-----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, Uzrn3r86GLQZ52SWmAsTmav3hdTxDScqLwYE61WR2nxIQYp4CrNnEIWdFlWaepaU OVqNWEztHp/1SnL45ILPfg== 0000928816-98-000001.txt : 19980106 0000928816-98-000001.hdr.sgml : 19980106 ACCESSION NUMBER: 0000928816-98-000001 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971031 FILED AS OF DATE: 19980105 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUTNAM CONVERTIBLE INCOME GROWTH TRUST CENTRAL INDEX KEY: 0000081247 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 042493360 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-02280 FILM NUMBER: 98500683 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 October 31, 1997 [LOGO: BOSTON * LONDON * TOKYO] Fund highlights * "Management's value leanings have also improved liquidity. The team tries to get the fund into rebounding sectors early (when investors are dumping shares) and then sells into strength (when buyers outnumber sellers). This helps limit the fund's price risk, and it also ensures liquidity." -- Morningstar Mutual Funds, August 1, 1997 * "Putnam Convertible Income-Growth Trust provides a way to invest in many small and cyclical companies with good growth expectations using a value-oriented strategy. Its income component is managed with the intent to dampen the volatility of the returns." -- Charles Pohl, fund manager CONTENTS 4 Report from Putnam Management 9 Fund performance summary 15 Portfolio holdings 30 Financial statements From the Chairman [GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM] [copyright] Karsh, Ottawa Dear Shareholder: The stock market's sharp decline just before the close of Putnam Convertible Income-Growth Trust's fiscal year provided a timely example of the fund's ability to withstand volatility. The dramatic finale notwithstanding, your fund performed on cue, delivering strong relative and absolute returns. The fund delivered its positive results with a portfolio heavily weighted in favor of income-producing securities and deftly managed by Charles Pohl and his newly appointed associate, Edward T. Shadek, Jr. Ned, who was with Putnam from 1987 to 1992, returned in 1997 after serving with the Michael Steinhart hedge fund in New York City and Newbold's Asset Management in Philadelphia. He has 10 years of investment experience. In the following report, Charlie and Ned describe the fund's long- standing strategy and how they applied it throughout fiscal 1997. Then they provide their views on prospects for the fund in the environment they foresee in the months ahead. Respectfully yours, /S/George Putnam George Putnam Chairman of the Trustees December 17, 1997 Report from the Fund Managers Charles G. Pohl Edward T. Shadek, Jr. Amusement park rides allow us to experience a thrilling combination of turns, dips, and plunges, while a safety harness keeps us secure from danger. Convertible securities follow the same principle, offering investors exposure to the capital appreciation of growing companies combined with an income component that is intended to keep the portfolio's volatility in check. Generally the hybrid nature of convertible securities, part stock and part bond, provides investors with much of the upside potential of the stock market while helping to reduce the downside risk. This protective feature is especially valuable when the stock market is unusually turbulent as was the case during the 12 months ended October 31, 1997. Major market indexes soared to one peak after another, only to fall in dramatic fashion on more than one occasion. Amid this roller coaster ride, Putnam Convertible Income-Growth Trust performed as it was intended to do. Its fiscal 1997 return outpaced the 9.26% performance of the Lehman Brothers Corporate Bond Index but lagged the 32.10% return of the Standard & Poor's 500(registered trademark) Index, finishing with a return of 22.86% for class A shares at net asset value (15.78% at maximum public offering price). For performance of other share classes and returns for longer time periods, please see the tables beginning on page 9. * VALUE-ORIENTED STRATEGY PRODUCES DIVERSE PORTFOLIO Although we invest approximately two thirds of the fund's assets in income-producing securities -- convertible bonds or convertible preferred stocks -- we regard the fund as an equity-oriented portfolio nonetheless. We place equal emphasis on capital appreciation and current income by applying the "cheapness and change" strategy practiced by Putnam's value equity group, which provides the analytical research to support the fund. Simply put, it means we look for cheaply priced stocks of companies with the potential for positive change. This provides the fund with two key benefits. First, stocks become cheap when the underlying company or its industry is temporarily out of favor. This beaten-down price leaves the stock less sensitive to general market volatility. Second, attractively valued securities, either stocks or convertibles, provide higher yields. It's important to note, though, that we are not looking only for bargains. The underlying companies must also be poised for positive change. With convertibles, in fact, the fund often gets the direct benefit of the positive future change because many companies, especially in the technology sector, use convertibles -- rather than stock issues -- to finance new products or stages of internal growth. The same selection strategy applies to purchases of both convertible securities and common stocks in the portfolio, but there are some noteworthy differences between the two portions of the fund. The convertible bond holdings tend to be issued by smaller and midsize companies with attractive earnings growth rates. While larger, well- established corporations also issue convertibles from time to time, we tend to invest in large companies by buying common stocks. Conversely we purchase few common stocks issued by smaller companies because convertibles provide exposure to the growth of these companies with somewhat less risk. [GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS] TOP INDUSTRY SECTORS Oil and gas 10.0% Retail 6.0% Insurance and finance 5.9% Banks 5.9% Electronic components and instruments 5.8% Footnote reads: *Based on net assets as of 10/31/97. Holdings will vary over time. By providing income, convertibles help to reduce the volatility of returns on our common stock holdings. There is still room for potential price appreciation, though, because the securities carry the right to convert to common stock in the underlying companies, thus providing exposure to their growth rates and participation in any stock appreciation. Common stocks in the fund represented a little less than 30% of net assets during most of the fiscal year. Like the convertibles, the common stock holdings are diversified across industries and sectors but favor large, well-established companies with steady dividend records. The common stock section favors industries that traditionally have yields near or above the average for dividend-paying stocks, such as utilities and energy, financial, and cyclical companies. This slice of common stocks meets our value parameters and helps to balance our industry representation without adding risk. * VOLATILITY PROVIDES OPPORTUNITY FOR ECLECTIC COMPANY SELECTIONS As value investors, we monitor volatile markets for buying opportunities. This year was particularly rich with possibilities because of general market volatility and sharp drops among small and midsize growth companies. We purchased SCI Systems in the first calendar quarter of 1997. This electronic equipment manufacturer, which makes products for a broad base of customers ranging from the entertainment industry to the Pentagon, provided strong performance during the fiscal year. While this stock, along with others discussed in this report, was viewed favorably at the end of the period, all portfolio holdings are subject to review and adjustment in accordance with the fund's investment strategy and may vary in the future. We also established a position in Belgian speech-recognition software company Lernout & Hauspie Speech Products. This company recently attracted the attention of Microsoft owner Bill Gates, who wanted to support Lernout's development of voice-recognition capabilities for Windows applications in 16 foreign languages. In September, Microsoft invested $45 million to buy an 8% stake in the company. With the Lernout position and other recent additions, the technology portion of the portfolio now hovers near 18% of total net assets. [GRAPHIC OMITTED: TOP 10 HOLDINGS] TOP 10 HOLDINGS Rogers Communications, convertible debenture 2s, 2005 (Canada) Telecommunications Softkey International, Inc., 144A convertible senior notes 5 1/2s, 2000 Computer software Safeguard Scientifics, Inc., 144A convertible subordinated notes 6s, 2006 Computer services Kmart Financing I, $3.875 convertible cumulative preferred Retail Lomak Petroleum, Inc., 144A convertible subordinated debenture 6s, 2007 Oil and gas Apache Corp., 144A convertible subordinated debenture 6s, 2002 Oil and gas Calenergy Capital Trust, $3.125 convertible preferred Electric utilities International Paper Co., $2.625 convertible preferred Paper and forest products Equity Residential Property Series E, $1.75 convertible preferred Real Estate Roche Holdings, Inc., 144A convertible