Putnam
Convertible
Income-Growth
Trust
ANNUAL REPORT
October 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Management's value leanings have also improved liquidity. The team
tries to get the fund into rebounding sectors early (when investors
are dumping shares) and then sells into strength (when buyers
outnumber sellers). This helps limit the fund's price risk, and it
also ensures liquidity."
-- Morningstar Mutual Funds, August 1, 1997
* "Putnam Convertible Income-Growth Trust provides a way to invest in
many small and cyclical companies with good growth expectations
using a value-oriented strategy. Its income component is managed
with the intent to dampen the volatility of the returns."
-- Charles Pohl, fund manager
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
15 Portfolio holdings
30 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The stock market's sharp decline just before the close of Putnam
Convertible Income-Growth Trust's fiscal year provided a timely example
of the fund's ability to withstand volatility. The dramatic finale
notwithstanding, your fund performed on cue, delivering strong relative
and absolute returns.
The fund delivered its positive results with a portfolio heavily
weighted in favor of income-producing securities and deftly managed by
Charles Pohl and his newly appointed associate, Edward T. Shadek, Jr.
Ned, who was with Putnam from 1987 to 1992, returned in 1997 after
serving with the Michael Steinhart hedge fund in New York City and
Newbold's Asset Management in Philadelphia. He has 10 years of
investment experience.
In the following report, Charlie and Ned describe the fund's long-
standing strategy and how they applied it throughout fiscal 1997.
Then they provide their views on prospects for the fund in the
environment they foresee in the months ahead.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
December 17, 1997
Report from the Fund Managers
Charles G. Pohl
Edward T. Shadek, Jr.
Amusement park rides allow us to experience a thrilling combination
of turns, dips, and plunges, while a safety harness keeps us secure
from danger. Convertible securities follow the same principle,
offering investors exposure to the capital appreciation of growing
companies combined with an income component that is intended to keep
the portfolio's volatility in check. Generally the hybrid nature of
convertible securities, part stock and part bond, provides investors
with much of the upside potential of the stock market while helping
to reduce the downside risk.
This protective feature is especially valuable when the stock market
is unusually turbulent as was the case during the 12 months ended
October 31, 1997. Major market indexes soared to one peak after
another, only to fall in dramatic fashion on more than one occasion.
Amid this roller coaster ride, Putnam Convertible Income-Growth Trust
performed as it was intended to do. Its fiscal 1997 return outpaced
the 9.26% performance of the Lehman Brothers Corporate Bond Index
but lagged the 32.10% return of the Standard & Poor's 500(registered
trademark) Index, finishing with a return of 22.86% for class A
shares at net asset value (15.78% at maximum public offering price).
For performance of other share classes and returns for longer time
periods, please see the tables beginning on page 9.
* VALUE-ORIENTED STRATEGY PRODUCES DIVERSE PORTFOLIO
Although we invest approximately two thirds of the fund's assets in
income-producing securities -- convertible bonds or convertible
preferred stocks -- we regard the fund as an equity-oriented portfolio
nonetheless. We place equal emphasis on capital appreciation and
current income by applying the "cheapness and change" strategy
practiced by Putnam's value equity group, which provides the
analytical research to support the fund. Simply put, it means we look
for cheaply priced stocks of companies with the potential for positive
change. This provides the fund with two key benefits. First, stocks
become cheap when the underlying company or its industry is temporarily
out of favor. This beaten-down price leaves the stock less sensitive to
general market volatility. Second, attractively valued securities,
either stocks or convertibles, provide higher yields. It's important to
note, though, that we are not looking only for bargains. The underlying
companies must also be poised for positive change. With convertibles,
in fact, the fund often gets the direct benefit of the positive future
change because many companies, especially in the technology sector, use
convertibles -- rather than stock issues -- to finance new products or
stages of internal growth.
The same selection strategy applies to purchases of both convertible
securities and common stocks in the portfolio, but there are some
noteworthy differences between the two portions of the fund. The
convertible bond holdings tend to be issued by smaller and midsize
companies with attractive earnings growth rates. While larger, well-
established corporations also issue convertibles from time to time, we
tend to invest in large companies by buying common stocks. Conversely
we purchase few common stocks issued by smaller companies because
convertibles provide exposure to the growth of these companies with
somewhat less risk.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS
Oil and gas 10.0%
Retail 6.0%
Insurance and finance 5.9%
Banks 5.9%
Electronic components and instruments 5.8%
Footnote reads:
*Based on net assets as of 10/31/97. Holdings will vary over time.
By providing income, convertibles help to reduce the volatility of
returns on our common stock holdings. There is still room for
potential price appreciation, though, because the securities carry the
right to convert to common stock in the underlying companies, thus
providing exposure to their growth rates and participation in any
stock appreciation.
Common stocks in the fund represented a little less than 30% of net
assets during most of the fiscal year. Like the convertibles, the
common stock holdings are diversified across industries and sectors
but favor large, well-established companies with steady dividend
records. The common stock section favors industries that traditionally
have yields near or above the average for dividend-paying stocks, such
as utilities and energy, financial, and cyclical companies. This slice
of common stocks meets our value parameters and helps to balance our
industry representation without adding risk.
* VOLATILITY PROVIDES OPPORTUNITY FOR ECLECTIC COMPANY SELECTIONS
As value investors, we monitor volatile markets for buying opportunities.
This year was particularly rich with possibilities because of general
market volatility and sharp drops among small and midsize growth companies.
We purchased SCI Systems in the first calendar quarter of 1997. This
electronic equipment manufacturer, which makes products for a broad base
of customers ranging from the entertainment industry to the Pentagon,
provided strong performance during the fiscal year. While this stock,
along with others discussed in this report, was viewed favorably at the
end of the period, all portfolio holdings are subject to review and
adjustment in accordance with the fund's investment strategy and may
vary in the future.
We also established a position in Belgian speech-recognition software
company Lernout & Hauspie Speech Products. This company recently
attracted the attention of Microsoft owner Bill Gates, who wanted
to support Lernout's development of voice-recognition capabilities
for Windows applications in 16 foreign languages. In September,
Microsoft invested $45 million to buy an 8% stake in the company.
With the Lernout position and other recent additions, the technology
portion of the portfolio now hovers near 18% of total net assets.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Rogers Communications, convertible debenture 2s, 2005 (Canada)
Telecommunications
Softkey International, Inc., 144A convertible senior notes 5 1/2s, 2000
Computer software
Safeguard Scientifics, Inc., 144A convertible subordinated notes 6s, 2006
Computer services
Kmart Financing I, $3.875 convertible cumulative preferred
Retail
Lomak Petroleum, Inc., 144A convertible subordinated debenture 6s, 2007
Oil and gas
Apache Corp., 144A convertible subordinated debenture 6s, 2002
Oil and gas
Calenergy Capital Trust, $3.125 convertible preferred
Electric utilities
International Paper Co., $2.625 convertible preferred
Paper and forest products
Equity Residential Property Series E, $1.75 convertible preferred
Real Estate
Roche Holdings, Inc., 144A convertible unsuboridnated LYON
zero %, 2010 (Switzerland)
Pharmaceuticals
Footnote reads:
These holdings represent 8.0% of the fund's net assets as of 10/31/97.
Portfolio holdings will vary over time.
Our cheapness and change approach also keeps us attentive to industries
in the midst of consolidation or reorganization. This year the aerospace
industry has been particularly active in this regard. In addition to
owning stock in Lockheed Martin, we also acquired a position in a
convertible issue from Hexcel, a manufacturing conglomerate. This
company came to our attention following its acquisition of several
divisions that larger aerospace companies had spun off into subsidiary
companies. Hexcel develops and manufactures carbon fibers, industrial
fabrics, and other lightweight composite materials for use in
components of aircraft parts. Hexcel is now a highly efficient producer,
thanks to extensive internal restructuring. We bought the convertible
during the summer and it has enjoyed strong appreciation.
* CONVERTIBLE SECURITIES BECOMING MORE POPULAR; FUND REMAINS INSISTENT
ON VALUE
Although our shareholders should think of this fund as part of the equity
portion of their portfolios, we still like to note some of the technical
factors affecting the convertibles sector. As evidence of the growing
popularity of convertibles, there has recently been a steady increase in
issuance. While this trend indicates a healthy market, it also prompts us
to be even more selective in our purchases. We have noticed that many of
the new issues do not offer the sort of value we require, so we have been
focusing more of our energy in the secondary market.
* ECONOMIC OUTLOOK REMAINS POSITIVE
The generally positive returns for both stocks and bonds this year have made
it a good year for convertibles as well. Like the economy as a whole, your
fund has been enjoying the best of both worlds with robust growth and
generally falling interest rates. While we have been able to find attractive
values over most of the past year and are optimistic about fiscal 1998, no one
can predict when this environment may change -- which is why we believe our
value-oriented approach continues to make sense for so many conservative
growth and income investors.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 10/31/97, there is no guarantee the fund will continue to hold
these securities in the future.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Convertible Income-Growth Trust is designed for investors seeking current
income and capital appreciation mainly through bonds and preferred stocks
convertible into common stock, with capital conservation as a secondary
objective.
