-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, UKp+p+VSIZRExOPUmOgI9Whwbi9we4LftHS1OMo2KgRMc5vn/0DgnPnFldMvdGXb 1jcyh5mSklh3GhNUl1wDmQ== 0000950109-94-002413.txt : 19941230 0000950109-94-002413.hdr.sgml : 19941230 ACCESSION NUMBER: 0000950109-94-002413 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19941031 FILED AS OF DATE: 19941229 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUTNAM CONVERTIBLE INCOME GROWTH TRUST CENTRAL INDEX KEY: 0000081247 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 042493360 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-02280 FILM NUMBER: 94566978 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQ 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 ANNUAL REPORT Putnam Convertible Income-Growth Trust ANNUAL REPORT October 31, 1994 [LOGO OF PUTNAM COMPANY APPEARS HERE] PERFORMANCE HIGHLIGHTS . Morningstar, an independent rating agency, awarded the fund's class A shares four out of a possible five stars based on risk-adjusted 3-, 5-, and 10-year performance as of October 31, 1994.* . Performance should always be considered in light of a fund's investment strategy. Putnam Convertible Income-Growth Trust is designed for investors seeking current income and capital appreciation mainly through bonds and preferred stocks convertible into common stock, with capital conservation as a secondary objective. FISCAL 1994 RESULTS AT A GLANCE
CLASS A CLASS B TOTAL RETURN NAV POP NAV CDSC 12 months ended 10/31/94 (change in value during period plus reinvested distributions) 1.84% -4.01% 1.00% -3.66% SHARE VALUE NAV POP NAV 10/31/93 $20.38 $21.62 $20.35 10/31/94 19.09 20.25 $19.00 CAPITAL GAINS LONG- SHORT- DISTRIBUTIONS NO. INCOME TERM TERM TOTAL Class A 4 $0.736 $0.904 $-- $1.640 Class B 4 0.659 0.880 -- 1.539 CURRENT RETURN NAV POP NAV End of period Current dividend rate/1/ 5.03% 4.74% 4.38% Current 30-day SEC yield/2/ 4.85 4.57 4.42
Performance data represent past results and will differ for each share class. For performance over longer periods, see pages 8 and 9. POP assumes 5.75% maximum sales charge. CDSC assumes 5% maximum contingent deferred sales charge. /1/Income portion of most recent distribution, annualized and divided by NAV or POP at end of period. /2/Based only on investment income, calculated using SEC guidelines. *Morningstar rates funds with similar objectives, based on risk adjusted performance, as applicable, and adjusted for sales charges. A four-star rating puts the fund in the top 32.5% of the 1914 funds in the hybrid category. Ratings are updated monthly. Past performance is not indicative of future results. 2 FROM THE CHAIRMAN [PICTURE OF GEORGE PUTNAM APPEARS HERE] DEAR SHAREHOLDER: PUTNAM CONVERTIBLE INCOME-GROWTH TRUST'S FISCAL YEAR THAT ENDED ON OCTOBER 31, 1994, REPRESENTED AN UNSETTLED PERIOD FOR BOTH FIXED-INCOME AND EQUITY INVESTORS. EARLY IN THE PERIOD, FUND MANAGERS CHARLES POHL AND HUGH MULLIN SAW SIGNS THAT INTEREST RATES WOULD SOON START RISING FROM THEIR HISTORICALLY LOW LEVELS. THEY BEGAN TAKING DEFENSIVE ACTION; HAD THEY NOT DONE SO, THE TOLL ON THE FUND'S RESULTS WOULD LIKELY HAVE BEEN GREATER IN THE WAKE OF THE FEDERAL RESERVE BOARD'S SWIFT AND VIGOROUS MOVES TO SLOW THE PACE OF GROWTH. AS WE HAVE RECENTLY SEEN, THE FED IS ADAMANTLY STICKING TO ITS POLICY OF KEEPING INFLATION IN CHECK. THE RESULT IS LIKELY TO BE FURTHER UNCERTAINTY IN BOTH THE STOCK AND BOND MARKETS. THIS, IN TURN, COULD TRANSLATE INTO CONTINUED PRICE VOLATILITY OVER THE NEXT FEW MONTHS. CHARLIE AND HUGH HAVE POSITIONED THE PORTFOLIO WITH THIS PROSPECT IN MIND. IN THE REPORT THAT FOLLOWS, THEY DISCUSS THE FUND'S FISCAL '94 PERFORMANCE AND OUTLOOK FOR FISCAL '95. RESPECTFULLY YOURS, /s/ GEORGE PUTNAM GEORGE PUTNAM CHAIRMAN OF THE TRUSTEES DECEMBER 14, 1994 3 REPORT FROM THE FUND MANAGERS HUGH H. MULLIN, LEAD MANAGER CHARLES G. POHL Rising interest rates and the resulting market volatility have rained on the parade of many mutual funds this Year. Midway through 1994, Putnam Convertible Income-Growth Trust's negative returns had a lot of company in the mutual fund industry. Unlike many funds, however, yours has been able to maintain relative ground -- its class A shares posting a positive 1.84% return at net asset value as of the fiscal year ended October 31, 1994. Moreover, your fund, the nation's third-oldest convertible securities fund at 22 years, was able to demonstrate strong performance relative to other convertible funds and investment alternatives as evidenced by its return versus the Lipper Convertible Mutual Fund average of -0.75%. During the fiscal year just ended, the Merrill Lynch All Convertible Index recorded an average return of -4.20% and the Lehman Brothers corporate Bond Index was -5.27% for the one year period as of October 31, 1994. .STRATEGY HIGHLIGHTS Beginning late last year, in anticipation of a change in interest rate direction, Putnam Management took steps to shield the portfolio from increasing volatility. The benefits of this defensive strategy have begun to show over the last six months as the Federal Reserve Board continues to pursue interest rate-tightening policies. At the beginning of the fund's fiscal year, we reduced the fund's exposure to convertible securities to 67% of assets -- just above the fund's required minimum of 65%. As short-term interest rates rose this year, we modestly increased the fund's equity exposure and positioned the portfolio in larger, more liquid convertibles. At the same time, we were able to take profits in higher-yielding interest-rate-sensitive securities. This, we believe, afforded the portfolio a measure of interest rate protection and increased its equity sensitivity. The convertible market, like most other financial markets, has endured a sizable correction since the Federal Reserve Board began 4 its series of interest rate increases in February. Rising short- and long-term interest rates, as well as general weakness in stock prices, have driven the prices of convertibles down to attractive levels. Because of our portfolio strategy, the fund was able to weather the correction reasonably well and has recently begun to take advantage of opportunities selectively within the convertible universe. .THE VALUE APPROACH TO INVESTING We employ a research-intensive bottom-up approach to investing by focusing on fundamentally sound, attractively priced companies. Our value approach to investing, we believe, emphasizes a consistent balance between risk and return, current income, and capital appreciation. With the profit earned on the sale of individual holdings, we began purchasing securities in the consumer nondurable area. These are stocks of companies specializing in readily consumable goods such as food, tobacco, and beverages. They are currently attractive not only because their demand characteristics are less cyclical, but because as the economy has improved, we believe many of these sectors have become undervalued. Between April and fiscal year's end, we positioned a good portion of the fund's assets in energy-related investments. In general, we believe [FIVE-YEAR PERFORMANCE GRAPH APPEARS HERE] 5 TOP 10 HOLDINGS (10/31/94) UNISYS CORP. SOFTWARE, INFORMATION SYSTEMS TIME WARNER, INC. MEDIA, PUBLISHING SPF PIPELINE HOLDINGS, INC. COMMON CARRIER, GASOLINE PIPELINES TENNECO INC. NATURAL GAS, CONSTRUCTION AND FARM EQUIPMENT ATLANTIC RICHFIELD CO. OIL, GAS, CHEMICALS PENNZOIL CO. OIL AND GAS, OWNERS OF JIFFY LUBE FREEPORT-MCMORAN, INC. METALS AND MINING USF&G CORP. PROPERTY AND CASUALITY INSURER CELLULAR COMMUNICATIONS, INC. CELLULAR TELEPHONE SERVICES FORD MOTOR CORP. AUTOMOBILE PRODUCTION These holdings represent 12.91% of the fund's total net assets. Portfolio holdings are subject to change. these companies have shown improved fundamentals in the areas of exploration, production, and internal cost reduction. Some attractive examples include Chevron, Exxon, and Amoco. We also continue to find value in the finance sector -- particularly banking and insurance. We believe the market's knee-jerk reaction to rising rates was somewhat indiscriminate. We favor several banking companies which have far-reaching regional influence. Some examples include BankAmerica and First Bank Systems. Our analytical team continues to research thousands of other securities on a case-by-case basis. As a result, we are currently finding values in the health care, technology, and business services areas. .OUTLOOK: A CAUTIOUS APPROACH GOING FORWARD As the fund moves into a new fiscal year, we will continue to draw on Putnam's strong research abilities in the search for undervalued convertibles and common stocks. We also expect to continue building up the portfolio's holdings of convertibles relative to cash and cash-equivalent holdings. 6 Looking further ahead, we anticipate an economy of slow but steady growth with relatively low inflation. The convertible market, which provides exposure to smaller-capitalization companies with the potential benefit of higher yields, has much to offer conservative growth-and-income investors in such an environment, and we are working to take full advantage of it. The views expressed about the securities mentioned in this report are exclusively those of Putnam Management, and not meant as investment advice. Although the described holdings were viewed favorably as of October 31, 1994, there is no guarantee the fund will continue to hold these securities in the future. 7 PERFORMANCE SUMMARY This section provides, at a glance, information about your fund's performance. Total return shows how the value of the fund's shares changed over time, assuming you held the shares through the entire period and reinvested all distributions back into the fund. We show total return in two days: on a cumulative long-term basis and on average how the fund might have grown each year over varying periods. For comparative purposes, we show how the fund performed relative to appropriate indices and benchmarks. TOTAL RETURN FOR PERIODS ENDED 10/31/94
