-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J4Ef4fWZHNJdTvVYKT35kFdthdPMY23lzYoUWZCeByHyQmCGn3LxUBPc0WNOjCbg gwq+Z001kTxys9XJUzdzRw== 0000928816-97-000006.txt : 19970109 0000928816-97-000006.hdr.sgml : 19970109 ACCESSION NUMBER: 0000928816-97-000006 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961031 FILED AS OF DATE: 19970108 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUTNAM CONVERTIBLE INCOME GROWTH TRUST CENTRAL INDEX KEY: 0000081247 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 042493360 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-02280 FILM NUMBER: 97502630 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQ STREET 2: MAILSTOP A 14 CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 8002551581 FORMER COMPANY: FORMER CONFORMED NAME: PUTNAM CONVERTIBLE FUND DATE OF NAME CHANGE: 19841212 FORMER COMPANY: FORMER CONFORMED NAME: PUTNAM CONVERTIBLE FUND INC /PRED/ DATE OF NAME CHANGE: 19821109 N-30D 1 PUTNAM CONVERTIBLE INCOME-GROWTH TRUST Putnam Convertible Income-Growth Trust ANNUAL REPORT October 31, 1996 [LOGO: BOSTON * LONDON * TOKYO] Fund highlights * Putnam Convertible Income-Growth Trust has earned consistently high rankings from Lipper Analytical Services for total-return performance. The fund's class A shares were ranked 1 out of 10 convertible securities funds for 10-year performance through October 31, 1996. The fund has also outperformed its competition over shorter time periods. Its class A shares were ranked 4 out of 19 funds for 5-year performance, 1 out of 27 funds for 3-year performance, and 12 out of 42 funds for 1-year performance through October 31, 1996* * "The marketplace for convertible securities has grown increasingly popular with both institutional and retail investors thanks to a combination of attractive historical returns and, over time, lower volatility than common stocks."+ -- Hugh H. Mullin, Lead Manager Putnam Convertible Income-Growth Trust CONTENTS 4 Report from Putnam Management 8 Fund performance summary 16 Portfolio holdings 29 Financial statements *Lipper rankings are based on total return performance, vary over time, and do not reflect the effects of sales charges. The fund's class B and class M shares ranked 15 and 14, respectively, out of 42 convertible securities funds for 1-year performance through 10/31/96. Class B and class M shares were not ranked over longer applicable periods. Past performance is not indicative of future results. +According to Putnam research. From the Chairman [GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM] (copyright) Karsh, Ottawa Dear Shareholder: Stock and bond market environments amenable toward convertible securities helped Putnam Convertible Income-Growth Trust post yet another successful year during the 12 months ended October 31, 1996. Continued economic growth at a pace that kept inflation at bay and interest rates that remained fairly stable were the key ingredients in maintaining this favorable setting. Fund managers Hugh Mullin and Charles Pohl took advantage of these conditions by directing roughly a quarter of the fund's assets into common stocks as the equity market continued its advance. They also utilized Putnam's extensive research capabilities -- and their own firsthand evaluations -- in selecting convertibles as these securities responded favorably to stock market strength throughout the period. Hugh and Charlie provide specific details in the following report as they discuss your fund's performance in fiscal 1996 and prospects for fiscal 1997. Respectfully yours, /S/George Putnam George Putnam Chairman of the Trustees December 18, 1996 Report from the Fund Managers Hugh H. Mullin, lead manager Charles G. Pohl Strong market performance, favorable supply and demand conditions, and successful security selection drove all share classes of Putnam Convertible Income-Growth Trust to double-digit returns at net asset value for the 12 months ended October 31, 1996. While not wanting to minimize the achievements of this past year, we do believe that your fund's longer-term performance is a more useful reference for investors than that of any single year. And, as we have detailed on page 2, over periods of one year or more your fund has excelled among other similarly managed portfolios. Additional performance results for all share classes, along with comparative indexes, are listed in the performance summary that begins on page 8. * SLOW-GROWTH ECONOMY FAVORED STOCKS AND CONVERTIBLES Continued economic growth and low inflation characterized your fund's 1996 fiscal year. Overall, the strength of corporate America, exemplified by high returns on equity and disciplined cost containment, kept the stock market on an unprecedented positive track. Bonds experienced a decline during the first half of the fiscal year when investors feared that an accelerating economy would lead the Federal Reserve Board to boost interest rates. By the second half of the year however, bonds rebounded as it became apparent that economic growth remained sufficiently moderate to avoid spurring inflation. Given this investment climate, we combined asset allocation and security selection to structure the fund's portfolio. Keeping more than a quarter of the fund's assets invested in common stocks allowed us to take direct advantage of the market's rise. The built-in equity features of convertible bonds allowed these securities -- your fund's primary focus - -- to benefit as well. In fact, as we mentioned in your fund's most recent semiannual report, many of the current issuers of convertible bonds are smaller companies seeking expansion capital, rather than established companies in need of operating funds. This shift in the composition of the convertible market has resulted in a pool of securities whose prices are generally more responsive to changes in stock prices than to fluctuations in interest rates. * CONVERTIBLES' POPULARITY GROWS AMID LIMITED SUPPLY Despite increasing in popularity with both institutional and individual investors, the supply of convertibles has remained relatively flat over the past two years. Many companies that issued convertibles in the early 1990s to help them recover from the recession have taken advantage of today's healthier economic climate to convert their bonds into equities. New issuance has failed to keep pace with conversions, redemptions, and calls -- redeeming the securities before their stated maturity dates -- and, consequently, the supply of convertibles remains tight. This tight supply, combined with the increased demand, creates a positive environment for your fund's holdings. * IN-DEPTH RESEARCH AND FIRSTHAND EVALUATIONS GUIDE PORTFOLIO SELECTIONS When selecting stocks and convertibles for your fund's portfolio, we seek quality companies whose stocks appear to be undervalued in the market yet possess strong potential for growth. Our in-depth research goes beyond how the companies look on paper to include on-site visits and regular contact with management. A common factor we consider is the potential for internal change -- some initiative on the part of the company to develop in a new direction, whether through geographic expansion, innovative products and marketing strategies, or simply a shift of management style. [GRAPHIC HORIZONTAL BAR CHART OMITTED: TOP INDUSTRY SECTORS (10/31/96)*] TOP INDUSTRY SECTORS (10/31/96)* Banks 8.5% Oil and gas 6.3% Insurance and finance 5.8% Retail 5.7% Electronics and electrical equipment 4.8% Footnote reads: *Based on net assets. Top industry weightings will vary over time. July's brief technology-driven market correction gave us the opportunity to capitalize on some of our research at a particularly favorable time. In the months leading up to the correction, we had amassed a select list of securities in the technology sector that we believed exhibited strong potential. We waited patiently for opportunities to obtain these holdings at attractive prices and were ultimately rewarded. One niche within the computer industry that we found particularly appealing was contract manufacturing, whereby companies assume responsibility for manufacturing another company's products, often carrying out the job with higher quality and lower costs. One such holding we acquired during the correction was Sanmina Corporation, a leading electronics contract manufacturer. Operating from facilities in California, Texas, and New Hampshire, the company provides customized integrated manufacturing services to companies in the telecommunications, data communications, computer systems, and industrial and medical instrumentation industries. While Sanmina, along with other companies discussed in this report, was viewed favorably at the end of the fiscal year, all portfolio holdings are subject to review and adjustment in accordance with the fund's investment strategy and may vary in the future. The continued success of holdings in the financial sector also contributed to the fund's performance in the second half of fiscal 1996. The sector showed some strong returns for both stocks and convertibles, yet remains undervalued, in our opinion, and may still contribute to fund performance going forward. Regional banks and insurance companies are both well represented in the portfolio, which includes investments in Banc One, St. Paul Capital, and USF&G, among others. Successful cost-cutting measures and an environment of rising commodities prices led us to take profits in the fund's smaller oil services holdings, redeploying assets into diverse sectors in which we found companies that met our value-investment criteria. Our investment in the convertible bonds issued by Air Touch, a Pacific Telesis spinoff and a market leader in the cellular communications industry, is one that we believe may remain attractive even in a slowing U.S. economy, thanks to the company's solid growth dynamics and important worldwide concessions. [GRAPHIC OMITTED: TOP 10 HOLDINGS (10/31/96)*] TOP 10 HOLDINGS (10/31/96)* Rogers Communications, 2% convertible, 2005 Telecommunications Healthsource, Inc., 5% convertible, 2003 Health maintenance organization Banamex (Nassau Branch), 11% convertible, 2003 Banking Softkey International, Inc., 5.5% convertible, 2000 Consumer software Magna International, 5% convertible, 2002 Automotive parts and accessories Mitsubishi Bank Ltd. Int'l Finance, 3% convertible, 2002 Banking Baker (J.), Inc., 7% convertible, 2002 Footwear retailing Sumitomo Bank Ltd., 0.75% 144A convertible, 2001 Banking Freeport-McMoRan Copper Co., Inc., $1.75 convertible pfd. Metals and mining USF&G Corp., 0% convertible, 2009 Insurance and finance Footnote reads: *Top 10 holdings represent 8.1% of the fund's net assets. Portfolio holdings will vary over time. For complete descriptions of top 10 holdings, please see listing of portfolio holdings beginning on page 16. * SHORT-TERM OUTLOOK REMAINS FAVORABLE As your fund enters fiscal year 1997, we believe moderate growth and low inflation are likely to continue to dominate the U.S. economy -- a scenario that favors both common stocks and convertible securities. No matter what the investment climate, however, we remain committed to our diversified, value-oriented strategy and will continue to employ the same combination of in-depth analysis and firsthand evaluations that have thus far earned your fund its solid reputation. The views expressed here are exclusively those of Putnam Management. They are not meant as investment advice. Although the described holdings were viewed favorably as of 10/31/96, there is no guarantee the fund will continue to hold these securities in the future. Performance summary Performance should always be considered in light of a fund's investment strategy. Putnam Convertible Income-Growth Trust is designed for investors seeking current income and capital appreciation mainly through bonds and preferred stocks convertible into common stock, with capital conservation as a secondary objective. This section provides, at a glance, information about your fund's performance. 