unsuboridnated LYON zero %, 2010 (Switzerland) Pharmaceuticals Footnote reads: These holdings represent 8.0% of the fund's net assets as of 10/31/97. Portfolio holdings will vary over time. Our cheapness and change approach also keeps us attentive to industries in the midst of consolidation or reorganization. This year the aerospace industry has been particularly active in this regard. In addition to owning stock in Lockheed Martin, we also acquired a position in a convertible issue from Hexcel, a manufacturing conglomerate. This company came to our attention following its acquisition of several divisions that larger aerospace companies had spun off into subsidiary companies. Hexcel develops and manufactures carbon fibers, industrial fabrics, and other lightweight composite materials for use in components of aircraft parts. Hexcel is now a highly efficient producer, thanks to extensive internal restructuring. We bought the convertible during the summer and it has enjoyed strong appreciation. * CONVERTIBLE SECURITIES BECOMING MORE POPULAR; FUND REMAINS INSISTENT ON VALUE Although our shareholders should think of this fund as part of the equity portion of their portfolios, we still like to note some of the technical factors affecting the convertibles sector. As evidence of the growing popularity of convertibles, there has recently been a steady increase in issuance. While this trend indicates a healthy market, it also prompts us to be even more selective in our purchases. We have noticed that many of the new issues do not offer the sort of value we require, so we have been focusing more of our energy in the secondary market. * ECONOMIC OUTLOOK REMAINS POSITIVE The generally positive returns for both stocks and bonds this year have made it a good year for convertibles as well. Like the economy as a whole, your fund has been enjoying the best of both worlds with robust growth and generally falling interest rates. While we have been able to find attractive values over most of the past year and are optimistic about fiscal 1998, no one can predict when this environment may change -- which is why we believe our value-oriented approach continues to make sense for so many conservative growth and income investors. 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 10/31/97, 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 10/31/97 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 22.86% 15.78% 21.89% 16.89% 22.24% 17.94% - ------------------------------------------------------------------------ 5 years 107.29 95.41 99.57 97.57 101.82 94.74 Annual average 15.70 14.34 14.82 14.59 15.08 14.26 - ------------------------------------------------------------------------ 10 years 270.70 249.36 241.46 241.46 249.80 237.59 Annual average 14.00 13.33 13.07 13.07 13.34 12.94 - ------------------------------------------------------------------------ Annual average (life of fund) 12.70 12.44 11.65 11.65 11.93 11.77 - ------------------------------------------------------------------------ COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 10/31/97 Lehman Bros. S&P 500 Corporate Index Bond Index* - ------------------------------------------------------------------------ 1 year 32.10% 9.26% - ------------------------------------------------------------------------ 5 years 147.06 50.56 Annual average 19.83 8.53 - ------------------------------------------------------------------------ 10 years 387.00 161.17 Annual average 17.15 10.07 - ------------------------------------------------------------------------ Annual average (life of fund) 13.06 -- - ------------------------------------------------------------------------ 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-year and life-of-fund periods reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declines to 1% in the sixth year, and is eliminated thereafter. Returns shown for class B and class M shares for periods prior to their inception are derived from the historical performance of class A shares, adjusted to reflect both the initial sales charge or CDSC, if any, currently applicable to each class and, in the case of class B and class M shares, the higher operating expenses applicable to such shares. All returns assume reinvestment of distributions at NAV and represent past performance; they do not guarantee future results. 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. Footnote reads: *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 10/31/87 Fund's class A shares at POP $34,936 Lehman Bros. Corp. Bond Index $26,117 S&P 500 Index $48,700 Lehman Fund's Bros. class A S&P 500 Corp. Bond shares Index Index ------- ------- ---------- 10/31/87 9425 10000 10000 10/31/88 10687 11490 11326 10/31/89 12279 14520 12730 10/31/90 10258 13432 13274 10/31/91 14264 17932 15613 10/31/92 16854 19713 17349 10/31/93 20518 22632 19979 10/31/94 20895 23506 18944 10/31/95 23899 29714 22506 10/31/96 28437 36869 23908 10/31/97 34936 48700 26117 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 $34,146 and no contingent deferred sales charges would apply; a $10,000 investment in the funds's class M shares would have been valued at $34,980 ($33,759 at public offering price). See first page of performance section for performance calculation method. PRICE AND DISTRIBUTION INFORMATION 12 months ended 10/31/97 Class A Class B Class M - ------------------------------------------------------------------------ Distributions (number) 4 4 4 - ------------------------------------------------------------------------ Income $0.930 $0.780 $0.833 - ------------------------------------------------------------------------ Capital gains - ------------------------------------------------------------------------ Long-term 0.906768 0.906768 0.906768 - ------------------------------------------------------------------------ Short-term 0.667232 0.667232 0.667232 - ------------------------------------------------------------------------ Total $2.504 $2.354 $2.407 - ------------------------------------------------------------------------ Share value: NAV POP NAV NAV POP - ------------------------------------------------------------------------ 10/31/96 $21.24 $22.54 $21.09 $21.14 $21.91 - ------------------------------------------------------------------------ 10/31/97 23.22 24.64 23.01 23.08 23.92 - ------------------------------------------------------------------------ Current return (end of period) - ------------------------------------------------------------------------ Current dividend rate1 4.13% 3.90% 3.48% 3.67% 3.55% - ------------------------------------------------------------------------ Current 30-day SEC yield2 4.16 3.92 3.49 3.69 3.56 - ------------------------------------------------------------------------ Footnote reads: 1Income portion of most recent distribution, annualized and divided by NAV or POP at end of period. 2Based on investment income, calculated using SEC guidelines. TOTAL RETURN FOR PERIODS ENDED 9/30/97 (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 27.25% 19.91% 26.28% 21.28% 26.63% 22.21% - ------------------------------------------------------------------------ 5 years 114.56 102.18 106.58 104.58 109.00 101.73 Annual average 16.50 15.12 15.62 15.39 15.89 15.07 - ------------------------------------------------------------------------ 10 years 201.81 184.42 177.99 177.99 184.79 174.75 Annual average 11.68 11.02 10.77 10.77 11.03 10.64 - ------------------------------------------------------------------------ Annual average (life of fund) 12.87 12.61 11.82 11.82 12.10 11.94 - ------------------------------------------------------------------------ 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 maximum 5.75% sales charge for class A shares and 3.50% for class M shares. Contingent deferred sales charge (CDSC) is a charge applied at the time of the redemption of class B shares and assumes redemption at the end of the period. Your fund's CDSC declines from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. COMPARATIVE BENCHMARKS Standard & Poor's 500 Index* is an unmanaged list of large-capitalization common stocks and is frequently used as a general gauge of stock market performance. Lehman Brothers Corporate Bond Index* is an unmanaged list of corporate bonds. Footnote reads: * 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 get up-to-date information about your funds, learn more about investing and retirement planning, and access market news and an economic outlook from Putnam experts -- with just a few clicks of the mouse! Visit Putnam's new site on the World Wide Web to find out: * the benefits of investing with Putnam * Putnam's money management philosophy * daily fund pricing and long-term fund performance * how to tell if your retirement savings plan is on track * how quickly money can accumulate in a tax-deferred investment You can also read Dr. Robert Goodman's economic commentary and Putnam's Capital Markets Forum outlook, search for a particular Putnam fund by name or objective . . . 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 and an independent Internet service provider. New features will be added to the site on an ongoing basis. So, visit us at http://www.putnaminv.com -- often! Report of independent accountants For the fiscal year ended October 31, 1997 To the Trustees and Shareholders of Putnam Convertible Income-Growth Fund We have audited the accompanying statement of assets and liabilities of Putnam Convertible Income-Growth Fund, including the portfolio of investments owned, as of October 31, 1997, and the related statement of operations for the year then ended and the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1997, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Putnam Convertible Income-Growth Fund as of October 31, 1997, the results of its operations for the year then ended and the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated therein, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Boston, Massachusetts December 12, 1997 Portfolio of investments owned October 31, 1997