Lehman Bros. Class A Class B S&P Corporate NAV POP NAV CDSC 500 Index Bond Index ------------------------------------------------------------------------------------------------ 1 year 1.84% -4.01% 1.00% -3.66% 3.87% -5.27% ------------------------------------------------------------------------------------------------ 5 years 70.17 60.37 -- -- 61.96 48.53 Annual average 11.22 9.91 -- -- 10.12 8.23 ------------------------------------------------------------------------------------------------ 10 years 207.18 189.43 -- -- 296.87 180.51 Annual average 11.88 11.21 -- -- 14.78 10.86 ------------------------------------------------------------------------------------------------ Life of class B -- -- 6.49 2.60 8.61 -1.49 Annual average -- -- 4.99 2.01 6.61 -1.16 ------------------------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 9/30/94 (most recent calendar quarter)
Lehman Bros. Class A Class B S&P Corporate NAV POP NAV CDSC 500 Index Bond Index ------------------------------------------------------------------------------------------------ 1 year 4.09% -1.91% 3.19% -1.58% 3.72% -4.58% ------------------------------------------------------------------------------------------------ 5 years 64.62 55.18 -- -- 54.66 52.30 Annual average 10.48 9.19 -- -- 9.11 8.78 ------------------------------------------------------------------------------------------------ 10 years 210.99 193.05 -- -- 288.72 195.51 Annual average 12.01 11.35 -- -- 14.54 11.44 ------------------------------------------------------------------------------------------------ Life of class B -- -- 6.66 2.76 6.39 -1.26 Annual average -- -- 5.47 2.27 5.25 -1.04 ------------------------------------------------------------------------------------------------
Fund performance data do not take into account any adjustment for taxes payable on reinvested distributions. The fund began offering what are now known as class A shares on June 29, 1972. Effective July 15, 1993, the fund began offering class B shares. Performance of each share class will differ. Performance data represent past results. Investment returns and net asset value will fluctuate so an investor's shares, when sold, may be worth more or less than their original cost. 8 [GROWTH OF INVESTMENT GRAPH APPEARS HERE] Past performance is no assurance of future results. A $10,000 investment in the fund's class B shares at inception on 7/15/93 would have been valued at $10,649 on 10/31/94 ($10,260 with a redemption at the end of the period). TERMS AND DEFINITIONS CLASS A SHARES are generally subject to an initial sales charge. CLASS B SHARES may be subject to a sales charge upon redemption. 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. 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. Both indices assume reinvestment of all distributions and do not take into account brokerage commissions or other costs. The fund's portfolio contains securities that do not match those in the indices. 9 OUR COMMITMENT TO QUALITY SERVICE .CHOOSE AWARD-WINNING SERVICE. Putnam Investor Services has won the DALBAR Quality Tested Service Seal every year since the award's 1990 inception. DALBAR, an independent research firm, ran more than 10,000 tests of 38 shareholder service components. In every category, Putnam outperformed the industry standard. .HELP YOUR INVESTMENT GROW. Set up a systematic program for investing with as little as $25 a month from a Putnam fund or from your checking or savings account.* .SWITCH FUNDS EASILY. You can move money from one account to another with the same class of shares without a service charge. (This privilege is subject to change or termination.) .ACCESS YOUR MONEY QUICKLY. You can get checks sent regularly or redeem shares any business day at the then-current net asset value, which may be more or less than their original cost. For details about any of these or other services, contact your financial advisor or call the toll-free number shown below and speak with a helpful Putnam representative. .To make an additional investment in this or any other Putnam fund, contact your financial advisor or call our toll-free number: 1-800-225-1581. *Regular investing, of course, does not guarantee a profit or protect against a loss in a declining market. Investors should consider their ability to continue purchasing shares during periods of low price levels. 10 REPORT OF INDEPENDENT ACCOUNTANTS For the Fiscal Year Ended October 31, 1994 To the Trustees and Shareholders of Putnam Convertible Income-Growth Trust We have audited the accompanying statement of assets and liabilities of Putnam Convertible Income-Growth Trust, including the portfolio of investments owned, as of October 31, 1994, the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the "Financial Highlights" for each of the periods indicated herein. These financial statements and "Financial Highlights" are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and "Financial Highlights" based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and "Financial Highlights" are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1994, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and "Financial Highlights" referred to above present fairly, in all material respects, the financial position of Putnam Convertible Income-Growth Trust as of October 31, 1994, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the "Financial Highlights" for each of the periods indicated therein, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Boston, Massachusetts December 9, 1994 11 Portfolio of investments owned October 31, 1994
CONVERTIBLE BONDS AND NOTES (30.3%)(a) PRINCIPAL AMOUNT VALUE CONSUMER SERVICES (5.0%) --------------------------------------------------------------------------- $ 1,680,000 Cellular Communications, Inc. of Puerto Rico cv. sub. deb. 8 1/4s, 2000 $ 4,284,000 9,500,000 Cellular Communications, Inc. cv. sub. deb., zero %, 1999 7,825,625 3,000,000 Comcast Corp. cv. sub. deb. stepped-coupon 3 3/8s, (5 1/2s, 9/9/97), 2005(b) 2,553,750 3,500,000 Comcast Corp. cv. deb. 1 1/8s, 2007 1,452,500 2,050,000 National Education Corp. cv. sub. deb. 6 1/2s, 2011 1,127,500 5,500,000 News America Holdings Inc. cv. Liquid Yield Option Notes (LYON) zero %, 2013 2,145,000 8,234,000 Time-Warner, Inc. cv. deb. 8 3/4s, 2015 8,141,361 9,500,000 Time-Warner, Inc. cv. deb. LYON zero %, 2012 2,897,500 12,000,000 Turner Broadcasting System, Inc. cv. deb. LYON zero %, 2007 4,725,000 1,530,000 WMS Industries, Inc. cv. deb. 5 3/4s, 2002 1,384,650 ------------ 36,536,886 BUSINESS EQUIPMENT AND SERVICES (3.4%) --------------------------------------------------------------------------- 5,250,000 Conner Peripherals Inc. cv. sub. deb. 6 1/2s, 2002 4,114,688 6,000,000 Data General Corp. cv. sub. deb. 7 3/4s, 2001 5,220,000 4,165,000 EMC Corp. cv. deb. 4 1/4s, 2001 4,945,938 6,000,000 Maxtor Corp. cv. sub. deb. 5 3/4s, 2012 2,475,000 2,000,000 Seagate Technology Inc. cv. sub. deb. 6 3/4s, 2012 1,705,000 1,200,000 Sterling Software, Inc. cv. deb. 5 3/4s, 2003 1,446,000 4,250,000 Unisys Corp. cv. sub. notes 8 1/4s, 2000 4,908,750 ------------ 24,815,376 RETAIL (3.1%) --------------------------------------------------------------------------- 2,000,000 Baker (J.) Inc. cv. deb. 7s, 2002 2,300,000 4,500,000 Federated Department Stores, Inc. sr. cv. disc. notes stepped- coupon zero %, (6s, 2/15/95), 2004(b) 4,365,000 3,750,000 Food Lion, Inc. cv. deb. 5s, 2003 3,454,688 2,500,000 Ingles Markets, Inc. cv. sub. deb. 10s, 2008 2,681,250 1,750,000 Kroger Co. cv. deb. 6 3/8s, 1999 2,421,563 2,375,000 Lowes Companies Inc. cv. deb. 3s, 2003 3,716,876 1,800,000 Michaels Stores, Inc. cv. sub. notes stepped-coupon 4.75s, (6.75s, 1/15/96), 1/12/23(b) 2,094,750 2,000,000 Perry Drug Stores Inc. cv. sub. deb. 8 1/2s, 2010 1,740,000 ------------ 22,774,127 INSURANCE AND FINANCE (2.2%) --------------------------------------------------------------------------- 1,500,000 Alexander & Alexander Services, Inc. cv. sub. deb. 11s, 2007 1,531,875
12
