Putnam
Convertible
Income-Growth
Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
10-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Over the past several months, the convertible market has undergone a
significant shift, creating a challenge for the managers of Putnam
Convertible Income-Growth Trust during the fund's fiscal year that ended
on October 31, 1999.
The shift is the result of an explosive rally and increasing convertible
issuance in two sectors, technology and telecommunications, this year. As
a consequence, issues in these two sectors now represent nearly half of
the entire convertible market. The challenge to your fund's managers was
twofold. First, this market distortion made the level of diversification
sought by the managers somewhat more difficult to attain. Second, the
outperformance of technology securities has propelled the aggregate
convertible market to levels that reflect substantially reduced downside
protection.
The good news is that despite these challenges, the fund succeeded in
posting strongly positive results for the fiscal year. In the following
report, managers Charles Pohl and Forrest Fontana provide greater detail,
as well as their view of prospects for fiscal 2000.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
December 15, 1999
Report from the Fund Managers
Charles G. Pohl
Forrest N. Fontana
Calmer financial markets and favorable securities selection translated
into strong performance for Putnam Convertible Income-Growth Trust during
fiscal 1999. In contrast to 1998 and 1997, no international crises rocked
U.S. markets during the past year. But, contrary to 1998's fourth quarter,
when the Federal Reserve Board was in an easing posture, interest rates
rose and undercut security prices between July and September 1999.
Fortunately, the market once again proved its resilience and rallied in
October, the final month of the fund's fiscal year.
Total return for 12 months ended 10/31/99
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- -------------------------------------------------------------------------
16.42% 9.74% 15.58% 10.58% 15.53% 14.53% 15.87% 11.83%
- -------------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods and explanation of performance calculation
methods begin on page 6.
* COMPOSITION OF CONVERTIBLES MARKET IN FLUX
Amid nearly perfect business conditions -- moderate growth, full
employment, and low inflation -- equities made steady gains this past
year. The initial gains were the result of a broad recovery from Russia's
currency and debt crisis of August 1998, following a series of
interest-rate cuts by the Federal Reserve Board that restored confidence
in the markets. By December, many common stocks had reached their previous
highs with convertibles in tow. In calendar 1999, technology has been the
story: it has led most of the year, though this volatile sector also had
sharp downturns in February, April, and May. Nevertheless, the strong
performance of technology convertibles, and the prominence of this sector
in the convertibles market, allowed the fund to perform strongly during
the fiscal year.
Despite impressive returns, trends in the convertibles market give us
cause for concern. Disproportionate gains for technology, Internet,
telecommunications, and networking hardware issues have caused those
sectors to rise to nearly 50% of the convertibles market. Furthermore,
more and more technology companies are learning to tap the convertibles
market, even as issuers in other sectors have called their convertibles
for cash or forced conversion into shares.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Oil and gas 6.9%
Retail 5.7%
Pharmaceuticals and
biotechnology 5.5%
Insurance and finance 4.4%
Electronics and
electrical equipment 4.2%
Footnote reads:
*Based on net assets as of 10/31/99. Holdings will vary over time.
This situation challenges our preferred risk profile. In this fund, we
seek to take advantage of the dual nature of convertibles to provide a
broadly diversified portfolio with less risk than the overall equity
market. Convertibles provide a fixed coupon payment like a bond while
carrying the option of conversion to common stock. When a company performs
well, its convertible appreciates, but usually to a lesser extent than its
common stock. We try to buy convertibles, as well as common stocks, when
they are undervalued by the market and poised for positive changes. We
also construct a diversified portfolio by maintaining exposure in all
sectors.
By the end of the period, the outperformance of many technology
convertibles, especially those issued by large-cap growth companies,
priced them quite aggressively and outside the typical minimum yield range
we prefer for holdings. Many of these issues trade in almost the same
manner as equities of the same underlying companies. This diminishes their
yields and raises their volatility, making them less attractive as the
risk characteristics of convertibles begin to outweigh their rewards.
To maintain the fund's sector diversification, we have somewhat
underweighted the technology sector relative to the convertibles market.
Although the fund still has a large technology weighting, we are highly
selective in making purchases. Meanwhile, it has modest overweightings in
other sectors of the convertibles market, such as energy. We also continue
to invest approximately 30% of the assets in common stocks of large,
dividend-paying companies, fewer of which are technology companies. In
1999, unfortunately, the common stock portion of the portfolio dampened
performance, in contrast to previous years, when stocks outperformed
convertibles. The stock complement is used to lessen the fund's
concentration in small capitalization equities.
* THE TECHNOLOGY TIDE
Behind the performance of technology stocks stands a huge cycle of
business spending as well as consumer demand. As more and more business
operations move to the Internet, network servers need greater capacity and
a larger number of connections -- pipes and fibers, in industry jargon --
to carry voices and data. Just over a year ago, spending for computer,
networking, and telecommunication equipment, not to mention the price of
semiconductor chips, was in a trough. As we reported at the time, we were
able to buy, at deep discounts to face value, a number of convertibles
with very attractive yields.
"Before your eyes glaze over at the mere mention of a convertible bond, know
that this little investment is a great way to play it safe in an increasingly
volatile stock market while at the same time keeping the door open to some
hot stocks."
- -- FortuneInvestor.com 10/26/99
The results have been tremendous. A convertible issue of QUALCOMM, which
makes a variety of cellular telephone components, has appreciated more
than eightfold in the period. We purchased this security shortly after its
issuance. Recently the company also undertook positive changes by selling
some of its manufacturing operations in which profit margins were
shrinking. Now QUALCOMM will focus on creating innovative cellular
technologies to be used in phones, handheld computers, and wireless modems
for portable computers. These products are the new frontier in the
computer industry. Although this holding, as well as others discussed in
this report, was 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.
[GRAPHIC OMITTED: TOP 10 CONVERTIBLE HOLDINGS]
TOP 10 CONVERTIBLE HOLDINGS
QUALCOMM Financial Trust
$2.875 convertible cumulative preferred
Telecommunications
Home Depot, Inc.
$3.25 convertible subordinated notes, 2001
Retail
Mediaone Group, Inc., Series D
$2.25 convertible preferred
Cable television
Sealed Air Corp. Series A
$2.00 convertible preferred
Packaging and containers
EMC Corp.
$3.25 convertible subordinated notes, 2002
Computer services and software
Integrated Device Technology, Inc.
$5.50 convertible subordinated notes, 2002
Semiconductors
Roche Holdings, Inc., 144a
Convertible unsubordinated LYON 0%, 2010
(Switzerland)
Pharmaceuticals and biotechnology
Houston Industries, Inc.
$3.22 convertible preferred
Electric utilities
MediaOne Group, Inc.
$6.25 convertible preferred
Cable television
Union Pacific Capital Trust
$3.125 convertible cumulative preferred
Railroads
Footnote reads:
These holdings represent 9.7% of the fund's net assets as of 10/31/99.
Portfolio holdings will vary over time.
The fund also enjoyed robust returns from convertibles of America Online,
the largest U.S. Internet service provider, and Amazon.com, one of the
market's favorite Internet retailers, in early 1999. The fund's position
in Credence Systems, which makes equipment for testing semiconductor
chips, gained substantially during the period. In the same industry, LAM
Research and Motorola have made big gains; the fund owns both a Motorola
convertible and its common stock. The fund also owned stocks of Unisys and
IBM. Both enjoyed strong performance but we took partial profits in them
earlier in the year, a decision that proved especially rewarding because
both stocks corrected when the companies reported some customers were
delaying orders until 2000.
* INDIVIDUAL PERFORMANCES HIGHLIGHT SUCCESSFUL RESEARCH
As we have mentioned, outside of technology, most sectors of the
convertibles market had unremarkable results, with some posting modest
gains and others sinking into negative territory. Some of our holdings,
however, handily outperformed their sectors. We believe this reflects the
strengths of our rigorous research process. We are constantly analyzing
the fundamentals of companies that issue convertibles as well as
monitoring prices, so that we can identify undervalued opportunities.
One strong performer was a Berkshire Hathaway bond convertible into
Citigroup stock. Berkshire is the holding company run by successful
investor Warren Buffett. Originally, Berkshire issued this security to
fund Salomon Brothers, a troubled financial institution that Buffett
helped to stabilize. As a result of subsequent mergers, Salomon is now
part of the diversified global financial company Citigroup, which has
helped the convertible appreciate.
The fund also got strong performance from energy holdings. The price of
oil, which in 1998 fell below $12 per barrel and dragged a host of energy
stocks with it, has now risen to above $20 per barrel. Diamond Offshore,
an oil service company specializing in deep-sea drilling, had a solid
year. The common stock of BP-Amoco also performed well, as the company
realized cost savings from its merger and announced the acquisition of
Atlantic Richfield, another fund holding.
