Home Loan Mortgage Corp.
Structured Pass-Through Securities
1,456,278 Ser. T-58, Class 4A, 7 1/2s, 2043 1,570,578
1,017,802 Ser. T-42, Class A5, 7 1/2s, 2042 1,097,687
36,386,798 Ser. T-56, Class 2, IO, 0.062s, 2043 125,080
31,296,257 Ser. T-56, Class 3, IO, 0.368s, 2043 400,983
25,531,915 Ser. T-56, Class A, IO, 1.651s, 2043 638,298
36,346,570 Ser. T-56, Class 1, IO, 0.272s, 2043 340,749
15,802,000 FFCA Secured Lending Corp. 144A Ser.
00-1, Class A2, 7.77s, 2027 17,618,565
4,877,751 First Chicago Lennar Trust 144A Ser.
97-CHL1, Class D, 7.867s, 2039 5,021,796
34,676,608 First Union National Bank-Bank of
America Commercial Mortgage 144A
Ser. 01-C1, Class 3, IO, 1.76s, 2033 3,062,649
6,237,588 First Union-Lehman Brothers
Commercial Mortgage Trust II Ser.
97-C1, Class A3, 6s, 2029 6,721,732
Freddie Mac
6,036,646 Ser. 2763, Class SC, 23.08s, 2032 7,198,465
6,495,012 Ser. 2437, Class SB, IO, 6.62s, 2032 673,857
6,819,656 Ser. 2702, Class DI, IO, 5 1/2s,
2024 727,344
5,978,300 Ser. 2553, Class IJ, IO, 5 1/2s,
2020 337,213
7,242,381 Ser. 2581, Class IE, IO, 5 1/2s,
2025 1,253,368
7,014,008 Ser. 2596, Class IL, IO, 5s, 2030 1,255,617
513,416 Ser. 2626, Class JS, IO, 5s, 2023 43,400
5,371,179 Ser. 2469, Class SH, IO, 5.9s, 2032 510,262
2,422,997 Ser. 2696, Principal only (PO), zero %,
2033 1,408,697
953,603 G-Force FRB Ser. 01-1A, Class A,
2.02s, 2033 (Cayman Islands) 955,288
G-Force CDO, Ltd. 144A
715,000 Ser. 02-1A, Class E, 8 1/4s, 2037 723,379
315,000 Ser. 02-1A, Class D, 7.61s, 2037 336,509
3,021,621 General Growth Properties-Mall
Properties Trust FRB Ser.
01-C1A, Class D3, 3.63s, 2014 3,025,399
6,364,285 GMAC Commercial Mortgage Securities,
Inc. Ser. 97-C2, Class A2, 6.55s,
2029 6,362,437
1,614,303 GMAC Commercial Mortgage Securities,
Inc. 144A Ser. 99-C3, Class G,
6.974s, 2036 1,187,856
Government National Mortgage
Association
4,242,038 Ser. 03-114, Class SP, 15.78s, 2027 4,612,652
309,983 Ser. 98-2, Class EA, PO, zero %,
2028 256,704
565,000 GS Mortgage Securities Corp. II 144A
FRB Ser. 03-FL6A, Class L, 4.63s,
2015 565,706
LB Commercial Conduit Mortgage Trust
144A
715,303 Ser. 99-C1, Class F, 6.41s, 2031 703,993
765,731 Ser. 99-C1, Class G, 6.41s, 2031 588,678
1,650,895 Lehman Brothers Floating Rate
Commercial Mortgage Trust 144A FRB
Ser. 03-C4, Class A, 1.963s, 2015 1,652,959
180,540 Merrill Lynch Mortgage Investors,
Inc. Ser. 96-C2, Class A3, 6.96s,
2028 191,174
3,216,733 Mezz Cap Commercial Mortgage Trust
144A Ser. 04-C1, Class X, IO,
7.85s, 2037 1,490,252
Morgan Stanley Capital I 144A
1,007,000 Ser. 96-C1, Class E, 7.45s, 2028 1,059,789
1,000,000 Ser. 04-RR, Class F5, 6s, 2039 852,698
1,700,000 Ser. 04-RR, Class F6, 6s, 2039 1,393,230
1,179,102 Morgan Stanley Dean Witter Capital I
Ser. 00-LIF2, Class A1, 6.96s, 2008 1,265,596
Morgan Stanley Dean Witter Capital I
144A
645,206 FRB Ser. 01-XLF, Class D, 2.88s,
2013 645,383
719,091 FRB Ser. 01-XLF, Class E, 2.83s,
2013 719,142
Mortgage Capital Funding, Inc. FRB
2,426,000 Ser. 98-MC3, Class E, 7.296s, 2031 2,624,155
1,020,000 Ser. 98-MC2, Class E, 7.139s, 2030 1,102,913
2,634,000 Salomon Brothers Mortgage Securities
VII Ser. 96-C1, Class E, 8.42s,
2028 2,794,136
16,195,884 Salomon Brothers Mortgage Securities
VII 144A Ser. 03-CDCA, Class X3CD,
IO, 0.89s, 2015 225,026
1,767,000 Starwood Asset Receivables Trust FRN
Ser. 02-1A, Class F, 2.797s, 2020 1,769,297
Starwood Asset Receivables Trust
144A
589,822 FRB Ser. 03-1A, Class F, 2.55s, 2022 590,766
748,620 FRB Ser. 03-1A, Class E, 2 1/2s,
2022 749,818
STRIPS 144A
757,000 Ser. 03-1A, Class L, 5s, 2018
(Cayman Islands) 656,243
513,000 Ser. 03-1A, Class M, 5s, 2018
(Cayman Islands) 420,865
337,000 Ser. 04-1A, Class L, 5s, 2018
(Cayman Islands) 292,516
11,767,264 Structured Adjustable Rate Mortgage
Loan Ser. 04-6, Class 1A, 4.439s,
2034 11,929,063
2,764,000 Structured Adjustable Rate Mortgage
Loan Trust Ser. 04-10, Class 1A1,
4.977s, 2034 2,815,825
Structured Asset Securities Corp.
2,622,510 Ser. 03-40A, Class 1A, 5.031s, 2034 2,682,746
4,613,069 Ser. 03-26A, Class 2A, 4.603s, 2033 4,696,140
2,084,255 Ser. 04-8, Class 1A1, 4.442s, 2034 2,116,089
690,329 TIAA Commercial Real Estate
Securitization Ser. 01-C1A, Class
A1, 5.77s, 2016 (Cayman Islands) 711,146
718,000 Trizechahn Office Properties Trust
144A Ser. 01-TZHA, Class D3, 6.943s,
2013 762,424
--------------
Total Collateralized mortgage
obligations (cost $315,290,767) $311,124,680
Asset-backed securities (5.4%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$12,890,250 Aames Mortgage Trust Ser. 03-1,
Class A, IO, 6s, 2005 $560,540
6,157,000 Ace Securities Corp. Ser. 03-FM1,
Class A, IO, 4.5s, 2005 285,069
2,404,167 Advanta Mortgage Loan Trust Ser.
00-1, Class A4, 8.61s, 2028 2,496,578
Aegis Asset Backed Securities Trust
144A
585,592 Ser. 04-1N, Class Note, 5s, 2034 584,952
929,281 Ser. 04-2N, Class N1, 4 1/2s, 2034 925,796
6,110,553 AFC Home Equity Loan Trust Ser.
99-2, Class 1A, 1.86s, 2029 6,110,553
10,740,000 American Express Credit Account
Master Trust 144A Ser. 04-C, Class
C, 1.88s, 2012 10,740,000
Ameriquest Mortgage Securities, Inc.
15,335,625 Ser. 02-3, Class S, IO, 6s, 2032 461,267
6,485,358 Ser. 03-12, Class S, IO, 5s, 2006 365,815
7,639,691 Ser. 03-6, Class S, IO, 5s, 2033 316,928
7,186,927 Ser. 03-8, Class S, IO, 5s, 2006 372,283
Amortizing Residential Collateral
Trust
5,915,364 Ser. 01-BC6, Class A, IO, 6s, 2004 83,398
6,049,091 Ser. 02-BC1, Class A, IO, 6s, 2005 114,909
6,034,727 Ser. 02-BC10, Class A, IO, 6s, 2004 144,783
9,531,818 Ser. 02-BC3, Class A, IO, 6s, 2005 321,994
14,227,273 Ser. 02-BC6, Class A, IO, 6s, 2004 59,133
15,818,182 Ser. 02-BC7, Class AIO, IO, 6s, 2004 144,478
10,922,545 Ser. 02-BC9, Class A, IO, 6s, 2004 208,088
AQ Finance NIM Trust 144A
434,207 Ser. 03-N7A, Class Note, 9.07s, 2033 436,106
290,975 Ser. 03-N9A, Class Note, 7.385s,
2033 292,793
243,203 Arc Net Interest Margin Trust Ser.
02-2, Class A, 7 3/4s, 2032 242,798
Arcap REIT, Inc. 144A
1,283,000 Ser. 03-1A, Class E, 7.11s, 2038 1,332,315
1,112,000 Ser. 04-1A, Class E, 6.42s, 2039 1,103,834
298,333 Argent NIM Trust Ser. 03-N8, Class
A, 5.56s, 2034 298,333
Argent NIM Trust 144A
435,389 Ser. 03-N6, Class A, 6.4s, 2034 435,389
1,072,635 Ser. 04-WN2, Class A, 4.55s, 2034 1,068,613
888,713 Ser. 04-WN4, Class A, 4.459s, 2034 886,244
20,836,805 Argent Securities, Inc. Ser. 03-W2,
Class A, IO, 5s, 2004 19,378
Asset Backed Funding Corp. NIM Trust
144A
431,062 Ser. 03-OPT1, Class Note, 6.9s, 2033 431,062
473,491 Ser. 03-WF1, Class N1, 8.35s, 2032 473,491
1,289,129 Ser. 04-0PT1, Class N1, 4.55s, 2033 1,285,906
1,962,843 Ser. 04-AHL1, Class Note, 5.6s, 2033 1,962,767
Asset Backed Securities Corp. Home
Equity Loan Trust
41,213,000 Ser. 02-HE1, Class A, IO, 3.6s, 2032 3,956
9,931,801 Ser. 03-HE5, Class A, IO, 4s, 2033 388,264
829,603 FRB Ser. 04-HE1, Class A3, 1.78s,
2034 830,025
1,065,003 Aviation Capital Group Trust 144A
FRB Ser. 03-2A, Class G1, 2.12s,
2033 1,068,997
210,000 Bank One Issuance Trust FRB Ser.