CONVERTIBLE BONDS AND NOTES PRINCIPAL AMOUNT VALUE INSURANCE AND FINANCE (continued) --------------------------------------------------------------------------- $ 1,500,000 Midlantic Corp. cv. sub. deb. 8 1/4s, 2010 $ 1,462,500 5,000,000 NAC Re Corp. cv. deb. 5 1/4s, 2002 4,200,000 5,000,000 Old Republic International Corp. cv. sub. deb. 5 3/4s, 2002 4,975,000 1,335,000 Re Capital Inc. cv. deb. 5 1/2s, 2000 1,249,894 2,715,000 Trenwick Group, Inc. cv. deb. 6s, 1999 2,619,975 ------------ 16,039,244 HEALTH CARE (2.1%) --------------------------------------------------------------------------- 10,115,000 Alza Corp. cv. sub. notes LYON zero %, 2014 3,439,100 4,200,000 Cabot Medical Corp. cv. deb. 7 1/2s, 1999 3,654,000 1,990,000 Careline, Inc. cv. sr. sub. notes 8s, 2001 1,592,000 1,000,000 Hillhaven Corp. (The) cv. sub. deb. 7 3/4s, 2002 1,370,000 1,775,000 Integrated Health Services, Inc. cv. sub. deb. 6s, 2003 2,343,000 1,415,000 Quantum Health Resources Inc. cv. deb. 4 3/4s, 2000 1,821,813 1,000,000 Summit Health Ltd. cv. sub. notes 7 1/2s, 2003 1,120,000 ------------ 15,339,913 OIL AND GAS (2.0%) --------------------------------------------------------------------------- 2,520,000 Cross Timbers Oil Co. cv. deb. 5 1/4s, 2003 2,164,050 4,000,000 Pennzoil Co. cv. sub. deb. 6 1/2s, 2003 4,600,000 3,000,000 Pennzoil Co. cv. deb. 4 3/4s, 2003 2,662,500 1,000,000 Seacor Holdings cv. sub. deb. 6s, 2003 1,000,000 4,500,000 Wainoco Oil Corp. cv. sub. deb. 7 3/4s, 2014 4,230,000 ------------ 14,656,550 CONSUMER NON DURABLES (2.0%) --------------------------------------------------------------------------- 9,500,000 Coleman Worldwide Corp. cv. sr. sec. notes LYON zero %, 2013 2,612,500 3,295,000 Dibrell Brothers, Inc. cv. sub. deb. 7 3/4s, 2006 3,624,500 2,000,000 Dixie Yarns, Inc. cv. sub. deb. 7s, 2012 1,530,000 2,250,000 Fieldcrest Cannon, Inc. cv. sub. deb. 6s, 2012 1,755,000 1,500,000 L.A. Gear, Inc. cv. sub. deb. 7 3/4s, 2002 1,200,000 4,755,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 2007 3,328,500 ------------ 14,050,500 ELECTRONICS AND ELECTRICAL EQUIPMENT (1.9%) --------------------------------------------------------------------------- 1,560,000 Computer Products, Inc. cv. sub. deb. 9 1/2s, 1997 1,599,000 1,500,000 M/A-Com. Inc. cv. sub. deb. 9 1/4s, 2006 1,430,625 6,915,000 Motorola Inc. cv. deb. LYON zero %, 2013 4,952,869 500,000 Network Equipment Technologies Inc. cv. sub. deb. 7 1/4s, 2014 468,125 4,745,000 Richardson Electronics Ltd. cv. sub. deb. 7 1/4s, 2006 3,576,544 3,285,000 Solectron Corp. cv. sub. LYON zero %, 2012 1,905,300 ------------ 13,932,463 TRANSPORTATION (1.8%) --------------------------------------------------------------------------- 1,500,000 Delta Air Lines, Inc. cv. sub. notes 3.23s, 2003 1,068,750 2,000,000 Greyhound Lines, Inc. cv. deb. 8 1/2s, 2007(f) 492,500 1,500,000 Hudson General Corp. cv. sub. deb. 7s, 2011 1,177,500
13 CONVERTIBLE BONDS AND NOTES PRINCIPAL AMOUNT VALUE
TRANSPORTATION (continued) ---------------------------------------------------------------------------- $ 9,000,000 SFP Pipeline Holdings Inc. cv. variable rate exch. deb. 10.42s, 2010(c) $ 10,620,000 ------------- 13,358,750 ENVIRONMENTAL CONTROL (1.4%) ---------------------------------------------------------------------------- 2,300,000 Enclean, Inc. cv. sub. deb. 7 1/2s, 2001 2,406,375 2,500,000 OHM Corp. cv. sub. deb. 8s, 2006 2,137,500 15,000,000 Waste Management, Inc. cv. sub. LYON zero %, 2012 5,325,000 ------------- 9,868,875 REAL ESTATE (1.0%) ---------------------------------------------------------------------------- 1,400,000 Burnham Pacific Properties, Inc. cv. deb. 8 1/2s, 2002 1,398,250 2,350,000 Camden Property Trust cv. sub. deb. 7.33s, 2001 2,123,813 4,000,000 Liberty Property Trust cv. sub. deb. 8s, 2001 3,795,000 ------------- 7,317,063 RESTAURANTS (0.8%) ---------------------------------------------------------------------------- 3,300,000 Flagstar Corp. cv. jr. sub. deb. 10s, 2014 2,437,875 2,950,000 Wendy's International, Inc. cv. deb. 7s, 2006 3,746,500 ------------- 6,184,375 BUILDING AND CONSTRUCTION (0.8%) ---------------------------------------------------------------------------- 2,000,000 Empresas Ica Sociedad ADS cv. sub. deb. 5s, 2004(d) 2,047,500 1,500,000 Falcon Homes cv. sub. deb. 7 1/4s, 1999 1,365,000 1,200,000 Medusa Corp. cv. deb. 6s, 2003 1,116,000 1,805,000 U.S. Home Corp. cv. deb. 4 7/8s, 2005 1,186,788 ------------- 5,715,288 AEROSPACE AND DEFENSE (0.6%) ---------------------------------------------------------------------------- 4,500,000 GenCorp Inc. cv. sub. deb. 8s, 2002 4,359,375 150,000 UNC Inc. cv. sub. deb. 7 1/2s, 2006 123,000 ------------- 4,482,375 BASIC INDUSTRIAL PRODUCTS (0.6%) ---------------------------------------------------------------------------- 4,500,000 Albany International Corp. Ser. US, cv. deb. 5 1/4s, 2002 4,027,500 CONSUMER: DURABLE GOODS (0.4%) ---------------------------------------------------------------------------- 8,000,000 Whirpool Corp. cv. LYON zero %, 2011 3,045,000 AUTOMOTIVE (0.4%) ---------------------------------------------------------------------------- 1,000,000 Arvin Industries, Inc. cv. deb. 7 1/2s, 2014 1,010,000 1,590,000 Titan Wheel International Inc. cv. sub. deb. 4 3/4s, 2000 1,786,763 ------------- 2,796,763 BUSINESS SERVICES (0.4%) ---------------------------------------------------------------------------- 1,750,000 Manpower, Inc. cv. sub. notes 6 1/4s, 2002 2,791,250 METALS AND MINING (0.2%) ---------------------------------------------------------------------------- 5,000,000 Freeport-McMoRan, Inc. cv. sub. deb. zero %, 2006 1,737,500 UTILITIES (0.2%) ---------------------------------------------------------------------------- 1,000,000 Century Telephone Enterprises Inc. cv. deb. 6s, 2007 1,205,000 ------------- Total Convertible Bonds and Notes (cost $222,722,293) $220,674,798
14
CONVERTIBLE PREFERRED STOCKS (27.7%)(a) NUMBER OF SHARES VALUE INSURANCE AND FINANCE (5.3%) - -------------------------------------------------------------------------------- 50,000 Banc One Corp. Ser. C, $3.50 cv. pfd. $ 2,687,500 70,000 BankAmerica Corp. Ser. G, $3.25 cv. pfd. 3,710,000 18,000 Chemical Banking Corp. $5.00 cv. pfd. 1,314,000 40,000 Citicorp Ser. 13, $5.375 cv. pfd. 5,290,000 61,000 First Bank System, Inc. Ser. 91-A, $3.5625, cv. pfd. 3,965,000 40,000 First USA, Inc. $6.25 cv. pfd. 1,380,000 30,000 Peoples Bank Ser. A, $4.25 cv. pfd. 2,302,500 75,000 Republic New York Corp. $3.375, cv. pfd. 3,993,750 26,100 Roosevelt Financial Group, Inc. $3.25 cv. pfd. 1,539,900 82,400 Southern National Corp. Ser A, $1.6875 cv. pfd. 2,554,400 55,000 Sunamerica Inc. Ser. D, $2.78 cv. pfd. 2,124,375 64,929 USF&G Corp. Ser. C, $5.00 cv. pfd. 3,733,415 62,000 USF&G Corp. Ser. A, $4.10 cv. pfd. 2,883,000 35,000 Union Planters Corp. Ser. E, $2.00 cv. pfd. 1,067,500 -------------- 38,545,340 METALS AND MINING (4.3%) - -------------------------------------------------------------------------------- 35,166 Alumax, Inc. Ser. A, $4.00 cv. pfd. 4,501,248 26,425 Amax Gold, Inc. Ser. B, $3.75 cv. pfd. 1,400,525 65,000 Armco, Inc. $3.625 cv. pfd. 3,510,000 25,000 Bethlehem Steel Corp. $5.00 cum. cv. pfd. 1,337,500 13,333 Cyprus Amax Minerals Co. Ser. A, $4.00 cv. pfd. 829,979 125,000 Freeport-McMoRan, Inc. $4.375 cv. pfd.(e) 5,921,875 200,000 Freeport-McMoRan Copper Co., Inc. stepped-coupon $1.25, (7s, 8/1/96), cv. pfd.(b) 4,600,000 71,050 Kaiser Aluminum Corp. Prides $0.97 cv. pfd. 799,313 60,750 Pittston Corp. $3.125, cv. pfd. 2,612,250 55,000 Quanex Corp. $1.72 cv. pfd. 1,333,750 20,000 Reynolds Metals Co. $3.31 cv. pfd. 1,050,000 60,000 WHX Corp. Ser. A, $3.25 cv. pfd. 3,247,500 -------------- 31,143,940 OIL AND GAS (3.9%) - -------------------------------------------------------------------------------- 54,100 Ashland Oil Corp. $3.125 cv. pfd. 3,421,825 295,681 Atlantic Ritchfield Co. $2.23 cv. pfd. 8,020,347 65,000 Grant Geophysical, Inc. $2.4375 cv. pfd. 869,375 130,085 McDermott International, Inc. Ser. C, $2.875 cum. cv. pfd.(e) 5,512,352 33,500 Reading & Bates Corp. $1.625 cv. pfd. 816,563 75,520 Santa Fe Energy Resources, Inc. $1.40 cv. pfd. 1,331,040 35,400 Tejas Gas Corp. $2.65 cv. pfd. 1,522,200 77,000 Unocal Corp. $3.50, cv. pfd. 4,196,500 71,000 Western Gas Resources Inc. $2.625 cv. pfd. 2,431,750 -------------- 28,121,952 TRANSPORTATION (2.5%) - -------------------------------------------------------------------------------- 73,725 AMR Corp. Ser. A, $3.00, cv. pfd.(e) 3,059,588 36,700 Arkansas Best Corp. Ser. A, $2.875 cv. pfd. 1,601,038 92,500 Burlington Northern, Inc. Ser. A, $3.125, cum. cv. pfd. 5,480,625 210,000 Consolidated Freightways Inc. (Del.) $1.54 cv. pfd. 4,646,250 55,000 Delta Air Lines, Inc. Ser. C, $3.50, cv. pfd. 2,633,125 20,000 Sea Containers Ltd. $4.00 cv. pfd. 880,000 -------------- 18,300,626
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CONVERTIBLE PREFERRED STOCKS NUMBER OF SHARES VALUE AUTOMOTIVE (1.5%) - -------------------------------------------------------------------------------- 40,250 Chrysler Corp. Ser. A, $4.625 dep. shs. cv. pfd.(e) $ 5,484,063 59,500 Ford Motor Co. Ser. A, $4.20, cv. pfd. 5,756,625 -------------- 11,240,688 REAL ESTATE (1.3%) - -------------------------------------------------------------------------------- 15,000 Catellus Development Corp. Ser. A, $3.75 cv. pfd. 774,375 195,000 Property Trust America Ser. A, $1.75 cv. pfd. 4,216,875 67,950 Rouse Co. ser. A, $3.25 cv. pfd. 3,363,525 72,090 Tanger Factory Outlet Centers $1.575 cv. pfd. 1,477,845 -------------- 9,832,620 CONGLOMERATES (1.2%) - -------------------------------------------------------------------------------- 210,000 Tenneco Inc. $2.80 cv. pfd. 8,741,250 BUSINESS EQUIPMENT AND SERVICES (1.1%) - -------------------------------------------------------------------------------- 230,000 Unisys Corp. Ser. A, $3.75 cv. pfd. 7,963,750 ELECTRONICS AND ELECTRICAL EQUIPMENT (0.9%) - -------------------------------------------------------------------------------- 447,000 Westinghouse Electric Corp. Ser. C, $1.30 cv. pfd.(e) 6,537,375 BASIC INDUSTRIAL PRODUCTS (0.8%) - -------------------------------------------------------------------------------- 43,000 AGCO Corp. $1.625, cv. pfd. 3,106,750 130,000 Cooper Industries Inc. $1.60 cv. pfd. 2,957,500 -------------- 6,064,250 FOOD AND BEVERAGES (0.8%) - -------------------------------------------------------------------------------- 60,000 Chiquita Brands International Inc. $5.75 cv. pfd. 2,452,500 103,100 Conagra, Inc. $1.6875 cv. pfd. 3,415,188 -------------- 5,867,688 HEALTH CARE (0.8%) - -------------------------------------------------------------------------------- 50,000 Beverly Enterprises, Inc. $2.75 cv. pfd. 3,093,750 60,000 Maxicare Health Plans, Inc. $2.25 cv. pfd.(e) 2,580,000 -------------- 5,673,750 RETAIL (0.8%) - -------------------------------------------------------------------------------- 99,000 Sears, Roebuck & Co. $3.75 cv. pfd. 5,605,875 FOREST PRODUCTS (0.6%) - -------------------------------------------------------------------------------- 25,000 Boise Cascade Corp. Ser. G, $1.58, cv. pfd. 615,625 150,000 Bowater, Inc. Prides $1.645 cv. pfd. 3,900,000 -------------- 4,515,625 CONSUMER NON DURABLES (0.6%) - -------------------------------------------------------------------------------- 30,000 Corning, Inc. $3.00 cv. pfd. 1,533,750 43,825 Fieldcrest Cannon, Inc. $3.00, cv. pfd.(e) 2,289,856 50,000 Galoob (Lewis) Toys, Inc. $1.70 cv. pfd. 687,500 -------------- 4,511,106 COMPUTER SERVICES/SOFTWARE (0.6%) - -------------------------------------------------------------------------------- 70,000 Ceridian Corp. $2.75 cv. pfd. 4,340,000 ENERGY-RELATED (0.6%) - -------------------------------------------------------------------------------- 32,800 Diamond Shamrock, Inc. $2.50 cv. pfd.(e) 1,951,600 8,000 Maxus Energy Corp. $4.00 cv. pfd. 293,000 85,500 Noble Drilling Corp. $1.50 cv. pfd. 2,094,750 -------------- 4,339,350
