Putnam
Convertible
Income-Growth
Trust
ANNUAL REPORT
October 31, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* Putnam Convertible Income-Growth Trust has earned consistently high
rankings from Lipper Analytical Services for total-return performance.
The fund's class A shares were ranked 1 out of 10 convertible securities
funds for 10-year performance through October 31, 1996. The fund has
also outperformed its competition over shorter time periods. Its class A
shares were ranked 4 out of 19 funds for 5-year performance, 1 out of 27
funds for 3-year performance, and 12 out of 42 funds for 1-year
performance through October 31, 1996*
* "The marketplace for convertible securities has grown increasingly
popular with both institutional and retail investors thanks to a
combination of attractive historical returns and, over time, lower
volatility than common stocks."+
-- Hugh H. Mullin, Lead Manager
Putnam Convertible Income-Growth Trust
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
16 Portfolio holdings
29 Financial statements
*Lipper rankings are based on total return performance, vary over time,
and do not reflect the effects of sales charges. The fund's class B and
class M shares ranked 15 and 14, respectively, out of 42 convertible
securities funds for 1-year performance through 10/31/96. Class B and
class M shares were not ranked over longer applicable periods. Past
performance is not indicative of future results.
+According to Putnam research.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
Stock and bond market environments amenable toward convertible
securities helped Putnam Convertible Income-Growth Trust post yet
another successful year during the 12 months ended October 31, 1996.
Continued economic growth at a pace that kept inflation at bay and
interest rates that remained fairly stable were the key ingredients in
maintaining this favorable setting.
Fund managers Hugh Mullin and Charles Pohl took advantage of these
conditions by directing roughly a quarter of the fund's assets into
common stocks as the equity market continued its advance. They also
utilized Putnam's extensive research capabilities -- and their own
firsthand evaluations -- in selecting convertibles as these securities
responded favorably to stock market strength throughout the period.
Hugh and Charlie provide specific details in the following report as
they discuss your fund's performance in fiscal 1996 and prospects for
fiscal 1997.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
December 18, 1996
Report from the Fund Managers
Hugh H. Mullin, lead manager
Charles G. Pohl
Strong market performance, favorable supply and demand conditions, and
successful security selection drove all share classes of Putnam
Convertible Income-Growth Trust to double-digit returns at net asset
value for the 12 months ended October 31, 1996. While not wanting to
minimize the achievements of this past year, we do believe that your
fund's longer-term performance is a more useful reference for investors
than that of any single year. And, as we have detailed on page 2, over
periods of one year or more your fund has excelled among other similarly
managed portfolios. Additional performance results for all share
classes, along with comparative indexes, are listed in the performance
summary that begins on page 8.
* SLOW-GROWTH ECONOMY FAVORED STOCKS AND CONVERTIBLES
Continued economic growth and low inflation characterized your fund's
1996 fiscal year. Overall, the strength of corporate America,
exemplified by high returns on equity and disciplined cost containment,
kept the stock market on an unprecedented positive track. Bonds
experienced a decline during the first half of the fiscal year when
investors feared that an accelerating economy would lead the Federal
Reserve Board to boost interest rates. By the second half of the year
however, bonds rebounded as it became apparent that economic growth
remained sufficiently moderate to avoid spurring inflation.
Given this investment climate, we combined asset allocation and security
selection to structure the fund's portfolio. Keeping more than a quarter
of the fund's assets invested in common stocks allowed us to take direct
advantage of the market's rise. The built-in equity features of
convertible bonds allowed these securities -- your fund's primary focus
- -- to benefit as well. In fact, as we mentioned in your fund's most
recent semiannual report, many of the current issuers of convertible
bonds are smaller companies seeking expansion capital, rather than
established companies in need of operating funds. This shift in the
composition of the convertible market has resulted in a pool of
securities whose prices are generally more responsive to changes in
stock prices than to fluctuations in interest rates.
* CONVERTIBLES' POPULARITY GROWS AMID LIMITED SUPPLY
Despite increasing in popularity with both institutional and individual
investors, the supply of convertibles has remained relatively flat over
the past two years. Many companies that issued convertibles in the early
1990s to help them recover from the recession have taken advantage of
today's healthier economic climate to convert their bonds into equities.
New issuance has failed to keep pace with conversions, redemptions, and
calls -- redeeming the securities before their stated maturity dates --
and, consequently, the supply of convertibles remains tight. This tight
supply, combined with the increased demand, creates a positive
environment for your fund's holdings.
* IN-DEPTH RESEARCH AND FIRSTHAND EVALUATIONS GUIDE PORTFOLIO SELECTIONS
When selecting stocks and convertibles for your fund's portfolio, we
seek quality companies whose stocks appear to be undervalued in the
market yet possess strong potential for growth. Our in-depth research
goes beyond how the companies look on paper to include on-site visits
and regular contact with management. A common factor we consider is the
potential for internal change -- some initiative on the part of the
company to develop in a new direction, whether through geographic
expansion, innovative products and marketing strategies, or simply a
shift of management style.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: TOP INDUSTRY SECTORS (10/31/96)*]
TOP INDUSTRY SECTORS (10/31/96)*
Banks 8.5%
Oil and gas 6.3%
Insurance and finance 5.8%
Retail 5.7%
Electronics and electrical
equipment 4.8%
Footnote reads:
*Based on net assets. Top industry weightings will vary over time.
July's brief technology-driven market correction gave us the opportunity
to capitalize on some of our research at a particularly favorable time.
In the months leading up to the correction, we had amassed a select list
of securities in the technology sector that we believed exhibited strong
potential. We waited patiently for opportunities to obtain these
holdings at attractive prices and were ultimately rewarded.
One niche within the computer industry that we found particularly
appealing was contract manufacturing, whereby companies assume
responsibility for manufacturing another company's products, often
carrying out the job with higher quality and lower costs. One such
holding we acquired during the correction was Sanmina Corporation, a
leading electronics contract manufacturer. Operating from facilities in
California, Texas, and New Hampshire, the company provides customized
integrated manufacturing services to companies in the
telecommunications, data communications, computer systems, and
industrial and medical instrumentation industries. While Sanmina, along
with other companies discussed in this report, was viewed favorably at
the end of the fiscal year, all portfolio holdings are subject to review
and adjustment in accordance with the fund's investment strategy and may
vary in the future.
The continued success of holdings in the financial sector also
contributed to the fund's performance in the second half of fiscal 1996.
The sector showed some strong returns for both stocks and convertibles,
yet remains undervalued, in our opinion, and may still contribute to
fund performance going forward. Regional banks and insurance companies
are both well represented in the portfolio, which includes investments
in Banc One, St. Paul Capital, and USF&G, among others.
Successful cost-cutting measures and an environment of rising
commodities prices led us to take profits in the fund's smaller oil
services holdings, redeploying assets into diverse sectors in which we
found companies that met our value-investment criteria. Our investment
in the convertible bonds issued by Air Touch, a Pacific Telesis spinoff
and a market leader in the cellular communications industry, is one that
we believe may remain attractive even in a slowing U.S. economy, thanks
to the company's solid growth dynamics and important worldwide
concessions.
[GRAPHIC OMITTED: TOP 10 HOLDINGS (10/31/96)*]
TOP 10 HOLDINGS (10/31/96)*
Rogers Communications, 2% convertible, 2005
Telecommunications
Healthsource, Inc., 5% convertible, 2003
Health maintenance organization
Banamex (Nassau Branch), 11% convertible, 2003
Banking
Softkey International, Inc., 5.5% convertible, 2000
Consumer software
Magna International, 5% convertible, 2002
Automotive parts and accessories
Mitsubishi Bank Ltd. Int'l Finance, 3% convertible, 2002
Banking
Baker (J.), Inc., 7% convertible, 2002
Footwear retailing
Sumitomo Bank Ltd., 0.75% 144A convertible, 2001
Banking
Freeport-McMoRan Copper Co., Inc., $1.75 convertible pfd.
Metals and mining
USF&G Corp., 0% convertible, 2009
Insurance and finance
Footnote reads:
*Top 10 holdings represent 8.1% of the fund's net assets. Portfolio
holdings will vary over time. For complete descriptions of top 10
holdings, please see listing of portfolio holdings beginning on page 16.
* SHORT-TERM OUTLOOK REMAINS FAVORABLE
As your fund enters fiscal year 1997, we believe moderate growth and low
inflation are likely to continue to dominate the U.S. economy -- a
scenario that favors both common stocks and convertible securities. No
matter what the investment climate, however, we remain committed to our
diversified, value-oriented strategy and will continue to employ the
same combination of in-depth analysis and firsthand evaluations that
have thus far earned your fund its solid reputation.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 10/31/96, there is no guarantee the fund
will continue to hold these securities in the future.
Performance summary
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.
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 in the fund.
TOTAL RETURN FOR PERIODS ENDED 10/31/96
Class A Class B Class M
(inception date) (6/29/72) (7/15/93) (3/13/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
1 year 18.99% 12.17% 18.14% 13.14% 18.30% 14.17%
- ------------------------------------------------------------------------
5 years 99.37 87.93 -- -- -- --
Annual average 14.80 13.45 -- -- -- --
- ------------------------------------------------------------------------
10 years 180.63 164.54 -- -- -- --
Annual average 10.87 10.22 -- -- -- --
- -----------------------------------------------------------------------
Life of class -- -- 42.84 39.84 33.66 28.95
Annual average -- -- 11.41 10.70 19.35 16.77
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They do not take into
account any adjustment for taxes payable on reinvested distributions.
