Putnam
Convertible
Income-Growth
Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
10-31-98
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Putnam Convertible Income-Growth Trust's positioning has worked in good
times and bad."
-- Morningstar Mutual Funds, October 20, 1998
* According to Lipper Analytical Services, Putnam Convertible
Income-Growth Trust class A shares' total return ranked in the top 28%, or
5 out of 17 funds, in Lipper's convertible securities universe for 10-year
performance as of October 31, 1998.*
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
15 Portfolio holdings
30 Financial statements
* Past performance is not indicative of future results. Lipper Analytical
Services, an independent research organization, ranks funds according to
total return performance. Their rankings vary over time and do not reflect
the effects of sales charges. For the period ended 10/31/98, the fund's
class A shares ranked 17 out of 57 and 7 out of 25 for 1- and 5-year
returns, respectively. Performance of other share classes will vary.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
One of the attractions of convertible securities is their tendency to take
gentler spills than their underlying stocks during market downswings. In
return, of course, they forfeit some growth potential when markets are on
the rise. These attributes worked to Putnam Convertible Income-Growth
Trust's advantage during the volatile markets of the fund's most recent
fiscal year.
Although the 12 months ended October 31, 1998, represented the fund's
first negative year since 1990, the mildness of the decline at net asset
value suggests that the fund is performing within its expected parameters.
Over longer periods, the fund continues to deliver double-digit average
annual returns, which are shown in the tables that follow the management
report.
I am pleased to note that Forrest N. Fontana has joined Charles Pohl on
your fund's management team. After working 4 years as an engineer and
systems consultant, Forrest joined Putnam in 1993 as an equity analyst and
is now a member of and portfolio manager in the Equity Small Cap Value
group. He has 5 years of investment experience.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
December 16, 1998
Report from the Fund Managers
Charles G. Pohl
Forrest N. Fontana
During Putnam Convertible Income-Growth Trust's 1998 fiscal year, which
ended on October 31, 1998, volatility affected almost every area of the
capital markets. Late in the period, as most markets staged a retreat,
convertible securities declined as well, although we believe they remain
attractive, lower-risk vehicles for investing in smaller and growing
companies. The fund's diverse holdings of convertibles and large-cap value
stocks made its performance less volatile than that of most equity funds
- -- however, the fund's class A shares returned -1.37% at NAV (-7.05 at
POP), the first negative result in an annual period since 1990. For
complete performance information, including results of other share classes
and over the fund's long-term history, please turn to the tables that
begin on page 9.
* FUND MODERATES MARKET'S OVERREACTIONS
As hybrid securities combining qualities of stocks and bonds, convertibles
tend to perform like stocks but fluctuate within a narrower range. On the
other hand, like bonds, they pay a more attractive level of income than
stocks and have some sensitivity to interest rates and credit quality.
Through July 1998, stocks rose to record highs and convertibles generally
rose with them, though smaller-company convertibles began to weaken in
April. In August, investors suddenly turned sour on risk when the Russian
government moved to restructure its foreign debts. In the ensuing turmoil,
every type of security except Treasury bonds was affected by the change in
sentiment.
We believe we were able to minimize the effects of these market factors on
the fund's performance. Although your fund did not race ahead as stocks
reached record highs, it also did not plunge dramatically in late summer
when markets retreated. We attribute this relative stability to the fund's
value strategy and consistent diversification. In selecting any security,
we insist on paying as low a price as possible relative to the security's
yield and prospects for capital appreciation. Because of this
value-oriented strategy, we believe that the fund experiences less
downside risk over long time periods.
In addition to this rigorous fundamental analysis, we make sure that the
fund is invested in diverse sectors of the market at all times. The lion's
share of the fund's assets is in convertibles of small and midsize
companies with strong growth prospects, such as Sepracor, Inc., a $2
billion market-cap biotech company, as well as in those of larger, more
established corporations, such as Home Depot. We add even more diversity
by investing about 10% in high-yielding convertibles and placing 25% to
35% of assets in dividend-paying stocks of large companies. In most
periods, each of these sectors performs somewhat differently, and thereby
the fund's overall volatility is muted. Although these holdings, as well
as others mentioned in this report, were viewed favorably at the end of
the reporting period, all portfolio holdings are subject to review and
adjustment in accordance with the fund's investment strategy and may vary
in the future.
* CAREFUL SELECTION AIDS PERFORMANCE
Our thorough analysis of convertible issues added to our ability to
control risk during the fiscal year by enabling us to achieve strong
relative performance in several areas. The largest industries represented
in the fund generally mirrored the largest sectors of the market.
Technology companies, for example, account for roughly one fifth of the
convertible market and represented about 20% of the fund's convertible
holdings at the end of the period. Other large industries represented
included consumer cyclicals and finance.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS
Oil and gas 6.5%
Insurance and
finance 6.5%
Pharmaceuticals
and biotechnology 6.2%
Retail 5.6%
Electronics and
electrical equipment 5.5%
Footnote reads:
*Based on net assets as of 10/31/98. Holdings will vary over time.
Among the fund's technology holdings, Apple Computer and EMC Corp.
provided solid relative returns. Apple returned to profitability recently
after several years of losses. EMC is tapping into a huge business demand
for storage of digital information. Cable holdings also had a good year;
Tele-Communications, Inc. (TCI) and MediaOne were high profile performers.
TCI agreed to be purchased by AT&T, which sought the cable company's wide
distribution network. MediaOne, meanwhile, maintained its leadership in
broadband Internet services. Some holdings have not yet achieved the
strong prospects that we foresee. One of them is Western Digital, a
computer peripherals company. We bought this convertible when the tech
sector was weak early in 1998, and we still believe in its potential to
deliver above average results.
* CONVERTIBLES ESPECIALLY ATTRACTIVE TO VALUE INVESTORS
Although your fund's short-term returns turned negative in 1998, we are
optimistic that convertible prices will become more attractive going into
1999. In early 1998, for instance, many companies issued new convertibles,
but our analysis indicated that most of them were priced too expensively.
We turned down such issues and instead took advantage of our research
capabilities to sift for better values in older, more seasoned issues. An
example is Lam Research, a company in the semiconductor industry whose
convertibles we began purchasing at beaten-down prices late in 1997 when
the Asian crisis depressed the prices of semiconductors.
As it turned out, the high prices for new issues represented the end of a
bullish cycle in the market, and with the summer turmoil, we found that
convertibles were becoming more attractive to value investors. The slump
was similar to previous out-of-favor periods for convertibles in 1994 and
1990 but with a crucial difference: the economy and interest rates are
more favorable than they were in those earlier periods. In 1990, for
example, the economy went into recession; in 1994, interest rates rose
rapidly. In 1998, however, interest rates are low and the economy, while
cooling, has not contracted. Recently new issuance of convertibles has
slowed from a rush to a trickle and prices have become more reasonable.
This signals an opportune environment in which to be an owner and a
selective buyer of convertibles. We are finding securities of promising
companies that are now deeply discounted.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 CONVERTIBLE HOLDINGS
Softkey International, Inc., 144a convertible senior notes 5.5%, 2000
Computer software
Roche Holdings, Inc., 144a convertible unsubordinated LYON 0%, 2010
(Switzerland)
Pharmaceuticals
Micron Technology, Inc., convertible subordinated notes 7%, 2004
Semiconductors
Kmart Financing I, $3.875 convertible cumulative preferred
Retail
Apple Computer, Inc., convertible subordinated notes 6%, 2001
Computers
Data General Corp., 144a convertible subordinated notes 6%, 2004
Computer software
Sandoz Capital BVI Ltd., 144a convertible company guaranty 2%, 2002
(Switzerland)
Pharmaceuticals
Estee Lauder Co., $3.805 convertible preferred
Consumer products
Tele-Communications Intl., convertible subordinated debenture 4.5%, 2006
Cable television
Park Electrochemical Corp., convertible subordinated notes 5.5%, 2006
Electronics and electrical equipment
Footnote reads:
These holdings represent 8.0% of the fund's net assets as of 10/31/98.