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CONVERTIBLE PREFERRED STOCKS NUMBER OF SHARES VALUE BUILDING AND CONSTRUCTION (0.1%) - -------------------------------------------------------------------------------- 24,800 Southdown, Inc. $2.875 cv. pfd. $ 923,800 -------------- Total Convertible Preferred Stocks (cost $204,856,113) $ 202,268,985
COMMON STOCKS (25.0%)(a) NUMBER OF SHARES VALUE INSURANCE AND FINANCE (4.2%) - -------------------------------------------------------------------------------- 30,000 AON Corp. $ 933,750 30,000 Aetna Life & Casualty Co. 1,383,750 35,000 American Express Co. 1,076,250 36,300 Banc One Corp. 1,048,163 25,000 BankAmerica Corp. 1,087,500 23,000 Bankers Trust New York Corp. 1,535,250 45,000 Beneficial Corp. 1,760,625 22,800 CIGNA Corp. 1,501,950 50,000 Comerica Inc. 1,381,250 60,000 CoreStates Financial Corp. 1,552,500 25,000 First Bank System, Inc. 931,250 20,000 First Fidelity Bancorp 900,000 9,800 First Interstate Bancorp 784,000 50,000 Great Western Financial Corp. 893,750 35,000 Household International, Inc. 1,229,375 30,000 ITT Corp. 2,647,500 27,000 Lincoln National Corp. 978,750 55,000 MBNA Corp. 1,471,250 40,000 Morgan (J.P.) & Co., Inc. 2,475,000 60,000 National City Corp. 1,627,500 19,400 St. Paul Cos., Inc. 846,325 89,692 USF&G Corp. 1,222,056 8,000 Wells Fargo & Co. 1,189,000 -------------- 30,456,744 OIL AND GAS (2.9%) - -------------------------------------------------------------------------------- 13,000 Atlantic Richfield Co. 1,408,875 26,000 British Petroleum Co., PLC 2,210,000 30,000 Chevron Corp. 1,350,000 55,000 Exxon Corp. 3,458,125 21,000 Imperial Oil Ltd. 753,375 30,000 McDermott International, Inc. 768,750 18,000 Mobil Corp. 1,548,000 29,500 Pennzoil Co. 1,519,250 35,000 Phillips Petroleum Co. 1,290,625 20,000 Royal Dutch Petroleum Co. 2,330,000 40,000 Sonat, Inc. 1,300,000 30,000 Texaco Inc. 1,961,250 40,000 Unocal Corp. 1,170,000 -------------- 21,068,250
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COMMON STOCKS NUMBER OF SHARES VALUE UTILITIES (2.5%) - -------------------------------------------------------------------------------- 30,000 American Telephone & Telegraph Co. $ 1,650,000 26,000 Ameritech Corp. 1,049,750 18,000 BellSouth Corp. 958,500 35,805 Cinergy Corp. 827,991 30,000 Detroit Edison Co. 791,250 22,000 Entergy Corp. 514,250 66,300 GTE Corp. 2,038,725 20,000 Houston Industries Inc. 697,500 50,000 NYNEX Corp. 1,962,500 53,000 Northeast Utilities 1,225,625 25,000 Pacific Telesis Group 790,625 30,000 Public Service Co. of Colorado 817,500 60,000 SCE Corp. 832,500 30,000 Sprint Corp. 978,750 20,000 Telefonos de Mexico S.A., Ser. L, ADR (d) 1,102,500 40,000 Texas Utilities Electric Co. 1,305,000 24,000 US WEST, Inc. 903,000 -------------- 18,445,966 CONSUMER NON DURABLES (1.8%) - -------------------------------------------------------------------------------- 35,000 American Brands, Inc. 1,216,250 30,000 Avon Products, Inc. 1,897,500 20,000 Clorox Co. 1,080,000 15,000 Colgate-Palmolive Co. 915,000 40,000 Dial Corp. (The) 825,000 25,200 Kimberly-Clark Corp. 1,297,800 80,000 Philip Morris Cos., Inc. 4,900,000 45,000 Universal Corp. 1,012,500 -------------- 13,144,050 HEALTH CARE (1.5%) - -------------------------------------------------------------------------------- 15,000 American Cyanamid Co. 1,481,250 30,000 American Home Products Corp. 1,905,000 70,000 Baxter International Inc. 1,820,000 20,000 Bristol-Myers Squibb Co. 1,167,500 25,000 Lilly (Eli) & Co. 1,550,000 10,000 Pfizer, Inc. 741,250 30,000 Upjohn Co. 990,000 15,000 Warner-Lambert Co. 1,143,750 -------------- 10,798,750 CHEMICALS (1.4%) - -------------------------------------------------------------------------------- 27,550 Dow Chemical Co. 2,024,923 14,000 duPont (E.I.) de Nemours & Co., Ltd. 834,750 30,000 Grace (W.R.) & Co. 1,188,750 34,175 Lubrizol Corp. 1,102,144 31,000 Olin Corp. 1,701,125 20,000 PPG Industries Inc. 815,000 40,000 Union Carbide Corp. 1,325,000 45,000 Witco Chemical Corp. 1,260,000 -------------- 10,251,692 CONGLOMERATES (1.1%) - -------------------------------------------------------------------------------- 25,000 Johnson Controls Inc. 1,243,750 60,000 Ogden Corp. 1,290,000
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COMMON STOCKS NUMBER OF SHARES VALUE CONGLOMERATES (continued) - -------------------------------------------------------------------------------- 25,100 TRW, Inc. $ 1,788,375 20,000 Tenneco Inc. 885,000 25,000 Textron, Inc. 1,275,000 20,000 United Technologies Corp. 1,260,000 -------------- 7,742,125 PHOTOGRAPHY (0.9%) - -------------------------------------------------------------------------------- 133,744 Eastman Kodak Co. 6,436,430 BUSINESS EQUIPMENT AND SERVICES (0.9%) - -------------------------------------------------------------------------------- 40,000 IBM Corp. 2,980,000 33,000 Xerox Corp. 3,382,500 -------------- 6,362,500 AUTOMOTIVE (0.9%) - -------------------------------------------------------------------------------- 30,000 Chrysler Corp. 1,462,500 15,427 Daimler Benz AKT ADR (d) 784,849 60,000 Ford Motor Co. 1,770,000 35,000 General Motors Corp. 1,382,500 25,000 Genuine Parts Co. 903,125 -------------- 6,302,974 REAL ESTATE (0.9%) - -------------------------------------------------------------------------------- 15,800 Federal Realty Investment Trust 333,775 151,000 LTC Properties Inc. 1,944,125 55,000 National Health Investors, Inc. 1,505,625 10,000 Nationwide Health Properties, Inc. 351,250 175,000 South West Property Trust, Inc. 2,143,750 -------------- 6,278,525 FOOD AND BEVERAGES (0.8%) - -------------------------------------------------------------------------------- 20,000 Anheuser-Busch Cos., Inc. 1,015,000 40,000 Brown Forman Corp. Class B 1,230,000 19,300 CPC International Inc. 1,032,550 30,000 Heinz (H.J.) Co. 1,113,750 10,000 Quaker Oats Co. (The) 748,750 20,000 Seagram Co. Ltd. 617,500 -------------- 5,757,550 ELECTRONICS AND ELECTRICAL EQUIPMENT (0.7%) - -------------------------------------------------------------------------------- 15,000 Emerson Electric Co. 911,250 52,000 General Electric Co. 2,541,500 14,900 Harris Corp. 638,838 63,000 Westinghouse Electric Corp. 889,875 -------------- 4,981,463 RETAIL (0.6%) - -------------------------------------------------------------------------------- 50,000 K mart Corp. 818,750 18,300 Penney (J.C.) Co., Inc. 926,438 35,000 Sears, Roebuck & Co. 1,732,500 55,000 Woolworth Corp. 852,500 -------------- 4,330,188 ENVIRONMENTAL CONTROL (0.5%) - -------------------------------------------------------------------------------- 420,000 Chemical Waste Management, Inc. (f) 3,990,000
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COMMON STOCKS NUMBER OF SHARES VALUE CONSUMER SERVICES (0.5%) - -------------------------------------------------------------------------------- 24,600 Block (H & R), Inc. $ 1,091,625 30,000 Knight-Ridder, Inc. 1,545,000 18,000 McGraw-Hill, Inc. 1,345,500 -------------- 3,982,125 TRANSPORTATION (0.5%) - -------------------------------------------------------------------------------- 16,000 Burlington Northern Inc. 798,000 6,000 CSX Corp. 435,000 40,000 Illinois Central Corp. 1,285,000 15,000 Norfolk Southern Corp. 945,000 10,000 Union Pacific Corp. 488,750 -------------- 3,951,750 BASIC INDUSTRIAL PRODUCTS (0.5%) - -------------------------------------------------------------------------------- 45,000 Ball Corp. 1,271,250 50,000 Dresser Industries, Inc. 1,056,250 30,000 General Signal Corp. 1,080,000 -------------- 3,407,500 AEROSPACE AND DEFENSE (0.4%) - -------------------------------------------------------------------------------- 60,000 GenCorp Inc. 720,000 25,000 Northrop Grumman Corp. 1,096,875 35,350 Rockwell International Corp. 1,232,831 -------------- 3,049,706 FOREST PRODUCTS (0.4%) - -------------------------------------------------------------------------------- 12,000 International Paper Co. 894,000 25,000 Potlatch Corp. 956,250 24,000 Union Camp Corp. 1,140,000 -------------- 2,990,250 METALS AND MINING (0.4%) - -------------------------------------------------------------------------------- 10,000 Aluminum Co. of America 852,500 50,000 Freeport-McMoRan, Inc. 918,750 50,000 Freeport-McMoRan Copper Co., Inc. Class A 1,137,500 -------------- 2,908,750 TELECOMMUNICATIONS (0.2%) - -------------------------------------------------------------------------------- 25,000 Airtouch Communications, Inc. (f) 746,875 50,000 Comsat Corp. 1,075,000 -------------- 1,821,875 CONSUMER SERVICES (0.2%) - -------------------------------------------------------------------------------- 28,000 Dun & Bradstreet Corp. 1,641,500 FOOD (0.2%) - -------------------------------------------------------------------------------- 60,000 Sara Lee Corp. 1,477,500 ENERGY-RELATED (0.1%) - -------------------------------------------------------------------------------- 40,000 Westcoast Energy, Inc. 655,000 COMPUTER SERVICES/SOFTWARE (-%) - -------------------------------------------------------------------------------- 745 Harris Computer Systems Corp. 10,430 -------------- Total Common Stocks (cost $163,732,261) $ 182,243,593