* ECONOMIC HORIZON BRIGHT, BUSINESS CONDITIONS HEALTHY
As we enter the 2000 fiscal year, we find the economic setting
constructive: Growth continues and we do not foresee any dramatic increase
in inflation. The fundamental business condition of the companies held in
the portfolio is similarly upbeat. Although the fund is underweighted in
technology, this should be seen as a risk management strategy rather than
a bet against technology companies. We are also quite confident in other
sectors: energy prices are helping energy company earnings, industrial and
automotive companies are doing solid business, and financials are
attractive. We believe the fund is constructed in a way that can sustain
competitive performance and attractive current income while avoiding
extreme volatility.
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 10/31/99, 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 conservation of capital as a secondary objective.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 10/31/99
Class A Class B Class C Class M
(inception dates) (6/29/72) (7/15/93) (7/26/99) (3/13/95)
NAV POP NAV CDSC NAV CDSC NAV POP
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 16.42% 9.74% 15.58% 10.58% 15.53% 14.53% 15.87% 11.83%
- ---------------------------------------------------------------------------------------------------
5 years 92.00 81.00 84.99 82.99 84.89 84.89 87.26 80.74
Annual average 13.94 12.60 13.09 12.85 13.08 13.08 13.37 12.57
- ---------------------------------------------------------------------------------------------------
10 years 226.72 207.91 202.60 202.60 202.97 202.97 210.39 199.57
Annual average 12.57 11.90 11.71 11.71 11.72 11.72 11.99 11.60
- ---------------------------------------------------------------------------------------------------
Annual average
(life of fund) 12.28 12.04 11.26 11.26 11.44 11.44 11.54 11.39
- ---------------------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 10/31/99
Lehman Bros.
S&P 500 Corporate Consumer
Index Bond Index* price index
- ------------------------------------------------------------------------
1 year 25.67% 0.61% 2.69%
- ------------------------------------------------------------------------
5 years 217.79 49.83 12.51
Annual average 26.02 8.42 2.39
- ------------------------------------------------------------------------
10 years 415.26 122.94 33.92
Annual average 17.82 8.35 2.96
- ------------------------------------------------------------------------
Annual average
(life of fund) 13.86 --* 5.23
- ------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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-, 10-year, and
life-of-fund periods reflect the applicable contingent deferred sales
charge (CDSC), which is 5% in the first year, declines to 1% in the sixth
year, and is eliminated thereafter. Returns shown for class B and class M
shares for periods prior to their inception are derived from the
historical performance of class A shares, adjusted to reflect both the
initial sales charge or CDSC, if any, currently applicable to each class
and in the case of class B and class M shares the higher operating
expenses applicable to such shares. For class C shares, returns for
periods prior to their inception are derived from the historical
performance of class A shares, adjusted to reflect both the CDSC currently
applicable to class C shares, which is 1% for the first year and is
eliminated thereafter, and the higher operating expenses applicable to
class C 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.
*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 10/31/89
Fund's class A S&P 500 Consumer price
Date shares at POP Index index
10/31/89 9,425 10,000 10,000
10/31/90 7,873 9,252 10,629
10/31/91 10,948 12,351 10,939
10/31/92 12,936 13,581 11,290
10/31/93 15,749 15,610 11,600
10/31/94 16,037 16,214 11,903
10/31/95 18,344 20,501 12,237
10/31/96 21,826 25,441 12,604
10/31/97 26,815 33,610 12,866
10/31/98 26,448 41,001 13,041
10/31/99 $30,791 $51,526 $13,392
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 or class C shares
would have been valued at $30,260 and $30,297, respectively and no
contingent deferred sales charges would apply; a $10,000 investment in the
fund's class M shares would have been valued at $31,039 ($29,957 at public
offering price).
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 10/31/99
Class A Class B Class C Class M
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distributions (number) 4 4 1 4
- ------------------------------------------------------------------------------------
Income $0.810 $0.661 $0.228 $0.706
- ------------------------------------------------------------------------------------
Capital gains
Long-term 1.868 1.868 -- 1.868
- ------------------------------------------------------------------------------------
Short-term 0.150 0.150 -- 0.150
- ------------------------------------------------------------------------------------
Total $2.828 $2.679 $0.228 $2.724
- ------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- ------------------------------------------------------------------------------------
10/31/98 $20.04 $21.26 $19.83 $-- $19.92 $20.64
- ------------------------------------------------------------------------------------
7/26/99* -- -- -- 20.85 -- --
- ------------------------------------------------------------------------------------
10/31/99 20.26 21.50 20.02 20.23 20.13 20.86
- ------------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------------
Current dividend rate1 4.74% 4.47% 4.05% 4.51% 4.25% 4.10%
- ------------------------------------------------------------------------------------
Current 30-day
SEC yield2 3.74 3.52 3.04 3.05 3.28 3.16
- ------------------------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided by NAV or POP at
end of period.
2Based on investment income, calculated using SEC guidelines.
*Inception date of class C.
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 9/30/99 (most recent calendar quarter)
Class A Class B Class C Class M
(inception dates) (6/29/72) (7/15/93) (7/26/99) (3/13/95)
NAV POP NAV CDSC NAV CDSC NAV POP
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 16.76% 10.06% 15.91% 10.91% 15.84% 14.84% 16.33% 12.25%
- ---------------------------------------------------------------------------------------------------
5 years 85.93 75.21 79.26 77.26 79.05 79.05 81.30 74.91
Annual average 13.21 11.87 12.38 12.13 12.36 12.36 12.64 11.83
- ---------------------------------------------------------------------------------------------------
10 years 206.07 188.53 183.51 183.51 183.80 183.80 190.64 180.55
Annual average 11.84 11.18 10.98 10.98 10.99 10.99 11.26 10.87
- ---------------------------------------------------------------------------------------------------
Annual average
(life of fund) 12.20 11.96 11.17 11.17 11.36 11.36 11.45 11.31
- ---------------------------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns and principal value will fluctuate so that an investor's shares
when sold may be worth more or less than their original cost. See first
page of performance section for performance calculation method.
</TABLE>
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 C shares are not subject to an initial sales charge and are subject
to a contingent deferred sales charge only if the shares are redeemed
during the first year.
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 or class C shares and assumes redemption at the
end of the period. Your fund's class B 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. The CDSC for class C shares is 1% for one year
after purchase.
Comparative benchmarks
Standard & Poor's 500 Composite Stock Price Index* is an index of common
stocks frequently used as a general measure of stock market performance.
The Lehman Brothers Corporate Bond Index* is an index of publicly issued,
fixed-rate, non-convertible investment-grade domestic corporate debt
securities frequently used as a general measure of the performance of
fixed-income securities.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*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.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed here
may not match the sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-end funds, a separate
table is provided for each share class.
Report of independent accountants
For the fiscal year ended October 31, 1999
The Board of Trustees and Shareholders
Putnam Convertible Income-Growth Trust
We have audited the accompanying statement of assets and liabilities of
Putnam Convertible Income-Growth Trust, including the fund's portfolio, as
of October 31, 1999, and the related statement of operations, statement of
changes in net assets and financial highlights for the year or period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on
our audit. The statement of changes in net assets for the year ended
October 31, 1998 and the financial highlights for each of the years or
periods in the four-year period ended October 31, 1998 were audited by
other auditors whose report dated December 11, 1998 expressed an
unqualified opinion on that financial statement and those financial
highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of October 31, 1999 by correspondence
with the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Putnam Convertible Income-Growth Trust as of October 31, 1999, the
results of its operations, changes in its net assets and financial
highlights for the year or period then ended, in conformity with generally
accepted accounting principles.