CONVERTIBLE BONDS AND NOTES (45.0%) * PRINCIPAL AMOUNT VALUE Aerospace and Defense (0.5%) - ------------------------------------------------------------------------------------------------------------- $ 3,750,000 Rohr, Inc. cv. sub. notes 7s, 2012 $ 3,693,750 3,810,000 SPACEHAB, Inc. 144A cv. sub. notes 8s, 2007 3,810,000 -------------- 7,503,750 Airlines (0.4%) - ------------------------------------------------------------------------------------------------------------- 2,800,000 Atlantic Coast Airlines 144A cv. sub. notes 7s, 2004 3,514,000 2,919,000 World Airways, Inc. 144A cv. sub. deb. 8s, 2004 2,860,620 -------------- 6,374,620 Automotive (1.4%) - ------------------------------------------------------------------------------------------------------------- 10,090,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 6,331,475 3,700,000 Magna International cv. sub. deb. 5s, 2002 4,717,500 3,750,000 Mascotech, Inc. cv. sub. deb. 4 1/2s, 2003 3,356,250 JPY 400,000,000 Toyota Motor Corp. cv. deb. 1.2s, 1998 (Japan) 5,767,790 -------------- 20,173,015 Banks (0.6%) - ------------------------------------------------------------------------------------------------------------- 2,089,000 Banamex S.A. (Nassau Branch) 144A cv. jr. sub. notes 11s, 2003 (Bahamas) 2,141,225 380,000 Banco Nationale de Mexico 144A cv. co. guaranty 7s, 1999 (Bahamas) 361,000 7,000,000 Mitsubishi Bank Ltd. International Finance cv. trust guaranteed notes 3s, 2002 (Bermuda) 6,755,000 -------------- 9,257,225 Basic Industrial Products (0.6%) - ------------------------------------------------------------------------------------------------------------- 7,750,000 Thermo Electron Corp. 144A cv. sub. 4 1/4s, 2003 8,718,750 Broadcasting (0.3%) - ------------------------------------------------------------------------------------------------------------- 4,350,000 International Cabletel, Inc. 144A cv. sub. deb. 7 1/4s, 2005 4,801,313 Building and Construction (0.7%) - ------------------------------------------------------------------------------------------------------------- 4,000,000 American Residential Services, Inc. cv. sub. notes 7 1/4s, 2004 3,660,000 4,500,000 Continental Homes Holding cv. sub. notes 6 7/8s, 2002 6,058,125 -------------- 9,718,125 Business Equipment and Services (2.1%) - ------------------------------------------------------------------------------------------------------------- 750,000 Career Horizons, Inc. cv. bonds 7s, 2002 1,925,625 10,000,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 8,700,000 1,000,000 Corporate Express, Inc. 144A cv. notes 4 1/2s, 2000 870,000 7,006,000 Maxtor Corp. cv. sub. deb. 5 3/4s, 2012 4,834,140 6,000,000 National Data Corp. cv. sub. notes 5s, 2003 5,902,500 750,000 U.S. Office Products Co. cv. sub notes 5 1/2s, 2003 703,125 7,190,000 U.S. Office Products Co. 144A cv. sub. notes 5 1/2s, 2003 7,028,225 -------------- 29,963,615 Cellular Communications (0.5%) - ------------------------------------------------------------------------------------------------------------- 5,300,000 3Com Corp. cv. sub. notes 10 1/4s, 2001 6,810,500 Computer Services (1.2%) - ------------------------------------------------------------------------------------------------------------- 11,625,000 Safeguard Scientifics, Inc. 144A cv. sub. notes 6s, 2006 12,671,229 4,620,000 System Software Associates, Inc. cv. sub. notes 7s, 2002 4,504,500 -------------- 17,175,729 Computer Software (0.9%) - ------------------------------------------------------------------------------------------------------------- 750,000 MacNeal-Schwendler cv. sub. deb. 7 7/8s, 2004 754,688 14,000,000 Softkey International, Inc. 144A cv. sr. notes 5 1/2s, 2000 12,810,000 -------------- 13,564,688 Computers (1.3%) - ------------------------------------------------------------------------------------------------------------- 5,850,000 Apple Computer, Inc. cv. sub. notes 6s, 2001 5,213,813 4,000,000 EMC Corp. cv. sub. notes 3 1/4s, 2002 5,520,000 6,590,000 Intevac, Inc. 144A cv. sub. notes 6 1/2s, 2004 5,832,150 2,500,000 Synoptics Communications, Inc. 144A cv. sub. deb. 5 1/4s, 2003 2,421,875 -------------- 18,987,838 Conglomerates (0.9%) - -------------------------------------------------------------------------------------------------------------- 1,400,000 Dart & Kraft Finance N.V. cv. co. guaranty Ser. WW, 7 3/4s, 1998 5,141,500 3,800,000 Hexcel Corp. cv. sub. notes 7s, 2003 6,802,000 1,500,000 Samsung Heavy Industries cv. deb. 10 1/2s, 2009 1,575,000 -------------- 13,518,500 Consumer Non Durables (0.6%) - ------------------------------------------------------------------------------------------------------------- 1,625,000 BEC Group, Inc. cv. sub. notes 144A 8s, 2002 [2 DBL. DAGGERS] 1,365,000 7,835,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 2007 7,090,675 -------------- 8,455,675 Consumer Services (3.0%) - ------------------------------------------------------------------------------------------------------------- 36,350,000 Boston Chicken, Inc. cv. notes LYON zero %, 2015 7,542,625 6,290,000 Boston Chicken, Inc. cv. sub. deb. 7 3/4s, 2004 5,260,013 6,928,000 Comcast Corp. cv. notes 1 1/8s, 2007 4,459,900 2,425,000 Einstein/Noah Bagel Corp. 144A cv. sub. deb. 7 1/4s, 2004 1,961,219 6,800,000 Fine Host Corp. 144A cv. sub. notes 5s, 2004 6,324,000 20,150,000 Hollinger, Inc. cv. LYON zero %, 2013 7,732,563 280,000 Pharmaceutical Marketing Services, Inc. cv. notes 6 1/4s, 2003 236,600 6,625,000 Pharmaceutical Marketing Services, Inc. 144A cv. deb. 6 1/4s, 2003 5,697,500 3,725,000 Protection One Alarm, Inc. cv. sr. sub. notes 6 3/4s, 2003 4,316,344 -------------- 43,530,764 Electronic Components and Instruments (2.7%) - ------------------------------------------------------------------------------------------------------------- 1,500,000 Cirrus Logic, Inc. 144A cv. sub. notes 6s, 2003 1,336,875 2,035,000 Dovatron International cv. sub. notes 6s, 2002 2,950,750 4,750,000 HMT Technology Corp. 144A cv. sub. notes 5 3/4s, 2004 4,607,500 2,700,000 Lernout & Hauspie Speech Products N.V. 144A cv. sub. notes 8s, 2001 (Belgium) 6,696,000 1,205,000 Photronics, Inc. cv. sub. notes 6s, 2004 1,275,794 3,291,000 Solectron Corp. 144A cv. sub. notes 6s, 2006 4,315,324 5,200,000 Thermo Instrument Systems, Inc. 144A cv. deb. 4 1/2s, 2003 5,434,000 1,215,000 Thermo Instruments Systems 144A cv. co. guaranty 3 3/4s, 2000 2,580,356 3,425,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 3,904,500 275,000 Thermo Optek Corp. cv. bonds 5s, 2000 313,500 4,425,000 Thermo Quest Corp. 144A cv. co. guaranty 5s, 2000 5,127,469 -------------- 38,542,068 Electronics and Electrical Equipment (1.7%) - ------------------------------------------------------------------------------------------------------------- 2,000,000 Checkpoint Systems, Inc. 144A cv. sub. deb. 5 1/4s, 2005 2,095,000 11,565,000 Motorola, Inc. cv. sub. deb. LYON zero %, 2013 9,165,263 3,940,000 Richardson Electronics, Ltd. cv. sr. sub. deb 8 1/4s, 2006 3,580,475 2,385,000 S3, Inc. 144A cv. sub. notes 5 3/4s, 2003 1,973,588 730,000 Sanmina Corp. 144A cv. sub. notes 5 1/2s, 2002 1,941,800 3,165,000 SCI Systems, Inc. cv. sub. notes 5s, 2006 5,847,338 -------------- 24,603,464 Entertainment (0.2%) - ------------------------------------------------------------------------------------------------------------- 3,000,000 Loews Corp. cv. sub. notes 3 1/8s, 2007 3,390,000 Environmental Control (1.3%) - ------------------------------------------------------------------------------------------------------------- 3,100,000 OHM Corp. cv. sub. deb. 8s, 2006 3,057,375 1,000,000 Thermo Ecotek Corp. 144A cv. bonds 4 7/8s, 2004 1,016,250 3,940,000 Thermo Terratech, Inc. 144A cv. sub. deb. 4 5/8s, 2003 3,580,475 2,600,000 USA Waste Services, Inc. cv. sub. notes 4s, 2002 2,736,500 9,378,000 WMX Technologies, Inc. cv. sub. notes 2s, 2005 7,783,740 -------------- 18,174,340 Food (0.3%) - ------------------------------------------------------------------------------------------------------------- 2,500,000 Chiquita Brands International cv. deb. 7s, 2001 2,362,500 2,400,000 Chiquita Brands International, Inc. 144A cv. sub. deb 7s, 2001 2,268,000 -------------- 4,630,500 Food and Beverages (0.3%) - ------------------------------------------------------------------------------------------------------------- 3,850,000 Grand Metropolitan PLC cv. unsub. deb. 6 1/2s, 2000 (United Kingdom) 4,985,750 Health Care (1.2%) - ------------------------------------------------------------------------------------------------------------- 5,700,000 NovaCare, Inc. cv. sub. deb. 5 1/2s, 2000 5,436,375 500,000 Quantum Health Resources, Inc. cv. sub. deb. 