03-C4, Class C4, 2.41s, 2011 213,553
Bayview Financial Acquisition Trust
1,964,970 Ser. 02-CA, Class A, IO, 5.1s, 2004 23,027
14,359,641 Ser. 03-DA, IO, 4s, 2006 538,487
11,630,558 Ser. 03-E, Class A, IO, 4s, 2006 518,189
52,566,952 Ser. 03-X, Class A, IO, 4s, 2006 887,067
4,211,489 Ser. 04-B, Class A1, 1.962s, 2039 4,211,489
4,813,000 FRB Ser. 03-G, Class A1, 2.062s,
2039 4,813,000
4,427,096 FRN Ser. 03-F, Class A, 1.962s, 2043 4,432,630
Bayview Financial Acquisition Trust
144A
6,257,491 Ser. 03-CA, Class A, IO, 4s, 2005 257,862
200,000 FRB Ser. 04-B, Class M2, 3.362s,
2039 200,000
141,762,627 Bayview Financial Asset Trust Ser.
03-Z, Class A, IO, 0.623s, 2005 565,416
Bayview Financial Asset Trust 144A
1,921,187 FRB Ser. 03-SSRA, Class A, 2.15s,
2038 1,928,487
2,277,830 FRB Ser. 03-SSRA, Class M, 2.8s,
2038 2,277,830
Bear Stearns Asset Backed Securities
NIM Trust 144A
1,710,000 Ser. 04-FR1, Class A1, 5s, 2034
(Cayman Islands) 1,710,000
1,012,026 Ser. 04-HE5N, Class A1, 5s, 2034
(Cayman Islands) 1,010,603
85,000 Ser. 04-HE5N, Class A2, 5s, 2034
(Cayman Islands) 84,761
1,062,000 Ser. 04-HE6, Class A1, 5 1/4s, 2034
(Cayman Islands) 1,062,000
Bear Stearns Asset Backed Securities, Inc.
11,341,000 Ser. 03-AC1, Class A, IO, 5s, 2005 432,376
11,241,000 Ser. 03-AC4, Class A, IO, 5s, 2006 653,383
2,229,000 FRB Ser. 03-3, Class A2, 2.04s, 2043 2,229,000
1,780,017 FRN Ser. 03-1, Class A1, 1.95s, 2042 1,780,017
570,000 Capital One Multi-Asset Execution
Trust FRB Ser. 02-C1, Class
C1, 4.13s, 2010 596,719
CARSSX Finance, Ltd. 144A
410,000 FRB Ser. 04-AA, Class B3, 4.73s,
2011 (Cayman Islands) 410,000
410,000 FRB Ser. 04-AA, Class B4, 6.88s,
2011 (Cayman Islands) 410,000
3,105,000 CDO Repackaging Trust Series 144A
FRB Ser. 03-2, Class A, 5.23s, 2008 3,182,625
26,100,000 Centex Home Equity Ser. 04-C, Class
A, IO, 3.5s, 2006 856,406
1,730,000 Chase Credit Card Master Trust FRB
Ser. 03-3, Class C, 2.46s, 2010 1,765,208
Chase Funding Net Interest Margin
144A
177,210 Ser. 03-3A, Class Note, 6 7/8s, 2036 177,210
710,886 Ser. 03-5A, Class Note, 5 3/4s, 2034 710,033
106,415 Ser. 03-6A, Class Note, 5s, 2035 105,883
622,179 Ser. 03-C1A, Class Note, 6 3/4s,
2036 622,179
1,060,000 Citibank Credit Card Issuance Trust
FRN Ser. 01-C1, Class C1, 2.68s,
2010 1,076,885
Conseco Finance Securitizations Corp.
8,597,000 Ser. 00-4, Class A6, 8.31s, 2032 7,354,291
8,310,000 Ser. 01-04, Class A4, 7.36s, 2033 8,120,607
2,692,000 Ser. 01-1, Class A5, 6.99s, 2032 2,451,791
Conseco Finance Securitizations Corp.
6,235,000 Ser. 01-3, Class A4, 6.91s, 2033 5,757,293
3,810,000 Ser. 01-4, Class B1, 9.4s, 2010 571,500
9,336,800 Ser. 02-1, Class A, 6.681s, 2033 9,576,841
4,582,000 Ser. 02-1, Class M2, 9.546s, 2033 2,245,180
9,316,245 Ser. 02-2, Class A, IO, 8.5s, 2010 2,636,358
22,423,882 Conseco Recreational Enthusiast
Consumer Trust Ser. 01-A, Class AP,
IO, 5s, 2025 210,829
3,061,000 Consumer Credit Reference IDX
Securities FRB Ser. 02-1A, Class A,
3.55s, 2007 3,099,875
Countrywide Asset Backed
Certificates 144A
360,085 Ser. 03-5NF, Class NF, 6 3/4s, 2034 363,010
975,378 Ser. 04-1NIM, Class Note, 6s, 2034 980,255
1,292,305 Ser. 04-BC1N, Class Note, 5 1/2s,
2035 1,288,267
254,728 Credit-Based Asset Servicing and
Securitization 144A Ser. 03-CB2N,
Class Note, 8.35s, 2033 254,967
1,617,000 Crest, Ltd. 144A Ser. 03-2A, Class
D2, 6.723s, 2038 1,586,113
1,005,851 Finance America NIM Trust 144A Ser.
04-1, Class A, 5 1/4s, 2034 1,006,288
First Franklin Mortgage Loan Asset
Backed Certificates
11,428,319 Ser. 03-FF3, Class A, IO, 6s, 2005 330,505
9,689,273 Ser. 03-FFB, Class A, IO, 6s, 2005 429,255
First Franklin NIM Trust 144A
369,400 Ser. 03-FF3A, Class A, 6 3/4s, 2033 (S) 367,966
633,122 Ser. 04-FF1, Class N1, 4 1/2s, 2034 631,349
1,558,353 First Plus Home Loan Trust Ser.
97-3, Class B1, 7.79s, 2023 1,559,327
650,000 Ford Credit Auto Owner Trust Ser.
04-A, Class C, 4.19s, 2009 652,133
616,000 Fort Point CDO, Ltd. FRN Ser. 03-2A,
Class A2, 2.365s, 2038 619,450
2,000,000 Foxe Basin, Ltd. FRB Ser. 2003-1A,
Class A1, 2.02s, 2015 2,000,000
Fremont NIM Trust 144A
1,561,876 Ser. 04-A, Class Note, 4 3/4s, 2034 1,557,190
946,708 Ser. 04-B, Class Note, 4.703s, 2034 946,708
939,000 G-Force CDO, Ltd. 144A Ser. 03-1A,
Class E, 6.58s, 2038 922,127
308,000 G-Star, Ltd. 144A FRN Ser. 02-2A,
Class BFL, 3.45s, 2037 306,023
470,000 Goldentree Loan Opportunities II,
Ltd. 144A FRN Ser. 2A, Class 4,
5.091s, 2015 (Cayman Islands) 470,588
Granite Mortgages PLC
1,619,000 FRB Ser. 04-1, Class 1C, 2.45s, 2044 1,623,553
2,970,000 FRN Ser. 01-1, Class 1C, 3.03s, 2041
(United Kingdom) 2,980,209
1,300,000 FRB Ser. 02-1, Class 1C, 2.93s, 2042
(United Kingdom) 1,322,140
650,000 FRB Ser. 02-2, Class 1C, 2.88s, 2043
(United Kingdom) 661,904
Green Tree Financial Corp.
393,074 Ser. 99-3, Class A5, 6.16s, 2031 397,988
16,750,000 Ser. 99-5, Class A5, 7.86s, 2030 14,676,084
3,732,000 GS Auto Loan Trust 144A Ser. 04-1,
Class D, 5s, 2011 3,670,617
GSAMP Trust 144A
385,664 Ser. 03-HE1N, Class Note, 7 1/4s,
2033 384,739
1,190,228 Ser. 04, Class Note, 5 1/2s, 2032 1,188,442
801,572 Ser. 04-FM1N, Class Note, 5 1/4s,
2033 800,739
860,000 Ser. 04-HE1N, Class N1, 5s, 2034 858,968
3,227,055 High Income Trust Securities 144A
FRB Ser. 03-1A, Class A, 1.68s,
2036 3,114,108
746,000 Holmes Financing PLC FRB Ser. 8,
Class 2C, 2.32s, 2040 (United
Kingdom) 746,234
Holmes Financing PLC FRB
13,365,000 Ser. 1, Class 2C, 2.75s, 2040
(United Kingdom) 13,314,213
870,000 Ser. 4, Class 3C, 2.9s, 2040 (United
Kingdom) 882,453
1,300,000 Ser. 5, Class 2C, 3.05s, 2040
(United Kingdom) 1,309,344
Home Equity Asset Trust 144A
319,594 Ser. 03-4N, Class A, 8s, 2033 321,991
667,858 Ser. 03-5N, Class A, 7 1/2s, 2034 671,197
935,592 Ser. 03-7N, Class A, 5 1/4s, 2034 935,592
1,017,531 Ser. 04-1N, Class A, 5s, 2034 1,014,987
32,470,951 Lehman Manufactured Housing Ser.
98-1, Class 1, IO, 0.81s, 2028 717,007
5,220,000 LNR CDO, Ltd. FRB Ser. 02-1A, Class
FFL, 4.2s, 2037 (Cayman Islands) 5,013,288
2,585,000 LNR CDO, Ltd. 144A FRB Ser. 03-1A,
Class EFL, 4.433s, 2036 (Cayman
Islands) 2,722,264
956,285 Long Beach Asset Holdings Corp. 144A
Ser. 04-2, Class N1, 4.94s, 2034 956,285
375,368 Long Beach Asset Holdings Corp. NIM
Trust 144A Ser. 03-4, Class N1,
6.535s, 2033 375,837
Long Beach Mortgage Loan Trust
30,670,000 Ser. 04-3, Class S1, IO, 4.5s, 2006 2,157,635
15,335,000 Ser. 04-3, Class S2, IO, 4.5s, 2006 1,078,817
Madison Avenue Manufactured Housing
Contract
222,921,287 Ser. 02-A IO, 0.3s, 2032 2,507,864
4,059,503 FRB Ser. 02-A, Class B1, 4.7s, 2032 2,232,727
2,484,352 Marriott Vacation Club Owner Trust
144A FRB Ser. 02-1A, Class A1,
2.12s, 2024 2,509,067
831,855 Master Asset Backed Securities NIM
Trust 144A Ser. 04-CI3, Class N1,
4.45s, 2034 831,855
1,730,000 MBNA Credit Card Master Note Trust
FRN Ser. 03-C5, Class C5, 2.56s,
2010 1,765,141
7,318,163 Merit Securities Corp. FRB Ser.