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. TOTAL RETURN FOR PERIODS ENDED 10/31/96 Class A Class B Class M (inception date) (6/29/72) (7/15/93) (3/13/95) NAV POP NAV CDSC NAV POP - ------------------------------------------------------------------------ 1 year 18.99% 12.17% 18.14% 13.14% 18.30% 14.17% - ------------------------------------------------------------------------ 5 years 99.37 87.93 -- -- -- -- Annual average 14.80 13.45 -- -- -- -- - ------------------------------------------------------------------------ 10 years 180.63 164.54 -- -- -- -- Annual average 10.87 10.22 -- -- -- -- - ----------------------------------------------------------------------- Life of class -- -- 42.84 39.84 33.66 28.95 Annual average -- -- 11.41 10.70 19.35 16.77 - ------------------------------------------------------------------------ Performance data represent past results, do not reflect future performance, and will differ for each share class. They do not take into account any adjustment for taxes payable on reinvested distributions. Investment returns and principal value will fluctuate so that an investor's shares, when sold, may be worth more or less than their original cost. POP assumes 5.75% maximum sales charge for class A shares and 3.50% for class M shares. CDSC for class B shares assumes the applicable sales charge, with the maximum being 5%. [GRAPHIC WORM CHART OMITTED: GROWTH OF A $10,000 INVESTMENT] GROWTH OF A $10,000 INVESTMENT Cumulative total return of a $10,000 investment since 10/31/86 Starting value (Insert ending Total) $9,425 Fund's class A shares at POP $26,454 $10,000 S&P 500 Index $39,200 $10,000 Lehman Bros. Corporate Bond Index $24,361 (plot points for 10-year total return mountain chart) Lehman Corp Date/year Fund at POP S&P 500 Index Bond Index 10/31/86 9425 10000 10000 10/31/87 8767 10633 10194 10/31/88 9942 12217 11545 10/31/89 11423 15438 12977 10/31/90 9543 14282 13530 10/31/91 13269 19066 15913 10/31/92 15678 20960 17682 10/31/93 19088 24064 20362 10/31/94 19438 24992 19307 10/31/95 22233 31592 22934 10/31/96 26454 39200 24361 Footnote reads: Past performance is no assurance of future results. A $10,000 investment in the fund's class B shares at inception on 7/15/93 would have been valued at $14,284 on 10/31/96 ($13,984 with a redemption at the end of the period). A $10,000 investment in the fund's class M shares at inception on 3/13/95 would have been valued at $13,366 at net asset value on 10/31/96 ($12,895 at public offering price). COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 10/31/96 Lehman Bros. S&P 500 Corporate Bond Index Index - ------------------------------------------------------------------------ 1 year 24.08% 6.22% - ----------------------------------------------------------------------- 5 years 105.60 53.09 Annual average 15.50 8.89 - ------------------------------------------------------------------------ 10 years 292.00 143.61 Annual average 14.64 9.31 - ----------------------------------------------------------------------- Life of class B 70.56 24.42 Annual average 17.35 6.77 - ------------------------------------------------------------------------ Life of class M 50.48 19.31 Annual average 27.67 11.13 - ------------------------------------------------------------------------ TOTAL RETURN FOR PERIODS ENDED 9/30/96 (most recent calendar quarter) Class A Class B Class M (inception date) (6/29/72) (7/15/93) (3/13/95) NAV POP NAV CDSC NAV POP - ------------------------------------------------------------------------ 1 year 16.00% 9.31% 15.10% 10.10% 15.38% 11.31% - ------------------------------------------------------------------------ 5 years 102.49 90.85 -- -- -- -- Annual average 15.15 13.80 -- -- -- -- - ----------------------------------------------------------------------- 10 years 187.62 171.11 -- -- -- -- Annual average 11.14 10.49 -- -- -- -- - ------------------------------------------------------------------------ Life of class -- -- 41.82 38.82 32.71 28.04 Annual average -- -- 11.50 10.76 19.89 17.17 - ----------------------------------------------------------------------- Performance data represent past results, do not reflect future performance, and will differ for each share class. They do not take into account any adjustment for taxes payable on reinvested distributions or for payments under the fund's class A distribution plan prior to its implementation. Investment returns and principal value will fluctuate so that an investor's shares, when sold, may be worth more or less than their original cost. PRICE AND DISTRIBUTION INFORMATION 12 months ended 10/31/96 Class A Class B Class M - ----------------------------------------------------------------------- Distributions (number): 4 4 4 - ----------------------------------------------------------------------- Income $0.978 $0.840 $0.897 - ------------------------------------------------------------------------ Capital gains: - ----------------------------------------------------------------------- Long-term 0.448 0.448 0.448 - ----------------------------------------------------------------------- Short-term 0.266 0.266 0.266 - ------------------------------------------------------------------------ Total $1.692 $1.554 $1.611 - ----------------------------------------------------------------------- Share value: NAV POP NAV NAV POP - ----------------------------------------------------------------------- 10/31/95 $19.42 $20.60 $19.30 $19.37 $20.07 - ----------------------------------------------------------------------- 10/31/96 21.24 22.54 21.09 21.14 21.91 - ----------------------------------------------------------------------- Current return (end of period) - ----------------------------------------------------------------------- Current dividend rate1 4.52% 4.26% 3.89% 4.11% 3.96% - ----------------------------------------------------------------------- Current 30-day SEC yield2 4.18 3.94 3.43 3.68 3.55 - ------------------------------------------------------------------------ 1Income portion of most recent distribution, annualized and divided by NAV or POP at end of period. 2Based on investment income, calculated using SEC guidelines. TERMS AND DEFINITIONS Class A shares are generally subject to an initial sales charge. Class B shares may be subject to a sales charge upon redemption. Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no sales charge on redemption. Net asset value (NAV) is the value of all your fund's assets, minus any liabilities, divided by the number of outstanding shares, not including any initial or contingent deferred sales charge. Public offering price (POP) is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. POP performance figures shown here assume the maximum 5.75% sales charge for class A shares and 3.50% for class M shares. Contingent deferred sales charge (CDSC) is a charge applied at the time of the redemption of class B shares and assumes redemption at the end of the period. Your fund's CDSC declines from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. COMPARATIVE BENCHMARKS Standard & Poor's 500 Index is an unmanaged list of large-capitalization common stocks and is frequently used as a general gauge of stock market performance.* Lehman Brothers Corporate Bond Index is an unmanaged list of corporate bonds.* *Securities indexes assume reinvestment of all distributions and interest payments and do not take into account brokerage fees or taxes. Securities in the fund do not match those in the indexes and performance of the fund will differ. It is not possible to invest directly in an index. A Putnam perspective on risk and reward You've probably been told how important it is to understand the relationship between an investment's potential rewards and its accompanying risks. Given the cautionary nature of such instructions, it may take most investors a while to realize that risk has a positive side. Every risk signals a potential reward. Selecting only those investments that offer the greatest degree of security generally leads to only modest rewards. Furthermore, even insured or guaranteed investments may be subject to changes in their rates of return or, in some cases, in their principal values. Experienced investors know that no investment is truly risk free and are therefore willing to take on some measure of risk in order to increase their potential gains. The greater the risk, the greater the potential reward. Accepting an appropriate level of investment risk can give you a better chance of outpacing inflation over time and seeking to maximize your investment's return. How much risk? Your financial advisor's feedback and your time horizon can make all the difference in determining how much risk is compatible with your investment goals and your peace of mind. * FITTING YOUR FUND SELECTION TO YOUR RISK TOLERANCE How do you find the right balance between investment risks and their potential rewards? It's helpful to understand the types of risks that can apply to different types of investments, and to look at your own portfolio with this perspective. For short-term goals, your first priority may be managing market risk. Longer-term investors may be more concerned with inflation risk. And all income-oriented investors should consider interest-rate, credit, and prepayment risks carefully. Within each of Putnam's four investment categories, you can select funds with differing levels of risk and reward potential to customize your portfolio. This list covers only the most general types of risks; however, each investment will also have its own specific risks. You will find a more detailed discussion of these risk considerations in each fund's prospectus. * A RUNDOWN OF RISK TYPES MARKET RISK Most important for stock funds, but relevant to all funds, this is a measure of how sensitive a fund's holdings are to changes in general market conditions. Remember, though, that securities that lose value quickly in market declines may also show the strongest gains in more favorable environments. INTEREST-RATE RISK Since bond prices fall as interest rates rise, this type of risk is a particular concern for fixed-income inves- tors. However, interest-rate increases can also have a substantial negative effect on the stock market. INFLATION RISK If your investments cannot keep pace with inflation, your money will begin to lose its purchasing power. Stock investments are generally considered among the best ways of addressing inflation risk over the long term. CREDIT AND PREPAYMENT RISK Credit risk is the concern that the security's issuer will not be able to meet its payment, while prepayment risk involves the premature payoff of a loan, with a resulting loss of interest income. Professional management and in-depth research are invaluable in managing both these risks. LIQUIDITY RISK Not all investments can be readily converted into cash at their perceived market values. Liquidity risk can affect the price of securities held in the fund's portfolio and, thus, the fund's share prices. PUTNAM GROWTH FUNDS Asia Pacific Growth Fund Capital Appreciation Fund Diversified Equity Trust Europe Growth Fund Global Growth Fund Global Natural Resources Fund * Health Sciences Trust International Growth Fund + International New Opportunities Fund Investors Fund New Opportunities Fund OTC & Emerging Growth Fund (DOUBLE DAGGER) Vista Fund Voyager Fund Voyager Fund II PUTNAM GROWTH AND INCOME FUNDS Balanced Retirement Fund Convertible Income-Growth Trust Equity Income Fund The George Putnam Fund of Boston The Putnam Fund for Growth and Income Growth and Income Fund II International Growth and Income Fund New Value Fund Utilities Growth and Income Fund PUTNAM INCOME FUNDS American Government Income Fund Diversified Income Trust Diversified Income Trust II Federal Income Trust Global Governmental Income Trust High Yield Advantage Fund High Yield Trust Income Fund Intermediate U.S. Government Income Fund Preferred Income Fund U.S. Government Income Trust PUTNAM TAX-FREE INCOME FUNDS Municipal Income Fund Tax Exempt Income Fund Tax-Free High Yield Fund Tax-Free Insured Fund State tax-free income funds [SECTION MARK] Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey, New York, Ohio and Pennsylvania LIFESTAGESM FUNDS Putnam Asset Allocation Funds--three investment portfolios that spread your money across a variety of stocks, bonds, and money market investments. The three portfolios: Asset Allocation: Balanced Portfolio Asset Allocation: Conservative Portfolio Asset Allocation: Growth Portfolio MOST CONSERVATIVE INVESTMENTS ** Putnam money market funds: ++ California Tax Exempt Money Market Fund Money Market Fund New York Tax Exempt Money Market Fund Tax Exempt Money Market Fund CDs and savings accounts (2 DOUBLE DAGGERS) * Formerly Natural Resources Fund + Formerly Overseas Growth Fund [DBL. DAGGER] Formerly OTC Emerging Growth Fund [SECTION MARK] Not available in all states. ** Relative to above. ++ An investment in a money market fund is neither insured nor guaranteed by the U.S. government. These funds are managed to maintain a price of $1.00 per share, although there is no assurance that this price will be maintained in the future. [2 DBL. DAGGERS] Not offered by Putnam Investments. Certificates of deposit offer a fixed rate of return and may be insured up to certain limits by federal/state agencies. Savings accounts may also be insured up to certain limits. Please call your financial advisor or Putnam at 1- 800-225-1581 to obtain a prospectus for any Putnam fund. It contains more complete information, including charges and expenses. Please read it carefully before you invest or send money. Report of independent accountants For the fiscal year ended October 31, 1996 To the Trustees and Shareholders of Putnam Convertible Income-Growth Trust We have audited the accompanying statement of assets and liabilities of Putnam Convertible Income-Growth Trust, including the portfolio of investments owned, as of October 31, 1996, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1996, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Putnam Convertible Income-Growth Trust as of October 31, 1996, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated therein, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Boston, Massachusetts December 13, 1996