4 3/4s, 2000 463,750 5,000,000 Renal Treatment Centers, Inc. cv. sub. notes 5 5/8s, 2006 5,637,500 3,235,000 Renal Treatment Centers, Inc. 144A cv. sub. notes 5 5/8s, 2006 3,647,463 2,350,000 Rotech Medical Corp. 144A cv. sub. deb. 5 1/4s, 2003 2,335,313 -------------- 17,520,401 Hospital Management and Medical Services (1.7%) - ------------------------------------------------------------------------------------------------------------- 3,000,000 Complete Management, Inc. cv. sub. deb. 8s, 2003 3,607,500 1,850,000 DRS Technologies, Inc. 144A cv. sub. deb. 9s, 2003 2,756,500 4,270,000 Integrated Health Services, Inc. cv. sub. deb. 6s, 2003 4,648,963 4,500,000 PhyMatrix, Inc. cv. sub. deb. 6 3/4s, 2003 3,960,000 4,395,000 Sun Healthcare Group, Inc. 144A cv. sub. 6s, 2004 4,653,206 1,750,000 Tenet Health Care Corp. cv. sub. notes 6s, 2005 1,739,063 3,310,000 U.S. Diagnostic Laboratories, Inc. 144A cv. sub. deb. 9s, 2003 3,243,800 -------------- 24,609,032 Insurance and Finance (1.6%) - ------------------------------------------------------------------------------------------------------------- 5,500,000 Mutual Risk Management 144A cv. sub. deb. zero %, 2015 3,169,375 5,000,000 NAC Re Corp. cv. deb. 5 1/4s, 2002 5,412,500 3,065,000 Pioneer Financial Services, Inc. cv. sub. notes 6 1/2s, 2003 5,095,563 13,550,000 USF&G Corp. cv. sub. notes zero %, 2009 8,976,875 -------------- 22,654,313 Lodging (0.2%) - ------------------------------------------------------------------------------------------------------------- 3,000,000 ShoLodge, Inc. cv. sub. deb. 7 1/2s, 2004 2,973,750 Machinery (0.2%) - ------------------------------------------------------------------------------------------------------------- 3,000,000 Thermo Fibertek, Inc. 144A cv. co. guaranty 4 1/2s, 2004 3,127,500 Medical Management Services (0.2%) - ------------------------------------------------------------------------------------------------------------- 3,500,000 Continucare Corp. 144A cv. sub. notes 8s, 2002 3,500,000 Medical Supplies and Devices (0.6%) - ------------------------------------------------------------------------------------------------------------ 2,000,000 Phoenix Shannon 144A cv. sr. sub. notes 9 1/2s, 2000 + 600,000 2,000,000 Thermo Cardiosystems, Inc. 144A cv. co. guaranty 4 3/4s, 2004 2,020,000 385,000 Uromed Corp. cv. sub. 6s, 2003 275,756 5,615,000 Uromed Corp. 144A cv. sub. notes 6s, 2003 4,021,744 1,000,000 Ventritex, Inc. cv. sub. notes 5 3/4s, 2001 1,133,750 -------------- 8,051,250 Metals and Mining (0.3%) - ------------------------------------------------------------------------------------------------------------- 4,169,500 Quanex Corp. cv. sub. deb. 6.88s, 2007 4,299,797 Office Equipment (0.4%) - ------------------------------------------------------------------------------------------------------------- 6,500,000 U.S. Office Products Co. cv. sub. notes 5 1/2s, 2003 6,175,000 Oil and Gas (3.8%) - ------------------------------------------------------------------------------------------------------------- 6,500,000 Aker Maritime cv. deb. 5 1/4s, 2002 7,410,000 8,200,000 Apache Corp. 144A cv. sub. deb. 6s, 2002 11,193,000 9,680,000 Lomak Petroleum, Inc. 144A cv. sub. deb. 6s, 2007 11,374,000 5,500,000 Parker Drilling Co. cv. sub. notes 5 1/2s, 2004 6,545,000 850,000 Pennzoil Co. cv. deb. 4 3/4s, 2003 1,190,000 2,500,000 Pennzoil Co. cv. sub. deb. 6 1/2s, 2003 4,896,875 1,075,000 Pride Petroleum Services, Inc. cv. sub. deb. 6 1/4s, 2006 3,043,594 1,500,000 Southern Mineral Corp. cv. deb. 6 7/8s, 2007 1,507,500 6,910,000 Swift Energy Co. cv. sub. notes 6 1/4s, 2006 7,601,000 -------------- 54,760,969 Oil and Gas Pipelines (0.1%) - ------------------------------------------------------------------------------------------------------------- 1,050,000 SFP Pipeline Holdings, Inc. cv. variable rate exch. deb. 10.42s, 2010 [2 DBL. DAGGERS] 1,739,063 Paper and Forest Products (0.7%) - ------------------------------------------------------------------------------------------------------------- 6,750,000 Stone Container Corp. cv. sr. sub. notes 8 7/8s, 2000 8,454,375 2,500,000 Stone Container Corp. cv. sub. deb. 6 3/4s, 2007 2,087,500 -------------- 10,541,875 Pharmaceuticals (2.7%) - ------------------------------------------------------------------------------------------------------------- 19,265,000 Alza Corp. cv. sub. LYON zero %, 2014 8,187,625 990,000 Nabi, Inc. cv. sub. notes 6 1/2s, 2003 794,475 3,890,000 Nabi, Inc. 144A cv. sub. notes 6 1/2s, 2003 3,073,100 2,500,000 NeXstar Pharmaceuticals, Inc. 144A cv. sub. deb. 6 1/4s, 2000 2,681,250 19,830,000 Roche Holdings, Inc. 144A cv. unsub. LYON zero %, 2010 (Switzerland) 9,964,575 5,425,000 Sandoz Capital BVI Ltd. 144A cv. co. guaranty 2s, 2002 (Switzerland) 8,069,688 3,000,000 Sepracor, Inc. 144A cv. sub. deb. 7s, 2002 5,677,500 -------------- 38,448,213 Publishing (0.3%) - ------------------------------------------------------------------------------------------------------------- 3,600,000 Thomas Nelson, Inc. 144A cv. sub. notes 5 3/4s, 1999 3,514,500 Real Estate (0.7%) - ------------------------------------------------------------------------------------------------------------- 1,200,000 Alexander Haagen Properties cv. sub. deb. Ser. A, 7 1/2s, 2001 (R) 1,194,000 1,985,000 Camden Property Trust cv. sub. deb. 7.33s, 2001 (R) 2,488,694 1,410,000 LTC Properties, Inc. cv. sub. deb. 7 3/4s, 2002 (R) 1,732,538 3,750,000 Malan Realty Investors cv. sub. notes 9 1/2s, 2004 3,923,438 -------------- 9,338,670 Recreation (0.2%) - ------------------------------------------------------------------------------------------------------------- 2,211,000 Speedway Motorsports, Inc. 144A cv. sub. notes 5 3/4s, 2003 2,199,945 Retail (2.9%) - ------------------------------------------------------------------------------------------------------------- 8,010,000 Baker (J.), Inc. cv. deb. 7s, 2002 6,808,500 5,650,000 Federated Department Stores, Inc. cv. notes 5s, 2003 7,684,000 8,385,000 Michaels Stores, Inc. cv. sub. notes 6 3/4s, 2003 8,510,775 12,000,000 Office Depot, Inc. cv. LYON zero %, 2007 7,785,000 4,065,000 Pier 1 Imports, Inc. cv. sub. notes 5 3/4s, 2003 6,595,463 4,600,000 Sunglass Hut International, Inc. 144A cv. sub. notes 5 1/4s, 2003 3,553,500 -------------- 40,937,238 Satellite Services (0.3%) - ------------------------------------------------------------------------------------------------------------- 4,000,000 Gilat Satellite Networks Ltd. cv. sub. notes 6 1/2s, 2004 (Israel) 3,950,000 Semiconductors (1.8%) - ------------------------------------------------------------------------------------------------------------- 7,550,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 6,417,500 3,030,000 Integrated Process Equipment Corp. 144A cv. sub. notes 6 1/4s, 2004 2,681,550 6,050,000 Lam Research Corp. 144A cv. sub. notes 5s, 2002 5,255,938 3,600,000 National Semiconductor Corp. cv. deb. 6 1/2s, 2002 3,910,500 4,580,000 Trikon Technologies, Inc. 144A cv. notes 7 1/8s, 2001 2,290,000 4,500,000 Xilinx, Inc. 144A cv. sub. notes 5 1/4s, 2002 4,466,250 -------------- 25,021,738 Shipping (0.5%) - ------------------------------------------------------------------------------------------------------------- 5,000,000 Halter Marine Group, Inc. 144A cv. sub. notes 4 1/2s, 2004 6,287,500 Telecommunications (1.5%) - ------------------------------------------------------------------------------------------------------------- 2,000,000 Inacom Corp. cv. sub. deb. 4 1/2s, 2004 2,005,000 1,250,000 International CableTel, Inc. cv. sub. notes 7s, 2008 1,210,938 1,000,000 MIDCOM Communications, Inc. cv. sub. notes 8 1/4s, 2003 746,250 4,525,000 MIDCOM Communications, Inc. 144A cv. sub. deb. 8 1/4s, 2003 3,376,781 25,100,000 Rogers Communications cv. deb. 2s, 2005 (Canada) 14,840,375 -------------- 22,179,344 Telephone Services (0.3%) - ------------------------------------------------------------------------------------------------------------- 4,400,000 SmarTalk Teleservices, Inc. 144A cv. sub. notes 5 3/4s, 2004 4,603,500 Textiles (0.1%) - ------------------------------------------------------------------------------------------------------------- 2,000,000 Dixie Group, Inc. (The) cv. deb. 7s, 2012 1,790,000 Transportation (1.2%) - ------------------------------------------------------------------------------------------------------------- GBP 3,300,000 British Airport Authority 144A cv. bonds 5 3/4s, 2006 (United Kingdom) 5,941,708 4,500,000 Continental Airlines, Inc. cv. sub. deb. 6 3/4s, 2006 6,980,625 3,350,000 Offshore Logistics, Inc. 144A cv. sub. notes 6s, 2003 3,902,750 -------------- 16,825,083 -------------- Total Convertible Bonds and Notes (cost $601,806,442) $ 647,928,910 COMMON STOCKS (27.9%) * NUMBER OF SHARES VALUE Aerospace and Defense (0.6%) - ------------------------------------------------------------------------------------------------------------- 100,000 Boeing Co. $ 4,787,500 45,000 Lockheed Martin Corp. 4,277,813 -------------- 9,065,313 Aluminum (0.5%) - ------------------------------------------------------------------------------------------------------------- 100,000 Aluminum Co. of America 7,300,000 Automotive (0.6%) - ------------------------------------------------------------------------------------------------------------- 95,000 Ford Motor Co. 4,150,313 70,000 General