KPMG LLP
Boston, Massachusetts
December 7, 1999
<TABLE>
<CAPTION>
The fund's portfolio
October 31, 1999
CONVERTIBLE BONDS AND NOTES (35.7%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
Advertising (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
$ 3,000,000 Lamar Advertising Co. cv. notes 5 1/4s, 2006 $ 4,031,250
4,000,000 Omnicom Group Inc. cv. sub. deb. 2 1/4s, 2013 7,285,000
--------------
11,316,250
Aerospace and Defense (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,850,000 Diagnostic Retrieval Systems, Inc. cv. sr. sub. deb 9s, 2003 1,905,500
4,297,000 Kellstrom Industries, Inc. cv. sub. notes 5 1/2s, 2003 2,744,709
1,000,000 SPACEHAB, Inc. cv. sub. notes 8s, 2007 735,000
2,260,000 SPACEHAB, Inc. 144A cv. sub. notes 8s, 2007 1,661,100
--------------
7,046,309
Airlines (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
489,000 Atlantic Coast Airlines, Inc. cv. sub. notes 7s, 2004 1,281,180
2,319,000 World Airways, Inc. cv. sr. sub. deb 8s, 2004 602,940
--------------
1,884,120
Automotive (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
1,500,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 776,250
1,500,000 Magna International cv. sub. deb. 5s, 2002 1,456,875
2,000,000 Mark IV Industries, Inc. cv. sub. notes 4 3/4s, 2004 1,690,000
3,000,000 Mascotech, Inc. cv. sub. deb. 4 1/2s, 2003 2,332,500
2,160,000 Standard Motor Products, Inc. cv. sub. deb. 6 3/4s, 2009 1,744,200
2,000,000 Tower Automotive, Inc. cv. sub. notes 5s, 2004 1,717,500
--------------
9,717,325
Broadcasting (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
13,000,000 Jacor Communications, Inc. cv. Liquid Yield Option Notes
(LYON) zero %, 2018 7,946,250
2,125,000 Scandinavian Broadcasting System SA cv. sub. notes 7s,
2004 (Luxembourg) 2,861,626
--------------
10,807,876
Business Equipment and Services (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 1,977,500
2,500,000 Interpublic Group Cos. cv. sub. notes 1.8s, 2004 2,909,375
6,600,000 Mail-Well, Inc. cv. sub. notes 5s, 2002 6,261,750
2,946,000 National Data Corp. cv. sub. notes 5s, 2003 2,419,403
2,150,000 Personnel Group of America, Inc. cv. sub. notes 5 3/4s, 2004 1,518,438
--------------
15,086,466
Computer Services and Software (3.6%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Arbor Software Corp. cv. sub. notes 4 1/2s, 2005 3,060,000
7,941,000 Aspen Technology, Inc. cv. sub. deb. 5 1/4s, 2005 5,032,609
1,200,000 Comverse Technology, Inc. cv. sub. deb. 4 1/2s, 2005 3,217,500
1,900,000 EMC Corp. cv. sub. notes 3 1/4s, 2002 12,240,750
25,000,000 Network Associates, Inc. cv. sub deb. zero %, 2018 8,250,000
3,635,000 S3, Inc. 144A cv. sub. notes 5 3/4s, 2003 3,216,975
1,500,000 Silicon Graphics Corp. cv. sr. notes 5 1/4s, 2004 1,095,000
10,620,000 System Software Associates, Inc. cv. sub. notes 7s, 2002 3,424,950
2,600,000 Telxon Corp. cv. sub. notes 5 3/4s, 2003 1,946,750
799,000 Vantive Corp. (The) cv. sub. notes 4 3/4s, 2002 652,184
3,800,000 Veritas Software Corp. cv. disc. notes 1.856s, 2006 5,320,000
3,800,000 Western Digital Corp. cv. sub. deb. zero %, 2018 522,500
500,000 Wind River Systems Inc. cv. sub. notes 5s, 2002 469,375
--------------
48,448,593
Computers (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 Adaptec, Inc. cv. sub. notes 4 3/4s, 2004 1,032,500
14,000,000 Hewlett-Packard Co. cv. sub. notes zero %, 2017 8,050,000
1,500,000 Intevac, Inc. cv. sub. notes 6 1/2s, 2004 853,125
5,090,000 Intevac, Inc. 144A cv. sub. notes 6 1/2s, 2004 2,894,938
2,799,000 Safeguard Scientifics, Inc. 144A cv. sub. notes 5s, 2006 3,572,224
--------------
16,402,787
Conglomerates (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,200,000 ADT Operations, Inc. cv. sub. notes zero %, 2010 2,608,500
Consumer Services (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 America Online, Inc. cv. sub. notes 4s, 2002 9,972,500
4,000,000 At Home Corp. 144A cv. sub. deb. 0.5s, 2018 2,340,000
355,000 Doubleclick, Inc. 144A cv. sub. notes 4 3/4s, 2006 654,975
8,000,000 News America Holdings, Inc. cv. LYON zero %, 2013 5,055,039
2,855,000 Protection One, Inc. cv. sr. sub. notes 6 3/4s, 2003 767,281
--------------
18,789,795
Electronic Components (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
4,680,000 Benchmark Electronics, Inc. 144A cv. sub. notes 6s, 2006 3,229,200
11,484,000 Kent Electronics Corp. cv. sub. notes 4 1/2s, 2004 9,058,005
457,000 Level One Communications, Inc. cv. sub. notes 4s, 2004 1,163,065
1,108,000 Photronics, Inc. cv. sub. notes 6s, 2004 1,091,380
--------------
14,541,650
Electronics and Electrical Equipment (3.3%)
- --------------------------------------------------------------------------------------------------------------------------
11,700,000 Advanced Micro Devices, Inc. cv. sub. notes 6s, 2005 9,155,250
2,000,000 Checkpoint Systems, Inc. 144A cv. sub. deb. 5 1/4s, 2005 1,382,500
4,250,000 Cirrus Logic, Inc. cv. sub notes 6s, 2003 3,150,313
3,000,000 LSI Logic Corp. 144A cv. sub. notes 4 1/4s, 2004 5,520,000
5,000,000 Motorola, Inc. cv. sub. deb. LYON zero %, 2013 5,593,750
7,257,000 Park Electrochemical Corp. cv. sub. notes 5 1/2s, 2006 7,184,430
8,000,000 Solectron Corp. 144A cv. notes zero %, 2019 4,990,000
1,993,000 Thermo Instrument Systems, Inc. 144A cv. deb. 4 1/2s, 2003 1,649,208
275,000 Thermo Optek Corp. cv. bonds 5s, 2000 266,750
1,194,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 1,149,225
2,705,000 Thermo Quest Corp. cv. company guaranty 5s, 2000 2,573,131
1,750,000 World Access, Inc. cv. sub. notes 4 1/2s, 2002 1,211,875
1,000,000 World Access, Inc. 144A Inc. cv. sub. notes 4 1/2s, 2002 692,500
--------------
44,518,932
Entertainment (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Loews Corp. cv. sub. notes 3 1/8s, 2007 3,305,000
10,500,000 Rogers Communications cv. deb. 2s, 2005 8,439,375
--------------
11,744,375
Environmental Control (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
2,967,000 OHM Corp. cv. sub. deb. 8s, 2006 2,699,970
1,000,000 Thermo Ecotek Corp. 144A cv. bonds 4 7/8s, 2004 826,250
3,940,000 Thermo Terratech, Inc. 144A cv. sub. deb. 4 5/8s, 2003 3,245,575
1,000,000 Waste Management, Inc. cv. sub. notes 4s, 2002 871,250
6,000,000 WMX Technologies, Inc. cv. sub. notes 2s, 2005 4,897,500
--------------
12,540,545
Food (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
900,000 Chiquita Brands International, Inc. cv. sub. deb. 7s, 2001 715,500
1,000,000 Chiquita Brands International, Inc. 144A cv. sub. deb 7s, 2001 730,000
--------------
1,445,500
Health Care (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Assisted Living Concepts, Inc. cv. sub. deb. 6s, 2002 1,080,000
1,847,000 Renal Treatment Centers, Inc. cv. sub. notes 5 5/8s, 2006 1,195,933
--------------
2,275,933
Information Systems (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,750,000 Quantum Corp. cv. sub. 7s, 2004 2,366,732
Insurance and Finance (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
2,700,000 Berkshire Hathaway, Inc. cv. sr. notes 1s, 2001 6,557,625
12,000,000 Mutual Risk Management cv. sub. deb. zero %, 2015 5,220,000
--------------
11,777,625
Lodging (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 ShoLodge, Inc. cv. sub. deb. 7 1/2s, 2004 1,740,000
Machinery (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 Thermo Fibertek Inc. 144A cv. company guaranty 4 1/2s, 2004 2,415,000
Managed Health Care (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,240,000 Wellpoint Health Networks, Inc. cv. sub. deb. zero %, 2019 1,313,200
Medical Supplies and Devices (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
3,800,000 Atrix Labs, Inc. 144A cv. sub. notes 7s, 2004 2,650,500
5,500,000 Centocor, Inc. cv. sub. deb. 4 3/4s, 2005 7,988,750
3,200,000 Omnicare, Inc. cv. bonds 5s, 2007 1,996,000
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 1,122,540
--------------
13,777,790
Metals and Mining (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 Homestake Mining Co. 144A cv. sub. 5 1/2s, 2000 976,250
1,000,000 Inco Ltd. cv. deb. 7 3/4s, 2016 (Canada) 882,500
2,741,000 Inco Ltd. cv. deb. 5 3/4s, 2004 (Canada) 2,634,786
4,169,500 Quanex Corp. cv. sub. deb. 6.88s, 2007 3,940,178
--------------
8,433,714
Oil and Gas (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Devon Energy Corp. cv. deb. 4.9s, 2008 4,040,000
5,500,000 Diamond Offshore Drilling, Inc. cv. sub. notes 3 3/4s, 2007 5,623,750