Portfolio holdings will vary over time.
* LONG-TERM OPPORTUNITY IN CONVERTIBLES
We believe the current backdrop for the convertible market is positive as
the domestic economy expands with low interest rates. Furthermore the
volatility in the middle of the year provided a worthwhile reassessment by
investors. It alleviated one of our chief worries -- that convertibles
were overpriced. The rapid selloff provided the kind of buying opportunity
that emerges only a couple of times per decade. With regard to new issues,
the volatility compelled many companies to delay their plans. We
anticipate that when issuance resumes its normal pace, many excellent
companies will offer new securities at reasonable prices. It is clear to
us that convertibles still offer an attractive and conservative approach
for investing in smaller and faster growing companies.
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 10/31/98, 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 10/31/98
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 -1.37% -7.05% -2.11% -6.42% -1.75% -5.20%
- ------------------------------------------------------------------------------
5 years 67.95 58.31 61.66 59.72 63.78 58.08
Annual average 10.93 9.62 10.08 9.82 10.37 9.59
- ------------------------------------------------------------------------------
10 years 222.45 203.91 197.87 197.87 205.33 194.73
Annual average 12.42 11.76 11.53 11.53 11.81 11.41
- ------------------------------------------------------------------------------
Annual average
(life of fund) 12.13 11.88 11.10 11.10 11.38 11.23
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 10/31/98
Lehman Bros.
S&P 500 Corporate
Index Bond Index*
- ------------------------------------------------------------------------------
1 year 21.99% 8.00%
- ------------------------------------------------------------------------------
5 years 162.66 41.20
Annual average 21.31 7.15
- ------------------------------------------------------------------------------
10 years 418.25 149.06
Annual average 17.89 9.56
- ------------------------------------------------------------------------------
Annual average
(life of fund) 13.44 --
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. 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-, 5-, and
10-year (where available) 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. 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.
This performance information does not reflect any market volatility that
may have occurred since the date of the information. As a result, more
recent returns may be more or less than those shown.
*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
10/31/88
Lehman Bros.
Fund's class A S&P 500 Corporate Bond
Date shares at POP Index Index
10/31/88 9,425 10,000 10,000
10/31/89 10,829 12,640 11,240
10/31/90 9,047 11,695 11,720
10/31/91 12,579 15,612 13,784
10/31/92 14,863 17,166 15,317
10/31/93 18,096 19,731 17,638
10/31/94 18,427 20,494 16,725
10/31/95 21,077 25,913 19,869
10/31/96 25,079 32,157 21,106
10/31/97 30,811 42,483 23,060
10/31/98 $30,391 $51,825 $24,906
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 $29,787 and no contingent deferred sales charges would
apply; a $10,000 investment in the fund's class M shares would have been
valued at $30,533 ($29,473 at public offering price). See first page of
performance section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 10/31/98
Class A Class B Class M
- -------------------------------------------------------------------------
Distributions (number) 4 4 4
- -------------------------------------------------------------------------
Income $0.787 $0.628 $0.684
- -------------------------------------------------------------------------
Capital gains
- -------------------------------------------------------------------------
Long term 1.271 1.271 1.271
- -------------------------------------------------------------------------
Short term 0.858 0.858 0.858
- -------------------------------------------------------------------------
Total $2.916 $2.757 $2.813
- -------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- -------------------------------------------------------------------------
10/31/97 $23.22 $24.64 $23.01 $23.08 $23.92
- -------------------------------------------------------------------------
10/31/98 20.04 21.26 19.83 19.92 20.64
- -------------------------------------------------------------------------
Current return (end of period)
- -------------------------------------------------------------------------
Current dividend rate1 4.79% 4.52% 4.05% 4.32% 4.17%
- -------------------------------------------------------------------------
Current 30-day SEC yield2 4.45 4.19 3.75 3.98 3.84
- -------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by NAV
or POP at end of period.
2 Based on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 9/30/98
(most recent calendar quarter)
Class A Class B Class M
(inception date) (6/29/72) (7/15/93) (3/13/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year -7.21% -12.56% -7.90% -11.96% -7.69% -10.92%
- ------------------------------------------------------------------------------
5 years 65.75 56.21 59.59 57.66 61.41 55.77
Annual average 10.63 9.33 9.80 9.53 10.05 9.27
- ------------------------------------------------------------------------------
10 years 215.11 196.99 190.97 190.97 198.04 187.60
Annual average 12.16 11.50 11.27 11.27 11.54 11.14
- ------------------------------------------------------------------------------
Annual average
(life of fund) 12.03 11.78 11.00 11.00 11.27 11.12
- ------------------------------------------------------------------------------
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 5.75% maximum sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year
to 1% during the sixth year. After the sixth year, the CDSC no longer
applies.
COMPARATIVE BENCHMARKS
Standard & Poor's 500 Index* is an unmanaged list of large-capitalization
common stocks and is frequently used as a general gauge of stock market
performance.
