-----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, BZX/KTbAPXUt5ibM7oOw2L4X6C0o0uMf+cF2n4hX4v9pT1JlJBABgYeRN3L/Al40 vsgw8BdaU6e9EoBgv+D9Vg== 0000928816-98-000327.txt : 19981221 0000928816-98-000327.hdr.sgml : 19981221 ACCESSION NUMBER: 0000928816-98-000327 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19981218 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: SEC FILE NUMBER: 811-02280 FILM NUMBER: 98771684 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQ STREET 2: MAILSTOP A 14 CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6172921000 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 ON PERFORMANCE AND OUTLOOK 10-31-98 [LOGO: BOSTON * LONDON * TOKYO] Fund highlights * "Putnam Convertible Income-Growth Trust's positioning has worked in good times and bad." -- Morningstar Mutual Funds, October 20, 1998 * According to Lipper Analytical Services, Putnam Convertible Income-Growth Trust class A shares' total return ranked in the top 28%, or 5 out of 17 funds, in Lipper's convertible securities universe for 10-year performance as of October 31, 1998.* CONTENTS 4 Report from Putnam Management 9 Fund performance summary 15 Portfolio holdings 30 Financial statements * Past performance is not indicative of future results. Lipper Analytical Services, an independent research organization, ranks funds according to total return performance. Their rankings vary over time and do not reflect the effects of sales charges. For the period ended 10/31/98, the fund's class A shares ranked 17 out of 57 and 7 out of 25 for 1- and 5-year returns, respectively. Performance of other share classes will vary. From the Chairman [GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM] [copyright] Karsh, Ottawa Dear Shareholder: One of the attractions of convertible securities is their tendency to take gentler spills than their underlying stocks during market downswings. In return, of course, they forfeit some growth potential when markets are on the rise. These attributes worked to Putnam Convertible Income-Growth Trust's advantage during the volatile markets of the fund's most recent fiscal year. Although the 12 months ended October 31, 1998, represented the fund's first negative year since 1990, the mildness of the decline at net asset value suggests that the fund is performing within its expected parameters. Over longer periods, the fund continues to deliver double-digit average annual returns, which are shown in the tables that follow the management report. I am pleased to note that Forrest N. Fontana has joined Charles Pohl on your fund's management team. After working 4 years as an engineer and systems consultant, Forrest joined Putnam in 1993 as an equity analyst and is now a member of and portfolio manager in the Equity Small Cap Value group. He has 5 years of investment experience. Respectfully yours, /S/GEORGE PUTNAM George Putnam Chairman of the Trustees December 16, 1998 Report from the Fund Managers Charles G. Pohl Forrest N. Fontana During Putnam Convertible Income-Growth Trust's 1998 fiscal year, which ended on October 31, 1998, volatility affected almost every area of the capital markets. Late in the period, as most markets staged a retreat, convertible securities declined as well, although we believe they remain attractive, lower-risk vehicles for investing in smaller and growing companies. The fund's diverse holdings of convertibles and large-cap value stocks made its performance less volatile than that of most equity funds - -- however, the fund's class A shares returned -1.37% at NAV (-7.05 at POP), the first negative result in an annual period since 1990. For complete performance information, including results of other share classes and over the fund's long-term history, please turn to the tables that begin on page 9. * FUND MODERATES MARKET'S OVERREACTIONS As hybrid securities combining qualities of stocks and bonds, convertibles tend to perform like stocks but fluctuate within a narrower range. On the other hand, like bonds, they pay a more attractive level of income than stocks and have some sensitivity to interest rates and credit quality. Through July 1998, stocks rose to record highs and convertibles generally rose with them, though smaller-company convertibles began to weaken in April. In August, investors suddenly turned sour on risk when the Russian government moved to restructure its foreign debts. In the ensuing turmoil, every type of security except Treasury bonds was affected by the change in sentiment. We believe we were able to minimize the effects of these market factors on the fund's performance. Although your fund did not race ahead as stocks reached record highs, it also did not plunge dramatically in late summer when markets retreated. We attribute this relative stability to the fund's value strategy and consistent diversification. In selecting any security, we insist on paying as low a price as possible relative to the security's yield and prospects for capital appreciation. Because of this value-oriented strategy, we believe that the fund experiences less downside risk over long time periods. In addition to this rigorous fundamental analysis, we make sure that the fund is invested in diverse sectors of the market at all times. The lion's share of the fund's assets is in convertibles of small and midsize companies with strong growth prospects, such as Sepracor, Inc., a $2 billion market-cap biotech company, as well as in those of larger, more established corporations, such as Home Depot. We add even more diversity by investing about 10% in high-yielding convertibles and placing 25% to 35% of assets in dividend-paying stocks of large companies. In most periods, each of these sectors performs somewhat differently, and thereby the fund's overall volatility is muted. Although these holdings, as well as others mentioned in this report, were viewed favorably at the end of the reporting period, all portfolio holdings are subject to review and adjustment in accordance with the fund's investment strategy and may vary in the future. * CAREFUL SELECTION AIDS PERFORMANCE Our thorough analysis of convertible issues added to our ability to control risk during the fiscal year by enabling us to achieve strong relative performance in several areas. The largest industries represented in the fund generally mirrored the largest sectors of the market. Technology companies, for example, account for roughly one fifth of the convertible market and represented about 20% of the fund's convertible holdings at the end of the period. Other large industries represented included consumer cyclicals and finance. [GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS] TOP INDUSTRY SECTORS Oil and gas 6.5% Insurance and finance 6.5% Pharmaceuticals and biotechnology 6.2% Retail 5.6% Electronics and electrical equipment 5.5% Footnote reads: *Based on net assets as of 10/31/98. Holdings will vary over time. Among the fund's technology holdings, Apple Computer and EMC Corp. provided solid relative returns. Apple returned to profitability recently after several years of losses. EMC is tapping into a huge business demand for storage of digital information. Cable holdings also had a good year; Tele-Communications, Inc. (TCI) and MediaOne were high profile performers. TCI agreed to be purchased by AT&T, which sought the cable company's wide distribution network. MediaOne, meanwhile, maintained its leadership in broadband Internet services. Some holdings have not yet achieved the strong prospects that we foresee. One of them is Western Digital, a computer peripherals company. We bought this convertible when the tech sector was weak early in 1998, and we still believe in its potential to deliver above average results. * CONVERTIBLES ESPECIALLY ATTRACTIVE TO VALUE INVESTORS Although your fund's short-term returns turned negative in 1998, we are optimistic that convertible prices will become more attractive going into 1999. In early 1998, for instance, many companies issued new convertibles, but our analysis indicated that most of them were priced too expensively. We turned down such issues and instead took advantage of our research capabilities to sift for better values in older, more seasoned issues. An example is Lam Research, a company in the semiconductor industry whose convertibles we began purchasing at beaten-down prices late in 1997 when the Asian crisis depressed the prices of semiconductors. As it turned out, the high prices for new issues represented the end of a bullish cycle in the market, and with the summer turmoil, we found that convertibles were becoming more attractive to value investors. The slump was similar to previous out-of-favor periods for convertibles in 1994 and 1990 but with a crucial difference: the economy and interest rates are more favorable than they were in those earlier periods. In 1990, for example, the economy went into recession; in 1994, interest rates rose rapidly. In 1998, however, interest rates are low and the economy, while cooling, has not contracted. Recently new issuance of convertibles has slowed from a rush to a trickle and prices have become more reasonable. This signals an opportune environment in which to be an owner and a selective buyer of convertibles. We are finding securities of promising companies that are now deeply discounted. [GRAPHIC OMITTED: TOP 10 HOLDINGS] TOP 10 CONVERTIBLE HOLDINGS Softkey International, Inc., 144a convertible senior notes 5.5%, 2000 Computer software Roche Holdings, Inc., 144a convertible unsubordinated LYON 0%, 2010 (Switzerland) Pharmaceuticals Micron Technology, Inc., convertible subordinated notes 7%, 2004 Semiconductors Kmart Financing I, $3.875 convertible cumulative preferred Retail Apple Computer, Inc., convertible subordinated notes 6%, 2001 Computers Data General Corp., 144a convertible subordinated notes 6%, 2004 Computer software Sandoz Capital BVI Ltd., 144a convertible company guaranty 2%, 2002 (Switzerland) Pharmaceuticals Estee Lauder Co., $3.805 convertible preferred Consumer products Tele-Communications Intl., convertible subordinated debenture 4.5%, 2006 Cable television Park Electrochemical Corp., convertible subordinated notes 5.5%, 2006 Electronics and electrical equipment Footnote reads: These holdings represent 8.0% of the fund's net assets as of 10/31/98. Portfolio holdings will vary over time. * LONG-TERM OPPORTUNITY IN CONVERTIBLES We believe the current backdrop for the convertible market is positive as the domestic economy expands with low interest rates. Furthermore the volatility in the middle of the year provided a worthwhile reassessment by investors. It alleviated one of our chief worries -- that convertibles were overpriced. The rapid selloff provided the kind of buying opportunity that emerges only a couple of times per decade. With regard to new issues, the volatility compelled many companies to delay their plans. We anticipate that when issuance resumes its normal pace, many excellent companies will offer new securities at reasonable prices. It is clear to us that convertibles still offer an attractive and conservative approach for investing in smaller and faster growing companies. 