-----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, F/FT81nECJ/ypmg+uUZmoW/wOxViWsIuNLhh5vBNH2Z4PEwh8YOXek4lNDFktrJj OqTnDbU3WU1/kEToWogN+w== 0000928816-98-000165.txt : 19980619 0000928816-98-000165.hdr.sgml : 19980619 ACCESSION NUMBER: 0000928816-98-000165 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980430 FILED AS OF DATE: 19980618 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: 98650052 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 SEMIANNUAL REPORT April 30, 1998 [LOGO: BOSTON * LONDON * TOKYO] Fund highlights * "Putnam Convertible Income-Growth Trust has an impressive all-around game. This fund covers the bases in the convertible universe, and then some." -- Morningstar Mutual Funds, December 5, 1997 * "Funds that own convertible securities are a safer haven than equities in difficult markets, but they offer more growth potential than bonds. So they're suitable for most portfolios -- especially when, as now, protecting gains looms larger than seeking them." -- Timothy Middleton, Microsoft Investor, January 13, 1998 CONTENTS 4 Report from Putnam Management 9 Fund performance summary 13 Portfolio holdings 28 Financial statements From the Chairman [GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM] [copyright] Karsh, Ottawa Dear Shareholder: While the aftereffects of the Asian crisis continued to influence the stock market during the first half of Putnam Convertible Income-Growth Trust's semiannual period, the dual nature of convertible securities proved a particular advantage -- and enabled the fund to deliver strong returns. As the U.S. economy continued its expansion and as interest rates remained relatively low, your fund's holdings benefited from an environment favorable to both stocks and bonds. Because we had emphasized sectors less likely to be influenced by Asian developments, the portfolio value remained relatively resilient even during the occasional bouts of market volatility. In the following report, Charles Pohl, your fund's manager, comments on market conditions and explains his sector strategy for the period. Respectfully yours, /S/GEORGE PUTNAM George Putnam Chairman of the Trustees June 17, 1998 Report from the Fund Manager Charles G. Pohl Putnam Convertible Income-Growth Trust's class A shares earned a solid 10.23% return at net asset value (3.88% at maximum public offering price) in the first six months of its 1998 fiscal year, which ended April 30, 1998. The period opened amid market uncertainty regarding the impact of the Asian financial crisis on U.S. business activity, but the U.S. economy continued to expand at a robust pace while long-term interest rates stayed at relatively low levels. Both of these factors propelled the convertible securities market, in which two thirds of the fund's assets are invested. For complete performance information, including the returns of all share classes and over longer time periods, please see the tables that begin on page 9. * CONVERTIBLES SHOW RESILIENCE THROUGH ASIAN CRISIS As the Asian crisis unnerved the U.S. stock market late in 1997, some convertible securities, particularly those in the technology sector, experienced a correction. However, the downturn was not severe because Asian events simultaneously had a disinflationary effect on the U.S. economy and pushed down interest rates, a circumstance that makes convertibles more attractive to investors. This factor enabled convertibles to hold up better than many common stocks of the same underlying companies, particularly those in the hard-hit technology sector. Given that the technology and telecommunication sectors are heavily represented in the convertible universe, we believe that our security selection was paramount, as always, in achieving the favorable risk-adjusted performance in this period that investors expect from a convertible fund. To limit risk, we manage the fund with a value tilt, buying issues of what we believe are financially sound companies that are attractively priced relative to other companies or sectors and have reasonable prospects for improving returns. This approach provided relative stability as the Asian crisis unfolded, because the portfolio was more heavily weighted in domestic industries, such as cable television, financials, and airlines than in more expensive technology issues. Only in late 1997 when high-quality securities in the technology sector began trading at lower prices did our value discipline enable us to make opportunistic purchases. * NEW VALUE OPPORTUNITIES IN TECHNOLOGY Technology issues account for roughly one fifth of the convertible securities market. For that reason, we monitor the prices and competitiveness of technology companies on an ongoing basis. Late in 1997, as the outlook for their Asian business partners and customers deteriorated, many technology companies suffered falling stock prices. We took advantage of this opportunity by acquiring many issues that previously had been too expensive. Several of the new holdings are companies that manufacture equipment used in making and testing computer semiconductors. Examples of these companies are Kent Electronics, Credence Systems, and LAM Research. Because these convertibles were purchased at deep discounts, they provide the fund with generous yields and the potential for capital appreciation. The semiconductor industry is enduring a downturn and our near-term outlook is mixed, but these companies feature strong balance sheets. [GRAPHIC OMITTED: HORIZONTAL BAR CHART OF TOP INDUSTRY SECTORS] TOP INDUSTRY SECTORS* Oil and gas 7.4% Banks 6.0% Insurance and finance 5.8% Pharmaceuticals and biotechnology 5.4% Retail 4.7% Footnote reads: * Based on net assets as of 4/30/98. Holdings will vary over time. Another technology holding which continues to strengthen is Lernout & Hauspie. This Belgian company is the global leader in the development of advanced speech technology. Its computer voice recognition system represents the next major step in the development of the personal computer, and the company has signed licensing contracts with more than 100 firms for a variety of projects. As the issue has appreciated, we have sold portions of the fund's position in order to maintain what we consider a weighting appropriate to the fund's risk profile. * CONTINUING STRENGTH IN FINANCIALS; NEW STRENGTH IN CABLE As has been the case for the last 18 months, your portfolio has consistently overweighted financial holdings. Over the last year, restructurings and consolidations, combined with a strong economy and a favorable interest-rate environment, have propelled the performance of the banking sector. One of the major players in the industry's consolidation moves was Banc One. Our convertible holding in Banc One ultimately benefited from the company's recently announced merger with First Chicago. Another financial issue that also performed quite well in the period was a convertible preferred issued by American Bankers Insurance Group. This company is a provider of specialized insurance products. Its successful franchise, operating track record, and unique distribution network attracted competing takeover bids from AIG and Cendant, which prompted us to sell the holding and take profits in this period. Like the financial industry, the cable television industry has endured ups and downs in recent years. We found the prices of cable issues attractive in early 1997 and acquired several for the fund that have since performed well, including U.S. West Media Group, Telecommunications, Inc., and Time Warner. New strategies, alliances, and technology are allowing cable companies to expand the range of services they offer to household customers, and we see continuing potential in this industry. * DIVIDEND-PAYING STOCKS CONTINUE TO LEND STABILITY While your fund's primary investments are convertible securities, we also keep approximately one third of assets in common stocks. We choose stocks using the same value strategy we apply to convertibles, but we focus our research on large dividend-paying stocks that tend to be relatively steady. During the recent period, the fund's common stock holdings generally performed well as the market rose, though several oil companies languished as a result of falling energy demand in Asia. The price decline gave us an opportunity to add to the fund's energy stocks at attractive prices. We expect that these holdings will appreciate because the depressed price of oil is reducing exploration efforts. Therefore, supply in coming years is likely to be limited even as demand recovers. [GRAPHIC OMITTED: TOP 10 HOLDINGS] TOP 10 HOLDINGS Safeguard Scientifics, Inc., 144A convertible subordinated notes 6s, 2006 Computer services Kmart Financing I, $3.875 convertible cumulative preferred Retail H.F. Ahmanson & Co., $3.00 convertible preferred Savings and loans Equity Residential Properties Trust Series E, $1.75 convertible preferred Real estate General Electric Co. Conglomerate Tele-Communications (TCI Group) Series A, $2.125 convertible preferred Cable television Finova Finance Trust, $2.75 convertible cumulative preferred Financial services Roche Holdings, Inc., convertible unsubordinated LYON 0%, 2010 (Switzerland) Pharmaceuticals Continental Airlines, Inc., convertible subordinated debenture 6 3/4s, 2006 Transportation AirTouch Communications, Inc. Series C, $2.125 convertible preferred Telecommunications These hodings represent 8.0% of the fund's net assets as of 4/30/98. Portfolio holdings will vary over time. * POSITIVE OUTLOOK FOR CONVERTIBLES MARKET As discussed above, the current backdrop for the convertibles market is positive as long as the domestic economy expands and interest rates remain low. Our chief concern is that this favorable setting is prompting many issuers of new convertible securities to seek expensive terms. As part of our value approach, we try to avoid overpriced offerings and have been focusing our efforts in the secondary market in which more seasoned convertibles can still be found at inviting prices. We believe that events in late 1997 demonstrated the wisdom of this approach, and we continue to be confident that it provides investors with attractive long-term returns with reduced risk along the way. 