Lehman Brothers Corporate Bond Index* is an unmanaged list of corporate
bonds.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take 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, 1998
To the Trustees and Shareholders of
Putnam Convertible Income-Growth Trust
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned, and the related statements
of operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of Putnam
Convertible Income-Growth Trust (the "fund") at October 31, 1998, and the
results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the fund's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of investments owned at October 31, 1998 by
correspondence with the custodian, provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 11, 1998
<TABLE>
<CAPTION>
Portfolio of investments owned
October 31, 1998
CONVERTIBLE BONDS AND NOTES (41.4%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
Advertising (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
$ 5,000,000 Omnicom Group Inc. cv. sub. deb. 2 1/4s, 2013 $ 6,000,000
Aerospace and Defense (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,850,000 Diagnostic Retrieval Systems, Inc. cv. sr. sub. deb 9s, 2003 1,868,500
1,000,000 SPACEHAB, Inc. cv. sub. notes 8s, 2007 805,000
2,260,000 SPACEHAB, Inc. 144A cv. sub. notes 8s, 2007 1,819,300
--------------
4,492,800
Airlines (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,136,000 Atlantic Coast Airlines 144A cv. sub. notes 7s, 2004 3,023,180
2,319,000 World Airways, Inc. 144A cv. sub. deb. 8s, 2004 788,460
--------------
3,811,640
Automotive (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Magna International cv. sub. deb. 5s, 2002 4,590,000
3,000,000 Mascotech, Inc. cv. sub. deb. 4 1/2s, 2003 2,490,000
--------------
7,080,000
Biotechnology (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 Aviron cv. sub. notes 5 3/4s, 2005 797,500
Broadcasting (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
10,000,000 Jacor Communications, Inc. cv. Liquid Yield Option Notes
(LYON) zero %, 2018 4,050,000
2,125,000 Scandinavian Broadcasting System S.A. 144A cv. sub. notes 7s,
2004 (Luxembourg) 2,061,250
--------------
6,111,250
Building and Construction (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 American Residential Services, Inc. cv. sub. notes 7 1/4s, 2004 1,340,000
Business Equipment and Services (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
10,000,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 8,825,000
1,500,000 Corporate Express, Inc. 144A cv. notes 4 1/2s, 2000 1,323,750
6,600,000 Mail-Well, Inc. cv. sub. notes 5s, 2002 5,857,500
2,946,000 National Data Corp. cv. sub. notes 5s, 2003 2,750,828
2,150,000 Personnel Group of America, Inc. cv. sub. notes 5 3/4s, 2004 2,150,000
15,000,000 Xerox Corp. cv. sub. deb. 0.57s, 2018 8,625,000
--------------
29,532,078
Computer Services and Software (2.9%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 Aspen Technology, Inc. 144A cv. sub. deb. 5 1/4s, 2005 640,000
11,000,000 Data General Corp. 144A cv. sub. notes 6s, 2004 10,340,000
389,000 EMC Corp. cv. sub. notes 3 1/4s, 2002 1,121,779
500,000 Platinum Technology Inc. cv. sub. notes 6 1/4s, 2002 426,250
2,385,000 S3, Inc. 144A cv. sub. notes 5 3/4s, 2003 1,192,500
10,620,000 System Software Associates, Inc. cv. sub. notes 7s, 2002 6,770,250
4,358,000 The Vantive Corp. cv. sub. notes 4 3/4s, 2002 2,963,440
35,563,000 Western Digital Corp. 144A cv. sub. deb. zero %, 2018 7,601,591
8,000,000 Xilinx, Inc. cv. sub. notes 5 1/4s, 2002 8,080,000
--------------
39,135,810
Computers (3.6%)
- --------------------------------------------------------------------------------------------------------------------------
7,800,000 Apple Computer, Inc. cv. sub. notes 6s, 2001 10,344,750
16,000,000 Hewlett-Packard Co. cv. sub. notes zero %, 2017 8,760,000
1,500,000 Intevac, Inc. cv. sub. notes 6 1/2s, 2004 1,098,750
5,090,000 Intevac, Inc. 144A cv. sub. notes 6 1/2s, 2004 3,728,425
7,006,000 Maxtor Corp. cv. sub. deb. 5 3/4s, 2012 4,203,600
8,022,000 Safeguard Scientifics, Inc. 144A cv. sub. notes 6s, 2006 7,731,203
13,500,000 Softkey International, Inc. 144A cv. sr. notes 5 1/2s, 2000 12,875,625
--------------
48,742,353
Conglomerates (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
2,935,000 Hexcel Corp. cv. sub. notes 7s, 2003 2,696,532
5,750,000 Thermo Electron Corp. 144A cv. subordinated 4 1/4s, 2003 5,153,438
--------------
7,849,970
Consumer Services (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
8,000,000 News America Holdings, Inc. cv. LYON zero %, 2013 4,520,000
1,400,000 Protection One, Inc. cv. sr. sub. notes 6 3/4s, 2003 1,627,500
--------------
6,147,500
Electronic Components (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
11,810,000 Kent Electronics Corp. cv. sub. notes 4 1/2s, 2004 9,418,475
875,000 Lernout & Hauspie Speech Products N.V. 144A cv. sub. notes
8s, 2001 (Belgium) 3,290,000
1,205,000 Photronics, Inc. cv. sub. notes 6s, 2004 1,232,113
--------------
13,940,588
Electronics and Electrical Equipment (3.6%)
- --------------------------------------------------------------------------------------------------------------------------
10,780,000 Advanced Micro Devices, Inc. cv. sub. notes 6s, 2005 8,920,450
2,000,000 Checkpoint Systems, Inc. 144A cv. sub. deb. 5 1/4s, 2005 1,595,000
6,935,000 Dovatron International cv. sub. notes 6s, 2002 6,518,900
2,250,000 HMT Technology Corp. 144A cv. sub. notes 5 3/4s, 2004 1,282,500
5,565,000 Motorola, Inc. cv. sub. deb. LYON zero %, 2013 4,020,713
12,160,000 Park Electrochemical Corp. cv. sub. notes 5 1/2s, 2006 9,849,600
2,385,000 S3, Inc. 144A cv. sub. notes 5 3/4s, 2003 1,261,069
5,500,000 SCI Systems, Inc. cv. sub. notes 5s, 2006 9,068,125
1,993,000 Thermo Instrument Systems, Inc. 144A cv. deb. 4 1/2s, 2003 1,721,454
1,215,000 Thermo Instrument Systems, Inc. 144A cv. company guaranty
3 3/4s, 2000 1,230,188
275,000 Thermo Optek Corp. cv. bonds 5s, 2000 253,000
1,194,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 1,132,808
2,705,000 Thermo Quest Corp. cv. company guaranty 5s, 2000 2,573,131
--------------
49,426,938
Energy-Related (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Thermo Electron Corp. cv. sub. deb. 4 1/4s, 2003 4,481,250
Entertainment (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
11,200,000 Loews Corp. cv. sub. notes 3 1/8s, 2007 9,296,000
13,600,000 Rogers Communications cv. deb. 2s, 2005 8,568,000
--------------
17,864,000
Environmental Control (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
3,100,000 OHM Corp. cv. sub. deb. 8s, 2006 2,809,375
1,000,000 Thermo Ecotek Corp. 144A cv. bonds 4 7/8s, 2004 885,000
3,940,000 Thermo Terratech, Inc. 144A cv. sub. deb. 4 5/8s, 2003 3,570,625
3,000,000 Waste Management, Inc. cv. sub. notes 4s, 2002 3,472,500
--------------
10,737,500
Financial Services (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
3,065,000 Pioneer Financial Services, Inc. cv. sub. notes 6 1/2s, 2003 3,915,538
Food (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,500,000 Chiquita Brands International, Inc. cv. sub. deb. 7s, 2001 2,275,000
1,000,000 Chiquita Brands International, Inc. 144A cv. sub. deb 7s, 2001 910,000
--------------
3,185,000
Health Care (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Assisted Living Concepts, Inc. cv. sub. deb. 6s, 2002 1,620,000
2,000,000 Columbia/HCA Healthcare Corp. cv. sub. deb. 6 3/4s, 2006 1,695,000
8,500,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 6,948,750
5,000,000 Renal Treatment Centers, Inc. cv. sub. notes 5 5/8s, 2006 5,543,750
3,545,000 Sun Healthcare Group Inc. 144A cv. sub. 6s, 2004 1,967,475
--------------
17,774,975
Hospital Management and Medical Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,500,000 Complete Management, Inc. cv. sub. deb. 8s, 2003 315,000
2,500,000 PhyMatrix, Inc. cv. sub. deb. 6 3/4s, 2003 1,040,625
3,310,000 U.S. Diagnostic Laboratories, Inc. 144A cv. sub. deb. 9s, 2003 2,114,263
--------------
3,469,888
Information Systems (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
6,700,000 Automatic Data Processing cv. deb. zero %, 2012 6,741,875
3,254,000 Quantum Corp. cv. sub. 7s, 2004 2,912,330
--------------
9,654,205
Insurance and Finance (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Berkshire Hathaway, Inc. cv. sr. notes 1s, 2001 6,350,000
12,000,000 Mutual Risk Management 144A cv. sub. deb. zero %, 2015 8,700,000
--------------