Investment returns and principal value will fluctuate so that an
investor's shares, when sold, may be worth more or less than their
original cost. POP assumes 5.75% maximum sales charge for class A shares
and 3.50% for class M shares. CDSC for class B shares assumes the
applicable sales charge, with the maximum being 5%.
[GRAPHIC WORM CHART OMITTED: GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 10/31/86
Starting value (Insert ending Total)
$9,425 Fund's class A shares at POP $26,454
$10,000 S&P 500 Index $39,200
$10,000 Lehman Bros. Corporate Bond Index $24,361
(plot points for 10-year total return mountain chart)
Lehman Corp
Date/year Fund at POP S&P 500 Index Bond Index
10/31/86 9425 10000 10000
10/31/87 8767 10633 10194
10/31/88 9942 12217 11545
10/31/89 11423 15438 12977
10/31/90 9543 14282 13530
10/31/91 13269 19066 15913
10/31/92 15678 20960 17682
10/31/93 19088 24064 20362
10/31/94 19438 24992 19307
10/31/95 22233 31592 22934
10/31/96 26454 39200 24361
Footnote reads:
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 $14,284 on 10/31/96 ($13,984 with a redemption at the end of
the period). A $10,000 investment in the fund's class M shares at
inception on 3/13/95 would have been valued at $13,366 at net asset
value on 10/31/96 ($12,895 at public offering price).
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 10/31/96
Lehman Bros.
S&P 500 Corporate Bond
Index Index
- ------------------------------------------------------------------------
1 year 24.08% 6.22%
- -----------------------------------------------------------------------
5 years 105.60 53.09
Annual average 15.50 8.89
- ------------------------------------------------------------------------
10 years 292.00 143.61
Annual average 14.64 9.31
- -----------------------------------------------------------------------
Life of class B 70.56 24.42
Annual average 17.35 6.77
- ------------------------------------------------------------------------
Life of class M 50.48 19.31
Annual average 27.67 11.13
- ------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 9/30/96
(most recent calendar quarter)
Class A Class B Class M
(inception date) (6/29/72) (7/15/93) (3/13/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
1 year 16.00% 9.31% 15.10% 10.10% 15.38% 11.31%
- ------------------------------------------------------------------------
5 years 102.49 90.85 -- -- -- --
Annual average 15.15 13.80 -- -- -- --
- -----------------------------------------------------------------------
10 years 187.62 171.11 -- -- -- --
Annual average 11.14 10.49 -- -- -- --
- ------------------------------------------------------------------------
Life of class -- -- 41.82 38.82 32.71 28.04
Annual average -- -- 11.50 10.76 19.89 17.17
- -----------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They do not take into
account any adjustment for taxes payable on reinvested distributions or
for payments under the fund's class A distribution plan prior to its
implementation. Investment returns and principal value will fluctuate so
that an investor's shares, when sold, may be worth more or less than
their original cost.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 10/31/96
Class A Class B Class M
- -----------------------------------------------------------------------
Distributions (number): 4 4 4
- -----------------------------------------------------------------------
Income $0.978 $0.840 $0.897
- ------------------------------------------------------------------------
Capital gains:
- -----------------------------------------------------------------------
Long-term 0.448 0.448 0.448
- -----------------------------------------------------------------------
Short-term 0.266 0.266 0.266
- ------------------------------------------------------------------------
Total $1.692 $1.554 $1.611
- -----------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- -----------------------------------------------------------------------
10/31/95 $19.42 $20.60 $19.30 $19.37 $20.07
- -----------------------------------------------------------------------
10/31/96 21.24 22.54 21.09 21.14 21.91
- -----------------------------------------------------------------------
Current return (end of period)
- -----------------------------------------------------------------------
Current dividend rate1 4.52% 4.26% 3.89% 4.11% 3.96%
- -----------------------------------------------------------------------
Current 30-day SEC yield2 4.18 3.94 3.43 3.68 3.55
- ------------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2Based on investment income, calculated using SEC guidelines.
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.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the maximum 5.75% sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B shares and assumes redemption at the end of
the period. Your fund's CDSC declines from a 5% maximum during the first
year to 1% during the sixth year. After the sixth year, the CDSC no
longer applies.
COMPARATIVE BENCHMARKS
Standard & Poor's 500 Index is an unmanaged list of large-capitalization
common stocks and is frequently used as a general gauge of stock market
performance.*
Lehman Brothers Corporate Bond Index is an unmanaged list of corporate
bonds.*
*Securities indexes assume reinvestment of all distributions and
interest payments and do not take into account brokerage fees or taxes.
Securities in the fund do not match those in the indexes and performance
of the fund will differ. It is not possible to invest directly in an
index.
A Putnam perspective on risk and reward
You've probably been told how important it is to understand the
relationship between an investment's potential rewards and its
accompanying risks. Given the cautionary nature of such instructions, it
may take most investors a while to realize that risk has a positive
side.
Every risk signals a potential reward. Selecting only those investments
that offer the greatest degree of security generally leads to only
modest rewards. Furthermore, even insured or guaranteed investments may
be subject to changes in their rates of return or, in some cases, in
their principal values. Experienced investors know that no investment is
truly risk free and are therefore willing to take on some measure of
risk in order to increase their potential gains.
The greater the risk, the greater the potential reward. Accepting an
appropriate level of investment risk can give you a better chance of
outpacing inflation over time and seeking to maximize your investment's
return. How much risk? Your financial advisor's feedback and your time
horizon can make all the difference in determining how much risk is
compatible with your investment goals and your peace of mind.
* FITTING YOUR FUND SELECTION TO YOUR RISK TOLERANCE
How do you find the right balance between investment risks and their
potential rewards? It's helpful to understand the types of risks that
can apply to different types of investments, and to look at your own
portfolio with this perspective.
For short-term goals, your first priority may be managing market risk.
Longer-term investors may be more concerned with inflation risk. And all
income-oriented investors should consider interest-rate, credit, and
prepayment risks carefully. Within each of Putnam's four investment
categories, you can select funds with differing
levels of risk and reward potential to customize your portfolio.
This list covers only the most general types of risks; however, each
investment will also have its own specific risks. You will find a more
detailed discussion of these risk considerations in each fund's
prospectus.
* A RUNDOWN OF RISK TYPES
MARKET RISK Most important for stock funds, but relevant to all funds,
this is a measure of how sensitive a fund's holdings are to changes in
general market conditions. Remember, though, that securities that lose
value quickly in market declines may also show the strongest gains in
more favorable environments.
INTEREST-RATE RISK Since bond prices fall as interest rates rise, this
type of risk is a particular concern for fixed-income inves-
tors. However, interest-rate increases can also have a substantial
negative effect on the stock market.
INFLATION RISK If your investments cannot keep pace with inflation, your
money will begin to lose its purchasing power. Stock investments are
generally considered among the best ways of addressing inflation risk
over the long term.
CREDIT AND PREPAYMENT RISK Credit risk is the concern that the
security's issuer will not be able to meet its payment, while prepayment
risk involves the premature payoff of a loan, with a resulting loss of
interest income. Professional management and in-depth research are
invaluable in managing both these risks.
LIQUIDITY RISK Not all investments can be readily converted into cash at
their perceived market values. Liquidity risk can affect the price of
securities held in the fund's portfolio and, thus, the fund's share
prices.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund *
Health Sciences Trust
International Growth Fund +
International New Opportunities Fund
Investors Fund
New Opportunities Fund
OTC & Emerging Growth Fund (DOUBLE DAGGER)
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
Intermediate U.S. Government
Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
LIFESTAGESM FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
MOST CONSERVATIVE
INVESTMENTS **
Putnam money market funds: ++
California Tax Exempt Money Market Fund
Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts (2 DOUBLE DAGGERS)
* Formerly Natural Resources Fund
+ Formerly Overseas Growth Fund
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** Relative to above.
++ An investment in a money market fund is neither insured
nor guaranteed by the U.S. government. These funds are managed to
maintain a price of $1.00 per share, although there is no assurance that
this price will be maintained in the future.
[2 DBL. DAGGERS] Not offered by Putnam Investments. Certificates of
deposit offer a fixed rate of return and may be insured up to certain
limits by federal/state agencies. Savings accounts may also be insured
up to certain limits. Please call your financial advisor or Putnam at 1-
800-225-1581 to obtain a prospectus for any Putnam fund. It contains
more complete information, including charges and expenses. Please read
it carefully before you invest or send money.