6,160,000 Lomak Petroleum, Inc. 144A cv. sub. deb. 6s, 2007 3,726,800
3,750,000 Parker Drilling Co. cv. sub. notes 5 1/2s, 2004 2,643,750
4,500,000 Pride International, Inc. cv. sub. deb. zero %, 2018 1,490,625
1,500,000 Southern Mineral Corp. cv. deb. 6 7/8s, 2007 510,000
6,910,000 Swift Energy Co. cv. sub. notes 6 1/4s, 2006 5,467,538
--------------
23,502,463
Paper and Forest Products (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 Stone Container Corp. cv. sub. deb. 6 3/4s, 2007 2,636,250
Pharmaceuticals and Biotechnology (3.2%)
- --------------------------------------------------------------------------------------------------------------------------
15,000,000 Alza Corp. cv. sub. LYON zero %, 2014 8,456,250
4,000,000 Chiron Corp. cv. sub. notes 1.9s, 2000 4,330,000
3,500,000 Duramed Pharmaceuticals, Inc. cv. sub. notes 3 1/2s, 2002 2,695,000
14,000,000 Elan Finance Corp. 144A cv. company guaranty zero %, 2018 6,982,500
1,025,000 Nabi, Inc. cv. sub. notes 6 1/2s, 2003 828,969
1,300,000 NeXstar Pharmaceuticals, Inc. cv. sub. deb. 6 1/4s, 2004 1,941,875
700,000 Quintiles Transnational Corp. cv. sub. notes 4 1/4s, 2000 675,500
20,000,000 Roche Holdings, Inc. 144A cv. unsub. LYON zero %,
2010 (Switzerland) 12,075,000
1,154,000 Sepracor, Inc. cv. sub. deb. 7s, 2005 1,107,840
2,216,000 Sepracor, Inc. cv. sub. deb. 6 1/4s, 2005 4,105,140
--------------
43,198,074
Publishing (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
4,400,000 World Color Press, Inc. cv. sub. notes 6s, 2007 4,708,000
REIT (Real Estate Investment Trust) (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
3,150,000 Malan Realty Investors cv. sub. notes 9 1/2s, 2004 2,795,625
Recreation (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
706,000 Speedway Motorsports, Inc. cv. sub. deb. 5 3/4s, 2003 1,043,998
Restaurants (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
31,650,000 Boston Chicken, Inc. cv. notes LYON zero %, 2015 (In default) (NON) 19,940
5,540,000 Boston Chicken, Inc. cv. sub. deb. 7 3/4s, 2004 (In default) (NON) 27,700
5,350,000 CKE Restaurants, Inc. cv. sub. notes 4 1/4s, 2004 3,223,375
--------------
3,271,015
Retail (4.1%)
- --------------------------------------------------------------------------------------------------------------------------
4,500,000 Amazon.com, Inc. cv. sub. deb. 4 3/4s, 2009 4,770,000
2,000,000 Amazon.com, Inc. 144A cv. sub. deb. 4 3/4s, 2009 2,120,000
2,039,000 Ann Taylor Stores Corp. 144A cv. company guaranty 0.55s, 2019 1,177,523
2,000,000 Baker (J.), Inc. cv. deb. 7s, 2002 1,590,000
2,000,000 Costco Cos, Inc. cv. sub. notes zero %, 2017 1,887,500
5,000,000 Home Depot, Inc. cv. sub. notes 3 1/4s, 2001 16,381,250
5,525,000 Michaels Stores, Inc. cv. sub. notes 6 3/4s, 2003 5,635,500
8,000,000 Office Depot, Inc. cv. LYON zero %, 2007 5,380,000
5,037,000 Pier 1 Imports, Inc. cv. sub. notes 5 3/4s, 2003 4,860,705
14,250,000 Rite Aid Corp. cv. sub. notes 5 1/4s, 2002 9,832,500
2,000,000 Sunglass Hut International, Inc. cv. sub. notes 5 1/4s, 2003 1,610,000
--------------
55,244,978
Semiconductors (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
2,500,000 Conexant Systems Inc. P/p 144A cv. sub. notes 4 1/4s, 2006 5,334,375
9,061,000 Credence Systems Corp. cv. sub. notes 5 1/4s, 2002 8,687,234
12,549,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 12,219,589
3,030,000 Integrated Process Equipment Corp. 144A cv. sub. notes
6 1/4s, 2004 2,147,513
3,000,000 Lam Research Corp. cv. sub. notes 5s, 2002 3,472,500
2,000,000 Micron Technology, Inc. cv. sub. notes 7s, 2004 2,455,000
500,000 STMicroelectronics NV cv. sub. notes zero %, 2008 811,875
2,000,000 STMicroelectronics NV cv. unsub. notes zero %, 2009 1,815,000
--------------
36,943,086
Supermarkets (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
11,600,000 Whole Foods Market, Inc. cv. sub. deb. zero %, 2018 3,828,000
Telecommunications (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
1,330,000 Corecomm Ltd. 144A cv. sub. notes 6s, 2006 1,489,600
1,084,000 Gilat Satellite Networks Ltd. cv. 6 1/2s, 2004 (Israel) 1,418,685
4,000,000 NTL Inc. 144A cv. sub. notes 7s, 2008 6,650,000
--------------
9,558,285
Telephone Services (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
4,132,000 Level 3 Communication, Inc. cv. sub. notes 6s, 2009 5,038,458
Textiles (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,069,000 Dixie Group, Inc. (The) cv. deb. 7s, 2012 775,025
Tobacco (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
7,485,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 2007 3,854,775
Transportation (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
3,350,000 Offshore Logistics, Inc. 144A cv. sub. notes 6s, 2003 2,738,625
Wireless Communications (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 American Tower Corp. 144A cv. bonds 6 1/4s, 2009 2,985,000
2,900,000 Cellstar Corp. cv. sub notes 5s, 2002 2,091,625
4,000,000 NEXTEL Communications, Inc. 144A cv. sr. notes 4 3/4s, 2007 7,670,000
--------------
12,746,625
--------------
Total Convertible Bonds and Notes (cost $491,563,047) $ 482,882,299
COMMON STOCKS (31.4%) (a)
NUMBER OF SHARES VALUE
Aerospace and Defense (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
106,445 Boeing Co. $ 4,903,123
136,207 Lockheed Martin Corp. 2,724,140
80,462 Raytheon Co. Class A 2,207,676
--------------
9,834,939
Airlines (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
33,000 Delta Air Lines, Inc. 1,796,438
19,075 UAL Corp. (NON) 1,298,292
--------------
3,094,730
Alcoholic Beverages (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
29,780 Anheuser-Busch Cos., Inc. 2,138,576
Automotive (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
84,140 Ford Motor Co. 4,617,183
72,385 General Motors Corp. 5,085,046
54,524 Lear Corp. (NON) 1,840,185
--------------
11,542,414
Banks (3.1%)
- --------------------------------------------------------------------------------------------------------------------------
125,464 Bank of America Corp. 8,076,745
112,914 Bank One Corp. 4,241,332
58,625 BB&T Corp. 2,132,484
37,209 Chase Manhattan Corp. 3,251,136
64,653 First Union Corp. 2,759,875
97,300 Greenpoint Financial Corp. 2,773,050
4,434 M & T Bank Corp. 2,197,047
75,602 National City Corp. 2,230,259
50,504 PNC Bank Corp. 3,011,301
25,000 Summit Bancorp 865,625
45,814 SunTrust Banks, Inc. 3,353,012
102,650 U.S. Bancorp 3,804,466
93,500 Washington Mutual, Inc. 3,360,156
--------------
42,056,488
Basic Industrial Products (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
63,109 Cooper Industries, Inc. 2,717,631
Building Products (--%)
- --------------------------------------------------------------------------------------------------------------------------
10,155 Armstrong World Industries, Inc. 379,543
Business Services (--%)
- --------------------------------------------------------------------------------------------------------------------------
1,649 Internet Capital Group Inc. (NON) 191,902
824 U.S. Interactive, Inc. (NON) 29,561
--------------
221,463
Cable Television (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
74,140 Cablevision Systems Corp. Class A (NON) 5,009,084
20,219 MediaOne Group Inc. (NON) 1,436,813
--------------
6,445,897
Chemicals (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
65,144 Avery Dennison Corp. 4,071,500
38,736 Dow Chemical Co. 4,580,532
34,098 du Pont (E.I.) de Nemours & Co., Ltd. 2,197,190
86,055 Monsanto Co. 3,313,118
26,924 PPG Industries, Inc. 1,632,268
76,729 Rohm & Haas Co. 2,934,884
--------------
18,729,492
Computer Services (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
60,319 Electronic Data Systems Corp. 3,528,662
Computers (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
19,598 Compaq Computer Corp. 372,362
8,723 Hewlett-Packard Co. 646,047
34,821 IBM Corp. 3,425,516
--------------
4,443,925
Conglomerates (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
53,452 Allied-Signal, Inc. 3,043,423
48,346 Minnesota Mining & Manufacturing Co. 4,595,892
43,965 United Technologies Corp. 2,659,883
--------------
10,299,198
Consumer Products (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
63,131 Kimberly-Clark Corp. 3,985,144
59,231 Newell Rubbermaid Inc. 2,050,873
--------------
6,036,017
Consumer Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