15,050,000
Lodging (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 Hilton Hotels Corp. cv. sub. notes 5s, 2006 912,500
3,000,000 ShoLodge, Inc. cv. sub. deb. 7 1/2s, 2004 1,740,000
--------------
2,652,500
Machinery (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 Thermo Fibertek Inc. 144A cv. company guaranty 4 1/2s, 2004 2,557,500
Media (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 Clear Channel Communications, Inc. cv. sr. notes 2 5/8s, 2003 2,861,250
Medical Supplies and Devices (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
3,800,000 Atrix Labs, Inc. 144A cv. sub. notes 7s, 2004 2,878,500
2,000,000 Phoenix Shannon 144A cv. sr. sub. notes 9 1/2s, 2000
(In default) (NON) 20,000
1,412,000 Thermo Cardiosystems, Inc. 144A cv. company guaranty
4 3/4s, 2004 1,166,665
1,000,000 Ventritex, Inc. cv. sub. notes 5 3/4s, 2001 1,087,500
--------------
5,152,665
Metals and Mining (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Homestake Mining Co. 144A cv. sub. 5 1/2s, 2000 1,860,000
4,541,000 Inco Ltd. deb. 5 3/4s, 2004 (Canada) 3,996,080
5,169,500 Quanex Corp. cv. sub. deb. 6.88s, 2007 4,575,008
--------------
10,431,088
Oil and Gas (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
6,160,000 Lomak Petroleum, Inc. 144A cv. sub. deb. 6s, 2007 3,950,100
3,000,000 Parker Drilling Co. cv. sub. notes 5 1/2s, 2004 2,197,500
5,500,000 Pennzoil Co. cv. deb. 4.95s, 2008 5,328,125
7,500,000 Pennzoil Co. cv. deb. 4.9s, 2008 7,275,000
3,833,000 Pride International, Inc. cv. sub. deb. 6 1/4s, 2006 3,962,364
4,500,000 Pride International, Inc. cv. sub. deb. zero %, 2018 1,136,250
1,000,000 Seacor Holdings, Inc. cv. sub. notes 5.38s, 2006 955,000
1,500,000 Southern Mineral Corp. cv. deb. 6 7/8s, 2007 810,000
6,910,000 Swift Energy Co. cv. sub. notes 6 1/4s, 2006 5,528,000
--------------
31,142,339
Oil Services (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
11,000,000 Baker Hughes, Inc. cv. notes zero %, 2008 7,466,250
Paper and Forest Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,500,000 Stone Container Corp. cv. sub. deb. 6 3/4s, 2007 1,768,750
Pharmaceuticals and Biotechnology (4.2%)
- --------------------------------------------------------------------------------------------------------------------------
15,000,000 Alza Corp. cv. sub. LYON zero %, 2014 9,412,500
3,000,000 Centocor, Inc. 144A cv. sub. notes 4 3/4s, 2005 3,176,250
4,500,000 Chiron Corp. cv. sub. notes 1.9s, 2000 4,308,750
3,000,000 Duramed Pharmaceuticals, Inc. cv. sub. notes 3 1/2s, 2002 2,115,000
1,025,000 Nabi, Inc. cv. sub. notes 6 1/2s, 2003 608,594
2,500,000 NeXstar Pharmaceuticals, Inc. 144A cv. sub. deb. 6 1/4s, 2000 1,928,125
280,000 Pharmaceutical Marketing Services Inc. cv. notes 6 1/4s, 2003 243,600
6,625,000 Pharmaceutical Marketing Services Inc. 144A cv. deb.
6 1/4s, 2003 5,863,125
20,000,000 Roche Holdings, Inc. 144A cv. unsub. LYON zero %, 2010
(Switzerland) 12,487,500
5,995,000 Sandoz Capital BVI Ltd. 144A cv. company guaranty 2s, 2002
(Switzerland) 10,244,856
4,880,000 Sepracor, Inc. 144A cv. sub. deb. 6 1/4s, 2005 7,490,800
--------------
57,879,100
Publishing (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
3,600,000 Thomas Nelson, Inc. 144A cv. sub. notes 5 3/4s, 1999 3,582,000
5,400,000 World Color Press, Inc. cv. sub. notes 6s, 2007 5,400,000
--------------
8,982,000
REIT's (Real Estate Investment Trust) (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
3,750,000 Malan Realty Investors cv. sub. notes 9 1/2s, 2004 3,614,063
Recreation (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,211,000 Speedway Motorsports, Inc. 144A cv. sub. notes 5 3/4s, 2003 2,047,939
Restaurants (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
31,650,000 Boston Chicken, Inc. cv. notes LYON zero %, 2015 (NON) (In default) 474,750
5,540,000 Boston Chicken, Inc. cv. sub. deb. 7 3/4s, 2004 (NON) (In default) 277,000
4,100,000 CKE Restaurants, Inc. 144A cv. sub. notes 4 1/4s, 2004 3,546,500
--------------
4,298,250
Retail (3.0%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Baker (J.), Inc. cv. deb. 7s, 2002 1,432,500
5,000,000 Home Depot, Inc. cv. sub. notes 3 1/4s, 2001 9,381,250
6,275,000 Michaels Stores, Inc. cv. sub. notes 6 3/4s, 2003 5,318,063
13,000,000 Office Depot, Inc. cv. LYON zero %, 2007 9,847,500
3,405,000 Pier 1 Imports, Inc. cv. sub. notes 5 3/4s, 2003 4,230,713
7,000,000 Rite Aid Corp. cv. sub. notes 5 1/4s, 2002 8,837,500
2,700,000 Sunglass Hut International, Inc. 144A cv. sub. notes 5 1/4s, 2003 1,809,000
--------------
40,856,526
Satellite Services (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
3,170,000 Gilat Satellite Networks Ltd. cv. sub. notes 6 1/2s, 2004 (Israel) 3,887,213
Semiconductors (3.1%)
- --------------------------------------------------------------------------------------------------------------------------
7,900,000 Analog Devices, Inc. cv. sub. notes 3 1/2s, 2000 8,295,000
10,290,000 Credence Systems Corp. cv. sub. notes 5 1/4s, 2002 7,511,700
3,000,000 Credence Systems Corp. 144A cv. sub. notes 5 1/4s, 2002 2,220,000
9,600,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 6,060,000
3,030,000 Integrated Process Equipment Corp. 144A cv. sub. notes
6 1/4s, 2004 1,833,150
3,000,000 Lam Research Corp. cv. sub. notes 5s, 2002 2,347,500
11,807,000 Micron Technology, Inc. cv. sub. notes 7s, 2004 11,467,549
3,000,000 National Semiconductor Corp. 144A cv. deb. 6 1/2s, 2002 2,407,500
--------------
42,142,399
Supermarkets (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 Whole Foods Market, Inc. cv. sub. deb. zero %, 2018 975,000
Telecommunications (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
5,845,000 Inacom Corp. cv. sub. deb. 4 1/2s, 2004 5,012,088
10,000,000 Tele-Communications Intl. cv. sub. deb. 4 1/2s, 2006 9,950,000
--------------
14,962,088
Telephone Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 MIDCOM Communications, Inc. cv. sub. notes 8 1/4s, 2003
(In default) (NON) 220,000
3,775,000 MIDCOM Communications, Inc. 144A cv. sub. deb. 8 1/4s, 2003
(In default) (NON) 830,500
--------------
1,050,500
Textiles (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,231,000 Dixie Group, Inc. (The) cv. deb. 7s, 2012 910,940
Tobacco (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
7,485,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 2007 (NON) 5,361,131
Transportation (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
3,350,000 Offshore Logistics, Inc. 144A cv. sub. notes 6s, 2003 3,048,500
--------------
Total Convertible Bonds and Notes (cost $599,652,168) $ 564,588,774
COMMON STOCKS (30.5%) (a)
NUMBER OF SHARES VALUE
Aerospace and Defense (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
31,000 Raytheon Co Class A $ 1,736,000
53,000 Raytheon Co. Class B 3,077,313
--------------
4,813,313
Airlines (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
39,100 UAL Corp. (NON) 2,539,056
Alcoholic Beverages (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
85,200 Anheuser-Busch Cos., Inc. 5,064,075
Automotive (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
160,600 Ford Motor Co. 8,712,550
51,000 General Motors Corp. 3,216,188
--------------
11,928,738
Banks (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
112,914 Bank One Corp. 5,518,672
85,300 BankBoston Corp. 3,140,106
34,000 Bankers Trust New York Corp. (CUS) 2,135,625
92,500 Chase Manhattan Corp. 5,255,156
40,000 Crestar Financial Corp. 2,635,000
75,000 First Tennessee National Corp. 2,376,563
95,212 Fleet Financial Group, Inc. 3,802,529
45,000 Mercantile Bancorporation, Inc. 2,055,938
25,000 Summit Bancorp 948,438
93,500 Washington Mutual, Inc. 3,500,406
11,000 Wells Fargo & Co. 4,070,000
--------------
35,438,433
Business Services (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
79,100 Avery Dennison Corp. 3,277,706
48,200 Xerox Corp. 4,669,375
--------------
7,947,081
Cellular Communications (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
75,610 3Com Corp. (NON) 2,726,686
Chemicals (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
22,000 Dow Chemical Co. 2,059,750
83,300 E.I. du Pont de Nemours & Co., Ltd. 4,789,750
--------------
6,849,500
Communications (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
86,300 MediaOne Group Inc. (NON) 3,651,569
Computers (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
180,700 Compaq Computer Corp. 5,714,638
77,000 IBM Corp. 11,429,688
63,000 Sun Microsystems, Inc. (NON) 3,669,750