Report of independent accountants
For the fiscal year ended October 31, 1996
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, 1996, and the related statement of
operations for the year then ended, the statements of changes in net
assets for each of the two years in the period then ended, and the
financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of
the fund's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of October 31, 1996, 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, 1996, 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 13, 1996
<TABLE>
<CAPTION>
Portfolio of investments owned
October 31, 1996
<S> <C> <C> <C>
CONVERTIBLE BONDS AND NOTES (45.7%) *
PRINCIPAL AMOUNT VALUE
Aerospace and Defense (0.5%)
- ---------------------------------------------------------------------------------------------------------------------
$3,750,000 Rohr Industries, Inc. cv. sub. deb. 7s, 2012 3,225,000
2,250,000 UNC Inc. cv. sub. deb. 7 1/2s, 2006 2,126,250
--------------
5,351,250
Automotive (2.1%)
- ---------------------------------------------------------------------------------------------------------------------
9,740,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 5,917,050
7,500,000 Magna International cv. sub. deb. 5s, 2002 8,212,500
3,750,000 Mascotech, Inc. cv. sub. deb. 4 1/2s, 2003 3,000,000
JPY 400,000,000 Toyota Motor Corp. cv. deb. 1.2s, 1998 (Japan) 4,878,049
--------------
22,007,599
Banks (2.6%)
- ---------------------------------------------------------------------------------------------------------------------
$8,852,000 Banamex (Nassau Branch) 144A cv. jr. sub. notes 11s, 2003 (Mexico) 8,896,260
2,073,000 Banco Nacional de Mexico S.A. cv. bonds 7s, 1999 (Bahamas) 1,933,073
380,000 Banco Nacional de Mexico 144A cv. company guaranty 7s, 1999 (Bahamas) 354,350
7,500,000 Mitsubishi Bank Ltd. International Finance (Bermuda) cv.
trust guaranteed notes 3s, 2002 (Japan) 8,146,875
JPY 830,000,000 Sumitomo Bank Ltd. 144A cv. bank guarantee 3/4s, 2001 (Japan) 7,973,768
--------------
27,304,326
Basic Industrial Products (1.9%)
- ---------------------------------------------------------------------------------------------------------------------
$7,000,000 Cooper Industries, Inc. cv. sub. 7.05s, 2015 7,420,000
3,700,000 SKF Corp. 144A cv. deb. zero %, 2002 (Sweden) 2,968,593
1,000,000 Thermo Electron Corp. cv. deb. 5s, 2001 1,750,000
4,000,000 Thermo Electron Corp. 144A cv. sub. 4 1/4s, 2003 4,520,000
1,590,000 Titan Wheel International Inc. cv. sub. deb. 4 3/4s, 2000 1,673,475
1,270,000 Trimas Corp. cv. sub. deb. 5s, 2003 1,377,950
--------------
19,710,018
Broadcasting (0.3%)
- ---------------------------------------------------------------------------------------------------------------------
3,100,000 International Cabletel Inc. 144A cv. sub. deb. 7 1/4s, 2005 3,247,250
Building and Construction (0.7%)
- ---------------------------------------------------------------------------------------------------------------------
1,140,000 Continental Homes Holding cv. sub. notes 6 7/8s, 2002 1,111,500
3,000,000 Empresas Ica Sociedad ADS cv. sub. deb. 5s, 2004 (Mexico) 1,995,000
3,000,000 New World Infrastructure Ltd. 144A cv. bonds 5s, 2001(Hong Kong) 3,225,000
1,805,000 U.S. Home Corp. cv. deb. 4 7/8s, 2005 1,550,044
--------------
7,881,544
Business Equipment and Services (2.0%)
- ---------------------------------------------------------------------------------------------------------------------
750,000 Career Horizons, Inc. cv. bonds 7s, 2002 1,757,813
3,750,000 Conner Peripherals, Inc. cv. sub. deb. 6 1/2s, 2002 4,654,688
4,850,000 Corporate Express, Inc. 144A cv. notes 4 1/2s, 2000 4,534,750
6,590,000 Maxtor Corp. cv. sub. deb. 5 3/4s, 2012 4,481,200
2,535,000 National Data Corp. sub. notes 5s, 2003 2,535,000
750,000 US Office Products Co. cv. sub notes 5 1/2s, 2003 678,750
3,000,000 US Office Products Co. 144A cv. sub. notes 5 1/2s, 2003 2,707,500
--------------
21,349,701
Computer Equipment (0.2%)
- ---------------------------------------------------------------------------------------------------------------------
2,500,000 Synoptics Communications Inc. 144A cv. sub. deb. 5 1/4s, 2003 2,190,625
Computers (1.1%)
- ---------------------------------------------------------------------------------------------------------------------
2,500,000 Apple Computer, Inc. 144A cv. sub. notes 6s, 2001 2,550,000
2,915,000 EMC Corp. cv. sub. notes 4 1/4s, 2001 3,935,250
750,000 MacNeal-Schwendler cv. sub. deb. 7 7/8s, 2004 682,500
3,225,000 Safeguard Scientifics, Inc. 144A cv. sub. notes 6s, 2006 4,398,094
--------------
11,565,844
Computer Software (0.8%)
- ---------------------------------------------------------------------------------------------------------------------
10,800,000 Softkey International, Inc. 144A cv. sr. notes 5 1/2s, 2000 8,802,000
Conglomerates (0.5%)
- ---------------------------------------------------------------------------------------------------------------------
750,000 Alfa S.A. 144A cv. sub. notes 8s, 2000 (Mexico) 787,500
2,250,000 Hexcel Corp. cv. sub. notes 7s, 2003 3,015,000
1,500,000 Samsung Heavy Industries cv. deb. 1/2s, 2009 1,605,000
--------------
5,407,500
Consumer Durable Goods (0.7%)
- ---------------------------------------------------------------------------------------------------------------------
18,500,000 Whirpool Corp. cv. LYON (Liquid Yield Option Notes) zero %, 2011 7,099,375
Consumer Non Durables (1.6%)
- ---------------------------------------------------------------------------------------------------------------------
1,625,000 BEC Group, Inc. cv. sub. notes 8s, 2002 (2 double daggers) 1,511,250
1,050,000 Bell Sports Corp. cv. sub. deb. 4 1/4s, 2000 801,938
22,250,000 Coleman Worldwide Corp. cv. sr. sec. LYON zero %, 2013 6,369,063
2,000,000 Dixie Yarns, Inc. cv. deb. 7s, 2012 1,580,000
8,045,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 2007 6,224,819
--------------
16,487,070
Consumer Services (3.4%)
- ---------------------------------------------------------------------------------------------------------------------
8,300,000 ADT Operations Inc. cv. sub. notes zero %, 2010 4,876,250
13,350,000 Boston Chicken, Inc. cv. LYON zero %, 2015 4,238,625
1,500,000 Comcast Corp. cv. sub. deb. stepped-coupon 3 3/8s,
(5 1/2s, 9/9/97), 2005 ++ 1,295,625
12,750,000 Comcast Corp. cv. notes 1 1/8s, 2007 5,849,063
20,150,000 Hollinger, Inc. cv. LYON zero %, 2013 6,851,000
280,000 Pharmaceutical Marketing Services Inc. cv. notes 6 1/4s, 2003 219,800
6,190,000 Pharmaceutical Marketing Services Inc. 144A cv. deb. 6 1/4s, 2003 4,743,075
3,725,000 Protection One Alarm cv. sr. sub. notes 6 3/4s, 2003 3,562,031
4,630,000 WMS Industries, Inc. cv. deb. 5 3/4s, 2002 4,676,300
--------------
36,311,769
Electronics and Electrical Equipment (3.4%)
- ---------------------------------------------------------------------------------------------------------------------
1,850,000 Diagnostic Retrieval System cv. sr. sub. deb. 9s, 2003 2,349,500
6,000,000 Magnetek, Inc. cv. deb. 8s, 2001 5,970,000
7,615,000 Motorola, Inc. cv. sub. deb. LYON zero %, 2013 5,178,200
1,000,000 Park Electrochemical Corp. cv. sub. notes 5 1/2s, 2006 840,000
4,745,000 Richardson Electronics Ltd. cv. sub. deb. 7 1/4s, 2006 4,027,319
1,700,000 S3, Inc. 144A cv. sub. notes 5 3/4s, 2003 2,006,000
2,600,000 Sanmina Corp. 144A cv. sub. notes 5 1/2s, 2002 4,472,000
3,165,000 SCI Systems, Inc. cv. sub. notes 5s, 2006 3,837,563
5,500,000 Texas Instruments cv. sub. deb. 2 3/4s, 2002 6,682,500
--------------
35,363,082
Electronic Components and Instruments (0.9%)
- ---------------------------------------------------------------------------------------------------------------------
1,900,000 Thermo Instrument Systems, Inc. 144A cv. deb. 4 1/2s, 2003 1,890,500
1,215,000 Thermo Instrument Systems 144A cv. company guaranty
3 3/4s, 2000 2,145,994
2,700,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 2,754,000
2,295,000 Thermo Quest Corp. 144A cv. company guaranty 5s, 2000 2,295,000
--------------
9,085,494
Environmental Control (1.6%)
- ---------------------------------------------------------------------------------------------------------------------
3,100,000 OHM Corp. cv. sub. deb. 8s, 2006 2,805,500
3,940,000 Thermo Terratech, Inc. 144A cv. sub. deb. 4 5/8s, 2003 3,664,200
2,060,000 U.S. Filter Corp. 144A cv. sub. notes 6s, 2005 3,934,600
6,378,000 WMX Technologies, Inc. cv. sub. notes 2s, 2005 6,059,100
--------------
16,463,400
Food (0.4%)
- ---------------------------------------------------------------------------------------------------------------------
2,500,000 Chiquita Brands International cv. deb. 7s, 2001 2,212,500
2,400,000 Chiquita Brands International, Inc. 144A cv. sub 7s, 2001 2,124,000
--------------
4,336,500
Food and Beverages (0.4%)
- ---------------------------------------------------------------------------------------------------------------------
4,000,000 Grand Metropolitan PLC cv. unsub. deb.