TOTAL RETURN FOR PERIODS ENDED 10/31/97
Class A Class B Class M
(inception date) (6/29/72) (7/15/93) (3/13/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
1 year 22.86% 15.78% 21.89% 16.89% 22.24% 17.94%
- ------------------------------------------------------------------------
5 years 107.29 95.41 99.57 97.57 101.82 94.74
Annual average 15.70 14.34 14.82 14.59 15.08 14.26
- ------------------------------------------------------------------------
10 years 270.70 249.36 241.46 241.46 249.80 237.59
Annual average 14.00 13.33 13.07 13.07 13.34 12.94
- ------------------------------------------------------------------------
Annual average
(life of fund) 12.70 12.44 11.65 11.65 11.93 11.77
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 10/31/97
Lehman Bros.
S&P 500 Corporate
Index Bond Index*
- ------------------------------------------------------------------------
1 year 32.10% 9.26%
- ------------------------------------------------------------------------
5 years 147.06 50.56
Annual average 19.83 8.53
- ------------------------------------------------------------------------
10 years 387.00 161.17
Annual average 17.15 10.07
- ------------------------------------------------------------------------
Annual average (life of fund) 13.06 --
- ------------------------------------------------------------------------
Returns for class A and class M shares reflect the current maximum initial
sales charges of 5.75% and 3.50%, respectively. Class B share returns for
the 1-year and life-of-fund periods reflect the applicable contingent
deferred sales charge (CDSC), which is 5% in the first year, declines to
1% in the sixth year, and is eliminated thereafter. Returns shown for
class B and class M shares for periods prior to their inception are
derived from the historical performance of class A shares, adjusted to
reflect both the initial sales charge or CDSC, if any, currently
applicable to each class and, in the case of class B and class M shares,
the higher operating expenses applicable to such shares. All returns
assume reinvestment of distributions at NAV and represent past
performance; they do not guarantee future results. Investment return and
principal value will fluctuate so that an investor's shares when redeemed
may be worth more or less than their original cost.
Footnote reads:
*Inception date of index was 12/31/72.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 10/31/87
Fund's class A shares at POP $34,936
Lehman Bros. Corp. Bond Index $26,117
S&P 500 Index $48,700
Lehman
Fund's Bros.
class A S&P 500 Corp. Bond
shares Index Index
------- ------- ----------
10/31/87 9425 10000 10000
10/31/88 10687 11490 11326
10/31/89 12279 14520 12730
10/31/90 10258 13432 13274
10/31/91 14264 17932 15613
10/31/92 16854 19713 17349
10/31/93 20518 22632 19979
10/31/94 20895 23506 18944
10/31/95 23899 29714 22506
10/31/96 28437 36869 23908
10/31/97 34936 48700 26117
Footnote reads:
Past performance is no assurance of future results. At the end of the
same time period, a $10,000 investment in the fund's class B shares
would have been valued at $34,146 and no contingent deferred sales
charges would apply; a $10,000 investment in the funds's class M
shares would have been valued at $34,980 ($33,759 at public offering
price). See first page of performance section for performance
calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 10/31/97
Class A Class B Class M
- ------------------------------------------------------------------------
Distributions (number) 4 4 4
- ------------------------------------------------------------------------
Income $0.930 $0.780 $0.833
- ------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------
Long-term 0.906768 0.906768 0.906768
- ------------------------------------------------------------------------
Short-term 0.667232 0.667232 0.667232
- ------------------------------------------------------------------------
Total $2.504 $2.354 $2.407
- ------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------
10/31/96 $21.24 $22.54 $21.09 $21.14 $21.91
- ------------------------------------------------------------------------
10/31/97 23.22 24.64 23.01 23.08 23.92
- ------------------------------------------------------------------------
Current return
(end of period)
- ------------------------------------------------------------------------
Current dividend
rate1 4.13% 3.90% 3.48% 3.67% 3.55%
- ------------------------------------------------------------------------
Current 30-day SEC yield2 4.16 3.92 3.49 3.69 3.56
- ------------------------------------------------------------------------
Footnote reads:
1Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2Based on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 9/30/97
(most recent calendar quarter)
Class A Class B Class M
(inception date) (6/29/72) (7/15/93) (3/13/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
1 year 27.25% 19.91% 26.28% 21.28% 26.63% 22.21%
- ------------------------------------------------------------------------
5 years 114.56 102.18 106.58 104.58 109.00 101.73
Annual average 16.50 15.12 15.62 15.39 15.89 15.07
- ------------------------------------------------------------------------
10 years 201.81 184.42 177.99 177.99 184.79 174.75
Annual average 11.68 11.02 10.77 10.77 11.03 10.64
- ------------------------------------------------------------------------
Annual average
(life of fund) 12.87 12.61 11.82 11.82 12.10 11.94
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment returns and
principal value will fluctuate so that an investor's shares, when sold,
may be worth more or less than their original cost. See first page of
performance section for performance calculation method.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the maximum 5.75% sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year
to 1% during the sixth year. After the sixth year, the CDSC no longer
applies.
COMPARATIVE BENCHMARKS
Standard & Poor's 500 Index* is an unmanaged list of large-capitalization
common stocks and is frequently used as a general gauge of stock market
performance.
Lehman Brothers Corporate Bond Index* is an unmanaged list of corporate
bonds.
Footnote reads:
* Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
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Report of independent accountants
For the fiscal year ended October 31, 1997
To the Trustees and Shareholders of
Putnam Convertible Income-Growth Fund
We have audited the accompanying statement of assets and liabilities of Putnam
Convertible Income-Growth Fund, including the portfolio of investments owned,
as of October 31, 1997, and the related statement of operations for the year
then ended and the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of October 31, 1997, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Putnam Convertible Income-Growth Fund as of October 31, 1997, the results of
its operations for the year then ended and the changes in its net assets for
each of the two years in the period then ended and the financial highlights
for each of the periods indicated therein, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
December 12, 1997
Portfolio of investments owned
October 31, 1997
<TABLE>
<CAPTION>
CONVERTIBLE BONDS AND NOTES (45.0%) *
PRINCIPAL AMOUNT VALUE
Aerospace and Defense (0.5%)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
$ 3,750,000 Rohr, Inc. cv. sub. notes 7s, 2012 $ 3,693,750
3,810,000 SPACEHAB, Inc. 144A cv. sub. notes 8s, 2007 3,810,000
--------------
7,503,750
Airlines (0.4%)
- -------------------------------------------------------------------------------------------------------------
2,800,000 Atlantic Coast Airlines 144A cv. sub. notes 7s, 2004 3,514,000
2,919,000 World Airways, Inc. 144A cv. sub. deb. 8s, 2004 2,860,620
--------------
6,374,620
Automotive (1.4%)
- -------------------------------------------------------------------------------------------------------------
10,090,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 6,331,475
3,700,000 Magna International cv. sub. deb. 5s, 2002 4,717,500
3,750,000 Mascotech, Inc. cv. sub. deb. 4 1/2s, 2003 3,356,250
JPY 400,000,000 Toyota Motor Corp. cv. deb. 1.2s,
1998 (Japan) 5,767,790
--------------
20,173,015
Banks (0.6%)
- -------------------------------------------------------------------------------------------------------------
2,089,000 Banamex S.A. (Nassau Branch) 144A cv. jr. sub. notes
11s, 2003 (Bahamas) 2,141,225
380,000 Banco Nationale de Mexico 144A cv. co. guaranty
7s, 1999 (Bahamas) 361,000
7,000,000 Mitsubishi Bank Ltd. International Finance
cv. trust guaranteed notes 3s, 2002 (Bermuda) 6,755,000
--------------
9,257,225
Basic Industrial Products (0.6%)
- -------------------------------------------------------------------------------------------------------------
7,750,000 Thermo Electron Corp. 144A cv. sub. 4 1/4s, 2003 8,718,750
Broadcasting (0.3%)
- -------------------------------------------------------------------------------------------------------------
4,350,000 International Cabletel, Inc. 144A cv. sub. deb.