11PA, Class 3A1, 2.082s, 2027 6,987,131
278,332 Merrill Lynch Mortgage Investors,
Inc. Ser. 03-WM3N, Class N1, 8s,
2005 280,767
Merrill Lynch Mortgage Investors,
Inc. 144A
643,351 Ser. 03-OP1N, Class N1, 7 1/4s, 2034 643,753
157,058 Ser. 04-WM1N, Class N1, 4 1/2s, 2034 156,272
1,916,298 Ser. 04-WM3N, Class N1, 4 1/2s, 2005 1,904,226
Mid-State Trust
987,290 Ser. 10, Class B, 7.54s, 2036 845,830
523,165 Ser. 11, Class B, 8.221s, 2038 518,506
Morgan Stanley ABS Capital I 144A
434,570 Ser. 03-NC8N, Class Note, 7.6s, 2033 436,607
692,167 Ser. 04-NC2N, Class Note, 6 1/4s,
2033 693,681
1,090,000 Morgan Stanley Auto Loan Trust 144A
Ser. 04-HB1, Class D, 5 1/2s, 2011 1,073,650
Morgan Stanley Dean Witter Capital I
1,470,000 FRN Ser. 01-NC3, Class B1, 3.9s,
2031 1,454,184
1,194,000 FRN Ser. 01-NC4, Class B1, 3.95s,
2032 1,175,533
1,168,000 Navigator CDO, Ltd. 144A FRB Ser.
03-1A, Class A1, 1.74s, 2015 1,168,000
1,734,000 New Century Home Equity Loan Trust
Ser. 03-5, Class AI7, 5.15s, 2033 1,704,468
New Century Mortgage Corp. NIM Trust
144A
601,170 Ser. 03-5, Class Note, 8s, 2033 608,027
464,674 Ser. 03-B, Class Note, 6 1/2s, 2033 467,433
624,000 Newcastle CDO, Ltd. 144A FRB Ser.
3A, Class 4FL, 4.3s, 2038 627,120
76,950 NNIMS 144A Ser. 03-N1, Class Note,
7.385s, 2033 77,718
Novastar NIM Trust 144A
1,916,975 Ser. 04-N1, Class Note, 4.458s, 2034 1,916,975
1,397,260 Ser. 04-N2, Class Note, 4.458s, 2034 1,397,260
6,500,616 Oakwood Mortgage Investors, Inc.
Ser. 02-C, Class A1, 5.41s, 2032 5,736,793
Option One Mortgage Securities Corp.
NIM Trust 144A
454,871 Ser. 03-5, Class Note, 6.9s, 2033 457,145
33,404 Ser. 2003-2B, Class N1, 7.63s, 2033
(Cayman Islands) 33,404
Pass-Through Amortizing Credit Card
Trust
644,214 Ser. 02-1A, Class A3FL, 4.41s, 2012 646,058
1,082,325 Ser. 02-1A, Class A4FL, 6.91s, 2012 1,085,385
Permanent Financing PLC FRB
870,000 Ser. 1, Class 3C, 2.61s, 2042
(United Kingdom) 879,652
1,300,000 Ser. 3, Class 3C, 2.56s, 2042
(United Kingdom) 1,322,344
657,000 Pillar Funding PLC 144A FRB Ser.
04-1A, Class C1, 2.333s,
2011 (United Kingdom) 656,709
Providian Gateway Master Trust 144A
1,204,000 FRB Ser. 04-AA, Class D, 3.23s, 2011 1,206,769
1,900,000 FRN Ser. 04-BA, Class D, 2.78s, 2010 1,900,000
1,325,967 Re NIM Trust 144A Ser. 04-A, 4.45s,
2034 1,307,817
33,066,263 Renaissance Home Equity Loan Trust
Ser. 03-4, Class S, IO, 3s, 2006 348,746
4,634,785 Residential Asset Securities Corp.
Ser. 02-KS6, Class AIO, IO, 4.5s,
2005 101,479
Residential Funding Mortgage
Securities II
16,373,586 Ser. 03-HS1, Class AI, IO, 5.5s,
2033 676,229
5,169,091 Ser. 03-HS2, Class AI, IO, 5.5s,
2005 237,455
7,125,349 Ser. 03-HS3, Class AI, IO, 5s, 2006 295,702
5,984,184 Restructured Asset Securities 144A
FRN Ser. 03-3A, Class A1, 2.56s,
2022 5,916,862
Ryland Mortgage Securities Corp.
304,446 Ser. 94-7C, Class B1, 7.359s, 2025 304,446
375,943 Ser. 94-7C, Class B1, 7.359s, 2025 375,943
SAIL Net Interest Margin Notes 144A
713,651 Ser. 03-4, Class A, 7 1/2s, 2033
(Cayman Islands) 712,866
306,096 Ser. 03-12A, Class A, 7.35s, 2033
(Cayman Islands) 306,004
406,163 Ser. 03-13A, Class A, 6 3/4s, 2033
(Cayman Islands) 405,642
395,586 Ser. 03-6A, Class A, 7s, 2033
(Cayman Islands) 392,645
214,018 Ser. 03-7A, Class A, 7s, 2033
(Cayman Islands) 212,430
413,479 Ser. 03-8A, Class A, 7s, 2033
(Cayman Islands) 411,398
1,046,022 Ser. 03-9A, Class A, 7s, 2033
(Cayman Islands) 1,040,581
532,398 Ser. 03-BC2A, Class A, 7 3/4s, 2033
(Cayman Islands) 530,851
SAIL Net Interest Margin Notes 144A
1,335,588 Ser. 04-2A, Class A, 5 1/2s, 2034
(Cayman Islands) 1,335,588
3,773,374 Ser. 04-4A, Class A, 5s, 2034
(Cayman Islands) 3,767,714
350,000 Ser. 04-4A, Class B, 7 1/2s, 2034
(Cayman Islands) 322,665
1,125,822 Ser. 04-5A, Class A, 4 1/2s, 2034
(Cayman Islands) 1,124,166
Sasco Arc Net Interest Margin Notes
144A
221,588 Ser. 03-3, Class A, 7 3/4s, 2033 220,476
87,242 Ser. 03-5, Class A, 7.35s, 2033
(Cayman Islands) 87,217
131,742 Ser. 03-AM1, Class A, 7 3/4s, 2033 131,100
427,032 Saxon Net Interest Margin Trust 144A
Ser. 03-A, Class A, 6.656s, 2033 427,032
373,397 Sharp SP I, LLC Net Interest Margin
Trust Ser. 03-NC1N, Class N,
7 1/4s, 2033 375,488
Sharp SP I, LLC Net Interest Margin
Trust 144A
1,533,345 Ser. 03-0P1N, Class NA, 4.45s, 2033 1,533,191
180,491 Ser. 03-TC1N, 7.45s, 2033 (S) 180,491
358,299 Ser. 03-HE1N, 6.9s, 2033 360,090
761,904 Ser. 04-HE1N, Class Note, 4.94s,
2034 761,904
476,386 Ser. 04-HS1N, Class Note, 5.92s,
2034 476,386
470,000 South Coast Funding FRB Ser. 3A,
Class A2, 2.38s, 2038 475,875
Structured Asset Investment Loan
Trust
14,998,641 Ser. 03-BC10, Class A, IO, 6s, 2005 470,413
47,763,783 Ser. 03-BC11, Class A, IO, 6s, 2005 1,848,889
8,966,405 Ser. 03-BC12, Class A, IO, 6s, 2005 329,308
27,274,286 Ser. 03-BC13, Class A, IO, 6s, 2005 1,001,699
52,104 Ser. 03-BC1A, Class A, 7 3/4s, 2033 51,851
35,100,614 Ser. 03-BC2, Class A, IO, 6s, 2005 914,416
17,796,008 Ser. 03-BC3, Class A, IO, 6s, 2004 250,899
5,370,192 Ser. 03-BC4, Class A, IO, 6s, 2004 102,309
9,799,972 Ser. 03-BC5, Class A, IO, 6s, 2004 186,702
26,474,688 Ser. 03-BC6, Class A, IO, 6s, 2005 765,643
8,767,509 Ser. 03-BC8, Class A, IO, 6s, 2005 347,160
10,656,634 Ser. 03-BC9, Class A, IO, 6s, 2005 297,319
46,153,000 Ser. 04-1, Class A, IO, 6s, 2005 2,462,156
33,861,181 Ser. 04-3, Class A, IO, 6s, 2005 1,680,792
Structured Asset Securities Corp.
8,751,636 Ser. 02-BC1, Class A, IO, 6s, 2004 166,730
7,558,718 Ser. 98-RF3, Class A, IO, 6.1s, 2028 1,281,807
Structured Asset Securities Corp.
144A
2,800,000 FRB Ser. 03-NP2, Class A2, 2s, 2032 2,796,063
1,315,168 FRN Ser. 03-NP3, Class A1, 1.95s,
2033 1,315,168
3,199,000 Terwin Mortgage Trust FRB Ser.
04-5HE, Class A1B, IO, 1.87s, 2035 3,195,501
1,698,000 TIAA Commercial Real Estate
Securitization 144A Ser. 03-1A,
Class E, 8s, 2038 1,523,358
15,062,458 Wells Fargo Home Equity Trust Ser.
04-1, Class A, IO, 6s, 2005 878,224
1,462,625 Wells Fargo Home Equity Trust 144A
Ser. 04-1N, Class A, 5s, 2034 1,457,396
1,060,000 Westo Ser. 04-3, Class D, 4.07s,
2012 1,059,895
512,878 Whole Auto Loan Trust Ser. 03-1,
Class C, 3.13s, 2010 506,547
3,123,018 Whole Auto Loan Trust 144A Ser.
03-1, Class D, 6s, 2010 3,124,970
--------------
Total Asset-backed securities
(cost $318,531,511) $299,871,629
Convertible preferred stocks (0.6%) (a)
Number of shares Value
- -------------------------------------------------------------------------------
111,300 Hartford Financial Services Group,
Inc. (The) $3.50 cv. pfd. $7,025,813
45,500 Hartford Financial Services Group,
Inc. (The) $3.00 cv. pfd. 2,809,625
186,848 Xerox Corp. 6.25% cv. pfd. 23,753,052
--------------
Total Convertible preferred stocks
(cost $27,734,917) $33,588,490
Convertible bonds and notes (0.2%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$254,300 CenterPoint Energy, Inc. cv. sub
notes FRN 2s, 2029 $8,264,750
3,200,000 Rite Aid Corp. cv. notes 4 3/4s,
2006 3,368,000
--------------
Total Convertible bonds and notes
(cost $9,919,719) $11,632,750
Municipal bonds and notes (0.1%) (a)
Principal amount Rating (RAT) Value
- -------------------------------------------------------------------------------
$1,110,000 IL State G.O. Bonds, 5.1s, 6/1/33 AA $1,003,729
1,120,000 NJ State Tpk. Auth. Rev. Bonds,
Ser. B, AMBAC, 4.252s, 1/1/16 AAA 1,050,571
1,320,000 OR State G.O. Bonds (Taxable
Pension), 5.892s, 6/1/27 AA- 1,347,779
--------------
Total Municipal bonds and notes
(cost $3,550,000) $3,402,079
Short-term investments (8.1%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$229,606,619 Putnam Prime Money Market Fund (e) $229,606,619
218,214,444 Short-term investments held as
collateral for loaned securities with
yields ranging from 1.28% to 1.52%
and due dates ranging from August 2,
2004 to August 23, 2004 (d) 218,136,061
--------------
Total Short-term investments
(cost $447,742,680) $447,742,680
- -------------------------------------------------------------------------------
Total Investments
(cost $5,796,345,329) $6,385,794,334
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $5,558,714,880.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at July 31, 2004 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, 2004. Securities rated by Putnam are indicated by
"/P" . Ratings are not covered by the Report of Independent Registered
Public Accounting Firm.