222,390 Service Corp. International 2,126,604
Electric Utilities (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
57,408 CiNergy Corp. 1,621,776
50,425 Dominion Resources, Inc. 2,426,703
194,012 DPL, Inc. 3,928,743
72,661 Duke Energy Corp. 4,105,347
107,700 Entergy Corp. 3,224,269
48,148 FPL Group, Inc. 2,422,446
116,344 Potomac Electric Power Co. 3,192,189
104,344 Southern Co. 2,771,638
--------------
23,693,111
Electronics and Electrical Equipment (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
63,738 Emerson Electric Co. 3,828,264
44,724 Motorola, Inc. 4,357,795
71,256 Rockwell International Corp. 3,451,463
25,377 Sensormatic Electronics Corp. (NON) 383,827
--------------
12,021,349
Entertainment (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
99,239 Disney (Walt) Productions, Inc. (NON) 2,617,429
Environmental Control (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
142,834 Republic Services, Inc. (NON) 1,749,717
130,839 Waste Management, Inc. 2,404,167
--------------
4,153,884
Farm Equipment (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
41,296 Deere (John) & Co. 1,496,980
Financial Services (2.5%)
- --------------------------------------------------------------------------------------------------------------------------
42,700 Associates First Capital Corp. 1,558,550
54,166 AXA Financial, Inc. 1,736,697
20,821 Bear Stearns Companies, Inc. (The) 887,495
175,445 Citigroup, Inc. 9,495,961
55,300 Fannie Mae 3,912,475
156,417 Fleet Boston Corp. 6,823,692
29,855 Lehman Brothers Holding, Inc. 2,199,940
38,410 Merrill Lynch & Co., Inc. 3,015,185
30,064 Morgan (J.P.) & Co., Inc. 3,934,626
--------------
33,564,621
Food (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
111,000 ConAgra, Inc. 2,892,938
30,000 General Mills, Inc. 2,615,625
70,278 Heinz (H.J.) Co. 3,355,775
70,947 Kellogg Co. 2,824,577
70,000 Nabisco Holdings Corp. Class A 2,616,250
--------------
14,305,165
Food and Beverages (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
154,525 Pepsi Bottling Group, Inc. (The) 2,810,423
73,607 PepsiCo, Inc. 2,553,243
137,774 Sara Lee Corp. 3,728,509
87,411 SYSCO Corp. 3,359,860
--------------
12,452,035
Gaming (--%)
- --------------------------------------------------------------------------------------------------------------------------
19,996 Station Casinos, Inc. 483,653
Hospital Management (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
148,489 Tenet Healthcare Corp. 2,886,255
Household Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
42,584 Clorox Co. 1,743,283
Insurance and Finance (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
98,075 Allstate Corp. 2,819,656
60,846 American General Corp. 4,514,013
31,549 Chubb Corp. 1,731,251
50,180 CIGNA Corp. 3,750,955
53,775 Hartford Financial Services Group 2,786,217
28,839 Jefferson-Pilot Corp. 2,164,727
66,063 Lincoln National Corp. 3,047,156
28,804 Reliastar Financial Corp. 1,236,772
--------------
22,050,747
Leisure (--%)
- --------------------------------------------------------------------------------------------------------------------------
9,293 Hasbro, Inc. 191,668
Medical Supplies and Devices (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
50,725 Baxter International, Inc. 3,290,784
Metals and Mining (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
54,651 Alcoa Inc. 3,320,048
36,043 Phelps Dodge Corp. 2,031,924
--------------
5,351,972
Office Equipment (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
73,195 Xerox Corp. 2,049,460
Oil and Gas (3.0%)
- --------------------------------------------------------------------------------------------------------------------------
33,324 Atlantic Richfield Co. 3,105,380
36,452 BP Amoco PLC ADR (United Kingdom) 2,105,103
8,809 Chevron, Inc. 804,372
110,343 Conoco, Inc. 3,027,536
70,200 Conoco, Inc. Class B 1,904,175
83,664 El Paso Energy Corp. 3,430,224
109,000 Exxon Corp. 8,072,813
10,468 Halliburton Co. 394,513
60,411 Mobil Corp. 5,829,662
34,095 Occidental Petroleum Corp. 777,792
56,679 Pride International, Inc. (NON) 779,336
33,277 Royal Dutch Petroleum Co. PLC ADR (Netherlands) 1,994,540
51,365 Schlumberger Ltd. 3,110,793
34,564 Texaco, Inc. 2,121,366
87,330 Unocal Corp. 3,012,885
--------------
40,470,490
Oil Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
55,136 Baker Hughes, Inc. 1,540,362
Packaging and Containers (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
100,345 Owens-Illinois, Inc. (NON) 2,402,008
154,915 Smurfit-Stone Container Corp. (NON) 3,350,037
--------------
5,752,045
Paper (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
49,793 International Paper Co. 2,620,357
60,043 Weyerhaeuser Co. 3,583,817
--------------
6,204,174
Pharmaceuticals and Biotechnology (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
128,591 Abbott Laboratories 5,191,862
131,357 American Home Products Corp. 6,863,403
82,801 Bristol-Myers Squibb Co. 6,360,152
88,520 Merck & Co., Inc. 7,042,873
105,200 Pharmacia & Upjohn, Inc. 5,674,225
--------------
31,132,515
Photography (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
31,600 Eastman Kodak Co. 2,178,425
Publishing (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
49,313 Times Mirror Co. Class A 3,556,700
Railroads (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
107,400 Burlington Northern Santa Fe Corp. 3,423,375
40,598 Union Pacific Corp. (NON) 2,263,339
--------------
5,686,714
REIT (Real Estate Investment Trust) (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
29,000 Equity Residential Properties Trust 1,212,563
Retail (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
29,041 Albertsons, Inc. 1,054,551
46,639 Dayton Hudson Corp. 3,014,045
30,292 Federated Department Stores, Inc. (NON) 1,293,090
293,122 K mart Corp. (NON) 2,949,540
67,214 Penney (J.C.) Co., Inc. 1,705,555
201,944 Rite Aid Corp. 1,767,010
49,773 Saks, Inc. (NON) 855,473
--------------
12,639,264
Savings and Loans (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
197,853 Charter One Financial, Inc. 4,859,764
Telephone Services (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
43,389 ALLTEL Corp. 3,612,134
123,853 American Telephone & Telegraph Co. 5,790,128
22,846 GTE Corp. 1,713,450
500 Intermedia Communications, Inc. 13,000
52,741 Sprint Corp. 3,919,316
54,645 U S West, Inc. 3,336,760
--------------
18,384,788
Telephone Utilities (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
117,769 Bell Atlantic Corp. 7,647,624
103,329 BellSouth Corp. 4,649,805
211,176 SBC Communications, Inc. 10,756,795
--------------
23,054,224
Utilities (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
122,585 Sempra Energy 2,505,331
--------------
Total Common Stocks (cost $399,464,874) $ 425,125,334
CONVERTIBLE PREFERRED STOCKS (29.0%) (a)
NUMBER OF SHARES VALUE
Apparel (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
51,000 Designer Finance $3.00 cv. cum. pfd. $ 1,389,750
Automobiles (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
65,000 Federal-Mogul Financial Trust $3.50 cum. cv. pfd. 2,429,375
155,600 Tower Automotive Capital Trust 144A $3.375 cv. pfd. 6,010,050
--------------
8,439,425
Banks (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
224,472 CNB Capital Trust I $1.50 cum. cv. pfd. 7,660,107
69,350 Union Planters Corp. Ser. E, $2.00 cv. cum. pfd. 3,840,256
--------------
11,500,363
Broadcasting (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
15,000 AMFM, Inc. $3.50 cv. pfd. 2,898,750
100,000 Cox Communications, Inc. $3.50 cv. pfd. (NON) 6,200,000
24,639 Emmis Broadcasting Corp. Ser. A, $3.13 cv. pfd. (NON) 1,379,784
184,500 Sinclair Broadcast Group, Inc. $3.00 cv. pfd. 6,134,625
--------------
16,613,159
Building and Construction (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
113,000 Txi Capital Trust I $2.75 cv. pfd. 4,110,375
Building Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 Owens Corning Capital LLC $3.25 cv. pfd. 735,000
Cable Television (3.7%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 Adelphia Communications Corp. Ser. D, $5.50 cv. pfd. 5,077,500
59,900 Comcast Corp. 2.00% cv. pfd. (NON) 5,009,138
115,000 MediaOne Group, Inc. 7.00% cv. pfd. 5,254,063
110,000 MediaOne Group Inc. $6.25 cv. pfd. 11,412,500
100,000 MediaOne Group, Inc. Ser. D, $2.25 cv. pfd. 14,037,500
30,000 TCI Pacific Comm $5.00 cv. pfd. 8,887,500
--------------