7 1/4s, 2005 4,801,313
Building and Construction (0.7%)
- -------------------------------------------------------------------------------------------------------------
4,000,000 American Residential Services, Inc. cv. sub. notes
7 1/4s, 2004 3,660,000
4,500,000 Continental Homes Holding cv. sub. notes
6 7/8s, 2002 6,058,125
--------------
9,718,125
Business Equipment and Services (2.1%)
- -------------------------------------------------------------------------------------------------------------
750,000 Career Horizons, Inc. cv. bonds 7s, 2002 1,925,625
10,000,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 8,700,000
1,000,000 Corporate Express, Inc. 144A cv. notes
4 1/2s, 2000 870,000
7,006,000 Maxtor Corp. cv. sub. deb. 5 3/4s, 2012 4,834,140
6,000,000 National Data Corp. cv. sub. notes 5s, 2003 5,902,500
750,000 U.S. Office Products Co. cv. sub notes 5 1/2s, 2003 703,125
7,190,000 U.S. Office Products Co. 144A cv. sub. notes
5 1/2s, 2003 7,028,225
--------------
29,963,615
Cellular Communications (0.5%)
- -------------------------------------------------------------------------------------------------------------
5,300,000 3Com Corp. cv. sub. notes 10 1/4s, 2001 6,810,500
Computer Services (1.2%)
- -------------------------------------------------------------------------------------------------------------
11,625,000 Safeguard Scientifics, Inc. 144A cv. sub. notes
6s, 2006 12,671,229
4,620,000 System Software Associates, Inc. cv. sub. notes
7s, 2002 4,504,500
--------------
17,175,729
Computer Software (0.9%)
- -------------------------------------------------------------------------------------------------------------
750,000 MacNeal-Schwendler cv. sub. deb. 7 7/8s, 2004 754,688
14,000,000 Softkey International, Inc. 144A cv. sr. notes
5 1/2s, 2000 12,810,000
--------------
13,564,688
Computers (1.3%)
- -------------------------------------------------------------------------------------------------------------
5,850,000 Apple Computer, Inc. cv. sub. notes 6s, 2001 5,213,813
4,000,000 EMC Corp. cv. sub. notes 3 1/4s, 2002 5,520,000
6,590,000 Intevac, Inc. 144A cv. sub. notes 6 1/2s, 2004 5,832,150
2,500,000 Synoptics Communications, Inc. 144A cv. sub.
deb. 5 1/4s, 2003 2,421,875
--------------
18,987,838
Conglomerates (0.9%)
- --------------------------------------------------------------------------------------------------------------
1,400,000 Dart & Kraft Finance N.V. cv. co. guaranty
Ser. WW, 7 3/4s, 1998 5,141,500
3,800,000 Hexcel Corp. cv. sub. notes 7s, 2003 6,802,000
1,500,000 Samsung Heavy Industries cv. deb. 10 1/2s, 2009 1,575,000
--------------
13,518,500
Consumer Non Durables (0.6%)
- -------------------------------------------------------------------------------------------------------------
1,625,000 BEC Group, Inc. cv. sub. notes 144A 8s, 2002 [2 DBL. DAGGERS] 1,365,000
7,835,000 Standard Commercial Corp. cv. sub. deb.
7 1/4s, 2007 7,090,675
--------------
8,455,675
Consumer Services (3.0%)
- -------------------------------------------------------------------------------------------------------------
36,350,000 Boston Chicken, Inc. cv. notes LYON
zero %, 2015 7,542,625
6,290,000 Boston Chicken, Inc. cv. sub. deb. 7 3/4s, 2004 5,260,013
6,928,000 Comcast Corp. cv. notes 1 1/8s, 2007 4,459,900
2,425,000 Einstein/Noah Bagel Corp. 144A cv. sub. deb.
7 1/4s, 2004 1,961,219
6,800,000 Fine Host Corp. 144A cv. sub. notes 5s, 2004 6,324,000
20,150,000 Hollinger, Inc. cv. LYON zero %, 2013 7,732,563
280,000 Pharmaceutical Marketing Services, Inc. cv. notes
6 1/4s, 2003 236,600
6,625,000 Pharmaceutical Marketing Services, Inc. 144A
cv. deb. 6 1/4s, 2003 5,697,500
3,725,000 Protection One Alarm, Inc. cv. sr. sub. notes
6 3/4s, 2003 4,316,344
--------------
43,530,764
Electronic Components and Instruments (2.7%)
- -------------------------------------------------------------------------------------------------------------
1,500,000 Cirrus Logic, Inc. 144A cv. sub. notes 6s, 2003 1,336,875
2,035,000 Dovatron International cv. sub. notes 6s, 2002 2,950,750
4,750,000 HMT Technology Corp. 144A cv. sub. notes
5 3/4s, 2004 4,607,500
2,700,000 Lernout & Hauspie Speech Products N.V. 144A
cv. sub. notes 8s, 2001 (Belgium) 6,696,000
1,205,000 Photronics, Inc. cv. sub. notes 6s, 2004 1,275,794
3,291,000 Solectron Corp. 144A cv. sub. notes 6s, 2006 4,315,324
5,200,000 Thermo Instrument Systems, Inc. 144A cv. deb.
4 1/2s, 2003 5,434,000
1,215,000 Thermo Instruments Systems 144A cv. co.
guaranty 3 3/4s, 2000 2,580,356
3,425,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 3,904,500
275,000 Thermo Optek Corp. cv. bonds 5s, 2000 313,500
4,425,000 Thermo Quest Corp. 144A cv. co. guaranty
5s, 2000 5,127,469
--------------
38,542,068
Electronics and Electrical Equipment (1.7%)
- -------------------------------------------------------------------------------------------------------------
2,000,000 Checkpoint Systems, Inc. 144A cv. sub. deb.
5 1/4s, 2005 2,095,000
11,565,000 Motorola, Inc. cv. sub. deb. LYON zero %, 2013 9,165,263
3,940,000 Richardson Electronics, Ltd. cv. sr. sub. deb
8 1/4s, 2006 3,580,475
2,385,000 S3, Inc. 144A cv. sub. notes 5 3/4s, 2003 1,973,588
730,000 Sanmina Corp. 144A cv. sub. notes 5 1/2s, 2002 1,941,800
3,165,000 SCI Systems, Inc. cv. sub. notes 5s, 2006 5,847,338
--------------
24,603,464
Entertainment (0.2%)
- -------------------------------------------------------------------------------------------------------------
3,000,000 Loews Corp. cv. sub. notes 3 1/8s, 2007 3,390,000
Environmental Control (1.3%)
- -------------------------------------------------------------------------------------------------------------
3,100,000 OHM Corp. cv. sub. deb. 8s, 2006 3,057,375
1,000,000 Thermo Ecotek Corp. 144A cv. bonds 4 7/8s, 2004 1,016,250
3,940,000 Thermo Terratech, Inc. 144A cv. sub. deb.
4 5/8s, 2003 3,580,475
2,600,000 USA Waste Services, Inc. cv. sub. notes 4s, 2002 2,736,500
9,378,000 WMX Technologies, Inc. cv. sub. notes 2s, 2005 7,783,740
--------------
18,174,340
Food (0.3%)
- -------------------------------------------------------------------------------------------------------------
2,500,000 Chiquita Brands International cv. deb. 7s, 2001 2,362,500
2,400,000 Chiquita Brands International, Inc. 144A cv. sub.
deb 7s, 2001 2,268,000
--------------
4,630,500
Food and Beverages (0.3%)
- -------------------------------------------------------------------------------------------------------------
3,850,000 Grand Metropolitan PLC cv. unsub. deb. 6 1/2s, 2000
(United Kingdom) 4,985,750
Health Care (1.2%)
- -------------------------------------------------------------------------------------------------------------
5,700,000 NovaCare, Inc. cv. sub. deb. 5 1/2s, 2000 5,436,375
500,000 Quantum Health Resources, Inc. cv. sub. deb.
4 3/4s, 2000 463,750
5,000,000 Renal Treatment Centers, Inc. cv. sub. notes
5 5/8s, 2006 5,637,500
3,235,000 Renal Treatment Centers, Inc. 144A cv. sub. notes
5 5/8s, 2006 3,647,463
2,350,000 Rotech Medical Corp. 144A cv. sub. deb.
5 1/4s, 2003 2,335,313
--------------
17,520,401
Hospital Management and Medical Services (1.7%)
- -------------------------------------------------------------------------------------------------------------
3,000,000 Complete Management, Inc. cv. sub. deb. 8s, 2003 3,607,500
1,850,000 DRS Technologies, Inc. 144A cv. sub. deb. 9s, 2003 2,756,500
4,270,000 Integrated Health Services, Inc. cv. sub. deb. 6s, 2003 4,648,963
4,500,000 PhyMatrix, Inc. cv. sub. deb. 6 3/4s, 2003 3,960,000
4,395,000 Sun Healthcare Group, Inc. 144A cv. sub. 6s, 2004 4,653,206
1,750,000 Tenet Health Care Corp. cv. sub. notes 6s, 2005 1,739,063
3,310,000 U.S. Diagnostic Laboratories, Inc. 144A cv. sub.
deb. 9s, 2003 3,243,800
--------------
24,609,032
Insurance and Finance (1.6%)
- -------------------------------------------------------------------------------------------------------------
5,500,000 Mutual Risk Management 144A cv. sub.