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 4/30/98, there is no guarantee the fund will continue to hold these securities in the future. The lower credit ratings of high-yield bonds in the portfolio reflect a greater possibility that adverse changes in the economy or poor performance by the issuers of these bonds may affect the issuer's ability to pay principal and interest. 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 4/30/98 Class A Class B Class M (inception date) (6/29/72) (7/15/93) (3/13/95) NAV POP NAV CDSC NAV POP - ------------------------------------------------------------------------------ 6 months 10.23% 3.88% 9.80% 4.87% 9.96% 6.09% - ------------------------------------------------------------------------------ 1 year 26.50 19.22 25.56 20.56 25.87 21.50 - ------------------------------------------------------------------------------ 5 years 104.67 92.90 97.05 95.05 99.35 92.39 Annual average 15.40 14.04 14.53 14.30 14.80 13.98 - ------------------------------------------------------------------------------ 10 years 270.53 249.32 241.69 241.69 249.97 237.71 Annual average 13.99 13.32 13.07 13.07 13.35 12.94 - ------------------------------------------------------------------------------ Annual average (life of fund) 12.87 12.61 11.82 11.82 12.10 11.95 - ------------------------------------------------------------------------------ COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/98 Lehman Bros. S&P 500 Corporate Index Bond Index* - ------------------------------------------------------------------------------ 6 months 22.49% 3.83% - ------------------------------------------------------------------------------ 1 year 41.07 12.07 - ------------------------------------------------------------------------------ 5 years 184.36 44.78 Annual average 23.25 7.68 - ------------------------------------------------------------------------------ 10 years 466.16 153.95 Annual average 18.93 9.77 - ------------------------------------------------------------------------------ Life of fund Annual average 13.73 -- - ------------------------------------------------------------------------------ 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, 5-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. * Inception date of index was 12/31/72. PRICE AND DISTRIBUTION INFORMATION 6 months ended 4/30/98 Class A Class B Class M - ------------------------------------------------------------------------------ Distributions (number) 2 2 2 - ------------------------------------------------------------------------------ Income $0.480 $0.401 $0.430 - ------------------------------------------------------------------------------ Capital gains - ------------------------------------------------------------------------------ Long-term 1.271 1.271 1.271 - ------------------------------------------------------------------------------ Short-term 0.685 0.685 0.685 - ------------------------------------------------------------------------------ Total $2.436 $2.357 $2.386 - ------------------------------------------------------------------------------ Share value: NAV POP NAV NAV POP - ------------------------------------------------------------------------------ 10/31/97 $23.22 $24.64 $23.01 $23.08 $23.92 - ------------------------------------------------------------------------------ 4/30/98 22.92 24.32 22.68 22.76 23.59 - ------------------------------------------------------------------------------ Current return: NAV POP NAV NAV POP - ------------------------------------------------------------------------------ (end of period) - ------------------------------------------------------------------------------ Current dividend rate1 4.19% 3.95% 3.58% 3.81% 3.68% - ------------------------------------------------------------------------------ Current 30-day SEC yield2 4.33 4.08 3.60 3.89 3.75 - ------------------------------------------------------------------------------ 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 3/31/98 (most recent calendar quarter) Class A Class B Class M (inception date) (6/29/72) (7/15/93) (3/13/95) NAV POP NAV CDSC NAV POP - ------------------------------------------------------------------------------ 6 months 6.62% 0.47% 6.23% 1.46% 6.34% 2.62% - ------------------------------------------------------------------------------ 1 year 27.69 20.36 26.74 21.74 27.06 22.64 - ------------------------------------------------------------------------------ 5 years 103.29 91.61 95.79 93.79 97.98 91.09 Annual average 15.25 13.89 14.38 14.15 14.64 13.83 - ------------------------------------------------------------------------------ 10 years 271.74 250.28 242.95 242.95 251.13 238.77 Annual average 14.03 13.36 13.12 13.12 13.38 12.98 - ------------------------------------------------------------------------------ Life of class Annual average 12.89 12.63 11.84 11.84 12.12 11.96 - ------------------------------------------------------------------------------ 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. Consumer Price Index (CPI ) is a commonly used measure of inflation; it does not represent an investment return. * Securities indexes assume reinvestment of all distributions and interest payments and do not take in account brokerage fees or taxes. Securities in the fund do not match those in the indexes and performance of the fund will differ. It is not possible to invest directly in an index. WELCOME TO www.putnaminv.com Now you can use your PC to get up-to-date information about your funds, learn more about investing and retirement planning, and access market news and economic outlooks from Putnam. VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR: * the benefits of investing with Putnam * Putnam's money management philosophy * complete fund information, daily pricing and long-term performance * the latest on new funds and other Putnam news You can also read Putnam economist Dr. Robert Goodman's commentary and Putnam's Capital Markets outlook, search for a particular fund by name or objective, use our glossary to decode investment terms . . . and much more. The site can be accessed through any of the major online services (America Online, CompuServe, Prodigy) that offer web access. Of course, you can also access it via Netscape or Microsoft Internet Explorer, using an independent Internet service provider. New features will be added to the site regularly. So be sure to bookmark us at http://www.putnaminv.com Portfolio of investments owned April 30, 1998 (Unaudited)
CONVERTIBLE BONDS AND NOTES (40.7%) (a) PRINCIPAL AMOUNT VALUE Aerospace and Defense (0.3%) - ------------------------------------------------------------------------------------------------------------- $ 3,810,000 SPACEHAB, Inc. 144A cv. sub. notes 8s, 2007 $ 4,076,700 Airlines (0.5%) - ------------------------------------------------------------------------------------------------------------- 1,948,000 Atlantic Coast Airlines 144A cv. sub. notes 7s, 2004 6,126,460 2,319,000 World Airways, Inc. 144A cv. sub. deb. 8s, 2004 1,762,440 -------------- 7,888,900 Automotive (0.9%) - ------------------------------------------------------------------------------------------------------------- 10,740,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 6,927,300 3,700,000 Magna International cv. sub. deb. 5s, 2002 4,902,500 3,750,000 Mascotech, Inc. cv. sub. deb. 4 1/2s, 2003 3,515,625 -------------- 15,345,425 Banks (0.2%) - ------------------------------------------------------------------------------------------------------------- 2,089,000 Banamex S.A. (Nassau Branch) 144A cv. jr. sub. notes 11s, 2003 (Bahamas) 2,203,895 380,000 Banco Nationale de Mexico 144A cv. company guaranty 7s, 1999 (Bahamas) 374,300 -------------- 2,578,195 Basic Industrial Products (0.6%) - ------------------------------------------------------------------------------------------------------------- 7,750,000 Thermo Electron Corp. 144A cv. sub. deb. 4 1/4s, 2003 8,883,438 Broadcasting (0.5%) - ------------------------------------------------------------------------------------------------------------- 7,250,000 Jacor Communications, Inc. cv. Liquid Yield Option Notes (LYON) zero %, 2018 3,090,316 3,505,000 Scandinavian Broadcasting System S.A. 144A cv. sub. notes 7s, 2004 (Luxembourg) 4,324,294 -------------- 7,414,610 Building and Construction (0.5%) - ------------------------------------------------------------------------------------------------------------- 4,000,000 American Residential Services, Inc. cv. sub. notes 7 1/4s, 2004 2,960,000 2,500,000 D.R. Horton, Inc. cv. sub. notes 6 7/8s, 2002 5,371,875 -------------- 8,331,875 Business Equipment and Services (1.7%) - ------------------------------------------------------------------------------------------------------------- 750,000 Career Horizons, Inc. cv. bonds 7s, 2002 2,385,000 10,000,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 9,037,500 2,820,000 Corporate Express, Inc. 144A cv. notes 4 1/2s, 2000 2,548,575 7,006,000 Maxtor Corp. cv. sub. deb. 5 3/4s, 2012 4,904,200 750,000 U.S. Office Products Co. cv. sub. notes 5 1/2s, 2003 694,688 7,190,000 U.S. Office Products Co. 144A cv. sub. notes 5 1/2s, 2003 6,039,600 -------------- 25,609,563 Computer Services (1.6%) - ------------------------------------------------------------------------------------------------------------- 11,225,000 Safeguard Scientifics, Inc. 144A cv. sub. notes 6s, 2006 16,402,531 9,520,000 System Software Associates, Inc. cv. sub. notes 7s, 2002 8,127,700 -------------- 24,530,231 Computer Software (2.0%) - ------------------------------------------------------------------------------------------------------------- 1,500,000 Data General Corp. 144A cv. sub. notes 6s, 2004 1,380,000 9,500,000 Network Associates, Inc. 144A cv. sub. deb. zero %, 2018 4,441,250 11,500,000 Softkey International, Inc. 144A cv. sr. notes 5 1/2s, 2000 10,853,125 24,668,000 Western Digital Corp. 144A cv. sub. deb. zero %, 2018 9,219,665 4,500,000 Xilinx, Inc. cv. sub. notes 5 1/4s, 2002 4,781,250 -------------- 30,675,290 Computers (1.4%) - ------------------------------------------------------------------------------------------------------------- 4,600,000 Apple Computer, Inc. cv. sub. notes 6s, 2001 5,180,750 4,309,000 EMC Corp. cv. sub. notes 3 1/4s, 2002 9,065,059 5,090,000 Intevac, Inc. 144A cv. sub. notes 6 1/2s, 2004 4,161,075 1,500,000 Intevac, Inc. cv. sub. notes 6 1/2s, 2004 1,230,000 2,500,000 