(NON) Non-income-producing security.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts, forward
currency and forward cross currency contracts at July 31, 2004.
(R) Real Estate Investment Trust.
(S) Securities on loan, in part or in entirety, at July 31, 2004.
(d) See Note 1 to the financial statements.
(e) See Note 6 to the financial statements regarding investments in the
Putnam Prime Money Market Fund.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
ADR after the name of a foreign holding stands for American 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 at July 31, 2004.
Forward currency contracts to buy at July 31, 2004
(aggregate face value $1,356,113)
Unrealized
Aggregate Delivery appreciation/
Value face value date (depreciation)
- ------------------------------------------------------------------------------------------------------
Canadian Dollar $703,871 $686,874 9/15/04 $16,997
Euro 666,031 669,239 9/15/04 (3,208)
- ------------------------------------------------------------------------------------------------------
$13,789
- ------------------------------------------------------------------------------------------------------
Futures contracts outstanding at July 31, 2004
Unrealized
Aggregate Expiration appreciation/
Value face value date (depreciation)
- ------------------------------------------------------------------------------------------------------
Euro 90 day (Long) $2,206,350 $2,206,610 Sep 04 $(260)
Euro 90 day (Long) 732,300 735,838 Dec 04 (3,538)
Euro 90 day (Long) 729,300 732,838 Mar 05 (3,538)
Euro 90 day (Long) 726,525 729,838 Jun 05 (3,313)
Euro 90 day (Long) 723,975 727,175 Sep 05 (3,200)
Euro 90 day (Long) 721,688 724,888 Dec 05 (3,200)
Interest Rate Swap
10 yr (Long) 968,344 936,514 Sep 04 31,830
S&P 500 Index (Short) 70,470,400 72,555,840 Sep 04 2,085,440
U.S. Treasury Bond (Long) 147,393,938 142,344,014 Sep 04 5,049,924
U.S. Treasury Note
5 yr (Short) 699,595,500 694,582,624 Sep 04 (5,012,876)
U.S. Treasury Note
10 yr (Long) 741,262,031 726,873,559 Sep 04 14,388,472
- ------------------------------------------------------------------------------------------------------
$16,525,741
- ------------------------------------------------------------------------------------------------------
TBA sales commitments outstanding at July 31, 2004
(proceeds receivable $518,355,367)
Principal Settlement
Agency amount date Value
- ------------------------------------------------------------------------------------------------------
FNMA 6 1/2s, August 15, 2034 $234,700,000 8/12/04 $244,913,111
FNMA 4 1/2s, August 15, 2034 289,200,000 8/12/04 273,090,664
- ------------------------------------------------------------------------------------------------------
$518,003,775
- ------------------------------------------------------------------------------------------------------
Interest rate swap contracts outstanding at July 31, 2004
Unrealized
Notional Termination appreciation/
amount date (depreciation)
- ------------------------------------------------------------------------------------------------------
Agreement with Bank of America, N.A. dated
January 14, 2004 to pay semi-annually the
notional amount multiplied by 4.35625% and
receive quarterly the notional amount
multiplied by the three month USD-LIBOR. $158,677,000 1/16/14 $6,443,945
Agreement with Bank of America, N.A. dated
January 26, 2004 to receive semi-annually the
notional amount multiplied by 5.2125% and pay
quarterly the notional amount multiplied by
the three month USD-LIBOR. 82,772,000 1/28/24 (2,806,822)
Agreement with Bank of America, N.A. dated
December 2, 2003 to receive semi-annually
the notional amount multiplied by 2.444% and
pay quarterly the notional amount multiplied
by the three month USD LIBOR. 12,822,000 12/5/05 (8,580)
Agreement with Bank of America N.A. dated
December 12, 2003 to pay semi-annually the
notional amount multiplied by 2.1125% and
receive quarterly the notional amount
multiplied by three month USD-LIBOR. 3,280,000 12/16/05 21,972
Agreement with Credit Suisse First Boston
International dated July 7, 2004 to receive
semi-annually the notional amount multiplied
by 2.931% and pay quarterly the notional
amount multiplied by the three month
USD LIBOR. 25,631,800 7/9/06 (24,968)
Agreement with Lehman Brothers Special
Financing, Inc. dated August 1, 2003 to receive
semi-annually the notional amount multiplied
by 3.93% and pay quarterly the notional amount
multiplied by the three month USD LIBOR. 116,700,000 8/5/08 2,057,291
Agreement with Lehman Brothers Special
Financing, Inc. dated December 5, 2003 to
receive semi-annually the notional amount
multiplied by 2.23762% and pay quarterly the
notional amount multiplied by three month
USD-LIBOR-BBA. 54,516,000 12/9/05 (230,547)
Agreement with Lehman Brothers Special
Financing, Inc. dated January 22, 2004 to pay
semi-annually the notional amount multiplied
by 1.999% and receive quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA. 28,852,000 1/26/06 308,688
Agreement with Lehman Brothers Special
Financing, Inc. dated January 21, 2004 to pay
semi-annually the notional amount multiplied
by 2.008% and receive quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA. 28,154,000 1/23/06 294,668
Agreement with Lehman Brothers Special
Financing, Inc. dated January 21, 2004 to pay
semi-annually the notional amount multiplied
by 2.009% and receive quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA 28,154,000 1/23/06 294,661
Agreement with Lehman Brothers Special
Financing, Inc. dated January 22, 2004 to pay
semi-annually the notional amount multiplied
by 2.007% and receive quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA. 15,124,000 1/26/06 160,282
Agreement with Lehman Brothers Special
Financing, Inc. dated December 11, 2003 to
pay semi-annually the notional amount
multiplied by 4.71% and receive quarterly the
notional amount multiplied by three month
USD-LIBOR-BBA. 10,708,000 12/15/13 108,859
Agreement with Lehman Brothers Special
Financing, Inc. dated December 12, 2003 to
pay semi-annually the notional amount
multiplied by 4.5792% and receive quarterly
the notional amount multiplied by three
month USD-LIBOR-BBA. 10,192,000 12/16/13 207,362
Agreement with Lehman Brothers Special
Financing, Inc. dated January 22, 2004 to pay
semi-annually the notional amount multiplied
by 4.375% and receive quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA. 9,540,000 1/26/14 388,937
Agreement with Lehman Brothers Special
Financing, Inc. dated January 21, 2004 to pay
semi-annually the notional amount multiplied
by 4.408% and receive quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA. 9,307,000 1/23/14 352,111
Agreement with Lehman Brothers Special
Financing, Inc. dated January 21, 2004 to pay
semi-annually the notional amount multiplied
by 4.419% and receive quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA. 9,307,000 1/23/14 344,643
Agreement with Lehman Brothers Special
Financing, Inc. dated January 22, 2004 to pay
semi-annually the notional amount multiplied
by 4.379% and receive quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA. 4,886,000 1/26/14 197,730
Agreement with Lehman Brothers Special
Financing, Inc. dated December 9, 2003 to
receive semi-annually the notional amount
multiplied by 4.641% and pay quarterly the
notional amount multiplied by three month
USD-LIBOR-BBA. 3,658,000 12/15/13 (55,150)
Agreement with Lehman Brothers Special
Financing, Inc. dated December 11, 2003 to
pay semi-annually the notional amount
multiplied by 2.235% and receive quarterly the
notional amount multiplied by three month
USD-LIBOR-BBA. 2,559,000 12/15/05 12,868
- ------------------------------------------------------------------------------------------------------
$8,067,950
- ------------------------------------------------------------------------------------------------------
Total return swap contracts outstanding at July 31, 2004
Unrealized
Notional Termination appreciation/
amount date (depreciation)
- ------------------------------------------------------------------------------------------------------
Agreement with Deutsche Bank AG dated
July 16, 2004 to receive monthly the notional
amount multiplied by the nominal spread
depreciation of the Lehman Brothers AAA
Commercial Mortgage Backed Securities
Index adjusted by a modified duration factor
and pay monthly the notional amount
multiplied by the nominal spread appreciation
of the Lehman Brothers AAA Commercial
Mortgage Backed Securities Index and an
accrual of 40 basis points plus the beginning
of the period nominal spread of the Lehman
Brothers AAA Commercial Mortgage
Backed Securities Index. $11,081,500 1/31/05 $0
Agreement with Deutsche Bank AG dated
June 28, 2004 to pay at maturity the notional
amount multiplied by the spread appreciation of
the Lehman Brothers AAA Commercial
Mortgage Backed Securities Index adjusted by a
modified duration factor and receive at maturity
the notional amount multiplied by the depreciation
of the Lehman Brothers AAA Commercial
Mortgage Backed Securities Index plus
43 basis points. 18,122,400 1/1/05 13,290
Agreement with Goldman Sachs Capital Markets,
L.P. dated June 16, 2004 to pay monthly the notional
amount multiplied by the spread appreciation of the
Lehman Brothers AAA Commercial Mortgage
Backed Securities Index adjusted by a modified
duration factor and receive monthly the notional
amount multiplied by the depreciation of the
Lehman Brothers AAA Commercial Mortgage
Backed Securities Index plus 43 basis points. 23,800,939 6/1/05 15,869
Agreement with Goldman Sachs Capital
Markets, L.P. dated June 25, 2004 to pay
monthly the notional amount multiplied by
the spread appreciation of the Lehman
Brothers AAA Commercial Mortgage
Backed Securities Index adjusted by a
modified duration factor and receive
monthly the notional amount multiplied
by the depreciation of the Lehman Brothers
AAA Commercial Mortgage Backed
Securities Index plus 43 basis points. 24,163,147 10/1/04 17,518
Agreement with JP Morgan Chase Bank
dated February 26, 2004 to receive (pay)
at termination the notional amount
multiplied by CMBS Lehman Brothers
Investment Grade Index and pay at
termination the notional amount multiplied
by the six month USD-LIBOR-BBA
adjusted by a specified spread. 7,276,053 9/1/04 (140,969)
Agreement with Lehman Brothers Special
Financing, Inc. dated March 3, 2004 to
receive monthly the notional amount
multiplied by Lehman Brothers CMBS
ERISA-Eligible Index and pay monthly
the absolute value of the spread
return amount. 8,655,713 9/1/04 10,529
Agreement with Lehman Brothers Special
Financing, Inc. dated February 26, 2004 to
receive (pay) semi-annually the notional
amount multiplied by Lehman Brothers
CMBS ERISA -- Eligible Index and pay
monthly the notional amount multiplied by
the one month USD-LIBOR-BBA adjusted
by a specified spread. 7,079,179 9/1/04 68,495
Agreement with Morgan Stanley & Co.
dated July 16, 2004 to pay monthly the
notional amount multiplied by the nominal
spread depreciation of the Lehman Brothers
AAA Commercial Mortgage Backed
Securities Index adjusted by a modified
duration factor and receive monthly the
notional amount multiplied by the nominal
spread appreciation of the Lehman Brothers
AAA Commercial Mortgage Backed
Securities Index and an accrual of 47 basis
points plus the beginning of the period
nominal spread of the Lehman Brothers
AAA Commercial Mortgage Backed
Securities Index. 11,081,500 1/31/05 0
Agreement with Morgan Stanley & Co.
dated July 16, 2004 to pay monthly the
notional amount multiplied by the nominal
spread depreciation of the Lehman Brothers
AAA Commercial Mortgage Backed
Securities Index adjusted by a modified
duration factor and receive monthly the
notional amount multiplied by the nominal
spread appreciation of the Lehman Brothers
AAA Commercial Mortgage Backed
Securities Index and an accrual of 47 basis
points plus the beginning of the period
nominal spread of the Lehman Brothers
AAA Commercial Mortgage Backed
Securities Index. 22,163,000 1/31/05 16,998
- ------------------------------------------------------------------------------------------------------
$1,730
- ------------------------------------------------------------------------------------------------------
Credit default contracts outstanding at July 31, 2004
(premiums received $213,254)
Notional
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 $43,375
Agreement with Merrill Lynch International effective
July 1, 2004, maturing on July 1, 2007, to receive a
premium equal to 1.441% times the notional amount.