6 1/2s, 2000 (United Kingdom) 4,690,000
Health Care (3.5%)
- ---------------------------------------------------------------------------------------------------------------------
3,600,000 American Medical Response 144A cv. sub. notes 5 1/4s, 2001 3,690,000
2,740,000 Careline, Inc. cv. sr. sub. notes 8s, 2001 3,109,900
11,450,000 Healthsource, Inc. 144A cv. sub. notes 5s, 2003 9,059,813
1,500,000 NovaCare, Inc. cv. sub. deb. 5 1/2s, 2000 1,338,750
3,235,000 Renal Treatment Centers, Inc. 144A cv. sub. notes 5 5/8s, 2006 3,235,000
2,350,000 Rotech Medical Corp. 144A cv. sub. deb. 5 1/4s, 2003 2,000,438
2,435,000 Quantum Health Resources, Inc. cv. sub. deb. 4 3/4s, 2000 2,154,975
6,500,000 Theratx Inc. 144A cv. sub. 8s, 2002 5,850,000
2,738,000 Theratx Inc. cv. sub. deb. 8s, 2002 2,464,200
4,250,000 Vivra, Inc. 144A cv. sub. notes 5s, 2001 4,467,813
--------------
37,370,889
Hospital Management and Medical Services (1.6%)
- ---------------------------------------------------------------------------------------------------------------------
1,900,000 Complete Management, Inc. cv. sub. deb. 8s, 2003 2,208,750
3,270,000 Integrated Health Services, Inc. cv. sub. deb. 6s, 2003 3,204,600
4,665,000 Sun Healthcare Group Inc. 144A cv. sub. 6s, 2004 4,134,356
3,450,000 Tenet Health Care Corp. cv. sub. notes 6s, 2005 3,523,313
2,545,000 U.S. Diagnostic Laboratories, Inc. 144A
cv. sub. deb. 9s, 2003 3,817,500
--------------
16,888,519
Insurance and Finance (1.8%)
- ---------------------------------------------------------------------------------------------------------------------
5,000,000 NAC Re Corp. cv. deb. 5 1/4s, 2002 4,906,250
3,640,000 Pioneer Financial Services cv. sub. notes 6 1/2s, 2003 3,767,400
1,990,000 Trenwick Group, Inc. cv. deb. 6s, 1999 2,159,150
12,300,000 USF&G Corp. cv. sub. notes zero %, 2009 7,779,750
--------------
18,612,550
Medical Supplies and Devices (0.6%)
- ---------------------------------------------------------------------------------------------------------------------
2,000,000 Phoenix Shannon 144A cv. sr. sub. notes 9 1/2s, 2000 1,535,000
3,200,000 Uromed Corp. 144A cv. sub. notes 6s, 2003 3,112,000
1,000,000 Ventritex, Inc. cv. sub. notes 5 3/4s, 2001 1,480,000
--------------
6,127,000
Metals and Mining (0.3%)
- ---------------------------------------------------------------------------------------------------------------------
2,739,500 Quanex Corp. cv. sub. deb. 6.88s, 2007 2,828,534
Oil and Gas (1.4%)
- ---------------------------------------------------------------------------------------------------------------------
2,995,000 Cross Timbers Oil Co. cv. deb. 5 1/4s, 2003 3,290,756
2,750,000 Pennzoil Co. cv. sub. deb. 6 1/2s, 2003 4,317,500
915,000 Pogo Producing Co. cv. sub. notes 5 1/2s, 2004 1,883,756
3,170,000 Pride Petroleum Services, Inc. cv. sub. deb. 6 1/4s, 2006 4,913,500
--------------
14,405,512
Oil and Gas Pipelines (0.3%)
- ---------------------------------------------------------------------------------------------------------------------
2,250,000 SFP Pipeline Holdings Inc. cv. variable rate exch.
deb. 11.16s, 2010 (2 double daggers) 2,745,000
Paper and Forest Products (0.8%)
- ---------------------------------------------------------------------------------------------------------------------
4,750,000 Stone Container Corp. cv. sr. sub. notes 8 7/8s, 2000 6,667,813
1,800,000 Stone Container Corp. cv. sub. deb. 6 3/4s, 2007 1,525,500
--------------
8,193,313
Pharmaceuticals (2.2%)
- ---------------------------------------------------------------------------------------------------------------------
10,815,000 Alza Corp. cv. sub. LYON zero %, 2014 4,474,706
3,890,000 Nabi, Inc. 144A cv. sub. notes 6 1/2s, 2003 3,685,775
4,040,000 North American Vaccine, Inc. 144A
cv. sub. notes 6 1/2s, 2003 3,888,500
2,500,000 IVAX Corp. cv. deb. 6 1/2s, 2001 2,259,375
7,130,000 Roche Holdings, Inc. 144A cv. unsub. LYON zero %,
2010 (Switzerland) 3,146,113
5,425,000 Sandoz Capital BVI Ltd. 144A cv. company guaranty
2s, 2002 (Switzerland) 6,001,406
--------------
23,455,875
Publishing (0.4%)
- ---------------------------------------------------------------------------------------------------------------------
4,700,000 Thomas Nelson, Inc. 144A cv. sub. notes 5 3/4s, 1999 4,523,750
Real Estate (0.8%)
- ---------------------------------------------------------------------------------------------------------------------
1,200,000 Alexander Haagen Properties cv. sub. deb.
Ser. A, 7 1/2s, 2001(R) 1,098,000
1,985,000 Camden Property Trust cv. sub. deb. 7.33s, 2001(R) 2,245,531
1,410,000 LTC Properties, Inc. cv. sub. deb. 7 3/4s, 2002 (R) 1,452,300
3,750,000 Malan Realty Investors cv. sub. notes 9 1/2s, 2004 (R) 3,440,625
--------------
8,236,456
Recreation (0.2%)
- ---------------------------------------------------------------------------------------------------------------------
2,000,000 Speedway Motorsports, Inc. 144A cv. sub. notes 5 3/4s, 2003 1,980,000
Retail (3.6%)
- ---------------------------------------------------------------------------------------------------------------------
10,325,000 Baker (J.), Inc. cv. deb. 7s, 2002 8,066,406
4,650,000 Home Depot, Inc. cv. sub. notes 3 1/4s, 2001 4,644,188
6,885,000 Michaels Stores, Inc. cv. sub. notes 6 3/4s, 2003 4,785,075
4,300,000 Office Depot, Inc. cv. LYON zero %, 2007 2,709,000
2,825,000 Pier 1 Imports, Inc. cv. sub. notes 5 3/4s, 2003 2,839,125
4,350,000 Price Co. cv. deb. 6 3/4s, 2001 4,551,188
11,500,000 Rite Aid Corp. cv. deb. zero %, 2006 6,368,125
2,350,000 Staples, Inc. 144A cv. sub. deb. 4 1/2s, 2000 2,458,688
2,100,000 Sunglass Hut Inernational, Inc. 144A
cv. sub. notes 5 1/4s, 2003 1,596,000
--------------
38,017,795
Semiconductors (0.8%)
- ---------------------------------------------------------------------------------------------------------------------
1,000,000 Integrated Device Technology, Inc.
cv. sub. notes 5 1/2s, 2002 808,750
3,600,000 National Semiconductor Corp. cv. deb. 6 1/2s, 2002 3,379,500
3,835,000 Plasma & Materials Technologies, Inc. 144A
cv. notes 7 1/8s, 2001 3,940,463
--------------
8,128,713
Telecommunications (1.3%)
- ---------------------------------------------------------------------------------------------------------------------
3,775,000 MIDCOM Communications, Inc. 144A cv. sub. deb. 8 1/4s, 2003 3,775,000
19,000,000 Rogers Communications cv. deb. 2s, 2005 (Canada) 10,046,250
--------------
13,821,250
Transportation (1.0%)
- ---------------------------------------------------------------------------------------------------------------------
GBP 3,300,000 British Airport Authority 144A cv. bonds 5 3/4s,
2006 (United Kingdom) 5,595,567
$4,500,000 Continental Airlines, Inc. cv. sub. deb. 6 3/4s, 2006 4,635,000
--------------
10,230,567
--------------
Total Convertible Bonds and Notes (cost $460,238,151) 480,220,070
COMMON STOCKS (27.4%) *
NUMBER OF SHARES VALUE
Aerospace and Defense (0.3%)
- ---------------------------------------------------------------------------------------------------------------------
30,000 Lockheed Martin Corp. 2,688,750
Automotive (0.9%)
- ---------------------------------------------------------------------------------------------------------------------
2,800 Bayerische Motoren Werke (BMW) AG (Germany) 1,634,256
72,780 Chrysler Corp. 2,447,228
60,000 Ford Motor Co. 1,875,000
76,000 General Motors Corp. 4,094,500
--------------
10,050,984
Banks (3.6%)
- ---------------------------------------------------------------------------------------------------------------------
74,000 Banc One Corp. 3,135,750
31,000 BankAmerica Corp. 2,836,500
41,500 Bankers Trust New York Corp. 3,506,750
30,000 Comerica, Inc. 1,593,750
65,000 CoreStates Financial Corp. 3,160,625
110,000 Fleet Financial Group, Inc. 5,486,250
65,000 Great Western Financial Corp. 1,820,000
63,000 Keycorp 2,937,375
52,000 Morgan (J.P.) & Co., Inc. 4,491,500
60,000 National City Corp. 2,602,500
27,000 NationsBank Corp. 2,544,750
100,000 PNC Bank Corp. 3,625,000
--------------
37,740,750
Basic Industrial Products (0.4%)
- ---------------------------------------------------------------------------------------------------------------------
53,000 Deere (John) & Co. 2,212,750
40,000 General Signal Corp. 1,630,000
--------------
3,842,750
Building and Construction (0.2%)