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 10/31/98, there is no guarantee the fund will continue to hold these securities in the future. Performance summary This section provides information about your fund's performance, which should always be considered in light of its investment strategy. 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. TOTAL RETURN FOR PERIODS ENDED 10/31/98 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 -1.37% -7.05% -2.11% -6.42% -1.75% -5.20% - ------------------------------------------------------------------------------ 5 years 67.95 58.31 61.66 59.72 63.78 58.08 Annual average 10.93 9.62 10.08 9.82 10.37 9.59 - ------------------------------------------------------------------------------ 10 years 222.45 203.91 197.87 197.87 205.33 194.73 Annual average 12.42 11.76 11.53 11.53 11.81 11.41 - ------------------------------------------------------------------------------ Annual average (life of fund) 12.13 11.88 11.10 11.10 11.38 11.23 - ------------------------------------------------------------------------------ COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 10/31/98 Lehman Bros. S&P 500 Corporate Index Bond Index* - ------------------------------------------------------------------------------ 1 year 21.99% 8.00% - ------------------------------------------------------------------------------ 5 years 162.66 41.20 Annual average 21.31 7.15 - ------------------------------------------------------------------------------ 10 years 418.25 149.06 Annual average 17.89 9.56 - ------------------------------------------------------------------------------ Annual average (life of fund) 13.44 -- - ------------------------------------------------------------------------------ Past performance is no assurance of future results. Returns for class A and class M shares reflect the current maximum initial sales charges of 5.75% and 3.50% respectively. Class B share returns for the 1-, 5-, and 10-year (where available) and life-of-fund periods reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declines to 1% in the sixth year, and is eliminated thereafter. Returns shown for class B and class M shares for periods prior to their inception are derived from the historical performance of class A shares, adjusted to reflect both the initial sales charge or CDSC, if any, currently applicable to each class and in the case of class B and class M shares, the higher operating expenses applicable to such shares. All returns assume reinvestment of distributions at NAV. Investment return and principal value will fluctuate so that an investor's shares when redeemed may be worth more or less than their original cost. This performance information does not reflect any market volatility that may have occurred since the date of the information. As a result, more recent returns may be more or less than those shown. *Inception date of index was 12/31/72. [GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT] GROWTH OF A $10,000 INVESTMENT Cumulative total return of a $10,000 investment since 10/31/88 Lehman Bros. Fund's class A S&P 500 Corporate Bond Date shares at POP Index Index 10/31/88 9,425 10,000 10,000 10/31/89 10,829 12,640 11,240 10/31/90 9,047 11,695 11,720 10/31/91 12,579 15,612 13,784 10/31/92 14,863 17,166 15,317 10/31/93 18,096 19,731 17,638 10/31/94 18,427 20,494 16,725 10/31/95 21,077 25,913 19,869 10/31/96 25,079 32,157 21,106 10/31/97 30,811 42,483 23,060 10/31/98 $30,391 $51,825 $24,906 Footnote reads: Past performance is no assurance of future results. At the end of the same time period, a $10,000 investment in the fund's class B shares would have been valued at $29,787 and no contingent deferred sales charges would apply; a $10,000 investment in the fund's class M shares would have been valued at $30,533 ($29,473 at public offering price). See first page of performance section for performance calculation method. PRICE AND DISTRIBUTION INFORMATION 12 months ended 10/31/98 Class A Class B Class M - ------------------------------------------------------------------------- Distributions (number) 4 4 4 - ------------------------------------------------------------------------- Income $0.787 $0.628 $0.684 - ------------------------------------------------------------------------- Capital gains - ------------------------------------------------------------------------- Long term 1.271 1.271 1.271 - ------------------------------------------------------------------------- Short term 0.858 0.858 0.858 - ------------------------------------------------------------------------- Total $2.916 $2.757 $2.813 - ------------------------------------------------------------------------- Share value: NAV POP NAV NAV POP - ------------------------------------------------------------------------- 10/31/97 $23.22 $24.64 $23.01 $23.08 $23.92 - ------------------------------------------------------------------------- 10/31/98 20.04 21.26 19.83 19.92 20.64 - ------------------------------------------------------------------------- Current return (end of period) - ------------------------------------------------------------------------- Current dividend rate1 4.79% 4.52% 4.05% 4.32% 4.17% - ------------------------------------------------------------------------- Current 30-day SEC yield2 4.45 4.19 3.75 3.98 3.84 - ------------------------------------------------------------------------- 1 Income portion of most recent distribution, annualized and divided by NAV or POP at end of period. 2 Based on investment income, calculated using SEC guidelines. TOTAL RETURN FOR PERIODS ENDED 9/30/98 (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 -7.21% -12.56% -7.90% -11.96% -7.69% -10.92% - ------------------------------------------------------------------------------ 5 years 65.75 56.21 59.59 57.66 61.41 55.77 Annual average 10.63 9.33 9.80 9.53 10.05 9.27 - ------------------------------------------------------------------------------ 10 years 215.11 196.99 190.97 190.97 198.04 187.60 Annual average 12.16 11.50 11.27 11.27 11.54 11.14 - ------------------------------------------------------------------------------ Annual average (life of fund) 12.03 11.78 11.00 11.00 11.27 11.12 - ------------------------------------------------------------------------------ Performance data represent past results, do not reflect future performance, and will differ for each share class. Investment returns and principal value will fluctuate so that an investor's shares, when sold, may be worth more or less than their original cost. See first page of performance section for performance calculation method. TERMS AND DEFINITIONS Total return shows how the value of the fund's shares changed over time, assuming you held the shares through the entire period and reinvested all distributions in the fund. Class A shares are generally subject to an initial sales charge. Class B shares may be subject to a sales charge upon redemption. Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no sales charge on redemption. Net asset value (NAV) is the value of all your fund's assets, minus any liabilities, divided by the number of outstanding shares, not including any initial or contingent deferred sales charge. Public offering price (POP) is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. POP performance figures shown here assume the 5.75% maximum sales charge for class A shares and 3.50% for class M shares. Contingent deferred sales charge (CDSC) is a charge applied at the time of the redemption of class B shares and assumes redemption at the end of the period. Your fund's CDSC declines from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. COMPARATIVE BENCHMARKS Standard & Poor's 500 Index* is an unmanaged list of 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 in account brokerage fees or taxes. Securities in the fund do not match those in the indexes and performance of the fund will differ. It is not possible to invest directly in an index. WELCOME TO www.putnaminv.com Now you can use your PC to get up-to-date information about your funds, learn more about investing and retirement planning, and access market news and economic outlooks from Putnam. VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR: * the benefits of investing with Putnam * Putnam's money management philosophy * complete fund information, daily pricing and long-term performance * your current account value, portfolio value and transaction history * the latest on new funds and other Putnam news You can also read Putnam economist Dr. Robert Goodman's commentary and Putnam's Capital Markets outlook, search for a particular fund by name or objective, use our glossary to decode investment terms . . . and much more. The site can be accessed through any of the major online services (America Online, CompuServe, Prodigy) that offer web access. Of course, you can also access it via Netscape or Microsoft Internet Explorer, using an independent Internet service provider. New features will be added to the site regularly. So be sure to bookmark us at http://www.putnaminv.com Report of independent accountants For the fiscal year ended October 31, 1998 To the Trustees and Shareholders of Putnam Convertible Income-Growth Trust In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments owned, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Putnam Convertible Income-Growth Trust (the "fund") at October 31, 1998, and the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of investments owned at October 31, 1998 by correspondence with the custodian, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Boston, Massachusetts December 11, 1998