49,678,201
Chemicals (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
230,000 Monsanto Co. $2.60 cv. pfd. 8,625,000
Consumer Products (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
75,000 Newell Financial Trust I $2.625 cv. cum. pfd. 3,262,500
Consumer Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
53,600 Carriage Services, Inc. 144A $3.50 cv. pfd. (NON) 1,547,700
Cosmetics (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
42,333 Estee Lauder Aces TR II $5.41 cv. pfd. 3,741,179
35,000 Estee Lauder Co. $3.805 cv. pfd. 2,852,500
--------------
6,593,679
Electric Utilities (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
25,000 AES Trust II $3.38 cv. pfd. (NON) 1,260,938
65,000 AES Trust II Ser. B, $2.75 cv. pfd. (NON) 3,542,500
100,000 Houston Industries, Inc. $3.22 cv. pfd 11,600,000
120,000 Texas Utilities Co. $4.625 cv. pfd. 6,105,000
--------------
22,508,438
Electronic Components (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
54,369 Coltec Capital Trust $2.625 cv. pfd. (NON) 1,936,896
75,952 Lernout & Hauspie Speech Products N.V. 144A $2.375 cv. pfd. (NON) 2,307,042
50,000 Loral Space & Comm. $3.00 cv. pfd. (NON) 2,212,500
117,100 Pioneer Standard Electronics, Inc. 144A $3.375 cv. pfd. (NON) 5,972,100
--------------
12,428,538
Engineering (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
110,000 Evi, Inc. $2.50 cum. cv. pfd. (NON) 4,125,000
Entertainment (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
179,100 Metromedia International Group, Inc. $3.625 cv. cum. pfd. 4,052,138
Financial Services (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
107,000 Devon Financing Trust $3.25 cv. pfd. (NON) 6,821,250
65,869 Finova Finance Trust $2.75 cv. cum. pfd. 3,845,103
56,000 Mandatory Common Exchange Trust (The) $3.625 cv. pfd. 150,500
90,000 Salomon, Smith, Barney Inc. $6.25 cv. pfd. 6,345,000
51,000 USX Capital Trust I $3.375 cum. cv. pfd. 2,129,250
90,000 Walbro Captial Trust $2.00 cv. pfd. 2,362,500
--------------
21,653,603
Food (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
83,800 Chiquita Brands International, Inc. Ser. B, $3.75 cv. cum. pfd. 2,178,800
Gas Pipelines (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
165,000 Coastal Corp. $1.656 cv. pfd. 4,372,500
700 Enron Corp. Ser. 2nd, $13.625 cv. pfd. 700,350
10,000 Williams Companies, Inc. $1.25 cum. cv. pfd. 1,752,500
--------------
6,825,350
Health Care (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
45,000 Caremark RX Capital Trust I 144A $3.50 cv. pfd. (NON) 1,856,250
Information Systems (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
115,000 Vanstar Financial Trust Corp. $3.375 cv. pfd. 1,696,250
Insurance and Finance (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
70,000 American General Delaware Corp. $3.00 cv. cum. pfd. 6,387,500
50,881 American Heritage Life Investment Corp. $4.25 cv. pfd. 5,202,582
80,000 Lincoln National Corp. $7.75 cv. pfd. 1,970,000
100,000 Lincoln National Corp. $0.463 cv. cum. pfd. 2,137,500
211,885 Philadelphia Consolidated Holding Corp. $0.534 cv. pfd. 1,191,853
121,100 Protective Life Corp. $3.25 cv. cum. pfd. 7,069,213
30,000 St. Paul Capital LLC $3.00 cv. cum. pfd. 1,732,500
--------------
25,691,148
Investment Companies (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 Suiza Capital Trust II $2.75 cv. pfd. (NON) 1,023,750
Machinery (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
307,297 Ingersoll-Rand Co. $0.195 cv. pfd. 7,029,419
Media (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Seagram Co., Ltd. $3.76 cv. pfd. (Canada) (NON) 4,943,750
Medical Supplies and Devices (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
164,604 Owens & Minor Trust I 144A Ser. A, $2.688 cv. cum. pfd. 5,349,630
Metals and Mining (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
15,000 Cyprus Amax Minerals Co. Ser. A, $4.00 cv. pfd. 783,750
105,000 Freeport-McMoRan Copper Co., Inc. $1.75 cv. pfd. 1,680,000
70,000 Kinam Gold, Inc. Ser. B, $3.75 cv. cum. pfd. 2,327,500
90,400 Pittston Mineral Corp. 144A $3.125 dep. shs. cv. pfd. 2,260,000
40,000 Titanium Metals Corp. $3.313 cv. pfd. 560,000
--------------
7,611,250
Oil and Gas (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
110,300 Apache Corp. $2.015 c.v. pfd. 3,943,225
80,000 El Paso Energy Capital Trust $2.375 cv. pfd. 4,220,000
75,000 Kerr-McGee Corp. $1.825 c.v. pfd. 2,821,875
140,000 Lomak Petroleum 144A $2.875 cv. pfd. (NON) 2,712,500
30,000 Lomak Petroleum Ser. C., $2.03 cv. cum. pfd. (NON) 427,500
92,785 Neuvo Energy Ser. A, $2.875 cv. pfd. 2,435,606
16,200 Newfield Exploration Co. $3.25 c.v. pfd. 834,300
40,300 Pogo Producing Co. Ser. A, $3.25 c.v. pfd. 2,080,488
80,000 Tosco Financing Trust $2.875 cv. pfd. 3,610,000
100,000 Unocal Capital Trust $3.125 cv. cum. pfd. 5,200,000
--------------
28,285,494
Packaging and Containers (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
50,000 Owens-Illinois, Inc. $2.375 cv.pfd. 1,637,500
230,000 Sealed Air Corp. Ser. A, $2.00 cv.pfd. 12,247,500
--------------
13,885,000
Paper and Forest Products (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
35,000 Georgia Pacific Group $3.75 cv. pfd. (NON) 1,513,750
100,000 International Paper Co. $2.625 cv. pfd. 5,287,500
--------------
6,801,250
Publishing (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 Golden Books Family Entertainment, Inc. $4.375 cv. cum. pfd. (NON) 142,500
150,000 Readers Digest $0.453 cv. pfd. 4,443,750
75,000 Tribune Co. $2.00 cv. pfd. 10,050,000
23,180 Tribune Co. $1.75 cv. pfd. 402,753
--------------
15,039,003
Railroads (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
167,041 Canadian National Railway Co. $2.625 cv. pfd. (Canada) 8,435,571
210,000 Union Pacific Capital Trust $3.125 cv. cum. pfd. 10,080,000
--------------
18,515,571
Recreation (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
18,871 Royal Caribbean Cruises Ltd. Ser. A, $3.625 cv. cum. pfd. 3,019,360
REITs (Real Estate Investment Trust) (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
140,000 Archstone Communities Trust Ser. A, $1.75 cv. cum. pfd. 3,745,000
282,843 Equity Residential Property Ser. E, $1.75 cv. pfd. 6,576,100
74,490 Tanger Factory Outlet Centers Ser. A, $1.802 cv. cum. pfd. 1,582,913
30,000 Vornado Realty Trust Ser. A, $3.25 cv. cum. pfd. 1,350,000
--------------
13,254,013
Restaurants (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
52,049 Wendy's Financing Ser. A, $2.50 cv. pfd. 2,713,054
Retail (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
215,000 K mart Financing I $3.875 cv. cum. pfd. 9,271,875
Telecommunications (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
15,000 Global TeleSystems Group, Inc. $3.63 cv. pfd. (NON) 657,375
100,000 Intermedia Communications, Inc. Ser. F, $1.75 cv. pfd. (NON) 2,075,000
5,000 McLeodUSA, Inc. 6.75% cv. pfd. 2,000,000
35,000 Nextlink Communications $3.25 cv. pfd. 4,904,375
60,000 QUALCOMM Financial Trust $2.875 cv. cum. pfd. 18,817,500
55,000 Qwest Trends Trust 144A 5.75% cv. pfd. (NON) 3,293,125
--------------
31,747,375
Tobacco (--%)
- --------------------------------------------------------------------------------------------------------------------------
57,517 DIMON, Inc. $2.00 cv. pfd. 244,447
Transportation (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
120,500 CNF Trust I Ser. A, $2.50 cv. cum. pfd. 5,859,313
Utilities (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
40,000 Reliant Energy, Inc. $2.00 cv. pfd. (NON) 2,805,000
--------------
Total Convertible Preferred Stocks (cost $406,453,994) $ 392,909,221
PREFERRED STOCKS (--%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
12,120 Trikon Technologies, Inc. Ser. H, $8.125 pfd. (PIK) $ 28,785
1,632 Trikon Technologies, Inc. Ser. I, $8.125 pfd. 620,345
--------------
Total Preferred Stocks (cost $1,665,334) $ 649,130
SHORT-TERM INVESTMENTS (3.6%) (a) (cost $48,629,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$48,629,000 Interest in $545,691,000 joint repurchase agreement dated
October 29, 1999 with Morgan (J.P.) & Co., Inc. due
November 1, 1999 with respect to various U.S. Treasury
obligations -- maturity value of $48,650,073 for an
effective yield of 5.20% $ 48,629,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,351,888,790) (b) $1,350,194,984
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,354,397,124.
