<PAGE>
Putnam
Convertible
Income-Growth
Trust
ANNUAL REPORT
October 31, 1994
[LOGO OF PUTNAM COMPANY APPEARS HERE]
<PAGE>
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
<TABLE>
<CAPTION>
CLASS A CLASS B
TOTAL RETURN NAV POP NAV CDSC
<S> <C> <C> <C> <C>
12 months ended 10/31/94
(change in value during
period plus reinvested
distributions) 1.84% -4.01% 1.00% -3.66%
<CAPTION>
SHARE VALUE NAV POP NAV
<S> <C> <C> <C>
10/31/93 $20.38 $21.62 $20.35
10/31/94 19.09 20.25 $19.00
<CAPTION>
CAPITAL GAINS
LONG- SHORT-
DISTRIBUTIONS NO. INCOME TERM TERM TOTAL
<S> <C> <C> <C> <C> <C>
Class A 4 $0.736 $0.904 $-- $1.640
Class B 4 0.659 0.880 -- 1.539
<CAPTION>
CURRENT RETURN NAV POP NAV
<S> <C> <C> <C>
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
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<TABLE>
<CAPTION>
Lehman Bros.
Class A Class B S&P Corporate
NAV POP NAV CDSC 500 Index Bond Index
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------
</TABLE>
TOTAL RETURN FOR PERIODS ENDED 9/30/94
(most recent calendar quarter)
<TABLE>
<CAPTION>
Lehman Bros.
Class A Class B S&P Corporate
NAV POP NAV CDSC 500 Index Bond Index
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------
</TABLE>
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
<PAGE>
[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
<PAGE>
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
<PAGE>
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
<PAGE>
Portfolio of investments owned
October 31, 1994
<TABLE>
<CAPTION>
CONVERTIBLE BONDS AND NOTES (30.3%)(a)
PRINCIPAL AMOUNT VALUE
CONSUMER SERVICES (5.0%)
---------------------------------------------------------------------------
<C> <S> <C>
$ 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
<CAPTION>
BUSINESS EQUIPMENT AND SERVICES (3.4%)
---------------------------------------------------------------------------
<C> <S> <C>
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
<CAPTION>
RETAIL (3.1%)
---------------------------------------------------------------------------
<C> <S> <C>
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
<CAPTION>
INSURANCE AND FINANCE (2.2%)
---------------------------------------------------------------------------
<C> <S> <C>
1,500,000 Alexander & Alexander Services, Inc. cv. sub.
deb. 11s, 2007 1,531,875
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
CONVERTIBLE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
INSURANCE AND FINANCE (continued)
---------------------------------------------------------------------------
<C> <S> <C>
$ 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
<CAPTION>
HEALTH CARE (2.1%)
---------------------------------------------------------------------------
<C> <S> <C>
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
<CAPTION>
OIL AND GAS (2.0%)
---------------------------------------------------------------------------
<C> <S> <C>
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
<CAPTION>
CONSUMER NON DURABLES (2.0%)
---------------------------------------------------------------------------
<C> <S> <C>
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
<CAPTION>
ELECTRONICS AND ELECTRICAL EQUIPMENT (1.9%)
---------------------------------------------------------------------------
<C> <S> <C>
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
<CAPTION>
TRANSPORTATION (1.8%)
---------------------------------------------------------------------------
<C> <S> <C>
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
</TABLE>
13
<PAGE>
CONVERTIBLE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
<TABLE>
<CAPTION>
TRANSPORTATION (continued)
----------------------------------------------------------------------------
<C> <S> <C>
$ 9,000,000 SFP Pipeline Holdings Inc. cv. variable rate
exch. deb. 10.42s, 2010(c) $ 10,620,000
-------------
13,358,750
<CAPTION>
ENVIRONMENTAL CONTROL (1.4%)
----------------------------------------------------------------------------
<C> <S> <C>
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
<CAPTION>
REAL ESTATE (1.0%)
----------------------------------------------------------------------------
<C> <S> <C>
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
<CAPTION>
RESTAURANTS (0.8%)
----------------------------------------------------------------------------
<C> <S> <C>
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
<CAPTION>
BUILDING AND CONSTRUCTION (0.8%)
----------------------------------------------------------------------------
<C> <S> <C>
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
<CAPTION>
AEROSPACE AND DEFENSE (0.6%)
----------------------------------------------------------------------------
<C> <S> <C>
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
<CAPTION>
BASIC INDUSTRIAL PRODUCTS (0.6%)
----------------------------------------------------------------------------
<C> <S> <C>
4,500,000 Albany International Corp. Ser. US, cv. deb.