Upon a credit default event of Consolidated Natural
Gas, 6.625%, December 12, 2008, the fund makes a
payment of the proportional notional amount times
the difference between the par value and the then-
market value of Consolidated Natural Gas, 6.625%,
December 12, 2008. 4,410,000 62,049
- ------------------------------------------------------------------------------------------------------
$105,424
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities
July 31, 2004
Assets
- -------------------------------------------------------------------------------
Investment in securities, at value, including $212,225,191 of securities
on loan (Note 1):
- -------------------------------------------------------------------------------
Unaffiliated Issuers (identified cost $5,566,738,710) $6,156,187,715
- -------------------------------------------------------------------------------
Affiliated Issuers (identified cost $229,606,619) (Note 6) 229,606,619
- -------------------------------------------------------------------------------
Cash 11,627,552
- -------------------------------------------------------------------------------
Dividends, interest and other receivables 29,853,173
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 4,777,134
- -------------------------------------------------------------------------------
Receivable for securities sold 946,313,780
- -------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 11,336,716
- -------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 16,997
- -------------------------------------------------------------------------------
Receivable for variation margin (Note 1) 3,574,150
- -------------------------------------------------------------------------------
Total assets 7,393,293,836
Liabilities
- -------------------------------------------------------------------------------
Payable for securities purchased 1,067,163,704
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 16,056,417
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 6,734,998
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 2,344,509
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 342,054
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 4,251
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,851,593
- -------------------------------------------------------------------------------
Credit default contracts outstanding, at value (premiums
received $213,254) (Note 1) 105,424
- -------------------------------------------------------------------------------
Payable for open swap contracts (Note 1) 3,267,036
- -------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 3,208
- -------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable
$518,355,367) (Note 1) 518,003,775
- -------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 218,136,061
- -------------------------------------------------------------------------------
Other accrued expenses 565,926
- -------------------------------------------------------------------------------
Total liabilities 1,834,578,956
- -------------------------------------------------------------------------------
Net assets $5,558,714,880
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $5,378,210,375
- -------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 12,056,047
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (446,085,415)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 614,533,873
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $5,558,714,880
- -------------------------------------------------------------------------------
Computation of net asset value and offering price
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($3,322,531,859 divided by 196,526,569 shares) $16.91
- -------------------------------------------------------------------------------
Offering price per class A share (100/94.75 of $16.91)* $17.85
- -------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,095,664,658 divided by 65,483,968 shares)** $16.73
- -------------------------------------------------------------------------------
Net asset value and offering price per class C share
($75,184,946 divided by 4,473,674 shares)** $16.81
- -------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($217,045,649 divided by 12,964,006 shares) $16.74
- -------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $16.74)* $17.35
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class R share ($126,769 divided by 7,508 shares) $16.89
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class Y share ($848,160,999 divided by 50,040,043 shares) $16.95
- -------------------------------------------------------------------------------
* 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, 2004
Investment income:
- -------------------------------------------------------------------------------
Interest (including interest income of $737,815 from
investments in affiliated issuers) (Note 6) $93,905,109
- -------------------------------------------------------------------------------
Dividends (net of foreign tax of $281,493) 79,733,911
- -------------------------------------------------------------------------------
Securities lending 163,521
- -------------------------------------------------------------------------------
Total investment income 173,802,541
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 28,920,371
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 14,751,056
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 104,474
- -------------------------------------------------------------------------------
Administrative services (Note 2) 45,938
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 8,882,260
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 12,315,500
- -------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 840,270
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 1,742,567
- -------------------------------------------------------------------------------
Distribution fees -- Class R (Note 2) 175
- -------------------------------------------------------------------------------
Other 1,598,718
- -------------------------------------------------------------------------------
Non-recurring costs (Note 6) 110,550
- -------------------------------------------------------------------------------
Costs assumed by Manager (Note 6) (110,550)
- -------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 6) (121,285)
- -------------------------------------------------------------------------------
Total expenses 69,080,044
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (1,647,315)
- -------------------------------------------------------------------------------
Net expenses 67,432,729
- -------------------------------------------------------------------------------
Net investment income 106,369,812
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 256,098,168
- -------------------------------------------------------------------------------
Net realized gain on swap contracts (Note 1) 2,347,865
- -------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (33,475,052)
- -------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 220,927
- -------------------------------------------------------------------------------
Net realized loss on credit default contracts (Note 1) (978,684)
- -------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 1,860,166
- -------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year 121,972
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures
contracts, swap contracts, credit default contracts, written
options, and TBA sale commitments during the year 238,758,263
- -------------------------------------------------------------------------------
Net gain on investments 464,953,625
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $571,323,437
- -------------------------------------------------------------------------------
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 2004 2003
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $106,369,812 $137,222,025
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions 226,073,390 (314,771,145)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign
currencies 238,880,235 666,689,756
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 571,323,437 489,140,636
- -------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------
From net investment income
Class A (71,321,677) (107,895,962)
- -------------------------------------------------------------------------------
Class B (15,606,522) (29,270,787)
- -------------------------------------------------------------------------------
Class C (1,081,609) (1,730,918)
- -------------------------------------------------------------------------------
Class M (3,563,743) (6,195,401)
- -------------------------------------------------------------------------------
Class R (455) (11)
- -------------------------------------------------------------------------------
Class Y (21,369,832) (26,338,433)
- -------------------------------------------------------------------------------
Increase (decrease) from capital share
transactions (Note 4) (1,204,250,931) 919,964,935
- -------------------------------------------------------------------------------
Total increase (decrease) in net assets (745,871,332) 1,237,674,059
Net assets
- -------------------------------------------------------------------------------
Beginning of year 6,304,586,212 5,066,912,153
- -------------------------------------------------------------------------------
End of year (including undistributed net
investment income of $12,056,047 and
$20,229,226, respectively) $5,558,714,880 $6,304,586,212
- -------------------------------------------------------------------------------
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 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.72 $15.02 $17.24 $15.77 $18.49
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .32 (d) .37 .45 .52 .55
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.20 .81 (2.17) 1.49 (1.44)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.52 1.18 (1.72) 2.01 (.89)
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.33) (.48) (.48) (.53) (.58)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (.02) (.01) (1.25)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.33) (.48) (.50) (.54) (1.83)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.91 $15.72 $15.02 $17.24 $15.77
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 9.77 8.06 (10.20) 12.86 (5.09)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,322,532 $3,784,601 $2,990,984 $3,176,287 $3,030,281
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.00 (d) .99 .96 .92 .93
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.90 (d) 2.50 2.75 3.11 3.32
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 165.66 121.38 (e)(f) 131.89 (e) 333.46 140.92
- ---------------------------------------------------------------------------------------------------------------------------------
(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) Reflects waivers of certain fund expenses during the period. As a
result of such waivers the expenses of the fund for the period ended
July 31, 2004 reflect a reduction of less than 0.01% of the average net
assets of class A shares. (Note 6).
(e) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
(f) 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 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.56 $14.87 $17.07 $15.62 $18.33
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .19 (d) .26 .33 .39 .42
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.19 .80 (2.15) 1.48 (1.43)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.38 1.06 (1.82) 1.87 (1.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.21) (.37) (.36) (.41) (.45)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (.02) (.01) (1.25)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.21) (.37) (.38) (.42) (1.70)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.73 $15.56 $14.87 $17.07 $15.62
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 8.88 7.25 (10.86) 12.02 (5.82)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,095,665 $1,308,605 $1,068,667 $1,199,676 $1,175,947
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.75 (d) 1.74 1.71 1.67 1.68
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.16 (d) 1.75 2.00 2.36 2.57
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 165.66 121.38 (e)(f) 131.89 (e) 333.46 140.92
- ---------------------------------------------------------------------------------------------------------------------------------
(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) Reflects waivers of certain fund expenses during the period. As a
result of such waivers the expenses of the fund for the period ended
July 31, 2004 reflect a reduction of less than 0.01% of the average net
assets of class B shares. (Note 6).
(e) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
(f) 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
- ---------------------------------------------------------------------------------------------------------------------------------
Per-share Year ended July 31
operating performance 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.63 $14.94 $17.16 $15.71 $18.49
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .19 (d) .26 .33 .39 .42
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.20 .80 (2.16) 1.49 (1.44)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.39 1.06 (1.83) 1.88 (1.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.21) (.37) (.37) (.42) (.51)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (.02) (.01) (1.25)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.21) (.37) (.39) (.43) (1.76)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.81 $15.63 $14.94 $17.16 $15.71
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 8.92 7.25 (10.88) 12.02 (5.82)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $75,185 $91,282 $53,186 $37,453 $20,642
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.75 (d) 1.74 1.71 1.67 1.68
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) 1.16 (d) 1.73 1.99 2.32 2.60
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 165.66 121.38 (e)(f) 131.89 (e) 333.46 140.92
- ---------------------------------------------------------------------------------------------------------------------------------
+ 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) Reflects waivers of certain fund expenses during the period. As a
result of such waivers the expenses of the fund for the period ended
July 31, 2004 reflect a reduction of less than 0.01% of the average net
assets of class C shares. (Note 6).