Motors Corp. 4,493,125 -------------- 8,643,438 Automotive Parts (0.1%) - ------------------------------------------------------------------------------------------------------------- 37,653 Federal-Mogul Corp. 1,593,193 Banks (3.8%) - ------------------------------------------------------------------------------------------------------------- 84,000 Banc One Corp. 4,378,500 41,500 Bankers Trust New York Corp. 4,897,000 35,000 Chase Manhattan Corp. 4,038,125 50,000 Comerica, Inc. 3,953,125 24,800 CoreStates Financial Corp. 1,804,200 55,000 First Chicago NBD Corp. 4,001,250 75,000 First of America Bank Corp. 4,181,250 100,000 Fleet Financial Group, Inc. 6,431,250 63,000 Keycorp 3,854,813 35,000 Morgan (J.P.) & Co., Inc. 3,841,250 69,000 NationsBank Corp. 4,131,375 110,000 PNC Bank Corp. 5,225,000 59,000 Washington Mutual, Inc. 4,037,813 -------------- 54,774,951 Basic Industrial Products (0.5%) - ------------------------------------------------------------------------------------------------------------- 90,000 Deere (John) & Co. 4,736,250 60,000 General Signal Corp. 2,407,500 -------------- 7,143,750 Building Products (0.2%) - ------------------------------------------------------------------------------------------------------------- 41,291 Southdown, Inc. 2,286,489 Business Services and Equipment (0.9%) - ------------------------------------------------------------------------------------------------------------ 72,000 IBM Corp. 7,060,500 76,000 Xerox Corp. 6,027,750 -------------- 13,088,250 Chemicals (0.7%) - ------------------------------------------------------------------------------------------------------------ 45,000 Dow Chemical Co. 4,083,750 105,000 du Pont (E.I.) de Nemours & Co., Ltd. 5,971,875 -------------- 10,055,625 Computer Software (0.4%) - ------------------------------------------------------------------------------------------------------------- 72,000 Computer Associates International, Inc. 5,368,500 Conglomerates (0.9%) - ------------------------------------------------------------------------------------------------------------- 76,000 Cooper Industries, Inc. 3,961,500 45,000 Minnesota Mining & Manufacturing Co. 4,117,500 75,000 TRW, Inc. 4,293,750 -------------- 12,372,750 Consumer Non-Durables (1.5%) - ------------------------------------------------------------------------------------------------------------- 30,000 Clorox Co. 2,100,000 50,000 Colgate-Palmolive Co. 3,237,500 110,000 Kimberly-Clark Corp. 5,713,125 190,000 Philip Morris Cos., Inc. 7,528,750 80,000 Universal Corp. 3,075,000 -------------- 21,654,375 Electric Utilities (0.3%) - ------------------------------------------------------------------------------------------------------------- 79,000 Duke Energy Corp. 3,811,750 Electrical Equipment (0.2%) - ------------------------------------------------------------------------------------------------------------- 124,999 MagneTek, Inc. + 2,539,042 Electronics and Electrical Equipment (1.2%) - ------------------------------------------------------------------------------------------------------------- 70,000 Emerson Electric Co. 3,670,625 105,000 Hewlett-Packard Co. 6,477,188 140,000 Micron Technology, Inc. 3,753,750 65,000 Motorola, Inc. 4,013,750 -------------- 17,915,313 Environmental Control (0.2%) - ------------------------------------------------------------------------------------------------------------- 112,000 Browning-Ferris Industries, Inc. 3,640,000 Food and Beverages (1.6%) - ------------------------------------------------------------------------------------------------------------- 91,000 Anheuser-Busch Cos., Inc. 3,634,313 60,000 General Mills, Inc. 3,960,000 90,000 Heinz (H.J.) Co. 4,179,375 100,000 PepsiCo, Inc. 3,681,250 70,000 Sara Lee Corp. 3,578,750 160,000 Whitman Corp. 4,200,000 -------------- 23,233,688 Health Care (0.4%) - ------------------------------------------------------------------------------------------------------------- 110,000 Baxter International, Inc. 5,087,500 Health Care Services (0.3%) - ------------------------------------------------------------------------------------------------------------- 90,000 United Healthcare Corp. 4,168,125 Hospital Management (0.3%) - ------------------------------------------------------------------------------------------------------------- 140,000 Tenet Healthcare Corp. + 4,278,750 Insurance and Finance (1.8%) - ------------------------------------------------------------------------------------------------------------- 55,000 Aetna, Inc. 3,908,438 78,000 American General Corp. 3,978,000 78,000 AON Corp. 4,207,125 45,000 CIGNA Corp. 6,986,250 88,000 Federal National Mortgage Association 4,262,500 105,000 USF&G Corp. 2,126,250 -------------- 25,468,563 Office and Industrial (0.3%) - ------------------------------------------------------------------------------------------------------------- 100,000 Beacon Properties Corp. (R) 4,212,500 Oil and Gas (2.9%) - ------------------------------------------------------------------------------------------------------------- 57,857 Amoco Corp. 5,304,764 44,000 British Petroleum PLC ADR (United Kingdom) 3,861,000 87,000 Elf Aquitane ADR (France) 5,372,250 100,000 Exxon Corp. 6,143,750 60,000 Kerr-McGee Corp. 4,053,750 60,000 Mobil Corp. 4,368,750 50,000 Occidental Petroleum Corp. 1,393,750 72,000 Royal Dutch Petroleum Co. PLC ADR (Netherlands) 3,789,000 90,000 Tosco Corp. 2,970,000 75,000 Total Corp. ADR (France) 4,162,500 -------------- 41,419,514 Paper and Forest Products (0.9%) - ------------------------------------------------------------------------------------------------------------- 100,000 International Paper Co. 4,500,000 66,000 Temple Inland, Inc. 3,786,750 94,000 Weyerhaeuser Co. 4,488,500 -------------- 12,775,250 Pharmaceuticals (0.4%) - ------------------------------------------------------------------------------------------------------------- 65,000 Merck & Co., Inc. 5,801,250 Pharmaceuticals and Biotechnology (1.1%) - ------------------------------------------------------------------------------------------------------------- 60,000 American Home Products Corp. 4,447,500 70,000 Bristol-Myers Squibb Co. 6,142,500 150,000 Pharmacia & Upjohn, Inc. 4,762,500 -------------- 15,352,500 Publishing (0.2%) - ------------------------------------------------------------------------------------------------------------- 60,000 McGraw-Hill, Inc. 3,922,500 Railroad (0.3%) - ------------------------------------------------------------------------------------------------------------- 66,000 Union Pacific Corp. 4,042,500 Real Estate (--%) - ------------------------------------------------------------------------------------------------------------- 15,000 LTC Properties, Inc. (R) 303,750 Recreation (0.3%) - ------------------------------------------------------------------------------------------------------------- 189,068 WMS Industries, Inc. 4,596,716 Retail (1.6%) - ------------------------------------------------------------------------------------------------------------- 65,000 Dayton Hudson Corp. 4,082,813 220,000 Kmart Corp. + 2,901,250 180,000 Lowe's Cos., Inc. 7,492,500 47,000 Penney (J.C.) Co., Inc. 2,758,313 77,352 Proffitt's, Inc. + 2,219,036 115,000 Toys R Us + 3,917,188 -------------- 23,371,100 Savings and Loans (0.3%) - ------------------------------------------------------------------------------------------------------------- 79,000 Ahmanson (H.F.) & Co. 4,661,000 Semiconductors (0.4%) - ------------------------------------------------------------------------------------------------------------- 70,000 Intel Corp. 5,390,000 Telephone Utilities (1.4%) - ------------------------------------------------------------------------------------------------------------- 90,000 American Telephone & Telegraph Co. 4,404,375 78,760 Bell Atlantic Corp. 6,290,955 74,452 SBC Communications, Inc. 4,737,009 85,000 Sprint Corp. 4,420,000 -------------- 19,852,339 Transportation (0.6%) - ------------------------------------------------------------------------------------------------------------- 43,000 Burlington Northern Santa Fe Corp. 4,085,000 46,000 Delta Air Lines, Inc. 4,634,500 -------------- 8,719,500 Utilities (0.2%) - ------------------------------------------------------------------------------------------------------------- 100,000 Cinergy Corp. 3,300,000 -------------- Total Common Stocks (cost $313,688,368) $ 401,209,784 CONVERTIBLE PREFERRED STOCKS (24.1%) * NUMBER OF SHARES VALUE Aerospace and Defense (0.3%) - ------------------------------------------------------------------------------------------------------------- 70,000 Kaman Corp. $3.25 cv. pfd. $ 4,935,000 Automotive Parts (0.2%) - ------------------------------------------------------------------------------------------------------------- 90,000 Walbro Capital Trust $2.00 cv. pfd. 2,576,250 Banks (1.5%) - ------------------------------------------------------------------------------------------------------------- 80,800 Banc One Corp. Ser. C, $3.50 cv. pfd. 8,115,350 78,050 Sovereign Bancorp, Inc. $3.125 cv. cum. pfd. 8,312,325 81,350 Union Planters Corp. Ser. E, $2.00 cv. pfd. 5,969,056 -------------- 22,396,731 Basic Industrial Products (0.3%) - ------------------------------------------------------------------------------------------------------------- 35,040 Case Corp. Ser. A, $4.50 cv. pfd. 