Portfolio of investments owned October 31, 1996 CONVERTIBLE BONDS AND NOTES (45.7%) * PRINCIPAL AMOUNT VALUE Aerospace and Defense (0.5%) - --------------------------------------------------------------------------------------------------------------------- $3,750,000 Rohr Industries, Inc. cv. sub. deb. 7s, 2012 3,225,000 2,250,000 UNC Inc. cv. sub. deb. 7 1/2s, 2006 2,126,250 -------------- 5,351,250 Automotive (2.1%) - --------------------------------------------------------------------------------------------------------------------- 9,740,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 5,917,050 7,500,000 Magna International cv. sub. deb. 5s, 2002 8,212,500 3,750,000 Mascotech, Inc. cv. sub. deb. 4 1/2s, 2003 3,000,000 JPY 400,000,000 Toyota Motor Corp. cv. deb. 1.2s, 1998 (Japan) 4,878,049 -------------- 22,007,599 Banks (2.6%) - --------------------------------------------------------------------------------------------------------------------- $8,852,000 Banamex (Nassau Branch) 144A cv. jr. sub. notes 11s, 2003 (Mexico) 8,896,260 2,073,000 Banco Nacional de Mexico S.A. cv. bonds 7s, 1999 (Bahamas) 1,933,073 380,000 Banco Nacional de Mexico 144A cv. company guaranty 7s, 1999 (Bahamas) 354,350 7,500,000 Mitsubishi Bank Ltd. International Finance (Bermuda) cv. trust guaranteed notes 3s, 2002 (Japan) 8,146,875 JPY 830,000,000 Sumitomo Bank Ltd. 144A cv. bank guarantee 3/4s, 2001 (Japan) 7,973,768 -------------- 27,304,326 Basic Industrial Products (1.9%) - --------------------------------------------------------------------------------------------------------------------- $7,000,000 Cooper Industries, Inc. cv. sub. 7.05s, 2015 7,420,000 3,700,000 SKF Corp. 144A cv. deb. zero %, 2002 (Sweden) 2,968,593 1,000,000 Thermo Electron Corp. cv. deb. 5s, 2001 1,750,000 4,000,000 Thermo Electron Corp. 144A cv. sub. 4 1/4s, 2003 4,520,000 1,590,000 Titan Wheel International Inc. cv. sub. deb. 4 3/4s, 2000 1,673,475 1,270,000 Trimas Corp. cv. sub. deb. 5s, 2003 1,377,950 -------------- 19,710,018 Broadcasting (0.3%) - --------------------------------------------------------------------------------------------------------------------- 3,100,000 International Cabletel Inc. 144A cv. sub. deb. 7 1/4s, 2005 3,247,250 Building and Construction (0.7%) - --------------------------------------------------------------------------------------------------------------------- 1,140,000 Continental Homes Holding cv. sub. notes 6 7/8s, 2002 1,111,500 3,000,000 Empresas Ica Sociedad ADS cv. sub. deb. 5s, 2004 (Mexico) 1,995,000 3,000,000 New World Infrastructure Ltd. 144A cv. bonds 5s, 2001(Hong Kong) 3,225,000 1,805,000 U.S. Home Corp. cv. deb. 4 7/8s, 2005 1,550,044 -------------- 7,881,544 Business Equipment and Services (2.0%) - --------------------------------------------------------------------------------------------------------------------- 750,000 Career Horizons, Inc. cv. bonds 7s, 2002 1,757,813 3,750,000 Conner Peripherals, Inc. cv. sub. deb. 6 1/2s, 2002 4,654,688 4,850,000 Corporate Express, Inc. 144A cv. notes 4 1/2s, 2000 4,534,750 6,590,000 Maxtor Corp. cv. sub. deb. 5 3/4s, 2012 4,481,200 2,535,000 National Data Corp. sub. notes 5s, 2003 2,535,000 750,000 US Office Products Co. cv. sub notes 5 1/2s, 2003 678,750 3,000,000 US Office Products Co. 144A cv. sub. notes 5 1/2s, 2003 2,707,500 -------------- 21,349,701 Computer Equipment (0.2%) - --------------------------------------------------------------------------------------------------------------------- 2,500,000 Synoptics Communications Inc. 144A cv. sub. deb. 5 1/4s, 2003 2,190,625 Computers (1.1%) - --------------------------------------------------------------------------------------------------------------------- 2,500,000 Apple Computer, Inc. 144A cv. sub. notes 6s, 2001 2,550,000 2,915,000 EMC Corp. cv. sub. notes 4 1/4s, 2001 3,935,250 750,000 MacNeal-Schwendler cv. sub. deb. 7 7/8s, 2004 682,500 3,225,000 Safeguard Scientifics, Inc. 144A cv. sub. notes 6s, 2006 4,398,094 -------------- 11,565,844 Computer Software (0.8%) - --------------------------------------------------------------------------------------------------------------------- 10,800,000 Softkey International, Inc. 144A cv. sr. notes 5 1/2s, 2000 8,802,000 Conglomerates (0.5%) - --------------------------------------------------------------------------------------------------------------------- 750,000 Alfa S.A. 144A cv. sub. notes 8s, 2000 (Mexico) 787,500 2,250,000 Hexcel Corp. cv. sub. notes 7s, 2003 3,015,000 1,500,000 Samsung Heavy Industries cv. deb. 1/2s, 2009 1,605,000 -------------- 5,407,500 Consumer Durable Goods (0.7%) - --------------------------------------------------------------------------------------------------------------------- 18,500,000 Whirpool Corp. cv. LYON (Liquid Yield Option Notes) zero %, 2011 7,099,375 Consumer Non Durables (1.6%) - --------------------------------------------------------------------------------------------------------------------- 1,625,000 BEC Group, Inc. cv. sub. notes 8s, 2002 (2 double daggers) 1,511,250 1,050,000 Bell Sports Corp. cv. sub. deb. 4 1/4s, 2000 801,938 22,250,000 Coleman Worldwide Corp. cv. sr. sec. LYON zero %, 2013 6,369,063 2,000,000 Dixie Yarns, Inc. cv. deb. 7s, 2012 1,580,000 8,045,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 2007 6,224,819 -------------- 16,487,070 Consumer Services (3.4%) - --------------------------------------------------------------------------------------------------------------------- 8,300,000 ADT Operations Inc. cv. sub. notes zero %, 2010 4,876,250 13,350,000 Boston Chicken, Inc. cv. LYON zero %, 2015 4,238,625 1,500,000 Comcast Corp. cv. sub. deb. stepped-coupon 3 3/8s, (5 1/2s, 9/9/97), 2005 ++ 1,295,625 12,750,000 Comcast Corp. cv. notes 1 1/8s, 2007 5,849,063 20,150,000 Hollinger, Inc. cv. LYON zero %, 2013 6,851,000 280,000 Pharmaceutical Marketing Services Inc. cv. notes 6 1/4s, 2003 219,800 6,190,000 Pharmaceutical Marketing Services Inc. 144A cv. deb. 6 1/4s, 2003 4,743,075 3,725,000 Protection One Alarm cv. sr. sub. notes 6 3/4s, 2003 3,562,031 4,630,000 WMS Industries, Inc. cv. deb. 5 3/4s, 2002 4,676,300 -------------- 36,311,769 Electronics and Electrical Equipment (3.4%) - --------------------------------------------------------------------------------------------------------------------- 1,850,000 Diagnostic Retrieval System cv. sr. sub. deb. 9s, 2003 2,349,500 6,000,000 Magnetek, Inc. cv. deb. 8s, 2001 5,970,000 7,615,000 Motorola, Inc. cv. sub. deb. LYON zero %, 2013 5,178,200 1,000,000 Park Electrochemical Corp. cv. sub. notes 5 1/2s, 2006 840,000 4,745,000 Richardson Electronics Ltd. cv. sub. deb. 7 1/4s, 2006 4,027,319 1,700,000 S3, Inc. 144A cv. sub. notes 5 3/4s, 2003 2,006,000 2,600,000 Sanmina Corp. 144A cv. sub. notes 5 1/2s, 2002 4,472,000 3,165,000 SCI Systems, Inc. cv. sub. notes 5s, 2006 3,837,563 5,500,000 Texas Instruments cv. sub. deb. 2 3/4s, 2002 6,682,500 -------------- 35,363,082 Electronic Components and Instruments (0.9%) - --------------------------------------------------------------------------------------------------------------------- 1,900,000 Thermo Instrument Systems, Inc. 144A cv. deb. 4 1/2s, 2003 1,890,500 1,215,000 Thermo Instrument Systems 144A cv. company guaranty 3 3/4s, 2000 2,145,994 2,700,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 2,754,000 2,295,000 Thermo Quest Corp. 144A cv. company guaranty 5s, 2000 2,295,000 -------------- 9,085,494 Environmental Control (1.6%) - --------------------------------------------------------------------------------------------------------------------- 3,100,000 OHM Corp. cv. sub. deb. 8s, 2006 2,805,500 3,940,000 Thermo Terratech, Inc. 144A cv. sub. deb. 4 5/8s, 2003 3,664,200 2,060,000 U.S. Filter Corp. 144A cv. sub. notes 6s, 2005 3,934,600 6,378,000 WMX Technologies, Inc. cv. sub. notes 2s, 2005 6,059,100 -------------- 16,463,400 Food (0.4%) - --------------------------------------------------------------------------------------------------------------------- 2,500,000 Chiquita Brands International cv. deb. 7s, 2001 2,212,500 2,400,000 Chiquita Brands International, Inc. 144A cv. sub 7s, 2001 2,124,000 -------------- 4,336,500 Food and Beverages (0.4%) - --------------------------------------------------------------------------------------------------------------------- 4,000,000 Grand Metropolitan PLC cv. unsub. deb. 6 1/2s, 2000 (United Kingdom) 4,690,000 Health Care (3.5%) - --------------------------------------------------------------------------------------------------------------------- 3,600,000 American Medical Response 144A cv. sub. notes 5 1/4s, 2001 3,690,000 2,740,000 Careline, Inc. cv. sr. sub. notes 8s, 2001 3,109,900 11,450,000 Healthsource, Inc. 144A cv. sub. notes 5s, 2003 9,059,813 1,500,000 NovaCare, Inc. cv. sub. deb. 5 1/2s, 2000 1,338,750 3,235,000 Renal Treatment Centers, Inc. 144A cv. sub. notes 5 5/8s, 2006 3,235,000 2,350,000 Rotech Medical Corp. 144A cv. sub. deb. 5 1/4s, 2003 2,000,438 2,435,000 Quantum Health Resources, Inc. cv. sub. deb. 4 3/4s, 2000 2,154,975 6,500,000 Theratx Inc. 144A cv. sub. 8s, 2002 5,850,000 2,738,000 Theratx Inc. cv. sub. deb. 8s, 2002 2,464,200 4,250,000 Vivra, Inc. 144A cv. sub. notes 5s, 2001 4,467,813 -------------- 37,370,889 Hospital Management and Medical Services (1.6%) - --------------------------------------------------------------------------------------------------------------------- 1,900,000 Complete Management, Inc. cv. sub. deb. 8s, 2003 2,208,750 3,270,000 Integrated Health Services, Inc. cv. sub. deb. 6s, 2003 3,204,600 4,665,000 Sun Healthcare Group Inc. 144A cv. sub. 6s, 2004 4,134,356 3,450,000 Tenet Health Care Corp. cv. sub. notes 6s, 2005 3,523,313 2,545,000 U.S. Diagnostic Laboratories, Inc. 144A cv. sub. deb. 9s, 2003 3,817,500 -------------- 16,888,519 Insurance and Finance (1.8%) - --------------------------------------------------------------------------------------------------------------------- 5,000,000 NAC Re Corp. cv. deb. 5 1/4s, 2002 4,906,250 3,640,000 Pioneer Financial Services cv. sub. notes 6 1/2s, 2003 3,767,400 1,990,000 Trenwick Group, Inc. cv. deb. 6s, 1999 2,159,150 12,300,000 USF&G Corp. cv. sub. notes zero %, 2009 7,779,750 -------------- 18,612,550 Medical Supplies and Devices (0.6%) - --------------------------------------------------------------------------------------------------------------------- 2,000,000 Phoenix Shannon 144A cv. sr. sub. notes 9 1/2s, 2000 1,535,000 3,200,000 Uromed Corp. 144A cv. sub. notes 6s, 2003 3,112,000 1,000,000 Ventritex, Inc. cv. sub. notes 5 3/4s, 2001 1,480,000 -------------- 6,127,000 Metals and Mining (0.3%) - --------------------------------------------------------------------------------------------------------------------- 2,739,500 Quanex Corp. cv. sub. deb. 6.88s, 2007 2,828,534 Oil and Gas (1.4%) - --------------------------------------------------------------------------------------------------------------------- 2,995,000 Cross Timbers Oil Co. cv. deb. 5 1/4s, 2003 3,290,756 2,750,000 Pennzoil Co. cv. sub. deb. 6 1/2s, 2003 4,317,500 915,000 Pogo Producing Co. cv. sub. notes 5 1/2s, 2004 1,883,756 3,170,000 Pride Petroleum Services, Inc. cv. sub. deb. 6 1/4s, 2006 4,913,500 -------------- 14,405,512 Oil and Gas Pipelines (0.3%) - --------------------------------------------------------------------------------------------------------------------- 2,250,000 SFP Pipeline Holdings Inc. cv. variable rate exch. deb. 11.16s, 2010 (2 double daggers) 2,745,000 Paper and Forest Products (0.8%) - --------------------------------------------------------------------------------------------------------------------- 4,750,000 Stone Container Corp. cv. sr. sub. notes 8 7/8s, 2000 6,667,813 1,800,000 Stone Container Corp. cv. sub. deb. 6 3/4s, 2007 1,525,500 -------------- 8,193,313 Pharmaceuticals (2.2%) - --------------------------------------------------------------------------------------------------------------------- 10,815,000 Alza Corp. cv. sub. LYON zero %, 2014 4,474,706 3,890,000 Nabi, Inc. 144A cv. sub. notes 6 1/2s, 2003 3,685,775 4,040,000 North American Vaccine, Inc. 144A cv. sub. notes 6 1/2s, 2003 3,888,500 2,500,000 IVAX Corp. cv. deb. 6 