(b) The aggregate identified cost on a tax basis is $1,361,409,740, resulting in gross unrealized appreciation and
depreciation of $146,871,477 and $158,086,233, respectively, or net unrealized depreciation of $11,214,756.
(NON) Non-income-producing security.
(PIK) Income may be received in cash or additional securities at the discretion of the issuer.
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 Depositary Receipts representing ownership of foreign
securities on deposit with a domestic custodian bank.
- ---------------------------------------------------------------------------------
Futures Contracts Outstanding at October 31, 1999
Aggregate Face Expiration Unrealized
Total Value Value Date Appreciation
- ---------------------------------------------------------------------------------
S&P Index (Long) $24,427,550 $23,301,872 Dec-99 $1,125,678
- ---------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
October 31, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,351,888,790) (Note 1) $1,350,194,984
- -----------------------------------------------------------------------------------------------
Dividends and interest receivable 7,424,988
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 282,007
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 13,755,845
- -----------------------------------------------------------------------------------------------
Receivable for variation margin 1,612,992
- -----------------------------------------------------------------------------------------------
Total assets 1,373,270,816
Liabilities
- -----------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 3,710,696
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 10,781,810
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,739,625
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,955,033
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 119,844
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 25,282
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,583
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 455,724
- -----------------------------------------------------------------------------------------------
Other accrued expenses 84,095
- -----------------------------------------------------------------------------------------------
Total liabilities 18,873,692
- -----------------------------------------------------------------------------------------------
Net assets $1,354,397,124
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,238,500,867
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 2,297,902
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 114,166,483
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (568,128)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,354,397,124
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($982,955,929 divided by 48,522,561 shares) $20.26
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $20.26)* $21.50
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($291,017,366 divided by 14,538,465 shares)** $20.02
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($660,558 divided by 32,651 shares)** $20.23
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($16,338,459 divided by 811,670 shares) $20.13
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $20.13)* $20.86
- -----------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($63,424,812 divided by 3,130,358 shares) $20.26
- -----------------------------------------------------------------------------------------------
* 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, 1999
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest $ 33,254,265
- -----------------------------------------------------------------------------------------------
Dividends 32,077,596
- -----------------------------------------------------------------------------------------------
Total investment income 65,331,861
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 7,951,230
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,659,844
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 23,026
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 18,621
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 2,584,777
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 2,978,033
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 763
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 130,967
- -----------------------------------------------------------------------------------------------
Reports to shareholders 87,913
- -----------------------------------------------------------------------------------------------
Auditing 20,631
- -----------------------------------------------------------------------------------------------
Legal 10,154
- -----------------------------------------------------------------------------------------------
Postage 123,256
- -----------------------------------------------------------------------------------------------
Other 298,366
- -----------------------------------------------------------------------------------------------
Total expenses 15,887,581
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (267,562)
- -----------------------------------------------------------------------------------------------
Net expenses 15,620,019
- -----------------------------------------------------------------------------------------------
Net investment income 49,711,842
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 126,478,566
- -----------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Notes 1 and 3) 1,205
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures during the year 33,608,926
- -----------------------------------------------------------------------------------------------
Net gain on investments 160,088,697
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $209,800,539
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended October 31
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 49,711,842 $ 48,902,430
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments 126,479,771 133,278,759
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 33,608,926 (203,859,332)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 209,800,539 (21,678,143)
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (38,053,728) (39,874,535)
- ---------------------------------------------------------------------------------------------------------------
Class B (9,199,217) (8,456,841)
- ---------------------------------------------------------------------------------------------------------------
Class C (2,859) --
- ---------------------------------------------------------------------------------------------------------------
Class M (560,639) (571,054)
- ---------------------------------------------------------------------------------------------------------------
Class Y (1,895,398) --
- ---------------------------------------------------------------------------------------------------------------
In excess of net investment income
Class A (2,750,433) (1,430,151)
- ---------------------------------------------------------------------------------------------------------------
Class B (664,897) (303,316)
- ---------------------------------------------------------------------------------------------------------------
Class C (207) --
- ---------------------------------------------------------------------------------------------------------------
Class M (40,522) (20,482)
- ---------------------------------------------------------------------------------------------------------------
Class Y (136,995) --
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (103,539,492) (108,409,463)
- ---------------------------------------------------------------------------------------------------------------
Class B (29,085,699) (24,372,023)
- ---------------------------------------------------------------------------------------------------------------
Class M (1,803,589) (1,435,189)
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) (32,095,525) 130,624,709
- ---------------------------------------------------------------------------------------------------------------
Total decrease in net assets (10,028,661) (75,926,488)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 1,364,425,785 1,440,352,273
- ---------------------------------------------------------------------------------------------------------------
End of year (including undistributed net
investment income and distributions in excess
of net investment income of $2,297,902 and
$240,540, respectively) $1,354,397,124 $1,364,425,785
- ---------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $20.04 $23.22 $21.24 $19.42 $19.09
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .75 (c) .76(c) .78(c) .81(c) .85
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 2.30 (1.02) 3.70 2.70 1.60
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.05 (.26) 4.48 3.51 2.45
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.75) (.76) (.87) (.98) (.96)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.06) (.03) (.06) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (2.02) (2.13) (1.57) (.71) (1.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.83) (2.92) (2.50) (1.69) (2.12)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $20.26 $20.04 $23.22 $21.24 $19.42
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 16.42 (1.37) 22.86 18.99 14.38
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $982,956 $1,056,693 $1,168,470 $898,486 $756,645
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .98 .97 1.03 1.06 1.16
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.73 3.50 3.56 3.99 4.64
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 54.74 92.76 70.74 61.43 69.52
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service arrangements. (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
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $19.83 $23.01 $21.09 $19.30 $19.00
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .60 (c) .59(c) .63(c) .66(c) .69
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 2.27 (1.01) 3.64 2.68 1.61
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.87 (.42) 4.27 3.34 2.30
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.60) (.61) (.73) (.84) (.84)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.06) (.02) (.05) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (2.02) (2.13) (1.57) (.71) (1.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.68) (2.76) (2.35) (1.55) (2.00)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $20.02 $19.83 $23.01 $21.09 $19.30
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 15.58 (2.11) 21.89 18.14 13.54
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $291,017 $289,652 $257,163 $146,127 $75,309
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.73 1.72 1.78 1.81 1.91
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.99 2.74 2.78 3.26 3.92
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 54.74 92.76 70.74 61.43 69.52
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service arrangements. (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 C
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share July 26, 1999+
operating performance to October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $20.85
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (C) .20
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.59)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.39)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.20)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.03)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.23)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $20.23
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (1.87)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $661
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .47*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.12*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 54.74
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service arrangements. (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
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $19.92 $23.08 $21.14 $19.37 $17.79
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .65(c) .65(c) .67(c) .73(c) .64
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 2.28 (1.00) 3.67 2.65 1.64
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.93 (.35) 4.34 3.38 2.28
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.65) (.66) (.78) (.90) (.70)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.05) (.02) (.05) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (2.02) (2.13) (1.57) (.71) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.72) (2.81) (2.40) (1.61) (.70)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $20.13 $19.92 $23.08 $21.14 $19.37
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 15.87 (1.75) 22.24 18.30 12.99*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $16,338 $18,081 $14,719 $7,128 $1,753
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.48 1.47 1.53 1.54 1.04*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.23 2.99 3.04 3.55 2.89*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 54.74 92.76 70.74 61.43 69.52
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service arrangements. (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 Y
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Dec. 30, 1998+
operating performance to October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $19.32
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (C) .72
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .98
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.70
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.72)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.04)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.76)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $20.26
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 8.87*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $63,425
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .61*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.43*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 54.74
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service arrangements. (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, 1999
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, class C, class M and class Y shares. The
fund began offering class C shares and class Y shares on July 26, 1999 and
December 30, 1998, respectively. 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 C shares are subject to the
same fees and expenses as class B shares, except that class C shares have
a one-year 1.00% contingent deferred sales charge and do not convert to
class A shares. Class M shares are sold with a maximum front-end sales
charge of 3.50% and pay an ongoing distribution fee that is higher than
class A but lower than class B and class C shares. Class Y shares, which
are sold at net asset value, are generally subject to the same expenses as
class A, class B, class C and class M shares, but do not bear a
distribution fee. Class Y shares are sold to defined contribution plans
that invest at least $150 million in a combination of Putnam funds and
other accounts managed by affiliates of Putnam Investment Management, Inc.