deb. zero %, 2015 3,169,375
5,000,000 NAC Re Corp. cv. deb. 5 1/4s, 2002 5,412,500
3,065,000 Pioneer Financial Services, Inc. cv. sub. notes
6 1/2s, 2003 5,095,563
13,550,000 USF&G Corp. cv. sub. notes zero %, 2009 8,976,875
--------------
22,654,313
Lodging (0.2%)
- -------------------------------------------------------------------------------------------------------------
3,000,000 ShoLodge, Inc. cv. sub. deb. 7 1/2s, 2004 2,973,750
Machinery (0.2%)
- -------------------------------------------------------------------------------------------------------------
3,000,000 Thermo Fibertek, Inc. 144A cv. co. guaranty
4 1/2s, 2004 3,127,500
Medical Management Services (0.2%)
- -------------------------------------------------------------------------------------------------------------
3,500,000 Continucare Corp. 144A cv. sub. notes 8s, 2002 3,500,000
Medical Supplies and Devices (0.6%)
- ------------------------------------------------------------------------------------------------------------
2,000,000 Phoenix Shannon 144A cv. sr. sub. notes 9 1/2s,
2000 + 600,000
2,000,000 Thermo Cardiosystems, Inc. 144A cv. co. guaranty
4 3/4s, 2004 2,020,000
385,000 Uromed Corp. cv. sub. 6s, 2003 275,756
5,615,000 Uromed Corp. 144A cv. sub. notes 6s, 2003 4,021,744
1,000,000 Ventritex, Inc. cv. sub. notes 5 3/4s, 2001 1,133,750
--------------
8,051,250
Metals and Mining (0.3%)
- -------------------------------------------------------------------------------------------------------------
4,169,500 Quanex Corp. cv. sub. deb. 6.88s, 2007 4,299,797
Office Equipment (0.4%)
- -------------------------------------------------------------------------------------------------------------
6,500,000 U.S. Office Products Co. cv. sub. notes 5 1/2s, 2003 6,175,000
Oil and Gas (3.8%)
- -------------------------------------------------------------------------------------------------------------
6,500,000 Aker Maritime cv. deb. 5 1/4s, 2002 7,410,000
8,200,000 Apache Corp. 144A cv. sub. deb. 6s, 2002 11,193,000
9,680,000 Lomak Petroleum, Inc. 144A cv. sub. deb. 6s, 2007 11,374,000
5,500,000 Parker Drilling Co. cv. sub. notes 5 1/2s, 2004 6,545,000
850,000 Pennzoil Co. cv. deb. 4 3/4s, 2003 1,190,000
2,500,000 Pennzoil Co. cv. sub. deb. 6 1/2s, 2003 4,896,875
1,075,000 Pride Petroleum Services, Inc. cv. sub. deb.
6 1/4s, 2006 3,043,594
1,500,000 Southern Mineral Corp. cv. deb. 6 7/8s, 2007 1,507,500
6,910,000 Swift Energy Co. cv. sub. notes 6 1/4s, 2006 7,601,000
--------------
54,760,969
Oil and Gas Pipelines (0.1%)
- -------------------------------------------------------------------------------------------------------------
1,050,000 SFP Pipeline Holdings, Inc. cv. variable rate exch.
deb. 10.42s, 2010 [2 DBL. DAGGERS] 1,739,063
Paper and Forest Products (0.7%)
- -------------------------------------------------------------------------------------------------------------
6,750,000 Stone Container Corp. cv. sr. sub. notes 8 7/8s, 2000 8,454,375
2,500,000 Stone Container Corp. cv. sub. deb. 6 3/4s, 2007 2,087,500
--------------
10,541,875
Pharmaceuticals (2.7%)
- -------------------------------------------------------------------------------------------------------------
19,265,000 Alza Corp. cv. sub. LYON zero %, 2014 8,187,625
990,000 Nabi, Inc. cv. sub. notes 6 1/2s, 2003 794,475
3,890,000 Nabi, Inc. 144A cv. sub. notes 6 1/2s, 2003 3,073,100
2,500,000 NeXstar Pharmaceuticals, Inc. 144A cv. sub. deb.
6 1/4s, 2000 2,681,250
19,830,000 Roche Holdings, Inc. 144A cv. unsub. LYON
zero %, 2010 (Switzerland) 9,964,575
5,425,000 Sandoz Capital BVI Ltd. 144A cv. co. guaranty
2s, 2002 (Switzerland) 8,069,688
3,000,000 Sepracor, Inc. 144A cv. sub. deb. 7s, 2002 5,677,500
--------------
38,448,213
Publishing (0.3%)
- -------------------------------------------------------------------------------------------------------------
3,600,000 Thomas Nelson, Inc. 144A cv. sub. notes
5 3/4s, 1999 3,514,500
Real Estate (0.7%)
- -------------------------------------------------------------------------------------------------------------
1,200,000 Alexander Haagen Properties cv. sub. deb.
Ser. A, 7 1/2s, 2001 (R) 1,194,000
1,985,000 Camden Property Trust cv. sub. deb. 7.33s, 2001 (R) 2,488,694
1,410,000 LTC Properties, Inc. cv. sub. deb. 7 3/4s, 2002 (R) 1,732,538
3,750,000 Malan Realty Investors cv. sub. notes 9 1/2s, 2004 3,923,438
--------------
9,338,670
Recreation (0.2%)
- -------------------------------------------------------------------------------------------------------------
2,211,000 Speedway Motorsports, Inc. 144A cv. sub. notes
5 3/4s, 2003 2,199,945
Retail (2.9%)
- -------------------------------------------------------------------------------------------------------------
8,010,000 Baker (J.), Inc. cv. deb. 7s, 2002 6,808,500
5,650,000 Federated Department Stores, Inc. cv. notes
5s, 2003 7,684,000
8,385,000 Michaels Stores, Inc. cv. sub. notes 6 3/4s, 2003 8,510,775
12,000,000 Office Depot, Inc. cv. LYON zero %, 2007 7,785,000
4,065,000 Pier 1 Imports, Inc. cv. sub. notes 5 3/4s, 2003 6,595,463
4,600,000 Sunglass Hut International, Inc. 144A cv. sub. notes
5 1/4s, 2003 3,553,500
--------------
40,937,238
Satellite Services (0.3%)
- -------------------------------------------------------------------------------------------------------------
4,000,000 Gilat Satellite Networks Ltd. cv. sub. notes 6 1/2s,
2004 (Israel) 3,950,000
Semiconductors (1.8%)
- -------------------------------------------------------------------------------------------------------------
7,550,000 Integrated Device Technology, Inc. cv. sub. notes
5 1/2s, 2002 6,417,500
3,030,000 Integrated Process Equipment Corp. 144A cv. sub. notes
6 1/4s, 2004 2,681,550
6,050,000 Lam Research Corp. 144A cv. sub. notes 5s, 2002 5,255,938
3,600,000 National Semiconductor Corp. cv. deb. 6 1/2s, 2002 3,910,500
4,580,000 Trikon Technologies, Inc. 144A cv. notes 7 1/8s, 2001 2,290,000
4,500,000 Xilinx, Inc. 144A cv. sub. notes 5 1/4s, 2002 4,466,250
--------------
25,021,738
Shipping (0.5%)
- -------------------------------------------------------------------------------------------------------------
5,000,000 Halter Marine Group, Inc. 144A cv. sub. notes
4 1/2s, 2004 6,287,500
Telecommunications (1.5%)
- -------------------------------------------------------------------------------------------------------------
2,000,000 Inacom Corp. cv. sub. deb. 4 1/2s, 2004 2,005,000
1,250,000 International CableTel, Inc. cv. sub. notes 7s, 2008 1,210,938
1,000,000 MIDCOM Communications, Inc. cv. sub. notes
8 1/4s, 2003 746,250
4,525,000 MIDCOM Communications, Inc. 144A cv. sub.
deb. 8 1/4s, 2003 3,376,781
25,100,000 Rogers Communications cv. deb. 2s, 2005 (Canada) 14,840,375
--------------
22,179,344
Telephone Services (0.3%)
- -------------------------------------------------------------------------------------------------------------
4,400,000 SmarTalk Teleservices, Inc. 144A cv. sub. notes
5 3/4s, 2004 4,603,500
Textiles (0.1%)
- -------------------------------------------------------------------------------------------------------------
2,000,000 Dixie Group, Inc. (The) cv. deb. 7s, 2012 1,790,000
Transportation (1.2%)
- -------------------------------------------------------------------------------------------------------------
GBP 3,300,000 British Airport Authority 144A cv. bonds 5 3/4s,
2006 (United Kingdom) 5,941,708
4,500,000 Continental Airlines, Inc. cv. sub. deb.