1/2s, 2001 2,259,375 7,130,000 Roche Holdings, Inc. 144A cv. unsub. LYON zero %, 2010 (Switzerland) 3,146,113 5,425,000 Sandoz Capital BVI Ltd. 144A cv. company guaranty 2s, 2002 (Switzerland) 6,001,406 -------------- 23,455,875 Publishing (0.4%) - --------------------------------------------------------------------------------------------------------------------- 4,700,000 Thomas Nelson, Inc. 144A cv. sub. notes 5 3/4s, 1999 4,523,750 Real Estate (0.8%) - --------------------------------------------------------------------------------------------------------------------- 1,200,000 Alexander Haagen Properties cv. sub. deb. Ser. A, 7 1/2s, 2001(R) 1,098,000 1,985,000 Camden Property Trust cv. sub. deb. 7.33s, 2001(R) 2,245,531 1,410,000 LTC Properties, Inc. cv. sub. deb. 7 3/4s, 2002 (R) 1,452,300 3,750,000 Malan Realty Investors cv. sub. notes 9 1/2s, 2004 (R) 3,440,625 -------------- 8,236,456 Recreation (0.2%) - --------------------------------------------------------------------------------------------------------------------- 2,000,000 Speedway Motorsports, Inc. 144A cv. sub. notes 5 3/4s, 2003 1,980,000 Retail (3.6%) - --------------------------------------------------------------------------------------------------------------------- 10,325,000 Baker (J.), Inc. cv. deb. 7s, 2002 8,066,406 4,650,000 Home Depot, Inc. cv. sub. notes 3 1/4s, 2001 4,644,188 6,885,000 Michaels Stores, Inc. cv. sub. notes 6 3/4s, 2003 4,785,075 4,300,000 Office Depot, Inc. cv. LYON zero %, 2007 2,709,000 2,825,000 Pier 1 Imports, Inc. cv. sub. notes 5 3/4s, 2003 2,839,125 4,350,000 Price Co. cv. deb. 6 3/4s, 2001 4,551,188 11,500,000 Rite Aid Corp. cv. deb. zero %, 2006 6,368,125 2,350,000 Staples, Inc. 144A cv. sub. deb. 4 1/2s, 2000 2,458,688 2,100,000 Sunglass Hut Inernational, Inc. 144A cv. sub. notes 5 1/4s, 2003 1,596,000 -------------- 38,017,795 Semiconductors (0.8%) - --------------------------------------------------------------------------------------------------------------------- 1,000,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 808,750 3,600,000 National Semiconductor Corp. cv. deb. 6 1/2s, 2002 3,379,500 3,835,000 Plasma & Materials Technologies, Inc. 144A cv. notes 7 1/8s, 2001 3,940,463 -------------- 8,128,713 Telecommunications (1.3%) - --------------------------------------------------------------------------------------------------------------------- 3,775,000 MIDCOM Communications, Inc. 144A cv. sub. deb. 8 1/4s, 2003 3,775,000 19,000,000 Rogers Communications cv. deb. 2s, 2005 (Canada) 10,046,250 -------------- 13,821,250 Transportation (1.0%) - --------------------------------------------------------------------------------------------------------------------- GBP 3,300,000 British Airport Authority 144A cv. bonds 5 3/4s, 2006 (United Kingdom) 5,595,567 $4,500,000 Continental Airlines, Inc. cv. sub. deb. 6 3/4s, 2006 4,635,000 -------------- 10,230,567 -------------- Total Convertible Bonds and Notes (cost $460,238,151) 480,220,070 COMMON STOCKS (27.4%) * NUMBER OF SHARES VALUE Aerospace and Defense (0.3%) - --------------------------------------------------------------------------------------------------------------------- 30,000 Lockheed Martin Corp. 2,688,750 Automotive (0.9%) - --------------------------------------------------------------------------------------------------------------------- 2,800 Bayerische Motoren Werke (BMW) AG (Germany) 1,634,256 72,780 Chrysler Corp. 2,447,228 60,000 Ford Motor Co. 1,875,000 76,000 General Motors Corp. 4,094,500 -------------- 10,050,984 Banks (3.6%) - --------------------------------------------------------------------------------------------------------------------- 74,000 Banc One Corp. 3,135,750 31,000 BankAmerica Corp. 2,836,500 41,500 Bankers Trust New York Corp. 3,506,750 30,000 Comerica, Inc. 1,593,750 65,000 CoreStates Financial Corp. 3,160,625 110,000 Fleet Financial Group, Inc. 5,486,250 65,000 Great Western Financial Corp. 1,820,000 63,000 Keycorp 2,937,375 52,000 Morgan (J.P.) & Co., Inc. 4,491,500 60,000 National City Corp. 2,602,500 27,000 NationsBank Corp. 2,544,750 100,000 PNC Bank Corp. 3,625,000 -------------- 37,740,750 Basic Industrial Products (0.4%) - --------------------------------------------------------------------------------------------------------------------- 53,000 Deere (John) & Co. 2,212,750 40,000 General Signal Corp. 1,630,000 -------------- 3,842,750 Building and Construction (0.2%) - --------------------------------------------------------------------------------------------------------------------- 31,000 Armstrong World Industries, Inc. 2,069,250 Business Services and Equipment (0.7%) - --------------------------------------------------------------------------------------------------------------------- 41,200 IBM Corp. 5,314,800 49,000 Xerox Corp. 2,272,375 -------------- 7,587,175 Chemicals (1.3%) - --------------------------------------------------------------------------------------------------------------------- 50,000 Bayer AG ADR (Germany) 1,890,690 32,000 Dow Chemical Co. 2,488,000 35,000 du Pont (E.I.) de Nemours & Co., Ltd. 3,246,250 46,000 Eastman Chemical Co. 2,426,500 30,000 Hoechst AG (Germany) 1,125,494 65,000 Witco Chemical Corp. 2,015,000 -------------- 13,191,934 Conglomerates (1.5%) - --------------------------------------------------------------------------------------------------------------------- 50,000 Cooper Industries, Inc. 2,012,500 40,000 General Motors Corp. Class H 2,135,000 70,000 ITT Industries, Inc. 1,627,500 48,000 Minnesota Mining & Manufacturing Co. 3,678,000 38,000 TRW, Inc. 3,439,000 22,000 United Technologies Corp. 2,832,500 -------------- 15,724,500 Consumer Durable Goods (0.2%) - --------------------------------------------------------------------------------------------------------------------- 53,000 Whirlpool Corp. 2,504,250 Consumer Non Durables (2.0%) - --------------------------------------------------------------------------------------------------------------------- 58,000 American Brands, Inc. 2,769,500 50,000 Avon Products, Inc. 2,712,500 20,000 Clorox Co. 2,182,500 46,000 Kimberly-Clark Corp. 4,289,500 30,000 Lowe's Cos., Inc. 1,211,250 45,300 Philip Morris Cos., Inc. 4,195,913 60,000 RJR Nabisco Holdings Corp. + 1,732,500 80,000 Universal Corp. 2,180,000 -------------- 21,273,663 Electronics and Electrical Equipment (1.3%) - --------------------------------------------------------------------------------------------------------------------- 40,000 Eaton Corp. 2,390,000 20,000 Emerson Electric Co. 1,780,000 16,000 General Electric Co. 1,548,000 40,000 Hewlett-Packard Co. 1,765,000 40,000 Motorola, Inc. 1,840,000 25,000 Siemens AG (Germany) 1,288,702 57,000 Texas Instruments, Inc. 2,743,125 -------------- 13,354,827 Environmental Control (0.2%) - --------------------------------------------------------------------------------------------------------------------- 75,000 WMX Technologies, Inc. 2,578,125 Food and Beverages (1.1%) - --------------------------------------------------------------------------------------------------------------------- 68,000 Anheuser-Busch Cos., Inc. 2,618,000 39,000 General Mills, Inc. 2,227,875 65,000 Heinz (H.J.) Co. 2,307,500 70,000 Sara Lee Corp. 2,485,000 80,000 Whitman Corp. 1,940,000 -------------- 11,578,375 Health Care (0.4%) - --------------------------------------------------------------------------------------------------------------------- 93,000 Baxter International, Inc. 3,871,125 Insurance and Finance (2.0%) - --------------------------------------------------------------------------------------------------------------------- 61,000 American General Corp. 2,272,250 94,492 AON Corp. 5,456,913 50,000 Beneficial Corp. 2,925,000 18,000 CIGNA Corp. 2,349,000 27,000 Lincoln National Corp. 1,309,500 55,000 Federal National Mortgage Association 2,151,875 50,000 Norwest Corp. 2,193,750 135,000 USF&G Corp. 2,565,000 -------------- 21,223,288 Metals and Mining (0.3%) - --------------------------------------------------------------------------------------------------------------------- 72,250 Freeport-McMoRan Copper & Gold Co., Inc. Class A 2,095,250 35,086 Freeport-McMoRan Copper & Gold Co., Inc. Class B 1,065,737 -------------- 3,160,987 Oil and Gas (2.3%) - --------------------------------------------------------------------------------------------------------------------- 77,857 Amoco Corp. 5,897,668 22,000 British Petroleum PLC ADR (United Kingdom) 2,829,750 30,000 Chevron, Inc. 1,972,500 37,000 Exxon Corp. 3,279,125 15,000 Mobil Corp. 1,751,250 100,000 Occidental Petroleum Corp. 2,450,000 18,000 Royal Dutch Petroleum Co. PLC ADR (Netherlands) 2,976,750 76,561 Total Corp. ADR (France) 2,985,879 -------------- 24,142,922 Paper and Forest Products (0.6%) - --------------------------------------------------------------------------------------------------------------------- 46,000 Temple Inland, Inc. 2,357,500 82,000 Weyerhaeuser Co. 3,761,750 -------------- 6,119,250 Pharmaceuticals and Biotechnology (1.2%) - --------------------------------------------------------------------------------------------------------------------- 41,000 American Home Products Corp. 2,511,250 30,000 Bristol-Myers Squibb Co. 3,172,500 89,000 Pharmacia & Upjohn, Inc. 3,204,000 60,000 Warner-Lambert Co. 3,817,500 -------------- 12,705,250 Photography (0.8%) - --------------------------------------------------------------------------------------------------------------------- 79,844 Eastman Kodak Co. 6,367,559 55,000 Polaroid Corp. 2,234,375 -------------- 8,601,934 Pipelines (0.2%) - --------------------------------------------------------------------------------------------------------------------- 43,000 Enron Corp. 1,999,500 Publishing (0.5%) - --------------------------------------------------------------------------------------------------------------------- 67,100 Deluxe Corp. 2,189,138 62,800 Times Mirror Co. Class A 2,904,500 -------------- 5,093,638 Real Estate (0.3%) - --------------------------------------------------------------------------------------------------------------------- 100,000 LTC Properties, Inc. (R) 1,700,000 30,000 Meditrust Corp. (R) 1,080,000 -------------- 2,780,000 Retail (1.5%) - --------------------------------------------------------------------------------------------------------------------- 100,000 Dayton Hudson Corp. 3,462,500 270,000 K mart Corp. 2,632,500 50,000 May Department Stores Co. 2,368,750 47,000 Penney (J.C.) Co., Inc. 2,467,500 87,000 Rite Aid Corp. 2,958,000 50,000 Sears, Roebuck & Co. 2,418,750 -------------- 16,308,000 Savings and Loans (0.2%) - --------------------------------------------------------------------------------------------------------------------- 85,000 Ahmanson (H.F.) & Co. 2,666,875 Transportation (1.0%) - --------------------------------------------------------------------------------------------------------------------- 25,000 Conrail, Inc. 2,378,125 27,000 Delta Air Lines, Inc. 1,913,625 22,000 Norfolk Southern Corp. 1,960,750 80,000 Ryder System, Inc. 2,380,000 36,000 Union Pacific Corp. 2,020,500 -------------- 10,653,000 Utilities (2.4%) - --------------------------------------------------------------------------------------------------------------------- 46,000 Bell Atlantic Corp. 2,771,500 53,000 BellSouth Corp. 2,159,750 50,000 Cinergy Corp. 1,656,250 81,000 Edison International 1,599,750 47,000 GTE Corp. 1,979,875 50,000 NYNEX Corp. 2,225,000 43,000 Pacific Telesis Group 1,462,000 40,000 Potomac Electric Power Co. 1,025,000 35,000 Public Service Co. of Colorado 1,295,000 55,000 Public Service Enterprise Group, Inc. 1,478,125 43,000 SBC Communications, Inc. 2,090,875 71,600 Sprint Corp. 2,810,300 38,000 Union Electric Co. 1,467,750 20,000 Veba (Vereinigte Elektrizitaets Bergwerks) AG (Germany) 1,064,163 -------------- 25,085,338 -------------- Total Common Stocks (cost $226,713,162) 288,596,440 CONVERTIBLE PREFERRED STOCKS (20.5%) * NUMBER OF SHARES VALUE Aerospace and Defense (0.3%) - --------------------------------------------------------------------------------------------------------------------- 70,000 Kaman Corp. $3.25 cv. pfd. 3,447,500 Automotive (1.2%) - --------------------------------------------------------------------------------------------------------------------- 72,250 Federal Mogul Corp. $3.875 cv. pfd. 4,624,000 73,600 Ford Motor Co. Ser. A, $4.20 dep. shs. cv. pfd. 7,525,600 -------------- 12,149,600 Banks (2.3%) - --------------------------------------------------------------------------------------------------------------------- 63,000 Banc One Corp. Ser. C, $3.50 cv. pfd. 5,197,500 54,500 First Chicago Corp. Ser. B, $2.875 cv. pfd. 4,673,375 31,500 Matewan Bancshares, Inc. Ser. A, $1.875 cv. pfd. 811,125 60,000 Roosevelt Financial Group $ 3.25 cv. pfd. 3,795,000 83,550 Sovereign Bancorp Inc. $3.13 