Synoptics Communications, Inc. 144A cv. sub. deb. 5 1/4s, 2003 2,356,250 -------------- 21,993,134 Conglomerates (0.8%) - ------------------------------------------------------------------------------------------------------------- 1,400,000 Dart & Kraft Finance N.V. cv. company guaranty Ser. WW, 7 3/4s, 1998 5,447,750 3,800,000 Hexcel Corp. cv. sub. notes 7s, 2003 7,058,500 -------------- 12,506,250 Consumer Durable Goods (0.4%) - ------------------------------------------------------------------------------------------------------------- 17,753,000 Sunbeam Corp. 144A cv. sr. sub. notes 1.862s, 2018 5,570,004 Consumer Non Durables (0.4%) - ------------------------------------------------------------------------------------------------------------- 7,835,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 2007 6,894,800 Consumer Services (2.4%) - ------------------------------------------------------------------------------------------------------------- 4,200,000 America Online, Inc. 144A cv. sub. notes 4s, 2002 7,255,500 32,850,000 Boston Chicken, Inc. cv. LYON zero %, 2015 2,915,438 5,540,000 Boston Chicken, Inc. cv. sub. deb. 7 3/4s, 2004 1,966,700 4,400,000 CKE Restaurants, Inc. 144A cv. sub. notes 4 1/4s, 2004 4,229,500 2,425,000 Einstein/Noah Bagel Corp. 144A cv. sub. deb. 7 1/4s, 2004 1,370,125 6,800,000 Fine Host Corp. 144A cv. sub. notes 5s, 2004 4,751,500 20,150,000 Hollinger, Inc. cv. LYON zero %, 2013 8,211,125 6,625,000 Pharmaceutical Marketing Services, Inc. 144A cv. deb. 6 1/4s, 2003 6,293,750 280,000 Pharmaceutical Marketing Services, Inc. cv. notes 6 1/4s, 2003 266,000 -------------- 37,259,638 Electronic Components and Instruments (2.8%) - ------------------------------------------------------------------------------------------------------------- 1,500,000 Cirrus Logic, Inc. 144A cv. sub. notes 6s, 2003 1,151,250 2,035,000 Dovatron International cv. sub. notes 6s, 2002 2,658,219 4,750,000 HMT Technology Corp. 144A cv. sub. notes 5 3/4s, 2004 4,132,500 7,510,000 Kent Electronics Corp. cv. sub. notes 4 1/2s, 2004 6,270,850 875,000 Lernout & Hauspie Speech Products N.V. 144A cv. sub. notes 8s, 2001 (Belgium) 5,486,250 1,205,000 Photronics, Inc. cv. sub. notes 6s, 2004 1,765,325 3,291,000 Solectron Corp. 144A cv. sub. notes 6s, 2006 4,743,154 5,200,000 Thermo Instrument Systems, Inc. 144A cv. deb. 4 1/2s, 2003 5,362,500 1,215,000 Thermo Instrument Systems, Inc. 144A cv. company guaranty 3 3/4s, 2000 2,624,400 3,425,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 4,388,281 275,000 Thermo Optek Corp. cv. bonds 5s, 2000 345,813 4,425,000 Thermo Quest Corp. 144A cv. company guaranty 5s, 2000 5,121,938 -------------- 44,050,480 Electronics and Electrical Equipment (1.0%) - ------------------------------------------------------------------------------------------------------------- 2,000,000 Checkpoint Systems, Inc. 144A cv. sub. deb. 5 1/4s, 2005 2,225,000 3,565,000 Motorola, Inc. cv. sub. deb. LYON zero %, 2013 2,620,275 1,400,000 Park Electrochemical Corp. cv. sub. notes 5 1/2s, 2006 1,246,000 2,385,000 S3, Inc. cv. sub. notes 5 3/4s, 2003 1,878,188 2,385,000 S3, Inc. 144A cv. sub. notes 5 3/4s, 2003 1,812,600 3,165,000 SCI Systems, Inc. cv. sub. notes 5s, 2006 5,633,700 -------------- 15,415,763 Entertainment (0.7%) - ------------------------------------------------------------------------------------------------------------- 3,000,000 Loews Corp. cv. sub. notes 3 1/8s, 2007 3,045,000 13,500,000 Time Warner, Inc. cv. sr. LYON zero %, 2013 8,235,000 -------------- 11,280,000 Environmental Control (1.2%) - ------------------------------------------------------------------------------------------------------------- 3,100,000 OHM Corp. cv. sub. deb. 8s, 2006 3,030,250 1,000,000 Thermo Ecotek Corp. 144A cv. bonds 4 7/8s, 2004 1,130,000 3,940,000 Thermo Terratech, Inc. 144A cv. sub. deb. 4 5/8s, 2003 3,590,325 8,600,000 USA Waste Services, Inc. cv. sub. notes 4s, 2002 10,674,750 -------------- 18,425,325 Food (0.3%) - ------------------------------------------------------------------------------------------------------------- 2,500,000 Chiquita Brands International, Inc. 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 Health Care (1.2%) - ------------------------------------------------------------------------------------------------------------- 2,000,000 Assisted Living Concepts, Inc. cv. sub. deb. 6s, 2002 2,135,000 3,610,000 HEALTHSOUTH Corp. 144A cv. sub. notes 3 1/4s, 2003 3,772,450 5,700,000 NovaCare, Inc. cv. sub. deb. 5 1/2s, 2000 5,486,250 500,000 Quantum Health Resources, Inc. cv. sub. deb. 4 3/4s, 2000 465,625 5,000,000 Renal Treatment Centers, Inc. cv. sub. notes 5 5/8s, 2006 6,475,000 -------------- 18,334,325 Hospital Management and Medical Services (1.5%) - ------------------------------------------------------------------------------------------------------------- 3,000,000 Complete Management, Inc. cv. sub. deb. 8s, 2003 2,636,250 1,850,000 DRS Technologies, Inc. 144A cv. sub. deb. 9s, 2003 3,036,313 4,270,000 Integrated Health Services, Inc. cv. sub. deb. 6s, 2003 5,091,975 4,500,000 PhyMatrix, Inc. cv. sub. deb. 6 3/4s, 2003 3,718,125 4,395,000 Sun Healthcare Group, Inc. 144A cv. sub. 6s, 2004 4,334,569 1,750,000 Tenet Health Care Corp. cv. sub. notes 6s, 2005 1,610,000 3,310,000 U.S. Diagnostic Laboratories, Inc. 144A cv. sub. deb. 9s, 2003 2,449,400 -------------- 22,876,632 Insurance and Finance (1.9%) - ------------------------------------------------------------------------------------------------------------- 4,300,000 Berkshire Hathaway, Inc. cv. sr. notes 1s, 2001 7,949,625 10,500,000 Mutual Risk Management 144A cv. sub. deb. zero %, 2015 7,599,375 3,065,000 Pioneer Financial Services, Inc. cv. sub. notes 6 1/2s, 2003 5,444,206 10,530,000 USF&G Corp. cv. sub. notes zero %, 2009 7,686,900 -------------- 28,680,106 Lodging (0.2%) - ------------------------------------------------------------------------------------------------------------- 3,000,000 ShoLodge, Inc. cv. sub. deb. 7 1/2s, 2004 2,640,000 Machinery (0.2%) - ------------------------------------------------------------------------------------------------------------- 3,000,000 Thermo Fibertek, Inc. 144A cv. company guaranty 4 1/2s, 2004 3,146,250 Medical Management Services (0.2%) - ------------------------------------------------------------------------------------------------------------- 3,500,000 Continucare Corp. 144A cv. sub. notes 8s, 2002 2,975,000 Medical Supplies and Devices (1.1%) - ------------------------------------------------------------------------------------------------------------- 5,000,000 Atrix Labs, Inc. 144A cv. sub. notes 7s, 2004 5,750,000 2,000,000 Phoenix Shannon 144A cv. sr. sub. notes 9 1/2s, 2000 (In Default) (NON) 240,000 2,000,000 Thermo Cardiosystems, Inc. 144A cv. company guaranty 4 3/4s, 2004 2,197,500 4,260,000 Thermo Instrument Systems, Inc. cv. company guaranty Ser. RG, 4s, 2005 4,435,725 385,000 Uromed Corp. cv. sub. notes 6s, 2003 166,994 5,615,000 Uromed Corp. 144A cv. sub. notes 6s, 2003 2,435,506 1,000,000 Ventritex, Inc. cv. sub. notes 5 3/4s, 2001 1,228,750 -------------- 16,454,475 Metals and Mining (0.3%) - ------------------------------------------------------------------------------------------------------------- 4,169,500 Quanex Corp. cv. sub. deb. 6.88s, 2007 4,377,975 Oil and Gas (2.6%) - ------------------------------------------------------------------------------------------------------------- 6,500,000 Aker Maritime cv. deb. 5 1/4s, 2002 7,670,000 6,160,000 Lomak Petroleum, Inc. 144A cv. sub. deb. 6s, 2007 6,213,900 3,000,000 Parker Drilling Co. cv. sub. notes 5 1/2s, 2004 2,932,500 6,950,000 Pennzoil Co. cv. deb. 4 3/4s, 2003 9,834,250 1,500,000 Pennzoil Co. cv. sub. deb. 6 1/2s, 2003 2,968,125 1,075,000 Pride International, Inc. cv. sub. deb. 6 1/4s, 2006 2,171,500 1,500,000 Southern Mineral Corp. cv. deb. 6 7/8s, 2007 1,222,500 6,910,000 Swift Energy Co. cv. sub. notes 6 1/4s, 2006 6,814,988 -------------- 39,827,763 Paper and Forest Products (0.4%) - ------------------------------------------------------------------------------------------------------------- 2,550,000 Stone Container Corp. cv. sr. sub. notes 8 7/8s, 2000 3,541,313 2,500,000 Stone Container Corp. cv. sub. deb. 6 3/4s, 2007 2,275,000 -------------- 5,816,313 Pharmaceuticals (3.2%) - ------------------------------------------------------------------------------------------------------------- 10,265,000 Alza Corp. cv. sub. LYON zero %, 2014 6,466,950 4,300,000 Centocor, Inc. 144A cv. sub. notes 4 3/4s, 2005 4,606,375 1,990,000 Nabi, Inc. cv. sub. notes 6 1/2s, 2003 1,300,963 3,890,000 Nabi, Inc. 144A cv. sub. notes 6 1/2s, 2003 2,489,600 2,500,000 NeXstar Pharmaceuticals, Inc. 144A cv. sub. deb. 6 1/4s, 2004 2,112,500 19,830,000 Roche Holdings, Inc. cv. unsub. LYON zero %, 2010 (Switzerland) 11,154,375 5,425,000 Sandoz Capital BVI Ltd. 144A cv. company guaranty 2s, 2002 (Switzerland) 8,408,750 3,000,000 Sepracor, Inc. 144A cv. sub. deb. 7s, 2002 7,143,750 4,880,000 Sepracor, Inc. 144A cv. sub. deb. 6 1/4s, 2005 5,837,700 -------------- 49,520,963 Publishing (0.2%) - ------------------------------------------------------------------------------------------------------------- 3,600,000 Thomas Nelson, Inc. 144A cv. sub. notes 5 3/4s, 1999 3,492,000 Real Estate (0.4%) - ------------------------------------------------------------------------------------------------------------- 1,410,000 LTC Properties, Inc. cv. sub. deb. 7 3/4s, 2002 (R) 1,716,675 3,750,000 Malan Realty Investors cv. sub. notes 9 1/2s, 2004 3,853,125 -------------- 5,569,800 Recreation (0.1%) - ------------------------------------------------------------------------------------------------------------- 2,211,000 Speedway Motorsports, Inc. 144A cv. sub. notes 5 3/4s, 2003 2,448,683 Retail (2.2%) - ------------------------------------------------------------------------------------------------------------- 1,180,000 Baker (J.), Inc. cv. deb. 7s, 2002 1,107,725 4,150,000 Federated Department Stores, Inc. cv. notes 5s, 2003 6,142,000 3,750,000 Home Depot, Inc. cv. sub. notes 3 1/4s, 2001 5,850,000 8,385,000 Michaels Stores, Inc. cv. sub. notes 6 3/4s, 2003 8,311,631 5,900,000 Office Depot, Inc. cv. LYON zero %, 2007 5,818,875 1,205,000 Pier 1 Imports, Inc. cv. sub. notes 5 3/4s, 2003 2,607,319 4,600,000 