6 3/4s, 2006 6,980,625
3,350,000 Offshore Logistics, Inc. 144A cv. sub. notes
6s, 2003 3,902,750
--------------
16,825,083
--------------
Total Convertible Bonds and Notes
(cost $601,806,442) $ 647,928,910
COMMON STOCKS (27.9%) *
NUMBER OF SHARES VALUE
Aerospace and Defense (0.6%)
- -------------------------------------------------------------------------------------------------------------
100,000 Boeing Co. $ 4,787,500
45,000 Lockheed Martin Corp. 4,277,813
--------------
9,065,313
Aluminum (0.5%)
- -------------------------------------------------------------------------------------------------------------
100,000 Aluminum Co. of America 7,300,000
Automotive (0.6%)
- -------------------------------------------------------------------------------------------------------------
95,000 Ford Motor Co. 4,150,313
70,000 General Motors Corp. 4,493,125
--------------
8,643,438
Automotive Parts (0.1%)
- -------------------------------------------------------------------------------------------------------------
37,653 Federal-Mogul Corp. 1,593,193
Banks (3.8%)
- -------------------------------------------------------------------------------------------------------------
84,000 Banc One Corp. 4,378,500
41,500 Bankers Trust New York Corp. 4,897,000
35,000 Chase Manhattan Corp. 4,038,125
50,000 Comerica, Inc. 3,953,125
24,800 CoreStates Financial Corp. 1,804,200
55,000 First Chicago NBD Corp. 4,001,250
75,000 First of America Bank Corp. 4,181,250
100,000 Fleet Financial Group, Inc. 6,431,250
63,000 Keycorp 3,854,813
35,000 Morgan (J.P.) & Co., Inc. 3,841,250
69,000 NationsBank Corp. 4,131,375
110,000 PNC Bank Corp. 5,225,000
59,000 Washington Mutual, Inc. 4,037,813
--------------
54,774,951
Basic Industrial Products (0.5%)
- -------------------------------------------------------------------------------------------------------------
90,000 Deere (John) & Co. 4,736,250
60,000 General Signal Corp. 2,407,500
--------------
7,143,750
Building Products (0.2%)
- -------------------------------------------------------------------------------------------------------------
41,291 Southdown, Inc. 2,286,489
Business Services and Equipment (0.9%)
- ------------------------------------------------------------------------------------------------------------
72,000 IBM Corp. 7,060,500
76,000 Xerox Corp. 6,027,750
--------------
13,088,250
Chemicals (0.7%)
- ------------------------------------------------------------------------------------------------------------
45,000 Dow Chemical Co. 4,083,750
105,000 du Pont (E.I.) de Nemours & Co., Ltd. 5,971,875
--------------
10,055,625
Computer Software (0.4%)
- -------------------------------------------------------------------------------------------------------------
72,000 Computer Associates International, Inc. 5,368,500
Conglomerates (0.9%)
- -------------------------------------------------------------------------------------------------------------
76,000 Cooper Industries, Inc. 3,961,500
45,000 Minnesota Mining & Manufacturing Co. 4,117,500
75,000 TRW, Inc. 4,293,750
--------------
12,372,750
Consumer Non-Durables (1.5%)
- -------------------------------------------------------------------------------------------------------------
30,000 Clorox Co. 2,100,000
50,000 Colgate-Palmolive Co. 3,237,500
110,000 Kimberly-Clark Corp. 5,713,125
190,000 Philip Morris Cos., Inc. 7,528,750
80,000 Universal Corp. 3,075,000
--------------
21,654,375
Electric Utilities (0.3%)
- -------------------------------------------------------------------------------------------------------------
79,000 Duke Energy Corp. 3,811,750
Electrical Equipment (0.2%)
- -------------------------------------------------------------------------------------------------------------
124,999 MagneTek, Inc. + 2,539,042
Electronics and Electrical Equipment (1.2%)
- -------------------------------------------------------------------------------------------------------------
70,000 Emerson Electric Co. 3,670,625
105,000 Hewlett-Packard Co. 6,477,188
140,000 Micron Technology, Inc. 3,753,750
65,000 Motorola, Inc. 4,013,750
--------------
17,915,313
Environmental Control (0.2%)
- -------------------------------------------------------------------------------------------------------------
112,000 Browning-Ferris Industries, Inc. 3,640,000
Food and Beverages (1.6%)
- -------------------------------------------------------------------------------------------------------------
91,000 Anheuser-Busch Cos., Inc. 3,634,313
60,000 General Mills, Inc. 3,960,000
90,000 Heinz (H.J.) Co. 4,179,375
100,000 PepsiCo, Inc. 3,681,250
70,000 Sara Lee Corp. 3,578,750
160,000 Whitman Corp. 4,200,000
--------------
23,233,688
Health Care (0.4%)
- -------------------------------------------------------------------------------------------------------------
110,000 Baxter International, Inc. 5,087,500
Health Care Services (0.3%)
- -------------------------------------------------------------------------------------------------------------
90,000 United Healthcare Corp. 4,168,125
Hospital Management (0.3%)
- -------------------------------------------------------------------------------------------------------------
140,000 Tenet Healthcare Corp. + 4,278,750
Insurance and Finance (1.8%)
- -------------------------------------------------------------------------------------------------------------
55,000 Aetna, Inc. 3,908,438
78,000 American General Corp. 3,978,000
78,000 AON Corp. 4,207,125
45,000 CIGNA Corp. 6,986,250
88,000 Federal National Mortgage Association 4,262,500
105,000 USF&G Corp. 2,126,250
--------------
25,468,563
Office and Industrial (0.3%)
- -------------------------------------------------------------------------------------------------------------
100,000 Beacon Properties Corp. (R) 4,212,500
Oil and Gas (2.9%)
- -------------------------------------------------------------------------------------------------------------
57,857 Amoco Corp. 5,304,764
44,000 British Petroleum PLC ADR (United Kingdom) 3,861,000
87,000 Elf Aquitane ADR (France) 5,372,250
100,000 Exxon Corp. 6,143,750
60,000 Kerr-McGee Corp. 4,053,750
60,000 Mobil Corp. 4,368,750
50,000 Occidental Petroleum Corp. 1,393,750
72,000 Royal Dutch Petroleum Co. PLC ADR
(Netherlands) 3,789,000
90,000 Tosco Corp. 2,970,000
75,000 Total Corp. ADR (France) 4,162,500
--------------
41,419,514
Paper and Forest Products (0.9%)
- -------------------------------------------------------------------------------------------------------------
100,000 International Paper Co. 4,500,000
66,000 Temple Inland, Inc. 3,786,750
94,000 Weyerhaeuser Co. 4,488,500
--------------
12,775,250
Pharmaceuticals (0.4%)
- -------------------------------------------------------------------------------------------------------------
65,000 Merck & Co., Inc. 5,801,250
Pharmaceuticals and Biotechnology (1.1%)
- -------------------------------------------------------------------------------------------------------------
60,000 American Home Products Corp. 4,447,500
70,000 Bristol-Myers Squibb Co. 6,142,500
150,000 Pharmacia & Upjohn, Inc. 4,762,500
--------------
15,352,500
Publishing (0.2%)
- -------------------------------------------------------------------------------------------------------------
60,000 McGraw-Hill, Inc. 3,922,500
Railroad (0.3%)
- -------------------------------------------------------------------------------------------------------------
66,000 Union Pacific Corp. 4,042,500
Real Estate (--%)
- -------------------------------------------------------------------------------------------------------------
15,000 LTC Properties, Inc. (R) 303,750
Recreation (0.3%)
- -------------------------------------------------------------------------------------------------------------
189,068 WMS Industries, Inc. 4,596,716
Retail (1.6%)
- -------------------------------------------------------------------------------------------------------------
65,000 Dayton Hudson Corp. 4,082,813
220,000 Kmart Corp. + 2,901,250
180,000 Lowe's Cos., Inc. 7,492,500
47,000 Penney (J.C.) Co., Inc. 2,758,313
77,352 Proffitt's, Inc. + 2,219,036
115,000 Toys R Us + 3,917,188
--------------
23,371,100
Savings and Loans (0.3%)
- -------------------------------------------------------------------------------------------------------------
79,000 Ahmanson (H.F.) & Co. 4,661,000
Semiconductors (0.4%)
- -------------------------------------------------------------------------------------------------------------
70,000 Intel Corp. 5,390,000
Telephone Utilities (1.4%)
- -------------------------------------------------------------------------------------------------------------
90,000 American Telephone & Telegraph Co. 4,404,375
78,760 Bell Atlantic Corp. 6,290,955
74,452 SBC Communications, Inc. 4,737,009
85,000 Sprint Corp. 4,420,000
--------------
19,852,339
Transportation (0.6%)
- -------------------------------------------------------------------------------------------------------------
43,000 Burlington Northern Santa Fe Corp. 4,085,000
46,000 Delta Air Lines, Inc. 4,634,500
--------------
8,719,500
Utilities (0.2%)
- -------------------------------------------------------------------------------------------------------------
100,000 Cinergy Corp. 3,300,000
--------------
Total Common Stocks (cost $313,688,368) $ 401,209,784
CONVERTIBLE PREFERRED STOCKS (24.1%) *
NUMBER OF SHARES VALUE