--------------
20,814,076
Conglomerates (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
53,000 Minnesota Mining & Manufacturing Co. 4,240,000
38,000 United Technologies Corp. 3,619,500
--------------
7,859,500
Consumer Non Durables (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
36,420 Colgate-Palmolive Co. 3,218,618
Containers (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
78,000 Owens-Illinois, Inc. (NON) 2,383,875
Electric Utilities (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
181,000 DPL, Inc. 3,427,688
43,864 Duke Energy Corp. 2,837,453
107,700 Entergy Corp. 3,096,375
164,000 Potomac Electric Power Co. 4,294,750
104,344 Southern Co. 2,941,197
73,000 Texas Utilities Co. 3,193,750
--------------
19,791,213
Electronics and Electrical Equipment (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
41,600 Emerson Electric Co. 2,745,600
152,400 General Electric Co. 13,335,000
82,500 Motorola, Inc. 4,290,000
168,200 Seagate Technology, Inc. (NON) 4,436,275
3,248 Sensormatic Electronics Corp. (NON) 18,268
--------------
24,825,143
Entertainment (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
49,600 Viacom, Inc. Class B (NON) 2,969,800
Farm Equipment (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
81,100 Deere (John) & Co. 2,868,913
Financial Services (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
41,900 American Express Co. 3,702,913
44,200 Lehman Brothers Holding, Inc. 1,676,838
55,000 Merrill Lynch & Co., Inc. 3,258,750
41,800 Morgan (J.P.) & Co., Inc. 3,939,650
44,500 Morgan Stanley, Dean Witter, Discover and Co. 2,881,375
--------------
15,459,526
Food (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
126,500 ConAgra, Inc. 3,850,344
30,000 General Mills, Inc. 2,205,000
51,128 Heinz (H.J.) Co. 2,971,815
70,000 Nabisco Holdings Corp. Class A 2,642,500
34,952 The Quaker Oats Co. 2,064,353
--------------
13,734,012
Food and Beverages (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
94,800 PepsiCo, Inc. 3,199,500
50,600 Sara Lee Corp. 3,020,188
--------------
6,219,688
Healthcare (--%)
- --------------------------------------------------------------------------------------------------------------------------
8,545 LTC Healthcare, Inc. (NON) 20,294
Hospital Management (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
120,203 Tenet Healthcare Corp. (NON) 3,358,171
Insurance and Finance (3.0%)
- --------------------------------------------------------------------------------------------------------------------------
61,600 Allstate Corp. 2,652,650
70,500 American General Corp. 4,829,250
145,948 BankAmerica Corp. 8,382,888
45,000 CIGNA Corp. 3,282,188
157,600 Citigroup, Inc. 7,417,050
66,515 Equitable Companies, Inc. 3,259,235
55,300 Fannie Mae 3,915,931
63,000 Hartford Financial Services Group 3,346,875
43,000 KeyCorp 1,303,438
64,000 Norwest Corp. 2,380,000
--------------
40,769,505
Leisure (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
76,000 Hasbro, Inc. 2,664,750
Managed Health Care (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
43,666 WellPoint Health Networks, Inc. (NON) 3,214,909
Medical Supplies and Devices (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
62,300 Baxter International, Inc. 3,734,106
Oil and Gas (2.8%)
- --------------------------------------------------------------------------------------------------------------------------
57,600 Atlantic Richfield Co. 3,967,200
44,400 British Petroleum PLC ADR (United Kingdom) 3,926,625
39,000 Chevron, Inc. 3,178,500
40,600 Conoco, Inc. (NON) 1,009,925
19,000 Elf Aquitane ADR (France) 1,102,000
109,000 Exxon Corp. 7,766,250
118,400 Halliburton Co. 4,255,000
63,000 Kerr-McGee Corp. 2,512,125
82,000 Mobil Corp. 6,206,375
53,000 Texaco, Inc. 3,143,563
29,500 Total Corp. ADR (France) 1,725,750
--------------
38,793,313
Paper (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
81,050 Weyerhaeuser Co. 3,794,153
Pharmaceuticals and Biotechnology (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
141,500 American Home Products Corp. 6,898,125
62,500 Bristol-Myers Squibb Co. 6,910,156
51,000 Merck & Co., Inc. 6,897,750
132,100 Pharmacia & Upjohn, Inc. 6,993,044
--------------
27,699,075
Photography (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
31,600 Eastman Kodak Co. 2,449,000
Publishing (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
61,500 Times Mirror Co. Class A 3,409,406
Railroads (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
107,400 Burlington Northern Santa Fe Corp. 3,315,975
REIT's (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
29,000 Equity Residential Properties Trust 1,218,000
78,000 Starwood Lodging Trust 2,208,375
--------------
3,426,375
Retail (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 Dayton Hudson Corp. 2,542,500
46,300 Federated Department Stores, Inc. (NON) 1,779,656
398,200 K mart Corp. (NON) 5,624,575
8 Saks, Inc. (NON) 182
105,307 Sears, Roebuck & Co. 4,732,233
--------------
14,679,146
Savings and Loans (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
188,432 Charter One Financial, Inc. 5,170,103
Semiconductors (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
49,100 Intel Corp. 4,379,106
82,200 Texas Instruments, Inc. 5,255,663
--------------
9,634,769
Telephone Services (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
60,300 AT&T Corp. 3,753,675
125,700 Cincinnati Bell, Inc. 3,260,344
66,000 GTE Corp. 3,873,375
111,903 U S West, Inc. 6,420,435
--------------
17,307,829
Telephone Utilities (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
92,000 Ameritech Corp. 4,962,250
90,358 Bell Atlantic Corp. 4,800,269
120,904 SBC Communications, Inc. 5,599,367
--------------
15,361,886
Tobacco (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
183,100 Philip Morris Cos., Inc. 9,360,988
63,400 RJR Nabisco Holdings Corp. 1,810,863
--------------
11,171,851
Utilities (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
122,585 Sempra Energy 3,187,210
51,000 Western Resources, Inc. 1,785,000
--------------
4,972,210
--------------
Total Common Stocks (cost $383,033,775) $ 416,049,641
CONVERTIBLE PREFERRED STOCKS (24.9%) (a)
NUMBER OF SHARES VALUE
Apparel (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 Designer Finance $3.00 cv. cum. pfd. $ 1,188,750
Automobiles (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 Frederal-Mogul Corp. 144A $3.50 cv. cum. pfd. 3,630,000
215,600 Tower Automotive Capital Trust 144A $3.375 cv. pfd. 9,513,350
--------------
13,143,350
Banks (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
213,300 CNB Capital Trust I $1.50 cum. cv. pfd. 5,492,475
69,350 Union Planters Corp. Ser. E, $2.00 cv. cum. pfd. 3,814,250
--------------
9,306,725
Broadcasting (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
94,500 Sinclair Broadcast Group, Inc. $3.00 cv. pfd. 3,756,375
276,000 Triathlon Broadcasting Co. $ .945 cv. pfd. 2,484,000
--------------
6,240,375
Building and Construction (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
120,000 Beazer Homes USA, Inc. Ser. A, $2.00 cv. pfd. 3,150,000
50,000 Fleetwood Capital Trust $3.00 cv. cum. pfd. 2,200,000
63,000 Txi Capital Trust I $2.75 cv. pfd. 2,181,375
--------------
7,531,375
Business Equipment and Services (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
130,000 Unisys Corp. Ser. A, $3.75 cv. pfd. 6,589,375
Cable Television (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
80,000 Mediaone Group, Inc. Ser. D, $2.25 cv. pfd. 6,945,000
Communications (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
45,000 Evergreen Media Corp. 144A $3.00 cv. pfd. 3,408,750
Computer Services (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
105,000 Vanstar Financial Trust Corp. 144A $3.375 cv. cum. pfd. 2,769,375
134,270 Wang Laboratories, Inc. Ser. B, $3.25 cv. pfd. 6,109,285
--------------
8,878,660
Consumer Products (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
50,000 Newell Financial Trust 144A $2.625 cv. cum. pfd. 2,681,250
50,000 Newell Financial Trust I $2.625 cv. cum. pfd. 2,681,250
--------------
5,362,500
Cosmetics (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
160,000 Estee Lauder Co. $3.805 cv. pfd. 10,200,000
Electric Utilities (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
139,000 Calenergy Capital Trust $3.125 cv. cum. pfd. 7,054,250
189,400 El Paso Energy Capital Trust $2.375 cv. pfd. 9,185,900
184,700 Texas Utilities Co. $0.205 cv. pfd. 8,496,200
--------------