cv. pfd. 5,305,425 103,350 Union Planters Corp. Ser. E, $2.00 cv. pfd. 4,444,050 -------------- 24,226,475 Basic Industrial Products (0.8%) - --------------------------------------------------------------------------------------------------------------------- 25,000 Case Corp. Ser. A, $4.50 cv. pfd. 2,887,500 120,450 Greenfield Industries, Inc. 144A $ 3.00 cv. pfd. 5,360,025 -------------- 8,247,525 Broadcasting (0.6%) - --------------------------------------------------------------------------------------------------------------------- 82,720 SFX Broadcasting, Inc. Ser. D, $3.25 cv. pfd. 4,673,680 215,000 Triathlon Broadcasting Co. $ 0.945 cv. pfd. 2,150,000 -------------- 6,823,680 Building and Construction (0.3%) - --------------------------------------------------------------------------------------------------------------------- 70,000 Southdown, Inc. $2.875 cv. pfd. 3,500,000 Business Equipment and Services (0.4%) - --------------------------------------------------------------------------------------------------------------------- 47,000 Alco Standard Corp. $5.03 cv. pfd. 4,077,250 Computers (1.1%) - --------------------------------------------------------------------------------------------------------------------- 100,000 Vanstar Corp. 144A $3.375 cv. pfd. 5,250,000 110,500 Wang Laboratories, Inc. 144A Ser. B, $3.25 cv. pfd. 5,815,063 -------------- 11,065,063 Consumer Non Durables (0.6%) - --------------------------------------------------------------------------------------------------------------------- 71,075 Fieldcrest Cannon Ser. A, $3.00 cv. pfd. 2,700,850 186,500 RJR Nabisco Holdings. Ser. C, $0.6012 sr. cv. pfd. 1,049,063 400,000 Tyco Toys, Inc. Ser. C, $0.4125 cv. pfd. 2,650,000 -------------- 6,399,913 Consumer Services (1.0%) - --------------------------------------------------------------------------------------------------------------------- 67,800 Service Corp. $3.125 cv. pfd. 6,373,200 88,300 Wendy's Financing I Ser. A, $2.50 cv. pfd. 4,492,263 -------------- 10,865,463 Electronics and Electrical Equipment (0.1%) - --------------------------------------------------------------------------------------------------------------------- 65,400 Westinghouse Electric Corp. 144A Ser. C, $1.30 cv. pfd. 1,013,700 Entertainment (0.3%) - --------------------------------------------------------------------------------------------------------------------- 67,770 Station Casinos, Inc. $3.50 cv. pfd. 3,456,270 Food (0.5%) - --------------------------------------------------------------------------------------------------------------------- 90,000 Chiquita Brands International, Inc. Ser. B, $3.75 cv. pfd. 4,747,500 Insurance and Finance (2.0%) - --------------------------------------------------------------------------------------------------------------------- 124,000 American General Delaware Corp. $3.00 cv. pfd. 6,479,000 83,700 Penncorp Financial Group, Inc. 144A $3.50 cv.pfd. 4,896,450 110,400 St. Paul Capital LLC $3.00 cv. pfd. 5,796,000 73,000 USF&G Corp. Ser. A, $4.10 cv. pfd. 3,650,000 -------------- 20,821,450 Metals and Mining (1.9%) - --------------------------------------------------------------------------------------------------------------------- 38,866 Alumax, Inc. Ser. A, $4.00 cv. pfd. 5,159,462 57,125 Amax Gold, Inc. Ser. B, $3.75 cv. pfd. 2,906,234 292,300 Freeport-McMoRan Copper Co., Inc. $1.75 cv. pfd. 7,965,175 90,400 Pittston Mineral Corp. 144A $3.125 dep. shs. cv. pfd. 3,435,200 -------------- 19,466,071 Oil and Gas (2.6%) - --------------------------------------------------------------------------------------------------------------------- 57,500 Ashland, Inc. $3.125 cv. pfd. 3,830,938 310,181 Atlantic Richfield Co. $2.23 cv. pfd. 6,707,664 65,000 Grant Geophysical, Inc. $2.4375 cv. pfd. 1,161,875 60,000 Lomak Petroleum, Inc. 144A $2.03 cv. pfd. 2,700,000 116,800 Occidental Petroleum Corp. 144A $3.875 cv. pfd. 6,818,200 75,520 Santa Fe Energy Resources, Inc. $1.40 cv. pfd. 1,840,800 80,125 Tejas Gas Corp. $2.65 cv. pfd. 4,206,563 -------------- 27,266,040 Packaging and Containers (0.7%) - --------------------------------------------------------------------------------------------------------------------- 103,000 Crown Cork & Seal Co., Inc. $4.50 cv. pfd. 4,789,500 25,000 Interpool, Inc. $5.75 cv. pfd. 2,500,000 -------------- 7,289,500 Paper and Forest Products (0.6%) - --------------------------------------------------------------------------------------------------------------------- 90,000 Boise Cascade Corp. Ser. G, $1.58 cv. pfd. 2,328,750 86,000 International Paper Co. $2.63 cv. pfd. 4,074,250 -------------- 6,403,000 Real Estate (1.2%) - --------------------------------------------------------------------------------------------------------------------- 92,000 Insignia Financial Group, Inc. 144A $3.25 cv. pfd. 4,738,000 63,500 Oasis Residential, Inc. Ser. A, $2.25 cv. pfd. (R) 1,524,000 195,000 Security Capital Pacific Trust Ser. A, $1.75 cv. pfd. 5,240,625 74,490 Tanger Factory Outlet Centers $1.575 cv. pfd. (R) 1,620,158 -------------- 13,122,783 Retail (0.6%) - --------------------------------------------------------------------------------------------------------------------- 130,000 K mart Financing I $3.875 cv. pfd. 6,175,000 Savings and Loans (0.6%) - --------------------------------------------------------------------------------------------------------------------- 90,000 Ahmanson (H.F.) & Co. $3.00 cv. pfd. 6,086,250 Telecommunications (0.8%) - --------------------------------------------------------------------------------------------------------------------- 125,000 Airtouch Communications, Inc. Ser. C, $2.125 cv. pfd. 5,796,875 77,000 Tele-Communications (TCI Group) Ser. A, $2.125 cv. pfd. 2,853,813 -------------- 8,650,688 -------------- Total Convertible Preferred Stocks (cost $203,894,903) 215,300,721 UNITS (0.9%) * NUMBER OF UNITS VALUE - --------------------------------------------------------------------------------------------------------------------- 1,400,000 Dart & Kraft Inc. company guaranty units 7 3/4s, 1998 4,410,000 87 Sakura Finance 144A $0.75 cv. pfd. units (Bermuda) 5,191,688 -------------- Total Units (cost $7,774,815) 9,601,688 FOREIGN GOVERNMENT BONDS AND NOTES (0.4%) *(cost $4,300,000) PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------------------------------------- $4,300,000 Italy (Government of) cv. notes 5s, 2001 4,348,375 CORPORATE BONDS AND NOTES (0.3%) *(cost $3,210,625) PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------------------------------------- $2,500,000 Siemens Capital Corp. Co. Guaranty 8s, 2002 (Germany) 3,300,000 SHORT-TERM INVESTMENTS (4.0%) * PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------------------------------------- $20,000,000 Federal Home Loan Bank effective yield of 5.20%, November 21, 1996 19,942,222 22,000,000 Interest in $500,000,000 joint repurchase agreement dated October 31, 1996 with Lehman Brothers Inc. due November 1, 1996 with respect to various U.S. Treasury obligations -- maturity value of $22,003,379 for an effective yield of 5.53%. 22,003,379 -------------- Total Short-Term Investments (cost $41,945,601) 41,945,601 - --------------------------------------------------------------------------------------------------------------------- Total Investments ($948,077,257) *** 1,043,312,895 - --------------------------------------------------------------------------------------------------------------------- * Percentages indicated are based on net assets of $1,051,740,628. *** The aggregate identified cost on a tax basis is $948,045,395, resulting in gross unrealized appreciation and depreciation of $123,806,176 and $28,538,676, respectively, or net unrealized appreciation of $95,267,500. ++ The interest rate and date shown parenthetically represent the new interest rate to be paid and the date the fund will begin receiving interest at this rate. (2 double daggers) Income may be received in cash or additional securities at the discretion of the issuer. (R) Real Estate Investment Trust. 144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. ADR or ADS after the name of a foreign holding stands for American Depository Receipts or American Depository Shares, respectively, representing ownership of foreign securities on deposit with a domestic custodian bank. - ----------------------------------------------------------------------------------------------------- Forward Currency Contracts to Sell at October 31, 1996 (aggregate face value $13,822,037) Market Aggregate Face Delivery Unrealized Value Value Date Appreciation - ----------------------------------------------------------------------------------------------------- Japanese Yen $8,960,125 $9,397,772 5/31/01 $437,647 Japanese Yen 32,978 34,583 11/30/00 1,605 Japanese Yen 32,294 34,054 5/31/00 1,760 Japanese Yen 31,702 33,432 11/30/99 1,730 Japanese Yen 30,915 32,798 6/1/99 1,883 Japanese Yen 30,283 32,171 11/30/98 1,888 Japanese Yen 29,536 31,538 6/1/98 2,002 Japanese Yen 3,776,824 4,042,340 1/28/98 265,516 Japanese Yen 28,825 30,847 12/1/97 2,022 Japanese Yen 43,717 46,962 7/28/97 3,245 Japanese Yen 28,109 30,151 6/2/97 2,042 Japanese Yen 42,606 45,962 1/28/97 3,356 Japanese Yen 27,411 29,427 12/2/96 2,016 - ----------------------------------------------------------------------------------------------------- $726,712 - ----------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities October 31, 1996 Assets - ---------------------------------------------------------------------------------------------------------------------- Investments in securities, at value (identified cost $948,077,257) (Note 1) $1,043,312,895 - ---------------------------------------------------------------------------------------------------------------------- Cash 4,787,311 - ---------------------------------------------------------------------------------------------------------------------- Dividends, interest and other receivables 8,227,419 - ---------------------------------------------------------------------------------------------------------------------- Receivable for shares of the fund sold 2,074,431 - ---------------------------------------------------------------------------------------------------------------------- Receivable for securities sold 12,524,641 - ---------------------------------------------------------------------------------------------------------------------- Receivable for open forward currency contracts 726,712 - ---------------------------------------------------------------------------------------------------------------------- Total assets 1,071,653,409 Liabilities - ---------------------------------------------------------------------------------------------------------------------- Payable for securities purchased 16,849,697 - ---------------------------------------------------------------------------------------------------------------------- Payable for shares of the fund repurchased 900,522 - ---------------------------------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 1,531,835 - ---------------------------------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 166,686 - ---------------------------------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 4,734 - ---------------------------------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 4,491 - ---------------------------------------------------------------------------------------------------------------------- Payable for distribution fees (Note 2) 316,483 - ---------------------------------------------------------------------------------------------------------------------- Other accrued expenses 138,333 - ---------------------------------------------------------------------------------------------------------------------- Total liabilities 19,912,781 - ---------------------------------------------------------------------------------------------------------------------- Net assets $1,051,740,628 Represented by - ---------------------------------------------------------------------------------------------------------------------- Paid-in capital (Notes 1 and 4) $873,233,274 - ---------------------------------------------------------------------------------------------------------------------- Undistributed net investment income (Note 1) 4,736,917 - ---------------------------------------------------------------------------------------------------------------------- Accumulated net realized gain on investments and foreign currency transactions (Note 1) 77,808,087 - ---------------------------------------------------------------------------------------------------------------------- Net unrealized appreciation of investments and assets and liabilities in foreign currencies 95,962,350 - ---------------------------------------------------------------------------------------------------------------------- Total - Representing net assets applicable to capital shares outstanding $1,051,740,628 Computation of net asset value and offering price - ---------------------------------------------------------------------------------------------------------------------- Net asset value and redemption price per class A share ($898,485,537 divided by 42,292,622 shares) $21.24 - ---------------------------------------------------------------------------------------------------------------------- Offering price per Class A share (100/94.25 of $21.24)* $22.54 - ---------------------------------------------------------------------------------------------------------------------- Net asset value and offering price per class B share ($146,127,338 divided by 6,930,055 shares)** $21.09 - ---------------------------------------------------------------------------------------------------------------------- Net asset value and redemption price per class M share ($7,127,753 divided by 337,162 shares) $21.14 - ---------------------------------------------------------------------------------------------------------------------- Offering price per Class M share (100/96.50 of $21.14)* $21.91 - ---------------------------------------------------------------------------------------------------------------------- * 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 October 31, 1996 Investment inome: - --------------------------------------------------------------------------------------------------------- Interest income $28,562,631 - --------------------------------------------------------------------------------------------------------- Dividends (net of foreign tax of $110,214) 19,138,378 - --------------------------------------------------------------------------------------------------------- Total investment income 47,701,009 - --------------------------------------------------------------------------------------------------------- Expenses: - --------------------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 5,724,182 - --------------------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 1,462,698 - --------------------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 27,299 - --------------------------------------------------------------------------------------------------------- Administrative services (Note 2) 13,714 - --------------------------------------------------------------------------------------------------------- Distribution fees -- Class A (Note 2) 2,090,093 - --------------------------------------------------------------------------------------------------------- Distribution fees -- Class B (Note 2) 1,096,336 - --------------------------------------------------------------------------------------------------------- Distribution fees -- Class M (Note 2) 34,764 - --------------------------------------------------------------------------------------------------------- Reports to shareholders 86,555 - --------------------------------------------------------------------------------------------------------- Registration fees 40,514 - --------------------------------------------------------------------------------------------------------- Auditing 65,140 - --------------------------------------------------------------------------------------------------------- Legal 14,728 - --------------------------------------------------------------------------------------------------------- Postage 200,786 - --------------------------------------------------------------------------------------------------------- Other 103,044 - --------------------------------------------------------------------------------------------------------- Total expenses 10,959,853 - --------------------------------------------------------------------------------------------------------- Expense reduction (Note 2) (373,564) - --------------------------------------------------------------------------------------------------------- Net expenses 10,586,289 - --------------------------------------------------------------------------------------------------------- Net investment income 37,114,720 - --------------------------------------------------------------------------------------------------------- Net realized gain on investments (Notes 1 and 3) 79,060,185 - --------------------------------------------------------------------------------------------------------- Net realized gain on foreign currency translation (Note 1) 1,924 - --------------------------------------------------------------------------------------------------------- Net unrealized appreciation of assets and liabilities in foreign currencies during the year 726,712 - --------------------------------------------------------------------------------------------------------- Net unrealized appreciation of investments during the year 44,550,728 - --------------------------------------------------------------------------------------------------------- Net gain on investments 124,339,549 - --------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations $161,454,269 - --------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets Year ended October 31 --------------------------------- 1996 1995 --------------------------------- Increase in net assets - ------------------------------------------------------------------------------------------------------------ Operations: - ------------------------------------------------------------------------------------------------------------ Net investment income $37,114,720 $35,523,538 - ------------------------------------------------------------------------------------------------------------ Net realized gain on investments 79,062,109 31,193,122 - ------------------------------------------------------------------------------------------------------------ Net unrealized appreciation of investments 45,277,440 37,340,783 - ------------------------------------------------------------------------------------------------------------ Net increase in net assets resulting from operations 161,454,269 104,057,443 - ------------------------------------------------------------------------------------------------------------ Distributions to shareholders - ------------------------------------------------------------------------------------------------------------ From net investment income: Class A (39,696,713) (36,798,209) - ------------------------------------------------------------------------------------------------------------ Class B (4,495,021) (2,264,082) - ------------------------------------------------------------------------------------------------------------ Class M (207,655) (28,669) - ------------------------------------------------------------------------------------------------------------ From net realized gain on investments: Class A (27,754,648) (42,106,385) - ------------------------------------------------------------------------------------------------------------ Class B (3,021,352) (2,126,191) - ------------------------------------------------------------------------------------------------------------ Class M (80,667) -- - ------------------------------------------------------------------------------------------------------------ Increase from capital share transactions (Note 4) 131,834,466 83,596,336 - ------------------------------------------------------------------------------------------------------------ Total increase in net assets 218,032,679 104,330,243 - ------------------------------------------------------------------------------------------------------------ Net assets - ------------------------------------------------------------------------------------------------------------ Beginning of year 833,707,949 729,377,706 - ------------------------------------------------------------------------------------------------------------ End of year (including undistributed net investment income of $4,736,917 and $10,950,119, respectively) $1,051,740,628 $833,707,949 - ------------------------------------------------------------------------------------------------------------ The accompanying notes are an integral part of these financial statements.
Financial highlights (For a share outstanding throughout the period) March 13, 1995 (commencement Year ended of operations) Year ended October 31 to October 31 October 31 -------------------------------------------------------------- 1996 1995 1996 -------------------------------------------------------------- Class M -------------------------------------------------------------- Net asset value, beginning of period $19.37 $17.79 $19.30 - --------------------------------------------------------------------------------------------------------------------- Investment operations - --------------------------------------------------------------------------------------------------------------------- Net investment income 0.73(d) .64 .66(d) - --------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 2.65 1.64 2.68 - --------------------------------------------------------------------------------------------------------------------- Total from investment operations 3.38 2.28 3.34 - --------------------------------------------------------------------------------------------------------------------- Less distributions: - --------------------------------------------------------------------------------------------------------------------- From net investment income (.90) (.70) (.84) - --------------------------------------------------------------------------------------------------------------------- From net realized gain on investments (.71) -- (.71) - --------------------------------------------------------------------------------------------------------------------- Total distributions (1.61) (.70) (1.55) - --------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $21.14 $19.37 $21.09 - --------------------------------------------------------------------------------------------------------------------- Total investment return at net asset value (%)(a) 18.30 12.99* 18.14 - --------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $7,128 $1,753 $146,127 - --------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(b) 1.54 1.04* 1.81 - --------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) 3.55 2.89* 3.26 - --------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 61.43 69.52 61.43 - --------------------------------------------------------------------------------------------------------------------- Average commission rate paid (c) $0.0508 $0.0508 - ---------------------------------------------------------------------------------------------------------------------
Financial highlights (continued) (For a share outstanding throughout the period) July 15, 1993 (commencement of operations) to Year ended October 31 October 31 ------------------------------------------------------------ 1995 1994 1993 ------------------------------------------------------------ Class B ------------------------------------------------------------ Net asset value, beginning of period $19.00 $20.35 $19.53 - ------------------------------------------------------------------------------------------------------------------- Investment operations - ------------------------------------------------------------------------------------------------------------------- Net investment income .69 .74 .23 - ------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 1.61 (.55) .82 - ------------------------------------------------------------------------------------------------------------------- Total from investment operations 2.30 .19 1.05 - ------------------------------------------------------------------------------------------------------------------- Less distributions: - ------------------------------------------------------------------------------------------------------------------- From net investment income (.84) (.66) (.23) - ------------------------------------------------------------------------------------------------------------------- From net realized gain on investments (1.16) (.88) -- - ------------------------------------------------------------------------------------------------------------------- Total distributions (2.00) (1.54) (.23) - ------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $19.30 $19.00 $20.35 - ------------------------------------------------------------------------------------------------------------------- Total investment return at net asset value (%)(a) 13.54 1.00 5.43* - ------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $75,309 $31,432 $4,439 - ------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(b) 1.91 1.71 .52* - ------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) 3.92 3.58 .91* - ------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 69.52 48.37 66.63 - ------------------------------------------------------------------------------------------------------------------- Average commission rate paid (c) - -------------------------------------------------------------------------------------------------------------------