Portfolio of investments owned October 31, 1998 CONVERTIBLE BONDS AND NOTES (41.4%) (a) PRINCIPAL AMOUNT VALUE Advertising (0.4%) - -------------------------------------------------------------------------------------------------------------------------- $ 5,000,000 Omnicom Group Inc. cv. sub. deb. 2 1/4s, 2013 $ 6,000,000 Aerospace and Defense (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 1,850,000 Diagnostic Retrieval Systems, Inc. cv. sr. sub. deb 9s, 2003 1,868,500 1,000,000 SPACEHAB, Inc. cv. sub. notes 8s, 2007 805,000 2,260,000 SPACEHAB, Inc. 144A cv. sub. notes 8s, 2007 1,819,300 -------------- 4,492,800 Airlines (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 1,136,000 Atlantic Coast Airlines 144A cv. sub. notes 7s, 2004 3,023,180 2,319,000 World Airways, Inc. 144A cv. sub. deb. 8s, 2004 788,460 -------------- 3,811,640 Automotive (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 4,000,000 Magna International cv. sub. deb. 5s, 2002 4,590,000 3,000,000 Mascotech, Inc. cv. sub. deb. 4 1/2s, 2003 2,490,000 -------------- 7,080,000 Biotechnology (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 1,000,000 Aviron cv. sub. notes 5 3/4s, 2005 797,500 Broadcasting (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 10,000,000 Jacor Communications, Inc. cv. Liquid Yield Option Notes (LYON) zero %, 2018 4,050,000 2,125,000 Scandinavian Broadcasting System S.A. 144A cv. sub. notes 7s, 2004 (Luxembourg) 2,061,250 -------------- 6,111,250 Building and Construction (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 4,000,000 American Residential Services, Inc. cv. sub. notes 7 1/4s, 2004 1,340,000 Business Equipment and Services (2.2%) - -------------------------------------------------------------------------------------------------------------------------- 10,000,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 8,825,000 1,500,000 Corporate Express, Inc. 144A cv. notes 4 1/2s, 2000 1,323,750 6,600,000 Mail-Well, Inc. cv. sub. notes 5s, 2002 5,857,500 2,946,000 National Data Corp. cv. sub. notes 5s, 2003 2,750,828 2,150,000 Personnel Group of America, Inc. cv. sub. notes 5 3/4s, 2004 2,150,000 15,000,000 Xerox Corp. cv. sub. deb. 0.57s, 2018 8,625,000 -------------- 29,532,078 Computer Services and Software (2.9%) - -------------------------------------------------------------------------------------------------------------------------- 1,000,000 Aspen Technology, Inc. 144A cv. sub. deb. 5 1/4s, 2005 640,000 11,000,000 Data General Corp. 144A cv. sub. notes 6s, 2004 10,340,000 389,000 EMC Corp. cv. sub. notes 3 1/4s, 2002 1,121,779 500,000 Platinum Technology Inc. cv. sub. notes 6 1/4s, 2002 426,250 2,385,000 S3, Inc. 144A cv. sub. notes 5 3/4s, 2003 1,192,500 10,620,000 System Software Associates, Inc. cv. sub. notes 7s, 2002 6,770,250 4,358,000 The Vantive Corp. cv. sub. notes 4 3/4s, 2002 2,963,440 35,563,000 Western Digital Corp. 144A cv. sub. deb. zero %, 2018 7,601,591 8,000,000 Xilinx, Inc. cv. sub. notes 5 1/4s, 2002 8,080,000 -------------- 39,135,810 Computers (3.6%) - -------------------------------------------------------------------------------------------------------------------------- 7,800,000 Apple Computer, Inc. cv. sub. notes 6s, 2001 10,344,750 16,000,000 Hewlett-Packard Co. cv. sub. notes zero %, 2017 8,760,000 1,500,000 Intevac, Inc. cv. sub. notes 6 1/2s, 2004 1,098,750 5,090,000 Intevac, Inc. 144A cv. sub. notes 6 1/2s, 2004 3,728,425 7,006,000 Maxtor Corp. cv. sub. deb. 5 3/4s, 2012 4,203,600 8,022,000 Safeguard Scientifics, Inc. 144A cv. sub. notes 6s, 2006 7,731,203 13,500,000 Softkey International, Inc. 144A cv. sr. notes 5 1/2s, 2000 12,875,625 -------------- 48,742,353 Conglomerates (0.6%) - -------------------------------------------------------------------------------------------------------------------------- 2,935,000 Hexcel Corp. cv. sub. notes 7s, 2003 2,696,532 5,750,000 Thermo Electron Corp. 144A cv. subordinated 4 1/4s, 2003 5,153,438 -------------- 7,849,970 Consumer Services (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 8,000,000 News America Holdings, Inc. cv. LYON zero %, 2013 4,520,000 1,400,000 Protection One, Inc. cv. sr. sub. notes 6 3/4s, 2003 1,627,500 -------------- 6,147,500 Electronic Components (1.0%) - -------------------------------------------------------------------------------------------------------------------------- 11,810,000 Kent Electronics Corp. cv. sub. notes 4 1/2s, 2004 9,418,475 875,000 Lernout & Hauspie Speech Products N.V. 144A cv. sub. notes 8s, 2001 (Belgium) 3,290,000 1,205,000 Photronics, Inc. cv. sub. notes 6s, 2004 1,232,113 -------------- 13,940,588 Electronics and Electrical Equipment (3.6%) - -------------------------------------------------------------------------------------------------------------------------- 10,780,000 Advanced Micro Devices, Inc. cv. sub. notes 6s, 2005 8,920,450 2,000,000 Checkpoint Systems, Inc. 144A cv. sub. deb. 5 1/4s, 2005 1,595,000 6,935,000 Dovatron International cv. sub. notes 6s, 2002 6,518,900 2,250,000 HMT Technology Corp. 144A cv. sub. notes 5 3/4s, 2004 1,282,500 5,565,000 Motorola, Inc. cv. sub. deb. LYON zero %, 2013 4,020,713 12,160,000 Park Electrochemical Corp. cv. sub. notes 5 1/2s, 2006 9,849,600 2,385,000 S3, Inc. 144A cv. sub. notes 5 3/4s, 2003 1,261,069 5,500,000 SCI Systems, Inc. cv. sub. notes 5s, 2006 9,068,125 1,993,000 Thermo Instrument Systems, Inc. 144A cv. deb. 4 1/2s, 2003 1,721,454 1,215,000 Thermo Instrument Systems, Inc. 144A cv. company guaranty 3 3/4s, 2000 1,230,188 275,000 Thermo Optek Corp. cv. bonds 5s, 2000 253,000 1,194,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 1,132,808 2,705,000 Thermo Quest Corp. cv. company guaranty 5s, 2000 2,573,131 -------------- 49,426,938 Energy-Related (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 5,000,000 Thermo Electron Corp. cv. sub. deb. 4 1/4s, 2003 4,481,250 Entertainment (1.3%) - -------------------------------------------------------------------------------------------------------------------------- 11,200,000 Loews Corp. cv. sub. notes 3 1/8s, 2007 9,296,000 13,600,000 Rogers Communications cv. deb. 2s, 2005 8,568,000 -------------- 17,864,000 Environmental Control (0.8%) - -------------------------------------------------------------------------------------------------------------------------- 3,100,000 OHM Corp. cv. sub. deb. 8s, 2006 2,809,375 1,000,000 Thermo Ecotek Corp. 144A cv. bonds 4 7/8s, 2004 885,000 3,940,000 Thermo Terratech, Inc. 144A cv. sub. deb. 4 5/8s, 2003 3,570,625 3,000,000 Waste Management, Inc. cv. sub. notes 4s, 2002 3,472,500 -------------- 10,737,500 Financial Services (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 3,065,000 Pioneer Financial Services, Inc. cv. sub. notes 6 1/2s, 2003 3,915,538 Food (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 2,500,000 Chiquita Brands International, Inc. cv. sub. deb. 7s, 2001 2,275,000 1,000,000 Chiquita Brands International, Inc. 144A cv. sub. deb 7s, 2001 910,000 -------------- 3,185,000 Health Care (1.3%) - -------------------------------------------------------------------------------------------------------------------------- 2,000,000 Assisted Living Concepts, Inc. cv. sub. deb. 6s, 2002 1,620,000 2,000,000 Columbia/HCA Healthcare Corp. cv. sub. deb. 6 3/4s, 2006 1,695,000 8,500,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 6,948,750 5,000,000 Renal Treatment Centers, Inc. cv. sub. notes 5 5/8s, 2006 5,543,750 3,545,000 Sun Healthcare Group Inc. 144A cv. sub. 6s, 2004 1,967,475 -------------- 17,774,975 Hospital Management and Medical Services (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 1,500,000 Complete Management, Inc. cv. sub. deb. 8s, 2003 315,000 2,500,000 PhyMatrix, Inc. cv. sub. deb. 6 3/4s, 2003 1,040,625 3,310,000 U.S. Diagnostic Laboratories, Inc. 144A cv. sub. deb. 9s, 2003 2,114,263 -------------- 3,469,888 Information Systems (0.7%) - -------------------------------------------------------------------------------------------------------------------------- 6,700,000 Automatic Data Processing cv. deb. zero %, 2012 6,741,875 3,254,000 Quantum Corp. cv. sub. 7s, 2004 2,912,330 -------------- 9,654,205 Insurance and Finance (1.1%) - -------------------------------------------------------------------------------------------------------------------------- 5,000,000 Berkshire Hathaway, Inc. cv. sr. notes 1s, 2001 6,350,000 12,000,000 Mutual Risk Management 144A cv. sub. deb. zero %, 2015 8,700,000 -------------- 15,050,000 Lodging (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 1,000,000 Hilton Hotels Corp. cv. sub. notes 5s, 2006 912,500 3,000,000 ShoLodge, Inc. cv. sub. deb. 7 1/2s, 2004 1,740,000 -------------- 2,652,500 Machinery (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 3,000,000 Thermo Fibertek Inc. 144A cv. company guaranty 4 1/2s, 2004 2,557,500 Media (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 3,000,000 Clear Channel Communications, Inc. cv. sr. notes 2 5/8s, 2003 2,861,250 Medical Supplies and Devices (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 3,800,000 Atrix Labs, Inc. 144A cv. sub. notes 7s, 2004 2,878,500 2,000,000 Phoenix Shannon 144A cv. sr. sub. notes 9 1/2s, 2000 (In default) (NON) 20,000 1,412,000 Thermo Cardiosystems, Inc. 144A cv. company guaranty 4 3/4s, 2004 1,166,665 1,000,000 Ventritex, Inc. cv. sub. notes 5 3/4s, 2001 1,087,500 -------------- 5,152,665 Metals and Mining (0.8%) - -------------------------------------------------------------------------------------------------------------------------- 2,000,000 Homestake Mining Co. 144A cv. sub. 5 1/2s, 2000 1,860,000 4,541,000 Inco Ltd. deb. 5 3/4s, 2004 (Canada) 3,996,080 5,169,500 Quanex Corp. cv. sub. deb. 6.88s, 2007 4,575,008 -------------- 10,431,088 Oil and Gas (2.3%) - -------------------------------------------------------------------------------------------------------------------------- 6,160,000 Lomak Petroleum, Inc. 144A cv. sub. deb. 6s, 2007 3,950,100 3,000,000 Parker Drilling Co. cv. sub. notes 5 1/2s, 2004 2,197,500 5,500,000 Pennzoil Co. cv. deb. 4.95s, 2008 5,328,125 7,500,000 Pennzoil Co. cv. deb. 4.9s, 2008 7,275,000 3,833,000 Pride International, Inc. cv. sub. deb. 6 1/4s, 2006 3,962,364 4,500,000 Pride International, Inc. cv. sub. deb. zero %, 2018 1,136,250 1,000,000 Seacor Holdings, Inc. cv. sub. notes 5.38s, 2006 955,000 1,500,000 Southern Mineral Corp. cv. deb. 6 7/8s, 2007 810,000 6,910,000 Swift Energy Co. cv. sub. notes 6 1/4s, 2006 5,528,000 -------------- 31,142,339 Oil Services (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 11,000,000 Baker Hughes, Inc. cv. notes zero %, 2008 7,466,250 Paper and Forest Products (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 2,500,000 Stone Container Corp. cv. sub. deb. 6 3/4s, 2007 1,768,750 Pharmaceuticals and Biotechnology (4.2%) - -------------------------------------------------------------------------------------------------------------------------- 15,000,000 Alza Corp. cv. sub. LYON zero %, 2014 9,412,500 3,000,000 Centocor, Inc. 144A cv. sub. notes 4 3/4s, 2005 3,176,250 4,500,000 Chiron Corp. cv. sub. notes 1.9s, 2000 4,308,750 3,000,000 Duramed Pharmaceuticals, Inc. cv. sub. notes 3 1/2s, 2002 2,115,000 1,025,000 Nabi, Inc. cv. sub. notes 6 1/2s, 2003 608,594 2,500,000 NeXstar Pharmaceuticals, Inc. 144A cv. sub. deb. 6 1/4s, 2000 1,928,125 280,000 Pharmaceutical Marketing Services Inc. cv. notes 6 1/4s, 2003 243,600 6,625,000 Pharmaceutical Marketing Services Inc. 144A cv. deb. 6 1/4s, 2003 5,863,125 20,000,000 Roche Holdings, Inc. 144A cv. unsub. LYON zero %, 2010 (Switzerland) 12,487,500 5,995,000 Sandoz Capital BVI Ltd. 144A cv. company guaranty 2s, 2002 (Switzerland) 10,244,856 4,880,000 Sepracor, Inc. 144A cv. sub. deb. 6 1/4s, 2005 7,490,800 -------------- 57,879,100 Publishing (0.7%) - -------------------------------------------------------------------------------------------------------------------------- 3,600,000 Thomas Nelson, Inc. 144A cv. sub. notes 5 3/4s, 1999 3,582,000 5,400,000 World Color Press, Inc. cv. sub. notes 6s, 2007 5,400,000 -------------- 8,982,000 REIT's (Real Estate Investment Trust) (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 