Aerospace and Defense (0.3%)
- -------------------------------------------------------------------------------------------------------------
70,000 Kaman Corp. $3.25 cv. pfd. $ 4,935,000
Automotive Parts (0.2%)
- -------------------------------------------------------------------------------------------------------------
90,000 Walbro Capital Trust $2.00 cv. pfd. 2,576,250
Banks (1.5%)
- -------------------------------------------------------------------------------------------------------------
80,800 Banc One Corp. Ser. C, $3.50 cv. pfd. 8,115,350
78,050 Sovereign Bancorp, Inc. $3.125 cv. cum. pfd. 8,312,325
81,350 Union Planters Corp. Ser. E, $2.00 cv. pfd. 5,969,056
--------------
22,396,731
Basic Industrial Products (0.3%)
- -------------------------------------------------------------------------------------------------------------
35,040 Case Corp. Ser. A, $4.50 cv. pfd. 5,021,232
Broadcasting (1.0%)
- -------------------------------------------------------------------------------------------------------------
62,000 Chancellor Broadcasting Corp. 144A $3.50 cv. pfd. 5,107,250
147,500 Sinclair Broadcast Group, Inc. $2.73 cv. pfd. 7,264,375
276,000 Triathlon Broadcasting Co. $0.945 cv. pfd. 2,794,500
--------------
15,166,125
Building and Construction (0.2%)
- -------------------------------------------------------------------------------------------------------------
80,000 Beazer Homes USA, Inc. Ser. A, $2.00 cv. pfd. 2,320,000
Cable Television (0.5%)
- -------------------------------------------------------------------------------------------------------------
150,000 Tele-Communications (TCI Group)
Ser. A, $2.125 cv. pfd. 8,325,000
Communications (0.3%)
- -------------------------------------------------------------------------------------------------------------
72,000 Evergreen Media Corp. 144A $3.00 cv. pfd. 4,455,000
Computer Services (0.5%)
- -------------------------------------------------------------------------------------------------------------
143,457 Wang Laboratories, Inc. Ser. B, $3.25 cv. pfd. 7,549,425
Computers (0.5%)
- -------------------------------------------------------------------------------------------------------------
200,500 Vanstar Corp. 144A $3.375 cv. pfd. 7,869,625
Consumer Non Durables (0.4%)
- -------------------------------------------------------------------------------------------------------------
96,075 Fieldcrest Cannon Ser. A, $3.00 cv. pfd. 5,428,238
Electric Utilities (0.8%)
- -------------------------------------------------------------------------------------------------------------
169,000 Calenergy Capital Trust $3.125 cv. cum. pfd. 10,837,125
Entertainment (1.0%)
- -------------------------------------------------------------------------------------------------------------
159,100 Metromedia International Group, Inc. $3.625
cv. cum. pfd. 8,153,875
132,870 Station Casinos, Inc. $3.50 cv. pfd. 5,796,454
--------------
13,950,329
Environmental Control (0.3%)
- -------------------------------------------------------------------------------------------------------------
150,000 Browning-Ferris Industries, Inc. $2.58 cv. pfd. 4,800,000
Financial Services (0.6%)
- -------------------------------------------------------------------------------------------------------------
136,643 Finova Finance Trust $2.75 cv. cum. pfd. 8,335,223
Food (0.6%)
- -------------------------------------------------------------------------------------------------------------
125,300 Chiquita Brands International, Inc. Ser. B,
$3.75 cv. pfd. 7,995,706
Hospital Management (0.5%)
- -------------------------------------------------------------------------------------------------------------
311,600 MedPartners, Inc. $1.44 cv. pfd. 7,634,200
Information Systems (0.2%)
- -------------------------------------------------------------------------------------------------------------
62,500 Vanstar Financial Trust Corp. $3.375 cv. pfd. 2,437,500
Insurance and Finance (2.6%)
- -------------------------------------------------------------------------------------------------------------
84,700 Aetna, Inc. $4.758 cv. pfd. 6,077,225
119,849 American Bankers Insurance Group, Inc.
Ser. B, $3.125 cv. pfd. 9,468,071
140,500 American General Delaware Corp. $3.00
cv. cum. pfd. 9,343,250
31,700 American Heritage Life Investment Corp.
$4.25 cv. pfd. 1,791,050
83,700 Penncorp Financial Group, Inc. 144A $3.50 cv.pfd. 4,561,650
78,400 St. Paul Capital LLC $3.00 cv. cum. pfd. 5,488,000
--------------
36,729,246
Metals and Mining (1.5%)
- -------------------------------------------------------------------------------------------------------------
70,000 Amax Gold, Inc. Ser. B, $3.75 cv. pfd. 3,517,500
346,800 Freeport-McMoRan Copper Co., Inc. $1.75 cv. pfd. 8,756,700
90,400 Pittston Mineral Corp. 144A $3.125 dep. shs. cv. pfd. 3,616,000
70,000 Timet Capital Trust I 144A $3.313 cv. pfd. 3,640,000
30,645 Titanium Metals Corp. $3.375 cv. pfd. 1,593,540
--------------
21,123,740
Oil and Gas (3.2%)
- -------------------------------------------------------------------------------------------------------------
77,000 Devon Financing Trust $3.25 cv. pfd. 6,275,500
65,000 Grant Geophysical, Inc. $2.438 cv. pfd. 300,625
60,000 Lomak Petroleum, Inc. 144A $2.875 cv. pfd. 3,037,500
30,000 Lomak Petroleum, Inc. 144A $2.03 cv. pfd. 1,500,000
100,580 Neuvo Energy Ser. A, $2.875 cv. pfd. 5,029,000
146,100 Occidental Petroleum Corp. 144A $3.875 cv. pfd. 9,076,463
75,505 Tejas Gas Corp. $2.625 cv. cum. pfd. 5,323,103
167,500 Tosco Financing Trust 144A $2.875 cv. pfd. 9,694,063
109,900 Unocal Capital Trust $3.125 cv. cum. pfd. 6,415,413
--------------
46,651,667
Packaging and Containers (0.1%)
- -------------------------------------------------------------------------------------------------------------
49,200 Crown Cork & Seal Co., Inc. $1.885 cv. pfd. 2,134,050
Paper and Forest Products (0.7%)
- -------------------------------------------------------------------------------------------------------------
202,700 International Paper Co. $2.625 cv. pfd. 10,287,025
Publishing (0.3%)
- -------------------------------------------------------------------------------------------------------------
35,000 Golden Books Family Entertainment, Inc.
$4.375 cv. cum. pfd. 1,841,875
100,000 Houghton Mifflin Co. $4.08 cv. pfd. 2,700,000
--------------
4,541,875
Real Estate (2.3%)
- -------------------------------------------------------------------------------------------------------------
351,200 Equity Residential Property Ser. E, $1.75 cv. pfd. 10,009,200
146,000 Insignia Financial Group, Inc. 144A $3.25 cv. pfd. 7,354,750
53,500 Oasis Residential, Inc. Ser. A, $2.25 cv. pfd. (R) 1,300,719
65,000 Rouse Co. Ser. B, $3.00 cv. pfd. (R) 3,055,000
195,000 Security Capital Pacific Trust Ser. A, $1.75 cv. pfd. 5,971,875
74,490 Tanger Factory Outlet Centers $1.802 cv. pfd. (R) 2,011,230
42,300 Vornado Realty Trust Ser. A, $3.25 cv. cum. pfd. 2,760,075
--------------
32,462,849
Retail (1.5%)
- -------------------------------------------------------------------------------------------------------------
195,000 Ann Taylor Finance Trust $4.25 cv. cum. pfd. 9,384,375
204,600 Kmart Financing I $3.875 cv. cum. pfd. 11,649,413
--------------
21,033,788
Savings and Loans (0.7%)
- -------------------------------------------------------------------------------------------------------------
82,000 Ahmanson (H.F.) & Co. $3.00 cv. pfd. 9,922,000
Telecommunications (0.5%)
- -------------------------------------------------------------------------------------------------------------
113,000 Airtouch Communications, Inc. Ser. C,
$2.125 cv. pfd. 6,780,000
Telephone Services (0.3%)
- -------------------------------------------------------------------------------------------------------------
116,000 Intermedia Communications, Inc. Ser. D,
$1.75 cv. pfd. 3,770,000
Tobacco (0.2%)
- -------------------------------------------------------------------------------------------------------------
127,000 DIMON, Inc. $3.25 cv. pfd. 3,175,000
Transportation (0.5%)
- -------------------------------------------------------------------------------------------------------------
105,100 Hvide Capital Trust 144A $3.25 cv. pfd. 7,041,700
--------------
Total Convertible Preferred Stocks
(cost $313,712,374) $ 347,685,649
<CAPTION>
WARRANTS (--%) * + (cost $89,869) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
13,826 Security Capital Group 9/18/98 $ 66,538
FOREIGN GOVERNMENT BONDS AND NOTES (0.4%)* (cost $5,088,000)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
$ 5,100,000 Italy (Government of) cv. notes 5s, 2001 (Italy) $ 5,457,000
CORPORATE BONDS AND NOTES (0.3%)* (cost $3,210,625)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
$ 2,500,000 Siemens Capital Corp. co. guaranty (with attached warrants)
8s, 2002 (Germany) $ 4,300,000
SHORT-TERM INVESTMENTS (1.9%) * (cost $28,071,405)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
28,067,000 Interest in $269,350,000 joint repurchase agreement
dated October 31, 1997 with SBC Warburg due
November 3, 1997 with respect to various
U.S. Treasury obligations -- maturity value of
$28,080,215 for an effective yield of 5.65% $ 28,071,405
- -------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,265,667,083) *** $1,434,719,286
- -------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $1,440,352,273.