Financial highlights (continued) (For a share outstanding throughout the period) Year ended October 31 ------------------------------------------------------------- 1996 1995 1994 ------------------------------------------------------------- Class A ------------------------------------------------------------- Net asset value, beginning of period $19.42 $19.09 $20.38 - -------------------------------------------------------------------------------------------------------------------- Investment operations - -------------------------------------------------------------------------------------------------------------------- Net investment income .81(d) .85 .81 - -------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 2.70 1.60 (.46) - -------------------------------------------------------------------------------------------------------------------- Total from investment operations 3.51 2.45 .35 - -------------------------------------------------------------------------------------------------------------------- Less distributions: - -------------------------------------------------------------------------------------------------------------------- From net investment income (.98) (.96) (.74) - -------------------------------------------------------------------------------------------------------------------- From net realized gain on investments (.71) (1.16) (.90) - -------------------------------------------------------------------------------------------------------------------- Total distributions (1.69) (2.12) (1.64) - -------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $21.24 $19.42 $19.09 - -------------------------------------------------------------------------------------------------------------------- Total investment return at net asset value (%)(a) 18.99 14.38 1.84 - -------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $898,486 $756,645 $697,946 - -------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(b) 1.06 1.16 .96 - -------------------------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) 3.99 4.64 4.16 - -------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%) 61.43 69.52 48.37 - -------------------------------------------------------------------------------------------------------------------- Average commission rate paid (c) $0.0508 - --------------------------------------------------------------------------------------------------------------------
Financial highlights (continued) (For a share outstanding throughout the period) ------------------------------ 1993 1992 ------------------------------ Net asset value, beginning of period $17.60 $15.78 - ------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------ Net investment income .87 .89 - ------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments 2.87 1.89 - ------------------------------------------------------------------------------------------------------ Total from investment operations 3.74 2.78 - ------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------ From net investment income (.96) (.96) - ------------------------------------------------------------------------------------------------------ From net realized gain on investments -- -- - ------------------------------------------------------------------------------------------------------ Total distributions (.96) (.96) - ------------------------------------------------------------------------------------------------------ Net asset value, end of period $20.38 $17.60 - ------------------------------------------------------------------------------------------------------ Total investment return at net asset value (%)(a) 21.74 18.16 - ------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $707,969 $599,866 - ------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) .96 1.11 - ------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 4.55 5.32 - ------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 66.63 59.89 - ------------------------------------------------------------------------------------------------------ Average commission rate paid (c) - ------------------------------------------------------------------------------------------------------ * Not annualized. (a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) The ratio of expenses to average net assets for the year ended October 31, 1995 and thereafter, includes amounts paid through expense offset and brokerage service arrangements. Prior period ratios exclude these amounts. (Note 2). (c) Average commission rate paid on security trades is required for fiscal periods beginning on or after September 1, 1995. (d) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period.
Notes to financial statements October 31, 1996 Note 1 Significant accounting policies The fund is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The fund seeks current income and capital appreciation by investing primarily in bonds and preferred stocks convertible into common stock with capital preservation as a secondary objective. The fund offers class A, class B and class M shares. Class A shares are sold with a maximum front-end sales charge of 5.75%. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge, but pay a higher ongoing distribution fee than class A shares, and are subject to a contingent deferred sales charge, if those shares are redeemed within six years of purchase. Class M shares are sold with a maximum front-end sales charge of 3.50% and pay an ongoing distribution fee that is lower than class B shares and higher than class A shares. 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 generally accepted accounting principles and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Actual results could differ from those estimates. A) Security valuation Investments for which market quotations are readily available are stated at market value, which is determined using the last reported sale price, or, if no sales are reported -- as in the case of some securities traded over-the-counter -- the last reported bid price. Securities quoted in foreign currencies are translated into U.S. dollars at the current exchange rate. Short-term investments having remaining maturities of 60 days or less are stated at amortized cost, which approximates market value, and other investments are stated at fair value following procedures approved by the Trustees. B) Joint trading account Pursuant to an exemptive order issued by the Securities and Exchange Commission, the fund may transfer uninvested cash balances into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Investment Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc.. These balances may be invested in one or more repurchase agreements and/or short-term money market instruments. C) Repurchase agreements The fund, or any joint trading account, through its custodian, receives delivery of the underlying securities, the market value of which at the time of purchase is required to be in an amount at least equal to the resale price, including accrued interest. Putnam Management is responsible for determining that the value of these underlying securities is at all times at least equal to the resale price, including accrued interest. D) Security transactions and related investment income Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recorded as soon as the fund is informed of the ex-dividend date. Discounts on zero coupon bonds, original issue, stepped-coupon bonds and payment in kind bonds are accreted according to the effective yield method. E) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, other assets and liabilities are recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when accrued or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such fluctuations are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net exchange gains or losses on closed forward currency contracts, disposition of foreign currencies and the difference between the amount of investment income and foreign withholding taxes recorded on the fund's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized gains and losses on foreign currency transactions arise from changes in the value of open forward currency contracts and assets and liabilities other than investments at the period end, resulting from changes in the exchange rate. F) Forward currency contracts The fund may engage in forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date, to protect against a decline in value relative to the U.S. dollar of the currencies in which its portfolio securities are denominated or quoted (or an increase in the value of a currency in which securities a fund intends to buy are denominated, when a fund holds cash reserves and short-term investments). The U.S. dollar value of forward currency contracts is determined using forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is "marked to market" daily and the change in market value is recorded as an unrealized gain or loss. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. G) 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. 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. H) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Capital gain distributions, if any, are recorded on the ex-dividend date and paid 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 treatment of realized and unrealized gains and losses on forward foreign currency contracts, losses on wash sale transactions and market discount. 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 October 31, 1996, the fund reclassified $1,071,467 to increase undistributed net investment income and $7,835 to decrease paid-in-capital, with a decrease to accumulated net realized gain on investments of $1,063,632. The calculation of net investment income per share in the financial highlights table excludes these adjustments. Note 2 Management fee, administrative services, and other transactions Compensation of Putnam Management, for management and investment advisory services is paid quarterly based on the average net assets of the fund. Such fee is based on the following annual rates: 0.65% of the first $500 million, 0.55% of the next $500 million, 0.50% of the next $500 million, 0.45% of the next $1.5 billion subject, under current law, to reduction in any year by the amount of certain brokerage commissions and fees (less expenses) received by affiliates of Putnam Management on the fund's portfolio transactions. The fund reimburses Putnam Management 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 wholly-owned subsidiary of Putnam Investments, Inc. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. For the year ended October 31, 1996, fund expenses were reduced by $373,564 under expense offset arrangements with PFTC and brokerage service arrangements. Investor servicing and custodian fees reported in the Statement of operations exclude these credits. The fund could have invested a portion of the assets utilized in connection with the expense offset arrangements in an income producing asset if it had not entered into such arrangements. Trustees of the fund receive an annual Trustees fee of $1,490 and an additional fee for each Trustee's meeting attended. Trustees who are not interested persons of Putnam Management and who serve on committees of the Trustees receive additional fees for attendance at certain committee meetings. The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows the Trustees to defer the receipt of all or a portion of Trustees Fees payable on or after July 1, 1995. The deferred fees remain in the fund and are invested in certain Putnam funds until distribution in accordance with the Plan. The fund has adopted an unfunded noncontributory defined benefit pension plan (the "Pension Plan") covering all Trustees of the fund who have served as Trustee for at least five years. Benefits under the Pension Plan are equal to 50% of the Trustee's average total retainer and meeting fees for the three years preceding retirement. Pension expense for the fund is included in Compensation of Trustees in the Statement of operations. Accrued pension liability is included in Payable for compensation of Trustees in the Statement of assets and liabilities. The fund has adopted distribution plans (the "Plans") with respect to its class A, class B and class M shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments Inc., for services provided and expenses incurred by it in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%, 1.00% and 1.00% of the