3,750,000 Malan Realty Investors cv. sub. notes 9 1/2s, 2004 3,614,063 Recreation (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 2,211,000 Speedway Motorsports, Inc. 144A cv. sub. notes 5 3/4s, 2003 2,047,939 Restaurants (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 31,650,000 Boston Chicken, Inc. cv. notes LYON zero %, 2015 (NON) (In default) 474,750 5,540,000 Boston Chicken, Inc. cv. sub. deb. 7 3/4s, 2004 (NON) (In default) 277,000 4,100,000 CKE Restaurants, Inc. 144A cv. sub. notes 4 1/4s, 2004 3,546,500 -------------- 4,298,250 Retail (3.0%) - -------------------------------------------------------------------------------------------------------------------------- 2,000,000 Baker (J.), Inc. cv. deb. 7s, 2002 1,432,500 5,000,000 Home Depot, Inc. cv. sub. notes 3 1/4s, 2001 9,381,250 6,275,000 Michaels Stores, Inc. cv. sub. notes 6 3/4s, 2003 5,318,063 13,000,000 Office Depot, Inc. cv. LYON zero %, 2007 9,847,500 3,405,000 Pier 1 Imports, Inc. cv. sub. notes 5 3/4s, 2003 4,230,713 7,000,000 Rite Aid Corp. cv. sub. notes 5 1/4s, 2002 8,837,500 2,700,000 Sunglass Hut International, Inc. 144A cv. sub. notes 5 1/4s, 2003 1,809,000 -------------- 40,856,526 Satellite Services (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 3,170,000 Gilat Satellite Networks Ltd. cv. sub. notes 6 1/2s, 2004 (Israel) 3,887,213 Semiconductors (3.1%) - -------------------------------------------------------------------------------------------------------------------------- 7,900,000 Analog Devices, Inc. cv. sub. notes 3 1/2s, 2000 8,295,000 10,290,000 Credence Systems Corp. cv. sub. notes 5 1/4s, 2002 7,511,700 3,000,000 Credence Systems Corp. 144A cv. sub. notes 5 1/4s, 2002 2,220,000 9,600,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 6,060,000 3,030,000 Integrated Process Equipment Corp. 144A cv. sub. notes 6 1/4s, 2004 1,833,150 3,000,000 Lam Research Corp. cv. sub. notes 5s, 2002 2,347,500 11,807,000 Micron Technology, Inc. cv. sub. notes 7s, 2004 11,467,549 3,000,000 National Semiconductor Corp. 144A cv. deb. 6 1/2s, 2002 2,407,500 -------------- 42,142,399 Supermarkets (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 3,000,000 Whole Foods Market, Inc. cv. sub. deb. zero %, 2018 975,000 Telecommunications (1.1%) - -------------------------------------------------------------------------------------------------------------------------- 5,845,000 Inacom Corp. cv. sub. deb. 4 1/2s, 2004 5,012,088 10,000,000 Tele-Communications Intl. cv. sub. deb. 4 1/2s, 2006 9,950,000 -------------- 14,962,088 Telephone Services (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 1,000,000 MIDCOM Communications, Inc. cv. sub. notes 8 1/4s, 2003 (In default) (NON) 220,000 3,775,000 MIDCOM Communications, Inc. 144A cv. sub. deb. 8 1/4s, 2003 (In default) (NON) 830,500 -------------- 1,050,500 Textiles (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 1,231,000 Dixie Group, Inc. (The) cv. deb. 7s, 2012 910,940 Tobacco (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 7,485,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 2007 (NON) 5,361,131 Transportation (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 3,350,000 Offshore Logistics, Inc. 144A cv. sub. notes 6s, 2003 3,048,500 -------------- Total Convertible Bonds and Notes (cost $599,652,168) $ 564,588,774 COMMON STOCKS (30.5%) (a) NUMBER OF SHARES VALUE Aerospace and Defense (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 31,000 Raytheon Co Class A $ 1,736,000 53,000 Raytheon Co. Class B 3,077,313 -------------- 4,813,313 Airlines (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 39,100 UAL Corp. (NON) 2,539,056 Alcoholic Beverages (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 85,200 Anheuser-Busch Cos., Inc. 5,064,075 Automotive (0.9%) - -------------------------------------------------------------------------------------------------------------------------- 160,600 Ford Motor Co. 8,712,550 51,000 General Motors Corp. 3,216,188 -------------- 11,928,738 Banks (2.6%) - -------------------------------------------------------------------------------------------------------------------------- 112,914 Bank One Corp. 5,518,672 85,300 BankBoston Corp. 3,140,106 34,000 Bankers Trust New York Corp. (CUS) 2,135,625 92,500 Chase Manhattan Corp. 5,255,156 40,000 Crestar Financial Corp. 2,635,000 75,000 First Tennessee National Corp. 2,376,563 95,212 Fleet Financial Group, Inc. 3,802,529 45,000 Mercantile Bancorporation, Inc. 2,055,938 25,000 Summit Bancorp 948,438 93,500 Washington Mutual, Inc. 3,500,406 11,000 Wells Fargo & Co. 4,070,000 -------------- 35,438,433 Business Services (0.6%) - -------------------------------------------------------------------------------------------------------------------------- 79,100 Avery Dennison Corp. 3,277,706 48,200 Xerox Corp. 4,669,375 -------------- 7,947,081 Cellular Communications (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 75,610 3Com Corp. (NON) 2,726,686 Chemicals (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 22,000 Dow Chemical Co. 2,059,750 83,300 E.I. du Pont de Nemours & Co., Ltd. 4,789,750 -------------- 6,849,500 Communications (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 86,300 MediaOne Group Inc. (NON) 3,651,569 Computers (1.5%) - -------------------------------------------------------------------------------------------------------------------------- 180,700 Compaq Computer Corp. 5,714,638 77,000 IBM Corp. 11,429,688 63,000 Sun Microsystems, Inc. (NON) 3,669,750 -------------- 20,814,076 Conglomerates (0.6%) - -------------------------------------------------------------------------------------------------------------------------- 53,000 Minnesota Mining & Manufacturing Co. 4,240,000 38,000 United Technologies Corp. 3,619,500 -------------- 7,859,500 Consumer Non Durables (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 36,420 Colgate-Palmolive Co. 3,218,618 Containers (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 78,000 Owens-Illinois, Inc. (NON) 2,383,875 Electric Utilities (1.4%) - -------------------------------------------------------------------------------------------------------------------------- 181,000 DPL, Inc. 3,427,688 43,864 Duke Energy Corp. 2,837,453 107,700 Entergy Corp. 3,096,375 164,000 Potomac Electric Power Co. 4,294,750 104,344 Southern Co. 2,941,197 73,000 Texas Utilities Co. 3,193,750 -------------- 19,791,213 Electronics and Electrical Equipment (1.8%) - -------------------------------------------------------------------------------------------------------------------------- 41,600 Emerson Electric Co. 2,745,600 152,400 General Electric Co. 13,335,000 82,500 Motorola, Inc. 4,290,000 168,200 Seagate Technology, Inc. (NON) 4,436,275 3,248 Sensormatic Electronics Corp. (NON) 18,268 -------------- 24,825,143 Entertainment (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 49,600 Viacom, Inc. Class B (NON) 2,969,800 Farm Equipment (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 81,100 Deere (John) & Co. 2,868,913 Financial Services (1.1%) - -------------------------------------------------------------------------------------------------------------------------- 41,900 American Express Co. 3,702,913 44,200 Lehman Brothers Holding, Inc. 1,676,838 55,000 Merrill Lynch & Co., Inc. 3,258,750 41,800 Morgan (J.P.) & Co., Inc. 3,939,650 44,500 Morgan Stanley, Dean Witter, Discover and Co. 2,881,375 -------------- 15,459,526 Food (1.0%) - -------------------------------------------------------------------------------------------------------------------------- 126,500 ConAgra, Inc. 3,850,344 30,000 General Mills, Inc. 2,205,000 51,128 Heinz (H.J.) Co. 2,971,815 70,000 Nabisco Holdings Corp. Class A 2,642,500 34,952 The Quaker Oats Co. 2,064,353 -------------- 13,734,012 Food and Beverages (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 94,800 PepsiCo, Inc. 3,199,500 50,600 Sara Lee Corp. 3,020,188 -------------- 6,219,688 Healthcare (--%) - -------------------------------------------------------------------------------------------------------------------------- 8,545 LTC Healthcare, Inc. (NON) 20,294 Hospital Management (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 120,203 Tenet Healthcare Corp. (NON) 3,358,171 Insurance and Finance (3.0%) - -------------------------------------------------------------------------------------------------------------------------- 61,600 Allstate Corp. 2,652,650 70,500 American General Corp. 4,829,250 145,948 BankAmerica Corp. 8,382,888 45,000 CIGNA Corp. 3,282,188 157,600 Citigroup, Inc. 7,417,050 66,515 Equitable Companies, Inc. 3,259,235 55,300 Fannie Mae 3,915,931 63,000 Hartford Financial Services Group 3,346,875 43,000 KeyCorp 1,303,438 64,000 Norwest Corp. 2,380,000 -------------- 40,769,505 Leisure (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 76,000 Hasbro, Inc. 2,664,750 Managed Health Care (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 43,666 WellPoint Health Networks, Inc. (NON) 3,214,909 Medical Supplies and Devices (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 62,300 Baxter International, Inc. 3,734,106 Oil and Gas (2.8%) - -------------------------------------------------------------------------------------------------------------------------- 57,600 Atlantic Richfield Co. 3,967,200 44,400 British Petroleum PLC ADR (United Kingdom) 3,926,625 39,000 Chevron, Inc. 3,178,500 40,600 Conoco, Inc. (NON) 1,009,925 19,000 Elf Aquitane ADR (France) 1,102,000 109,000 Exxon Corp. 7,766,250 118,400 Halliburton Co. 4,255,000 63,000 Kerr-McGee Corp. 2,512,125 82,000 Mobil Corp. 6,206,375 53,000 Texaco, Inc. 3,143,563 29,500 Total Corp. ADR (France) 1,725,750 -------------- 38,793,313 Paper (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 81,050 Weyerhaeuser Co. 3,794,153 Pharmaceuticals and Biotechnology (2.0%) - -------------------------------------------------------------------------------------------------------------------------- 141,500 American Home Products Corp. 6,898,125 62,500 Bristol-Myers Squibb Co. 6,910,156 51,000 Merck & Co., Inc. 6,897,750 132,100 Pharmacia & Upjohn, Inc. 6,993,044 -------------- 27,699,075 Photography (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 31,600 Eastman Kodak Co. 2,449,000 Publishing (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 61,500 Times Mirror Co. Class A 3,409,406 Railroads (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 107,400 Burlington Northern Santa Fe Corp. 3,315,975 REIT's (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 29,000 Equity Residential Properties Trust 1,218,000 78,000 Starwood Lodging Trust 2,208,375 -------------- 3,426,375 Retail (1.1%) - -------------------------------------------------------------------------------------------------------------------------- 60,000 Dayton Hudson Corp. 2,542,500 46,300 Federated Department Stores, Inc. (NON) 1,779,656 398,200 K mart Corp. (NON) 5,624,575 8 Saks, Inc. (NON) 182 105,307 Sears, Roebuck & Co. 4,732,233 -------------- 14,679,146 Savings and Loans (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 188,432 Charter One Financial, Inc. 5,170,103 Semiconductors (0.7%) - -------------------------------------------------------------------------------------------------------------------------- 49,100 Intel Corp. 4,379,106 82,200 Texas Instruments, Inc. 5,255,663 -------------- 9,634,769 Telephone Services (1.3%) - -------------------------------------------------------------------------------------------------------------------------- 60,300 AT&T Corp. 3,753,675 125,700 Cincinnati Bell, Inc. 3,260,344 66,000 GTE Corp. 3,873,375 111,903 U S West, Inc. 6,420,435 -------------- 17,307,829 Telephone Utilities (1.1%) - -------------------------------------------------------------------------------------------------------------------------- 92,000 Ameritech Corp. 4,962,250 90,358 Bell Atlantic Corp. 4,800,269 120,904 SBC Communications, Inc. 5,599,367 -------------- 15,361,886 Tobacco (0.8%) - -------------------------------------------------------------------------------------------------------------------------- 183,100 Philip Morris Cos., Inc. 9,360,988 63,400 RJR Nabisco Holdings Corp. 1,810,863 -------------- 11,171,851 Utilities (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 122,585 Sempra Energy 3,187,210 51,000 Western Resources, Inc. 1,785,000 -------------- 4,972,210 -------------- Total Common Stocks (cost $383,033,775) $ 416,049,641 CONVERTIBLE PREFERRED STOCKS (24.9%) (a) NUMBER OF SHARES VALUE Apparel (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 30,000 Designer Finance $3.00 cv. cum. pfd. $ 1,188,750 Automobiles (1.0%) - -------------------------------------------------------------------------------------------------------------------------- 60,000 Frederal-Mogul Corp. 144A $3.50 cv. cum. pfd. 3,630,000 215,600 Tower Automotive Capital Trust 144A $3.375 cv. pfd. 9,513,350 -------------- 13,143,350 Banks (0.7%) - -------------------------------------------------------------------------------------------------------------------------- 213,300 CNB Capital Trust I $1.50 cum. cv. pfd. 5,492,475 69,350 Union Planters Corp. Ser. E, $2.00 cv. cum. pfd. 3,814,250 -------------- 9,306,725 Broadcasting (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 94,500 Sinclair Broadcast Group, Inc. $3.00 cv. pfd. 3,756,375 276,000 Triathlon Broadcasting Co. $ .945 cv. pfd. 2,484,000 -------------- 6,240,375 Building and Construction (0.6%) - -------------------------------------------------------------------------------------------------------------------------- 120,000 Beazer Homes USA, Inc. Ser. A, $2.00 cv. pfd. 3,150,000 50,000 Fleetwood Capital Trust $3.00 cv. cum. pfd. 2,200,000 63,000 Txi Capital Trust I $2.75 cv. pfd. 2,181,375 -------------- 7,531,375 Business Equipment and Services (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 130,000 Unisys Corp. Ser. A, $3.75 cv. pfd. 6,589,375 Cable Television (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 80,000 Mediaone Group, Inc. Ser. D, $2.25 cv. pfd. 6,945,000 Communications (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 45,000 Evergreen Media Corp. 144A $3.00 cv. pfd. 3,408,750 Computer Services (0.7%) - -------------------------------------------------------------------------------------------------------------------------- 105,000 Vanstar Financial Trust Corp. 144A $3.375 cv. cum. pfd. 2,769,375 134,270 Wang Laboratories, Inc. Ser. B, $3.25 cv. pfd. 6,109,285 -------------- 8,878,660 Consumer Products (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 50,000 Newell Financial Trust 144A $2.625 cv. cum. pfd. 2,681,250 50,000 Newell Financial Trust I $2.625 cv. cum. pfd. 2,681,250 -------------- 5,362,500 Cosmetics (0.7%) - -------------------------------------------------------------------------------------------------------------------------- 160,000 Estee Lauder Co. $3.805 cv. pfd. 10,200,000 Electric Utilities (1.8%) - -------------------------------------------------------------------------------------------------------------------------- 139,000 Calenergy Capital Trust $3.125 cv. cum. pfd. 7,054,250 189,400 El Paso Energy Capital Trust $2.375 cv. pfd. 9,185,900 184,700 Texas Utilities Co. $0.205 cv. pfd. 8,496,200 -------------- 24,736,350 Electronics and Electrical Equipment (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 118,300 Sensormatic Electronics Corp. 144A $1.625 cv. pfd. 1,286,513 Electronic Components (1.0%) - -------------------------------------------------------------------------------------------------------------------------- 59,378 Coltec Capital Trust $2.625 cv. pfd. 2,107,919 67,000 Lernout & Hauspie Speech Products N.V. 144A $2.375 cv. pfd 2,336,625 100,000 Loral Space & Comm. $3.00 cv. pfd. 5,300,000 102,100 Pioneer Standard Electronics, Inc. 144A $3.375 cv. pfd. 3,930,850 -------------- 13,675,394 Engineering (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 125,000 Evi, Inc. $2.50 cum. cv. pfd. 4,140,625 Entertainment (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 179,100 Metromedia International Group, Inc. $3.625 cv. cum. pfd. 5,283,450 Financial Services (1.0%) - -------------------------------------------------------------------------------------------------------------------------- 107,000 Devon Financing Trust $3.25 cv. pfd. 6,326,375 89,743 Finova Finance Trust $2.75 cv. cum. pfd. 5,923,038 56,000 Mandatory Common Exchange Trust (The) $3.625 cv. pfd. 455,000 5,000 Timet Capital Trust I 144A $3.312 cv. pfd. 122,500 90,000 Walbro Captial Trust $2.00 cv. pfd. 1,383,750 -------------- 14,210,663 Food (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 65,000 Dole Food Co., Inc. $ 2.75 cv. pfd. 1,982,500 Food and Beverages (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 85,300 Chiquita Brands International, Inc. Ser. B, $3.75 cv. cum. pfd. 3,710,550 75,000 Ralston Purina Co. $4.336 cv. pfd. 3,717,188 -------------- 7,427,738 Information Systems (--%) - -------------------------------------------------------------------------------------------------------------------------- 25,000 Vanstar Financial Trust Corp. $3.375 cv. pfd. 659,375 Insurance and Finance (2.4%) - -------------------------------------------------------------------------------------------------------------------------- 60,585 American Bankers Insurance Group, Inc. Ser. B, $3.125 cv. pfd. 5,566,247 113,261 American General Delaware Corp. $3.00 cv. cum. pfd. 9,797,077 71,700 American Heritage Life Investment Corp. $4.25 cv. pfd. 4,266,150 200,000 Lincoln National Corp. $0.463 cv. cum. pfd. 3,550,000 211,885 Philadelphia Consolidated Holding Corp. $0.534 cv. pfd. 1,880,479 121,100 Protective Life Corp. $3.25 cv. cum. pfd. 7,538,475 -------------- 32,598,428 Investment Companies (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 92,700 Suiza Capital Trust II 144A $2.75 cv. pfd. 3,035,925 52,300 Suiza Capital Trust II $2.75 cv. pfd. 1,725,900 -------------- 4,761,825 Machinery (1.0%) - -------------------------------------------------------------------------------------------------------------------------- 117,040 Case Corp. $4.50 cv. cum. pfd. 6,890,730 300,000 Ingersoll-Rand Co. $0.195 cv. pfd. 6,375,000 -------------- 13,265,730 Medical Supplies and Devices (0.7%) - -------------------------------------------------------------------------------------------------------------------------- 36,500 Mckesson Corp. $2.50 cv. pfd. 3,878,125 33,616 Owens & Minor Trust I 144A Ser. A, $2.688 cv. cum. pfd. 1,546,336 92,000 Owens & Minor, Inc. 144A $5.375 cv. pfd. 4,232,000 -------------- 9,656,461 Metals and Mining (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 70,000 Kinam Gold, Inc. Ser. B, $3.75 cv. cum. pfd. 2,839,375 90,400 Pittston Mineral Corp. 144A $3.125 dep. shs. cv. pfd. 1,988,800 40,000 Titanium Metals Corp. $3.313 cv. pfd. 980,000 -------------- 5,808,175 Oil and Gas (1.4%) - -------------------------------------------------------------------------------------------------------------------------- 100,000 Lomak Petroleum, Inc. 144A $2.875 cv. pfd. 2,287,500 30,000 Lomak Petroleum, Inc. Ser. C., $2.03 cv. cum. pfd. 667,500 100,580 Neuvo Energy Ser. A, $2.875 cv. pfd. 3,570,590 120,000 Tosco Financing Trust 144A $2.875 cv. pfd. 5,910,000 140,000 Unocal Capital Trust $3.125 cv. cum. pfd. 7,175,000 -------------- 19,610,590 Packaging and Containers (0.7%) - -------------------------------------------------------------------------------------------------------------------------- 115,000 Owens-Illinois, Inc. $2.375 cv. pfd. 4,614,375 120,000 Sealed Air Corp. Ser. A, $2.00 cv. pfd. 4,785,000 -------------- 9,399,375 Paper and Forest Products (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 130,000 International Paper Co. $2.625 cv. pfd. 6,142,500 Publishing (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 60,000 Golden Books Family Entertainment, Inc. $4.375 cv. cum. pfd. 120,000 50,000 Houghton Mifflin Co. $4.08 cv. pfd. 1,943,750 50,000 Readers Digest $0.453 cv. pfd. 1,143,750 -------------- 3,207,500 Railroads (0.8%) - -------------------------------------------------------------------------------------------------------------------------- 190,000 Union Pacific 144A $3.125 cv. cum. pfd. 8,692,500 60,000 Union Pacific Capital Trust 144A $3.125 cum. cv. pfd. 2,805,000 -------------- 11,497,500 Recreation (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 156,570 Station Casinos, Inc. $3.50 cv. pfd. 5,225,524 REIT's (1.4%) - -------------------------------------------------------------------------------------------------------------------------- 220,000 Archstone Communities Trust Ser. A, $1.75 cv. cum. pfd. 5,885,000 28,500 Camden Property Trust Ser. A, $2.25 cv. cum. pfd. 705,375 50,000 Equity Office Properties Trust Ser. B, $2.625 cv. cum. pfd. 1,975,000 230,150 Equity Residential Property Ser. E, $1.75 cv. pfd. 5,408,525 74,490 Tanger Factory Outlet Centers Ser. A, $1.802 cv. cum. pfd. 1,443,244 66,500 Vornado Realty Trust Ser. A, $3.25 cv. cum. pfd. 3,208,625 -------------- 18,625,769 Restaurants (0.6%) - -------------------------------------------------------------------------------------------------------------------------- 154,907 Wendy's Financing Ser. A, $2.50 cv. pfd. 7,590,443 Retail (1.5%) - -------------------------------------------------------------------------------------------------------------------------- 80,474 Ann Taylor Finance Trust $4.25 cv. cum. pfd. 6,287,031 80,000 Dollar General Strypes Trust $3.352 cv. pfd. 2,657,500 206,000 K mart Financing I $3.875 cum. cv. pfd. 11,420,125 -------------- 20,364,656 Telecommunications (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 85,000 Tele-Communications (TCI Group) Ser. A, $2.125 cv. pfd. 7,437,500 Tobacco (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 57,517 DIMON, Inc. $2.00 cv. pfd. 776,480 Transportation (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 120,500 CNF Trust I Ser. A, $2.50 cv. cum. pfd. 