*** The aggregate identified cost on a tax basis is
$1,265,826,747,resulting in gross unrealized appreciation and
depreciation of $210,265,337 and $41,372,798, respectively,
or net unrealized appreciation of $168,892,539.
+ Non-income-producing security.
[2 DBL. DAGGERS] Income may be received in cash or additional securities at the
discretion of the issuer.
(R) Real Estate Investment Trust.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
ADR after the name of a foreign holding stands for American
Depository Receipts representing ownership of foreign securities on
deposit with a domestic custodian bank.
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at October 31, 1997
Market Aggregate Face Delivery Unrealized
Value Value Date Appreciation
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Japanese Yen $3,412,266 $4,042,341 1/28/98 $630,075
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
October 31, 1997
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,265,667,083) (Note 1) $1,434,719,286
- ---------------------------------------------------------------------------------------------------
Cash 4,383,697
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 10,502,410
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 4,145,522
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 10,801,978
- ---------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 630,075
- ---------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 472,008
- ---------------------------------------------------------------------------------------------------
Total assets 1,465,654,976
Liabilities
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 29,770
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 21,366,186
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 860,790
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,084,767
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 283,416
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 23,096
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,662
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 486,628
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 166,388
- ---------------------------------------------------------------------------------------------------
Total liabilities 25,302,703
- ---------------------------------------------------------------------------------------------------
Net assets $1,440,352,273
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,140,543,089
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (630,075)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments
and foreign currency transactions (Note 1) 130,756,981
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets
and liabilities in foreign currencies 169,682,278
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,440,352,273
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,168,469,878 divided by 50,317,688 shares) $23.22
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $23.22)* $24.64
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($257,162,985 divided by 11,175,584 shares)** $23.01
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($14,719,410 divided by 637,689 shares) $23.08
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $23.08)* $23.92
- ---------------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 more and on group sales the offering
price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred
sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended October 31, 1997
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Interest $ 33,777,418
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $64,197) 23,269,904
- --------------------------------------------------------------------------------------------------
Total investment income 57,047,322
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 7,310,176
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,047,827
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 43,865
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 23,090
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 2,603,618
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 2,015,964
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 87,604
- --------------------------------------------------------------------------------------------------
Reports to shareholders 73,123
- --------------------------------------------------------------------------------------------------
Registration fees 41,673
- --------------------------------------------------------------------------------------------------
Auditing 50,360
- --------------------------------------------------------------------------------------------------
Legal 15,764
- --------------------------------------------------------------------------------------------------
Postage 160,295
- --------------------------------------------------------------------------------------------------
Other 89,822
- --------------------------------------------------------------------------------------------------
Total expenses 14,563,181
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (704,850)
- --------------------------------------------------------------------------------------------------
Net expenses 13,858,331
- --------------------------------------------------------------------------------------------------
Net investment income 43,188,991
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 133,967,022
- --------------------------------------------------------------------------------------------------
Net realized gain on foreign currency translation (Note 1) 513,684
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in foreign
currencies during the year (96,637)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 73,816,565
- --------------------------------------------------------------------------------------------------
Net gain on investments 208,200,634
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $251,389,625
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended October 31
-----------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 43,188,991 $ 37,114,720
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions 134,480,706 79,062,109
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets
and liabilities in foreign currencies 73,719,928 45,277,440
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 251,389,625 161,454,269
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (40,930,205) (39,696,713)
- ----------------------------------------------------------------------------------------------------------------------
Class B (6,775,056) (4,495,021)
- ----------------------------------------------------------------------------------------------------------------------
Class M (414,757) (207,655)
- ----------------------------------------------------------------------------------------------------------------------
In excess of net investment income
Class A (2,870,230) --
- ----------------------------------------------------------------------------------------------------------------------
Class B (475,100) --
- ----------------------------------------------------------------------------------------------------------------------
Class M (29,085) --
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (66,832,559) (27,754,648)
- ----------------------------------------------------------------------------------------------------------------------
Class B (11,391,471) (3,021,352)
- ----------------------------------------------------------------------------------------------------------------------
Class M (700,350) (80,667)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 267,640,833 131,834,466
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 388,611,645 218,032,679
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 1,051,740,628 833,707,949
- ----------------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of net
investment income and undistributed net investment
income of $630,075 and $4,736,917, respectively) $1,440,352,273 $1,051,740,628
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $21.24 $19.42 $19.09 $20.38 $17.60
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .78 (c) .81 (c) .85 .81 .87
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.70 2.70 1.60 (.46) 2.87
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 4.48 3.51 2.45 .35 3.74
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.87) (.98) (.96) (.74) (.96)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.06) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.57) (.71) (1.16) (.90) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.50) (1.69) (2.12) (1.64) (.96)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $23.22 $21.24 $19.42 $19.09 $20.38
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 22.86 18.99 14.38 1.84 21.74
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,168,470 $898,486 $756,645 $697,946 $707,969
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.03 1.06 1.16 .96 .96
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.56 3.99 4.64 4.16 4.55
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 70.74 61.43 69.52 48.37 66.63
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (d) $.0507 $.0508
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended October 31, 1995 and thereafter,
includes amounts paid through expense offset and brokerage service arrangements. Prior period
ratios exclude these amounts. (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
(d) Average commission rate paid on security trades is required for fiscal periods beginning on or
after September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share July 15, 1993+
operating performance Year ended October 31 to October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $21.09 $19.30 $19.00 $20.35 $19.53
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .63 (c) .66 (c) .69 .74 .23
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.64 2.68 1.61 (.55) .82
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 4.27 3.34 2.30 .19 1.05
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.73) (.84) (.84) (.66) (.23)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.05) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.57) (.71) (1.16) (.88) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.35) (1.55) (2.00) (1.54) (.23)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $23.01 $21.09 $19.30 $19.00 $20.35
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 21.89 18.14 13.54 1.00 5.43 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $257,163 $146,127 $75,309 $31,432 $4,439
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.78 1.81 1.91 1.71 .52 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.78 3.26 3.92 3.58 .91 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 70.74 61.43 69.52 48.37 66.63
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (d) $.0507 $.0508
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended October 31, 1995 and thereafter,
includes amounts paid through expense offset and brokerage service arrangements. Prior period
ratios exclude these amounts. (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
(d) Average commission rate paid on security trades is required for fiscal periods beginning on or
after September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share March 13, 1995+
operating performance Year ended October 31 to October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $21.14 $19.37 $17.79
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .67 (c) 0.73 (c) .64
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.67 2.65 1.64
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 4.34 3.38 2.28
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.78) (.90) (.70)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.05) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.57) (.71) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.40) (1.61) (.70)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $23.08 $21.14 $19.37
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 22.24 18.30 12.99 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $14,719 $7,128 $1,753
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.53 1.54 1.04 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.04 3.55 2.89 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 70.74 61.43 69.52
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (d) $.0507 $.0508
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended October 31, 1995 and thereafter,
includes amounts paid through expense offset and brokerage service arrangements. Prior period
ratios exclude these amounts. (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
(d) Average commission rate paid on security trades is required for fiscal periods beginning on or
after September 1, 1995.
</TABLE>
Notes to financial statements
October 31, 1997
Note 1
Significant accounting policies
Putnam Convertible Income-Growth Fund (the "fund") is registered under
the Investment Company Act of 1940, as amended, as a diversified,
open-end management investment company. The fund seeks current income
and capital appreciation by investing primarily in bonds and preferred
stocks convertible into common stock with capital conservation as a
secondary objective.
The fund offers class A, class B and class M shares. Class A shares are
sold with a maximum front-end sales charge of 5.75%. Class B shares,
which convert to class A shares after approximately eight years, do not
pay a front-end sales charge, but pay a higher ongoing distribution fee
than class A shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase.
Class M shares are sold with a maximum front-end sales charge of
3.50% and pay an ongoing distribution fee that is lower than class B
shares and higher than class A shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of
the net assets of the fund, if the fund were liquidated. In addition,
the Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires management
to make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.
A) Security valuation Investments for which market quotations are
readily, available are stated at market value, which is determined using
the last reported sale price, or, if no sales are reported -- as in the
case of some securities traded over-the-counter -- the last reported
bid price. Securities quoted in foreign currencies are translated into
U.S. dollars at the current exchange rate. Short-term investments having
remaining maturities of 60 days or less are stated at amortized cost,
which approximates market value, and other investments are stated at
fair value following procedures approved by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc.. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Putnam Management is responsible for determining that the value of these
underlying securities is at all times at least equal to the resale price,
including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to
buy or sell is executed).