5 1/4s, 2002 4,027,500
<CAPTION>
CONSUMER: DURABLE GOODS (0.4%)
----------------------------------------------------------------------------
<C> <S> <C>
8,000,000 Whirpool Corp. cv. LYON zero %, 2011 3,045,000
<CAPTION>
AUTOMOTIVE (0.4%)
----------------------------------------------------------------------------
<C> <S> <C>
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
<CAPTION>
BUSINESS SERVICES (0.4%)
----------------------------------------------------------------------------
<C> <S> <C>
1,750,000 Manpower, Inc. cv. sub. notes 6 1/4s, 2002 2,791,250
<CAPTION>
METALS AND MINING (0.2%)
----------------------------------------------------------------------------
<C> <S> <C>
5,000,000 Freeport-McMoRan, Inc. cv. sub. deb. zero %,
2006 1,737,500
<CAPTION>
UTILITIES (0.2%)
----------------------------------------------------------------------------
<C> <S> <C>
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
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCKS (27.7%)(a)
NUMBER OF SHARES VALUE
INSURANCE AND FINANCE (5.3%)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
<CAPTION>
METALS AND MINING (4.3%)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
<CAPTION>
OIL AND GAS (3.9%)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
<CAPTION>
TRANSPORTATION (2.5%)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCKS
NUMBER OF SHARES VALUE
AUTOMOTIVE (1.5%)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
<CAPTION>
REAL ESTATE (1.3%)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
<CAPTION>
CONGLOMERATES (1.2%)
- --------------------------------------------------------------------------------
<S> <C> <C>
210,000 Tenneco Inc. $2.80 cv. pfd. 8,741,250
<CAPTION>
BUSINESS EQUIPMENT AND SERVICES (1.1%)
- --------------------------------------------------------------------------------
<S> <C> <C>
230,000 Unisys Corp. Ser. A, $3.75 cv. pfd. 7,963,750
<CAPTION>
ELECTRONICS AND ELECTRICAL EQUIPMENT (0.9%)
- --------------------------------------------------------------------------------
<S> <C> <C>
447,000 Westinghouse Electric Corp. Ser. C, $1.30 cv. pfd.(e) 6,537,375
<CAPTION>
BASIC INDUSTRIAL PRODUCTS (0.8%)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
<CAPTION>
FOOD AND BEVERAGES (0.8%)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
<CAPTION>
HEALTH CARE (0.8%)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
<CAPTION>
RETAIL (0.8%)
- --------------------------------------------------------------------------------
<S> <C> <C>
99,000 Sears, Roebuck & Co. $3.75 cv. pfd. 5,605,875
<CAPTION>
FOREST PRODUCTS (0.6%)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
<CAPTION>
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
<CAPTION>
COMPUTER SERVICES/SOFTWARE (0.6%)
- --------------------------------------------------------------------------------
<S> <C> <C>
70,000 Ceridian Corp. $2.75 cv. pfd. 4,340,000
<CAPTION>
ENERGY-RELATED (0.6%)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCKS
NUMBER OF SHARES VALUE
BUILDING AND CONSTRUCTION (0.1%)
- --------------------------------------------------------------------------------
<S> <C> <C>
24,800 Southdown, Inc. $2.875 cv. pfd. $ 923,800
--------------
Total Convertible Preferred Stocks
(cost $204,856,113) $ 202,268,985
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCKS (25.0%)(a)
NUMBER OF SHARES VALUE
INSURANCE AND FINANCE (4.2%)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
<CAPTION>
OIL AND GAS (2.9%)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCKS
NUMBER OF SHARES VALUE
UTILITIES (2.5%)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
<CAPTION>
CONSUMER NON DURABLES (1.8%)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
<CAPTION>
HEALTH CARE (1.5%)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
<CAPTION>
CHEMICALS (1.4%)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
<CAPTION>
CONGLOMERATES (1.1%)
- --------------------------------------------------------------------------------
<S> <C> <C>
25,000 Johnson Controls Inc. 1,243,750
60,000 Ogden Corp. 1,290,000
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCKS
NUMBER OF SHARES VALUE
CONGLOMERATES (continued)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