- ---------------------------------------------------------------------------------------------------------------------
31,000 Armstrong World Industries, Inc. 2,069,250
Business Services and Equipment (0.7%)
- ---------------------------------------------------------------------------------------------------------------------
41,200 IBM Corp. 5,314,800
49,000 Xerox Corp. 2,272,375
--------------
7,587,175
Chemicals (1.3%)
- ---------------------------------------------------------------------------------------------------------------------
50,000 Bayer AG ADR (Germany) 1,890,690
32,000 Dow Chemical Co. 2,488,000
35,000 du Pont (E.I.) de Nemours & Co., Ltd. 3,246,250
46,000 Eastman Chemical Co. 2,426,500
30,000 Hoechst AG (Germany) 1,125,494
65,000 Witco Chemical Corp. 2,015,000
--------------
13,191,934
Conglomerates (1.5%)
- ---------------------------------------------------------------------------------------------------------------------
50,000 Cooper Industries, Inc. 2,012,500
40,000 General Motors Corp. Class H 2,135,000
70,000 ITT Industries, Inc. 1,627,500
48,000 Minnesota Mining & Manufacturing Co. 3,678,000
38,000 TRW, Inc. 3,439,000
22,000 United Technologies Corp. 2,832,500
--------------
15,724,500
Consumer Durable Goods (0.2%)
- ---------------------------------------------------------------------------------------------------------------------
53,000 Whirlpool Corp. 2,504,250
Consumer Non Durables (2.0%)
- ---------------------------------------------------------------------------------------------------------------------
58,000 American Brands, Inc. 2,769,500
50,000 Avon Products, Inc. 2,712,500
20,000 Clorox Co. 2,182,500
46,000 Kimberly-Clark Corp. 4,289,500
30,000 Lowe's Cos., Inc. 1,211,250
45,300 Philip Morris Cos., Inc. 4,195,913
60,000 RJR Nabisco Holdings Corp. + 1,732,500
80,000 Universal Corp. 2,180,000
--------------
21,273,663
Electronics and Electrical Equipment (1.3%)
- ---------------------------------------------------------------------------------------------------------------------
40,000 Eaton Corp. 2,390,000
20,000 Emerson Electric Co. 1,780,000
16,000 General Electric Co. 1,548,000
40,000 Hewlett-Packard Co. 1,765,000
40,000 Motorola, Inc. 1,840,000
25,000 Siemens AG (Germany) 1,288,702
57,000 Texas Instruments, Inc. 2,743,125
--------------
13,354,827
Environmental Control (0.2%)
- ---------------------------------------------------------------------------------------------------------------------
75,000 WMX Technologies, Inc. 2,578,125
Food and Beverages (1.1%)
- ---------------------------------------------------------------------------------------------------------------------
68,000 Anheuser-Busch Cos., Inc. 2,618,000
39,000 General Mills, Inc. 2,227,875
65,000 Heinz (H.J.) Co. 2,307,500
70,000 Sara Lee Corp. 2,485,000
80,000 Whitman Corp. 1,940,000
--------------
11,578,375
Health Care (0.4%)
- ---------------------------------------------------------------------------------------------------------------------
93,000 Baxter International, Inc. 3,871,125
Insurance and Finance (2.0%)
- ---------------------------------------------------------------------------------------------------------------------
61,000 American General Corp. 2,272,250
94,492 AON Corp. 5,456,913
50,000 Beneficial Corp. 2,925,000
18,000 CIGNA Corp. 2,349,000
27,000 Lincoln National Corp. 1,309,500
55,000 Federal National Mortgage Association 2,151,875
50,000 Norwest Corp. 2,193,750
135,000 USF&G Corp. 2,565,000
--------------
21,223,288
Metals and Mining (0.3%)
- ---------------------------------------------------------------------------------------------------------------------
72,250 Freeport-McMoRan Copper & Gold Co., Inc. Class A 2,095,250
35,086 Freeport-McMoRan Copper & Gold Co., Inc. Class B 1,065,737
--------------
3,160,987
Oil and Gas (2.3%)
- ---------------------------------------------------------------------------------------------------------------------
77,857 Amoco Corp. 5,897,668
22,000 British Petroleum PLC ADR (United Kingdom) 2,829,750
30,000 Chevron, Inc. 1,972,500
37,000 Exxon Corp. 3,279,125
15,000 Mobil Corp. 1,751,250
100,000 Occidental Petroleum Corp. 2,450,000
18,000 Royal Dutch Petroleum Co. PLC ADR (Netherlands) 2,976,750
76,561 Total Corp. ADR (France) 2,985,879
--------------
24,142,922
Paper and Forest Products (0.6%)
- ---------------------------------------------------------------------------------------------------------------------
46,000 Temple Inland, Inc. 2,357,500
82,000 Weyerhaeuser Co. 3,761,750
--------------
6,119,250
Pharmaceuticals and Biotechnology (1.2%)
- ---------------------------------------------------------------------------------------------------------------------
41,000 American Home Products Corp. 2,511,250
30,000 Bristol-Myers Squibb Co. 3,172,500
89,000 Pharmacia & Upjohn, Inc. 3,204,000
60,000 Warner-Lambert Co. 3,817,500
--------------
12,705,250
Photography (0.8%)
- ---------------------------------------------------------------------------------------------------------------------
79,844 Eastman Kodak Co. 6,367,559
55,000 Polaroid Corp. 2,234,375
--------------
8,601,934
Pipelines (0.2%)
- ---------------------------------------------------------------------------------------------------------------------
43,000 Enron Corp. 1,999,500
Publishing (0.5%)
- ---------------------------------------------------------------------------------------------------------------------
67,100 Deluxe Corp. 2,189,138
62,800 Times Mirror Co. Class A 2,904,500
--------------
5,093,638
Real Estate (0.3%)
- ---------------------------------------------------------------------------------------------------------------------
100,000 LTC Properties, Inc. (R) 1,700,000
30,000 Meditrust Corp. (R) 1,080,000
--------------
2,780,000
Retail (1.5%)
- ---------------------------------------------------------------------------------------------------------------------
100,000 Dayton Hudson Corp. 3,462,500
270,000 K mart Corp. 2,632,500
50,000 May Department Stores Co. 2,368,750
47,000 Penney (J.C.) Co., Inc. 2,467,500
87,000 Rite Aid Corp. 2,958,000
50,000 Sears, Roebuck & Co. 2,418,750
--------------
16,308,000
Savings and Loans (0.2%)
- ---------------------------------------------------------------------------------------------------------------------
85,000 Ahmanson (H.F.) & Co. 2,666,875
Transportation (1.0%)
- ---------------------------------------------------------------------------------------------------------------------
25,000 Conrail, Inc. 2,378,125
27,000 Delta Air Lines, Inc. 1,913,625
22,000 Norfolk Southern Corp. 1,960,750
80,000 Ryder System, Inc. 2,380,000
36,000 Union Pacific Corp. 2,020,500
--------------
10,653,000
Utilities (2.4%)
- ---------------------------------------------------------------------------------------------------------------------
46,000 Bell Atlantic Corp. 2,771,500
53,000 BellSouth Corp. 2,159,750
50,000 Cinergy Corp. 1,656,250
81,000 Edison International 1,599,750
47,000 GTE Corp. 1,979,875
50,000 NYNEX Corp. 2,225,000
43,000 Pacific Telesis Group 1,462,000
40,000 Potomac Electric Power Co. 1,025,000
35,000 Public Service Co. of Colorado 1,295,000
55,000 Public Service Enterprise Group, Inc. 1,478,125
43,000 SBC Communications, Inc. 2,090,875
71,600 Sprint Corp. 2,810,300
38,000 Union Electric Co. 1,467,750
20,000 Veba (Vereinigte Elektrizitaets
Bergwerks) AG (Germany) 1,064,163
--------------
25,085,338
--------------
Total Common Stocks (cost $226,713,162) 288,596,440
CONVERTIBLE PREFERRED STOCKS (20.5%) *
NUMBER OF SHARES VALUE
Aerospace and Defense (0.3%)
- ---------------------------------------------------------------------------------------------------------------------
70,000 Kaman Corp. $3.25 cv. pfd. 3,447,500
Automotive (1.2%)
- ---------------------------------------------------------------------------------------------------------------------
72,250 Federal Mogul Corp. $3.875 cv. pfd. 4,624,000
73,600 Ford Motor Co. Ser. A, $4.20 dep. shs. cv. pfd. 7,525,600
--------------
12,149,600
Banks (2.3%)
- ---------------------------------------------------------------------------------------------------------------------
63,000 Banc One Corp. Ser. C, $3.50 cv. pfd. 5,197,500
54,500 First Chicago Corp. Ser. B, $2.875 cv. pfd. 4,673,375
31,500 Matewan Bancshares, Inc. Ser. A, $1.875 cv. pfd. 811,125