Sunglass Hut International, Inc. 144A cv. sub. notes 5 1/4s, 2003 3,680,000 -------------- 33,517,550 Satellite Services (0.3%) - ------------------------------------------------------------------------------------------------------------- 4,000,000 Gilat Satellite Networks Ltd. cv. sub. notes 6 1/2s, 2004 (Israel) 4,435,000 Semiconductors (2.1%) - ------------------------------------------------------------------------------------------------------------- 3,000,000 Credence Systems Corp. 144A cv. sub. notes 5 1/4s, 2002 2,535,000 11,300,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 9,831,000 3,030,000 Integrated Process Equipment Corp. 144A cv. sub. notes 6 1/4s, 2004 2,689,125 6,600,000 LAM Research Corp. 144A cv. sub. notes 5s, 2002 5,651,250 6,607,000 Micron Technology, Inc. cv. sub. notes 7s, 2004 6,350,979 3,600,000 National Semiconductor Corp. 144A cv. deb. 6 1/2s, 2002 3,465,000 4,580,000 Plasma & Materials Technologies, Inc. 144A cv. notes 7 1/8s, 2001 2,267,100 -------------- 32,789,454 Shipping (0.3%) - ------------------------------------------------------------------------------------------------------------- 5,000,000 Halter Marine Group, Inc. 144A cv. sub. notes 4 1/2s, 2004 4,325,000 Telecommunications (1.0%) - ------------------------------------------------------------------------------------------------------------- 1,950,000 DSC Communications Corp. cv. notes 7s, 2004 1,786,688 2,400,000 Inacom Corp. cv. sub. deb. 4 1/2s, 2004 2,619,000 1,250,000 International CableTel, Inc. cv. sub. notes 7s, 2008 1,520,305 1,000,000 MIDCOM Communications, Inc. cv. sub. notes 8 1/4s, 2003 175,000 4,525,000 MIDCOM Communications, Inc. 144A cv. sub. deb. 8 1/4s, 2003 791,875 15,100,000 Rogers Communications cv. deb. 2s, 2005 (Canada) 9,060,000 -------------- 15,952,868 Textiles (0.1%) - ------------------------------------------------------------------------------------------------------------- 1,350,000 Dixie Group, Inc. (The) cv. deb. 7s, 2012 1,191,375 Transportation (1.0%) - ------------------------------------------------------------------------------------------------------------- 5,500,000 Continental Airlines, Inc. cv. sub. deb. 6 3/4s, 2006 11,130,625 3,350,000 Offshore Logistics, Inc. 144A cv. sub. notes 6s, 2003 4,053,500 -------------- 15,184,125 -------------- Total Convertible Bonds and Notes (cost $580,062,257) $ 626,915,778 COMMON STOCKS (30.5%) (a) NUMBER OF SHARES VALUE Aerospace and Defense (0.6%) - ------------------------------------------------------------------------------------------------------------- 89,700 Boeing Co. $ 4,490,606 36,000 Lockheed Martin Corp. 4,009,500 -------------- 8,500,106 Airlines (0.2%) - ------------------------------------------------------------------------------------------------------------- 35,600 UAL Corp. (NON) 3,103,875 Aluminum (0.1%) - ------------------------------------------------------------------------------------------------------------- 25,000 Aluminum Co. of America 1,937,500 Automotive (0.5%) - ------------------------------------------------------------------------------------------------------------- 48,000 Chrysler Corp. 1,929,000 133,800 Ford Motor Co. 6,129,713 -------------- 8,058,713 Automotive Parts (0.3%) - ------------------------------------------------------------------------------------------------------------- 65,000 Goodyear Tire & Rubber Co. (The) 4,550,000 Banks (4.7%) - ------------------------------------------------------------------------------------------------------------- 60,000 BankAmerica Corp. 5,100,000 46,000 BankBoston Corp. 4,965,125 45,500 Bankers Trust New York Corp. (CUS) 5,875,188 55,400 Citicorp 8,337,700 40,000 Crestar Financial Corp. 2,392,500 55,000 First Chicago NBD Corp. 5,108,125 20,000 First Tennessee National Corp. 688,750 73,000 Fleet Financial Group, Inc. 6,305,375 126,000 KeyCorp 5,000,625 25,000 Mercantile Bancorpation, Inc. 1,384,375 32,300 Morgan (J.P.) & Co., Inc. 4,239,375 69,000 NationsBank Corp. 5,226,750 110,000 PNC Bank Corp. 6,648,125 25,000 Summit Bancorp 1,253,125 21,000 Union Planters Corp. 1,291,500 59,000 Washington Mutual, Inc. 4,133,688 11,000 Wells Fargo & Co. 4,053,500 -------------- 72,003,826 Basic Industrial Products (0.3%) - ------------------------------------------------------------------------------------------------------------- 64,000 Deere (John) & Co. 3,740,000 Business Services and Equipment (1.3%) - ------------------------------------------------------------------------------------------------------------- 104,700 Avery Dennison Corp. 5,483,663 72,000 IBM Corp. 8,343,000 60,000 Xerox Corp. 6,810,000 -------------- 20,636,663 Cable Television (0.3%) - ------------------------------------------------------------------------------------------------------------- 106,300 US West Media Group (NON) 4,012,825 Cellular Communications (0.1%) - ------------------------------------------------------------------------------------------------------------- 60,000 3Com Corp. (NON) 2,055,000 Chemicals (0.4%) - ------------------------------------------------------------------------------------------------------------- 85,000 du Pont (E.I.) de Nemours & Co., Ltd. 6,189,063 Computer Software (0.1%) - ------------------------------------------------------------------------------------------------------------- 31,000 Computer Associates International, Inc. 1,815,438 Conglomerates (0.3%) - ------------------------------------------------------------------------------------------------------------- 56,550 Cooper Industries, Inc. 3,781,781 Consumer Non Durables (0.9%) - ------------------------------------------------------------------------------------------------------------- 57,500 Clorox Co. 4,822,813 42,200 Colgate-Palmolive Co. 3,784,813 148,000 Philip Morris Cos., Inc. 5,522,250 -------------- 14,129,876 Containers (0.1%) - ------------------------------------------------------------------------------------------------------------- 43,000 Owens-Illinois, Inc. (NON) 1,701,188 Electric Utilities (0.5%) - ------------------------------------------------------------------------------------------------------------- 63,700 Duke Energy Corp. 3,686,638 41,400 Southern Co. 1,097,100 83,000 Texas Utilities Co. 3,320,000 -------------- 8,103,738 Electronics and Electrical Equipment (2.0%) - ------------------------------------------------------------------------------------------------------------- 64,000 Emerson Electric Co. 4,072,000 140,000 General Electric Co. 11,917,500 58,200 Hewlett-Packard Co. 4,383,188 117,700 Seagate Technology, Inc. (NON) 3,141,119 101,000 Texas Instruments, Inc. 6,470,313 -------------- 29,984,120 Entertainment (0.4%) - ------------------------------------------------------------------------------------------------------------- 39,000 Time Warner, Inc. 3,061,500 62,000 Viacom, Inc. Class B (NON) 3,596,000 -------------- 6,657,500 Environmental Control (0.3%) - ------------------------------------------------------------------------------------------------------------- 82,300 USA Waste Services, Inc. (NON) 4,037,844 Financial Services (1.0%) - ------------------------------------------------------------------------------------------------------------- 50,000 American Express Co. 5,100,000 69,500 Lehman Brothers Holding, Inc. 4,938,844 55,000 Merrill Lynch & Co., Inc. 4,826,250 -------------- 14,865,094 Food and Beverages (1.9%) - ------------------------------------------------------------------------------------------------------------- 91,000 Anheuser-Busch Cos., Inc. 4,168,938 183,000 ConAgra, Inc. 5,341,313 30,000 General Mills, Inc. 2,026,875 77,972 Heinz (H.J.) Co. 4,249,474 70,000 Nabisco Holdings Corp. Class A 3,346,875 63,400 RJR Nabisco Holdings Corp. 1,763,313 54,000 Sara Lee Corp. 3,216,375 40,500 The Quaker Oats Co. 2,106,000 160,000 Whitman Corp. 3,130,000 -------------- 29,349,163 Gas Pipelines (0.1%) - ------------------------------------------------------------------------------------------------------------- 46,000 Sonat, Inc. 2,041,250 Health Care (0.6%) - ------------------------------------------------------------------------------------------------------------- 153,000 Baxter International, Inc. 8,481,938 Health Care Services (0.3%) - ------------------------------------------------------------------------------------------------------------- 57,300 United Healthcare Corp. 4,025,325 Hospital Management (0.5%) - ------------------------------------------------------------------------------------------------------------- 60,000 Tenet Healthcare Corp. (NON) 2,246,250 69,900 Wellpoint Health Networks, Inc. (NON) 5,041,538 -------------- 7,287,788 Insurance and Finance (1.6%) - ------------------------------------------------------------------------------------------------------------- 48,600 Aetna, Inc. 3,927,488 50,000 Allstate Corp. 4,812,500 68,000 American General Corp. 4,530,500 38,000 AON Corp. 2,451,000 18,888 CIGNA Corp. 3,908,636 45,000 Equitable Companies, Inc. 2,783,687 50,000 Federal National Mortgage Association 2,993,750 -------------- 25,407,561 Leisure (0.2%) - ------------------------------------------------------------------------------------------------------------- 94,000 Hasbro, Inc. 3,460,375 Machinery (0.2%) - ------------------------------------------------------------------------------------------------------------- 63,500 Caterpillar, Inc. 3,615,531 Medical Supplies and Devices (0.2%) - ------------------------------------------------------------------------------------------------------------- 112,400 U.S. Surgical Corp. 3,540,600 Oil and Gas (2.7%) - ------------------------------------------------------------------------------------------------------------- 95,600 Amoco Corp. 4,230,300 54,400 British Petroleum PLC ADR (United Kingdom) 5,140,800 100,000 Elf Aquitane ADR (France) 6,493,750 100,000 Exxon Corp. 7,293,750 60,000 Halliburton Co. 3,300,000 60,000 Mobil Corp. 4,740,000 66,000 Royal Dutch Petroleum Co. PLC ADR (Netherlands) 3,733,125 60,000 Tosco Corp. 2,137,500 64,500 Total Corp. ADR (France) 3,789,375 -------------- 40,858,600 Paper and Forest Products (0.7%) - ------------------------------------------------------------------------------------------------------------- 100,000 Fort James Corp. 4,962,500 80,000 International Paper Co. 4,175,000 37,300 Weyerhaeuser Co. 2,149,413 -------------- 11,286,913 Pharmaceuticals (0.6%) - ------------------------------------------------------------------------------------------------------------- 80,000 Merck & Co., Inc. 9,640,000 Pharmaceuticals and Biotechnology (1.6%) - ------------------------------------------------------------------------------------------------------------- 97,000 American Home Products Corp. 9,033,125 70,000 Bristol-Myers Squibb Co. 7,411,250 107,100 Pharmacia & Upjohn, Inc. 4,504,894 59,000 Smithkline Beecham PLC ADR (United Kingdom) 3,514,188 -------------- 24,463,457 Photography (0.3%) - ------------------------------------------------------------------------------------------------------------- 59,647 Eastman Kodak Co. 4,305,768 Publishing (0.5%) - ------------------------------------------------------------------------------------------------------------- 49,000 McGraw-Hill, Inc. 3,794,438 61,500 Times Mirror Co. Class A 3,763,031 -------------- 7,557,469 REIT's (Real Estate Investment Trust) (0.3%) - ------------------------------------------------------------------------------------------------------------- 29,000 Equity Residential Properties Trust 1,424,625 78,000 Starwood Lodging Trust 3,914,625 -------------- 5,339,250 Retail (1.0%) - ------------------------------------------------------------------------------------------------------------- 30,000 Dayton Hudson Corp. 2,619,375 76,300 Federated Department Stores, Inc. (NON) 3,753,006 334,800 K mart Corp. (NON) 5,838,075 8 Proffitt's, Inc. (NON) 318 130,000 Toys "R" Us (NON) 3,583,125 -------------- 15,793,899 Savings and Loans (0.1%) - ------------------------------------------------------------------------------------------------------------- 28,000 Charter One Financial, Inc. 1,895,250 Specialty Consumer Products (--%) - ------------------------------------------------------------------------------------------------------------- 94,202 Bolle, Inc. (NON) 500,448 Telephone Services (0.5%) - ------------------------------------------------------------------------------------------------------------- 110,197 Cincinnati Bell, Inc. 4,215,035 69,000 US West, Inc. 3,639,750 -------------- 7,854,785 Telephone Utilities (1.5%) - ------------------------------------------------------------------------------------------------------------- 95,500 American Telephone & Telegraph Co. 5,735,969 97,000 Ameritech Corp. 4,128,563 69,179 Bell Atlantic Corp. 6,472,560 120,904 SBC Communications, Inc. 5,009,960 28,795 Sprint Corp. 1,967,048 -------------- 23,314,100 Transportation (0.7%) - ------------------------------------------------------------------------------------------------------------- 35,800 Burlington Northern Santa Fe Corp. 3,544,200 53,500 Canadian National Railway Co. (Canada) 3,480,844 31,400 Delta Air Lines, Inc. 3,650,250 -------------- 10,675,294 -------------- Total Common Stocks (cost $389,482,064) $ 470,558,914 CONVERTIBLE PREFERRED STOCKS (25.6%) (a) NUMBER OF SHARES VALUE Automotive Parts (0.4%) - ------------------------------------------------------------------------------------------------------------- 63,700 Federal-Mogul Corp. 144A $3.50 cv. cum. pfd. $ 4,586,400 90,000 Walbro Capital Trust $2.00 cv. pfd. 2,013,750 -------------- 6,600,150 Banks (1.1%) - ------------------------------------------------------------------------------------------------------------- 78,050 Sovereign Bancorp Inc. $3.125 cv. cum. pfd. 10,614,800 81,350 Union Planters Corp. Ser. E, $2.00 cv. pfd. 6,141,925 -------------- 16,756,725 Basic Industrial Products (0.6%) - ------------------------------------------------------------------------------------------------------------- 35,040 Case Corp. Ser. A, $4.50 cv. pfd. 5,155,260 176,400 Ingersoll-Rand Co. $0.195 cv. pfd. 3,616,200 -------------- 8,771,460 Broadcasting (0.6%) - ------------------------------------------------------------------------------------------------------------- 94,500 Sinclair Broadcast Group, Inc. $3.00 cv. pfd. 6,053,906 276,000 Triathlon Broadcasting Co. $0.945 cv. pfd. 2,760,000 -------------- 8,813,906 Building and Construction (0.3%) - ------------------------------------------------------------------------------------------------------------- 120,000 Beazer Homes USA, Inc. Ser. A, $2.00 cv. pfd. 3,990,000 Business Equipment and Services (0.4%) - ------------------------------------------------------------------------------------------------------------- 115,000 Unisys Corp. Ser. A, $3.75 cv. pfd. 5,649,375 Cable Television (0.7%) - ------------------------------------------------------------------------------------------------------------- 169,000 Tele-Communications (TCI Group) Ser. A, $2.125 cv. pfd. 11,555,375 Communications (0.5%) - ------------------------------------------------------------------------------------------------------------- 72,000 Evergreen Media Corp. 144A $3.00 cv. pfd. 7,083,000 Computer Services (0.6%) - ------------------------------------------------------------------------------------------------------------- 171,270 Wang Laboratories, Inc. Ser. B, $3.25 cv. pfd. 9,805,208 Computers (0.5%) - ------------------------------------------------------------------------------------------------------------- 200,500 Vanstar Corp. 144A $3.375 cv. pfd. 8,045,063 Conglomerates (0.4%) - ------------------------------------------------------------------------------------------------------------- 325,000 Cooper Industries, Inc., 6.00%, cv. pfd. 5,768,750 Consumer Products (0.5%) - ------------------------------------------------------------------------------------------------------------- 130,000 Newell Financial Trust 144A $2.625 cv. cum. pfd. 7,507,500 Consumer Services (0.1%) - ------------------------------------------------------------------------------------------------------------- 56,600 Cendant Corp. $0.65 cv. pfd. 1,981,000 Electric Utilities (1.0%) - ------------------------------------------------------------------------------------------------------------- 169,000 Calenergy Capital Trust $3.125 cv. cum. pfd. 10,161,125 104,000 El Paso Energy Capital Trust $2.375 cv. pfd. 5,466,500 -------------- 15,627,625 Electronics and Electrical Equipment (0.6%) - ------------------------------------------------------------------------------------------------------------- 102,100 Pioneer Standard Electronics, Inc. 144A $3.375 cv. pfd. 5,360,250 169,000 Sensormatic Electronics Corp. 144A $1.625 cv. pfd. 4,351,750 -------------- 9,712,000 Entertainment (1.1%) - ------------------------------------------------------------------------------------------------------------- 159,100 Metromedia International Group, Inc. $3.625 cv. cum. pfd. 10,202,288 132,870 Station Casinos, Inc. $3.50 cv. pfd. 6,892,631 -------------- 17,094,919 Financial Services (0.9%) - ------------------------------------------------------------------------------------------------------------- 145,543 Finova Finance Trust $2.75 cv. cum. pfd. 11,388,740 51,000 Mandatory Common Exchange Trust (The), 7.25%, cv. pfd. 2,346,000 -------------- 13,734,740 Food (0.6%) - ------------------------------------------------------------------------------------------------------------- 85,300 Chiquita Brands International, Inc. Ser. B, $3.75 cv. pfd. 4,830,113 65,000 Dole Food Co., Inc., 7.00%, cv. pfd. 2,713,750 28,100 Suiza Foods Corp. 144A $2.75 cv. pfd. 1,366,363 -------------- 8,910,226 Hospital Management (0.3%) - ------------------------------------------------------------------------------------------------------------- 319,183 MedPartners, Inc. $1.44 cv. pfd. 4,209,226 Information Systems (0.2%) - ------------------------------------------------------------------------------------------------------------- 62,500 Vanstar Financial Trust Corp. $3.375 cv. pfd. 2,468,750 Insurance and Finance (2.3%) - ------------------------------------------------------------------------------------------------------------- 97,700 Aetna, Inc. $4.758 cv. pfd. 7,669,450 84,661 American General Delaware Corp. $3.00 cv. cum. pfd. 7,196,185 31,700 American Heritage Life Investment Corp. $4.25 cv. pfd. 2,076,350 83,700 Penncorp Financial Group, Inc. 144A $3.50 cv. pfd. 3,980,981 211,885 Philadelphia Consolidated Holding Corp., 0.50%, cv. pfd. 1,946,693 121,100 Protective Life Corp. $3.25 cv. cum. pfd. 7,568,750 78,400 St. Paul Capital LLC $3.00 cv. cum. pfd. 5,723,200 -------------- 36,161,609 Medical Supplies and Devices (0.3%) - ------------------------------------------------------------------------------------------------------------- 47,000 Mckesson Corp. $2.50 cv. pfd. 4,547,250 Metals and Mining (1.1%) - ------------------------------------------------------------------------------------------------------------- 70,000 Amax Gold, Inc. Ser. B, $3.75 cv. pfd. 3,351,250 196,800 Freeport-McMoRan Copper Co., Inc. $1.75 cv. pfd. 4,526,400 90,400 Pittston Mineral Corp. 144A $3.125 dep. shs. cv. pfd. 3,435,200 70,000 Timet Capital Trust I 144A $3.313 cv. pfd. 3,241,875 30,645 Titanium Metals Corp. $3.313 cv. pfd. 1,419,247 -------------- 15,973,972 Oil and Gas (2.1%) - ------------------------------------------------------------------------------------------------------------- 107,000 Devon Financing Trust $3.25 cv. pfd. 7,436,500 60,000 Lomak Petroleum, Inc. 144A $2.875 cv. pfd. 2,580,000 30,000 Lomak Petroleum, Inc. 144A $2.03 cv. pfd. 1,095,000 100,580 Neuvo Energy Ser. A, $2.875 cv. pfd. 4,727,260 167,500 Tosco Financing Trust 144A $2.875 cv. pfd. 10,385,000 109,900 Unocal Capital Trust $3.125 cv. cum. pfd. 6,305,513 -------------- 32,529,273 Paper and Forest Products (0.7%) - ------------------------------------------------------------------------------------------------------------- 202,700 International Paper Co. $2.625 cv. pfd. 10,945,800 Publishing (0.5%) - ------------------------------------------------------------------------------------------------------------- 60,000 Golden Books Family Entertainment, Inc. $4.375 cv. cum. pfd. 3,277,500 100,000 Houghton Mifflin Co. $4.08 cv. pfd. 3,600,000 -------------- 6,877,500 Real Estate (2.1%) - ------------------------------------------------------------------------------------------------------------- 53,500 Camden Property Trust Ser. A, $2.25 cv. cum. pfd. (R) 1,477,938 438,950 Equity Residential Properties Trust Ser. E, $1.75 cv. pfd. (R) 11,961,388 146,000 Insignia