5,021,232 Broadcasting (1.0%) - ------------------------------------------------------------------------------------------------------------- 62,000 Chancellor Broadcasting Corp. 144A $3.50 cv. pfd. 5,107,250 147,500 Sinclair Broadcast Group, Inc. $2.73 cv. pfd. 7,264,375 276,000 Triathlon Broadcasting Co. $0.945 cv. pfd. 2,794,500 -------------- 15,166,125 Building and Construction (0.2%) - ------------------------------------------------------------------------------------------------------------- 80,000 Beazer Homes USA, Inc. Ser. A, $2.00 cv. pfd. 2,320,000 Cable Television (0.5%) - ------------------------------------------------------------------------------------------------------------- 150,000 Tele-Communications (TCI Group) Ser. A, $2.125 cv. pfd. 8,325,000 Communications (0.3%) - ------------------------------------------------------------------------------------------------------------- 72,000 Evergreen Media Corp. 144A $3.00 cv. pfd. 4,455,000 Computer Services (0.5%) - ------------------------------------------------------------------------------------------------------------- 143,457 Wang Laboratories, Inc. Ser. B, $3.25 cv. pfd. 7,549,425 Computers (0.5%) - ------------------------------------------------------------------------------------------------------------- 200,500 Vanstar Corp. 144A $3.375 cv. pfd. 7,869,625 Consumer Non Durables (0.4%) - ------------------------------------------------------------------------------------------------------------- 96,075 Fieldcrest Cannon Ser. A, $3.00 cv. pfd. 5,428,238 Electric Utilities (0.8%) - ------------------------------------------------------------------------------------------------------------- 169,000 Calenergy Capital Trust $3.125 cv. cum. pfd. 10,837,125 Entertainment (1.0%) - ------------------------------------------------------------------------------------------------------------- 159,100 Metromedia International Group, Inc. $3.625 cv. cum. pfd. 8,153,875 132,870 Station Casinos, Inc. $3.50 cv. pfd. 5,796,454 -------------- 13,950,329 Environmental Control (0.3%) - ------------------------------------------------------------------------------------------------------------- 150,000 Browning-Ferris Industries, Inc. $2.58 cv. pfd. 4,800,000 Financial Services (0.6%) - ------------------------------------------------------------------------------------------------------------- 136,643 Finova Finance Trust $2.75 cv. cum. pfd. 8,335,223 Food (0.6%) - ------------------------------------------------------------------------------------------------------------- 125,300 Chiquita Brands International, Inc. Ser. B, $3.75 cv. pfd. 7,995,706 Hospital Management (0.5%) - ------------------------------------------------------------------------------------------------------------- 311,600 MedPartners, Inc. $1.44 cv. pfd. 7,634,200 Information Systems (0.2%) - ------------------------------------------------------------------------------------------------------------- 62,500 Vanstar Financial Trust Corp. $3.375 cv. pfd. 2,437,500 Insurance and Finance (2.6%) - ------------------------------------------------------------------------------------------------------------- 84,700 Aetna, Inc. $4.758 cv. pfd. 6,077,225 119,849 American Bankers Insurance Group, Inc. Ser. B, $3.125 cv. pfd. 9,468,071 140,500 American General Delaware Corp. $3.00 cv. cum. pfd. 9,343,250 31,700 American Heritage Life Investment Corp. $4.25 cv. pfd. 1,791,050 83,700 Penncorp Financial Group, Inc. 144A $3.50 cv.pfd. 4,561,650 78,400 St. Paul Capital LLC $3.00 cv. cum. pfd. 5,488,000 -------------- 36,729,246 Metals and Mining (1.5%) - ------------------------------------------------------------------------------------------------------------- 70,000 Amax Gold, Inc. Ser. B, $3.75 cv. pfd. 3,517,500 346,800 Freeport-McMoRan Copper Co., Inc. $1.75 cv. pfd. 8,756,700 90,400 Pittston Mineral Corp. 144A $3.125 dep. shs. cv. pfd. 3,616,000 70,000 Timet Capital Trust I 144A $3.313 cv. pfd. 3,640,000 30,645 Titanium Metals Corp. $3.375 cv. pfd. 1,593,540 -------------- 21,123,740 Oil and Gas (3.2%) - ------------------------------------------------------------------------------------------------------------- 77,000 Devon Financing Trust $3.25 cv. pfd. 6,275,500 65,000 Grant Geophysical, Inc. $2.438 cv. pfd. 300,625 60,000 Lomak Petroleum, Inc. 144A $2.875 cv. pfd. 3,037,500 30,000 Lomak Petroleum, Inc. 144A $2.03 cv. pfd. 1,500,000 100,580 Neuvo Energy Ser. A, $2.875 cv. pfd. 5,029,000 146,100 Occidental Petroleum Corp. 144A $3.875 cv. pfd. 9,076,463 75,505 Tejas Gas Corp. $2.625 cv. cum. pfd. 5,323,103 167,500 Tosco Financing Trust 144A $2.875 cv. pfd. 9,694,063 109,900 Unocal Capital Trust $3.125 cv. cum. pfd. 6,415,413 -------------- 46,651,667 Packaging and Containers (0.1%) - ------------------------------------------------------------------------------------------------------------- 49,200 Crown Cork & Seal Co., Inc. $1.885 cv. pfd. 2,134,050 Paper and Forest Products (0.7%) - ------------------------------------------------------------------------------------------------------------- 202,700 International Paper Co. $2.625 cv. pfd. 10,287,025 Publishing (0.3%) - ------------------------------------------------------------------------------------------------------------- 35,000 Golden Books Family Entertainment, Inc. $4.375 cv. cum. pfd. 1,841,875 100,000 Houghton Mifflin Co. $4.08 cv. pfd. 2,700,000 -------------- 4,541,875 Real Estate (2.3%) - ------------------------------------------------------------------------------------------------------------- 351,200 Equity Residential Property Ser. E, $1.75 cv. pfd. 10,009,200 146,000 Insignia Financial Group, Inc. 144A $3.25 cv. pfd. 7,354,750 53,500 Oasis Residential, Inc. Ser. A, $2.25 cv. pfd. (R) 1,300,719 65,000 Rouse Co. Ser. B, $3.00 cv. pfd. (R) 3,055,000 195,000 Security Capital Pacific Trust Ser. A, $1.75 cv. pfd. 5,971,875 74,490 Tanger Factory Outlet Centers $1.802 cv. pfd. (R) 2,011,230 42,300 Vornado Realty Trust Ser. A, $3.25 cv. cum. pfd. 2,760,075 -------------- 32,462,849 Retail (1.5%) - ------------------------------------------------------------------------------------------------------------- 195,000 Ann Taylor Finance Trust $4.25 cv. cum. pfd. 9,384,375 204,600 Kmart Financing I $3.875 cv. cum. pfd. 11,649,413 -------------- 21,033,788 Savings and Loans (0.7%) - ------------------------------------------------------------------------------------------------------------- 82,000 Ahmanson (H.F.) & Co. $3.00 cv. pfd. 9,922,000 Telecommunications (0.5%) - ------------------------------------------------------------------------------------------------------------- 113,000 Airtouch Communications, Inc. Ser. C, $2.125 cv. pfd. 6,780,000 Telephone Services (0.3%) - ------------------------------------------------------------------------------------------------------------- 116,000 Intermedia Communications, Inc. Ser. D, $1.75 cv. pfd. 3,770,000 Tobacco (0.2%) - ------------------------------------------------------------------------------------------------------------- 127,000 DIMON, Inc. $3.25 cv. pfd. 3,175,000 Transportation (0.5%) - ------------------------------------------------------------------------------------------------------------- 105,100 Hvide Capital Trust 144A $3.25 cv. pfd. 7,041,700 -------------- Total Convertible Preferred Stocks (cost $313,712,374) $ 347,685,649 WARRANTS (--%) * + (cost $89,869) EXPIRATION NUMBER OF WARRANTS DATE VALUE - ------------------------------------------------------------------------------------------------------------- 13,826 Security Capital Group 9/18/98 $ 66,538 FOREIGN GOVERNMENT BONDS AND NOTES (0.4%)* (cost $5,088,000) PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------- $ 5,100,000 Italy (Government of) cv. notes 5s, 2001 (Italy) $ 5,457,000 CORPORATE BONDS AND NOTES (0.3%)* (cost $3,210,625) PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------- $ 2,500,000 Siemens Capital Corp. co. guaranty (with attached warrants) 8s, 2002 (Germany) $ 4,300,000 SHORT-TERM INVESTMENTS (1.9%) * (cost $28,071,405) PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------- 28,067,000 Interest in $269,350,000 joint repurchase agreement dated October 31, 1997 with SBC Warburg due November 3, 1997 with respect to various U.S. Treasury obligations -- maturity value of $28,080,215 for an effective yield of 5.65% $ 28,071,405 - ------------------------------------------------------------------------------------------------------------- Total Investments (cost $1,265,667,083) *** $1,434,719,286 - ------------------------------------------------------------------------------------------------------------- * Percentages indicated are based on net assets of $1,440,352,273. *** The aggregate identified cost on a tax basis is $1,265,826,747,resulting in gross unrealized appreciation and depreciation of $210,265,337 and $41,372,798, respectively, or net unrealized appreciation of $168,892,539. + Non-income-producing security. [2 DBL. DAGGERS] Income may be received in cash or additional securities at the discretion of the issuer. (R) Real Estate Investment Trust. 144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. ADR after the name of a foreign holding stands for American Depository Receipts representing ownership of foreign securities on deposit with a domestic custodian bank.