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EUROBONDS (4.5%)(a) PRINCIPAL AMOUNT VALUE INSURANCE AND FINANCE (1.7%) - -------------------------------------------------------------------------------- $ 3,800,000 Aegon NV cv. sub. 4 3/4s, 2004 (e) $ 3,838,000 1,500,000 Banamex cv. deb. 7s, 1999 1,650,000 5,050,000 Chubb Corp. cv. deb. 6s, 1998 5,050,000 750,000 Hanson America Inc. cv. sr. notes 2.39s, 2001 540,938 1,200,000 Industrial Credit & Investor India Ltd. cv. deb. 2 1/2s, 2000 1,026,000 -------------- 12,104,938 SPECIALTY CONSUMER PRODUCTS (0.6%) - -------------------------------------------------------------------------------- 5,945,000 CML Group, Inc. cv. deb. 5 1/2s, 2003 4,339,850 CONSUMER NON DURABLES (0.5%) - -------------------------------------------------------------------------------- 3,300,000 American Brands, Inc. cv. deb. 5 3/4s, 2005 3,762,000 FOREST PRODUCTS (0.5%) - -------------------------------------------------------------------------------- 3,000,000 International Paper Co. cv, deb. 5 3/4s, 2002 3,322,500 HEALTH CARE (0.2%) - -------------------------------------------------------------------------------- 1,495,000 Abbey Healthcare Group cv. sub. 6 1/2s, 2002 1,749,150 ELECTRONICS AND ELECTRICAL EQUIPMENT (0.2%) - -------------------------------------------------------------------------------- 1,410,000 Thermo Instrument Systems Inc. cv. deb. 3 3/4s, 2000 1,494,600 CONSUMER SERVICES (0.2%) - -------------------------------------------------------------------------------- 1,360,000 Pharmaceutical Marketing Services Inc. cv. deb. 6 1/4s, 2003(e) 1,026,800 680,000 Pharmaceutical Marketing Services Inc. cv. notes 6 1/4s, 2003 520,200 -------------- 1,547,000 METALS AND MINING (0.2%) - -------------------------------------------------------------------------------- 750,000 Essar Gujarat Ltd. cv. 5 1/2s, 1998 1,522,500 BASIC INDUSTRIAL PRODUCTS (0.2%) - -------------------------------------------------------------------------------- 600,000 Dart & Kraft Inc. cv. deb. 7 3/4s, 1998 1,347,000 FOOD AND BEVERAGES (0.2%) - -------------------------------------------------------------------------------- 1,500,000 Chiquita Brands International Inc. cv. sub. 7s, 2001 1,275,000 CONGLOMERATES (-%) - -------------------------------------------------------------------------------- 400,000 Fuqua Industries, Inc. cv. deb. 6 1/2s, 2002 278,000 -------------- Total Eurobonds (cost $33,559,058) $ 32,742,538
YANKEE BONDS AND NOTES (2.5%)(a) PRINCIPAL AMOUNT VALUE $ 3,250,000 Amoco Canada Petroleum Co. cv. deb. 3/8s, 2013 $ 4,013,750 13,000,000 Hollinger, Inc. cv. notes LYON, zero %, 2013 3,835,000 5,500,000 Rogers Communications Inc. cv. deb. 2s, 2005 3,190,000 4,000,000 Rogers Communications Inc. cv. LYON, zero %, 2013 1,460,000 3,700,000 SKF Corp. cv. LYON, zero %, 2002 (e) 2,425,813 3,360,000 Teck Corp. cv. sub. deb. 3 3/4s, 2006 3,246,600 -------------- Total Yankee Bonds and Notes (cost $18,020,880) $ 18,171,163
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UNITS (0.6%)(a) NUMBER OF UNITS VALUE - -------------------------------------------------------------------------------- 2,500,000 Siemens A.G. euro. units 8s, 2002 $ 3,162,500 35,000 SmithKline Beecham PLC Equity Units ADR (d) 1,067,500 -------------- Total Units (cost $4,096,344) $ 4,230,000
SHORT-TERM INVESTMENTS (8.3%)(a) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- $20,000,000 Federal Farm Credit Bank 4.8s, November 23, 1994 $ 19,941,333 15,265,000 Federal Home Loan Mortgage Corp. 4.87s, November 29, 1994 15,207,180 25,538,000 Interest in $497,257,000 joint repurchase agreement dated October 31, 1994 with Lehman Brothers, Inc. due November 1, 1994 with respect to various U.S. Treasury Obligations -- maturity value of $25,541,370 for an effective yield of 4.75% 25,541,370 -------------- Total Short-Term Investments (cost $60,689,883) $ 60,689,883 -------------- Total Investments (cost $707,676,832)(g) $ 721,020,960 ==============
(a) Percentages indicated are based on net assets of $729,377,706, which correspond to a net asset value per class A and class B shares of $19.09 and $19.00, respectively. (b) The interest rate shown parenthetically represent the next interest rate to be paid and the date the fund will begin accruing at this rate. (c) Income may be received in cash or additional securities at the discretion of the issuer. (d) Securities whose values are determined or significantly influenced by trading on exchanges not in the United States or Canada. ADR or ADS after the name of a foreign holding stands for American Depository Receipt or American Depository Shares, respectively, representing ownership of foreign securities on deposit with a domestic custodian bank. (e) Securities 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. At October 31, 1994 these securities were valued at $40,627,322 or 5.6% of net assets. (f) Non-income-producing security. (g) The aggregate identified cost for federal income tax purposes is $707,209,110 resulting in gross unrealized appreciation and depreciation of $62,436,386 and $48,624,536 respectively or net unrealized appreciation of $13,811,850. The accompanying notes are an integral part of these financial statements. 22 STATEMENT OF ASSETS AND LIABILITIES October 31, 1994
ASSETS - -------------------------------------------------------------------------------- Investments in securities, at value (identified cost $707,676,832) (Note 1) $ 721,020,960 - -------------------------------------------------------------------------------- Dividends, interest and other receivables 5,264,676 - -------------------------------------------------------------------------------- Receivable for shares of the fund sold 968,370 - -------------------------------------------------------------------------------- Receivable for securities sold 11,136,080 - -------------------------------------------------------------------------------- Total assets 738,390,086 - -------------------------------------------------------------------------------- LIABILITIES - -------------------------------------------------------------------------------- Payable for shares of the fund repurchased 861,192 - -------------------------------------------------------------------------------- Payable for securities purchased 6,937,651 - -------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 753,948 - -------------------------------------------------------------------------------- Payable for administrative services (Note 2) 5,199 - -------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 1,510 - -------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 157,571 - -------------------------------------------------------------------------------- Payable for distribution fees (Note 2) 173,465 - -------------------------------------------------------------------------------- Other accrued expenses 121,844 - -------------------------------------------------------------------------------- Total liabilities 9,012,380 - -------------------------------------------------------------------------------- Net assets $729,377,706 - -------------------------------------------------------------------------------- Represented by Paid-in capital (Notes 1, 4, and 5) $657,883,971 - -------------------------------------------------------------------------------- Undistributed net investment income (Notes 1 and 5) 14,316,064 - -------------------------------------------------------------------------------- Accumulated net realized gain on investment transactions (Notes 1 and 5) 43,833,543 - -------------------------------------------------------------------------------- Unrealized appreciation of investments 13,344,128 - -------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $729,377,706 - -------------------------------------------------------------------------------- Computation of net asset value and offering price - -------------------------------------------------------------------------------- Net asset value and redemption price class A shares ($697,946,204 divided by 36,552,614 shares) $ 19.09 - -------------------------------------------------------------------------------- Offering price per class A share (100/94.25 of $19.09)* $ 20.25 - -------------------------------------------------------------------------------- Net asset value and offering price of class B shares ($31,431,502 divided by 1,653,890 shares)+ $ 19.00 - --------------------------------------------------------------------------------
* 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. 23 STATEMENT OF OPERATIONS Year ended October 31, 1994