6,085,250 50,150 Hvide Capital Trust 144A $3.25 cv. pfd. 1,203,600 -------------- 7,288,850 Wireless Communications (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 45,000 Airtouch Communications, Inc. Ser. C, $2.125 cv. cum. pfd. 3,602,804 -------------- Total Convertible Preferred Stocks (cost $369,946,452) $ 339,057,578 PREFERRED STOCKS (--%) NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------------------------------------- 159,304 Trikon Technologies, Inc. Ser. H, 8.125% pfd. (PIK) $ 39,826 1,632 Trikon Technologies, Inc. Ser. I, 8.125% pfd. 99,582 -------------- Total Preferred Stocks (cost $2,818,849) $ 139,408 SHORT-TERM INVESTMENTS (2.8%) (a) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- $1,695,000 Dart & Kraft Finance N.V. cv. company guaranty Ser. WW, 7 3/4s, 1998 $ 5,432,475 32,512,000 Interest in $750,000,000 joint repurchase agreement dated October 30,1998 with Goldman Sachs & Co. due November 2, 1998 with respect to various U.S. Treasury obligations -- maturity value of $32,526,576 for an effective yield of 5.38% 32,521,718 -------------- Total Short-Term Investments (cost $36,515,404) $ 37,954,193 - -------------------------------------------------------------------------------------------------------------------------- Total Investments (cost $1,391,966,648) (b) $1,357,789,594 - -------------------------------------------------------------------------------------------------------------------------- (a) Percentages indicated are based on net assets of $1,364,425,785. (b) The aggregate identified cost on a tax basis is $1,396,501,632, resulting in gross unrealized appreciation and depreciation of $120,893,674 and $159,605,712, respectively, or net unrealized depreciation of $38,712,038. (NON) Non-income-producing security. (PIK) Income may be received in cash or additional securities at the discretion of the issuer. (CUS) This entity provides subcustodian services to the fund. 144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. ADR after the name of a foreign holding stands for American Depository Receipts, representing ownership of foreign securities on deposit with a domestic custodian bank. The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities October 31, 1998 Assets - ----------------------------------------------------------------------------------------------- Investments in securities, at value (identified cost $1,391,966,648) (Note 1) $1,357,789,594 - ----------------------------------------------------------------------------------------------- Cash 196,908 - ----------------------------------------------------------------------------------------------- Dividends and interest receivable 9,056,711 - ----------------------------------------------------------------------------------------------- Receivable for shares of the fund sold 1,599,642 - ----------------------------------------------------------------------------------------------- Receivable for securities sold 19,094,798 - ----------------------------------------------------------------------------------------------- Receivable for closed forward currency contracts 466,832 - ----------------------------------------------------------------------------------------------- Total assets 1,388,204,485 Liabilities - ----------------------------------------------------------------------------------------------- Payable for securities purchased 19,921,108 - ----------------------------------------------------------------------------------------------- Payable for shares of the fund repurchased 1,260,509 - ----------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 1,963,215 - ----------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 38,375 - ----------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 25,023 - ----------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 1,559 - ----------------------------------------------------------------------------------------------- Payable for distribution fees (Note 2) 460,461 - ----------------------------------------------------------------------------------------------- Other accrued expenses 108,450 - ----------------------------------------------------------------------------------------------- Total liabilities 23,778,700 - ----------------------------------------------------------------------------------------------- Net assets $1,364,425,785 Represented by - ----------------------------------------------------------------------------------------------- Paid-in capital (Notes 1 and 4) $1,270,980,195 - ----------------------------------------------------------------------------------------------- Distributions in excess of net investment income (Note 1) (240,540) - ----------------------------------------------------------------------------------------------- Accumulated net realized gain on investments and foreign currency transactions (Note 1) 127,863,184 - ----------------------------------------------------------------------------------------------- Net unrealized depreciation of investments (34,177,054) - ----------------------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $1,364,425,785 Computation of net asset value and offering price - ----------------------------------------------------------------------------------------------- Net asset value and redemption price per class A share ($1,056,693,035 divided by 52,728,787 shares) $20.04 - ----------------------------------------------------------------------------------------------- Offering price per class A share (100/94.25 of $20.04)* $21.26 - ----------------------------------------------------------------------------------------------- Net asset value and offering price per class B share ($289,652,214 divided by 14,603,784 shares)** $19.83 - ----------------------------------------------------------------------------------------------- Net asset value and redemption price per class M share ($18,080,536 divided by 907,507 shares) $19.92 - ----------------------------------------------------------------------------------------------- Offering price per class M share (100/96.50 of $19.92)* $20.64 - ----------------------------------------------------------------------------------------------- * 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, 1998 Investment income: - ----------------------------------------------------------------------------------------------- Interest $ 36,331,215 - ----------------------------------------------------------------------------------------------- Dividends (net of foreign tax of $24,552) 28,461,363 - ----------------------------------------------------------------------------------------------- Total investment income 64,792,578 Expenses: - ----------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 8,280,168 - ----------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 1,857,429 - ----------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 25,433 - ----------------------------------------------------------------------------------------------- Administrative services (Note 2) 18,786 - ----------------------------------------------------------------------------------------------- Distribution fees -- Class A (Note 2) 2,883,846 - ----------------------------------------------------------------------------------------------- Distribution fees -- Class B (Note 2) 2,913,169 - ----------------------------------------------------------------------------------------------- Distribution fees -- Class M (Note 2) 134,824 - ----------------------------------------------------------------------------------------------- Reports to shareholders 65,703 - ----------------------------------------------------------------------------------------------- Auditing 39,879 - ----------------------------------------------------------------------------------------------- Legal 13,579 - ----------------------------------------------------------------------------------------------- Postage 128,605 - ----------------------------------------------------------------------------------------------- Other 156,517 - ----------------------------------------------------------------------------------------------- Total expenses 16,517,938 - ----------------------------------------------------------------------------------------------- Expense reduction (Note 2) (627,790) - ----------------------------------------------------------------------------------------------- Net expenses 15,890,148 - ----------------------------------------------------------------------------------------------- Net investment income 48,902,430 - ----------------------------------------------------------------------------------------------- Net realized gain on investments (Notes 1 and 3) 133,278,759 - ----------------------------------------------------------------------------------------------- Net unrealized depreciation of assets and liabilities in foreign currencies during the year (630,075) - ----------------------------------------------------------------------------------------------- Net unrealized depreciation of investments during the year (203,229,257) - ----------------------------------------------------------------------------------------------- Net loss on investments (70,580,573) - ----------------------------------------------------------------------------------------------- Net decrease in net assets resulting from operations $(21,678,143) - ----------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets Year ended October 31 ------------------------------- 1998 1997 - --------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets - --------------------------------------------------------------------------------------------------------------- Operations: - --------------------------------------------------------------------------------------------------------------- Net investment income $ 48,902,430 $ 43,188,991 - --------------------------------------------------------------------------------------------------------------- Net realized gain on investments 133,278,759 134,480,706 - --------------------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investments and assets and liabilities in foreign currencies (203,859,332) 73,719,928 - --------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (21,678,143) 251,389,625 - --------------------------------------------------------------------------------------------------------------- Distributions to shareholders: - --------------------------------------------------------------------------------------------------------------- From net investment income Class A (39,874,535) (40,930,205) - --------------------------------------------------------------------------------------------------------------- Class B (8,456,841) (6,775,056) - --------------------------------------------------------------------------------------------------------------- Class M (571,054) (414,757) - --------------------------------------------------------------------------------------------------------------- In