24,736,350
Electronics and Electrical Equipment (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
118,300 Sensormatic Electronics Corp. 144A $1.625 cv. pfd. 1,286,513
Electronic Components (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
59,378 Coltec Capital Trust $2.625 cv. pfd. 2,107,919
67,000 Lernout & Hauspie Speech Products N.V. 144A $2.375 cv. pfd 2,336,625
100,000 Loral Space & Comm. $3.00 cv. pfd. 5,300,000
102,100 Pioneer Standard Electronics, Inc. 144A $3.375 cv. pfd. 3,930,850
--------------
13,675,394
Engineering (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
125,000 Evi, Inc. $2.50 cum. cv. pfd. 4,140,625
Entertainment (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
179,100 Metromedia International Group, Inc. $3.625 cv. cum. pfd. 5,283,450
Financial Services (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
107,000 Devon Financing Trust $3.25 cv. pfd. 6,326,375
89,743 Finova Finance Trust $2.75 cv. cum. pfd. 5,923,038
56,000 Mandatory Common Exchange Trust (The) $3.625 cv. pfd. 455,000
5,000 Timet Capital Trust I 144A $3.312 cv. pfd. 122,500
90,000 Walbro Captial Trust $2.00 cv. pfd. 1,383,750
--------------
14,210,663
Food (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
65,000 Dole Food Co., Inc. $ 2.75 cv. pfd. 1,982,500
Food and Beverages (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
85,300 Chiquita Brands International, Inc. Ser. B, $3.75 cv. cum. pfd. 3,710,550
75,000 Ralston Purina Co. $4.336 cv. pfd. 3,717,188
--------------
7,427,738
Information Systems (--%)
- --------------------------------------------------------------------------------------------------------------------------
25,000 Vanstar Financial Trust Corp. $3.375 cv. pfd. 659,375
Insurance and Finance (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
60,585 American Bankers Insurance Group, Inc. Ser. B, $3.125 cv. pfd. 5,566,247
113,261 American General Delaware Corp. $3.00 cv. cum. pfd. 9,797,077
71,700 American Heritage Life Investment Corp. $4.25 cv. pfd. 4,266,150
200,000 Lincoln National Corp. $0.463 cv. cum. pfd. 3,550,000
211,885 Philadelphia Consolidated Holding Corp. $0.534 cv. pfd. 1,880,479
121,100 Protective Life Corp. $3.25 cv. cum. pfd. 7,538,475
--------------
32,598,428
Investment Companies (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
92,700 Suiza Capital Trust II 144A $2.75 cv. pfd. 3,035,925
52,300 Suiza Capital Trust II $2.75 cv. pfd. 1,725,900
--------------
4,761,825
Machinery (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
117,040 Case Corp. $4.50 cv. cum. pfd. 6,890,730
300,000 Ingersoll-Rand Co. $0.195 cv. pfd. 6,375,000
--------------
13,265,730
Medical Supplies and Devices (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
36,500 Mckesson Corp. $2.50 cv. pfd. 3,878,125
33,616 Owens & Minor Trust I 144A Ser. A, $2.688 cv. cum. pfd. 1,546,336
92,000 Owens & Minor, Inc. 144A $5.375 cv. pfd. 4,232,000
--------------
9,656,461
Metals and Mining (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
70,000 Kinam Gold, Inc. Ser. B, $3.75 cv. cum. pfd. 2,839,375
90,400 Pittston Mineral Corp. 144A $3.125 dep. shs. cv. pfd. 1,988,800
40,000 Titanium Metals Corp. $3.313 cv. pfd. 980,000
--------------
5,808,175
Oil and Gas (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Lomak Petroleum, Inc. 144A $2.875 cv. pfd. 2,287,500
30,000 Lomak Petroleum, Inc. Ser. C., $2.03 cv. cum. pfd. 667,500
100,580 Neuvo Energy Ser. A, $2.875 cv. pfd. 3,570,590
120,000 Tosco Financing Trust 144A $2.875 cv. pfd. 5,910,000
140,000 Unocal Capital Trust $3.125 cv. cum. pfd. 7,175,000
--------------
19,610,590
Packaging and Containers (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
115,000 Owens-Illinois, Inc. $2.375 cv. pfd. 4,614,375
120,000 Sealed Air Corp. Ser. A, $2.00 cv. pfd. 4,785,000
--------------
9,399,375
Paper and Forest Products (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
130,000 International Paper Co. $2.625 cv. pfd. 6,142,500
Publishing (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 Golden Books Family Entertainment, Inc. $4.375 cv. cum. pfd. 120,000
50,000 Houghton Mifflin Co. $4.08 cv. pfd. 1,943,750
50,000 Readers Digest $0.453 cv. pfd. 1,143,750
--------------
3,207,500
Railroads (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
190,000 Union Pacific 144A $3.125 cv. cum. pfd. 8,692,500
60,000 Union Pacific Capital Trust 144A $3.125 cum. cv. pfd. 2,805,000
--------------
11,497,500
Recreation (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
156,570 Station Casinos, Inc. $3.50 cv. pfd. 5,225,524
REIT's (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
220,000 Archstone Communities Trust Ser. A, $1.75 cv. cum. pfd. 5,885,000
28,500 Camden Property Trust Ser. A, $2.25 cv. cum. pfd. 705,375
50,000 Equity Office Properties Trust Ser. B, $2.625 cv. cum. pfd. 1,975,000
230,150 Equity Residential Property Ser. E, $1.75 cv. pfd. 5,408,525
74,490 Tanger Factory Outlet Centers Ser. A, $1.802 cv. cum. pfd. 1,443,244
66,500 Vornado Realty Trust Ser. A, $3.25 cv. cum. pfd. 3,208,625
--------------
18,625,769
Restaurants (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
154,907 Wendy's Financing Ser. A, $2.50 cv. pfd. 7,590,443
Retail (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
80,474 Ann Taylor Finance Trust $4.25 cv. cum. pfd. 6,287,031
80,000 Dollar General Strypes Trust $3.352 cv. pfd. 2,657,500
206,000 K mart Financing I $3.875 cum. cv. pfd. 11,420,125
--------------
20,364,656
Telecommunications (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
85,000 Tele-Communications (TCI Group) Ser. A, $2.125 cv. pfd. 7,437,500
Tobacco (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
57,517 DIMON, Inc. $2.00 cv. pfd. 776,480
Transportation (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
120,500 CNF Trust I Ser. A, $2.50 cv. cum. pfd. 6,085,250
50,150 Hvide Capital Trust 144A $3.25 cv. pfd. 1,203,600
--------------
7,288,850
Wireless Communications (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
45,000 Airtouch Communications, Inc. Ser. C, $2.125 cv. cum. pfd. 3,602,804
--------------
Total Convertible Preferred Stocks (cost $369,946,452) $ 339,057,578
PREFERRED STOCKS (--%)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
159,304 Trikon Technologies, Inc. Ser. H, 8.125% pfd. (PIK) $ 39,826
1,632 Trikon Technologies, Inc. Ser. I, 8.125% pfd. 99,582
--------------
Total Preferred Stocks (cost $2,818,849) $ 139,408
SHORT-TERM INVESTMENTS (2.8%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$1,695,000 Dart & Kraft Finance N.V. cv. company guaranty Ser. WW,
7 3/4s, 1998 $ 5,432,475
32,512,000 Interest in $750,000,000 joint repurchase agreement
dated October 30,1998 with Goldman Sachs & Co.
due November 2, 1998 with respect to various
U.S. Treasury obligations -- maturity value of $32,526,576
for an effective yield of 5.38% 32,521,718
--------------
Total Short-Term Investments (cost $36,515,404) $ 37,954,193
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,391,966,648) (b) $1,357,789,594
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,364,425,785.
(b) The aggregate identified cost on a tax basis is $1,396,501,632, resulting in gross unrealized appreciation and
depreciation of $120,893,674 and $159,605,712, respectively, or net unrealized depreciation of $38,712,038.
(NON) Non-income-producing security.
(PIK) Income may be received in cash or additional securities at the discretion of the issuer.
(CUS) This entity provides subcustodian services to the fund.
144A after the name of a security represents those exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified
institutional buyers.
ADR after the name of a foreign holding stands for American Depository Receipts, representing ownership of
foreign securities on deposit with a domestic custodian bank.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
October 31, 1998
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,391,966,648) (Note 1) $1,357,789,594
- -----------------------------------------------------------------------------------------------
Cash 196,908
- -----------------------------------------------------------------------------------------------
Dividends and interest receivable 9,056,711
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,599,642
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 19,094,798
- -----------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 466,832