INVESTMENT INCOME: - -------------------------------------------------------------------------------- Interest $ 20,662,719 - -------------------------------------------------------------------------------- Dividends (net of foreign tax of $41,184) 16,101,072 - -------------------------------------------------------------------------------- Total investment income 36,763,791 - -------------------------------------------------------------------------------- EXPENSES: - -------------------------------------------------------------------------------- Compensation of Manager (Note 2) $ 3,626,177 - -------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 867,564 - -------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 26,639 - -------------------------------------------------------------------------------- Reports to shareholders 246,356 - -------------------------------------------------------------------------------- Auditing 28,687 - -------------------------------------------------------------------------------- Legal 20,976 - -------------------------------------------------------------------------------- Postage 198,629 - -------------------------------------------------------------------------------- Registration fees 14,114 - -------------------------------------------------------------------------------- Distribution fees -- Class A (Note 2) 1,741,906 - -------------------------------------------------------------------------------- Distribution fees -- Class B (Note 2) 196,778 - -------------------------------------------------------------------------------- Administrative services (Note 2) 16,207 - -------------------------------------------------------------------------------- Other expenses 17,392 - -------------------------------------------------------------------------------- Total expenses 7,001,425 - -------------------------------------------------------------------------------- Net investment income 29,762,366 - -------------------------------------------------------------------------------- Net realized gain on investments (Notes 1 and 3) 46,186,880 - -------------------------------------------------------------------------------- Net unrealized depreciation of investments during the year (63,310,458) - -------------------------------------------------------------------------------- Net loss on investments (17,123,578) - -------------------------------------------------------------------------------- Net increase in net assets resulting from operations $ 12,638,788 - --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. 24 STATEMENT OF CHANGES IN NET ASSETS
Year ended October 31 ------------------------------- 1994 1993 - -------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS - -------------------------------------------------------------------------------------------- Operations: - -------------------------------------------------------------------------------------------- Net investment income $ 29,762,366 $ 30,096,658 - -------------------------------------------------------------------------------------------- Net realized gain on investments 46,186,880 64,470,361 - -------------------------------------------------------------------------------------------- Net realized loss on options -- (467,794) - -------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investments and options (63,310,458) 35,257,250 - -------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 12,638,788 129,356,475 - -------------------------------------------------------------------------------------------- Undistributed net investment income included in price of shares sold and repurchased, net -- (7,565) - -------------------------------------------------------------------------------------------- Distributions to shareholders from: - -------------------------------------------------------------------------------------------- Net investment income -- Class A (26,305,107) (33,011,424) - -------------------------------------------------------------------------------------------- Net investment income -- Class B (686,066) (20,738) - -------------------------------------------------------------------------------------------- Net realized gain on investments -- Class A (31,369,489) -- - -------------------------------------------------------------------------------------------- Net realized gain on investments -- Class B (510,511) -- - -------------------------------------------------------------------------------------------- Increase from capital share transactions (Note 4) 63,202,221 16,225,598 - -------------------------------------------------------------------------------------------- Total increase in net assets 16,969,836 112,542,346 NET ASSETS - -------------------------------------------------------------------------------------------- Beginning of year 712,407,870 599,865,524 - -------------------------------------------------------------------------------------------- End of year (including undistributed net investment income of $14,316,064 and $3,825,900, respectively) $729,377,706 $712,407,870 - --------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. 25 FINANCIAL HIGHLIGHTS (For a share outstanding throughout the period)
July 15, 1993 (commencement of operations) Year ended to October 31 October 31 Year ended October 31 - ----------------------------------------------------------------------------------------------------------------------------------- 1994 1993 1994 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------------------------- Class B - ----------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $20.35 $19.53 $20.38 $17.60 $15.78 $12.12 - ----------------------------------------------------------------------------------------------------------------------------------- Investment Operations - ----------------------------------------------------------------------------------------------------------------------------------- Net Investment Income .74 .23 .81 .87 .89 .88 - ----------------------------------------------------------------------------------------------------------------------------------- Net Realized and Unrealized Gain (Loss) on Investments (.55) .82 (.46) 2.87 1.89 3.74 - ----------------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations .19 1.05 .35 3.74 2.78 4.62 - ----------------------------------------------------------------------------------------------------------------------------------- Less Distributions from: Net Investment Income (a) (.66) (.23) (.74) (.96) (.96) (.96) - ----------------------------------------------------------------------------------------------------------------------------------- Net Realized Gain on Investments (.88) -- (.90) -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Total Distributions (1.54) (.23) (1.64) (.96) (.96) (.96) - ----------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, End of Period $19.00 $20.35 $19.09 $20.38 $17.60 $15.78 - ----------------------------------------------------------------------------------------------------------------------------------- Total Investment Return at Net Asset Value (%) (b) 1.00 5.43(c) 1.84 21.74 18.16 39.05 - ----------------------------------------------------------------------------------------------------------------------------------- Net Assets, End of Period (in thousands) $31 ,432 $4,439 $697,946 $707,969 $599,866 $570,752 - ----------------------------------------------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets (%) 1.71 .52(c) .96 .96 1.11 1.15 - ----------------------------------------------------------------------------------------------------------------------------------- Ratio of Net Investment Income to Average Net Assets (%) 3.58 .91(c) 4.16 4.55 5.32 6.07 - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Turnover (%) 48.37 66.63 48.37 66.63 59.89 78.72 - -----------------------------------------------------------------------------------------------------------------------------------
26
Eleven months ended Year ended October 31 October 31 - ----------------------------------------------------------------------------------------------------------------------------------- 1990 1989 1988 1987 1986 1985 - ----------------------------------------------------------------------------------------------------------------------------------- Class A - ----------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $15.56 $14.42 $14.24 $16.44 $14.43 $12.73 - ----------------------------------------------------------------------------------------------------------------------------------- Investment Operations - ----------------------------------------------------------------------------------------------------------------------------------- Net Investment Income .95 .97 .88 .86 .93 .89 - ----------------------------------------------------------------------------------------------------------------------------------- Net Realized and Unrealized Gain (Loss) on Investments (3.35) 1.13 .87 (1.83) 2.47 1.68 - ----------------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations (2.40) 2.10 1.75 (.97) 3.40 2.57 - ----------------------------------------------------------------------------------------------------------------------------------- Less Distributions from: Net Investment Income (a) (1.04) (.96) (.96) (.96) (.95) (.68) - ----------------------------------------------------------------------------------------------------------------------------------- Net Realized Gain on Investments -- -- (.61) (.27) (.44) (.19) - ----------------------------------------------------------------------------------------------------------------------------------- Total Distributions (1.04) (.96) (1.57) (1.23) (1.39) (.87) - ----------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, End of Period $12.12 $15.56 $14.42 $14.24 $16.44 $14.43 - ----------------------------------------------------------------------------------------------------------------------------------- Total Investment Return at Net Asset Value (%) (b) (16.46) 14.90 13.40 (7.00) 24.55 20.57(c) - ----------------------------------------------------------------------------------------------------------------------------------- Net Assets, End of Period (in thousands) $528,648 $820,609 $950,280 $1,070,783 $825,562 $225,272 - ----------------------------------------------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets (%) 1.12 .93 .92 .84 .83 .88(c) - ----------------------------------------------------------------------------------------------------------------------------------- Ratio of Net Investment Income to Average Net Assets (%) 6.37 6.32 6.12 4.91 5.54 6.21(c) - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Turnover (%) 60.03 49.44 115.87 87.45 77.51 119.78(c) - -----------------------------------------------------------------------------------------------------------------------------------