60,000 Roosevelt Financial Group $ 3.25 cv. pfd. 3,795,000
83,550 Sovereign Bancorp Inc. $3.13 cv. pfd. 5,305,425
103,350 Union Planters Corp. Ser. E, $2.00 cv. pfd. 4,444,050
--------------
24,226,475
Basic Industrial Products (0.8%)
- ---------------------------------------------------------------------------------------------------------------------
25,000 Case Corp. Ser. A, $4.50 cv. pfd. 2,887,500
120,450 Greenfield Industries, Inc. 144A $ 3.00 cv. pfd. 5,360,025
--------------
8,247,525
Broadcasting (0.6%)
- ---------------------------------------------------------------------------------------------------------------------
82,720 SFX Broadcasting, Inc. Ser. D, $3.25 cv. pfd. 4,673,680
215,000 Triathlon Broadcasting Co. $ 0.945 cv. pfd. 2,150,000
--------------
6,823,680
Building and Construction (0.3%)
- ---------------------------------------------------------------------------------------------------------------------
70,000 Southdown, Inc. $2.875 cv. pfd. 3,500,000
Business Equipment and Services (0.4%)
- ---------------------------------------------------------------------------------------------------------------------
47,000 Alco Standard Corp. $5.03 cv. pfd. 4,077,250
Computers (1.1%)
- ---------------------------------------------------------------------------------------------------------------------
100,000 Vanstar Corp. 144A $3.375 cv. pfd. 5,250,000
110,500 Wang Laboratories, Inc. 144A Ser. B, $3.25 cv. pfd. 5,815,063
--------------
11,065,063
Consumer Non Durables (0.6%)
- ---------------------------------------------------------------------------------------------------------------------
71,075 Fieldcrest Cannon Ser. A, $3.00 cv. pfd. 2,700,850
186,500 RJR Nabisco Holdings. Ser. C, $0.6012 sr. cv. pfd. 1,049,063
400,000 Tyco Toys, Inc. Ser. C, $0.4125 cv. pfd. 2,650,000
--------------
6,399,913
Consumer Services (1.0%)
- ---------------------------------------------------------------------------------------------------------------------
67,800 Service Corp. $3.125 cv. pfd. 6,373,200
88,300 Wendy's Financing I Ser. A, $2.50 cv. pfd. 4,492,263
--------------
10,865,463
Electronics and Electrical Equipment (0.1%)
- ---------------------------------------------------------------------------------------------------------------------
65,400 Westinghouse Electric Corp. 144A Ser. C, $1.30 cv. pfd. 1,013,700
Entertainment (0.3%)
- ---------------------------------------------------------------------------------------------------------------------
67,770 Station Casinos, Inc. $3.50 cv. pfd. 3,456,270
Food (0.5%)
- ---------------------------------------------------------------------------------------------------------------------
90,000 Chiquita Brands International, Inc. Ser. B, $3.75 cv. pfd. 4,747,500
Insurance and Finance (2.0%)
- ---------------------------------------------------------------------------------------------------------------------
124,000 American General Delaware Corp. $3.00 cv. pfd. 6,479,000
83,700 Penncorp Financial Group, Inc. 144A $3.50 cv.pfd. 4,896,450
110,400 St. Paul Capital LLC $3.00 cv. pfd. 5,796,000
73,000 USF&G Corp. Ser. A, $4.10 cv. pfd. 3,650,000
--------------
20,821,450
Metals and Mining (1.9%)
- ---------------------------------------------------------------------------------------------------------------------
38,866 Alumax, Inc. Ser. A, $4.00 cv. pfd. 5,159,462
57,125 Amax Gold, Inc. Ser. B, $3.75 cv. pfd. 2,906,234
292,300 Freeport-McMoRan Copper Co., Inc. $1.75 cv. pfd. 7,965,175
90,400 Pittston Mineral Corp. 144A $3.125 dep. shs. cv. pfd. 3,435,200
--------------
19,466,071
Oil and Gas (2.6%)
- ---------------------------------------------------------------------------------------------------------------------
57,500 Ashland, Inc. $3.125 cv. pfd. 3,830,938
310,181 Atlantic Richfield Co. $2.23 cv. pfd. 6,707,664
65,000 Grant Geophysical, Inc. $2.4375 cv. pfd. 1,161,875
60,000 Lomak Petroleum, Inc. 144A $2.03 cv. pfd. 2,700,000
116,800 Occidental Petroleum Corp. 144A $3.875 cv. pfd. 6,818,200
75,520 Santa Fe Energy Resources, Inc. $1.40 cv. pfd. 1,840,800
80,125 Tejas Gas Corp. $2.65 cv. pfd. 4,206,563
--------------
27,266,040
Packaging and Containers (0.7%)
- ---------------------------------------------------------------------------------------------------------------------
103,000 Crown Cork & Seal Co., Inc. $4.50 cv. pfd. 4,789,500
25,000 Interpool, Inc. $5.75 cv. pfd. 2,500,000
--------------
7,289,500
Paper and Forest Products (0.6%)
- ---------------------------------------------------------------------------------------------------------------------
90,000 Boise Cascade Corp. Ser. G, $1.58 cv. pfd. 2,328,750
86,000 International Paper Co. $2.63 cv. pfd. 4,074,250
--------------
6,403,000
Real Estate (1.2%)
- ---------------------------------------------------------------------------------------------------------------------
92,000 Insignia Financial Group, Inc. 144A $3.25 cv. pfd. 4,738,000
63,500 Oasis Residential, Inc. Ser. A, $2.25 cv. pfd. (R) 1,524,000
195,000 Security Capital Pacific Trust Ser. A, $1.75 cv. pfd. 5,240,625
74,490 Tanger Factory Outlet Centers $1.575 cv. pfd. (R) 1,620,158
--------------
13,122,783
Retail (0.6%)
- ---------------------------------------------------------------------------------------------------------------------
130,000 K mart Financing I $3.875 cv. pfd. 6,175,000
Savings and Loans (0.6%)
- ---------------------------------------------------------------------------------------------------------------------
90,000 Ahmanson (H.F.) & Co. $3.00 cv. pfd. 6,086,250
Telecommunications (0.8%)
- ---------------------------------------------------------------------------------------------------------------------
125,000 Airtouch Communications, Inc. Ser. C, $2.125 cv. pfd. 5,796,875
77,000 Tele-Communications (TCI Group) Ser. A, $2.125 cv. pfd. 2,853,813
--------------
8,650,688
--------------
Total Convertible Preferred Stocks (cost $203,894,903) 215,300,721
UNITS (0.9%) *
NUMBER OF UNITS VALUE
- ---------------------------------------------------------------------------------------------------------------------
1,400,000 Dart & Kraft Inc. company guaranty units 7 3/4s, 1998 4,410,000
87 Sakura Finance 144A $0.75 cv. pfd. units (Bermuda) 5,191,688
--------------
Total Units (cost $7,774,815) 9,601,688
FOREIGN GOVERNMENT BONDS AND NOTES (0.4%) *(cost $4,300,000)
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
$4,300,000 Italy (Government of) cv. notes 5s, 2001 4,348,375
CORPORATE BONDS AND NOTES (0.3%) *(cost $3,210,625)
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
$2,500,000 Siemens Capital Corp. Co. Guaranty 8s, 2002 (Germany) 3,300,000
SHORT-TERM INVESTMENTS (4.0%) *
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
$20,000,000 Federal Home Loan Bank effective yield of 5.20%, November 21, 1996 19,942,222
22,000,000 Interest in $500,000,000 joint repurchase agreement dated
October 31, 1996 with Lehman Brothers Inc. due November 1, 1996
with respect to various U.S. Treasury obligations -- maturity
value of $22,003,379 for an effective yield of 5.53%. 22,003,379
--------------
Total Short-Term Investments (cost $41,945,601) 41,945,601
- ---------------------------------------------------------------------------------------------------------------------
Total Investments ($948,077,257) *** 1,043,312,895
- ---------------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $1,051,740,628.
*** The aggregate identified cost on a tax basis is
$948,045,395, resulting in gross unrealized appreciation and
depreciation of $123,806,176 and $28,538,676, respectively,
or net unrealized appreciation of $95,267,500.
++ The interest rate and date shown parenthetically represent
the new interest rate to be paid and the date the fund will
begin receiving interest at this rate.
(2 double daggers) Income may be received in cash or additional securities at
the discretion of the issuer.
(R) Real Estate Investment Trust.
144A after the name of a security represents those exempt
from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional
buyers.
ADR or ADS after the name of a foreign holding stands for
American Depository Receipts or American Depository
Shares, respectively, representing ownership of foreign
securities on deposit with a domestic custodian bank.