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date except that certain dividends from
foreign securities are recorded as soon as the fund is informed of
the ex-dividend date.
Discounts on zero coupon bonds and payment in kind bonds are accreted
according to the yield-to-maturity method.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based
on the exchange rates on that day. The cost of each security is
determined using historical exchange rates. Income and withholding
taxes are translated at prevailing exchange rates when accrued or
incurred. The fund does not isolate that portion of realized or
unrealized gains or losses resulting from changes in the foreign
exchange rate on investments from fluctuations arising from changes
in the market prices of the securities. Such gains and losses are
included with the net realized and unrealized gain or loss on
investments. Net realized gains and losses on foreign currency
transactions represent net exchange gains or losses on closed
forward currency contracts, disposition of foreign currencies and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized
appreciation and depreciation of assets and liabilities in foreign
currencies arise from changes in the value of open forward currency
contracts and assets and liabilities other than investments at the
period end, resulting from changes in the exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a
decline in value relative to the U.S. dollar of the currencies in
which its portfolio securities are denominated or quoted (or an increase
in the value of a currency in which securities a fund intends to buy are
denominated, when a fund holds cash reserves and short-term investments).
The U.S. dollar value of forward currency contracts is determined using
current forward currency exchange rates supplied by a quotation service.
The market value of the contract will fluctuate with changes in currency
exchange rates. The contract is "marked to market" daily and the change
in market value is recorded as an unrealized gain or loss. When the
contract is closed, the fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was
opened and the value at the time it was closed. The fund could be
exposed to risk if the value of the currency changes unfavorably, if the
counterparties to the contracts are unable to meet the terms of their
contracts or if the fund is unable to enter into a closing position.
G) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the year ended
October 31, 1997, the fund had no borrowings against the line of credit.
H) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986, as amended. Therefore, no
provision has been made for federal taxes on income, capital gains or
unrealized appreciation on securities held nor for excise tax on income
and capital gains.
I) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend
date and paid at least annually. The amount and character of income
and gains to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These differences include temporary and permanent differences
of market discount and realized and unrealized gains and losses on
forward foreign currency contracts. Reclassifications are made to the
fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. For the year ended October 31, 1997, the fund reclassified
$2,938,450 to decrease distributions in excess of net investment income
and $331,018 to decrease paid-in-capital, with a decrease to accumulated
net realized gain on investments of $2,607,432. The calculation of net
investment income per share in the financial highlights table excludes
these adjustments.
Note 2
Management fee,
administrative services,
and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets
of the fund. Such fee is based on the following annual rates: 0.65%
of the first $500 million of average net assets, 0.55% of the next $500
million, 0.50% of the next $500 million, 0.45% of the next $5 billion,
0.425% of the next $5 billion, 0.405% of the next $5 billion, 0.39% of
the next $5 billion and 0.38% thereafter. Prior to February 20, 1997,
any amount over $1.5 billion was based on 0.45%.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund
and their staff who provide administrative services to the fund.
The aggregate amount of all such reimbursements is determined annually
by the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments,
Inc. Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
For the year ended October 31, 1997, fund expenses were reduced by
$704,850 under expense offset arrangements with PFTC and brokerage
service arrangements. Investor servicing and custodian fees reported
in the Statement of operations exclude these credits. The fund could
have invested a portion of the assets utilized in connection with the
expense offset arrangements in an income producing asset if it had not
entered into such arrangements.
Trustees of the funds receive an annual Trustees fee of which $1,183 has
been allocated to the fund and an additional fee for each Trustee's
meeting attended. Trustees who are not interested persons of Putnam
Management and who serve on committees of the Trustees receive
additional fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
in the fund and are invested in certain Putnam funds until distribution
in accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit
pension plan (the "Pension Plan") covering all Trustees of the fund
who have served as Trustee for at least five years. Benefits under the
Pension Plan are equal to 50% of the Trustee's average total retainer
and meeting fees for the three years preceding retirement. Pension
expense for the fund is included in Compensation of trustees in the
Statement of operations. Accrued pension liability is included in
Payable for compensation of Trustees in the Statement of assets and
liabilities.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to compensate
Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments
Inc., for services provided and expenses incurred by it in distributing
shares of the fund. The Plans provide for payments by the fund to Putnam
Mutual Funds Corp. at an annual rate up to 0.35%, 1.00% and 1.00% of the
average net assets attributable to class A, class B and class M shares,
respectively. The Trustees currently limit payment by the fund to an
annual rate of 0.25%, 1.00% and 0.75% of the average net assets
attributable to class A, class B and class M shares respectively.
For the year ended October 31, 1997, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $334,044 and $14,946 from the
sale of class A and class M shares, respectively and $209,400 in
contingent deferred sales charges from redemptions of class B shares. A
deferred sales charge of up to 1% is assessed on certain redemptions of
class A shares. For the year ended October 31, 1997, Putnam Mutual Funds
Corp., acting as underwriter received $12,459 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended October 31, 1997, purchases and sales of
investment securities other than short-term investments aggregated
$1,036,423,394 and $841,625,882, respectively. There were no purchases
and sales of U.S. government obligations. In determining the net gain or
loss on securities sold, the cost of securities has been determined on
the identified cost basis.
Note 4
Capital shares
At October 31, 1997, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares
were as follows:
Year ended
October 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 12,142,887 $265,281,015
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,574,214 95,070,612
- ------------------------------------------------------------
16,717,101 360,351,627
Shares
repurchased (8,692,035) (190,385,046)
- ------------------------------------------------------------
Net increase 8,025,066 $169,966,581
- ------------------------------------------------------------
Year ended
October 31, 1996
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 6,225,633 $126,621,311
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,946,646 58,192,170
- ------------------------------------------------------------
9,172,279 184,813,481
Shares
repurchased (5,850,929) (119,160,209)
- ------------------------------------------------------------
Net increase 3,321,350 $ 65,653,272
- ------------------------------------------------------------
Year ended
October 31, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 5,356,953 $116,465,127
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 721,404 14,907,349
- ------------------------------------------------------------
6,078,357 131,372,476
Shares
repurchased (1,832,828) (40,163,605)
- ------------------------------------------------------------
Net increase 4,245,529 $ 91,208,871
- ------------------------------------------------------------
Year ended
October 31, 1996
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 3,655,578 $ 74,061,724
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 303,647 5,977,026
- ------------------------------------------------------------
3,959,225 80,038,750
Shares
repurchased (931,979) (18,858,855)
- ------------------------------------------------------------
Net increase 3,027,246 $ 61,179,895
- ------------------------------------------------------------
Year ended
October 31, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 575,594 $ 12,484,454
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 48,222 997,306
- ------------------------------------------------------------
623,816 13,481,760
Shares
repurchased (323,289) (7,016,379)
- ------------------------------------------------------------
Net increase 300,527 $ 6,465,381
- ------------------------------------------------------------
Year ended
October 31, 1996
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 330,113 $ 6,691,625
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 12,651 252,193
- ------------------------------------------------------------
342,764 6,943,818
Shares
repurchased (96,145) (1,942,519)
- ------------------------------------------------------------
Net increase 246,619 $ 5,001,299
- ------------------------------------------------------------
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the
Fund hereby designates $125,758,353 as capital gain dividends for its
taxable year ended October 31, 1997.
The fund has designated 23.43% of the distributions fromnet investment
income as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 1998 will show the tax status of
all distributions paid to your account in calendar 1997.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund *
International New Opportunities Fund
Investors Fund
New Opportunities Fund +
OTC & Emerging Growth Fund [DBL. DAGGER]
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Total Return Fund
High Yield Trust +
Income Fund
Money Market Fund **
Intermediate U.S. Government
Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK]
California, New York
LIFESTAGESM FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Overseas Growth Fund
+ Closed to new investors. Some exceptions may apply. Contact Putnam
for details.
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** An investment in a money market fund is neither insured nor
guaranteed by the U.S. government. These funds are managed to maintain
a price of $1.00 per share, although there is no assurance that this
price will be maintained in the future.
Please call your financial advisor or Putnam at 1-800-225-1581 to obtain
a prospectus for any Putnam fund. It contains more complete information,
including charges and expenses. Please read it carefully before you
invest or send money.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Thomas V. Reilly
Vice President
Charles G. Pohl
Vice President and Fund Manager
Edward T. Shadek
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam
Convertible-Income Growth Trust. It may also be used as sales literature
when preceded or accompanied by the current prospectus, which gives
details of sales charges, investment objectives, and operating policies
of the fund, and the most recent copy of Putnam's Quarterly Performance
Summary. For more information or to request a prospectus, call toll free:
1-800-225-1581. You can also learn more at Putnam Investments' website:
http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution; are not insured by the Federal
Deposit Insurance Corporation (FDIC), the Federal Reserve Board, or any
other agency; and involve risk, including the possible loss of the
principal amountinvested.
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Bulk Rate
U.S. Postage
PAID
Putnam
Investments
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36865-008/223/920 12/97