Financial Group, Inc. 144A $3.25 cv. pfd. 7,865,750 195,000 Security Capital Pacific Trust Ser. A, $1.75 cv. pfd. 5,813,438 74,490 Tanger Factory Outlet Centers $1.802 cv. pfd. (R) 2,011,230 66,500 Vornado Realty Trust Ser. A, $3.25 cv. cum. pfd. 3,823,750 -------------- 32,953,494 Retail (1.5%) - ------------------------------------------------------------------------------------------------------------- 195,000 Ann Taylor Finance Trust $4.25 cv. cum. pfd. 9,847,500 204,600 Kmart Financing I $3.875 cv. cum. pfd. 13,452,450 -------------- 23,299,950 Savings and Loans (0.8%) - ------------------------------------------------------------------------------------------------------------- 82,000 Ahmanson (H.F.) & Co. $3.00 cv. pfd. 12,930,375 Telecommunications (0.7%) - ------------------------------------------------------------------------------------------------------------- 144,680 AirTouch Communications, Inc. Ser. C, $2.125 cv. pfd. 11,113,229 Telephone Services (0.6%) - ------------------------------------------------------------------------------------------------------------- 118,900 US West, Inc. Ser. D, $2.25 cv. cum. pfd. 9,066,125 Tobacco (0.1%) - ------------------------------------------------------------------------------------------------------------- 127,000 DIMON, Inc. $3.25 cv. pfd. 2,143,125 Transportation (1.4%) - ------------------------------------------------------------------------------------------------------------- 75,500 CNF Trust I Ser. A, $2.50 cv. cum. pfd. 4,379,000 150,100 Hvide Capital Trust 144A $3.25 cv. pfd. 7,017,175 186,373 Union Pacific 144A $3.125 cv. cum. pfd. 9,877,769 -------------- 21,273,944 -------------- Total Convertible Preferred Stocks (cost $351,039,841) $ 393,900,644 WARRANTS (--%)(a)(NON)(cost $ 89,869) EXPIRATION NUMBER OF WARRANTS DATE VALUE - ------------------------------------------------------------------------------------------------------------- 13,827 Security Capital Group 9/18/98 $ 38,888 SHORT-TERM INVESTMENTS (1.9%) (a)(cost $29,056,447) PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------- $29,052,000 Interest in $500,000,000 joint repurchase agreement dated April 30, 1998 with Lehman Brothers due May 1, 1998 with respect to various U.S. Treasury obligations -- maturity value of $29,056,447 for an effective yield of 5.51% $ 29,056,447 - ------------------------------------------------------------------------------------------------------------- Total Investments (cost $1,349,730,478) (b) $1,520,470,671 - ------------------------------------------------------------------------------------------------------------- (a) Percentages indicated are based on net assets of $1,541,650,009. (b) The aggregate identified cost on a tax basis is $1,349,890,142, resulting in gross unrealized appreciation and depreciation of $232,278,149 and $61,697,620, respectively, or net unrealized appreciation of $170,580,529. (NON) Non-income-producing security. (CUS) This entity provides subcustodian services to the fund. (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. The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities April 30, 1998 (Unaudited) Assets - --------------------------------------------------------------------------------------------------- Investments in securities, at value (identified cost $1,349,730,478) (Note 1) $1,520,470,671 - --------------------------------------------------------------------------------------------------- Cash 591,225 - --------------------------------------------------------------------------------------------------- Dividends and interest receivable 10,351,622 - --------------------------------------------------------------------------------------------------- Receivable for shares of the fund sold 2,462,838 - --------------------------------------------------------------------------------------------------- Receivable for securities sold 22,547,567 - --------------------------------------------------------------------------------------------------- Receivable for closed forward currency contracts 469,390 - --------------------------------------------------------------------------------------------------- Total assets 1,556,893,313 Liabilities - --------------------------------------------------------------------------------------------------- Payable for securities purchased 11,425,344 - --------------------------------------------------------------------------------------------------- Payable for shares of the fund repurchased 1,077,998 - --------------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 2,075,882 - --------------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 33,653 - --------------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 24,721 - --------------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 1,541 - --------------------------------------------------------------------------------------------------- Payable for distribution fees (Note 2) 515,346 - --------------------------------------------------------------------------------------------------- Other accrued expenses 88,819 - --------------------------------------------------------------------------------------------------- Total liabilities 15,243,304 - --------------------------------------------------------------------------------------------------- Net assets $1,541,650,009 Represented by - --------------------------------------------------------------------------------------------------- Paid-in capital (Notes 1 and 4) $1,252,601,429 - --------------------------------------------------------------------------------------------------- Distributions in excess of net investment income (Note 1) (5,964,921) - --------------------------------------------------------------------------------------------------- Accumulated net realized gain on investments and foreign currency transactions (Note 1) 124,273,308 - --------------------------------------------------------------------------------------------------- Net unrealized appreciation of investments and assets and liabilities in foreign currencies 170,740,193 - --------------------------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $1,541,650,009 Computation of net asset value and offering price - --------------------------------------------------------------------------------------------------- Net asset value and redemption price per class A share ($1,208,621,651 divided by 52,742,477 shares) $22.92 - --------------------------------------------------------------------------------------------------- Offering price per class A share (100/94.25 of $22.92)* $24.32 - --------------------------------------------------------------------------------------------------- Net asset value and offering price per class B share ($313,619,459 divided by 13,827,826 shares)** $22.68 - --------------------------------------------------------------------------------------------------- Net asset value and redemption price per class M share ($19,408,899 divided by 852,867 shares) $22.76 - --------------------------------------------------------------------------------------------------- Offering price per class M share (100/96.50 of $22.76)* $23.59 - --------------------------------------------------------------------------------------------------- * On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the offering price is reduced. ** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. The accompanying notes are an integral part of these financial statements.
Statement of operations Six months ended April 30, 1998 (Unaudited) Investment income: - -------------------------------------------------------------------------------------------------- Interest $ 18,547,223 - -------------------------------------------------------------------------------------------------- Dividends (net of foreign tax of $6,136) 14,188,032 - -------------------------------------------------------------------------------------------------- Total investment income 32,735,255 Expenses: - -------------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 4,143,017 - -------------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 735,407 - -------------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 13,616 - -------------------------------------------------------------------------------------------------- Administrative services (Note 2) 9,393 - -------------------------------------------------------------------------------------------------- Distribution fees -- Class A (Note 2) 1,468,928 - -------------------------------------------------------------------------------------------------- Distribution fees -- Class B (Note 2) 1,390,822 - -------------------------------------------------------------------------------------------------- Distribution fees -- Class M (Note 2) 63,632 - -------------------------------------------------------------------------------------------------- Reports to shareholders 36,395 - -------------------------------------------------------------------------------------------------- Registration fees 33,000 - -------------------------------------------------------------------------------------------------- Auditing 16,884 - -------------------------------------------------------------------------------------------------- Legal 5,568 - -------------------------------------------------------------------------------------------------- Postage 14,812 - -------------------------------------------------------------------------------------------------- Other 411,840 - -------------------------------------------------------------------------------------------------- Total expenses 8,343,314 - -------------------------------------------------------------------------------------------------- Expense reduction (Note 2) (387,097) - -------------------------------------------------------------------------------------------------- Net expenses 7,956,217 - -------------------------------------------------------------------------------------------------- Net investment income 24,779,038 - -------------------------------------------------------------------------------------------------- Net realized gain on investments (Notes 1 and 3) 115,988,024 - -------------------------------------------------------------------------------------------------- Net realized gain