excess of net investment income Class A (1,430,151) (2,870,230) - --------------------------------------------------------------------------------------------------------------- Class B (303,316) (475,100) - --------------------------------------------------------------------------------------------------------------- Class M (20,482) (29,085) - --------------------------------------------------------------------------------------------------------------- From net realized gain on investments Class A (108,409,463) (66,832,559) - --------------------------------------------------------------------------------------------------------------- Class B (24,372,023) (11,391,471) - --------------------------------------------------------------------------------------------------------------- Class M (1,435,189) (700,350) - --------------------------------------------------------------------------------------------------------------- Increase from capital share transactions (Note 4) 130,624,709 267,640,833 - --------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (75,926,488) 388,611,645 Net assets - --------------------------------------------------------------------------------------------------------------- Beginning of year 1,440,352,273 1,051,740,628 - --------------------------------------------------------------------------------------------------------------- End of year (including distributions in excess of net investment income of $240,540 and $630,075, respectively) $1,364,425,785 $1,440,352,273 - --------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Financial highlights (For a share outstanding throughout the period) CLASS A - ------------------------------------------------------------------------------------------------------------------------------------ Per-share operating performance Year ended October 31 - ------------------------------------------------------------------------------------------------------------------------------------ 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $23.22 $21.24 $19.42 $19.09 $20.38 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .76(c) .78(c) .81(c) .85 .81 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments (1.02) 3.70 2.70 1.60 (.46) - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations (.26) 4.48 3.51 2.45 .35 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income (.76) (.87) (.98) (.96) (.74) - ------------------------------------------------------------------------------------------------------------------------------------ In excess of net investment income (.03) (.06) -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ From net realized gain on investments (2.13) (1.57) (.71) (1.16) (.90) - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (2.92) (2.50) (1.69) (2.12) (1.64) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $20.04 $23.22 $21.24 $19.42 $19.09 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total investment return at net asset value (%)(a) (1.37) 22.86 18.99 14.38 1.84 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $1,056,693 $1,168,470 $898,486 $756,645 $697,946 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) .97 1.03 1.06 1.16 .96 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 3.50 3.56 3.99 4.64 4.16 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 92.76 70.74 61.43 69.52 48.37 - ------------------------------------------------------------------------------------------------------------------------------------ + Commencement of operations. * 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) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period.
Financial highlights (For a share outstanding throughout the period) CLASS B - ------------------------------------------------------------------------------------------------------------------------------------ Per-share operating performance Year ended October 31 - ------------------------------------------------------------------------------------------------------------------------------------ 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $23.01 $21.09 $19.30 $19.00 $20.35 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .59(c) .63(c) .66(c) .69 .74 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments (1.01) 3.64 2.68 1.61 (.55) - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations (.42) 4.27 3.34 2.30 .19 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income (.61) (.73) (.84) (.84) (.66) - ------------------------------------------------------------------------------------------------------------------------------------ In excess of net investment income (.02) (.05) -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ From net realized gain on investments (2.13) (1.57) (.71) (1.16) (.88) - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (2.76) (2.35) (1.55) (2.00) (1.54) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $19.83 $23.01 $21.09 $19.30 $19.00 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total investment return at net asset value (%)(a) (2.11) 21.89 18.14 13.54 1.00 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $289,652 $257,163 $146,127 $75,309 $31,432 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) 1.72 1.78 1.81 1.91 1.71 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 2.74 2.78 3.26 3.92 3.58 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 92.76 70.74 61.43 69.52 48.37 - ------------------------------------------------------------------------------------------------------------------------------------ + Commencement of operations. * 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) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period.
Financial highlights (For a share outstanding throughout the period) CLASS M - ------------------------------------------------------------------------------------------------------------------------------------ For the period Per-share March 13, 1995+ operating performance Year ended October 31 to October 31 - ------------------------------------------------------------------------------------------------------------------------------------ 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $23.08 $21.14 $19.37 $17.79 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .65(c) .67(c) .73(c) .64 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments (1.00) 3.67 2.65 1.64 - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations (.35) 4.34 3.38 2.28 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income (.66) (.78) (.90) (.70) - ------------------------------------------------------------------------------------------------------------------------------------ In excess of net investment income (.02) (.05) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ From net realized gain on investments (2.13) (1.57) (.71) -- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (2.81) (2.40) (1.61) (.70) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $19.92 $23.08 $21.14 $19.37 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total investment return at net asset value (%)(a) (1.75) 22.24 18.30 12.99 * - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $18,081 $14,719 $7,128 $1,753 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) 1.47 1.53 1.54 1.04 * - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 2.99 3.04 3.55 2.89 * - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 92.76 70.74 61.43 69.52 - ------------------------------------------------------------------------------------------------------------------------------------ + Commencement of operations. * 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) 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, 1998 Note 1 Significant accounting policies Putnam Convertible Income-Growth Trust (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 conservation 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. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the fund and the counterparty. Putnam Management is responsible for determining that the value of these underlying securities is at all times at least equal to the resale price, including accrued interest. D) Security transactions and related investment income Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recorded as soon as the fund is informed of the ex-dividend date. Discounts on zero coupon bonds and payment-in-kind bonds are accreted according to the yield-to-maturity basis. E) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, and other assets and liabilities are recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when accrued or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on closed forward currency contracts, disposition of foreign currencies and the difference between the amount of investment income and foreign withholding taxes recorded on the fund's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign currencies arise from changes in the value of open forward currency contracts and assets and liabilities other than investments at the period end, resulting from changes in the exchange rate. F) Forward currency contracts The fund may engage in forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date, to protect against a decline in value relative to the U.S. dollar of the currencies in which its portfolio securities are denominated or quoted (or an increase in the value of a currency in which securities a fund intends to buy are denominated, when a fund holds cash reserves and short-term investments). The U.S. dollar value of forward currency contracts is determined using current forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is "marked to market" daily and the change in market value is recorded as an unrealized gain or loss. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. G) Line of Credit The fund has entered into a committed line of credit with certain banks. This line of credit agreement includes restrictions that the fund maintain an asset coverage ratio of at least 300% and borrowings must not exceed prospectus limitations. For the year ended October 31, 1998, the fund had no borrowings against the line of credit. H) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Internal Revenue Code of 1986, as amended. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains. I) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Capital gain distributions, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences include temporary and permanent differences of losses on wash sale transactions, nontaxable dividends, defaulted bond interest, 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, 1998, the fund reclassified $2,143,484 to decrease distributions in excess of net investment income and $187,603 to decrease paid-in-capital, with an decrease to accumulated net realized gains of $1,955,881. 