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at October 31, 1996
(aggregate face value $13,822,037)
Market Aggregate Face Delivery Unrealized
Value Value Date Appreciation
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Japanese Yen $8,960,125 $9,397,772 5/31/01 $437,647
Japanese Yen 32,978 34,583 11/30/00 1,605
Japanese Yen 32,294 34,054 5/31/00 1,760
Japanese Yen 31,702 33,432 11/30/99 1,730
Japanese Yen 30,915 32,798 6/1/99 1,883
Japanese Yen 30,283 32,171 11/30/98 1,888
Japanese Yen 29,536 31,538 6/1/98 2,002
Japanese Yen 3,776,824 4,042,340 1/28/98 265,516
Japanese Yen 28,825 30,847 12/1/97 2,022
Japanese Yen 43,717 46,962 7/28/97 3,245
Japanese Yen 28,109 30,151 6/2/97 2,042
Japanese Yen 42,606 45,962 1/28/97 3,356
Japanese Yen 27,411 29,427 12/2/96 2,016
- -----------------------------------------------------------------------------------------------------
$726,712
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
October 31, 1996
<S> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $948,077,257) (Note 1) $1,043,312,895
- ----------------------------------------------------------------------------------------------------------------------
Cash 4,787,311
- ----------------------------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 8,227,419
- ----------------------------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,074,431
- ----------------------------------------------------------------------------------------------------------------------
Receivable for securities sold 12,524,641
- ----------------------------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 726,712
- ----------------------------------------------------------------------------------------------------------------------
Total assets 1,071,653,409
Liabilities
- ----------------------------------------------------------------------------------------------------------------------
Payable for securities purchased 16,849,697
- ----------------------------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 900,522
- ----------------------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,531,835
- ----------------------------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 166,686
- ----------------------------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 4,734
- ----------------------------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 4,491
- ----------------------------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 316,483
- ----------------------------------------------------------------------------------------------------------------------
Other accrued expenses 138,333
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 19,912,781
- ----------------------------------------------------------------------------------------------------------------------
Net assets $1,051,740,628
Represented by
- ----------------------------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $873,233,274
- ----------------------------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 4,736,917
- ----------------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions (Note 1) 77,808,087
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and liabilities in foreign currencies 95,962,350
- ----------------------------------------------------------------------------------------------------------------------
Total - Representing net assets applicable to capital shares outstanding $1,051,740,628
Computation of net asset value and offering price
- ----------------------------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share ($898,485,537 divided by 42,292,622 shares) $21.24
- ----------------------------------------------------------------------------------------------------------------------
Offering price per Class A share (100/94.25 of $21.24)* $22.54
- ----------------------------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share ($146,127,338 divided by 6,930,055 shares)** $21.09
- ----------------------------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share ($7,127,753 divided by 337,162 shares) $21.14
- ----------------------------------------------------------------------------------------------------------------------
Offering price per Class M share (100/96.50 of $21.14)* $21.91
- ----------------------------------------------------------------------------------------------------------------------
* 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.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended October 31, 1996
<S> <C>
Investment inome:
- ---------------------------------------------------------------------------------------------------------
Interest income $28,562,631
- ---------------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $110,214) 19,138,378
- ---------------------------------------------------------------------------------------------------------
Total investment income 47,701,009
- ---------------------------------------------------------------------------------------------------------
Expenses:
- ---------------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 5,724,182
- ---------------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,462,698
- ---------------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 27,299
- ---------------------------------------------------------------------------------------------------------
Administrative services (Note 2) 13,714
- ---------------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 2,090,093
- ---------------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,096,336
- ---------------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 34,764
- ---------------------------------------------------------------------------------------------------------
Reports to shareholders 86,555
- ---------------------------------------------------------------------------------------------------------
Registration fees 40,514
- ---------------------------------------------------------------------------------------------------------
Auditing 65,140
- ---------------------------------------------------------------------------------------------------------
Legal 14,728
- ---------------------------------------------------------------------------------------------------------
Postage 200,786
- ---------------------------------------------------------------------------------------------------------
Other 103,044
- ---------------------------------------------------------------------------------------------------------
Total expenses 10,959,853
- ---------------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (373,564)
- ---------------------------------------------------------------------------------------------------------
Net expenses 10,586,289
- ---------------------------------------------------------------------------------------------------------
Net investment income 37,114,720
- ---------------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 79,060,185
- ---------------------------------------------------------------------------------------------------------
Net realized gain on foreign currency translation (Note 1) 1,924
- ---------------------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in foreign currencies during the year 726,712
- ---------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 44,550,728
- ---------------------------------------------------------------------------------------------------------
Net gain on investments 124,339,549
- ---------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $161,454,269
- ---------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended October 31
---------------------------------
1996 1995
---------------------------------
<S> <C> <C>
Increase in net assets
- ------------------------------------------------------------------------------------------------------------
Operations:
- ------------------------------------------------------------------------------------------------------------
Net investment income $37,114,720 $35,523,538
- ------------------------------------------------------------------------------------------------------------
Net realized gain on investments 79,062,109 31,193,122
- ------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 45,277,440 37,340,783
- ------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 161,454,269 104,057,443
- ------------------------------------------------------------------------------------------------------------
Distributions to shareholders
- ------------------------------------------------------------------------------------------------------------
From net investment income:
Class A (39,696,713) (36,798,209)
- ------------------------------------------------------------------------------------------------------------
Class B (4,495,021) (2,264,082)
- ------------------------------------------------------------------------------------------------------------
Class M (207,655) (28,669)
- ------------------------------------------------------------------------------------------------------------
From net realized gain on investments:
Class A (27,754,648) (42,106,385)
- ------------------------------------------------------------------------------------------------------------
Class B (3,021,352) (2,126,191)
- ------------------------------------------------------------------------------------------------------------
Class M (80,667) --
- ------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 131,834,466 83,596,336
- ------------------------------------------------------------------------------------------------------------
Total increase in net assets 218,032,679 104,330,243
- ------------------------------------------------------------------------------------------------------------
Net assets
- ------------------------------------------------------------------------------------------------------------
Beginning of year 833,707,949 729,377,706
- ------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $4,736,917 and $10,950,119, respectively) $1,051,740,628 $833,707,949
- ------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
March 13, 1995
(commencement
Year ended of operations) Year ended
October 31 to October 31 October 31
--------------------------------------------------------------
1996 1995 1996
--------------------------------------------------------------
Class M
--------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $19.37 $17.79 $19.30
- ---------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 0.73(d) .64 .66(d)
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 2.65 1.64 2.68
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.38 2.28 3.34
- ---------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------
From net investment income (.90) (.70) (.84)
- ---------------------------------------------------------------------------------------------------------------------
From net realized gain on investments (.71) -- (.71)
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (1.61) (.70) (1.55)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $21.14 $19.37 $21.09
- ---------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 18.30 12.99* 18.14
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $7,128 $1,753 $146,127
- ---------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.54 1.04* 1.81
- ---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 3.55 2.89* 3.26
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 61.43 69.52 61.43
- ---------------------------------------------------------------------------------------------------------------------
Average commission rate paid (c) $0.0508 $0.0508
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
July 15, 1993
(commencement
of operations) to
Year ended October 31 October 31
------------------------------------------------------------
1995 1994 1993
------------------------------------------------------------
Class B
------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $19.00 $20.35 $19.53
- -------------------------------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------------------------------
Net investment income .69 .74 .23
- -------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.61 (.55) .82
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.30 .19 1.05
- -------------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------------
From net investment income (.84) (.66) (.23)
- -------------------------------------------------------------------------------------------------------------------
From net realized gain on investments (1.16) (.88) --
- -------------------------------------------------------------------------------------------------------------------
Total distributions (2.00) (1.54) (.23)
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.30 $19.00 $20.35
- -------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 13.54 1.00 5.43*
- -------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $75,309 $31,432 $4,439
- -------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.91 1.71 .52*
- -------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 3.92 3.58 .91*
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 69.52 48.37 66.63
- -------------------------------------------------------------------------------------------------------------------
Average commission rate paid (c)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Year ended October 31
-------------------------------------------------------------
1996 1995 1994
-------------------------------------------------------------
Class A
-------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $19.42 $19.09 $20.38
- --------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------
Net investment income .81(d) .85 .81
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 2.70 1.60 (.46)
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.51 2.45 .35
- --------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------
From net investment income (.98) (.96) (.74)
- --------------------------------------------------------------------------------------------------------------------
From net realized gain on investments (.71) (1.16) (.90)
- --------------------------------------------------------------------------------------------------------------------
Total distributions (1.69) (2.12) (1.64)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $21.24 $19.42 $19.09
- --------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 18.99 14.38 1.84
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $898,486 $756,645 $697,946
- --------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.06 1.16 .96
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 3.99 4.64 4.16
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 61.43 69.52 48.37
- --------------------------------------------------------------------------------------------------------------------
Average commission rate paid (c) $0.0508
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
------------------------------
1993 1992
------------------------------
<S> <C> <C>
Net asset value, beginning of period $17.60 $15.78
- ------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------
Net investment income .87 .89
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 2.87 1.89
- ------------------------------------------------------------------------------------------------------
Total from investment operations 3.74 2.78
- ------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------
From net investment income (.96) (.96)
- ------------------------------------------------------------------------------------------------------
From net realized gain on investments -- --
- ------------------------------------------------------------------------------------------------------
Total distributions (.96) (.96)
- ------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.38 $17.60
- ------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 21.74 18.16
- ------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $707,969 $599,866
- ------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .96 1.11
- ------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 4.55 5.32
- ------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 66.63 59.89
- ------------------------------------------------------------------------------------------------------
Average commission rate paid (c)
- ------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended October 31, 1995
and thereafter, includes amounts paid through expense offset and brokerage service
arrangements. Prior period ratios exclude these amounts. (Note 2).
(c) Average commission rate paid on security trades is required for fiscal periods
beginning on or after September 1, 1995.
(d) Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.
</TABLE>
Notes to financial statements
October 31, 1996
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 class A, class B and class M shares. Class A shares are
sold with a maximum front-end sales charge of 5.75%. Class B shares,
which convert to class A shares after approximately eight years, do not
pay a front-end sales charge, but pay a higher ongoing distribution fee
than class A shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class
M shares are sold with a maximum front-end sales charge of 3.50% and pay
an ongoing distribution fee that is lower than class B shares and higher
than class A shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined using
the last reported sale price, or, if no sales are reported -- as in the
case of some securities traded over-the-counter -- the last reported bid
price. Securities quoted in foreign currencies are translated into U.S.
dollars at the current exchange rate. Short-term investments having
remaining maturities of 60 days or less are stated at amortized cost,
which approximates market value, and other investments are stated at
fair value following procedures approved by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc.. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Putnam Management is responsible for determining that the value of these
underlying securities is at all times at least equal to the resale
price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed).
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date except that certain dividends from
foreign securities are recorded as soon as the fund is informed of the
ex-dividend date.
Discounts on zero coupon bonds, original issue, stepped-coupon bonds and
payment in kind bonds are accreted according to the effective yield
method.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such fluctuations are included with the net realized
and unrealized gain or loss on investments. Net realized gains and
losses on foreign currency transactions represent net exchange gains or
losses on closed forward currency contracts, disposition of foreign
currencies and the difference between the amount of investment income
and foreign withholding taxes recorded on the fund's books and the U.S.
dollar equivalent amounts actually received or paid. Net unrealized
gains and losses on foreign currency transactions arise from changes in
the value of open forward currency contracts and assets and liabilities
other than investments at the period end, resulting from changes in the
exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a decline
in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of a currency in which securities a fund intends to buy are
denominated, when a fund holds cash reserves and short-term
investments). The U.S. dollar value of forward currency contracts is
determined using forward currency exchange rates supplied by a quotation
service. The market value of the contract will fluctuate with changes in
currency exchange rates. The contract is "marked to market" daily and
the change in market value is recorded as an unrealized gain or loss.