- -----------------------------------------------------------------------------------------------
Total assets 1,388,204,485
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 19,921,108
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,260,509
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,963,215
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 38,375
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 25,023
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,559
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 460,461
- -----------------------------------------------------------------------------------------------
Other accrued expenses 108,450
- -----------------------------------------------------------------------------------------------
Total liabilities 23,778,700
- -----------------------------------------------------------------------------------------------
Net assets $1,364,425,785
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,270,980,195
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (240,540)
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 127,863,184
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (34,177,054)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,364,425,785
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,056,693,035 divided by 52,728,787 shares) $20.04
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $20.04)* $21.26
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($289,652,214 divided by 14,603,784 shares)** $19.83
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($18,080,536 divided by 907,507 shares) $19.92
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $19.92)* $20.64
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group
sales the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended October 31, 1998
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest $ 36,331,215
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $24,552) 28,461,363
- -----------------------------------------------------------------------------------------------
Total investment income 64,792,578
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 8,280,168
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,857,429
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 25,433
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 18,786
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 2,883,846
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 2,913,169
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 134,824
- -----------------------------------------------------------------------------------------------
Reports to shareholders 65,703
- -----------------------------------------------------------------------------------------------
Auditing 39,879
- -----------------------------------------------------------------------------------------------
Legal 13,579
- -----------------------------------------------------------------------------------------------
Postage 128,605
- -----------------------------------------------------------------------------------------------
Other 156,517
- -----------------------------------------------------------------------------------------------
Total expenses 16,517,938
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (627,790)
- -----------------------------------------------------------------------------------------------
Net expenses 15,890,148
- -----------------------------------------------------------------------------------------------
Net investment income 48,902,430
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 133,278,759
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and
liabilities in foreign currencies during the year (630,075)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the year (203,229,257)
- -----------------------------------------------------------------------------------------------
Net loss on investments (70,580,573)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(21,678,143)
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended October 31
-------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 48,902,430 $ 43,188,991
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments 133,278,759 134,480,706
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments
and assets and liabilities in foreign currencies (203,859,332) 73,719,928
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (21,678,143) 251,389,625
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (39,874,535) (40,930,205)
- ---------------------------------------------------------------------------------------------------------------
Class B (8,456,841) (6,775,056)
- ---------------------------------------------------------------------------------------------------------------
Class M (571,054) (414,757)
- ---------------------------------------------------------------------------------------------------------------
In excess of net investment income
Class A (1,430,151) (2,870,230)
- ---------------------------------------------------------------------------------------------------------------
Class B (303,316) (475,100)
- ---------------------------------------------------------------------------------------------------------------
Class M (20,482) (29,085)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (108,409,463) (66,832,559)
- ---------------------------------------------------------------------------------------------------------------
Class B (24,372,023) (11,391,471)
- ---------------------------------------------------------------------------------------------------------------
Class M (1,435,189) (700,350)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 130,624,709 267,640,833
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (75,926,488) 388,611,645
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 1,440,352,273 1,051,740,628
- ---------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess
of net investment income of $240,540
and $630,075, respectively) $1,364,425,785 $1,440,352,273
- ---------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $23.22 $21.24 $19.42 $19.09 $20.38
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .76(c) .78(c) .81(c) .85 .81
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.02) 3.70 2.70 1.60 (.46)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.26) 4.48 3.51 2.45 .35
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.76) (.87) (.98) (.96) (.74)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.03) (.06) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (2.13) (1.57) (.71) (1.16) (.90)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.92) (2.50) (1.69) (2.12) (1.64)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $20.04 $23.22 $21.24 $19.42 $19.09
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) (1.37) 22.86 18.99 14.38 1.84
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,056,693 $1,168,470 $898,486 $756,645 $697,946
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .97 1.03 1.06 1.16 .96
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.50 3.56 3.99 4.64 4.16
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 92.76 70.74 61.43 69.52 48.37
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $23.01 $21.09 $19.30 $19.00 $20.35
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .59(c) .63(c) .66(c) .69 .74
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.01) 3.64 2.68 1.61 (.55)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.42) 4.27 3.34 2.30 .19
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.61) (.73) (.84) (.84) (.66)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.02) (.05) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (2.13) (1.57) (.71) (1.16) (.88)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.76) (2.35) (1.55) (2.00) (1.54)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $19.83 $23.01 $21.09 $19.30 $19.00
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) (2.11) 21.89 18.14 13.54 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $289,652 $257,163 $146,127 $75,309 $31,432
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.72 1.78 1.81 1.91 1.71
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.74 2.78 3.26 3.92 3.58
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 92.76 70.74 61.43 69.52 48.37
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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.