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 of average net assets, 0.55% of the next $500 million, 0.50% of the next $500 million, 0.45% of the next $5 billion, 0.425% of the next $5 billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion and 0.38% thereafter. The fund reimburses Putnam Management an allocated amount for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees. Custodial functions for the fund's assets are provided by Putnam Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. For the year ended October 31, 1998, fund expenses were reduced by $627,790 under expense offset arrangements with PFTC and brokerage service arrangements. Investor servicing and custodian fees reported in the Statement of operations exclude these credits. The fund could have invested a portion of the assets utilized in connection with the expense offset arrangements in an income producing asset if it had not entered into such arrangements. Each Trustee of the fund receives an annual Trustee fee, of which $1,260 has been allocated to the fund, and an additional fee for each Trustee's meeting attended. Trustees who are not interested persons of Putnam Management and who serve on committees of the Trustees receive additional fees for attendance at certain committee meetings. The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which allows the Trustees to defer the receipt of all or a portion of Trustees Fees payable on or after July 1, 1995. The deferred fees remain in the fund and are invested in certain Putnam funds until distribution in accordance with the Deferral Plan. The fund has adopted an unfunded noncontributory defined benefit pension plan (the "Pension Plan") covering all Trustees of the fund who have served as Trustee for at least five years. Benefits under the Pension Plan are equal to 50% of the Trustee's average total retainer and meeting fees for the three years preceding retirement. Pension expense for the fund is included in Compensation of Trustees in the Statement of operations. Accrued pension liability is included in Payable for compensation of Trustees in the Statement of assets and liabilities. The fund has adopted distribution plans (the "Plans") with respect to its class A, class B and class M shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments Inc., for services provided and expenses incurred by it in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%, 1.00% and 1.00% of the average net assets attributable to class A, class B and class M shares, respectively. The Trustees have approved payment by the fund to an annual rate of 0.25%, 1.00% and 0.75% of the average net assets attributable to class A, class B and class M shares respectively. For the year ended October 31, 1998, Putnam Mutual Funds Corp., acting as underwriter received net commissions of $328,284 and $21,844 from the sale of class A and class M shares, respectively and $421,192 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, 1998, Putnam Mutual Funds Corp., acting as underwriter received $14,672 on class A redemptions. Note 3 Purchase and sales of securities During the year ended October 31, 1998, purchases and sales of investment securities other than short-term investments aggregated $1,304,198,398 and $1,318,535,492, 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, 1998, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: Year ended October 31, 1998 - ----------------------------------------------------------------------------- Class A Shares Amount - ----------------------------------------------------------------------------- Shares sold 9,382,467 $205,168,706 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 5,911,967 124,147,866 - ----------------------------------------------------------------------------- 15,294,434 329,316,572 Shares repurchased (12,883,335) (278,877,249) - ----------------------------------------------------------------------------- Net increase 2,411,099 $ 50,439,323 - ----------------------------------------------------------------------------- Year ended October 31, 1997 - ----------------------------------------------------------------------------- Class A Shares Amount - ----------------------------------------------------------------------------- Shares sold 12,142,887 $265,281,015 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 4,574,214 95,070,612 - ----------------------------------------------------------------------------- 16,717,101 360,351,627 Shares repurchased (8,692,035) (190,385,046) - ----------------------------------------------------------------------------- Net increase 8,025,066 $169,966,581 - ----------------------------------------------------------------------------- Year ended October 31, 1998 - ----------------------------------------------------------------------------- Class B Shares Amount - ----------------------------------------------------------------------------- Shares sold 4,687,780 $101,436,908 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 1,255,855 26,103,869 - ----------------------------------------------------------------------------- 5,943,635 127,540,777 Shares repurchased (2,515,435) (53,200,565) - ----------------------------------------------------------------------------- Net increase 3,428,200 $ 74,340,212 - ----------------------------------------------------------------------------- Year ended October 31, 1997 - ----------------------------------------------------------------------------- Class B Shares Amount - ----------------------------------------------------------------------------- Shares sold 5,356,953 $116,465,127 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 721,404 14,907,349 - ----------------------------------------------------------------------------- 6,078,357 131,372,476 Shares repurchased (1,832,828) (40,163,605) - ----------------------------------------------------------------------------- Net increase 4,245,529 $ 91,208,871 - ----------------------------------------------------------------------------- Year ended October 31, 1998 - ----------------------------------------------------------------------------- Class M Shares Amount - ----------------------------------------------------------------------------- Shares sold 618,070 $13,595,951 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 82,403 1,719,717 - ----------------------------------------------------------------------------- 700,473 15,315,668 Shares repurchased (430,655) (9,470,494) - ----------------------------------------------------------------------------- Net increase 269,818 $ 5,845,174 - ----------------------------------------------------------------------------- Year ended October 31, 1997 - ----------------------------------------------------------------------------- Class M Shares Amount - ----------------------------------------------------------------------------- Shares sold 575,594 $12,484,454 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 48,222 997,306 - ----------------------------------------------------------------------------- 623,816 13,481,760 Shares repurchased (323,289) (7,016,379) - ----------------------------------------------------------------------------- Net increase 300,527 $ 6,465,381 - ----------------------------------------------------------------------------- Federal tax information (Unaudited) The Form 1099 you receive in January 1999 will show the tax status of all distributions paid to your account in calendar 1998. Pursuant to Section 852 of the Internal Revenue Code, as amended, the Fund hereby designates $125,267,953 as capital gain for its taxable year ended October 31, 1998. The fund has designated 46.49% of the distributions from net investment income as qualifying for the dividends received deduction for corporations. PUTNAM GROWTH FUNDS Asia Pacific Growth Fund Capital Appreciation Fund [DBL. DAGGER] Capital Opportunities Fund Diversified Equity Trust Europe Growth Fund Global Growth Fund Global Natural Resources Fund Growth Opportunities Fund Health Sciences Trust International Growth Fund International New Opportunities Fund Investors Fund New Opportunities Fund [DBL. DAGGER] OTC & Emerging Growth Fund Research Fund 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 Global Growth and Income Fund The Putnam Fund for Growth and Income Growth and Income Fund II International Growth and Income Fund New Value Fund Utilities Growth and Income Fund PUTNAM INCOME FUNDS American Government Income Fund Diversified Income Trust Global Governmental Income Trust High Quality Bond Fund + High Yield Advantage Fund [DBL. DAGGER] High Yield Total Return Fund High Yield Trust [DBL. DAGGER] High Yield Trust II Income Fund Intermediate U.S. Government Income Fund Money Market Fund ** Preferred Income Fund Strategic Income Fund * U.S. Government Income Trust PUTNAM TAX-FREE INCOME FUNDS Municipal Income Fund Tax Exempt Income Fund Tax Exempt Money Market Fund** Tax-Free High Yield Fund Tax-Free Insured Fund State tax-free income funds [SECTION MARK] Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey, New York, Ohio and Pennsylvania State tax-free money market funds [SECTION MARK] California, New York LIFESTAGE SM FUNDS Putnam Asset Allocation Funds-three investment portfolios that spread your money across a variety of stocks, bonds, and money market investments. The three portfolios: Asset Allocation: Balanced Portfolio Asset Allocation: Conservative Portfolio Asset Allocation: Growth Portfolio *Formerly Putnam Diversified Income Trust II +Formerly Putnam Federal Income Trust [DBL. DAGGER] Closed to new investors. Some exceptions may apply. Contact Putnam for details. [SECTION MARK] Not available in all states. **An investment in a money market fund is 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. 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. 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 PricewaterhouseCoopers LLP TRUSTEES George Putnam, Chairman William F. Pounds, Vice Chairman John A. Hill, Vice Chairman Jameson Adkins Baxter Hans H. Estin Ronald J. Jackson Paul L. Joskow Elizabeth T. Kennan Lawrence J. Lasser John H. Mullin III Robert E. Patterson Donald S. Perkins George Putnam, III A.J.C. Smith W. Thomas Stephens W. Nicholas Thorndike OFFICERS George Putnam President Charles E. Porter Executive Vice President Patricia C. Flaherty Senior Vice President John D. Hughes Senior Vice President and Treasurer Lawrence J. Lasser Vice President Gordon H. Silver Vice President Ian C. Ferguson Vice President Brett C. Browchuk Vice President Thomas V. Reilly Vice President Edward T. Shadek Vice President Charles G. Pohl Vice President and Fund Manager Forrest N. Fontana Vice President and Fund Manager John R. Verani 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 the principal amount invested. [LOGO OMITTED] PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 www.putnaminv.com - --------------------- BULK RATE U.S. POSTAGE PAID PUTNAM INVESTMENTS - --------------------- AN019 47849 008/223/920 12/98 -----END PRIVACY-ENHANCED MESSAGE-----