<CAPTION>
PHOTOGRAPHY (0.9%)
- --------------------------------------------------------------------------------
<S> <C> <C>
133,744 Eastman Kodak Co. 6,436,430
<CAPTION>
BUSINESS EQUIPMENT AND SERVICES (0.9%)
- --------------------------------------------------------------------------------
<S> <C> <C>
40,000 IBM Corp. 2,980,000
33,000 Xerox Corp. 3,382,500
--------------
6,362,500
<CAPTION>
AUTOMOTIVE (0.9%)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
<CAPTION>
REAL ESTATE (0.9%)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
<CAPTION>
FOOD AND BEVERAGES (0.8%)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
<CAPTION>
ELECTRONICS AND ELECTRICAL EQUIPMENT (0.7%)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
<CAPTION>
RETAIL (0.6%)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
<CAPTION>
ENVIRONMENTAL CONTROL (0.5%)
- --------------------------------------------------------------------------------
<S> <C> <C>
420,000 Chemical Waste Management, Inc. (f) 3,990,000
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCKS
NUMBER OF SHARES VALUE
CONSUMER SERVICES (0.5%)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
<CAPTION>
TRANSPORTATION (0.5%)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
<CAPTION>
BASIC INDUSTRIAL PRODUCTS (0.5%)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
<CAPTION>
AEROSPACE AND DEFENSE (0.4%)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
<CAPTION>
FOREST PRODUCTS (0.4%)
- --------------------------------------------------------------------------------
<S> <C> <C>
12,000 International Paper Co. 894,000
25,000 Potlatch Corp. 956,250
24,000 Union Camp Corp. 1,140,000
--------------
2,990,250
<CAPTION>
METALS AND MINING (0.4%)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
<CAPTION>
TELECOMMUNICATIONS (0.2%)
- --------------------------------------------------------------------------------
<S> <C> <C>
25,000 Airtouch Communications, Inc. (f) 746,875
50,000 Comsat Corp. 1,075,000
--------------
1,821,875
<CAPTION>
CONSUMER SERVICES (0.2%)
- --------------------------------------------------------------------------------
<S> <C> <C>
28,000 Dun & Bradstreet Corp. 1,641,500
<CAPTION>
FOOD (0.2%)
- --------------------------------------------------------------------------------
<S> <C> <C>
60,000 Sara Lee Corp. 1,477,500
<CAPTION>
ENERGY-RELATED (0.1%)
- --------------------------------------------------------------------------------
<S> <C> <C>
40,000 Westcoast Energy, Inc. 655,000
<CAPTION>
COMPUTER SERVICES/SOFTWARE (-%)
- --------------------------------------------------------------------------------
<S> <C> <C>
745 Harris Computer Systems Corp. 10,430
--------------
Total Common Stocks (cost $163,732,261) $ 182,243,593
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
EUROBONDS (4.5%)(a)
PRINCIPAL AMOUNT VALUE
INSURANCE AND FINANCE (1.7%)
- --------------------------------------------------------------------------------
<S> <C> <C>
$ 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
<CAPTION>
SPECIALTY CONSUMER PRODUCTS (0.6%)
- --------------------------------------------------------------------------------
<S> <C> <C>
5,945,000 CML Group, Inc. cv. deb. 5 1/2s, 2003 4,339,850
<CAPTION>
CONSUMER NON DURABLES (0.5%)
- --------------------------------------------------------------------------------
<S> <C> <C>
3,300,000 American Brands, Inc. cv. deb. 5 3/4s, 2005 3,762,000
<CAPTION>
FOREST PRODUCTS (0.5%)
- --------------------------------------------------------------------------------
<S> <C> <C>
3,000,000 International Paper Co. cv, deb. 5 3/4s, 2002 3,322,500
<CAPTION>
HEALTH CARE (0.2%)
- --------------------------------------------------------------------------------
<S> <C> <C>
1,495,000 Abbey Healthcare Group cv. sub. 6 1/2s, 2002 1,749,150
<CAPTION>
ELECTRONICS AND ELECTRICAL EQUIPMENT (0.2%)
- --------------------------------------------------------------------------------
<S> <C> <C>
1,410,000 Thermo Instrument Systems Inc. cv. deb. 3 3/4s, 2000 1,494,600
<CAPTION>
CONSUMER SERVICES (0.2%)
- --------------------------------------------------------------------------------
<S> <C> <C>
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
<CAPTION>