(e) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
(f) 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 M
- ---------------------------------------------------------------------------------------------------------------------------------
Per-share Year ended July 31
operating performance 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.57 $14.87 $17.08 $15.63 $18.33
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .23 (d) .30 .37 .43 .46
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.19 .80 (2.16) 1.48 (1.42)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.42 1.10 (1.79) 1.91 (.96)
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.25) (.40) (.40) (.45) (.49)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (.02) (.01) (1.25)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.25) (.40) (.42) (.46) (1.74)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.74 $15.57 $14.87 $17.08 $15.63
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 9.18 7.58 (10.69) 12.31 (5.52)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $217,046 $239,662 $222,176 $252,802 $223,246
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.50 (d) 1.49 1.46 1.42 1.43
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.40 (d) 2.02 2.25 2.60 2.82
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 165.66 121.38 (e)(f) 131.89 (e) 333.46 140.92
- ---------------------------------------------------------------------------------------------------------------------------------
(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) Reflects waivers of certain fund expenses during the period. As a
result of such waivers the expenses of the fund for the period ended
July 31, 2004 reflect a reduction of less than 0.01% of the average net
assets of class M shares. (Note 6).
(e) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
(f) 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
- -------------------------------------------------------------------------------------------------------------------------
Year For the period
ended January 21, 2003+
Per-share July 31 to July 31
operating performance 2004 2003
- -------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.70 $15.05
- -------------------------------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .21 (d) .17
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.29 .65
- -------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.50 .82
- -------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------------------
From net
investment income (.31) (.17)
- -------------------------------------------------------------------------------------------------------------------------
Total distributions (.31) (.17)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.89 $15.70
- -------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 9.60 5.52*
- -------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $127 $1
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.25 (d) .65*
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.33 (d) 1.18*
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 165.66 121.38 (e)(f)
- -------------------------------------------------------------------------------------------------------------------------
+ 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) Reflects waivers of certain fund expenses during the period. As a result
of such waivers the expenses of the fund for the period ended July 31, 2004
reflect a reduction of less than 0.01% of the average net assets of class R
shares. (Note 6).
(e) Portfolio turnover excludes certain treasury note transactions executed in
connection with a short-term trading strategy.
(f) 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 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.76 $15.05 $17.28 $15.80 $18.53
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .36 (d) .41 .49 .56 .60
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.21 .82 (2.17) 1.50 (1.46)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.57 1.23 (1.68) 2.06 (.86)
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.38) (.52) (.53) (.57) (.62)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (.02) (.01) (1.25)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.38) (.52) (.55) (.58) (1.87)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.95 $15.76 $15.05 $17.28 $15.80
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 10.03 8.38 (10.01) 13.18 (4.89)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $848,161 $880,435 $731,900 $768,075 $621,363
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .75 (d) .74 .71 .67 .68
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.16 (d) 2.76 3.00 3.35 3.57
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 165.66 121.38 (e)(f) 131.89 (e) 333.46 140.92
- ---------------------------------------------------------------------------------------------------------------------------------
(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) Reflects waivers of certain fund expenses during the period. As a
result of such waivers the expenses of the fund for the period ended
July 31, 2004 reflect a reduction of less than 0.01% of the average net
assets of class Y shares. (Note 6).
(e) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
(f) 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, 2004
Note 1
Significant accounting policies
The George Putnam Fund of Boston ("the fund"), a Massachusetts business
trust, 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. Class A shares are sold with a maximum front-end sales charge of
5.25%. Prior to January 28, 2004, the maximum front-end sales charge for
class A shares was 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, trust companies and
certain college savings plans.
Effective April 19, 2004 (May 3, 2004 for defined contribution plans
administered by Putnam) a 2.00% redemption fee may apply to any shares
that are redeemed (either by selling or exchanging into another fund)
within 5 days of purchase. The redemption fee is accounted for as an
addition to paid-in-capital. Total redemption fees received by the fund
for the year ended July 31, 2004 were $2,271.
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 fair 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. Many securities markets and exchanges outside the
U.S. close prior to the close of the New York Stock Exchange and
therefore the closing prices for securities in such markets or on such
exchanges may not fully reflect events that occur after such close but
before the close of the New York Stock Exchange. Accordingly, on certain
days, the fund will fair value foreign securities taking into account
multiple factors, including movements in the U.S. securities markets.
The number of days on which fair value prices will be used will depend
on market activity and it is possible that fair value prices will be
used by the fund to a significant extent. 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) 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, net
of applicable withholding taxes, 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.
D) 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.
E) 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. Risks may exceed amounts recognized on the
statement of assets and liabilities. Forward currency contracts
outstanding at period end, if any, are listed after the fund's
portfolio.
F) 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. Risks may exceed amounts recognized on the statement
of assets and liabilities. 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, if any,
are listed after the fund's portfolio.
G) Total return swap contracts The fund may enter into total return swap
contracts, which are arrangements to exchange a market linked return for
a periodic 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 are recorded as realized gains or loss. 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. Risks
may exceed amounts recognized on the statement of assets and
liabilities. Total return swap contracts outstanding at period end, if
any, are listed after the fund's portfolio.
H) 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 received or made
are recorded as realized gains 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. Risks may exceed amounts recognized on the statement of assets
and liabilities. Interest rate swap contracts outstanding at period end,
if any, are listed after the fund's portfolio.
I) 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. The maximum amount of the payment
may equal the notional amount, at par, of the underlying index or
security as a result of a related credit event. An upfront payment
received by the fund, as the protection seller, is recorded as a
liability on the fund's books. An upfront payment made by the fund, as
the protection buyer, is recorded as an asset 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. The risk of loss may exceed the fair value of
these contracts recognized on the statement of assets and liabilities.
Credit default contracts outstanding at period end, if any, are listed
after the fund's portfolio.
J) 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 fair value of the underlying
securities, 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.
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.
K) 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 fair 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, if any, are listed
after the fund's portfolio.
L) 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, 2004, the value of
securities loaned amounted to $212,225,191. The fund received cash
collateral of $218,136,061 which is pooled with collateral of other
Putnam funds into 29 issuers of high grade short-term investments.
M) 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 would maintain an asset
coverage ratio of at least 300% and that borrowings would not exceed
prospectus limitations. For the period ended August 6, 2003, the fund
had no borrowings against the line of credit. Effective August 6, 2003,
the fund no longer participated in a committed line of credit.
N) 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 (the "Code"), 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, 2004, the fund had a capital loss carryover of $322,771,264
available to the extent allowed by the Code to offset future net capital
gain, if any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
- --------------------------------
$35,701,820 July 31, 2010
287,069,444 July 31, 2011
O) 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 sales transactions, foreign currency gains
and losses, nontaxable dividends, defaulted bond interest, realized and
unrealized gains and losses on certain futures contracts, paydown gains
and losses on mortgage-backed securities, market discount, straddle loss
deferrals, realized built-in losses, and income on swap contracts.
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,
2004, the fund reclassified $1,599,153 to decrease undistributed net
investment income with a decrease to accumulated net realized losses of
$1,599,153.
The tax basis components of distributable earnings and the federal tax
cost as of period end were as follows:
Unrealized appreciation $583,862,351
Unrealized depreciation (101,141,716)
------------
Net unrealized appreciation 482,720,635
Undistributed ordinary income 13,828,664
Capital loss carryforward (322,771,264)
Cost for federal income
tax purposes $5,903,073,699
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.
Effective January 28, 2004, Putnam Management has agreed to limit its
compensation (and, to the extent necessary, bear other expenses) through
December 31, 2004, to the extent that the fund's net expenses as a
percentage of average net assets exceed the average expense ratio for
the fund's Lipper peer group of front-end load funds.
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. Putnam
Investor Services, a division of PFTC, provides investor servicing agent
functions to the fund. During the year ended July 31, 2004, the fund
paid PFTC $12,456,463 for these services.
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, 2004, the
fund's expenses were reduced by $1,647,315 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $4,417, as a quarterly retainer, 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 Trustee compensation and expenses in the
statement of operations. Accrued pension liability is included in
Payable for Trustee compensation and expenses in the statement of assets
and liabilities. The Trustees have terminated the Pension Plan with
respect to any Trustee first elected after 2003.
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 in distributing shares of the
fund. The Plans provide for payments by the fund to Putnam Retail
Management at an annual rate of 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 an annual rate 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, 2004, Putnam Retail Management, acting as
underwriter, received net commissions of $575,423 and $8,764 from the
sale of class A and class M shares, respectively, and received
$2,790,512 and $43,615 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, 2004, Putnam Retail Management, acting as underwriter,
received $218,739 and no monies on class A and class M redemptions,
respectively.
Note 3
Purchases and sales of securities
During the year ended July 31, 2004, cost of purchases and proceeds from
sales of investment securities other than U.S. government securities and
short-term investments aggregated $7,796,369,471 and $8,777,931,314,
respectively. Purchases and sales of U.S. government securities
aggregated $948,455,165 and $950,652,445, respectively.
Written option transactions during the year are summarized as follows:
Contract Premiums
Amounts Received
- ----------------------------------------------------------------
Written options
outstanding at
beginning of year 25,121 $15,324
- ----------------------------------------------------------------
Options opened 1,195,529 287,151
Options expired (412,678) (108,885)
Options closed (807,972) (193,590)
- ----------------------------------------------------------------
Written options
outstanding at
end of year -- $--
- ----------------------------------------------------------------
Note 4
Capital shares
At July 31, 2004 there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended July 31, 2004
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 38,177,152 $636,173,891
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 4,010,048 65,565,354
- ----------------------------------------------------------------
42,187,200 701,739,245
Shares repurchased (86,369,385) (1,432,154,084)
- ----------------------------------------------------------------
Net decrease (44,182,185) $(730,414,839)
- ----------------------------------------------------------------
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, 2004
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 10,048,720 $165,010,566
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 894,212 14,468,542
- ----------------------------------------------------------------
10,942,932 179,479,108
Shares repurchased (29,561,948) (487,125,122)
- ----------------------------------------------------------------
Net decrease (18,619,016) $(307,646,014)
- ----------------------------------------------------------------
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, 2004
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 1,298,282 $21,315,780
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 60,062 973,315
- ----------------------------------------------------------------
1,358,344 22,289,095
Shares repurchased (2,725,476) (45,065,317)
- ----------------------------------------------------------------
Net decrease (1,367,132) $(22,776,222)
- ----------------------------------------------------------------
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, 2004
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 1,968,774 $32,462,800
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 215,887 3,497,386
- ----------------------------------------------------------------
2,184,661 35,960,186
Shares repurchased (4,611,033) (76,071,025)
- ----------------------------------------------------------------
Net decrease (2,426,372) $(40,110,839)
- ----------------------------------------------------------------
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, 2004
- ----------------------------------------------------------------
Class R Shares Amount
- ----------------------------------------------------------------
Shares sold 8,000 $136,550
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 27 455
- ----------------------------------------------------------------
8,027 137,005
Shares repurchased (586) (9,998)
- ----------------------------------------------------------------
Net increase 7,441 $127,007
- ----------------------------------------------------------------
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, 2004
- ----------------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------------
Shares sold 13,234,706 $218,756,844
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1,301,572 21,369,832
- ----------------------------------------------------------------
14,536,278 240,126,676
Shares repurchased (20,348,272) (343,556,700)
- ----------------------------------------------------------------
Net decrease (5,811,994) $(103,430,024)
- ----------------------------------------------------------------
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
- ----------------------------------------------------------------
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.