</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
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $23.08 $21.14 $19.37 $17.79
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .65(c) .67(c) .73(c) .64
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.00) 3.67 2.65 1.64
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.35) 4.34 3.38 2.28
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.66) (.78) (.90) (.70)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.02) (.05) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (2.13) (1.57) (.71) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.81) (2.40) (1.61) (.70)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $19.92 $23.08 $21.14 $19.37
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) (1.75) 22.24 18.30 12.99 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $18,081 $14,719 $7,128 $1,753
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.47 1.53 1.54 1.04 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.99 3.04 3.55 2.89 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 92.76 70.74 61.43 69.52
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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.
</TABLE>
Notes to financial statements
October 31, 1998
Note 1
Significant accounting policies
Putnam Convertible Income-Growth Trust (the "fund") is registered under
the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund seeks current income and capital
appreciation by investing primarily in bonds and preferred stocks
convertible into common stock with capital conservation as a secondary
objective.
The fund offers class A, class B and class M shares. Class A shares are
sold with a maximum front-end sales charge of 5.75%. Class B shares, which
convert to class A shares after approximately eight years, do not pay a
front-end sales charge, but pay a higher ongoing distribution fee than
class A shares, and are subject to a contingent deferred sales charge, if
those shares are redeemed within six years of purchase. Class M shares are
sold with a maximum front-end sales charge of 3.50% and pay an ongoing
distribution fee that is lower than class B shares and higher than class A
shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally
accepted accounting principles and requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities. Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported -- as in the case of
some securities traded over-the-counter -- the last reported bid price.
Securities quoted in foreign currencies are translated into U.S. dollars
at the current exchange rate. Short-term investments having remaining
maturities of 60 days or less are stated at amortized cost, which
approximates market value, and other investments are stated at fair value
following procedures approved by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc.. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the market
value of which at the time of purchase is required to be in an amount at
least equal to the resale price, including accrued interest. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. 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
basis.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and 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 realized 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, 1998, the fund had no borrowings against the line of credit.
H) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies. It is also the intention of the fund to distribute an amount
sufficient to avoid imposition of any excise tax under Section 4982 of the
Internal Revenue Code of 1986, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains.
I) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid at least annually. The amount and character of income and gains
to be distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences include temporary and permanent differences of losses on wash
sale transactions, nontaxable dividends, defaulted bond interest, and
market discount. Reclassifications are made to the fund's capital accounts
to reflect income and gains available for distribution (or available
capital loss carryovers) under income tax regulations. For the year ended
October 31, 1998, the fund reclassified $2,143,484 to decrease
distributions in excess of net investment income and $187,603 to decrease
paid-in-capital, with an decrease to accumulated net realized gains of
$1,955,881. 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.
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, 1998, fund expenses were reduced by
$627,790 under expense offset arrangements with PFTC and brokerage service
arrangements. Investor servicing and custodian fees reported in the
Statement of operations exclude these credits. The fund could have
invested a portion of the assets utilized in connection with the expense
offset arrangements in an income producing asset if it had not entered
into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $1,260
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 have approved 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, 1998, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $328,284 and $21,844 from the sale
of class A and class M shares, respectively and $421,192 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, 1998, Putnam Mutual Funds Corp.,
acting as underwriter received $14,672 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended October 31, 1998, purchases and sales of investment
securities other than short-term investments aggregated $1,304,198,398 and
$1,318,535,492, 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, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended
October 31, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 9,382,467 $205,168,706
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 5,911,967 124,147,866
- -----------------------------------------------------------------------------
15,294,434 329,316,572
Shares
repurchased (12,883,335) (278,877,249)
- -----------------------------------------------------------------------------
Net increase 2,411,099 $ 50,439,323
- -----------------------------------------------------------------------------
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, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 4,687,780 $101,436,908
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,255,855 26,103,869
- -----------------------------------------------------------------------------
5,943,635 127,540,777
Shares
repurchased (2,515,435) (53,200,565)
- -----------------------------------------------------------------------------
Net increase 3,428,200 $ 74,340,212
- -----------------------------------------------------------------------------
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, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 618,070 $13,595,951
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 82,403 1,719,717
- -----------------------------------------------------------------------------
700,473 15,315,668
Shares
repurchased (430,655) (9,470,494)
- -----------------------------------------------------------------------------
Net increase 269,818 $ 5,845,174
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Federal tax information
(Unaudited)
The Form 1099 you receive in January 1999 will show the tax status of all
distributions paid to your account in calendar 1998.
Pursuant to Section 852 of the Internal Revenue Code, as amended, the Fund
hereby designates $125,267,953 as capital gain for its taxable year ended
October 31, 1998.
The fund has designated 46.49% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities 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 [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
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
Global Growth and Income Fund
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
Global Governmental Income Trust
High Quality Bond Fund +
High Yield Advantage Fund [DBL. DAGGER]
High Yield Total Return Fund
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic 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
LIFESTAGE SM 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 Putnam Diversified Income Trust II
+Formerly Putnam Federal Income Trust
[DBL. DAGGER] Closed to new investors. Some exceptions may apply.
Contact Putnam for details.
[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
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Thomas V. Reilly
Vice President
Edward T. Shadek
Vice President
Charles G. Pohl
Vice President and Fund Manager
Forrest N. Fontana
Vice President and Fund Manager
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Convertible
Income-Growth Trust. It may also be used as sales literature when preceded
or accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and
the most recent copy of Putnam's Quarterly Performance Summary. For more
information or to request a prospectus, call toll free: 1-800-225-1581.
You can also learn more at Putnam Investments' website:
http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution; are not insured by the Federal
Deposit Insurance Corporation (FDIC), the Federal Reserve Board, or any
other agency; and involve risk, including the possible loss of the
principal amount invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
www.putnaminv.com
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AN019 47849 008/223/920 12/98