on foreign currency transactions (Note 1) 848,904 - -------------------------------------------------------------------------------------------------- Net unrealized depreciation of assets and liabilities in foreign currencies during the period (630,075) - -------------------------------------------------------------------------------------------------- Net unrealized appreciation of investments during the period 1,687,990 - -------------------------------------------------------------------------------------------------- Net gain on investments 117,894,843 - -------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations $142,673,881 - -------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets Six months ended Year ended April 30 October 31 1998* 1997 - ---------------------------------------------------------------------------------------------------------------------- Increase in net assets - ---------------------------------------------------------------------------------------------------------------------- Operations: - ---------------------------------------------------------------------------------------------------------------------- Net investment income $ 24,779,038 $ 43,188,991 - ---------------------------------------------------------------------------------------------------------------------- Net realized gain on investments and foreign currency transactions 116,836,928 134,480,706 - ---------------------------------------------------------------------------------------------------------------------- Net unrealized appreciation of investments and assets and liabilities in foreign currencies 1,057,915 73,719,928 - ---------------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 142,673,881 251,389,625 - ---------------------------------------------------------------------------------------------------------------------- Distributions to shareholders: - ---------------------------------------------------------------------------------------------------------------------- From net investment income - ---------------------------------------------------------------------------------------------------------------------- Class A (24,793,434) (40,930,205) - ---------------------------------------------------------------------------------------------------------------------- Class B (4,988,692) (6,775,056) - ---------------------------------------------------------------------------------------------------------------------- Class M (331,758) (414,757) - ---------------------------------------------------------------------------------------------------------------------- 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 (99,608,489) (66,832,559) - ---------------------------------------------------------------------------------------------------------------------- Class B (22,393,436) (11,391,471) - ---------------------------------------------------------------------------------------------------------------------- Class M (1,318,676) (700,350) - ---------------------------------------------------------------------------------------------------------------------- Increase from capital share transactions (Note 4) 112,058,340 267,640,833 - ---------------------------------------------------------------------------------------------------------------------- Total increase in net assets 101,297,736 388,611,645 Net assets - ---------------------------------------------------------------------------------------------------------------------- Beginning of period 1,440,352,273 1,051,740,628 - ---------------------------------------------------------------------------------------------------------------------- End of period (including distributions in excess of net investment income of $5,964,921 and $630,075, respectively) $1,541,650,009 $1,440,352,273 - ---------------------------------------------------------------------------------------------------------------------- * Unaudited The accompanying notes are an integral part of these financial statements.
Financial highlights (For a share outstanding throughout the period) CLASS A - ------------------------------------------------------------------------------------------------------------------------------------ Six months ended Per-share April 30 operating performance (Unaudited) Year ended October 31 - ------------------------------------------------------------------------------------------------------------------------------------ 1998 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $23.22 $21.24 $19.42 $19.09 $20.38 $17.60 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .39(d) .78(d) .81(d) .85 .81 .87 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments 1.75 3.70 2.70 1.60 (.46) 2.87 - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations 2.14 4.48 3.51 2.45 .35 3.74 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income (.48) (.87) (.98) (.96) (.74) (.96) - ------------------------------------------------------------------------------------------------------------------------------------ In excess of net investment income -- (.06) -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ From net realized gain on investments (1.96) (1.57) (.71) (1.16) (.90) -- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (2.44) (2.50) (1.69) (2.12) (1.64) (.96) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $22.92 $23.22 $21.24 $19.42 $19.09 $20.38 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total investment return at net asset value (%)(a) 10.23* 22.86 18.99 14.38 1.84 21.74 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $1,208,622 $1,168,470 $898,486 $756,645 $697,946 $707,969 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) .49* 1.03 1.06 1.16 .96 .96 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 1.75* 3.56 3.99 4.64 4.16 4.55 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 42.42* 70.74 61.43 69.52 48.37 66.63 - ------------------------------------------------------------------------------------------------------------------------------------ Average commission rate paid (c) $.0488 $.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) Average commission rate paid on security trades is required for fiscal periods beginning on or after September 1, 1995. (d) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period.
Financial highlights (For a share outstanding throughout the period) CLASS B - ------------------------------------------------------------------------------------------------------------------------------------ Six months ended For the period Per-share April 30 July 15, 1993+ operating performance (Unaudited) Year ended October 31 to October 31 - ------------------------------------------------------------------------------------------------------------------------------------ 1998 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $23.01 $21.09 $19.30 $19.00 $20.35 $19.53 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .30(d) .63(d) .66(d) .69 .74 .23 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments 1.73 3.64 2.68 1.61 (.55) .82 - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations 2.03 4.27 3.34 2.30 .19 1.05 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income (.40) (.73) (.84) (.84) (.66) (.23) - ------------------------------------------------------------------------------------------------------------------------------------ In excess of net investment income -- (.05) -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ From net realized gain on investments (1.96) (1.57) (.71) (1.16) (.88) -- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (2.36) (2.35) (1.55) (2.00) (1.54) (.23) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $22.68 $23.01 $21.09 $19.30 $19.00 $20.35 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total investment return at net asset value (%)(a) 9.80* 21.89 18.14 13.54 1.00 5.43* - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $313,619 $257,163 $146,127 $75,309 $31,432 $4,439 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) .87* 1.78 1.81 1.91 1.71 .52* - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 1.36* 2.78 3.26 3.92 3.58 .91* - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 42.42* 70.74 61.43 69.52 48.37 66.63 - ------------------------------------------------------------------------------------------------------------------------------------ Average commission rate paid (c) $.0488 $.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) Average commission rate paid on security trades is required for fiscal periods beginning on or after September 1, 1995. (d) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period.
Financial highlights (For a share outstanding throughout the period) CLASS M - ------------------------------------------------------------------------------------------------------------------------------------ Six months ended For the period Per-share April 30 Year ended March 13, 1995+ operating performance (Unaudited) October 31 to October 31 - ------------------------------------------------------------------------------------------------------------------------------------ 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $23.08 $21.14 $19.37 $17.79 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .33(d) .67(d) .73(d) .64 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments 1.74 3.67 2.65 1.64 - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations 2.07 4.34 3.38 2.28 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income (.43) (.78) (.90) (.70) - ------------------------------------------------------------------------------------------------------------------------------------ In excess of net investment income -- (.05) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ From net realized gain on investments (1.96) (1.57) (.71) -- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (2.39) (2.40) (1.61) (.70) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $22.76 $23.08 $21.14 $19.37 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total investment return at net asset value (%)(a) 9.96* 22.24 18.30 12.99* - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $19,409 $14,719 $7,128 $1,753 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) .74* 1.53 1.54 1.04* - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 1.49* 3.04 3.55 2.89* - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 42.42* 70.74 61.43 69.52 - ------------------------------------------------------------------------------------------------------------------------------------ Average commission rate paid (c) $.0488 $.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) Average commission rate paid on security trades is required for fiscal periods beginning on or after September 1, 1995. (d) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period.