Note 6
Investment in Putnam Prime Money Market Fund
The fund invests in the Putnam Prime Money Market Fund, an open-end
management investment company managed by Putnam Management. Management
fees paid by the fund are reduced by an amount equal to the management
fees paid by Putnam Prime Money Market Fund with respect to assets
invested by the fund in Putnam Prime Money Market Fund. Income
distributions earned by the fund are recorded as income in the statement
of operations and totaled $737,815 for the period ended July 31, 2004.
Note 7
Regulatory matters and litigation
On April 8, 2004, Putnam Management entered into agreements with the
Securities and Exchange Commission ("SEC") and the Massachusetts
Securities Division representing a final settlement of all charges
brought against Putnam Management by those agencies on October 28,
2003 in connection with excessive short-term trading by Putnam employees
and, in the case of the charges brought by the Massachusetts Securities
Division, by participants in some Putnam-administered 401(k) plans. The
settlement with the SEC requires Putnam Management to pay $5 million in
disgorgement plus a civil monetary penalty of $50 million, and the
settlement with the Massachusetts Securities Division requires Putnam
Management to pay $5 million in restitution and an administrative fine
of $50 million. The settlements also leave intact the process
established under an earlier partial settlement with the SEC under which
Putnam Management agreed to pay the amount of restitution determined by
an independent consultant, which may exceed the disgorgement and
restitution amounts specified above, pursuant to a plan to be developed
by the independent consultant.
Putnam Management, and not the investors in any Putnam fund, will bear
all costs, including restitution, civil penalties and associated legal
fees stemming from both of these proceedings. The SEC's and
Massachusetts Securities Division's allegations and related matters also
serve as the general basis for numerous lawsuits, including purported
class action lawsuits filed against Putnam Management and certain
related parties, including certain Putnam funds. Putnam Management has
agreed to bear any costs incurred by Putnam funds in connection with
these lawsuits. Based on currently available information, Putnam
Management believes that the likelihood that the pending private
lawsuits and purported class action lawsuits will have a material
adverse financial impact on the fund is remote, and the pending actions
are not likely to materially affect its ability to provide investment
management services to its clients, including the Putnam funds.
For the period ended July 31, 2004, Putnam Management has assumed
$110,550 of legal, shareholder servicing and communication, audit, and
Trustee fees incurred by the Fund in connection with these matters.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees
is continuing. The fund may experience increased redemptions as a result
of these matters, which could result in increased transaction costs and
operating expenses.
Note 8
Other matters
In connection with a review of compliance procedures and controls,
Putnam Management discovered that in early January 2001, certain Putnam
employees had willfully circumvented controls in connection with the
correction of operational errors with respect to a 401(k) client's
investment in certain Putnam Funds, which led to losses in the fund.
Putnam made restitution of approximately $169,000 to the fund on
February 27, 2004. Putnam has also made a number of personnel changes,
including senior managers, and has implemented changes in procedures.
Putnam has informed the SEC, the Funds' Trustees and independent
auditors. The SEC is investigating this matter.
Federal tax information
(Unaudited)
The fund has designated 69.4% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
For its tax year ended July 31, 2004, the fund hereby designates 70.4%,
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 2005 will show the tax status of
all distributions paid to your account in calendar 2004.
About the Trustees
Jameson A. Baxter (9/6/43), Trustee since 1994
Ms. Baxter is the President of Baxter Associates, Inc., a private
investment firm that she founded in 1986.
Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Banta
Corporation (a printing and digital imaging firm), Ryerson Tull, Inc. (a
steel service corporation), Advocate Health Care and BoardSource,
formerly the National Center for Nonprofit Boards. She is Chairman
Emeritus of the Board of Trustees, Mount Holyoke College, having served
as Chairman for five years and as a board member for thirteen years.
Until 2002, Ms. Baxter was a Director of Intermatic Corporation (a
manufacturer of energy control products).
Ms. Baxter has held various positions in investment banking and
corporate finance, including Vice President and Principal of the Regency
Group, and Vice President of and Consultant to First Boston Corporation.
She is a graduate of Mount Holyoke College.
Charles B. Curtis (4/27/40), Trustee since 2001
Mr. Curtis is President and Chief Operating Officer of the Nuclear
Threat Initiative (a private foundation dealing with national security
issues) and serves as Senior Advisor to the United Nations Foundation.
Mr. Curtis is a member of the Council on Foreign Relations and the
Trustee Advisory Council of the Applied Physics Laboratory, 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 Policy Board and Director of EG&G Technical
Services, Inc. (a fossil energy research and development support
company).
From August 1997 to December 1999, Mr. Curtis was a Partner at Hogan &
Hartson L.L.P., a Washington, D.C. law firm. Prior to May 1997, Mr.
Curtis was Deputy Secretary of Energy. He served as Chairman of the
Federal Energy Regulatory Commission from 1977 to 1981 and has held
positions on the staff of the U.S. House of Representatives, the U.S.
Treasury Department, and the SEC.
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Mr. Hill is Vice Chairman of First Reserve Corporation, a private equity
buyout firm that specializes in energy investments in the diversified
worldwide energy industry.
Mr. Hill is a Director of Devon Energy Corporation, TransMontaigne Oil
Company, Continuum Health Partners of New York and various private
companies controlled by First Reserve Corporation, as well as a Trustee
of TH Lee, Putnam Investment Trust (a closed-end investment company
advised by an affiliate of Putnam Management). He is also a Trustee of
Sarah Lawrence College.
Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held
executive positions in investment banking and investment management with
several firms and with the federal government, including Deputy
Associate Director of the Office of Management and Budget and Deputy
Director of the Federal Energy Administration. He is active in various
business associations, including the Economic Club of New York, and
lectures on energy issues in the United States and Europe. Mr. Hill
holds a B.A. degree in Economics from Southern Methodist University and
pursued graduate studies there as a Woodrow Wilson Fellow.
Ronald J. Jackson (12/17/43), Trustee since 1996
Mr. Jackson is a private investor.
Mr. Jackson is President of the Kathleen and Ronald J. Jackson
Foundation (a charitable trust). He is also a member of the Board of
Overseers of WGBH (a public television and radio station) as well as a
member of the Board of Overseers of the Peabody Essex Museum.
Mr. Jackson is the former Chairman, President and Chief Executive
Officer of Fisher-Price, Inc. (a major toy manufacturer), from which he
retired in 1993. He previously served as President and Chief Executive
Officer of Stride-Rite, Inc. (a manufacturer and distributor of
footwear) and of Kenner Parker Toys, Inc. (a major toy and game
manufacturer). Mr. Jackson was President of Talbots, Inc. (a distributor
of women's apparel) and has held financial and marketing positions with
General Mills, Inc. and Parker Brothers (a toy and game company). Mr.
Jackson is a graduate of the University of Michigan Business School.
Paul L. Joskow (6/30/47), Trustee since 1997
Dr. Joskow is the Elizabeth and James Killian Professor of Economics and
Management, and Director of the Center for Energy and Environmental
Policy Research at the Massachusetts Institute of Technology.
Dr. Joskow serves as a Director of National Grid Transco (a UK-based
holding company with interests in electric and gas transmission and
distribution and telecommunications infrastructure) and TransCanada
Corporation (an energy company focused on natural gas transmission and
power services). He also serves on the board of the Whitehead Institute
for Biomedical Research (a non-profit research institution) and has been
President of the Yale University Council since 1993. Prior to February
2002, he was a Director of State Farm Indemnity Company (an automobile
insurance company), and, prior to March 2000, he was a Director of New
England Electric System (a public utility holding company).
Dr. Joskow has published five books and numerous articles on topics in
industrial organization, government regulation of industry, and
competition policy. He is active in industry restructuring,
environmental, energy, competition and privatization policies -- serving
as an advisor to governments and corporations worldwide. Dr. Joskow
holds a Ph.D. and M. Phil from Yale University and B.A. from Cornell
University.
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Dr. Kennan is a Partner of Cambus-Kenneth Farm (thoroughbred horse and
cattle breeding). She is President Emeritus of Mount Holyoke College.
Dr. Kennan served as Chairman and is now Lead Director of Northeast
Utilities and is a Director of Talbots, Inc. She has served as Director
on a number of other boards, including Bell Atlantic, Chastain Real
Estate, Shawmut Bank, Berkshire Life Insurance and Kentucky Home Life
Insurance. She is a Trustee of the National Trust for Historic
Preservation, of Centre College and of Midway College in Midway,
Kentucky. She is also a member of The Trustees of Reservations. Dr.
Kennan has served on the oversight committee of the Folger Shakespeare
Library, as President of Five Colleges Incorporated, as a Trustee of
Notre Dame University and is active in various educational and civic
associations.
As a member of the faculty of Catholic University for twelve years,
until 1978, Dr. Kennan directed the post-doctoral program in Patristic
and Medieval Studies, taught history and published numerous articles.
Dr. Kennan holds a Ph.D. from the University of Washington in Seattle,
an M.S. from St. Hilda's College at Oxford University and an A.B. from
Mount Holyoke College. She holds several honorary doctorates.
John H. Mullin, III (6/15/41), Trustee since 1997
Mr. Mullin is the Chairman and CEO of Ridgeway Farm (a limited liability
company engaged in timber and farming).
Mr. Mullin serves as a Director of The Liberty Corporation (a
broadcasting company), Progress Energy, Inc. (a utility company,
formerly known as Carolina Power & Light) and Sonoco Products, Inc. (a
packaging company). Mr. Mullin is Trustee Emeritus of The National
Humanities Center and Washington & Lee University, where he served as
Chairman of the Investment Committee. Prior to May 2001, he was a
Director of Graphic Packaging International Corp. Prior to February
2004, he was a Director of Alex Brown Realty, Inc.
Mr. Mullin is also a past Director of Adolph Coors Company; ACX
Technologies, Inc.; Crystal Brands, Inc.; Dillon, Read & Co., Inc.;
Fisher-Price, Inc.; and The Ryland Group, Inc. Mr. Mullin is a graduate
of Washington & Lee University and The Wharton Graduate School,
University of Pennsylvania.
Robert E. Patterson (3/15/45), Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, L.P. and Chairman
of Cabot Properties, Inc.
Mr. Patterson serves as Chairman of the Joslin Diabetes Center and as a
Director of Brandywine Trust Company. Prior to June 2003, he was a
Trustee of Sea Education Association. Prior to December 2001, he was
President and Trustee of Cabot Industrial Trust (a publicly traded real
estate investment trust). Prior to February 1998, he was Executive Vice
President and Director of Acquisitions of Cabot Partners Limited
Partnership (a registered investment adviser involved in institutional
real estate investments). And, prior to 1990, he served as Executive
Vice President of Cabot, Cabot & Forbes Realty Advisors, Inc. (the
predecessor company of Cabot Partners) and as a Senior Vice President of
the Beal Companies (a real estate management, investment and development
firm).