When the contract is closed, the fund records a realized gain or loss
equal to the difference between the value of the contract at the time it
was opened and the value at the time it was closed. The fund could be
exposed to risk if the value of the currency changes unfavorably, if the
counterparties to the contracts are unable to meet the terms of their
contracts or if the fund is unable to enter into a closing position.
G) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains.
H) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid annually. The amount and character of income and gains to be
distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences include treatment of realized and unrealized gains and
losses on forward foreign currency contracts, losses on wash sale
transactions and market discount. Reclassifications are made to the
fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. For the year ended October 31, 1996, the fund reclassified
$1,071,467 to increase undistributed net investment income and $7,835 to
decrease paid-in-capital, with a decrease to accumulated net realized
gain on investments of $1,063,632. The calculation of net investment
income per share in the financial highlights table excludes these
adjustments.
Note 2
Management fee, administrative services, and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.65% of the
first $500 million, 0.55% of the next $500 million, 0.50% of the next
$500 million, 0.45% of the next $1.5 billion subject, under current law,
to reduction in any year by the amount of certain brokerage commissions
and fees (less expenses) received by affiliates of Putnam Management on
the fund's portfolio transactions.
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the year ended October 31, 1996, fund expenses were reduced by
$373,564 under expense offset arrangements with PFTC and brokerage
service arrangements. Investor servicing and custodian fees reported in
the Statement of operations exclude these credits. The fund could have
invested a portion of the assets utilized in connection with the expense
offset arrangements in an income producing asset if it had not entered
into such arrangements.
Trustees of the fund receive an annual Trustees fee of $1,490 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows
the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund
and are invested in certain Putnam funds until distribution in
accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Plans provide for payments by
the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%,
1.00% and 1.00% of the average net assets attributable to class A, class
B and class M shares, respectively. The Trustees have approved payment
by the fund at an annual rate of 0.25%, 1.00% and 0.75% of the average
net assets attributable to class A, class B and class M shares,
respectively.
For the year ended October 31, 1996, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $324,646 and $14,083 from the
sale of class A and class M shares, respectively and $133,826 in
contingent deferred sales charges from redemptions of class B shares. A
deferred sales charge of up to 1% is assessed on certain redemptions of
class A shares. For the year ended October 31, 1996, Putnam Mutual Funds
Corp., acting as underwriter received $2,194 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended October 31, 1996, purchases and sales of
investment securities other than short-term investments aggregated
$657,706,917 and $552,275,621, respectively. There were no purchases and
sales of U.S. government obligations. In determining the net gain or
loss on securities sold, the cost of securities has been determined on
the identified cost basis.
Note 4
Capital shares
At October 31, 1996, there was an unlimited number of shares of
beneficial interest authorized.
Year ended
October 31, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 6,225,633 $ 126,621,311
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,946,646 58,192,170
- ----------------------------------------------------
9,172,279 184,813,481
Shares
repurchased (5,850,929) (119,160,209)
- ----------------------------------------------------
Net increase 3,321,350 $ 65,653,272
- ----------------------------------------------------
Year ended
October 31, 1995
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 4,766,671 $ 87,884,467
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,881,585 68,270,063
- ----------------------------------------------------
8,648,256 156,154,530
Shares
repurchased (6,229,598) (116,013,292)
- ----------------------------------------------------
Net increase 2,418,658 $ 40,141,238
- ----------------------------------------------------
Year ended
October 31, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 3,655,578 $ 74,061,724
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 303,647 5,977,026
- ----------------------------------------------------
3,959,225 80,038,750
Shares
repurchased (931,979) (18,858,855)
- ----------------------------------------------------
Net increase 3,027,246 $ 61,179,895
- ----------------------------------------------------
Year ended
October 31, 1995
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 2,743,660 $ 51,118,308
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 188,683 3,340,889
- ----------------------------------------------------
2,932,343 54,459,197
Shares
repurchased (683,424) (12,747,189)
- ----------------------------------------------------
Net increase 2,248,919 $ 41,712,008
- ----------------------------------------------------
Year ended
October 31, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 330,113 $ 6,691,625
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 12,651 252,193
- ----------------------------------------------------
342,764 6,943,818
Shares
repurchased (96,145) (1,942,519)
- ----------------------------------------------------
Net increase 246,619 $ 5,001,299
- ----------------------------------------------------
March 13, 1995
(commencement of
operations) to
October 31, 1995
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 115,560 $ 2,231,842
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,279 24,919
- ----------------------------------------------------
116,839 2,256,761
Shares
repurchased (26,296) (513,671)
- ----------------------------------------------------
Net increase 90,543 $1,743,090
- ----------------------------------------------------
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the
Fund hereby designates $0.448 per share (or if different, the amount
necessary to offset net capital gain earned by the Fund) for all classes
of shares as capital gain dividends for its taxable year ended October
31, 1996.
The fund has designated 26.94% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 1997 will show the tax status of
all distributions paid to your account in calendar 1996.
Putnam Convertible Income-Growth Trust
Results of July 31, 1996 shareholder meeting
An annual meeting of shareholders of the fund was held on July 31, 1996.
At the meeting, each of the nominees for Trustees was elected, as
follows:
Votes
Votes for withheld
Jameson Adkins Baxter 32,777,157 657,812
Hans H. Estin 32,764,520 670,448
John A. Hill 32,790,178 644,790
R.J. Jackson 32,778,077 656,890
Elizabeth T. Kennan 32,758,255 676,713
Lawrence J. Lasser 32,771,294 663,674
Robert E. Patterson 32,783,159 651,809
Donald S. Perkins 32,776,195 658,773
William F. Pounds 32,780,147 654,821
George Putnam 32,774,850 660,118
George Putnam, III 32,748,970 685,998
Eli Shapiro 32,714,899 720,069
A.J.C. Smith 32,766,179 668,789
W. Nicholas Thorndike 32,761,939 673,029
A proposal to ratify the selection of Coopers & Lybrand L.L.P. as
auditors for the fund was approved as follows: 31,940,021 votes for, and
346,445 votes against, with 1,148,502 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to diversification of investments was approved as follows:
26,721,110 votes for, and 4,450,543 votes against, with 2,263,315
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in the securities of a single issuer was approved
as follows: 28,534,946 votes for, and 2,433,423 votes against, with
2,466,599 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to making loans through purchases of debt obligations,
repurchase agreements and securities loans was approved as follows:
27,606,188 votes for, and 3,290,558 votes against, with 2,538,222
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in real estate was approved as follows:
28,294,343 votes for, and 2,691,946 votes against, with 2,448,679
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to concentration of its assets was approved as follows:
28,929,438 votes for, and 2,047,455 votes against, with 2,458,075
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in commodities or commodity contracts was
approved as follows: 25,227,097 votes for, and 5,723,352 votes against,
with 2,484,519 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to underwriting was approved as follows: 28,486,103 votes for,
and 2,246,815 votes against, with 2,702,050 abstentions and broker non-
votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in certain oil, gas and mineral interests
was approved as follows: 28,141,273 votes for, and 2,909,880 votes
against, with 2,383,815 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to option transactions was approved as follows: 25,225,951
votes for, and 5,690,850 votes against, with 2,518,167 abstentions and
broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in issuers that have been in operation for
less than three years was approved as follows: 25,920,481 votes for, and
5,058,642 votes against, with 2,455,845 abstentions and broker non-
votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in securities of issuers in which management
of the fund or Putnam Investment Management, Inc. owns securities was
approved as follows: 28,270,371 votes for, and 2,658,059 votes against,
with 2,506,538 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to margin transactions was approved as follows: 24,977,656
votes for, and 5,963,592 votes against, with 2,493,720 abstentions and
broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to short sales was approved as follows: 27,757,372 votes
for, and 3,175,668 votes against, with 2,501,928 abstentions and broker
non-votes.
A proposal to eliminate the fund's fundamental investment restriction
which limits the fund's ability to pledge assets was approved as
follows: 25,212,747 votes for, and 5,674,133 votes against, with
2,548,088 abstentions and broker non-votes.
A proposal to amend the fund's Agreement and Declaration of Trust with
respect to purchase of certain illiquid securities was approved as
follows: 24,992,969 votes for, and 5,870,465 votes against, with
2,571,534 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to invest to gain control of a company's management was
approved as follows: 28,319,265 votes for, and 2,656,177 votes against,
with 2,459,526 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in warrants was approved as follows:
28,293,968 votes for, and 2,662,632 votes against, with 2,478,368
abstentions and broker non-votes.
All tabulations are rounded to nearest whole number.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Peter Carman
Vice President
Thomas V. Reilly
Vice President
Hugh H. Mullin
Vice President and Fund Manager
Charles G. Pohl
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Convertible
Income-Growth Trust. It may also be used as sales literature when
preceded or accompanied by the current prospectus, which gives details
of sales charges, investment objectives, and operating policies of the
fund, and the most recent copy of Putnam's Quarterly Performance
Summary. For more information, or to request a prospectus, call toll
free: 1-800-225-1581. You can also learn more at Putnam Investments'
website: http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution, are not insured by the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board
or any other agency, and involve risk, including the possible loss of
principal amount invested.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- ---------------------
29197/008/223/920 12/96