METALS AND MINING (0.2%)
- --------------------------------------------------------------------------------
<S> <C> <C>
750,000 Essar Gujarat Ltd. cv. 5 1/2s, 1998 1,522,500
<CAPTION>
BASIC INDUSTRIAL PRODUCTS (0.2%)
- --------------------------------------------------------------------------------
<S> <C> <C>
600,000 Dart & Kraft Inc. cv. deb. 7 3/4s, 1998 1,347,000
<CAPTION>
FOOD AND BEVERAGES (0.2%)
- --------------------------------------------------------------------------------
<S> <C> <C>
1,500,000 Chiquita Brands International Inc.
cv. sub. 7s, 2001 1,275,000
<CAPTION>
CONGLOMERATES (-%)
- --------------------------------------------------------------------------------
<S> <C> <C>
400,000 Fuqua Industries, Inc. cv. deb. 6 1/2s, 2002 278,000
--------------
Total Eurobonds (cost $33,559,058) $ 32,742,538
</TABLE>
<TABLE>
<CAPTION>
YANKEE BONDS AND NOTES (2.5%)(a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
$ 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
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
UNITS (0.6%)(a)
NUMBER OF UNITS VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS (8.3%)(a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
$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
==============
</TABLE>
(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
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1994
<TABLE>
<CAPTION>
ASSETS
- --------------------------------------------------------------------------------
<S> <C>
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
- --------------------------------------------------------------------------------
<CAPTION>
LIABILITIES
- --------------------------------------------------------------------------------
<S> <C>
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
- --------------------------------------------------------------------------------
</TABLE>
* 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
<PAGE>
STATEMENT OF OPERATIONS
Year ended October 31, 1994
<TABLE>
<CAPTION>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------
<S> <C>
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
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended October 31
-------------------------------
1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C>
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
- --------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
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
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Eleven
months ended
Year ended October 31 October 31
- -----------------------------------------------------------------------------------------------------------------------------------
1990 1989 1988 1987 1986 1985
- -----------------------------------------------------------------------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Year ended
October 31 1994
- ---------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------
<S> <C> <C>
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
- ---------------------------------------------------
<CAPTION>
Year ended
October 31 1993
- ---------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------
<S> <C> <C>
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
- ---------------------------------------------------
<CAPTION>
Year ended
October 31 1994
- ---------------------------------------------------
Class B Shares Amount
- ---------------------------------------------------
<S> <C> <C>
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
- ---------------------------------------------------
<CAPTION>
For the period
July 15, 1993
(commencement of
operations) to
October 31 1993
- ---------------------------------------------------
Class B Shares Amount
- ---------------------------------------------------
<S> <C> <C>
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
- ---------------------------------------------------
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
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THE PUTNAM FUNDS U.S. Postage
One Post Office Square PAID
Boston, Massachusetts 02109 Putnam
Investments
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008/223-15431