(a) $0.017 of distributions from net investment income for the year ended October 31, 1990 represents return of capital for federal income tax purposes. (b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (c) Not annualized. 27 NOTES TO FINANCIAL STATEMENTS October 31, 1994 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES The fund is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The fund seeks current income and capital appreciation by investing primarily in bonds and preferred stocks convertible into common stock with capital preservation as a secondary objective. The fund offers both class A and class B shares. Class A shares are sold with a maximum front-end sales charge of 5.75%. Class B shares do not pay a front-end sales charge, but pay a higher ongoing distribution fee than class A shares, and may be subject to a contingent deferred sales charge, if those shares are redeemed within six years of purchase. In addition, the Trustees declare separate dividends on each class of shares. Expenses of the fund are borne pro-rata by the shareholders of both classes of shares. Each class bears expenses unique to that class including the distribution fees applicable to such class. Each 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. Shareholders 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 policies are in conformity with generally accepted accounting principles. 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, except that U.S. government obligations are stated at the mean between the last reported bid and asked prices. 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. The order permits the fund's cash balance to be deposited into a single joint account along with the cash of other registered investment companies managed by Putnam Investment Management, Inc. (Putnam Management), the fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc., and certain accounts of other affiliates of the fund. 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. The fund's Manager is 28 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 and 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. Discount on zero coupon bonds and stepped-coupon bonds are accreted according to the effective yield method. Certain securities held by the fund pay interest in the form of additional securities; interest on such securities is recorded on the accrual basis by means of the effective yield method, and is allocated to the cost of the securities received on the payment date. E OPTION ACCOUNTING PRINCIPLES When the fund writes a call or put option, an amount equal to the premium received by the fund is included in the fund's "statement of assets and liabilities" as an asset and an equivalent liability. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option written. The current market value of an option is the last sale price or, in the absence of a sale, the last offering price. If an option expires on its stipulated expiration date, or if the fund enters into a closing purchase transaction, the fund realizes a gain (or loss if the cost of a closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written call option is exercised, the fund realizes a gain or loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. If a written put option is exercised, the amount of the premium originally received reduces the cost of the security or currency the fund purchases upon exercise of the option. The fund writes covered call options; that is, options for which it holds the underlying security or its equivalent. Accordingly, the risk in writing a call option is that the fund relinquishes the opportunity to profit if the market price of the underlying security increases and the option is exercised. In writing a put option, the fund assumes the risk of incurring a loss if the market price of the underlying security decreases and the option is exercised. The premium paid by the fund for the purchase of a call or put option is included in the fund's "statement of assets and liabilities" as an investment and subsequently "marked-to-market" to reflect the current market value of the option. If an option the fund has purchased expires on the stipulated expiration date, the fund realizes a loss in the amount of the cost of the option. If the fund enters into a closing sale transaction, the fund realizes a gain or loss, depending on whether the proceeds from the closing sale transaction are greater or less than the cost of the option. If the fund exercises a call option, the cost of the securities or currencies acquired by exercising the call is increased by the premium paid to buy the call. If the fund exercises a put option, it realizes a gain or loss from the sale of the underlying security or currency and the proceeds from such sale are decreased by the premium originally paid. Stock index options are similar to options on individual securities in that the purchaser of an index option acquires the right to buy, and the writer undertakes the obligation to sell, an index at a stated exercise price during the term of the option. Instead of giving the right to take or make actual delivery of securities, the holder of a stock index option has the right to receive a cash "exercise settle- 29 ment amount." This amount is equal to the amount by which the fixed exercise price of the option exceeds (in the case of a put) or is less than (in the case of a call) the closing value of the underlying index on the date of the exercise, multiplied by a fixed "index multiplier." The fund writes options on stock indices only to the extent that it holds in its portfolio underlying securities, which, in the judgment of Putnam Management, correlate closely with the stock index. F FEDERAL TAXES It is the policy of the fund to distribute all of its income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Internal Revenue Code of 1986. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation of securities held and excise tax on income and capital gains. G DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders are recorded by the fund on the ex-dividend date. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences include treatment of non-taxable dividends and wash sales. Reclassifications are made to the fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. For the year ended October 31, 1994 the fund reclassified $1,419,645 to increase undistributed net investment income, $1,935,691 to decrease accumulated net realized gain, and $516,046 to increase paid-in capital. H EQUALIZATION Prior to November 1, 1993, the fund used the accounting practice known as equalization to keep a continuing shareholder's per share interest in undistributed net investment income unaffected by sales or repurchases of fund shares. This was accomplished by allocating a per share portion of the proceeds from sales and costs of repurchases of shares to undistributed net investment income. As of November 1, 1993, the fund discontinued using equalization. This change has no effect on the fund's total net assets, net asset value per share, or its net increase (decrease) in net assets from operations and did not have a material effect on the per share amounts shown in the financial highlights. In Management's opinion, discontinuing the use of equalization will result in less distortion of undistributed net investment income as compared to income available for distribution for federal income tax purposes. The cumulative effect of this change was to decrease undistributed net investment income and increase paid-in capital previously reported through October 31, 1993 by $20,838,803. NOTE 2 MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS Compensation of Putnam Management, the fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc., for management and investment advisory services is paid quarterly based on the average net assets of the fund for the quarter. As of July 1, 1994 such fee was 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 and 0.45% of any amount over $1.5 billion. Prior to July 1, 1994 such fee was based on the following annual rates: 0.70% of the first $100 million of average net assets, 0.60% of the next $100 million, 0.50% of the next $300 million, 0.45% of the next $500 million, and 0.425% of any excess over $1 billion, subject to reduction in any year to the 30 extent that expenses (exclusive of distribution fees, brokerage, interest, taxes and custodian credits) of the fund exceed 2.5% of the first $30 million of average net assets, 2.0% of the next $70 million and 1.5% of any excess over $100 million and by the amount of certain brokerage commissions and fees (less expenses) received by affiliates of the Manager on the fund's portfolio transactions. The fund also reimburses the Manager 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. For the year ended October 31, 1994, the fund paid $16,207 for these services. Trustees of the fund receive an annual Trustee's fee of $1,510 and an additional fee for each Trustees' meeting attended. Trustees who are not