- ---------------------------------------------------------------------------------------- Forward Currency Contracts to Sell at October 31, 1997 Market Aggregate Face Delivery Unrealized Value Value Date Appreciation - ---------------------------------------------------------------------------------------- Japanese Yen $3,412,266 $4,042,341 1/28/98 $630,075 - ----------------------------------------------------------------------------------------
Statement of assets and liabilities October 31, 1997 Assets - --------------------------------------------------------------------------------------------------- Investments in securities, at value (identified cost $1,265,667,083) (Note 1) $1,434,719,286 - --------------------------------------------------------------------------------------------------- Cash 4,383,697 - --------------------------------------------------------------------------------------------------- Dividends, interest and other receivables 10,502,410 - --------------------------------------------------------------------------------------------------- Receivable for shares of the fund sold 4,145,522 - --------------------------------------------------------------------------------------------------- Receivable for securities sold 10,801,978 - --------------------------------------------------------------------------------------------------- Receivable for open forward currency contracts 630,075 - --------------------------------------------------------------------------------------------------- Receivable for closed forward currency contracts 472,008 - --------------------------------------------------------------------------------------------------- Total assets 1,465,654,976 Liabilities - --------------------------------------------------------------------------------------------------- Distributions payable to shareholders 29,770 - --------------------------------------------------------------------------------------------------- Payable for securities purchased 21,366,186 - --------------------------------------------------------------------------------------------------- Payable for shares of the fund repurchased 860,790 - --------------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 2,084,767 - --------------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 283,416 - --------------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 23,096 - --------------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 1,662 - --------------------------------------------------------------------------------------------------- Payable for distribution fees (Note 2) 486,628 - --------------------------------------------------------------------------------------------------- Other accrued expenses 166,388 - --------------------------------------------------------------------------------------------------- Total liabilities 25,302,703 - --------------------------------------------------------------------------------------------------- Net assets $1,440,352,273 Represented by - --------------------------------------------------------------------------------------------------- Paid-in capital (Notes 1 and 4) $1,140,543,089 - --------------------------------------------------------------------------------------------------- Distributions in excess of net investment income (Note 1) (630,075) - --------------------------------------------------------------------------------------------------- Accumulated net realized gain on investments and foreign currency transactions (Note 1) 130,756,981 - --------------------------------------------------------------------------------------------------- Net unrealized appreciation of investments and assets and liabilities in foreign currencies 169,682,278 - --------------------------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $1,440,352,273 Computation of net asset value and offering price - --------------------------------------------------------------------------------------------------- Net asset value and redemption price per class A share ($1,168,469,878 divided by 50,317,688 shares) $23.22 - --------------------------------------------------------------------------------------------------- Offering price per class A share (100/94.25 of $23.22)* $24.64 - --------------------------------------------------------------------------------------------------- Net asset value and offering price per class B share ($257,162,985 divided by 11,175,584 shares)** $23.01 - --------------------------------------------------------------------------------------------------- Net asset value and redemption price per class M share ($14,719,410 divided by 637,689 shares) $23.08 - --------------------------------------------------------------------------------------------------- Offering price per class M share (100/96.50 of $23.08)* $23.92 - --------------------------------------------------------------------------------------------------- * On single retail sales of less than $50,000. On sales of $50,000 more and on group sales the offering price is reduced. ** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. The accompanying notes are an integral part of these financial statements.
Statement of operations Year ended October 31, 1997 Investment income: - -------------------------------------------------------------------------------------------------- Interest $ 33,777,418 - -------------------------------------------------------------------------------------------------- Dividends (net of foreign tax of $64,197) 23,269,904 - -------------------------------------------------------------------------------------------------- Total investment income 57,047,322 - -------------------------------------------------------------------------------------------------- Expenses: - -------------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 7,310,176 - -------------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 2,047,827 - -------------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 43,865 - -------------------------------------------------------------------------------------------------- Administrative services (Note 2) 23,090 - -------------------------------------------------------------------------------------------------- Distribution fees -- Class A (Note 2) 2,603,618 - -------------------------------------------------------------------------------------------------- Distribution fees -- Class B (Note 2) 2,015,964 - -------------------------------------------------------------------------------------------------- Distribution fees -- Class M (Note 2) 87,604 - -------------------------------------------------------------------------------------------------- Reports to shareholders 73,123 - -------------------------------------------------------------------------------------------------- Registration fees 41,673 - -------------------------------------------------------------------------------------------------- Auditing 50,360 - -------------------------------------------------------------------------------------------------- Legal 15,764 - -------------------------------------------------------------------------------------------------- Postage 160,295 - -------------------------------------------------------------------------------------------------- Other 89,822 - -------------------------------------------------------------------------------------------------- Total expenses 14,563,181 - -------------------------------------------------------------------------------------------------- Expense reduction (Note 2) (704,850) - -------------------------------------------------------------------------------------------------- Net expenses 13,858,331 - -------------------------------------------------------------------------------------------------- Net investment income 43,188,991 - -------------------------------------------------------------------------------------------------- Net realized gain on investments (Notes 1 and 3) 133,967,022 - -------------------------------------------------------------------------------------------------- Net realized gain on foreign currency translation (Note 1) 513,684 - -------------------------------------------------------------------------------------------------- Net unrealized depreciation of assets and liabilities in foreign currencies during the year (96,637) - -------------------------------------------------------------------------------------------------- Net unrealized appreciation of investments during the year 73,816,565 - -------------------------------------------------------------------------------------------------- Net gain on investments 208,200,634 - -------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations $251,389,625 - -------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets Year ended October 31 ----------------------------- 1997 1996 - ---------------------------------------------------------------------------------------------------------------------- Increase in net assets - ---------------------------------------------------------------------------------------------------------------------- Operations: - ---------------------------------------------------------------------------------------------------------------------- Net investment income $ 43,188,991 $ 37,114,720 - ---------------------------------------------------------------------------------------------------------------------- Net realized gain on investments and foreign currency transactions 134,480,706 79,062,109 - ---------------------------------------------------------------------------------------------------------------------- Net unrealized appreciation of investments and assets and liabilities in foreign currencies 73,719,928 45,277,440 - ---------------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 251,389,625 161,454,269 - ---------------------------------------------------------------------------------------------------------------------- Distributions to shareholders: - ---------------------------------------------------------------------------------------------------------------------- From net investment income Class A (40,930,205) (39,696,713) - ---------------------------------------------------------------------------------------------------------------------- Class B (6,775,056) (4,495,021) - ---------------------------------------------------------------------------------------------------------------------- Class M (414,757) (207,655) - ---------------------------------------------------------------------------------------------------------------------- In excess of net investment income Class A (2,870,230) -- - ---------------------------------------------------------------------------------------------------------------------- Class B (475,100) -- - ---------------------------------------------------------------------------------------------------------------------- Class M (29,085) -- - ---------------------------------------------------------------------------------------------------------------------- From net realized gain on investments Class A (66,832,559) (27,754,648) - ---------------------------------------------------------------------------------------------------------------------- Class B (11,391,471) (3,021,352) - ---------------------------------------------------------------------------------------------------------------------- Class M (700,350) (80,667) - ---------------------------------------------------------------------------------------------------------------------- Increase from capital share transactions (Note 4) 267,640,833 131,834,466 - ---------------------------------------------------------------------------------------------------------------------- Total increase in net assets 388,611,645 218,032,679 Net assets - ---------------------------------------------------------------------------------------------------------------------- Beginning of year 1,051,740,628 833,707,949 - ---------------------------------------------------------------------------------------------------------------------- End of year (including distributions in excess of net investment income and undistributed net investment income of $630,075 and $4,736,917, respectively) $1,440,352,273 $1,051,740,628 - ---------------------------------------------------------------------------------------------------------------------- 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 - ------------------------------------------------------------------------------------------------------------------------------------ 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $21.24 $19.42 $19.09 $20.38 $17.60 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .78 (c) .81 (c) .85 .81 .87 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments 3.70 2.70 1.60 (.46) 2.87 - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations 4.48 3.51 2.45 .35 3.74 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income (.87) (.98) (.96) (.74) (.96) - ------------------------------------------------------------------------------------------------------------------------------------ In excess of net investment income (.06) -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ From net realized gain on investments (1.57) (.71) (1.16) (.90) -- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (2.50) (1.69) (2.12) (1.64) (.96) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $23.22 $21.24 $19.42 $19.09 $20.38 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total investment return at net asset value (%)(a) 22.86 18.99 14.38 1.84 21.74 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $1,168,470 $898,486 $756,645 $697,946 $707,969 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) 1.03 1.06 1.16 .96 .96 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 3.56 3.99 4.64 4.16 4.55 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 70.74 61.43 69.52 48.37 66.63 - ------------------------------------------------------------------------------------------------------------------------------------ Average commission rate paid (d) $.0507 $.0508 - ------------------------------------------------------------------------------------------------------------------------------------ + 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. (d) Average commission rate paid on security trades is required for fiscal periods beginning on or after September 1, 1995.