average net assets attributable to class A, class B and class M shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00% and 0.75% of the average net assets attributable to class A, class B and class M shares, respectively. For the year ended October 31, 1996, Putnam Mutual Funds Corp., acting as underwriter received net commissions of $324,646 and $14,083 from the sale of class A and class M shares, respectively and $133,826 in contingent deferred sales charges from redemptions of class B shares. A deferred sales charge of up to 1% is assessed on certain redemptions of class A shares. For the year ended October 31, 1996, Putnam Mutual Funds Corp., acting as underwriter received $2,194 on class A redemptions. Note 3 Purchase and sales of securities During the year ended October 31, 1996, purchases and sales of investment securities other than short-term investments aggregated $657,706,917 and $552,275,621, respectively. There were no purchases and sales of U.S. government obligations. In determining the net gain or loss on securities sold, the cost of securities has been determined on the identified cost basis. Note 4 Capital shares At October 31, 1996, there was an unlimited number of shares of beneficial interest authorized. Year ended October 31, 1996 - ---------------------------------------------------- Class A Shares Amount - ---------------------------------------------------- Shares sold 6,225,633 $ 126,621,311 - ---------------------------------------------------- Shares issued in connection with reinvestment of distributions 2,946,646 58,192,170 - ---------------------------------------------------- 9,172,279 184,813,481 Shares repurchased (5,850,929) (119,160,209) - ---------------------------------------------------- Net increase 3,321,350 $ 65,653,272 - ---------------------------------------------------- Year ended October 31, 1995 - ---------------------------------------------------- Class A Shares Amount - ---------------------------------------------------- Shares sold 4,766,671 $ 87,884,467 - ---------------------------------------------------- Shares issued in connection with reinvestment of distributions 3,881,585 68,270,063 - ---------------------------------------------------- 8,648,256 156,154,530 Shares repurchased (6,229,598) (116,013,292) - ---------------------------------------------------- Net increase 2,418,658 $ 40,141,238 - ---------------------------------------------------- Year ended October 31, 1996 - ---------------------------------------------------- Class B Shares Amount - ---------------------------------------------------- Shares sold 3,655,578 $ 74,061,724 - ---------------------------------------------------- Shares issued in connection with reinvestment of distributions 303,647 5,977,026 - ---------------------------------------------------- 3,959,225 80,038,750 Shares repurchased (931,979) (18,858,855) - ---------------------------------------------------- Net increase 3,027,246 $ 61,179,895 - ---------------------------------------------------- Year ended October 31, 1995 - ---------------------------------------------------- Class B Shares Amount - ---------------------------------------------------- Shares sold 2,743,660 $ 51,118,308 - ---------------------------------------------------- Shares issued in connection with reinvestment of distributions 188,683 3,340,889 - ---------------------------------------------------- 2,932,343 54,459,197 Shares repurchased (683,424) (12,747,189) - ---------------------------------------------------- Net increase 2,248,919 $ 41,712,008 - ---------------------------------------------------- Year ended October 31, 1996 - ---------------------------------------------------- Class M Shares Amount - ---------------------------------------------------- Shares sold 330,113 $ 6,691,625 - ---------------------------------------------------- Shares issued in connection with reinvestment of distributions 12,651 252,193 - ---------------------------------------------------- 342,764 6,943,818 Shares repurchased (96,145) (1,942,519) - ---------------------------------------------------- Net increase 246,619 $ 5,001,299 - ---------------------------------------------------- March 13, 1995 (commencement of operations) to October 31, 1995 - ---------------------------------------------------- Class M Shares Amount - ---------------------------------------------------- Shares sold 115,560 $ 2,231,842 - ---------------------------------------------------- Shares issued in connection with reinvestment of distributions 1,279 24,919 - ---------------------------------------------------- 116,839 2,256,761 Shares repurchased (26,296) (513,671) - ---------------------------------------------------- Net increase 90,543 $1,743,090 - ---------------------------------------------------- Federal tax information (Unaudited) Pursuant to Section 852 of the Internal Revenue Code, as amended, the Fund hereby designates $0.448 per share (or if different, the amount necessary to offset net capital gain earned by the Fund) for all classes of shares as capital gain dividends for its taxable year ended October 31, 1996. The fund has designated 26.94% of the distributions from net investment income as qualifying for the dividends received deduction for corporations. The Form 1099 you receive in January 1997 will show the tax status of all distributions paid to your account in calendar 1996. Putnam Convertible Income-Growth Trust Results of July 31, 1996 shareholder meeting An annual meeting of shareholders of the fund was held on July 31, 1996. At the meeting, each of the nominees for Trustees was elected, as follows: Votes Votes for withheld Jameson Adkins Baxter 32,777,157 657,812 Hans H. Estin 32,764,520 670,448 John A. Hill 32,790,178 644,790 R.J. Jackson 32,778,077 656,890 Elizabeth T. Kennan 32,758,255 676,713 Lawrence J. Lasser 32,771,294 663,674 Robert E. Patterson 32,783,159 651,809 Donald S. Perkins 32,776,195 658,773 William F. Pounds 32,780,147 654,821 George Putnam 32,774,850 660,118 George Putnam, III 32,748,970 685,998 Eli Shapiro 32,714,899 720,069 A.J.C. Smith 32,766,179 668,789 W. Nicholas Thorndike 32,761,939 673,029 A proposal to ratify the selection of Coopers & Lybrand L.L.P. as auditors for the fund was approved as follows: 31,940,021 votes for, and 346,445 votes against, with 1,148,502 abstentions and broker non-votes. A proposal to amend the fund's fundamental investment restriction with respect to diversification of investments was approved as follows: 26,721,110 votes for, and 4,450,543 votes against, with 2,263,315 abstentions and broker non-votes. A proposal to amend the fund's fundamental investment restriction with respect to investments in the securities of a single issuer was approved as follows: 28,534,946 votes for, and 2,433,423 votes against, with 2,466,599 abstentions and broker non-votes. A proposal to amend the fund's fundamental investment restriction with respect to making loans through purchases of debt obligations, repurchase agreements and securities loans was approved as follows: 27,606,188 votes for, and 3,290,558 votes against, with 2,538,222 abstentions and broker non-votes. A proposal to amend the fund's fundamental investment restriction with respect to investments in real estate was approved as follows: 28,294,343 votes for, and 2,691,946 votes against, with 2,448,679 abstentions and broker non-votes. A proposal to amend the fund's fundamental investment restriction with respect to concentration of its assets was approved as follows: 28,929,438 votes for, and 2,047,455 votes against, with 2,458,075 abstentions and broker non-votes. A proposal to amend the fund's fundamental investment restriction with respect to investments in commodities or commodity contracts was approved as follows: 25,227,097 votes for, and 5,723,352 votes against, with 2,484,519 abstentions and broker non-votes. A proposal to amend the fund's fundamental investment restriction with respect to underwriting was approved as follows: 28,486,103 votes for, and 2,246,815 votes against, with 2,702,050 abstentions and broker non- votes. A proposal to eliminate the fund's fundamental investment restriction with respect to investments in certain oil, gas and mineral interests was approved as follows: 28,141,273 votes for, and 2,909,880 votes against, with 2,383,815 abstentions and broker non-votes. A proposal to eliminate the fund's fundamental investment restriction with respect to option transactions was approved as follows: 25,225,951 votes for, and 5,690,850 votes against, with 2,518,167 abstentions and broker non-votes. A proposal to eliminate the fund's fundamental investment restriction with respect to investments in issuers that have been in operation for less than three years was approved as follows: 25,920,481 votes for, and 5,058,642 votes against, with 2,455,845 abstentions and broker non- votes. A proposal to eliminate the fund's fundamental investment restriction with respect to investments in securities of issuers in which management of the fund or Putnam Investment Management, Inc. owns securities was approved as follows: 28,270,371 votes for, and 2,658,059 votes against, with 2,506,538 abstentions and broker non-votes. A proposal to eliminate the fund's fundamental investment restriction with respect to margin transactions was approved as follows: 24,977,656 votes for, and 5,963,592 votes against, with 2,493,720 abstentions and broker non-votes. A proposal to eliminate the fund's fundamental investment restriction with respect to short sales was approved as follows: 27,757,372 votes for, and 3,175,668 votes against, with 2,501,928 abstentions and broker non-votes. A proposal to eliminate the fund's fundamental investment restriction which limits the fund's ability to pledge assets was approved as follows: 25,212,747 votes for, and 5,674,133 votes against, with 2,548,088 abstentions and broker non-votes. A proposal to amend the fund's Agreement and Declaration of Trust with respect to purchase of certain illiquid securities was approved as follows: 24,992,969 votes for, and 5,870,465 votes against, with 2,571,534 abstentions and broker non-votes. A proposal to eliminate the fund's fundamental investment restriction with respect to invest to gain control of a company's management was approved as follows: 28,319,265 votes for, and 2,656,177 votes against, with 2,459,526 abstentions and broker non-votes. A proposal to eliminate the fund's fundamental investment restriction with respect to investments in warrants was approved as follows: 28,293,968 votes for, and 2,662,632 votes against, with 2,478,368 abstentions and broker non-votes. All tabulations are rounded to nearest whole number. Fund information INVESTMENT MANAGER Putnam Investment Management, Inc. One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Mutual Funds Corp. One Post Office Square Boston, MA 02109 CUSTODIAN Putnam Fiduciary Trust Company LEGAL COUNSEL Ropes & Gray INDEPENDENT ACCOUNTANTS Coopers & Lybrand L.L.P. TRUSTEES George Putnam, Chairman William F. Pounds, Vice Chairman Jameson Adkins Baxter Hans H. Estin John A. Hill Ronald J. Jackson Elizabeth T. Kennan Lawrence J. Lasser Robert E. Patterson Donald S. Perkins George Putnam, III Eli Shapiro A.J.C. Smith W. Nicholas Thorndike OFFICERS George Putnam President Charles E. Porter Executive Vice President Patricia C. Flaherty Senior Vice President John D. Hughes Senior Vice President and Treasurer Lawrence J. Lasser Vice President Gordon H. Silver Vice President Peter Carman Vice President Thomas V. Reilly Vice President Hugh H. Mullin Vice President and Fund Manager Charles G. Pohl Vice President and Fund Manager William N. Shiebler Vice President John R. Verani Vice President Paul M. O'Neil Vice President Beverly Marcus Clerk and Assistant Treasurer This report is for the information of shareholders of Putnam Convertible Income-Growth Trust. It may also be used as sales literature when preceded or accompanied by the current prospectus, which gives details of sales charges, investment objectives, and operating policies of the fund, and the most recent copy of Putnam's Quarterly Performance Summary. For more information, or to request a prospectus, call toll free: 1-800-225-1581. You can also learn more at Putnam Investments' website: http://www.putnaminv.com. Shares of mutual funds are not deposits or obligations of, or guaranteed or endorsed by, any financial institution, are not insured by the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board or any other agency, and involve risk, including the possible loss of principal amount invested. PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 - --------------------- Bulk Rate U.S. Postage PAID Putnam Investments - --------------------- 29197/008/223/920 12/96 -----END PRIVACY-ENHANCED MESSAGE-----