Mr. Patterson practiced law and held various positions in state
government and was the founding Executive Director of the Massachusetts
Industrial Finance Agency. Mr. Patterson is a graduate of Harvard
College and Harvard Law School.
W. Thomas Stephens (9/2/42), Trustee since 1997
Mr. Stephens serves on a number of corporate boards.
Effective November 2004, Mr. Stephens is expected to become Chief
Executive Officer of Boise Cascade, L.L.C. (a paper, forest products and
timberland assets company). Mr. Stephens serves as a Director of Xcel
Energy Incorporated (a public utility company) and TransCanada Pipelines
Limited. Until 2004, Mr. Stephens was a Director of Qwest Communications
and Norske Canada, Inc. (a paper manufacturer). Until 2003, Mr. Stephens
was a Director of Mail-Well, Inc. (a diversified printing company). He
served as Chairman of Mail-Well until 2001 and as CEO of
MacMillan-Bloedel, Ltd. (a forest products company) until 1999.
Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of
Johns Manville Corporation. He holds B.S. and M.S. degrees from the
University of Arkansas.
George Putnam, III* (8/10/51), Trustee since 1984 and President
since 2000
Mr. Putnam is President of New Generation Research, Inc. (a publisher of
financial advisory and other research services), and of New Generation
Advisers, Inc. (a registered investment advisor to private funds). Mr.
Putnam founded the New Generation companies in 1986.
Mr. Putnam is a Director of The Boston Family Office, LLC (a registered
investment adviser). He is a Trustee of St. Mark's School, Shore Country
Day School, and until 2002 was a Trustee of the Sea Education
Association.
Mr. Putnam previously worked as an attorney with the law firm of Dechert
LLP (formerly known as Dechert Price & Rhoads) in Philadelphia. He is a
graduate of Harvard College, Harvard Business School and Harvard Law
School.
A.J.C. Smith* (4/13/34), Trustee since 1986
Mr. Smith is the Chairman of Putnam Investments and Director of and
Consultant to Marsh & McLennan Companies, Inc.
Mr. Smith is also a Director of Trident Corp. (a limited partnership
with over thirty institutional investors). He is also a Trustee of the
Carnegie Hall Society, the Educational Broadcasting Corporation, and the
National Museums of Scotland. He is Chairman of the Central Park
Conservancy and a Member of the Board of Overseers of the Joan and
Sanford I. Weill Graduate School of Medical Sciences of Cornell
University. 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, 2004, there were 102 Putnam Funds.
Each Trustee serves for an indefinite term, until his or her
resignation, retirement at age 72, 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, and Smith are deemed "interested persons" by virtue
of their positions as officers of the fund, Putnam Management, Putnam
Retail Management or Marsh & McLennan Companies, Inc. and as
shareholders of Marsh & McLennan Companies, Inc. George Putnam, III is
the President of your fund and each of the other Putnam funds. Mr. Smith
serves as a Director of and Consultant to Marsh & McLennan Companies,
Inc. and as Chairman of Putnam Investments.
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, Associate Treasurer and Principal
Executive Officer
Since 1989
Managing Director, Putnam Investments
and Putnam Management
Jonathan S. Horwitz (6/4/55)
Senior Vice President and Treasurer
Since 2004
Managing Director, Putnam Investments
Steven D. Krichmar (6/27/58)
Vice President and Principal Financial Officer
Since 2002
Senior 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
Daniel T. Gallagher (2/27/62)
Vice President and Legal and Compliance Liaison Officer
Since 2004
Vice President, Putnam Investments. Prior to 2004,
Associate, Ropes & Gray LLP; prior to 2000, Law Clerk,
Massachusetts Supreme Judicial Court
Francis J. McNamara, III (8/19/55)
Vice President and Chief Legal Officer
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2004, General Counsel,
State Street Research & Management Company
James P. Pappas (2/24/53)
Vice President
Since 2004
Managing Director, Putnam Investments and Putnam Management.
From 2001 to 2002, Chief Operating Officer, Atalanta/Sosnoff
Management Corporation; prior to 2001, President and Chief
Executive Officer, UAM Investment Services, Inc.
Richard S. Robie, III (3/30/60)
Vice President
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2003, Senior Vice
President, United Asset Management Corporation
Mark C. Trenchard (6/5/62)
Vice President and BSA Compliance Officer
Since 2002
Senior Vice President, Putnam Investments
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.
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 Registered Public Accounting Firm
PricewaterhouseCoopers LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin, III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President,
Associate Treasurer and Principal Executive
Officer
Jonathan S. Horwitz
Senior Vice President and Treasurer
Steven D. Krichmar
Vice President and Principal
Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Beth S. Mazor
Vice President
Daniel T. Gallagher
Vice President and
Legal and Compliance Liaison Officer
James P. Pappas
Vice President
Richard S. Robie, III
Vice President
Mark C. Trenchard
Vice President and BSA Compliance Officer
Francis J. McNamara, III
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, the most recent copy of Putnam's
Quarterly Performance Summary, and Putnam's Quarterly Ranking Summary.
For more recent performance, please visit www.putnaminvestments.com.
Investors should carefully consider the investment objective, risks,
charges, and expenses of a fund, which are described in its prospectus.
For this and other information or to request a prospectus, call
1-800-225-1581 toll free. Please read the prospectus carefully before
investing. 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.
AN021-216503 9/04
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 7/31/04
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 7/31/04
NAV
1 year 10.03%
5 years 15.50
Annual average 2.92
10 years 146.53
Annual average 9.44
Life of fund (since class A inception, 11/5/37)
Annual average 9.44
Share value: NAV
7/31/03 $15.76
7/31/04 $16.95
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
4 $0.375 -- $0.375
- ----------------------------------------------------------------------------
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.
Please see pages 10-11 of the accompanying shareholder report for a
discussion of the information appearing in the tables below:
- ----------------------------------------------------------------------------
EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming actual returns for the 6 months ended 7/31/04
Class Y
Expenses paid per $1,000* $3.81
Ending value (after expenses) $994.10
- ----------------------------------------------------------------------------
EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming a hypothetical 5% annualized return for the 6 months ended 7/31/04
Class Y
Expenses paid per $1,000* $3.86
Ending value (after expenses) $1,021.32
- ----------------------------------------------------------------------------
EXPENSE RATIO COMPARISON USING ANNUALIZED DATA
Your fund's annualized expense ratio+ 0.76%
Average annualized expense ratio for Lipper peer group++ 1.07%
++ For class Y shares, Putnam has adjusted the Lipper total expense average
to reflect that class Y shares do not incur 12b-1 fees.
- ----------------------------------------------------------------------------
Item 2. Code of Ethics:
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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:
- -----------------------------------------------
The following table presents fees billed in each of the last two fiscal
years for services rendered to the fund by the fund's independent
auditors:
Audit Audit-Related Tax All Other
Fiscal year ended Fees Fees Fees Fees
- ----------------- ---------- ------------- ------- ---------
July 31, 2004 $119,248* $-- $9,028 $1,151
July 31, 2003 $93,273 $47,876** $6,908 $--
* Includes fees of $ 4,953 billed by the fund's independent auditor to
the fund for audit procedures necessitated by regulatory and litigation
matters. These fees were reimbursed to the fund by Putnam.
** Includes fees billed to the fund for services relating to one or more
fund mergers. A portion of such fees was paid by Putnam Management.
For the fiscal years ended July 31, 2004 and July 31, 2003, the fund's
independent auditors billed aggregate non-audit fees in the amounts of
$143,807 and $128,379 , respectively, to the fund, Putnam Management and
any entity controlling, controlled by or under common control with
Putnam Management that provides ongoing services to the fund.
Audit Fees represents fees billed for the fund's last two fiscal years.
Audit-Related Fees represents fees billed in the fund's last two fiscal
years for services traditionally performed by the fund's auditor,
including accounting consultation for proposed transactions or
concerning financial accounting and reporting standards and other audit
or attest services not required by statute or regulation.
Tax Fees represent fees billed in the fund's last two fiscal years for
tax compliance, tax planning and tax advice services. Tax planning and
tax advice services include assistance with tax audits, employee benefit
plans and requests for rulings or technical advice from taxing
authorities.
All Other Fees Fees represent fees billed for services relating to fund
expense processing.
Pre-Approval Policies of the Audit and Pricing Committee. The Audit and
Pricing Committee of the Putnam funds has determined that, as a matter
of policy, all work performed for the funds by the funds' independent
auditors will be pre-approved by the Committee and will generally not be
subject to pre-approval procedures.
Under certain circumstances, the Audit and Pricing Committee believes
that it may be appropriate for Putnam Investment Management, LLC
("Putnam Management") and certain of its affiliates to engage the
services of the funds' independent auditors, but only after prior
approval by the Committee. Such requests are required to be submitted
in writing to the Committee and explain, among other things, the nature
of the proposed engagement, the estimated fees, and why this work must
be performed by that particular audit firm. The Committee will review
the proposed engagement at its next meeting.
Since May 6, 2003, all work performed by the independent auditors for
the funds, Putnam Management and any entity controlling, controlled by
or under common control with Putnam Management that provides ongoing
services to the fund was pre-approved by the Committee or a member of
the Committee pursuant to the pre-approval policies discussed above.
Prior to that date, the Committee had a general policy to pre-approve
the independent auditor's engagements for non-audit services with the
funds, Putnam Management and any entity controlling, controlled by or
under common control with Putnam Management that provides ongoing
services to the fund.
The following table presents fees billed by the fund's principal auditor
for services required to be approved pursuant to paragraph (c)(7)(ii) of
Rule 2-01 of Regulation S-X.
Audit-Related Tax All Other Total Non-
Fiscal year ended Fees Fees Fees Audit Fees
- ----------------- ------------- ---- --------- ----------
June 30, 2004 $-- $-- $-- $--
June 30, 2003 $-- $-- $-- $--
Item 5. Audit Committee: Not applicable
- -------------------------
Items 6. Schedule of Investments: Not applicable
- ---------------------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. Purchases of Equity Securities by Closed-End Management Investment
- --------------------------------------------------------------------------
Companies and Affiliated Purchasers: Not applicable
------------------------------------
Item 9. Submission of Matters to a Vote of Security Holders:
- ------------------------------------------------------------
Not applicable
Item 10. Controls and Procedures:
- --------------------------------
(a) The registrant's principal executive officer and principal
financial officer 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, that the design and operation of
such procedures are generally effective to provide reasonable
assurance that information required to be disclosed by the
registrant in this report 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 11. 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
and 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 27, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934
and 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/Charles E. Porter
---------------------------
Charles E. Porter
Principal Executive Officer
Date: September 27, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: September 27, 2004