Notes to financial statements April 30, 1998 (Unaudited) Note 1 Significant accounting policies Putnam Convertible Income-Growth Trust (the "fund") is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The fund seeks current income and capital appreciation by investing primarily in bonds and preferred stocks convertible into common stock with capital conservation as a secondary objective. The fund offers class A, class B and class M shares. Class A shares are sold with a maximum front-end sales charge of 5.75%. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge, but pay a higher ongoing distribution fee than class A shares, and are subject to a contingent deferred sales charge, if those shares are redeemed within six years of purchase. Class M shares are sold with a maximum front-end sales charge of 3.50% and pay an ongoing distribution fee that is lower than class B shares and higher than class A shares. Expenses of the fund are borne pro-rata by the holders of each class of shares, except that each class bears expenses unique to that class (including the distribution fees applicable to such class). Each class votes as a class only with respect to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. Shares of each class would receive their pro-rata share of the net assets of the fund, if the fund were liquidated. In addition, the Trustees declare separate dividends on each class of shares. The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with generally accepted accounting principles and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Actual results could differ from those estimates. A) Security valuation Investments for which market quotations are readily available are stated at market value, which is determined using the last reported sale price, or, if no sales are reported -- as in the case of some securities traded over-the-counter -- the last reported bid price. Securities quoted in foreign currencies are translated into U.S. dollars at the current exchange rate. Short-term investments having remaining maturities of 60 days or less are stated at amortized cost, which approximates market value, and other investments are stated at fair value following procedures approved by the Trustees. B) Joint trading account Pursuant to an exemptive order issued by the Securities and Exchange Commission, the fund may transfer uninvested cash balances into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Investment Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc.. These balances may be invested in one or more repurchase agreements and/or short-term money market instruments. C) Repurchase agreements The fund, or any joint trading account, through its custodian, receives delivery of the underlying securities, the market value of which at the time of purchase is required to be in an amount at least equal to the resale price, including accrued interest. 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 are accreted according to the yield-to-maturity basis. E) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, 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 six months ended April 30, 1998 the fund had no borrowings against the line of credit. H) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Internal Revenue Code of 1986, as amended. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains. I) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Capital gain distributions, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. 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. Note 2 Management fee, administrative services, and other transactions Compensation of Putnam Management, for management and investment advisory services is paid quarterly based on the average net assets of the fund. Such fee is based on the following annual rates: 0.65% of the first $500 million of average net assets, 0.55% of the next $500 million, 0.50% of the next $500 million, 0.45% of the next $5 billion, 0.425% of the next $5 billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion and 0.38% thereafter. The fund reimburses Putnam Management an allocated amount for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees. Custodial functions for the fund's assets are provided by Putnam Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. For the six months ended April 30, 1998 fund expenses were reduced by $387,097 under expense offset arrangements with PFTC and brokerage service arrangements. Investor servicing and custodian fees reported in the Statement of operations exclude these credits. The fund could have invested a portion of the assets utilized in connection with the expense offset arrangements in an income producing asset if it had not entered into such arrangements. Each Trustee of the fund receives an annual Trustee fee, of which $1,250 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 six months ended April 30, 1998, Putnam Mutual Funds Corp., acting as underwriter received net commissions of $180,391 and $13,167 from the sale of class A and class M shares, respectively and $194,951 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 six months ended April 30, 1998, Putnam Mutual Funds Corp., acting as underwriter received $1,274 on class A redemptions. Note 3 Purchase and sales of securities During the six months ended April 30, 1998, purchases and sales of investment securities other than short-term investments aggregated $605,343,516 and $635,829,154, 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 April 30, 1998, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: Six months ended April 30, 1998 - ------------------------------------------------------------ Class A Shares Amount - ------------------------------------------------------------ Shares sold 5,527,461 $122,992,350 - ------------------------------------------------------------ Shares issued in connection with reinvestment of distributions 4,892,447 103,108,093 - ------------------------------------------------------------ 10,419,908 226,100,443 Shares repurchased (7,995,119) (175,702,583) - ------------------------------------------------------------ Net increase 2,424,789 $ 50,397,860 - ------------------------------------------------------------ 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 - ------------------------------------------------------------ Six months ended April 30, 1998 - ------------------------------------------------------------ Class B Shares Amount - ------------------------------------------------------------ Shares sold 2,536,115 $55,793,042 - ------------------------------------------------------------ Shares issued in connection with reinvestment of distributions 1,041,741 21,732,762 - ------------------------------------------------------------ 3,577,856 77,525,804 Shares repurchased (925,614) (20,503,730) - ------------------------------------------------------------ Net increase 2,652,242 $57,022,074 - ------------------------------------------------------------ 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 - ------------------------------------------------------------ Six months ended April 30, 1998 - ------------------------------------------------------------ Class M Shares Amount - ------------------------------------------------------------ Shares sold 305,639 $6,742,586 - ------------------------------------------------------------ Shares issued in connection with reinvestment of distributions 67,734 1,419,162 - ------------------------------------------------------------ 373,373 8,161,748 Shares repurchased (158,195) (3,523,342) - ------------------------------------------------------------ Net increase 215,178 $4,638,406 - ------------------------------------------------------------ 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 - ------------------------------------------------------------ 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 TRUSTEES George Putnam, Chairman William F. Pounds, Vice Chairman Jameson Adkins Baxter Hans H. Estin John A. Hill Ronald J. Jackson Paul L. Joskow Elizabeth T. Kennan Lawrence J. Lasser John H. Mullin III Robert E. Patterson Donald S. Perkins George Putnam, III A.J.C. Smith W. Thomas Stephens W. Nicholas Thorndike OFFICERS George Putnam President Charles E. Porter Executive Vice President Patricia C. Flaherty Senior Vice President John D. Hughes Senior Vice President and Treasurer Lawrence J. Lasser Vice President Gordon H. Silver Vice President Ian C. Ferguson Vice President Brett C. Browchuk Vice President Thomas V. Reilly Vice President Edward T. Shadek, Jr. Vice President Charles G. Pohl Vice President and Fund Manager William N. Shiebler Vice President John R. Verani Vice President Beverly Marcus Clerk and Assistant Treasurer This report is for the information of shareholders of Putnam Convertible Income-Growth Trust. It may also be used as sales literature when preceded or accompanied by the current prospectus, which gives details of sales charges, investment objectives, and operating policies of the fund, and the most recent copy of Putnam's Quarterly Performance Summary. For more information or to request a prospectus, call toll free: 1-800-225-1581. You can also learn more at Putnam Investments' website: http://www.putnaminv.com. Shares of mutual funds are not deposits or obligations of, or guaranteed or endorsed by, any financial institution; are not insured by the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board, or any other agency; and involve risk, including the possible loss of the principal amount invested. [LOGO OMITTED] PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 - -------------------- Bulk Rate U.S. Postage PAID Putnam Investments - -------------------- SA019-42845 008/223/920 6/98 -----END PRIVACY-ENHANCED MESSAGE-----