interested persons of the Manager and who serve on committees of the Trustees receive additional fees for attendance at certain committee meetings. Custodial functions for the fund 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. Fees paid for these investor servicing and custodial functions for the year ended October 31, 1994 amounted to $867,564. Investor servicing and custodian fees reported in the Statement of operations for the year ended October 31, 1994 have been reduced by credits allowed by PFTC. Such credits amounted to $460,050. The fund has adopted a distribution plan with respect to its class A shares (the "Class A Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of Class A Plan 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 class A shares. The Trustees have approved payment by the fund to Putnam Mutual Funds Corp. at an annual rate of 0.25% of the fund's average net assets attributable to class A shares. For the year ended October 31, 1994, the fund paid Putnam Mutual Funds Corp. distribution fees of $1,741,906 for class A shares. During the year ended October 31, 1994, Putnam Mutual Funds Corp., a wholly- owned subsidiary of Putnam Investments, Inc., acting as the underwriter, received net commissions of $179,765 from the sale of class A shares of the fund. A deferred sales charge of up to 1% is assessed on certain redemptions of shares purchased as part of an investment of $1 million or more. For the year ended October 31, 1994, Putnam Mutual Funds Corp., acting as the underwriter, received $628 on such redemptions. The fund has adopted a separate distribution plan with respect to its class B shares (the "Class B Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Class B Plan is to compensate Putnam Mutual Funds Corp. for services provided and expenses incurred by it in distributing class B shares. The Class B Plan provides for payments by the fund to Putnam Mutual Funds Corp. at an annual rate of 1.00% of the funds average net assets attributable to class B shares. For the year ended October 31, 1994, the fund incurred fees of $196,778 for class B shares. Putnam Mutual Funds Corp. also receives the proceeds of contingent deferred sales charges levied on class B share redemptions within six years of purchase. The charge is based on declining rates, which begin at 5.0% of the net asset value of the redeemed shares. Putnam Mutual Funds Corp. received contingent deferred sales charges of $39,493 from such redemptions for the year ended October 31, 1994. 31 NOTE 3 PURCHASES AND SALES OF SECURITIES During the year ended October 31, 1994, purchases and sales of investment securities other than U.S. government obligations and short-term investments aggregated $344,140,181 and $311,321,264, respectively. There were no purchases or sales of U.S. government obligations during the year. In determining the net gain or loss on securities sold, the cost of securities has been determined on the identified cost basis. NOTE 4 CAPITAL SHARES At October 31, 1994, there was an unlimited number of shares of beneficial interest authorized divided into two classes, designated class A and class B capital stock. Transactions in capital shares were as follows:
Year ended October 31 1994 - --------------------------------------------------- Class A Shares Amount - --------------------------------------------------- Shares sold 4,188,443 $81,687,225 - --------------------------------------------------- Shares issued in connection with reinvestment of distributions 2,532,365 48,925,153 - --------------------------------------------------- 6,720,808 130,612,378 - --------------------------------------------------- Shares repurchased (4,900,211) (95,396,464) - --------------------------------------------------- Net increase 1,820,597 $35,215,914 - --------------------------------------------------- Year ended October 31 1993 - --------------------------------------------------- Class A Shares Amount - --------------------------------------------------- Shares sold 5,344,659 $101,965,330 - --------------------------------------------------- Shares issued in connection with reinvestment of distributions 1,431,110 27,251,181 - --------------------------------------------------- 6,775,769 129,216,511 - --------------------------------------------------- Shares repurchased (6,135,647) (117,365,026) - --------------------------------------------------- Portion represented by undistributed net investment income -- 13,470 - --------------------------------------------------- Net increase 640,122 $11,864,955 - --------------------------------------------------- Year ended October 31 1994 - --------------------------------------------------- Class B Shares Amount - --------------------------------------------------- Shares sold 1,817,330 $35,252,070 - --------------------------------------------------- Shares issued in connection with reinvestment of distributions 46,690 896,897 - --------------------------------------------------- 1,864,020 36,148,967 - --------------------------------------------------- Shares repurchased (428,280) (8,162,660) - --------------------------------------------------- Net increase 1,435,740 $27,986,307 - --------------------------------------------------- For the period July 15, 1993 (commencement of operations) to October 31 1993 - --------------------------------------------------- Class B Shares Amount - --------------------------------------------------- Shares sold 219,805 $ 4,400,196 - --------------------------------------------------- Shares issued in connection with reinvestment of distributions 920 18,213 - --------------------------------------------------- 220,725 4,418,409 - --------------------------------------------------- Shares repurchased (2,575) (51,861) - --------------------------------------------------- Portion represented by undistributed net investment income -- (5,905) - --------------------------------------------------- Net increase 218,150 $4,360,643 - ---------------------------------------------------
NOTE 5 RECLASSIFICATION OF CAPITAL ACCOUNTS Effective November 1, 1993, Putnam Convertible Income-Growth Trust has adopted the provisions of Statement of Position 93-2 "Determination, Disclosure and Financial Statement Presentation of Income, Capital Gain and Return of Capital Distributions by Investment Companies (SOP). The SOP requires the fund to report the undistributed net investment income (accumulated loss) and accumulated net realized gain (loss) accounts in such a manner as to approximate amounts available for future tax distributions (or to offset future realized capital gains). In implementing the SOP, the fund has reclassified $11,414,681 to decrease accumulated 32 net realized gain, $27,138,129, to increase undistributed net investment income, with a decrease of $15,723,448 to additional paid-in capital. These adjustments represent the cumulative amounts necessary to report these balances on a tax basis through October 31, 1993. These reclassifications which have no impact on the total net asset value of the fund are primarily attributable to tax equalization which is treated differently in the computation of distributable income and capital gains under federal income tax rules and regulations versus general accepted accounting principles. 33 FEDERAL TAX INFORMATION For federal income tax purposes, distributions from net investment income of $.736 and $.659, per Class A and Class B shares, respectively, constitute "dividend income". The fund has designated 36.65% of the distributions as qualifying for the dividends-received deductions for corporations. The fund also distributed long-term capital gains of $.904 and $.880, per Class A and Class B shares, respectively. The Form 1099 you receive in January 1995 will show the tax status of all distributions paid to your account in calendar 1994. If you are a shareholder in an IRA or other tax-sheltered retirement plan, this statement is for information only and will serve as a record of distributions reinvested in your account during the fiscal year. Money invested in these plans generally is not subject to federal income tax until you withdraw it. As required by law, your fund reports to the Internal Revenue Service on a calendar year basis the amount of distributions paid to each shareholder. 34 FUND INFORMATION INVESTMENT MANAGER Putnam Investment Management, Inc. One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Mutual Funds Corp. One Post Office Square Boston, MA 02109 CUSTODIAN Putnam Fiduciary Trust Company LEGAL COUNSEL Ropes & Gray INDEPENDENT ACCOUNTANTS Coopers & Lybrand L.L.P TRUSTEES George Putnam, Chairman William F. Pounds, Vice Chairman Jameson Adkins Baxter Hans H. Estin John A. Hill Elizabeth T. Kennan Lawrence J. Lasser Robert E. Patterson Donald S. Perkins George Putnam, III A.J.C. Smith W. Nicholas Thorndike OFFICERS George Putnam President Charles E. Porter Executive Vice President Patricia C. Flaherty Senior Vice President Lawrence J. Lasser Vice President Gordon H. Silver Vice President Peter Carman Vice President Brett C. Browchuck Vice President Thomas V. Reilly Vice President Hugh Mullin Vice President and Fund Manager Charles Pohl Vice President and Fund Manager William N Shiebler Vice President John R. Verani Vice President Paul M. O'Neil Vice President John D. Hughes Vice President and Treasurer 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. 35 [LOGO OF PUTNAM INVESTMENTS APPEARS HERE] --------------- Bulk Rate THE PUTNAM FUNDS U.S. Postage One Post Office Square PAID Boston, Massachusetts 02109 Putnam Investments --------------- 008/223-15431 -----END PRIVACY-ENHANCED MESSAGE-----