Financial highlights (For a share outstanding throughout the period) CLASS B - ------------------------------------------------------------------------------------------------------------------------------------ For the period Per-share July 15, 1993+ operating performance Year ended October 31 to October 31 - ------------------------------------------------------------------------------------------------------------------------------------ 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $21.09 $19.30 $19.00 $20.35 $19.53 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .63 (c) .66 (c) .69 .74 .23 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments 3.64 2.68 1.61 (.55) .82 - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations 4.27 3.34 2.30 .19 1.05 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income (.73) (.84) (.84) (.66) (.23) - ------------------------------------------------------------------------------------------------------------------------------------ In excess of net investment income (.05) -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ From net realized gain on investments (1.57) (.71) (1.16) (.88) -- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (2.35) (1.55) (2.00) (1.54) (.23) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $23.01 $21.09 $19.30 $19.00 $20.35 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total investment return at net asset value (%)(a) 21.89 18.14 13.54 1.00 5.43 * - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $257,163 $146,127 $75,309 $31,432 $4,439 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) 1.78 1.81 1.91 1.71 .52 * - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 2.78 3.26 3.92 3.58 .91 * - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 70.74 61.43 69.52 48.37 66.63 - ------------------------------------------------------------------------------------------------------------------------------------ Average commission rate paid (d) $.0507 $.0508 - ------------------------------------------------------------------------------------------------------------------------------------ + 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. (d) Average commission rate paid on security trades is required for fiscal periods beginning on or after September 1, 1995.
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 - ------------------------------------------------------------------------------------------------------------------------------------ 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $21.14 $19.37 $17.79 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .67 (c) 0.73 (c) .64 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments 3.67 2.65 1.64 - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations 4.34 3.38 2.28 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income (.78) (.90) (.70) - ------------------------------------------------------------------------------------------------------------------------------------ In excess of net investment income (.05) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ From net realized gain on investments (1.57) (.71) -- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (2.40) (1.61) (.70) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $23.08 $21.14 $19.37 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total investment return at net asset value (%)(a) 22.24 18.30 12.99 * - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $14,719 $7,128 $1,753 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) 1.53 1.54 1.04 * - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 3.04 3.55 2.89 * - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 70.74 61.43 69.52 - ------------------------------------------------------------------------------------------------------------------------------------ Average commission rate paid (d) $.0507 $.0508 - ------------------------------------------------------------------------------------------------------------------------------------ + 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. (d) Average commission rate paid on security trades is required for fiscal periods beginning on or after September 1, 1995.
Notes to financial statements October 31, 1997 Note 1 Significant accounting policies Putnam Convertible Income-Growth Fund (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. 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 method. E) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, other assets and liabilities are recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when accrued or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such 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 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, 1997, 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 market discount and realized and unrealized gains and losses on forward foreign currency contracts. Reclassifications are made to the fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. For the year ended October 31, 1997, the fund reclassified $2,938,450 to decrease distributions in excess of net investment income and $331,018 to decrease paid-in-capital, with a decrease to accumulated net realized gain on investments of $2,607,432. 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. Prior to February 20, 1997, any amount over $1.5 billion was based on 0.45%. 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, 1997, fund expenses were reduced by $704,850 under expense offset arrangements with PFTC and brokerage service arrangements. Investor servicing and custodian fees reported in the Statement of operations exclude these credits. The fund could have invested a portion of the assets utilized in connection with the expense offset arrangements in an income producing asset if it had not entered into such arrangements. Trustees of the funds receive an annual Trustees fee of which $1,183 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 currently limit 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, 1997, Putnam Mutual Funds Corp., acting as underwriter received net commissions of $334,044 and $14,946 from the sale of class A and class M shares, respectively and $209,400 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, 1997, Putnam Mutual Funds Corp., acting as underwriter received $12,459 on class A redemptions. Note 3 Purchase and sales of securities During the year ended October 31, 1997, purchases and sales of investment securities other than short-term investments aggregated $1,036,423,394 and $841,625,882, 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, 1997, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: 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, 1996 - ------------------------------------------------------------ Class A Shares Amount - ------------------------------------------------------------ Shares sold 6,225,633 $126,621,311 - ------------------------------------------------------------ Shares issued in connection with reinvestment of distributions 2,946,646 58,192,170 - ------------------------------------------------------------ 9,172,279 184,813,481 Shares repurchased (5,850,929) (119,160,209) - ------------------------------------------------------------ Net increase 3,321,350 $ 65,653,272 - ------------------------------------------------------------ Year ended October 31, 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, 1996 - ------------------------------------------------------------ Class B Shares Amount - ------------------------------------------------------------ Shares sold 3,655,578 $ 74,061,724 - ------------------------------------------------------------ Shares issued in connection with reinvestment of distributions 303,647 5,977,026 - ------------------------------------------------------------ 3,959,225 80,038,750 Shares repurchased (931,979) (18,858,855) - ------------------------------------------------------------ Net increase 3,027,246 $ 61,179,895 - ------------------------------------------------------------ Year ended October 31, 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 - ------------------------------------------------------------ Year ended October 31, 1996 - ------------------------------------------------------------ Class M Shares Amount - ------------------------------------------------------------ Shares sold 330,113 $ 6,691,625 - ------------------------------------------------------------ Shares issued in connection with reinvestment of distributions 12,651 252,193 - ------------------------------------------------------------ 342,764 6,943,818 Shares repurchased (96,145) (1,942,519) - ------------------------------------------------------------ Net increase 246,619 $ 5,001,299 - ------------------------------------------------------------ Federal tax information (Unaudited) Pursuant to Section 852 of the Internal Revenue Code, as amended, the Fund hereby designates $125,758,353 as capital gain dividends for its taxable year ended October 31, 1997. The fund has designated 23.43% of the distributions fromnet investment income as qualifying for the dividends received deduction for corporations. The Form 1099 you receive in January 1998 will show the tax status of all distributions paid to your account in calendar 1997. PUTNAM GROWTH FUNDS Asia Pacific Growth Fund Capital Appreciation 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 + OTC & Emerging Growth Fund [DBL. DAGGER] Vista Fund Voyager Fund Voyager Fund II PUTNAM GROWTH AND INCOME FUNDS Balanced Retirement Fund Convertible Income-Growth Trust Equity Income Fund The George Putnam Fund of Boston The Putnam Fund for Growth and Income Growth and Income Fund II International Growth and Income Fund New Value Fund Utilities Growth and Income Fund PUTNAM INCOME FUNDS American Government Income Fund Diversified Income Trust Diversified Income Trust II Federal Income Trust Global Governmental Income Trust High Yield Advantage Fund High Yield Total Return Fund High Yield Trust + Income Fund Money Market Fund ** Intermediate U.S. Government Income Fund Preferred Income Fund U.S. Government Income Trust PUTNAM TAX-FREE INCOME FUNDS Municipal Income Fund Tax Exempt Income Fund Tax 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 LIFESTAGESM FUNDS Putnam Asset Allocation Funds--three investment portfolios that spread your money across a variety of stocks, bonds, and money market investments. The three portfolios: Asset Allocation: Balanced Portfolio Asset Allocation: Conservative Portfolio Asset Allocation: Growth Portfolio * Formerly Overseas Growth Fund + Closed to new investors. Some exceptions may apply. Contact Putnam for details. [DBL. DAGGER] Formerly OTC Emerging Growth Fund [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 Coopers & Lybrand L.L.P. TRUSTEES George Putnam, Chairman William F. Pounds, Vice Chairman Jameson Adkins Baxter Hans H. Estin John A. Hill Ronald J. Jackson Elizabeth T. Kennan Lawrence J. Lasser Robert E. Patterson Donald S. Perkins George Putnam, III 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 Charles G. Pohl Vice President and Fund Manager Edward T. Shadek Vice President and Fund Manager William N. Shiebler Vice President John R. Verani Vice President Paul M. O'Neil Vice President Beverly Marcus Clerk and Assistant Treasurer This report is for the information of shareholders of Putnam Convertible-Income Growth Trust. It may also be used as sales literature when preceded or accompanied by the current prospectus, which gives details of sales charges, investment objectives, and operating policies of the fund, and the most recent copy of Putnam's Quarterly Performance Summary. For more information or to request a prospectus, call toll free: 1-800-225-1581. You can also learn more at Putnam Investments' website: http://www.putnaminv.com. Shares of mutual funds are not deposits or obligations of, or guaranteed or endorsed by, any financial institution; are not insured by the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board, or any other agency; and involve risk, including the possible loss of the principal amountinvested. - -------------------- Bulk Rate U.S. Postage PAID Putnam Investments - -------------------- 36865-008/223/920 12/97 -----END PRIVACY-ENHANCED MESSAGE-----