("Putnam Management"), the fund's manager, a wholly-owned subsidiary of
Putnam Investments, Inc.
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
of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period.
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 sales price on its principal exchange, 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. Other investments,
including restricted securities, are stated at fair value following
procedures approved by the Trustees.
Market quotations are not considered to be readily available for certain
debt obligations; such investments are stated at fair value on the basis
of valuations furnished by a pricing service or dealers, approved by the
Trustees, which determine valuations for normal institutional-size trading
units of such securities using methods based on market transactions for
comparable securities and variable relationships between securities that
are generally recognized by institutional traders.
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 Management. 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). Gains or losses on securities sold are determined on
the identified cost basis. 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
original issue discount bonds are accreted according to the
yield-to-maturity basis.
E) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on securities
it owns or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of
the underlying instruments, if there is an illiquid secondary market for
the contracts, or if the counterparty to the contract is unable to
perform. 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. Realized gains and
losses on purchased options are included in realized gains and losses on
investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices supplied
by dealers.
F) 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, 1999, the fund had no borrowings against the line of credit.
G) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies. It is also the intention of the fund to distribute an amount
sufficient to avoid imposition of any excise tax under Section 4982 of the
Internal Revenue Code of 1986, 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.
H) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid 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, foreign currency gains and losses, nontaxable
dividends, defaulted bond interest, market discount and Accretion of
Market Discount Adjustment. 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, 1999, the fund reclassified $6,131,495 to
decrease distributions in excess of net investment income and $383,803 to
decrease paid-in-capital, with a decrease to accumulated net realized
gains of $5,747,692. 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.
Under the subcustodian contract between the subcustodian bank and PFTC,
the subcustodian bank has a lien on the securities of the fund to the
extent permitted by the fund's investment restrictions to cover any
advances made by the subcustodian bank for the settlement of securities
purchased by the fund. At October 31, 1999, the payable to the
subcustodian bank represents the amount due for cash advance for the
settlement of a security purchased.
For the year ended October 31, 1999, fund expenses were reduced by
$267,562 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 $1,654
has been allocated to the fund, and an additional fee for each Trustee's
meeting attended. 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
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 a 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, class C 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%,
1.00% and 1.00% of the average net assets attributable to class A, class
B, class C and class M shares, respectively. The Trustees have approved
payment by the fund at an annual rate of .025%, 1.00%, 1.00% and 0.75% of
the average net assets attributable to class A, class B, class C and class
M shares respectively.
For the year ended October 31, 1999, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $134,006 and $7,112 from the sale
of class A and class M shares, respectively and $645,251 and no monies in
contingent deferred sales charges from redemptions of class B and class C
shares respectively. A deferred sales charge of up to 1% is assessed on
certain redemptions of class A shares. For the year ended October 31,
1999, Putnam Mutual Funds Corp., acting as underwriter received $8,041 on
class A redemptions.
Note 3
Purchases and sales of securities
During the year ended October 31, 1999, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $740,045,661 and $929,429,901, respectively. There were no
purchases and sales of U.S. government obligations.
Note 4
Capital shares
At October 31, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended October 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 3,836,208 $ 77,158,869
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,521,734 125,222,148
- -----------------------------------------------------------------------------
10,357,942 202,381,017
Shares
repurchased (14,564,168) (293,918,278)
- -----------------------------------------------------------------------------
Net decrease (4,206,226) $(91,537,261)
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
15,924,434 329,316,572
Shares
repurchased (12,883,335) (278,877,249)
- -----------------------------------------------------------------------------
Net increase 2,411,099 $ 50,439,323
- -----------------------------------------------------------------------------
Year ended October 31, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 3,061,462 $61,415,050
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,624,095 30,838,078
- -----------------------------------------------------------------------------
4,685,557 92,253,128
Shares
repurchased (4,750,876) (94,893,661)
- -----------------------------------------------------------------------------
Net decrease (65,319) $(2,640,533)
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
For the period July 26, 1999
(commencement of operations)
to October 31, 1999
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 32,592 $655,103
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 107 2,145
- -----------------------------------------------------------------------------
32,699 657,248
Shares
repurchased (48) (995)
- -----------------------------------------------------------------------------
Net increase 32,651 $656,253
- -----------------------------------------------------------------------------
Year ended October 31, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 147,377 $ 2,983,002
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 108,001 2,059,111
- -----------------------------------------------------------------------------
255,378 5,042,113
Shares
repurchased (351,215) (7,051,566)
- -----------------------------------------------------------------------------
Net decrease (95,837) $(2,009,453)
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
For the period December 30, 1998
(commencement of operations)
to October 31, 1999
- -----------------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------------
Shares sold 3,363,723 $68,108,976
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 99,843 2,032,393
- -----------------------------------------------------------------------------
3,463,566 70,141,369
Shares
repurchased (333,208) (6,705,900)
- -----------------------------------------------------------------------------
Net increase 3,130,358 $63,435,469
- -----------------------------------------------------------------------------
Note 5
Change in Independent
Accountants (unaudited)
Based on the recommendation of the Audit Committee of the fund, the Board
of Trustees has determined not to retain PricewaterhouseCoopers LLP as
this funds' independent accountant and voted to appoint KPMG LLP for the
fund's fiscal year ended October 31, 1999. During the two previous fiscal
years, PricewaterhouseCoopers LLP audit reports contained no adverse
opinion or disclaimer of opinion; nor were its reports qualified or
modified as to uncertainty, audit scope, or accounting principle. Further,
in connection with its audits for the two previous fiscal years and
through July 14, 1999, there were no disagreements between the fund and
PricewaterhouseCoopers LLP on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure,
which if not resolved to the satisfaction of PricewaterhouseCoopers LLP
would have caused it to make reference to the disagreements in its report
on the financial statements for such years.
Federal tax information
(Unaudited)
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
Pursuant to Section 852 of the Internal Revenue Code, as amended, the Fund
hereby designates $43,836,038 as capital gain, for its taxable year ended
October 31, 1999.
The fund has designated 23.45% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds. 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.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Europe Growth Fund
Global Equity 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
Tax Smart Equity Fund
Vista Fund
Voyager Fund
Voyager Fund II
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
Small Cap Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
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
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
ASSET ALLOCATION 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
[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 not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share,
it is possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
Fund information
WEB SITE
www.putnaminv.com
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
KPMG 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
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, Jr.
Vice President
Charles G. Pohl
Vice President and Fund Manager
Forrest N. Fontana
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
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' Web site: 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
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
AN019-47849 008/223/920 12/99
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- -----------------------------------------------------------------------------
Putnam Convertible Income-Growth Trust
Supplement to Annual Report dated October 31, 1999
The following information has been prepared to provide class Y shareholders
with a performance overview specific to their holdings. Class Y shares are
offered exclusively to defined contribution plans investing $150 million or
more in one or more of Putnam's funds or private accounts. Performance of
class Y shares, which incur neither a front-end load, distribution fee, nor
contingent deferred sales charge, will differ from performance of class A,
B, and M shares, which are discussed more extensively in the annual report.
ANNUAL RESULTS AT A GLANCE
- -----------------------------------------------------------------------------
Total return
for periods ended 10/31/99 NAV
1 year 16.64%
5 years 92.37
Annual average 13.98
10 years 227.35
Annual average 12.59
Life of fund, annual average
(since class A inception, 6/29/72) 12.29
Share value: NAV
10/31/98 $20.04
10/31/99 $20.26
- -----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
3 $0.759 $0.000 $0.759
- -----------------------------------------------------------------------------
Please note that past performance does not indicate future results. Returns
shown for class Y shares for periods prior to their inception are derived
from the historical performance of class A shares, adjusted to reflect the
initial sales charge currently applicable to class A shares. These returns
have not been adjusted to reflect differences in operating expenses which,
for class Y shares, are lower than the operating expenses applicable to class
A shares. All returns assume reinvestment of distributions at net asset
value. Performance data reflects an expense limitation previously in effect.
Without the expense limitation, total returns would have been lower.
Investment return and principal value will fluctuate so your shares, when
redeemed, may be worth more or less than their original cost. See full report
for information on comparative benchmarks. If you have questions, please
consult your fund prospectus or call Putnam toll free at 1-800-752-9894.
